<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 Rule 14a-11(c) or Rule 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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
SECURITY DYNAMICS TECHNOLOGIES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 30, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Security Dynamics Technologies, Inc., a Delaware corporation (the "Company"),
will be held on Friday, July 30, 1999 at 2:00 p.m. at the offices of the
Company, 20 Crosby Drive, Bedford, Massachusetts (the "Meeting") for the purpose
of considering and voting upon the following matters:
1. To approve an amendment to the Company's 1994 Employee Stock Purchase
Plan, as amended, to increase the number of shares of Common Stock
authorized for issuance thereunder from 400,000 to 1,000,000 shares; and
2. 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 Friday, July 2,
1999 as the record date for the determination of stockholders entitled to notice
of and to vote at the Meeting and at any adjournments thereof.
By Order of the Board of Directors,
/s/ Margaret K. Seif
Margaret K. Seif, Secretary
July 8, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT 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.
36 CROSBY DRIVE
BEDFORD, MASSACHUSETTS 01730
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD JULY 30, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Security Dynamics Technologies, Inc. (the
"Company") for use at a Special Meeting of Stockholders to be held on Friday,
July 30, 1999 at 2:00 p.m. at the offices of the Company, 20 Crosby Drive,
Bedford, 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 July 2, 1999, 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 38,883,576 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 AND THE ENCLOSED PROXY ARE
FIRST BEING SENT OR GIVEN TO STOCKHOLDERS ON OR ABOUT JULY 8, 1999.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 30, 1999
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 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, 1998 (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)
--------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
- ------------------------------------ --------- ----------
<S> <C> <C>
5% STOCKHOLDERS
Franklin Resources, Inc. ................................... 2,689,430(2) 6.4%
777 Mariners Island Blvd.
San Mateo, CA 94404
Kenneth P. Weiss............................................ 2,354,516(3) 5.6%
59 Sargent Street
Newton, MA 02158
DIRECTORS
Charles R. Stuckey, Jr. .................................... 787,358(4) 1.9%
Arthur W. Coviello, Jr. .................................... 387,992(5) *
D. James Bidzos............................................. 752,755(6) 1.8%
Richard L. Earnest.......................................... 48,000(7) *
Taher Elgamal............................................... 13,500(8) *
Joseph B. Lassiter, III..................................... 45,000(9) *
George M. Middlemas......................................... 70,912(10) *
James K. Sims............................................... 65,000(11) *
OTHER NAMED EXECUTIVE OFFICERS
Gary A. Rogers(12).......................................... 296 *
Albert E. Sisto............................................. 31,874(13) *
John Adams.................................................. 53,423(14) *
All executive officers and directors, as a group (13
persons).................................................. 2,431,324(15) 5.7%
</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
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 April 30, 1999 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. This information is derived from a Schedule 13G filed with the Securities
and Exchange Commission on February 2, 1999.
3. This information is derived from information provided by the stockholder to
the Company.
4. Includes 10,000 shares held by the Stuckey Family Charitable Remainder
Unitrust, 56,820 shares held by the Charles R. Stuckey, Jr. -- 1998 Grantor
Retained Annuity Trust, and 100,000 shares held by the
2
<PAGE> 5
Charles R. Stuckey, Jr. -- 1998 Grantor Retained Annuity Trust II. Also
includes 212,499 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999.
5. Includes 366,872 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999.
6. Includes 55,252 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 229,000 shares which
may be acquired pursuant to stock options exercisable within 60 days after
April 30, 1999.
7. Consists of 48,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999.
8. Includes 12,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999.
9. Consists of 45,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999.
10. Includes 48,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999.
11. Includes 40,000 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999.
12. On March 4, 1999, Mr. Rogers resigned from the Company, effective March 19,
1999.
13. Consists of 31,874 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999. As of January 29, 1999, Mr.
Sisto ceased to serve as Chief Operating Officer of RSA Data Security, Inc.
14. Consists of 53,423 shares which may be acquired pursuant to stock options
exercisable within 60 days after April 30, 1999.
15. Includes an aggregate of 1,193,205 shares which may be acquired pursuant to
stock options exercisable within 60 days after April 30, 1999. Excludes
shares owned by Mr. Rogers, who resigned from the Company, effective March
19, 1999, and by Mr. Sisto, who ceased to serve as an executive officer of
the Company as of January 29, 1999.
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 majority of the shares of Common
Stock present or represented by proxy and voting on the matter is required to
approve the amendment to the Company's 1994 Employee Stock Purchase Plan, as
amended.
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 on the
amendment of the 1994 Employee Stock Purchase Plan, as amended, which requires
the affirmative vote of a majority of the votes cast or shares voting on the
matter.
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
3
<PAGE> 6
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.
Mr. Bidzos, the Vice Chairman of the Board of Directors of the Company,
entered into a Consulting Agreement with the Company, effective February 18,
1999, pursuant to which Mr. Bidzos is paid $10,000 per month, plus expenses
(including benefit coverage), for his services as a consultant to the Company.
The Consulting Agreement has a two-year term which is renewable annually
thereafter.
1994 Director Stock Option Plan
Under the terms of the Company's 1994 Director Stock Option Plan, as
amended (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 500,000
shares of Common Stock may be issued upon exercise of options granted under the
Director Plan.
Each eligible director is entitled to 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 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. An option to purchase 1,000 shares of
Common Stock at an exercise price of $22.00 per share was granted to Mr. Elgamal
on February 3, 1999, the date of his election to the Board of Directors of the
Company.
In addition, annual options to purchase 12,000 shares of Common Stock will
also be granted under the Director Plan to each eligible director on the date of
each annual meeting of stockholders, provided that such director continues to
serve as director immediately after such annual meeting. Options to purchase
12,000 shares of Common Stock at an exercise price of $24.125 per share were
granted under the Director Plan to each of Messrs. Earnest, Lassiter, Middlemas
and Sims on April 30, 1998, the date of the Company's 1998 Annual Meeting of
Stockholders. Options to purchase 12,000 shares of Common Stock at an exercise
price of $19.9375 per share were granted under the Director Plan to each of
Messrs. Bidzos, Earnest, Elgamal, Lassiter, Middlemas and Sims on May 5, 1999,
the date of the Company's 1999 Annual Meeting of Stockholders.
Beginning with the options granted on May 5, 1999, all options granted
under the Director Plan are fully vested on the date of grant. On February 3,
1999, in connection with his resignation from the Board of Directors of the
Company, the Company accelerated the vesting of the option granted to Sanford M.
Sherizen on April 30, 1998 such that the option became fully exercisable as of
such date. 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 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 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.
4
<PAGE> 7
COMPENSATION OF EXECUTIVE OFFICERS
Employment Agreements
The Company is a party to an Amended and Restated Employment Agreement,
dated as of November 1, 1997, as amended, with Charles R. Stuckey, Jr.,
providing for the employment of Mr. Stuckey as 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., the Company's President. 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).
On September 4, 1998, the Company entered into a Management Employment
Agreement with Gary A. Rogers providing for his employment as Senior Vice
President, World Wide Sales and Field Operations of the Company. The agreement
provided for an annual base salary of $190,000 and entitled Mr. Rogers to
participate in all bonus and benefit programs that the Company establishes and
makes available to its employees to the extent he was otherwise eligible. On
March 4, 1999, Mr. Rogers resigned from the Company, effective March 19, 1999.
On September 4, 1998, the Company entered into a Management Employment
Agreement with Albert E. Sisto providing for his employment as Chief Operating
Officer of RSA Data Security, Inc. The agreement provided for an annual base
salary of $195,000 and entitled Mr. Sisto to participate in all bonus and
benefit programs that the Company establishes and makes available to its
employees to the extent he was otherwise eligible. As of January 29, 1999, Mr.
Sisto ceased to serve as Chief Operating Officer of RSA Data Security, Inc., and
his employment agreement was terminated. See "-- Severance Agreements."
On September 4, 1998, the Company entered into a Management Employment
Agreement with John Adams providing for his employment as Senior Vice President,
Engineering of the Company for a period ending on March 4, 2000, unless sooner
terminated in accordance with the terms of the agreement. The agreement provides
for an annual base salary of $190,000 and entitles Mr. Adams to participate in
all bonus and benefit programs that the Company establishes and makes available
to its employees to the extent he is otherwise eligible. The agreement also
provides that Mr. Adams' employment with the Company shall not be terminated
during the term of the agreement other than for cause (as defined therein), upon
death or disability, or at the election of Mr. Adams.
Severance Agreements
The Company entered into a Separation and Settlement Agreement with Mr.
Bidzos, effective February 18, 1999, pursuant to which Mr. Bidzos resigned his
positions as Executive Vice President of the Company and President of RSA Data
Security, Inc. Pursuant to the terms of the agreement, the Company accelerated
the vesting of Mr. Bidzos' outstanding unvested stock options (covering an
aggregate of 200,001
5
<PAGE> 8
shares of Common Stock) such that all such options become exercisable in full.
In addition, the Company repriced all of Mr. Bidzos' outstanding stock options
(covering an aggregate of 350,000 shares of Common Stock) such that the exercise
price of such options is $16.00, the closing price of the Common Stock on the
Nasdaq National Market on the date of repricing and the fair market value of the
Common Stock as determined by the Board of Directors. As a condition to the
repricing, unless exercised prior thereto, 50% of Mr. Bidzos' options will
expire on September 1, 1999 and the remaining 50% will expire on December 31,
1999.
On January 22, 1999, the Company entered into a Transition Agreement and
Release with Mr. Sisto pursuant to which Mr. Sisto became an inactive employee
as of January 29, 1999. Pursuant to the terms of the agreement, Mr. Sisto's
Management Employment Agreement was terminated as of January 29, 1999 and Mr.
Sisto will continue to receive his base salary and benefits through March 31,
2000. In the event that Mr. Sisto accepts an offer of employment elsewhere prior
to March 31, 2000 then the Company will have no further obligation to provide
benefits to him.
Noncompetition Agreements
Messrs. Stuckey, Rogers, Coviello and Adams have each entered into
noncompetition agreements with the Company. Pursuant to the terms of the
noncompetition agreements, each of Messrs. Stuckey, Rogers, Coviello and Adams
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 has yet to implement the Deferred Compensation Plan.
6
<PAGE> 9
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, 1998.
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............. 1998 $231,000 $ 0 0 $8,384
Chairman of the Board and 1997 231,000 158,078 0 6,365
Chief Executive Officer 1996 219,471 170,918 200,000 5,202
Arthur W. Coviello, Jr............. 1998 200,000 0 0 6,293
President 1997 200,000 97,760 0 5,180
1996 175,000 85,968 0 4,087
Gary A. Rogers(3).................. 1998 190,000 50,000 300,000(4) 5,279
Former Senior Vice President, 1997 162,847 146,533 250,000 4,163
World Wide Sales and Field
Operations
Albert E. Sisto(5)................. 1998 195,000 42,099 275,000(6) 5,346
Former Chief Operating Officer of 1997 67,307 21,875 120,000 98
RSA Data Security, Inc.
John Adams(7)...................... 1998 190,000 10,000 253,100(8) 7,479
Senior Vice President,
Engineering 1997 183,750 54,384 0 5,433
1996 127,885 21,969 200,000 164
</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 1998 represent the aggregate value
of the Company's contributions on behalf of the executives to Group Term
Life Insurance ($2,777 for Mr. Stuckey, $870 for Mr. Coviello, $531 for Mr.
Rogers, $848 for Mr. Sisto and $2,112 for Mr. Adams), the Company's 401(k)
savings plan ($3,607 for Mr. Stuckey, $3,424 for Mr. Coviello, $2,748 for
Mr. Rogers, $2,498 for Mr. Sisto and $3,367 for Mr. Adams), and the
Company's Profit Sharing Plan ($2,000 for each of Messrs. Stuckey, Coviello,
Rogers, Sisto and Adams).
(3) Mr. Rogers joined the Company as Senior Vice President, World Wide Sales and
Field Operations in February 1997. On March 4, 1999, Mr. Rogers resigned
from the Company, effective March 19, 1999.
(4) On June 26, 1998, Mr. Rogers was granted an option to purchase 50,000 shares
of Common Stock. On August 12, 1998, Mr. Rogers' 300,000 then-outstanding
options were exchanged for new options pursuant to the Company's Option
Repricing Program. See "Option Grants."
(5) Mr. Sisto joined the Company as Chief Operating Officer of RSA Data
Security, Inc. in October 1997. As of January 29, 1999, Mr. Sisto ceased to
serve as Chief Operating Officer of RSA Data Security, Inc.
(6) On June 26, 1998, Mr. Sisto was granted an option to purchase 75,000 shares
of Common Stock. On August 12, 1998, 195,000 of Mr. Sisto's then-outstanding
options were exchanged for new options pursuant to the Company's Option
Repricing Program. On July 16, 1998, Mr. Sisto was granted an option to
purchase 80,000 shares of Common Stock which were not repriced pursuant to
the Company's Option Repricing Program. See "Option Grants."
(7) Mr. Adams joined the Company as Senior Vice President, Engineering in March
1996.
(8) On June 26, 1998, Mr. Adams was granted an option to purchase 75,000 shares
of Common Stock. On August 12, 1998, Mr. Adams' 253,100 then-outstanding
options were exchanged for new options pursuant to the Company's Option
Repricing Program. See "Option Grants."
7
<PAGE> 10
Option Grants
The following table sets forth certain information concerning grants of
stock options during the year ended December 31, 1998 to each of the Named
Executive Officers. The Company granted no stock appreciation rights during
fiscal 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SHARES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN PRICE PER OPTION TERM ($)(2)
OPTIONS FISCAL YEAR SHARE EXPIRATION -----------------------
GRANTED (%) ($)(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
Arthur W. Coviello, Jr......... 0 0 N/A N/A N/A N/A
Gary A. Rogers................. 50,000(3) 1.0% $19.00 6/25/08 N/A N/A
50,000(4) 1.0 12.06 6/25/08 $ 370,000 $ 931,000
250,000(4) 4.0 12.06 1/26/07 1,550,000 3,763,000
Albert E. Sisto................ 75,000(3) 1.2 19.00 6/25/08 N/A N/A
80,000 1.3 16.00 7/15/08 805,000 2,040,000
75,000(4) 1.2 12.06 6/25/08 555,000 1,397,000
120,000(4) 1.9 12.06 11/11/07 831,000 2,064,000
John Adams..................... 75,000(3) 1.2 19.00 6/25/08 N/A N/A
75,000(4) 1.2 12.06 6/25/08 555,000 1,397,000
178,100(4) 2.8 12.06 4/1/06 964,000 2,284,000
</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.
(3) Option granted on June 26, 1998 and subsequently exchanged for a new option
pursuant to the Company's Option Repricing Program. Accordingly, this option
is no longer outstanding.
(4) Option granted on August 12, 1998 pursuant to the Company's Option Repricing
Program in exchange for the surrender of then-outstanding options.
8
<PAGE> 11
Aggregated Option Exercises and Year-End Option Table
The following table summarizes certain information regarding stock options
exercised during the year ended December 31, 1998 and stock options held as of
December 31, 1998 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
NUMBER OPTIONS AT FISCAL AT FISCAL YEAR-END
OF SHARES VALUE YEAR-END (EXERCISABLE/
ACQUIRED ON REALIZED (EXERCISABLE/ UNEXERCISABLE)
NAME EXERCISE (#) ($)(1) UNEXERCISABLE)(#) ($)(2)
- ---- ------------ ---------- ----------------- --------------------
<S> <C> <C> <C> <C>
Charles R. Stuckey, Jr...... 250,000 $2,993,750 187,499/62,500 $ 1,145,000/$0
Arthur W. Coviello, Jr...... 25,000 631,405 298,218/102,982 3,970,027/1,370,948
Gary A. Rogers.............. 0 0 109,374/190,625 1,196,278/2,084,961
Albert E. Sisto............. 0 0 30,000/245,000 328,125/2,364,688
John Adams.................. 0 0 103,100/150,000 1,126,563/1,640,625
</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 ($23.00) of the Company's
Common Stock on December 31, 1998, as reported on the Nasdaq National
Market, less the exercise price.
PROPOSAL 1 -- APPROVAL OF AMENDMENT TO
1994 EMPLOYEE STOCK PURCHASE PLAN
On July 1, 1999, the Board of Directors adopted resolutions, subject to
stockholder approval, to approve an amendment (the "Purchase Plan Amendment") to
the Company's 1994 Employee Stock Purchase Plan, as amended (the "Purchase
Plan"), to increase the number of shares of Common Stock authorized for issuance
under the Purchase Plan from 400,000 shares to 1,000,000 shares. The Board has
adopted the Purchase Plan Amendment because the number of shares currently
available under the Purchase Plan is insufficient to satisfy the expected 1999
share requirements thereunder.
As of July 2, 1999, and subject to stockholder approval of the Purchase
Plan Amendment, 633,045 shares of Common Stock were available for issuance under
the Purchase Plan.
THE BOARD OF DIRECTORS BELIEVES THAT THE APPROVAL OF THE PURCHASE PLAN AMENDMENT
IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A
VOTE IN FAVOR OF THIS PROPOSAL.
SUMMARY OF THE PURCHASE PLAN
The Purchase Plan, which was adopted by the Board of Directors and approved
by the stockholders of the Company in October 1994, qualifies as an "employee
stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). All employees of the Company, including directors of the
Company who are employees, and all the employees of any participating
subsidiaries whose customary employment is more than 20 hours per week and for
more than five months in any calendar year are eligible to participate in the
Purchase Plan. Employees who would immediately after the grant own 5% or more of
the total combined voting power or value of the stock of the Company or any
subsidiary are not eligible to participate. As of July 2, 1999, approximately
734 of the Company's employees were eligible to participate in the Purchase
Plan.
9
<PAGE> 12
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase Plan,
the option price is an amount equal to 85% of the fair market value per share of
the Common Stock on either the first day or the last day of the Offering Period,
whichever is lower. In no event may an employee purchase in any one Offering
Period a number of shares which is more than 15% of the employee's base pay for
the Offering Period divided by 85% of the market value of a share of Common
Stock on the commencement date of the Offering Period. The Compensation
Committee may, in its discretion, choose an Offering Period of 12 months or less
for each offering and choose a different Offering Period for each offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason, except
that upon termination of employment because of death, the employee's beneficiary
has certain rights to elect to exercise the option to purchase the shares which
the accumulated payroll deductions in the participant's account would purchase
at the date of death.
Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of shares of Common Stock to be purchased by any
particular current executive officer, by all current executive officers as a
group, by all non-executive directors as a group or by all non-executive
employees as a group. From the initial adoption of the Purchase Plan through
July 2, 1999: an aggregate of 4,171 shares of Common Stock had been purchased
thereunder by Charles R. Stuckey, Jr., the Chairman of the Board of Directors
and Chief Executive Officer of the Company; 2,646 shares of Common Stock had
been purchased thereunder by Arthur W. Coviello, Jr., the President, and a
member of the Board of Directors, of the Company; 1,517 shares of Common Stock
had been purchased thereunder by Gary A. Rogers, the former Senior Vice
President, World Wide Sales and Field Operations of the Company; no shares of
Common Stock had been purchased thereunder by Albert E. Sisto, the former Chief
Operating Officer of RSA Data Security, Inc.; no shares of Common Stock had been
purchased thereunder by John Adams, the Senior Vice President, Engineering of
the Company; an aggregate of 14,456 shares of Common Stock had been purchased
thereunder by all current executive officers of the Company as a group; an
aggregate of 1,087 shares of Common Stock had been purchased thereunder by all
current directors who are not executive officers of the Company as a group; no
shares of Common Stock had been purchased thereunder by any associate of any
director or executive officer of the Company; and an aggregate of 349,895 shares
of Common Stock had been purchased thereunder by all employees of the Company
who are not executive officers as a group.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to purchases made under the
Purchase Plan and with respect to the sale of Common Stock acquired under the
Purchase Plan.
Tax Consequences to Participants.
In general, a participant will not recognize taxable income upon enrolling
in the Purchase Plan or upon purchasing shares of Common Stock at the end of an
offering. Instead, if a participant sells Common Stock acquired under the
Purchase Plan at a sale price that exceeds the price at which the participant
purchased the Common Stock, then the participant will recognize taxable income
in an amount equal to the excess of the sale price of the Common Stock over the
price at which the participant purchased the Common Stock. A portion of that
taxable income will be ordinary income, and a portion may be capital gain.
10
<PAGE> 13
If the participant sells the Common Stock more than one year after
acquiring it and more than two years after the date on which the offering
commenced (the "Grant Date"), then the participant will be taxed as follows. If
the sale price of the Common Stock is higher than the price at which the
participant purchased the Common Stock, then the participant will recognize
ordinary compensation income in an amount equal to the lesser of:
(i) fifteen percent of the fair market value of the Common Stock on the
Grant Date; and
(ii) the excess of the sale price of the Common Stock over the price at
which the participant purchased the Common Stock.
Any further income will be long-term capital gain. If the sale price of the
Common Stock is less than the price at which the participant purchased the
Common Stock, then the participant will recognize long-term capital loss in an
amount equal to the excess of the price at which the participant purchased the
Common Stock over the sale price of the Common Stock.
If the participant sells the Common Stock within one year after acquiring
it or within two years after the Grant Date (a "Disqualifying Disposition"),
then the participant will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the Common Stock on the date
that it was purchased over the price at which the participant purchased the
Common Stock. The participant will also recognize capital gain in an amount
equal to the excess of the sale price of the Common Stock over the fair market
value of the Common Stock on the date that it was purchased, or capital loss in
an amount equal to the excess of the fair market value of the Common Stock on
the date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the participant
has held the Common Stock for more than one year prior to the date of the sale
and will be a short-term capital gain or loss if the participant has held the
Common Stock for a shorter period.
Tax Consequences to the Company.
The offering of Common Stock under the Purchase Plan will have no tax
consequences to the Company. Moreover, in general, neither the purchase nor the
sale of Common Stock acquired under the Purchase Plan will have any tax
consequences to the Company except that the Company will be entitled to a
business-expense deduction with respect to any ordinary compensation income
recognized by a participant upon making a Disqualifying Disposition. Any such
deduction will be subject to the limitations of Section 162(m) of the Code.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any proposal that a stockholder of the Company wishes to be considered for
inclusion in the Company's proxy statement and proxy card for the Company's 2000
Annual Meeting of Stockholders (the "2000 Annual Meeting") must be submitted to
the Secretary of the Company at its offices, 36 Crosby Drive, Bedford,
Massachusetts 01730, no later than November 23, 1999.
If a stockholder of the Company wishes to present a proposal before the
2000 Annual Meeting, but does not wish to have the proposal considered for
inclusion in the Company's proxy statement and proxy card, such stockholder must
also give written notice to the Secretary of the Company at the address noted
above. The Secretary must receive such notice not less than 60 days nor more
than 90 days prior to the 2000 Annual Meeting; provided that, in the event that
less than 70 days' notice or prior public disclosure of the date of the 2000
Annual Meeting is given or made, notice by the stockholder must be received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. If a stockholder fails to provide timely notice of
a proposal to be presented at the 2000 Annual Meeting, the proxies designated by
the Board of Directors of the Company will have discretionary authority to vote
on any such proposal.
11
<PAGE> 14
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 $3,000 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/ Margaret K. Seif
Margaret K. Seif, Secretary
July 8, 1999
12
<PAGE> 15
SDMCM-PS-99
<PAGE> 16
APPENDIX A
SECURITY DYNAMICS TECHNOLOGIES, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Plan is to provide eligible employees of Security
Dynamics Technologies, Inc. (the "Company") and certain of its subsidiaries with
opportunities to purchase shares of the Company's Common Stock, $.01 par value
(the "Common Stock"). One Hundred Thousand (100,000) shares (after giving effect
to the Company's one-for-two reverse stock split effective as of October 24,
1994) of Common Stock in the aggregate have been approved for this purpose.
1. ADMINISTRATION. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined below) to purchase Common Stock under the Plan, provided
that:
(a) they are regularly employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) they have been employed by the Company or a Designated Subsidiary
for at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the
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<PAGE> 17
employee has a contractual right to purchase shall be treated as stock owned by
the employee.
3. OFFERINGS. The Company will make one or more offerings ("Offerings") to
employees to purchase Common Stock under this Plan. The Board or the Committee
shall determine the commencement dates of each of the Offerings (the "Offering
Commencement Dates"). Each Offering Commencement Date will begin a period (a
"Plan Period") during which payroll deductions will be made and held for the
purchase of Common Stock at the end of the Plan Period. The Board or the
Committee shall choose a Plan Period of twelve (12) months or less for each of
the Offerings and may, at its discretion, choose a different Plan Period for
each Offering.
4. PARTICIPATION. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the Controller of the Company at least
14 days prior to the applicable Offering Commencement Date. The form will
authorize a regular payroll deduction from the Compensation received by the
employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
5. DEDUCTIONS.
(a) The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction in any dollar amount up to a maximum
of 10% of the Compensation he or she receives during the Plan Period or such
shorter period during which deductions from payroll are made. Payroll deductions
may be at the rate of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% or 10% of Compensation.
(b) No employee may be granted an Option which permits his rights to
purchase Common Stock under this Plan and any other stock purchase plan of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
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<PAGE> 18
6. DEDUCTION CHANGES. An employee may decrease or discontinue his payroll
deduction once during any Plan Period by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. INTEREST. Interest will not be paid on any employee payroll deduction
accounts, except to the extent that the Board or its Committee, in its sole
discretion, elects to credit such accounts with interest at such per annum rate
as it may from time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may on any one occasion during a Plan
Period and for any reason withdraw all or part of the balance accumulated in the
employee's payroll deduction account. Any such withdrawal must be effected prior
to the close of business on the last day of the Plan Period. If the employee
withdraws all of such balance, the employee shall thereby withdraw from
participation in the Offering and may not begin participation again during the
remainder of the Plan Period. Any employee withdrawing all or part of such
balance may participate in any subsequent Offering in accordance with terms and
conditions established by the Board or the Committee, except that, unless
otherwise permitted under Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules promulgated thereunder, any employee
who is also a director and/or officer of the Company within the meaning of
Section 16 of the Exchange Act may not (a) withdraw less than all of the balance
accumulated in such employee's payroll deduction account or (b) participate
again for a period of at least six months as provided in Rule 16b-3(d)(2)(i) or
any successor provision under the Exchange Act.
9. PURCHASE OF SHARES.
(a) On the Offering Commencement Date of each Plan Period, the Company
will grant to each eligible employee who is then a participant in the Plan an
option (an "Option") to purchase on the last business day of such Plan Period
(the "Exercise Date"), at the Option Price hereinafter provided for, such number
of whole shares of Common Stock of the Company reserved for the purposes of the
Plan as does not exceed the number of shares determined by dividing 15% of such
employee's annualized Compensation for the immediately prior six-month period by
the price determined in accordance with the formula set forth in the following
paragraph but using the closing price on the Offering Commencement Date of such
Plan Period.
(b) The Option Price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
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<PAGE> 19
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (A) the closing price of the Common Stock on any national
securities exchange on which the Common Stock is listed, or (B) the closing
price of the Common Stock on the Nasdaq National Market ("Nasdaq") or (C) the
average of the closing bid and asked prices in the over-the-counter market,
whichever is applicable, as published in THE WALL STREET JOURNAL. If no sales of
Common Stock were made on such a day, the price of the Common Stock for purposes
of clauses (A) and (B) above shall be the reported price for the next preceding
day on which sales were made.
(c) Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date and shall be deemed to have purchased from the Company the number
of full shares of Common Stock reserved for the purpose of the Plan that his
accumulated payroll deductions on such date will pay for pursuant to the formula
set forth above (but not in excess of the maximum number determined in the
manner set forth above).
(d) Any balance remaining in an employee's payroll deduction account at
the end of a Plan Period will be automatically refunded to the employee, except
that any balance which is less than the purchase price of one share of Common
Stock will be carried forward into the employee's payroll deduction account for
the following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the street
name of a brokerage firm, bank or other nominee holder designated by the
employee.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period (whether as a result of the employee's voluntary
or involuntary termination, retirement, death or otherwise), no payroll
deduction shall be taken from any pay due and owing to the employee and the
balance in the employee's payroll deduction account shall be paid to the
employee or, in the event of the employee's death, (a) to a beneficiary
previously designated in a revocable notice signed by the employee (with any
spousal consent required under state law) or (b) in the absence of such a
designated beneficiary, to the executor or administrator of the employee's
estate or (c) if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may, in its
discretion, designate. If, prior to the last business day of the Plan Period,
the Designated Subsidiary by which an employee is employed shall
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<PAGE> 20
cease to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. APPLICATION OF FUNDS. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock (other
than the Company's one-for-two reverse stock split effective as of October 24,
1994), such adjustment shall be made as may be deemed equitable by the Board or
the Committee to give proper effect to such event.
16. MERGER.
(a) If the Company shall at any time merge or consolidate with another
corporation and the holders of the capital stock of the Company immediately
prior to such merger or consolidation continue to hold at least 80% by voting
power of the capital stock of the surviving corporation ("Continuity of
Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger, and the Board or the Committee shall take such
steps in connection with such merger as the Board or the Committee shall deem
necessary to assure that the provisions of Section 15 shall thereafter be
applicable, as nearly as reasonably may be, in relation to the said securities
or property as to which such holder of such Option might thereafter be entitled
to receive thereunder.
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<PAGE> 21
(b) In the event of a merger or consolidation of the Company with or
into another corporation which does not involve Continuity of Control, or of a
sale of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (i) subject to the provisions of
clauses (ii) and (iii), after the effective date of such transaction, each
holder of an outstanding Option shall be entitled, upon exercise of such Option,
to receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (ii) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (iii) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code or by Rule 16b-3 under the Exchange Act, such amendment shall not be
effected without such approval, and (b) in no event may any amendment be made
which would cause the Plan to fail to comply with Section 16 of the Exchange Act
and the rules promulgated thereunder, as in effect from time to time, or Section
423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the payroll deduction
accounts of participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS.
(a) The Company's obligation to sell and deliver Common Stock under this
Plan is subject to listing on a national stock exchange or quotation on Nasdaq
and the approval of all governmental authorities required in connection with the
authorization, issuance or sale of such stock.
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<PAGE> 22
(b) The Plan shall be governed by the laws of the State of Delaware
except to the extent that such law is preempted by federal law.
(c) The Plan is intended to comply with the provisions of Rule 16b-3
promulgated under the Exchange Act. Any provision inconsistent with such Rule
shall to that extent be inoperative and shall not affect the validity of the
Plan.
21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
23. EFFECTIVE DATE AND APPROVAL OF STOCKHOLDERS. The Plan shall take effect
upon the closing of the Company's initial public offering of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, subject to approval by the stockholders of the Company as
required by Rule 16b-3 under the Exchange Act and by Section 423 of the Code,
which approval must occur within twelve months of the adoption of the Plan by
the Board.
Adopted by the Board of Directors on
October 4, 1994
Approved by the stockholders on
October 24, 1994
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<PAGE> 23
SECURITY DYNAMICS TECHNOLOGIES, INC.
AMENDMENT NO. 1
TO
1994 EMPLOYEE STOCK PURCHASE PLAN
1. That the Company's 1994 Employee Stock Purchase Plan (the "Purchase Plan")
be amended to delete the phrase
", except that, unless otherwise permitted under Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules promulgated thereunder, any employee who is also a director and/or
officer of the Company within the meaning of Section 16 of the Exchange Act
may not (a) withdraw less than all of the balance accumulated in such
employee's payroll deduction account or (b) participate again for a period
of at least six months as provided in Rule 16b-3(d)(2)(i) or any successor
provision under the Exchange Act"
appearing at the end of Section 8 of the 1994 Employee Stock Purchase Plan.
2. That the 1994 Employee Stock Purchase Plan be further amended to delete in
its entirety Section 13 thereof (pertaining to the nontransferability of
rights under the 1994 Employee Stock Purchase Plan) and to renumber the
remaining Sections of the 1994 Employee Stock Purchase Plan, and any and
all cross references thereto contained in the 1994 Employee Stock Purchase
Plan, accordingly.
3. That the 1994 Employee Stock Purchase Plan be further amended to define the
term "Exchange Act" first appearing in Section 17 of the 1994 Employee
Stock Purchase Plan (renumbered as Section 16 pursuant to the preceding
resolution) as "the Securities Exchange Act of 1934, as amended."
Adopted by the Board of Directors on February 12, 1997
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<PAGE> 24
SECURITY DYNAMICS TECHNOLOGIES, INC.
AMENDMENT NO. 2
TO
1994 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
The 1994 Employee Stock Purchase Plan, as amended (the "Purchase Plan"), is
hereby amended as follows (capitalized terms used herein and not defined herein
shall have the respective meaning ascribed to such terms in the Purchase Plan):
The second sentence of the introduction to the Purchase Plan shall be
deleted in its entirety and replaced with the following:
"One Million (1,000,000) shares of Common Stock have been approved for this
purpose."
Except as aforesaid, the Purchase Plan shall remain in full force and
effect.
Adopted by the Board of Directors on July 1, 1999
A-9
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APPENDIX B
SECURITY DYNAMICS TECHNOLOGIES, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 30, 1999
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 Special Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) Charles R. Stuckey, Jr., Arthur W.
Coviello, Jr. and Margaret K. Seif, 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 Special Meeting of
Stockholders of SECURITY DYNAMICS TECHNOLOGIES, INC. (the "Company") to be held
on Friday, July 30, 1999 at 2:00 p.m. at the offices of the Company, 20 Crosby
Drive, Bedford, Massachusetts, and any adjournments thereof, and there to vote
and act upon the following matter 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 THE 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.
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" PROPOSAL 1.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO
COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
A VOTE "FOR" PROPOSAL 1 IS RECOMMENDED BY THE BOARD OF DIRECTORS.
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
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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?
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[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 approve an amendment to the Company's 1994 Employee Stock Purchase Plan,
as amended, to increase the number of shares of Common Stock authorized for
issuance thereunder from 400,000 to 1,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING AND ANY ADJOURNMENT
THEREOF.
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CONTROL NUMBER:
RECORD DATE SHARES:
Please be sure to sign
and date this Proxy. Date:
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Stockholder sign here
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Co-owner sign here
DETACH CARD DETACH CARD
