<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 [ ]
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 Rule 14a-11(c) or Rule 14a-12
TEMPLATE SOFTWARE, 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)(1) 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:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] 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:
- --------------------------------------------------------------------------------
(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
TEMPLATE SOFTWARE, INC.
45365 VINTAGE PARK PLAZA
DULLES, VIRGINIA 20166
May 1, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Template Software, Inc. (the "Company"), which will be held at 10:00 a.m.
Eastern Time on Wednesday, May 28, 1997, at the Company's headquarters at 45365
Vintage Park Plaza, Dulles, Virginia 20166 (the "Annual Meeting").
The principal business of the meeting will be: (i) to elect directors for
the ensuing year; (ii) to ratify the appointment of Coopers & Lybrand L.L.P., as
recommended by the Audit Committee of the Board of Directors of the Company, as
the Company's independent auditors for the fiscal year ending November 30, 1997;
and (iii) to transact such other business as may properly come before the
meeting. During the meeting, we will also review the results of the past fiscal
year and report on significant aspects of our operations during the first
quarter of fiscal 1997.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and return the enclosed proxy card in the postage prepaid envelope
provided so that your shares will be voted at the meeting. If you decide to
attend the meeting, you may, of course, revoke your proxy and personally cast
your votes.
Sincerely yours,
/s/ E. LINWOOD PEARCE
E. Linwood Pearce
Chief Executive Officer
<PAGE> 3
TEMPLATE SOFTWARE, INC.
45365 VINTAGE PARK PLAZA
DULLES, VIRGINIA 20166
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 28, 1997
Notice is hereby given that the Annual Meeting of Shareholders of Template
Software, Inc. (the "Company") will be held at the Company's headquarters
located at 45365 Vintage Park Plaza, Dulles, Virginia on May 28, 1997, at 10:00
a.m., for the following purposes:
1. To elect two directors, the names of candidates for such offices
being set forth in the accompanying Proxy Statement, to serve until the
2000 Annual Meeting;
2. To ratify the appointment of Coopers & Lybrand L.L.P. as the
Company's independent auditors for the fiscal year ending November 30,
1997; and
3. To transact such other business which may properly be brought
before the meeting.
The Board of Directors (the "Board") has fixed the close of business on
April 28, 1997 as the record date for the determination of shareholders entitled
to notice of and to vote at the Annual Meeting of Shareholders.
By Order of the Board of Directors
/s/ JOSEPH M. FOX
Joseph M. Fox
Chairman
Dulles, Virginia
May 1, 1997
IMPORTANT
Whether or not you plan to attend the Annual Meeting of Shareholders,
please complete, sign, date, and return the enclosed proxy in the enclosed
postage pre-paid envelope as promptly as possible. If you attend the meeting,
you may vote your shares in person, even though you have previously signed and
returned your proxy.
<PAGE> 4
TEMPLATE SOFTWARE, INC.
45365 VINTAGE PARK PLAZA
DULLES, VIRGINIA 20166
PROXY STATEMENT
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Template Software, Inc. (the "Company") of proxies for
use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held on
May 28, 1997, or at any adjournment thereof, as set forth in the accompanying
notice. A shareholder giving a proxy may revoke it at any time before it is
exercised at the Annual Meeting by so notifying the Secretary of the Company in
writing or in person; any such revocation must be received, if in writing, or
acknowledged, if oral, by the Secretary prior to the Annual Meeting. Any proxy
which is not revoked in accordance with the previous sentence will be voted in
accordance with the terms thereof at the Annual Meeting. This Proxy Statement is
being mailed to shareholders on or about May 1, 1997.
On April 28, 1997, the record date for determination of shareholders
entitled to notice of and to vote at the Annual Meeting, there were 4,337,633
shares of the Company's Common Stock outstanding (the "Shares"). On all matters
being voted upon at the Annual Meeting, each share of Common Stock is entitled
to one vote.
The cost of soliciting proxies will be borne by the Company. Following the
original mailing of the proxy soliciting material, regular employees of the
Company may solicit proxies by mail, telephone, telegraph and personal
interview. Proxy cards and materials will also be distributed to beneficial
owners of stock, through brokers, custodians, nominees and other like parties,
and the Company expects to reimburse such parties for their charges and expenses
connected therewith.
Votes cast by proxy or in person at the Annual Meeting will be counted by
the inspector or inspectors appointed by the Company in advance of the Annual
Meeting. Shares represented by proxies that reflect abstentions will be treated
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum and for purposes of determining the outcome of any matter
submitted to the shareholders for a vote. Abstentions, however, do not
constitute a vote "for" or "against" any matter, and thus will be disregarded in
the calculation of a plurality or of "votes cast."
Shares referred to as "broker non-votes" (i.e., shares held by brokers or
nominees as to which instructions have not been received from the beneficial
owners or persons entitled to vote such shares that the broker or nominee has
the discretionary authority to vote on a particular matter) will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum of shareholders. However, for purposes of determining the
outcome of any matter as to which any broker or nominee has indicated on the
proxy form that it does not have discretionary authority to vote upon, those
shares will be treated as not present and not entitled to vote with respect to
that matter at the Annual Meeting (even though those holders of those shares
will be considered entitled to vote for quorum purposes and may be entitled to
vote on other matters).
In the election of directors, shares present but not voting will be
disregarded (except for quorum purposes), and the candidates for election
receiving the highest number of affirmative votes of the shares entitled to vote
for them, up to the number of directors to be elected by those shares, will be
elected. Votes cast against a candidate or votes withheld will have no legal
effect.
QUORUM REQUIRED
According to the Company's Bylaws, the holders of a majority of the Shares
entitled to vote must be present or represented by proxy to constitute a quorum.
<PAGE> 5
SHAREHOLDERS' PROPOSALS FOR NEXT ANNUAL MEETING
According to the Company's Bylaws, a proper proposal submitted in writing
by a Company shareholder for consideration at the Company's 1998 Annual Meeting
of Shareholders and received by the Secretary of the Company at the Company's
executive offices no later than 90 days in advance of the Annual Meeting may, in
the discretion of the Board of Directors, be included in the Company's Proxy
Statement and form of Proxy relating to such Annual Meeting. A shareholder's
notice to the Secretary shall set forth as to each matter the shareholder
proposes to bring before the annual meeting (i) a brief description of the
business desired to be brought before the Annual Meeting (including the specific
proposal to be presented) and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the shareholder proposing
such business, (iii) the class and number of shares of the Company that are
beneficially owned by the shareholder, and (iv) any material interest of the
shareholder in the proposed business.
PROPOSAL I -- ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws provide that the Company shall have at least three and
not more than fifteen directors, the exact number to be fixed by resolution of
the Board of Directors. Effective upon the consummation of the Company's initial
public offering on January 28, 1997, the Board expanded to three classes, each
of whose members serve for a staggered three-year term. Currently, the Board
consists of two Class I Directors (Mr. Joseph M. Fox and Dr. Alan B. Salisbury),
one Class II Director (Mr. Andrew B. Ferrentino) and two Class III Directors
(Mr. E. Linwood Pearce and Dr. Duane A. Adams). Pursuant to certain investment
agreements between the Company and Alcatel Alsthom Compagnie Generale
d'Electricite S.A. ("Alcatel"), the Company has agreed, if requested by Alcatel,
to use all reasonable efforts to nominate an Alcatel designee for election to
the Company's Board of Directors and certain principal shareholders of the
Company have agreed to vote all beneficially owned shares in support of such
designee's election to the Company's Board.
At each annual meeting of shareholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are expiring. At the Company's upcoming Annual Meeting, the Class I
Directors will be elected for a term expiring upon the 2000 Annual Meeting of
Shareholders and until their successors are duly elected and qualified. The
Board of Directors has nominated Mr. Joseph M. Fox and Dr. Alan B. Salisbury for
election as Class I Directors at the Annual Meeting.
All Shares represented by properly executed proxies received in response to
this solicitation will be counted in the election of directors as specified
therein by the shareholders. Unless otherwise specified in the proxy, it is the
intention of the persons named on the enclosed proxy card to vote FOR the
election of the nominees listed in this Proxy Statement to the Board of
Directors. Each nominee has consented to serve as a director of the Company if
elected. If at the time of the Annual Meeting a nominee is unable or declines to
serve as a director, the discretionary authority provided in the enclosed proxy
card may be exercised to vote for a substitute candidate designated by the Board
of Directors. The Board of Directors has no reason to believe that any nominee
will be unable or will decline to serve as a director.
Shareholders may withhold their votes from the entire slate of nominees by
so indicating in the space provided on the enclosed proxy card. Shareholders may
withhold their votes from any particular nominee by writing that nominee's name
in the space provided for that purpose on the enclosed proxy card.
Set forth below is certain biographical information furnished to the
Company by each director nominee. All of the nominees currently serve as
directors of the Company. For summary of stock ownership information concerning
the director nominees, see "Beneficial Ownership of Common Stock".
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INFORMATION REGARDING NOMINEES FOR CLASS I DIRECTORS
JOSEPH M. FOX
Age: 62
JOSEPH M. FOX is founder of the Company and has served as Chairman since
1978. From 1956 until 1977, he was employed by IBM, the last seven years as Vice
President of its Federal Systems Division, where he oversaw a software
development unit comprised of over 4,000 employees and was responsible for many
major projects, including the automation of the Air Traffic Control System in
the Untied States and the United Kingdom and the automation of the ground and
onboard NASA Shuttle control system.
ALAN B. SALISBURY
Age: 60
ALAN B. SALISBURY has served as director of the Company since January 28,
1997. Since 1993, Dr. Salisbury has served as the President of Learning Tree
International USA, Inc. From 1991 to 1993, Dr. Salisbury served as Executive
Vice President and Chief Operating Officer of the Microelectronics and Computer
Technology Corporation, a research and development consortium owned by 22
companies. From 1987 to 1991, he served as President of Contel Technology
Center, the advanced research and development organization serving Contel
Corporation. Prior to that time, Dr. Salisbury served in the United States Army
as a Major General where he commanded the United States Army Information Systems
Engineering Command. Dr. Salisbury serves on the Board of Directors of the
Learning Tree International, Inc., Sybase, Inc. and TelePad Corporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ABOVE.
ADDITIONAL INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Company's Board of Directors (the "Board") held one regular meeting in
1997. The Board has an Audit Committee and a Compensation Committee. No director
attended less than 75% of the aggregate number of meetings of the Board and the
committees of the Board on which he served that were held during his term as a
director of the Company.
Committees of the Board of Directors. The Compensation Committee of the
Board consists of Drs. Salisbury and Adams, with Dr. Adams serving as Chairman.
Drs. Salisbury and Adams are both non-employee directors of the Company. The
purpose of the Compensation Committee is to administer the Company's 1996 Equity
Incentive Plan and any other stock benefit plan, to establish remuneration
levels for officers of the Company and to establish and administer executive
compensation programs. The Compensation Committee held one meeting in 1997.
The Audit Committee of the Board consists of Drs. Salisbury and Adams, with
Dr. Salisbury serving as chairman. The Audit Committee recommends to the Board
the independent public accountants to be selected to audit the Company's annual
financial statements and approves any special assignments given to such
accountants. The Audit Committee also reviews the planned scope of the annual
audit, any changes in accounting principles and the effectiveness and efficiency
of the Company's internal accounting staff. The Audit Committee held one meeting
in 1997.
Director Compensation. Except for ownership of stock options, directors of
the Company generally do not receive compensation for services rendered as a
director. The Company also does not provide compensation for committee
participation or special assignments of the Board. Upon the consummation of its
initial public offering on January 28, 1997, the Company granted to Drs.
Salisbury and Adams (the "Outside Directors") options to purchase 25,000 shares
of Common Stock. The Outside Directors are eligible to participate in the
Company's 1996 Equity Incentive Plan.
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<PAGE> 7
EXECUTIVE OFFICERS
The executive officers of the Company serve at the discretion of the Board
and presently include: Joseph M. Fox, Chairman of the Board; E. Linwood Pearce,
Chief Executive Officer; Andrew B. Ferrentino, President and Secretary; Kimberly
E. Osgood, Chief Financial Officer; David L. Kiker, Vice President of
Technology; Randall K. Maroney, Vice President of Business Development; J. Kelly
Brown, Vice President of Federal Business Unit; Benjamin J. Martindale, II, Vice
President of Marketing; Richard H. Collard, Vice President of European
Operations.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, executive officers and persons who own
beneficially more than 10% of the Company's Common Stock to file reports of
ownership and changes in ownership of such stock with the Securities and
Exchange Commission (the "SEC ") and the Nasdaq Stock Market. Directors,
executive officers and greater than 10% shareholders are required by SEC
regulations to furnish the Company with copies of all such forms they file. To
the Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, its directors, executive officers and greater than 10% shareholders
complied, since the Company's initial public offering on January 28, 1997 and
through the end of the first quarter of fiscal 1997, with all applicable Section
16(a) filing requirements.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information concerning (i) those persons
known by management of the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) the directors of the Company, (iii) the
executive officers named in the Summary Compensation Table included elsewhere
herein, and (iv) all current directors and executive officers of the Company as
a group. Except as otherwise indicated in the footnotes below, such information
is provided as of April 28, 1997. According to rules adopted by the SEC, a
person is the "beneficial owner" of securities if he or she has or shares the
power to vote them or to direct their investment or has the right to acquire
beneficial ownership of such securities within 60 days through the exercise of
an option, warrant or right, the conversion of a security or otherwise. Except
as otherwise noted, the indicated owners have sole voting and investment power
with respect to shares
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<PAGE> 8
beneficially owned. An asterisk in the percent of class column indicates
beneficial ownership of less than 1% of the outstanding Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS(1)
- --------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Joseph M. Fox(2)......................................... 886,667 20.4%
E. Linwood Pearce(3)..................................... 372,144 8.6%
Andrew B. Ferrentino(4).................................. 490,857 11.3%
Kimberly E. Osgood(5).................................... 38,250 *
David L. Kiker(6)........................................ 100,000 2.3%
J. Kelly Brown(7)........................................ 28,250 *
Randall K. Maroney(8).................................... 57,250 1.3%
Richard H. Collard(9).................................... 42,000 *
Benjamin J. Martindale, II(10)........................... 12,500 *
Duane A. Adams(11)....................................... 1,100 *
Alan B. Salisbury(12).................................... -- *
All current directors and executive officers as a group
(11 persons)(13)....................................... 2,029,018 46.8%
OTHER SHAREHOLDERS
Alcatel(14).............................................. 500,000 11.5%
</TABLE>
- ---------------
* Less Than 1%.
(1) The number of shares of Common Stock outstanding used in calculating the
percentage for each listed person (i) includes conversion of all of the
Company's outstanding shares of Preferred Stock held by Alcatel into shares
of Common stock, and (ii) includes the shares of Common Stock underlying
the options held such person or entity that are exercisable within 60 days
of April 28, 1997, but excludes shares of Common Stock underlying options
held by any other person.
(2) The business address of Mr. Fox is that of the Company. Mr. Fox's shares
include 5,000 shares held by Mr. Fox's spouse and 113,000 shares held by
Mr. Fox's six children. Pursuant to the Exchange Act rules, Mr. Fox may be
deemed to share voting and investment power with respect to these 118,000
shares; however, Mr. Fox disclaims beneficial ownership of all such shares.
Mr. Fox is the Chairman of the Board of the Company. His address is 45365
Vintage Park Plaza, Dulles, Virginia 20166.
(3) Mr. Pearce's shares include 249,680 shares of Common Stock subject to
options exercisable by or within 60 days of April 28, 1997, and 10,000
shares held by Mr. Pearce's two children. Mr. Pearce disclaims beneficial
ownership of all 10,000 such shares. Mr. Pearce is the Chief Executive
Officer of the Company. His address is 45365 Vintage Park Plaza, Dulles,
Virginia 20166.
(4) Mr. Ferrentino's shares include 30,000 shares held by Mr. Ferrentino's
spouse and 25,000 shares held by Mr. Ferrentino's brother, as trustee for
the benefit of Mr. Ferrentino's daughter. Mr. Ferrentino disclaims
beneficial ownership of all 55,000 such shares. Mr. Ferrentino is the
President and Secretary of the Company. His address is 45365 Vintage Park
Plaza, Dulles, Virginia 20166.
(5) Ms. Osgood's shares include 36,500 shares of Common Stock subject to
options exercisable by or within 60 days of April 28, 1997. Ms. Osgood is
Chief Financial Officer of the Company. Her address is 45365 Vintage Park
Plaza, Dulles, Virginia 20166.
(6) Mr. Kiker's shares include 95,000 shares of Common Stock subject to options
exercisable by or within 60 days of April 28, 1997. Mr. Kiker is the Vice
President of Technology of the Company. His address is 45365 Vintage Park
Plaza, Dulles, Virginia 20166.
(7) All of Mr. Brown's shares are shares of Common Stock subject to options
exercisable by or within 60 days of April 28, 1997. Mr. Brown is the Vice
President of Federal Business Unit of the Company. His address is 45365
Vintage Park Plaza, Dulles, Virginia 20166.
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<PAGE> 9
(8) All of Mr. Maroney's shares are shares of Common Stock subject to options
exercisable by or within 60 days of April 28, 1997. Mr. Maroney is the Vice
President of Business Development. His address is 45365 Vintage Park Plaza,
Dulles, Virginia 20166.
(9) All of Mr. Collard's shares are shares of Common Stock subject to options
exercisable by or within 60 days of April 28, 1997. Mr. Collard is the Vice
President of European Operations. His address is 45365 Vintage Park Plaza,
Dulles, Virginia 20166.
(10) Mr. Martindale's shares include 12,500 shares of Common Stock subject to
options exercisable by or within 60 days of April 28, 1997. Mr. Martindale
is the Vice President of Marketing. His address is 45365 Vintage Park
Plaza, Dulles, Virginia 20166.
(11) Dr. Adams' shares include 550 shares held by Dr. Adams' spouse. Dr. Adams
disclaims beneficial ownership of all 550 such shares. Dr. Adams became a
director of the Company on January 28, 1997.
(12) Dr. Salisbury became a director of the Company on January 28, 1997. He
holds no shares of Common Stock and no options exercisable within 60 days
of April 28, 1997.
(13) Includes all shares stated to be included in the notes above.
(14) Consists of shares converted from Preferred Stock to Common Stock. See
"Certain Relationships and Related Transactions."
EXECUTIVE COMPENSATION
Pursuant to the Securities and Exchange Commission rules for proxy
statement disclosure of executive compensation, the Compensation Committee of
the Board of the Company has prepared the following Report on Executive
Compensation. The Committee considers this report to clearly describe the
current executive compensation program of the Company, including the underlying
philosophy of the program and the specific performance criteria on which
executive compensation is based. This report also discusses in detail the
compensation paid to the Company's Chief Executive Officer, Mr. E. Linwood
Pearce, during 1996.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report by the Compensation Committee of the Board (the "Committee")
discusses the Committee's compensation objectives and policies applicable to the
Company's executive officers. The report reviews the Committee's policy
generally with respect to the compensation of all executive officers as a group
for fiscal 1996 and specifically reviews the compensation established for the
Company's Chief Executive Officer as reported in the Summary Compensation Table.
The Committee is composed entirely of non-employee directors of the Company.
COMPENSATION PHILOSOPHY
The Company's executive compensation program has three objectives: (1) to
align the interests of the executive officers with the interests of the
Company's shareholders by basing a significant portion of an executive's
compensation on the Company's performance; (2) to attract and retain highly
talented and productive executives; and (3) to provide incentives for superior
performance by the Company's executives. To achieve these objectives, the
Committee has crafted a program that consists of base salary, short-term
incentive compensation in the form of a cash bonus, and long-term incentive
compensation in the form of stock options. The Company's primary goal is to
provide for a reasonable base salary component while also providing for higher
short-term and long-term incentive rewards and bonuses based on the Company's
performance. These compensation elements are in addition to the general benefit
programs which are offered to all of the Company's employees.
Each year, the Committee reviews the Company's executive compensation
program. In its review, the Committee studies the compensation packages for
executives in comparable roles performing at comparable levels at other
companies in the same or related industries, competitiveness of the Company's
executive compensation program and the Company's financial performance for the
previous fiscal year. The Committee
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<PAGE> 10
also gauges the success of the compensation program in achieving its objectives
in the previous year and considers the Company's overall performance objectives.
Each element of the Company's executive compensation program is discussed
below.
BASE SALARIES
The Committee annually reviews the base salaries of the Company's executive
officers. The base salaries for the Company's executive officers for fiscal 1996
were established by the Board at the beginning of that fiscal year. The base
salaries for fiscal 1997 were established by the Committee on April 2, 1997. In
addition to considering the factors listed in the foregoing section that support
the Company's executive compensation program generally, the Committee reviews
the responsibilities of the specific executive position and the experience and
knowledge of the individual in that position. The Committee also measures
individual performance based upon a number of factors, including a measurement
of the Company's historic and recent financial performance, the individual's
contribution to that performance, the individual's performance on non-financial
goals and other contributions of the individual to the Company's success, and
gives each of these factors relatively equal weight without confining its
analysis to a rigorous formula. As is typical of most corporations, the actual
payment of base salary is not strictly conditioned upon the achievement of any
predetermined performance targets.
INCENTIVE COMPENSATION
Cash bonuses established for executive officers are intended to motivate an
individual to strive to achieve the Company's financial and operational
performance goals or to otherwise incent an individual to aim for a high level
of achievement on behalf of the Company in the coming year. The Committee does
not have a formula for determining bonus payments, but establishes general
target bonus levels for executive officers at the beginning of the fiscal year
based in relatively equal measures upon the Committee's subjective assessment of
the Company's projected revenues and other operational and individual
performance factors and may adjust these targets during the year.
LONG-TERM INCENTIVE COMPENSATION
The Company's long-term incentive compensation plan for its executive
officers is based upon the Company's 1996 Equity Incentive Plan. The Company
believes that placing a substantial portion of its executives' total
compensation in the form of stock options achieves three objectives: (1) it
aligns the interests of the Company's executives directly with those of the
Company's shareholders; (2) it gives executives a significant long-term interest
in the Company's success; and (3) it helps the Company retain key executives.
Each option grant allows an executive to acquire shares of the Company's Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period of time. The option vests in periodic installments over a three
or four year period, contingent upon the executive's continued employment with
the Company. Accordingly, the option grants will provide a return to the
executive only if he or she remains in the Company's employ, and then only if
the market price of the Company's Common Stock appreciates over the option term.
In establishing this long-term compensation plan in the form of stock
option grants, in fiscal 1996 the Board primarily considered the executives'
past performance and the degree to which an incentive for long-term performance
would benefit the Company. All options were granted at fair market value in
fiscal 1996, and it is the Committee's policy to continue to do so unless
particular circumstances warrant a below-market grant.
BENEFITS
The Company believes that it must offer a competitive benefits program to
attract and retain all of its full-time employees. Accordingly, the Company
provides the same medical and other benefits to its executive officers that are
generally available to its other employees.
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COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's compensation is based on the same elements
and measures of performance as is the compensation for the Company's other
executive officers. The Board approved a base salary for Mr. Pearce for fiscal
1996 of $170,000 based on the same factors underlying the base salaries of the
other executive officers. Mr. Pearce's salary for fiscal 1995 was $150,000. In
structuring the fiscal 1997 compensation of Mr. Pearce, the Committee will
consider as essential the alignment of his compensation package with the
financial performance of the Company and the Committee's philosophy of basing a
larger portion of executive compensation on incentive bonuses and awards. For
fiscal 1996, the Company awarded Mr. Pearce a bonus of $57,500. The bonus was
based in part on meeting certain profit and revenue goals set by the Board for
fiscal 1996. Mr. Pearce also received 100,000 options to purchase shares in
fiscal 1996. See "Executive Officer Compensation -- Option Grants in Fiscal
1996" for a description of option grants to Mr. Pearce in 1996.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
It is the responsibility of the Committee to address the issues raised by
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The revisions to this Code section made certain non-performance based
compensation in excess of $1,000,000 to executives of public companies
non-deductible to such companies beginning in 1994. The Committee has reviewed
these issues and has determined that it is not necessary for the Company to take
any action at this time with regard to these issues.
Submitted by: THE COMPENSATION COMMITTEE
Duane A. Adams -- Chairman
Alan B. Salisbury
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed upon the
consummation of the Company's initial public offering on January 28, 1997, and
the members of the Compensation Committee are Drs. Salisbury and Adams. None of
these individuals was at any time during fiscal 1996, or at any other time, an
officer or employee of the Company. No executive officer of the Company serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of the Company's
Board or Compensation Committee.
On April 9, 1997, Dr. Adams purchased 550 shares of the Company's Common
Stock in his name and 550 shares of the Company's Common Stock in his wife's
name. See "Beneficial Ownership of Common Stock."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1996, in connection with an increase to the Company's
then-outstanding line of credit, the Bank released personal guarantees of the
line of credit which had been given by Messrs. Fox, Ferrentino and Pearce, all
of whom are directors and executive officers of the Company.
In November 1996, Alcatel purchased 500,000 shares of Preferred Stock of
the Company for an aggregate of $8.0 million. Each share of Preferred Stock
converted automatically into one share of Common Stock upon consummation of the
Company's initial public offering on January 28, 1997. As a result of this
conversion, Alcatel became a beneficial owner of more than 5% of the Company's
outstanding Common Stock. Under agreements entered into in connection with this
purchase of Preferred Stock, the Company granted certain registration rights to
Alcatel with respect to sales of securities of the Company held by it. Alcatel
also agreed to a "standstill" provision whereby Alcatel and any of its
affiliates would not acquire beneficial ownership of Common Stock or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock, that when added to the Common Stock beneficially owned by Alcatel
or its affiliates would exceed 19.9% of the then outstanding shares of Common
Stock. In connection with this investment, the Company and certain principal
shareholders of the Company also entered into a Shareholders' Agreement
8
<PAGE> 12
with Alcatel. Pursuant to this Agreement, the Company agreed, among other
things, to use all reasonable efforts to nominate an Alcatel designee for
election to the Company's Board and certain principal shareholders of the
Company agreed to vote all beneficially owned shares in support of such
designee's election to the Company's Board, if requested to do so. The Company
and these principal shareholders also agreed to give Alcatel prior notice in the
event the Company plans to sell certain assets or capital stock of the Company.
Specifically, the Company and such principal shareholders agreed to give Alcatel
written and oral notice prior to soliciting any proposal, or participating in
any negotiations, regarding a sale of any significant portion of the Company's
assets or any sale of Common Stock representing 5% more of the Common Stock of
the Company issued and outstanding immediately prior to such sale. The Company
and such principal shareholders also agreed to promptly advise Alcatel of any
request for information or any proposal by a third party with respect to the
foregoing. These principal shareholders also granted to Alcatel the right to
join in certain sales of Common Stock held by such shareholders. The Company
also granted to Alcatel the right to appoint an observer to attend meetings of
the Company's Board in the event a representative designated by Alcatel is not
then serving on the Company's Board. All rights and obligations under the terms
of the agreement with Alcatel (except registration rights with respect to
Alcatel's Common Stock) will terminate if Alcatel ceases to own in the aggregate
at least 3% of the Company's fully-diluted Common Stock.
Upon the consummation of its initial public offering on January 28, 1997,
the Company granted to the Outside Directors options to purchase 25,000 shares
of Common Stock, at an exercise price of $16.00 per share and a vesting period
of three years, with one-third of the granted options vesting on each
anniversary of such grant.
On April 9, 1997, Dr. Adams purchased 550 shares of the Company's Common
Stock in his name and 550 shares of the Company's Common Stock in his wife's
name. See "Beneficial Ownership of Common Stock."
9
<PAGE> 13
EXECUTIVE OFFICER COMPENSATION
TABLE I -- SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth the compensation earned
for the two fiscal years ended November 30, 1995 and November 30, 1996, by the
Company's Chief Executive Officer and the six other most highly compensated
executive officers (collectively, the "Named Executive Officers"), each of whose
aggregate compensation for fiscal 1996 exceeded $100,000 for services rendered
in all capacities to the Company and its subsidiaries for that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION(1) SECURITIES
----------------------------------- UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS ALL OTHER
POSITION(S) YEAR SALARY BONUS COMPENSATION (# OF SHARES) COMPENSATION
- ----------------------------------- ---- -------- ------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
E. Linwood Pearce.................. 1996 $170,000 $57,500 -- 100,000 --
Chief Executive Officer 1995 $150,000 $20,000 -- -- --
Joseph M. Fox...................... 1996 $170,000 $57,500 -- -- --
Chairman 1995 $150,000 $20,000 -- -- --
Andrew B. Ferrentino............... 1996 $170,000 $57,500 -- -- --
President and Secretary 1995 $150,000 $20,000 -- -- --
Kimberly E. Osgood................. 1996 $ 87,312 $13,000 -- 43,000 --
Chief Financial Officer 1995 -- -- -- -- --
David L. Kiker..................... 1996 $128,000 $13,000 -- 50,000 --
Vice President of Technology 1995 $122,250 $ 4,000 -- -- --
Randall K. Maroney................. 1996 $ 86,889 $28,875(2) -- -- --
Vice President of Business 1995 $ 85,000 $16,881(3) -- -- --
Development
J. Kelly Brown..................... 1996 $100,894 $ 4,000 -- 30,000 --
Vice President of Federal
Business Unit 1995 -- -- -- -- --
</TABLE>
- ---------------
(1) In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted in those instances
where the aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total of annual
salary and bonus for the Named Executive Officer for such year.
(2) Represents sales commission.
(3) Represents sales commission.
10
<PAGE> 14
TABLE II -- OPTION GRANTS IN FISCAL 1996
This table presents information regarding options granted to the Company's
Named Executive Officers during fiscal 1996 to purchase shares of the Company's
Common Stock. The Company has no outstanding stock appreciation rights ("SARs")
outstanding and granted no SARs during fiscal 1996. In accordance with SEC
rules, the table shows the hypothetical "gains" or "option spreads" that would
exist for the respective options based on assumed rates of annual compound stock
price of 5% and 10% from the date the options were granted over the full option
term.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
----------------------------------------------------------
% OF TOTAL RATES OF STOCK
NO. OF OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE FOR THE OPTION TERM(4)
UNDERLYING EMPLOYEES OR BASE
OPTIONS DURING PRICE EXPIRATION ------------------------
NAME GRANTED(1) YEAR(2) ($/SHARE)(3) DATE 5% 10%
- -------------------------------- ---------- -------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Fox................... -- -- -- -- -- --
E. Linwood Pearce............... 100,000 16.2% $ 6.00 9/30/06 $ 377,331 $ 956,245
Andrew B. Ferrentino............ -- -- -- -- -- --
Kimberly E. Osgood.............. 3,000 .5% $ 1.98 12/13/05 $ 3,736 $ 9,467
40,000 6.5% $ 6.00 9/30/06 $ 150,935 $ 382,498
David L. Kiker.................. 50,000 8.1% $ 6.00 9/30/06 $ 188,668 $ 478,123
Randall K. Maroney.............. -- -- -- -- -- --
J. Kelly Brown.................. 30,000 4.9% $ 6.00 9/30/06 $ 113,200 $ 286,874
</TABLE>
- ---------------
(1) The options granted are incentive stock options that become exercisable in
increments of 25% per year beginning on the first anniversary of the date of
grant.
(2) Based on an aggregate of 618,300 options granted to employees during the
fiscal year ended November 30, 1996.
(3) The exercise price per share equaled the fair market value of the Common
Stock on the date of grant, as determined by the Board.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC. There can be no assurance provided to any
executive officer or any other holder of the Company's securities that the
actual stock price appreciation over the 10-year option term will be at the
assumed 5% and 10% levels or at any other defined level. Unless the market
price of the Common Stock appreciates over the option term, no value will be
realized from the option grants made to the Named Executive Officers.
TABLE III -- OPTION EXERCISES IN FISCAL 1996 AND FISCAL 1996 YEAR-END OPTION
VALUES
The following table shows the number of shares of Common Stock subject to
exercisable and unexercisable stock options held by each of the Named Executive
Officers as of November 30, 1996. The table also reflects the values of such
options based on the positive spread between the exercise price of such options
11
<PAGE> 15
and the estimated price of the Common Stock as of November 30, 1996, as
determined by the Company's Board.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT YEAR-END(#) OPTIONS AT YEAR-END(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Fox........... -- -- -- -- -- --
E. Linwood Pearce....... 50,000 $ 234,000(2) 324,680 100,000 $ 4,344,218 $ 1,338,000
Andrew B. Ferrentino.... -- -- -- -- -- --
Kimberly E. Osgood...... 0 0 37,250 69,000 $ 498,405 $ 923,220
David L. Kiker.......... 0 0 107,500 77,500 $ 1,438,350 $ 1,036,950
Randall K. Maroney...... 0 0 41,250 48,750 $ 551,925 $ 652,275
J. Kelly Brown.......... 0 0 31,250 48,750 $ 418,125 $ 652,275
</TABLE>
- ---------------
(1) Prior to the Company's initial public offering on January 28, 1997, the
Common Stock was not publicly traded. Consequently, the Board, in connection
with grants of stock options it makes from time to time, determined the fair
market value of the Common Stock as of the date of grant. For purposes of
calculating the value of in-the-money options at November 30, 1996, the
following formula is used: [(Fair Market Value Per Share on November 30,
1996) - (Weighted Average Exercise Price Per Share)] X Number of Securities
Underlying Unexercised Options at Year-End. The Board has used the deemed
fair market value as of November 30, 1996, as determined by the Board of
$16.00 per share.
(2) Calculated as the difference between the exercise price and the fair market
value of the underlying security at the exercise date of the underlying
option.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
As of October 24, 1996, the Company entered into an employment agreement
with Mr. E. Linwood Pearce that provides that Mr. Pearce will serve as the
Company's Chief Executive Officer until October 23, 1998. Mr. Pearce is entitled
to a base salary of $170,000 per year, with bonuses and salary increases to be
determined from time to time by the Board. The Company may terminate the
employment agreement upon Mr. Pearce's death, disability or for cause. If the
Board terminates Mr. Pearce for cause, Mr. Pearce is not entitled to severance
pay. If the Board of directors terminates Mr. Pearce without cause, Mr. Pearce
is entitled to receive compensation equal to the greater of (i) the compensation
due to Mr. Pearce through the end of the employment agreement; or (ii) 12 months
of salary and bonus. Mr. Pearce may terminate the agreement upon 30 days written
notice to the Board.
As of October 24, 1996, the Company entered into an employment agreement
with Mr. Joseph M. Fox that provides that Mr. Fox will serve as the Company's
Chairman of the Board until October 23, 1998. Mr. Fox is entitled to a base
salary of $170,000 per year, with bonuses and salary increases to be determined
from time to time by the Board. The Company may terminate the employment
agreement upon Mr. Fox's death, disability or for cause. If the Board terminates
Mr. Fox for cause, Mr. Fox is not entitled to severance pay. If the Board of
directors terminates Mr. Fox without cause, Mr. Fox is entitled to receive
compensation equal to the greater of (i) the compensation due to Mr. Fox through
the end of the employment agreement; or (ii) 12 months of salary and bonus. Mr.
Fox may terminate the agreement upon 30 days written notice to the Board.
As of October 24, 1996, the Company entered into an employment agreement
with Mr. Andrew B. Ferrentino that provides that Mr. Ferrentino will serve as
the Company's President until October 23, 1998. Mr. Ferrentino is entitled to a
base salary of $170,000 per year, with bonuses and salary increases to be
determined from time to time by the Board. The Company may terminate the
employment agreement upon Mr. Ferrentino's death, disability or for cause. If
the Board terminates Mr. Ferrentino for cause, Mr. Ferrentino is not entitled to
severance pay. If the Board of directors terminates Mr. Ferrentino without
cause, Mr. Ferrentino is entitled to receive compensation equal to the greater
of (i) the compensation due to Mr. Ferrentino through the end of the employment
agreement; or (ii) 12 months of salary and bonus. Mr. Ferrentino may terminate
the agreement upon 30 days written notice to the Board.
12
<PAGE> 16
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total shareholder return
on the Company's Common Stock between January 29, 1997 (the date the Company's
Common Stock began trading on the Nasdaq Stock Market) and March 31, 1997 with
the cumulative total return of (i) the Nasdaq Stock Market-U.S. Companies Index
(the "Nasdaq Stock Market-U.S. Index") and (ii) the Nasdaq Stock Market Computer
& Data Processing Index (the "Nasdaq Computer & Data Processing Index"), over
the same period. This graph assumes the investment of $100.00 on January 29,
1997 in the Company's Common Stock, the Nasdaq Stock Market-U.S. Index and the
Nasdaq Computer & Data Processing Index, and assumes the reinvestment of
dividends, if any.
The comparisons shown in the graph below are based upon historical data and
the Company cautions that the stock price performance shown in the graph below
is not indicative of, nor intended to forecast, the potential future performance
of the Company's Common Stock. Information used in the graph was obtained from
the Nasdaq Stock Market, a source believed to be reliable, but the Company is
not responsible for any errors or omissions in such information.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
TEMPLATE SOFTWARE, INC., THE NASDAQ STOCK MARKET-U.S. INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
<TABLE>
<CAPTION>
NASDAQ COMPUTER &
MEASUREMENT PERIOD TEMPLATE NASDAQ STOCK DATA PROCESSING
(FISCAL YEAR COVERED) SOFTWARE, INC. MARKET-US INDEX INDEX
<S> <C> <C> <C>
1/29/97 100.00 100.00 100.00
2/28/97 85.00 95.00 94.00
3/31/97 57.00 89.00 87.00
</TABLE>
The Company effected its initial public offering on January 28, 1997 at a
per share price of $16.00. The graph above commences with the initial public
offering price of $16.00.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings made by the Company under those statutes, the
Compensation Committee Report and Stock Performance Graph are not deemed filed
with the Securities and Exchange Commission and shall not be deemed incorporated
by reference into any of those prior filings or into any future filings made by
or on behalf of the Company under those statutes.
13
<PAGE> 17
PROPOSAL 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company, following a recommendation of the
Board's Audit Committee, has appointed the firm of Coopers & Lybrand L.L.P. to
serve as independent auditors of the Company for the fiscal year ending November
30, 1997, and has directed that such appointment be submitted to shareholders of
the Company for ratification at the Annual Meeting. Coopers & Lybrand L.L.P. has
served as independent auditors of the Company since 1996 and is considered by
management of the Company to be well qualified. If the shareholders do not
ratify the appointment of Coopers & Lybrand L.L.P., the Board will reconsider
the appointment.
Representatives of Coopers & Lybrand L.L.P. will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so. They also will be available to respond to appropriate questions from
shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND L.L.P.
AS THE INDEPENDENT AUDITORS OF THE COMPANY.
OTHER MATTERS
Neither management nor the Board knows of any matter to be acted upon at
the meeting other than the matters described above. If any other matter properly
comes before the Annual Meeting, however, the proxy holders will vote thereon in
accordance with their best judgment.
By Order of the Board of Directors,
/s/ JOSEPH M. FOX
Joseph M. Fox
Chairman
Dulles, Virginia
May 1, 1997
14
<PAGE> 18
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF TEMPLATE SOFTWARE, INC.
The undersigned shareholder(s) of Template Software, Inc., a Virginia
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated May 1, 1997, and hereby
appoints Mr. E. Linwood Pearce and Dr. Duane A. Adams, or either of them,
proxies and attorneys-in-fact, with full power of substitution, on behalf and in
the name of the undersigned, to represent the undersigned at the 1997 Annual
Meeting of Shareholders of the Company to be held at 10:00 a.m. Eastern Standard
Time on May 28, 1997 at the Company's headquarters at 45365 Vintage Park Plaza,
Dulles, Virginia 20166 and at any adjournment(s) thereof, and to vote all shares
of Common Stock which the undersigned would be entitled to vote if then and
there personally present, on the matters set forth below:
(1) To elect the nominees listed below to serve as Class I Directors of the
Company until the 2000 Annual Shareholders Meeting:
(a.) Mr. Joseph M. Fox
[ ] FOR [ ] WITHHOLD
(b.) Dr. Alan B. Salisbury
[ ] FOR [ ] WITHHOLD
- --------------------------------------------------------------------------------
<PAGE> 19
(2) To ratify the appointment of Coopers & Lybrand L.L.P. as the independent
auditors of the Company for the fiscal year ended November 30, 1997.
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
(3) In their discretion, upon such other matter or matters that may properly
come before the meeting or any adjournment(s) or postponement(s) thereof.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY PROMPTLY. This Proxy, when
properly executed, will be voted in accordance with the directions given by the
undersigned stockholder(s). IF NO DIRECTION IS MADE, IT WILL BE VOTED FOR THE
DIRECTOR NOMINEES NAMED IN PROPOSAL (1) ABOVE, FOR PROPOSAL (2) ABOVE AND AS THE
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
Dated
---------------------------------------,
1997
----------------------------------------
Signature
----------------------------------------
Signature (if held jointly)
Title or authority (if applicable)
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. IF SHARES ARE REGISTERED IN
MORE THAN ONE NAME, THE SIGNATURE OF ALL SUCH PERSONS ARE REQUIRED. A
CORPORATION SHOULD SIGN IN ITS FULL CORPORATE NAME BY A DULY AUTHORIZED OFFICER,
STATING HIS OR HER TITLE. TRUSTEES, GUARDIANS, EXECUTORS AND ADMINISTRATORS
SHOULD SIGN IN THEIR OFFICIAL CAPACITY, GIVING THEIR FULL TITLE AS SUCH. IF A
PARTNERSHIP, PLEASE SIGN IN THE PARTNERSHIP NAME BY AN AUTHORIZED PERSON.
