<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
i2 Technologies, Inc.
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[i2 TECHNOLOGIES, INC. LOGO]
i2 TECHNOLOGIES, INC.
909 E. LAS COLINAS BLVD., 16TH FLOOR
IRVING, TEXAS 75039
March 31, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 annual meeting of
stockholders of i2 Technologies, Inc., which will be held at the Westin Hotel,
13340 Dallas Parkway, Dallas, Texas on Wednesday, April 30, 1997 at 10:00 a.m.
(Central Time).
Details of the business to be conducted at the annual meeting are
given in the attached Notice of Annual Meeting of Stockholders and Proxy
Statement.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals set forth in the Proxy Statement and
recommends that you vote for each such proposal.
In order for us to have an efficient meeting, please sign, date and
return the enclosed proxy promptly in the accompanying reply envelope. If you
are able to attend the annual meeting and wish to change your proxy vote, you
may do so simply by voting in person at the annual meeting.
We look forward to seeing you at the annual meeting.
Sincerely,
/s/ SANJIV S. SIDHU
SANJIV S. SIDHU
Chairman of the Board and
Chief Executive Officer
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are
requested to complete, sign and date the enclosed proxy as
promptly as possible and return it in the enclosed envelope.
No postage need be affixed if mailed in the United States.
- --------------------------------------------------------------------------------
<PAGE> 3
i2 TECHNOLOGIES, INC.
909 E. LAS COLINAS BLVD., 16TH FLOOR
IRVING, TEXAS 75039
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1997
The 1997 annual meeting of stockholders of i2 Technologies, Inc. (the
"Company") will be held at the Westin Hotel, 13340 Dallas Parkway, Dallas,
Texas on Wednesday, April 30, 1997 at 10:00 a.m. (Central Time) for the
following purposes:
1. To elect one director to serve until the annual stockholders'
meeting in 1998, one director to serve until the annual
stockholders' meeting in 1999 and two directors to serve until
the annual stockholders' meeting in 2000, or in each case
until their successors have been elected and qualified;
2. To approve an amendment to the Company's 1995 Stock
Option/Stock Issuance Plan to (i) increase the number of
shares of Common Stock authorized to be issued by 2,000,000
shares and (ii) establish a limit of Common Stock for which
any one person may be granted stock options, stock
appreciation rights and direct stock issuances per calendar
year;
3. To ratify the appointment of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year
ending December 31, 1997; and
4. To act upon such other business as may properly come before
the meeting or any adjournments thereof.
Only stockholders of record at the close of business on March 18, 1997
are entitled to notice of and to vote at the meeting. A list of stockholders
entitled to vote at the meeting will be available for inspection at the offices
of the Company. Whether or not you plan to attend the meeting in person,
please sign, date and return the enclosed proxy card in the reply envelope
provided. If you attend the meeting and vote by ballot, your proxy will be
revoked automatically and only your vote at the meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the meeting.
By Order of the Board of Directors,
/s/ KANNA (KEN) N. SHARMA
KANNA (KEN) N. SHARMA
Secretary
<PAGE> 4
i2 TECHNOLOGIES, INC.
909 E. LAS COLINAS BLVD., 16TH FLOOR
IRVING, TEXAS 75039
-------------------------
PROXY STATEMENT
-------------------------
These proxy materials and the enclosed proxy card are being mailed in
connection with the solicitation of proxies by the Board of Directors of i2
Technologies, Inc., a Delaware corporation (the "Company"), for the 1997 Annual
Meeting of Stockholders to be held on Wednesday, April 30, 1997 at 10:00 a.m.
(Central Time), and at any adjournment or postponement thereof (the "Annual
Meeting") at the Westin Hotel, 13340 Dallas Parkway, Dallas, Texas. These
proxy materials were first mailed to stockholders of record beginning on
approximately April 7, 1997.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy
Statement.
VOTING RIGHTS AND SOLICITATION
Any stockholder executing a proxy pursuant to this solicitation may
revoke it at any time prior to its exercise by delivering written notice of
such revocation to the Secretary of the Company before the Annual Meeting or by
properly executing and delivering a proxy bearing a later date. Proxies may
also be revoked by any stockholder present at the Annual Meeting who elects to
vote his or her shares in person. The cost of soliciting proxies will be paid
by the Company and may include reimbursement paid to brokerage firms and others
for their expense in forwarding solicitation materials as well as the expense
of preparing, assembling, photocopying and mailing this Proxy Statement.
Solicitation will be made primarily through the use of the mail, however,
regular employees of the Company may, without additional remuneration, solicit
proxies personally by telephone or telegram.
The Company's annual report to stockholders for the fiscal year ended
December 31, 1996 (the "Annual Report") has been mailed concurrently with the
mailing of the notice of the Annual Meeting and this Proxy Statement to all
stockholders entitled to notice of, and to vote at, the Annual Meeting. The
Annual Report is not incorporated into this Proxy Statement and is not
considered proxy soliciting material.
The Company has fixed March 18, 1997 as the record date for
determining those stockholders who are entitled to notice of, and to vote at,
the Annual Meeting. At the close of business on the record date, the Company
had 24,807,452 outstanding shares of Common Stock, par value $0.00025 per
share (the "Common Stock"). Each stockholder is entitled to one vote for each
share of Common Stock held by such stockholder as of the record date. If a
choice as to the matters coming before the Annual Meeting has been specified by
a stockholder on the proxy, the shares will be voted accordingly. If no choice
is specified on the returned proxy, the shares will be voted in favor of the
approval of the proposals described in the notice of Annual Meeting and in this
Proxy Statement. Abstentions and broker non-votes (i.e., the submission of a
proxy by a broker or nominee specifically indicating the lack of discretionary
authority to vote on the matter) are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
will be counted towards the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes, whereas
broker non-votes will not be counted for purposes of determining whether or not
a proposal has been approved.
<PAGE> 5
At the record date, directors and executive officers of the Company
may be deemed to be beneficial owners of an aggregate of 20,876,338 shares of
Common Stock (not including shares of Common Stock issuable upon exercise of
outstanding stock options) constituting approximately 84.2% of the shares of
Common Stock outstanding and entitled to vote at the Annual Meeting. Such
directors and executive officers have indicated to the Company that each such
person intends to vote or direct the vote of all shares of Common Stock held or
owned by such persons, or over which such person has voting control, in favor
of all of the proposals described herein. The approval of the proposals is not
assured. See "Principal Stockholders."
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
The Company currently has the following four directors serving on its
Board: Sanjiv S. Sidhu, Kanna N. Sharma, Harvey B. Cash, and Thomas J.
Meredith. At the Annual Meeting, the directors shall be divided into three
classes as nearly equal in size as is practicable, designated Class I, Class II
and Class III. The term of office of the initial Class I directors shall
expire at the 1998 annual meeting of stockholders, the term of office of the
initial Class II directors shall expire at the 1999 annual meeting of
stockholders, and the term of office of the initial Class III directors shall
expire at the 2000 annual meeting of the stockholders, or in each case until
their successors have been elected and qualified. At each annual meeting of
stockholders held after the Annual Meeting, directors to replace those of a
class whose terms expire at such annual meeting shall be elected to hold office
until the third succeeding annual meeting or until their respective successors
have been elected and qualified.
VOTE REQUIRED
A board of four directors is to be elected at the Annual Meeting to
hold office until their respective term has expired or until their successors
are elected and have qualified. Each nominee receiving the affirmative vote of
a majority of the shares present in person or represented by proxy at the
Annual Meeting and entitled to vote on the election of directors shall be
elected to the Board of Directors.
Unless otherwise instructed, the persons named in the accompanying
proxy card will vote the proxies received by them for each of the Company's
nominees named below, each of whom is presently a director of the Company. If
any nominee of the Company is unable or declines to serve as a director at the
time of the Annual Meeting, the proxies will be voted for any nominee who is
designated by the present Board of Directors to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a
director.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE NOMINEES LISTED HEREIN, AND PROXIES EXECUTED AND RETURNED WILL BE SO VOTED
UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
<PAGE> 6
CLASS I NOMINEE
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE AGE POSITION
---- -------------- --- --------
<S> <C> <C> <C>
Thomas J. Meredith . . . . . . . . . . . . . . . . 1996 46 Director
</TABLE>
- ---------------
Mr. Meredith has served as a director of the Company since July 1996.
Mr. Meredith has served as the Senior Vice President and Chief Financial
Officer for Dell Computer Corporation ("Dell") since November 1992. From 1990
until joining Dell, Mr. Meredith was Vice President and Treasurer of Sun
Microsystems, Inc. Prior thereto, he was co-founder and general manager of
Amdahl Capital Corporation, a captive financing company for Amdahl
Corporation, a mainframe computer manufacturer. Mr. Meredith holds a B.S. in
political science from St. Francis College, a J.D. from Duquesne University of
Law and an L.L.M. in taxation from Georgetown University.
CLASS II NOMINEE
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE AGE POSITION
---- -------------- --- --------
<S> <C> <C> <C>
Harvey B. Cash . . . . . . . . . . . . . . . . . . 1996 58 Director
</TABLE>
- ---------------
Mr. Cash has served as a director of the Company since January 1996. Mr.
Cash has served as general or limited partner of various venture capital
companies affiliated with InterWest Partners, a venture capital firm, since
1985. Mr. Cash is chairman of the board of Cyrix Corporation, a publicly held
microprocessor company, and currently serves on the board of directors of the
following public companies: ProNet, Inc., a manufacturer of paging devices;
Aurora Electronics, Inc., a distributor of recycled integrated circuit boards
and computer components; Benchmarq Microelectronics, Inc., a developer of
chips and chipsets for portable electronic devices; AMX Corporation, a
manufacturer of remote control systems; Ciena Corporation, a manufacturer of
systems for long distance fiberoptic networks; and Heritage Media Corporation,
an owner and operator of radio and television stations. In addition, Mr. Cash
is a director of several privately held companies. Mr. Cash holds a B.S. in
electrical engineering from Texas A&M University and an M.B.A. from Western
Michigan University.
CLASS III NOMINEES
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE AGE POSITIONS
---- -------------- --- ---------
<S> <C> <C> <C>
Sanjiv S. Sidhu . . . . . . . . . . . . . . . . . . 1989 39 Chairman of the Board and
Chief Executive Officer
Kanna N. Sharma . . . . . . . . . . . . . . . . . . 1992 56 Vice Chairman of the
Board, Executive Vice
President and Secretary
</TABLE>
- ---------------
Mr. Sidhu founded the Company in 1988 and has served as its Chairman of
the Board since its incorporation in 1989. Mr. Sidhu has served as the
Company's Chief Executive Officer since December 1994, and previously served
in various other executive capacities with the Company. Before founding the
Company, Mr. Sidhu held various positions with Texas Instruments Incorporated
("Texas Instruments"), a publicly held electronics manufacturer, most recently
as a member of the technical staff of Texas Instruments' Artificial
Intelligence Laboratory. Mr. Sidhu holds a B.S. in chemical engineering from
Osmania University and a M.S. in chemical engineering from Oklahoma State
University.
-3-
<PAGE> 7
Mr. Sharma joined the Company in July 1990. Since June 1995, Mr.
Sharma has served as the Company's Vice Chairman of the Board, Executive Vice
President and Secretary and previously served in a variety of senior management
positions with the Company. Before joining the Company, Mr. Sharma served as
Vice President and co-founder of Business Technology Management, Inc., a
management consulting company for manufacturing companies, from July 1987 to
July 1990; Executive Vice President of Operations at Creative Output, Inc., a
supplier of planning and scheduling software, from March 1982 to July 1987; and
in various positions with Texas Instruments from November 1966 to February
1982, most recently as Department Manager of Information Systems and Services.
Mr. Sharma holds a B.S. in electrical engineering from the Benares Hindu
University Institute of Technology.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors met twice during the fiscal year ended
December 31, 1996, and acted a number of times by written consent. Each of the
directors nominated for reelection attended at least 75% of the aggregate of (i)
the total meetings of the Board and (ii) the total number of meetings held by
all committees of the board on which they served.
The Company has a standing Compensation Committee currently composed of
Messrs. Cash and Meredith. The Compensation Committee was formed in 1996 but
did not meet during that period. The Compensation Committee administers the
Company's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"). The
Compensation Committee has the responsibility for establishing the compensation
payable to the Company's Chief Executive Officer and is responsible for
establishing the compensation payable to other executive officers of the Company
based on recommendations made by the Chief Executive Officer. The Compensation
Committee is also responsible for the overall administration of the Company's
employee benefit plans, including the Company's Employee Stock Purchase Plan.
The Company also has a standing Audit Committee composed of Messrs. Cash and
Meredith. The Audit Committee did not meet in fiscal 1996. The Audit Committee
assists in the selection of the Company's independent auditors and is
responsible for designating those services to be performed by and maintaining
effective communication with the auditors. A Pricing Committee was also formed
for the limited purpose of determining certain terms and conditions of the
Company's April 1996 initial public offering. The Company does not have a
standing Nominating Committee or any other committee performing similar
functions, and such matters are considered at meetings of the full Board of
Directors.
PROPOSAL 2
APPROVAL OF AMENDMENT TO
1995 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve an amendment to
the 1995 Stock Option/Stock Issuance Plan to (i) increase the number of shares
of Common Stock available for issuance under the 1995 Plan from 10,000,000
shares to 12,000,000 shares and (ii) establish a limit on the number of shares
of Common Stock for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances under the 1995
Plan per calendar year. The 1995 Plan became effective upon its adoption by the
Board and approval by the Company's stockholders on September 21, 1995. The
proposed amendment to the 1995 Plan was adopted by the Board on May 11, 1996,
subject to stockholder approval at the Annual Meeting.
The Board believes the share increase is necessary to assure that the
Company continues to have a sufficient reserve of Common Stock available under
the 1995 Plan to attract and retain the services of key individuals essential to
the Company's long-term success. The establishment of the limit on the number
of shares of Common Stock for which any one person may be granted options,
separately exercisable stock appreciation
-4-
<PAGE> 8
rights and direct stock issuances is necessary so that any compensation deemed
paid to an officer of the Company in connection with the exercise of an option
granted under the 1995 Plan is exempt from the $1 million limitation on the
amount of compensation deductible by the Company with respect to compensation
paid to its officers.
The following is a summary of the principal features of the 1995 Plan.
The summary, however, does not purport to be a complete description of all the
provisions of the 1995 Plan. Any stockholder of the Company who wishes to
obtain a copy of the actual plan document may do so upon written request to the
Corporate Secretary at the Company's principal executive offices in Irving,
Texas.
EQUITY INCENTIVE PROGRAMS
The 1995 Plan contains three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Stock Issuance Program and (iii) an
Automatic Option Grant Program. The principal features of these programs are
described below. The 1995 Plan (other than the Automatic Option Grant Program)
is administered by the Compensation Committee of the Company's Board of
Directors. This committee (the "Plan Administrator") has complete discretion
(subject to the provisions of the 1995 Plan) to authorize option grants and
direct stock issuances under the 1995 Plan. However, all grants under the
Automatic Option Grant Program are made in strict compliance with the provisions
of that program, and no administrative discretion may be exercised by the Plan
Administrator with respect to the grants made thereunder.
SHARE RESERVE
A total of 12,000,000 shares of Common Stock (including the share
increase subject to stockholder approval under this proposal) has been reserved
for issuance over the ten-year term of the 1995 Plan. In no event may any one
participant in the 1995 Plan be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances for more than 500,000
shares per calendar year beginning with the 1996 calendar year.
In the event any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate structure
effected without the Company's receipt of consideration, appropriate adjustments
will be made to the securities issuable (in the aggregate and to each
participant) under the 1995 Plan and to the securities and exercise price under
each outstanding option.
ELIGIBILITY
Officers and other employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established), non-employee
members of the Board (other than those serving as members of the Compensation
Committee) and the board of directors of its parent or subsidiaries and
consultants and independent advisors of the Company and its parent and
subsidiaries will be eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs. Non-employee members of the Board (including
members of the Compensation Committee) will also be eligible to participate in
the Automatic Option Grant Program.
As of December 31, 1996, four executive officers, 422 other employees
and two non-employee Board members were eligible to participate in the 1995
Plan.
-5-
<PAGE> 9
VALUATION
The fair market value per share of Common Stock on any relevant date
under the 1995 Plan will be the closing selling price per share on that date on
the Nasdaq National Market. On December 31, 1996, the closing selling price
per share was $38.25.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share of not less than 85% of the fair market value per
share of Common Stock on the option grant date. No granted option will have a
term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of
time in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of
service.
In addition, the Plan Administrator is authorized to issue two types
of stock appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the
right to surrender their options for an appreciation distribution from
the Company equal in amount to the excess of (i) the fair market value
of the vested shares of Common Stock subject to the surrendered option
over (ii) the aggregate exercise price payable for such shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
Limited stock appreciation rights may be granted to officers
of the Company as part of their option grants. Any option with such a
limited stock appreciation right in effect for at least six (6) months
may be surrendered to the Company upon the successful completion of a
hostile take-over of the Company. In return for the surrendered
option, the officer will be entitled to a cash distribution from the
Company in an amount per surrendered option share equal to the excess
of (i) the take-over price per share over (ii) the exercise price
payable for such share.
The Plan Administrator will have the authority to effect the
cancellation of outstanding options under the Discretionary Option Grant
Program which have exercise prices in excess of the then current market price
of Common Stock and to issue replacement options with an exercise price based
on the market price of Common Stock at the time of the new grant.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per
share of not less than 85% of fair market value per share of Common Stock,
payable in cash or through a promissory note payable to the Company. Shares
may also be issued solely as a bonus for past services.
The issued shares may either be immediately vested upon issuance or
subject to a vesting schedule tied to the performance of service or the
attainment of performance goals. The Plan Administrator will, however, have
the discretionary authority at any time to accelerate the vesting of any
unvested shares.
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<PAGE> 10
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who was
serving as a non-employee Board member on the effective date of the Company's
April 1996 initial public offering of the Common Stock was automatically
granted at that time an option for 1,000 shares of Common Stock. Each
individual who first becomes a non-employee Board member after such date will
automatically be granted at that time an option for 1,000 shares of Common
Stock. In addition, on the date of each annual stockholders' meeting beginning
with the Annual Meeting, each individual who continues to serve as a
non-employee Board member after such meeting will automatically be granted, on
the date of that meeting, an option to purchase 1,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six (6) months.
Each option will have an exercise price per share equal to 100% of the
fair market value per share of Common Stock on the option grant date and a
maximum term of ten years measured from the option grant date.
Each option will be immediately exercisable for all the option shares,
but any purchased shares will be subject to repurchase by the Company, at the
exercise price paid per share, upon the optionee's cessation of Board service.
Each option grant will vest (and the Company's repurchase rights will lapse) in
four (4) equal annual installments over the optionee's period of Board service,
with the first such installment to vest one (1) year from the option grant
date.
The shares subject to each automatic option grant will immediately
vest upon the optionee's death or permanent disability or an acquisition of the
Company by merger or asset sale or a hostile change in control of the Company
(whether by successful tender offer for more than 50% of the outstanding voting
stock or by proxy contest for the election of Board members). In addition,
upon the successful completion of a hostile take-over, each automatic option
grant which has been outstanding for at least six (6) months may be surrendered
to the Company for a cash distribution per surrendered option share in an
amount equal to the excess of (i) the take-over price per share over (ii) the
exercise price payable for such share.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale,
each outstanding option under the Discretionary Option Grant Program which is
not to be assumed by the successor corporation or replaced with a comparable
option to purchase shares of the capital stock of the successor corporation
will automatically accelerate in full, and all unvested shares under the Stock
Issuance Program will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options assumed or replaced in connection with such
acquisition will be subject to immediate acceleration, and any unvested shares
which do not vest at the time of such acquisition will be subject to full and
immediate vesting, in the event the individual's service is subsequently
involuntarily terminated within 18 months following the acquisition. In
connection with a hostile change in control of the Company (whether by
successful tender offer for more than 50% of the outstanding voting stock or by
proxy contest for the election of Board members), the Plan Administrator will
have the discretionary authority to provide for automatic acceleration of
outstanding options under the Discretionary Grant Program and the automatic
vesting of outstanding shares under the Stock Issuance Program either at the
time of such change in control or upon the subsequent involuntary termination
of the individual's service.
The acceleration of vesting in the event of a change in the ownership
or control of the Company may be viewed as an anti-takeover provision and may
have the effect of discouraging a merger proposal, a takeover attempt or other
effort to gain control of the Company.
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<PAGE> 11
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more participants to pay the
exercise price of outstanding options or the purchase price of shares under the
1995 Plan by delivering a promissory note payable in installments. The Plan
Administrator will determine the terms of any such promissory note. However,
the maximum amount of financing provided any participant may not exceed the
cash consideration payable for the issued shares plus all applicable taxes
incurred in connection with the acquisition of the shares. Any such promissory
note may be subject to forgiveness in whole or in part, at the discretion of
the Plan Administrator, over the participant's period of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of those
options or the vesting of those shares. Alternatively, the Plan Administrator
may allow such individuals to deliver previously acquired shares of Common
Stock in payment of such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1995 Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may
terminate the 1995 Plan at any time, and the 1995 Plan will in all events
terminate on September 20, 2005.
STOCK AWARDS
The table below shows, as to each of the Company's executive officers
named in the Summary Compensation Table and the various indicated individuals
and groups, the number of shares of Common Stock subject to options granted
between September 21, 1995 and December 31, 1996 under the 1995 Plan together
with the weighted average exercise price payable per share.
-8-
<PAGE> 12
<TABLE>
<CAPTION>
=====================================================================================
OPTION TRANSACTIONS(1)
=====================================================================================
Weighted
Number of Average
Name Option Shares Exercise Price
- -------------------------------------------------------------------------------------
<S> <C> <C>
Sanjiv S. Sidhu, -- --
Chairman of the Board
and Chief Executive Officer
- -------------------------------------------------------------------------------------
Kanna N. Sharma, -- --
Vice Chairman of the Board, Executive Vice
President and Secretary
- -------------------------------------------------------------------------------------
Gregory A. Brady, 16,667 $1.18
President, Worldwide Operations
- -------------------------------------------------------------------------------------
David F. Cary, 45,000 $7.25
Vice President and Chief Financial Officer
- -------------------------------------------------------------------------------------
All current executive officers as a group 61,667 $5.61
(Four persons)
- -------------------------------------------------------------------------------------
Harvey B. Cash, 20,000 $1.18
Director
- -------------------------------------------------------------------------------------
Thomas J. Meredith, 20,000 $25.20
Director
- -------------------------------------------------------------------------------------
All non-employee directors as a group 40,000 $13.19
(Two persons)
- -------------------------------------------------------------------------------------
All employees, including current officers who 1,251,024 $11.12
are not executive officers as a group
(203 persons)
=====================================================================================
</TABLE>
(1) During 1996, the Board of Directors authorized the direct issuance of
615 shares to employees at a weighted average price of $14.33 per
share paid in past services rendered to the Company.
-9-
<PAGE> 13
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1995 Plan may be either incentive stock
options which satisfy the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or non-statutory options which are not
intended to meet such requirements. The Federal income tax treatment for the
two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the amount by which the fair market
value (at the time of exercise) of the purchased shares exceeds the exercise
price paid for those shares will be included in the optionee's alternative
minimum taxable income at the time of exercise. The optionee will recognize
taxable income in the year in which the purchased shares are sold or otherwise
disposed of. For Federal tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result. If the optionee makes
a disqualifying disposition of the purchased shares, then the Company will be
entitled to an income tax deduction, for the taxable year in which such
disposition occurs, equal to the excess of (i) the fair market value of such
shares on the option exercise date over (ii) the exercise price paid for the
shares. In no other instance will the Company be allowed a deduction with
respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee
upon the grant of a non-statutory option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised, equal
to the excess of the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares. Further, the optionee will
be required to satisfy the tax withholding requirements applicable to such
income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but will
have to report as ordinary income, as and when the Company's repurchase right
lapses, an amount equal to the excess of (i) the fair market value of the
shares on the date the repurchase right lapses over (ii) the exercise price
paid for the shares. The optionee may, however, elect under Section 83(b) of
the Code to include as ordinary income in the year of exercise of the option an
amount equal to the excess of (i) the fair market value of the purchased shares
on the exercise date over (ii) the exercise price paid for such shares. If the
Section 83(b) election is made, the optionee will not recognize any additional
income as and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for
the taxable year of the Company in which such ordinary income is recognized by
the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which the ordinary income
is recognized by the optionee.
-10-
<PAGE> 14
DIRECT STOCK ISSUANCE
The tax principles applicable to direct stock issuances under the 1995
Plan will be substantially the same as those summarized above for the exercise
of non-statutory option grants.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less
than the fair market value of the shares on the grant or issue date will result
in a compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over
the period that the option shares or issued shares are to vest. Option grants
or stock issuances at 100% of fair market value will not result in any charge
to the Company's earnings. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis. Under the new FASB release, footnote
disclosure will be required as to the impact the outstanding options under the
1995 Plan would have upon the Company's reported earnings were those options
appropriately valued as compensation expense.
Should one or more optionees be granted stock appreciation rights
which have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting
is required for approval of the amendment to the 1995 Plan. Should such
stockholder approval not be obtained, then all options previously granted under
the 1995 Plan on the basis of the 2,000,000- share increase will terminate
without becoming exercisable for any of the shares of Common Stock subject to
those options and there will be no limit on the number of shares for which
options, separately exercisable stock appreciation rights and direct stock
issuances may be made to any one individual under the 1995 Plan. In addition,
the 1995 Plan will terminate once the balance of the share reserve as last
approved by the stockholders has been issued pursuant to outstanding option
grants and stock issuances under the 1995 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE 1995 PLAN, AND PROXIES EXECUTED AND
RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
THE BOARD BELIEVES THAT IT IS IN THE BEST INTERESTS OF THE COMPANY TO CONTINUE
TO HAVE A COMPREHENSIVE EQUITY INCENTIVE PROGRAM FOR THE COMPANY WHICH WILL
PROVIDE A MEANINGFUL OPPORTUNITY FOR OFFICERS, EMPLOYEES AND NON-EMPLOYEE BOARD
MEMBERS TO ACQUIRE A SUBSTANTIAL PROPRIETARY INTEREST IN THE ENTERPRISE AND
THEREBY ENCOURAGE SUCH INDIVIDUALS TO REMAIN IN THE COMPANY'S SERVICE AND MORE
CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE STOCKHOLDERS.
-11-
<PAGE> 15
NEW PLAN BENEFITS
The following table sets forth certain information regarding the
options granted to date under the 1995 Plan on the basis of the 2,000,000-
share increase, together with the option exercise price payable per share.
Additionally, 2,000 shares are expected to be granted under the Automatic
Option Grant Program on the date of the Annual Meeting at an exercise price per
share equal to the closing selling price per share of Common Stock on that date
on the Nasdaq National Market.
<TABLE>
<CAPTION>
=====================================================================================
OPTION TRANSACTIONS
=====================================================================================
Weighted
Name Number of Average
Option Shares Exercise Price
- -------------------------------------------------------------------------------------
<S> <C> <C>
Sanjiv S. Sidhu, -- --
Chairman of the Board
and Chief Executive Officer
- -------------------------------------------------------------------------------------
Kanna N. Sharma, -- --
Vice Chairman of the Board, Executive Vice
President and Secretary
- -------------------------------------------------------------------------------------
Gregory A. Brady, -- --
President, Worldwide Operations
- -------------------------------------------------------------------------------------
David F. Cary, -- --
Vice President and Chief Financial Officer
- -------------------------------------------------------------------------------------
All current executive officers as a group -- --
(Four persons)
- -------------------------------------------------------------------------------------
Harvey B. Cash, -- --
Director
- -------------------------------------------------------------------------------------
Thomas J. Meredith, -- --
Director
- -------------------------------------------------------------------------------------
All non-employee directors as a group -- --
- -------------------------------------------------------------------------------------
All employees, including current officers who 194,377 $32.94
are not executive officers as a group
(86 persons)
=====================================================================================
</TABLE>
-12-
<PAGE> 16
PROPOSAL 3
APPROVAL OF SELECTION OF INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the selection of
Ernst & Young LLP as the Company's independent public auditors for the year
ending December 31, 1997. In the event that the stockholders fail to ratify
the appointment, the Board of Directors will reconsider its selection. Even if
the selection is ratified, the Board of Directors, in its discretion, may
direct the appointment of a different independent accounting firm at any time
during the year if the Board of Directors believes that such change would be in
the Company's and the stockholders' best interests.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting to respond to your questions and will have the opportunity to
make a statement if they desire to do so.
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Annual Meeting
is required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION AND APPROVAL OF THE SELECTION OF ERNST & YOUNG LLP AS THE
COMPANY'S INDEPENDENT AUDITORS, AND PROXIES EXECUTED AND RETURNED WILL BE SO
VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED THEREON.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of February 28, 1997 by
(i) each person who is known by the Company to own beneficially more than five
percent of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each of the Company's officers named in the Summary Compensation Table
below, and (iv) all current executive officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP (1) CLASS
------------------------------------------------- --------------------- ------------
<S> <C> <C>
Sanjiv S. Sidhu(2) . . . . . . . . . . . . . . 16,000,000 64.5%
909 E. Las Colinas Blvd.
16th Floor
Irving, Texas 75039
Kanna N. Sharma(3) . . . . . . . . . . . . . . 3,950,000 15.9
909 E. Las Colinas Blvd.
16th Floor
Irving, Texas 75039
Sidhu-Singh Family Investments, Ltd.. . . . . . 3,400,000 13.7
909 E. Las Colinas Blvd.
16th Floor
Irving, Texas 75039
The K-B Sharma Limited Partnership . . . . . . 2,000,000 8.1
909 E. Las Colinas Blvd.
16th Floor
Irving, Texas 75039
</TABLE>
-13-
<PAGE> 17
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP (1) CLASS
------------------------------------------------- --------------------- ------------
<S> <C> <C>
John C. Hogge(4) . . . . . . . . . . . . . . . 1,314,000 5.1
1603 LBJ Freeway, Ste. 780
Dallas, Texas 75234
Gregory A. Brady(5) . . . . . . . . . . . . . . 737,439 3.0
David F. Cary(6) . . . . . . . . . . . . . . . 185,567 *
Harvey B. Cash(7) . . . . . . . . . . . . . . . 20,000 *
Thomas J. Meredith(8) . . . . . . . . . . . . . 6,000 *
All directors and executive officers as a group
(six persons)(9) . . . . . . . . . . . 20,899,006 84.2%
</TABLE>
- ---------------
* Indicates less than 1%.
(1) Beneficial ownership is calculated in accordance with the rules of the
Securities and Exchange Commission in accordance with Rule
13d-3(d)(i). In computing the number of shares beneficially owned by
a person and the percentage ownership of that person, shares of Common
Stock subject to options held by that person that are currently
exercisable or become exercisable within 60 days following February
28, 1997 are deemed outstanding. However, such shares are not deemed
outstanding for the purpose of computing the percentage ownership of
any other person. Unless otherwise indicated in the footnotes to this
table, the persons and entities named in the table have sole voting
and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
(2) Includes 3,400,000 shares owned beneficially by Sidhu-Singh Family
Investments, Ltd. Mr. Sidhu is a general partner of Sidhu-Singh
Family Investments, Ltd. In such capacity, Mr. Sidhu may be deemed to
be a beneficial owner of such shares.
(3) Includes 1,000,000 shares held by Mr. Sharma's spouse and 2,000,000
shares held by the K-B Sharma Limited Partnership. Mr. Sharma is the
President of Sharma Management, L.L.C., which is the general partner
of The K-B Sharma Limited Partnership. In such capacity, Mr. Sharma
may be deemed to be a beneficial owner of such shares.
(4) Includes 1,178,000 shares subject to options exercisable as of
February 28, 1997.
(5) Includes 342,501 shares that were unvested as of February 28, 1997,
and therefore subject to a right of repurchase in favor of the
Company.
(6) Includes 40,000 shares that were unvested as of February 28, 1997, and
therefore subject to a right of repurchase in favor of the Company.
Also includes 3,334 shares subject to options exercisable within 60
days of February 28, 1997.
(7) Represents shares subject to options exercisable as of February 28,
1997. If such options are exercised, 15,000 of these shares would be
unvested and therefore subject to a right of repurchase in favor of
the Company.
(8) Includes 5,000 shares owned by a trust for the benefit of Mr.
Meredith's family. Also includes 1,000 shares subject to options
exercisable as of February 28, 1997. If such options are exercised,
all of these shares would be unvested and therefore subject to a right
of repurchase in favor of the Company.
(9) See notes (2) through (8).
-14-
<PAGE> 18
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive
officers of the Company:
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Sanjiv S. Sidhu 39 Chief Executive Officer
Kanna N. Sharma 56 Executive Vice President and Secretary
Gregory A. Brady 36 President, Worldwide Operations
David F. Cary 41 Vice President and Chief Financial Officer
</TABLE>
Certain biographical information concerning Messrs. Sidhu and Sharma
is set forth under "Proposal 1 - Elections of Directors."
Mr. Brady joined the Company in December 1994 as President, Field
Operations, and became President, Worldwide Operations in September 1996. From
1988 until joining the Company, Mr. Brady held a variety of positions with
Oracle Corporation, an enterprise application software vendor, most recently
serving as Vice President of Worldwide Applications Marketing. Mr. Brady holds
a B.S. in business from the University of Indiana.
Mr. Cary joined the Company in July 1992 and has served as its Vice
President and Chief Financial Officer since April 1994. Mr. Cary served in
various other capacities with the Company between July 1992 and April 1994.
Before joining the Company, Mr. Cary was an Accounting System Controller for
ComputerLand Texas, a distributor of computer equipment, from December 1991 to
June 1992. Mr. Cary is a Certified Public Accountant and holds a B.S. in
accounting from San Francisco State University and an M.B.A. from Southern
Methodist University.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The officers serve at the discretion of the Board. The Company does
not presently have an employment contract in effect with any of its officers.
Although no specific compensatory arrangements have been made for the officers
of the Company, certain provisions of the 1995 Plan may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals.
-15-
<PAGE> 19
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the
compensation earned by the Company's Chief Executive Officer and the other
executive officers of the Company (collectively, the "Named Officers") whose
salary and bonus exceeded $100,000 for services rendered in all capacities to
the Company during the year ended December 31, 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------------------------- OPTIONS ALL OTHER
NAME AND POSITION(S) YEAR SALARY BONUS OTHER (1) (# OF SHARES) COMPENSATION (4)
------------------------- ----- -------- ----- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sanjiv S. Sidhu . . . . . 1996 150,000 75,000 40,308(2) -- 771
Chairman of the Board 1995 150,000 75,000 -- -- 771
and Chief Executive
Officer
Kanna N. Sharma . . . . . . 1996 150,000 75,000 59,032(3) -- 925
Vice Chairman of the 1995 150,000 75,000 -- -- 925
Board, Executive Vice
President and Secretary
Gregory A. Brady . . . . . 1996 150,000 353,721 -- -- --
President, Worldwide 1995 150,000 300,000 -- 16,667 --
Operations
David F. Cary . . . . . . 1996 110,004 75,000 -- 25,000 --
Vice President and 1995 83,417 20,000 -- 20,000 --
Chief Financial Officer
</TABLE>
(1) Excludes perquisites and other personal benefits for officers other
than Messrs. Sidhu and Sharma because the aggregate amounts thereof do
not exceed 10% of such officers' total salary and bonus.
(2) Includes $34,800 paid by the Company for expenses relating to tax and
estate planning for the benefit of Mr. Sidhu and his family.
(3) Represents amounts paid by the Company for expenses relating to tax
and estate planning for the benefit of Mr. Sharma and his family.
(4) Represents premiums paid by the Company in 1996 and 1995 with respect
to term life insurance policies on the lives of Messrs. Sidhu and
Sharma. All of the proceeds of such policies are payable to Mr.
Sidhu's and Mr. Sharma's respective designated beneficiaries.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock
options granted to each of the Named Officers during the year ended December
31, 1996. No stock appreciation rights ("SARs") were granted to these
individuals during such year.
-16-
<PAGE> 20
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (3)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ----------------------------
NAME GRANTED(1) IN 1996 PER SHARE (2) DATE 5% 10%
- --------------------- ------------- ------------ -------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sanjiv S. Sidhu..... -- -- -- -- -- --
Kanna N. Sharma..... -- -- -- -- -- --
Gregory A. Brady.... -- -- -- -- -- --
David F. Cary....... 25,000 0.03% $12.11 3/31/06 $190,398 $482,506
</TABLE>
- ---------------
(1) Options vest over a four-year period but may be exercised prior to
vesting, subject to a right of the Company to repurchase at cost any
unvested shares purchased prior to vesting in the event of the optionee's
termination of employment. Each option expires on the earlier of ten
years from the date of grant or within a specified period following
termination of the optionee's employment with the Company.
(2) The exercise price may be paid in cash or through a promissory note
payable to the Company.
(3) Future value assumes appreciation of 5% and 10% per year over the ten-year
option period in the value of the Common Stock as mandated by the rules
and regulations of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the future value of the
Common Stock. The actual value realized may be greater than or less than
the potential realizable values set forth in the table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning options
exercised and option holdings for the year ended December 31, 1996 with respect
to each of the Named Officers. No SARs were exercised during such year and
none were outstanding at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT DECEMBER 31, 1996(2) AT DECEMBER 31, 1996(2)(3)
ACQUIRED ON --------------------------------- ------------------------------
NAME EXERCISE VALUE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ------------------- ---------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sanjiv S. Sidhu . . -- -- -- -- -- --
Kanna N. Sharma . . -- -- -- -- -- --
Gregory A. Brady . . -- -- -- -- -- --
David F. Cary . . . 72,709 $1,371,489 -- 21,667 -- $827,236
</TABLE>
- ---------------
(1) Determined by subtracting the exercise price from the market value of the
Common Stock on the exercise date, multiplied by the number of shares
acquired on exercise.
(2) "Exercisable" refers to those options which were both exercisable and
vested, while "Unexercisable" refers to those options which were unvested.
(3) Value is determined by subtracting the exercise price from the fair market
value of the Common Stock at December 31, 1996 ($38.25 per share), based
upon the closing sale price of the Common Stock on the Nasdaq National
Market on such date.
-17-
<PAGE> 21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in September 1996,
the Company's full Board of Directors (comprised of Messrs. Sidhu, Sharma, Cash
and Meredith) determined the compensation levels of the Company's executive
officers. In December 1995, the Company issued 4,000,000 shares of Common
Stock to Mr. Sharma upon the exercise of stock options granted under the
predecessor plan to the 1995 Plan at an aggregate purchase price of $70,000 in
exchange for a full recourse promissory note bearing interest at 6% per annum
and secured by the shares issued upon the exercise of the stock options. The
outstanding balance of the note was repaid in February 1996.
DIRECTOR COMPENSATION
Directors are not compensated for serving on the Board of Directors. The
Company will reimburse directors who are not also full-time employees of the
Company for reasonable travel expenses incurred in attending meetings of the
Board or committees of the Board. Non-employee directors are eligible to
participate in the Automatic Option Grant Program of the 1995 Plan.
REPORT ON EXECUTIVE COMPENSATION
During 1996, compensation decisions concerning the Company's executive
officers were made by the entire Board, including Messrs. Sidhu and Sharma.
The following report describes the procedures employed by the Board in
formulating the compensation policy for the Company's executive officers during
1996.
GENERAL
The Company's primary objective is to maximize the value of the Company's
shares over time. Accomplishing this objective requires developing and
marketing superior products and services that provide cost-effective solutions
for the Company's customers. The overall goal of the Board of Directors is to
develop compensation practices that will allow the Company to attract and
retain the people needed to define, create, manufacture and market leading-edge
products and services.
The Company compensates its executive officers with a combination of
salary and incentives designed to focus their efforts on maximizing both the
near-term and long-term financial performance of the Company. In addition, the
Company's compensation structure also rewards individual performance that
furthers Company goals. Elements of each executive officer's compensation
include the following:
o Base Salary
o Annual Incentives
o Equity Incentives
o Benefits
Each executive officer's compensation package is designed to provide an
appropriately weighted mix of these elements which cumulatively provide a level
of compensation roughly equivalent to that paid by the top quartile of
companies of similar size and complexity.
BASE SALARY
Base Salary and increases in base salary are determined by individual
performance. In adjusting these base salaries, both qualitative and
quantitative factors relating to corporate and individual performance are
examined. In many instances, the qualitative factors necessarily involve a
subjective assessment by the Board of Directors. The Board of Directors
considers a mix of factors and evaluates individual performance against that
mix both in absolute terms and in relation to the executive's peers within the
Company. To assist in recruiting highly qualified
-18-
<PAGE> 22
management, the Board of Directors generally targets base salaries paid to
executive officers at competitive levels, depending on individual
qualifications and experience.
ANNUAL INCENTIVES
The Company maintains annual cash incentive bonus programs to reward
executive officers and other key employees for attaining defined performance
goals. For most of the executive officers and other key employees, bonuses are
based primarily on Company-wide performance targets. For senior management
personnel, Company-wide performance is a factor; however, significant weight is
also given to individual performance and performance factors of particular
operation groups within the Company.
In setting performance targets, the Company considered its historical
performance and underlying business model, and external as well as internal
expectations related to 1996 operating profits. Incentive compensation was
subject to further adjustment based on a combination of financial factors,
including the Company's contracting activity, total revenues, operating income
and earnings per share. The financial factors were derived from 1996 budget
data, historical performance and median expectations of those industry analysts
who publish earnings forecasts for the Company and otherwise actively follow
the Company.
EQUITY INCENTIVES
The Company utilizes its 1995 Plan to further align the interests of
stockholders and management by creating common incentives related to the
possession by management of a substantial economic interest in the long-term
appreciation of the Company's stock. Generally, options under the 1995 Plan
are granted with exercise prices set at the fair market value of the underlying
stock on the date of grant, have a term of ten years, and are subject to
vesting over four years. In determining the size of an option to be granted to
an executive officer, the Committee takes into account the executive officer's
position and level of responsibility within the Company, the executive
officer's existing stock and unvested option holdings, the potential reward to
the executive officer if the stock price appreciates in the public market, and
the competitiveness of the executive officer's overall compensation
arrangements, including stock options although outstanding performance by an
individual may also be taken into consideration. Option grants may also be
made to new executives upon commencement of employment and, on occasion, to
executives in connection with a significant change in job responsibility.
The 1995 Plan was adopted by the Company's Board of Directors and approved
by its stockholders in 1995. Prior to the formation of the Compensation
Committee in September 1996, the full Board administered award grants under the
1995 Plan. After considering the criteria discussed above, in 1996 the Board
granted to Mr. Cary options to purchase 25,000 shares of Common Stock. In
determining the size of such grant, the Board focused in particular on its
conclusion, based on experience and informal information subjectively
evaluated, that the stock and option holdings of Mr. Cary were below the levels
needed to provide appropriate equity incentives.
The Board of Directors adopted and the stockholders approved an Employee
Stock Purchase Plan (the "Purchase Plan") in 1996. The Purchase Plan is
designed to allow eligible employees of the Company to purchase shares of
Common Stock through periodic payroll deductions under the Purchase Plan, and a
reserve of 500,000 shares of Common Stock has been established for this
purpose. Payroll deductions may not exceed 15% of a participant's base salary
for each purchase period. The purchase price per share will be 85% of the
lesser of the fair market value of the Common Stock on the start of the
purchase period or the fair market value on the semi-annual purchase date.
Messrs. Cary and Brady purchased 566 and 772 shares, respectively, on October
31, 1996 through the Purchase Plan.
-19-
<PAGE> 23
COMPLIANCE WITH THE INTERNAL REVENUE CODE
Section 162(m) of the Code imposes a limit on tax deductions for annual
compensation (other than performance based compensation) in excess of one
million dollars paid by a corporation to its chief executive officer and the
other four most highly compensated executive officers of a corporation. The
Company has not established a policy with regard to Section 162(m) of the Code,
since the Company has not and does not currently anticipate paying cash
compensation in excess of one million dollars per annum to any employee. None
of the compensation paid by the Company in fiscal 1996 was subject to the
limitation on deductibility. At the Annual Meeting, the stockholders are being
asked to approve certain amendments to the 1995 Plan which are intended to
assure that any compensation deemed paid in connection with the exercise of
stock options granted under that plan with an exercise price equal to the
market price of the option shares on the grant date will qualify as performance
based compensation. The Board of Directors will continue to assess the impact
of Section 162(m) of the Code on its compensation practices and determine what
further action, in any, is appropriate.
BENEFITS
Benefits offered to the Company's executive officers serve as a safety net
of protection against the financial catastrophes that can result from illness,
disability or death. Benefits offered to the Company's executive officers are
substantially the same as those offered to all the Company's regular employees.
In 1994, the Company established a tax-qualified cash or deferred profit
sharing plan (the "401(k) Savings Plan") covering all of the Company's eligible
full-time employees. Under the plan, participants may elect to contribute,
through salary reductions, up to 18% of their annual compensation subject to a
statutory maximum. The Company does not currently provide additional matching
contributions under the 401(k) Savings Plan, but may do so in the future. The
401(k) Savings Plan is designed to qualify under Section 401 of the Code so
that contributions by employees or by the Company to the plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Savings Plan, and so that contributions by the Company, if any, will
be deductible by the Company when made. The trustee under the plan, at the
direction of each plan participant, currently invests the assets of the 401(k)
Savings Plan in eight investment options.
CEO COMPENSATION
In setting compensation payable to the Company's Chief Executive Officer,
Mr. Sidhu, the Board of Directors has sought to be competitive with companies
of similar size within the industry. Mr. Sidhu's base salary is tied to the
performance of the Company and to his personal performance. The largest
portion of Mr. Sidhu's incentive compensation under the 1995 Plan is dependent
upon the Company's performance and the smaller portion is related to an
evaluation of his personal performance. No incentive compensation is paid to
Mr. Sidhu for Company or personal performance unless specific Company and
personal performance goals are achieved during the fiscal year.
In 1996, Mr. Sidhu earned a based salary of $150,000 and cash bonus of
$75,000. The bonus for 1996 approximated 50% of his base salary and was based
on the performance of the Company and Mr. Sidhu's significant contribution to
that performance in terms of both leadership and strategic vision.
Board of Directors: Harvey B. Cash
Thomas J. Meredith
Kanna N. Sharma
Sanjiv S. Sidhu
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<PAGE> 24
STOCK PERFORMANCE GRAPH
The graph below depicts the Company's stock price as an index assuming
$100 invested on April 25, 1996 (the date of the Company's initial public
offering), along with the composite prices of companies listed in the Nasdaq
Computer and Data Processing Services Group Index and Nasdaq Stock Market (U.S.
Companies) Index. This information has been provided to the Company by the
Nasdaq Stock Market. The comparisons in the graph are required by regulations
of the Securities Exchange Commission and are not intended to forecast or to be
indicative of the possible future performance of the Common Stock.
[Graph]
4/25/96 12/31/96
------- --------
I2 Technologies $100 $191
NASDAQ Stock Market-US $100 $109
NASDAQ Computer & Data Processing $100 $106
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<PAGE> 25
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, which might incorporate future
filings made by the Company under those statutes, the preceding Report on
Executive Compensation and the Stock Performance Graph will not be incorporated
by reference into any of those prior filings, nor will such report or graph be
incorporated by reference into any future filings made by the Company under
those acts.
CERTAIN TRANSACTIONS WITH MANAGEMENT
During 1996, the Company purchased approximately $110,000 of office
products from a company in which a relative of Mr. Brady is the principal
owner.
Mr. Sidhu's rights under the Stock Exchange Agreement with the Company
dated January 2, 1990 were replaced and superseded by a Registration Rights
Agreement, dated April 1, 1996, among the Company, Mr. Sidhu and Sidhu-Singh
Family Investments, Ltd. (of which Mr. Sidhu is a general partner). The
Registration Rights Agreement provides Mr. Sidhu and Sidhu-Singh Family
Investments, Ltd. with piggyback rights to include their respective shares of
Common Stock (an aggregate of 16,000,000 shares) in any Company-initiated
registered offering on or prior to June 1, 2001. Under the Registration Rights
Agreement, the Company has agreed to bear all expenses associated with
offerings in which shares held by holders of piggyback rights are included,
other than underwriting discounts and commissions attributable to the sale of
such shares.
See "-- Compensation Committee Interlocks and Insider Participation" above
for additional information regarding transactions with management.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 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 reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the Nasdaq Stock Market. Officers, directors and greater than 10%
beneficial owners are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on review of the copies of such forms furnished to the
Company or written representations from certain reporting persons that no Forms
5 were required, the Company believes that, during the 1996 calendar year, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with.
STOCKHOLDER PROPOSALS
Under the present rules of the Securities and Exchange Commission and the
Bylaws of the Company, the deadline for stockholders to submit proposals to be
considered for inclusion in the Company's Proxy Statement for next year's
Annual Meeting of Stockholders is expected to be 120 days prior to March 31,
1998. Such proposals may be included in next year's Proxy Statement if they
comply with certain rules and regulations promulgated by the Securities and
Exchange Commission and the procedure set forth in the Bylaws of the Company.
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<PAGE> 26
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF ITS
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND
LIST OF EXHIBITS. REQUESTS SHOULD BE SENT TO THE ATTENTION OF CHIEF FINANCIAL
OFFICER, AT THE COMPANY'S EXECUTIVE OFFICES LOCATED AT 909 E. LAS COLINAS
BLVD., 16TH FLOOR, IRVING, TEXAS 75039.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Annual Meeting other than the matters set forth in this Proxy
Statement. Should any other matter requiring a vote of the stockholders arise,
the persons named as proxies on the enclosed proxy card will vote the shares
represented thereby in accordance with their best judgment in the interest of
the Company. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed proxy card.
By Order of the Board of Directors,
/s/ KANNA (KEN) N. SHARMA
KANNA (KEN) N. SHARMA
Secretary
March 31, 1997
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<PAGE> 27
PROXY
i2 TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1997
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints Sanjiv S. Sidhu and David F. Cary, and
each of them, with full power of substitution, attorneys and proxies of the
undersigned to vote the shares of Common Stock, par value $0.00025 per share,
of i2 Technologies, Inc. ("i2"), which the undersigned could vote, and with all
power the undersigned would possess, if personally present at the Annual
Meeting of Stockholders of i2 to be held at the Weston Hotel, 13340 Dallas
Parkway, Dallas, Texas on Wednesday, April 30, 1997 at 10:00 a.m. (Central
Time), and any adjournment thereof.
1. The election of directors.
Class I Nominee: Thomas J. Meredith
Class II Nominee: Harvey B. Cash
Class III Nominees: Sanjiv S. Sidhu and Kanna N. Sharma
[ ] FOR all nominees (except as marked below).
For, except vote withheld from the following nominee(s):
[ ] WITHHOLD AUTHORITY to vote for all nominees.
2. Approval of the amendment to the 1995 Stock Option/Stock Incentive
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of the appointment of Ernst & Young LLP as independent
auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, to act upon any matters incidental to the
foregoing and such other business as may properly come before the Annual
Meeting, or any adjournment thereof.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted FOR Items 1, 2 and 3. Any holder who wishes to withhold the
discretionary authority referred to in item 4 should mark a line through
the entire item.
Receipt of the Proxy Statement dated March 31, 1997, is hereby
acknowledged.
Dated: , 1997
----------------
--------------------------------------
Signature(s)
--------------------------------------
(Please sign exactly and as fully as
your name appears on your stock
certificate. If shares are held
jointly, each stockholder should sign.)
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY, USING THE ENCLOSED ENVELOPE.
