<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 Section 240.14a-11(c) or Section
240.14a-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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
April 9, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Inso Corporation, a Delaware corporation (the "Company"), to be held at the John
Hancock Conference Center, 40 Trinity Place, Boston, Massachusetts, at 9:00 a.m.
on Thursday, May 6, 1999.
At the Annual Meeting, stockholders will be asked to elect two Class III
directors, 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,
[SIG]
Stephen O. Jaeger
CHIEF EXECUTIVE OFFICER
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 1999
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 6, 1999, to consider and act on the following matters:
1. Election of two Class III directors to serve until the Company's 2002
annual meeting of stockholders and until their successors are elected and
qualified;
2. Ratification of the selection of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending January 31, 2000; and
3. Any other matter that may properly come before the meeting or any
postponement or adjournment thereof.
Stockholders of record at the close of business on March 19, 1999, will be
entitled to vote at the Annual Meeting of Stockholders and any postponement or
adjournment thereof.
By Order of the Board of Directors,
Jonathan P. Levitt
SECRETARY
April 9, 1999
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 6, 1999
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 6, 1999, 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 9, 1999, to
stockholders of record as of the close of business on March 19, 1999 (the
"Record Date").
At the Meeting, the stockholders of the Company will vote (i) to elect two
Class III directors to serve until the Company's 2002 annual meeting of
stockholders and until their successors are duly elected and qualified, (ii) to
ratify the Board's selection of Ernst & Young LLP as the independent auditors of
the Company for the fiscal year ending January 31, 2000, and (iii) to transact
such other business as may properly come before the Meeting, as set forth in the
preceding Notice of Meeting. If any other business is properly presented for
action by the stockholders of the Company at the Meeting, shares represented by
proxies received by the Board will be voted in accordance with the judgment of
the persons named in the proxy. If the enclosed proxy card is properly executed
and returned to the Company, all shares represented thereby will be voted as
indicated therein. If a proxy is returned without instructions it will be voted
FOR the two nominees named herein and FOR the ratification of Ernst & Young LLP
as the independent auditors of the Company for the fiscal year ending January
31, 2000. 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 15,508,265 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
$7.25 per share.
The holders of a majority of the shares of Common Stock issued, outstanding
and entitled to vote at the Meeting shall constitute a quorum for the
transaction of business at the Meeting. Shares of Common Stock present in person
or represented by proxy (including shares that abstain or do not vote with
respect to one or more of the matters presented for stockholder approval) will
be counted for purposes of determining whether a quorum exists at the Meeting.
The affirmative vote of the holders of a plurality of the shares of Common
Stock voting on the matter is required for the election of directors. The
affirmative vote of the holders of a majority of the shares of
<PAGE>
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.
2
<PAGE>
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>
Gilder, Gagnon, Howe & Co................................................. 898,365(2) 5.8%
1775 Broadway, 26(th) Floor
New York, New York 10019
Houghton Mifflin Company.................................................. 1,952,600(3) 12.6%
222 Berkeley Street
Boston, MA 02116-3764
Farhad Fred Ebrahimi...................................................... 1,253,000(4) 8.1%
475 Circle Drive
Denver, CO 80206
Dawson Samberg Capital Management......................................... 1,086,500(5) 7.0%
354 Pequot Ave.
Southport, CT 06490
Pilgrim Baxter & Associates............................................... 909,900(6) 5.89%
825 Duportail Rd.
Wayne, PA 19087
</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").
(2) Shared power to dispose as to 898,365 shares, includes 607,065 shares held
in customer accounts over which members and/or employees of the Reporting
Person have discretionary authority to dispose and 291,300 shares held in
accounts owned by members of the Reporting Person and their families.
(3) Sole power to vote and dispose as to 1,952,600 shares.
(4) Shared power to vote and dispose as to 1,253,000 shares for all members of
the Ebrahimi family. The members of the Ebrahimi family have dispositive
power over the total number of shares as follows: Farhad Fred Ebrahimi has
shared dispositive power with Farhad Alexander Ebrahimi over 155,000 shares;
shared dispositive power with Mary Wilkie Ebrahimi over 862,500 shares; and
shared dispositive power with Farah Alexandra Ebrahimi over 235,000 shares.
Mary Wilkie Ebrahimi has shared dispositive power with Farad Fred Ebrahimi
over 862,500 shares. Farad Alexander Ebrahimi has shared dispositive power
with Farad Fred Ebrahimi over 155,000 shares. Farah Alexandra Ebrahimi has
shared dispositive power with Farad Fred Ebrahimi over 235,500 shares.
(5) Shared power to vote and dispose as to 1,086,500 shares.
(6) Sole power to vote and dispose as to 909,900 shares.
3
<PAGE>
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 former Chief Executive Officer and each of the other
four most highly compensated executive officers of the Company (collectively,
the "Named Executive Officers") and (iii) the directors and executive officers
of the Company as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) COMMON STOCK
- ---------------------------------------------------------------------- -------------------------- -----------------
<S> <C> <C>
J.P. Barger(3)........................................................ 84,650 *
Joseph A. Baute....................................................... 48,750 *
Samuel H. Fuller...................................................... 29,250 *
John Guttag........................................................... 34,250 *
Stephen O. Jaeger..................................................... 52,250 *
Joanna T. Lau......................................................... 48,250 *
Ray Shepard........................................................... 14,500 *
Ray Stata............................................................. 161,250 *
Steven R. Vana-Paxhia(4).............................................. 192,896 *
William J. Wisneski................................................... 50,250 *
Bruce G. Hill......................................................... 87,479 *
Kirby A. Mansfield.................................................... 73,367 *
Michael Melody(5)..................................................... 50,334 *
Paul Savage........................................................... 6,530 *
All directors and executive officers
as a group (19 persons)............................................. 1,068,929 6.89%
</TABLE>
- ------------------------
(*) Less than 1%.
(1) Unless otherwise noted, the nature of beneficial ownership is sole voting
and investment power
(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--41,250; Joseph A. Baute--
41,250; Samuel H. Fuller--26,250; John Guttag--26,250; Stephen O.
Jaeger--41,250; Joanna T. Lau-- 41,250; Ray Shepard--12,500; Ray
Stata--41,250; Steven R. Vana-Paxhia--126,026; William J. Wisneski--41,250;
Bruce G. Hill--64,500; Kirby A. Mansfield--61,146; Michael Melody--30,000;
Paul Savage--5,000; and all directors and executive officers as a
group--700,472.
(3) Mr. Barger resigned as director of the Company as of April 2, 1999.
(4) Mr. Vana-Paxhia resigned as President, Chief Executive Officer and director
of the Company as of March 25, 1999.
(5) Mr. Melody resigned as Vice President, Strategic Planning and Operations of
the Company as of April 2, 1999.
ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of four Class I
directors, two Class II directors and two Class III directors. The Class I,
Class II and Class III directors will serve until the annual
4
<PAGE>
meetings of stockholders to be held in 2000, 2001 and 2002, 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
Joseph A. Baute and Joanna T. Lau, the two Class III director nominees named
below, unless the proxy is marked otherwise. Mr. Baute and Ms. Lau are currently
directors of the Company. Mr. Barger resigned as a Class III director of the
Company as of April 2, 1999.
Each Class III director will be elected to hold office until the 2002 Annual
Meeting of Stockholders and until his or her successor is elected and qualified.
Each of the nominees has indicated his or her willingness to serve, if elected;
however, if any nominee should be unable to serve, the proxies may be voted for
a substitute nominee designated by the Board of Directors, unless the Board of
Directors acts to reduce the number of directors.
For each member of the Board of Directors, including those who are nominees
for election as Class III 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 III DIRECTORS
(TERMS EXPIRING IN 2002) AGE PRINCIPAL OCCUPATION(1)
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Joseph A. Baute..................... 71 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 has been
a consultant for Markem Corporation, which provides systems,
supplies, and services to mark customers' products, since 1994. Mr.
Baute had been Chairman and Chief Executive of Markem Corporation
from 1979 until his retirement in June 1993. Mr. Baute is also a
director of Houghton Mifflin, ThermoSpectra Corporation, and Metrika
Systems Corporation.
Joanna T. Lau....................... 40 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 International, Inc.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
INCUMBENT CLASS I DIRECTORS
(TERMS EXPIRING IN 2000) AGE PRINCIPAL OCCUPATION (1)
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Ray Stata........................... 64 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 the Chairman of the Board
of Deploy Solutions, Inc.
William J. Wisneski................. 52 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. Prior to joining
Houghton Mifflin, Mr. Wisneski worked for more than twenty years in
various capacities at Harcourt Brace & Company. Mr. Wisneski is also
a director of Sagebrush Corporation.
Samuel H. Fuller.................... 52 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 the Corporation for
National Research Initiatives.
Ray Shepard......................... 58 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.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
INCUMBENT CLASS II DIRECTORS
(TERMS EXPIRING IN 2001) AGE PRINCIPAL OCCUPATION(1)
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Stephen O. Jaeger................... 54 Mr. Jaeger has been Chief Executive Officer of the Company since the
end of March 1999, and has been a director of the Company since its
inception. In mid-March 1999, Mr. Jaeger was elected Chairman of the
Board of Directors and continues to serve in that capacity. After
serving as an independent consultant, Mr. Jaeger joined
privately-held PharmaCom Group, Inc. in February 1999 as a principal,
director and officer. From December 1997 to October 1998, Mr. Jaeger
was Executive Vice President and Chief Financial Officer and a
director at Clinical Communications Group, Inc. From March 1995 until
September 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 is also a director of Strategic
Diagnostics, Inc.
John Guttag......................... 48 Dr. Guttag has been a director of the Company since May 1996. Dr.
Guttag is currently Department Head 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 trustee of MGH Institute of Health Professionals.
</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.
The Board of Directors met six times during 1998. 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 one time during 1998.
The members of the Compensation Committee are Mr. Stata, Chairman, Mr. Baute and
Mr. Wisneski.
7
<PAGE>
THE AUDIT COMMITTEE
The duty of the Audit Committee, which is composed of non-employee directors
other than Mr. Jaeger, is to review the integrity of the Company's financial
statements, including quarterly 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 six times during 1998. The
current members of the Audit Committee are Mr. Jaeger, acting Chairman of the
Committee, and Ms. Lau. Mr. Jaeger served as the Chairman of the Audit Committee
until March 25, 1999. Mr. Jaeger is currently serving as the acting Chairman
until the Governance Committee recommends a successor.
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 did not meet during 1998. The
members of the Governance Committee are Mr. Baute, Chairman, Mr. Jaeger 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 Stephen O. Jaeger, 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 four
times during 1998. The current members of the Technology and Strategy Committee
are Dr. Fuller, Chairman, Dr. Guttag and Mr. Shepard.
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
8
<PAGE>
Company. Based on its review of the copies of such filings completed in 1998,
the Company believes that all Reporting Persons complied with all Section 16(a)
filing requirements in 1998 with the following exceptions: Mr. Graham Marshall,
an officer of the Company, did not file a timely Statement of Changes in
Beneficial Ownership of Securities on Form 4 with respect to the sale of 597
shares of Common Stock, the exercise of options to purchase 12,000 shares of
Common Stock, and the subsequent sale of 12,000 shares of Common Stock. Such
Form 4 was required to be filed on December 10, 1998, and was filed on January
11, 1999. Houghton Mifflin Company, a beneficial owner of over 10% of the
Company's Common Stock did not file a timely Statement of Changes in Beneficial
Ownership of Securities on Form 4 with respect to the sale of 5,000 shares of
Common Stock. Such Form 4 was required to be filed on December 10, 1996 and was
filed on August 4, 1998.
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, including its Chief
Executive Officer. Steven R. Vana-Paxhia served as the Company's President and
Chief Executive Officer during the fiscal year ended December 31, 1998 and
resigned as President and Chief Executive Officer as of March 25, 1999. Since
March 25, 1999, Stephen O. Jaeger has served as the Company's Chief Executive
Officer. Mr. Jaeger's compensation for serving as Chief Executive Officer is
currently under review by the Compensation Committee.
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 1998, the Compensation Committee
approved increases of seven percent to twenty percent in the base salaries of
executive officers of the Company, including Mr. Vana-Paxhia. Such increases
were effective as of April 1, 1998.
In reviewing Mr. Vana-Paxhia's base salary for 1998, the Compensation
Committee reviewed information regarding the salaries of chief executive
officers at the comparable companies described above, Mr. Vana-Paxhia's salary
for 1997 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 $240,000 to $258,000 per year. In view of
9
<PAGE>
Mr. Vana-Paxhia's resignation, the Compensation Committee is considering the
appropriate terms for a consulting agreement by and between the Company and Mr.
Vana-Paxhia.
In January 1998, the Compensation Committee awarded options to purchase
shares of Common Stock at $11.50 per share, vesting in 25% annual increments
beginning on the second anniversary of the date of grant to the following
executive officers: Steven R. Vana-Paxhia--60,000 shares; Bruce G. Hill-- 40,000
shares; Kirby A. Mansfield--40,000 shares; Graham Marshall--25,000 shares;
Michael E. Melody-- 40,000 shares; Patricia A. Michaels--7,500 shares; Scott D.
Norder--25,000 shares; Betty J. Savage-- 40,000 shares; and Paul A.
Savage--40,000 shares. In December 1998, the Compensation Committee awarded
options to purchase 60,000 shares of Common Stock at $21.375 per share, vesting
in 25% annual increments beginning on the first anniversary of the date of grant
to Paul R. Anderson. 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
10
<PAGE>
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, 1998. 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, 1998, was
$25.00.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS
<S> <C> <C> <C>
INSO Corporation Nasdaq Stock Market (US) Nasdaq Computer & Data Processing Services Stocks
1993 100 100 100
1994 234 98 122
1995 567 138 185
1996 530 170 227
1997 154 209 279
1998 333 294 499
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
INSO Corporation................................................................. 100 234 567
Nasdaq Stock Market (US)......................................................... 100 98 138
Nasdaq Computer & Data Processing Services Stocks................................ 100 122 185
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
INSO Corporation................................................................. 530 154 333
Nasdaq Stock Market (US)......................................................... 170 209 294
Nasdaq Computer & Data Processing Services Stocks................................ 227 279 499
</TABLE>
11
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the compensation,
for the last three fiscal years, of the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------------------------ ---------------------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL BONUS COMPENSATION UNDERLYING ALL OTHER
POSITION YEAR SALARY($) ($) ($) OPTIONS(#) COMPENSATION($)(1)
- -------------------------------------------------- ---- --------- ------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Steven R. Vana-Paxhia,............................ 1998 263,077 0 0 60,000 6,700
President and Chief 1997 232,502 0 0 138,000(2) 6,365
Executive Officer(5) 1996 200,700 144,235 0 82,500(3) 6,365
Bruce G. Hill,.................................... 1998 165,423 25,000 0 40,000 6,700
Vice President, Business 1997 139,751 0 0 84,000(2) 6,365
Development 1996 126,250 66,966 0 55,000(3) 6,365
Kirby A. Mansfield,............................... 1998 184,231 25,000 0 40,000 6,700
President and Chief Operating 1997 165,002 0 0 92,000(2) 6,365
Officer(6) 1996 143,750 77,269 0 55,000(3) 6,365
Michael Melody,................................... 1998 163,462 0 0 40,000 6,700
Vice President, Strategic 1997 147,501 0 0 72,000(2) 4,773
Planning and Operations (7) 1996 113,077 54,088 0 90,000(3) 0
Paul Savage,...................................... 1998 180,192 0 42,003 40,000 6,700
Vice President, Worldwide Sales 1997 139,463 39,909 13,095 55,000(4) 0
and Service 1996 34,269 22,000 0 25,000(3) 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").
(3) Disposed of as the result of the 1997 Option Repricing.
(4) Of such option grants, on December 26, 1997 options to purchase 35,000
shares were granted to Mr. Savage, and options to purchase 20,000 shares
were granted to Mr. Savage as the result of the 1997 Option Repricing.
(5) Mr. Vana-Paxhia resigned as President, Chief Executive Officer and director
of the Company as of March 25, 1999.
(6) Mr. Mansfield was appointed President and Chief Operating Officer of the
Company as of March 25, 1999.
(7) Mr. Melody resigned as Vice President, Strategic Planning and Operations of
the Company as of April 2, 1999.
12
<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, 1998. The
Company granted no stock appreciation rights ("SARs") during 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE
-------------------------------------------------- AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM
UNDERLYING EMPLOYEES EXERCISE OR (2)
OPTIONS IN FISCAL BASE PRICE EXPIRATION ------------------
NAME GRANTED YEAR ($/SHARE) DATE 5%($) 10%($)
- ------------------------------------------------------- ---------- ---------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Steven R. Vana-Paxhia.................................. 60,000(1) 3% $11.50 1/12/08 433,800 1,099,800
Bruce G. Hill.......................................... 40,000(1) 2% $11.50 1/12/08 289,200 733,200
Kirby Mansfield........................................ 40,000(1) 2% $11.50 1/12/08 289,200 733,200
Michael Melody......................................... 40,000(1) 2% $11.50 1/12/08 289,200 733,200
Paul Savage............................................ 40,000(1) 2% $11.50 1/12/08 289,200 733,200
</TABLE>
- ------------------------
(1) Options vest as follows: 25% 1/12/00, 50% 1/12/01, 75% 1/12/02, 100%
1/12/03.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the dates the respective options were granted to
their expiration dates.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table shows information with respect to options exercised
during fiscal 1998 and held as of December 31, 1998 by the Named Executive
Officers. No SARs were held or exercised during 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-
UNEXERCISED OPTIONS THE-MONEY OPTIONS AT
SHARES AT FY-END FY- END
ACQUIRED ON VALUE (#)(EXERCISABLE/ ($)(EXERCISABLE/
NAME EXERCISE (#) REALIZED UNEXERCISABLE) UNEXERCISABLE)(1)
- ------------------------------------------- ------------- ----------- ------------------- -----------------------
<S> <C> <C> <C> <C>
Steven R. Vana-Paxhia...................... N/A N/A 126,026/205,500 1,545,720/1,899,750
Bruce G. Hill.............................. N/A N/A 64,500/122,000 792,750/1,149,625
Kirby A. Mansfield......................... 25,000 265,000(2) 61,146/117,000 621,185/1,102,650
Michael Melody............................. N/A N/A 18,000/94,000 126,000/918,000
Paul Savage................................ N/A N/A 5,000/90,000 65,000/1,281,875
</TABLE>
- ------------------------
(1) Value based on the closing sales price per share ($25.00) of the Common
Stock on December 31, 1998, less the exercise price.
13
<PAGE>
(2) Value based on the closing price per share of the Common Stock on the date
of exercise, less the exercise price.
SEVERANCE AGREEMENTS
The Company has entered into Employee Retention Agreements (the "Retention
Agreements") with Mr. Vana-Paxhia, Mr. Hill, Mr. Mansfield, Mr. Melody and Mr.
Savage. 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 Stock Incentive Plan and the 1996 Stock 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 provide 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.
CERTAIN TRANSACTIONS
HOUGHTON MIFFLIN COMPANY
During 1998 the Company was a party to various agreements with, and
transactions involving, Houghton Mifflin. Amounts incurred under these
agreements and transactions totaled $300,000 in 1998. Houghton Mifflin is the
beneficial owner of approximately 12.6% of the Company's Common Stock.
14
<PAGE>
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
Until April 23, 1998, the Company had a Lexical and Linguistic operating
segment. Prior to the sale of that operating segment, the Company was a party to
certain agreements with Houghton Mifflin which the Company 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") for 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 had
entered into license agreements that granted 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, 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 was 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. The Company transferred the rights
and obligations under these license agreements to Learnout & Hauspie as part of
the sale of the Company's linguistic software assets to Lernout & Hauspie Speech
Products N.V. on April 23, 1998. Royalties to Houghton Mifflin for the year
ended December 31, 1998, pursuant to these license agreements totaled $300,000.
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 January 31, 2000. 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 2000 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 $2,000 in
market value of the Common Stock may present a proposal to be voted on at the
Company's Annual Meeting of Stockholders in 2000; provided such
15
<PAGE>
proposal meets all legal requirements and is received at the Company's executive
offices in Boston, Massachusetts no later than December 11, 1999, 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
2000 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 1999 Annual Meeting, or, if the 2000 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 2000
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,
Jonathan P. Levitt
SECRETARY
April 9, 1999
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.
16
<PAGE>
INSO CORPORATION
Dear Stockholder,
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Corporation that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, May 6,
1999.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Inso Corporation
<PAGE>
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
- -------------------------------------------------------------------------------
INSO CORPORATION
- -------------------------------------------------------------------------------
Mark box at right if an address change or comment has been noted on / /
the reverse side of this card.
CONTROL NUMBER:
RECORD DATE SHARES:
1. To elect the following persons as Class III directors
(except as marked below):
For All With- For All
Nominees held Except
Joseph A. Baute / / / / / /
Joanna T. Lau / / / / / /
NOTE: If you do not wish your shares voted "for" a particular nominee, mark
the "For All Except" box and strike a line through the name of the nominee.
Your shares will be voted for the remaining nominee.
For Against Abstain
2. To ratify the selection of Ernst & Young / / / / / /
LLP as the Company's independent auditors
for the fiscal year ending January 31, 2000.
In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting or at any adjournment(s)
thereof.
Please be sure to sign and date this Proxy. Date
--------------------
- -------------------------------------------------------------------------------
Stockholder sign here Co-owner sign here
DETACH CARD DETACH CARD
<PAGE>
INSO CORPORATION
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Stephen O. Jaeger, Betty J. Savage and
Jonathan P. Levitt and each of them, as proxies, each with the power of
substitution and resubstitution and hereby authorizes any of them to
represent and to vote as designated below, all the shares of common stock,
par value $.01 per share, of Inso Corporation (the "Company"), held of record
by the undersigned on March 19, 1999 at the Annual Meeting of Stockholders to
be held on May 6, 1999 at the John Hancock Conference Center, 40 Trinity
Place, Boston, Massachusetts at 9:00 a.m. local time, or any postponement or
adjournment thereof.
This proxy when properly executed will be voted in the manner directed herein
by the stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS AND FOR THE PROPOSAL DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT.
- -------------------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
- -------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
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