<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K/A
[X] Annual Report pursuant to Section 13 or 15(d)of the Securities Exchange Act
of 1934
For the fiscal year ended June 30, 1998
-------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from
--------------
Commission File Number 0-021403
VOXWARE, INC.
-------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3934824
- --------------------------- -------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
305 College Road East
Princeton, New Jersey 08540
609-514-4100
(Address, including zip code, and telephone
number (including area code) of registrant's
principal executive office)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001
par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $7,115,565 as of September 30, 1998, based upon the
closing sale price of the Common Stock as quoted on the Nasdaq National Market.
This amount excludes an aggregate of 3,816,104 shares of Common Stock held by
executive officers, directors and by each entity that owns 5% or more of the
Common Stock outstanding at September 30, 1998. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
The number of shares of the registrant's Common Stock outstanding as of
September 30, 1998 was 13,303,524.
================================================================================
1
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information
The Company's Common Stock is traded on the National Market segment of The
Nasdaq Stock Market under the symbol "VOXW." The following table sets forth the
high and low sale prices as quoted on The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Quarter ended December 31, 1996 (beginning October 31, 1996) $ 8.50 $ 6.375
Quarter ended March 31, 1997 $ 7.625 $ 2.00
Quarter ended June 30, 1997 $ 6.00 $ 4.00
Quarter ended September 30, 1997 $ 6.063 $ 3.75
Quarter ended December 31, 1997 $ 6.688 $ 3.188
Quarter ended March 31, 1998 $ 4.00 $ 2.031
Quarter ended June 30, 1998 $ 3.50 $ 2.00
Quarter ended September 30, 1998 $ 2.375 $ 0.75
</TABLE>
As of September 30, 1998 there were approximately 173 holders of record of the
Company's Common Stock. Because many of the Company's shares of Common Stock
are held by brokers and other institutions on behalf of stockholders, the
Company is unable to estimate the total number of stockholders represented by
these record holders. The Company has never declared or paid any cash dividends
on its Common Stock. The Company does not anticipate paying any cash dividends
in the foreseeable future.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS OF THE COMPANY
The directors of the Company and their respective ages and principal occupations
are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICES WITH THE COMPANY
---- --- ------------------------
<S> <C> <C>
Andrew I. Fillat (1)(2)(3).......... 50 Chairman of the Board of Directors
Bathsheba J. Malsheen, Ph.D. (3) 47 President, Chief Executive Officer and Director
J. Gerard Aguilar................... 31 Vice President, Research and Development and Director
David B. Levi (1)(2)................ 65 Director
Eli Porat........................... 52 Director
</TABLE>
2
<PAGE>
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee
Andrew I. Fillat has served as a Director of the Company since December 1995.
In 1989, Mr. Fillat joined Advent International Corporation ("Advent") where he
currently serves as a Senior Vice President. Mr. Fillat is also a Director of
Advanced Radio Telecom Corp., Interlink Computer Sciences, Inc. and Lightbridge,
Inc. as well as several other private companies. Mr. Fillat holds an M.S. and a
B.S. from M.I.T. and an M.B.A. from the Harvard Graduate School of Business
Administration.
Bathsheba J. Malsheen, Ph.D. has served as President, Chief Executive Officer
and Director of the Company since October 1997. She previously served as Chief
Operating Officer of the Company from May 1997 through October 1997, and as Vice
President of OEM Licensing from October 1996 through April 1997. From April
1990 to October 1996, Dr. Malsheen held various executive positions with
Centigram Communications Corporation, a voice messaging company, most recently
as General Manager of their Technology Business Unit and was responsible for
licensing of text-to-speech software products. Previously, she worked for
Speech Plus, Inc. where she served as Director of Speech Technology from 1985 to
1990. Dr. Malsheen holds a Ph.D. and M.A. from Brown University and a B.A. from
Hofstra University.
J. Gerard Aguilar is a co-founder of Voxware and has served as Vice President,
Research and Development since January 1994 and as a Director of the Company
since its incorporation in August 1993. Mr. Aguilar served as the Company's
President and Secretary from its incorporation through January 1994 and
Treasurer from its incorporation through June 1996. Prior thereto, Mr. Aguilar
had been independently developing certain of the Company's technologies since
1991. Mr. Aguilar holds an M.S.E.E. and a B.S.E.E. from the Florida Institute
of Technology.
David B. Levi has served as a Director of the Company since January 1998. Mr.
Levi served as President of Natural MicroSystems Corporation, a provider of
hardware and software for developers of high-value telecommunications solutions
from June 1991 to April 1995. In November 1995 Mr. Levi became President of
Voice Processing Corp ("VPC"). VPC merged with Voice Control Systems, Inc.
("VCS"), a supplier of telecommunications based speech recognition systems, in
November 1996 and Mr. Levi served as Chief Operating Officer of VCS until his
retirement in October 1997. Prior to 1991, Mr. Levi held Chief Executive
Officer and Chief Operating Officer positions at Raytheon Data Systems (a
division of Raytheon Corp.), Centronics Data Computer Corp., and Raster
Technologies Inc. and consulted to Regional Bell Operating Companies. Mr. Levi
currently serves on the Board of Directors of PictureTel, Inc. and Microlog
Corporation. Mr. Levi holds an A.B. from Harvard College and an M.B.A. from the
Harvard Graduate School of Business Administration.
Eli Porat has served as a Director of the Company since August 1998. Mr.
Porat has served as Chairman and CEO of Ensemble Solutions Inc., a provider of
electronic distribution through a suite of electronic business products, since
1997. He also serves on the Board of Directors of Starfish Software, Inc., a
leading supplier of core device, server and desktop technologies for wireless
and wireline Connected Information Devices. From 1991 to 1996, Mr. Porat was
the President and CEO of DSP Group, a developer of digital signal processing
cores used in a wide range of applications such as wireless communications,
telephony and personal computers. From 1996 to 1997 he was a General Partner of
DEFTA Partners, a venture capital group specializing in Internet telephony
investments. Prior to 1991, Mr. Porat held various senior-level positions with
Zymos, Sytek, and Intel. Mr. Porat has an M.S.E.E.C.S. and a B.S.E.E.C.S. from
the University of California at Berkeley.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides information concerning compensation paid to or
earned by the Chief Executive Officer of the Company for the years ended June
30, 1998, 1997 and 1996 and the next four most highly compensated Executive
Officers of the Company for such periods (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------ ------------
Securities
Underlying All Other
Name and Principal Position Period Base Salary Bonus Options Compensation (1)
- --------------------------- ------ ----------- ----- ------- ----------------
<S> <C> <C> <C> <C> <C>
Bathsheba J. Malsheen, Ph.D. 1998 $156,596 $41,875 200,000 $ 42,156
President and 1997 $ 86,417 $16,000 160,000 $ 24,928
Chief Executive Officer 1996 $ -- $ -- -- $ --
Nicholas Narlis................ 1998 $133,538 $21,675 70,000 $ 1,999
Vice President, 1997 $106,667 $20,000 35,000 $ 850
Chief Financial Officer, 1996 $ 29,167 $ -- 25,000 $ --
Secretary and Treasurer
J. Gerard Aguilar.............. 1998 $127,199 $16,380 -- $ 1,584
Vice President, Research 1997 $ 94,925 $30,000 -- $ --
and Development 1996 $ 70,000 $20,000 -- $ --
Michael Goldstein.............. 1998 $ 48,125 $ -- -- $111,187
President and 1997 $144,102 $ -- -- $ 3,619
Chief Executive Officer (2) 1996 $117,500 $30,000 -- $ 3,567
Kenneth H. Traub............. 1998 $111,087 $41,700 20,000 $ 28,138
Executive Vice President, 1997 $117,462 $25,000 -- $ 1,342
Chief Financial Officer 1996 $100,000 $25,000 -- $ 250
and Secretary (3)
</TABLE>
___________
(1) All Other Compensation for Ms. Malsheen consists of $42,156 and $24,928 in
residential and vehicle lease payments made by the Company on her behalf in
fiscal 1998 and 1997, respectively. All Other Compensation for Mr. Narlis
consists of $1,999 and $850 in Company contributions to Mr. Narlis's
account under the Company's 401(k) Plan in fiscal 1998 and 1997,
respectively. All Other Compensation for Mr. Aguilar consists of life and
disability insurance premiums, of which the Company is not the beneficiary,
totaling $1,584 paid on behalf of Mr. Aguilar in fiscal 1998. All Other
Compensation for Mr. Goldstein consists of severance payments totaling
$106,875 in fiscal 1998, and life and disability insurance premiums, of
which the Company is not the beneficiary, totaling $4,312, $3,619 and
$3,567 paid on behalf of Mr. Goldstein in fiscal 1998, 1997 and 1996,
respectively. All Other Compensation for Mr. Traub consists of severance
payments totaling $25,833 in fiscal 1998, $1,641 in Company contributions
to Mr. Traub's account under the Company's 401(k) Plan in fiscal 1998 and
life and disability insurance premiums, of which the Company is not the
beneficiary, totaling $664, $1,342 and $250 paid on behalf of Mr. Traub in
fiscal 1998, 1997 and 1996, respectively.
(2) Mr. Goldstein resigned from the Company effective October 13, 1997.
(3) Mr. Traub resigned from the Company effective April 30, 1998.
4
<PAGE>
The following table summarizes stock options granted during fiscal 1998 to
the Named Executive Officers.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
-----------------------------------------------------------------------------------------------------
Potential Realized Value at Assumed
Annual Rates of Stock Price
Appreciation for Option Term (3)
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of
Securities
Underlying Percentage of
Options Total Options
Name Granted (1) Granted (2) Exercise Price Expiration Date 5% 10%
- ---- ----------- ------------- -------------- --------------- -- ---
Bathsheba J. Malsheen, Ph.D. 200,000 23.7% $4.00 11/25/07 $503,116 $1,274,994
Nicholas Narlis................ 40,000 4.7% $4.00 11/25/07 $100,623 $ 254,999
30,000 3.5% $2.91 4/27/08 $ 54,903 $ 139,134
J. Gerard Aguilar.............. -- -- -- -- -- --
Michael Goldstein (4).......... -- -- -- -- -- --
Kenneth H. Traub (5).......... 20,000 2.4% $4.00 11/25/07 $ 50,312 $ 127,499
</TABLE>
___________
(1) These options vest over a four year period from the date of grant, becoming
exercisable as to 25% on the first anniversary of the date of grant, and at
6.25% per quarter thereafter.
(2) Based on an aggregate of 845,650 options granted to employees in fiscal
1998, including options granted to the Named Executive Officers.
(3) Represents the hypothetical gains or "option spreads" that would exist for
the options at the end of their ten year term. These gains are based on
assumed rates of annual compound stock price appreciation of 5% and 10%
from the date the option was granted to the end of the option term and are
calculated based on the exercise price per share on the date of grant. Such
5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the future Common Stock
price.
(4) Mr. Goldstein resigned from the Company effective October 13, 1997.
(5) Mr. Traub resigned from the Company effective April 30, 1998.
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers on
June 30, 1998.
<TABLE>
<CAPTION>
Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options (#) Options at Fiscal Year-End ($) (1)
-----------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bathsheba J. Malsheen, Ph.D. 47,500 312,500 $ -- $ --
Nicholas Narlis............. 22,812 107,188 $ -- $ --
J. Gerard Aguilar........... -- -- $ -- $ --
Michael Goldstein (2)....... -- -- $ -- $ --
Kenneth H. Traub (3)........ -- -- $ -- $ --
</TABLE>
(1) Based on the difference between $2.19, which was the closing price per
share on June 30, 1998, and the exercise price of the option.
(2) Mr. Goldstein resigned from the Company effective October 13, 1997.
(3) Mr. Traub resigned from the Company effective April 30, 1998.
5
<PAGE>
EMPLOYMENT AGREEMENTS
Bathsheba J. Malsheen, Ph.D., President and Chief Executive Officer of the
Company, has a three-year employment agreement with the Company which commenced
in August 1998. Dr. Malsheen currently receives an annual base salary of
$180,000.
Nicholas Narlis, Vice President, Chief Financial Officer, Secretary and
Treasurer of the Company, has a three-year employment agreement with the Company
which commenced in August 1998. Mr. Narlis currently receives an annual base
salary of $150,000.
J. Gerard Aguilar, Vice President, Research and Development of the Company,
has a five-year employment agreement with the Company which commenced in
February 1994. Mr. Aguilar currently receives an annual base salary of $130,000.
All of the foregoing employment agreements are automatically renewable for
successive one-year terms unless terminated by either party.
Under the employment agreements for each of Dr. Malsheen and Messrs. Narlis
and Aguilar, if any of them, respectively, is dismissed for any reason other
than Cause (as defined in their respective employment agreements), death or
disability, he or she shall be entitled to receive an amount equal to: in the
case of Dr. Malsheen, twelve months salary at her then current rate; in the case
of Mr. Narlis, nine months salary at his then current rate; or in the case of
Mr. Aguilar, his salary at his then current rate for the shorter of (i) nine
months or (ii) the remainder of his then current Term.
All of the employment agreements grant to the Company the rights to any
information created, discovered or developed by the executive which is related
to or useful in the business of the Company. The employment agreements prohibit
the executive from disclosing the Company's proprietary information and contain
certain covenants by the executive not to compete with the Company.
COMPENSATION OF DIRECTORS
The Company's 1998 Stock Option Plan for Non-Employee Directors (the
"Directors Option Plan") was adopted by the Board of Directors in October 1997
and approved by its stockholders in January 1998. The Directors Option Plan
provides for the automatic grant of options to purchase shares of Common Stock
to directors of the Company who are not officers, nor employees, nor consultants
of the Company or any of its subsidiaries (other than the Chairman of the Board
of Directors of the Company who shall be eligible if he or she is not otherwise
an officer, employee or consultant of the Company) ("Outside Directors").
Subject to the provisions of the Directors Option Plan, the Board has the power
and authority to interpret the Directors Option Plan, to prescribe, amend and
rescind rules and regulations relating to the Directors Option Plan and to make
all other determinations deemed necessary or advisable for the administration of
the Directors Option Plan.
Under the Directors Option Plan, each Outside Director receives an option to
purchase 30,000 shares of Common Stock (the "Initial Options") on the date of
his or her initial election or appointment to the Board; provided that all
Outside Directors elected at the 1998 Annual Meeting of Stockholders (the "1998
Meeting") in January 1998 received the Initial Option (whether or not such
Outside Directors served on the Board of Directors prior to the 1998 Meeting).
In addition, on the date of an Outside Director's reelection to the Board, such
director, if he or she is still an Outside Director on such date and has
attended, either in person or by telephone, at least seventy-five percent (75%)
of the meetings of the Board of Directors that were held while he or she was a
director in the just completed calendar year, will be granted an option to
purchase an additional 10,000 shares of the Company's Common Stock. All options
granted under the Directors Option Plan will have an exercise price equal to the
fair market value on the date of grant. Options granted under the Directors
Option Plan
6
<PAGE>
vest in 12 equal quarterly installments beginning at the end of the first three-
month period following the date of grant.
In September 1997, the Company implemented a plan, which was approved by the
Company's stockholders at the 1998 Meeting, pursuant to which the Company pays
(or paid in 1998) (i) on and as of the last day of the month in which the annual
meeting of stockholders is held in each calendar year commencing with the 1998
Meeting, to each non-employee director of the Company elected at such meeting,
an annual retainer equal to a number of shares of Common Stock with a fair
market value on such date (determined in a manner consistent with the provisions
of the Company's 1994 Stock Option Plan) of $10,000, (ii) on and as of the last
day of the month in which the 1998 Meeting was held (the "1998 Issue Date"), to
each person who served as a non-employee director of the Company from the time
of the Company's initial public offering through the date of the 1998 Meeting, a
retainer equal to the number of shares of Common Stock with a fair market value
(determined in a manner consistent with the provisions of the Company's 1994
Stock Option Plan) of $10,000, based on the higher of (A) the fair market value
per share of Common Stock on September 19, 1997 (the date the Board approved the
plan) and (B) the fair market value per share of Common Stock on the 1998 Issue
Date, and (iii) on and as of the last day of the month in which any newly
appointed non-employee director is appointed after the annual meeting of
stockholders in any year (provided that such director is appointed to serve for
a period of at least six months prior to the next annual meeting of
stockholders), to such newly appointed director, a retainer equal to a number of
shares of Common Stock with a fair market value on such date (determined in a
manner consistent with the provisions of the Company's 1994 Stock Option Plan)
of $10,000.
In addition, commencing on the date of the 1998 Meeting, the Company has paid
$1,000 to each non-employee director attending (either in person or via
conference telephone call) any regular or special meeting of the Board of
Directors, and $500 to each non-employee director attending (either in person or
via conference telephone call) any regular or special meeting of any Committee
of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is currently composed of Messrs. Andrew
I. Fillat and David B. Levi. William J. Geary and David J. Roux, whose terms as
directors of the Company ended in January 1998, also served on the Company's
Compensation Committee during fiscal 1998. No interlocking relationship exists
between any member of the Company's Compensation Committee and any member of the
compensation committee of any other company, nor has any such interlocking
relationship existed in the past. No member or nominee of the Compensation
Committee is or was formerly an officer or an employee of the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors advises the Chief
Executive Officer and the Board of Directors on compensation matters generally,
determines the compensation of the Chief Executive Officer and the President,
reviews and takes action on the recommendation of the Chief Executive Officer as
to the appropriate compensation of other officers and key personnel, and
approves the grants of bonuses to officers and key personnel. The Compensation
Committee also is responsible for the administration of the Company's 1994 Stock
Option Plan and 1998 Stock Option Plan for Outside Directors.
GENERAL COMPENSATION POLICY FOR EXECUTIVE OFFICERS. The fundamental policy of
the Compensation Committee is to provide the Company's executive officers with
competitive compensation opportunities based upon their contribution to the
development and financial success of the Company and their personal
7
<PAGE>
performance. It is the Compensation Committee's objective to have a portion of
each executive officer's compensation contingent upon the Company's performance
as well as upon each executive officer's own level of performance. Accordingly,
the compensation package for each executive officer is comprised of three
elements: (i) base salary which reflects individual performance and is designed
primarily to be competitive with salary levels in the industry, (ii) cash
bonuses which reflect the achievement of performance objectives and goals, and
(iii) long-term stock-based incentive awards which strengthen the mutuality of
interests between the executive officers and the Company's stockholders.
FACTORS. The principal factors which the Compensation Committee considered
with respect to each executive officer's compensation for fiscal 1998 are
summarized below. The Compensation Committee may, however, in its discretion
apply entirely different factors with respect to executive compensation for
future years.
. BASE SALARY. The base salary for each executive officer is determined on
the basis of the following factors: experience, personal performance, the
salary levels in effect for comparable positions within and without the
industry, and internal base salary comparability considerations. The weight
given to each of these factors differs from individual to individual, as
the Compensation Committee deems appropriate. Base salaries are generally
reviewed on an annual basis, with adjustments made in accordance with the
factors indicated above. The Compensation Committee utilized certain
specific compensation information available for similar positions at
competitor companies for comparative compensation purposes in determining
base salaries for fiscal 1998.
. BONUS. The incentive compensation of executive officers is closely related
to Company performance, taking into account the Company's transition in
fiscal 1998 to an OEM licensing model. A portion of the cash compensation
of executive officers consists of contingent compensation. Bonus awards are
based on, among other things, performance objectives and goals that are
tailored to the responsibilities and functions of key executives, including
qualitative measures of Company performance such as progress in the
development, marketing and adaptation of the Company's technologies to its
target markets, the establishment of key strategic relationships with
customers in the Company's target markets, and proficient usage of the
Company's available resources.
Prior to the latter half of fiscal 1998, the Company's target market was
primarily multimedia software developers and products. During fiscal 1998,
the Company took certain actions to broaden its strategic focus to markets
other than multimedia software. One of the Company's key objectives in
executing this strategy is to form OEM relationships with customers in its
target markets that the Company believes have significant potential for
recurring revenue over the long term. The Committee considered the
Company's transition to an OEM licensing company which targets the consumer
devices, multimedia applications, wireless communications and IP telephony
markets, including the establishment of certain key OEM customer
relationships, and cost-cutting and re-organization measures undertaken to
better utilize the Company's resources in light of the change in the
Company's business model, among other things, in granting bonuses to
certain executive officers during fiscal 1998.
. LONG-TERM INCENTIVE COMPENSATION. Long-term incentives are provided through
grants of stock options. The grants are designed to align the interests of
each executive officer with those of the stockholders and provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the Company. Each option
grant allows the individual to acquire shares of the Company's Common Stock
at a fixed price per share (generally, the market price on the grant date)
over a specified period of time (up to ten years). Each option generally
becomes exercisable in installments over a four-year period, contingent
upon the executive officer's continued employment with the Company.
Accordingly, the option grant will provide a return to the executive
officer only if the executive officer remains employed by the Company
during the vesting period, and then only if the market price of the
underlying shares appreciates.
The number of shares subject to each option grant is set at a level
intended to create meaningful opportunity for appreciation based on the
executive officer's current position with the Company, the base salary
associated with that position, the size of comparable awards made to
individuals in similar positions within the industry, and the individual's
personal performance in recent periods. The Compensation Committee also
considers the number of unvested options held by the executive
8
<PAGE>
officer in order to maintain an appropriate level of equity incentive for
that individual. However, the Compensation Committee does not adhere to any
specific guidelines as to the relative option holdings of the Company's
executive officers. Options to acquire an aggregate of 290,000 shares were
granted to executive officers in fiscal 1998.
Through the Company's Employee Stock Purchase Plan, the Company offers
additional opportunities for equity ownership to executive officers.
CEO COMPENSATION. In determining the compensation payable to the Company's
Chief Executive Officer, the Compensation Committee considered the CEO's
performance in fiscal 1998, and the Company's performance taking into account
the Company's transition in fiscal 1998 to an OEM licensing model. Prior to the
latter half of fiscal 1998, the Company's target market was primarily multimedia
software developers and products. During fiscal 1998, the Company took certain
actions to broaden its strategic focus to markets other than multimedia
software. One of the Company's key objectives in executing this strategy is to
form OEM relationships with customers in its target markets that the Company
believes have significant potential for recurring revenue over the long term.
The Committee considered the Company's transition to an OEM licensing company
which targets the consumer devices, multimedia applications, wireless
communications and IP telephony markets, including the establishment of certain
key OEM customer relationships, and cost-cutting and re-organization measures
undertaken to better utilize the Company's resources in light of the change in
the Company's business model, among other things, in granting bonus compensation
to the CEO during fiscal 1998. As noted previously, effective October 13, 1997
Mr. Goldstein resigned from the Company, and Dr. Malsheen was named President
and Chief Executive Officer.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M). Section 162(m) of the
Internal Revenue Code generally denies a federal income tax deduction for
certain compensation exceeding $1,000,000 paid to the CEO or any of the four
other highest paid executive officers, excluding (among other things) certain
performance-based compensation. Through June 30, 1998, this provision has not
affected the Company's tax deductions, but the Committee will continue to
monitor the potential impact of Section 162(m) on the Company's ability to
deduct executive compensation.
SUMMARY. The Compensation Committee believes that its compensation philosophy
of paying its executive officers well by means of competitive base salaries and
cash bonus and long-term incentives, as described in this report, serves the
interests of the Company and the Company's stockholders.
THE COMPENSATION COMMITTEE
Andrew I. Fillat
David B. Levi
9
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total stockholder return of (i) the
NASDAQ National Market - U.S. Index, and (ii) the Hambrecht & Quist Technology
Index, assuming an investment in each of $100 on October 31, 1996. The graph
commences on the date the Company's Common Stock became publicly traded.
[GRAPH APPEARS HERE]
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10/31/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98
-------- -------- ------- ------- ------- -------- ------- -------
- ---------------------
Voxware, Inc. 100 100 55 67 75 48 38 29
- ------------------------------------------------------------------------------------------------
Nasdaq U.S. 100 106 100 119 139 130 152 157
- ------------------------------------------------------------------------------------------------
H&Q Technology 100 109 104 125 151 128 155 158
- ------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 30, 1998, except as otherwise
indicated in the relevant footnote, by (i) each person or group who is known by
the Company to own beneficially more than 5% of the Common Stock, (ii) each of
the Company's directors, (iii) each of the Named Executive Officers, and (iv)
all executive officers and directors as a group. Unless indicated otherwise,
the address of each of these persons is c/o Voxware, Inc. 305 College Road East,
Princeton, New Jersey 08540.
<TABLE>
<CAPTION>
Number of Shares Percentage of Shares
Name and Address of Beneficial Owner Beneficially Owned (1) (2) Beneficially Owned
------------------------------------ -------------------------- ------------------
<S> <C> <C>
J. Gerard Aguilar............................... 1,502,500 11.3%
Gilder, Gagnon, Howe & Co. 1,297,575 9.8%
1775 Broadway, 26th floor
New York, NY 10019
Advent International Group (3).................. 1,000,000 7.5%
75 State Street
Boston, MA 02109
Kenneth H. Traub (4)............................ 361,000 2.7%
Michael Goldstein (5)........................... 212,500 1.6%
Bathsheba J. Malsheen, Ph.D. (6)................ 121,500 *
Nicholas Narlis (7)............................. 42,750 *
Andrew I. Fillat (8)............................ 16,495 *
David B. Levi (9)............................... 10,462 *
Eli Porat ...................................... -- --
All Directors and Executive Officers as a group = 2,267,207 16.8%
(8 persons).............
</TABLE>
_________
* Less than 1% of outstanding shares of Common Stock.
(1) Number of shares beneficially owned is determined by assuming that options
that are held by such person (but not those held by any other person) and
which are exercisable or convertible within 60 days have been exercised or
converted.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(3) Includes the ownership by the following venture capital funds managed by
Advent International Corporation: 2,500 shares owned by Advent
International Investors II Limited Partnership, 250,000 shares owned by
Adtel Limited Partnership, 400,000 shares owned by Advent Crown Fund C.V.,
175,000 shares owned by Adwest Limited Partnership, 13,512 shares owned by
Advent Israel (Bermuda) Limited Partnership, 111,487 shares owned by Advent
Israel Limited Partnership and 47,500 shares owned by Advent Partners
Limited Partnership. In its capacity as manager of these funds, Advent
International Corporation exercises sole voting and investment power with
respect to all shares held by these funds. Advent International Corporation
exercises its voting and investment power through a group of three persons,
Douglas R. Brown, President and Chief Executive Officer, Dennis R.
Costello, Senior Vice President responsible for managing North American
Investment Activities and Janet L. Hennessey, Vice President responsible
for monitoring public securities, none of whom may act independently and a
majority of whom must act in concert to exercise voting or investment power
over the beneficial holdings of such entity. Therefore, no individual in
this group is deemed to share voting or investment power.
(4) Mr. Traub resigned from the Company effective April 30, 1998.
(5) Mr. Goldstein resigned from the Company effective October 13, 1997.
(6) Includes 117,500 shares of Common Stock issuable upon the exercise of stock
options.
(7) Includes 38,750 shares of Common Stock issuable upon the exercise of stock
options.
(8) Includes 3,928 shares which are indirectly owned as a limited partner of
Advent Partners Limited Partnership. Mr. Fillat is a Senior Vice President
of Advent International Corporation, the venture capital firm which is the
manager of the funds affiliated with the Advent International Group. Mr.
Fillat disclaims beneficial ownership of the remaining shares held by the
Advent International Group. Also includes 7,500 shares of Common Stock
issuable upon the exercise of stock options.
(9) Includes 7,500 shares of Common Stock issuable upon the exercise of stock
options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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