<PAGE>
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SCHEDULE 14A 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:
[_] 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)14a-11(c) or (S)14a-12
TIER TECHNOLOGIES, 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: __________________________________________________________
(4) Date Filed: ____________________________________________________________
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<PAGE>
TIER TECHNOLOGIES, INC.
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 28, 1999
----------------
To the Shareholders of Tier Technologies, Inc.:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
of Tier Technologies, Inc., which will be held at the Ritz-Carlton Hotel, 600
Stockton Street, San Francisco, California, on Thursday, January 28, 1999 at
2:00 p.m. local time for the following purposes:
(a) To elect a Board of five Directors for the ensuing year;
(b) To approve an amendment to the Company's Amended and Restated 1996
Equity Incentive Plan (the "Plan") to increase the number of shares of
Class B Common Stock authorized and reserved for issuance under the Plan
from 3,989,333 to 5,989,333 shares;
(c) To approve an amendment to the Plan to increase the maximum number of
shares of Class B Common Stock authorized to be granted under the Plan to
any one person in any single fiscal year from 100,000 to 300,000 shares;
(d) To approve an amendment to the Plan to increase the number of shares
of Class B Common Stock authorized to be granted automatically to Outside
Directors upon their initial appointment and upon their re-election
thereafter from 5,000 to 10,000 shares;
(e) To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the fiscal year ended
September 30, 1998 and fiscal year ending September 30, 1999; and
(f) To consider and act upon such other matters as may properly come
before the meeting.
The close of business on December 16, 1998 has been fixed as the record date
for shareholders to receive notice of and to vote at the meeting or any
adjournment or postponement thereof. Holders of a majority of the outstanding
shares must be present either in person or by proxy in order for the meeting
to be held. Your proxy is revocable at any time in the manner set forth on
page 1 of the Proxy Statement and will not affect your right to vote in person
in the event that you attend the meeting in person.
It is important that your shares be represented at the meeting. Please sign
and return the enclosed proxy card as promptly as possible whether or not you
plan to attend the meeting.
By Order of the Board of Directors,
/s/ GEORGE K. ROSS
George K. Ross
Secretary
December 29, 1998
<PAGE>
TIER TECHNOLOGIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
JANUARY 28, 1999
----------------
PROXY STATEMENT
----------------
This Proxy Statement is furnished by Tier Technologies, Inc. (the
"Company"), 1350 Treat Boulevard, Suite 250, Walnut Creek, California, 94596,
in connection with the solicitation by the Company's Board of Directors (the
"Board") of proxies to be voted at the Annual Meeting of Shareholders to be
held on Thursday, January 28, 1999 at 2:00 p.m. local time, or any
adjournments or postponements thereof (the "Meeting"). The Board has fixed the
close of business on December 16, 1998 as the record date for determining
shareholders entitled to notice of and to vote at the Meeting. As of that
date, 1,639,762 shares of Class A Common Stock and 10,426,615 shares of Class
B Common Stock (collectively, the "Common Stock") were issued and outstanding.
Any person giving a proxy has the right to revoke it before it is exercised.
It may be revoked either by filing an instrument of revocation with the
Secretary of the Company or by delivering at the Meeting a duly executed proxy
bearing a later date. It also may be revoked by attending the Meeting and
voting in person.
All expenses incurred in connection with solicitation of the enclosed proxy
will be paid by the Company. In addition to solicitation by mail, the Company
has engaged ChaseMellon Shareholder Services, at the Company's cost, to
solicit proxies by mail, telephone, telegraph or personal call. The Company
has requested brokers and nominees who hold stock in their names to furnish
this proxy material to their customers and the Company will reimburse such
brokers and nominees for their related out-of-pocket expenses.
The date on which this Proxy Statement and the enclosed proxy are first
being sent to the Company's shareholders is on or about December 29, 1998. A
copy of the Company's Annual Report for the fiscal year ended September 30,
1998 accompanies this Proxy Statement.
VOTING RIGHTS
Holders of Class A Common Stock and Class B Common Stock vote together as a
single class on the matters to be considered and acted upon at the Meeting,
except holders of Class B Common Stock have the right to vote as a single
class for the election of two of the five director nominees. Each share of
Class A Common Stock is entitled to ten votes and each share of Class B Common
Stock is entitled to one vote. Each shareholder entitled to vote at an
election for directors may cumulate the votes to which such shareholder is
entitled. This means that the shareholder may cast a total number of votes
equal to the number of directors to be elected by the class or series of stock
held by such shareholder, multiplied by the number of votes to which such
shareholder's shares are entitled. Further, the shareholder may cast such
total number of votes for one or more nominees in the proportions as the
shareholder sees fit. However, no shareholder is entitled to cumulate such
shareholder's votes unless the nominees for which such shareholder is voting
have been placed in nomination prior to the voting and the shareholder has
given notice at the meeting, prior to the vote, of an intention to cumulate
votes. The candidates receiving the highest number of votes, up to the number
of directors to be elected, shall be elected.
An affirmative vote of a majority of the Common Stock voted at the Meeting,
by person or in proxy, is required for approval of each item being submitted
to the shareholders for consideration, with the exception of the election of
directors, where the nominees receiving the highest number of votes entitled
to be cast therefor shall be elected (see "Proposal No. 1"). An election
inspector appointed by the Board shall receive and tabulate proxies and votes
cast in person at the Meeting. Abstentions and "broker non-votes" are counted
for the purposes of determining the presence or absence of a quorum.
Abstentions and "broker non-votes" are not counted for any purpose in
determining whether a particular proposal is approved or disapproved.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 30, 1998
with respect to the beneficial ownership of the Company's Common Stock by: (1)
each person known by the Company to own beneficially more than five percent of
the outstanding shares of Common Stock; (2) each director of the Company; (3)
the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers (collectively, the "Named Executive Officers");
and (4) all officers and directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-----------------------------
EXECUTIVE OFFICERS, DIRECTORS NUMBER OF NUMBER OF PERCENT OF TOTAL
AND 5% SHAREHOLDERS(2) CLASS A SHARES CLASS B SHARES VOTING POWER(3)
- ------------------------------ -------------- -------------- -----------------
<S> <C> <C> <C>
James L. Bildner (4)........... 1,659,762 446,000 63.2%
William G. Barton (4).......... 1,659,762 420,524 63.1
Bryan McCaul................... 115,070 235,833 5.2
Greg Bowen..................... 119,303 176,666 5.1
Bradley H. Nickels............. 115,070 195,833 5.0
George K. Ross................. -- 86,012 *
F. Thomas Latham............... -- 25,000 *
Samuel Cabot III............... -- 17,143 *
Ronald L. Rossetti............. -- 22,857 *
All officers and directors as a
group (10 persons)............ 1,659,762 1,461,702 66.3%
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting power and
investment power with respect to shares. Shares issuable upon the exercise
of outstanding stock options that are currently exercisable or become
exercisable within 60 days from September 30, 1998 are considered
outstanding for the purpose of calculating the percentage of voting power
of such person but not for the purpose of calculating the percentage of
voting power of any other person. The number of shares subject to stock
options that are exercisable within 60 days of September 30, 1998 is as
follows: Mr. Bildner, 10,000 shares of Class A Common Stock and 105,000
shares of Class B Common Stock; Mr. Barton, 10,000 shares of Class A
Common Stock and 85,000 shares of Class B Common Stock; Mr. McCaul, 35,833
shares of Class B Common Stock; Mr. Bowen, 1,666 shares of Class B Common
Stock; Mr. Nickels, 45,833 shares of Class B Common Stock; Mr. Ross,
46,250 shares of Class B Common Stock; Mr. Latham, 25,000 shares of Class
B Common Stock; Mr. Cabot, 13,333 shares of Class B Common Stock; Mr.
Rossetti, 13,333 shares of Class B Common Stock (which options were issued
to Riverside Capital Partners, Inc., an entity controlled by Mr. Rossetti,
and are therefore deemed to be beneficially owned by Mr. Rossetti); and
all officers and directors as a group, 20,000 shares of Class A Common
Stock and 369,582 shares of Class B Common Stock.
(2) The address of each of the officers, directors and other shareholders
listed above is c/o Tier Technologies, Inc., 1350 Treat Boulevard, Suite
250, Walnut Creek, California 94596.
(3) In calculating the percentage of total voting power, the voting power of
shares of Class A Common Stock (ten votes per share) and Class B Common
Stock (one vote per share) is aggregated. Applicable percentage of
beneficial ownership is based on 10,271,201 shares of Class B Common Stock
outstanding as of September 30, 1998.
(4) Includes all shares of Class A Common Stock held in the Voting Trust as to
which Messrs. Bildner and Barton exercise voting control as trustees.
Messrs. Bildner and Barton disclaim beneficial ownership of 1,219,762
shares of Class A Common Stock.
2
<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Board of Directors of the Company is currently composed of five
directors. The Company's Amended and Restated Articles of Incorporation
("Articles") provide that the holders of Class B Common Stock shall vote as a
separate class and be entitled to elect two of the five directors, in a slate
separate from the election of the remaining directors. The following two
individuals are nominated for election by the holders of Class B Common Stock
voting as a separate class: Samuel Cabot III and Ronald L. Rossetti.
The Company's Articles provide that the holders of Class B Common Stock and
Class A Common Stock shall vote as a single class to elect the remaining three
directors. The following three individuals are nominated for election by the
holders of Class B Common Stock and Class A Common Stock, voting as a single
class: James L. Bildner, William G. Barton and George K. Ross.
Directors shall hold office either until the expiration of the term for
which elected or appointed and until a successor has been elected and
qualified, or until the time of his or her death, resignation or removal.
Directors are elected at each annual meeting to hold office until the next
annual meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE NOMINEES LISTED ABOVE. The persons named in the accompanying proxy
intend to vote for the election of the nominees listed above unless authority
to vote for one or more of such nominees is specifically withheld in the
proxy. If any nominee, for any reason currently unknown, cannot be a candidate
for election, proxies will be voted for the election of a substitute
recommended by the Board. The two Class B directors receiving the highest
number of votes shall be elected. The three remaining directors receiving the
highest number of votes shall be elected.
INFORMATION CONCERNING NOMINEES FOR DIRECTOR
The following information is furnished concerning the Company's nominees for
director:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
James L. Bildner............... 44 Chairman of the Board and Chief Executive
Officer
William G. Barton.............. 42 President, Chief Technology Officer and
Director
George K. Ross................. 57 Executive Vice President, Chief Financial
Officer, Secretary and Director
Samuel Cabot III (1)(2)(3)..... 58 Director
Ronald L. Rossetti (1)(2)(3)... 55 Director
</TABLE>
- --------
(1) Member of the Compensation Committee of the Board of Directors
(2) Member of the Audit Committee of the Board of Directors
(3) Class B Director
Mr. Bildner joined Tier as Chairman of the Board in November 1995 and became
Chief Executive Officer in December 1996. From December 1994 to December 1996,
Mr. Bildner was employed as a principal of Argus Management Corporation, a
management consulting firm. In 1984, Mr. Bildner founded J. Bildner & Sons,
Inc., a specialty retailer, and served as its Chairman of the Board and Chief
Executive Officer from its inception to December 1994. J. Bildner & Sons, Inc.
filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in July
1988 and emerged from reorganization in October 1989. Mr. Bildner received an
A.B. from Dartmouth College and a J.D. from Case Western Reserve School of
Law.
Mr. Barton, one of the initial founders of the Company, has served as Chief
Technology Officer since February 1998 and as President and a Director since
1991. From 1991 until February 1998, he also served as Chief Operating Officer
of the Company. From 1990 to 1991, Mr. Barton was employed as an information
technology management consultant at Titan Consulting, an information
technology consulting firm. From 1979 to 1990, Mr. Barton held various
positions leading to Director of Advanced Business Systems at American Express
Card Services, a financial services company. Previously, Mr. Barton held
positions within the
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<PAGE>
information technology industry as a systems analyst, software engineer and
programmer. He received a B.S. in Business Administration and Management from
the University of Phoenix and a Presidential/Key Executive MBA from Pepperdine
University.
Mr. Ross has been a Director of the Company since January 1996, has served
as Executive Vice President since 1998, has served as Chief Financial Officer
since February 1997 and has served as Secretary since July 1998. From February
1997 until April 1998, Mr. Ross also served as Senior Vice President. From
September 1992 to January 1997, Mr. Ross was a partner at Capital Partners, a
private equity investment firm. Between 1979 and 1992, Mr. Ross was Corporate
Vice President, Controller for Axel Johnson, Inc., a highly diversified
private holding company. Mr. Ross has also held corporate and operating
positions with RJR Nabisco, Inc. and served as a senior consultant with Ernst
& Young LLP. Mr. Ross received a B.A. from Ohio Wesleyan University and an MBA
from Ohio State University. Mr. Ross is a certified public accountant.
Mr. Cabot has served as a Director of the Company since January 1997. He has
served as president of Samuel Cabot Inc., a manufacturer and marketer of
premium quality exterior stains and architectural coatings, since 1978. He is
also on the board of directors of Samuel Cabot, Inc., Plasticolors, Inc. and
Blue Cross/Blue Shield of Massachusetts, Inc. Mr. Cabot received an A.B. from
Dartmouth College and an MBA from Boston University.
Mr. Rossetti has served as a Director of the Company since November 1995.
Since February 1997, he has served as President of Riverside Capital Partners,
Inc., a venture capital investment firm. From 1976 until September 1994, Mr.
Rossetti was President, Chief Executive Officer and a director of Nature Food
Centers, Inc. Mr. Rossetti is also on the Board of Directors of General
Nutrition Co. and City Sports, the advisory board of Hamilton Associates and
serves as a trustee of Northeastern University. He received a B.S. from
Northeastern University.
COMMITTEES OF THE BOARD OF DIRECTORS
In 1998, the Company had standing Audit and Compensation Committees. During
the Company's last fiscal year, the Board held five meetings and took action
by unanimous consent seven times. All members of the Board attended at least
75% of the aggregate of all Board meetings and aggregate of all meetings of
the Committees on which they served.
Audit Committee. The Audit Committee, consisting of Messrs. Cabot and
Rossetti, held two meetings during the last fiscal year. The Audit Committee
reviews the results and scope of the annual audit and the services provided by
the Company's independent accountants.
Compensation Committee. The Compensation Committee, consisting of Messrs.
Cabot and Rossetti, met two times and took action by unanimous written consent
ten times during the last fiscal year. The Compensation Committee establishes
the compensation of officers of the Company and administers the Company's
compensation programs, including the granting of stock options.
DIRECTOR COMPENSATION
The members of the Company's Board of Directors are reimbursed for
reasonable travel expenses incurred in attending Board meetings. In addition,
non-employee members of the Board of Directors receive a grant, upon their
initial appointment, of fully vested options to purchase 10,000 shares
(subject to shareholder approval of this number--see "Proposal No. 4") of
Class B Common Stock and an annual grant, upon their re-election thereafter,
of fully vested options to purchase 10,000 shares (subject to shareholder
approval of this number--see "Proposal No. 4") of Class B Common Stock under
the Plan.
CERTAIN RELATED TRANSACTIONS
The Company has made loans to certain employees in connection with their
exercise of stock options, the payment of taxes associated with those
exercises, relocation expenses, costs associated with the purchase of
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<PAGE>
housing, educational expenses and personal purposes. All loans are made
pursuant to full-recourse, interest-bearing promissory notes and certain notes
are secured by a pledge of Common Stock held by the employee. Interest rates
range from 5.59% to 9.00% and vary based on the term of the loan and its date
of origination. Generally, the loans have ten-year terms, with the exception
of forgivable loans which have three-year terms and are typically forgiven
ratably over the note's term so long as the employee remains with the Company
and housing loans, which are payable upon the sale of the property purchased
or termination of employment, subject to forgiveness in their entirety if the
employee remains with the Company for three years. Loans related to the
exercise of stock options and the payment of taxes associated with those
exercises are not forgivable under the terms of the notes. At September 30,
1998, loans to Mr. Bildner totaled $1,971,868, of which amount $58,683 plus
accrued interest may be forgiven. At September 30, 1998, loans to Mr. Barton
totaled $1,264,685, of which amount $23,923 plus accrued interest may be
forgiven. At September 30, 1998, loans to Mr. Ross totaled $94,664, which
amount plus accrued interest may be forgiven in its entirety.
The Company has entered into employment agreements with Mr. Bildner, its
Chief Executive Officer, Mr. Barton, its President and Chief Technology
Officer, and Mr. Ross, its Executive Vice President and Chief Financial
Officer. See "Employment Agreements" on page 15.
The Company has entered into indemnification agreements with each of its
directors and certain of its officers. These agreements provide such persons
with indemnification, to the maximum extent permitted by the Company's
Articles or Bylaws or by the California General Corporation Law, against all
expenses, claims, damages, judgments and other amounts (including amounts paid
in settlement) for which such persons become liable as a result of acting in
any capacity on behalf of the Company, subject to certain limitations.
APPROVAL OF AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN
(PROPOSAL NO. 2)
The Company's Amended and Restated 1996 Equity Incentive Plan (the "Plan")
was approved by the Company's Board and shareholders and became effective on
February 10, 1997. As of October 30, 1998, 2,989,333 shares of Class B Common
Stock were authorized to be issued under the Plan. As of that same date,
2,798,952 shares of Class B Common Stock had been granted under the Plan and
190,381 shares of Class B Common Stock were available for future plan grants,
of which 60,000 were reserved for issuance to non-employee directors. On
October 26, 1998, the Board approved an amendment to the Plan increasing the
number of shares authorized and reserved for issuance under the Plan by
1,000,000 shares (the "Plan Amendment"). A majority of shareholders entitled
to vote thereon approved the Plan Amendment on November 3, 1998, by written
consent in lieu of a meeting of shareholders. On November 6, 1998, pursuant to
the rules and regulations of the Securities and Exchange Commission (the
"Commission") the Company filed with the Commission and distributed to the
Company's shareholders information regarding the Plan Amendment in an
Information Statement on Schedule 14C.
The shareholders are being asked to approve an amendment to the Plan at the
Meeting to increase the shares authorized and reserved for issuance under the
Plan by 2,000,000 shares, bringing the total shares reserved for issuance
under the Plan to 5,989,333 shares. The Company believes that the Plan
Amendment will enable the Company to meet its projected hiring, acquisition
and incentive compensation needs through calendar year 1999. Approval of the
amendment to the Plan requires the affirmative vote of a majority of the
voting shares. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT TO THE PLAN. Proxies solicited by the Board will be voted for
this proposal unless a vote against the proposal or abstention is specifically
indicated.
5
<PAGE>
SUMMARY OF THE PLAN
The following description of the Plan is qualified in its entirety by
reference to the full text of the Plan, as proposed to be amended, attached to
this Proxy Statement as Exhibit A.
General
The Plan provides for grants to employees of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and for grants to employees, directors and consultants of non-
qualified stock options, restricted stock and stock bonuses. The purposes of
the Plan are to attract and retain the best available personnel for positions
of substantial responsibility, to provide additional incentives to the
employees and consultants of the Company and to promote the Company's
business.
Administration of the Plan
The Plan provides that it shall be administered by the Board or a committee
of directors composed solely of not fewer than two Board members. The Board
has designated the Compensation Committee (the "Committee") to administer the
Plan. The Committee, or the full Board, is authorized to determine which
persons eligible under the Plan shall be granted stock awards, when and how
such awards will be granted, the form thereof, and to adopt rules and
regulations administering the Plan. Generally, incentive options may be
granted only to employees. Other stock awards may be granted only to
employees, including prospective employees, consultants or outside directors.
Shares Available Under the Plan
If any change is made in the Class B Common Stock subject to the Plan (such
as through a merger, stock dividend, stock split or otherwise), the Plan and
awards under the Plan will be adjusted appropriately. In the event of a
dissolution or liquidation of the Company, or a merger or consolidation in
which the Company is not the surviving corporation or other types of capital
reorganizations, the Board has discretion (to the extent permitted by
applicable law) to (1) have the surviving corporation assume any awards under
the Plan, (2) accelerate the exercise period of any award, or (3) continue the
award under its existing terms. Upon termination of any outstanding Plan
awards, the shares subject to those awards may again be made the subject of
additional Plan awards. No more than 300,000 shares of Class B Common Stock
(subject to shareholder approval of this number--see "Proposal No. 3") may be
granted pursuant to options to any one person under the Plan in any single
fiscal year. No option under the Plan shall be exercisable after the
expiration of ten years from the date it was granted.
Types of Awards
Stock Options. The Committee, or the full Board, has the discretion to grant
either incentive stock options (within the meaning of Section 422 of the Code)
or non-qualified stock options. All options shall be in such form and shall
contain such terms and conditions as the Committee shall deem appropriate,
subject to the provisions of the Plan. Options vest at a rate to be determined
by the Committee at the time of grant. The Committee may also provide for
acceleration of vesting in certain circumstances.
The Committee has the power to determine the terms of the options granted,
including the exercise price, the number of shares subject to the option and
the exercisability thereof, and the form of consideration payable upon
exercise. Except as permitted by the Committee, options granted under the Plan
are not transferable by the optionee, and each option is exercisable during
the lifetime of the optionee only by such optionee. The exercise price of all
incentive stock options granted under the Plan must be at least equal to the
fair market value of the Class B Common Stock on the date of grant. The
exercise price of non-qualified stock options shall be determined in the
discretion of the Committee. With respect to any optionee who owns 10% or more
of the Company's outstanding capital stock, the exercise price of any
incentive stock option granted to such optionee must equal or exceed 110% of
the fair market value of the Class B Common Stock on the grant date and the
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<PAGE>
term of the option must not exceed five years. The aggregate fair market value
of the Class B Common Stock (determined at the time the option is granted)
with respect to which incentive stock options granted to an individual first
become exercisable in any calendar year shall not exceed $100,000. The options
or portions thereof exceeding such limit shall be treated as non-qualified
stock options.
Payment of the option price upon exercise of an option shall be: in cash;
or, at the discretion of the Committee, by tendering Class B Common Stock
valued using its fair market value on the date of exercise; or, at the
discretion of the Committee, by authorizing a third party to sell the Class B
Common Stock acquired upon the exercise of the option and to remit sufficient
proceeds from the sale to the Company; or, according to a deferred payment or
other arrangement; or, in other legal consideration acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as interest, under any applicable sections of the Code,
of any amounts other than amounts stated under the deferred payment
arrangement.
In the event an optionee's eligibility under the Plan terminates, the
optionee may exercise his or her option to the extent that the optionee is
otherwise entitled to exercise on the date employment terminates, but only
within such period of time as is determined by the Committee and specified in
the option agreement. In the event of the optionee's death, the option may be
exercised, but only within such period of time as is determined by the
Committee and specified in the option agreement, by the optionee's estate or
by a person who acquired the right to exercise the option by bequest or
inheritance, but only to the extent the optionee was entitled to exercise the
option at the date of death.
In general, options are transferable only by will or by the laws of descent
and distribution and, during the lifetime of the optionee, the option shall be
exercisable only by the optionee or by his guardian or legal representative.
Restricted Stock Awards. The Committee may grant restricted stock,
restricted stock units (i.e., units representing shares of stock) or shares of
Class B Common Stock which are subject to transfer restrictions determined by
the Committee. The Committee determines the purchase price, if any, of each
restricted stock or restricted stock unit agreement. Except as determined by
the Committee in its discretion, no rights under a restricted stock or
restricted stock unit agreement shall be transferable except by will or by the
laws of descent and distribution.
Payment of the purchase price of stock acquired pursuant to a restricted
stock or restricted stock unit agreement shall be paid either in cash at the
time of purchase or, in the discretion of the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is
sold or in any form of legal consideration that may be acceptable to the
Committee in its discretion.
Generally, shares of stock sold or awarded as restricted stock or restricted
stock units under the Plan may be subject to a repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the
Committee. In the event of the termination of the optionee's eligibility to
participate under the Plan, the Company may repurchase or otherwise reacquire
any or all of the shares of Class B Common Stock held by that person which
have not vested as of the date eligibility terminates under the terms of the
restricted stock or restricted stock unit agreement between the Company and
such person.
Stock Bonus. The Plan authorizes the Committee to award bonuses of shares of
Class B Common Stock, either restricted or unrestricted, and as current or
deferred compensation. The Committee may also award stock pursuant to a stock
bonus agreement in consideration for past services actually rendered to the
Company or for its benefit.
7
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on federal income tax laws and regulations
in effect as of October 30, 1998 and does not purport to be a complete
description of the federal income tax aspects of the Plan. No information is
provided herein with respect to estate, inheritance, or state or local tax
laws, although there may be certain tax consequences upon the receipt or
exercise of an award or disposition of any of the acquired shares under those
laws. The exact federal income tax treatment of awards will depend on the
specific nature of any such award. An award may, depending on the conditions
applicable to the award, be taxable as an option, an award of restricted or
unrestricted shares, an award which is payable in cash, or otherwise.
Incentive Stock Options. Neither the grant nor the exercise of an incentive
stock option is taxable to the employee receiving the option. If the employee
holds the stock purchased upon exercise of an incentive stock option for at
least one year after the purchase of the stock and until at least two years
after the option was granted, his or her sale of the shares will produce long-
term capital gain or loss, and the Company will not be entitled to any tax
deduction. However, if the employee sells or otherwise transfers the stock
before these holding periods have elapsed, he or she will generally be taxed
at ordinary income rates on the sale in the amount of the excess of the fair
market value of the stock when the option was exercised over the option
exercise price, and the Company will be entitled to a tax deduction on the
same amount. Any remaining gain or loss will be short-term or long-term
capital gain or loss as the case may be.
Non-qualified Stock Options. Although the grant of non-qualified stock
options under the Plan also is not generally taxable to the optionee, upon
exercise the optionee will be taxed at ordinary income rates on the excess of
the fair market value of the stock received over the option exercise price,
and the Company will be entitled to a tax deduction in the same amount. The
amount included in an individual's income as a result of the exercise of a
non-qualified stock option will be treated as his or her basis in the shares
acquired, and any remaining gain or loss on the subsequent sale of the shares
will be treated as long-term or short-term capital gain or loss as the case
may be.
Restricted Stock. The acquisition of restricted stock is not a taxable
event. When restrictions imposed upon the restricted stock expire, the holder
will recognize ordinary income in an amount equal to the excess, if any, of
the fair market value of the restricted stock on the date of such expiration
over the purchase price, if any, for the shares. The holder may, however,
elect within 30 days after the date of acquisition to recognize ordinary
income on the date of purchase in an amount equal to the excess of the fair
market value of the restricted stock on the date of grant, determined without
regard to the restrictions imposed on such shares, over the purchase price, if
any, for the shares. If and when the holder recognizes ordinary income
attributable to the restricted stock, the Company will be entitled to a
deduction for the same amount.
Other Awards. Awards may be granted to employees under the Plan that do not
fall into the categories described above. The federal income tax treatment of
these awards will depend upon the specific terms of such awards. In general,
compensation in lieu of cash will be treated as ordinary taxable income to the
employees and deducted by the Company. The Company will generally be required
to withhold applicable taxes with respect to any ordinary income recognized by
a participant in connection with awards made under the Plan.
Alternative Minimum Tax. The amount by which the fair market value of the
shares received upon the exercise of an incentive option exceeds the exercise
price of the shares is included in the calculation of "alternative minimum
taxable income" ("AMTI") of the optionee. The alternative minimum tax imposed
on individual taxpayers is equal to the amount by which 26% of AMTI (28% for
AMTI in excess of $175,000) exceeds the regular federal income tax rate for a
taxable year. For minimum tax purposes, the basis of stock acquired through
the exercise of an incentive stock option equals the fair market value taken
into account in determining the amount of the AMTI. A portion of a taxpayer's
minimum tax attributable to certain items (including the spread on the
exercise of an incentive stock option) may be credited against the taxpayer's
regular tax liability in later years to the extent that the regular tax
liability exceeds the alternative minimum tax.
8
<PAGE>
Section 162(m) Compensation Deduction Limitation. Stock options and
performance-based restricted stock granted under the Plan are intended to be
"performance-based compensation" and therefore not subject to the deduction
limitation of Code Section 162(m).
ACCOUNTING
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," so that there is no earnings charge in connection with the grant
or exercise of stock options granted under the Plan. In the year ended
December 31, 1996, the Company adopted the disclosure-only alternative
described in Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," which requires companies to show in a footnote
to their annual financial statements the pro forma effect that option grants
would have had on earnings if the "value" of the stock options granted that
year were treated as compensation expense. Restricted and unrestricted stock
bonuses under the Plan would, however, involve an earnings charge.
AMENDMENT AND DURATION OF THE PLAN
Unless terminated sooner, the Plan expires February 9, 2007. The Board may
amend the Plan at any time; however, no amendment will be effective unless
approved by the Company's shareholders within twelve months before or after
the adoption of the amendment, if the amendment will increase the number of
shares reserved for awards under the Plan or modify the requirements as to
eligibility for participation under the Plan, or modify the Plan in any other
way, and such modification requires shareholder approval under Code Sections
162(m) or 422, the requirements of the Nasdaq National Market or Rule 16b-3
under the Securities and Exchange Act of 1934, as amended.
PARTICIPATION IN THE PLAN BY EXECUTIVE OFFICERS, DIRECTORS AND EMPLOYEES
In addition to any discretionary grants of stock awards which may be granted
to outside directors from time to time, outside directors shall automatically
be granted non-qualified stock options for 10,000 shares (subject to
shareholder approval of this number--see "Proposal No. 4") of Class B Common
Stock effective as of their date of appointment or election to the Board. Each
outside director who is re-elected to serve as an outside director for an
additional term shall automatically receive non-qualified options to purchase
10,000 shares (subject to shareholder approval of this number--see "Proposal
No. 4") of Class B Common Stock as of the date of such re-election. All such
non-qualified stock options granted to outside directors shall be fully vested
as of the date of the grant.
Future awards under the Plan, including grants to executive officers, are
not presently determinable. The Company expects that options granted under the
Plan Amendment will be granted to eligible participants on a discretionary
basis. In addition, under employment agreements with three executive officers
of the Company, 50% of each of such officer's annual incentive compensation
must be paid in the form of options in lieu of cash. The officers may elect to
receive 100% of their incentive compensation in the form of options, which
election the officers have made for fiscal 1998. See "Compensation Committee
Report on Executive Compensation." The amount of incentive compensation to be
received by the officers is based on the achievement of certain performance
goals by the Company, and is calculated as a percentage of each officer's base
salary. The Company believes that the performance goals have been met for
fiscal 1998 and, accordingly, options with an aggregate value of approximately
$769,000 will be granted on December 31, 1998 to these three executive
officers. The number of options to be received by each officer will be
determined using the Black-Scholes option valuation methodology.
9
<PAGE>
The following table sets forth information regarding grants under the Plan
received during the fiscal year ended September 30, 1998 by: (1) the Named
Executive Officers; (2) all current executive officers as a group; (3) all
current directors who are not executive officers as a group; and (4) all
employees, including all current officers who are not executive officers, as a
group.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS RECEIVED
NAME AND POSITION IN FISCAL 1998(1)
- ----------------- --------------------------
<S> <C>
James L. Bildner................................... 120,000
Chairman of the Board and Chief Executive Officer
William G. Barton.................................. 90,000
President and Chief Technology Officer
George K. Ross..................................... 80,000(2)
Executive Vice President and Chief Financial
Officer
F. Thomas Latham................................... 0
Vice President, Business Development, Commercial
Services Division
Bradley H. Nickels................................. 10,000
Senior Vice President, Business Development and
Operations, Government Services Division
Executive officers as a group...................... 350,000
Directors who are not executive officers, as a
group............................................. 10,000
All employees not including executive officers..... 804,200
</TABLE>
- --------
(1) See the table "Option Grants in the Twelve-Month Period Ended September
30, 1998" for more information on these options.
(2) Includes 10,000 options that were exercised on June 10, 1998.
APPROVAL OF AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN
(PROPOSAL NO. 3)
On January 27, 1998, and December 9, 1998, the Board adopted, subject to
shareholder approval, an amendment (the "Amendment") to the Plan to increase
the maximum number of shares of Class B Common Stock authorized to be granted
under the Plan to any one person in any single fiscal year from 100,000 to
300,000 shares. The Board believes that the current number of shares
authorized to be granted to any one person in any single fiscal year is
inadequate to satisfy the purposes and objectives of the Plan.
The Amendment is being submitted to the shareholders for approval at the
Meeting. Approval of the Amendment requires the affirmative vote of a majority
of the voting shares. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE PLAN. Proxies solicited by the Board will be
voted for this proposal unless a vote against the proposal or abstention is
specifically indicated.
10
<PAGE>
APPROVAL OF AMENDMENT TO THE COMPANY'S
AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN
(PROPOSAL NO. 4)
On October 26, 1998, the Board adopted, subject to shareholder approval, a
second amendment (the "Second Amendment") to the Plan to increase the number
of shares authorized to be granted automatically to Outside Directors under
the Plan upon their initial appointment and upon their re-election thereafter
from 5,000 shares of Class B Common Stock to 10,000 shares of Class B Common
Stock. The Board believes that the current number of shares authorized for
automatic grant to Outside Directors is inadequate to satisfy the purposes and
objectives of the Plan, including promoting the attraction and retention of
qualified directors.
The Second Amendment is being submitted to the shareholders for approval at
the Meeting. Approval of the Second Amendment requires the affirmative vote of
a majority of the voting shares. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE APPROVAL OF THE AMENDMENT TO THE PLAN. Proxies solicited by the Board will
be voted for this proposal unless a vote against the proposal or abstention is
specifically indicated.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
(PROPOSAL NO. 5)
Effective as of July 25, 1998, the Audit Committee of the Board approved,
subject to ratification by the shareholders, the engagement of
PricewaterhouseCoopers LLP as its independent accountants for the fiscal year
ending September 30, 1998 and approved the resignation of the firm of Ernst &
Young LLP, who resigned as auditors of the Company effective July 24, 1998.
Ernst & Young LLP, under the rules of its profession, resigned solely due to a
prospective independence issue.
The reports of Ernst & Young LLP on the Company's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope,
or accounting principles.
In connection with the audits of the Company's financial statements for each
of the two fiscal years ended September 30, 1997, and in the subsequent
interim period, there were no disagreements with Ernst & Young LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused Ernst & Young LLP to make reference to
the matter in their report. On July 27, 1998, the Company filed a Current
Report on Form 8-K disclosing the change in its certifying accountant and
including as Exhibit 16.1 thereto a letter from Ernst & Young LLP addressed to
the Commission agreeing with the statements made in such Form 8-K.
On December 9, 1998, the Board approved, subject to ratification by the
shareholders, the engagement of PricewaterhouseCoopers LLP as its independent
accountants for the fiscal year ending September 30, 1999. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Meeting at which
they may make a statement, if they desire to do so, and to be available to
respond to appropriate questions.
The Company's shareholders are being asked to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for fiscal
1998 and fiscal 1999. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS. Proxies solicited by the Board will be voted for this
proposal unless a vote against the proposal or abstention is specifically
indicated.
11
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company are chosen and appointed by the Board.
In addition to Messrs. Bildner, Barton and Ross, as of November 30, 1998 the
Company's executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
James Weaver........ 41 President, Government Services Division
Charles Shuetrim.... 57 Managing Director, Australia
Andrew Armstrong.... 47 Managing Director, United Kingdom
Bradley H. Nickels.. 37 Senior Vice President, Business Development and
Operations, Government Services Division
Stephen McCarty..... 45 Senior Vice President, Human Resources Management
Laura B. DePole..... 34 Vice President, Finance and Chief Accounting Officer
</TABLE>
Mr. Weaver joined Tier as President, Government Services Division in May
1998. From June 1997 until May 1998, Mr. Weaver served as Vice President,
Government Solutions of BDM International, Inc., an IT company, where he was
responsible for SBU strategic planning, policy and procedure development,
client base expansion and overall business planning and development. From
March 1995 until June 1997, he served as National Program Director, Public
Sector for Unisys Corporation, an IT company. Prior to that time, he served as
Director Public Sector Services with Lockheed Information Management Services
and District Manager with the Commonwealth of Virginia, Division of Child
Support Enforcement. Mr. Weaver received a B.A. in Psychology from California
State College and is pursuing a M.S. in Agency Management and Administration
from California University.
Mr. Shuetrim joined the Company as Managing Director, Australia, in October
1998. Mr. Shuetrim is a director of Sancha Computer Services Pty. Limited and
Sancha Software Development Pty. Limited, which entities were acquired by Tier
in March 1998, and has served as a director responsible for the conduct of
these computer services businesses since 1986.
Mr. Armstrong joined the Company as Managing Director, United Kingdom in
July 1997 in connection with the Company's acquisition of Albanycrest. Mr.
Armstrong was employed by Albanycrest as Managing Director from November 1996
until July 1997. From 1995 to 1996, Mr. Armstrong served as an independent
consultant. From 1992 to 1995, he was employed as principal project manager
for Siemens Nixdorf Information Systems Ltd., an IT company. From 1990 to
1992, Mr. Armstrong was an independent consultant and prior to that time he
was employed with The Macleod Group and with Armstrong Associates Ltd./Data
Center Management Ltd.
Mr. Nickels, one of the initial founders of the Company, has served as
Senior Vice President, Business Development and Operations, Government
Services Division since April 1998. He served as Vice President of the
Government Services SBU from January 1996 until April 1998. From October 1991
to December 1995, he served as a principal consultant and project manager at
the Company. From 1988 to 1992, Mr. Nickels was a project manager at American
Express Travel Related Services. Mr. Nickels received a B.S. in Computer
Science from Arizona State University.
Mr. McCarty joined the Company as Vice President, Human Resources Management
in October 1998. From January 1998 to October 1998, he served as a Vice
President of Renaissance Worldwide, Inc., a consulting firm. From February
1993 to January 1998, he served as a Vice President of Arthur D. Little, a
consulting firm. From March 1980 to February 1993, he served as a Vice
President of GenRAD, Inc., a technology company. Mr. McCarty received a B.A.
in Psychology from State University of New York (SUNY) at Plattsburgh and a
M.S. in Industrial/ Organizational Psychology from Rensselaer Polytechnic
Institute.
Ms. DePole has served as Vice President, Finance since October 1998 and
Chief Accounting Officer since August 1997. From August 1997 to October 1998
Ms. DePole was also the Corporate Controller of the Company. Prior to that
time Ms. DePole was a Senior Manager at Ernst & Young LLP, an international
public accounting firm. Ms. DePole received a B.S. in Accounting from San
Francisco State University and is a Certified Public Accountant.
12
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning compensation
earned by the Named Executive Officers for the fiscal year ended September 30,
1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
------------------------------ ----------------------
NUMBER OF SHARES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS GRANTED (#)
- --------------------------- -------- ------- ------------- ----------------------
<S> <C> <C> <C> <C>
James L. Bildner (2)...... $406,250 -- $68,785(3) 120,000
Chairman of the Board and
Chief Executive Officer
Williams G. Barton (2).... 278,125 -- -- 90,000
President and Chief
Technology Officer
George K. Ross (2)........ 209,375 -- -- 80,000
Executive Vice President
and Chief Financial
Officer
F. Thomas Latham.......... 140,000 $98,000 -- --
Vice President, Business
Development, Commercial
Services Division
Bradley H. Nickels........ 186,667 -- -- 10,000
Senior Vice President,
Business Development and
Operations, Government
Services Division
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
the compensation described in this table does not include perquisites and
other personal benefits received by the Named Executive Officers which do
not exceed the lesser of $50,000 or 10% of the total salary and bonus
reported for such Named Executive Officer.
(2) Pursuant to employment agreements with the Company, each of Messrs.
Bildner, Barton and Ross may receive annual incentive compensation in the
form of options. The number of options to be received by each as incentive
compensation for fiscal 1998 will be calculated using the Black-Scholes
option valuation methodology and any such options will be granted on
December 31, 1998.
(3) Represents forgiveness of debt and accrued interest thereon in the amount
of $53,812 owed by Mr. Bildner to the Company arising from loans made for
housing and relocation expenses, certain non-business travel expenses in
the amount of $13,735 paid by the Company, and other perquisites in the
amount of $1,238.
13
<PAGE>
The following table sets forth information concerning options granted to the
Named Executive Officers during the twelve-month period ended September 30,
1998.
OPTION GRANTS IN THE TWELVE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SHARES PERCENT STOCK PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OPTION TERM(3)
OPTIONS GRANTED TO PRICE EXPIRATION -----------------------------
NAME GRANTED (#) EMPLOYEES(1) ($/SHARE)(2) DATE 5% 10%
---- ----------------- -------------- ------------ ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
James L. Bildner........ 80,000 Class B(4) 6.9% $10.875 1/26/08 $ 547,000 $ 1,387,000
40,000 Class B(5) 3.5 15.188 6/23/08 382,000 968,000
William G. Barton....... 60,000 Class B(4) 5.2 10.875 1/26/08 410,000 1,040,000
30,000 Class B(5) 2.6 15.188 6/23/08 287,000 726,000
George K. Ross.......... 50,000 Class B(4) 4.3 10.875 1/26/08 342,000 867,000
30,000 Class B(5) 2.6 15.188 6/23/08 287,000 726,000
F. Thomas Latham........ -- -- -- -- -- --
Bradley H. Nickels...... 10,000 Class B(4) * 14.25 8/31/08 90,000 227,000
</TABLE>
- --------
* Less than 1%.
(1) Based on an aggregate of 1,154,200 options granted to employees in the
twelve-month period ended September 30, 1998, including options granted to
the Named Executive Officers.
(2) The exercise price equals or exceeds the fair market value of the stock as
of the grant date as reported on the Nasdaq National Market.
(3) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Class B Common Stock based on the option
exercise price, compounded annually for the term of the option. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Class B Common Stock and overall stock market
conditions. There can be no assurance that the Class B Common Stock will
appreciate at any particular rate, or at all, in future years.
(4) Options fully vested on date of grant.
(5) Options fully vest on first anniversary of the date of grant.
14
<PAGE>
The following table sets forth certain information regarding option
exercises during the twelve-month period ended September 30, 1998 and the
value of unexercised options held as of September 30, 1998 by the Named
Executive Officers.
AGGREGATED OPTION EXERCISES IN THE TWELVE-MONTH PERIOD
ENDED SEPTEMBER 30, 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END (#) FISCAL YEAR-END(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Bildner........ -- -- 115,000 115,000 $847,000 $ 857,000
William G. Barton....... -- -- 95,000 105,000 735,000 844,000
George K. Ross.......... 45,000 $566,750 46,250 118,750 295,000 1,178,000
F. Thomas Latham........ -- -- 25,000 52,500 326,000 681,000
Bradley H. Nickels...... -- -- 45,833 74,167 492,000 968,000
</TABLE>
- --------
(1) The value realized is based on the difference between the market price at
the time of exercise of the options and the applicable exercise price.
(2) The value of unexercised in-the-money options is calculated based on the
fair market value of the Company's Class B Common Stock on September 30,
1998. Amounts reflected are based on such fair market value minus the
aggregate exercise price and do not necessarily reflect that the optionee
sold such stock.
EMPLOYMENT AGREEMENTS
In December 1996, the Company entered into an employment agreement with
James L. Bildner, the Company's Chairman of the Board and Chief Executive
Officer, for a term that expires on August 1, 2001. Under the agreement, as
amended as of February 16, 1998, Mr. Bildner receives an annual base salary of
$455,000 and is eligible to receive an annual incentive bonus of up to 85% of
base salary based on achievement of certain Company performance milestones or
other goals to be determined by the Compensation Committee. For calendar year
1998, the Compensation Committee has determined that at least 50% of all
incentive compensation earned by Mr. Bildner will be paid in the form of
options to purchase Class B Common Stock having an exercise price equal to the
fair market value of the Class B Common Stock on the date of grant. Mr.
Bildner has elected, as permitted under his employment agreement, to receive
the remaining 50% of his incentive compensation in the form of options. Any
options issued as annual incentive compensation for 1998 will be granted on
December 31, 1998. Under the agreement, Mr. Bildner also received a $50,000
relocation loan, which bears interest at 5.75% per annum and is forgivable
over a three-year period beginning on December 31, 1996 (the "Relocation
Loan"), and a monthly housing allowance of $2,750 (for a three-year period
beginning December 31, 1996), payable in advance upon request of Mr. Bildner.
The agreement also provides, among other things, that if Mr. Bildner's
employment with the Company is terminated (i) by the Company for cause (as
defined in the agreement), other than Mr. Bildner's conviction of a felony,
the Company will pay to Mr. Bildner his base salary and benefits for a period
of 24 months from the date of termination; or (ii) by the Company without
cause or by Mr. Bildner for good reason (as defined in the agreement), the
outstanding principal balance and accrued interest under the Relocation Loan
will be forgiven, all outstanding unvested options held by Mr. Bildner will
immediately vest and the Company will pay Mr. Bildner a lump sum amount equal
to the discounted present value of 24 months of a base salary plus 100% of the
maximum amount of all incentive compensation Mr. Bildner could have earned
during the year in which the termination occurs. Benefits substantially
similar to those set forth in clause (ii) above are provided in the event of
termination of Mr. Bildner's employment due to death or disability and, upon
any event of termination, the Company will take all action required to release
Mr. Bildner from any personal guaranties of Company indebtedness. Pursuant to
this agreement Mr. Bildner also received an option to purchase 80,000 shares
of Class A Common Stock and 120,000 shares of Class B Common Stock at an
exercise price
15
<PAGE>
equal to 100% of the fair market value of such stock on the date of grant,
which vested immediately. He also received an option for 120,000 shares of
Class A Common Stock and 180,000 shares of Class B Common Stock, all of which
has vested except 33.3% which will vest on December 31, 1998.
In December 1996, the Company entered into an employment agreement with
William G. Barton, the Company's President and Chief Technology Officer, for a
term that expires on August 1, 2001. Under the agreement, as amended as of
February 16, 1998, Mr. Barton receives an annual base salary of $310,000 and
is eligible to receive an annual incentive bonus of up to 75% of base salary
based on achievement of certain Company performance milestones or other goals
to be determined by the Compensation Committee. For calendar year 1998, the
Compensation Committee has determined that at least 50% of all incentive
compensation earned by Mr. Barton will be paid in the form of options to
purchase Class B Common Stock having an exercise price equal to the fair
market value of the Class B Common Stock on the date of grant. Mr. Barton has
elected, as permitted under his employment agreement, to receive the remaining
50% of his incentive compensation in the form of options. Under the agreement,
Mr. Barton also received an education loan up to $50,000, which bears interest
at 5.75% per annum and is forgivable over approximately three years (the
"Education Loan"). The agreement also provides, among other things, that if
Mr. Barton's employment with the Company is terminated (i) by the Company for
cause (as defined in the agreement), other than Mr. Barton's conviction of a
felony, the Company will pay to Mr. Barton his base salary and benefits for a
period of 24 months from the date of termination; or (ii) by the Company
without cause or by Mr. Barton for good reason (as defined in the agreement),
the outstanding principal balance and accrued interest under the Education
Loan will be forgiven, all outstanding unvested options held by Mr. Barton
will immediately vest and the Company will pay Mr. Barton a lump sum amount
equal to the discounted present value of 24 months of a base salary plus 100%
of the maximum amount of all incentive compensation Mr. Barton could have
earned pursuant to the above formula during the year in which the termination
occurs. Benefits substantially similar to those set forth in clause (ii) above
are provided in the event of termination of Mr. Barton's employment due to
death or disability and, upon any event of termination, the Company will take
all action required to release Mr. Barton from any personal guaranties of
Company indebtedness. Pursuant to this agreement, Mr. Barton received an
option to purchase 120,000 shares of Class A Common Stock and 180,000 shares
of Class B Common Stock, at an exercise price equal to 110% of the fair market
value of such stock on the date of grant, all of which has vested except 33.3%
which will vest on December 31, 1998.
In February 1997, the Company entered into an employment agreement with
George K. Ross, the Company's Executive Vice President and Chief Financial
Officer, for a term that expires on August 1, 2001. Under the agreement, as
amended as of February 16, 1998, Mr. Ross receives an annual base salary of
$230,000 and is eligible to receive an annual incentive bonus of up to 65% of
base salary based on achievement of certain Company performance milestones or
goals to be determined by the Compensation Committee. For calendar year 1998,
the Compensation Committee has determined that at least 50% of all incentive
compensation earned by Mr. Ross will be paid in the form of options to
purchase Class B Common Stock having an exercise price equal to the fair
market value of the Class B Common Stock on the date of grant. Mr. Ross has
elected, as permitted under his employment agreement, to receive the remaining
50% of his incentive compensation in the form of options. Any options issued
as annual incentive compensation for 1998 will be granted on December 31,
1998. In the event the agreement is terminated by Mr. Ross for good reason (as
defined in the agreement) or by the Company other than for cause (as defined
in the agreement), Mr. Ross will be entitled to receive his full salary for a
period of six months from the date of such termination and a pro rata portion
of all incentive compensation Mr. Ross could have earned during the year the
termination occurs. The agreement also provides that the Company offer an
unsecured relocation loan of up to $20,000, which bears interest at 5.81% per
annum, which amount shall be forgiven over three years so long as Mr. Ross
remains employed by the Company. Pursuant to this agreement, Mr. Ross received
an option to purchase 105,000 shares of Class B Common Stock, at an exercise
price equal to 100% of the fair market value of such stock on the date of
grant, which option vests ratably on the first three annual anniversaries of
the grant. In the event of a sale of substantially all of the assets of the
Company, a change in control of the Company or upon the termination of James
L. Bildner as Chief Executive Officer of the Company, the option fully vests
immediately.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Samuel Cabot III and Ronald L.
Rossetti. There are no interlocking relationships between any executive
officers of the Company and any entity whose directors or executive officers
serve on the Company's Board or Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
The Compensation Committee of the Board of Directors (the "Committee")
administers the Company's executive compensation program. The Committee is
composed entirely of outside directors.
The objective of the Company's executive compensation program is to develop
and maintain executive reward programs that contribute to the enhancement of
shareholder value, while attracting, motivating and retaining key executives
who are essential to the long-term success of the Company. As discussed below,
the Company's executive compensation program consists of both fixed (base
salary) and variable (incentive) compensation elements. Variable compensation
consists of annual bonus incentives and stock option grants. These elements
are designed to operate on an integrated basis and together comprise total
compensation value.
In making its compensation decisions, the Committee considers the overall
financial performance of the Company, as well as the contributions of
individual executives, in each case as measured against objective and
subjective factors which the Committee considers important. The Company does
not target each item of compensation within a range relative to comparable
companies; however, the Company does attempt to provide executive compensation
packages that are fair and competitive with those provided by competitors.
In reviewing the Company's performance during fiscal 1998, the Committee
considered a variety of factors. The Company's initial public offering was
completed in December 1997 at a price to the public of $8.50 per share, and in
June 1998, the Company completed its secondary public offering at $15.00 per
share. Pursuant to its growth strategy, the Company made three strategic
acquisitions of other IT service companies to expand its professional
resources and further develop its service offering. The Company's revenues
increased 115% over the prior twelve-month period, net income increased almost
tenfold and diluted net income per share increased to $0.39 from $0.10 for the
twelve months ended September 30, 1997. The Company also won a series of major
contracts with new and existing clients and was successful in continuing to
build its management team. In making its compensation decisions for 1998, the
Committee considered the above factors as a whole without assigning specific
weights to particular factors.
It is the Committee's belief that, in light of current compensation levels
of the Company's executive officers, the Company will not be affected by the
provisions of Section 162(m) of the Code, which limits the deductibility of
certain executive compensation. Therefore, the Committee has not adopted a
policy as to compliance with the requirements of Section 162(m).
Base Salary
Base salary levels of the Company's key executives are established at levels
which the Committee considers to be appropriate in light of the experience,
responsibilities and performance of each executive officer and in
consideration of the competitive marketplace. Base salaries are generally
subject to annual review by the Committee. In addition, during the second
quarter of fiscal 1998, the Committee provided certain executive officers,
including Mr. Bildner, with increases in base salary to reflect the
significant increase in the scale of the Company's business.
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Annual Cash Incentives
The annual bonus incentive is designed to provide a short-term (one-year)
incentive to executive officers. Targeted bonus levels are established based
on the expected contributions of individual executives and annual bonuses are
earned based on the Company's performance against predetermined financial
thresholds. In certain cases, such as Mr. Bildner, all or a portion of the
annual bonus is payable in the form of stock options. In fiscal 1998, the
Company's performance exceeded the performance criteria and, as a result,
executives will receive their targeted bonus levels.
Stock Options
Stock options are designed to provide long-term incentives and rewards tied
to the price of the Company's Class B Common Stock. Given the fluctuations of
the stock market, stock price performance and financial performance are not
always consistent. The Committee believes that stock options, which provide
value to participants when shareholders benefit from stock price appreciation,
are an important component of the Company's annual executive compensation
program. The number of options or shares currently held by an officer is not a
factor in determining individual grants, and the Committee has not established
any target level of ownership of Class B Common Stock by executive officers.
However, accumulation and retention of shares of Class B Common Stock by
officers is encouraged.
Stock options are typically granted to executive officers at the time of
hiring and periodically thereafter. In granting options, the Committee does
not adhere to any firmly established formulas. During fiscal 1998,
approximately 158 officers and other employees received stock option grants.
The Summary Compensation Table shows the options granted to the Named
Executive Officers during fiscal 1998. In determining the size of the grants
to its executive officers, the Committee assessed relative levels of
responsibility and the long-term incentive practice of comparable companies.
In accordance with the provisions of the Company's Amended and Restated 1996
Equity Incentive Plan, the exercise price of all options granted was equal to
the market value of the underlying Common Stock on the date of grant.
Accordingly, the value of these grants to the officers depends on the future
growth and share value of the Company's Common Stock.
Other Compensation
The Company sometimes makes loans to certain executives in connection with
their exercise of stock options, the payment of taxes associated with those
exercises, relocation expenses, costs associated with the purchase of housing,
educational expenses and personal expenses. Loans related to relocation,
housing, education and personal expenses may be forgiven over time in
recognition of the executive's continued performance.
CEO PERFORMANCE EVALUATION
For fiscal 1998, the Committee evaluated Mr. Bildner's performance based on
the factors discussed above under the caption "General", with particular
emphasis on the achievement of the dramatic growth of the business, the
development of the Company's infrastructure and management team, the continued
success of winning significant new contract awards and the completion of
several strategic acquisitions. In accordance with Mr. Bildner's employment
agreement, as amended, Mr. Bildner's base salary was $455,000 and he was
entitled to receive an annual incentive bonus of up to 85% of base salary
based on the achievement of certain performance milestones. As a result of the
Company exceeding corporate expectations and objectives for fiscal 1998 and
Mr. Bildner's individual performance, he was entitled to receive his maximum
potential annual bonus incentive together with the stock option grants and
loan forgiveness.
The foregoing report is given by the members of the Compensation Committee,
namely:
Ronald L. Rossetti
Samuel Cabot III
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PERFORMANCE GRAPH
The following graph compares the Company's total share price performance on
its Class B Common Stock for the period beginning with the Company's initial
public offering on December 17, 1997 through the fiscal year ended
September 30, 1998, with the total share price performance of the Nasdaq Market
Index and the Russell 2000 Index. The comparison assumes $100.00 was invested
on December 17, 1997 in the Company's Class B Common Stock and in each of the
foregoing indices and assumes reinvestment of all dividends, if any.
[GRAPH APPEARS HERE]
Measurement Date Tier Russell 2000 Nasdaq
- ---------------- ---- ------------ ------
9/30/98 176.00 85.26 109.47
8/31/98 152.00 79.25 96.89
7/31/98 166.67 98.43 121.00
6/30/98 190.01 107.26 122.45
5/29/98 196.00 107.08 114.96
4/30/98 214.67 113.24 120.75
3/31/98 184.00 112.72 118.63
2/27/98 145.33 108.30 114.42
1/30/98 120.67 100.85 104.65
12/31/97 114.67 102.48 101.49
12/17/97 100.00 100.00 100.00
The information contained in the performance graph shall not be deemed
"soliciting material" or to be "filed" with the Commission, nor shall such
information be incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"), except to the extent that the Company
specifically incorporates it by reference into such filing.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities (the "Section 16(a) Participants"), to file
reports of ownership and changes in ownership with the Commission. Such persons
are required to furnish the Company with copies of all forms they file pursuant
to Section 16(a). Based solely on a review of the copies of such forms
furnished to the Company, or written representations that no such forms were
required, the Company believes that during fiscal 1998 all Section 16(a)
Participants complied with applicable Section 16(a) filing requirements.
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SHAREHOLDER INFORMATION
ANY PERSON FROM WHOM PROXIES FOR THE MEETING ARE SOLICITED MAY OBTAIN, IF
NOT ALREADY RECEIVED, FROM THE COMPANY, WITHOUT CHARGE, A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE 1998 FISCAL YEAR BY WRITTEN
REQUEST ADDRESSED TO INVESTOR RELATIONS, TIER TECHNOLOGIES, INC., 1350 TREAT
BOULEVARD, SUITE 250, WALNUT CREEK, CALIFORNIA, 94596. THE ANNUAL REPORT ON
FORM 10-K IS NOT SOLICITING MATERIAL AND IS NOT INCORPORATED IN THIS DOCUMENT
BY REFERENCE.
SHAREHOLDER PROPOSALS
Proposals by shareholders to be presented at the Company's next annual
meeting must be received by the Company at its principal executive offices not
less than 120 days prior to December 29, 1999, in order to be considered for
inclusion in the Company's proxy statement and form of proxy for such meeting.
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EXHIBIT A
TIER TECHNOLOGIES, INC.
AMENDED AND RESTATED
1996 EQUITY INCENTIVE PLAN
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees of and Consultants to the Company and its Affiliates, and Outside
Directors may be given an opportunity to benefit from increases in value of
the stock of the Company through the granting of (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) restricted stock
or restricted stock units, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees of or Consultants to the Company or its
Affiliates, or Outside Directors, to secure and retain the services of new
Employees, Consultants and Outside Directors, and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options or (ii) stock bonuses, restricted
stock or restricted stock units granted pursuant to Section 7 hereof. All
Options shall be separately designated Incentive Stock Options or Nonstatutory
Stock Options at the time of grant, and in such form as issued pursuant to
Section 6, and a separate certificate or certificates will be issued for
shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections
424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan. In the absence of a Committee, the "Committee"
means the Board.
(e) "COMMON STOCK" means the authorized and unissued or reacquired shares of
the Company's Class B Common Stock.
(f) "COMPANY" means TIER TECHNOLOGIES, INC., a California corporation.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render services and who is compensated for such
services, provided that the term "Consultant" shall not include Outside
Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, CONSULTANT OR OUTSIDE DIRECTOR" means
the employment or the relationship as a Consultant or Outside Director is not
interrupted or terminated. The Board, in its sole discretion, may determine
whether Continuous Status as an Employee, Consultant or Outside Director shall
be considered interrupted in the case of: (i) any leave of absence approved by
the Board, including sick leave, military leave, or any other personal leave;
or (ii) transfers between the Company and its Affiliates or their successors.
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(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability, as defined in Section
22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company, including a Director employed
by the Company. Neither service as a Director nor payment of a director's fee
by the Company shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means the value of the Common Stock of the Company
based on the closing price of the Common Stock on the Nasdaq National Market,
or other principal trading market of the Common Stock, on the day preceding
the date of grant.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(p) "OFFICER" means a person who is an "executive officer" of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(s) "OPTIONED STOCK" means the Common Stock of the Company subject to an
Option.
(t) "OPTIONEE" means an Employee, Consultant or Outside Director who holds
an outstanding Option.
(u) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(v) "PLAN" means this 1996 Equity Incentive Plan, as amended.
(w) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect when discretion is being exercised with respect to the
Plan.
(x) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any restricted stock or any restricted stock unit.
(y) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates the administration of the Plan to a Committee, as provided in
subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how each Stock Award shall
be granted; whether a Stock Award will be an Incentive
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Stock Option, a Nonstatutory Stock Option, a stock bonus, restricted stock,
restricted stock unit, or any combination of the foregoing; the provisions
of each Stock Award granted (which need not be identical), including the
time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; and the number of shares with respect to which Stock Awards
shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under it,
and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award in a
manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan as provided in Section 13.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed solely of not fewer than two (2) Board members (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, all the powers possessed by
the Board (and references in this Plan to the Board shall thereafter be to the
Committee, except where the context indicates otherwise); subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
Subject to the provisions of Section 12 relating to adjustments upon changes
in stock, the stock that may be sold or issued pursuant to Stock Awards shall
not exceed in the aggregate five million nine hundred and eighty-nine
thousand, three hundred and thirty-three (5,989,333) shares of the Company's
Common Stock, of which one hundred thousand (100,000) shares are reserved
exclusively for grant to Outside Directors. No more than 300,000 shares may be
granted to any one person pursuant to an Option or Options under the Plan in
any single fiscal year. If any Stock Award shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in
full, the stock not acquired under such Stock Award shall revert to and again
become available for issuance under the Plan. In the event of an Optionee's
use of already-owned shares of Common Stock in payment of the Option Price, or
a portion of it, only the net number of shares issued upon exercise of the
Option shall be considered issued under the Plan for the purposes of this
Section 4.
5. ELIGIBILITY.
(a) General Rule. Incentive Stock Options may be granted only to Employees.
Stock Awards other than Incentive Stock Options may be granted only to
Employees, including prospective employees, Consultants or Outside Directors.
(b) Automatic Grants to Outside Directors. In addition to any discretionary
grants of Stock Awards which may be granted to Outside Directors from time to
time, each Outside Director shall automatically be granted Nonstatutory Stock
Options as described in this Section 5(b). In addition, subject to the Board's
discretion, at the request of an Outside Director, such Nonstatutory Stock
Options may be granted instead to an entity wholly owned by such Outside
Director.
(i) Initial Grant. Effective February 28, 1997, each person who is
serving as an outside Director on that date shall receive a Nonstatutory
Stock Option for 5,000 shares of Common Stock.
(ii) Grants to Future Outside Directors. Any other person who hereafter
becomes an Outside Director after February 27, 1997 shall automatically
receive a Nonstatutory Stock Option for 10,000 shares of Common Stock
effective as of the date of their appointment or election to the Board.
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(iii) Subsequent Annual Grants. In addition to the grants described in
subparagraphs (i) and (ii) above, each Outside Director who is re-elected
to serve as an Outside Director for an additional term shall automatically
be granted a Nonstatutory Option to purchase 10,000 shares of Common Stock
as of the date of such re-election.
(iv) Vesting. All Options granted pursuant to this Section 5(b) shall be
fully vested on the date of grant.
(v) Exercise Price. The exercise price of all Nonstatutory Stock Options
granted to Outside Directors under this Section 5(b) shall be at least
equal to one hundred percent (100%) of the Fair Market Value of the Common
Stock on the date of the grant.
(c) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of
any of its Affiliates, unless the exercise price of such Incentive Stock
Option is at least one hundred ten percent (110%) of the Fair Market Value of
such stock at the date of grant and the Incentive Stock Option is not
exercisable after the expiration of five (5) years from the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate, subject to the provisions of
this Plan. The terms of separate Options need not be identical, but each
Option shall be subject to (through incorporation of provisions hereof by
reference in the Option Agreement or otherwise) the substance of each of the
following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price
of each Nonstatutory Stock Option shall be determined in the discretion of
the Board (with the exception of the Nonstatutory Stock Options
automatically granted to Outside Directors pursuant to Section 5(b), which
shall be granted at an exercise price of at least one hundred percent
(100%) of Fair Market Value of the stock subject to the Option on the date
the Option is granted).
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or
(ii) at the discretion of the Board or the Committee, exercised either at
the time of the grant or exercise of the Option, (A) by tendering (either
actually or by attestation) Common Stock valued using the Fair Market Value
on the date of exercise, (B) by authorizing a third party to sell Common
Stock (or a sufficient portion thereof) acquired upon exercise of the
Option and to remit to the Company a sufficient portion of the sales
proceeds to pay for all the Common Stock acquired through such exercise and
any tax withholding obligations resulting from such exercise, (C) according
to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of
the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (D) in any other form
of legal consideration that may be acceptable to the Board. In the case of
any deferred payment arrangement, interest shall be payable at least
annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the
Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) Transferability. Except as permitted by the Board in any particular
Option Agreement, Options granted under the Plan shall not be transferable
by the holder other than by will or the laws of descent and distribution
and shall be exercisable during the holder's lifetime only by the holder or
the holder's guardian or legal representative.
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(e) Vesting. The Option Agreement for each individual Option grant shall
provide that the Option subject to such Option Agreement shall become
exercisable ("vest") at a rate to be determined by the Board at the time of
grant. The Board may also provide for the acceleration of vesting in
certain circumstances.
(f) Exercise Upon Termination. In the event an Optionee's Continuous
Status as an Employee, Consultant or Outside Director terminates (other
than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option to the extent that the Optionee is otherwise entitled to
exercise on the date employment terminates, but only within such period of
time as is determined by the Board and specified in the Option Agreement.
(g) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Consultant or Outside Director terminates as a result of
the Optionee's Disability, the Optionee may exercise his or her Option to
the extent that the Optionee is otherwise entitled to exercise on the date
of employment terminates, but only within such period of time as is
determined by the Board and specified in the Option Agreement.
(h) Death of Optionee. In the event an Optionee's Continuous Status as an
Employee terminates as result of his death, the Option may be exercised,
but only within such period of time as is determined by the Board and
specified in the Option Agreement, by the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Optionee was entitled to exercise the Option at
the date of death.
(i) Early Exercise. An Option Agreement may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Consultant or Outside Director, to exercise the Option as to any part or
all of the shares subject to the Option prior to the full vesting of the
Option.
(j) Repurchase of Shares Upon Termination. The Option may include a
provision whereby shares purchased pursuant to the Option may be subject to
a right of repurchase in favor of the Company upon termination of a
Participant's Continuous Status as an Employee, Consultant or Outside
Director.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus, restricted stock or restricted stock unit agreement shall
be in such form and shall contain such terms and conditions as the Board or
the Committee shall deem appropriate. The terms and conditions of stock bonus,
restricted stock or restricted stock unit agreements may change from time to
time, and the terms and conditions of separate agreements need not be
identical, but each stock bonus, restricted stock or restricted stock unit
agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:
(a) Purchase Price. The purchase price, if any, under each restricted
stock or restricted stock unit agreement shall be such amount as the Board
or Committee shall determine and designate in such agreement.
(b) Transferability. Except as determined by the Board of Directors in
its discretion, no rights under a stock bonus, restricted stock or
restricted stock unit agreement shall be transferable except by will or by
the laws of descent and distribution.
(c) Consideration. The purchase price of stock acquired pursuant to a
restricted stock or restricted stock unit agreement shall be paid either:
(i) in cash at the time of purchase; (ii) at the discretion of the Board or
the Committee, according to a deferred payment or other arrangement with
the person to whom the stock is sold; or (iii) in any other form of legal
consideration that may be acceptable to the Board or the Committee in their
discretion. Notwithstanding the foregoing, the Board or the Committee to
which administration of the Plan has been delegated may award stock
pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded as stock bonuses, restricted
stock or restricted stock units under the Plan may, but need not, be
subject to a repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board or the Committee.
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(e) Termination of Employment or Relationship as a Consultant. In the
event a Participant's Continuous Status as an Employee, Consultant or
Outside Director terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of Common Stock held by that person
which have not vested as of the date of termination under the terms of the
stock bonus, restricted stock or restricted stock unit agreement between
the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any time
and from time to time, with the consent of the affected holders of Options,
(i) the repricing of any outstanding Options under the Plan and/or (ii) the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock but having an exercise price per share of
not less than the Fair Market Value on the date of such repricing or new
Option.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of Stock Awards; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Awards or any stock issued or
issuable pursuant to any such Stock Awards. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of Stock
Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
11. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such Option
unless and until such person has satisfied all requirements for exercise of
the Option pursuant to its terms.
(b) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant,
Optionee or other holder of Stock Awards any right to continue in the employ
of the Company or any Affiliate (or to continue acting as a Director or
Consultant) or shall affect the right of the Company or any Affiliate to
terminate the employment or relationship as a Director or Consultant of an
Employee, Director, Consultant, Optionee or other holder of Stock Awards with
or without cause.
(c) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options granted
after 1986 are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(d) The Company may require any recipient of a Stock Award, or any person to
whom a Stock Award is transferred under subsections 6(d) or 7(b), as a
condition of exercising any such Stock Award, (i) to give written assurances
satisfactory to the Company as to such person's knowledge and experience in
financial and business
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matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the Stock
Award, and (ii) to give written assurances satisfactory to the Company stating
that such person is acquiring the stock subject to the Stock Award for such
person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (a)
the issuance of the shares upon the exercise of or acquisition of stock under
the Stock Award has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (b) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to
comply with applicable securities laws, including, but limited to, legends
restricting the transfer of the stock.
(e) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise of or acquisition of
stock under a Stock Award by any of the following means or by a combination of
such means, subject to the approval of the Board: (i) tendering a cash
payment; (ii) authorizing the Company to withhold shares from the shares of
Common Stock otherwise issuable to the participant as a result of the exercise
of or acquisition of stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock of the Company,
subject to certain requirements, as designated by Company counsel.
(f) The Company shall provide to all holders of Stock Awards a financial
statement of the Company at least annually, except to Employees whose duties
in connection with the Company assure them access to equivalent information.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan or subject to any
Stock Award (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, reverse
stock split, liquidating dividend, combination of shares, reclassification,
exchange of shares, change in corporate structure or otherwise), the Plan and
outstanding Stock Awards will be appropriately adjusted in the class(es) and
maximum number of shares subject to the Plan and the class(es) and number of
shares and price per share of stock subject to outstanding Stock Awards.
(b) In the event of (1) dissolution or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in
the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then at the sole discretion of the
Board and to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar Stock Awards for those outstanding under the Plan, (ii) the
time during which such Stock Award may be exercised shall be accelerated and
the Stock Awards terminated if not exercised prior to such event, or (iii)
such Stock Awards shall continue in full force and effect.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders
of the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Stock Awards under the
Plan;
7
<PAGE>
(2) Modify the requirements as to eligibility for participation in the
Plan (to the extent such modification requires shareholder approval in
order for the Plan to satisfy the requirements of Sections 162(m) or 422 of
the Code or the requirements of the Nasdaq National Market or other
principal market for the Common Stock); or
(3) Modify the Plan in any other way if such modification requires
shareholder approval in order for the Plan to satisfy the requirements of
Sections 162(m) or 422 of the Code, or the requirements of the Nasdaq
National Market or other principal market for the Common Stock, or to
comply with the requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(c) Rights and obligations under any Stock Award granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on February 9, 2007. No Stock Awards may
be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was
granted.
8
<PAGE>
TIER TECHNOLOGIES, INC.
CLASS B COMMON STOCK PROXY
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 28, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder of Tier Technologies, Inc. hereby
constitutes and appoints JAMES L. BILDNER and GEORGE K. ROSS and each of them,
each with full power of substitution, as proxy or proxies of the undersigned to
vote the number of shares of Class B Common Stock which the undersigned would be
entitled to vote if personally present at the Annual Meeting of Shareholders of
Tier Technologies, Inc. to be held at the Ritz-Carlton Hotel, 600 Stockton
Street, San Francisco, California at 2:00 p.m. local time on January 28, 1999,
and at any adjournments or postponements thereof, with respect to the proposals
described in the Notice of Annual Meeting of Shareholders and Proxy Statement,
in the manner specified below.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. WHERE NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED FOR ALL PROPOSALS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED
IN PROPOSAL NO. 1, FOR PROPOSAL NO. 2, FOR PROPOSAL NO. 3, FOR PROPOSAL NO. 4
AND FOR PROPOSAL NO. 5.
PROPOSAL NO. 1:
Nominees for Director: Samuel Cabot III, Ronald L. Rossetti, James L. Bildner,
William G. Barton, George K. Ross
[_] For
[_] Withhold
Withhold authority to vote for the nominee(s) listed above:
___________________________________________________________
PROPOSAL NO. 2:
Approval of Amendment to Amended FOR [_] AGAINST [_] ABSTAIN [_]
and Restated 1996 Equity Incentive Plan
PROPOSAL NO. 3:
Approval of Amendment to Amended FOR [_] AGAINST [_] ABSTAIN [_]
and Restated 1996 Equity Incentive Plan
PROPOSAL NO. 4:
Approval of Amendment to Amended FOR [_] AGAINST [_] ABSTAIN [_]
and Restated 1996 Equity Incentive Plan
PROPOSAL NO. 5:
Ratification of Appointment of FOR [_] AGAINST [_] ABSTAIN [_]
PricewaterhouseCoopers LLP as
Independent Accountants
<PAGE>
PLEASE MARK, SIGN AND DATE THIS
PROXY AND RETURN IT PROMPTLY WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING.
IF YOU DO ATTEND, YOU MAY VOTE
IN PERSON IF YOU DESIRE.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and accompanying Proxy Statement dated December 29, 1998, and of
the Company's Annual Report for the fiscal year ended September 30, 1998.
Please sign as name appears on this proxy. Joint owners should
each sign. When signing as attorney, as 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.
Dated ______________, 199_ ________________________________________
Signature
________________________________________
Signature if held jointly
