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SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 240.14a-12
PSW TECHNOLOGIES
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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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(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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Notes:
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[Logo of PSW Technologies Appears Here]
6300 BRIDGEPOINT PARKWAY, BUILDING 3, SUITE 200
AUSTIN, TEXAS 78730
April 20, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 annual meeting of stockholders
of PSW Technologies, Inc., which will be held at the Renaissance Austin Hotel,
9721 Arboretum Blvd., Austin, Texas on Wednesday, May 17, 2000 at 9:00 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 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/ TIMOTHY D. WEBB
TIMOTHY D. WEBB
President 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>
PSW TECHNOLOGIES, INC.
6300 BRIDGEPOINT PARKWAY, BUILDING 3, SUITE 200
AUSTIN, TEXAS 78730
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2000
The 2000 annual meeting of stockholders of PSW Technologies, Inc. (the
"Company") will be held at the Renaissance Austin Hotel, 9721 Arboretum Blvd.,
Austin, Texas on Wednesday, May 17, 2000 at 9:00 a.m. (Central Time) for the
following purposes:
1. To elect seven directors to serve until the Annual Stockholders' Meeting
in 2001, or in each case until their respective successors have been
elected and qualified;
2. To approve an amendment to the Company's Amended and Restated 1996 Stock
Option/Stock Issuance Plan (the "Plan") which will effect the following
changes:
(i) increase the number of shares of the Company's Common Stock
reserved for issuance under the Plan by an additional 1,000,000
shares;
(ii) implement an automatic share increase provision to such plan so
that the number of shares of Common Stock available for issuance
under such plan will automatically increase on the first trading
day in January each year, beginning with the 2001 calendar year,
by an amount equal to eight percent (8%) of the shares of Common
Stock outstanding on the last trading day of December of the
immediately preceding calendar year, but in no event will any such
annual increase exceed 2,000,000 shares of Common Stock; and
(iii) provide greater flexibility concerning the limited
transferability of non-statutory options in connection with
estate planning transfers and transfers incident to domestic
relations orders.
3. To approve an amendment to the Company's Employee Stock Purchase Plan
(the "Purchase Plan") to increase the number of shares of Common Stock
authorized to be issued by 500,000 shares resulting in 900,00 shares
available for issuance under the Purchase Plan;
4. To approve an amendment to the Certification of Incorporation of the
Company to change the name of the corporation to Concero Incorporated.
5. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000; and
6. 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 31, 2000 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/ NANCY A. RICHARDSON
NANCY A. RICHARDSON
Secretary
<PAGE>
PSW TECHNOLOGIES, INC.
6300 BRIDGEPOINT PARKWAY, BUILDING 3, SUITE 200
AUSTIN, TEXAS 78730
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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 PSW
Technologies, Inc., a Delaware corporation (the "Company"), for the 2000
Annual Meeting of Stockholders to be held on Wednesday, May 17, 2000 at 9:00
a.m. (Central Time), and at any adjournment or postponement thereof (the
"Annual Meeting") at the Renaissance Austin Hotel, 9721 Arboretum Blvd.,
Austin, Texas. These proxy materials were first mailed to stockholders of
record beginning on approximately April 20, 2000.
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. Any
stockholder present at the Annual Meeting who elects to vote his or her shares
in person may also revoke proxies. 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 year ended December 31,
1999 (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.
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
The Company has fixed March 31, 2000 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
9,937,158 outstanding shares of common stock, par value $0.01 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 stockholder
on the proxy has specified a choice as to the matters coming before the Annual
Meeting, 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.
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PROPOSAL 1
ELECTION OF DIRECTORS
VOTE REQUIRED
A Board of seven directors is to be elected at the Annual Meeting to hold
office until their term has expired at the 2001 Annual Meeting or until their
successors are duly elected and qualified. In accordance with the Company's
bylaws, nominees for election as directors receiving the greatest number of
votes will 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.
<TABLE>
<CAPTION>
NOMINEE AGE POSITION
------- --- --------
<S> <C> <C>
Timothy D. Webb......... 39 President, Chief Executive Officer and Director
Wade E. Saadi (1)....... 50 Chairman of the Board
Edward C. Ateyeh, Jr.
(1).................... 47 Director
Thomas A. Herring (2)... 49 Director
W. Frank King, Ph.D.
(2).................... 60 Director
Kevin B. Kurtzman (2)... 52 Director
Michael J. Maples (1)... 57 Director
</TABLE>
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(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Webb has served as President, Chief Executive and a director of PSW
since September 1, 1998. Prior to joining PSW, Webb was Vice President,
Enterprise Solutions for Syntel, Inc. From June 1995 through February 1998,
Webb was employed by Oracle Corporation, last serving as a Regional Vice
President for Oracle's Consulting Service Division. From 1983 through May
1995, Mr. Webb was employed by Andersen Consulting rising to the level of
Associate Partner before leaving to join Oracle. Webb holds a bachelor's
degree in Systems Management Engineering from Princeton University.
Mr. Saadi has served on the Board of Directors of PSW since October 1,
1996. He is the founder of Pencom Systems Incorporated, a privately held New
York corporation ("Pencom") and has served as its President and Chief
Executive Officer since its inception in 1973. In 1996, Mr. Saadi won the
Technology Entrepreneur of the Year Award(R) in New York City. Mr. Saadi is a
governor of the Board of the Collectors Club and a regional vice president of
the United States Philatelic Classics Society. Mr. Saadi attended the
Polytechnic Institute of Brooklyn where he majored in chemical engineering.
Mr. Ateyeh has served on the Board of Directors of PSW since October 1,
1996. He is presently an Executive Vice President of Pencom Systems
Incorporated, where he has been employed since 1977. Mr. Ateyeh served as
President of Pencom's software division, the predecessor to PSW, from 1989 to
1992. In 1994, Mr. Ateyeh founded Collective Technologies, Pencom's system
management consulting division where he currently serves as President and
Chief Executive Officer. Mr. Ateyeh is a board member of the Economic
Development Council of the Greater Austin Chamber of Commerce, a member of the
Austin Community College Software Industry Advisory Council, as well as the
Austin Software Council's President/CEO Peer Group. Mr. Ateyeh earned a
Bachelor of Science degree from the University of Notre Dame.
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Mr. Herring has served on the Board of Directors of PSW since January 1997.
Since October 1998, he has served as a Partner in Polaris Venture Partners.
From December 1997 to October 1998, Mr. Herring served as Senior Vice
President of Compuware Corp., which acquired Numega Technologies, Inc. From
May 1996 to December 1997, Mr. Herring served as Chief Executive Officer of
Numega Technologies, Inc. From July 1995 to May 1996, Mr. Herring was Vice
President of Corporate Marketing of Sybase, Inc., a software company. Mr.
Herring was selected as the 1995 Software Industry Sales and Marketing
Executive of the Year by Upside Magazine. He serves on the board of directors
of Allaire Corporation. Mr. Herring holds a bachelor's degree in marketing and
a master's degree in mathematics from Texas Tech University.
Dr. King has served as a Director of PSW since October 1, 1996. From 1992
to September 1, 1998, Dr. King served as President and CEO of the Company.
From 1988 to 1992, Dr. King was Senior Vice President of the Software Business
group of Lotus, a software publishing company. Prior to joining Lotus, Dr.
King was with IBM, a technology company, for 19 years, where his last position
was Vice President of Development for the Personal Computing Division. Dr.
King serves on the boards of directors of Excalibur Technologies Corporation,
Auspex Systems, Inc., Natural Microsystems, Inc., Eon Communications, Inc. and
Perficient. Dr. King earned a doctorate in electrical engineering from
Princeton University, a master's degree in electrical engineering from
Stanford University, and a bachelor's degree in electrical engineering from
the University of Florida.
Mr. Kurtzman has served on the Board of Directors of PSW since December
1996. He is presently the Chief Financial Officer of Pencom, a position he has
held since July 1997. Prior to that, Mr. Kurtzman had been with Margolin,
Winer & Evens LLP, a certified public accounting firm, since 1972 and was a
Partner and a member of its executive committee and an Audit and Business
Advisory Partner. Mr. Kurtzman is a former officer and director of CPA
Associates International. Mr. Kurtzman received a bachelor's degree in
accounting from Queens College of the City University of New York.
Mr. Maples has served on the Board of Directors of PSW since December 1996.
Mr. Maples held several positions with Microsoft, a technology company, from
April 1988 through July 1995, where his last position was Executive Vice
President of Worldwide Products. Prior thereto, Mr. Maples held various
positions with IBM over the course of 23 years, the last of which was Director
of Software Strategy. Mr. Maples serves on the boards of directors of Lexmark
International Inc., Mission Critical Software, and J.D. Edward and Company.
Mr. Maples holds a master's degree from Oklahoma City University and a
bachelor's degree in electrical engineering from the University of Oklahoma.
BOARD MEETINGS AND COMMITTEES
At each annual stockholder meeting the directors are elected to serve from
the time of their election and qualification until the next Annual Meeting of
Stockholders following their election or until a successor has been duly
elected and qualified. There are no family relationships among any of the
directors and executive officers of the Company.
The Company's Board of Directors met eleven times during the year ended
December 31, 1999, 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 Compensation Committee of the Board of Directors determines the
salaries and incentive compensation of the officers of the Company and
provides recommendations for the salaries and incentive compensation of the
other employees and the consultants of the Company. The Compensation Committee
also administers various incentive compensation, stock and benefit plans. The
Compensation Committee had three meetings in 1999 and acted a number of times
by written consent.
The Audit Committee of the Board of Directors reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of the
Company's independent auditors and the accounting practices of the Company.
The Audit Committee had four meetings in 1999.
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The Company does not have a standing Nominating Committee or any other
committee performing similar functions. Such matters are considered at
meetings of the full Board of Directors. In addition, the Board of Directors
may from time to time establish certain other committees to facilitate the
management of the Company.
DIRECTOR COMPENSATION
By action of the Company's Board of Directors, Board members who are not
employees of the Company are paid $3,750 per calendar quarter, which may be in
the form of cash or, at the discretion of each eligible director, may be
applied to the acquisition of an option to purchase Common Stock pursuant to
the Director Fee Option Grant Program in effect under the Company's 1996 Stock
Option/Stock Issuance Plan. In addition, the non-employee Board members are
eligible to receive periodic option grants under the Automatic Option Grant
Program in effect for them under that Plan. Each individual who first becomes
a non-employee Board member after June 15, 1997 will automatically receive, at
the time of such initial election or appointment, a stock option grant for
10,000 shares of Common Stock. In addition, on the date of each Annual
Stockholders Meeting, each individual who is re-elected as a non-employee
Board member is eligible to receive an option grant for 4,000 shares of Common
Stock, provided such individual has served on the Board for at least six
months. Each option grant will have an exercise price equal to the fair market
value of the option shares on the grant date and will have a maximum term of
ten years, subject to earlier termination upon the optionee's cessation of
Board service. Non-employee Board members are members of the Board of
Directors who are not employees of the Company.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE
AMENDED AND RESTATED 1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's Amended and Restated 1996 Stock Option/Stock Issuance Plan (the
"Plan") which will effect the following changes:
(i) increase the number of shares of the Company's Common Stock reserved
for issuance under the Plan by an additional 1,000,000 shares;
(ii) implement an automatic share increase provision to the Plan so that
the number of shares of Common Stock available for issuance under the
Plan will automatically increase on the first trading day in January
each year, beginning with the 2001 calendar year, by an amount equal
to eight percent (8%) of the shares of Common Stock outstanding on the
last trading day of December of the immediately preceding calendar
year, but in no event will any such annual increase exceed 2,000,000
shares of Common Stock; and
(iii) provide greater flexibility concerning the limited transferability of
non-statutory options in connection with estate planning transfers
and transfers incident to domestic relations orders.
The Board of Directors adopted the amendment on February 22, 2000, subject
to stockholder approval at this Meeting.
The Board believes the amendment is necessary to assure that a sufficient
reserve of Common Stock remains available for issuance under the Plan in order
to allow the Company to continue to utilize equity incentives to attract and
retain the services of key individuals essential to the Company's long-term
growth and financial success. The Company relies significantly on equity
incentives in the form of stock option grants in order to attract and retain
key employees and believes that such equity incentives are necessary for the
Company to remain competitive in the marketplace for executive talent and
other key employees. Option grants made to newly-hired or continuing employees
will be based on both competitive market conditions and individual
performance.
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On February 22, 2000, the Board also adopted the Company's Non-Officer
Stock Option/Stock Issuance Plan under which a reserve of 250,000 shares of
Common Stock are available for issuance only to non-officer employees of the
Company and consultants or other independent advisors (excluding Board
members) who provide services to the Company or its subsidiaries.
The following is a summary of the principal features of the Plan, as most
recently amended. Any stockholder of the Company who wishes to obtain a copy
of the actual plan document may do so upon written request to the Company at
6300 Bridgepoint Parkway, Building 3, Suite 200, Austin, Texas 78730.
EQUITY INCENTIVE PROGRAMS
The Plan consists of four separate equity incentive programs: (i) the
Discretionary Option Grant Program, (ii) the Stock Issuance Program, (iii) the
Automatic Option Grant Program for non-employee Board members and (iv) the
Director Fee Option Grant Program for such Board members. The principal
features of each program are described below. The Compensation Committee of
the Board will have the exclusive authority to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to option grants and
stock issuances made to the Company's executive officers and non-employee
Board members and will also have the authority to make option grants and stock
issuances under those programs to all other eligible individuals. However, the
Board may at any time appoint a secondary committee of one or more Board
members to have separate but concurrent authority with the Compensation
Committee to make option grants and stock issuances under those two programs
to individuals other than the Company's executive officers and non-employee
Board members.
The term Plan Administrator, as used in this summary, will mean the
Compensation Committee and any secondary committee, to the extent each such
entity is acting within the scope of its administrative jurisdiction under the
Plan. However, neither the Compensation Committee nor any secondary committee
will exercise any administrative discretion under the Automatic Option Grant
and Director Fee Option Grant Programs. All grants under those programs will
be made in strict compliance with the express provisions of such programs.
SHARE RESERVE
At present, there is a total of 4,215,000 shares of Common Stock reserved
in the aggregate for issuance over the term of the Plan. Such share reserve
consists of (i) the 1,715,000 shares initially reserved for issuance under the
Plan, (ii) 1,500,000 shares of Common Stock, of which 1,000,000 shares and
500,000 shares were each added to the Plan as previously approved by the Board
and Company stockholders in connection with the 1998 annual meeting of
stockholders and 1999 annual meeting of stockholders, respectively, plus (iii)
the additional increase of 1,000,000 shares of Common Stock which forms part
of this Proposal. In addition, upon stockholder approval of this Proposal, the
number of shares of Common Stock reserved for issuance under the Plan will
automatically increase on the first trading day of January each calendar year,
beginning in calendar year 2001, by an amount equal to eight percent (8%) of
the total number of shares of Common Stock outstanding on the last trading day
in December of the preceding calendar year, but in no event will any such
annual increase exceed 2,000,000 shares of Common Stock.
No participant in the Plan may receive option grants, separately
exercisable stock appreciation rights or direct stock issuances for more than
750,000 shares of Common Stock in the aggregate per calendar year. Stockholder
approval of this Proposal will also constitute a reapproval of the 750,000-
share limitation for purposes of Internal Revenue Code Section 162(m).
The shares of Common Stock issuable under the Plan may be drawn from shares
of the Company's authorized but unissued shares of Common Stock or from shares
of Common Stock reacquired by the Company, including shares repurchased on the
open market.
Shares subject to any outstanding options under the Plan which expire or
otherwise terminate prior to exercise will be available for subsequent
issuance. Unvested shares issued under the Plan and subsequently
5
<PAGE>
repurchased by the Company, at the option exercise or direct issue price paid
per share, pursuant to the Company's repurchase rights under the Plan will be
added back to the number of shares reserved for issuance under the Plan and
will accordingly be available for subsequent issuance. However, any shares
subject to stock appreciation rights exercised under the Plan will not be
available for reissuance.
Should the exercise price of an option under the Plan be paid with shares
of Common Stock or should shares of Common Stock otherwise issuable under the
Plan be withheld by the Company in satisfaction of the withholding taxes
incurred in connection with the exercise of an option or the vesting of a
stock issuance under the Plan, then the number of shares of Common Stock
available for issuance under the Plan will be reduced only by the gross number
of shares for which the option is exercised or which vest under the stock
issuance and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.
ELIGIBILITY
Officers and employees, non-employee Board members and independent
consultants in the service of the Company or its parent and subsidiaries
(whether now existing or subsequently established) will be eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs.
Non-employee members of the Board will also be eligible to participate in the
Automatic Option Grant and Director Fee Option Grant Programs.
As of December 31, 1999, ten executive officers, six non-employee Board
members and approximately 335 other employees and consultants were eligible to
participate in the Discretionary Option Grant and Stock Issuance Programs. The
six non-employee Board members were also eligible to participate in the
Automatic Option Grant and Director Fee Option Grant Programs.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the Plan will be deemed to be equal to the closing selling price per share on
that date on the Nasdaq National Market. On December 31, 1999 the fair market
value per share determined on such basis was $19.94.
DISCRETIONARY OPTION GRANT PROGRAM
The Plan Administrator will have complete discretion under the
Discretionary Option Grant Program to determine which eligible individuals are
to receive option grants, the time or times when those grants are to be made,
the number of shares subject to each such grant, the status of any granted
option as either an incentive stock option or a non-statutory option under the
federal tax laws, the vesting schedule (if any) to be in effect for the option
grant and the maximum term for which any granted option is to remain
outstanding.
Each granted option will have an exercise price per share no less than the
fair market value of the option shares on the grant date unless otherwise
determined by the Plan Administrator. No granted option will have a term in
excess of ten (10) years, and the option will generally become exercisable in
one or more installments over a specified period of service measured from the
grant date. However, one or more options may be structured so that they will
be immediately exercisable for any or all of the option shares. However, the
shares acquired under those options will be subject to repurchase by the
Company, at the exercise price paid per share, if the optionee ceases service
with the Company prior to vesting in those shares.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent 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.
6
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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. Tandem stock appreciation rights under
the Discretionary Option Grant Program provide the holders with the right
to surrender their options for an appreciation distribution from the
Company. The amount of such distribution will be equal 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. Limited Stock Appreciation Rights may be
granted to officers of the Company as part of their option grants and 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 also has the authority to effect the cancellation of
any or all options outstanding under the Discretionary Option Grant Program
and to grant, in substitution therefor, new options covering the same or a
different number of shares of Common Stock but with an exercise price per
share based upon the fair market value of the option shares on the new grant
date.
STOCK ISSUANCE PROGRAM
Shares of Common Stock may be issued under the Stock Issuance Program at a
price per share no less than fair market value unless otherwise determined by
the Plan Administrator and for such valid consideration under the Delaware
General Corporation Law as the Plan Administrator deems appropriate, including
cash and promissory notes. The shares may also be issued as a bonus for past
services without any cash outlay required of the recipient. The Plan
Administrator will have complete discretion under the program to determine
which eligible individuals are to receive such stock issuances, the time or
times when those issuances are to be made, the number of shares subject to
each such issuance and the vesting schedule to be in effect for the stock
issuance. The shares issued may be fully vested upon issuance or may vest upon
the completion of a designated service period or the attainment of pre-
established performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any and all
unvested shares outstanding under the Stock Issuance Program.
AUTOMATIC OPTION GRANT PROGRAM
Grants
Under the Automatic Option Grant Program, eligible non-employee Board
members will receive a series of option grants over their period of Board
service. Each non-employee Board member will, at the time of his or her
initial election or appointment to the Board, receive an option grant for
10,000 shares of Common Stock, provided such individual has not previously
been in the Company's employ. In addition, on the date of each Annual
Stockholders Meeting, each individual who is to continue to serve as a non-
employee Board member will automatically be granted an option to purchase
4,000 shares of Common Stock, provided he or she has served as a non-employee
Board member for at least six months. There will be no limit on the number of
4,000-share option grants any one eligible non-employee Board member may
receive over his or her period of continued Board service, and non-employee
Board members who have previously been in the Company's employ will be
eligible to receive one or more annual option grants over their period of
Board service.
Stockholder approval of this Proposal will also constitute pre-approval of
each option granted under the Automatic Option Grant Program after the date of
the Annual Stockholders Meeting and the subsequent exercise of that option in
accordance with the terms of the program summarized below.
7
<PAGE>
OPTION TERMS
Each automatic grant will have an exercise price per share equal to the
fair market value per share of Common Stock on the grant date and will have a
maximum term of 10 years, subject to earlier termination following the
optionee's cessation of Board service. Each automatic option will be
immediately exercisable for all of the option shares; however, any unvested
shares purchased under such option will be subject to repurchase by the
Company, at the exercise price paid per share, should the optionee cease Board
service prior to vesting in those shares. The shares subject to each initial
10,000-share automatic option grant will vest in a series of four successive
equal annual installments upon the optionee's completion of each year of Board
service over the four-year period measured from the grant date. The shares
subject to each annual 4,000-share automatic grant will vest upon the
optionee's completion of one-year of Board service measured from the grant
date. However, the shares subject to each outstanding automatic option grant
will immediately vest in full upon certain changes in control or ownership of
the Company or upon the optionee's death or disability while a Board member.
Following the optionee's cessation of Board service for any reason, each
option will remain exercisable for a 12-month period and may be exercised
during that time for any or all shares in which the optionee is vested at the
time of such cessation of Board service.
DIRECTOR FEE OPTION GRANT PROGRAM
Each non-employee Board member has the right to apply all or a portion of
his total retainer fee otherwise payable in cash each year (currently $3,750 a
calendar quarter) to the acquisition of a special option grant under the
Director Fee Option Grant Program. The grant will automatically be made on the
first trading day in January following the filing of the option-in-lieu-of-
cash election and will have an exercise price per share equal to the fair
market value of the option shares on the grant date. The number of option
shares will be such that the value of the option (as determined by using the
Black-Scholes option valuation model) will be equal to the amount of the
retainer fee applied to the program.
Stockholder approval of this Proposal will constitute pre-approval of each
option granted pursuant to the provisions of the Director Fee Option Grant
Program after the date of the Annual Stockholders Meeting and the subsequent
exercise of that option in accordance with its terms.
The option will become exercisable for fifty percent (50%) of the option
shares upon the optionee's completion of six months of Board service during
the calendar year of the option grant, and the balance of the option will
become exercisable in a series of six successive equal monthly installments
upon the optionee's completion of each additional month of Board service
during that calendar year. In the event the optionee ceases Board service for
any reason (other than death or permanent disability), the option will
immediately terminate with respect to any unvested shares subject to the
option at the time. However, the option will remain exercisable for the vested
shares subject to the option until the earlier of (i) the expiration of the
ten-year option term or (ii) the end of the three-year period measured from
the date of the optionee's cessation of Board service. Should the optionee's
service as a Board member cease by reason of death or permanent disability,
then the option will immediately become exercisable for all the shares of
Common Stock subject to the option and may be exercised for any or all of
those shares until the earlier of (i) the expiration of the ten-year option
term or (ii) the end of the three-year period measured from the date of the
optionee's cessation of Board service.
LIMITED STOCK APPRECIATION RIGHTS
Each option granted under the Automatic Option Grant or Director Fee Option
Grant Program will include a limited stock appreciation right. Upon the
successful completion of a hostile tender offer for more than fifty percent
(50%) of the Company's outstanding voting securities or a change in a majority
of the Board as a result of one or more contested elections for Board
membership, each outstanding option under the Automatic Option Grant or
Director Fee Option Grant Program may be surrendered to the Company in return
for a cash distribution from the Company. The amount of the distribution per
surrendered option share will be equal to the excess of (i) the fair market
value per share at the time the option is surrendered or, if greater, the
tender offer price paid per share in the hostile take-over over (ii) the
exercise price payable per share under such option.
8
<PAGE>
Stockholder approval of this Proposal will also constitute pre-approval of
each limited stock appreciation right granted under the Automatic Option Grant
or Director Fee Option Grant Program and the subsequent exercise of that right
in accordance with the foregoing terms.
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 will
automatically accelerate in full, unless (i) the option is assumed by the
successor corporation or (ii) the option is replaced with a cash incentive
program which preserves the spread existing on the unvested option shares (the
excess of the fair market value of those shares over the option exercise price
payable for such shares) and provides for subsequent payout in accordance with
the same vesting schedule in effect for those option shares. In addition, all
unvested shares outstanding under the Discretionary Option Grant and Stock
Issuance Programs 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.
The Plan Administrator will have complete discretion to grant one or more
options under the Discretionary Option Grant Program which will become
exercisable for all the option shares in the event the optionee's service with
the Company or the successor entity is terminated (actually or constructively)
within a designated period following an acquisition in which those options are
assumed. The vesting of outstanding shares under the Stock Issuance Program
may also be structured to accelerate upon similar terms and conditions.
The Plan Administrator will have the discretion to structure one or more
option grants under the Discretionary Option Grant Program so that those
options will vest immediately upon (i) an acquisition, whether or not the
options are to be assumed or (ii) upon a change in control (whether effected
through the successful completion of a tender offer for more than 50% of the
Company's outstanding voting stock or a change in the majority of the Board
effected through one or more contested elections for Board membership) or a
subsequent termination of the optionee's service within a designated period
following the change in control. The Plan Administrator may also structure
stock issuances under the Stock Issuance Program so that those issuances will
immediately vest upon an acquisition or other change in control transaction.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
Stockholder Rights and Option Transferability
No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise
price for the purchased shares. Generally, options are not assignable or
transferable other than by will or the laws of inheritance following
optionee's death, and during the optionee's lifetime, the option may only be
exercised by the optionee. However, non-statutory options may be transferred
or assigned during optionee's lifetime (i) as a gift to one or more members of
the optionee's immediate family, to a trust in which the optionee and/or one
or more such family members hold a majority of the beneficial interest, or to
an entity in which a majority of the voting interests are owned by one or more
such family members or (ii) under a domestic relations order.
Changes in Capitalization
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 (i) the maximum number and/or class of securities issuable under
the Plan, (ii) the maximum number
9
<PAGE>
and/or class of securities by which the share reserve under the Plan is to
increase automatically each year, (iii) the maximum number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the
Plan per calendar year, (iv) the number and/or class of securities for which
grants are subsequently to be made under the Automatic Option Grant Program to
new and continuing non-employee Board members and (v) the number and/or class
of securities and the exercise price per share in effect under each
outstanding option. Such adjustments will be designed to preclude any dilution
or enlargement of benefits under the Plan or the outstanding options
thereunder.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the
Discretionary Option Grant Program or the purchase of shares under the Stock
Issuance Program through full-recourse interest-bearing promissory notes.
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 those shares.
Special Tax Election
The Plan Administrator may provide one or more holders of non-statutory
options or unvested share issuances under the Plan with the right to have the
Company withhold a portion of the shares otherwise issuable to such
individuals in satisfaction of the withholding taxes to which such individuals
become subject 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 withholding tax liability.
Amendment and Termination
The Board may amend or modify the Plan at any time, subject to any required
stockholder approval pursuant to applicable laws and regulations. Unless
sooner terminated by the Board, the Plan will terminate on the earliest of (i)
October 1, 2006, (ii) the date on which all shares available for issuance
under the Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain changes in
control or ownership of the Company.
10
<PAGE>
STOCK AWARDS
The table below shows, as to Company's Chief Executive Officer ("CEO"), the
four other most highly compensated executive officers of the Company (with
base salary and bonus for the past fiscal year in excess of $100,000) and the
other individuals and groups indicated, the number of shares of Common Stock
subject to option grants made under the Plan from January 1, 1999 through
February 29, 2000, together with the weighted average exercise price payable
per share. The Company has not made any direct stock issuances to date under
the Plan.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED AVERAGE
UNDERLYING EXERCISE PRICE
NAME AND POSITION OPTIONS GRANTED (#) PER SHARE ($)
- ----------------- ------------------- ----------------
<S> <C> <C>
Timothy D. Webb......................... 0 $ 0
President, Chief Executive Officer and
Director
John M. Velasquez....................... 150,000 $3.063
Senior Vice President, Western Area
Pedro A. Fernandez...................... 125,000 $ 2.75
Senior Vice President of Corporate
Strategy and Marketing
Kenneth L. Drake........................ 48,500 $3.875
Vice President, e-Performance
Brent R. Terry.......................... 19,648 $3.875
Vice President, e-TV
Wade E. Saadi........................... 23,531 $ 4.00
Chairman of the Board
Ed Taylor............................... 23,531 $ 4.00
Director
Thomas A. Herring....................... 5,674 $ 8.37
Director
W. Frank King, Ph.D. ................... 4,000 $ 3.50
Director
Kevin B. Kurtzman....................... 23,531 $ 4.00
Director
Michael J. Maples....................... 23,531 $ 4.00
Director
All current executive officers as a
group (10)............................. 467,287 $10.50
All current non-employee directors as a
group (6).............................. 103,798 $ 4.12
All employees, including current
officers who are not executive officers,
as a group............................. 1,772,060 $ 9.10
</TABLE>
As of February 29, 2000, 2,667,639 shares of Common Stock were subject to
outstanding options under the Plan, and 1,317,083 shares of Common Stock
remained available for future issuance, assuming stockholder approval of this
Proposal.
FEDERAL INCOME TAX CONSEQUENCES
Option Grants
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue 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. The optionee will, however, recognize
11
<PAGE>
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of a taxable disposition. 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
(2) years after the option grant date and more than one (1) year after the
exercise date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized
upon the disposition will be recognized as a capital gain or loss by the
optionee.
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. If the optionee makes a qualifying disposition, the
Company will not be entitled to any income tax deduction.
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, and 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 Internal Revenue 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
No taxable income is recognized upon receipt of a stock appreciation right.
The holder will recognize ordinary income, in the year in which the stock
appreciation right is exercised, in an amount equal to the excess of the fair
market value of the underlying shares of common stock on the exercise date
over the base price in effect for the exercised right, and the holder will be
required to satisfy the tax withholding requirements applicable to such
income.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the holder in connection with the exercise of
the stock appreciation right. The deduction will be allowed for the taxable
year in which such ordinary income is recognized.
Direct Stock Issuances
The tax principles applicable to direct stock issuances under the Plan will
be substantially the same as those summarized above for the exercise of non-
statutory option grants.
12
<PAGE>
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Company anticipates that any compensation deemed paid by it in
connection with the disqualifying dispositions of incentive stock option
shares or the exercise of non-statutory options with exercise prices equal to
the fair market value of the option shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will
not have to be taken into account for purposes of the $1 million limitation
per covered individual on the deductibility of the compensation paid to
certain executive officers of the Company. Accordingly, all compensation
deemed paid with respect to those options will remain deductible by the
Company without limitation under Code Section 162(m).
ACCOUNTING TREATMENT
Option grants under the Discretionary Option Grant and Automatic Option
Grant Programs with exercise prices equal to the fair market value of the
option shares on the grant date will not result in any direct charge to the
Company's reported earnings. However, the fair value of those options is
required to be disclosed in the notes to the Company's financial statements,
and the Company must also disclose, in footnotes to the Company's financial
statements, the pro-forma impact those options would have upon the Company's
reported earnings were the fair value of those options at the time of grant
treated as a compensation expense. In addition, the number of outstanding
options may be a factor in determining the Company's earnings per share on a
fully-diluted basis. Option grants or stock issuances made under the Plan with
exercise or issue prices less than the fair market value of the shares on the
grant or issue date will result in a direct compensation expense to the
Company in an amount equal to the excess of such fair market value over the
exercise or issue price. The expense must be amortized against the Company's
earnings over the period that the option shares or issued shares are to vest.
On March 31, 1999, the Financial Accounting Standards Board issued an
exposure draft of a proposed interpretation of APB Opinion No. 25 governing
the accounting principles applicable to equity incentive plans. Under the
proposed interpretation, as subsequently modified on August 11, 1999, option
grants made to non-employee consultants (but not non-employee Board members)
after December 15, 1998 will result in a direct charge to the Company's
reported earnings based upon the fair value of the option measured initially
as of the grant date and then subsequently on the vesting date of each
installment of the underlying option shares. Such charge will accordingly
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final interpretation) and the vesting date of each installment of the option
shares. In addition, if the proposed interpretation is adopted, any options
which are repriced after December 15, 1998 will also trigger a direct charge
to Company's reported earnings measured by the appreciation in the value of
the underlying shares over the period between the grant date of the option
(or, if later, the effective date of the final amendment) and the date the
option is exercised for those shares.
Should one or more individuals be granted tandem stock appreciation rights
under the Plan, then such rights would result in a compensation expense to be
charged against the Company's reported earnings. Accordingly, at the end of
each fiscal quarter, the amount (if any) by which the fair market value of the
shares of common stock subject to such outstanding stock appreciation rights
has increased from the prior quarter-end would be accrued as compensation
expense, to the extent such fair market value is in excess of the aggregate
exercise price in effect for those rights.
NEW PLAN BENEFITS
As of February 29, 2000, no stock options had been granted, and no shares
of Common Stock had been issued, on the basis of the share increases which are
the subject of this Proposal.
STOCKHOLDER APPROVAL
The affirmative vote of at least a majority of the outstanding shares of
Common Stock present in person or by proxy at the Annual Meeting and entitled
to vote is required for approval of the amendment to the Plan. Should such
stockholder approval not be obtained, then neither the 1,000,000-share
increase to the share reserve
13
<PAGE>
under the Plan nor the automatic share increase provision of the Plan will be
implemented, any stock options granted under the Plan on the basis of those
increases will immediately terminate without ever becoming exercisable for the
shares of Common Stock subject to those options, and no additional options or
stock issuances will be made on the basis of such increases. The Plan will,
however, continue in effect, and option grants and direct stock issuances may
continue to be made under the Plan until all the shares available for issuance
under the Plan has been issued pursuant to such option grants and direct stock
issuances.
THE BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL OF SUCH
PROPOSAL. UNLESS AUTHORITY TO DO SO IS WITHHELD, THE PERSON(S) NAMED IN EACH
PROXY WILL VOTE THE SHARES REPRESENTED THEREBY "FOR" THE APPROVAL OF THE
AMENDMENT TO THE AMENDED AND RESTATED 1996 STOCK OPTION/STOCK ISSUANCE PLAN.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are also being asked to approve an amendment to
the Company's Employee Stock Purchase Plan (the "Purchase Plan"), pursuant to
which an additional 500,000 shares of common stock will be added to the amount
of shares reserved for issuance under the Purchase Plan.
The Board of Directors adopted the amendment on February 22, 2000, subject
to stockholder approval at this Meeting.
The Purchase Plan is intended to provide eligible employees of the Company
and its participating affiliates with the opportunity to acquire a propriety
interest in the Company through participation in a payroll-deduction based
employee stock purchase plan designed to operate in compliance with Section
423 of the Internal Revenue Code.
The following is a summary of the principal features of the Purchase Plan,
as most recently amended. The summary, however, does not purport to be a
complete description of all the provisions of the Purchase 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 Company at 6300 Bridgepoint
Parkway, Building 3, Suite 200, Austin, Texas 78730.
SHARE RESERVE
An aggregate of 900,000 shares of Common Stock have been reserved for
issuance over the term of the Purchase Plan, including the increase of 500,000
shares of Common Stock subject to this Proposal.
The shares of Common Stock issuable under the Purchase Plan may be drawn
from shares of the Company's authorized but unissued shares of Common Stock or
from shares of Common Stock reacquired by the Company, including shares
repurchased on the open market.
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 over the term of, and per participant on,
any one purchase date under the Purchase Plan and the securities and the
purchase price per share in effect under each outstanding purchase right.
ADMINISTRATION
The Purchase Plan is administered by the compensation committee of the
Board of Directors. Such committee, as Plan Administrator, has full authority
to adopt such rules and procedures as it may deem necessary for proper plan
administration and to interpret the provisions of the Purchase Plan. All costs
and expenses incurred in plan administration are paid by the Company without
charge to participants.
14
<PAGE>
PURCHASE PERIODS
Under the Purchase Plan, shares are issued through a series of successive
purchase periods, each of a duration of six (6) months. Purchase periods run
from the first business day in May to the last business day in October each
year and from the first business day in November each year to the last
business day in April the following year. Each participant is granted a
separate right to purchase shares of Common Stock for each purchase period in
which he or she participates. The purchase right will be granted on the first
day business day of each purchase period and will be automatically exercised
on the last business day of each purchase period. Each purchase right entitles
the participant to purchase the whole number of shares of Common Stock
obtained by dividing the participant's payroll deductions for the purchase
period by the purchase price in effect for such period.
ELIGIBILITY
Any individual who customarily works for more than twenty (20) hours per
week for more than five (5) months per calendar year in the employ of the
Company or any participating affiliate is eligible to participate in the
Purchase Plan. An eligible individual may join a purchase period that begins
after the individual's completion of ninety (90) days of service to the
Company or an affiliate.
Participating affiliates include any parent or subsidiary corporations of
the Company, whether now existing or hereafter organized, which elect, with
the approval of the Plan Administrator, to extend the benefits of the Purchase
Plan to their eligible employees.
As of February 29, 2000, approximately 271 employees, including 6 executive
officers, were eligible to participate in the Purchase Plan.
PAYROLL DEDUCTIONS
Each participant may authorize payroll deductions in any multiple of 1% of
his or her base salary; however, the maximum amount of payroll deductions that
a participant may authorize under the Purchase Plan and any similar employee
stock purchase plan maintained by the Company or a corporate affiliate may not
exceed fifteen percent (15%) of the participant's base salary.
PURCHASE PRICE
The purchase price per share at which Common Stock will be purchased on the
participant's behalf on each purchase date will be equal to eighty-five
percent (85%) of the lower of (i) the fair market value per share of Common
Stock on the start date of the purchase period during which the purchase date
occurs or (ii) the fair market value per share of Common Stock on that
purchase date.
PURCHASE PROVISIONS
On the last business day of each purchase period, the accumulated payroll
deductions of each participant will automatically be applied to the purchase
of whole shares of Common Stock at the purchase price in effect for the
participant for that purchase period. However, no participant may, on any one
purchase date, purchase more than 500 shares of Common Stock, subject to
periodic adjustments in the event of certain changes in the Company's
capitalization.
VALUATION
The fair market value per share of Common Stock on any relevant date will
be the closing selling price per share on such date on the Nasdaq National
Market. On February 29, 2000, the fair market value per share of Common Stock
was $39.00 per share.
15
<PAGE>
SPECIAL LIMITATIONS
The Purchase Plan imposes certain limitations upon a participant's rights
to acquire Common Stock, including the following limitations:
(i) No purchase right may be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of
all classes of stock of the Company or any of its affiliates.
(ii) No purchase right granted to a participant may permit such individual
to purchase Common Stock at a rate greater than $25,000 worth of such
Common Stock (valued at the time such purchase right is granted) for
each calendar year the purchase right remains outstanding at any time.
(iii) No participant may purchase more than 500 shares of Common Stock on
any one purchase date.
TERMINATION OF PURCHASE RIGHTS
The purchase right will immediately terminate upon the participant's loss
of eligible employee status or upon his or her affirmative withdrawal from the
purchase period. The payroll deductions collected for the purchase period in
which the participant withdraws may, at the participant's election, be
immediately refunded or applied to the purchase of Common Stock at the end of
that purchase period. The payroll deductions collected for the purchase period
in which the participant ceases to be an eligible employee will be immediately
refunded.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the shares
of Common Stock covered by his or her purchase right until the shares are
actually purchased on the participant's behalf. No adjustment will be made for
dividends, distributions or other rights for which the record date is prior to
the date of such purchase.
ASSIGNABILITY
No purchase right will be assignable or transferable other than in
connection with the participant's death and will be exercisable only by the
participant during his or her lifetime.
CORPORATE TRANSACTION
Should the Company be acquired, whether by merger or asset sale during a
purchase period, all outstanding purchase rights will automatically be
exercised immediately prior to the effective date of such acquisition. The
purchase price will be 85% of the lower of (i) the fair market value per share
of Common Stock on the start date of the purchase period during which the
acquisition occurs or (ii) the fair market value per share of Common Stock
immediately prior to such acquisition.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earliest to occur of (i) the last
business day in April 2007, (ii) the date on which all available shares are
issued or (iii) the date on which all outstanding purchase rights are
exercised in connection with an acquisition of the Company.
The Board of Directors may at any time alter, suspend or discontinue the
Purchase Plan. However, the Board of Directors may not, without stockholder
approval, (i) materially increase the number of shares issuable under the
Purchase Plan or the maximum number of shares purchasable per participant on
any one purchase date except in connection with certain changes in the
Company's capital structure, (ii) alter the purchase price formula so as to
reduce the purchase price, (iii) materially increase the benefits accruing to
participants under the Purchase Plan or (iv) materially modify the
requirements for eligibility to participate in the Purchase Plan.
16
<PAGE>
STOCK ISSUANCES
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table of the Executive Compensation and Related
Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of Common Stock purchased under
the Purchase Plan between June 5, 1997 and the most recent October 29, 1999
purchase date, together with the weighted average purchase price paid per
share.
PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF
PURCHASED WEIGHTED AVERAGE
SHARES PURCHASE PRICE
NAME AND POSITION (#) PER SHARE ($)
- ----------------- --------- ----------------
<S> <C> <C>
Timothy D. Webb................................... 500 $3.1875
President, Chief Executive Officer and Director
John M. Velasquez Sr. ............................ 500 $3.1875
Sr. Vice President, Central Area
Pedro A. Fernandez Sr. ........................... -- --
Vice President, Corporate Strategy and Marketing
Kenneth L. Drake.................................. -- --
Vice President, e-Performance
Brent R. Terry.................................... -- --
Vice President, e-TV
All current executive officers as a group (10).... 3,470 $ 4.05
All employees, including current officers who are
not executive officers, as a group............... 217,524 $4.6484
</TABLE>
As of February 29, 2000, 217,524 shares of Common Stock have been purchased
by participants under the Purchase Plan, and 682,476 shares of Common Stock
remained available for issuance, assuming stockholder approval of this
Proposal.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan"
within the meaning of Section 423 of the Internal Revenue Code. Under a plan
which so qualifies, no taxable income will be recognized by a participant, and
no deductions will be allowable to the Company, in connection with the grant
or the exercise of an outstanding purchase right. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the Purchase Plan or in the event the participant should die while still
owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after the start date of the purchase period in which such
shares were acquired, the Company will be entitled to an income tax deduction,
for the taxable year in which such sale or disposition occurs, equal to the
amount by which the fair market value of the shares on the purchase date
exceeded the purchase price paid for those shares.
If the participant sells or disposes of the purchased shares more than two
(2) years after the start date of the purchase period in which such shares
were acquired, the Company will not be entitled to any income tax deduction
with respect to such sale or disposition.
If the participant still owns the purchased shares at the time of death,
the Company will not be entitled to any income tax deduction with respect to
the purchased shares.
ACCOUNTING TREATMENT
Under current accounting rules, the issuance of Common Stock under the
Purchase Plan will not result in a compensation expense chargeable against the
Company's reported earnings. However, the Company must
17
<PAGE>
disclose, in pro-forma statements to the Company's financial statements, the
impact the purchase rights granted under the Purchase Plan would have upon the
Company's reported earnings were the value of those purchase rights treated as
compensation expense.
NEW PLAN BENEFITS
No purchase rights have been granted on the basis of the 500,000-share
increase. The Company estimates that 1,470 shares [of the 500,000-share
increase to the Purchase Plan subject to this Proposal] will be allocated as
follows among the Company's executive officers named in the Summary
Compensation Table of the Executive Compensation and Related Information
section of this Proxy Statement and the various indicated individuals and
groups on the basis of their current rates of payroll deduction to the
Purchase Plan at a purchase price based upon the fair market value of the
shares on November 1, 1999.
SHARE ALLOCATION
<TABLE>
<CAPTION>
NUMBER OF
ALLOCATED
SHARES
NAME AND POSITION (#)
- ----------------- ---------
<S> <C>
Timothy D. Webb................................................... 500
President, Chief Executive Officer and Director
John M. Velasquez................................................. 470
Vice President, Central Area
Pedro A. Fernandez................................................ --
Sr. Vice President, Corporate Strategy and Marketing
Kenneth L. Drake.................................................. --
Vice President, e-Performance
Brent R. Terry.................................................... --
Vice President, e-TV
All current executive officers as a group (10).................... 1,470
All employees, including current officers who are not executive
officers, as a group............................................. 36,184
</TABLE>
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the Company's outstanding voting
shares present or represented and entitled to vote at the Meeting is required
for approval of the amendment to the Purchase Plan. Should such stockholder
approval not be obtained, then the 500,000-share increase to the share reserve
under the Purchase Plan will not be implemented. The Purchase Plan will,
however, continue in effect and purchase rights may continue to be granted and
shares may continue to be purchased by participants under the Purchase Plan
until all the shares available for issuance have been issued under the
Purchase Plan, or if earlier, until termination of the Purchase Plan on the
last business day in April 2007.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board believes that the amendment is in the best interests of the
Company to assure that a sufficient reserve of Common Stock remains available
for issuance under the Purchase Plan in order to provide employees with a
meaningful opportunity to acquire a substantial proprietary interest in the
Company and thereby encourage such individuals to remain in the Company's
service and more closely align their interests with those of the stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE APPROVAL OF THE AMENDMENT TO THE PURCHASE PLAN AND PROXIES EXECUTED
AND RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED
THEREON.
18
<PAGE>
PROPOSAL 4
APPROVAL OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
The Company's stockholders are being asked to approved an amendment to the
Company's Certificate of Incorporation which will change the name of the
corporation from PSW Technologies, Inc. to Concero Incorporated. The Board of
Directors approved the amendment on February 22, 2000 subject to stockholder
approval at this Meeting.
The Board believes the amendment will align the name of the Company with
the brand image the Company is building. Concero is a Latin word that means to
connect, join or bring together. The Board believes the new name reflects our
business strategy of building alliances through which the Company connects
customers and marketing partners. The Company has purchased the URL of
concero.com and has a filed a trademark application for the mark concero.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Company is asking the stockholders to ratify the selection of Ernst &
Young LLP as the Company's independent auditors for the year ending December
31, 2000. 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.
19
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 29, 2000 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 OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) OF CLASS
- ------------------------------------ ------------- --------
<S> <C> <C>
Wade E. Saadi (2)...................................... 1,658,114 16.87%
c/o Pencom Systems Incorporated,
40 Fulton Street
New York, New York 10038
Edward C. Ateyeh, Jr. (3).............................. 1,658,115 16.87
c/o Pencom Systems Incorporated,
40 Fulton Street
New York, New York 10038
Edgar G. Saadi (4)..................................... 1,640,257 16.763
c/o Pencom Systems Incorporated,
40 Fulton Street
New York, New York 10038
W. Frank King, Ph.D. (5)............................... 573,046 5.81
c/o PSW Technologies, Inc.,
6300 Bridgepoint Parkway,
Building 3, Suite 200,
Austin, Texas 78730
Timothy D. Webb (6).................................... 468,216 4.60
John M. Velasquez (7).................................. 85,000 *
Michael J. Maples (8).................................. 55,278 *
Pedro A. Fernandez (9)................................. 36,250 *
Kevin B. Kurtzman (10)................................. 34,010 *
Thomas A. Herring (11)................................. 29,421 *
Brent R. Terry (12).................................... 17,798 *
Kenneth L. Drake, Ph.D. (13)........................... 16,500 *
All directors and executive officers as a group
(sixteen persons) (14)................................ 4,666,415 44.12%
</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 29, 2000 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 this table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable.
(2) Includes 17,857 shares issuable upon exercise of options and 24,872
shares issuable upon exercise of warrants.
(3) Includes 17,857 shares issuable upon exercise of options and 24,872
shares issuable upon exercise of warrants.
20
<PAGE>
(4) Includes 24,872 shares issuable upon exercise of warrants.
(5) Includes 80,000 shares issuable upon exercise of options.
(6) Includes 385,716 shares issuable upon exercise of options. Of these
shares, 285,716 would be unvested and subject to repurchase rights if
exercised.
(7) Includes 37,500 shares issuable upon exercise of options.
(8) Includes 47,278 shares issuable upon exercise of options.
(9) Includes 31,250 shares issuable upon exercise of options.
(10) Includes 34,010 shares issuable upon exercise of options.
(11) Includes 29,421 shares issuable upon exercise of options.
(12) Includes 17,798 shares issuable upon exercise of options.
(13) Includes 16,500 shares issuable upon exercise of options.
(14) See notes 2-13 above.
21
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company as of February 29, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Timothy D. Webb......... 39 President and Chief Executive Officer
Keith D. Thatcher....... 41 Chief Financial Officer, Treasurer & Senior Vice President
Dean H. Blythe.......... 41 Senior Vice President, Corporate Development
Ted L. Downey........... 50 Senior Vice President, Western Area
Pedro A. Fernandez...... 34 Senior Vice President of Corporate Strategy and Marketing
John M. Velasquez....... 36 Senior Vice President, Central Area
Mary Anne Clement....... 40 Vice President, People and Culture
Kenneth L. Drake,
Ph.D. ................. 48 Vice President, e-Performance
Cathy S. Hetzel......... 48 Vice President, e-TV
Nancy A. Richardson,
Esq ................... 39 General Counsel, Secretary and Vice President
</TABLE>
Biographical information concerning Mr. Webb is set forth under "PROPOSAL
1--Election of Directors."
Mr. Thatcher was promoted to Senior Vice President of Finance in February
2000. Mr. Thatcher continues to serve as the Chief Financial Officer and
Treasurer of PSW, positions he has held since May 1998 and October 1996,
respectively. From October 1994 to June 1996, Mr. Thatcher was Chief Financial
Officer, Secretary and Treasurer of Tanisys Technology, Inc., a technology
start-up company involved in developing commercial applications for capacitive
touch technology. Prior thereto, Mr. Thatcher served as Vice President and
Treasurer for Kinetic Concepts, Inc., a medical services and products company,
from 1987 to 1994. From 1985 to 1987, Mr. Thatcher was employed by Peat
Marwick Main & Co. as an audit manager. Mr. Thatcher earned a bachelor's
degree in accountancy from Northern Arizona University.
Mr. Blythe joined PSW in February 2000 to serve as Senior Vice President,
Corporate Development. From October 1994 to February 2000, Mr. Blythe was
Senior Vice President, Corporate Development for Hearst-Argyle Television,
Inc. Prior to that, Mr. Blythe was Vice President, Business Development at
A.H. Belo Corporation. Mr. Blythe holds a bachelor's degree in economics from
Miami University and a J.D. from Duke University.
Mr. Downey was named Senior Vice President, Western Area in February 2000,
after joining PSW in December 1999. From February 1996 to December 1999, Mr.
Downey was a Vice President with Oracle Corporation. Prior to joining Oracle,
Mr. Downey was with Intergraph Corporation. Mr. Downey holds a master's degree
in economics and a bachelor's degree in political science from the University
of Illinois.
Mr. Fernandez was named Senior Vice President of Corporate Strategy and
Marketing in February 2000, having previously served as Vice President of
Corporate Strategy and Marketing since January 1999. Prior to joining PSW, Mr.
Fernandez served as Vice President, People Soft Solutions for Syntel, Inc.
from April 1998 to November 1998. Mr. Fernandez was a Director for Cambridge
Technology Partners from January 1994 to April 1998 and prior to that was
employed by Andersen Consulting. Mr. Fernandez holds a bachelor's degree in
computer engineering from the University of Miami.
Mr. Velasquez was named Senior Vice President, Central Area in February
2000, having previously served as Vice President of Enterprise Solutions since
January 1999. Prior to joining PSW, Mr. Velasquez served as Vice President,
Data Warehousing for Syntel, Inc. from April 1998 until January 1999. From
1994 to 1998, Mr. Velasquez was president of a consulting firm specializing in
systems design and management and prior to that was employed by Andersen
Consulting. Mr. Velasquez holds a bachelor's degree in industrial engineering
from Stanford University.
22
<PAGE>
Ms. Clement was named Vice President, People and Culture in February 2000,
after joining PSW in August 1999 as Associate Vice President, Special
Operations. From December 1993 to August 1999, Ms. Clement was a Director with
McCall Consulting Group. Ms. Clement holds a MBA from Southern Methodist
University and a bachelor's degree from Randolph-Macon Woman's College.
Mr. Drake was named Vice President, e-Performance in February 2000, having
previously served as Vice President of Software Research and Development
Services since February 1999, and as our Vice President of Enterprise
Solutions Migration Services since May 1998. Prior to joining PSW, Mr. Drake
served as President of Technology Business Ventures and Savantage, Inc., both
of which were start-up companies in the software industry, from October 1994
to April 1998. Mr. Drake holds a doctorate in electrical engineering from the
University of Michigan.
Ms. Hetzel was named Vice President, e-TV and Broadband in February 2000.
Prior to PSW, Ms. Hetzel served as Senior Vice President, Residential Business
of Digital Cable Radio Associates in 1998 and 1999. Ms. Hetzel had previously
served as Senior Vice President, Affiliate Sales & Marketing and Sales and
Affiliate Relations for Digital Cable Radio Associates between 1994 and 1998.
Ms. Hetzel attended San Diego State University.
Ms. Richardson was named General Counsel, Secretary, and Vice President of
PSW in May 1998 after providing legal services to the company since May 1997.
Ms. Richardson had been a sole practitioner from November 1995 to May 1998.
Ms. Richardson began her career with Ernst & Young. Ms. Richardson holds a JD
and MBA from the University of Texas and a bachelor's degree in accountancy
from St. Edward's University.
23
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table provides certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and each of the
other four most highly compensated executive officers of the Company whose
salary and bonus for the 1999 year was in excess of $100,000, for services
rendered in all capacities to the Company for the years ended December 31,
1997, 1998 and 1999. The listed individuals shall be hereafter referred to as
the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
----------------------------------------------- -----------
NAME AND PRINCIPAL OTHER ANNUAL STOCK
POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($)(2) OPTIONS (#)
- ------------------ ---- ------------- --------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
Timothy D. Webb......... 1999 329,344 -- 1,612 --
Chief Executive Officer 1998 109,567 -- -- 500,000
1997 -- -- -- --
John M. Velasquez....... 1999 210,938 85,265 746 150,000
Vice President of 1998 -- -- -- --
Enterprise Solutions 1997 -- -- -- --
Pedro A. Fernandez...... 1999 191,666 30,000 -- 125,000
Vice President of Corporate 1998 -- -- -- --
Strategy and Marketing 1997 -- -- -- --
Kenneth L. Drake........ 1999 166,236 -- -- 48,500
Vice President, e-Performance 1998 77,364 -- -- 17,500
1997 -- -- -- --
Brent R. Terry.......... 1999 148,500 -- 1,485 19,648
Vice President of Embedded Solutions 1998 131,667 -- -- 21,700
Vice President of Embedded Solutions 1997 100,108 11,000 -- 4,000
</TABLE>
- --------
(1) Includes salary deferral contributions to the Company's 401(k) Plan.
(2) The indicated amount for each Named Executive Officer is comprised of the
contributions made by the Company on behalf of such individual to the
Company's 401(k) Plan which is part of such officer's salary deferral
contributions to that plan.
24
<PAGE>
STOCK OPTION INFORMATION
The following table sets forth certain information regarding option grants
made pursuant to the Company's 1996 Stock Option/Stock Issuance Plan during
1999 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME GRANTED (#) IN 1999(1) PRICE ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ ------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Timothy D. Webb......... -- -- -- -- -- --
John M. Velasquez....... 150,000 10.29% 3.063 1/25/09 284,550 730,050
Pedro A. Fernandez...... 125,000 8.57% 2.75 1/18/09 212,500 546,250
Kenneth L. Drake........ 48,500 3.32% 3.875 2/9/09 116,157 298,517
Brent R. Terry.......... 17,700 1.21% 3.875 2/9/09 42,391 108,943
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
- --------
(1) Based on an aggregate of 1,457,590 options granted to employees in fiscal
1999, including options granted to the Named Executive Officers.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the 10-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate of the future market price of the Common Stock. These amounts do
not take into account any other appreciation in the price of the Common
Stock from the date of grant to the current date.
No options were exercised by the Named Executive Officers in 1999. The
following table sets forth for each of the Named Executive Officers certain
information concerning the value of unexercised options at the end of 1999:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 (#) DECEMBER 31, 1999 (1)($)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Timothy D. Webb............. 385,716 114,284 6,340,400 1,878,600
John M. Velasquez........... 37,500 112,500 632,812 1,898,438
Pedro A. Fernandez.......... 31,250 93,750 537,125 1,611,375
Kenneth L. Drake............ 4,375 61,625 78,752 1,015,312
Brent R. Terry.............. 12,886 37,693 238,365 450,113
</TABLE>
- --------
(1) Based on an estimated fair value of the Company's Common Stock at December
31, 1999 ($19.94 per share) less the exercise price payable for such
shares.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into an employment agreement with Timothy D. Webb
dated August 28, 1998 (the "Webb Agreement"). Pursuant to the Webb Agreement,
the Company agreed to pay Mr. Webb an annual base salary of $325,000 and to
provide customary fringe benefits. In addition, the Company agreed to issue to
Mr. Webb options under the Plan to purchase an aggregate of 500,000 shares of
Common Stock at $3.50 per share. The options vest over six (6 ) years with
100,000 vesting upon Mr. Webb's completion of six months of employment, an
additional 100,000 vesting upon the completion of two years of employment, an
additional
25
<PAGE>
100,000 vesting upon the completion of three years of employment, 25,000
vesting upon the completion of four years of employment, 75,000 vesting upon
the completion of five years of employment, and 100,000 vesting upon the
completion of six years of service. The options shall be Incentive Stock
Options up to the permitted limitation as of the hire date. Accordingly,
199,997 options were classified as Incentive Stock Options. The Webb Agreement
terminates August 28, 2004.
The Company has entered into employment agreements with no defined
termination dates with each of Messrs. Velasquez, Fernandez, Drake and Terry
dated January 25, 1999, January 18, 1999, May 2, 1998 and June 24, 1992,
respectively (the "Executive Agreements"). Pursuant to the Executive
Agreements, the Company agreed to pay Messrs. Velasquez, Fernandez, Drake, and
Terry annual base salaries of $225,000, $200,000, $175,000 and $150,000,
respectively, and to provide customary fringe benefits.
The Company has entered into written agreements with its officers whereby
in the event of the officer's involuntary termination within 18 months
following an acquisition of the Company or change in control of the Company's
Board of Directors, any unvested options assumed or replaced in connection
with the acquisition or otherwise outstanding will automatically accelerate so
that the option shall become immediately exercisable.
The Executive Agreements contain provisions which, among others, prohibit
the employee from disclosing or otherwise using certain confidential
information, assign to the Company inventions or ideas conceived by the
employee during his employment, prohibit solicitation by the employee of
clients and other employees of the Company and prohibit the employee from
accepting any opportunity (whether by contract or full-time employment) with
the Company's clients. Pursuant to the terms of the Executive Agreements,
either party may terminate the employment relationship without cause upon two
weeks' prior written notice to the other party. The Company may terminate the
employment relationship in its sole discretion without cause, effective
immediately, upon payment of two weeks' salary to the employee or immediately
for cause upon written notice.
The Compensation Committee as Plan Administrator of the Plan will have the
authority to provide for the accelerated vesting of outstanding options held
by the Chief Executive Officer and any other executive officer or the shares
of Common Stock subject to direct issuances held by such individual, in
connection with certain changes in control of the Company or the subsequent
termination of the officer's employment following the change in control event.
KEY-PERSON LIFE INSURANCE
The Company does not maintain key-person life insurance policies on the
lives of any of its executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Executive compensation decisions are made by the Compensation Committee of
the Board of Directors which consists of Messrs. Saadi, Ateyeh and Maples.
None of these individuals was an officer or employee of the Company at any
time during the 1999 fiscal year or at any other time. During 1999, no current
executive officer of the Company served as a member of the Board of Directors
or compensation committee of any other entity that has or has had one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
It is the duty of the Compensation Committee to review and determine the
salaries and incentive compensation of the officers of the Company, including
the President and Chief Executive Officer, and provide recommendations for the
salaries and incentive compensation of the other employees and the consultants
of the Company. The Compensation Committee also administers various incentive
compensation, stock and benefit plans.
26
<PAGE>
The Compensation Committee believes that the compensation programs for the
Company's executive officers should reflect the Company's performance and the
value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and
values of the Company and should reward individual contribution to the
Company's success. The market for system integration and software development
services is very competitive, and the Company's success depends upon its
ability to attract and retain qualified executives through the competitive
compensation packages it offers to such individuals.
General Compensation Policy. The Compensation Committee's policy is to
provide the Company's executive officers with compensation opportunities which
are based upon their personal performance, the financial performance of the
Company and their contribution to that performance and which are competitive
enough to attract and retain highly skilled individuals. Each executive
officer's compensation package is comprised of three elements: (i) base salary
that is competitive with the market and reflects individual performance, (ii)
annual variable performance awards payable in cash or stock options and tied
to the Company's achievement of annual financial performance goals and (iii)
long-term stock based incentive awards designed to strengthen the mutuality of
interests between the executive officers and the Company's stockholders. As an
officer's level of responsibility increases, a greater proportion of his or
her total compensation will be dependent upon the Company's financial
performance and stock price appreciation rather than base salary.
Compensation decisions were made by the Compensation Committee. The
principal factors that were taken into account in establishing each executive
officer's compensation package for 1999 are described below. However, the
Compensation Committee may in its discretion apply entirely different factors,
such as different measures of financial performance, for future fiscal years.
Base Salary. The base salary for each officer reflects the salary levels
for comparable positions in similar companies, such as systems integrators and
software companies, as well as the individual's personal performance and
internal alignment considerations. The relative weight given to each factor
varies with each individual in the sole discretion of the Compensation
Committee. Each executive officer's base salary is subject to minimums set
forth in their respective employment agreements and is adjusted each year on
the basis of (i) the Compensation Committee's evaluation of the officer's
personal performance for the year and (ii) the competitive marketplace for
persons in comparable positions. The Company's performance and profitability
may also be a factor in determining the base salaries of executive officers.
Annual Incentives. The Company maintains a cash incentive to reward
executive officers and other key employees for attaining defined performance
targets. For most executive officers and other key employees, bonuses are
based primarily on Company-wide performance targets. For some management
personnel, Company-wide performance is a factor, however significant weight is
also given to individual performance and performance of an operating group
within the Company. Upon achievement of a performance target, an employee is
entitled to a cash payment.
In setting performance targets, the Company considered its historical
performance and underlying business model, and external as well as internal
expectations related to 1999 revenue and operating profits. The financial
factors were derived directly from the Company's 199 operating plan.
Long Term Incentives. Generally, stock option grants for the Company's
executive officers are reviewed twice annually by the Compensation Committee.
Each grant is designed to maintain a significant unvested position to provide
incentives to create stockholder value and allows the officer to acquire
shares of the Company's Common Stock at a fixed price per share (the fair
value on the grant date) over a specified period of time (up to ten years).
Options are immediately exercisable, but option shares that are purchased
subject to vesting restrictions are repurchasable by the Company at the
exercise price if the officer's employment is terminated prior to the vesting
date.
27
<PAGE>
The size of the option grant to each executive officer, including the Chief
Executive Officer, is set by the Compensation Committee at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, the individual's personal
performance in recent periods and his or her potential for future
responsibility and promotion over the option term. The relevant weight given
to each of these factors varies from individual to individual. The
Compensation Committee has established certain guidelines with respect to the
option grants made to the executive officers, but has the flexibility to make
adjustments to those guidelines at its discretion.
CEO Compensation. In setting the total compensation payable to Mr. Webb,
the Company's President and Chief Executive Officer, for the 1999 fiscal year,
the Compensation Committee sought to make that compensation competitive with
the chief executive officers of other comparable companies, while at the same
time assuring that a significant percentage of compensation was incentive
based, primarily tied to Company performance and stock price appreciation.
The Compensation Committee sets Mr.Webb's base salary with the objective of
maintaining his base salary at a competitive level when compared with the base
salary levels in effect for similarly situated chief executive officers.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code disallows a tax deduction to publicly held companies for
compensation paid to certain of their executive officers, to the extent that
such compensation exceeds $1 million per covered officer in any fiscal year.
The limitation applies only to the compensation which is not considered to be
performance-based. Non-performance based compensation paid to the Company's
executive officers for 1999 did not exceed the $1 million limit per officer,
and the Compensation Committee does not anticipate that the non-performance
based compensation to be paid to the Company's executive officers for 2000
will exceed that limit. The Plan has been structured so that any compensation
deemed paid in connection with the exercise of option grants made under the
Plan with an exercise price equal to the fair market value of the option
shares on the grant date will qualify as performance-based compensation which
will not be subject to the $1 million limitation. Because it is unlikely that
the cash compensation payable to any of the Company's executive officers in
the foreseeable future will approach the $1 million limit, the Compensation
Committee has decided at this time not to take any action to limit or
restructure the elements of cash compensation payable to the Company's
executive officers. The Compensation Committee will reconsider this decision
should the individual cash compensation of any executive officer ever approach
the $1 million level.
It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration
program to properly align the Company's performance and the interests of the
Company's stockholders through the use of competitive and equitable executive
compensation in a balanced and reasonable manner, for both the short and long-
term.
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STOCK PERFORMANCE GRAPH
The graph below depicts the Company's stock price as an index assuming $100
invested on June 5, 1997 (the date of the Company's initial public offering),
along with the composite prices of companies listed in the S & P Software &
Services Companies Index and Nasdaq Stock Market (U.S. Companies) Index. This
information has been provided to the Company by the Standard & Poor's
Computers Index and 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.
Cumulative Total Return
---------------------------------------
6/5/97 12/97 12/98 12/99
PSW TECHNOLOGIES, INC. 100.00 161.11 33.33 221.53
NASDAQ STOCK MARKET (U.S.) 100.00 112.86 159.04 287.32
S&P COMPUTERS (SOFTWARE & SERVICES) 100.00 104.21 188.82 349.19
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.
29
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CERTAIN TRANSACTIONS WITH MANAGEMENT
Pencom Relationship
The Company entered into an agreement with Pencom effective as of January
31, 1997 whereby the Company guaranteed obligations of Tivoli Systems, Inc., a
Texas corporation and wholly-owned subsidiary of IBM ("Tivoli") under Pencom's
sublease agreement with Tivoli. Such sublease agreement expires on September
30, 2000 and provided for annual rent of approximately $380,404 in 1999.
Registration Rights Agreement
The Company has entered into an agreement with certain of its existing
stockholders and the warrantholders pursuant to which such stockholders and
warrantholders were granted certain registration rights.
Employment Agreements
The Company has entered into employment agreements with all of its
executive officers. See "Employment Contracts and Change of Control
Agreements".
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 of Common Stock and Company securities 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 upon a 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 following individuals inadvertently filed late
Forms 4 for reporting sales of common stock: Edward C. Ateyeh, Jr., Edgar G.
Saadi, and Wade E. Saadi. The Company believes that, during 1999, its other
executive officers, directors, and greater than 10% beneficial owners complied
with all other applicable Section 16(a) reporting requirements.
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 the 2001 Annual
Meeting of Stockholders is December 21, 2000. 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.
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 6300 BRIDGEPOINT
PARKWAY, BUILDING 3, SUITE 200, AUSTIN, TEXAS 78730.
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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/ NANCY A. RICHARDSON
NANCY A. RICHARDSON
Secretary
April 20, 2000
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PSW TECHNOLOGIES, INC.
The undersigned hereby appoints Timothy D. Webb and Wade E. Saadi as proxies,
and each of them, with full power of substitution, and hereby authorizes them to
represent the undersigned and to vote all of the shares of Common Stock of PSW
TECHNOLOGIES, INC. (the "Company") held of record by the undersigned on March
31, 2000 at the Annual Meeting of Stockholders of the Company to be held on
Wednesday May 17, 2000, and any adjournment(s) thereof as follows and in
accordance with their judgment upon any other matter properly presented:
(Continued, and to be marked, dated and signed, on the other side)
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<CAPTION>
<S> <C> <C>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. Please mark
IF DIRECTIONS ARE NOT INDICATED, THE PROXY WILL BE VOTED TO ELECT THE NOMINEES DESCRIBED your votes as [X]
IN ITEM 1 AND FOR ITEMS 2, 3, 4 AND 5. indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR FOR WITHHELD FOR AGAINST ABSTAIN
ITEMS 1, 2, 3, 4 AND 5. FOR ALL
Item 1. Election of Seven Directors [_] [_] ITEM 2- APPROVAL OF AN AMENDMENT TO [_] [_] [_]
1996 STOCK OPTION/STOCK
Nominees ISSUANCE PLAN.
Dr. W. Frank King, Wade E. Saadi, Edward C. Ateyeh, Jr., ITEM 3- APPROVAL OF AN AMENDMENT TO [_] [_] [_]
Thomas A. Herring, Kevin B. Kurtzman, Michael J. Maples EMPLOYEE STOCK PURCHASE PLAN.
and Timothy D. Webb
ITEM 4- APPROVAL OF AN AMENDMENT TO [_] [_] [_]
(INSTRUCTION: To withhold authority to vote for any individual THE CERTIFICATE OF
nominee, write that nominee's name in the space provided below.) INCORPORATION.
__________________________________________________________
ITEM 5- RATIFY THE APPOINTMENT OF [_] [_] [_]
ERNST & YOUNG AS INDEPENDENT
AUDITORS FOR THE FISCAL YEAR 2000.
_____
|
|
SIGNATURE _____________________________________ SIGNATURE ________________________________________ DATE ____________
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. IF SHARES ARE HELD JOINTLY, ALL HOLDERS MUST SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY
PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
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