SCHEDULE 14A (Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14(a) INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of
|_| Definitive Proxy Statement the Commission only (as
|_| Definitive Additional Materials permitted by Rule 14a-6(e)(2))
|_| Soliciting Material Under Rule 14a-12
MERCATOR SOFTWARE, INC.
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
--------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount previously paid:
--------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
[LOGO OF MERCATOR SOFTWARE APPEARS HERE]
May 12, 2000
To Our Stockholders:
You are cordially invited to attend the 2000 Annual Meeting of
Stockholders of Mercator Software, Inc. to be held at the Landmark Club located
at 1 Landmark Square, Stamford, Connecticut, on Monday, June 19, 2000, at 9:30
a.m. Eastern Time.
The matters expected to be acted upon at the meeting are described in
detail in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement.
Please use this opportunity to take part in the Company's affairs by
voting on the business to come before this meeting. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE PRIOR TO THE MEETING SO
THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING. Returning the proxy does
not deprive you of your right to attend the meeting and to vote your shares in
person.
We hope to see you at the meeting.
Sincerely,
Constance F. Galley
President and Chief Executive Officer
<PAGE>
MERCATOR SOFTWARE, INC.
45 DANBURY ROAD
WILTON, CONNECTICUT 06897
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 19, 2000
----------------
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Mercator
Software, Inc. (the "Company") will be held at the Landmark Club located at 1
Landmark Square, Stamford, Connecticut, on Monday, June 19, 2000, at 9:30 a.m.
Eastern Time.
At the meeting, you will be asked to consider and vote upon the following
matters:
1. The election of five directors of the Company, each to serve until the
next Annual Meeting of Stockholders and until his or her successor has been
elected and qualified or until his or her earlier resignation, death or removal.
The Company's Board of Directors intends to present the following nominees for
election as directors:
Constance F. Galley Ernest E. Keet Richard Little
Dennis G. Sisco James P. Schadt
2. A proposal to approve an amendment to the Company's Amended and
Restated Certificate of Incorporation to increase the number of shares of Common
Stock reserved for issuance thereunder by 120,000,000 shares to an aggregate of
190,000,000 shares.
3. A proposal to approve an amendment to the Company's 1997 Equity
Incentive Plan to increase the number of shares reserved for issuance thereunder
by 1,950,000 shares to an aggregate of 6,700,000 shares.
4. A proposal to ratify the selection of KPMG LLP as the Company's
independent accountants for the fiscal year ending December 31, 2000.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on April 24, 2000 are entitled to notice of and to vote at the meeting
or any adjournment or postponement thereof.
By Order of the Board of Directors
Ira A. Gerard
Vice President, Finance and
Administration, Chief Financial Officer,
Treasurer and Secretary
Wilton, Connecticut
May 12, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
<PAGE>
MERCATOR SOFTWARE, INC.
45 DANBURY ROAD
WILTON, CONNECTICUT 06897
-----------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 19, 2000
-----------------
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of Mercator Software, Inc., a Delaware corporation (the "Company"
or "Mercator Software"), for use at the Annual Meeting of Stockholders of the
Company to be held at the Landmark Club located at 1 Landmark Square, Stamford,
Connecticut, on Monday, June 19, 2000, at 9:30 a.m. Eastern Time and any
adjournments thereof (the "Meeting"). This Proxy Statement and the accompanying
form of proxy were first mailed to stockholders on or about May 12, 2000. An
annual report and a Form 10-K for the year ended December 31, 1999 are enclosed
with this Proxy Statement.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Record Date; Quorum
Only holders of record of the Company's Common Stock, par value $.01 per
share (the "Common Stock") at the close of business on April 24, 2000 (the
"Record Date") will be entitled to vote at the Meeting. A majority of the shares
outstanding on the Record Date will constitute a quorum for the transaction of
business at the Meeting. At the close of business on the Record Date, the
Company had approximately ______________ shares of Common Stock outstanding and
entitled to vote.
Voting Rights; Required Vote
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the Record Date. Shares of Common Stock may not be voted
cumulatively. In the event that a broker, bank, custodian, nominee or other
record holder of Mercator Software Common Stock indicates on a proxy that it
does not have discretionary authority to vote certain shares on a particular
matter (a "broker non-vote"), then those shares will not be considered present
and entitled to vote with respect to that matter, although they will be counted
in determining whether or not a quorum is present at the Meeting.
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Meeting and
entitled to vote on the election of directors. Proposal No. 2 requires the
affirmative vote of a majority of the shares of Common Stock outstanding on the
Record Date. Proposals No. 3 and 4 require for approval the affirmative vote of
the majority of shares of Common Stock present in person or represented by proxy
at the Meeting that are voted for or against the proposal. Abstentions and
broker non-votes will be counted for purposes of determining a quorum.
Abstentions and broker non-votes will have the effect of a vote against Proposal
No. 2, and will not be counted as a vote "for" or "against" the election of
directors and Proposals No. 3 and 4. All votes will be tabulated by the
inspector of elections appointed for the Meeting who will separately tabulate,
for each proposal, affirmative and negative votes, abstentions and broker
non-votes.
Voting Of Proxies
The proxy accompanying this Proxy Statement is solicited on behalf of the
Board for use at the Meeting. Stockholders are requested to complete, date and
sign the accompanying proxy card and promptly return it in the enclosed envelope
or otherwise mail it to Mercator Software. All signed, returned proxies that are
not revoked will be voted in accordance with the instructions contained therein;
however, returned signed proxies that give no instructions as to how they should
be voted on a particular proposal at the Meeting will be counted as votes "for"
such proposal (or, in the case of the election of directors, as a vote "for"
election to the Board of all the nominees presented by the Board).
<PAGE>
In the event that sufficient votes in favor of the proposals are not
received by the date of the Meeting, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies. Any such adjournment would require the affirmative vote of the majority
of the shares present in person or represented by proxy at the Meeting.
The expenses of soliciting proxies to be voted at the Meeting will be paid
by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company will request that brokers, custodians,
nominees and other record holders of the Company's Common Stock forward copies
of the proxy and other soliciting materials to persons for whom they hold shares
of Common Stock and request authority for the exercise of proxies. In such
cases, the Company, upon the request of the record holders, will reimburse such
holders for their reasonable expenses. The original solicitation of proxies by
mail may be supplemented by telephone, telegram or personal solicitation by
directors, officers and employees of the Company.
Revocability Of Proxies
Any person signing a proxy in the form accompanying this Proxy Statement
has the power to revoke it prior to the Meeting or at the Meeting prior to the
vote pursuant to the proxy. A proxy may be revoked by a writing delivered to the
Company stating that the proxy is revoked, by a subsequent proxy that is signed
by the person who signed the earlier proxy and is presented at the Meeting, or
by attendance at the Meeting and voting in person. Please note, however, that if
a stockholder's shares are held of record by a broker, bank or other nominee and
that stockholder wishes to vote at the Meeting, the stockholder must bring to
the Meeting a letter from the broker, bank or other nominee confirming that
stockholder's beneficial ownership of the shares and that such broker, bank or
other nominee is not voting such shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Mercator Software Common Stock as of April 24, 2000 by:
(i) each stockholder known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock; (ii) each director and nominee; (iii) the
Company's current Chief Executive Officer and each of the Company's four other
most highly compensated executive officers; and (iv) all directors and executive
officers as a group. Except as otherwise indicated in the footnotes to the
table, the beneficial owners have sole voting and investment power (subject to
community property laws where applicable) as to all of the shares beneficially
owned by them.
<TABLE>
<CAPTION>
Percent
Amount and Nature of of Outstanding
Name of Beneficial Owner Beneficial Ownership (1) Common Stock (1)
- ------------------------ ------------------------ ----------------
<S> <C> <C>
Chilton Investment Partners (2) 2,223,000 7.9%
Scudder Kemper Investments, Inc. (3) 2,154,600 7.7%
Constance F. Galley (4) 1,033,968 3.6%
Ernest E. Keet 1,013,354 3.6%
Vanguard Atlantic Ltd. (5)
Richard Little (6) 836,234 2.9%
Ira A. Gerard (7) 312,658 1.1%
Saydean Zeldin (8) 233,500 *
Eric A. Amster (9) 162,844 *
</TABLE>
<PAGE>
Patricia T. Boggs (10) 43,408 *
Dennis G. Sisco 42,500 *
James P. Schadt 22,457 *
All executive officers and directors as
a group (14 persons) (11) 3,854,521 13.5%
* Less than 1%
(1) Based upon a total of (i) 28,468,458 shares of Common Stock outstanding as
of March 10, 2000, and (ii) shares of common stock issuable pursuant to options
held by the respective person or group which may be exercised within 60 days of
the record date. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with respect to
all shares beneficially owned, subject to community property laws where
applicable. Shares of Common Stock subject to options that are currently
exercisable or exercisable within 60 days of April 24, 2000 are deemed to be
outstanding and to be beneficially owned by the person holding such options for
the purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.
(2) Based upon a Schedule 13G dated February 14, 2000. The shares include
2,223,000 shares in which the Chilton Investment Company, Inc. ("Chilton") has
sole power to vote or direct the vote. The shares include 2,223,000 shares in
which Chilton has sole power to dispose or direct the disposition of. The
address of Chilton is 65 Locust Avenue, 2nd Floor, New Canaan, Connecticut
06480.
(3) Based upon a Schedule 13G dated January 28, 2000. The shares include
1,232,600 shares in which Scudder Kemper Investments, Inc. ("Scudder") has sole
power to vote or to direct the vote and 274,600 shares in which Scudder has
shared power to vote or to direct the vote. The address of Scudder is 345 Park
Avenue, New York, NY 10154.
(4) Includes 56,250 shares of Common Stock subject to options exercisable within
60 days of April 24, 2000, and 50,010 shares of Common Stock issuable upon
exercise of Warrants. Also includes 10,150 shares of Common Stock owned by Ms.
Galley's husband, Richard Galley. Ms. Galley disclaims beneficial ownership of
shares owned by Mr. Galley. *
(5) Includes 804,768 shares of Common Stock held of record by Vanguard Atlantic
Ltd. ("Vanguard"), 50,000 shares of Common Stock held of record by the Ernest E.
& Nancy R. Keet Foundation and 121,086 shares of Common Stock held of record by
Mr. Keet. Mr. Keet, a director of the Company, is the President of Vanguard and
may be deemed to beneficially own the shares owned by such entity. Mr. Keet
disclaims beneficial ownership of the shares held by Vanguard and by the Ernest
E. & Nancy R. Keet Foundation except to the extent of his indirect pecuniary
interest therein. The address of Vanguard is 304 Main Avenue, Suite 290,
Norwalk, Connecticut 06851 and the address of Mr. Keet is P.O. Box 1199, Moir
Road/Lake Colby, Saranac Lake, NY 12983.
(6) Includes 7,500 shares of Common Stock subject to options exercisable within
60 days of April 24, 2000. Also includes 433,648 shares of Common Stock held of
record by the Fiscal Services International as Nominee for Richard Little ("FSI
Nominee"), and 395,086 held of record by Fiscal Services International as
Trustees of the Little No. 1 Trust ("FSI Trustee"). Mr. Little disclaims
beneficial ownership of the shares held by FSI Nominee and FSI Trustee except to
the extent of his indirect pecuniary interest therein. *
(7) Includes 6,250 shares of Common Stock subject to options exercisable within
60 days of April 24, 2000.*
(8) Includes 12,500 shares of Common Stock subject to options exercisable within
60 days of April 24, 2000. Also includes 18,000 shares of Common Stock, 7,500
vested options, 7,500 shares of Common Stock subject to options exercisable
within 60 days of April 24, 2000 and 12,000 warrants all of which are held by
Ms. Zeldin's husband, Edward Watson. Ms. Zeldin disclaims beneficial ownership
of the shares and options held by Mr. Watson. *
<PAGE>
(9) Includes 10,000 shares of Common Stock subject to options exercisable within
60 days of April 24, 2000.*
(10) Includes 25,000 shares of Common Stock subject to options exercisable
within 60 days of April 24, 2000.*
(11) Includes an aggregate of 3,854,521 shares of Common Stock subject to
options currently exercisable or exercisable within 60 days of April 24, 2000,
and 62,010 shares of Common Stock issuable upon exercise of Warrants, including
the options and Warrants described in footnotes (4) through (10).
*Address of record is c/o Mercator Software, Inc., 45 Danbury Road, Wilton, CT
06897.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board currently consists of five directors, all of whom are nominated
for reelection at the Meeting. Each director will be elected to serve until the
next annual meeting of stockholders and until his or her successor is duly
elected and qualified or until such director's earlier resignation, death or
removal.
Shares represented by the accompanying proxy will be voted "for" the
election of the five nominees recommended by the Board unless the proxy is
marked in such a manner as to withhold authority so to vote. In the event that
any nominee for any reason is unable to serve or for good cause will not serve,
the proxies may be voted for such substitute nominee as the proxy holder may
determine. The Company is not aware of any nominee who will be unable to or for
good cause will not serve as a director.
Directors will be elected by a plurality of the votes of the shares
present in person or represented by proxy at the Meeting and entitled to vote in
the election of directors. The five nominees for election of directors who
receive the greatest number of votes cast for the election of directors at the
meeting, a quorum being present, will become directors at the conclusion of the
tabulation of votes.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINATED DIRECTORS.
Nominees
The names of the nominees, each of who is currently a director of the
Company, and certain information about them, are set forth below:
<TABLE>
<CAPTION>
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- ---------------- --- -------------------- --------------
<S> <C> <C> <C>
Constance F. Galley 58 President, Chief Executive Officer, Director, 1985
Mercator Software
Ernest E. Keet (1)(2) 59 President, Vanguard Atlantic Ltd. 1985
Richard Little 44 Chairman, Dove Tail 1999
James P. Schadt (1)(2) 61 Chairman, Dailey Capital Management, LLC 1998
Dennis G. Sisco (1)(2) 53 Partner, Behrman Capital 1990
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Constance F. Galley has been President, Chief Executive Officer and a director
of Mercator Software since its founding in 1985. Ms. Galley brings over 25 years
of experience in the computer
<PAGE>
software industry, including positions at IBM and Dun & Bradstreet. Ms. Galley
is Vice President of the Board of Directors of the Connecticut Technology
Council, Chairman of the Software/IT Cluster Advisory Board, and Vice-Chair of
the Governor's Council on Economic Competitiveness and Technology. She is also
Chairman of the software division of ITAA and a member of the ITAA Board of
Directors. She is past Chairman and a member of SACIA, The Business Council of
Southwestern Connecticut. Ms. Galley holds a Bachelor of Arts degree in
Chemistry from Duke University.
Ernest E. Keet has served as a director of Mercator Software since April 1985.
Mr. Keet has been the President and a member of the Board of Directors of
Vanguard Atlantic Ltd. since April 1984. Mr. Keet is a director and member of
the Executive Committee of AccentHealth (formerly Axolotl Corp.), and from May
1995 until December 1996, was the President of Axolotl Corp. Mr. Keet also
served as the Chairman and Chief Executive Officer of ECsoft N.V and B.V. from
1990 through 1994.
Richard Little has served as a director of Mercator Software since March 1999,
when Mercator Software acquired Braid Group Limited, a specialist EAI software
house serving the financial services industry, of which he was the founder and
controlling shareholder. Mr. Little had served as Managing Director of Braid
Systems Limited (1982 to 1993), as President of Braid Inc. in the United States
(1993 to 1996), as Managing Director of Braid Limited in Hong Kong (1996 to
1998), and finally as Chief Executive Officer of the Braid Group prior to the
Mercator Software acquisition of Braid. Mr. Little previously worked in the
computer industry as a sales representative for the U.S. firm Burroughs, and as
sales manager for the British firm RAIR. Mr. Little attended St. Benedict's
School in London, and obtained his Master of Arts degree in English Literature
and Oriental Studies from Cambridge University.
James P. Schadt was elected as a director of Mercator Software on August 27,
1998. Mr. Schadt is the Chairman of Dailey Capital Management, LLC. From July
1994 until August 1997, Mr. Schadt was the Chief Executive Officer of Readers
Digest Association, Inc. Mr. Schadt joined Readers Digest in 1991 as its
President and Chief Operating Officer. Previously, Mr. Schadt was a director of
Cadbury Schweppes, PLC and the Chief Executive Officer of Cadbury Beverages,
Inc., its global beverages operation. Mr. Schadt also serves on the board of
trustees of The American Enterprise Institute and Northwestern University, where
he earned his Bachelor of Arts degree.
Dennis G. Sisco has served as a director of Mercator Software since January
1990. Mr. Sisco is a partner with Behrman Capital. From December 1988 until
February 1997, Mr. Sisco was the President of D&B Enterprises, Inc. (now
Cognizant Enterprises, Inc.). From December 1988 until February 1997, Mr. Sisco
had also been employed by Cognizant Corporation and its predecessor, The Dun &
Bradstreet Corporation, most recently as an Executive Vice President. Mr. Sisco
is also a director of the Gartner Group, Inc., Oacis Healthcare Holdings
Corporation, and Aspect Development, Inc.
Board of Directors Meetings and Committees
Board of Directors
During 1999, the Board met fifteen times, including eleven telephone
conference meetings, and acted by written consent five times. No director
attended fewer than 75% of the aggregate of the total number of meetings of the
Board (held during the period for which he was a director) and the total number
of meetings held by all committees of the Board on which such director served
(during the period that such director served).
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing similar functions.
Audit Committee
Only independent Board members comprise the current members of the Audit
Committee (specifically, Messrs. Keet, Schadt and Sisco). The Audit Committee
had two telephone conference meetings during 1999 which all members attended.
The Audit Committee meets with the Company's independent accountants to review
the adequacy of the Company's internal control systems and financial reporting
procedures; reviews the general
<PAGE>
scope of the Company's annual audit and the fees charged by the independent
accountants; reviews and monitors the performance of non-audit services by the
Company's auditors, reviews the fairness of any proposed transaction
between the Company and any officer, director or other affiliate of the Company
(other than transactions subject to the review of the Compensation Committee),
and after such review, makes recommendations to the full Board; and performs
such further functions as may be required by any stock exchange or
over-the-counter market upon which the Company's Common Stock may be listed.
Compensation Committee
During 1999, the Compensation Committee acted by written consent three
times. Messrs. Keet, Schadt and Sisco are the current members of the
Compensation Committee. The Compensation Committee recommends compensation for
officers and employees of the Company and grants (or delegates authority to
grant) options and other awards under the Company's stock option and employee
benefit plans. The Compensation Committee has designated Ms. Galley the
authority to grant limited stock options to persons who are not subject to the
trading restrictions or reporting requirements of Section 16 of the Securities
Exchange Act of 1934.
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
Executive Officers
NAME AGE POSITION IN THE COMPANY
- ---- --- -----------------------
Constance F. Galley 58 President, Chief Executive Officer and Director
Eric A. Amster 45 Vice President, Sales
Patricia T. Boggs 48 Vice President, Worldwide Professional Services
Albert Denz 49 Vice President, Managing Director EUMA and AP
Ira A. Gerard 52 Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
R. Antony Percy 53 Vice President, Strategic Planning
W. David Power 47 Vice President, Marketing
David M. Raye 38 Vice President, Operations
Saydean Zeldin 59 Sr. Vice President, Research and Development,
and CTO
Constance F. Galley has been President, Chief Executive Officer and a director
of Mercator Software since its founding in 1985. Ms. Galley brings over 25 years
of experience in the computer software industry, including positions at IBM and
Dun & Bradstreet. Ms. Galley is Vice President of the Board of Directors of the
Connecticut Technology Council, Chairman of the Software/IT Cluster Advisory
Board, and Vice-Chair of the Governor's Council on Economic Competitiveness and
Technology. She is also Chairman of the software division of ITAA and a member
of the ITAA Board of Directors. She is past Chairman and a member of SACIA, The
Business Council of Southwestern Connecticut. Ms. Galley holds a Bachelor of
Arts degree in Chemistry from Duke University.
Eric A. Amster has been Vice President, Sales since joining the Company in
December 1995. From February 1992 until December 1995, Mr. Amster was employed
by General DataComm Industries, Inc., a data communications company, where he
served most recently as Vice President of U.S. Federal and Commercial Sales. Mr.
Amster holds a Bachelor of Science degree in Computer Science from the
University of Maryland.
<PAGE>
Patricia T. Boggs has been Vice President, Worldwide Professional Services since
joining the Company in June 1997. From February 1991 to 1997, Ms. Boggs was
employed by Datalogix International Inc., where she served most recently as Vice
President of Client Services. Prior to 1991 Ms. Boggs was an Assistant Professor
at both John Carroll University in University Heights, Ohio and Wright State
University in Dayton, Ohio. Ms. Boggs holds a Masters Degree in Economics and a
Doctorate in Operations Research/Statistics from Kent State University.
Albert Denz, Managing Director and Vice President International Operations
joined Mercator Software in January 1999 from SAP AG where he served as Vice
President, Corporate Marketing beginning in 1996. Prior to SAP, Mr. Denz had a
19-year career at IBM where he served in various executive sales positions and
as IBM's international director of SAP operations. Mr. Denz graduated from the
University of Teubingen in Saarbruecken, Germany, with a degree in Economics.
Ira A. Gerard has been Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary since joining the Company in October
1995. From March 1994 to October 1995, Mr. Gerard served as Vice President and
Chief Financial Officer of Adage Systems International, Inc., an ERP software
company. From July 1993 to March 1994, Mr. Gerard was an independent consultant.
From December 1989 until July 1993, Mr. Gerard was employed by Gestetner PLC, a
photocopier and photographic equipment company, where he served most recently as
Vice President, Finance and Operations. Mr. Gerard holds a Bachelor of Arts
degree in Economics from Union College and a Master of Business Administration
from Harvard University.
R Antony Percy, Vice President, Strategic Planning joined Mercator Software in
January 1999 after more than ten years at Gartner Group where he was Vice
President, Director of Research, and Research Fellow covering primarily database
and middleware topics. At Gartner Group, Mr. Percy built an international
reputation for his forthright, provocative, but ultimately correct forecasts
about the software industry and technology trends. Mr. Percy started his
professional career as a Systems Engineer with IBM in the United Kingdom in
1969, followed by experience as both a customer and provider of technology,
including positions at 3M UK and Applied Data Research. He is a well-known
industry speaker, and his articles have appeared in numerous publications. Mr.
Percy earned his Masters degree in Modern Languages (German and Russian) at
Christ Church, Oxford.
W. David Power became Vice President, Marketing for Mercator Software in
September 1999 bringing 18 years of marketing and management experience in high
technology companies. Prior to joining the Company, Mr. Power was Chief
Executive Officer and President of Novera, a company he joined in July 1998.
Prior to Novera, he was Senior Vice President of Marketing and Corporate
Development at Security Dynamics, Inc. Mr. Power joined Security Dynamics from
AT&T. Additionally, he served as Vice President and General Manager for two Sun
Microsystems software businesses, and was Vice President and co-founder of the
Information Technology Industry Group at Mercer Management Consulting. Mr. Power
received his Masters of Business Administration from Stanford University and
holds Bachelor of Science and Masters of Science degrees from Tufts University.
David M. Raye has been the Vice President, Operations of the Company since June
1994. From August 1992 until May 1994, Mr. Raye served as Vice President,
KEY/MASTER Operations. From 1991 until July 1992, Mr. Raye served as the
Company's Director of Operations. Prior to August 1991, Mr. Raye served in
various management capacities in the software industry including Director of
Marketing for Information Sciences and Senior Product Marketing Manager for
On-Line Software, International. Mr. Raye holds a Bachelor of Science degree in
Marketing from Rutgers University and a Master of Business Administration from
St. John's University, New York.
<PAGE>
Saydean Zeldin was Vice President, Research and Development of the Company since
October 1994, and has been Sr. Vice President, Research and Development and CTO
since February 2000. From November 1990 to October 1994, Ms. Zeldin was a
consultant to the Company and a general partner at DownEast Partners, a
consulting company. Prior to 1990, Ms. Zeldin served in several senior
engineering positions in the software industry, including serving as Founder and
President of Touchstone Engineering, a software company that developed a
management planning system using artificial intelligence technology, and
guidance development of the Apollo flight software at the Instrumentation
Laboratory, a laboratory of MIT. Ms. Zeldin holds a Bachelor of Arts degree in
Physics from Temple University.
Executive Compensation Summary
The following table sets forth all compensation awarded, earned or paid
for services rendered in all capacities to Mercator Software and its
subsidiaries during 1997, 1998 and 1999 to (i) Mercator Software's Chief
Executive Officer, and (ii) Mercator Software's four other most highly
compensated executive officers who were serving as executive officers at the end
of 1999 (the "Named Executive Officers"). This information includes the dollar
values of base salaries and bonus awards, the number of shares subject to stock
options granted and certain other compensation, if any, whether paid or
deferred. Mercator Software does not grant stock appreciation rights and has no
long-term compensation benefits other than stock options.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- ------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary Bonus (1) Compensation (2) Options (3)
- --------------------------- ---- ------ --------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Constance F. Galley 1999 $338,231 $186,564 $ 9,725 80,000
President, Chief Executive Officer 1998 225,000 96,454 6,702 40,000
and Director 1997 203,538 50,000 4,952 225,000
Eric A. Amster 1999 $195,563 $121,497 $200,252(4) 40,000
Vice President, Sales 1998 125,000 ---- 245,705(4) 30,000
1997 125,000 ---- 184,918(4) ----
Patricia T. Boggs 1999 $180,000 $ 40,000 $ 10,395 40,000
Vice President, Worldwide 1998 153,012 45,000 9,523 30,000
Professional Services 1997 90,623 10,000 4,258 60,000
Saydean Zeldin 1999 $150,000 $ 65,000 $ 5,126 50,000
Sr. Vice President, R&D and CTO 1998 155,000 45,000 4,449 50,000
1997 154,808 26,667 2,859 ----
Ira A. Gerard 1999 $160,000 $ 50,000 $ 10,386 25,000
Vice President, Finance and 1998 160,000 45,000 11,362 30,000
Administration, Chief Financial 1997 159,892 26,667 6,417 ----
Officer, Secretary & Treasurer
</TABLE>
<PAGE>
(1) Bonus amounts are reported in the year determined and paid.
(2) Unless otherwise indicated below, represents the portion of health, life
and disability insurance premiums paid by the Company, and for 1998 and
1999 only, the amount of the matching 401(k) contributions paid by the
Company.
(3) Adjusted for stock split on April 1, 1999.
(4) Includes sales commissions paid to Mr. Amster by the Company in the amount
of $178,501, $233,047 and $187,943 in 1997, 1998 and 1999, respectively,
and $6,417, $12,658 and $12,309 for the portion of health, life and
disability insurance premiums, and 401(k) matching contributions paid by
the Company in 1997, 1998 and 1999, respectively.
Option Grants in 1999
The following table sets forth further information regarding option grants
pursuant to the Company's 1997 Equity Incentive Plan during 1999 to each of the
Named Executive Officers. In accordance with the rules of the Securities and
Exchange Commission (the "SEC"), the table sets forth the hypothetical gains or
"option spreads" that would exist for the options at the end of their respective
ten-year terms. These gains are based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the option was granted to the end
of the option term.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES PRICE PER EXPIRATION FOR OPTION TERM (2)
NAME GRANTED (1) IN 1999 SHARE DATE 5% 10%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Constance F. Galley......... 80,000 (3) 3.5% $20.75 7/12/09 $1,043,965 $2,645,612
Eric A. Amster.............. 40,000 (3) 1.7% $19.25 5/18/09 $ 484,249 $1,136,401
Patricia T. Boggs........... 40,000 (3) 1.7% $19.25 5/18/09 $ 484,249 $1,136,401
Saydean Zeldin.............. 50,000 (3) 2.2% $19.25 5/18/09 $ 605,311 $1,420,501
Ira A. Gerard............... 25,000 (3) 1.1% $19.25 5/18/09 $ 302,656 $ 710,250
</TABLE>
(1) The options shown in the table were granted at fair market value, are
incentive stock options (to the extent permitted under the Code) and will
expire ten years from the date of grant, subject to earlier termination
upon termination of the optionee's employment.
(2) Potential realizable values are calculated based on the fair market value
of the Common Stock at the date of grant minus the exercise price. The 5%
and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices or values.
(3) These options vest 25% annually over four years from the respective
vesting date.
Aggregate Option Exercises in 1999 and Year-End Values
The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during 1999, including the
aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of December 31, 1999. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $56.625 per share, which was
the closing price of Mercator Software's Common Stock as reported on the Nasdaq
National Market on December 31, 1999, the last day of trading for 1999.
<PAGE>
<TABLE>
<CAPTION>
VALUE NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
REALIZED UNEXERCISED OPTIONS OPTIONS
SHARES ACQUIRED -------- AT YEAR-END(2) AT YEAR-END(2)
NAME ON EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Constance F. Galley 100,000 $1,559,400 362,422 222,500 $20,039,418 $10,358,890
Eric A. Amster 31,000 $ 991,875 127,500 176,500 $ 7,132,541 $ 9,039,372
Patricia T. Boggs -- -- 10,600 160,000 $ 543,330 $ 7,665,601
Saydean Zeldin 6,000 $ 135,000 165,500 105,500 $ 9,224,638 $ 4,739,563
Ira Gerard -- -- 295,500 47,500 $16,633,781 $ 2,054,277
</TABLE>
- --------------------------------------------------------------------------------
(1) Amounts disclosed in this column do not reflect amounts actually received
by the Named Executive Officers but are calculated based on the difference
between the fair market value of the Company's Common Stock on the date of
exercise and the exercise price of the options. The Named Executive
Officers will receive cash only if and when they sell the Common Stock
issued upon exercise of the options, and the amount of cash received by
such individuals is dependent on the price of the Company's Common Stock
at the time of such sale.
(2) These values have not been, and may never be, realized and are based on
the positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's Common Stock on December
31, 1999, the last day of trading for 1999.
Compensation Agreements
The Company has entered into agreements with the following executive
officers of the Company: Constance F. Galley, the Company's President and Chief
Executive Officer; Ira A. Gerard, the Company's Vice President, Finance and
Administration and Chief Financial Officer; Eric A. Amster, the Company's Vice
President, Sales; Saydean Zeldin, the Company's Sr. Vice President, Research &
Development and CTO; David Power, the Company's Vice President, Marketing; and
Albert Denz, Vice President, International Operations.
Ms. Galley's agreement provided for an initial annual base salary of
$225,000. Ms. Galley currently receives a base salary of $340,000. Ms. Galley is
also eligible to receive an annual bonus based upon the Company achieving
certain financial objectives. This agreement may be terminated by the Company at
any time for any reason. If Ms. Galley is terminated without cause, she will
continue to receive her base salary for a one-year period following such
termination. In the event that the Company is acquired by a company that does
not continue to employ Ms. Galley, she will continue to receive her salary for a
one-year period following such termination.
Mr. Gerard's agreement provided for an initial annual base salary of
$146,000 and an option grant to purchase an aggregate of 144,000 shares of
Common Stock. Mr. Gerard currently receives a base salary of $195,000. Mr.
Gerard is eligible to receive a bonus for meeting corporate objectives. This
agreement may be terminated by the Company at any time for any reason. If Mr.
Gerard is terminated without cause, he will continue to receive his base salary
for a six-month period following such termination. In the event that the Company
is acquired by a company that does not continue to employ Mr. Gerard, he will
continue to receive his salary for a six-month period following such
termination.
Mr. Amster's agreement provided for an annual base salary of $125,000 and
an option grant to purchase an aggregate of 72,000 shares of Common Stock. Mr.
Amster currently receives a base salary of $160,000. Mr. Amster is eligible to
receive a bonus and commissions upon meeting revenue related goals. This
agreement may be terminated by the Company at any time for any reason. If Mr.
Amster is terminated without cause, he will continue to receive his base salary
for a six-month period following such termination.
<PAGE>
Ms. Zeldin's agreement provided for an initial annual base salary of
$130,000. Ms. Zeldin currently receives a base salary of $225,000. This
agreement may be terminated by the Company at any time for any reason. If Ms.
Zeldin is terminated without cause, she will continue to receive her base salary
for a six-month period following such termination. In the event that the Company
is acquired by a company that does not continue to employ Ms. Zeldin, she will
continue to receive her base salary for a one-year period following such
termination.
Mr. Power's agreement provides for an annual base salary of $185,000 and
an option grant to purchase an aggregate of 100,000 shares of Common Stock. Mr.
Power is eligible to receive a bonus of up to 40% of base salary based on
targets set at the beginning of the fiscal year. In addition, Mr. Power is
eligible to earn from 50% to 100% of a $20,000 bonus based upon revenue produced
from Novera products in the fourth quarter of 1999. This agreement may be
terminated by the Company at any time for any reason. If Mr. Power is
terminated, he will continue to receive his base salary and benefits for a
six-month period following such termination. In the event that the Company is
acquired by a company that does not continue to employ Mr. Power, he will
receive his base salary and eligible benefits for six months following such
termination.
Mr. Denz' agreement provides for an annual base salary of $150,000 and an
option grant to purchase an aggregate of 50,000 shares of Common Stock. Mr. Denz
is also eligible to receive an additional grant of options to purchase an
aggregate of 50,000 shares of Common Stock upon growing the international
business another 20% in the first two years of employment. This agreement may be
terminated by the Company at any time for any reason. If Mr. Denz is terminated
without cause, he will continue to receive his base salary and benefits for a
six-month period following such termination.
Report on Executive Compensation
The Company's executive compensation program is administered by the
Compensation Committee of the Board (the "Compensation Committee"). The
Compensation Committee has three members: Ernest E. Keet, James P. Schadt, and
Dennis G. Sisco. Each of these persons is a non-employee director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and an
"outside director" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). None of the members of the Compensation
Committee has any interlocking relationships as defined by the SEC.
General Compensation Philosophy
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee typically reviews base salary levels and target bonuses for the Chief
Executive Officer ("CEO") and other executive officers and employees of the
Company at or about the beginning of each year. The Committee administers the
Company's incentive and equity plans, including the 1997 Equity Incentive Plan
and the 1997 Employee Stock Purchase Plan. In addition to their base salaries,
the Company's executive officers, including the CEO, are each eligible to
receive a cash bonus and are entitled to participate in the Incentive Plan.
<PAGE>
The Committee's philosophy in compensating executive officers, including
the CEO, is to relate compensation directly to corporate performance. Thus, the
Company's compensation policy, which applies to management and other key
employees of the Company, relates a portion of each individual's total
compensation to the Company-wide and individual objectives and profit
objectives, set forth at the beginning of the year. Consistent with this policy,
a designated portion of the compensation of the executive officers of the
Company is contingent on both corporate performance and on the individual's
performance as measured against personal objectives, as determined by the
Committee in its direction. Long-term equity incentives for executive officers
are effected through the granting of stock options under the Incentive Plan.
Stock options generally have value for the executive only if the price of the
Company's stock increases above the fair market value on the grant date and the
executive remains in the Company's employ for the period required for the
options to vest.
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee reviewing data on
prevailing compensation practices in companies with whom the Company competes
for executive talent, and by their evaluating such information in connection
with the Company's corporate goals. To this end, the Committee attempted to
compare the compensation of the Company's executive officers with the
compensation practices of comparable companies to determine base salary, target
bonuses and target total cash compensation.
1999 Executive Compensation
Base Salary
Salaries for executive officers for 1999 were generally determined on an
individual basis by evaluating each executive's scope of responsibility,
performance, prior experience and salary history, as well as the salaries for
similar positions at comparable companies. In addition, the Company's human
resources department provided information to the Compensation Committee
regarding salary range guidelines for specific positions.
Annual Incentive Awards
All full-time employees of the Company, including executive officers, are
eligible to receive an annual bonus based upon (i) the total financial goals of
the Company, as determined by the Compensation Committee, and (ii) the
employee's achievement of personal and team objectives, as determined by the
Compensation Committee. The Compensation Committee has the sole discretion to
determine the individuals who are to receive bonuses, the amount of the bonus
and the weighting between total Company financial goals versus personal and team
objectives when determining an individual's bonus.
Long-Term Incentive Awards
The Compensation Committee believes that equity-based compensation in the
form of stock options links the interests of management and the Company's
stockholders by focusing employees and management on increasing stockholder
value. Stock options generally have value only if the price of the Company's
stock increases above the fair market value on the grant date and the executive
remains in the Company's employ for the period required for the shares to vest.
In 1999, stock options were granted in accordance with the Company's 1997
Equity Incentive Plan to certain executive officers as incentives for them to
become employees or to aid in the retention of executive officers and to align
their interests with those of the stockholders. Stock options typically have
been granted to executive officers when the executive first joins the Company,
in connection with a significant change in responsibilities and, occasionally,
to achieve equity within a peer group. The Compensation Committee may, however,
grant additional stock options to executive officers for other reasons. The
number of shares subject to each stock option granted is within the discretion
of the Compensation Committee and is based on anticipated future contribution
and ability to impact the Company's results, past performance or consistency
within the officer's peer group. In 1999, the Compensation Committee considered
these factors, as well as the number of unvested option shares held by the
officer as of the date of grant. At the discretion of the Compensation
Committee, executive officers may also be
<PAGE>
granted stock options to provide greater incentive to continue their employment
with the Company and to strive to increase the value of the Company's Common
Stock. The stock options generally become exercisable over a four-year period
and are granted at a price that is equal to the fair market value of the
Company's Common Stock on the date of grant.
Chief Executive Officer Compensation
Ms. Galley's base salary, target bonus, bonus paid and long-term incentive
awards for 1999 were determined in a manner consistent with the factors
described above for all executive officers. Ms. Galley does not participate in
any compensation deliberations with respect to any of her compensation.
Internal Revenue Code Section 162(m) Limitation
Section 162(m) of the Code limits the tax deduction for compensation paid
to certain executives of public companies to $1.0 million. Having considered the
requirements of Section 162(m), the Compensation Committee believes that grants
made pursuant to the 1997 Plan meet the requirements that such grants be
"performance based" and are, therefore, exempt from the limitations on
deductibility. Historically, the combined salary and bonus of each executive
officer has been below the $1.0 million limit. The Compensation Committee's
present intention is to comply with Section 162(m) unless the Compensation
Committee feels that required changes would not be in the best interest of the
Company or its stockholders.
COMPENSATION COMMITTEE
Ernest E. Keet
James P. Schadt
Dennis G. Sisco
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
Certain Relationships and Related Transactions
On March 18, 1999, the Company entered into an agreement with Braid Group
Ltd. ("Braid"). Pursuant to the agreement, there is an earn-out provision
whereby each former shareholder of Braid may be entitled to certain payments
depending on certain financial results of the combined company. Richard Little
and Peter Little are former shareholders of Braid and as such may be entitled to
a portion of the earn-out.
Director Compensation
The Company reimburses Board members for reasonable expenses associated
with their attendance at Board meetings. None of the members of the Board
receives a fee for attending Board meetings. Members of the Board who are not
employees, consultants or independent contractors of the Company, or any parent,
subsidiary or affiliate of the Company, are eligible to participate in the
Company's 1997 Directors Stock Option Plan (the "Directors Plan"). During 1999,
Messrs. Keet and Sisco were each granted an option pursuant to the Directors
Plan to purchase 7,500 shares of the Company's Common Stock at an exercise price
of $17.375 per share. Mr. Schadt was granted an option pursuant to the Directors
Plan to purchase 7,500 shares of the Company's Common Stock at an exercise price
of $19.188 per share. Stewart Gross, a former director of the Company who
resigned in July 1999, was also granted an option pursuant to the Directors Plan
to purchase 7,500 shares of the Company's Common Stock at an exercise price of
$17.375 per share. This grant was cancelled along with his other unvested
options upon his resignation.
<PAGE>
Company Stock Price Performance
The stock price performance graph below is required by the SEC and shall
not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act, as amended, or under the Exchange Act, except to the extent that
the Company specifically incorporates this information by reference, and shall
not otherwise be deemed soliciting material or filed under such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company from July 3, 1997 to December 31, 1999 with the
cumulative total return on the Nasdaq Stock Market--U.S. Index and the H&Q Index
over the same period (assuming the investment of $100 in the Common Stock of
Company and in each of the other indices on July 3, 1997, and reinvestment of
all dividends).
[INSERT GRAPH]
In preparing the performance graph for this Proxy Statement (see "Company Stock
Price Performance"), the Company used the Hambrecht & Quist Technology Index
("H&Q Index") as its published line of business index.
PROPOSAL NO. 2 - APPROVAL OF AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK
The Board has adopted, subject to stockholder approval, an amendment to
the Company's Certificate of Incorporation to increase the authorized number of
shares of Common Stock from 70,000,000 shares, $0.01 par value per share, to
190,000,000 shares, $0.01 par value per share.
At April 24, 2000, approximately ______ shares of Common Stock were issued
and outstanding, approximately 8,602,484 shares were reserved for issuance upon
exercise of options outstanding and equity awards to be granted under the
Company's equity compensation plans and approximately 1,500,000 shares were
reserved for issuance for purchases under the Company's Employee Stock Purchase
Plan. Thus, as of that date, the Company had approximately ____ shares of Common
Stock available for issuance in the future, unless the proposed amendment is
adopted by the shareholders. The proposed increase in the number of authorized
shares of Common Stock from 70,000,000 to 190,000,000 would result in additional
shares being available for, among other things, possible future stock splits or
stock dividends, and the increase in the number of shares of Common Stock
reserved under the Company's 1997 Equity Incentive Plan, as described in
Proposal No. 3, issued from time to time for other corporate purposes, such as
raising additional capital, acquisitions of companies or assets and sales of
stock or securities convertible into Common Stock. The Company believes that the
availability of the additional shares will provide it with the flexibility to
meet business needs as they arise, to take advantage of favorable opportunities
and to respond to a changing corporate environment.
The Company has no present commitments, agreements or undertakings to
issue any additional shares for any such purpose. The Company's Board does not
presently intend to secure any further approval from the stockholders prior to
authorizing or issuing such Common Stock, except where such approval is required
by law or applicable stock exchange rules.
Although we have no such intentions, the additional authorized but
unissued shares of Common Stock could also be used to make more difficult a
change in control of the Company. Under certain circumstances, the Company could
use such shares to create voting impediments, or to discourage third parties
seeking to effect a takeover or otherwise gain control of the Company. The
Company could also place such shares with purchasers who might support the
Company's Board in opposing a hostile takeover bid.
<PAGE>
If the stockholders approve the amendment, the Company will file an
amendment to its Amended and Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware reflecting the increase in
authorized shares.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
PROPOSAL NO. 3 -- APPROVAL OF AMENDMENT TO THE COMPANY'S 1997 EQUITY
INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
Stockholders are being asked to approve an amendment to the Company's 1997
Equity Incentive Plan (the "1997 Plan") to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,950,000 shares to an
aggregate of 6,700,000 shares and to ratify the 1997 Plan as amended.
1997 Plan History. In May 1997, the Board adopted and the stockholders of
the Company approved the 1997 Plan and reserved 2,250,000 shares of Common Stock
for issuance thereunder. The purpose of the 1997 Plan is to offer eligible
persons an opportunity to participate in the Company's future performance
through awards of stock options, restricted stock and stock bonuses. On March
26, 1999, stockholders approved an increase of 2,500,000 shares to an aggregate
of 4,750,000.
The Board believes that the increase in the number of shares reserved for
issuance under the 1997 Plan is in the best interests of the Company because of
the continuing need to provide stock options to attract and retain quality
employees and remain competitive in the industry. The granting of equity
incentives under the 1997 Plan plays an important role in the Company's efforts
to attract and retain employees of outstanding ability. The size of the market
in which the Company competes and the shortage of qualified personnel make
equity compensation key to the Company's continued growth. Through the Company's
stock option plan, many salaried employees receive stock options as part of
their compensation package. In addition, due in large part to the grant of stock
options, the Company has been able to successfully recruit technically
experienced individuals, including the engineers needed to achieve the Company's
long-term revenue plan and its successful introduction of new products, as well
as maintain its low rate of turnover for technical employees. The Board of
Directors believes that the increase in shares reserved for issuance under the
1997 Plan gives the Company a sufficient number of shares for the foreseeable
future to provide equity incentives to attract and retain employees.
While the Board of Directors is aware and has considered the potential
dilutive effect of option grants, it also recognizes the performance and
motivational benefits of equity compensation and believes that the proposed
increase in available options is consistent with the compensatory practices of
high technology companies in its peer group. All of the Company's option grants
under the 1997 Plan have been made at the Company's fair market value
calculation at the time of grant. As a result, no dilution to the Company's
stockholders occurs unless and until the stock price goes up, benefiting both
stockholders and optionholders of the Company. Furthermore, since the Company
typically grants options that become exercisable over a four year period,
employees must remain with the Company for long periods in order to reap the
potential benefits of their option grants.
The Company is seeking stockholder approval to increase the shares
available for grant under the 1997 Plan pursuant to this Proposal 3 in order to
be able to grant "incentive stock options" ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). As
described below under the heading "Federal Income Tax Information," there are
several potential benefits of the Company's employees if options granted under
the 1997 Plan are treated as ISOs. If the stockholders fail to approve the
increase in shares available for grant under the 1997 Plan, the Company will
continue to make grants to employees under the 1997 Plan, but any option grants
made to employees under the 1997 Plan in excess of 4,750,000 will be treated as
non-qualified stock options ("NQSOs") for United States federal income tax
purposes.
<PAGE>
The Board approved the proposed amendment on February 25, 2000, to be
effective upon stockholder approval. Below is a summary of the principal
provisions of the 1997 Plan, assuming stockholder approval of the amendment. The
summary is not necessarily complete, and reference is made to the full text of
the 1997 Plan.
Number of Shares Subject to the 1997 Plan. The stock subject to issuance
under the 1997 Plan consists of shares of the Company's authorized but unissued
Common Stock. Originally, 2,250,000 shares of Common Stock (the "Base Shares")
were reserved by the Board for issuance under the 1997 Plan. This Proposal No. 3
seeks to increase the number of Base Shares from the current 4,750,000 shares to
6,700,000 shares. Any shares of Common Stock that: (a) are subject to an option
granted pursuant to the 1997 Plan that expire or terminate for any reason
without being exercised; or (b) are subject to an award granted pursuant to the
1997 Plan that are forfeited or are repurchased by the Company at the original
issue price; or (c) are subject to an award granted pursuant to the 1997 Plan
that otherwise terminate without shares being issued, will again become
available for grant and issuance pursuant to awards under the 1997 Plan. In
addition to the Base Shares, any shares remaining unissued under the Company's
1993 Stock Option Plan (the "Prior Plan") on the effective date of the 1997
Plan, and any shares that are (a) issuable upon exercise of options granted
pursuant to the Prior Plan that expire or become unexercisable for any reason
without having been exercised in full; (b) are subject to an award granted
pursuant to the Prior Plan but are forfeited or are repurchased by the Company
at the original issue price; or (c) are subject to an award granted pursuant to
the Prior Plan that otherwise terminate without the shares being issued will no
longer be available for grant under the Prior Plan but shall be available for
grant and issuance under the 1997 Plan. This number of shares is subject to
proportional adjustment to reflect stock splits, stock dividends and other
similar events.
Eligibility. Employees, officers, directors, consultants, independent
contractors and advisors of the Company (and of any parent company or
subsidiary) are eligible to receive awards under the 1997 Plan (the
"Participants"). No Participant is eligible to receive more than 300,000 shares
of Common Stock in any calendar year under the 1997 Plan, other than new
employees of the Company (including directors and officers who are also new
employees) who are eligible to receive up to a maximum of 450,000 shares of
Common Stock in the calendar year in which they commence their employment with
the Company. As of April 24, 2000, approximately ___ persons were participating
in the 1997 Plan, approximately ___ shares had been issued upon exercise of
options granted under the 1997 Plan and approximately ___ shares were subject to
outstanding options. As of that date, approximately ___ shares were available
for future grants, after taking into account all available shares from the Prior
Plan. The closing price of the Company's Common Stock on the Nasdaq National
Market was $_____ per share as of the Record Date.
Administration. The 1997 Plan is administered by the Compensation
Committee (the "Committee"), the members of which are appointed by the Board.
The Committee currently consists of Ernest E. Keet, James P. Schadt and Dennis
G. Sisco, each of whom are "non-employee directors," as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and "outside directors," as defined pursuant to Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code").
Subject to the terms of the 1997 Plan, the Committee determines the
persons who are to receive awards, the number of shares subject to each such
award, and the terms and conditions of such awards. The Committee also has the
authority to construe and interpret any of the provisions of the 1997 Plan or
any awards granted thereunder.
Stock Options. The 1997 Plan permits the granting of options that are
either Incentive Stock Options ("ISOs") or Non-qualified Stock Options
("NQSOs"). ISOs may be granted only to employees (including officers and
directors who are also employees) of the Company or any parent or subsidiary of
the Company. The option exercise price for each ISO share must be no less than
100% of the "fair market value" (as defined in the 1997 Plan) of a share of
Common Stock at the time the ISO is granted. In the case of an ISO granted to a
10% stockholder, the exercise price for each such ISO share must be no less than
110% of the fair market value of a share of Common Stock at the time the ISO is
granted. The option exercise price for each NQSO share must be no less than 85%
of the fair market value of a share of Common Stock at the time of grant.
The maximum term of options granted under the 1997 Plan is ten years,
unless the option is an ISO granted to a stockholder owning 10% or more of the
Company's stock, in which case the maximum term is five
<PAGE>
years. Options granted under the 1997 Plan may not be transferred in any manner
other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of the optionee only by optionee. Options granted
under the 1997 Plan generally expire three months after termination of the
optionee's service to the Company or a parent or subsidiary of the Company,
except in the case of death or disability, in which case the options may be
exercised up to 12 months following the date of death or disability.
Restricted Stock and Stock Bonus Awards. The Committee may grant
Participants restricted stock awards to purchase stock and stock bonus awards
for services rendered to the Company either in addition to, or in tandem with,
other awards under the 1997 Plan, under such terms, conditions and restrictions
as the Committee may determine. The purchase price for common stock sold
pursuant to restricted stock awards must be no less than 85% of the fair market
value of the Company's Common Stock on the date of the award (and in the case of
an award granted to a 10% stockholder, the purchase price shall be 100% of fair
market value). Awards or restricted stock and stock bonuses that are granted
below 100% of fair market value are limited under the 1997 Plan. A consultant,
independent contractor or advisor that renders bona fide services to the Company
not in connection with the offer and sale of securities in a capital-raising
transaction (an "Eligible Service Provider") may receive no more than 150,000
shares pursuant to such awards under the 1997 Plan and no more than 300,000
shares may be issued pursuant to such awards for the term of the 1997 Plan.
Mergers, Consolidations, Change of Control. In the event of a merger,
consolidation, or certain other change of control transactions, any outstanding
stock option, restricted stock and stock bonus awards will accelerate by
one-year's vesting or such additional acceleration of vesting as the Committee
in its discretion may decide, and may be assumed or replaced by the successor
corporation. In lieu of such assumption or replacement, but in addition to the
one-year's additional vesting or such additional acceleration of vesting, the
successor corporation may substitute equivalent awards or provide substantially
similar consideration to Eligible Service Providers as is provided to
stockholders.
Amendment of the 1997 Plan. The Board may at any time terminate or amend
the 1997 Plan, including amending any form of award agreement or instrument to
be executed pursuant to the 1997 Plan. However, the Board may not amend, without
stockholder approval, the 1997 Plan in any manner that requires stockholder
approval pursuant to the Code or the regulations promulgated thereunder, or
pursuant to the Exchange Act or Rule 16b-3 (or its successor) promulgated
thereunder.
Term of the 1997 Plan. Unless terminated earlier as provided in the 1997
Plan, the 1997 Plan will expire in May 2007, ten years from the date the 1997
Plan was adopted by the Board.
Federal Income Tax Information
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE
1997 PLAN. FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. EACH PARTICIPANT HAS BEEN AND IS ENCOURAGED TO SEEK THE ADVICE OF
A QUALIFIED TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE
1997 PLAN.
Incentive Stock Options. A Participant will recognize no income upon grant
of an ISO and incur no tax on its exercise (unless the Participant is subject to
the alternative minimum tax ("AMT") as described below). If the Participant
holds shares acquired upon exercise of an ISO (the "ISO Shares") for more than
one year after the date the option was exercised and for more than two years
after the date the option was granted, then the Participant generally will
realize capital gain or loss (rather than ordinary income or loss) upon
disposition of the ISO Shares. This gain or loss will be equal to the difference
between the amount realized upon such disposition and the amount paid for the
ISO Shares.
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If the Participant disposes of ISO Shares prior to the expiration of
either required holding periods (a "disqualifying disposition"), then any gain
realized upon such disposition, up to the difference between the fair market
value of the ISO Shares on the date of exercise (or, if less, the amount
realized on a sale of such shares) and the option exercise price, will be
treated as ordinary income to the Participant. Any additional gain will be
capital gain, taxed at a rate that depends upon the length of time the ISO
Shares were held by the Participant.
Alternative Minimum Tax. The difference between the fair market value of
the ISO Shares on the date of exercise and the exercise price is an adjustment
to income for purposes of AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is 26% of an individual taxpayer's alternative minimum
taxable income that would normally be taxed as ordinary income (28% of that
portion in the case of alternative minimum taxable income in excess of
$175,000). A maximum 20% AMT rate applies to the portion of alternative minimum
taxable income that would normally be taxed as net capital gain. Alternative
minimum taxable income is determined by adjusting regular taxable income for
certain items, increasing that income by certain tax preference items (including
the difference between the fair market value of the ISO Shares on the date of
exercise and the exercise price), and reducing this amount by the applicable
exemption amount ($45,000 in case of a joint return, subject to reduction under
certain circumstances). If a disqualifying disposition of the ISO Shares occurs
in the same calendar year as exercise of the ISO, there is no AMT adjustment
with respect to those ISO Shares. Also, upon a sale of ISO Shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced in the
year of sale by the excess of the fair market value of the ISO Shares at
exercise over the amount paid for the ISO Shares.
Non-Qualified Stock Options. A Participant will not recognize any taxable
income at the time an NQSO is granted. However, upon exercise of an NQSO, the
Participant must include in income as compensation an amount equal to the
difference between the fair market value of the shares on the date of exercise
and the Participant's exercise price. The included amount must be treated as
ordinary income by the Participant and may be subject to withholding by the
Company (either by payment in cash or withholding out of the Participant's
salary). Upon resale of the shares by the Participant, any subsequent
appreciation or depreciation in the value of the shares will be treated as
capital gain or loss.
Restricted Stock and Stock Bonus Awards. Restricted stock and stock bonus
awards will generally be subject to tax at the time of receipt, unless there are
restrictions that enable the Participant to defer tax. At the time the tax is
incurred, the tax treatment will be similar to that discussed above for NQSOs.
Maximum Tax Rates. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum rate of 20%. For this
purpose, in order to receive long-term capital gain treatment, the shares must
be held for more than eighteen months. Mid-term capital gain will be taxed at a
maximum rate of 28%. For this purpose, in order to receive mid-term capital gain
treatment, the shares must be held for more than one year and not more than
eighteen months. Capital gains may be offset by capital losses and up to $3,000
of capital losses may be offset annually against ordinary income.
Tax Treatment of the Company. The Company generally will be entitled to a
deduction in connection with the exercise of an NQSO by a Participant or the
receipt of restricted stock or stock bonuses by a Participant to the extent that
the Participant recognizes ordinary income and the Company withholds tax. The
Company will be entitled to a deduction in connection with the disposition of
ISO Shares only to the extent that the Participant recognizes ordinary income on
a disqualifying disposition of the ISO Shares.
ERISA. The 1997 Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") and is not qualified
under Section 401(a) of the Code.
New Plan Benefits. The amounts of future option grants under the 1997 Plan
are not determinable because, under the terms of the 1997 Plan, such grants are
made in the discretion of the Committee. Future option exercise prices are not
determinable because they are based upon fair market value of the Company's
Common Stock on the date of grant.
<PAGE>
REQUIRED VOTE
The affirmative vote of a majority of the Shares of Common Stock present
in person or represented by proxy at the Meeting is required to approve the
proposed amendment to the 1997 Equity Incentive Plan.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT OF THE COMPANY'S
1997 EQUITY INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED
FOR ISSUANCE.
PROPOSAL NO. 4 -- RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company has selected KPMG LLP as its independent accountants to
perform the audit of the Company's financial statements for 2000, and the
stockholders are being asked to ratify such selection. KPMG LLP was engaged as
the Company's independent accountants for the year ended December 31, 1999.
Representatives of KPMG LLP will be present at the Meeting, will have the
opportunity to make a statement at the Meeting if they desire to do so, and will
be available to respond to appropriate questions.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF KPMG LLP.
<PAGE>
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's 2001
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices no later than March 1, 2001 in order to be included in the
Company's Proxy Statement and form of proxy relating to that meeting.
COMPLIANCE UNDER SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16 of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms furnished to the Company and
written representations from the executive officers and directors of the
Company, the following persons have submitted late forms to the SEC: Constance
F. Galley (April 29 transaction reported with May transactions on June 10);
Robert H. Bouton (April 29 transaction reported with May transactions on June
10); and Ernest E. Keet (November transactions reported after the December 10
deadline). The Company believes that all other Section 16(a) filing requirements
were met during 1999.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING.
