UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

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x  Definitive Proxy Statement

¨ Definitive Additional Materials

¨ Soliciting Material Pursuant to §240.14a-12

BITSTREAM  INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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BITSTREAM INC.

245 FIRST STREET, 17^th FLOOR

CAMBRIDGE, MASSACHUSETTS 02142

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

May 18, 2004, 10:00 a.m.

NOTICE IS HEREBY GIVEN to the stockholders of BITSTREAM INC., a Delaware corporation (the “Company”), that the Annual Meeting of Stockholders (the “Meeting”) will be held at the Company’s principal offices located at 245 First Street, 17^th Floor, Cambridge, Massachusetts 02142 at 10:00 a.m., Eastern Daylight Time, on May 18, 2004 for the following purposes:

1. To elect a board of five (5) directors to serve until the next Annual Meeting of Stockholders or until their respective successors are elected and qualified; and

2. To transact such other and further business as may properly come before the Meeting or any postponement or adjournment thereof.

Only stockholders of record at the close of business on April 8, 2004 are entitled to notice of and to vote at the Meeting or any adjournment thereof. The stock transfer books of the Company will not be closed.

A copy of the Company’s Annual Report for the year ended December 31, 2003 accompanies this notice.

By Order of the Board of Directors,

CHARLES YING

Chairman of the Board

April 16, 2004

RETURN OF PROXIES

A proxy and self-addressed envelope are enclosed for your use. Whether or not you plan to attend the Meeting, the Board of Directors of the Company requests that you execute and return your proxy in the enclosed envelope in order to secure a quorum, to avoid the expense of additional proxy solicitation and to ensure that your shares will be represented at the Meeting. Your cooperation is greatly appreciated.

Bitstream Inc.

245 First Street, 17^th Floor

Cambridge, Massachusetts 02142

PROXY STATEMENT

The enclosed proxy (“Proxy”) is solicited by the Board of Directors (the “Board”) of Bitstream Inc., a Delaware corporation (the “Company”), for use at the Company’s Annual Meeting of Stockholders (the “Meeting”) to be held at the Company’s principal offices located at 245 First Street, 17^th Floor, Cambridge, Massachusetts 02142 on May 18, 2004, at 10:00 a.m., Eastern Daylight Time and at any adjournment or adjournments thereof. Any stockholder giving a Proxy has the power to revoke it at any time before it is voted by executing another Proxy bearing a later date or by giving written notice of revocation to the Company addressed to the Secretary prior to the Meeting or by oral or written notice at the Meeting or by voting in person by ballot at the Meeting. A stockholder’s attendance at the Meeting will not by itself revoke a Proxy.

The mailing address of the Company’s principal executive office is 245 First Street, 17^th Floor, Cambridge, Massachusetts 02142, Telephone No. (617) 497-6222. The approximate date on which this proxy statement (the “Proxy Statement”) and form of Proxy are first being sent or given to stockholders is on or about April 16, 2004.

INDEX

	PAGE NUMBERS
Solicitation of Proxies	1
Shares Outstanding and Voting Rights	2
Proposal No. 1—Election of Directors	2
Corporate Governance	4
Independent Public Accountants	7
Report of Audit Committee	8
Report of the Compensation Committee on Executive Compensation	9
Executive Compensation	11
Executive Agreements	14
Stock Performance Graph	15
Principal and Management Stockholders	16
Deadlines for Submission of Stockholder Proposals	17
Annual Report and Form 10-K	18
Other Matters	18
Appendix A—Audit Committee Charter	A

SOLICITATION OF PROXIES

The persons named as proxies are Charles Ying, Chairman of the Board of the Company, and Anna M. Chagnon, President, Chief Executive Officer, General Counsel and Secretary of the Company. The stock represented at the Meeting by the enclosed Proxy will be voted in the manner specified by the stockholder executing the same. In the absence of specification, the shares of stock will be voted FOR the election of each of the five persons nominated by the Board to serve as directors and in the discretion of the proxies on other business which may properly come before the Meeting. The cost of preparing, assembling and mailing the Proxy, this Proxy Statement and the other material enclosed will be borne by the Company. In addition to the solicitation of proxies by use of the mails, officers and employees of the Company may solicit proxies by telephone, telegram or other means of communication. The Company will request brokerage houses, banking

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institutions, and other custodians, nominees and fiduciaries, with respect to shares held of record in their names or in the names of their nominees, to forward the proxy material to the beneficial owners of such shares of stock and will reimburse them for their reasonable expenses in forwarding the proxy material.

SHARES OUTSTANDING AND VOTING RIGHTS

Only holders of record of shares of Class A Common Stock, $0.01 par value (“Class A Shares” or “Class A Common Stock”), at the close of business on April 8, 2004 (the “Record Date”) are entitled to vote at the Meeting, or any adjournment thereof. On the Record Date, there were 8,578,779 Class A Shares issued of which 125,809 were designated as treasury shares. Each Class A Share is entitled to one vote on all matters to be voted upon. The presence in person or by properly executed Proxy of the holders of a majority of the issued and outstanding shares of Class A Common Stock entitled to vote at the Meeting is necessary to constitute a quorum. Directors are elected by a majority of the votes present in person or by proxy at the Meeting and voting on such proposal. The affirmative vote of a majority of the votes present in person or by proxy at the Meeting is required for the approval of any other business which may properly be brought before the Meeting or any adjournment thereof.

Stockholders of the Company vote at the Meeting by casting ballots (in person or by proxy), which are tabulated by a person who is appointed by the Board before the Meeting to serve as the inspector of election at the Meeting and who has executed and verified an oath of office. For purposes of determining the number of votes cast with respect to a particular matter, only those cast “For” or “Against” are included. Abstentions and broker non-votes (i.e. shares held by a broker or nominee which are represented at the Meeting, but with respect to which the broker or nominee is not empowered to vote on a particular proposal) are counted only for purposes of determining whether a quorum is present at the Meeting.

The stock transfer books of the Company will not be closed. Stockholders who do not expect to attend the Meeting, but wish to have their shares of stock voted at the Meeting, are urged to complete, sign, date and return the enclosed Proxy as promptly as possible.

PROPOSAL NO. 1—ELECTION OF DIRECTORS

Five directors of the Company are to be elected to serve until the next annual meeting of stockholders of the Company or until the election and qualification of their respective successors. Each of the nominees named below currently serves as a director of the Company. The persons named in the accompanying Proxy intend to vote (unless authority to vote for directors is withheld in such Proxy) all duly executed Proxies unrevoked at the time of the exercise thereof for the election to the Board of all of the nominees named below, each of whom consented to be named herein and to serve as a director if elected at the Meeting. The Board knows of no reason why any of the nominees will be unavailable or unable to serve as a director, but in the event that any nominee should become unavailable prior to the Meeting, the Proxy will be voted for a substitute nominee designated by the Board if a substitute nominee is designated. Listed below is certain information with respect to each current nominee for election as a director. For information concerning the number of shares of Class A Common Stock beneficially owned by each nominee, see “Principal and Management Stockholders” included elsewhere herein.

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THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR EACH OF THE NOMINEES LISTED BELOW.

Nominees for Directors

The Company’s directors and their ages as of April 8, 2004 are as follows:

NAME	AGE	POSITION WITH THE COMPANY
George B. Beitzel(2)(3)	75	Director
Anna M. Chagnon	37	Director, President, Chief Executive Officer, Corporate Secretary, and General Counsel
Amos Kaminski(1)(2)(3)	74	Director
David G. Lubrano(1)(2)(3)	73	Director
Charles Ying(1)	57	Chairman of the Board and Director

(1) Member of the Executive Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

George B. Beitzel has been a director of the Company since April 1989. Mr. Beitzel retired in 1987 from International Business Machines Corporation (“IBM”), where he held numerous positions including serving as a member of the IBM Board of Directors and Corporate Office. Mr. Beitzel currently serves on the Board of Directors of Deutsche Bank Trust Company Americas, Computer Task Group, Inc., Actuate Corporation and Gevity HR, Inc.

Anna M. Chagnon has been a director of the Company since May 2003. Ms. Chagnon has served as Chief Executive Officer of the Company since October 2003. She has also served as President of the Company since June 2000 and as General Counsel since July 1997. She previously served as Chief Operating Officer from August 1998 to October 2003, and Chief Financial Officer from August 1998 to March 2003. From July 1997 to August 1998, she served in various positions at the Company including Vice President, Finance and Administration, Chief Financial Officer and General Counsel, and Vice President and General Counsel. From November of 1996 to July 1997, Ms. Chagnon was Counsel to Progress Software Corporation, a developer and worldwide supplier of solutions to build, deploy and manage applications across Internet, client/server and host/terminal computing environments. From August 1994 to November 1996 she was an attorney for the Boston law firm of Peabody & Arnold LLP where she specialized in corporate, securities, finance and intellectual property law. She holds a Bachelor of Science degree, summa cum laude, from Northeastern University, a Juris Doctor degree from Boalt Hall School of Law of the University of California at Berkeley, and a Master of Business Administration, summa cum laude, from Babson College.

Amos Kaminski has been a director of the Company since 1985 and was Chairman of the Board from 1991 through 1996. Mr. Kaminski founded Interfid Ltd., a private investment advisory firm, in 1984 and has served as its President and on its Board of Directors since its formation. Mr. Kaminski is also the founder, President and Chairman of the Board of Directors of AFA Asset Services, Inc., a private real estate asset management company, and Chairman of the Board of Directors of Interfid Capital, Inc., an investment management company.

David G. Lubrano has been a director of the Company since 1987. Mr. Lubrano retired in 1985 from Apollo Computer Inc., a corporation engaged in manufacturing workstations, which he co-founded and where he had been a Senior Vice President of Finance and Administration, Chief Financial Officer and a director.

Charles Ying has been Chairman of the Board since April 1997. He has also served as Chief Executive Officer of the Company from May 1997 through October 2003. From January 1992 to January 1996, Mr. Ying served as Chief Executive Officer of Information International Inc., a corporation engaged in the business of designing, manufacturing and marketing computer-based systems that automate document production and publishing. Mr. Ying holds a B.S. and M.S. in Electrical Engineering from the Massachusetts Institute of Technology.

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The Company’s By-laws provide that the Board will be elected at the annual meeting of the stockholders, or at a special meeting of the stockholders in lieu thereof, and that all directors shall hold office until the next annual meeting of stockholders, or next special meeting of the stockholders in lieu thereof, or until their successors are chosen and qualified.

Independence of Directors

The Company’s Board has determined that the majority of its Board is comprised of “independent directors” within the meaning of applicable Nasdaq listing standards. Our independent directors are: Mr. Beitzel, Mr. Kaminski, and Mr. Lubrano. There are no family relationships among any of the executive officers or directors of the Company.

Shareholder Communications with Directors

A shareholder who wishes to communicate directly with the Board, a committee of the Board or with an individual Director, should send the communication to:

Bitstream Inc.

Attn: Board of Directors [or committee name or Director’s name, as appropriate]

245 First Street, 17^th Floor

Cambridge, MA 02142-1200

Bitstream will forward all shareholder correspondence about Bitstream to the Board, committee or individual Director, as appropriate. This process has been approved by the independent Directors of Bitstream.

CORPORATE GOVERNANCE

Code of Business Conduct and Ethics

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, or persons performing similar functions. This code of ethics is incorporated in our code of business conduct and ethics that applies to all of our officers, directors, and employees. A copy of our code of business conduct and ethics is available on our Web site at www.bitstream.com. We intend to satisfy the SEC’s disclosure requirements regarding amendments to, or waivers of, the code of business conduct and ethics by posting such information on our Web site.

Board Committees and Meetings of the Board

The Board has a standing Audit Committee, a Compensation Committee and an Executive Committee. The Board did not have a nominating committee until April 4, 2004 at which time the Executive Committee’s charter was amended to reflect its new name and responsibilities as the Nominating and Corporate Governance Committee. Prior to April 4, 2004 the full Board functioned as the nominating Committee. During the year ended December 31, 2003, the full Board met six times, the Audit Committee met four times and the Compensation Committee met five times. The Executive Committee did not meet during the year ended December 31, 2003. All incumbent directors attended at least 75% of the aggregate number of the meetings of the Board and the Committees. Each committee’s charter is available through the Corporate Governance link on the Company’s website at www.bitstream.com, or by sending your request in writing to the Corporate Secretary, Bitstream Inc., 245 First Street, 17^th Floor, Cambridge, MA 02142-1200. Each committee conducts an annual assessment to determine whether it has sufficient information, resources and time to fulfill its obligations and whether it is performing its obligations. Under the Board’s Corporate Governance Guidelines, each committee may retain experts to assist it in carrying out its responsibilities. The Board of Directors has determined that the members of the Audit Committee, Compensation Committee, and the Nominating and Corporate Governance Committee are “independent” as required by applicable laws and regulations, and the National Association of Securities Dealers listing standards.

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The Board and executive management believes that good corporate governance is important to ensure that the Company is managed for the long-term benefit of its stockholders. The Board and executive management team have been reviewing and will continue to review the Company’s corporate governance policies and practices and compare them to those suggested by various authorities in corporate governance and the practices of other public companies. The Board and the executive management team have also been reviewing the provisions of the Sarbanes-Oxley Act of 2002, and will continue to review new and proposed rules of the Securities and Exchange Commission.

The Audit Committee reviews the Company’s accounting practices, internal accounting controls and financial results and oversees the engagement of the Company’s independent auditors. The Committee also oversees management’s performance of its responsibility for the integrity of the Company’s accounting and financial reporting and its systems of internal controls, the performance and qualifications of the independent auditor (including the independent auditor’s independence), and the Company’s compliance with legal and regulatory requirements. The Board of Directors, based on the recommendation of the Audit Committee, has designated David Lubrano as an “audit committee financial expert.” During 2003 the members of the Committee were David Lubrano—Chairperson, George Beitzel and Amos Kaminski.

The Compensation Committee establishes salaries, incentives and other forms of compensation for directors, officers and other employees of the Company. The Compensation Committee also administers the Company’s benefit plans and administers the issuance of stock options and other awards under the 1994, 1996, 1997 and 2000 Stock Plans of the Company to all employees and directors of the Company, including the members of such committee. The Committee also reviews, and recommends to the full Board, the compensation and benefits for non-employee Directors. During 2003 the members of the Committee were George Beitzel—Chairperson, Amos Kaminski, Michael Lange and David Lubrano. Mr. Lange’s resignation from the Board of Directors was accepted on February 16, 2004.

The Executive Committee oversees the management of the business and affairs of the Company, including mergers and acquisitions, and evaluation of strategic business opportunities. During 2003 the members of the Committee were Amos Kaminski—Chairperson, Charles Ying and David Lubrano. Effective April 4, 2004 the Executive Committee’s charter was amended to reflect its new name and responsibilities as the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee provides oversight and guidance to the Board of Directors to ensure that the membership, structure, policies, and practices of the Board and its committees facilitate the effective exercise of the Board’s role in the governance of the Company. The Committee reviews and evaluates the policies and practices with respect to the size, composition, independence and functioning of the Board and its committees and reflects those policies and practices in Corporate Governance Guidelines, and evaluates the qualifications of, and recommends to the full Board, candidates for election as Directors. The members of the Committee as of April 4, 2004 are Amos Kaminski—Chairperson, George Beitzel, David Lubrano.

Nomination of Candidates for Director.

In exploring potential candidates for directors, the Nominating and Corporate Governance Committee considers individuals recommended by members of the Committee, other Directors, members of management, and shareholders or self-nominated individuals. The Committee is advised of all nominations that are submitted to Bitstream and determines whether it will further consider the candidates using the criteria described below.

In order to be considered, each proposed candidate must:

• Be ethical;

• Have proven judgment and competence;

• Have professional skills and experience that are complementary to the background and experience represented on the Board and that meet the needs of the Company;

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• Have demonstrated the ability to act independently and be willing to represent the interests of all shareholders and not just those of a particular philosophy or constituency; and

• Be willing and able to devote sufficient time to fulfill his/her responsibilities to Bitstream and its shareholders.

After the Committee has completed its evaluation, it presents its recommendation to the full Board for its consideration and approval. In presenting its recommendation, the Committee also reports on other candidates who were considered but not selected.

The Company will report any material change to this procedure in a quarterly or annual filing with the Securities and Exchange Commission and any new procedure will be available through the Corporate Governance link on the Company’s website at www.bitstream.com.

The Bylaws require that a shareholder who wishes to nominate an individual for election as a Director at the Company’s Annual Meeting of Shareholders must give the Company advance written notice no later than 120 days prior to the anniversary date of the Proxy mailing date, or December 17, 2004, in connection with next year’s Annual Meeting and provide specified information. Shareholders may request a copy of the Bylaw requirements from the Corporate Secretary, Bitstream Inc., 245 First Street, 17^th Floor, Cambridge, Massachusetts 02142.

Director Compensation

For the year ended December 31, 2003, each director who was not an employee of the Company received $15,000 in cash compensation for service as a director of the Company. In addition, the Company’s non-employee Chairman of the Board receives an additional $15,000 in cash compensation for his service as Chairman. From January 1, 2004 to April 16, 2004, the Board did not award any stock options to purchase Class A Shares to any Board members.

Notwithstanding anything to the contrary set forth in any of the Company’s previous filings under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that might incorporate future filings, including this Proxy Statement, in whole or in part, the following report of the Compensation Committee of the Board, the report of the Audit Committee of the Board and the stock performance graph contained elsewhere herein shall not be incorporated by reference into any such filings nor shall they be deemed to be soliciting material or deemed filed with the Securities and Exchange Commission under the Securities Act or under the Exchange Act.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires directors, executive officers and stockholders who own more than 10% of the outstanding common stock of the Company to file with the Securities and Exchange Commission and the NASDAQ reports of ownership and changes in ownership of voting securities of the Company and to furnish copies of such reports to the Company.

Based solely on a review of the copies of such forms received by it, and on written representations from certain reporting persons, the Company believes that with respect to the year ended December 31, 2003, its directors, officers and ten-percent stockholders complied with all Section 16(a) filing requirements.

The Company is not aware of any other late filings pursuant to Section 16(a) of the Exchange Act.

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INDEPENDENT PUBLIC ACCOUNTANTS

The Audit Committee has retained PricewaterhouseCoopers LLP (“PwC”) as its independent accountants for the audit of the Company’s financial statements for the year ended December 31, 2003 and intends to retain PwC for the year ending December 31, 2004. Representatives of PwC are expected to be present at the meeting to answer appropriate questions and they will have the opportunity to make a statement if they desire to do so.

Principal Accountant Fees and Services

The Company retained its principal accountant, PwC, to provide services in the following categories and amounts:

		Years Ended December 31,
		2003	2002
Audit fees	$	105,000	$	93,000
Audit-related fees		6,400		6,143
Tax fees		30,000		28,250
All other fees		—		—
Total all fees	$	141,400	$	127,393

Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements. This category includes fees for review of and advice for the Company’s preparation of a response to a SEC comment letter during the fourth quarter of 2003. Tax fees consist of fees for professional services for tax compliance, tax advice, and tax planning. This category includes fees related to the preparation and review of federal, state, and international tax returns.

The Audit Committee of the Company (the “Audit Committee”) annually considers whether the provisions of non-audit services by the Company’s principal auditors is compatible with maintaining auditor independence and concluded that all services engaged during 2003 did maintain auditor independence.

The policy of the Audit Committee is to pre-approve all audit and permissible non-audit services to be performed by the independent auditors during the year. The Audit Committee pre-approves services by authorizing specific projects within the categories outlined above. The Audit Committee’s charter authorizes its Chairperson to address any requests for pre-approval of services between Audit Committee meetings, and the Chairperson must report any pre-approval decisions to the Audit Committee at its next scheduled meeting. All services related to Audit-Related Fees and Tax Fees during 2003 were pre-approved by the Audit Committee.

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REPORT OF THE AUDIT COMMITTEE

The Audit Committee, at the direction of the Board, has prepared the following report for inclusion in this Proxy Statement. The Audit Committee is comprised of Messrs. Beitzel, Kaminski and Lubrano, three non-employee directors who are “independent” within the meaning of Rule 4200(a)(15) of the National Association of Securities Dealers listing standards. The Audit Committee has the responsibility for reviewing the Company’s accounting practices, internal accounting controls and financial results and overseas the engagement of the Company’s independent accountants, including conducting a review of their independence, reviewing and approving the planned scope of our annual audit, overseeing the independent auditors’ audit work, reviewing and pre-approving any audit and audit related services that may be performed by them, reviewing with management and our independent auditors the adequacy of our internal controls, and reviewing our critical accounting policies and the application of accounting principles.

The Audit Committee has reviewed and discussed the audited financial statements for the year ended December 31, 2003 with the Company’s management and the independent auditor.

The Committee has discussed with the independent auditor the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees.

The Committee has received the written disclosures and the letter from the independent auditor required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with the independent auditor the independent auditor’s independence.

Based on the reviews and discussions referred to above, in reliance on management and the independent auditor, and subject to the limitations of our role, the Committee recommended to the Board of Directors, and the Board has approved, the inclusion of the financial statements referred to above in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 for filing with the Securities and Exchange Commission.

During 2003, the Committee completed a comprehensive review of its charter, practices and procedures in order to assure continued compliance with the provisions of the Sarbanes-Oxley Act of 2002 and related regulatory initiatives. The Board has adopted a written charter for the Audit Committee, a copy of which is attached as Appendix A to this Proxy Statement.

Respectfully submitted,

AUDIT COMMITTEE

George B. Beitzel

Amos Kaminski

David G. Lubrano

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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

The Compensation Committee (the “Compensation Committee”) of the Company at the direction of the Board has prepared the following report for inclusion in this Proxy Statement. The Compensation Committee is comprised of Messrs. Beitzel, Kaminski and Lubrano, three non-employee directors who are “disinterested persons” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and who are “independent” as required by applicable laws and regulations, and the listing standards of the NASDAQ . Mr. Lang served as a member of the Compensation Committee for all of 2003 and until his resignation from the Company’s Board of Directors on February 3, 2004. The Compensation Committee has the responsibility for all compensation matters concerning the Company’s executive officers.

The Company’s executive compensation program is intended to attract and retain highly-qualified senior managers by providing compensation opportunities that reflect the Company’s business results and the individual executive’s performance. The Compensation Committee believes that these compensation opportunities will motivate management’s efforts by ensuring that the rewards received by Company executives are consistent with the achievement of the Company’s business objectives and with the value added by management to the stockholders’ interests in the Company. The program provides for base salaries that reflect such factors as level of responsibility, internal fairness and external competitiveness, and annual incentive bonus awards that are payable in cash for the achievement of target levels of sales and earnings, strategic acquisitions and other initiatives, introduction of innovative products and services, and the achievement of and progress toward other significant annual financial and operational objectives as determined by the Compensation Committee. In general, the cash compensation of the Company’s executive officers approximates the average of compensation paid to executives of appropriate comparable companies who occupy positions of similar responsibilities. The program also provides long-term incentive opportunities in the form of stock options that strengthen the mutuality of economic interest between management and the Company’s stockholders and encourage management continuity.

The following is a discussion of each element of the Company’s executive compensation program, including a description of the decisions and actions taken by the Compensation Committee with respect to the 2003 compensation for the Chief Executive Officer (the “CEO”) and all executive officers as a group.

Management Compensation Program

Compensation of the Company’s executive officers in the year ended December 31, 2003 (as reflected in the tables that follow with respect to the Named Executive Officers) consisted of the following elements: base salary and the opportunity for an annual incentive bonus and stock option grants under the Company’s stock option plans. Total annual cash compensation for each executive officer varies each year based on the Company’s achievement of its annual objectives and the individual’s performance. Stock options to purchase 50,000 shares were granted to each of James P. Dore, upon being promoted to Vice President and Chief Financial Officer and Michael Mattozzi, upon being hired as Vice President of ThunderHawk Sales, under the 2000 Stock Plan during 2003. In addition, stock options that were previously granted to certain executive officers and employees under the 1994 Stock Plan, the 1996 Stock Plan, the 1997 Stock Plan and the 2000 Stock Plan continue to be outstanding and unexercised. The potential value of previously granted long-term stock options varies based upon the fair market value of the Company’s stock.

With respect to determining the base salary of each of the executive officers, the Compensation Committee takes into consideration a variety of factors, including the executive’s level of responsibility and individual performance, the salaries of similar positions in comparable companies and the financial and operational performance of the Company in relation to its objectives and its competitive standing. The Company reviews the results of various industry salary surveys to ensure its understanding of competitive compensation levels and practices in the marketplace. From time to time, the Compensation Committee utilizes the services of a recognized, independent external consulting firm to determine marketplace compensation values and practices, and to assess the reasonableness of the overall compensation program.

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The Company’s annual incentive bonus to its executive officers (including the Named Executive Officers) is based on the achievement of objective, financial and operational performance targets and the discretion of the Compensation Committee. These targets may include sales volume, net operating income, accomplishment of certain strategic business initiatives and other performance objectives as may be determined annually. The calculation of the Company’s financial and operational performance with respect to the determination of these incentive bonus awards, if any, is made as soon as is practicable after the completion of the Company’s fiscal year. The Compensation Committee decided not to give bonuses to management for 2003 performance.

In addition to cash compensation, the Compensation Committee and the Board believe that providing executive officers with stock ownership opportunities aligns the interests of the executives with other stockholders and encourages the executives’ long-term retention in the Company. The long-term incentive element of the Company’s management compensation program is therefore in the form of stock option grants.

On February 13, 2003, the Board awarded Incentive Stock Options (“ISOs”) to purchase 50,000 Class A Shares to James P. Dore, upon being promoted to Vice President and Chief Financial Officer and on November 6, 2003, the Board awarded ISOs to purchase 50,000 Class A Shares to Michael Mattozzi, upon being hired as Vice President of ThunderHawk Sales, under the 2000 Stock Plan. Such options have an exercise price equal to the fair market value of the Class A Common Stock of the Company on the date of grant, are exercisable for ten years and vest in one-third increments on each of the first, second and third anniversaries of the date of the grant.

The 1994 Stock Plan, 1996 Stock Plan, 1997 Stock Plan and 2000 Stock Plan are intended to create opportunities for executive officers and other key employees of the Company to acquire a proprietary interest in the Company and thereby enhance their efforts in the service of the Company and its stockholders. In addition, the vesting provisions of such awards (which limit the exercisability of such options for certain periods of time) encourage the continued service and stability of the management team.

Chief Executive Officer Compensation

Anna M. Chagnon has served as Chief Executive Officer of the Company since October 2003. She has also served as President of the Company since June 2000 and as General Counsel since July 1997. She also previously served as Chief Operating Officer from August 1998 to October 2003, and Chief Financial Officer from August 1998 to March 2003. Ms. Chagnon is eligible to participate in the same executive compensation programs in which other executive-level employees of the Company participate. Her total annual compensation for 2003 (including compensation derived from salary and annual incentive bonus) was determined by the Compensation Committee in consideration of the same performance criteria used to establish pay levels for all other executive-level employees. In particular, Ms. Chagnon’s salary upon being promoted to Chief Executive Officer was at the rate of $230,000 per annum in recognition of her promotion and the Board’s overall satisfaction with her performance and contributions. The Compensation Committee has determined that Ms. Chagnon’s salary is below the median salary of Chief Executive Officers in a selected group of comparable companies. On February 13, 2004, the Board awarded ISOs to purchase 100,000 Class A Shares to Ms. Chagnon in consideration of her promotion to Chief Executive Officer. Such options have an exercise price equal to the fair market value of the Class A Common Stock of the Company on the date of grant, are exercisable for ten years and vest in one-third increments on each of the first, second and third anniversaries of the date of the grant.

Charles Ying served as Chief Executive Officer of the Company until his resignation in October 2003. He remains as Chairman of the Board of the Company. As Chief Executive Officer Mr. Ying was eligible to participate in the same executive compensation programs in which other executive-level employees of the Company participate. His total annual compensation for 2002 (including compensation derived from salary and annual incentive bonus) was determined by the Compensation Committee in consideration of the same performance criteria used to establish pay levels for all other executive-level employees. In particular, Mr. Ying’s salary for the year ended December 31, 2003 was at the rate of $150,000 per annum in recognition of the Board’s

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overall satisfaction with his performance and contributions. The Compensation Committee has determined that Mr. Ying’s salary was below the median salary of Chief Executive Officers in a selected group of comparable companies.

Respectfully submitted,

COMPENSATION COMMITTEE

George B. Beitzel

Amos Kaminski

David G. Lubrano

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain summary information concerning compensation during the year ended December 31, 2003 by the Company to its Chief Executive Officer (the “CEO”), the Company’s former Chief Executive Officer, the four most highly compensated executive officers other than the CEO and former CEO who were serving as executive officers on December 31, 2003, whose aggregate salary and bonus exceeded $100,000 for the year ended December 31, 2003, and one individual who would have been disclosed but was not serving as a executive officer at December 31, 2003 (together, the “Named Executive Officers”).

		Annual Compensation				Long Term Compensation Awards
Name and Principal Position	Year	Salary ($)		Bonus ($)(1)	Other Annual Compensation ($)	Securities Underlying Options/ Warrants(#)(2)		All Other Compensation ($)(3)
Anna M. Chagnon(4) President, Chief Executive Officer, and General Counsel	2003 2002 2001	186,731 174,808 166,154		—   100,000 —	—   —   —	—   —   40,000	(5)	3,000 2,622 5,100
Charles Ying(4) Former Chief Executive Officer	2003 2002 2001	143,154 145,250 138,466	(6) (6)	—   —   —	—   —   —	—   —   20,000	(7)	—   —   —
Costas Kitsos Vice President of Engineering	2003 2002 2001	155,000 150,529 143,077		—   60,000 —	—   —   —	—   —   20,000	(8)	3,000 2,258 5,100
John S. Collins Vice President and Chief Technology Officer	2003 2002 2001	140,000 135,962 129,231		—   50,000 —	—   —   —	—   —   20,000	(11)	2,850 34,289 59,701	(9) (10) (12)
Sampo Kaasila Vice President of Research and Development	2003 2002 2001	140,000 135,962 129,231		—   60,000 —	—   —   —	—   20,000	(13)	3,000 2,039 4,777
James P. Dore(14) Vice President and Chief Financial Officer	2003 2002 2001	126,154 N/A N/A		—   N/A N/A	—   N/A N/A	50,000 N/A N/A	(15)	2,192 N/A N/A
David Frenkel(16) Former Vice President and General Manager of Pageflex, Inc.	2003 2002 2001	127,577 62,596 —		—   10,000 —	—   —   —	—   80,000 —	(17)	117,752 14,688 —	(18) (19)

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(1) The Company’s Compensation Committee did not approve bonuses to any named executives for 2003. Bonus amounts for 2002 were paid in February 2003 and include bonus amounts accrued for 2001, and the payment of compensation voluntarily waived during 2001 and 2002 by Named Executive Officers during 2001 and 2002.

(2) The Company did not make any restricted stock awards, grant any stock appreciation rights or make any long-term incentive plan payouts during the years ended December 31, 2001, December 31, 2002 and December 31, 2003.

(3) Represents matching contributions by the Company for the account of the Named Executive Officer under the Company’s 401(k) Plan unless otherwise noted.

(4) In October 2003, Ms. Anna M. Chagnon was appointed Chief Executive Officer of the Company, succeeding Mr. Charles Ying, who continues to serve as the Chairman of the Company’s Board of Directors. Ms. Chagnon has also served as President of the Company since June 2000 and as General Counsel since July 1997. She previously served as Chief Operating Officer from August 1998 to October 2003, and Chief Financial Officer from August 1998 to March 2003.

(5) Represents options to purchase 40,000 shares of Class A Common Stock with an exercise price of $3.96 per share, which was the fair market value of the shares on the date of grant (November 5, 2001). These options expire on November 5, 2011 and 26,666 have vested, and 13,334 shall vest on the third anniversary of the date of grant.

(6) In February 2003, the Company’s Board elected to pay Mr. Ying for compensation that he waived during 2001 and 2002 as part of a voluntary salary reduction plan totaling $16,288.

(7) Represents options to purchase 20,000 shares of Class A Common Stock with an exercise price of $3.96 per share, which was the fair market value of the shares on the date of grant (November 5, 2001). These options expire on November 5, 2011 and 13,333 have vested, and 6,667 shall vest on the third anniversary of the date of grant.

(8) Represents options to purchase 20,000 shares of Class A Common Stock with an exercise price of $3.96 per share, which was the fair market value of the shares on the date of grant (November 5, 2001). These options expire on November 5, 2011 and 13,333 have vested, and 6,667 shall vest on the third anniversary of the date of grant.

(9) Represents $2,850 in matching contributions by the Company for the account of Mr. Collins under the Company 401(k) Plan. Does not include $76,250 in compensation attributable to the exercise of 25,000 options during 2003 calculated at the number of shares of exercised times the fair market value ($3.95) on the date of exercise (August 13, 2003) less the exercise price ($0.90).

(10) Represents (i) $2,789 in matching contributions by the Company for the account of Mr. Collins under the Company 401(k) Plan and (ii) $31,500 in compensation attributable to the exercise of 35,000 options during 2002 calculated at the number of shares of exercised times the fair market value ($2.23) on the date of exercise (August 8, 2002) less the exercise price ($0.90).

(11) Represents options to purchase 20,000 shares of Class A Common Stock with an exercise price of $3.96 per share, which was the fair market value of the shares on the date of grant (November 5, 2001). These options expire on November 5, 2011 and 13,333 have vested, and 6,667 shall vest on the third anniversary of the date of grant.

(12) Represents (i) $4,177 in matching contributions by the Company for the account of Mr. Collins under the Company 401(k) Plan and (ii) $55,524 in compensation attributable to the exercise of 19,830 warrants during 2001 calculated at the number of shares of exercised times the fair market value ($3.70) on the date of exercise (August 6, 2001) less the exercise price ($0.90).

(13) Represents options to purchase 20,000 shares of Class A Common Stock with an exercise price of $3.96 per share, which was the fair market value of the shares on the date of grant (November 5, 2001). These options expire on November 5, 2011 and 13,333 have vested, and 6,667 shall vest on the third anniversary of the date of grant.

(14) Mr. Dore was promoted from Corporate Controller to Vice President and Chief Financial Officer effective March 2003. His salary for the full year is disclosed.

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(15) Represents options to purchase 50,000 shares of Class A Common Stock with an exercise price of $1.79 per share, which was the fair market value of the shares on the date of grant (February 13, 2003). These options expire on February 13, 2013 and vest in installments of 16,666 shares, 16,667 shares and 16,667 shares, respectively, on the first, second and third anniversaries of the date of the grant.

(16) Mr. Frenkel was hired as Vice President and General Manager of Pageflex, Inc., a subsidiary of the Company, on July 29, 2002 and his employment was terminated effective October 10, 2003.

(17) Represents options to purchase 80,000 shares of Class A Common Stock with an exercise price of $2.30 per share, which was the fair market value of the shares on the date of grant (August 1, 2002). All of these options were exercised or expired during 2003.

(18) Represents (i) $2,752 in matching contributions by the Company for the account of Mr. Frenkel under the Company 401(k) Plan, and (ii) $115,000 in severance and $2,385 in accrued vacation paid in connection with the termination of Mr. Frenkel’s employment with the Company. Does not include $38,436 in compensation attributable to the exercise of 26,566 options during 2003 calculated at the number of shares of exercised times the fair market value ($3.75) on the date of exercise less the exercise price ($2.30).

(19) Represents $14,688 in relocation related expenses in connection with the hiring of Mr. Frenkel on July 29, 2002 and his subsequent relocation to Massachusetts.

All of the Company’s Named Executive Officers are employed on an at-will basis and none of the Named Executive Officers is a party to any employment agreement with the Company. Each of the executive officers may also receive discretionary bonuses as may be determined by the Compensation Committee.

Option Grants in Last Fiscal Year

The following table shows all options granted to each of the Named Executive Officers of the Company during the year ended December 31, 2003 and the potential value of stock price appreciation rates, 5% and 10%, over the ten year term of the options. The 5% and 10% rates of appreciation are required to be disclosed by the Securities and Exchange Commission and are not intended to forecast possible future actual appreciation, if any, in the Company’s stock prices. The Company did not use an alternative present value formula permitted by the Securities and Exchange Commission because the Company is not aware of any such formula that can determine with reasonable accuracy the present value based on future unknown or volatile factors.

	Individual Grants				Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term
Name	Number of Securities Underlying Options Granted (#)		% of Total Options Granted to Employees in Fiscal Year		Exercise or Base Price ($/Sh)		Exp. Date	5%($)(2)		10%($)(2)
James P. Dore	50,000	(1)	25.58	%	$	1.79	2/13/2013	$	56,286	$	142,640

(1) These are options to purchase 50,000 shares of Class A Common Stock with an exercise price of $1.79 per share, which was the fair market value of the shares on the date of grant (February 13, 2003). These options expire on February 13, 2013 and vest in installments of 16,666 shares, 16,667 shares and 16,667 shares, respectively, on the first, second and third anniversaries of the date of grant.

(2) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based upon assumed rates of share price appreciation set by the Securities and Exchange Commission of five percent and ten percent compounded annually from the date the respective options were granted to their expiration date. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Actual gains, if any, are dependent on the performance of the Class A Common Stock and the date on which the option is exercised. There can be no assurance that the amounts reflected will be achieved.

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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

The following table sets forth information with respect to the exercise of options by the Named Executive Officers during the year ended December 31, 2003 and unexercised options held as of the end of that year.

	Shares Acquired on Exercise (#)	Value Realized ($)(1)	Number of Securities Underlying Unexercised Options at Fiscal Year End (#)		Value of Unexercised In-the-Money Options at Fiscal Year End($)(2)
Name			Exercisable	Unexercisable	Exercisable		Unexercisable
Anna M. Chagnon	—	—	227,166	14,334	$	245,078		—
Charles Ying	—	—	503,333	6,667	$	587,050		—
Costas Kitsos	—	—	123,333	6,667	$	122,758		—
John S. Collins	35,000	76,250	93,333	6,667	$	97,188		—
Sampo Kaasila	—	—	138,333	6,667	$	173,975		—
James P. Dore	—	—	12,334	52,000	$	6,677	$	64,000
David Frenkel	26,566	38,436	—	—		—		—

(1) The “value realized” represents the total value of gains on the date of exercise based on the actual sale prices or on the closing price that day if the shares were not sold that day, in each case less the exercise price of the stock options, without deducting taxes or commissions paid by employee.

(2) Value of unexercised options equals fair market value of the shares underlying in-the-money options at December 31, 2003 ($3.07 per share), which was the last trading day of the Company’s fiscal year, less the exercise price, times the number of options outstanding.

Subsidiary Option Grants to Directors and Named Executive Officers

Pageflex, Inc. Option Grants

No Options to purchase the common stock of Pageflex, Inc. were granted to any of the Directors or Named Executive Officers of the Company during the year ended December 31, 2003.

MyFonts.com, Inc. Option Grants

No Options to purchase the common stock of MyFonts.com, Inc. were granted to any of the Directors or Named Executive Officers of the Company during the year ended December 31, 2003.

EXECUTIVE AGREEMENTS

Compensation Committee Interlocks and Insider Participation

During the year ended December 31, 2003, Messrs. Beitzel, Kaminski, Lang and Lubrano fulfilled all functions of the Compensation Committee with regard to determining compensation of executive officers of the Company.

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STOCK PERFORMANCE GRAPH

The line graph below compares the cumulative total returns of the Company’s Class A Common Stock, the Total Return Index for the Nasdaq Stock Market (US), and the Nasdaq Computer & Data Processing Services Stock Index over a five-year period. It assumes $100 was invested on December 31, 1998, with dividends reinvested. The closing sales price of the Company’s Class A Common Stock on December 31, 2003 was $3.07.

BITSTREAM INC

	Cumulative Total Return
	12/98	12/99	12/00	12/01	12/02	12/03
BITSTREAM INC.	100.00	329.42	160.82	430.44	105.42	192.63
NASDAQ STOCK MARKET (U.S.)	100.00	190.62	127.67	70.42	64.84	91.16
NASDAQ COMPUTER & DATA PROCESSING	100.00	209.85	107.35	85.75	58.94	77.89

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PRINCIPAL AND MANAGEMENT STOCKHOLDERS

The following table sets forth certain information as of April 8, 2004, with respect to the Class A Common Stock of the Company owned or deemed beneficially owned as determined under the rules of the Securities and Exchange Commission, directly or indirectly, by each stockholder known to the Company to own beneficially more than 5% of the Company’s Class A Common Stock, by each director, by the executive officers named in the Summary Compensation Table included elsewhere herein, and by all directors and executive officers of the Company and its subsidiaries as a group. In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner, for purposes of this table, of any shares of Class A Common Stock of the Company if he or she has or shares voting power or investment power with respect to such security or has the right to acquire beneficial ownership at any time within 60 days of April 8, 2004. As used herein “voting power” is the power to vote or direct the voting of shares, and “investment power” is the power to dispose of or direct the disposition of shares. Except as indicated in the notes following the table below, each person named has sole voting and investment power with respect to the shares listed as being beneficially owned by such person.

Name and Address(2)	Number(1)	Percent of Common Stock(1)
Principal Stockholders
Gruber & McBaine 50 Osgood Place San Francisco, CA 94133	1,280,000	13.03	%
Marathon Capital Management, LLC PO Box 771 Hunt Valley, MD 21030	690,200	7.03	%
Directors and Executive Officers
Charles Ying(3)	588,624	5.99	%
Amos Kaminski(4) c/o Interfid Ltd., 150 E. 58th Street, 27th Floor New York, New York 10155-2798	378,999	3.86	%
David G. Lubrano(5) 94 Otis Street, Hingham, Massachusetts 02043	382,354	3.89	%
George B. Beitzel(6) 29 King Street, Chappaqua, New York 10514	360,031	3.67	%
Anna M. Chagnon(7)	231,566	2.36	%
Sampo Kaasila(8)	157,333	1.60	%
John S. Collins(9)	124,051	1.26	%
Costas Kitsos(10)	100,000	1.02	%
James P. Dore(11)	29,000	*
Michael Mattozzi	—	—
David Frenkel	—	—
All directors and executive officers as a group (11 persons)(3)(4)(5)(6)(7)(8)(9)(10)(11)	2,351,958	23.95	%

* Less than one percent

(1) Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of Class A Common Stock shown as beneficially owned by them, subject to community property laws where applicable. The information presented with respect to the Principal Stockholders is based on reports of beneficial ownership on Schedules 13D and 13G delivered to the Company pursuant to the Exchange Act and such other information as may have been provided to the Company by any such Principal Stockholder. In accordance with the rules of the Securities and Exchange Commission, Class A Common Stock subject to stock options or warrants which are currently exercisable or

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which become exercisable within 60 days after April 8, 2003, are deemed outstanding for computing the share ownership and percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person. The inclusion herein of shares listed as beneficially owned does not constitute an admission of beneficial ownership.

(2) Unless otherwise indicated, the address of the officer listed is: c/o Bitstream Inc., 245 First Street, 17^th Floor, Cambridge, MA 02142.

(3) Includes 40,000 shares and 463,333 shares issuable to Mr. Ying upon the exercise of warrants and options, respectively.

(4) Includes 20,000 shares and 233,999 shares issuable to Mr. Kaminski upon the exercise of warrants and options, respectively, and 20,000 shares held of record by Interfid Ltd. Of which Mr. Kaminski is President and a director and, therefore, Mr. Kaminski may be deemed a beneficial owner of such shares.

(5) Includes 20,000 shares and 233,999 shares issuable to Mr. Lubrano upon the exercise of warrants and options, respectively.

(6) Includes 20,000 shares and 233,999 shares issuable to Mr. Beitzel upon the exercise of warrants and options, respectively.

(7) Includes 223,916 shares issuable to Ms. Chagnon upon the exercise of options. Also includes 3,250 shares issuable upon the exercise of options held of record by Michael Chagnon, an employee of the Company and Ms. Chagnon’s spouse, and, therefore, Ms. Chagnon may be deemed a beneficial owner of such shares and 4,400 shares held by Ms. Chagnon and her husband as joint tenants.

(8) Includes 138,333 shares issuable to Mr. Kaasila upon the exercise of options and 19,000 shares held by Mr. Kaasila and his wife as joint tenants.

(9) Includes 93,333 shares issuable to Mr. Collins upon the exercise of options, and 30,718 shares held by Mr. Collins and his wife as joint tenants

(10) Includes 123,333 shares issuable to Mr. Kitsos upon the exercise of options.

(11) Includes 29,000 shares issuable to Mr. Dore upon the exercise of options.

The Company is not aware of any arrangements including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.

DEADLINES FOR SUBMISSION OF STOCKHOLDER PROPOSALS

Proposals of security holders intended to be presented at the next Annual Meeting of Stockholders of the Company to be held during 2005, pursuant to Rule 14a-8 promulgated under the Exchange Act, must be received by the Company at its principal executive office in Cambridge, Massachusetts before December 17, 2004 for inclusion in the Company’s proxy and proxy statement relating to said meeting. Any stockholder desiring to submit a proposal should consult applicable regulations of the Securities and Exchange Commission. For non-Rule 14a-8 proposals, the Company’s By-laws provide that any stockholder of record wishing to have a stockholder proposal considered at an annual meeting must provide written notice of such proposal and appropriate supporting documentation, as set forth in the By-laws, to the Secretary of the Company at its principal executive office not earlier than 45 days before the date on which the Company first mailed its proxy materials for the preceding year’s Annual Meeting of Stockholders (if such proxy materials were mailed) and 60 days prior to the first anniversary of the preceding year’s Annual Meeting of Stockholders, nor later than 90 days prior to the first anniversary of the preceding year’s Annual Meeting of Stockholders; provided, however, that if the date of the annual meeting is advanced more than 30 days prior to, or delayed by more than 60 days after, such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90^th day prior to such annual meeting and not later than the close of business on the later of the 90^th day prior to such annual meeting or the 10^th day following the day on which public announcement of the date of such meeting is first made. If a security holder fails to notify the Company, pursuant to the requirements of the advance notice provisions of the By-laws, of a non-Rule 14a-8 stockholder proposal which it intends to submit at the Company’s next Annual Meeting of Stockholders of the Company to be held during 2005, the proxy solicited by the Board with respect to such meeting may grant discretionary authority to the proxies named therein to vote with respect to such matter.

17

ANNUAL REPORT AND FORM 10-K

The Company’s Annual Report to Stockholders, including financial statements, for the year ended December 31, 2003 is being furnished to stockholders of record of the Company concurrently with this Proxy Statement. The Annual Report to Stockholders does not, however, constitute a part of the proxy soliciting material.

The Annual Report of the Company filed with the Securities and Exchange Commission on Form 10-K, which includes consolidated financial statements for the Company and its subsidiaries, is available to stockholders without charge upon written request to the President and General Counsel of the Company at 245 First Street, 17^th Floor, Cambridge, Massachusetts 02142.

OTHER MATTERS

As of the date of this Proxy Statement, the management of the Company knows of no business other than that referred to in the foregoing Notice of Annual Meeting of Stockholders and Proxy Statement which may come before the Meeting. Should any other matters come before the Meeting, it is the intention of the persons named in the accompanying Proxy to vote such Proxy in accordance with their best judgment on such matters.

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APPENDIX A

Bitstream Inc.

AUDIT COMMITTEE CHARTER

GENERAL

This charter governs the operations of the Audit Committee (the ‘Committee”). The Committee shall review and reassess the charter at least annually and submit any proposed amendments thereto to the Board of Directors for approval. The purpose of the Audit Committee is to assist the Board of Directors in fulfilling their oversight responsibility to the shareholders, potential shareholders, the investment community, and others relating to the Company’s financial statements and the financial reporting process. The Committee reviews the Company’s accounting practices, internal accounting controls and financial results and oversees the engagement of the Company’s independent auditors. The Committee also oversees management’s performance of its responsibility for the integrity of the Company’s accounting and financial reporting and its systems of internal controls, the performance and qualifications of the independent auditor (including the independent auditor’s independence), and the Company’s compliance with legal and regulatory requirements.

The Audit Committee shall be appointed by the Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, unless otherwise determined by the Board of Directors and disclosed in the Company’s annual proxy statement. The Committee shall comprise at least three directors, each of whom are “independent” within the meaning of Rule 4200(a)(15) of the National Association of Securities Dealers listing standards and any additional regulations or amendments thereto including those issued by the State of Delaware and the Securities and Exchange Commission(“SEC”). Audit Committee members shall have no relationship that may interfere with the exercise of their independence from management and the Company. All Committee members shall be financially literate or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee and at least one member must have accounting or related financial management expertise, as such qualifications are interpreted by the Board of Directors. At least one member of the Audit Committee shall be an “audit committee financial expert”, as defined by the SEC rules. The compensation of the Audit Committee members shall be determined by the Board of Directors. No member of the Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than fees paid in his or her capacity as a member of the Board of Directors or one of its committees. The Board of Directors may remove members of the Audit Committee from such committee, with or without cause.

In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention with full access to the books, records, facilities, and personnel of the Company and the power to retain outside counsel, or other experts for this purpose. The Company shall provide appropriate funding as determined by the Committee to permit the Committee to perform its duties under this charter and to compensate any retained experts. In carrying out its oversight role, the Committee is relying on information provided by the Company’s management and its independent auditor. The Company’s management is responsible for preparing the Company’s financial statements and providing all required certifications relating to those financial statements and the Independent auditor is responsible for auditing those financial statements.

The Committee shall meet as often as it determines, but not less frequently than quarterly. The Committee may meet with management and the independent auditor in separate executive sessions as it deems necessary. The Committee shall meet with the independent auditor and management to review the Company’s financial statements and reports contained in the Company’s annual and quarterly filings with the SEC. The Committee shall maintain written minutes of its meetings, which shall be filed with the minutes of the meetings of the Board of Directors.

A-1

RESPONSIBILITIES

Oversight of Independent Auditors

The Audit Committee shall be directly responsible for appointing, evaluating, retaining and terminating the engagement of the independent auditor. The independent auditor shall report directly to the Committee and the Committee shall review and approve their planned scope for the annual audit and shall oversee their audit work.

The Audit Committee, at least annually, shall assess the independent auditor’s independence and shall obtain and review a report by the independent auditor describing all relationships between the auditor and the Company, including the disclosures required by Independence Standards Board Standard No. 1. The Committee shall engage in a dialogue with the independent auditor concerning any disclosed relationships or services that might impact the independence of the auditor. The Committee shall ensure the rotation, as required by applicable law or regulation, of the lead and or concurring-review partners of the independent auditor.

The audit Committee shall pre-approve all audit and permissible non-audit services to be performed by the independent auditors during the year, including any audit or audit related services to be performed by an auditor other than the Company’s principal audit firm. The Audit Committee shall pre-approve services by authorizing specific projects. The Audit Committee Chair shall have the authority to address any requests for pre-approval of services between Audit Committee meetings, and the Chair must then report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

The Audit Committee, at least annually, shall review with management and the independent auditors the adequacy of the Company’s internal controls and the application of accounting principles. The Committee shall review reports required to be made by the independent auditor regarding critical accounting policies and practices, alternative treatments within generally accepted accounting principles for policies and practices related to matters that have been discussed with the Company’s management, and any other written communications between the independent auditor and the Company’s management.

The Audit Committee, at least annually, shall review with the independent auditor any audit problems or difficulties encountered in the course of their audit work and management’s response, including any restrictions on the scope of the independent auditor’s activities or on access to requested information and any significant disagreements with management.

The Audit Committee, at least annually, shall review with the independent auditor any accounting adjustments that were noted or proposed by the auditor but were passed as immaterial or otherwise. The Committee shall also discuss with management and the independent auditor the significance and appropriateness of any significant judgments made by management in the preparation of the financial statements.

Oversight of Controls, Procedures, Legal Compliance and Ethics

The Audit Committee, shall review quarterly with management its evaluation of the Company’s procedures and controls designed to ensure that information required to be disclosed in its periodic public reports is recorded, processed, and reported in such reports within the time periods specified by the SEC, and consider the necessity for any changes in light of management’s evaluation of the effectiveness of such procedures and controls.

The Audit Committee shall establish and at least annually review procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, and the confidential submission by employees of the Company of concerns regarding questionable accounting practices. The Committee shall adopt appropriate remedial procedures or actions necessary with respect to such complaints or concerns.

A-2

The Audit Committee shall review periodically and recommend amendments to the Company’s Code of Business Conduct and Ethics and ensure prompt disclosure to the public of any changes approved by the Board of Directors.

The Audit Committee shall prepare the Committee’s report required by the rules of the SEC to be included in the Company’s annual proxy statement.

The Audit Committee shall review legal and regulatory matters that could have a material impact on the Company’s financial statements or compliance policies periodically with the Company’s General Counsel.

A-3

Dear Stockholder:

Please take note of the important information enclosed with this proxy.

Your vote counts, and you are strongly encouraged to exercise your right to vote your shares.

Please mark the boxes on the proxy card to indicate how your shares will be voted. Then sign the card, detach it, and return your proxy in the enclosed postage paid envelope.

Thank you in advance for your prompt consideration of these matters.

Sincerely,

Bitstream Inc.

DETACH HERE ZBTM52

BITSTREAM INC.

245 First Street, 17th Floor

Cambridge, Massachusetts 02142-1200

SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS

The undersigned hereby appoints Charles Ying and Anna Chagnon, or either of them, proxies of the undersigned with full power of substitution, to vote all shares of Class A Common Stock, $0.01 par value (“Class A Common Stock”) of Bitstream Inc. (the “Company”) held of record by the undersigned on April 8, 2004, at the Company’s Annual Meeting of Stockholders to be held May 18, 2004 and at any adjournment thereof.

SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE

BITSTREAM INC.

C/O EQUISERVE TRUST COMPANY N.A.

P.O. BOX 8694

EDISON, NJ 08818-8694

DETACH HERE ZBTM51

x Please mark votes as in this example. #BTM

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BY THE UNDERSIGNED STOCKHOLDER, IF NO CHOICE IS SPECIFIED BY THE STOCKHOLDER, THIS PROXY WILL BE VOTED “FOR” ITEM (1) AND IN THE PROXIES’ DISCRETION ON ANY OTHER MATTERS COMING BEFORE THE MEETING.

1. Election of Directors				FOR	AGAINST	ABSTAIN
Nominees:	(01) George B. Beitzel, (02) Anna M. Chagnon, (03) Amos Kaminski, (04) David G. Lubrano and (05) Charles Ying	2.	In their discretion, the proxies are authorized to vote upon such matters as may properly come before the meeting or any postponement or adjournment thereof.	¨	¨	¨
	FOR ¨¨WITHHELD
¨	¨ For all nominees       except as noted above	MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW	The undersigned hereby revokes any proxy or proxies heretofore given to vote upon or act with respect to such stock and hereby ratifies and confirms the said attorneys, agents, proxies, their substitutes or any of them may lawfully do by virtue thereof.
			Please date, sign and return this Proxy Card in the enclosed envelope. No postage required if mailed in the United States.
			Please date this Proxy and sign your name exactly as it appears hereon. When there is more than one owner, each should sign. When signing as an attorney, administrator, executor, guardian, or trustee, please add your title as such. If executed by a corporation, this Proxy should be signed by a duly authorized officer. If a partnership, please sign in partnership name by authorized persons.

Signature: Date: Signature: Date: