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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT ON FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): May 21, 1996
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Security Dynamics Technologies, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-25120 04-2916506
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(Commission File Number) (I.R.S. Employer Identification No.)
One Alewife Center, Cambridge, Massachusetts 02140
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(Address of Principal Executive Offices) (Zip Code)
(617) 547-7820
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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This Amendment No. 2 on Form 8-K/A amends and restates Item 7 of the
Current Report on Form 8-K filed with the Securities and Exchange Commission
(the "SEC") on May 23, 1996 by Security Dynamics Technologies, Inc., a
Delaware corporation (the "Company"), as amended by Amendment No. 1 on Form
8-K/A filed with the SEC by the Company on June 4, 1996.
ITEM 7. FINANCIAL STATEMENT AND EXHIBITS.
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(c) Exhibits
Exhibit 17.1 - Letter, dated May 21, 1996, of Kenneth P. Weiss.
Exhibit 17.2 - Letter, dated May 30, 1996, of Kenneth P. Weiss.
Exhibit 17.3 - Letter, dated June 3, 1996, of Security Dynamics
Technologies, Inc. to Kenneth P. Weiss.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: June 13, 1996 SECURITY DYNAMICS TECHNOLOGIES, INC.
(Registrant)
/s/ Charles R. Stuckey, Jr.
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By: Charles R. Stuckey, Jr.
President and Chief
Executive Officer
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<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit
Number
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<S> <C>
17.1 Letter, dated May 21, 1996, of Kenneth P. Weiss.
17.2 Letter, dated May 30, 1996, of Kenneth P. Weiss.
17.3 Letter, dated June 3, 1996, of Security Dynamics
Technologies, Inc. to Kenneth P. Weiss.
</TABLE>
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Exhibit 17.1
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May 21, 1996
Dear Chuck:
As we discussed earlier today I am resigning, effective immediately, my
positions at SDI as chairman, director, and CTO. This resignation is a result of
material disagreements and in protest associated with operations, policy and
practices of the company and certain directors.
We have agreed that your request for this brief letter today will not preclude
my right and intention to follow up with a more formal and detailed letter of
resignation with exhibits.
Furthermore I formally request that the forthcoming letter be disclosed.
Yours truly,
/s/ Kenneth P. Weiss
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Kenneth P. Weiss
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Exhibit 17.2
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Kenneth P. Weiss
59 Sargent Street
Newton, MA 02158
May 30, 1996
Board of Directors
Security Dynamics Technologies, Inc.
c/o Mr. Charles Stuckey, Jr.
President and Chief Executive Officer
One Alewife Center
Cambridge, MA 02140-2312
Dear Chuck:
I regretfully formally resign from my positions as Chairman of the Board of
Directors, a Director, Chief Technology Officer and as an employee of Security
Dynamics. Confirming my earlier request and your earlier agreement to do so,
please disclose the matters described in this letter in a Form 8-K.
I am resigning because of my disagreement with various practices of the
company, your relationship with the Board of Directors and the relationships
among directors. I am also particularly critical of certain of its directors and
the continuing service of those directors, who I believe have and will continue
to damage the Company. Although you asked me to reconsider my decision to
resign, I cannot in good conscience be a part of a Board with several
dishonorable directors.
In my opinion, you have surrounded yourself with a Board of Directors that
does not, and perhaps is incapable, of providing you with independent objective
guidance. To the contrary, from all of the actions that I have seen, these
directors appear to be working for you, rather than you working for them. I have
seen this time and time again under many circumstances. Illustrative is the way
in which you are able to influence the Compensation Committee to pay you what
you demand and to make decisions based upon on what you want, rather than on any
objective policy. Recent events in this area have been consistent with a pattern
of conduct that I have observed over the years.
For example, contrary to the compensation consultant's recommendation for a
consistent policy, you recently recommended
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that the vast majority of your bonus be calculated at "threshold" plan while the
other executives had the majority of their bonus awarded at "stretch" plan. The
Compensation Committee approved this unfair inconsistent treatment.
Another serious example relates to the Compensation Committee's recent
grant of stock options to you. After the Compensation Committee decided on
February 6, 1995 "to develop, WITH THE BOARD [emphasis added]" a long-term
compensation plan, the Compensation Committee reported on July 20, 1995 that an
outside independent compensation consultant would be retained and then the
"Compensation Committee would discuss compensation options with its consultant
and then MAKE A RECOMMENDATION TO THE BOARD OF DIRECTORS RELATING TO EXECUTIVE
COMPENSATION [emphasis added]." On October 18, 1995, the Board was also told
that the consultant would meet with "management prior to the end of October AND
THEN AGAIN WITH MEMBERS OF THE BOARD IN EARLY NOVEMBER PRIOR TO MAKING A FORMAL
RECOMMENDATION REGARDING A LONG-TERM COMPENSATION PLAN. [emphasis added]" In
January 1996 you recommended stock option grants for a number of individuals,
including yet another 100,000 shares for yourself. On January 24, 1996, in part
because the repeatedly requested consultant's report had been withheld, the
Board again agreed that your and other officer options would be considered in a
telephonic Board meeting to be held on February 7, 1996, after you circulated
the full consultant's report, which in fact you never circulated.
Notwithstanding this quite explicit series of agreements and understandings, the
Compensation Committee (as at unscheduled meeting held in your office)
apparently voted to grant you stock options immediately following that January
24 meeting. It was only on February 7, 1996, when the options to you were to be
considered, that we were told by the Compensation Committee that there would be
no discussion and that the matter had already been resolved (although the
Compensation Committee refused to say when). While the Compensation Committee
meeting, in fact, may have occurred on January 24, 1996, it was clearly
unauthorized because it was contrary to the Board's stated intentions and
previous commitments. Only after the Chairman of the Audit Committee and I
complained did the full Board, on March 22, 1996, ratify the inappropriate and
egregious actions of the Compensation Committee in order to clean up the mess,
which locked in a lower price than you would have had if it were done in
accordance with the Board's stated wishes (gaining you approximately $1,000,000
in the process).
While this ratification may have "legalized" the action, it certainly
reflects poorly on the Board of Directors and, in my view, constitutes unfair
dealing by the Compensation Committee and most of the other directors. Only the
Chairman of the Audit Committee and I voted against that ratification because we
believed that the Compensation Committee had not fulfilled its long standing
obligation to the Board or dealt fairly with the
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Board. What caused them to be persuaded to change their mind after statements
(recorded in the Board minutes quoted above) and a course of conduct of more
than one year which required a complete policy prior to the granting of stock
options? Did you promise them anything? Contrary to what you have assured me, is
it your intention to accelerate the vesting of options when any of these
directors leaves the Board? Perhaps you merely promised to keep them on the
Board.
For his role in exercising his fiduciary duty and raising questions of you
and the other directors on this dysfunctional and egregious behavior, which in
my opinion is clearly bad faith, no matter what the legal definition, you
schemed with the other directors to reduce the size of the Board and to vote
against the renomination of the Chairman of the Audit Committee for an
additional term. This is outrageous, given his acknowledged professionalism and
experience, which is greater than all of the other directors in the aggregate.
Your relationship with Hale & Dorr and corporate counsel, Mr. Leibowitz,
parallels your relationship with these directors in many respects. It appears to
me that you are not seeking the most independent advice, but, rather, are merely
seeking confirmation of your intentions. Their response to the foregoing facts
and circumstances relating to the grant of options to you was, in my opinion,
defensive to a fault, failing to give adequate recognition to the corporate
governance issues and poor corporate practice issues involved. Their
insensitivity to these issues is also found in Mr. Leibowitz's draft minutes
(see the enclosed two versions of draft minutes of the meetings held on January
24 and February 7, 1996, one set by Mr. Leibowitz and one set by our corporate
Secretary) and the inaccurate guidance given to the Compensation Committee on
January 24 as to its authority.
On an individual basis, certain of these directors have performed
particularly poorly for the company. In my opinion, one of them frequently
disrupts meetings and appears to be motivated principally by self-aggrandizement
and another appears to be inept and make little or no positive contribution to
the Board. Their continued participation on the Board is particularly glaring,
especially in the light of your engineered forced departure of the most
experienced director.
Perhaps these directors are behaving in this manner because they feel
beholden to you due to the number of shares that have been granted to them as
compensation for their acting as directors, which has made them all
millionaires. Notwithstanding the fact that they have been made wealthy as the
result of being a director, I would have expected that they would have been able
to objectively carry out their fiduciary responsibilities and contribute the way
directors should, rather than be your rubber stamp or act only to curry favor
with you. Now they can help you
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realize your goal of being both Chairman and Chief Executive Officer. But what
is the effect of this relationship on the company and its stockholders?
As the largest individual stockholder of Security Dynamics, I formally
request that you respond to my request that I be involved and have input into
the process of interviewing any prospective candidates for directorship. It is
essential that each of these candidates show the necessary independence,
experience and quality that is so often lacking from several of the current
members of the Board of Directors. If you do not respond favorable to this
request, I maybe forced to take other actions to protect the stockholders and my
significant investment.
Very truly yours,
/s/ Kenneth P. Weiss
Kenneth P. Weiss
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DRAFT OF 2/23/96
DRAFT -- SUBJECT TO BOARD APPROVAL
SECURITY DYNAMICS TECHNOLOGIES, INC.
Meeting of the Board of Directors
January 24, 1996
A meeting of the Board of Directors of Security Dynamics
Technologies, Inc., a Delaware corporation (the "Company"), was held
at the offices of the Company, One Alewife Center, Cambridge,
Massachusetts at 9:30 a.m. on Wednesday, January 24, 1996, pursuant to
notice duly given.
There were present and participating in the meeting Richard L.
Earnest, George M. Middlemas, Marino R. Polestra, Sanford M. Sherizen,
Charles R. Stuckey, Jr., Kenneth P. Weiss and Sheldon M. Wool,
constituting all of the members of the Board of Directors. Also
present by invitation of the Board were Arthur W. Coviello, Jr.,
Executive Vice President, Treasurer and Chief Financial Officer of the
Company, M. Lawrence Oliverio, Secretary of the Company, and Hal J.
Leibowitz of Hale and Dorr, counsel to the Company.
The Chairman of the Board, Mr. Weiss, presided, and Mr. Leibowitz
was appointed Secretary Pro Tempore and kept the minutes of the
meeting.
The Chairman called the meeting to order and indicated that the
first item of business was the approval of the minutes of the October
18, 1995 meeting of the Board of Directors. Upon motion duly made and
seconded, it was unanimously
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RESOLVED: That the minutes of the meeting of the Company's Board
of Directors held on October 18, 1995, as presented to
the Board, be and hereby are adopted and approved.
Next, Mr. Wool presented a report from the Company's Audit
Committee. Mr. Wool expressed the Committee's satisfaction with
the Company's fourth quarter results and its gratitude to
management in this regard. He also noted that the Audit Committee
had met with representatives of Deloitte & Touche, the Company's
auditors, on January 22, 1995. Mr. Wool reported that Deloitte &
Touche had not raised any significant concerns with respect to the
Company's accounting practices. The Audit Committee did, however,
discuss the quantity and aging of the Company's accounts
receivable. He also reported that the Committee requested that
Deloitte & Touche recommend to the Committee an appropriate form
of Compensation Committee Charter.
Next, Mr. Coviello summarized the results of the Company's
operations for the fourth quarter and year ended December 31,
1995. He also reviewed with the Board the new format for the
presentation of the Company's internal financial reports.
Mr. Coviello noted an increase in analysts' interest in covering
the Company as a result of its strong results of operations.
Mr. Weiss and the other directors asked Mr. Coviello to
comment on the Company's inventory practices with respect to
SecurID Cards in light of the need to minimize any risks of
interruption in supply. In addition, Mr. Wool asked Mr. Stuckey
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to comment on the Company's arrangements with Progress Software
and the related royalty structure. A discussion of these issues
ensued.
Next, Mr. Leibowitz discussed the need for certain
resolutions to be adopted by the Company's Compensation Committee
in connection with the Company's Employee Stock Purchase Plan.
Upon motion duly made and seconded, Messrs. Earnest, Middlemas
and Sherizen, constituting all of the members of the Compensation
Committee, unanimously
RESOLVED: That, unless otherwise resolved by the Compensation
Committee, each subsidiary of the Company, including
without limitation subsidiaries organized after the
date hereof, be and hereby is designated a Designated
Subsidiary, as such term is defined in, and for
purposes of, the Company's 1994 Employee Stock
Purchase Plan (as amended, the "Employee Stock
Purchase Plan").
RESOLVED: That, pursuant to the Employee Stock Purchase Plan,
the Company be and hereby is authorized to make
offerings to employees of the Company and the
Designated Subsidiaries to purchase shares of the
Company's Common Stock, $.01 par value per share (the
"Common Stock"), under the Employee Stock Purchase
Plan, during consecutive six-month offering periods
(collectively, the "Offering Periods") commencing on
February 1, 1996 and continuing until the earlier of
(i) the date of termination of the Employee Stock
Purchase Plan by the Board of Directors of the Company
or the Compensation Committee thereof, or (ii) the
termination date of the Offering Period in which all
remaining shares of Common Stock authorized for
issuance under the Employee Stock Purchase Plan are
issued.
Next, Mr. Middlemas presented a report on the activities of
the Company's Compensation Committee. Mr. Middlemas noted that
the Committee had met with Lance Berger of Lance A. Berger &
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Associates Ltd., the Company's compensation consultant, to discuss
the development of the Company's compensation plans. According to
Mr. Middlemas, Mr. Berger had prepared a preliminary report
incorporating comparable company data, but the Committee had
concerns over several assumptions included therein. He noted that
the Committee had not had an opportunity to share its views on
these issues with Mr. Berger. A discussion ensued among the
directors regarding the appropriate level of flexibility needed
for the Company to acquire and retain the personnel necessary for
continued growth.
The Board agreed to convene a telephonic meeting at
10:00 a.m. on February 7, 1995, to discuss Mr. Berger's report and
to vote on the Compensation Committee's recommendations for
compensation for senior management, other than Messrs. Fine and
Beckett.
Next, Mr. Stuckey outlined the proposed compensation for
Messrs. Fine and Beckett, a copy of which is attached to the
minutes of this meeting as Exhibit A. Following a discussion,
upon motion duly made and seconded, it was
RESOLVED: That, the base and bonus compensation arrangements for
compensating Messrs. Fine and Beckett in 1996, on the
terms presented to the Board at this meeting, be and
hereby are adopted and approved.
Messrs. Earnest, Middlemas, Polestra, Sherizen, Stuckey and
Wool voted in favor of the resolution. Mr. Weiss voted against
the resolution.
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Mr. Middlemas recommended that in future years the Board
schedule a meeting in late November or early December devoted
exclusively to the approval of compensation arrangements and an
operating plan for the following year. The directors
enthusiastically endorsed Mr. Middlemas' recommendation.
Next, Mr. Stuckey recommended that the Board authorize the
Company to reimburse its executives and director-level employees
for financial planning services provided by certified financial
planners. Following a discussion, and upon motion duly made and
seconded, it was unanimously
RESOLVED: That the Company reimburse its executives and
director-level employees for financial planning
services provided by certified financial planners as
follows:
Annual
Title Reimbursement
Chairman of the Board,
Chief Executive Officer,
President, Chief Operating
Officer, Executive Vice
Presidents and Senior Vice
Presidents $3,000
Vice Presidents and Directors $2,000
Next, Mr. Stuckey recommended that the Board authorize the
Company to reimburse its executives for expenses associated with
the leasing of an automobile. Following a discussion, and upon
motion duly made and seconded, it was unanimously:
RESOLVED: That the Company reimburse the following executives
for the automotive expenses set forth opposite their
positions below:
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<TABLE>
<CAPTION>
Lease
Title Amount Maintenance Total
<S> <C> <C> <C>
Chief Executive Officer; $600/month $100/month $700/month
President; Chief
Operating Officer
Executive Vice Presidents; $500/month $75/month $575/month
Senior Vice Presidents
Vice Presidents $400/month $50/month $450/month
</TABLE>
Next, the directors discussed the Company's option strategy.
The Board discussed the philosophy underlying option grants as
well as their use as a tool in recruiting and retention.
Following a brief recess for lunch, Messrs. Stuckey and
Coviello reported on the Company's 1996 Operating Plan, a copy of
which is attached to the minutes of this meeting as Exhibit B.
Mr. Stuckey began by discussing management's long range key
objectives and goals. Mr. Coviello then discussed management's
corporate objectives in 1996, including objectives relating to
product enhancements, new product development, partnerships and
collaborations, revenue and other financial improvements and
various corporate processes. Following a discussion, and upon
motion duly made and seconded, it was unanimously
RESOLVED: That the Company's 1996 Operating Plan, as presented
to the directors at this meeting, be and hereby is
adopted and approved.
Next, Mr. Coviello reported on the need for the Company to
expand its existing facilities and the market for alternative
space. Mr. Coviello discussed various locations considered by
management with the assistance of Spaulding & Slye and the
proposal for relocating the Company's headquarters to The Crosby
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Corporate Center in Bedford, Massachusetts, a copy of which is
attached to the minutes of this meeting as Exhibit C. Following a
discussion, and upon motion duly made and seconded, it was
unanimously
RESOLVED: That the Company be and hereby is authorized to enter
into a lease (the "Lease") with Beacon Properties,
L.P. (the "Landlord"), providing, among other things,
for the leasing by the Company of approximately 75,000
square feet of space at The Crosby Corporate Center in
Bedford, Massachusetts (the "Premises") on the terms
discussed at the meeting, and with such changes and in
such form as the Chairman of the Board, the President
or the Chief Financial Officer of the Company shall
determine, in his sole discretion, to be necessary,
appropriate or desirable; that the Chairman of the
Board, the President and the Chief Financial Officer
of the Company be, and each of them acting singly
hereby is, authorized and directed, in the name and on
behalf of the Company, to execute and deliver the
Lease and to take such other actions in connection
therewith as such officer shall determine, in his sole
discretion, to be necessary, appropriate or desirable;
and that the execution and delivery of the Lease and
the taking of such actions by such officer shall be
conclusive evidence of his determination and approval
and of the due authorization and approval of the Board
of Directors.
FURTHER
RESOLVED: That in connection with the execution of the Lease and
the relocation of the Company's headquarters to the
Premises, the Company be and hereby is authorized to
contract for and fund such tenant improvements as the
President of the Company shall determine, in his sole
discretion, to be necessary, appropriate or desirable;
that the Chairman of the Board, the President and the
Chief Financial Officer of the Company be, and each of
them acting singly hereby is, authorized and directed,
in the name and on behalf of the Company, to execute
and deliver such documents and to take such other
actions in connection therewith as such officer shall
determine, in his sole discretion, to be necessary,
appropriate or desirable; and that the execution and
delivery of such documents and the taking of such
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actions by such officer shall be conclusive evidence of his
determination and approval and of the due authorization and
approval of the Board of Directors.
Next, the Board of Directors considered management's
recommendations regarding the profit sharing and employer matching
program under the Company's 401(k) Plan. Following a discussion,
and upon motion duly made and seconded, it was unanimously
RESOLVED: That the Company be and hereby is authorized to make profit
sharing contributions under the Company's 401(k) Plan in
the amounts set forth on Exhibit D to the minutes of this
meeting.
Next, Mr. Stuckey led a discussion concerning proposed grants
under the Company's 1994 Stock Option Plan (the "Plan").
Mr. Stuckey recommended that the Board approve several option
grants to existing employees as well as to certain individuals to
whom offer letters had been extended, subject to their acceptance
of employment with the Company. Following a discussion, and upon
motion duly made and seconded, it was unanimously
RESOLVED: That each of the individuals listed on Exhibit E to
these minutes, as employees of the Company, be and
hereby is granted incentive stock options under the
Plan to purchase the number of shares of Common Stock
of the Company set forth opposite his or her
respective name at an exercise price of $_____ per
share (representing the average closing price of one
share of Common Stock on the Nasdaq National Market
for the five trading days immediately preceding the
date hereof and the fair market value of the Common
Stock as determined by the Board of Directors),
pursuant to, and in accordance with, the terms of
incentive stock option agreements entered into with
each of such individuals, containing such terms and
in such form consistent with the Plan as the
President and the Treasurer of the Company, or either
of them acting singly, shall determine, in his sole
discretion, to be necessary, appropriate or
desirable, and providing generally, among other
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things, for such incentive stock options to be exercisable
in four equal annual installments in arrears commencing on
the first anniversary of the vesting date set forth
opposite such individual's respective name and to be
subject to stockholder approval, on or before October 18,
1996, of the amendment to the Plan adopted by the Board of
Directors on October 18, 1995.
FURTHER
RESOLVED: That the President and the Treasurer of the Company
be, and either of them acting singly hereby is,
authorized and directed, on behalf and in the name of
the Company, to execute and deliver such agreements,
documents, and instruments, including without
limitation the incentive stock option agreements, and
to take such actions, as such officer shall
determine, in his sole discretion, to be necessary,
appropriate or desirable to effectuate the foregoing
resolution; and that the execution and delivery of
such agreements, documents and instruments and the
taking of such actions by such officer shall be
conclusive evidence of his determination and approval
and of the due authorization and approval of the
Compensation Committee of the Board of Directors of
the Company.
Mr. Leibowitz reminded the Board of the proper role of the
Compensation Committee in establishing executive compensation and
in awarding stock option grants under the Plan.
Next, Messrs. Weiss and Oliverio described to the Board
various matters relating to [Vasco] and [ActivCard]. Mr. Weiss
indicated that the Company has entered into an agreement with
Vasco pursuant to which [each company agreed not to assert any
claims against the other with respect to certain patents to the
extent operating within specified fields of use] and an agreement
relating to certain third party litigation (together, the "Vasco
Agreements"). Following a discussion, and upon motion duly made
and seconded, it was unanimously
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RESOLVED: That the execution and delivery by [Mr. Weiss] on
behalf of the Company of the Vasco Agreements be, and
hereby is, ratified, confirmed and approved.
Next, Mr. Stuckey reported on the status of the Company's
investment in VeriSign, Inc. ("VeriSign"). Mr. Stuckey informed
the Board that the Company had an opportunity to participate in a
follow-on financing for VeriSign. Following a discussion, and
upon motion duly made and seconded, it was unanimously
RESOLVED: That the Company be and hereby is authorized to
purchase up to 75,000 shares (the "VeriSign Shares")
of Series B Convertible Preferred Stock of VeriSign,
at a purchase price of $2.45 per share, upon such
terms and conditions as the Chairman of the Board, the
President or the Chief Financial Officer of the
Company shall determine, in his sole discretion, to be
necessary, appropriate or desirable; that the Chairman
of the Board, the President and the Chief Financial
Officer of the Company be, and each of them acting
singly hereby is, authorized, in the name and on
behalf of the Company, to execute and deliver any and
all documents, agreements, certificates and
instruments, including without limitation a Series B
Preferred Stock Purchase Agreement, a Registration
Rights Agreement and a Stockholders' Agreement
(collectively, the "VeriSign Agreements"), and to take
such other actions as such officer or officers shall
determine, in his or their sole discretion, to be
necessary, appropriate or desirable in connection with
the acquisition of the VeriSign Shares; and that the
execution and delivery of the VeriSign Agreements and
the taking of such actions by such officer or officers
shall be conclusive evidence of his or their
determination and approval and of the due
authorization and approval of the Board of Directors
of the Company.
Next, Mr. Stuckey reported on the status of his discussions
with various investment banking firms and the proposed retention
of one or more of such firms to provide the Company with services
in connection with proposed mergers and acquisitions. Mr. Stuckey
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indicated that such arrangements typically involve fees of between
approximately $4,000 and $5,000 per month and are generally
terminable by either party at will. The directors then discussed
the proper role of investment bankers in developing an acquisition
strategy for the Company. Following a discussion, and upon motion
duly made and seconded, it was
RESOLVED: That the Company be and hereby is authorized to enter
into engagement letters (the "Engagement Letters")
with up to two investment banking firms selected by
the Company's Chief Executive Officer, providing,
among other things, for the engagement by the Company
of such investment banking firms to provide merger and
acquisition services to the Company on substantially
the terms discussed at the meeting, and in such form
as the Chairman of the Board, the President or the
Chief Financial Officer of the Company shall
determine, in his sole discretion, to be necessary,
appropriate or desirable; that the Chairman of the
Board, the President and the Chief Financial Officer
of the Company be, and each of them acting singly
hereby is, authorized and directed, in the name and on
behalf of the Company, to execute and deliver the
Engagement Letters and to take such other actions in
connection therewith as such officer shall determine,
in his sole discretion, to be necessary, appropriate
or desirable; and that the execution and delivery of
the Engagement Letters and the taking of such actions
by such officer shall be conclusive evidence of his
determination and approval and of the due
authorization and approval of the Board of Directors.
Messrs. Earnest, Middlemas, Polestra, Sherizen, Stuckey and
Wool voted in favor of the resolution. Mr. Weiss abstained from
voting on the resolution.
Next, Mr. Polestra led a discussion concerning the
establishment of an Executive Committee of the Board of Directors
of the Company. Mr. Polestra suggested that an Executive
Committee be established comprised of Messrs. Stuckey, Weiss,
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Wool and Middlemas, and that the Committee be directed to present
to the Board for its consideration a proposed charter. Following
a discussion, and upon motion duly made and seconded, it was
unanimously
RESOLVED: That an Executive Committee of the Board of Directors be
and hereby is established; that such Committee be comprised
of Messrs. Stuckey, Weiss, Wool and Middlemas; and that the
Executive Committee be, and hereby is, directed to prepare
and present to the entire Board of Directors for its
consideration a form of Executive Committee Charter.
Next, Mr. Coviello requested that the Board authorize the
establishment of a foreign sales corporation, a subsidiary in
Norway and bank accounts in Singapore and Norway with the same
limitations on amounts and signatories previously approved by the
Board in connection with the Company's other foreign operations.
Following a discussion, and upon motion duly made and seconded, it
was unanimously
RESOLVED: [Resolutions to be provided.]
Next, Mr. Stuckey updated the Board on the Company's sales
and marketing efforts during the fourth quarter of 1995 and its
plans for the first quarter of 1996. Mr. Stuckey noted that the
Company recently entered into agreements with new distributors in
Japan, Korea and New Zealand. Mr. Coviello then provided a brief
update on the Company's engineering and customer support
organizations.
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<PAGE> 17
There being no further business to come before the meeting,
upon motion duly made and seconded, it was unanimously
RESOLVED: To adjourn.
Adjourned.
A true record.
Attest: _____________________
Hal J. Leibowitz
Secretary Pro Tempore
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EXHIBIT A -- PROPOSED COMPENSATION FOR SENIOR MANAGEMENT
<PAGE> 19
EXHIBIT B -- 1996 OPERATING PLAN
<PAGE> 20
EXHIBIT C -- SUMMARY OF PROPOSED LEASE FOR CROSBY CORPORATE CENTER
<PAGE> 21
EXHIBIT D -- 401(K) PLAN PROFIT SHARING CONTRIBUTIONS
<PAGE> 22
EXHIBIT E -- OPTION GRANTS
Number of Shares
Optionee Subject to Option Vesting Date
<PAGE> 23
DRAFT
SECURITY DYNAMICS TECHNOLOGIES, INC.
Meeting of the Board of Directors
January 24, 1996
A meeting of the Board of Directors of Security Dynamics
Technologies, Inc., a Delaware corporation (the "Company"), was
held at the offices of the Company, One Alewife Center, Cambridge,
Massachusetts at 9:30 a.m. on Wednesday, January 24, 1996,
pursuant to notice duly given.
There were present and participating in the meeting Richard
L. Earnest, George M. Middlemas, Marino R. Polestra, Sanford M.
Sherizen, Charles R. Stuckey, Jr., Kenneth P. Weiss and Sheldon M.
Wool, constituting all of the members of the Board of Directors.
Also present by invitation of the Board were Arthur W. Coviello,
Jr., Executive Vice President, Treasurer and Chief Financial
Officer of the Company, M. Lawrence Oliverio, Secretary of the
Company, and Hal J. Leibowitz of Hale and Dorr, counsel to the
Company.
The Chairman of the Board, Mr. Weiss, presided, and
Mr. Leibowitz was appointed Secretary Pro Tempore and kept the
minutes of the meeting.
The Chairman called the meeting to order and indicated that
the first item of business was the approval of the minutes of the
October 18, 1995 meeting of the Board of Directors. Upon motion
duly made and seconded, it was unanimously
<PAGE> 24
RESOLVED: That the minutes of the meeting of the Company's Board
of Directors held on October 18, 1995, as presented to
the Board, be and hereby are adopted and approved.
Next, Mr. Wool presented a report from the Company's Audit
Committee. Mr. Wool expressed the Committee's satisfaction with
the Company's fourth quarter results and its gratitude to
management in this regard. He also noted that the Audit committee
had met with representatives of Deloitte & Touche, the Company's
auditors, on January 22, 1995. Mr. wool reported that Deloitte &
Touche had not raised any significant concerns with respect to the
Company's accounting practices. The Audit Committee did, however,
discuss the quantity and aging of the Company's accounts
receivable. He also reported that the Committee requested that
Deloitte & Touche recommend to the Committee an appropriate form
of Compensation Committee Charter.
Next, Mr. Coviello summarized the results of the Company's
operations for the fourth quarter and year ended December 31,
1995. He also reviewed with the Board the new format for the
presentation of the Company's internal financial reports.
Mr. Coviello noted an increase in analysts' interest in covering
the Company as a result of its strong results of operations.
Mr. Weiss and the other directors asked Mr. Coviello to
comment on the Company's inventory practices with respect to
SecurID Cards in light of the need to minimize any risks of
interruption in supply. In addition, Mr. Wool asked Mr. Stuckey
to comment on the Company's arrangements with Progress Software
-2-
<PAGE> 25
and the related royalty structure. A discussion of these issues
ensued.
Next, Mr. Leibowitz discussed the need for certain
resolutions to be adopted by the Company's Compensation Committee
in connection with the Company's Employee Stock Purchase Plan.
Upon motion duly made and seconded, Messrs. Earnest, Middlemas
and Sherizen, constituting all of the members of the Compensation
Committee, unanimously
RESOLVED: That, unless otherwise resolved by the Compensation
Committee, each subsidiary of the Company, including
without limitation subsidiaries organized after the
date hereof, be and hereby is designated a Designated
Subsidiary, as such term is defined in, and for
purposes of, the Company's 1994 Employee Stock
Purchase Plan (as amended, the "Employee Stock
Purchase Plan").
RESOLVED: That, pursuant to the Employee Stock Purchase Plan,
the Company be and hereby is authorized to make
offerings to employees of the Company and the
Designated Subsidiaries to purchase shares of the
Company's Common Stock, $.01 par value per share (the
"Common Stock"), under the Employee Stock Purchase
Plan, during consecutive six-month offering periods
(collectively, the "Offering Periods") commencing on
February 1, 1996 and continuing until the earlier of
(I) the date of termination of the Employee Stock
Purchase Plan by the Board of Directors of the Company
or the Compensation Committee thereof, or (ii) the
termination date of the Offering Period in which all
remaining shares of Common Stock authorized for
issuance under the Employee Stock Purchase Plan are
issued.
Next, Mr. Middlemas presented a report on the activities of
the Company's Compensation Committee. Mr. Middlemas noted that
the Committee had met with Lance Berger of Lance A. Berger &
Associates Ltd., the Company's compensation consultant, to discuss
-3-
<PAGE> 26
the development of the Company's compensation plans. According to
Mr. Middlemas, Mr. Berger had prepared the original report in
November incorporating comparable company data, but the Committee
had concerns over several assumptions included therein. He noted
that the Committee had not had an opportunity to share its views
on these issues with Mr. Berger. A discussion ensued among the
directors regarding the appropriate level of flexibility needed
for the Company to acquire and retain the personnel necessary for
continued growth. Several Board members asked why they had been
refused a copy of the report. Mr. Middlemas stated that there
were minor corrections necessary before the report would be
disseminated. Mr. Weiss said it was inappropriate to consider
executive compensation and stock option grants until all members
of the Board had a reasonable opportunity to review the
consultant's report to facilitate a well-informed discussion
leading to the Board's developing a uniform option policy.
Mr. Stuckey stated that if Mr. Berger could not make the
corrections by the following Monday, Mr. Stuckey would copy and
distribute the original report to the Board members who had not
previously received or reviewed it.
The Board unanimously agreed to suspend all discussion and
actions on executive compensation and stock options until
February 7, 1996 at which time a telephonic meeting at a
10:00 a.m. would be held to discuss Mr. Berger's report, option
policy and to vote on the Compensation Committee's recommendations
-4-
<PAGE> 27
for stock options for executive officers and for compensation for
senior management, other than Messrs. Fine and Beckett.
Next, Mr. Stuckey outlined the proposed compensation for
Messrs. Fine and Beckett, a copy of which is attached to the
minutes of this meeting as Exhibit A. Following a discussion,
upon motion duly made and seconded, it was
RESOLVED: That, the base and bonus compensation arrangements for
compensating Messrs. Fine and Beckett in 1996, on the
terms presented to the Board at this meeting, be and
hereby are adopted and approved.
Messrs. Earnest, Middlemas, Polestra, Sherizen, Stuckey and
Wool voted in favor of the resolution. Mr. Weiss voted against
the resolution.
Mr. Middlemas recommended that in future years the Board
schedule a meeting in late November or early December devoted
exclusively to the approval of compensation arrangements and an
operating plan for the following year. The directors
enthusiastically endorsed Mr. Middlemas' recommendation.
Next, Mr. Stuckey recommended that the Board authorize the
Company to reimburse its executives and director-level employees
for financial planning services provided by certified financial
planners. Following a discussion, and upon motion duly made and
seconded, it was unanimously
RESOLVED: That the Company reimburse its executives and
director-level employees for financial planning
services provided by certified financial planners as
follows:
-5-
<PAGE> 28
<TABLE>
<CAPTION>
Annual
Title Reimbursement
<S> <C>
Chairman of the Board,
Chief Executive Officer,
President, Chief Operating
Officer, Executive Vice
Presidents and Senior Vice
Presidents $3,000
Vice Presidents and Directors $2,000
</TABLE>
Next, Mr. Stuckey recommended that the Board authorize the
Company to reimburse its executives for expenses associated with
the leasing of an automobile. Following a discussion, and upon
motion duly made and seconded, it was unanimously:
<TABLE>
RESOLVED: That the Company reimburse the following executives
for the automotive expenses set forth opposite their
positions below:
<CAPTION>
Lease
Title Amount Maintenance Total
<S> <C> <C> <C>
Chief Executive Officer; $600/month $100/month $700/month
President; Chief
Operating Officer
Executive Vice Presidents; $500/month $75/month $575/month
Senior Vice Presidents
Vice Presidents $400/month $50/month $450/month
</TABLE>
Next, the directors discussed the Company's option strategy.
The Board discussed the philosophy underlying option grants as
well as their use as a tool in recruiting and retention.
Following a brief recess for lunch, Messrs. Stuckey and
Coviello reported on the Company's 1996 Operating Plan, a copy of
which is attached to the minutes of this meeting as Mr. Stuckey
began by discussing management's long range key objectives and
-6-
<PAGE> 29
goals. Mr. Coviello then discussed management's corporate
objectives in 1996, including objectives relating to product
enhancements, new product development, partnerships and
collaborations, revenue and other financial improvements and
various corporate processes. Following a discussion, and upon
motion duly made and seconded, it was unanimously
RESOLVED: That the Company's 1996 Operating Plan, as presented
to the directors at this meeting, be and hereby is
adopted and approved.
Next, Mr. Coviello reported on the need for the Company to
expand its existing facilities and the market for alternative
space. Mr. Coviello discussed various locations considered by
management with the assistance of Spaulding & Slye and the
proposal for relocating the Company's headquarters to The Crosby
Corporate Center in Bedford, Massachusetts, a copy of which is
attached to the minutes of this meeting as Exhibit C. Following a
discussion, and upon motion duly made and seconded, it was
unanimously
RESOLVED: That the Company be and hereby is authorized to enter
into a lease (the "Lease") with Beacon Properties,
L.P. (the "Landlord"), providing, among other things,
for the leasing by the Company of approximately 75,000
square feet of space at The Crosby Corporate Center in
Bedford, Massachusetts (the "Premises") on the terms
discussed at the meeting, and with such changes and in
such form as the Chairman of the Board, the President
or the Chief Financial Officer of the Company shall
determine, in his sole discretion, to be necessary,
appropriate or desirable; that the Chairman of the
Board, the President and the Chief Financial Officer
of the Company be, and each of them acting singly
hereby is, authorized and directed, in the name and on
behalf of the Company, to execute and deliver the
Lease and to take such other actions in connection
-7-
<PAGE> 30
therewith as such officer shall determine, in his sole
discretion, to be necessary, appropriate or desirable; and
that the execution and delivery of the Lease and the taking
of such actions by such officer shall be conclusive
evidence of his determination and approval and of the due
authorization and approval of the Board of Directors.
FURTHER
RESOLVED: That in connection with the execution of the Lease and
the relocation of the Company's headquarters to the
Premises, the Company be and hereby is authorized to
contract for and fund such tenant improvements as the
President of the Company shall determine, in his sole
discretion, to be necessary, appropriate or desirable;
that the Chairman of the Board, the President and the
Chief Financial Officer of the Company be, and each of
them acting singly hereby is, authorized and directed,
in the name and on behalf of the Company, to execute
and deliver such documents and to take such other
actions in connection therewith as such officer shall
determine, in his sole discretion, to be necessary,
appropriate or desirable; and that the execution and
delivery of such documents and the taking of such
actions by such officer shall be conclusive evidence
of his determination and approval and of the due
authorization and approval of the Board of Directors.
Next, the Board of Directors considered management's
recommendations regarding the profit sharing and employer matching
program under the Company's 401(k) Plan. Following a discussion,
and upon motion duly made and seconded, it was unanimously
RESOLVED: That the Company be and hereby is authorized to make profit
sharing contributions under the Company's 401(k) Plan in
the amounts set forth on Exhibit D to the minutes of this
meeting.
Next, Mr. Stuckey led a discussion concerning proposed grants
under the Company's 1994 Stock Option Plan (the "Plan").
Mr. Stuckey recommended that the Board approve several option
grants to existing employees as well as to certain individuals to
whom offer letters had been extended, subject to their acceptance
-8-
<PAGE> 31
of employment with the Company. Following a discussion, and upon
motion duly made and seconded, it was unanimously
RESOLVED: That each of the individuals listed on Exhibit E to
these minutes, as employees of the Company, be and
hereby is granted incentive stock options under the
Plan to purchase the number of shares of Common Stock
of the Company set forth opposite his or her
respective name at an exercise price of $_____ per
share (representing the average closing price of one
share of Common Stock on the Nasdaq National Market
for the five trading days immediately preceding the
date hereof and the fair market value of the Common
Stock as determined by the Board of Directors),
pursuant to, and in accordance with, the terms of
incentive stock option agreements entered into with
each of such individuals, containing such terms and
in such form consistent with the Plan as the
President and the Treasurer of the Company, or either
of them acting singly, shall determine, in his sole
discretion, to be necessary, appropriate or
desirable, and providing generally, among other
things, for such incentive stock options to be
exercisable in four equal annual installments in
arrears commencing on the first anniversary of the
vesting date set forth opposite such individual's
respective name and to be subject to stockholder
approval, on or before October 18, 1996, of the
amendment to the Plan adopted by the Board of
Directors on October 18, 1995.
FURTHER
RESOLVED: That the President and the Treasurer of the Company
be, and either of them acting singly hereby is,
authorized and directed, on behalf and in the name of
the Company, to execute and deliver such agreements,
documents, and instruments, including without
limitation the incentive stock option agreements, and
to take such actions, as such officer shall
determine, in his sole discretion, to be necessary,
appropriate or desirable to effectuate the foregoing
resolution; and that the execution and delivery of
such agreements, documents and instruments and the
taking of such actions by such officer shall be
conclusive evidence of his determination and approval
and of the due authorization and approval of the
Compensation Committee of the Board of Directors of
the Company.
-9-
<PAGE> 32
Mr. Leibowitz reminded the Board of the proper role of the
Compensation Committee in establishing executive compensation and
in awarding stock option grants under the Plan.
Next, Messrs. Weiss and Oliverio described to the Board
various matters relating to [Vasco] and [ActivCard]. Mr. Weiss
indicated that the Company has entered into an agreement with
Vasco pursuant to which [each company agreed not to assert any
claims against the other with respect to certain patents to the
extent operating within specified fields of use] and an agreement
relating to certain third party litigation (together, the "Vasco
Agreements"). Following a discussion, and upon motion duly made
and seconded, it was unanimously
RESOLVED: That the execution and delivery by [Mr. Weiss] on
behalf of the Company of the Vasco Agreements be, and
hereby is, ratified, confirmed and approved.
Next, Mr. Stuckey reported on the status of the Company's
investment in VeriSign, Inc. ("VeriSign"). Mr. Stuckey informed
the Board that the Company had an opportunity to participate in a
follow-on financing for VeriSign. Following a discussion, and
upon motion duly made and seconded, it was unanimously
RESOLVED: That the Company be and hereby is authorized to
purchase up to 75,000 shares (the "VeriSign Shares")
of Series B Convertible Preferred Stock of VeriSign,
at a purchase price of $2.45 per share, upon such
terms and conditions as the Chairman of the Board, the
President or the Chief Financial Officer of the
Company shall determine, in his sole discretion, to be
necessary, appropriate or desirable; that the Chairman
of the Board, the President and the Chief Financial
Officer of the Company be, and each of them acting
singly hereby is, authorized, in the name and on
behalf of the Company, to execute and deliver any and
-10-
<PAGE> 33
all documents, agreements, certificates and instruments,
including without limitation a Series B Preferred Stock
Purchase Agreement, a Registration Rights Agreement and a
Stockholders' Agreement (collectively, the "VeriSign
Agreements"), and to take such other actions as such
officer or officers shall determine, in his or their sole
discretion, to be necessary, appropriate or desirable in
connection with the acquisition of the VeriSign Shares; and
that the execution and delivery of the VeriSign Agreements
and the taking of such actions by such officer or officers
shall be conclusive evidence of his or their determination
and approval and of the due authorization and approval of
the Board of Directors of the Company.
Next, Mr. Stuckey reported on the status of his discussions
with various investment banking firms and the proposed retention
of one or more of such firms to provide the Company with services
in connection with proposed mergers and acquisitions. Mr. Stuckey
indicated that such arrangements typically involve fees of between
approximately $4,000 and $5,000 per month and are generally
terminable by either party at will. The directors then discussed
the proper role of investment bankers in developing an acquisition
strategy for the Company. Following a discussion, and upon motion
duly made and seconded, it was
RESOLVED: That the Company be and hereby is authorized to enter
into engagement letters (the "Engagement Letters")
with up to two investment banking firms selected by
the Company's Chief Executive Officer, providing,
among other things, for the engagement by the Company
of such investment banking firms to provide merger and
acquisition services to the Company on substantially
the terms discussed at the meeting, and in such form
as the Chairman of the Board, the President or the
Chief Financial Officer of the Company shall
determine, in his sole discretion, to be necessary,
appropriate or desirable; that the Chairman of the
Board, the President and the Chief Financial Officer
of the Company be, and each of them acting singly
-11-
<PAGE> 34
hereby is, authorized and directed, in the name and on
behalf of the Company, to execute and deliver the
Engagement Letters and to take such other actions in
connection therewith as such officer shall determine, in
his sole discretion, to be necessary, appropriate or
desirable; and that the execution and delivery of the
Engagement Letters and the taking of such actions by such
officer shall be conclusive evidence of his determination
and approval and of the due authorization and approval of
the Board of Directors.
Messrs. Earnest, Middlemas, Polestra, Sherizen, Stuckey and
Wool voted in favor of the resolution. Mr. Weiss abstained from
voting on the resolution.
Next, Mr. Polestra led a discussion concerning the
establishment of an Executive Committee of the Board of Directors
of the Company. Mr. Polestra suggested that an Executive
Committee be established comprised of Messrs. Stuckey, Weiss,
Wool and Middlemas, and that the Committee be directed to present
to the Board for its consideration a proposed charter. Following
a discussion, and upon motion duly made and seconded, it was
unanimously
RESOLVED: That an Executive Committee of the Board of Directors be
and hereby is established; that such Committee be comprised
of Messrs. Stuckey, Weiss, Wool and Middlemas; and that the
Executive Committee be, and hereby is, directed to prepare
and present to the entire Board of Directors for its
consideration a form of Executive Committee Charter.
Next, Mr. Coviello requested that the Board authorize the
establishment of a foreign sales corporation, a subsidiary in
Norway and bank account in Singapore and Norway with the same
limitations on amounts and signatories previously approved by the
Board in connection with the Company's other foreign operations.
-12-
<PAGE> 35
Following a discussion, and upon motion duly made and seconded, it
was unanimously
RESOLVED: [Resolutions to be provided.]
Next, Mr. Stuckey updated the Board on the Company's sales
and marketing efforts during the fourth quarter of 1995 and its
plans for the first quarter of 1996. Mr. Stuckey noted that the
Company recently entered into agreements with new distributors in
Japan, Korea and New Zealand. Mr. Coviello then provided a brief
update on the Company's engineering and customer support
organizations.
There being no further business to come before the meeting,
upon motion duly made and seconded, it was unanimously
RESOLVED: To adjourn.
Adjourned.
A true record.
Attest: _____________________
M. Lawrence Oliverio
Secretary
-13-
<PAGE> 36
EXHIBIT A -- PROPOSED COMPENSATION FOR SENIOR MANAGEMENT
<PAGE> 37
EXHIBIT B -- 1996 OPERATING PLAN
<PAGE> 38
EXHIBIT C -- SUMMARY OF PROPOSED LEASE FOR CROSBY CORPORATE CENTER
<PAGE> 39
EXHIBIT D -- 401(K) PLAN PROFIT SHARING CONTRIBUTIONS
<PAGE> 40
EXHIBIT E -- OPTION GRANTS
Number of Shares
Optionee Subject to Option Vesting Date
<PAGE> 41
SECURITY DYNAMICS TECHNOLOGIES, INC.
Meeting of the Board of Directors
February 7, 1996
A telephonic meeting of the Board of Directors of Security
Dynamics Technologies, Inc. (the "Company") was held at 10:00 a.m.
on Wednesday, February 7, 1996, pursuant to notice duly given.
There were participating in the meeting Richard L. Earnest,
George M. Middlemas, Marino R. Polestra, Sanford M. Sherizen,
Charles R. Stuckey, Jr., Kenneth P. Weiss and Sheldon B. Wool,
constituting all of the members of the Board of Directors. Also
participating by invitation were M. Lawrence Oliverio, Secretary
of the Company, and Hal J. Leibowitz of Hale and Dorr, counsel to
the Company.
The Chairman of the Board, Mr. Weiss, presided, and
Mr. Leibowitz was appointed Secretary Pro Tempore and kept the
minutes of the meeting.
The Chairman called the meeting to order. At Mr. Stuckey's
request, Mr. Leibowitz clarified the proper role of the
Compensation Committee in establishing executive compensation.
Mr. Leibowitz indicated that the Compensation Committee is
responsible for establishing compensation policies with respect to
the Company's executive officers, subject to the review and
approval of the full Board of Directors. He noted that the
Compensation Committee reviews and recommends to the Board for its
approval the salaries and the incentive compensation for the
<PAGE> 42
executive officers of the Company and grants stock options to
executives and other employees of the Company and its
subsidiaries.
Next, Mr. Earnest began a series of reports relating to the
Compensation Committee's actions and recommendations with respect
to executive compensation matters. First, Mr. Earnest reported
that the Compensation Committee had already approved the grant of
stock options for senior executives which were listed in the
schedule of new stock option grants distributed at the January 24,
1996 meeting of the Board of Directors. Mr. Earnest then reported
that the Compensation Committee had approved increasing the number
of stock options granted to Brien Naylon from 1,000 shares to
4,000 shares in connection with his recent promotion within the
Company.
Next, Mr. Earnest inquired as to whether each of the
directors had received an updated Executive Summary to the
Compensation Report prepared by Lance Berger of Lance A. Berger &
Associates Ltd., the Company's compensation consultant. Each
member of the Board acknowledged receipt of this Summary.
Mr. Wool asked if the full report and back-up research and data
had been updated in connection with the preparation of the new
Executive Summary. Mr. Earnest indicated that it had not.
Next, Mr. Earnest directed the members of the Board to the
1996 proposed compensation arrangements for the Company's
executive officers distributed at the prior Board meeting, a copy
-2-
<PAGE> 43
of which is attached to these minutes as Exhibit A (the
"Compensation Proposal"). Mr. Earnest indicated that the
Compensation Committee recommended to the Board the 1996 base
salary and bonus program for each of the Company's executive
officers (other than Messrs. Stuckey and Weiss) set forth in the
Compensation Proposal.
Mr. Wool commented on the discount and premium for bonuses
between "threshold" and "plan," on the one hand, and "plan" and
"stretch," on the other hand, under the Compensation Proposal. He
recommended that the Board consider establishing a consistent
percentage change between these sets of figures. A discussion of
the appropriate levels of bonuses at threshold, plan and stretch
ensued. Following a discussion, and upon motion duly made and
seconded, it was unanimously
RESOLVED: That the base and bonus compensation arrangements
recommended by the Compensation Committee for
compensating each of the Company's executive officers
(other than Messrs. Stuckey and Weiss) in 1996, on the
terms outlined in the Compensation Proposal, be and
hereby are adopted and approved, subject to the right
of the Company's Chief Executive Officer, in his sole
discretion, to alter, either individually or as a
group, the bonus schedule for such executive officers
to provide for bonuses at "threshold" and "stretch"
that represent 50% and 150%, respectively, of the
bonus at "plan."
Next, Mr. Earnest summarized the Compensation Committee's
recommendations regarding the compensation of Mr. Stuckey in 1996.
Mr. Earnest indicated that the Committee recommended a base salary
of $220,000 per year, representing the mid-point of the range for
comparable companies reviewed by the Committee, and a bonus of
-3-
<PAGE> 44
$125,000, $150,000 and $225,000 for performance at threshold, plan
and stretch, respectively (such bonus levels to be subject to
adjustment in the same manner described above with respect to the
other executive officers of the Company).
Following a discussion, upon motion duly made and seconded,
it was
RESOLVED: That the base and bonus compensation arrangements
recommended by the Compensation Committee for compensating
the Company's President and Chief Executive Officer in
1996, on the terms outlined at the meeting, be and hereby
are adopted and approved.
Each of the directors other than Mr. Stuckey voted in favor of the
resolution. Mr. Stuckey abstained from voting on the resolution.
Next, Mr. Earnest summarized the Compensation Committee's
recommendations regarding the compensation of Mr. Weiss in 1996.
Mr. Earnest indicated that, in recognition of Mr. Weiss's recent
contributions to the Company's patent portfolio, the Committee was
recommending that the Company pay a one-time bonus to Mr. Weiss in
the amount of $75,000. Upon motion duly made and seconded, it was
RESOLVED: That in recognition of his recent contributions to the
Company's patent portfolio, the Company pay a one-time
bonus to its Chief Technical Officer in the amount of
$75,000.
Each of the directors other than Mr. Weiss voted in favor of the
resolution. Mr. Weiss abstained from voting on the resolution.
Next, Mr. Earnest indicated that the Compensation Committee
desired to establish a form of incentive compensation for
Mr. Weiss for the current and future years. Mr. Earnest indicated
that the Committee was recommending that the Company pay Mr. Weiss
-4-
<PAGE> 45
a bonus of $25,000 for each new approved patent obtained by
Mr. Weiss during the remainder of the term of his current
employment agreement with the Company. Mr. Earnest indicated that
the Committee also was recommending that the Company's Chief
Executive Officer submit to the Board his suggestions of
appropriate future bonus criteria for the Company's Chief
Technical Officer. Mr. Wool indicated his belief that Mr. Weiss
should be entitled to a bonus based on revenue targets similar to
those established for the Company's other executive officers.
Mr. Earnest noted that the unique technical role played by
Mr. Weiss was a factor in the Compensation Committee's
recommendations. A discussion concerning the appropriate method
for establishing incentive compensation for Mr. Weiss ensued. The
Board of Directors (other than Mr. Weiss, who abstained) agreed to
allow the Compensation Committee to consider the appropriateness
of separating Mr. Weiss's 1996 compensation into two components,
based on his services as the Company's Chief Technical Officer and
as Chairman of the Board.
Next, Mr. Earnest reported that the Compensation Committee
had approved the recommendations from Mr. Stuckey regarding stock
option grants for each of the Company's executive officers (other
than Messrs. Stuckey and Weiss) as set forth in the Compensation
Proposal as well as the grant of options to purchase 100,000
-5-
<PAGE> 46
shares of Common Stock to Mr. Stuckey. A discussion concerning
the timing and mechanism for the approval of stock option grants
to the Company's executive officers ensued.
There being no further business to come before the meeting,
upon motion duly made and seconded, it was unanimously
RESOLVED: To adjourn.
Adjourned.
A true record.
Attest: _____________________
Hal J. Leibowitz
Secretary Pro Tempore
-6-
<PAGE> 47
EXHIBIT A -- COMPENSATION PROPOSAL
-7-
<PAGE> 48
DRAFT |
SECURITY DYNAMICS TECHNOLOGIES, INC.
Meeting of the Board of Directors
February 7, 1996
A telephonic meeting of the Board of Directors of Security
Dynamics Technologies, Inc. (the "Company") was held at 10:00 a.m.
on Wednesday, February 7, 1996, pursuant to notice duly given.
There were participating in the meeting Richard L. Earnest,
George M. Middlemas, Marino R. Polestra, Sanford M. Sherizen,
Charles R. Stuckey, Jr., Kenneth P. Weiss and Sheldon M B. Wool, |
constituting all of the members of the Board of Directors. Also
participating by invitation were M. Lawrence Oliverio, Secretary
of the Company, and Hal J. Leibowitz of Hale and Dorr, counsel to
the Company.
The Chairman of the Board, Mr. Weiss, presided, and
Mr. Leibowitz was appointed Secretary Pro Tempore and kept the
minutes of the meeting.
The Chairman called the meeting to order. At Mr. Stuckey's
request, Mr. Leibowitz clarified the proper role of the
Compensation Committee in establishing executive compensation.
Mr. Leibowitz indicated that the Compensation Committee is
responsible for establishing compensation policies with respect to
the Company's executive officers, subject to the review and
approval of the full Board of Directors. He noted that the
Compensation Committee reviews and recommends to the Board for its
<PAGE> 49
approval the salaries and the incentive compensation for the |
executive officers of the Company and grants stock options to |
executives and other employees of the Company and its |
subsidiaries. |
approval the salaries and the incentive compensation for the |
executive officers of the Company and grants stock options to |
executives and other employees of the Company and its |
subsidiaries. |
Next, Mr. Earnest began a series of reports relating to the
Compensation Committee's actions and recommendations with respect
to executive compensation matters. First, Mr. Earnest and |
Mr. Middlemas reported that the Compensation Committee had already |
approved, prior to the Board meeting on January 24, 1996, the |
grant of stock options for senior executives which were listed in
the schedule of new stock option grants distributed at the
January 24 Board 24, 1996 meeting. Next, Mr. Earnest stated that |
there would be no discussion of the stock option grants because |
the Compensation Committee had authority to grant options without |
conferring with or approval from the Board of Directors. |
Mr. Earnest then reported that the Compensation Committee had |
approved increasing the number of stock options granted to Brien
Naylon from 1,000 shares to 4,000 shares in connection with his
recent promotion within the Company.
Next, Mr. Ernest Earnest inquired as to whether each of the |
directors had received an updated Executive Summary to the
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<PAGE> 50
Compensation report Report prepared by Lance Berger of Lance A. |
Berger & Associates Ltd., the Company's compensation consultant.
Each member of the Board acknowledged receipt of this Summary.
Mr. Wool asked if the full report and back-up research and data
had been updated as promised and why only a summary instead of in |
connection with the promised full report was provided to all |
preparation of the directors new Executive Summary. Mr. Earnest |
indicated that the back-up research and data it had notbeen |
updated. |
Next, Mr. Earnest directed the members of the Board to the
1996 proposed compensation arrangements for the Company's
executive officers distributed at the prior Board meeting, a copy
of which is attached to these minutes as Exhibit A (the
"Compensation Proposal"). Mr. Earnest indicated that the
Compensation Committee recommended to the Board the 1996 base
salary and bonus program for each of the Company's executive
officers (other than Messrs. Stuckey and Weiss) set forth in the
compensation Compensation Proposal. |
Mr. Wool commented on the discount and premium for bonuses
between "threshold" and "plan,", on the one hand, and "plan" and |
"stretch,", on the other hand, under the Compensation Proposal. |
He recommended that the Board consider establishing a consistent
percentage change between these sets of figures. A discussion of
the appropriate levels of bonuses at threshold, plan and stretch
ensued. Following a discussion, and upon motion duly made and
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<PAGE> 51
seconded, it was unanimously
RESOLVED: That the base and bonus compensation arrangements
recommended by the Compensation Committee for
compensating each of the Company's executive officers
(other than Messrs. Stuckey and Weiss) in 1996, on
the terms outlined in the Compensation Proposal, be
and hereby are adopted and approved, subject to the
right of the Company's Chief Executive Officer, in his
sole discretion, to alter, either individually or as a
group, the bonus schedule for such executive officers
to provide for bonuses at "threshold" and "stretch"
that represent 50% and 150%, respectively, of the
bonus at "plan."
Next, Mr. Earnest summarized the Compensation Committee's
recommendations regarding the compensation of Mr. Stuckey in 1996.
Mr. Earnest indicated that the Committee recommended a base salary
of $220,000 per year, representing the mid-point of the range for
comparable companies reviewed by the Committee, and a bonus of
$125,000, $150,000 and $225,000 for performance at threshold, plan
and stretch, respectively (such bonus levels to be subject to
adjustment in the same manner described above with respect to the
other executive officers of the Company).
Following a discussion, upon motion duly made and seconded,
it was
RESOLVED: That the base and bonus compensation arrangements
recommended by the Compensation Committee for compensating
the Company's President and Chief Executive Officer in
1996, on the terms outlined at the meeting, be and hereby
are adopted and approved.
Each of the directors other than Mr. Stuckey voted in favor of the
resolution. Mr. Stuckey abstained from voting on the resolution.
Next, Mr. Earnest summarized the Compensation Committee's
recommendations regarding the compensation of Mr. Weiss in 1996.
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<PAGE> 52
Mr. Earnest indicted indicated that, in recognition of Mr. Weiss's |
Weiss' recent contributions to the Company's patent portfolio, the |
Committee was recommending that the Company pay a one-time bonus
to Mr. Weiss in the amount of $75,000. Upon motion duly made and
seconded, it was
RESOLVED: That in recognition of his recent contributions to the
Company's patent portfolio, the Company pay a one-time
bonus to its Chief Technical Officer in the amount of
$75,000.
Each of the directors other than Mr. Weiss voted in favor of the
resolution. Mr. Weiss abstained from voting on the resolution.
Next, Mr. Earnest indicated that the Compensation Committee
desired to establish a form of incentive compensation for
Mr. Weiss for the current and future years. Mr. Earnest indicated
that the Committee was recommending that the Company pay Mr. Weiss
a bonus of $25,000 for each new approved patent obtained by
Mr. Weiss during the remainder of the term of his current
employment agreement with the Company. Mr. Earnest indicted |
indicated that the Committee also was recommending that the |
Company's Chief Executive Officer submit to the Board his
suggestions of appropriate future bonus criteria for the Company's
Chief Technical Officer. Mr. Wool indicated his belief that
Mr. Weiss should be entitled to a bonus based on revenue targets
similar to those established for the Company's other executive
officers. Mr. Earnest noted that the unique technical role played
by Mr. Weiss was a factor in the Compensation Committee's
recommendations. A discussion concerning the appropriate method
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<PAGE> 53
for establishing incentive compensation for Mr. Weiss ensued. The
Board of Directors (other than Mr. Weiss, who abstained) agreed to
allow the Compensation Committee to consider the appropriateness
of separating Mr. Weiss's Weiss' 1996 compensation into two |
components, based on his services as the Company's Chief Technical
Officer and as Chairman of the Board.
Next, Mr. Earnest reiterated reported that the Compensation |
Committee had approved the recommendations from Mr. Stuckey
regarding stock option grants for each of the Company's executive
officers (other than Messrs. Stuckey and Weiss) as set forth in
the Compensation Proposal as well as the grant of options to
purchase 100,000 shares of Common Stock to Mr. Stuckey. A
discussion concerning the timing and mechanism for the approval of
stock option grants to the Company's executive officers
ensued.Mr. Weiss queried as to when the stock options for |
Mr. Stuckey were formally voted by the Committee and as to the |
non-existence of a set of minutes of a Compensation Committee |
meeting at which the grant of stock options for senior executives |
was formally voted. Mr. Middlemas reported that there was no |
formal set of minutes but that he would attempt to retrieve his |
handwritten notes concerning several Compensation Committee |
meetings at which stock options for senior executives were |
discussed and approved. |
There being no further business to come before the meeting,
upon motion duly made and seconded, it was unanimously
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<PAGE> 54
RESOLVED: To adjourn.
Adjourned.
A true record.
Attest: _____________________ |
M. Lawrence Oliverio |
Secretary |
Hal J. Leibowitz |
Secretary Pro Tempore |
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<PAGE> 55
EXHIBIT A -- COMPENSATION PROPOSAL
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<PAGE> 1
Exhibit 17.3
------------
Security Dynamics Technologies, Inc.
One Alewife Center
Cambridge, MA 02140-2312
(617) 547-7820
June 3, 1996
Mr. Kenneth P. Weiss
59 Sargent Street
Newton, MA 02158
Dear Ken:
I have been asked by the Board of Directors to provide the following
response to your letter dated May 30, 1996, relating to your resignation from
various positions with Security Dynamics. Please note that this response is
being provided on behalf of the Company, and that certain directors and other
third parties may elect to respond on an individual basis in connection with
your correspondence.
The Board believes that your letter contains reprehensible and
irresponsible misstatements and omissions, the effect of which is to portray
facts and events in a light which are both without merit and not worthy of
individual comment or response.
The Board did note with interest your comments regarding the increase in
value associated with the shares and options held by certain of the Company's
directors. As you will recall, the stock and option grants to these directors
were all made with your approval and, in many cases, at your insistence. It is
also worth noting that you are the largest single beneficiary of the
appreciation in the value of the Company's stock, which took place during the
tenure of the current Board and management.
With respect to your request to be involved in the process of selecting
prospective directors, I am sure that you have been advised that you would have
had such an opportunity had you continued to serve on the Board, and that you
are not entitled to any such opportunity in your capacity as a stockholder of
the Company. However, as is the case with every stockholder, you are entitled to
submit nominations for directorships in accordance with the procedures set forth
in the Company's charter and By-laws. The Board believes that it would be
inappropriate to provide you with an opportunity to participate in the
nominating process without providing other stockholders, including both
individual and institutional stockholders with interests as large as or larger
than yours, with a comparable opportunity. Please be assured that the Board will
take into account the interests of all of the
<PAGE> 2
Company's stockholders in seeking to identify and retain the services of
experienced and qualified directors.
Finally, I urge you to remember your continuing responsibilities to the
stockholders of the Company as a former director, including your duty of
confidentiality, as well as your obligation to refrain from trading in the
Company's securities during the pooling blackout period resulting from the
pending acquisition of RSA Data Security, Inc. or while you are in the
possession of material inside information.
Very truly yours,
/s/ Charles R. Stuckey, Jr.
Charles R. Stuckey, Jr.
President and Chief Executive Officer
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