<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
INSO CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
April 6, 1998
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 7, 1998.
At the Annual Meeting, stockholders will be asked to elect three Class II
directors, to consider and vote upon proposals to approve amendments to increase
the number of shares of common stock authorized for issuance under Inso's 1993
Stock Purchase Plan, 1996 Stock Incentive Plan and 1996 Non-employee Director
Plan, 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>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1998
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 7, 1998, to consider and act on the following matters:
1. Election of three Class II directors to serve until the Company's 2001
annual meeting of stockholders and until their successors are elected and
qualified;
2. Approval and ratification of an amendment to the Company's 1993 Stock
Purchase Plan which would provide that the number of shares authorized to be
issued under the 1993 Stock Purchase Plan be increased to 450,000 shares;
3. Approval and ratification of an amendment to the Company's 1996 Stock
Incentive Plan which would provide that the number of shares authorized to be
issued under the 1996 Stock Incentive Plan be increased to 5,000,000 shares;
4. Approval and ratification of an amendment to the Company's 1996
Non-employee Director Plan which would provide that the number of shares
authorized to be issued under the 1996 Non-employee Director Plan be increased
to 415,000 shares;
5. Ratification of the selection of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1998; and
6. 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 April 1, 1998, 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
April 6, 1998
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>
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1998
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 7, 1998, and at any
postponement or 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 April 6, 1998, to
stockholders of record as of the close of business on April 1, 1998 (the "Record
Date").
At the Meeting, the stockholders of the Company will vote (i) to elect three
Class II directors to serve until the Company's 2001 annual meeting of
stockholders and until their successors are duly elected and qualified, (ii) to
approve and ratify an amendment to the Company's 1993 Stock Purchase Plan which
would provide that the number of shares authorized to be issued under the 1993
Stock Purchase Plan be increased to 450,000, (iii) to approve and ratify an
amendment to the Company's 1996 Stock Incentive Plan which would provide that
the number of shares authorized to be issued under the 1996 Stock Incentive Plan
be increased to 5,000,000, (iv) to approve and ratify an amendment to the
Company's 1996 Non-employee Director Plan which would provide that the number of
shares authorized to be issued under the 1996 Non-employee Director Plan be
increased to 415,000, (v) to ratify the Board's selection of Ernst & Young LLP
as the independent auditors of the Company for the fiscal year ending December
31, 1998, and (vi) 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, FOR
the proposal to approve an amendment to the 1993 Stock Purchase Plan, FOR the
proposal to approve an amendment to the 1996 Stock Incentive Plan, FOR the
proposal to approve an amendment to the 1996 Non-employee Director Plan and FOR
the ratification of Ernst & Young LLP as the independent auditors of the Company
for the fiscal year ending December 31, 1998. 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 14,741,691 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
$19.4375 per share.
<PAGE>
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
approval of an amendment to the 1993 Stock Purchase Plan, the approval of an
amendment to the 1996 Stock Incentive Plan and the approval of an amendment to
the 1996 Non-employee Director Plan. 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.
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>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
- ------------------------------------------------------------------------- ---------------------- --------------
<S> <C> <C>
Houghton Mifflin Company................................................. 3,877,600 27.08%
222 Berkeley Street
Boston, MA 02116-3764
Mellon Bank Corporation.................................................. 1,155,047(2) 8.02%
One Mellon Bank Ctr
500 Grant Street
Pittsburgh, PA 15258-0001
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
- ------------------------------------------------------------------------- ---------------------- --------------
<S> <C> <C>
Essex Investment Management Company...................................... 1,051,937(3) 7.36%
125 High Street
Boston, MA 02110
Franklin Resources Inc................................................... 1,012,500(4) 7.0%
777 Mariners Island Blvd. 6th Floor
San Mateo, CA 94404
</TABLE>
- ------------------------
(1) 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.
(2) No voting power as to 72,347 shares.
(3) No voting power as to 344,622 shares.
(4) Shared power to vote and dispose as to 1,012,500 shares.
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>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1)(2) COMMON STOCK
- ----------------------------------------------------------------------- ------------------------- -----------------
<S> <C> <C>
J.P. Barger............................................................ 78,650 *
Joseph A. Baute........................................................ 42,750 *
Samuel H. Fuller....................................................... 19,500 *
John Guttag............................................................ 24,500 *
Stephen O. Jaeger...................................................... 46,250 *
Joanna T. Lau.......................................................... 42,250 *
Ray Shepard............................................................ 6,000 *
Ray Stata.............................................................. 155,250 *
Steven R. Vana-Paxhia.................................................. 161,708 *
William J. Wisneski.................................................... 44,250 *
Robert J. Carroll...................................................... 33,195 *
Kirby A. Mansfield..................................................... 74,636 *
Michael Melody......................................................... 47,409 *
Carol A. Mitchell...................................................... 14,200 *
All directors and executive officers as a group (21 persons)........... 1,103,894 7.53%
</TABLE>
- ------------------------
(*) Less than 1%.
(1) Unless otherwise noted, the nature of beneficial ownership is sole voting
and investment power.
3
<PAGE>
(2) Includes shares over which the directors, the Named Executive Officers and
all directors and executive officers as a group are deemed to beneficially
own by reason of options granted to them which will be exercisable within
60 days of the Record Date, as follows: J.P. Barger-36,250; Joseph A.
Baute-36,250; Samuel H. Fuller-17,500; John Guttag-17,500; Stephen O.
Jaeger-36,250; Joanna T. Lau-36,250; Ray Shepard-5,000; Ray Stata-36,250;
Steven R. Vana-Paxhia-91,526; William J. Wisneski-36,250; Robert J.
Carroll-0; Kirby A. Mansfield-63,146; Michael Melody-12,000; Carol A.
Mitchell-14,200; and all directors and executive officers as a
group-614,518.
ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of four 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 2000, 2001 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,
Steven R. Vana-Paxhia, Stephen O. Jaeger and John Guttag, the three Class II
director nominees named below, unless the proxy is marked otherwise. Messrs.
Vana-Paxhia, Jaeger and Guttag are currently directors of the Company.
Each Class II director will be elected to hold office until the 2001 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.
In September 1997, Mr. Ray Shepard was designated to serve as a director of
the Company by Houghton Mifflin Company ("Houghton Mifflin") under the Formation
Agreement. See "Certain Transactions." Mr. Shepard was duly elected by the Board
of Directors on September 29, 1997 to serve as a Class I director until the 2000
Annual Meeting of Stockholders.
For each member of the Board of Directors, including those who are nominees
for election as Class II 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 II DIRECTORS AGE PRINCIPAL OCCUPATION(1)
- --------------------------- --- -------------------------------------------------------------------------------
<S> <C> <C>
Steven R. Vana-Paxhia.... 50 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 MathSoft, Inc., a provider of technical
calculation, data analysis and communication software tools.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION AS
CLASS II DIRECTORS AGE PRINCIPAL OCCUPATION(1)
- --------------------------- --- -------------------------------------------------------------------------------
<S> <C> <C>
Stephen O. Jaeger........ 53 Mr. Jaeger has been a director of the Company since its inception. Mr. Jaeger
is currently Executive Vice President and Chief Financial Officer and a
director at Clinical Communications Group, Inc. From March 1995 until September
30, 1997, Mr. Jaeger served as Vice President and Chief Financial Officer and
Treasurer of The Perkin-Elmer Corporation. 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. and Cassell PLC.
John Guttag.............. 48 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 the Computing Research Association.
</TABLE>
<TABLE>
<CAPTION>
INCUMBENT CLASS I
DIRECTORS
(TERMS EXPIRING IN 2000) AGE PRINCIPAL OCCUPATION(1)
- -------------------------- --- --------------------------------------------------------------------------------
<S> <C> <C>
Ray Stata............... 63 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., 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..... 51 Mr. Wisneski has been a director of the Company since its inception. Mr.
Wisneski, who is a consultant, served as Executive Vice President, School
Publishing of Houghton Mifflin from August 1992 until August 1997 and has held
various other positions with 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, but is no longer
serving as a designee of Houghton Mifflin. See "Certain Transactions."
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
INCUMBENT CLASS I
DIRECTORS
(TERMS EXPIRING IN 2000) AGE PRINCIPAL OCCUPATION(1)
- -------------------------- --- --------------------------------------------------------------------------------
<S> <C> <C>
Samuel H. Fuller........ 51 Dr. Fuller has been a director of the Company since May 1996. Dr. Fuller is
currently Vice President, Research and Development, Analog Devices, Inc. Prior
to joining Analog Devices, Inc. in February 1998, Dr. Fuller served as 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,
Inc., and the Corporation for National Research Initiatives.
Ray Shepard............. 57 Mr. Shepard has been a director of the Company since September 1997. Mr. Shepard
has been Deputy Director, School Division of Houghton Mifflin since September
1997. Mr. Shepard has served as Corporate Vice President, School Division of
Houghton Mifflin since 1991. Mr. Shepard is also a director of The Partnership
and Boston Partners in Education. Mr. Shepard was designated to serve as a
director of the Company by Houghton Mifflin under the Formation Agreement. See
"Certain Transactions."
</TABLE>
<TABLE>
<CAPTION>
INCUMBENT CLASS III
DIRECTORS
(TERMS EXPIRING IN 1999) AGE PRINCIPAL OCCUPATION(1)
- --------------------------- --- -------------------------------------------------------------------------------
<S> <C> <C>
J.P. Barger.............. 71 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.......... 70 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, Cerion Technologies, Inc., and Metrika Systems Corporation.
Joanna T. Lau............ 39 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.
</TABLE>
- ------------------------
(1) Each nominee and incumbent director has served as a director since November
10, 1993, the date of the Company's inception, unless otherwise indicated.
6
<PAGE>
The Board of Directors met six times during 1997. 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 three times during 1997.
The members of the Compensation Committee are Mr. Stata, Chairman, Mr. Baute and
Mr. Wisneski.
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 1997. The members of the Audit Committee are Mr. Jaeger, Chairman, Mr.
Barger and Ms. Lau.
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 one time during 1997. 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
02116-4101, 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 two
times during 1997. The members of the Technology and Strategy Committee are Mr.
Vana-Paxhia, Chairman, Dr. Fuller, Dr. Guttag and Mr. Shepard.
7
<PAGE>
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 each such director receives options to purchase an additional
5,000 shares of Common Stock on an annual basis thereafter.
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 1997, the Company
believes that all Reporting Persons complied with all Section 16(a) filing
requirements in 1997 with the following exceptions: Mr. Joseph A. Baute, a
director of the Company, did not file a timely Statement of Changes in
Beneficial Ownership of Securities on Form 4 with respect to the purchase of 500
shares of Common Stock in May 1997. Such Form 4 was required to be filed on June
10, 1997, and was filed on July 23, 1997. Patricia A. Michaels, Assistant Vice
President and Corporate Controller, did not file a timely Statement of Initial
Beneficial Ownership of Securities on Form 3 with respect to Ms. Michaels'
acceptance of her position as Corporate Controller of the Company. Such Form 3
was required to be filed on April 11, 1997, and was filed on June 19, 1997.
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 1997, the
8
<PAGE>
Compensation Committee approved increases of three percent to thirty-five
percent in the base salaries of executive officers of the Company, including Mr.
Vana-Paxhia. Such increases were effective as of April 1, 1997.
In reviewing Mr. Vana-Paxhia's base salary for 1997, the Compensation
Committee reviewed information regarding the salaries of chief executive
officers at the comparable companies described above, Mr. Vana-Paxhia's salary
for 1996 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 $210,000 to $240,000 per year.
In November 1997, the Compensation Committee awarded Mr. Carroll options to
purchase 20,000 shares of Common Stock at $12.25 per share, vesting in 25%
annual increments beginning on the second anniversary of the date of grant. 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
9
<PAGE>
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.
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, 1997. 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, 1997, was
$11.56.
<TABLE>
<CAPTION>
INSO NASDAQ STOCK NASDAQ COMPUTER & DATA
CORPORATION MARKET (US) PROCESSING SERVICES STOCKS
<S> <C> <C> <C>
1993 $100 $100 $100
1994 $234 $98 $122
1995 $567 $138 $185
1996 $530 $170 $227
1997 $154 $209 $279
</TABLE>
[LOGO]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Inso Corporation............................................ 100 234 567 530 154
Nasdaq Stock Market (US).................................... 100 98 138 170 209
Nasdaq Computer & Data Processing Services Stocks........... 100 122 185 227 279
- ----------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the compensation,
for the last three fiscal years, of the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION AWARDS
------------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
---------------------- STOCK UNDERLYING ALL OTHER
SALARY BONUS AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ---------------------------------------- ---- ------- ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Steven R. Vana-Paxhia, 1997 232,502 0 0 138,000(2) 6,365(1)
President and Chief Executive Officer 1996 200,700 144,235 0 82,500(4) 6,365(1)
1995 169,600 127,103 0 150,000(5) 4,620(1)
Robert J. Carroll, 1997 165,002 0 0 62,000(2)(3) 0
Vice President, Corporate Development 1996 13,750 57,083 0 52,500(4) 0
1995 -- -- -- -- --
Kirby A. Mansfield, 1997 165,002 0 0 92,000(2) 6,552(1)
Vice President; Inso Proofing Tools 1996 143,750 77,269 0 55,000(4) 6,365(1)
1995 122,500 68,958 0 100,000(6) 2,964(1)
Michael Melody, 1997 147,501 0 0 72,000(2) 0
Vice President, Strategic Planning 1996 113,077 54,088 0 90,000(4) 0
and Operations 1995 -- -- -- -- --
Carol A. Mitchell, 1997 132,501 35,884 0 54,400(2) 6,784(1)
Vice President and Director of Sales 1996 121,250 56,858 0 25,000(4) 5,549(1)
1995 105,891 19,938 0 43,000(4) 0
</TABLE>
- ------------------------
(1) Represents matching contributions by the Company to the Company's 401(k)
Plan.
(2) Granted as a result of an option repricing program under which previously
granted options were exchanged for such options on a four-for-five basis
("1997 Option Repricing"). See Ten-Year Option Repricing Table.
(3) Of such option grants, on November 6, 1997 options to purchase 20,000
shares were granted to Mr. Carroll and options to purchase 42,000 shares
were granted to Mr. Carroll as the result of the 1997 Option Repricing. See
Ten-Year Option Repricing Table.
(4) Disposed of as the result of the 1997 Option Repricing. See Ten-Year Option
Repricing Table.
(5) Of such option grants, options to purchase 90,000 shares were disposed of
as the result of the 1997 Option Repricing. See Ten-Year Option Repricing
Table.
(6) Of such option grants, options to purchase 60,000 shares were disposed of
as the result of the 1997 Option Repricing. See Ten-Year Option Repricing
Table.
11
<PAGE>
STOCK OPTION GRANTS
The following table shows information with respect to stock options granted
to the Named Executive Officers during the year ended December 31, 1997. The
Company granted no stock appreciation rights ("SARs") during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED EXERCISE STOCK PRICE
SECURITIES TO OR APPRECIATION FOR
UNDERLYING EMPLOYEES BASE OPTION TERM (10)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------------ ---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Steven R. Vana-Paxhia 72,000(1)(2) 7% $18.00 10/12/05 111,600 994,641
66,000(1)(3) 6% $18.00 8/1/06 102,300 865,920
Robert J. Carroll 20,000(4) 2% $12.25 11/6/07 146,000 377,400
2,000(1)(5) .2% $18.00 7/16/06 3,100 26,240
40,000(1)(6) 4% $18.00 11/26/06 62,000 524,800
Kirby A. Mansfield 48,000(1)(2) 5% $18.00 10/12/05 74,400 629,760
44,000(1)(3) 4% $18.00 8/1/06 68,200 577,280
Michael Melody 24,000(1)(3) 2% $18.00 8/1/06 37,200 314,880
48,000(1)(7) 5% $18.00 4/1/06 74,400 629,760
Carol A. Mitchell 12,000(1)(2) 1% $12.00 10/12/05 90,600 229,440
20,000(1)(3) 2% $12.00 8/1/06 151,000 382,400
6,400(1)(8) .6% $12.00 2/7/05 48,320 122,368
16,000(1)(9) 2% $12.00 11/17/04 120,800 305,920
</TABLE>
- ------------------------
(1) Option was granted as a result of an option repricing program. See Ten-Year
Option Repricing Table.
(2) Options vest 25% 10/12/97, 50% 10/12/98, 75% 10/12/99, 100% 10/12/00.
(3) Options vest 25% 8/1/98, 50% 8/1/99, 75% 8/1/00, 100% 8/1/01.
(4) Options vest 25% on 11/6/99, 50% 11/6/00, 75% 11/6/01, 100% 11/6/02.
(5) Options vest 7/16/2006.
(6) Options vest 25% 11/26/98, 50% 11/26/99, 75% 11/26/00, 100% 11/26/01.
(7) Options vest 25% 4/1/98, 50% 4/1/99, 75% 4/1/00, 100% 4/1/01.
(8) Options vest 50% 2/7/98, 75% 2/7/99, 100% 2/7/00.
(9) Options vest 50% 1/16/98, 75% 1/16/99, 100% 1/16/00.
(10) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the dates the respective options were granted to
their expiration dates.
12
<PAGE>
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table shows information with respect to options held as of
December 31, 1997 by the Named Executive Officers. No options were exercised by
any Named Executive Officer during 1997 and no SARs were held or exercised
during 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END FY-END
(#)(EXERCISABLE/ ($)(EXERCISABLE/
NAME UNEXERCISABLE) UNEXERCISABLE)(1)
- ----------------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Steven R. Vana-Paxhia........................................................ 91,526/180,000 194,880/0
Robert J. Carroll............................................................ 0/62,000 0/0
Kirby A. Mansfield........................................................... 63,146/100,000 129,920/0
Michael Melody............................................................... 0/72,000 0/0
Carol A. Mitchell............................................................ 3,000/51,400 0/0
</TABLE>
- ------------------------
(1) Value based on the closing sales price per share $11.56 of the Common Stock
on December 31, 1997, less the exercise price.
REPRICING OF OPTIONS
The following table sets forth certain information concerning options
granted to the Company's executive officers that were repriced during the fiscal
year ended December 31, 1997.
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
NUMBER OF SECURITIES MARKET EXERCISE ORIGINAL OPTION
SECURITIES UNDERLYING PRICE OF PRICE OF TERM
UNDERLYING OPTIONS STOCK AT STOCK AT NEW REMAINING AT
OPTIONS AFTER TIME OF TIME OF EXERCISE DATE OF
NAME DATE REPRICED(#) REPRICING(#) REPRICING($) REPRICING($) PRICE($) REPRICING(1)
- ----------------------------------- --------- ----------- ------------- ------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Linda J.Barnes..................... 8/6/97 20,000 16,000 $ 12.00 $ 28.00 $ 12.00 98
8/6/97 16,000 12,800 $ 12.00 $ 42.75 $ 12.00 108
8/6/97 15,000 12,000 $ 12.00 $ 16.8125 $ 12.00 90
Robert J. Carroll.................. 8/6/97 2,500 2,000 $ 12.00 $ 41.00 $ 18.00 107
8/6/97 50,000 40,000 $ 12.00 $ 37.00 $ 18.00 111
Bruce G. Hill...................... 8/6/97 55,000 44,000 $ 12.00 $ 28.00 $ 18.00 98
8/6/97 50,000 40,000 $ 12.00 $ 42.75 $ 18.00 108
Kirby A. Mansfield................. 8/6/97 60,000 48,000 $ 12.00 $ 28.00 $ 18.00 98
8/6/97 55,000 44,000 $ 12.00 $ 42.75 $ 18.00 108
Graham Marshall.................... 8/6/97 60,000 48,000 $ 12.00 $ 37.00 $ 18.00 111
Sunanda Mathai..................... 8/6/97 40,000 32,000 $ 12.00 $ 28.00 $ 18.00 98
8/6/97 35,000 28,000 $ 12.00 $ 42.75 $ 18.00 108
Michael Melody..................... 8/6/97 30,000 24,000 $ 12.00 $ 42.75 $ 18.00 108
8/6/97 60,000 48,000 $ 12.00 $ 46.50 $ 18.00 104
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
NUMBER OF SECURITIES MARKET EXERCISE ORIGINAL OPTION
SECURITIES UNDERLYING PRICE OF PRICE OF TERM
UNDERLYING OPTIONS STOCK AT STOCK AT NEW REMAINING AT
OPTIONS AFTER TIME OF TIME OF EXERCISE DATE OF
NAME DATE REPRICED(#) REPRICING(#) REPRICING($) REPRICING($) PRICE($) REPRICING(1)
- ----------------------------------- --------- ----------- ------------- ------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Patricia A. Michaels............... 8/6/97 7,500 6,000 $ 12.00 $ 42.75 $ 12.00 101
8/6/97 4,000 3,200 $ 12.00 $ 42.75 $ 12.00 108
Carol A. Mitchell.................. 8/6/97 15,000 12,000 $ 12.00 $ 28.00 $ 12.00 98
8/6/97 25,000 20,000 $ 12.00 $ 42.75 $ 12.00 108
8/6/97 8,000 6,400 $ 12.00 $ 16.8125 $ 12.00 91
8/6/97 20,000 16,000 $ 12.00 $ 17.50 $ 12.00 87
Scott D. Norder.................... 8/6/97 25,000 20,000 $ 12.00 $ 28.00 $ 18.00 98
8/6/97 40,000 32,000 $ 12.00 $ 42.75 $18.00 108
8/6/98 20,000 20,000 $ 12.00 $ 20.40 $20.40 92
Betty J. Savage.................... 8/6/97 55,000 44,000 $ 12.00 $ 28.00 $ 18.00 98
8/6/97 50,000 40,000 $ 12.00 $ 42.75 $ 18.00 108
Paul A. Savage..................... 8/6/97 25,000 20,000 $ 12.00 $ 52.00 $ 12.00 109
Steven R. Vana-Paxhia.............. 8/6/97 90,000 72,000 $ 12.00 $ 28.00 $ 18.00 98
8/6/97 82,500 66,000 $ 12.00 $ 42.75 $ 18.00 108
</TABLE>
- ------------------------
(1) Data is presented in terms of months.
COMPENSATION COMMITTEE REPORT ON REPRICING OF OPTIONS
On August 6, 1997 the Compensation Committee of the Board of Directors
approved a plan to offer employees a four-for-five repricing of options granted
pursuant to the Company's 1993 and 1996 Stock Incentive Plans (the "Stock
Plans").
Due to a decline in the market value of the Common Stock, certain
outstanding options to purchase Common Stock had become exercisable at prices
that exceeded the market value of the Common Stock. The Stock Plans' objectives
are to retain key employees and to encourage and enable key employees to attain
a proprietary interest in the Company. To maintain the Stock Plans' objectives,
the Compensation Committee believed that a repricing was appropriate.
Pursuant to the terms of the repricing, Company employees holding
outstanding options to purchase shares of the Company's Common Stock, that had
exercise prices ranging from $13.175 to $42.75 ("Existing Options"), were
offered an option exchange at a rate of five outstanding shares for four new
shares, with an exercise price of either $12.00 (offered to all employees
excluding certain executives) or $18.00 (offered solely to certain executives)
per share ("New Options.") The $12.00 exercise price reflects the closing price
of the Company's Common Stock on August 6, 1997, the effective date of the New
Options. The $18.00 exercise price represents 150% of the closing price of the
Company's Common Stock on August 6, 1997. The New Options are governed by the
same Stock Plan that the Existing Options were governed by, and the vesting
schedules of the New Options remain the same as those of the Existing Options.
Ray Stata, CHAIRMAN
Joseph A. Baute, MEMBER
William J. Wisneski, MEMBER
14
<PAGE>
SEVERANCE AGREEMENTS
The Company has entered into Employee Retention Agreements (the "Retention
Agreements") with Mr. Vana-Paxhia, Mr. Carroll, Mr. Mansfield and Mr. Melody.
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.
15
<PAGE>
CERTAIN TRANSACTIONS
HOUGHTON MIFFLIN COMPANY
The Company is a party to various agreements with, and transactions
involving, Houghton Mifflin. Amounts incurred under these agreements and
transactions totaled $1,234,000 in 1997. Houghton Mifflin is the beneficial
owner of approximately 27.08% of the Company's Common Stock. Mr. Baute, a
director of the Company, is a director of Houghton Mifflin. Mr. Shepard, a
director of the Company, is a Deputy Director and Corporate Vice President 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-Registered Trademark- 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-Registered Trademark- 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. Royalties to Houghton Mifflin for the year ended December 31, 1997,
pursuant to these license agreements totaled $1,234,000. During 1997, the
Company transferred rights to the Information Please-Registered Trademark-
almanac which the Company had acquired from Houghton Mifflin in 1995.
DIGITAL EQUIPMENT CORPORATION
During 1997, the Company received approximately $785,312 in net revenues
from software licenses to Digital Equipment Corporation. Dr. Samuel Fuller, a
director of the Company, served as Vice President, Corporate Technology Strategy
and Chief Scientist for Digital Equipment Corporation throughout 1997. Many of
the Company's software licenses with Digital Equipment Corporation were in
effect prior to Dr. Fuller's association with the Company.
OFFICER LOANS
The Company presently holds notes receivable for a total of $2,493,733 (the
"Notes") from certain of its corporate officers as follows: $329,998.75 to
Robert J. Carroll, Vice President, Corporate Development; $199,998.00 to Bruce
G. Hill, Vice President, Business Development, and General Counsel; $149,998.50
to
16
<PAGE>
Graham Marshall, Vice President, Electronic Publishing Solutions; $269,995.25 to
Sunanda Mathai, Vice President, Engineering; $299,997.00 to Michael Melody, Vice
President, Strategic Planning and Operations; $99,999.00 to Scott D. Norder,
Vice President, Dynamic Document Exchange; $99,999.00 to Elaine Ouellette, Vice
President, Human Resources; $102,500.00 to Paul A. Savage, Vice President,
World-Wide Sales and Services; $205,000.00 to Betty J. Savage, Vice President
and Chief Financial Officer; $256,250.00 to Himat Shah, Vice President, General
Manager, DynaBase Division; and $479,997.25 to Steven R. Vana-Paxhia, President
and Chief Executive Officer (collectively, the "Executive Officers"). The
Company provided financing to effect the purchase of an aggregate 243,291 shares
of the Company's common stock pursuant to the 1996 Stock Incentive Plan at the
fair market value on December 16, 1997, of $10.25 per share. The obligation of
each Executive Officer under the Notes are secured by the pledge of 32,195
shares of Common Stock purchased by Robert J. Carroll; 19,512 shares of Common
Stock purchased by Bruce G. Hill; 14,634 shares of Common Stock purchased by
Graham Marshall; 26,341 shares of Common Stock purchased by Sunanda Mathai;
29,268 shares of Common Stock purchased by Michael Melody; 9,756 shares of
Common Stock purchased by Scott D. Norder; 9,756 shares of Common Stock
purchased by Elaine Ouellette; 10,000 shares of Common Stock purchased by Paul
A. Savage; 20,000 shares of Common Stock purchased by Betty J. Savage; 25,000
shares of Common Stock purchased by Himat Shah; and 46,829 shares of Common
Stock purchased by Steven R. Vana-Paxhia. Interest on such loans accrue at 6.0%
per annum until maturity. The principal and interest amounts of such loans is
repayable in full upon the earlier of (i) the fifth anniversary of the loan (ii)
the date the officer leaves the Company or (iii) if and to the extent that the
officer sells the stock.
AMENDMENT OF THE 1993 STOCK PURCHASE PLAN
DESCRIPTION OF THE 1993 STOCK PURCHASE PLAN
In December 1993, the Board of Directors adopted the Company's 1993 Stock
Purchase Plan (the "1993 Purchase Plan"), subject to stockholder approval. The
1993 Purchase Plan was approved by stockholders on August 4, 1994. On March 9,
1998 the Board of Directors voted to amend the 1993 Purchase Plan, subject to
stockholder approval. The purpose of the 1993 Purchase Plan is to provide
eligible employees of the Company with opportunities to purchase shares of the
Company's common stock, $0.01 par value (the "Common Stock"). As amended, a
total of 450,000 shares has been authorized and reserved for issuance under the
1993 Purchase Plan. Prior to the March 9, 1998 amendment, a total of 200,000
shares was authorized for issuance under the 1993 Purchase Plan. From the
initial adoption of the 1993 Purchase Plan through December 31, 1997, the Named
Executive Officers of the Company have purchased an aggregate number of shares
of Common Stock as follows: 5,050 - Steven R. Vana-Paxhia, President and CEO; 0
- -Robert J. Carroll, Vice President, Corporate Development; 276 - Kirby A.
Mansfield, Vice President; INSO Proofing Tools; 141 - Michael Melody, Vice
President, Strategic Planning and Operations; 303 - Carol A. Mitchell, Vice
President and Director of Sales. A total of 15,531 shares have been issued to
the current executive officers of the Company as a group and a total of 131,884
shares has been issued to all other participants of the 1993 Purchase Plan since
its initial adoption through December 31, 1997. Under the 1993 Purchase Plan,
the Board of Directors may authorize participation by eligible employees,
including officers, in periodic offerings. The first offering under the 1993
Purchase Plan commenced on the effective date of the Company's initial public
offering, March 1, 1994, and concluded on June 30, 1994. As amended, effective
January 1, 1999, offerings will begin on June 1 and December 1 of each year (or
the first business day thereafter) and conclude on November 30 and May 31,
respectively. Prior to amending the Plan, offerings have begun on January 1 and
July 1 of each year (or the first business
17
<PAGE>
day thereafter) and conclude on each December 31 and June 30, respectively. On
April 1, 1998, the last sales price of the Common Stock on the Nasdaq National
Market was $19.4375 per share.
During each offering, the maximum number of shares which may be purchased by
a participating employee will be determined on the first day of the offering
period pursuant to a formula under which an amount equal to 15% of the
employee's projected base pay for the offering period is divided by 85% of the
market value of a share of Common Stock on the first day of the offering period.
An employee may elect to purchase shares under the 1993 Purchase Plan either
through payroll deduction or through direct payment in cash or by certified
check. During each offering period, the price at which the employee may purchase
the Common Stock is 85% of the last reported sale price of the Common Stock on
the Nasdaq National Market on the date that the offering period commences or the
date of purchase, whichever is lower.
The 1993 Purchase Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). All employees who are customarily employed
by the Company or a subsidiary of the Company designated by the Committee for
more than 20 hours per week for at least five months per calendar year and are
employed by the Company on the first day of the applicable offering period are
eligible to participate in the 1993 Purchase Plan. No employee may purchase
shares pursuant to the 1993 Purchase Plan if after such purchase such employee
would own 5% or more of the total combined voting power or value of the stock of
the Company.
In the event of a merger, reorganization, consolidation, or liquidation
involving the Company, the Committee has discretion to provide that each right
to purchase Common Stock will be assumed or an equivalent right substituted by
the successor corporation, or the Committee may shorten the offering period and
provide for all sums collected to be applied to purchase stock immediately prior
to such merger or other transaction. The Board of Directors has authority to
amend or terminate the 1993 Purchase Plan, subject to the limitation that no
such action may adversely affect any outstanding rights to purchase Common
Stock.
The price at which shares of Common Stock may be purchased under the 1993
Purchase Plan in respect of the offering period commencing on January 1, 1998,
and ending on June 30, 1998 will not be greater than $11.75 per share (85% of
last reported sale price of the Common Stock on the Nasdaq National Market on
January 2, 1998).
FEDERAL INCOME TAX CONSEQUENCES OF THE 1993 STOCK PURCHASE PLAN
TAX CONSEQUENCES TO PARTICIPANTS. In general, a participant will not
recognize taxable income upon enrolling in the 1993 Purchase Plan or upon
purchasing shares of Common Stock at the end of an offering. Instead, if a
participant sells Common Stock acquired under the 1993 Purchase Plan at a sale
price that exceeds the price at which the participant purchased the Common
Stock, then the participant will recognize taxable income in an amount equal to
the excess of the sale price of the Common Stock over the price at which the
participant purchased the Common Stock. A portion of that taxable income will be
ordinary income, and a portion may be capital gain.
If the participant sells the Common Stock more than one year after acquiring
it and more than two years after the date on which the offering commenced (the
"Grant Date"), then the participant will be taxed as follows. If the sale price
of the Common Stock is higher than the price at which the participant purchased
the Common Stock, then the participant will recognize ordinary compensation
income in an amount equal to the lesser of:
18
<PAGE>
(i) fifteen percent of the fair market value of the Common Stock on the
Grant Date; and
(ii) the excess of the sale price of the Common Stock over the price at
which the participant purchased the Common Stock.
Any further income will be long-term capital gain. If the sale price of the
Common Stock is less than the price at which the participant purchased the
Common Stock, then the participant will recognize long-term capital loss in an
amount equal to the excess of the price at which the participant purchased the
Common Stock over the sale price of the Common Stock.
If the participant sells the Common Stock within one year after acquiring it
or within two years after the Grant Date (a "Disqualifying Disposition"), then
the participant will recognize ordinary compensation income in an amount equal
to the excess of the fair market value of the Common Stock on the date that it
was purchased over the price at which the participant purchased the Common
Stock. The participant will also recognize capital gain in an amount equal to
the excess of the sale price of the Common Stock over the fair market value of
the Common Stock on the date that it was purchased, or capital loss in an amount
equal to the excess of the fair market value of the Common Stock on the date
that it was purchased over the sale price of the Common Stock. This capital gain
or loss will be a long-term capital gain or loss if the participant has held the
Common Stock for more than one year prior to the date of the sale and will be a
short-term capital gain or loss if the participant has held the Common Stock for
a shorter period.
TAX CONSEQUENCES TO THE COMPANY. The offering of Common Stock under the
1993 Purchase Plan will have no tax consequences to the Company. Moreover, in
general, neither the purchase nor the sale of Common Stock acquired under the
1993 Purchase Plan will have any tax consequences to the Company except that the
Company will be entitled to a business-expense deduction with respect to any
ordinary compensation income recognized by a participant upon making a
Disqualifying Disposition. Any such deduction will be subject to the limitations
of Section 162(m) of the Code.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENT TO THE 1993
STOCK PURCHASE PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS
AND RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED AMENDMENT TO THE 1993
STOCK PURCHASE PLAN.
AMENDMENT OF THE 1996 STOCK INCENTIVE PLAN
DESCRIPTION OF THE 1996 STOCK INCENTIVE PLAN
On March 7, 1996, the Board of Directors voted to adopt, subject to
stockholder approval, the 1996 Stock Incentive Plan (the "1996 Incentive Plan").
The 1996 Incentive Plan was approved by stockholders on May 2, 1996. The 1996
Incentive Plan provides for (i) the grant of options intended to qualify as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code, (ii) the grant of options that do not so qualify ("NQSOs"), (iii)
direct grants or sales of Common Stock not subject to transfer or other
restrictions or conditions ("Unrestricted Stock"), (iv) direct grants or sales
of Common Stock subject to transfer or restrictions or conditions determined by
the Board of the Directors at the date of grant ("Restricted Stock"), (v) grants
of Common Stock subject to attainment of certain performance goals ("Performance
Share Awards"), and (vi) grants of stock appreciation rights ("SARs")
(collectively, "Awards"). As amended, the 1996 Incentive Plan provides that up
to 5,000,000 shares of Common Stock (subject to adjustment as provided in the
1996 Incentive Plan) may be issued pursuant to the 1996 Incentive Plan. Prior to
the amendment, a total of 2,000,000 shares was authorized for issuance under the
1996 Incentive Plan. The number of shares of Common Stock which may be subject
to Awards in a single
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year to a single participant under the 1996 Incentive Plan is 300,000. No Award
may be made under the 1996 Incentive Plan after March 7, 2006, but Awards
previously granted may extend beyond that date. The 1996 Incentive Plan may be
terminated prior to that date by the Board of Directors, which has the power to
amend or terminate the 1996 Incentive Plan. From the initial adoption of the
1996 Incentive Plan through December 31, 1997, options to purchase an aggregate
of shares of Common Stock have been awarded to each of the Named Executive
Officers of the Company as follows: 66,000 - Steven R. Vana-Paxhia, President
and CEO; 22,500 - Robert J. Carroll, Vice President, Corporate Development;
44,000 - Kirby A. Mansfield, Vice President; INSO Proofing Tools; 24,000 -
Michael Melody, Vice President, Strategic Planning and Operation; and 20,000 -
Carol A. Mitchell, Vice President and Director of Sales. Options to purchase an
aggregate of 275,200 shares of Common Stock have been issued to the current
executive officers of the Company as a group and options to purchase an
aggregate of 1,669,060 shares of Common Stock have been issued to all other
participants of the 1996 Incentive Plan since its initial adoption through
December 31, 1997. Shares of Unrestricted Stock were awarded in 1997 to certain
executive officers. See Certain Transactions. On April 1, 1998, the last sales
price of the Common Stock on the Nasdaq National Market was $19.4375 per share.
The 1996 Incentive Plan is administered by the Board of Directors of the
Company and the Committee. The Board of Directors has the authority to adopt,
amend and rescind the rules and regulations relating to the 1996 Incentive Plan
and to interpret the provisions of the 1996 Incentive Plan. The Board of
Directors has appointed the Committee to administer certain aspects of the 1996
Incentive Plan, including the making of Awards to persons who are subject to the
reporting requirements of Section 16(a) of the Exchange Act. No amendments to
the 1996 Incentive Plan may be made without stockholder approval if such
approval is necessary to comply with Rule 16b-3 promulgated under the Exchange
Act or any other tax or regulatory requirement.
Incentive Options and NQSO's give optionees the right to purchase a
specified number of shares of Common Stock at some time in the future at an
option exercise price and subject to such terms and conditions as are specified
at the time of the grant. The option exercise price of each Incentive Option or
NQSO shall be determined by the Committee, but shall not be less than 100% of
the fair market value of the shares on the date of grant in the case of
Incentive Options and not less than 85% of the fair market value of the shares
on the date of grant in the case of NQSO's. No Incentive Option may be granted
to any employee who owns, at the date of grant, stock representing in excess of
10% of the combined voting power of all classes of stock of the Company or a
parent or a subsidiary unless the exercise price for stock subject to such
option is at least 110% of the fair market value of such stock at the time of
grant and the option term does not exceed five years. No options may be
transferred by the optionee other than by will or the laws of descent or
distribution. Each option may be exercised, during the lifetime of the optionee,
only by such optionee.
The term of each option shall be fixed by the Committee and may not exceed
ten years from the date of grant in the case of an Incentive Option. The
Committee determines at what time or times each option may be exercised and,
subject to the provisions of the 1996 Incentive Plan, the period of time, if
any, after death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments and the
exercisability of options may be accelerated by the Committee.
Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Committee or by delivery of shares of Common Stock already owned by the
optionee.
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Restricted Stock awards entitle recipients to acquire shares of Common
Stock, subject to the right of the Company to repurchase shares of Restricted
Stock in the event that the conditions specified in the applicable award are not
satisfied prior to the end of the applicable restriction period for such award.
Unrestricted Stock awards are shares of Common Stock issued under the 1996
Incentive Plan without restriction or sold at a price which is not less than 85%
of the fair market value of the Common Stock on the date of sale.
SARs are a right to receive any excess in value of shares of Common Stock
over the exercise price awarded to a recipient. Performance Share awards entitle
the recipient to receive or acquire shares of Common Stock if specified
performance goals are attained.
The 1996 Incentive Plan also provides that upon a change in control (as
defined in the 1996 Incentive Plan), all options and Restricted Stock Awards
under the 1996 Incentive Plan shall become exercisable in full, whether or not
exercisable in accordance with their terms.
See "Federal Income Tax Consequences of the 1996 Stock Incentive Plan and
1996 Non-employee Director Plan" below for a description of the federal tax
treatment of the 1996 Stock Incentive Plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENT TO THE 1996 STOCK
INCENTIVE PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSED AMENDMENT TO THE 1996 STOCK
INCENTIVE PLAN.
AMENDMENT TO THE 1996 NON-EMPLOYEE DIRECTOR PLAN
DESCRIPTION OF THE 1996 NON-EMPLOYEE DIRECTOR PLAN
On March 7, 1996, the Board of Directors adopted, subject to stockholder
approval, the 1996 Non-employee Director Plan ("1996 Director Plan"), which
provides for the automatic grant of NQSOs and awards of Unrestricted Stock to
members of the Board of Directors who are not employees of the Company
("Non-employee Directors"). The 1996 Director Plan was approved by stockholders
on May 2, 1996. As amended, the 1996 Director Plan provides that up to 415,000
shares of Common Stock may be issued pursuant to the 1996 Director Plan. Prior
to the amendment, a total of 250,000 shares was authorized for issuance under
the 1996 Director Plan. Upon stockholder approval of the 1996 Director Plan, the
provisions of the Company's 1993 Stock Incentive Plan with respect to future
grants of NQSOs and awards of Unrestricted Stock to Non-employee Directors were
eliminated, and Non-employee Directors are no longer eligible to participate in
the Company's 1993 Stock Incentive Plan. From the initial adoption of the 1996
Director Plan through December 31, 1997, options to purchase an aggregate of
shares of Common Stock have been awarded to each of the current Non-employee
Directors of the Company as follows: 10,000 - J.P. Barger; 10,000 - Joseph A.
Baute; 25,000 - Samuel H. Fuller; 25,000 - John Guttag; 10,000 - Stephen O.
Jaeger; 10,000 - Joanna T. Lau; 20,000 - Ray Shepard; 10,000 - Ray Stata; 10,000
- -William J. Wisneski. From the initial adoption of the 1996 Director Plan
through December 31, 1997, 1,000 shares of Common Stock have been awarded to the
following Non-employee Directors of the Company: J.P. Barger, Joseph A. Baute,
Samuel H. Fuller, John Guttag, Stephen O. Jaeger, Joanna T. Lau, Ray Stata and
William J. Wisneski. On April 1, 1998, the last sales price of the Common Stock
on the Nasdaq National Market was $19.4375 per share.
The 1996 Director Plan provides that each Non-employee Director will be (i)
granted an NQSO to purchase 20,000 shares of Common Stock at the fair market
value on the date that such Non-employee Director first becomes a director of
the Company, (ii) granted an NQSO to purchase 5,000 shares of
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Common Stock at the fair market value on the date of the Company's annual
meeting and (iii) awarded 1,000 shares of Unrestricted Stock on January 27 of
each year (or, if such day is not a business day, the next succeeding business
day). Non-employee Directors may also elect to receive shares of Unrestricted
Stock under the 1996 Director Plan in lieu of director fees, provided that such
an election shall not be made more than once every six months. As used in the
1996 Director Plan, "fair market value" means (i) the last reported sales price
per share of the 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 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 as determined by the Board of
Directors.
NQSOs granted under the 1996 Director Plan vest in four equal annual
installments beginning on the date of grant. NQSOs may be exercised either by
payment of cash or by tendering shares of Common Stock already owned or by a
combination of cash and Common Stock. NQSOs granted under the 1996 Director Plan
are not transferable by the option holder except by will or by the laws of
descent and distribution and are exercisable during the lifetime of the option
holder only by him or her. No NQSO granted under the 1996 Director Plan is
exercisable more than 10 years after the date of grant. Upon termination of an
option holder's service as a director of the Company, each NQSO 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 NQSO as of the date of termination. If
an option holder under the 1996 Director Plan dies or becomes disabled while he
or she is serving as a director of the Company, the NQSO is exercisable for 180
days thereafter.
The Board of Directors has the authority to adopt, amend and rescind the
rules and regulations relating to the 1996 Director Plan and to interpret the
provisions of the 1996 Director Plan. The Board of Directors may suspend or
discontinue the 1996 Director Plan or amend it in any respect; provided,
however, that without the approval of the stockholders, no amendment may change
the number of shares of Common Stock subject to the 1996 Director Plan, change
the designation of the class of directors eligible to receive options, or
materially increase the benefits accruing to participants under the 1996
Director Plan, and the 1996 Director Plan may not be amended more than once in
any six-month period.
The 1996 Director Plan also provides that upon a change in control (as
defined in the 1996 Director Plan) all NQSOs under the 1996 Director Plan shall
become exercisable in full, whether or not exercisable in accordance with their
terms.
See "Federal Income Tax Consequences of the 1996 Stock Incentive Plan and
1996 Non-employee Director Plan" below for a description of the federal tax
treatment of the 1996 Non-employee Director Plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE AMENDMENT TO THE 1996 NON-EMPLOYEE
DIRECTOR PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 1996 NON-EMPLOYEE
DIRECTOR PLAN.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1996 STOCK INCENTIVE PLAN AND 1996
NON-EMPLOYEE DIRECTOR PLAN
The following is a brief summary of certain United States federal income tax
consequences under current federal income tax laws relating to awards under the
1996 Incentive Plan and NQSOs granted
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under the 1996 Director Plan. This summary is not intended to be exhaustive and,
among other things, does not describe state, local or foreign tax consequences.
INCENTIVE OPTIONS. In general, a participant will not recognize taxable
income upon the grant or exercise of an Incentive Option. Instead, a participant
will recognize taxable income with respect to an Incentive Option only upon the
sale of Common Stock acquired through the exercise of the option ("ISO Stock").
The exercise of an Incentive Option, however, may subject the participant to the
alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior to
having owned it for at least two years from the Grant Date and one year from the
Exercise Date (a "Disqualifying Disposition"), then all or a portion of the gain
recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
In general, the Company will not be required to withhold income or payroll
taxes on exercise of an Incentive Option.
NQSOS. As in the case of an Incentive Option, a participant will not
recognize taxable income upon the grant of an NQSO. Unlike the case of an
Incentive Option, however, a participant who exercises an NQSO generally will
recognize ordinary compensation income in an amount equal to the excess of the
fair market value of the Common Stock acquired through the exercise of the
option ("NQSO Stock") on the Exercise Date over the exercise price.
With respect to any NQSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NQSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NQSO Stock over
the participant's tax basis in the NQSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NQSO Stock for more
than one year prior to the date of the sale.
SARS. A participant will not recognize taxable income upon the grant of an
SAR under the Plan. Instead, a participant generally will recognize as ordinary
compensation income any cash delivered and the fair market value of any Common
Stock delivered in payment of an amount due under a stock appreciation right.
Upon selling any Common Stock received by a participant in payment of an
amount due under an SAR, the participant generally will recognize a capital gain
or loss in an amount equal to the difference between the sale price of the
Common Stock and the participant's tax basis in the Common Stock. This
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capital gain or loss will be a long-term gain or loss if the participant has
held the Common Stock for more than one year prior to the date of the sale.
PERFORMANCE SHARE AWARDS. A participant will not recognize taxable income
upon the grant of a Performance Share Award under the 1996 Incentive Plan.
Instead, a participant generally will recognize as ordinary compensation income
the fair market value of any Common Stock delivered in accordance with the terms
of the performance share Award.
Upon selling any Common Stock received by a participant under the terms of a
Performance Share Award, the participant generally will recognize a capital gain
or loss in an amount equal to the difference between the sale price of the
Common Stock and the participant's tax basis in the Common Stock. This capital
gain or loss will be a long-term gain or loss if the participant has held the
Common Stock for more than one year prior to the date of the sale.
RESTRICTED STOCK. A participant will not recognize taxable income upon the
grant of Restricted Stock, unless the participant makes an election under
Section 83(b) of the Code (a "Section 83(b) Election"). If the participant makes
a Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary compensation income, for the year in which
the Restricted Stock is granted, in an amount equal to the difference between
the fair market value of the Common Stock at the time the Restricted Stock is
granted and the purchase price paid for the Common Stock. If a Section 83(b)
Election is not made, then the participant will recognize ordinary compensation
income, at the time that the forfeiture provisions or restrictions on transfer
lapse, in an amount equal to the difference between the fair market value of the
Common Stock at the time of such lapse and the original purchase price paid for
the Common Stock. The participant will have a tax basis in the Common Stock
acquired equal to the sum of the price paid and the amount of ordinary
compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a Restricted
Stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's tax
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
Restricted Stock is granted if a Section 83(b) Election is made.
OTHER STOCK-BASED AWARDS. The tax consequences associated with any other
stock-based Award granted under the Plan will vary depending on the specific
terms of such Award, including, whether or not the Award has a readily
ascertainable fair market value, whether or not the Award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the Award, the applicable holding period
and the participant's tax basis.
TAX CONSEQUENCES TO THE COMPANY. The grant of an Award under the 1996
Director Plan and 1996 Incentive Plan will have no tax consequences to the
Company. Moreover, in general, neither the exercise of an Incentive Option nor
the sale of any Common Stock acquired under the 1996 Director Plan and 1996
Incentive Plan will have any tax consequences to the Company. The Company
generally will be entitled to a business-expense deduction, however, with
respect to any ordinary compensation income recognized by a participant under
the 1996 Director Plan and 1996 Incentive Plan, including as a result of the
exercise of an NQSO, a Disqualifying Disposition, or a Section 83(b) Election.
Any such deduction will be subject to the limitations of Section 162(m) of the
Code.
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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, 1998. 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.
PROPOSALS OF STOCKHOLDERS FOR CONSIDERATION AT THE 1999 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 1999; provided such proposal meets
all legal requirements and is received at the Company's executive offices in
Boston, Massachusetts no later than December 1, 1998, 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
1999 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 1998 Annual Meeting, or, if the 1999 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 1999
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
April 6, 1998
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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.
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INFIN-PS-98
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Appendix I
INFOSOFT INTERNATIONAL, INC.
- 1993 Stock Purchase Plan
The purpose of this Plan is to provide eligible employees of InfoSoft
International, Inc. (the "Company") with opportunities to purchase shares of the
Company's common stock, $0.01 par value (the "Common Stock"). One hundred
thousand (100,000) shares of Common Stock in the aggregate have been approved
for this purpose.
1. ADMINISTRATION. The Plan shall be administered by the Company's Board of
Directors or by a Committee appointed by the Board of Directors (the
"Committee"). The Board of Directors or the Committee has authority to make
rules and regulations for the administration of the Plan, and its
interpretations and decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. All employees of the Company, including Directors who are
employees, are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a)they are regularly employed by the Company or a subsidiary of the
Company designated by the Committee (a "Designated Subsidiary")
more than 20 hours a week for at least five months per calendar
year; and
(b)they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Plan Period (as defined below).
Participation in the Plan will be neither permitted nor denied
contrary to the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"). No employee may purchase shares pursuant to the Plan if such
employee, immediately after such purchase, owns 5% or more of the total combined
voting power or value of the stock of the Company.
3. OFFERINGS. The Company will make one or more offerings ("Offerings") to
employees to purchase Common Stock under this Plan. The initial Offering will
begin on the effective date of the Company's initial public offering and end on
the following June 30 (the "Initial Offering"). All subsequent Offerings shall
begin on each January 1 or July 1, or the first business day thereafter. The
first day of each Offering shall be known as the "Offering Date". Except for the
Initial Offering, each Offering Date will begin a six-month period (a "Plan
Period").
<PAGE>
4. PARTICIPATION. An employee eligible on the Offering Date of any Offering
may participate in such Offering by completing and forwarding an enrollment form
to the employee's appropriate payroll location. The form will (a) state the
amount to be deducted from his Compensation per pay period, (b) authorize the
purchase of Common Stock for him in each Offering in accordance with the terms
of the Plan and (c) specify THE EXACT NAME OR names in which shares of Common
Stock purchased for him are to be issued pursuant to Section 10 hereof. Unless
an employee files a new form or withdraws from the Plan, his deductions and
purchases will continue at the same dollar amount for future Offerings under the
Plan as long as the Plan remains in effect.
5. EMPLOYEE CONTRIBUTIONS. Each eligible employee may authorize payroll
deductions at a minimum of $6.00 for each weekly pay period or $25.00 for each
monthly pay period up to a maximum of 15% of such employee's Compensation for
each such pay period. The Company shall maintain book accounts showing the
amount of payroll deductions made by each eligible employee for each Plan
Period.
6. DEDUCTION CHANGES. An employee may not increase or decrease his or her
payroll deduction during any Plan Period, but may increase or decrease his or
her payroll deduction with respect to the next Plan Period by filing a new
payroll deduction authorization form in advance of the next Offering Date.
7. INTEREST. No interest will be paid on employee accounts; however, the
Board of Directors or its Committee may, in its sole discretion, elect to credit
employee accounts with interest at such per annum rate as the Board of Directors
or the Committee may from time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close of
business on the last business day in a Plan Period, and for any reason,
permanently withdraw the entire balance accumulated in the employee's account
and thereby withdraw from participation in an Offering. Partial withdrawals are
not permitted. The employee may not begin participation again during the
remainder of the Plan Period. The employee may participate in any subsequent
Offering in accordance with terms and conditions established by the Board of
Directors or the Committee.
9. PURCHASE OF SHARES. On each Offering Date of a Plan Period, the Company
will grant to each eligible employee who is then a participant in the Plan an
option ("Option") to purchase on the last business day of such Plan Period (the
"Exercise Date"), at the Option Price hereinafter provided for, such number of
whole shares of Common Stock of the Company reserved for the purposes of the
Plan as does not exceed the number of shares equal in value to 15% of such
employee's projected Compensation for the Plan Period divided by, with respect
to the Initial Offering, 85% of the offering price to the public of the Common
Stock on the date of the initial public offering of the Common Stock, or, with
respect to each Offering other than the Initial Offering, 85% of the last
reported sale price of the Common Stock on the Nasdaq National Market (the
"National Market") on the Offering Date.
With respect to the Initial Offering, the purchase price for each
share purchased under the Plan will be 85% of the offering price to the public
of the Common Stock on the date of
<PAGE>
the initial public offering of the Common Stock, or 85% of the last reported
sale price of the Common Stock on the National Market on the Exercise Date,
whichever price shall be less, rounded up to avoid fractions other than 1/4, 1/2
and 3/4 . With respect to each Offering other than the Initial Offering, the
purchase price for each share purchased under the Plan will be 85% of the last
reported sale price of the Common Stock on the National Market on the Offering
Date or the Exercise Date, whichever last reported sale price shall be less,
rounded up to avoid fractions other than 1/4, 1/2 and 3/4. The purchase price
determined by reference to either of the two preceding sentences shall be
referred to herein as the "Option Price".
No employee may be granted an Option permitting rights to purchase
Common Stock under this Plan and rights under any other stock purchase plan of
the Company to accrue at a rate which in the aggregate exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Date of the
Plan Period) for each calendar year in which the Option is outstanding at any
time. The purpose of the limitation in the preceding sentence is to comply with
Section 423(b)(8) of the Code.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised such employee's Option at the
Option Price on such date and shall be deemed to have purchased from the Company
such number of full shares of Common Stock reserved for purposes of the Plan as
such employee's accumulated payroll deductions on such date will pay for
pursuant to the formula set forth above. Any balance remaining in an employee's
account at the end of a Plan Period will be refunded to the employee promptly.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
or in the name of the employee and another person of legal age as joint tenants
with rights of survivorship.
11. DEFINITIONS. The phrase "last reported sale price" means the last
reported sale price of the Common Stock on the Exchange on a given day or, if no
sales of Common Stock were made on that day, the last reported sale price of the
Common Stock on the next preceding day on which sales were made.
The term "Compensation" means the amount of base pay reportable on the
employee's Federal Income Tax Withholding Statement, excluding overtime,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation expenses or travel expenses, income or gains on the exercise of
Company stock options, and similar items, whether or not shown on the employee's
Federal Income Tax Withholding Statement.
12. Rights on Retirement, Death, or Termination of Employment. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to the employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, to the employee's
designated beneficiary. If, prior to the last business day of the Plan Period,
the Subsidiary by which an employee is employed shall cease to be a Designated
Subsidiary of the Company, or if the employee is transferred to a Subsidiary of
the Company that is not a Designated Subsidiary, it shall be deemed that the
employee has terminated employment for the purposes of this Plan.
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13. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from an employee's pay shall constitute such
employee a stockholder of the shares of Common Stock covered by an Option under
this Plan until such shares have been purchased by and issued to such employee.
14. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
15. APPLICATION OF FUNDS. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
16. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board of
Directors or the Committee. In the event of any other change affecting the
Common Stock, such adjustment shall be made as may be deemed equitable by the
Board of Directors or the Committee to give proper effect to such event.
17. AMENDMENT OF THE PLAN. The Board of Directors may at any time and from
time to time, amend this Plan in any respect, except that without approval by a
majority of the votes cast at a duly held stockholders' meeting at which a
quorum representing a majority of all outstanding Common Stock is, either in
person or by proxy, present, no amendment shall be made (a) increasing or
decreasing the number of shares approved for this Plan or (b) changing the class
of employees eligible to receive Options under the Plan.
18. MERGER, REORGANIZATION, ETC. In the event of a merger, reorganization,
consolidation, or liquidation involving the Company, the Committee has
discretion to provide that all outstanding obligations of the Company under the
Plan will be assumed or equivalent rights substituted by the successor
corporation, or the Committee may shorten the offering period and provide for
all sums collected to be applied to purchase stock immediately prior to such
merger or other transaction.
19. INSUFFICIENT SHARES. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board of Directors or the
Committee shall allot, in such manner as it may determine, the shares then
available.
20. TERMINATION OF THE PLAN. This Plan may be terminated at any time by the
Company's Board of Directors, subject to the limitation that no such action may
adversely affect any outstanding rights to purchase Common Stock.
<PAGE>
21. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on the National Market and
obtaining all governmental approvals required in connection with the
authorization, issuance, or sale of such stock.
The Plan shall be governed by Delaware law except to the extent that
such law is preempted by federal law.
The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended. Any provision
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
22. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the
Plan, to GIVE the Company prompt notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take effect
on the first day of the Company's initial public offering (the "Effective Date")
subject to closing of the offering and approval by a majority of the votes cast
at a duly held shareholders' meeting at which a quorum representing a majority
of all outstanding Common Stock is, either in person or by proxy, present, which
approval must occur within twelve months of the adoption of the Plan by the
Board of Directors.
<PAGE>
AMENDMENT NO. 1
TO
1993 STOCK PURCHASE PLAN
OF
INSO CORPORATION
The 1993 Stock Purchase Plan (the "Plan") of Inso Corporation, formerly
known as InfoSoft International, Inc., is hereby amended as follows
(capitalized terms used herein and not defined herein shall have the
respective meaning ascribed to such terms in the Plan):
1. The first paragraph of the Plan shall be deleted in its entirety and
replaced with the following:
"The purpose of this Plan is to provide eligible employees of Inso
Corporation (the "Company") with opportunities to purchase shares of the
Company's common stock, $0.01 par value (the "Common Stock"). Four hundred
and fifty thousand (450,000) shares of Common Stock in the aggregate have
been approved for this purpose."
2. The third sentence of Section 3 of the Plan shall be deleted in its
entirety and replaced with the following:
"Offerings on or before January 1, 1999 shall begin on each January 1
or July 1, or the first business day thereafter, subsequent offerings shall
begin on each June 1 or December 1, or the first business day thereafter."
Except as aforesaid, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
March 9, 1998
<PAGE>
Appendix II
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.
<PAGE>
"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,
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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.
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(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
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<PAGE>
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
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(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
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(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
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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.
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(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.
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<PAGE>
(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.
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AMENDMENT NO. 1
TO
1996 STOCK INCENTIVE PLAN
OF
INSO CORPORATION
The 1996 Stock Incentive Plan (the "Plan") of Inso Corporation is hereby
amended as follows (capitalized terms used herein and not defined herein
shall have the respective meaning ascribed to such terms in the Plan):
1. The first sentence of Section 5(a) of the Plan shall be deleted in its
entirety and replaced with the following:
"Subject to adjustment under subsection (b) below, Awards may be made
under the Plan for up to 5,000,000 shares of Common Stock."
Except as aforesaid, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
March 9, 1998
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Appendix III
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
<PAGE>
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.
2
<PAGE>
(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:
3
<PAGE>
(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.
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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.
5
<PAGE>
AMENDMENT NO. 1
TO
1996 NON-EMPLOYEE DIRECTOR PLAN
OF
INSO CORPORATION
The 1996 Non-Employee Director Plan (the "Plan") of Inso Corporation is
hereby amended as follows (capitalized terms used herein and not defined
herein shall have the respective meaning ascribed to such terms in the Plan):
1. Section 4(a) of the Plan shall be deleted in its entirety and replaced
with the following:
(a) The maximum number of shares which may be issued under the Plan
shall be 415,000 shares of the Company's Common Stock, $.01 par value per
share (the "Common Stock").
Except as aforesaid, the Plan shall remain in full force and effect.
Adopted by the
Board of Directors
March 9, 1998
6
