MYSOFTWARE COMPANY
2197 E. Bayshore Road
Palo Alto, CA 94303
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 22, 1997
TO THE STOCKHOLDERS OF MYSOFTWARE COMPANY
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of MySoftware
Company, a Delaware corporation (the "Company"), will be held on Thursday, May
22, 1997 at 1:00 p.m. local time at 2197 E. Bayshore Road, Palo Alto,
California 94303, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the 1995 Equity Incentive Plan, as amended.
3. To ratify the selection of KPMG Peat Marwick LLP as independent auditors
of the Company for its fiscal year ending December 31, 1997.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on April 8, 1997, as the
record date for the determination of stockholders entitled to notice of and to
vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
Palo Alto, California Michael H. Thoma
April 14, 1997 Secretary
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE
YOUR REPRESENTATION AT THE MEETING. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY
STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF
YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH
TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED
IN YOUR NAME.
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MYSOFTWARE COMPANY
2197 E. BAYSHORE ROAD
PALO ALTO, CA 94303
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
MySoftware Company, a Delaware corporation (the "Company") for use at the
Annual Meeting of Stockholders to be held on Thursday, May 22, 1997, at 1:00
p.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at 2197 E. Bayshore Road, Palo
Alto, California. The Company intends to mail this proxy statement and
accompanying proxy card on or about April 14, 1997 to all stockholders entitled
to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of the Company.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on April 8,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 8, 1997 the Company had outstanding and entitled
to vote 4,233,366 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards
a quorum, but are not counted for any purpose in determining whether a matter
has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 2197
E. Bayshore Road, Palo Alto, CA 94303, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than November 12, 1997 in order to be included in the proxy statement and
proxy relating to that Annual Meeting.
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PROPOSAL 1
ELECTION OF DIRECTORS
There are five nominees for the Board positions presently authorized in the
Company's By-Laws. Kenneth A. Eldred, a director of the Company since July 1988,
is retiring from the Board and will not be standing for reelection at the
Annual Meeting. Each director to be elected will hold office until the next
annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal.
Each nominee listed below is currently a director of the Company with the
exception of John J. Katsaros.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the five nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for
election has agreed to serve if elected and management has no reason to believe
that any nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below.
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
David P. Mans 54 Chairman of the Board
James F. Willenborg 52 Chief Executive Officer
and Director
Michael H. Thoma 42 Vice President of Quality
Assurance, Secretary, and
Director
John J. Katsaros 45 Director
Donald F. Wood 42 Director
David P. Mans has served as a member of the Company's Board of Directors
since joining the Company in January 1988 and as its Chairman since March 1997.
From January 1988 to March 1997, he was President and Chief Executive Officer
of the Company. He also served as the Company's Chief Financial Officer from
January 1988 to July 1996. Prior to that time, Mr. Mans held the position of
Vice President of Power Projects with International Power Technologies, Inc.,
a co-generation company, and Vice President of Finance at Qume Corp., a computer
peripherals company. Mr. Mans has a Bachelors in Electrical Engineering from
the University of Michigan and a Masters of Business Administration from
Stanford University.
James F. Willenborg co-founded the Company and since March 1997 has served
as acting Chief Executive Officer. He served as Chairman of the Board of
Directors from its inception to March 1997. Since 1993, Mr. Willenborg has
also served as Executive Vice President of Sales and Marketing. From 1990 until
1993, Mr. Willenborg served as the Company's Vice President of Marketing.
From 1981 to 1988, Mr. Willenborg was managing general partner of Crosspoint
Venture Partners, which he co-founded. Prior to that time, Mr. Willenborg co-
founded and was a director of Inmac Corporation. Mr. Willenborg has a Bachelors
in Electrical Engineering from Iowa State University and a Masters of Business
Administration from Stanford University.
Michael H. Thoma co-founded the Company and has served as a member of the
Company's Board of Directors and Secretary since its inception. He has served
as Vice President of Quality Assurance since March 1997. Mr. Thoma was the
Company's Vice President of Product Development from January 1988 to March 1997.
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Prior to that time, Mr. Thoma was employed by Lockheed Corporation in various
technical capacities. Mr. Thoma holds a Bachelors in Engineering from San Jose
State University.
John J. Katsaros has been President of Collaborative Marketing, a Silicon
Valley based Internet marketing consulting firm since 1993. Prior to founding
Collaborative Marketing, Mr. Katsaros was a vice president from 1991 to 1993
at Soft-Switch, a leading electronic messaging software provider. From 1988 to
1991, Mr. Katsaros served as Vice President of Marketing and Sales for Touch
Communications, a provider of message switching products. He has a Bachelors
and Masters in Electrical Engineering from Lehigh University and an Masters of
Business Administration from Santa Clara University.
Donald F. Wood has served as a director of the Company since November 1995.
Mr. Wood has been the Executive Vice President and General Manager of the
Ricochet Division of Metricom, Inc. since November 1994. Prior to joining
Metricom, Mr. Wood was Director of Marketing at Octel Communications, Inc. from
1989 to November 1994. Mr. Wood is a co-founder and Chairman of the Board of
Wood-Howard Products, Inc., a consumer product publishing and licensing company
since its inception in 1987. Prior to that time, Mr. Wood served as Vice
President of Marketing with International Power Technology, Inc. and was a
management consultant with McKinsey & Company. Mr. Wood holds a Bachelors of
Arts in Economics and a Master of Business Administration, both from Stanford
University.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996 the Board of Directors held
eight meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained;
and receives and considers the accountants' comments as to internal controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee during the fiscal year ended
December 31, 1996 was composed of two non-employee directors: Kenneth A.
Eldred and Donald F. Wood, and met twice during 1996. After the Annual Meeting,
the Audit Committee is expected to be composed of two non-employee directors:
John J. Katsaros and Donald F. Wood.
The Compensation Committee reviews and recommends to the Board of Director
the compensation and benefits of all officers of the Company and reviews
general policy relating to compensation and benefits of employees of the
Company. The Compensation Committee also administers the issuance of stock
options and other awards under the Company's stock plans. The Compensation
Committee during the fiscal year ended December 31, 1996 was composed of two
non-employee directors: Kenneth A. Eldred and Donald F. Wood, and met twice
during 1996. After the Annual Meeting, the Compensation Committee is expected
to be composed of John J. Katsaros and Donald F. Wood, both of whom are non-
employee directors.
During the fiscal year ended December 31, 1996, each director attended 75%
or more of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which he was a director or
committee member, respectively.
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PROPOSAL 2
APPROVAL OF THE 1995 EQUITY INCENTIVE PLAN, AS AMENDED
The Company's 1995 Equity Incentive Plan (the "Equity Incentive Plan") was
adopted by the Board of Directors in April 1995. A total of 600,000 shares of
Common Stock was reserved for issuance under the Equity Incentive Plan.
During the last fiscal year, under the Equity Incentive Plan, the Company
has granted to all current executive officers as a group awards to receive
30,000 shares at exercise prices of 4.375 per share, to all employees (excluding
executive officers) as a group awards to receive 335,450 shares at exercise
prices of $ 4.00 to $7.875 per share and to all current directors who are not
officers as a group awards to receive 10,000 shares at exercise prices of $ 4.75
per share.
As of March 21, 1997, options (net of canceled or expired options) covering
an aggregate of 349,093 shares of the Company's Common Stock had been granted
under the Equity Incentive Plan, of which options to purchase 346,543 shares
were outstanding with exercise prices ranging from $3.25 to $14.00. As of March
21, 1997, options to purchase a total of 2,550 shares had been exercised under
the Equity Incentive Plan. As of March 21, 1997, and without taking into
account the proposed amendment to the Equity Incentive Plan, 257,000 shares
(plus any shares that might in the future be returned to the plans as a result
of cancellations or expiration of options) remained available for future grant
or purchase under the Equity Incentive Plan.
In April 1997, the Company's Board of Directors adopted an amendment, subject
to stockholder approval, to increase the number of shares reserved for issuance
under the Equity Incentive Plan by 400,000 shares from 600,000 to 1,000,000
shares and to bring the Plan into conformity with new Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3). The Board adopted
this amendment to ensure that the Company can continue to grant stock options
to employees at levels determined appropriate by the Board and the Compensation
Committee.
Stockholders are requested in this Proposal 2 to approve the Equity Incentive
Plan, as amended. If the stockholders fail to approve this Proposal 2, options
to be granted under the Equity Incentive Plan will not qualify as incentive
stock options. In addition, income attributable to such stock options will not
qualify as performance-based compensation and, in some circumstances, the
Company may be denied a business expense deduction for compensation recognized
in connection with the exercise of these stock options. The affirmative vote of
the holders of a majority of the shares present in person or represented by
proxy and entitled to vote at the meeting will be required to approve the
amendment to the Equity Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Equity Incentive Plan, as amended, are
outlined as below:
GENERAL
The Equity Incentive Plan provides for the grant or issuance of incentive
stock options to employees and nonstatutory stock options, restricted stock
purchase awards, stock bonuses and stock appreciation rights to consultants,
employees, officers and employee directors. To date only incentive stock
options and nonstatutory stock options have been awarded under the Equity
Incentive Plan. Incentive stock options granted under the Equity Incentive Plan
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Nonstatutory stock options granted under the Equity Incentive Plan are intended
not to qualify as incentive stock options under the Code. See "Federal Income
Tax Information" for a discussion of the tax treatment of the various awards
included in the Equity Incentive Plan.
PURPOSE
The Equity Incentive Plan was adopted to provide a means by which selected
officers and employees of and consultants to the Company and its affiliates
could be given an opportunity to receive stock in the Company, to assist in
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retaining the services of employees holding key positions, to secure and retain
the services of persons capable of filling such positions and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
ADMINISTRATION
The Equity Incentive Plan is administered by the Board of Directors of the
Company. The Board has the power to construe and interpret the Equity Incentive
Plan and, subject to the provisions of the Equity Incentive Plan, to determine
the persons to whom and the dates on which awards will be granted, what type
of award will be granted, the number of shares to be subject to each award, the
time or times during the term of each award within which all or a portion of
such award may be exercised, the exercise price, the type of consideration and
other terms of the award. The Board of Directors is authorized to delegate
administration of the Equity Incentive Plan to a committee composed of not
fewer than two members of the Board. The Board has delegated administration
of the Equity Incentive Plan to the Compensation Committee of the Board. As
used herein with respect to the Equity Incentive Plan, the "Board" refers to
the Compensation Committee as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options may be granted under the Equity Incentive Plan only
to selected key employees (including officers) of the Company and its
affiliates. Consultants and selected key employees (including officers) are
eligible to receive awards other than incentive stock options under the Equity
Incentive Plan.
No option may be granted under the Equity Incentive Plan to any person who,
at the time of the grant, owns (or is deemed to own) stock possessing more than
10% of the total combined voting power of the Company or any affiliate of the
Company, unless the option exercise price is at least 110% of the fair market
value of the stock subject to the option on the date of grant, and the term of
the option does not exceed five years from the date of grant. For incentive
stock options granted under the Equity Incentive Plan, the aggregate fair
market value, determined at the time of grant, of the shares of Common Stock
with respect to which such options are exercisable for the first time by an
optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000. In addition, no person shall be
eligible to receive options and stock appreciation rights covering more than
5% of the outstanding shares of the Company's common stock in any 12 months
period.
STOCK SUBJECT TO THE EQUITY INCENTIVE PLAN
1,000,000 shares of Common Stock have been reserved for awards under the
Equity Incentive Plan, as amended. If awards granted under the Equity Incentive
Plan expire or otherwise terminate without being exercised, the Common Stock
not purchased pursuant to such awards again becomes available for issuance under
the Equity Incentive Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Equity Incentive Plan. Individual option grants may be more restrictive
as to any or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options under
the Equity Incentive Plan may not be less than one hundred percent (100%) of
the fair market value of the Common Stock subject to the option on the date of
the option grant, and in some cases (see "Eligibility" above), may not be less
than 110% of such fair market value. The exercise price of nonstatutory options
under the Equity Incentive Plan may not be less than 85% of the fair market
value of the Common Stock subject to the option on the date of the option grant.
At March 21, 1997, the closing price of the Company's Common Stock as reported
on the Nasdaq National Market was $2.875 per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. The Company has provided that opportunity to employees
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in the past. To the extent required by Section 162(m), an option repriced under
the Equity Incentive Plan is deemed to be canceled and a new option granted.
Both the option deemed to be canceled and the new option deemed to be granted
will be counted against the 5% of outstanding shares that may be made subject
to options granted to any person in any 12 month period. The Board also has
the authority to include as part of an option agreement a provision entitling
the optionee to a further option in the event that the optionee exercises his
or her option by surrendering other shares of Common Stock as payment of the
exercise price.
The exercise price of options granted under the Equity Incentive Plan must
be paid either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the Equity Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by currently outstanding options under the Equity Incentive Plan
typically vest at the rate of 1/60 per month during the optionee's employment
or services as a consultant. Shares covered by options granted in the future
under the Equity Incentive Plan may be subject to different vesting terms. The
Board has the power to accelerate the time during which an option may be
exercised. In addition, options granted under the Equity Incentive Plan may
permit exercise prior to vesting, but in such event the optionee may be required
to enter into an early exercise stock purchase agreement that allows the Company
to repurchase shares not yet vested at their exercise price should the optionee
leave the employ of the Company before vesting. To the extent provided by the
terms of an option, an optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such option by a cash payment
upon exercise, by authorizing the Company to withhold a portion of the stock
otherwise issuable to the optionee, by delivering already-owned stock of the
Company or by a combination of these means.
Term. The maximum term of options under the Equity Incentive Plan is ten
years, except that in certain cases (see "Eligibility") the maximum term is
five years. Options under the Equity Incentive Plan terminate three months
after the optionee ceases to be employed by the Company or any affiliate of the
Company, unless (a) the termination of employment is due to such person's
permanent and total disability (as defined in the Code), in which case the
option may, but need not, provide that it may be exercised at any time within
one year of such termination; (b) the optionee dies while employed by the
Company or any affiliate of the Company, or within three months after
termination of such employment, in which case the option may, but need not,
provide that it may be exercised (to the extent the option was exercisable at
the time of the optionee's death) within eighteen months of the optionee's death
by the person or persons to whom the rights to such option pass by will or by
the laws of descent and distribution; or (c) the option by its terms
specifically provides otherwise. Individual options by their terms may provide
for exercise within a longer period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Purchase Price; Payment. The purchase price under each stock purchase
agreement will be determined by the Board. The purchase price of stock pursuant
to a stock purchase agreement must be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board, according to a deferred payment
or other arrangement with the person to whom the Common Stock is sold; or (iii)
in any other form of legal consideration that may be acceptable to the Board
in its discretion. Eligible participants may be awarded stock pursuant to a
stock bonus agreement in consideration of past services actually rendered to
the Company or for its benefit.
Repurchase. Shares of the Common Stock sold or awarded under the Equity
Incentive Plan may, but need not, be subject to a repurchase option in favor of
the Company in accordance with a vesting schedule determined by the Board. In
the event a person ceases to be an employee of or ceases to serve as a director
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of or consultant to the Company or an affiliate of the Company, the Company may
repurchase or otherwise reacquire any or all of the shares of the Common Stock
held by that person that have not vested as of the date of termination under
the terms of the stock bonus or restricted stock purchase agreement between the
Company and such person.
STOCK APPRECIATION RIGHTS
The Board may grant stock appreciation rights to employees or directors of,
or consultants to, the Company or its affiliates. The Equity Incentive Plan
authorizes three types of stock appreciation rights.
Tandem Stock Appreciation Rights. Tandem stock appreciation rights are tied
to an underlying option and require the holder to elect whether to exercise the
underlying option or to surrender the option for an appreciation distribution
equal to the market price of the vested shares purchasable under the surrendered
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of tandem stock appreciation rights must be
made in cash.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation rights
are tied to an underlying option and are exercised automatically at the same
time the underlying option is exercised. The holder receives an appreciation
distribution equal to the market price of the vested shares purchased under the
option less the aggregate exercise price payable for such shares. Appreciation
distributions payable upon exercise of concurrent stock appreciation rights
must be made in cash.
Independent Stock Appreciation Rights. Independent stock appreciation rights
are granted independently of any option and entitle the holder to receive upon
exercise an appreciation distribution equal to the market price of a number of
shares equal to the number of share equivalents to which the holder is vested
under the independent stock appreciation right less than fair market value of
such number of shares of stock on the date of grant of the independent stock
appreciation rights. Appreciation distributions payable upon exercise of
independent stock appreciation rights may, at the Board's discretion, be made
in cash, in shares of the Common Stock or a combination thereof.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Equity Incentive Plan or
subject to any award granted under the Equity Incentive Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Equity Incentive Plan and awards outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to such plan
and the class, number of shares and price per share of stock subject to such
outstanding awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Equity Incentive Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation will
be required to either assume awards outstanding under the Equity Incentive Plan
or substitute similar awards for those outstanding under such plan, or such
outstanding awards will continue in full force and effect. In the event that
any surviving corporation declines to assume or continue awards outstanding
under the Equity Incentive Plan, or to substitute similar awards, then the time
during which such awards may be exercised will be accelerated and the awards
terminated if not exercised during such time. The acceleration of an award in
the event of an acquisition or similar corporate event may be viewed as an
antitakeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Equity Incentive Plan without
stockholder approval or ratification at any time or from time to time. Unless
sooner terminated, the Equity Incentive Plan will terminate in April 2005.
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The Board may also amend the Equity Incentive Plan at any time or from time
to time. However, no amendment will be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary to
satisfy Section 422 of the Code, Rule 16b-3, or any Nasdaq or securities
exchange listing requirements. The Board may submit any other amendment to the
Equity Incentive Plan for stockholder approval, including, but not limited to,
amendments intended to satisfy the requirements of Section 162(m) of the Code
regarding the exclusion of performance-based compensation from the limitation
on the deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the Equity Incentive Plan, an incentive stock option may not be
transferred by the optionee otherwise than by will or by the laws of descent
and distribution and, during the lifetime of an optionee, an option may be
exercised only by the optionee. A nonstatutory stock option or an independent
stock appreciation right may not be transferred except by will or by the laws
of descent and distribution or pursuant to a domestic relations order except
that an nonstatutory stock option may be transferrable to the extent provided
in the stock option agreement. In any case, an optionee may designate in
writing a third party who may exercise the option in the event of the optionee's
death. No rights under a stock bonus or restricted stock purchase agreement are
transferable except where required by law or expressly authorized by the terms
of the applicable stock bonus or restricted stock purchase agreement. A tandem
stock appreciation right or concurrent stock appreciation right may be
transferred only by the method(s) applicable to the underlying option. In
addition, any shares subject to repurchase by the Company under an early
exercise stock purchase agreement may be subject to restrictions on transfer
which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the Equity Incentive
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or the
Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss, which will be long-term or short-term depending on
whether the stock was held for more than one year. Capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum long-
term capital gains rate for federal income tax purposes is currently 28% while
the maximum ordinary income rate is effectively 39.6% at the present time.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Equity Incentive Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or the Company by reason of the
grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
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the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a reporting obligation, the Company will generally be entitled
to a business expense deduction equal to the taxable ordinary income realized
by the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long or short-
term depending on whether the stock was held for more than one year. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the Equity Incentive Plan generally have the following federal
income tax consequences:
Upon acquisition of stock under a restricted stock or stock bonus award, the
recipient normally will recognize taxable ordinary income equal to the excess
of the stock's fair market value over the purchase price, if any. However, to
the extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. Generally, with respect
to employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the recipient. Upon disposition of the stock, the recipient will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock, if any, plus any amount
recognized as ordinary income upon acquisition (or vesting) of the stock. Such
gain or loss will be long or short-term depending on whether the stock was held
for more than one year from the date ordinary income is measured. Slightly
different rules may apply to persons who acquire stock subject to forfeiture
under Section 16(b) of the Exchange Act.
Stock Appreciation Rights. No taxable income is realized upon the receipt of
a stock appreciation right, but upon exercise of the stock appreciation right
the fair market value of the shares (or cash in lieu of shares) received must
be treated as compensation taxable as ordinary income to the recipient in the
year of such exercise. Generally, with respect to employees, the Company is
required to withhold from the payment made on exercise of the stock appreciation
right or from regular wages or supplemental wage payments an amount based on
the ordinary income recognized. Subject to the requirement of reasonableness,
Section 162(m) of the Code and the satisfaction of a reporting obligation, the
Company will be entitled to a business expense deduction equal to the taxable
ordinary income recognized by the recipient.
Potential Limitation on Company Deductions. Section 162(m) of the Code denies
a deduction to any publicly held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation exceeds $1 million
for a covered employee. It is possible that compensation attributable to awards
under the Equity Incentive Plan, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options and stock appreciation rights will
qualify as performance-based compensation, provided that: (i) the stock award
plan contains a per-employee limitation on the number of shares for which stock
options and stock appreciation rights may be granted during a specified period;
(ii) the per-employee limitation is approved by the stockholders; (iii) the
award is granted by a compensation committee comprised solely of two or more
"outside directors"; and (iv) the exercise price of the award is no less than
the fair market value of the stock on the date of grant. Restricted stock and
stock bonuses qualify as performance-based compensation under these Treasury
regulations only if: (i) the award is granted by a compensation committee
comprised solely of two or more "outside directors"; (ii) the award is granted
<PAGE>
(or exercisable) solely upon the achievement of one or more pre-established,
objective performance goal established in writing by the compensation committee
while the outcome is substantially uncertain; (iii) the compensation committee
certifies in writing prior to the granting (or exercisability) of the award that
the performance goal and any other material terms were in fact satisfied; and
(iv) prior to the granting (or exercisability) of the award, stockholders have
approved the material terms of the award (including the class of employees
eligible for such award, the business criteria on which the performance goal is
based, and the maximum amount (or formula used to calculate the amount) payable
upon attainment of the performance goal).
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG Peat
Marwick") as the Company's independent auditors for the fiscal year ending
December 31, 1997 and has further directed that management submit the selection
of independent auditors for ratification by the stockholders at the Annual
Meeting. KPMG Peat Marwick has audited the Company's financial statements since
1992. Representatives of KPMG Peat Marwick are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of KPMG Peat Marwick as the
Company's independent auditors is not required by the Company's By-Laws or
otherwise. However, the Board is submitting the selection of KPMG Peat Marwick
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of KPMG Peat Marwick.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of March 1, 1997 by: (i) each director of the
Company; (ii) each of the executive officers named in the Summary Compensation
Table in that capacity on March 1, 1997; (iii) all executive officers and
directors of the Company as a group; and (iv) all those known by the Company to
be beneficial owners of more than five percent of its Common Stock.
Beneficial Ownership (1)
Number of Percent of
Directors, Officers and 5% Stockholders Shares Total
David P. Mans(2) 735,233 17.4%
Mans/Spector Living Trust(2) 496,713 11.7%
James F. Willenborg(3) 503,067 11.9%
Okoboji Trust(3) 503,067 11.9%
FMR Corp.
82 Devonshire Street
Boston, MA 02109 (4) 280,700 6.6%
Paine Webber Group Inc.
1285 Avenue of the Americas
New York, NY 10019-6028 (5) 257,300 6.1%
Kenneth A. Eldred (6)
1075 Westridge Drive
Portola Valley, CA 94028 220,541 5.2%
Michael H. Thoma(7) 208,555 4.9%
Donald F. Wood(8) 15,872 *
All executive officers and directors
as a group (5 persons)(9) 1,683,268 39.8%
_______________________________
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table, and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
4,233,366 shares outstanding on March 1, 1997, adjusted as required by
rules promulgated by the SEC.
(2) Represents (i) 496,713 shares held in Mans/Spector Living Trust u/a, dated
August 23, 1990 (the "Mans/Spector Living Trust"), (ii) 119,260 shares
held in the Nicole Zeanette Spector Mans Trust, dated August 23, 1990 (the
"Nicole Zeanette Spector Mans Trust") and (iii) 119,260 shares held in the
Paul Sydney Spector Mans Trust, dated August 23, 1990 (the "Paul Sydney
Spector Mans Trust"). David P. Mans is a co-trustee of the Mans/Spector
Living Trust and has sole voting and dispositive power with respect to
496,713 shares of the Company's Common Stock. Nicole Zeanette Spector Mans
and Paul Sydney Spector Mans, beneficiaries of the Nicole Zeanette Spector
Mans Trust and the Paul Sydney Spector Mans Trust, respectively, are
children of David P. Mans, a director of the Company. David P. Mans
disclaims beneficial ownership of the shares held by the Nicole Zeanette
Spector Mans Trust and the Paul Sydney Spector Mans Trust and has no
voting and dispositive power with respect to these shares.
(3) Represents 503,067 shares held in the Okoboji Trust, dated June 19, 1985
(the "Okoboji Trust"). James F. Willenborg, Chief Executive Officer and
director of the Company is trustee of the Okoboji Trust, a revocable trust
for the benefit of James F. Willenborg and his spouse.
(Footnotes continued on following page)
<PAGE>
(Footnotes continued from previous page)
(4) Based on a Schedule 13G filed by FMR Corp. on February 14, 1997, FMR Corp.
reported that it had sole voting and dispositive power with respect to
280,700 shares of the Company's Common Stock.
(5) Based on a Schedule 13G filed by Paine Webber Group, Inc. on February 13,
1997, Paine Webber Group, Inc. reported that it had soled voting power and
shared disposition power with respect to 257,300 shares of the Company's
Common Stock.
(6) Represents 220,541 shares held in the Kenneth and Roberta Eldred Revocable
Trust u/a, dated November 28, 1983 (the "Kenneth and Roberta Eldred
Revocable Trust"). Kenneth A. Eldred, a director of the Company is a co-
trustee of the Kenneth and Roberta Eldred Revocable Trust.
(7) Represents 208,555 shares held in the Thoma Revocable Trust, dated December
27, 1995 (the "Thoma Revocable Trust'). Michael Thoma, an officer and
director of the Company is a co-trustee of the Thoma Revocable Trust.
(8) Includes 4,000 shares of Common Stock of the Company and 11,872 shares
under options exercisable on March 1, 1997 or within 60 days thereafter.
Donald F. Wood is a director of the Company.
(9) Includes shares described in notes 2 through 3, and 6 through 8 above.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act") requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors
and greater than ten percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors do not currently receive any cash compensation from the Company for
their service as members of the Board of Directors, although they are reimbursed
for certain expenses in connection with attendance at Board and Committee
meetings.
Each non-employee director of the Company who is first elected as a director
after the date of adoption of the 1995 Non-Employee Directors' Stock Option Plan
("the Directors' Plan") automatically will be granted an option to purchase
20,000 shares of the Common Stock upon such election. In addition, each non-
employee director will be granted an option to purchase 5,000 shares of Common
Stock on each anniversary of the date of his initial grant. All such options
vest 48 equal monthly installment commencing on the date of grant. Option grants
under the Directors' Plan are non-discretionary.
During the last fiscal year, the Company granted options covering 5,000 shares
to Mr. Wood, a non-employee director of the Company, at an exercise price per
share of $4.75 under the Directors' Plan and the Company also granted Mr. Wood
10,000 shares at an exercise price of $4.75 under the 1995 Equity Incentive
Plan. The fair market value of such Common Stock on the date of grant was $4.75
per share (based on the closing sales price reported on the Nasdaq National
Market for the date of grant). As of March 1, 1997, no options had been
exercised under the Directors' Plan.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 1996, 1995,
and 1994, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its two other named executive officers (the "Named
Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Number of
Long-Term
Compensation
Awards and
Securities
Name Year Ended Annual Compensation Underrlying All Other
Principal Position December 31, Salary Bonus Options Compensation(1)
- ------------------ ------------ --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
David P. Mans 1996 $142,000 $10,238(2) --- $3,927(3)
President and 1995 142,000 16,893 --- 3,667
Chief Executive 1994 142,000 26,023 --- 3,156
Officer
James F. Willenborg 1996 142,000 10,238(4) --- 2,510(5)
Executive Vice 1995 142,000 16,489 --- 2,524
President of Sales 1994 142,000 23,404 --- 2,250
and Marketing
Michael H. Thoma 1996 101,381 6,570(6) --- 1,770(7)
Vice President of 1995 93,274 10,425 --- 1,791
Product Development 1994 91,031 16,450 --- 1,581
</TABLE>
____________________________
(1) Except as otherwise noted, consists of payments made as matching
contributions, pursuant to the Company's 401(k) Plan (a " Matching 401(k)
Contribution") and premium paid on life insurance for the benefit of the
named executive officers. The Company's Matching 401(k) Contribution is
applied to all 401(k) participating employees.
(2) Consists of $9,886 paid pursuant to an executive bonus plan (an "Executive
Bonus") and $352 paid pursuant to a Company-wide profit-sharing plan (a
"Profit-Sharing Payment").
(3) Consists of (i) $2,237 paid as a Matching 401(k) Contribution, (ii) $274
paid as premium on the Company-wide term life insurance policy (a "Life
Insurance Policy"), and (iii) $1,416 paid as premium on a term life
insurance policy on the life of David P. Mans, for which the sole
beneficiary is Mr. Mans' spouse.
(4) Consists of an Executive Bonus of $9,886 and a Profit-Sharing Payment of
$352.
(5) Consists of $2,237 as a Matching 401(k) Contribution and $273 premium on a
Life Insurance Policy.
(6) Consists of an Executive Bonus of $6,337 and a Profit-Sharing Payment of
$233.
(7) Consists of $1,556 as a Matching 401(k) Contribution and $214 premium on a
Life Insurance Policy.
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The following tables sets forth details regarding stock options granted to
the Named Officers in fiscal year 1996. The Company granted no SARs in fiscal
year 1996.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
Potential Realizable
% of Total Value at Assumed
Number Options Annual Rates of
of Securities Granted to Stock Price
Underlying Employees Exercise Appreciation for
Options in Fiscal or Base Expiration Option Term (3)
Name Granted (1) Year(2) ($/Sh) Date 5%($) 10%($
- ------------- ------------- ----------- --------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
David P. Mans 0 -- -- -- -- --
James F. Willenborg 0 -- -- -- -- --
Michael H. Thoma 0 -- -- -- -- --
</TABLE>
_____________________
(1) The option in this table has an exercise price equal to the fair market
value on the date of grant. The option becomes exercisable six months after
grant date and expires ten years from the original date of grant. This
option was granted under the Company's 1995 Equity Incentive Plan.
(2) The Company granted options for 380,450 shares to employees and a non-
employee director in fiscal year 1996 under the 1995 Equity Incentive Plan
and 1995 Non-Employee Directors' Plan.
(3) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option's term (ten years) at the annual
rate specified (5% and 10%). Annual compounding results in total
appreciation of 63% (at 5% per year) and 159% (at 10% per year) for
options with a ten-year term. The assumed annual rates of appreciation are
stipulated by the SEC and do not represent the Company's estimate or
projection of the future price of its Common Stock. The Company does not
necessarily agree that this method can properly determine the value of an
option.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
The following table provides information on option exercises in fiscal 1996
by the Named Executive Officers and the value of such officers' unexercised
options at December 31, 1996.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable(1)
- ------------------- -------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
David P. Mans -- -- -- --
James F. Willenborg -- -- -- --
Michael H. Thoma -- -- -- --
</TABLE>
__________________
(1) Market value of underlying securities based on the closing price of the
Company's Common Stock on December 31, 1996 on the Nasdaq National Market of
$4.25 minus the exercise price.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION1
The Compensation Committee of the Board of Directors ("Committee") for 1996
was composed of Messrs. Eldred and Wood, neither of whom is currently an officer
or employee of the Company. The Committee for 1997 will be composed of Messrs.
Wood and Katsaros, subject to Mr. Katsaros' election. The Committee is
responsible for setting and administering the policies and program governing
annual compensation of the executive officers of the Company.
Compensation Philosophy
The objectives of the compensation program are to align compensation with
business objectives and performances and to enable the Company to attract,
develop, reward and retain executive officers and key employees who contribute
to the long-term success of the Company and to motivate them to enhance long-
term stockholder value. A key element of this philosophy is that the Company
will compensate competitively with other leading publicly traded technology
companies of similar size and will offer stock options and bonuses.
Base Salary
The salary levels for the Company's executive officers are reviewed on an
annual basis, comparing executive salary ranges against market data of companies
that compete for the same talent pool (predominantly high-technology and other
software companies) and with other companies with annual revenues similar to
those of the Company. The Committee also takes into account the overall level of
performance of the Company as measured by its operating income. As recommended
by the Chief Executive Officer, all executive salaries for fiscal year 1996
remained at 1995 levels, with the exception of the salary of one Vice President
that was increased to be more competitive with the salaries of other leading
technology companies of similar size. The Chief Executive Officer's salary for
1996 remained the same as in 1995 in light of the equity position he holds with
the Company.
Effective January 1, 1996, the Company adopted the "Senior Management Bonus
Plan" to focus the efforts of MySoftware's management toward specific goals and
objectives. The Company has previously discontinued the Executive Bonus Plan
which was adopted in 1992. Bonus amounts shown in "Summary of Compensation
Table," including $9,886 paid to the Chief Executive Officer, represent bonuses
earned in prior years.
Profit Sharing Plan
The Company-wide profit sharing plan applies to all of the Company's regular
employees. Effective January 1, 1996, the profit sharing plan does not apply to
senior management. This profit sharing plan has two payment periods-December
through May and June through November. At the close of business on May 31 and
November 30, a profit sharing pool is determined by taking 8% of the previous
six months' operating profit. The 8% level was set in at the discretion of the
Board of Directors and can be changed at any time. The profit sharing rate for
each individual is pro rata based on qualifying salaries. Distributions for the
two periods are made on June 15 and December 15, respectively. The profit
sharing payment for executive officers listed in the "Summary Compensation
Table" represents December 1995's profit sharing portion. Pursuant to the profit
sharing plan, Mr. Mans, the Company's Chief Executive Officer, received $352 in
1996.
Long Term Compensation
No officers received grants under the Company's stock option plans in 1996
with the exception of one Vice President, who joined the Company in 1996 and
is not a Named Executive Officer. The Compensation Committee determined that
the existing equity ownership of the other officers provided adequate incentive
_______________________
1. The material in this report is not "soliciting material," is not deemed filed
with the SEC and is not to be incorporated by reference on any filing of the
Company under the Securities Act of 1933, as amended (the "1933 Act"), or the
1934 Act, whether made before or after the date hereof and irrespective of
any genereal incorporation language in any such filing.
<PAGE>
to such officers at that time and that their overall compensation package,
including equity ownership, was competitive. Stock options are granted to
provide long-term incentives that correlate to the growth, success and
profitability of the Company, aligning the interest of the Company's executives
with its stockholders. Options granted to date are exercisable in the future
at the fair market value of the Company's Common Stock as of the date of the
grant, so that an executive officer granted an option is rewarded only in the
event there is appreciation in the price of the Company's stock.
Compensation Committee
Kenneth A. Eldred, Chairman
Donald F. Wood
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation and Stock Option Committee is a former or
current officer or employee of the Company.
CERTAIN TRANSACTIONS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides that no director of the Company will be
personally liable to the Company or its stockholders for monetary damage for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not made in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware Law,
relating to prohibited dividends or distributions or the repurchase or
redemption of stock, or (iv) for any transactions from which the director
derives an improper personal benefits. In addition, the Company's Certificate of
Incorporation provides that any director or officer who was or is a party or is
threatened to be made a party to any action or proceeding by reason of his or
her services to the Company will be indemnified to the fullest extent permitted
by the Delaware Law.
The Company obtained directors' and officers' liability insurance ("D&O
Insurance") with a policy limit of $3.0 million per year, and expects to
continue to carry D&O Insurance for the foreseeable future. In addition, the
Company has entered into indemnification agreements with each of its directors
and officers under which the Company has indemnified each of them against
expenses and losses incurred for claims brought against them by reason of their
being a director or officer of the Company.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Michael H. Thoma
Secretary
April 14, 1997
