COTELLIGENT GROUP, INC.
101 CALIFORNIA STREET, SUITE 2050
SAN FRANCISCO, CALIFORNIA 94111
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held September 9, 1997
To the Stockholders:
The Annual Meeting of Stockholders of Cotelligent Group, Inc. (the
"Company") will be held at the Park Hyatt Hotel in San Francisco, California on
the 9th day of September at 9:00 a.m., Pacific Daylight Time, for the following
purposes:
1. To elect four Directors, each to serve for the terms specified
in the attached proxy statement or until his or her successor
is elected and qualified.
2. To consider and act on the appointment of Price Waterhouse LLP
as the Company's independent certified public accountants.
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record as of the close of business on July 25,
1997 are entitled to receive notice of and to vote at the meeting. A list of
such stockholders shall be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, for a period of
ten days prior to the meeting, at the principal executive offices of the
Company, 101 California Street, Suite 2050, San Francisco, California 94111.
By Order of the Board of Directors
Daniel E. Jackson
Secretary
San Francisco, California
July 31, 1997
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
IN, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
RETURN ENVELOPE. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE YOUR SHARES OF
COMMON STOCK PERSONALLY EVEN IF YOU HAVE PREVIOUSLY SUBMITTED A PROXY.
<PAGE>
COTELLIGENT GROUP, INC.
101 CALIFORNIA STREET, SUITE 2050
SAN FRANCISCO, CALIFORNIA 94111
PROXY STATEMENT
INTRODUCTION
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of Cotelligent Group, Inc., a Delaware corporation (the "Company" or
"Cotelligent"), for use only at the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") to be held at the Park Hyatt Hotel, San Francisco, California
on the 9th day of September, 1997 at 9:00 a.m., Pacific Daylight Time, and at
any adjournment thereof. The approximate date on which this Proxy Statement and
accompanying Proxy will first be given or sent to stockholders is July 31, 1997.
Each Proxy executed and returned by a stockholder may be revoked at any
time thereafter, by written notice to that effect to the Company, attention of
the Secretary, before the Annual Meeting, or to the Secretary, or the Inspectors
of Election, at the Annual Meeting, or by execution and return of a later-dated
Proxy, except as to any matter voted upon before such revocation.
Proxies in the accompanying form will be voted in accordance with the
specifications made and, where no specifications are given, such Proxies will be
voted:
* FOR the election as Directors of the nominees named herein, and
if any one or more of such nominees should become unavailable for
election for any reason then FOR the election of any substitute
nominee that the Board of Directors of the Company may propose;
and
* FOR the appointment of Price Waterhouse LLP as the Company's
independent certified public accountants.
In the discretion of the proxy holders, the Proxies will also be voted
FOR or AGAINST such other matters as may properly come before the meeting.
Management of the Company is not aware of any other matters to be presented for
action at the meeting.
The Inspectors of Election will treat abstentions and "broker
non-votes" (i.e., shares held by a broker or nominee as to which instructions
have not been received from the beneficial owners or persons entitled to vote)
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum. With respect to the plurality of votes required to elect a
director, broker non-votes will be counted as votes FOR director nominees named
herein; with respect to the majority of votes required to ratify the appointment
of Price Waterhouse LLP, abstentions will not be counted as votes FOR the
appointment of Price Waterhouse LLP and broker non-votes will be counted as
votes FOR such appointment. In cases where the broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, however, those shares will not be treated as present and
entitled to vote with respect to that matter, even though they may be present
and voting or abstaining on other matters at the same meeting.
1
<PAGE>
RECORD DATE AND VOTING SECURITIES
The Board of Directors has fixed the close of business on July 25, 1997
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Annual Meeting. The issued and outstanding stock of
the Company on July 25, 1997 consisted of 9,759,428 shares of Common Stock, par
value $.01 per share (the "Common Stock"), each of which is entitled to one
vote. The holders of a majority of the total shares issued and outstanding,
whether present in person or represented by proxy, will constitute a quorum for
the transaction of business at the meeting.
The affirmative vote of a plurality of the votes entitled to be cast by
the outstanding shares of Common Stock present, in person or by proxy, and
entitled to vote at the meeting, is required for the election of directors. The
affirmative vote of a majority of the votes cast by the outstanding shares of
Common Stock present, in person or by proxy, and entitled to vote at the
meeting, is required for the appointment of Price Waterhouse LLP as the
Company's independent certified public accountants.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 25, 1997 information
regarding the beneficial ownership of the Common Stock of the Company by (i)
each person known to beneficially own more than 5% of the outstanding shares of
Common Stock, (ii) each of the Company's directors, (iii) each named executive
officer and each officer named in the Summary Compensation Table and (iv) all
executive officers and directors as a group. All persons listed have an address
c/o the Company's principal executive offices and have sole voting and
investment power with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
Shares Beneficially Owned
----------------------------------
Name Number Percent
- --------------------------------------------------------------------------- --------------
<S> <C> <C>
Thomas E. Fallat....................................... 929,350 9.52%
Michael L. Evans (1)................................... 391,209 4.38
Daniel M. Beals (2).................................... 341,949 3.60
James R. Lavelle (3) .................................. 326,232 4.20
John E. Chamberlain (4) ............................... 271,529 2.78
Jeffrey J. Bernardis................................... 222,020 2.27
John C. Travers........................................ 216,522 2.22
Linda M. Cassell (5) .................................. 135,767 1.39
B. Tom Green (2) ...................................... 87,847 1.00
Daniel E. Jackson (6) ................................. 77,632 1.05
Edward E. Faber (2) ................................... 49,656 0.61
Anthony M. Frank (2) .................................. 49,656 0.61
Harvey L. Poppel (2) .................................. 34,828 0.46
Curtis J. Parker (2) .................................. 10,271 0.21
All executive officers and directors as a group (13
persons) (7) ..................................... 2,215,118 24.33
.........
<FN>
(1) Includes 37,500 shares issuable upon exercise of options exercisable within 60 days from June 30,
1997.
(2) Includes 10,000 shares issuable upon exercise of options exercisable within 60 days from June 30,
1997.
(3) Includes 87,500 shares issuable upon exercise of options exercisable within 60 days from June 30,
1997.
(4) Does not include 135,767 shares owned by Linda M. Cassell, Mr. Chamberlain's wife. Mr. Chamberlain
disclaims beneficial ownership of any shares owned by Ms. Cassell.
(5) Does not include 271,529 shares owned by John E. Chamberlain, Ms. Cassell's husband. Ms. Cassell
disclaims beneficial ownership of any shares owned by Mr. Chamberlain.
(6) Includes 25,071 shares issuable upon exercise of options exercisable within 60 days from June 30,
1997.
(7) Includes 210,071 shares issuable upon exercise of options exercisable within 60 days from June 30,
1997.
</FN>
</TABLE>
2
<PAGE>
ELECTION OF DIRECTORS
The number of directors on the Board of Directors is currently fixed at
eleven. Pursuant to the Company's Certificate of Incorporation and By-laws, the
Board of Directors is divided into three classes serving staggered three-year
terms. One class of directors is elected at each annual meeting of stockholders
to serve for the following three years. Currently there are four directors whose
terms expire in 1999, four directors whose terms expire in 1998 and three
directors whose terms will expire at the Annual Meeting. The members whose terms
expire at the Annual Meeting are Anthony M. Frank, James R. Lavelle and John C.
Travers. One director, Linda M. Cassell, whose term would have expired at the
Annual Meeting in 1999, will retire from the Board effective as of the date of
the Annual Meeting. John Travers, President of Data Arts & Sciences, Inc., a
wholly owned subsidiary of the Company, has elected not to stand for reelection
to the Board. The Company's Board of Directors has nominated Anthony M. Frank
and James R. Lavelle for reelection to the Board and nominated Susan E. Trice
for election to the Board, each to serve for a term expiring at the Annual
Meeting in 2000 or until their successors shall have been duly elected and
qualified. The Company's Board of Directors has nominated Christy L. Cooper for
election to the Board to serve for Ms. Cassell's remaining term expiring at the
Annual Meeting in 1999 or until her successor shall have been duly elected and
qualified. The persons named as proxies in the accompanying proxy, or their
substitutes, will vote for such nominees at the Annual Meeting. If, for any
reason not currently known, any nominee is not available for election, another
person or persons who may be nominated will be voted for in the discretion of
the proxy holders.
The following sets forth information concerning each of the nominees
for election to the Board of Directors and each director whose term continues,
including his or her name, age, principal occupation or employment during at
least the past five years and the period during which such person has served as
a director of the Company.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
For a Three Year Term Expiring at the Annual Meeting in 2000:
Anthony M. Frank is 66 years old and is a director of the Company. He
joined the Company in that capacity in March 1993. In September of 1994 Mr.
Frank became Co-founding General Partner and Chairman of Belvedere Capital
Partners, the general partner of the California Community Financial Institutions
Fund whose primary purpose is investing in California community banks. From 1992
to 1994, Mr. Frank was an independent financial consultant and venture
capitalist. From March 1988 to March 1992, Mr. Frank served as the Postmaster
General of the United States. From 1971 until 1988, he served as Chairman and
Chief Executive Officer of First Nationwide Bank. Mr. Frank is a graduate of
Dartmouth College and is an overseer of the Tuck School of Business. He is also
a director of several companies, including The Charles Schwab Corporation,
Living Centers of America, Inc., Irvine Apartment Communities, Crescent Real
Estate Equities Ltd. and Temple Inland Corporation.
James R. Lavelle is 46 years old and is the founder, Chairman of the Board
and Chief Executive Officer of the Company. Mr. Lavelle has served as Chief
Executive Officer since he founded the Company in 1993. From inception of the
Company until August 1995, Mr. Lavelle was also Chairman of the Board of the
Company, a position that he reassumed in April 1996. From 1985 to 1993, he was a
business consultant specializing in strategic marketing and organization
development. From 1983 to 1985, Mr. Lavelle was Senior Manager and Director of
Management Consulting Services for the San Francisco office of KPMG Main
Hurdman, an international accounting firm. Prior to that, he was Manager,
Management Consulting Services in the San Francisco office of Price Waterhouse
LLP, an international accounting firm. Mr. Lavelle has a bachelors degree from
University of California at Santa Barbara and a Master of Business
Administration degree from University of Santa Clara.
Susan E. Trice is 44 years old and is President of INNOVA Solutions,
Inc. ("ISI"), a wholly owned subsidiary of the Company. Ms. Trice
founded ISI in 1991. Prior to 1991 Ms. Trice managed two information
technology consulting firms, was Vice President of Information Technology
at Citicorp, a commercial bank, and Senior Vice President of Information
Systems for North American Mortgage
3
<PAGE>
Company. Ms. Trice is a director of ATWork!, a software training company based
in Dallas. Ms. Trice has a Bachelor of Science degree from the University of
Houston.
The Board of Directors recommends that the Company's stockholders vote
FOR the election of Anthony M. Frank, James R. Lavelle and Susan E. Trice as
directors of the Company.
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS
For a Two Year Term Expiring at the Annual Meeting in 1999
Christy L. Cooper is 36 years old and is President of Pittsburgh Business
Consultants, Inc. ("PBC"), a wholly owned subsidiary of the Company. Ms.
Cooper has served in that capacity since November of 1996. Ms. Cooper joined
PBC in 1987. Prior to her promotion to President, Ms. Cooper held a number of
positions including Recruiter, Salesperson, Vice President of Sales and from
1994 to 1996, Senior Vice President and Chief Operating Officer. Ms. Cooper
received a bachelor of science degree in business from California
University of Pennsylvania.
The Board of Directors recommends that the Company's stockholders vote FOR
the election of Christy L. Cooper as a director of the Company.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN
OFFICE Members whose terms expire at the Annual Meeting in 1998:
Michael L. Evans is 45 years old and is President and Chief Operating
Officer and a director of the
Company. Mr. Evans has been President and Chief Operating Officer of the
Company since April 1996. Mr. Evans served as Senior Vice President and Chief
Operating Officer from September 1995 to April 1996 and has been a director
of the Company since October 1993. In 1982, Mr. Evans co-founded
Financial Data Systems, Inc. ("FDSI"), a wholly owned subsidiary of the
Company, and served as its Vice President of Consulting and, from 1987 to
1996, served as its President. Mr. Evans has a bachelor of science degree
from Washington State University.
Jeffrey J. Bernardis is 40 years old and is a director of the Company.
He joined the Company in that capacity in August 1995. Since January 1995,
Mr. Bernardis has served as President of BFR Co., Inc. ("BFR"), a wholly
owned subsidiary of the Company. Prior thereto, Mr. Bernardis had served
since 1985 as Vice President of Technical Services for BFR. Mr. Bernardis
received a bachelor of science degree in computer science from Pennsylvania
State University.
John E. Chamberlain is 55 years old and is a director of the Company.
He joined the Company in that capacity in July 1994. Mr. Chamberlain has served
as President of Chamberlain Associates, Inc. ("CAI"), a wholly owned subsidiary
of the Company, since its inception. Mr. Chamberlain founded CAI in 1980.
Mr. Chamberlain is a founder and past member of the Executive Committee
of the National Association of Computer Consultant Businesses ("NACCB")
and is a founder and past President of the NACCB's Northern California
Chapter. He is a graduate of New Jersey Institute of Technology with
bachelors and masters degrees in mechanical engineering. Mr. Chamberlain is
married to Linda M. Cassell.
B. Tom Green is 55 years old and is a director of the Company. He joined
the Company in that capacity in March 1993. Since 1988, Mr. Green has been
President of Sovus Partners, a firm that creates and operates American-Russian
businesses in Russia. From 1982 to 1988, he worked with the United States
government and the governments of the Soviet Union and the People's Republic of
China. Prior to 1982, Mr. Green's positions included General Manager of
Transamerica's Southern California Title Insurance division and President of
General Mills' first restaurant division. Mr. Green is a graduate of Stanford
University with a bachelors degree in civil engineering and received his Master
of Business Administration degree from the Stanford Graduate School of Business.
4
<PAGE>
Members whose terms expire at the Annual Meeting in 1999:
Edward E. Faber is 64 years old and is Vice Chairman of the Board of
Directors of the Company. Mr. Faber joined the Company as a director in
March 1993 and served as Chairman from August 1995 to April 1996. From 1990
through 1992, he was Vice Chairman, President and Chief Executive Officer of
Supercuts, Inc., a company specializing in hairstyling. Mr. Faber was founding
President and Chief Executive Officer
of Computerland Corporation, a company specializing in the sale of computer
equipment and accessories, from 1976 through 1983. He retired from that
company in 1983 and returned in 1985 as Chairman of the Board and Chief
Executive Officer, serving in that capacity until 1987 when he again retired.
Mr. Faber is a director of Supercuts, Inc. and Integrated Circuit Engineering,
Inc. Mr. Faber has a bachelor of science degree from Cornell University and
served as an officer in the United States Marine Corps.
Daniel M. Beals is 46 years old and is a director of the Company. He joined
the Company in that capacity in October 1995. Mr. Beals served as President of
FDSI from its inception to 1987 and, from 1990 until February 1996, was the
Corporate Secretary and Treasurer of FDSI. Since February 1996, Mr. Beals has
been a private investor. In addition, from August 1990 to December 1993, Mr.
Beals was Vice President of Operations of FDSI. From January 1994 to August
1994, he was Vice President of Operations of CyberSafe Corporation, a software
development company spun off from FDSI in 1994. Mr. Beals received an associate
degree in business data processing from Columbus State Community College in
1970.
Harvey L. Poppel is 59 years old and is a director of the Company. He
joined the Company in that capacity in October 1995. From 1985 to December 1996,
Mr. Poppel was Managing Director of Broadview Associates, L.P., a firm
specializing in mergers and acquisitions in the information technology field.
Mr. Poppel retired from Broadview Associates effective December 31, 1996. Prior
to joining Broadview Associates, L.P., Mr. Poppel spent 18 years at Booz, Allen
& Hamilton, during which time he held a number of positions, including Senior
Vice President and Managing Officer of the Information Industry Practice and as
a member of its board of directors. Mr. Poppel is a certified Management
Consultant and received a bachelors degree and a Master of Science degree from
Rensselaer Polytechnic Institute.
OTHER EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<S> <C> <C>
Name Age Position
Daniel E. Jackson................................. 37 Senior Vice President Corporate Development,
Chief Financial Officer, General Counsel and
Secretary
Curtis J. Parker.................................. 42 Vice President and Chief Accounting Officer
</TABLE>
Daniel E. Jackson is 37 and is Senior Vice President Corporate Development,
Chief Financial Officer, General Counsel and Secretary of the Company. Mr.
Jackson has served in the capacities of Senior Vice President of Corporate
Development and General Counsel since September 1995, as Secretary since
September 1996 and as Chief Financial Officer since November 1996. From 1994 to
1995, Mr. Jackson served as Vice President and General Counsel of an affiliate
of Notre Venture Capital, Ltd., a partnership specializing in industry
consolidation transactions. Prior thereto, he was Corporate Counsel and
Secretary of Sanifill, Inc., an environmental services company, from its
founding in 1990 through 1994. From 1986 until 1990, Mr. Jackson was an
associate at Morgan, Lewis & Bockius LLP in New York where he practiced law in
the areas of securities and mergers and acquisitions. Mr. Jackson is a graduate
of The Ohio State University with a bachelor of science degree in business
administration and the University of Pennsylvania Law School with a Juris Doctor
degree.
Curtis J. Parker is 42 years old and is Vice President and Chief Accounting
Officer of the Company. Mr. Parker has served as Vice President and Chief
Accounting Officer since November 14, 1996. From January 1996 until March 18,
1996 he served as a consultant to the Company and was appointed Corporate
5
<PAGE>
Controller on March 18, 1996. From 1988 through 1995 Mr. Parker was employed by
Burns Philp Food Inc., a manufacturer of food products, where he rose to the
position of Vice President - Finance for the Industrial Products Division.
Mr. Parker has a Bachelor of Commerce degree from the University of British
Columbia and is a Certified Public Accountant.
BOARD ORGANIZATION AND COMMITTEES
During the fiscal year ended March 31, 1997, the Board held six meetings.
Each of the Directors attended at least 75% of the meetings of the Board and the
committees on which he or she served during the fiscal year ended March 31,
1997.
The Board of Directors has established committees to perform certain of its
functions, including the Audit Committee, the Compensation Committee and the
Executive Committee. The functions of each of these committees, and its members,
are set forth below.
Audit Committee
The Audit Committee reviews the internal controls of the Company, the
objectivity of its financial reporting and the environmental standards and
controls of the Company and meets with appropriate Company financial personnel
and the Company's independent certified public accountants in connection with
these reviews. The Audit Committee also recommends to the Board the appointment
of independent certified public accountants to serve as auditors for the
following year. During the fiscal year ended March 31, 1997 the Audit Committee
met three times. The Audit Committee currently consists of Edward E. Faber,
Daniel M.
Beals, Anthony M. Frank, B. Tom Green and Harvey L. Poppel.
Compensation Committee
The Compensation Committee advises and makes recommendations to the
Board with respect to salaries and bonuses to be paid to officers and other
employees of the Company. The Compensation Committee also administers the
Company's 1995 Long-Term Incentive Plan. During the fiscal year ended March
31, 1997, the Compensation Committee met two times. The Compensation Committee
currently consists of Edward E. Faber, Daniel M. Beals, Anthony M. Frank, B. Tom
Green and Harvey L. Poppel.
Executive Committee
The Executive Committee serves as the nominating committee of the Board and
generally handles other matters that are time critical and cannot be handled in
a reasonable manner by the entire Board. The Executive Committee reviews the
size and composition of the Board of Directors, apportions the directors into
classes and makes recommendations with respect to nominations for election of
directors. The Executive Committee will consider recommendations from
stockholders for nominees to serve as directors if such proposals are submitted
in writing to the Company, 101 California Street, Suite 2050, San Francisco,
California 94111, Attention: Executive Committee. During the fiscal year ended
March 31, 1997 this committee met once. The Executive Committee currently
consists of James R. Lavelle, Michael L. Evans, Jeffrey J. Bernardis, Linda M.
Cassell, Anthony M. Frank and B. Tom Green.
6
<PAGE>
DIRECTOR COMPENSATION
Each director who is not an employee of the Company receives an annual
retainer fee of $20,000. Effective January 12, 1996, each non-employee director
of the Company was granted an initial option under the Company's 1995 Long-Term
Incentive Plan to acquire 10,000 shares of Common Stock at an exercise price of
$10.00 per share. Each non-employee director receives an automatic annual option
grant under the 1995 Long-Term Incentive Plan to acquire 5,000 shares of Common
Stock on the date of each of the Company's annual meetings held after March 31,
1997. All of such options have or will have an exercise price equal to the fair
market value of the Common Stock on the date of grant, are or will be
exercisable immediately except as limited by the rules and regulations of the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and will expire ten years
from the date of grant. Directors are also reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board of Directors or committees thereof,
or for other expenses incurred in their capacity as directors.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee of the Board of
Directors of Cotelligent shall not be deemed incorporated by reference by any
general statement incorporating this proxy statement by reference into any
filing under the Securities Act, or under the Exchange Act, and shall not be
deemed filed under either of the Securities Act or the Exchange Act except to
the extent that Cotelligent specifically incorporates this information by
reference.
Overview
The key components of executive officer compensation are salary, bonus
and stock option awards. Each of Messrs. Lavelle, Evans and Jackson is a party
to a three-year employment agreement (collectively the "Executive Employment
Agreements") that was negotiated at arms-length and entered into prior to
Cotelligent's initial public offering (the "Offering") but did not become
effective until the Offering was consummated. Each Executive Employment
Agreement provides for a minimum base salary following the Offering (subject to
increase by the Compensation Committee) and the right to receive discretionary
bonuses provided by the Compensation Committee and the right to receive stock
option grants at the discretion of the Compensation Committee.
The members of the Compensation Committee hold primary responsibility
for determining executive officer compensation levels, subject to the terms of
the Executive Employment Agreements. The Compensation Committee is composed
entirely of independent outside directors of Cotelligent, none of whom are or
have been officers or employees of Cotelligent except Mr. Beals who was a
founder and President of FDSI but retired before consummation of the Offering.
The Compensation Committee has adopted a compensation philosophy intended to
align compensation with Cotelligent's overall business strategy. The philosophy
guiding the executive compensation program is designed to link executive
compensation and stockholder value. The goals of the program are:
* To compensate executive employees in a manner that aligns the
employees' interests with the interests of the stockholders;
* To encourage continuation of Cotelligent's entrepreneurial
spirit;
* To reward executives for successful long-term strategic
management;
* To recognize outstanding performance; and
* To attract and retain highly qualified and motivated executives.
The strategy established by the Compensation Committee with respect to
executive compensation includes maintaining base salaries for executives and
providing bonuses which, when combined with base salary amounts, give
Cotelligent's executives the potential to earn in excess of competitive industry
7
<PAGE>
compensation if certain subjective and objective performance goals for
Cotelligent are achieved. The Compensation Committee intends to continue to
grant to Cotelligent's executives and other key employees stock options at
current market value, which options have no monetary value to the executives
unless and until the market price of Cotelligent's Common Stock increases. In
this manner, Cotelligent's executives will be well compensated if Cotelligent
achieves its operating and performance goals. The mix of base salary, bonuses
and stock option awards reflects the Compensation Committee's intention to link
executive compensation to Cotelligent's operational performance and the price of
its Common Stock. The Compensation Committee anticipates that discretionary
bonus payments and option grants made during 1997 and thereafter will be based
on a subjective analysis of various performance criteria and will not directly
be tied to any one factor. The Compensation Committee intends to continue to
examine ways to more closely link its annual bonus and long-term incentive plans
to Cotelligent's stock performance, with the objective of creating plans that
strengthen the relationship between stockholder value and executive
compensation.
1997 Compensation
Compensation paid to James R. Lavelle, Cotelligent's Chairman and Chief
Executive Officer, for the period from April 1, 1996 through January 29, 1997
was in accordance with Mr. Lavelle's Executive Employment Agreement. Effective
February 1, 1997, Mr. Lavelle's annual base salary was increased by the
Compensation Committee to $275,000. For the fiscal year 1998, he is eligible to
receive a bonus based upon the operating results of the Company. In addition, he
may receive a commission upon the completion by the Company of certain
acquisitions. Mr. Lavelle was granted an option to purchase 200,000 shares of
Company Common Stock; 87,500 shares vested at January 29, 1997 and the rest
vesting ratably over the next three years.
Compensation paid to Michael L. Evans, Cotelligent's President and
Chief Operating Officer, for the period from April 1, 1996 through January 29,
1997 was in accordance with Mr. Evans' Executive Employment Agreement. Effective
February 1, 1997, Mr. Evans' annual base salary was increased by the
Compensation Committee to $225,000. For the fiscal year 1998, he is eligible to
receive a bonus based upon the operating results of the Company. In addition, he
may receive a commission upon the completion by the Company of certain
acquisitions. Mr. Evans was granted an option to purchase 150,000 shares of
Company Common Stock; 37,500 shares vested at January 29, 1997 and the rest
vesting ratably over the next three years.
Compensation paid to Daniel E. Jackson, Cotelligent's Senior Vice
President, Business Development, Chief Financial Officer, General Counsel and
Secretary for the period from April 1, 1996 through January 29, 1997 was in
accordance with Mr. Jackson's Executive Employment Agreement. Effective February
1, 1997, Mr. Jackson's annual base salary was increased by the Compensation
Committee to $200,000. For the fiscal year 1998, he is eligible to receive a
bonus based upon the operating results of the Company. In addition, he will
receive a commission upon the completion of any acquisitions by the Company. Mr.
Jackson was granted an option to purchase 100,000 shares of Company Common
Stock; 25,000 shares vested at January 29, 1997 and the rest vesting ratably
over the next three years.
The cash compensation paid to Cotelligent's other executive officers
during 1997 was in accordance with arms-length negotiations between Cotelligent
and such executive officers. Stock option grants were based on arms-length
negotiations with the respective grantees and were approved by the Board of
Directors.
This report is submitted by the members of the Compensation Committee.
Compensation Committee
B. Tom Green
Daniel M. Beals
Edward E. Faber
Anthony M. Frank
Harvey L. Poppel
8
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All of the members of the Compensation Committee are non-employee
Directors of the Company and are not former officers of the Company or its
subsidiaries, except for Daniel Beals, who served as President of FDSI, one of
the Company's subsidiaries, prior to the Offering. No executive officer of the
Company serves as a member of the Board of Directors or on the compensation
committee of a corporation for which any of the Company's Directors serving on
the Compensation Committee or on the Board of Directors of the Company is an
executive officer.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding the
compensation earned by or awarded to the Chief Executive Officer and remaining
executive officers of the Company for each of the fiscal years ended March 31,
1997, 1996 and 1995.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------------------ --------------
Fiscal Options/
Name and Principal Position Year Salary($) (1) Other($) SARs(#)
- ------------------------------------- ------- ------------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
James R. Lavelle................... 1997 175,833 6,000 (3) 200,000
Chairman and Chief Executive 1996 127,750 750 (3) 0
Officer 1995 122,133 0 0
Michael L. Evans................... 1997 167,500 6,000 (3) 150,000
Director, President and 1996 16,666 (2) 1,500 (3) 0
Chief Operating Officer
Daniel E. Jackson.................. 1997 188,333 6,000 (3) 100,000
Senior Vice President of 71,141 (4)
Corporate Development, 9,895 (5)
Chief Financial Officer, 1996 88,333 (2) 750 (3) 92,676
General Counsel and Secretary 37,100 (6)
Curtis J. Parker................... 1997 95,000 0 0
Vice President and Chief
Accounting Officer
<FN>
(1) Base salary and commissions earned.
(2) Reflects salary received for a partial year.
(3) Represents payments made as an automobile allowance.
(4) Reimbursement for relocation costs.
(5) Imputed interest on below market loans. See "Certain Transactions."
(6) Reimbursement for temporary living and commuting costs.
</FN>
</TABLE>
9
<PAGE>
Stock Option Grants Table
The following table sets forth, as to the executive officers named in
the Summary Compensation Table, information related to the grant of stock
options pursuant to the Company's 1995 Long-Term Incentive Plan during the
fiscal year ended March 31, 1997.
<TABLE>
OPTIONS GRANTED IN FISCAL 1997
<CAPTION>
Individual Grants(1)
--------------------------------------------------------
Number of Percentage of Total Exercise or Potential Realizable Value At
Securities Options Granted to Base Price Per Assumed Annual Rates of Stock
Underlying Employees in Fiscal Share Price Appreciation For Option
Name Options Granted 1997 ($/Share)(2) Term (3)
- -------------------------------------------------------------------- -----------------------------------------------
5% 10%
--------------- ---------------
<S> <C> <C> <C> <C> <C>
James R. Lavelle 200,000 23.5% 19.00 1,546,982 3,605,125
Michael L. Evans 150,000 17.6 19.00 1,160,236 2,703,844
Daniel E. Jackson 100,000 11.8 19.00 773,491 1,802,562
<FN>
(1) All options granted in fiscal 1997 expire on January 29, 2004.
(2) The exercise price per share for all options granted is equal to the market
price of the underlying Common Stock as of the date of grant.
(3) The potential realizable value has been determined using market price on the
date the options were granted, compounded annually over seven years, net of
exercise price. These values have been determined based upon assumed rates
of appreciation and are not intended to forecast the future value or trading
prices of the Company's Common Stock. There can be no assurance that the
amounts reflected in this table will be achieved.
</FN>
</TABLE>
Stock Option Exercises and Year End Values Table
The following table shows, as to the executive officers named in the
Summary Compensation Table, information with respect to the unexercised options
to purchase Common Stock granted under the 1995 Long-Term Incentive Plan and
held as of March 31, 1997.
<TABLE>
VALUE OF OPTIONS AT MARCH 31, 1997
<CAPTION>
Number of Securities Underlying
Value Unexercised Options Held at Value of Unexercised
Shares Acquired Realized March 31, 1997 In-the-Money Options
On Exercise (#) ($) at March 31, 1997 (1)
------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
James R. Lavelle 87,500 112,500 0 0
Michael L. Evans 37,500 112,500 0 0
Daniel E. Jackson 37,000 $542,600 25,071 130,605 $465 $364,213
Curtis J. Parker 10,000 30,000 0 0
<FN>
(1) Options are "in-the-money" if the closing market price of the Company's Common Stock exceeds the
exercise price of the options. The value of the unexercised options represents the difference
between the exercise price of such options and the closing market price
($9.25) of the Company's Common Stock on the NASDAQ National Market on
March 31, 1997.
</FN>
</TABLE>
10
<PAGE>
EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
Messrs. Lavelle, Evans and Jackson have each entered into employment
agreements commencing on February 14, 1996, the date of the closing of the
Offering. Pursuant to such agreements, each person is to receive an annual base
salary of $150,000 and will be eligible for additional bonus compensation.
Effective February 1, 1997, the Compensation Committee increased the annual base
salaries of the aforementioned executive officers as follows: $275,000 for Mr.
Lavelle, $225,000 for Mr. Evans and $200,000 for Mr. Jackson. Each executive
officer is eligible for an incentive bonus based upon the operating results of
the Company. A commission is payable to each executive officer upon the
completion of certain acquisitions during the year. Each employment agreement is
for a term of three years and, unless terminated or not renewed by the employee,
shall continue thereafter on a year-to-year basis on the same terms and
conditions.
Each of the employment agreements provides that, in the event of
termination of employment by the Company without cause, such employee shall be
entitled to receive from the Company such employee's then current salary for the
remaining term of the agreement or for one year, whichever amount is greater,
without regard to whether the employee obtains subsequent employment. In the
event of a change in control of the Company, if the employee is not given at
least five days notice of such change in control, the employee may elect to
terminate his employment and shall be entitled to receive a minimum of three
years' current base salary as compensation. In the event the employee is given
at least five days notice of such change in control, the employee may elect to
terminate his employment agreement and receive a minimum of two years current
salary as compensation.
Each employment agreement contains a covenant-not-to-compete with the
Company for a period equivalent to the longer of two years immediately following
the termination of employment or, in the case of a termination without cause,
for a period of one year following the termination of his employment. If any
court of competent jurisdiction determines that the scope, time or territorial
restrictions contained in the covenant are unreasonable, the
covenant-not-to-compete shall be reduced to the maximum period permitted by such
court. The compensation to which such employee is entitled shall nonetheless be
paid to the employee.
11
<PAGE>
PERFORMANCE GRAPH
The following chart compares the yearly percentage change in the
cumulative total stockholder return on Common Stock from February 14, 1996, the
date of Offering, through March 31, 1997, with the cumulative total return on
the Russell 2000 Index and the NASDAQ Composite Index. The comparison assumes
$100, as of February 14, 1996, was invested in the Company's Common Stock and in
each of the foregoing indices and assumes reinvestment of dividends, as
applicable. Cotelligent's Offering price of $9.00 was used as the beginning
price of the Common Stock. Dates on the following chart represent the last day
of the indicated fiscal year. Cotelligent has paid no dividends during the
periods shown.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
A GRAPH IS INCLUDED WHICH DIAGRAMS THE RESULTS BELOW - SEE ABOVE FOR DESCRIPTION
OF THE GRAPH.
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------ ------------------------ ------------------------
Company/Index February 14, 1996 March 31, 1996 March 31, 1997
- ------------------------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
Cotelligent Group, Inc. $100 $130.55 $102.78
Russell 2000 Index 100 103.21 106.52
NASDAQ Composite Index 100 101.23 112.01
</TABLE>
CERTAIN TRANSACTIONS
Simultaneously with the consummation of the Offering, Cotelligent
acquired by merger all of the issued and outstanding stock of BFR, CAI, Data
Arts & Sciences, Inc. ("DASI") and FDSI (collectively, the "Founding
Companies"). Prior thereto, each of the Founding Companies had incurred
indebtedness which was personally guaranteed by their stockholders, some of whom
are now Directors of the Company. At December 31, 1995, the aggregate amount of
indebtedness of these Founding Companies that was subject to personal guarantees
was approximately $2,800,000. Effective June 1, 1996, the Company consolidated
all its separate banking relationships into a single banking relationship. At
the time of consolidation, the Company paid any and all amounts outstanding on
such personally guaranteed indebtedness and caused the former stockholders of
the Founding Companies to be relieved of their respective personal guarantees.
BFR leases office space for its headquarters facilities in Somerset,
New Jersey from BFR Properties, a partnership owned by Jeffrey J. Bernardis, a
director of the Company, and the other principal stockholders of BFR
prior to the consummation of the acquisition of BFR by the Company. The
annual cost of such rental is approximately $170,000, and the lease runs through
March 31, 2000. BFR also leases office equipment and
12
<PAGE>
furniture for this office space from BFR Properties. The aggregate annual
rental for such furniture and office equipment is approximately $51,000, and
the lease runs through December 31, 1999. The Company believes that the rent
for such property and equipment does not exceed the fair market value thereof.
DASI leases office space for its headquarters facility in Natick,
Massachusetts from Strathmore Realty Trust, one trustee of which is John C.
Travers, a director of the Company. The annual cost of such rental is
approximately $104,400, and the lease runs through November 8, 2000. The Company
believes that the rent for such property does not exceed the fair market value
thereof.
On November 27, 1996, in connection with the acquisition of PBC by the
Company, Thomas E. Fallat, the former majority stockholder of PBC, received
1,142,350 shares of Common Stock in exchange for all of his shares of common
stock of PBC and Christy L. Cooper, nominee for the Company's Board of
Directors, received 30,062 shares of Common Stock in exchange for all of her
shares of common stock in PBC.
From May 1996 through early July 1996, the Company advanced to Daniel
E. Jackson $250,000 to facilitate relocation of his residence to Northern
California. On July 15, 1996, $100,000 of the advance was repaid and the
remaining balance was converted to a demand note in the amount of $150,000. The
note is non-interest bearing and the principal balance is due July 15, 2001 or
upon termination of employment should Mr. Jackson leave the Company prior to the
due date.
On June 28, 1996, in connection with the acquisition by the Company of
ISI, Susan E Trice, the former sole stockholder and a nominee for the Company's
Board of Directors, received 521,390 shares of Common Stock in exchange for all
her shares of common stock in ISI.
In the future, transactions with affiliates of the Company are
anticipated to be minimal and will be approved by a majority of the Board of
Directors, including a majority of the disinterested members of the Board of
Directors, and will be made on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.
SELECTION OF PRICE WATERHOUSE LLP AS CERTIFIED PUBLIC ACCOUNTANTS
On April 25, 1996 the Board of Directors approved and accepted the
recommendation of the Audit Committee and management to appoint Price Waterhouse
LLP ("Price Waterhouse") as the Company's independent certified public
accountants to audit the Company's financial statements for the year ending
March 31, 1997. Price Waterhouse audited the Company's financial statements for
the year ending March 31, 1997.
During the Company's three fiscal years ended March 31, 1997, there
were no disagreements between the Company and Price Waterhouse regarding any
matter of accounting principles or practices, financial statement disclosure or
auditing scope and procedure which, if not resolved to the satisfaction of Price
Waterhouse, would have caused Price Waterhouse to make reference to the subject
matter of the disagreement in connection with its report.
Representatives of Price Waterhouse are expected to be present at the
Annual Meeting, with the opportunity to make a statement if they desire to do
so, and are expected to be available to respond to appropriate questions.
The affirmative vote of a majority of the Common Stock of the Company
present, in person or by proxy, and entitled to vote at the meeting, is required
for the approval of the selection of Price Waterhouse as the Company's
independent certified public accountants.
The Board of Directors recommends that the stockholders of the Company
approve the selection of Price Waterhouse as the Company's independent certified
public accountants for the fiscal year ending March 31, 1998.
13
<PAGE>
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than 10%
of a registered class of the Company's equity securities, to file initial
reports of ownership and reports of changes in ownership with the Securities and
Exchange Commission (the "SEC"). Such persons are required by SEC regulation to
furnish the Company with copies of all Sections 16(a) forms they file.
Based solely on its review of the copies of other such forms received
by it with respect to fiscal 1997, or written representations from certain
reporting persons, to the best of the Company's knowledge, all reports were
filed on a timely basis except for the filing with respect to the purchase
pursuant to the Company's Employee Stock Purchase Plan of 167 and 175 shares of
the Company's Common Stock on October 31, 1996 and January 31, 1997,
respectively, by Michael Evans, an officer and director of the Company.
STOCKHOLDER PROPOSALS
Stockholders may present proposals for inclusion in the Company's 1998
proxy statement provided they are received by the Company no later than February
16, 1998, and are otherwise in compliance with applicable Securities and
Exchange Commission regulations.
GENERAL
Management does not intend to bring any business before the meeting
other than the matters referred to in the accompanying notice. If, however, any
other matters properly come before the meeting, it is intended that the persons
named in the accompanying proxy will vote pursuant to the proxy in accordance
with their best judgment on such matters.
A copy of the Company's most recent Annual Report on Form 10-K will be
made available without charge upon written request to: Cotelligent Group, Inc.,
101 California Street, Suite 2050, San Francisco, California 94111, Attention:
Investor Relations Coordinator.
OTHER INFORMATION
The cost of solicitation of Proxies will be borne by the Company. Proxy
cards and materials will also be distributed to beneficial owners of Common
Stock through brokers, custodians, nominees and other like parties, and the
Company expects to reimburse such parties for their charges and expenses.
Daniel E. Jackson
Secretary
San Francisco, California
July 31, 1997
