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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Thermatrix, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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LOGO TMX THERMATRIX INC.
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LETTERHEAD
May 11, 1998
Dear Stockholder:
Enclosed are the proxy materials for the 1998 Annual Meeting of
Stockholders. I hope you will be able to join us on June 11, 1998, and take
the opportunity to meet members of the team who have contributed to the
success of the Company.
In the meantime, I would urge you to carefully review all of the proposals
in the proxy statement and I solicit your support of the Board's
recommendations on these proposals.
Sincerely,
/s/John T. Schofield
John T. Schofield
Chairman, President and Chief Executive
Officer
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THERMATRIX INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Thermatrix
Inc., a Delaware corporation ("the Company") will be held on Thursday, June
11, 1998 at 10:30 a.m. (Pacific time), at 101 Metro Drive, Suite 248, San
Jose, California, for the following purposes:
1. To elect three (3) Class II directors to serve for a three-year term and
until their successors are elected and qualified (Proposal 1);
2. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock of the Company reserved
for issuance thereunder by 100,000 shares (Proposal 2);
3. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company for the fiscal year ending December 31, 1998
(Proposal 3); and
4. To transact such other business as may properly be brought before the
meeting and any adjournment(s) thereof.
Stockholders of record at the close of business on April 20, 1998 shall be
entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed proxy card as promptly as possible in the postage-
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person even if he or she has returned a proxy.
Sincerely,
/s/ John T. Schofield
John T. Schofield
Chairman, President and Chief
Executive Officer
San Jose, California
May 11, 1998
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND
RETURN IT IN THE ENCLOSED ENVELOPE.
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THERMATRIX INC.
101 METRO DRIVE, SUITE 248
SAN JOSE, CALIFORNIA 95110
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Thermatrix Inc. (the "Company") for use at the Annual Meeting of Stockholders
to be held at 101 Metro Drive, Suite 248, San Jose, California on Monday, June
11, 1998 at 10:30 a.m. (Pacific time), and at any adjournment(s) thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting
of Stockholders. The Company's principal office is located at 101 Metro Drive,
Suite 248, San Jose, California 95110 and its telephone number is (408) 453-
0490. These proxy solicitation materials were mailed on or about May 11, 1998
to all stockholders entitled to vote at the meeting.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record at the close of business on April 20, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting and at any
adjournment(s) thereof. At the Record Date, 7,641,842 shares of the Company's
Common Stock, $.001 par value were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Barbara Krimsky) a written notice of revocation or a duly executed proxy
bearing a later date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each share of Common Stock has one vote on all matters. The cost of this
solicitation will be borne by the Company. The Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation materials to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally or by
telephone or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Company's Bylaws provide that stockholders holding a majority of the
outstanding shares of the corporation entitled to vote on the Record Date and
represented in person or by proxy shall constitute a quorum at meetings of
stockholders for the transaction of business. Shares that are voted "FOR,"
"AGAINST" or "WITHHELD" on a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as
"entitled to vote on the subject matter" (the "Votes Cast") at the Annual
Meeting with respect to such matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with
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respect to a particular matter (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, with the exception of the proposal
for the election of directors, abstentions will have the same effect as a vote
against the proposal. Because directors are elected by a plurality vote,
abstentions in the election of directors have no impact once a quorum exists.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that while broker non-votes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of
business, broker non-votes should not be counted for purposes of determining
the number of Votes Cast with respect to the particular proposal on which the
broker has expressly not voted. Broker non-votes with respect to proposals set
forth in this Proxy Statement will therefore not be considered Votes Cast and,
accordingly, will not affect the determination as to whether the requisite
majority of Votes Cast has been obtained with respect to a particular matter.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
at the 1999 Annual Meeting of Stockholders must be received by the Company no
later than January 11, 1999 and must otherwise be in compliance with
applicable laws and regulations in order to be considered for inclusion in the
proxy statement and form of proxy relating to that meeting.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Such officers, directors and ten-percent stockholders
are also required by SEC rules to furnish the Company with copies of all forms
that they file pursuant to Section 16(a). Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no filings were required for such persons, the Company
believes that all Section 16(a) filing requirements applicable to its
officers, directors and ten-percent stockholders were timely filed.
STOCKHOLDER INFORMATION
A copy of the Company's Annual Report on Form 10-K, including financial
statements and schedules is enclosed with these proxy solicitation materials.
IN COMPLIANCE WITH RULE 14A-3 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF
1934, THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON
UPON WRITTEN REQUEST, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K,
INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES THERETO. REQUESTS
FOR SUCH COPIES SHOULD BE DIRECTED TO THERMATRIX INC., 101 METRO DRIVE, SUITE
248, SAN JOSE, CALIFORNIA 95110, ATTENTION: INVESTOR RELATIONS.
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PROPOSAL ONE
ELECTION OF CLASS II DIRECTORS
NOMINEES
The Company has a classified Board of Directors consisting of three Class I
directors (Robi Blumenstein, Rebecca P. Mark, and John T. Schofield), three
Class II directors (Harry J. Healer, Jr., Charles R. Kokesh and John M. Toups)
and two Class III directors (Frank R. Pope and James M. Strock), who will
serve until the annual meetings of stockholders to be held in 2000, 1998 and
1999, respectively, or until their respective successors are duly elected and
qualified. At each annual meeting of stockholders, directors are elected for a
full term of three years to succeed those directors whose terms expire at the
annual meeting.
The terms of the three directors in Class II will expire on the date of the
upcoming annual meeting. Three persons are to be elected to Class II at the
meeting. The nominees for election by the stockholders to these three
positions are Harry J. Healer, Jr., Charles R. Kokesh and John M. Toups, all
current members of the Board of Directors in Class II. If elected, the
nominees will serve as directors until the Company's annual meeting of
stockholders in 2001, or until their successors are elected and qualified. If
any of the nominees declines to serve or becomes unavailable for any reason,
or if a vacancy occurs before the election, the Proxies may be voted for such
substitute nominees as management may designate. The proxy holders have also
been advised that in the event any of the nominees shall not be available for
election, a circumstance that is not currently expected, they may vote for the
election of substitute nominees in accordance with their judgment.
There are no arrangements or understandings between any director or
executive officer and any other person pursuant to which he is or was to be
selected as a director or officer of the Company.
The names of the nominees and other information about members of the Board
of Directors, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- --------
<S> <C> <C> <C>
Harry J. Healer, Jr.(1). 57 General Partner, Venture Capital Fund of 1989
New England
Charles R. Kokesh....... 50 Managing General Partner, Technology Funding 1998
John M. Toups(2)........ 72 Chief Executive Officer (retired), Planning 1994
Research Corporation
</TABLE>
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(1) Member of the Compensation Committee
(2) Member of the Audit Committee
John T. Schofield. Mr. Schofield has been President and Chief Executive
Officer of the Company since April 1992, and Chairman of the Board since
December 1993. From April 1981 to September 1991, Mr. Schofield served in
various executive positions at International Technology Corporation, an
environmental management company, where he directed technical services,
business activities, strategic planning and development. Mr. Schofield holds a
B.Sc. Honours in Chemistry from the University of Manchester, England.
Robi Blumenstein. Mr. Blumenstein has been a Director of the Company since
November 1994. Mr. Blumenstein has been with CIBC Capital Partners, the
merchant banking division of the Canadian Imperial Bank of Commerce, since
January 1994, most recently as a Managing Director. From May 1992 to December
1993, Mr. Blumenstein was a principal of Hadley & Baxendale, Limited, an
investment and advisory firm. Mr. Blumenstein holds a B.A. and an LL.B. from
the University of Toronto and an M.B.A from Harvard Business School.
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Harry J. Healer, Jr. Mr. Healer has been a Director of the Company since
September 1989. Mr. Healer has been a general partner of the Venture Capital
Fund of New England, a venture capital investment firm, since its inception in
January 1981. Mr. Healer holds a B.S. in Business Administration from Babson
College.
Charles R. Kokesh. Mr. Kokesh has been a Director of the Company since March
1998. Mr. Kokesh is the founder and managing general partner of Technology
Funding, a professional venture capital firm headquartered in Silicon Valley.
Mr. Kokesh currently serves on the board of directors of Adesso Specialty Inc.
Mr. Kokesh received an A.B. from Harvard College, an M.B.A. from Harvard
Business School, and a J.D. from Boalt Hall School of Law, University of
California at Berkeley.
Rebecca P. Mark. Ms. Mark has been a Director of the Company since March
1996. Since January 1992, Ms. Mark has been with Enron Development Corp., the
international project development arm of Enron Corp., most recently as
Chairman and Chief Executive Officer. From July 1991 to July 1993 Ms. Mark was
also Vice Chairman and Chief Development Officer of Enron Power Corp. Ms. Mark
currently serves on the board of directors of Brunswick Corp. Ms. Mark holds a
B.A. in Psychology and an M.S. in International Management from Baylor
University and an M.B.A from Harvard Business School.
Frank R. Pope. Mr. Pope has been a Director of the Company since 1994. Mr.
Pope has been the Managing Director of Verdigris Capital, an environmental
investment banking firm since October 1996. Prior to October 1996, Mr. Pope
was a general partner of Technology Funding, a professional venture capital
firm. Mr. Pope currently serves on the board of directors of Medstone
International, Inc. and Advanced BioCatalytics Corp. where Mr. Pope also
serves as Vice President, Corporate Development. Mr. Pope holds a B.A. from
Stanford University, an M.B.A. from the University of Santa Clara Graduate
School of Business and a J.D. from the University of Santa Clara School of
Law.
James M. Strock. Mr. Strock has been a Director of the Company since October
1997. Since June 1997, Mr. Strock has been the Principal of Strock
Enterprises, a management and public affairs consultancy based in San
Francisco. Mr. Strock served as California's first Secretary for Environmental
Protection from 1991-1997. He was chief law enforcement officer of the U.S.
Environmental Protection Agency from 1989 to 1991. Mr. Strock currently serves
on the board of directors of American Vanguard Corporation and is a member of
the Council on Foreign Relations. He holds an A.B. and J.D. from Harvard
University.
John M. Toups. Mr. Toups has been a Director of the Company since November
1994. From January 1978 until his retirement in February 1987, Mr. Toups was
the Chief Executive Officer of Planning Research Corporation (PRC). Mr. Toups
currently serves on the board of directors of CACI International Inc., NVR,
Inc., Halifax Corporation, Government Technology Services, Inc., and Telepad
Corporation. Mr. Toups holds a B.S. in Civil Engineering from the University
of California at Berkeley.
REQUIRED VOTE
If a quorum is present and voting, the three nominees for Class II director
receiving the highest number of votes will be elected as Class II directors.
Abstentions and shares held by brokers that are present, but not voted because
the brokers were prohibited from exercising discretionary authority, i.e.,
"broker non-votes," will be counted as present in determining if a quorum is
present but because directors are elected by a plurality vote, will have no
impact once a quorum is present. See "Information Concerning Solicitation and
Voting--Quorum; Abstentions; Broker Non-Votes."
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE NOMINEES LISTED ABOVE
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BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five (5) meetings and
took a total of one (1) action by written consent during the fiscal year ended
December 31, 1997. No director serving during such fiscal year attended fewer
than 75% of the aggregate of all meetings of the Board of Directors and the
committees of the Board upon which such director served. The Board of
Directors has two committees, the Audit Committee and the Compensation
Committee.
The Audit Committee of the Board of Directors, which consists of Ms. Mark
and Messrs. Pope and Toups, held one (1) meeting during the last fiscal year.
The Audit Committee reviews and advises the Board of Directors regarding the
Company's accounting matters and is responsible for reviewing and recommending
the engagement of the Company's independent public accountants and the
services to be performed by them, and reviewing and evaluating the accounting
principles being applied to the Company's financial reports.
The Compensation Committee of the Board of Directors, which consists of
Messrs. Blumenstein, Healer and Strock, held two (2) meetings during the last
fiscal year. The Compensation Committee establishes the overall executive
compensation strategies of the Company and approves compensation elements for
the chief executive officer, other executive officers, and employees earning
in excess of $100,000 per year.
The Board of Directors has no nominating committee or any committee
performing such functions.
DIRECTOR COMPENSATION
Directors are not paid any cash compensation from the Company for their
services as members of the Board or any committee thereof, although they are
reimbursed for reasonable out-of-pocket expenses incurred by them in attending
such meetings.
The Company's 1996 Director Option Plan (the "Director Plan") was adopted by
the Board of Directors in March 1996 and was approved by the stockholders in
April 1996. The Director Plan provides for the automatic and non-discretionary
grant of nonqualified stock options to purchase 6,667 shares of the Company's
Common Stock to directors who are not employed by the Company ("Outside
Directors") on the date upon which such person first becomes an Outside
Director ("Initial Option"). Thereafter, each Outside Director is
automatically granted an option to purchase 1,667 shares of Common Stock on
January 1 of each year, beginning January 1, 1997 ("Subsequent Option"),
provided he or she has served as a director for at least six months as of such
date. The exercise price of options granted under the Director Plan is 100% of
the fair market value of the Company's Common Stock on the date of grant.
Initial Options vest and become exercisable as to 12 1/2% of the shares
subject to the option six months after the date of grant and as to an
additional 12 1/2% of the shares at the end of each six-month period
thereafter, provided the optionee continues to serve as a director on such
date. Subsequent Options vest and become exercisable as to 50% of the shares
subject to the Subsequent Option six months after the date of grant and as to
the remaining 50% one year after the date of grant, provided the optionee
continues to serve as a director on such date.
On January 1, 1997, a Subsequent Option to purchase 1,667 shares of Common
Stock was automatically granted to Messrs. Blumenstein, Healer, Pope and Toups
and to Ms. Mark at an exercise price of $9.00 per share. In October 1997, Mr.
Strock was granted an Initial Option to purchase 6,667 shares of Common Stock
at an exercise price of $3.00 per share. On January 1, 1998, a Subsequent
Option to purchase 1,667 share of Common Stock was automatically granted to
Messrs. Blumenstein, Healer, Pope, Toups and Ms. Mark at an exercise price of
$1.625 per share. In March 1998, Mr. Kokesh was granted an Initial Option to
purchase 6,667 shares of Common Stock at an exercise price of $2.50 per share.
A total of 83,334 shares of Common Stock has been reserved for issuance
under the Director Plan. As of April 20, 1998, no shares of Common Stock had
been issued upon the exercise of options granted under the Director Plan,
options to purchase 63,339 shares of Common Stock at a weighted average
exercise price of
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$8.56 per share were outstanding, 20,840 options were exercisable and 19,995
shares were available for future issuance.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Blumenstein, Healer and
Strock. Mr. Schofield also participates in discussions regarding salaries and
incentive compensation for all employees (including officers) and consultants
to the Company, except that Mr. Schofield is excluded from discussions
regarding his own salary and incentive compensation. No director or executive
officer of the Company is a director or executive officer of any other
corporation that has a director or executive director who is also a director
or a board committee member of the Company.
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PROPOSAL TWO
APPROVAL OF INCREASE IN NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER THE EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Company's Employee Stock Purchase Plan (the "ESPP") permits eligible
employees of the Company to purchase Common Stock through payroll deductions
of up to 15% of their eligible compensation and is intended to qualify under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").
The ESPP was adopted by the Board of Directors in March 1996 and approved by
the stockholders in April 1996. At that time, a total of 116,667 shares of the
Company's Common Stock were reserved for issuance under the ESPP. In March
1998, the Board of Directors adopted an amendment to the ESPP, subject to
stockholder approval, to increase the number of shares reserved for issuance
thereunder by 100,000 shares, to a total of 266,667 shares. As of April 20,
1998, 51,378 shares of Common Stock had been issued under the ESPP at an
average price of $2.30 per share and 65,289 shares remained available for
purchase.
REASONS FOR THE PROPOSED AMENDMENT
The Board of Directors believes that its ESPP is an important factor in
attracting and retaining skilled personnel. Each year the Company reviews the
number of shares available for issuance under the ESPP and estimates the
number of shares expected to be purchased under the ESPP. The Board of
Directors believes that the shares remaining available for issuance pursuant
to the ESPP are insufficient to meet the expected requirements over the next
two years. Accordingly, at the Annual Meeting, the stockholders are being
requested to consider and to approve the amendment of the ESPP to increase the
number of shares of Common Stock reserved for issuance thereunder by 100,000
shares.
SUMMARY OF THE ESPP
The essential features of the ESPP are summarized below.
Purpose. The purpose of the ESPP is to provide employees of the Company with
an opportunity to purchase Common Stock of the Company through accumulated
payroll deductions.
Administration. The ESPP may be administered by the Board of Directors or a
committee appointed by the Board. All questions of interpretation or
application of the ESPP are determined by the Board or its committee, whose
decisions are final and binding upon all participants. Members of the Board
who are eligible employees are permitted to participate in the ESPP but may
not vote on any matter affecting the administration thereof or the grant of
any option pursuant thereto. No director who is eligible to participate in the
ESPP may be a member of the committee appointed to administer it. No charges
for administrative or other costs may be made against the payroll deductions
of a participant in the ESPP. Members of the Board receive no additional
compensation for their services in connection with the administration of the
ESPP.
Eligibility and Participation. Any person who is employed by the Company (or
any of its majority-owned subsidiaries) for 20 hours per week and more than
five months in a calendar year is eligible to participate in the ESPP,
provided that the employee is employed on the first day of an offering period.
Eligible employees become participants in the ESPP by delivering to the
Company a subscription agreement authorizing payroll deductions prior to the
applicable enrollment date. An employee who becomes eligible to participate in
the ESPP after the commencement of an offering period may not participate in
the ESPP until the commencement of the next offering period.
Offering Dates. The ESPP is generally implemented during consecutive six-
month offering periods. The offering periods commence on May 1 and November 1
of each year; however, the first offering period
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commenced on June 20, 1996 and ended on April 30, 1997. Shares are purchased
for participating employees once every six months (the last day of each
offering period being the "Exercise Date"). The Board may alter the duration
of the offering periods without shareholder approval if such change is
announced five days prior to the scheduled beginning of the first offering
period to be affected.
Purchase Price. The purchase price per share at which shares will be sold
under the ESPP is the lower of 85% of the fair market value of the Common
Stock on the first day of each offering period or 85% of the fair market value
of the Common Stock on the Exercise Date.
The purchase price of the shares is accumulated by payroll deductions during
the offering period. The deductions may not exceed 15% of a participant's
eligible compensation, which is defined in the ESPP to include the regular
straight time gross salary (including authorized paid time off) in effect at
the beginning of the offering period, but excluding overtime, shift premium,
incentive compensation and payments, bonuses, commissions and other
compensation. A participant may at any time discontinue his or her
participation in the ESPP or may increase or decrease, not more than once in
an offering period, the rate of payroll deductions. Payroll deductions shall
commence on the first payday in the offering period, and shall continue at the
same rate until the end of the offering period and for consecutive offering
periods unless sooner terminated as provided in the ESPP. All payroll
deductions are credited to the participant's account under the ESPP and are
deposited with the general funds of the Company. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose.
Purchase of Stock. At the beginning of each offering period, by executing a
subscription agreement to participate in the ESPP, each participant is in
effect granted an option to purchase shares of Common Stock on each Exercise
Date. The maximum number of shares placed under option to a participant in an
offering period is that number determined by dividing the amount of
participant's total payroll deductions to be accumulated during the offering
period by the applicable purchase price, and subject to the further limitation
that the maximum number of shares a participant may purchase during each
offering period shall be determined at the beginning of the offering period by
dividing $12,500 by the fair market value of a share of Common Stock on the
first day of the offering period. Unless a participant withdraws from the
ESPP, such participant's option for the purchase of shares will be exercised
automatically at the end of the offering period for the maximum number of
shares at the applicable price.
Notwithstanding the foregoing, no employee will be permitted to subscribe
for shares under the ESPP if, immediately after the grant of the option, the
employee would own 5% or more of the voting power or value of all classes of
stock of the Company or of a parent or of any of its subsidiaries (including
stock which may be purchased under the ESPP or pursuant to any other options),
nor shall any employee be granted an option which would permit the employee to
buy more than $25,000 worth of stock (determined at the fair market value of
the shares at the time the option is granted) pursuant to all Company stock
purchase plans in any calendar year.
Withdrawal. A participant's interest in a given offering may be terminated
in whole, but not in part, by signing and delivering to the Company a notice
of withdrawal from the ESPP. Any withdrawal by the participant of accumulated
payroll deductions for a given offering period automatically terminates the
participant's interest in that offering period. The failure to maintain
continuous status as an employee of the Company for at least 20 hours per week
during an offering period will be deemed to be a withdrawal from that offering
period. The ESPP also provides that participants will be deemed to have
withdrawn from an offering during certain leaves of absence. Generally, a
participant's withdrawal from an offering period does not have any effect upon
such participant's eligibility to participate in subsequent offering periods.
Termination of Employee. Termination of a participant's employment for any
reason, including retirement or death, cancels his or her participation in the
ESPP immediately. In such event, the payroll deductions credited to the
participant's account will be returned to such participant or, in the case of
death, to the person or persons entitled thereto as specified by the employee
in the subscription agreement.
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Capital Changes. In the event any change is made in the Company's
capitalization, such as a stock split or stock dividend, which results in an
increase or decrease in the number of outstanding shares of Common Stock
without receipt of consideration by the Company, appropriate adjustments will
be made in the shares subject to purchase under the ESPP and in the purchase
price per share, subject to any required action by stockholders of the
Company.
Nonassignability. No rights or accumulated payroll deductions of a
participant under the ESPP may be pledged, assigned or transferred for any
reason (other than by will, the laws of descent and distribution) and any such
attempt may be treated by the Company as an election to withdraw from the
ESPP.
Amendment and Termination of the ESPP. The Board may at any time amend or
terminate the ESPP, except that such termination shall not affect options
previously granted, provided that an offering period may be terminated if the
Board determines that such termination is in the best interests of the Company
and its stockholders. No amendment may be made to the ESPP without prior
approval of the stockholders of the Company if such amendment would constitute
an amendment for which stockholder approval is required under the federal
securities laws or the Code. In any event, the ESPP will terminate in March
2006.
CERTAIN FEDERAL INCOME TAX INFORMATION
The ESPP, and the right of participants to make purchases thereunder, is
intended to qualify under the provisions of Sections 421 and 423 of the Code.
Under these provisions, no income will be taxable to a participant until the
sale or other disposition of the shares purchased under the ESPP. Upon such
sale or disposition, the participant will generally be subject to tax in an
amount that depends upon the holding period. If the shares are sold or
disposed of more than two years from the first day of the offering period, the
participant will recognize ordinary income measured as the lesser of (a) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price or (b) an amount equal to 15% of the fair
market value of the shares as of the first day of the offering period. Any
additional gain will be treated as long-term capital gain. If the shares are
sold or otherwise disposed of before the expiration of this holding period,
the participant will recognize ordinary income generally measured as the
excess of the fair market value of the shares on the date the shares are
purchased over the purchase price. Any additional gain or loss on such sale or
disposition will be long-term or short-term capital gain or loss, depending on
the holding period. The Company is not entitled to a deduction for amounts
taxed as ordinary income or capital gain to a participant except to the extent
of ordinary income recognized upon a sale or disposition of shares prior to
the expiration of the holding periods described above.
The foregoing summary of the federal income tax consequences of ESPP
transactions is based upon federal income tax laws in effect on the date of
this Proxy Statement. This summary does not purport to be complete, and does
not describe foreign, state or local tax consequences.
9
<PAGE>
PLAN BENEFITS
The Company cannot now determine the number of shares to be purchased in the
future by the named executive officers, all current executive officers as a
group or all employees (excluding executive officers) as a group. In the
fiscal year ended December 31, 1997, however, the following shares of Common
Stock were purchased by such persons pursuant to the ESPP:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
John T. Schofield.............................................. 3,703
Steven J. Guerrettaz........................................... 1,599
Alexander G. Baldwin........................................... 309
Howard M. Hohl................................................. 3,080
Richard J. Goodier............................................. 0
Barbara E. Krimsky............................................. 4,703
All current executive officers (3 persons)..................... 8,406
All employees (excluding current executive officers)........... 42,972
</TABLE>
REQUIRED VOTE
The stockholders are being asked to approve such amendment. The affirmative
vote of a majority of the outstanding shares of Common Stock will be required
to approve PROPOSAL TWO. The effect of an abstention and broker non-vote is
the same as that of a vote against the proposal. See "Information Concerning
Solicitation and Voting--Quorum; Abstentions; Broker Non-Votes."
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER
THE EMPLOYEE STOCK PURCHASE PLAN.
10
<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP to audit the
consolidated financial statements of the Company for the fiscal year ending
December 31, 1998, and recommends that stockholders vote for ratification of
such appointment. If there is a negative vote on such ratification, the Board
of Directors will reconsider its selection. Representatives of Arthur Andersen
LLP are expected to be present at the meeting with the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions.
REQUIRED VOTE
The ratification of the appointment of Arthur Andersen LLP requires the
affirmative vote of a majority of the shares of the Company's Common Stock
present or represented and entitled to vote on this subject matter at the
meeting. An abstention is not an affirmative vote and, therefore, will have
the same effect as a vote against the proposal. A broker non-vote will not be
treated as entitled to vote on this subject matter at the meeting. See
"Information Concerning Solicitation and Voting--Quorum; Abstentions; Broker
Non-Votes."
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (i) each of
the Company's executive officers named in the Summary Compensation Table
appearing herein (the "Named Executive Officers"), (ii) each director, (iii)
all of the Company's Named Executive Officers and directors as a group, and
(iv) each person (or group of affiliated persons) known to the Company to be
the beneficial owner of more than 5% of the Company's Common Stock. The
Company knows of no agreements among its stockholders that relate to voting or
investment power of its shares of Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(1)
-------------------
NAMED EXECUTIVE OFFICERS, DIRECTORS, AND NUMBER OF PERCENT
ALL DIRECTORS AND NAMED EXECUTIVE OFFICERS AS A GROUP SHARES OF TOTAL
- ----------------------------------------------------- ---------- --------
<S> <C> <C>
John T. Schofield(2) ...................................... 346,236 4.40
Steven J. Guerrettaz(3) ................................... 7,767 *
Alexander G. Baldwin(4).................................... 13,268 *
Howard M. Hohl(5) ......................................... 5,609 *
Richard J. Goodier(6) ..................................... 2,084 *
Barbara E. Krimsky(7) ..................................... 30,178 *
Robi Blumenstein(8)(9) .................................... 766,907 10.03
Harry J. Healer, Jr.(10)(11) .............................. 635,137 8.30
Charles R. Kokesh(12) ..................................... 1,171,817 15.33
Rebecca P. Mark(13) ....................................... 14,447 *
Frank R. Pope(14) ......................................... 154,959 2.03
James M. Strock(15)........................................ 834 *
John M. Toups(16) ......................................... 44,969 *
All Named Executive Officers and directors as a group (13
persons)(17) ............................................. 3,221,027 40.35
5% STOCKHOLDERS:
Charles River Partnerships VI, L.P. and Charles River
Partnership VI-A, L.P. ................................... 417,939 5.47
10 Post Office Square, Suite 1330
Boston, MA 02109
CIBC Wood Gundy Ventures, Inc.(8) ......................... 761,906 9.97
425 Lexington Ave., 2nd Floor
New York, NY 10017-3903
Denise Hale, George T. Cronin and Thomas M. Peterson as
Successor Co-trustees of the Prentis Cobb Hale Trust U/A
dated 7/13/93, as amended................................. 397,529 5.20
Brobeck Phleger & Harrison LLP
Attn: Thomas M. Peterson
One Market Plaza, Spear Street Tower
San Francisco, CA 94105
Technology Funding Partners III, L.P. and Technology Fund-
ing
Venture Partners IV, an Aggressive Growth Fund, L.P.(12) . 1,171,817 15.33
2000 Alameda de las Pulgas, Suite 250
San Mateo, CA 94403
Vencap Inc.(18) ........................................... 566,429 7.02
1980 Manulife Place, 10180-101 Street
Edmonton, Alberta T5J 3S4, CANADA
North America Environmental Fund, L.P.
c/o Ventana Environmental Organizational Partnership,
L.P. .................................................... 571,429 7.48
18881 Van Karman Ave., Tower 17, Ste. 350
Irvine, CA 92715
The Venture Capital Fund of New England II, L.P. and
The Venture Capital Fund of New England III, L.P.(10) .... 626,136 8.19
160 Federal Street, 23rd Floor
Boston, MA 02110
</TABLE>
- --------
*Less than 1%
12
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities. Options
to purchase shares of Common Stock which are currently exercisable or
will become exercisable within 60 days of the Record Date, are deemed to
be outstanding for purposes of computing the percentage of the shares
held by an individual but are not outstanding for purposes of computing
the percentage of any other person. Except as indicated otherwise in the
footnotes below, and subject to community property laws where applicable,
the persons named in the table above have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them.
(2) Includes 231,756 shares subject to stock options that are exercisable
within 60 days of April 20, 1998.
(3) Mr. Guerrettaz resigned from his position as the Company's Chief
Financial Officer effective December 31, 1997.
(4) Includes 12,292 shares subject to stock options that are exercisable
within 60 days of April 20, 1998. Mr. Baldwin ceased being an executive
officer of the Company as of August 31, 1997 although he is still an
employee of the Company.
(5) Includes 5,209 shares subject to stock options that are exercisable
within 60 days of April 20, 1998. Mr. Hohl, Vice President, Sales, ceased
being an executive officer of the Company as of June 30, 1997 and left
the Company effective March 31, 1998.
(6) All 2,084 shares are subject to stock options that are exercisable within
60 days of April 20, 1998.
(7) Includes 22,675 shares subject to stock options that are exercisable
within 60 days of April 20, 1998.
(8) Mr. Blumenstein is a director and officer of CIBC Wood Gundy Ventures,
Inc. and, therefore, may be deemed to beneficially own the shares held by
CIBC Wood Gundy Ventures, Inc. (761,906). Mr. Blumenstein disclaims
beneficial ownership of the 761,906 shares held by CIBC Wood Gundy
Ventures, Inc.
(9) Includes 5,001 shares subject to stock options that are exercisable
within 60 days of April 20, 1998.
(10) Mr. Healer is a general partner of The Venture Capital Fund of New
England and, therefore, may be deemed to beneficially own the shares held
by The Venture Capital Fund of New England (626,136, including warrants
to purchase 2,726 shares). Mr. Healer disclaims beneficial ownership of
the 626,136 shares held by The Venture Capital Fund of New England except
to the extent of his pecuniary interest arising from his general
partnership interest therein.
(11) Includes 5,001 shares subject to stock options that are exercisable
within 60 days of April 20, 1998.
(12) Mr. Kokesh is a managing general partner of Technology Funding and,
therefore, may be deemed to beneficially own the shares held by
Technology Funding. Includes 62,772 shares held by Technology Funding,
which pursuant to an agreement between Mr. Pope and Technology Funding,
Mr. Pope is entitled to receive at such time as Technology Funding
distributes the assets of the partnership to its limited partners. See
footnote (14).
(13) Includes 10,280 shares subject to stock options that are exercisable
within 60 days of April 20, 1998.
(14) Includes 5,001 shares subject to stock options that are exercisable
within 60 days of April 20, 1998 and 62,772 shares held by Technology
Funding and which Mr. Pope is entitled to receive upon distribution. See
footnote (12).
(15) All 834 shares are subject to stock options that are exercisable within
60 days of April 20, 1998.
(16) Includes 14,169 shares subject to stock options that are exercisable
within 60 days of April 20, 1998.
(17) Includes 340,643 shares subject to stock options and warrants that are
exercisable within 60 days of April 20, 1998.
(18) Based on information provided pursuant to Schedule 13G filed with the
Securities and Exchange Commission on February 11, 1998.
13
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table shows, as to the Chief Executive Officer and each of the
other five most highly compensated executive officers, information concerning
compensation awarded to, earned by or paid for services to the Company in all
capacities during the three years ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION
------------------------------------- SECURITIES
UNDERLYING
SALARY ALL OTHER OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($)(1) COMPENSATION(2) (#)(3)
- --------------------------- ---- -------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
John T. Schofield....... 1997 $220,000 $ -- $ 1,636 --
Chairman, President and 1996 215,625 -- 3,235 33,334
Chief Executive Officer 1995 179,375 3,000 9,374 166,667
Steven J. Guerrettaz(4). 1997 131,250 -- 997 --
Vice President, Finance
and Accounting 1996 122,813 -- 840 13,334
Chief Financial Officer 1995 98,229 500 792 6,668
Alexander G. Baldwin(5). 1997 125,000 -- 952 --
Vice President, Engi-
neering and Operations 1996 123,542 -- 900 10,000
1995 106,458 1,000 792 6,667
Howard M. Hohl(6)....... 1997 123,129 -- 30,916 --
Vice President, Sales 1996 117,687 -- 847 11,667
1995 97,875 600 709 3,334
Richard J. Goodier(7)... 1997 120,546 -- 768 5,000
Director, European
Engineering &
Operations 1996 -- -- -- --
1995 -- -- -- --
Barbara E. Krimsky...... 1997 120,000 -- 916 --
Vice President, Finance
and Administration 1996 115,625 -- 833 11,667
Acting Chief Financial
Officer and Secretary 1995 97,875 3,000 726 1,667
</TABLE>
- --------
(1) Represents shares of Common Stock with a fair market value at the date of
award of $1.50 per share.
(2) "All Other Compensation" includes premiums for life insurance policies and
a severance payment to Mr. Hohl in the amount of $30,000 related to the
termination of his employment.
(3) These shares are subject to exercise under stock options granted under the
Company's stock option plans.
(4) Mr. Guerrettaz resigned from the Company as of December 31, 1997.
(5) Mr. Baldwin ceased being an executive officer of the Company as of August
31, 1997 although he is still an employee of the Company.
(6) Mr. Hohl ceased being an executive officer of the Company as of June 30,
1997 and left the Company as of March 31, 1998. Payment for accrued
vacation in the amount of $3,129 is included in Mr. Hohl's 1997 salary.
(7) Mr. Goodier joined the Company February 1, 1997 and, therefore, his salary
from February 1, 1997 to December 31, 1997 reflects less than a full year.
Mr. Goodier is paid in pounds sterling which have been converted into U.S.
dollars at the exchange rate for the applicable fiscal year of $1.64.
14
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following table shows, as to the Named Executive Officers, information
concerning stock options granted during the fiscal year ended December 31,
1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM($)(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED (#)(2) FISCAL YEAR SHARE ($) DATE(3) 5% 10%
- ---- -------------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John T. Schofield....... -- -- $ -- -- $ -- $ --
Steven J. Guerrettaz.... -- -- -- -- -- --
Alexander G. Baldwin.... -- -- -- -- -- --
Howard M. Hohl.......... -- -- -- -- -- --
Richard J. Goodier...... 5,000 12.25% 7.00 02/14/2007 22,011 55,781
Barbara E. Krimsky...... -- -- -- -- -- --
</TABLE>
- --------
(1) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten-year
option term. These numbers are calculated based on the requirements
promulgated by the Securities and Exchange Commission. Actual gains, if
any, on option exercises are dependent on the future performance of the
Company's Common Stock and overall market conditions.
(2) Option grants generally vest over a 48-month period. Initial grants vest
and become exercisable as to 1/48th of the shares subject to the grant
twelve months after the vesting commencement date and as to an additional
1/48th of the shares at the end of each month thereafter provided the
optionee continues to serve as an employee on such date. Subsequent grants
vest and become exercisable as to 1/48th of the shares subject to the
subsequent grant one month after the vesting commencement date and as to
an additional 1/48th of the shares at the end of each month thereafter,
provided the optionee continues to serve as an employee on such date.
(3) Options may terminate before their expiration date if the optionee's
status as an employee is terminated.
The following table shows, as to the Named Executive Officers, information
concerning stock options exercised during the fiscal year ended December 31,
1997 and the value of unexercised options at such date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS/SARS AT DECEMBER 31, 1997
DECEMBER 31, 1997 (#) ($)(1)
---------------------- --------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ---------------------- --------------------
<S> <C> <C> <C> <C>
John T. Schofield....... 42,000 $129,150 210,923/81,666 $117,471/11,041
Steven J. Guerrettaz.... -- -- 16,810/0 5,678/0
Alexander G. Baldwin.... 18,752 33,087 9,376/8,540 885/1,041
Howard M. Hohl.......... -- -- 10,176/9,825 4,089/703
Richard J. Goodier...... -- -- 0/5,000 0/0
Barbara E. Krimsky...... -- -- 19,343/7,325 11,095/781
</TABLE>
- --------
(1) Based on the fair market value of the Company's Common Stock at December
31, 1997 of $1.625 per share, less the exercise price to be paid for such
shares.
15
<PAGE>
EMPLOYMENT AGREEMENTS
In connection with the appointment of Barbara E. Krimsky as Acting Chief
Financial Officer in January 1998, the Company entered into an agreement that
provides that in the event Ms. Krimsky is terminated without cause, the
Company shall give Ms. Krimsky three (3) months notice of such decision, and
at the end of such notice period shall pay Ms. Krimsky an amount equal to six
months' salary. In addition, all stock options held by Ms. Krimsky shall
become immediately exercisable.
The Company has no other employment contracts with any of its officers and
has no compensatory plan or arrangement which is activated upon resignation,
termination or retirement of any such officer upon a change in control of the
Company other than required by law. Under certain circumstances both the 1996
Stock Plan (defined below) and the Director Plan provide for the accelerated
vesting of all outstanding options upon a change in control.
OTHER EMPLOYEE BENEFIT PLANS
1987 Incentive Stock Plan
The Company's 1987 Incentive Stock Plan, as amended (the "1987 Stock Plan")
was adopted by the Board of Directors in August 1987 and approved by the
stockholders in February 1988. The 1987 Stock Plan provided for grants of
incentive stock options to employees (including officers and employee
directors) and non-statutory stock options to non-employees (including non-
employee directors) and consultants of the Company. A total of 907,651 shares
of Common Stock was reserved for issuance under the 1987 Stock Plan. As of
April 20, 1998, 286,999, shares of Common Stock had been issued upon the
exercise of options granted under the 1987 Stock Plan and options to purchase
473,572 shares of Common Stock at a weighted average exercise price of
$1.63 per share were outstanding. The Plan terminated in 1997 and no further
options will be granted under the 1987 Stock Plan. Options under the 1987
Stock Plan become exercisable at varying rates over vesting periods determined
by the Board of Directors (generally one to ten years), and as of April 20,
1998, 349,943 options were exercisable.
1996 Stock Plan
The Company's 1996 Stock Plan (the "1996 Plan") was adopted by the Board of
Directors in March 1996 and approved by the stockholders in April 1996. A
total of 333,334 shares of Common Stock has been reserved for issuance under
the 1996 Plan. The 1996 Plan provides for grants of incentive stock options to
employees (including officers and employee directors) and non-statutory stock
options and stock purchase rights to non-employees (including non-employee
directors) and consultants of the Company. The purpose of the 1996 Plan is to
attract and retain the best available personnel for positions of substantial
responsibility and to provide additional incentive to employees and
consultants to promote the success of the Company's business. The 1996 Plan is
presently being administered by the Board of Directors, which determines the
optionees and the terms of options granted, including the exercise price,
number of shares subject to the option and the exercisability thereof.
The terms of options granted under the 1996 Plan are stated in the option
agreements. Terms of an incentive stock option may not exceed 10 years, and
the term of all incentive stock options and non-statutory stock options
granted to an optionee who, at the time of grant, owns stock representing more
than 10% of the Company's outstanding capital stock, may not exceed five
years. Options granted under the 1996 Plan vest and become exercisable as set
forth in each option agreement. No option may be transferred by the optionee
other than by will or the laws of descent or distribution, and each option may
be exercised, during the lifetime of the optionee, only by such optionee. An
optionee whose relationship with the Company or any related corporation ceases
for any reason (other than by death or total and permanent disability) may
exercise options in the three-month period following such cessation, unless
such options terminate or expire sooner (or for non-statutory options, later),
by their terms. The three-month period is extended to twelve months for
terminations due to death or permanent total disability. In the event of a
merger of the Company with or into another corporation, all outstanding
options may either be assumed or an equivalent option may be substituted for
the surviving entity or, if such options are
16
<PAGE>
not assumed or substituted, such options shall become exercisable as to all of
the shares subject to the options, including shares as to which they would not
otherwise be exercisable. In the event that options become exercisable in lieu
of assumption or substitution, the Board of Directors shall notify optionees
that all options shall be fully exercisable for a period of 15 days, after
which such options shall terminate.
The Board of Directors determines the exercise price of options granted
under the 1996 Plan at the time of grant, provided that the exercise price of
all incentive stock options must be at least equal to the fair market value of
the shares on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting rights of the Company's
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date.
The consideration for exercising any incentive stock option or any non-
statutory stock option may consist of cash, check, promissory note, delivery
of already-owned shares of the Company's Common Stock subject to certain
conditions, delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, a
reduction in the amount of any Company liability to an optionee, or any
combination of the foregoing methods of payment or such other consideration or
method of payment to the extent permitted under applicable law.
No incentive stock options may be granted to a participant, which, when
aggregated with all other incentive stock options granted to such participant,
would have an aggregate fair market value in excess of $100,000 becoming
exercisable in any calendar year. No employee may be granted, in any fiscal
year of the Company, options or stock purchase rights to purchase more than
150,000 shares provided, however, an employee may be granted options and stock
purchase rights (discussed below) to purchase up to an additional 250,000
shares. The 1996 Plan will terminate in April 2006, unless sooner terminated
by the Board of Directors.
The Board of Directors may also grant stock purchase rights to employees and
consultants under the 1996 Plan. Such grants are made pursuant to restricted
stock purchase agreements. The Company is generally granted a repurchase
option exercisable on the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The repurchase price shall be the original purchase price paid by
the purchaser. The repurchase option shall lapse at a rate determined by the
Board of Directors. Once the stock purchase right has been exercised, the
purchaser shall have the rights equivalent to those of a stockholder.
The Board of Directors adopted a sub-plan of the 1996 Plan for the purpose
of qualifying for preferred tax treatment under UK tax laws. The UK Inland
Revenue approved the sub-plan effective January 30, 1998.
A total of 333,334 shares of Common Stock has been reserved for issuance
under the 1996 Plan. As of April 20, 1998, no shares of Common Stock had been
issued upon the exercise of options granted under the 1996 Plan, options to
purchase 148,100 shares of Common Stock at a weighted average exercise price
of $2.96 per share were outstanding, 11,690 options were exercisable and
185,234 shares were available for future issuance.
401(k) Savings Plan
The Company maintains the Thermatrix Inc. 401(k) Plan, a defined
contribution retirement plan with a cash or deferred arrangement as described
in Section 401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k)
Plan is intended to be qualified under Section 401(a) of the Code. All
employees of the Company are eligible to participate in the 401(k) Plan. The
401(k) Plan provides that each participant make elective contributions of a
percentage of his or her compensation, subject to statutory limits.
17
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Exchange Act of 1933, as amended, or the
Securities Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following report and
the Performance Graph on page 20 shall not be incorporated by reference into
any such filings.
GENERAL
The Compensation Committee (the "Committee") of the Board of Directors
establishes the overall executive compensation strategies of the Company and
approves compensation elements for the chief executive officer, other
executive officers, and employees earning in excess of $100,000 per year. The
Committee also recommends stock option awards for employees to the Board. The
Committee is comprised of three of the independent, non-employee members of
the Board of Directors, none of whom have interlocking relationships as
defined by the Securities and Exchange Commission. The Committee has available
to it such external compensation advice and data as the Committee deems
appropriate to obtain.
The compensation philosophy of the Committee is to provide a comprehensive
compensation package for each executive officer that is tailored to the
Company's accomplishment of business strategies, objectives and initiatives.
Accordingly, the Committee follows a compensation strategy which utilizes
vesting terms to incentivize and reward executives as the Company addresses
the challenges associated with growth. As the Committee applies this
compensation philosophy in determining appropriate executive compensation
levels and other compensation factors, the Committee reaches its decisions
with a view towards the Company's overall financial performance. The Committee
strives to structure each officer's overall compensation package to enable the
Company to attract, retain and reward personnel who contribute to the success
of the Company.
EXECUTIVE OFFICER COMPENSATION
The Committee's executive compensation policies are designed to enhance the
financial performance of the Company and thus stockholder value, by aligning
the financial interests of the key executives with those of the stockholders.
The executive compensation program is viewed in total considering all of its
component parts: an annual compensation component, which consists of base
salaries that are generally competitive with those offered by other companies
in the industry at similar phases of growth, and a long-term incentive
component, which consists of stock options and stock ownership. In determining
individual salaries, the Committee considers the individual experience,
performance and breadth of responsibilities of each executive officer within
the Company in light of the accomplishment of business strategies, objectives
and initiatives set forth by the Board periodically. These factors are
reviewed for each executive officer annually.
The Company's 1996 Stock Plan and the ESPP are long-term incentive plans for
all employees. These plans are intended to align stockholder and employee
interest by creating a direct link between long-term rewards and the value of
the Company's shares. The Committee believes that long-term stock ownership by
executive officers and all employees is an important factor in achieving both
above average growth in share value and retaining valued employees. Since the
value of an option bears a direct relationship to the Company's stock price,
the Committee believes that options motivate executive officers to manage the
Company in a manner which will benefit all stockholders.
The Option Plans authorize the Committee to award available stock options to
employees at any time. Options for executive officers are generally granted at
the time of initial employment with the Company, and at later dates at the
discretion of the Committee. The size of the initial and later grants are
determined by a number of factors including comparable grants to executive
officers and employees by other companies which compete in the Company's
industry. The exercise price per share of the stock options is normally equal
to the prevailing market value of a share of the Company's Common Stock on the
date the options are granted.
18
<PAGE>
The Company has adopted certain broad-based employee benefit plans in which
all employees, including the executive officers, are permitted to participate
on the same terms and conditions relating to eligibility and generally subject
to the same limitations on the amounts that may be contributed or the benefits
payable under those plans. See "Other Employee Benefit Plans--401(k) Savings
Plan."
CEO COMPENSATION
Compensation for the Chief Executive Officer aligns with the philosophies
and practices described above for executive officers in general. Mr.
Schofield's base salary was increased to $220,000 from $205,000 in April 1996.
Mr. Schofield received no salary increase in 1997. No options have been
granted to Mr. Schofield since January 1996. The Company currently does not
have a bonus plan for its Chief Executive Officer or any of its other
executive officers.
COMPENSATION COMMITTEE
Robi Blumenstein
Harry J. Healer, Jr.
James M. Strock
19
<PAGE>
COMPANY STOCK PRICE PERFORMANCE
The following graph demonstrates a comparison of cumulative total
stockholder returns, calculated on a dividend reinvestment basis and based
upon an initial investment of $100 in the Company's Common Stock as compared
with the Russell 2000 Index and the Dow Jones Industrial Technology Index. No
dividends have been declared or paid on the Company's Common Stock during such
period. The stock price performance shown on the graph below is not
necessarily indicative of future price performance. The Company's Common Stock
began trading on the NASDAQ National Market on June 20, 1996. The graph
reflects the Company's stock price performance from the initial public
offering through the end of fiscal 1997.
COMPARISON OF 18 MONTH CUMULATIVE TOTAL RETURN*
AMONG THERMATRIX INC., THE RUSSELL 2000 INDEX
AND THE DOW JONES INDUSTRIAL TECHNOLOGY INDEX
DOW JONES
THERMATRIX INC. RUSSELL 2000 INDUSTRIAL TECHNOLOGY
6/20/96 100 100 100
6/30/96 102 96 92
9/30/96 67 96 96
12/31/96 72 101 93
3/31/97 44 96 89
6/30/97 24 112 99
9/30/97 15 128 112
12/31/97 13 124 99
* $100 INVESTED ON 6/20/96 IN STOCK OR ON 5/31/96 IN INDEX -- INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
20
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent
as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: May 11, 1998
21
<PAGE>
SKU 1535-PS-98
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THERMATRIX INC.
1998 ANNUAL MEETING OF STOCKHOLDERS
June 11, 1998
The undersigned stockholder of Thermatrix Inc., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated May 11, 1998, and hereby appoints John T. Schofield
and Michael J. Danaher, or either of them, proxies and attorneys-in-fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1998 Annual Meeting of
Stockholders of Thermatrix Inc. to be held on June 11, 1998, at 10:30 a.m.
(Pacific time), at 101 Metro Drive, Suite 248, San Jose, California, and at any
adjournment(s) thereof and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE APPROVAL OF THE
AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN AND FOR RATIFICATION OF THE
APPOINTMENT OF THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS, AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING AND ANY
ADJOURNMENT(S) THEREOF.
1. ELECTION OF CLASS II DIRECTORS: ___ FOR all nominees listed
below (except as indicated).
___ WITHHOLD authority to
vote for nominees listed
below.
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE(S), STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST
BELOW:
Harry J. Healer, Jr. Charles R. Kokesh John M. Toups
2. PROPOSAL TO AMEND THE EMPLOYEE STOCK PURCHASE PLAN TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK OF THE COMPANY RESERVED FOR ISSUANCE
THEREUNDER BY 100,000:
__ FOR __ AGAINST __ ABSTAIN
<PAGE>
3. PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS:
__ FOR __ AGAINST __ ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT ____
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
Dated: _________________, 1998
____________________________________
Signature
____________________________________
Signature
