<PAGE> 1
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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
SECURITY DYNAMICS TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
SECURITY DYNAMICS TECHNOLOGIES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Security Dynamics Technologies, Inc., a Delaware corporation (the "Company"),
will be held on Thursday, April 30, 1998 at 10:00 a.m. at the offices of Hale
and Dorr LLP, 60 State Street, Boston, Massachusetts (the "Meeting") for the
purpose of considering and voting upon the following matters:
1. To elect two Class I Directors for the ensuing three years;
2. To approve the amendment and restatement of the Company's 1994 Stock
Option Plan, as amended, to (i) increase from 6,570,000 to 9,570,000 the
number of shares of Common Stock authorized thereunder, and (ii) provide
for the grant by the Company of restricted stock and other stock-based
awards thereunder;
3. To ratify the appointment of Deloitte & Touche LLP as independent
auditors of the Company for the current year; and
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on Thursday, March
26, 1998 as the record date for the determination of stockholders entitled to
notice of and to vote at the Meeting and at any adjournments thereof.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1997, which contains consolidated financial statements and other
information of interest to stockholders, accompanies this Notice and the
enclosed Proxy Statement.
By Order of the Board of Directors,
/s/ Arthur W. Coviello, Jr.
--------------------------------------
Arthur W. Coviello, Jr.,
Secretary
April 1, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. NO
POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE> 3
SECURITY DYNAMICS TECHNOLOGIES, INC.
20 CROSBY DRIVE
BEDFORD, MASSACHUSETTS 01730
-------------------------------
PROXY STATEMENT
-------------------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Security Dynamics Technologies, Inc. (the
"Company") at the Annual Meeting of Stockholders to be held on Thursday, April
30, 1998 at 10:00 a.m. at the offices of Hale and Dorr LLP, 60 State Street,
Boston, Massachusetts and at any adjournments thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation to the Secretary of the Company. Attendance at the Meeting
will not itself be deemed to revoke a proxy unless the stockholder gives
affirmative notice at the Meeting that the stockholder intends to revoke the
proxy and vote in person.
On March 26, 1998, the record date for determination of stockholders
entitled to vote at the Meeting (the "Record Date"), there were outstanding and
entitled to vote an aggregate of 40,857,538 shares of Common Stock of the
Company, $.01 par value per share (the "Common Stock"). Each share entitles the
record holder to one vote on each of the matters to be voted upon at the
Meeting.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997 ARE
FIRST BEING SENT OR GIVEN TO STOCKHOLDERS ON OR ABOUT APRIL 1, 1998. THE COMPANY
WILL, UPON WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT CHARGE A COPY OF
ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS. PLEASE ADDRESS
ALL SUCH REQUESTS TO THE COMPANY, ATTENTION OF MARIAN G. O'LEARY, SENIOR VICE
PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER, 20 CROSBY DRIVE, BEDFORD,
MASSACHUSETTS 01730. EXHIBITS WILL BE PROVIDED UPON WRITTEN REQUEST AND PAYMENT
OF AN APPROPRIATE PROCESSING FEE.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 31, 1998
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) the directors and nominees for director of the
Company, (iii) the Chief Executive Officer and the four other most highly
compensated executive officers who were serving as executive officers on
December 31, 1997 (the "Named Executive Officers"), and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
--------------------------------
NAME AND ADDRESS PERCENT OF
OF BENEFICIAL OWNER NUMBER OF SHARES CLASS
- ------------------- ---------------- ----------
<S> <C> <C>
5% STOCKHOLDERS
Putnam Investments, Inc. ................................... 4,332,109(2) 10.9%
One Post Office Square
Boston, Massachusetts 02109
Pilgrim Baxter & Associates, Ltd. .......................... 3,032,410(3) 7.6%
1255 Drummers Lane, Suite 300
Wayne, Pennsylvania 19087
T. Rowe Price Associates, Inc............................... 2,823,700(4) 7.1%
100 E. Pratt Street
Baltimore, MD 21202
Kenneth P. Weiss............................................ 2,354,516(5) 5.9%
59 Sargent Street
Newton, MA 02158
Addison M. Fischer.......................................... 2,338,048(6) 5.9%
3506 Mercantile Avenue
Naples, FL 34104-3310
Alberto W. Vilar............................................ 2,237,900(7) 5.6%
c/o Amerindo Investment Advisors Inc.
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
Goldman, Sachs & Co. ....................................... 2,049,720(8) 5.2%
85 Broad Street
New York, NY 10004
DIRECTORS
Charles R. Stuckey, Jr. .................................... 743,630(9) 1.9%
D. James Bidzos............................................. 879,755(10) 2.2%
Richard L. Earnest.......................................... 44,516(11) *
Joseph B. Lassiter, III..................................... 9,000(12) *
George M. Middlemas......................................... 49,982(13) *
Sanford M. Sherizen......................................... 52,250(14) *
James K. Sims............................................... 25,000 *
OTHER NAMED EXECUTIVE OFFICERS
Gary A. Rogers.............................................. 62,796(15) *
Arthur W. Coviello, Jr. .................................... 215,464(16) *
W. David Power.............................................. 78,436(17) *
All executive officers and directors, as a group (13
persons).................................................. 2,318,729(18) 5.6%
</TABLE>
- ---------------
* Less than 1%
(1) The number of shares beneficially owned by each stockholder, director and
executive officer is determined under rules promulgated by the Securities
and Exchange Commission, and the information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules, beneficial
2
<PAGE> 5
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days after January 31, 1998 through the
exercise of any stock option or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares. Unless
otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.
(2) Putnam Investments, Inc. has shared voting power with respect to 242,200
shares and shared dispositive power with respect to 4,332,109 shares.
Putnam Investment Management, Inc. has shared dispositive power with
respect to 3,994,209 shares. The Putnam Advisory Company, Inc. has shared
voting power with respect to 242,200 shares and shared dispositive power
with respect to 337,900 shares. The Putnam New Opportunities Fund has
shared dispositive power with respect to 2,132,600 shares. Putnam
Investments, Inc., a wholly owned subsidiary of the Marsh & McLennan
Companies, Inc., is the sole stockholder of Putnam Investment Management,
Inc. and The Putnam Advisory Company, Inc. This information is derived from
a Schedule 13G/A filed with the Securities and Exchange Commission on
January 27, 1998.
(3) This information is derived from a Schedule 13G/A filed with the Securities
and Exchange Commission on February 13, 1998.
(4) This information is derived from a Schedule 13G filed with the Securities
and Exchange Commission on February 11, 1998.
(5) This information is derived from a Schedule 13G/A filed with the Securities
and Exchange Commission on January 28, 1998.
(6) Includes 97,112 shares held by Kairdos L.L.C., a Delaware limited liability
company, of which Mr. Fischer is a director and a member. Mr. Fischer
disclaims beneficial ownership of these shares except to the extent of his
proportionate pecuniary interest therein. Also includes 206,400 shares held
by a grantor retained annuity trust of which Mr. Fischer is the trustee.
This information is derived from a Schedule 13G/A filed with the Securities
and Exchange Commission on February 9, 1998.
(7) Alberto W. Vilar has sole voting and dispositive power with respect to
2,000 shares, as to only a portion of which beneficial ownership is
affirmed, and shared voting and dispositive power with respect to 2,235,900
shares, as to all of which beneficial ownership is disclaimed. Gary A.
Tanaka has shared voting and dispositive power with respect to 2,235,900
shares, as to all of which beneficial ownership is disclaimed. Amerindo
Investment Advisors Inc., a California corporation ("Amerindo California"),
has shared voting and dispositive power with respect to 2,068,800 shares,
as to all of which beneficial ownership is disclaimed. Amerindo Investment
Advisors, Inc., a Panama corporation ("Amerindo Panama"), has shared voting
and dispositive power with respect to 167,100 shares, as to all of which
beneficial ownership is disclaimed. Amerindo Investment Advisors Inc.
Profit Sharing Trust (the "Trust") has sole voting and dispositive power
with respect to 2,000 shares. Mr. Vilar and Mr. Tanaka are the sole
shareholders and directors of Amerindo California and Amerindo Panama. Mr.
Vilar is the sole trustee of the Trust. This information is derived from a
Schedule 13G filed with the Securities and Exchange Commission on February
13, 1998.
(8) This information is derived from a Schedule 13G filed with the Securities
and Exchange Commission on February 13, 1998.
(9) Includes 10,000 shares held by the Stuckey Family Charitable Remainder
Unitrust. Also includes 400,000 shares which may be acquired pursuant to
stock options exercisable within 60 days after January 31, 1998.
(10) Includes 93,752 shares held by Kairdos L.L.C., a Delaware limited liability
company of which Mr. Bidzos is the General Manager and a member. Mr. Bidzos
disclaims beneficial ownership of these shares except to the extent of his
proportionate pecuniary interest therein. Also includes 578,271 shares
which may be acquired pursuant to stock options exercisable within 60 days
after January 31, 1998.
3
<PAGE> 6
(11) Includes 28,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after January 31, 1998.
(12) Consists of 9,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after January 31, 1998.
(13) Includes 28,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after January 31, 1998.
(14) Includes 12,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after January 31, 1998.
(15) Includes 62,500 shares which may be acquired pursuant to stock options
exercisable within 60 days after January 31, 1998.
(16) Includes 195,240 shares which may be acquired pursuant to stock options
exercisable within 60 days after January 31, 1998.
(17) Includes 78,126 shares which may be acquired pursuant to stock options
exercisable within 60 days after January 31, 1998.
(18) Includes an aggregate of 1,484,237 shares which may be acquired pursuant to
stock options exercisable within 60 days after January 31, 1998.
VOTES REQUIRED
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented by proxy and voting on the matter is
required to approve the amendment and restatement of the 1994 Stock Option Plan
and to ratify the appointment of the Company's independent auditors.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting to approve
the amendment and restatement of the 1994 Stock Option Plan or to ratify the
appointment of the Company's independent auditors.
4
<PAGE> 7
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of two Class I
directors, three Class II directors and two Class III directors. The Class I,
Class II and Class III Directors will serve until the annual meeting of
stockholders to be held in 1998, 1999 and 2000, respectively, and until their
respective successors are elected and qualified. At each annual meeting of
stockholders, directors are elected for a full term of three years to succeed
those whose terms are expiring.
The persons named in the enclosed proxy will vote to elect, as Class I
directors, Joseph B. Lassiter, III and Charles R. Stuckey, Jr., the two director
nominees named below, unless the proxy is marked otherwise. Messrs. Lassiter and
Stuckey are both currently directors of the Company.
Each Class I director will be elected to hold office until the 2001 annual
meeting of stockholders and until his successor is elected and qualified. Each
of the nominees has indicated his willingness to serve, if elected; however, if
any nominee should be unable to serve, the person acting under the proxy may
vote the proxy for a substitute nominee. The Board of Directors has no reason to
believe that any of the nominees will be unable to serve if elected.
For each member of the Board of Directors, including those who are nominees
for election as Class I directors, there follows information given by each
concerning his principal occupation and business experience for at least the
past five years, the names of other publicly held companies of which he serves
as a director and his age and length of service as a director of the Company.
There are no family relationships among any of the directors, nominees for
director and executive officers of the Company.
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE DURING
NAME AGE SINCE PAST FIVE YEARS AND OTHER DIRECTORSHIPS
- ---- --- -------- ------------------------------------------------------
<S> <C> <C> <C>
NOMINEES FOR TERMS EXPIRING IN 2001 (CLASS I DIRECTORS)
Joseph B. Lassiter, III........ 50 1996 Joined Harvard University Graduate School of Business
Administration in September 1996, where he is
currently Professor of Management; President of
Wildfire Communications, Inc., a telecommunications
software company, from July 1994 to February 1996;
Vice President of Teradyne, Inc., a manufacturer of
automatic test equipment, from January 1974 to
February 1994; Member of the Board of Directors of
Advanced Magnetics, Inc., a developer of
organ-specific contrast agents.
Charles R. Stuckey, Jr......... 55 1987 Chairman of the Board of Directors since July 1996;
President of the Company since January 1987; Chief
Executive Officer of the Company since March 1987.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS II DIRECTORS)
D. James Bidzos................ 43 1996 Executive Vice President of the Company since July
1996; President and Chief Executive Officer of RSA
Data Security, Inc. since 1988; Chairman of the Board
of VeriSign, Inc., a company specializing in providing
public-key certificates and related products and
services.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER BUSINESS EXPERIENCE DURING
NAME AGE SINCE PAST FIVE YEARS AND OTHER DIRECTORSHIPS
---- --- -------- ------------------------------------------------------
<S> <C> <C> <C>
Richard L. Earnest............. 55 1993 Deputy Mayor of Del Mar, California since November
1997; Chief Executive Officer of Tudor Publishing
Company from April 1995 to April 1997; Independent
consultant to start-up companies from June 1994 to
March 1995; Chief Executive Officer of DEMAX Software,
a provider of centralized security management
software, from June 1993 to June 1994; Chief Executive
Officer of Advant Edge Systems Group, a software
company, from April 1991 to June 1993.
Sanford M. Sherizen............ 57 1989 President of Data Security Systems, Inc., a computer
security consulting firm, since 1983.
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS III DIRECTORS)
George M. Middlemas............ 51 1992* General Partner of Apex Management Partnership, the
General Partner of Apex Investment Fund II, L.P., a
venture capital fund, since January 1991; Member of
the Boards of Directors of Pure Cycle Corporation, a
manufacturer and marketer of water recycling
technologies, and American Communications Services,
Inc., a provider of integrated voice and data
communications services.
James K. Sims.................. 51 1997 Chief Executive Officer, President and member of the
Board of Directors of Cambridge Technology Partners
(Massachusetts), Inc., an international consulting and
systems integration firm, since February 1991; Chief
Executive Officer and President of Concurrent Computer
Corporation, a computer hardware manufacturer, from
October 1985 until September 1990.
</TABLE>
- ---------------
* Mr. Middlemas also served on the Board of Directors of the Company from May
1986 to June 1991.
For information relating to shares of Common Stock beneficially owned by
each of the directors, see "Security Ownership of Certain Beneficial Owners and
Management."
BOARD AND COMMITTEE MEETINGS
The Board of Directors met ten times (including by telephone conference)
during 1997. All directors attended at least 75% of the meetings of the Board of
Directors and of the committees on which they served.
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of,
and consultants to, the Company and administers and grants awards pursuant to
certain of the Company's stock-based compensation plans. The Compensation
Committee held five meetings during 1997. The current members of the
Compensation Committee are Messrs. Lassiter, Sherizen and Sims.
The Board of Directors has an Audit Committee, which reviews the results
and scope of the audit and other services provided by the Company's independent
public accountants. The Audit Committee held four meetings during 1997. The
current members of the Audit Committee are Messrs. Earnest and Middlemas.
The Board of Directors has a Nominating Committee, which makes
recommendations to the Board of Directors concerning all facets of the director
selection process. Stockholders wishing to propose director candidates for
consideration by the Nominating Committee may do so by writing to the Secretary
of the
6
<PAGE> 9
Company and providing information specified in the Company's Bylaws, including
the candidate's name, biographical data and qualifications. The Company's Bylaws
set forth further requirements for stockholders wishing to nominate director
candidates for consideration by stockholders including, among other things, that
a stockholder must give written notice of an intent to make such a nomination
complying with the Bylaws of the Company to the Secretary of the Company not
less than 60 days nor more than 90 days prior to the stockholders' meeting. The
Nominating Committee held one meeting during 1997. The current members of the
Nominating Committee are Messrs. Lassiter, Sims and Stuckey.
DIRECTOR COMPENSATION
All of the directors are reimbursed for expenses incurred in connection
with their attendance at Board and committee meetings. Each non-employee
director is paid $2,000 for attendance at each meeting of the Board or for each
telephonic meeting of the Board in which he participates. Each non-employee
director is further entitled to $1,000 for each meeting of a committee of the
Board attended by the director which is held on a day other than the day of, or
the day before or after, the date of any meeting of the full Board of Directors.
Other directors are not entitled to compensation in their capacities as
directors.
In October 1994, the Company issued and sold to Mr. Earnest 26,016
restricted shares of Common Stock, at a purchase price of $.0025 per share, in
consideration for his services as a member of the Board of Directors. These
shares became fully vested on April 23, 1997.
In October 1997, James K. Sims was elected to the Board of Directors as a
Class III director, filling a vacancy created by the resignation of Marino R.
Polestra. In connection with his election, the Company granted to Mr. Sims an
option under the Company's 1994 Stock Option Plan to purchase 30,000 shares of
Common Stock at an exercise price of $37.59 per share, vesting 10,000 shares
annually. Mr. Sims was also granted an option under the 1994 Director Stock
Option Plan to purchase 6,000 shares of Common Stock at an exercise price of
$37.59 per share. In addition, on November 6, 1997, Mr. Sims purchased 25,000
shares of Common Stock from the Company at a purchase price of $25.92 per share,
representing 75% of the closing price of the Common Stock on the Nasdaq National
Market on the date of purchase, pursuant to a Stock Purchase Agreement, dated
November 6, 1997 (the "Sims Agreement"), by and between the Company and Mr.
Sims. The Sims Agreement also provides that in the event that Mr. Sims ceases to
be a member of the Board of Directors of the Company for any reason or no
reason, with or without cause, prior to November 6, 1998, then Mr. Sims shall
return to the Company a pro rata portion of the aggregate discount on the shares
purchased.
1994 Director Stock Option Plan
The 1994 Director Stock Option Plan (the "Director Plan") was adopted by
the Board of Directors and approved by the stockholders of the Company in
October 1994. Under the terms of the Director Plan, directors of the Company who
are not employees of the Company or any subsidiary of the Company are eligible
to receive nonstatutory options to purchase shares of Common Stock. A total of
300,000 shares of Common Stock may be issued upon exercise of options granted
under the Director Plan.
Each eligible director shall receive options under the Director Plan to
purchase shares of Common Stock upon his or her initial election to the Board of
Directors. Such options shall cover the number of shares of Common Stock
determined by multiplying (i) 12,000 by (ii) the quotient of (x) the number of
whole calendar months between the option grant date and the date of the next
annual meeting of stockholders and (y) 12. In connection with his initial
election to the Board of Directors, Mr. Sims was granted an option under the
Director Plan to purchase 6,000 shares of Common Stock at an exercise price of
$37.59 per share on October 16, 1997.
In addition, annual options to purchase 12,000 shares of Common Stock shall
also be granted under the Director Plan to each eligible director on the date of
each annual meeting of stockholders, provided that such director shall continue
to serve as director immediately after such annual meeting. Options to purchase
12,000 shares of Common Stock at an exercise price of $27.83 per share were
granted under the Director Plan to each
7
<PAGE> 10
of Messrs. Earnest, Sherizen, Lassiter and Middlemas on April 24, 1997, the date
of the Company's 1997 Annual Meeting of Stockholders.
All options granted under the Director Plan shall vest on the first
anniversary of the date of grant (or, in the case of annual options, the day
prior to the first annual meeting of stockholders of the Company following the
date of grant, if earlier). The exercise price of options granted under the
Director Plan will equal the lesser of (i) the closing price of the Common Stock
on the date of grant or (ii) the average of the closing prices of the Common
Stock on the Nasdaq National Market (or such other nationally recognized
exchange or trading system if the Common Stock is no longer traded on the Nasdaq
National Market) for a period of ten consecutive trading days prior to such
date.
Except as otherwise provided by the Board of Directors, options granted
under the Director Plan generally are not transferrable by the optionee except
by will or by the laws of descent and distribution. In the event an optionee
ceases to serve as a director, each option may be exercised by the optionee for
the portion then exercisable at any time within 60 days after the optionee
ceases to serve as a director; provided, however, that in the event that the
optionee ceases to serve as a director due to his death or disability, then the
optionee, or his or her administrator, executor or heirs may exercise the
exercisable portion of the option for up to 180 days following the date the
optionee ceased to serve as a director. No option is exercisable after the
expiration of ten years from the date of grant.
COMPENSATION OF EXECUTIVE OFFICERS
Employment Agreements
The Company is a party to an Amended and Restated Employment Agreement,
dated as of November 1, 1997, with Charles R. Stuckey, Jr., providing for the
employment of Mr. Stuckey as President and Chief Executive Officer of the
Company. The agreement provides for a two-year term ending on November 1, 1999,
after which time the agreement renews automatically for successive one-year
terms until either party gives written notice of non-renewal at least 90 days
prior to the expiration of the then-current term. The agreement provides for an
annual base salary of $231,000, as well as annual bonuses upon the satisfaction
of agreed-upon goals and objectives. The agreement also provides that Mr.
Stuckey shall be entitled to receive the same standard employment benefits as
other executives of the Company receive. If Mr. Stuckey is terminated other than
for cause (as defined therein), he shall be entitled to receive severance
payments equal to 24 months' base salary, acceleration of all stock options and
full medical and insurance benefits until death, and the parties shall negotiate
in good faith regarding the retention of Mr. Stuckey as a consultant to the
Company for a two-year period. In the event of a change in control of the
Company (as defined therein), Mr. Stuckey shall be entitled, at his election, to
receive, subject to certain limitations, a lump sum payment equal to 24 months'
base salary. In addition, he shall receive acceleration of all stock options if
he is terminated other than for cause within one year after a change in control
of the Company.
The Company is also a party to a letter agreement, dated August 21, 1995,
with Arthur W. Coviello, Jr. Under the agreement, Mr. Coviello serves as
Executive Vice President and Chief Operating Officer of the Company. Mr.
Coviello's annual base salary is $200,000, and he is eligible to receive annual
bonuses upon the satisfaction of agreed-upon goals and objectives. Mr. Coviello
is also entitled to severance of six months' salary and benefits in the event
that his employment is terminated by the Company. In addition, for each full
year of service with the Company (up to a maximum of six years), Mr. Coviello
will receive an additional one month of severance (thus aggregating up to 12
months of severance).
Concurrently with the execution on April 14, 1996 of the Merger Agreement
relating to the Company's acquisition of RSA Data Security, Inc. ("RSA"), RSA
entered into an employment agreement with Mr. Bidzos for a two-year period
beginning July 26, 1996. Under the agreement, Mr. Bidzos serves as President of
RSA (or such other position as RSA's Board of Directors determines). Mr. Bidzos'
compensation consists of: (i) an annual base salary of $200,000, provided that
in no event may Mr. Bidzos' aggregate annual compensation (including bonus) be
less than $250,000; and (ii) an annual bonus if Mr. Bidzos satisfies certain
revenue objectives for RSA. In addition, Mr. Bidzos was granted an option to
purchase 300,000 shares of the Company's Common Stock at an exercise price of
$32.28 per share.
8
<PAGE> 11
The agreement with Mr. Bidzos is terminable (i) at the end of the two-year
term, (ii) at the election of RSA for cause, (iii) upon Mr. Bidzos' death or
disability or (iv) at RSA's election upon thirty days' written notice. In the
event that Mr. Bidzos' employment is terminated for cause or upon death or
disability, RSA will pay to Mr. Bidzos, or his estate, compensation and benefits
through the last day of his actual employment. If RSA terminates Mr. Bidzos'
employment without cause, RSA will pay to Mr. Bidzos the compensation otherwise
payable to him through the last day of the period covered by the noncompetition
agreement described below.
Mr. Bidzos has agreed that, subject to certain exceptions, during the term
of his employment by RSA and for a period extending through the later of July
27, 1998 or the first anniversary after which he ceases to be employed by RSA,
the Company, or any affiliate of the Company, he will not directly or indirectly
engage in any business which offers products or services that are competitive
with the products and services of RSA, the Company or any of their respective
affiliates. In addition, Mr. Bidzos has agreed not to solicit the employees or
customers of RSA, the Company or any affiliate during the noncompetition period
described above. The devotion of not more than 10% of Mr. Bidzos' business time,
attention and energies to certain investments with which Mr. Bidzos has
historically been associated is expressly excluded from the noncompetition
provisions of the employment agreement.
Messrs. Stuckey, Rogers, Coviello and Power have each entered into
noncompetition agreements with the Company. Pursuant to the terms of the
noncompetition agreements, each of Messrs. Stuckey, Rogers, Coviello and Power
has agreed, through the first anniversary of the date of termination of his
respective employment with the Company, not to engage in any business activity
that is directly or indirectly in competition with the Company in the United
States with any of the products or services being developed, provided or sold by
the Company at such time. Furthermore, each executive officer has agreed that he
will not, directly or indirectly, employ any person who is employed by the
Company at any time during the term of the noncompetition agreement, or in any
manner seek to induce any such person to leave his or her employment with the
Company.
1998 Deferred Compensation Plan
On January 22, 1998, the Board of Directors adopted the Company's 1998
Deferred Compensation Plan (the "Deferred Compensation Plan"). Pursuant to the
Deferred Compensation Plan, management and certain highly compensated employees
may elect to defer up to 75% of base salary and up to 100% of annual bonus,
which amounts shall be placed into a trust established thereunder. Upon the
participant's retirement, termination, death or disability, benefits shall be
paid to the participant or his or her beneficiaries, heirs or estate. The
Company expects to implement the Deferred Compensation Plan during 1998.
9
<PAGE> 12
Summary Compensation
The following table sets forth certain information with respect to the
annual and long-term compensation of each of the Named Executive Officers for
the three years ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
-------------------- SHARES ALL OTHER
SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) OPTIONS ($)(2)
- --------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles R. Stuckey, Jr. ........... 1997 $236,006 $158,078 0 $6,365
Chairman of the Board, 1996 219,471 170,918 200,000 5,202
President and Chief 1995 192,356 281,078 0 5,000
Executive Officer
Gary A. Rogers(3).................. 1997 162,847 146,533 250,000 4,163
Senior Vice President,
World Wide Sales and Field
Operations
Arthur W. Coviello, Jr. ........... 1997 202,628 97,760 0 5,180
Executive Vice President, 1996 175,000 85,968 0 4,087
Chief Operating Officer 1995 54,519 20,000 600,000 1,043
and Secretary
D. James Bidzos(4)................. 1997 202,333 97,760 0 2,728
Executive Vice President 1996 165,778 125,858 300,000 9,902
and President of RSA
Data Security, Inc.
W. David Power(5).................. 1997 169,663 73,992 100,000 4,534
Senior Vice President, 1996 14,423 20,000 250,000 902
Marketing and Corporate
Development
</TABLE>
- ---------------
(1) Amounts in this column represent bonuses earned under the Company's
executive compensation program for the respective fiscal years.
(2) Amounts shown in this column for fiscal 1997 represent the aggregate value
of the Company's contributions on behalf of the executives to Group Term
Life Insurance ($1,650 for Mr. Stuckey, $246 for Mr. Rogers, $374 for Mr.
Coviello, $395 for Mr. Bidzos, and $145 for Mr. Power), the Company's 401(k)
savings plan ($2,715 for Mr. Stuckey, $1,917 for Mr. Rogers, $2,806 for Mr.
Coviello, $333 for Mr. Bidzos, and $2,389 for Mr. Power), and the Company's
Profit Sharing Plan ($2,000 for each of Messrs. Stuckey, Rogers, Coviello,
Bidzos, and Power).
(3) Mr. Rogers joined the Company as Senior Vice President, World Wide Sales and
Field Operations in February 1997.
(4) Mr. Bidzos joined the Company as Executive Vice President in July 1996.
(5) Mr. Power joined the Company as Senior Vice President, Marketing and
Corporate Development in November 1996.
10
<PAGE> 13
Option Grants
The following table sets forth certain information concerning grants of
stock options during the year ended December 31, 1997 to each of the Named
Executive Officers. The Company granted no stock appreciation rights during
fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
--------------------------------------------------- ASSUMED ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SHARES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
---------- ------------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Stuckey, Jr. ..... 0 0 N/A N/A N/A N/A
Gary A. Rogers............... 250,000 10.3% $30.50 1/27/07 $4,795,322 $12,152,286
Arthur W. Coviello, Jr. ..... 0 0 N/A N/A N/A N/A
D. James Bidzos.............. 0 0 N/A N/A N/A N/A
W. David Power............... 100,000 4.1% $31.50 10/27/07 $1,981,018 $ 5,020,289
</TABLE>
- ---------------
(1) Options become exercisable over a four-year period and generally terminate
three months following termination of the executive officer's employment
with the Company or the expiration date, whichever occurs earlier. The
exercise price of each option was determined to be equal to the fair market
value per share of the Common Stock on the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise price,
but do not include deductions for taxes or other expenses associated with
the exercise of the option or the sale of the underlying shares. The actual
gains, if any, on the exercises of stock options will depend on the future
performance of the Common Stock, the optionholder's continued employment
through the option period, and the date on which the options are exercised.
Aggregated Option Exercises and Year-End Option Table
The following table summarizes certain information regarding stock options
exercised during the year ended December 31, 1997 and stock options held as of
December 31, 1997 by each of the Named Executive Officers.
11
<PAGE> 14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES VALUE YEAR-END AT FISCAL YEAR-END
ACQUIRED ON REALIZED (EXERCISABLE/ (EXERCISABLE/UNEXERCISABLE)
NAME EXERCISE(#) ($)(1) UNEXERCISABLE)(#) ($)(2)
- ---- ----------- -------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
Charles R. Stuckey,
Jr. ................... 289,800 $8,824,410 387,500/112,500 $11,656,406/$1,236,094
Gary A. Rogers........... 0 $ 0 0/250,000 $0/$1,312,500
Arthur W. Coviello,
Jr. ................... 63,800 $1,813,594 185,912/240,288 $4,793,044/$6,194,925
D. James Bidzos.......... 20,000 $ 712,000 569,522/206,249 $16,904,977/$ 716,715
W. David Power........... 0 $ 0 62,500/287,500 $0/$ 425,000
</TABLE>
- ---------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise.
(2) Value based on the last sales price per share ($35.75) of the Company's
Common Stock on December 31, 1997, as reported on the Nasdaq National
Market, less the exercise price.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") is responsible for recommending compensation policies
with respect to the Company's executive officers, and for making decisions about
awards under certain of the Company's stock-based compensation plans. Each
member of the Committee is a "non-employee director" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and an "outside director" within the meaning of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). This report addresses
the Company's compensation policies for 1997 as they affected the Chief
Executive Officer and the Company's other executive officers, including the
Named Executive Officers.
Compensation Policies
The Compensation Committee's executive compensation policies are designed
to provide competitive compensation opportunities, reward executives consistent
with the Company's performance, recognize individual performance and
responsibility, underscore the importance of stockholder value creation, and
assist the Company in attracting and retaining qualified executives. The
principal elements of compensation employed by the Compensation Committee to
meet these objectives are base salaries, annual cash incentives and long-term
stock-based incentives.
All compensation decisions are determined following a detailed review of
many factors that the Compensation Committee believes are relevant, including
external competitive data, the Company's achievements over the past year, the
individual's contributions to the Company's success, any significant changes in
role or responsibility, and the internal equity of compensation relationships.
In general, the Compensation Committee intends that the overall total
compensation opportunities provided to the executive officers should reflect
competitive compensation for executives with corresponding responsibilities in
comparable firms providing similar products and services. To the extent
determined to be appropriate, the Compensation Committee also considers general
economic conditions, the Company's financial performance, and the individual's
performance in establishing the compensation opportunities of the executive
officers. Total compensation opportunities for the executive officers are
adjusted over time as necessary to meet this objective. Actual compensation
earned by the executive officers reflects both their contributions to the
Company's actual stockholder value creation and the Company's actual financial
performance.
12
<PAGE> 15
The competitiveness of the Company's total compensation
program -- including base salaries, annual cash incentives and long-term
stock-based incentives -- is regularly assessed with the assistance of the
Compensation Committee's outside compensation consultant. Data for external
comparisons are drawn from a number of sources, including the publicly available
disclosures of selected comparable firms with similar products and national
compensation surveys of information technology firms of similar size.
While the targeted total compensation levels for the executive officers are
intended to be competitive, compensation paid in any particular year may be more
or less than the average, depending upon the Company's actual performance.
Base Salary
Base salaries for all executive officers, including the Chief Executive
Officer, are reviewed by the Compensation Committee on an annual basis. In
determining appropriate base salaries, the Compensation Committee considers
external competitiveness, the roles and responsibilities of the individual, the
internal equity of compensation relationships and the contributions of the
individual to the Company's success.
Annual Cash Incentive Opportunities
The Company believes that executives should be rewarded for their
contributions to the success and profitability of the business and, as such,
approves the annual cash incentive awards. Incentive awards are linked to the
achievement of revenue and net income goals by the Company and/or specific
business units, and the achievement by the executives of certain assigned
objectives. The individual objectives set for executive officers of the Company
are generally objective in nature and include such goals as revenue, profit and
budget objectives, increased departmental productivity and improved quality
control. The Compensation Committee believes that these arrangements tie the
executive's performance closely to key measures of success of the Company or the
executive's business unit. All executive officers, including the Chief Executive
Officer, are eligible to participate in this program.
Long-Term Stock-Based Incentives
The Compensation Committee also believes that it is essential to link
executive and stockholder interests. As such, from time to time the Compensation
Committee grants stock options to executive officers and other employees under
the Company's 1994 Stock Option Plan. In determining actual awards, the
Compensation Committee considers the externally competitive market, the
contributions of the individual to the success of the Company, and the need to
retain the individual over time. All executive officers, including the Chief
Executive Officer, are eligible to receive awards under the 1994 Stock Option
Plan.
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1,000,000 paid to its Named Executive Officers.
Qualifying performance-based compensation will not be subject to the deduction
limit if certain requirements are met. Although no Named Executive Officer
received compensation exceeding this limit in 1997, the Company has limited the
number of shares subject to stock options which may be granted to Company
employees in a manner that complies with the performance-based requirements of
Section 162(m). While the Compensation Committee does not currently intend to
qualify its annual incentive awards as a performance-based plan, it will
continue to monitor the impact of Section 162(m) on the Company.
1997 Compensation
Base salaries paid in 1997, for all executive officers other than the Chief
Executive Officer, reflect the Compensation Committee's review of external
competitiveness, the roles and responsibilities of the individuals, the internal
equity of compensation relationships and the contributions of the individual.
The Compensation Committee believes that the base salary paid the Chief
Executive Officer in 1997 was approximately competitive with base salaries paid
to chief executive officers at comparable firms.
13
<PAGE> 16
The Company entered into an Amended and Restated Employment Agreement,
dated as of November 1, 1997, with Mr. Stuckey which provides for an annual base
salary of $231,000, as well as annual bonuses. See "Compensation of Executive
Officers -- Employment Agreements."
Annual cash incentives paid to all executive officers, including the Chief
Executive Officer, for 1997 were determined in conjunction with the Compensation
Committee's assessment of the Company's performance with respect to
predetermined objectives as outlined above.
Stock options awarded in 1997 to certain executive officers were based on
an assessment of individual contribution, Company success and competitive
practice, and were intended to help retain the executives over time and to
provide rewards consistent with stockholder returns. As such, all options
granted in 1997 vest ratably over a predetermined period of time, with an
exercise price equal to the fair market value on the date of the grant. With
respect to these grants, no compensation will be earned unless the share price
increases beyond the grant price, thereby creating stockholder returns.
Joseph B. Lassiter, III
Sanford M. Sherizen
James K. Sims
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Messrs.
Lassiter, Sherizen and Sims. Mr. Middlemas served as a member of the
Compensation Committee until October 1997. No executive officer of the Company
has served as a director or member of the compensation committee (or other
committee serving an equivalent function) of any other entity, one of whose
executive officers served as a director or member of the Compensation Committee
of the Company.
14
<PAGE> 17
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company for the period from December 14, 1994 through
December 31, 1997 with the cumulative total return on (i) Standard and Poor's
SmallCap 600 Index and (ii) Hambrecht & Quist's Growth Index. The comparison
assumes the investment of $100 on December 14, 1994 in the Company's Common
Stock and in each of the indices and, in each case, assumes reinvestment of all
dividends. Prior to December 14, 1994, the Company's Common Stock was not
registered under the Exchange Act.
<TABLE>
<CAPTION>
Hambrecht &
Measurement Period Security Dynamics S&P SmallCap 600 Quist Growth
(Fiscal Year Covered) Technologies, Inc. Index* Index
<S> <C> <C> <C>
12/14/94 100.00 100.00 100.00
12/31/94 116.46 102.43 103.25
12/31/95 681.59 133.12 172.31
12/31/96 787.89 161.50 180.35
12/31/97 894.20 202.82 185.23
</TABLE>
- ---------------
* Partial returns are not available for the S&P SmallCap 600 Index and therefore
returns for this index were measured from December 1, 1994.
PROPOSAL 2 -- APPROVAL OF AMENDMENT AND RESTATEMENT
OF THE 1994 STOCK OPTION PLAN
On January 22, 1998 and March 8, 1998, the Board of Directors adopted
resolutions, subject to stockholder approval, to approve the amendment and
restatement of the Company's 1994 Stock Option Plan, as amended (the "1994
Plan"), among other things, to increase the number of shares of Common Stock
authorized for issuance thereunder from 6,570,000 to 9,570,000 shares and to
provide for the grant by the Company thereunder of restricted stock and other
stock-based awards. The Board has determined to amend and restate the 1994 Plan
because it believes that (i) the number of shares currently available thereunder
will not be sufficient to satisfy the Company's incentive compensation needs
through fiscal 1998, and (ii) the ability to grant restricted stock and other
stock-based awards thereunder will give the Company additional flexibility in
satisfying such incentive compensation needs. The Board of Directors believes
that continued grants of stock options, as well as grants of restricted stock
and other stock-based awards, will be an important element in attracting and
retaining key employees who are expected to contribute to the Company's growth
and success. If the amendment and restatement of the 1994 Plan is approved, the
Company will have additional authorized shares of Common Stock available for
future awards, including awards in connection with any merger, consolidation or
acquisition by the Company.
15
<PAGE> 18
The 1994 Plan, as proposed to be amended and restated (the "Restated
Plan"), shall govern all awards made thereunder on or after the date stockholder
approval is obtained, and the 1994 Plan, as in effect immediately prior to such
stockholder approval, shall continue to govern all options granted thereunder
prior to such stockholder approval. As of March 10, 1998, and subject to
stockholder approval of the Restated Plan, 3,019,352 shares were available for
issuance thereunder.
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE AMENDMENT AND
RESTATEMENT OF THE 1994 PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS A VOTE IN FAVOR OF THIS PROPOSAL.
SUMMARY OF THE AMENDED AND RESTATED 1994 STOCK OPTION PLAN
The following is a summary of the material provisions of the Restated Plan.
Description of Awards
The Restated Plan provides for the grant of incentive stock options within
the meaning of Section 422 of the Code ("incentive stock options"), or options
not intended to qualify as incentive stock options ("nonstatutory options"),
restricted stock awards and other stock-based awards, including the grant of
shares based upon certain conditions, the grant of securities convertible into
Common Stock and the grant of stock appreciation rights. Generally, awards under
the Restated Plan are not assignable or transferable except by will or the laws
of descent and distribution and, in the case of nonstatutory options, pursuant
to a qualified domestic relations order (as defined in the Code).
Incentive Stock Options and Nonstatutory Stock Options. Optionees receive
the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Subject to the limitations
described below, options may be granted at an exercise price which may be less
than, equal to or greater than the fair market value of the Common Stock on the
date of grant. Under present law, however, incentive stock options and options
intended to qualify as performance-based compensation under Section 162(m) of
the Code may not be granted at an exercise price less than the fair market value
of the Common Stock on the date of grant (or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding more
than 10% of the voting power of the Company). Options may not be granted for a
term in excess of ten years. The Restated Plan permits the administrator to
determine the manner of payment of the exercise price of options, including
through payment by cash, check or in connection with a "cashless exercise"
through a broker, by surrender to the Company of shares of Common Stock, by
delivery to the Company of a promissory note, or by any other lawful means. Any
optionee who is a participant in a deferred compensation plan of the Company may
elect to defer, subject to certain limitations, the receipt of shares issuable
upon the exercise of an option.
Restricted Stock Awards. Restricted stock awards entitle recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares from the recipient in the event that the
conditions specified in the applicable award are not satisfied prior to the end
of the applicable restriction period established for such award.
Other Stock-Based Awards. Under the Restated Plan, the Board of Directors
has the right to grant other awards based upon the Common Stock having such
terms and conditions as the Board may determine, including the grant of shares
based upon certain conditions, the grant of securities convertible into Common
Stock and the grant of stock appreciation rights.
Eligibility to Receive Awards
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted awards under the Restated Plan.
Under present law, however, incentive stock options may only be granted to
employees. The maximum number of shares with respect to which an award may be
granted to any participant under the Restated Plan may not exceed 300,000 shares
per calendar year.
16
<PAGE> 19
As of January 31, 1998, the Company had approximately 637 employees and
five non-employee directors, all of whom were eligible to participate in the
Restated Plan. The number of individuals receiving awards varies from year to
year depending on various factors, such as the number of promotions and the
Company's hiring needs during the year, and thus the Company cannot now
determine award recipients. From the initial adoption of the Company's 1994
Stock Option Plan through January 31, 1998: options to purchase an aggregate of
200,000 shares thereunder had been granted to Charles R. Stuckey, Jr., the
Chairman of the Board, President and Chief Executive Officer of the Company;
options to purchase an aggregate of 250,000 shares thereunder had been granted
to Gary A. Rogers, the Senior Vice President, World Wide Sales and Field
Operations of the Company; options to purchase an aggregate of 600,000 shares
thereunder had been granted to Arthur D. Coviello, Jr., the Executive Vice
President and Chief Operating Officer of the Company; options to purchase an
aggregate of 300,000 shares thereunder had been granted to D. James Bidzos, the
Executive Vice President of the Company; options to purchase an aggregate of
350,000 shares thereunder had been granted to W. David Power, Senior Vice
President, Marketing and Corporate Development of the Company; options to
purchase an aggregate of 30,000 shares thereunder had been granted to James K.
Sims, a non-employee director of the Company; no options to purchase shares
thereunder had been granted to any associate of any director, executive officer
or nominee for director of the Company; and options to purchase an aggregate of
4,494,273 shares thereunder had been granted to all employees of the Company who
are not executive officers.
On March 26, 1998, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $41.00.
Administration
The Restated Plan is administered by the Compensation Committee of the
Board of Directors. Subject to the provisions of the Restated Plan, the
Compensation Committee has the authority to select the persons to whom awards
are granted and determine the terms of each award, including (i) the number of
shares at Common Stock covered by options and the dates upon which such option
become exercisable, (ii) the exercise price of options, (iii) the duration of
options, and (iv) the number of shares of Common Stock subject to any restricted
stock or other stock-based awards and the terms and conditions of such awards,
including conditions for repurchase, issue price and repurchase price.
The Compensation Committee may, in its sole discretion, include additional
provisions in any award granted or made under the Restated Plan, including
without limitation restrictions on transfer, repurchase rights, commitments to
pay cash bonuses, to make, arrange for or guaranty loans or to transfer other
property to optionees upon exercise of options, or such other provisions as
shall be determined by the Compensation Committee, so long as not inconsistent
with the Restated Plan or applicable law. The Compensation Committee may also,
in its sole discretion, accelerate or extend the date or dates on which all or
any particular option or options granted under the Restated Plan may be
exercised.
The Board of Directors is required to make appropriate adjustments in
connection with the Restated Plan and any outstanding awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger,
liquidation or other Acquisition Event (as defined in the Restated Plan), the
Board of Directors is authorized to provide for outstanding options or other
stock-based awards to be assumed or substituted for, to accelerate the awards to
make them fully exercisable prior to consummation of the Acquisition Event or to
provide for a cash out of the value of any outstanding options. If any award
expires or is terminated, surrendered, canceled or forfeited, the unused shares
of Common Stock covered by such award will again be available for grant under
the Restated Plan.
The Restated Plan will remain in effect until October 3, 2004 (except that
it will continue in effect as to equity-related securities outstanding on that
date), unless earlier terminated by the Board of Directors. The Board of
Directors may amend, suspend or terminate the Restated Plan or any portion
thereof at any time, provided that no amendment shall be made without
stockholder approval if such approval is necessary to comply with any applicable
tax or regulatory requirement.
17
<PAGE> 20
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to awards granted under the
Restated Plan and with respect to the sale of Common Stock acquired under the
Restated Plan.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an incentive stock option, however, may subject the participant to
the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the participant has owned the ISO Stock at the time it is
sold. If the participant sells ISO Stock after having owned it for at least two
years from the date the option was granted (the "Grant Date") and one year from
the date the option was exercised (the "Exercise Date"), then the participant
will recognize long-term capital gain in an amount equal to the excess of the
sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the Exercise Date
over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO Stock for more than
one year prior to the date of the sale.
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary income, for the year in which the award is
granted, in an amount equal to the difference between the fair market value of
the Common Stock at the time the award is granted and the purchase price paid
for the Common Stock. If a Section 83(b) Election is not made, the participant
will recognize ordinary income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between the
fair market value of the Common Stock at the time of such lapse and the original
purchase price paid for the Common Stock. The participant will have a basis in
the Common Stock acquired equal to the sum of the price paid and the amount of
ordinary compensation income recognized.
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Upon the disposition of the Common Stock acquired pursuant to a restricted
stock award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are held for more than one year. For this purpose, the holding period
shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after the
award is granted if a Section 83(b) Election is made.
Other Stock-Based Awards
The tax consequences associated with any other stock-based award granted
under the Restated Plan will vary depending on the specific terms of such award.
Among the relevant factors are whether or not the award has a readily
ascertainable fair market value, whether or not the award is subject to
forfeiture provisions or restrictions on transfer, the nature of the property to
be received by the participant under the award and the participant's holding
period and tax basis for the award or underlying Common Stock.
Maximum Income Tax Rates on Capital Gain and Ordinary Income
Long-term capital gain will be taxable at a maximum rate of 20% if
attributable to Common Stock held for more than eighteen months and at a maximum
rate of 28% if attributable to Common Stock held for more than one year but not
more than eighteen months. Short-term capital gain and ordinary income will be
taxable at a maximum rate of 39.6%. Phaseouts of personal exemptions and
reductions of allowable itemized deductions at higher levels of income may
result in slightly higher marginal tax rates. Ordinary compensation income will
also be subject to a medicare tax and, under certain circumstances, a social
security tax.
Tax Consequences to the Company
The grant of an award under the Restated Plan will have no tax consequences
to the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the Restated Plan will
have any tax consequences to the Company. The Company generally will be entitled
to a business-expense deduction, however, with respect to any ordinary
compensation income recognized by a participant under the Restated Plan,
including in connection with a restricted stock award or as a result of the
exercise of a nonstatutory stock option or a Disqualifying Disposition. Any such
deduction will be subject to the limitations of Section 162(m) of the Code. The
Company will have a withholding obligation with respect to any ordinary
compensation income recognized by participants under the Restated Plan who are
employees or otherwise subject to withholding in connection with a restricted
stock award or the exercise of a nonstatutory stock option.
PROPOSAL 3 -- RATIFICATION OF THE APPOINTMENT OF AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as auditors of
the Company for the year ending December 31, 1998, subject to ratification by
stockholders at the Meeting. If the stockholders do not ratify the selection of
Deloitte & Touche LLP, the Board of Directors will reconsider the matter. A
representative of Deloitte & Touche LLP, which served as the Company's auditors
for the year ended December 31, 1997, is expected to be present at the Meeting
to respond to appropriate questions, and to make a statement if he or she so
desires.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1999 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
offices, 20 Crosby Drive, Bedford, Massachusetts 01730, no later than December
2, 1998 in order to be considered for inclusion in the Company's proxy statement
and proxy card relating to that meeting.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock
("Reporting Persons") to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Except as described below, and based
solely on its review of copies of Section 16(a) reports filed by the Reporting
Persons furnished to the Company, the Company believes that during 1997 the
Reporting Persons complied with all Section 16(a) filing requirements.
D. James Bidzos, the Executive Vice President and a member of the Board of
Directors of the Company, reported sales of an aggregate of 7,500 beneficially
owned shares of Common Stock which occurred on February 6, 1997 in two separate
transactions, and sales of an aggregate of 15,000 beneficially owned shares of
Common Stock which occurred on February 7, 1997 in four separate transactions,
on a Form 4 filed on August 11, 1997.
Richard L. Earnest, a director of the Company, reported a sale of 20,000
shares of Common Stock which occurred on March 11, 1997 on a Form 4 filed on
October 28, 1997.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is the intention of the
persons named in the enclosed proxy card to vote, or otherwise act, in
accordance with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, facsimile
and personal interviews. The Company will also request brokerage houses,
custodians, nominees and fiduciaries to forward copies of the proxy materials to
those persons for whom they hold shares and request instructions for voting the
proxies. The Company will reimburse such brokerage houses and other persons for
their reasonable expenses in connection with this distribution. The Company has
also retained MacKenzie Partners, Inc. at an estimated expense of $4,000 plus
reimbursement of expenses, to assist in the solicitation of proxies by telephone
and mail.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE AND SIGN THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE
WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES
PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXY CARDS.
By Order of the Board of Directors,
/s/ Arthur W. Coviello, Jr.
-------------------------------------
Arthur W. Coviello, Jr., Secretary
April 1, 1998
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APPENDIX A
SECURITY DYNAMICS TECHNOLOGIES INC.
1994 STOCK OPTION PLAN, AS AMENDED
1998 Restatement
1. Restatement; Purpose
(a) This is a restatement (the "1998 Restatement") of the 1994 Stock
Option Plan (the "Plan") of Security Dynamics Technologies, Inc., a Delaware
corporation (the "Company"). The 1998 Restatement shall govern all awards made
under the Plan on or after the date the 1998 Restatement is adopted by the Board
of Directors of the Company (the "Board") and approved by the Company's
stockholders. Options granted under the Plan prior to the approval of the 1998
Restatement shall be governed by the terms of the Plan as in effect immediately
prior to the date of such adoption.
(b) The purpose of the Plan is to advance the interests of the Company's
stockholders by enhancing the Company's ability to attract, retain and motivate
persons who make (or are expected to make) important contributions to the
Company by providing such persons with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders. Except where the context
otherwise requires, the term "Company" shall include any present or future
subsidiary corporations of Security Dynamics Technologies, Inc. as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Each person who has been
granted an Award under the Plan shall be deemed a "Participant."
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered by
the Board. The Board shall have authority to grant Awards and to adopt, amend
and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. The Board may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem expedient to carry the Plan into effect and it
shall be the sole and final judge of such expediency. All decisions by the Board
shall be made in the Board's sole discretion and shall be final and binding on
all persons having or claiming any interest in the Plan
<PAGE> 24
or in any Award. No director or person acting pursuant to the authority
delegated by the Board shall be liable for any action or determination relating
to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
(c) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). The Board shall
appoint one such Committee of not less than two members, each member of which
shall be an "outside director" within the meaning of Section 162(m) of the Code
and a "non-employee director" as defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). All references in the Plan
to the "Board" shall mean the Board or a Committee of the Board or the executive
officer referred to in Section 3(b) to the extent that the Board's powers or
authority under the Plan have been delegated to such Committee or executive
officer.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 8, Awards may be
made under the Plan for up to 9,570,000 shares of the common stock, $.01 par
value per share, of the Company (the "Common Stock"). If any Award expires or is
terminated, surrendered or canceled without having been fully exercised or is
forfeited in whole or in part or results in any Common Stock not being issued,
the unused Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan, subject, however, in the case of Incentive Stock
Options (as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 8, the
maximum number of shares of Common Stock with respect to which an Award may be
granted to any Participant under the Plan shall be 300,000 per calendar year.
The per-Participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
5. Stock Options
(a) General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
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<PAGE> 25
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option."
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement; provided that Options may not be granted for a term
in excess of ten years.
(e) Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(i) in cash or by check, payable to the order of the Company;
(ii) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, (A) delivery of an irrevocable
and unconditional undertaking by a creditworthy broker to
deliver promptly to the Company sufficient funds to pay the
exercise price or (B) delivery by the Participant to the
Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to
the Company cash or a check sufficient to pay the exercise
price;
(iii) at such time as the Common Stock is registered under the
Exchange Act, delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by
(or in a manner approved by ) the Board in good faith ("Fair
Market Value"), which
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<PAGE> 26
Common Stock was owned by the Participant at least six months
prior to such delivery;
(iv) to the extent permitted by the Board, in its sole discretion
(A) by delivery of a promissory note of the Participant to the
Company on terms determined by the Board, or (B) by payment of
such other lawful consideration as the Board may determine; or
(v) any combination of the above permitted forms of payment.
(g) Deferral. Any Participant who is a participant in a deferred
compensation plan established by the Company may elect with the permission of
the Board and in accordance with rules established by the Board to defer the
receipt of any shares of Common Stock issuable upon the exercise of an option
provided that such election is irrevocable and made at least that number of days
prior to the exercise of the option which shall be determined by the Board. The
Participant's account under such deferred compensation plan shall be credited
with a number of stock units equal to the number of shares so deferred.
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, a "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
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<PAGE> 27
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than a normal
cash dividend, (i) the number and class of securities available under this Plan,
(ii) the per-Participant limit set forth in Section 4(b), (iii) the number and
class of securities and exercise price per share subject to each outstanding
Option, (iv) the repurchase price per share subject to each outstanding
Restricted Stock Award, and (v) the terms of each other outstanding Award shall
be appropriately adjusted by the Company (or substituted Awards may be made, if
applicable) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is necessary and appropriate. If this Section 8(a)
applies and Section 8(c) also applies to any event, Section 8(c) shall be
applicable to such event, and this Section 8(a) shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award or other Award granted under the Plan
at the time of the grant of such Award.
(c) Acquisition Events
(1) Definition. An "Acquisition Event" shall mean: (a) any merger or
consolidation of the Company with or into another entity as a result of which
the Common Stock is converted into or exchanged for the right to receive cash,
securities or other property or (b) any exchange of shares of the Company for
cash, securities or other property pursuant to a statutory share exchange
transaction.
(2) Consequences of an Acquisition Event on Options. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board may take any one or
more of the following actions:
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<PAGE> 28
(i) provide that outstanding Options shall be assumed, or
equivalent options shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof), provided
that any options substituted for Incentive Stock Options shall
satisfy, in the determination of the Board, the requirements
of Section 424(a) of the Code;
(ii) upon written notice to the Participants, provide that all then
unexercised Options will become exercisable in full as of a
specified time (the "Acceleration Time") prior to the
Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent
exercised by the Participants before the consummation of such
Acquisition Event;
(iii) in the event of an Acquisition Event under the terms of which
holders of Common Stock will receive upon consummation thereof
a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"),
provide that all outstanding Options shall terminate upon
consummation of such Acquisition Event and each Participant
shall receive, in exchange therefor, a cash payment equal to
the amount (if any) by which (A) the Acquisition Price
multiplied by the number of shares of Common Stock subject to
such outstanding Options (to the extent then exercisable),
exceeds (B) the aggregate exercise price of such Options; and
(iv) provide that all or any outstanding options shall become
exercisable in full immediately prior to such event.
(3) Consequences of an Acquisition Event on Restricted Stock Awards.
Upon the occurrence of an Acquisition Event, the repurchase and other rights of
the Company under each outstanding Restricted Stock Award shall inure to the
benefit of the Company's successor and shall apply to the cash, securities or
other property which the Common Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same manner and to the same extent as
they applied to the Common Stock subject to such Restricted Stock Award.
(4) Consequences of an Acquisition Event on Other Awards. The Board
shall specify the effect of an Acquisition Event on any other Award granted
under the Plan at the time of the grant of such Award.
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<PAGE> 29
9. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
(b) Documentation. Each Award shall be evidenced by a written instrument
in such form as the Board shall determine. Such written instrument may be in the
form of an agreement signed by the Company and the Participant or a written
confirming memorandum to the Participant from the Company. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, Participants may satisfy such tax obligations in whole or
in part by delivery of shares of Common Stock, including shares retained from
the Award creating the tax obligation, valued at their Fair Market Value. The
Company may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to a Participant.
(f) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant. Without
intending to limit the generality of the preceding sentence, the Board may,
without amending the Plan, modify Awards granted to
7
<PAGE> 30
Participants who are foreign nationals or employed outside the United States to
reorganize differences in laws, rules, regulations or customers of such foreign
jurisdiction with respect to tax, securities, currency, employee benefits or
other matters.
(g) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(h) Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall be free of all restrictions or that any other stock-based Awards
may become exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
10. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as of the record date for such
dividend), then an optionee who exercises an Option between the close of
business on the record date for such stock dividend and the close of business on
the distribution date for such stock dividend shall be entitled to receive, on
the distribution date, the stock dividend with respect to the shares of Common
Stock acquired upon such Option exercise, notwithstanding the fact that such
shares were not outstanding as of the close of business on the record date for
such stock dividend.
8
<PAGE> 31
(c) Effective Date and Term of Plan. The 1998 Restatement of Plan shall
become effective on the date on which it is adopted by the Board and approved by
the Company's stockholders. No Awards shall be granted under the Plan after the
completion of ten years from the earlier of (i) the date on which the Plan was
adopted by the Board or (ii) the date the Plan was approved by the Company's
stockholders, but Awards previously granted may extend beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that, to the extent required by
Section 162(m), no Award granted to a Participant designated as subject to
Section 162(m) by the Board after the date of such amendment shall become
exercisable, realizable or vested, as applicable to such Award (to the extent
that such amendment to the Plan was required to grant such Award to a particular
Participant), unless and until such amendment shall have been approved by the
Company's stockholders.
(e) Stockholder Approval. For purposes of this Plan, stockholder approval
shall mean approval by a vote of the stockholders in accordance with the
requirements of Section 162(m) of the Code.
(f) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware without regard to any applicable conflicts of law.
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<PAGE> 32
APPENDIX B
SECURITY DYNAMICS TECHNOLOGIES, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1998
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE COMPANY
AND SHOULD BE RETURNED AS SOON AS POSSIBLE
The undersigned, having received notice of the Annual Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) Charles R. Stuckey, Jr. and Arthur W.
Coviello, Jr., and each of them, attorneys or attorney of the undersigned (with
full power of substitution in them and each of them) for and in the name(s) of
the undersigned to attend the Annual Meeting of Stockholders of SECURITY
DYNAMICS TECHNOLOGIES, INC. (the "Company") to be held on Thursday, April 30,
1998 at 10:00 a.m. at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, and any adjournments thereof, and there to vote and act upon the
following matters proposed by the Company in respect of all shares of stock of
the Company which the undersigned may be entitled to vote or act upon, with all
the powers the undersigned would possess if personally present.
In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the meeting or any adjournments
thereof. The shares represented by this proxy will be voted as directed by the
undersigned. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY ELECTION TO OFFICE OR
PROPOSAL, THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS.
Attendance of the undersigned at the meeting or at any adjournment thereof will
not be deemed to revoke this proxy unless the undersigned shall revoke this
proxy in writing.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. WHEN SHARES ARE HELD BY JOINT
OWNERS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY AUTHORIZED OFFICER, GIVING FULL TITLE. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON, GIVING FULL
TITLE.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
__________________________________ ___________________________________
__________________________________ ___________________________________
__________________________________ ___________________________________
<PAGE> 33
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
SECURITY DYNAMICS TECHNOLOGIES, INC.
MARK BOX AT MARK BOX AT RIGHT IF
RIGHT IF YOU [ ] AN ADDRESS CHANGE [ ]
PLAN TO OR COMMENT HAS BEEN
ATTEND THE NOTED ON THE REVERSE
MEETING SIDE OF THIS CARD
1. To elect the following nominees for Class I Director to serve for the
ensuing three years (except as marked below):
Joseph B. Lassiter, III
Charles R. Stuckey, Jr.
[ ] FOR ALL NOMINEES [ ] WITHHOLD [ ] FOR ALL EXCEPT
Note: If you do not wish your shares voted "For" a particular nominee,
mark the "For All Except" box and strike a line through the name(s) of the
nominee(s). Your shares will be voted for the remaining nominee(s).
2. To approve the amendment and restatement of the Company's 1994 Stock
Option Plan, as amended.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent auditors for the current year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 34
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE PROXIES
SHALL VOTE "FOR" BOTH DIRECTOR NOMINEES AND "FOR" EACH OF PROPOSALS 2 AND 3.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.
A VOTE "FOR" BOTH DIRECTOR NOMINEES AND A VOTE "FOR" EACH OF PROPOSALS 2
AND 3 ARE RECOMMENDED BY THE BOARD OF DIRECTORS.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT
THEREOF.
RECORD DATE SHARES:
Please be sure to sign
and date this Proxy. Date: ______________________
___________________________________
Stockholder sign here
___________________________________
Co-owner sign here
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