<PAGE>
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)240.14a-11(c) or (S)240.14a-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)(4) 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.
(6) Amount Previously Paid:
(7) Form, Schedule or Registration Statement No.:
(8) Filing Party:
(9) Date Filed:
<PAGE>
TIER TECHNOLOGIES, INC.
1350 Treat Boulevard, Suite 250
Walnut Creek, California 94596
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 11, 2000
To The Shareholders Of Tier Technologies, Inc.:
Notice Is Hereby Given that the Annual Meeting of Shareholders of Tier
Technologies, Inc., a California corporation (the "Company"), will be held on
Tuesday, January 11, 2000 at 2:00 p.m. local time at the offices of Cooley
Godward LLP, One Maritime Plaza, 22nd Floor, San Francisco, California, for
the following purposes:
1. To elect directors to serve for the ensuing year and until their successors
are elected.
2. To approve the Company's Employee Stock Purchase Plan, as amended, to
increase the aggregate number of shares of Class B Common Stock authorized
for issuance under such plan by 200,000 shares.
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending September 30, 2000.
4. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on December 3, 1999,
as the record date for the determination of shareholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ GEORGE K. ROSS
George K. Ross
Secretary
Walnut Creek, California
December 15, 1999
All Shareholders are cordially invited to attend the meeting in
person. Whether or not you expect to attend the meeting, please complete,
date, sign and return the enclosed proxy as promptly as possible in order
to ensure your representation at the meeting. A return envelope (which is
postage prepaid if mailed in the United States) is enclosed for that
purpose. Even if you have given your proxy, you may still vote in person
if you attend the meeting. Please note, however, that if your shares are
held of record by a broker, bank or other nominee and you wish to vote at
the meeting, you must obtain from the record holder a proxy issued in
your name.
<PAGE>
TIER TECHNOLOGIES, INC.
1350 Treat Boulevard, Suite 250
Walnut Creek, California 94596
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
JANUARY 11, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Tier Technologies, Inc., a California corporation ("Tier" or the
"Company"), for use at the Annual Meeting of Shareholders to be held on
January 11, 2000, at 2:00 p.m. local time (the "Annual Meeting"), or at any
adjournment or postponement thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting. The Annual Meeting will be held at
the offices of Cooley Godward LLP, One Maritime Plaza, 22nd Floor,
San Francisco, California. The Company intends to mail this proxy statement
and accompanying proxy card on or about December 15, 1999, to all shareholders
entitled to vote at the Annual Meeting.
Solicitation
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
card and any additional information furnished to shareholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Class A Common
Stock and Class B Common Stock (collectively, the "Common Stock") beneficially
owned by others to forward to such beneficial owners. The Company may
reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company or, at the Company's request, ChaseMellon Shareholder Services. No
additional compensation will be paid to directors, officers or other regular
employees for such services, but ChaseMellon Shareholder Services will be paid
its customary fee, estimated to be about $7,500.00, if it renders solicitation
services.
Voting Rights and Outstanding Shares
Only holders of record of Class A Common Stock and Class B Common Stock at
the close of business on December 3, 1999 will be entitled to notice of and to
vote at the Annual Meeting. At the close of business on December 3, 1999 the
Company had outstanding and entitled to vote 1,639,762 shares of Class A
Common Stock and 10,845,173 shares of Class B Common Stock. 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 Annual Meeting, except holders
of Class B Common Stock have the right to vote as a single class for the
election of two of the six 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. An affirmative vote of a
majority of the Common Stock voted at the Annual 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 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 towards
a quorum but are not counted for any purpose in determining whether a matter
is approved.
1
<PAGE>
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 1350
Treat Boulevard, Suite 250, Walnut Creek, California 94596, a written notice
of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the
meeting will not, by itself, revoke a proxy.
Shareholder Proposals
The deadline for submitting a shareholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's annual meeting
of shareholders to be held in 2001 pursuant to Rule 14a-8 of the Securities
and Exchange Commission is August 15, 2000. Proposals and director nominations
for such meeting that are not to be included in such proxy statement and proxy
must be received by the Company at 1350 Treat Boulevard, Suite 250, Walnut
Creek, California 94596, no later than the tenth day following the mailing of
notice of the date of such annual meeting.
PROPOSAL 1
Election of Directors
The Board is currently composed of seven directors. Since the Company's
1998 Annual Meeting of Stockholders, the Board size increased from five to
seven members. Effective as of the Annual Meeting, the Board has authorized
the reduction in size from seven directors to six directors. Accordingly,
George K. Ross, currently a director of the Company, has indicated that he
will not seek reelection to the Board of Directors at the Annual Meeting.
There are six nominees for the six Board positions authorized. Each director
to be elected will hold office until the next annual meeting of shareholders
and until his successor is elected and has qualified, or until such director's
earlier death, resignation or removal. Each nominee listed below is currently
a director of the Company, four directors having been elected by the
shareholders and two directors, Morgan P. Guenther and William C. Van Faasen,
having been elected by the Board.
The Company's Amended and Restated Articles of Incorporation (the
"Articles") provide that the holders of Class B Common Stock shall vote as a
separate class and be entitled to elect two of the six 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 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 four
directors. The following four 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, Morgan P. Guenther and William C.
Van Faasen.
The two Class B Common Stock nominees receiving the highest number of
affirmative votes shall be elected. The four remaining nominees receiving the
highest number of affirmative votes shall be elected. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the nominees named below. In the event that any nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected and
management has no reason to believe that any nominee will be unable to serve.
2
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Nominees
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
Name Age Position Held With the Company
---- --- ------------------------------
<S> <C> <C>
James L. Bildner.......................... 45 Chairman of the Board and Chief Executive Officer
William G. Barton......................... 43 President, Chief Technology Officer and Director
Samuel Cabot III(1)(2)(3)................. 59 Director
Morgan P. Guenther(1)..................... 45 Director
Ronald L. Rossetti(1)(2)(3)............... 56 Director
William C. Van Faasen(2).................. 51 Director
</TABLE>
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(1) Member of the Compensation Committee of the Board.
(2) Member of the Audit Committee of the Board.
(3) Class B Common Stock 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. 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 Tier, 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. 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. Cabot has served as a Director of Tier 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. Guenther has served as a Director of Tier since August 1999. Since June
1999, Mr. Guenther has served as Vice President of Business Development of
TiVo Inc., a technology firm specializing in the creation of personalized
television services. From August 1998 to June 1999, Mr. Guenther was a partner
at Paul, Hastings, Janofsky & Walker LLP, an international law firm. Mr.
Guenther represented the Company on a variety of matters while at Paul
Hastings. From 1990 to March 1998, Mr. Guenther was a partner at the law firm
of Farella Braun & Martel LLP. Mr. Guenther holds a B.A. and a J.D. from the
University of Colorado and an MBA from the University of San Francisco.
Mr. Rossetti has served as a Director of Tier 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 ShopLink.com, the advisory board of Hamilton Associates and
serves as a trustee of Northeastern University. He received a B.S. from
Northeastern University.
Mr. Van Faasen has served as a Director of Tier since June 1999. Since
September 1992, Mr. Van Faasen has served as President and Chief Executive
Officer of Blue Cross/Blue Shield of Massachusetts, Inc. From 1990 to March
1992 he also served as its Executive Vice President and Chief Operating
Officer and was appointed President-Designee on March 18, 1992. Mr. Van Faasen
is also on the Board of Directors of BankBoston and IMS Health. Mr. Van Faasen
received a B.A. from Hope College and an MBA from Michigan State University.
3
<PAGE>
Board Committees and Meetings
During the fiscal year ended September 30, 1999, the Board held six
meetings and acted by unanimous written consent eight times. The Board has an
Audit Committee and a Compensation Committee.
The Audit Committee reviews the results and scope of the annual audit and
the services provided by the Company's independent auditors. The Audit
Committee is composed of three non-employee directors: Messrs. Cabot, Rossetti
and Van Faasen. It met twice during such fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options under the Company's stock option
plans and otherwise determines compensation levels and performs such other
functions regarding compensation as the Board may delegate. The Compensation
Committee is composed of three non-employee directors: Messrs. Cabot, Guenther
and Rossetti. It met four times during such fiscal year and acted by unanimous
written consent twelve times.
During the fiscal year ended September 30, 1999, all directors except Mr.
Barton attended at least 75% of the aggregate of the meetings of the Board and
of the committees on which he served, held during the period for which he was
a director or committee member, respectively.
PROPOSAL 2
Approval of Employee Stock Purchase Plan, as Amended
In October 1997, the Board adopted, and the shareholders subsequently
approved, the Company's Employee Stock Purchase Plan ("Purchase Plan"). On
November 23, 1999, the Board amended the Purchase Plan, subject to shareholder
approval, to increase the number of shares of Class B Common Stock authorized
for issuance under the Purchase Plan from a total of 100,000 shares to a total
of 300,000 shares. The Board adopted this amendment in order to ensure that
the Company can continue to grant purchase rights at levels determined
appropriate by the Board.
During the last fiscal year, shares of Class B Common Stock were purchased
in the amounts and at the weighted average prices per share under the Purchase
Plan as follows: George K. Ross, 1,000 shares ($8.83), all current executive
officers as a group 2,500 shares ($8.26), and all employees (excluding
executive officers) as a group 43,184 shares ($8.51).
As of December 1, 1999, an aggregate of 81,221 shares of the Class B Common
Stock had been issued and sold under the Purchase Plan. As of such date,
18,779 shares of Class B Common Stock (plus any shares that might in the
future be returned to the Purchase Plan as a result of cancellations or
expiration of purchase rights) remained available for future grant under the
Purchase Plan. Effective as of December 1, 1999, the Board suspended the
Purchase Plan pending approval of the amendment of the Purchase Plan as
described in this Proposal 2.
The shareholders are being asked to approve the amendment to the Purchase
Plan to increase the shares authorized and reserved for issuance under the
Purchase Plan by 200,000 shares, bringing the total shares reserved for
issuance under the Purchase Plan to 300,000 shares. The affirmative vote of
the holders of a majority of the shares of Common Stock present in person or
represented by proxy and voting at the meeting will be required to approve the
amendment to the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
4
<PAGE>
The essential features of the Purchase Plan, as amended, are outlined
below:
Purpose
The purpose of the Purchase Plan is to provide a means by which employees
of the Company (and any parent or subsidiary of the Company designated by the
Board to participate in the Purchase Plan) may be given an opportunity to
purchase Class B Common Stock of the Company through payroll deductions, to
assist the Company in retaining the services of its employees, to secure and
retain the services of new employees, and to provide incentives for such
persons to exert maximum efforts for the success of the Company. As of
September 30, 1999, approximately 477 of the Company's workforce of 780
individuals worldwide were eligible to participate in the Purchase Plan.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan"
as that term is defined in Section 423(b) of the Code.
Administration
A committee of at least two members of the Board administers the Purchase
Plan and has the final power to construe and interpret both the Purchase Plan
and the rights granted under it. The committee has the power, subject to the
provisions of the Purchase Plan, to determine when and how rights to purchase
shares of Class B Common Stock of the Company will be granted and the
provisions of each offering of such rights.
As used herein with respect to the Purchase Plan, the "Board" refers to any
committee the Board appoints and to the Board.
Offerings
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. Generally, each offering is six
months long.
Eligibility
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated by the Board) on the first day of an offering is eligible
to participate in that offering.
However, no employee is eligible to participate in the Purchase Plan if,
immediately after the grant of purchase rights, the employee would own,
directly or indirectly, stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company or of any parent
or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options). In addition, no employee
may purchase more than 500 shares of Class B Common Stock in any purchase
period or more than $25,000 worth of Class B Common Stock (determined at the
fair market value of the shares at the time such rights are granted) under all
employee stock purchase plans of the Company and its affiliates in any
calendar year.
Participation in the Plan
Eligible employees enroll in the Purchase Plan by delivering to the
Company, prior to the date selected by the Board as the offering date for the
offering, an agreement authorizing payroll deductions of up to 10% of such
employees' total compensation during the offering.
5
<PAGE>
Purchase Price
The purchase price per share at which shares of Class B Common Stock are
sold in an offering under the Purchase Plan is the lower of (i) 85% of the
fair market value of a share of Class B Common Stock on the first day of the
purchase period or (ii) 85% of the fair market value of a share of Class B
Common Stock on the last day of the purchase period.
Payment of Purchase Price; Payroll Deductions
The purchase price of the shares is accumulated by payroll deductions over
the offering. At any time during the offering, but not more than once during
an offering, a participant may reduce or terminate his or her payroll
deductions as the Board provides in the offering. A participant may not
increase or begin such payroll deductions after the beginning of any offering.
All payroll deductions made for a participant are credited to his or her
account under the Purchase Plan and deposited with the general funds of the
Company. A participant may not make additional payments into such account.
Purchase of Stock
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under the Purchase Plan. In connection with
offerings made under the Purchase Plan, the Board specifies a maximum number
of shares of Class B Common Stock an employee may be granted the right to
purchase and the maximum aggregate number of shares of Class B Common Stock
that may be purchased pursuant to such offering by all participants. If the
aggregate number of shares to be purchased upon exercise of rights granted in
the offering would exceed the maximum aggregate number of shares of Class B
Common Stock available, the Board would make a pro rata allocation of
available shares in a uniform and equitable manner or, subject to shareholder
approval, increase the number of shares available for issuance under the
Purchase Plan. Unless the employee's participation is discontinued, his or her
right to purchase shares is exercised automatically at the end of the offering
at the applicable price. See "Withdrawal" below.
Withdrawal
While each participant in the Purchase Plan is required to sign an
agreement authorizing payroll deductions, the participant may withdraw from a
given offering by terminating his or her payroll deductions and by delivering
to the Company a notice of withdrawal from the Purchase Plan. Such withdrawal
may be elected at any time prior to the end of the applicable offering.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest and such employee's interest in the offering will be automatically
terminated. The employee is not entitled to again participate in that
offering. However, an employee's withdrawal from an offering will not have any
effect upon such employee's eligibility to participate in subsequent offerings
under the Purchase Plan.
Termination of Employment
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
Restrictions on Transfer
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
6
<PAGE>
Duration, Amendment and Termination
The Board may suspend or terminate the Purchase Plan at any time. Unless
terminated earlier, the Purchase Plan will terminate on the last business day
in September 2007.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the shareholders if the amendment would (i)
materially increase the number of shares of Class B Common Stock reserved for
issuance under the Purchase Plan or the maximum number of shares purchasable
per participant on any one purchase date, (ii) materially modify the
requirements relating to eligibility for participation in the Purchase Plan,
or (iii) alter the purchase price formula so as to reduce the purchase price
payable for the shares of Class B Common Stock under the Purchase Plan.
Rights granted before amendment or termination of the Purchase Plan will
not be altered or impaired by any amendment or termination of the Purchase
Plan without consent of the employee to whom such rights were granted.
Effect of Certain Corporate Events
In the event of a sale, transfer or other disposition of all or
substantially all of the assets of the Company or specified types of merger of
the Company, the exercise date of any ongoing offering will be accelerated
such that the outstanding rights may be exercised immediately prior to, or
concurrent with, any such event.
Stock Subject to Purchase Plan
Subject to shareholder approval of this Proposal, an aggregate of 300,000
shares of Class B Common Stock are reserved for issuance under the Purchase
Plan. If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the shares of Class B Common Stock not
purchased under such rights again becomes available for issuance under the
Purchase Plan.
Federal Income Tax Information
Rights granted under the Purchase Plan are intended to qualify for
favorable federal income tax treatment associated with rights granted under an
employee stock purchase plan which qualifies under provisions of Section 423
of the Code.
A participant will be taxed on amounts withheld for the purchase of shares
of Class B Common Stock as if such amounts were actually received. Other than
this, no income will be taxable to a participant until disposition of the
acquired shares, and the method for purposes of the taxation will depend upon
the holding period of the acquired shares. However, employment taxes (Federal
Insurance Contribution Act or "FICA" and the Federal Unemployment Tax Act or
"FUTA") may be withheld at the time of purchase of shares of Class B Common
Stock under the Purchase Plan.
If the stock is disposed of more than two years after the beginning of the
offering period and more than one year after the stock is transferred to the
participant, then the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the
excess of the fair market value of the stock as of the beginning of the
offering period over the exercise price (determined as of the beginning of the
offering period) will be treated as ordinary income. Any further gain or any
loss will be taxed as a long-term capital gain or loss. Such capital gains
currently are generally subject to lower federal tax rates (a maximum rate of
20%) than ordinary income (a maximum rate of 39.6%).
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of
the stock on the exercise date over the exercise price will be treated as
ordinary income at the time of such disposition. The balance of any gain will
be treated as capital gain. Even if the stock is later disposed of for less
than its fair market value on the exercise date, the same amount of ordinary
income is attributed to the participant, and a capital loss is recognized
equal to the difference between
7
<PAGE>
the sales price and the fair market value of the stock on such exercise date.
Any capital gain or loss will be short-term or long-term, depending on how
long the stock has been held. An asset must be held more than one year to be
eligible for long term capital gain investment.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is
entitled to a deduction to the extent amounts are taxed as ordinary income to
a participant (subject to the requirement of reasonableness and the
satisfaction of tax reporting obligations).
PROPOSAL 3
Ratification of Selection of Independent Auditors
The Board has selected PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ending September 30, 2000 and has
further directed that management submit the selection of independent auditors
for ratification by the shareholders at the Annual Meeting.
PricewaterhouseCoopers LLP has audited the Company's financial statements
since July 1998. Representatives of PricewaterhouseCoopers LLP are expected to
be present at the Annual Meeting, will have an opportunity to make a statement
if they so desire and will be available to respond to appropriate questions.
Shareholder ratification of the selection of PricewaterhouseCoopers LLP as
the Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers LLP to the shareholders for ratification as a matter of
good corporate practice. If the shareholders fail to ratify the selection, the
Audit Committee and the Board will reconsider whether or not to retain that
firm. Even if the selection is ratified, the Audit Committee and the Board in
their discretion may direct the appointment of different independent auditors
at any time during the year if they determine that such a change would be in
the best interests of the Company and its shareholders.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy and voting at the Annual
Meeting will be required to ratify the selection of PricewaterhouseCoopers
LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
8
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of September 30, 1999 by: (i) each nominee for
director; (ii) each of the Named Executive Officers (as set forth in the
Summary Compensation Table); (iii) all executive officers and directors of the
Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership(1)(2)
-----------------------------
Number of Number of Percent of Total
Name(3) Class A Shares Class B Shares Voting Power(4)
------- -------------- -------------- ----------------
<S> <C> <C> <C>
James L. Bildner(5)............ 1,659,762 459,299 61.8%
William G. Barton(5)(6)........ 1,659,762 439,678 61.9%
Bryan McCaul................... 115,070 261,666 5.2%
Bradley Nickels................ 115,070 231,666 5.1%
Greg Bowen..................... 119,303 175,000 5.0%
George K. Ross................. -- 165,124 *
Ronald L. Rossetti............. -- 56,190 *
Samuel Cabot III............... -- 50,476 *
William C. Van Faasen.......... -- 20,000 *
James R. Weaver................ -- 16,666 *
Morgan P. Guenther............. -- 11,000 *
Stephen McCarty................ -- 25,500 *
All directors and executive
officers as a group (11
persons)...................... 1,659,762 1,275,682 63.3%
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them.
(2) Shares issuable upon the exercise of outstanding stock options that are
currently exercisable or become exercisable within 60 days from September
30, 1999 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 currently exercisable or
exercisable within 60 days of September 30, 1999 is as follows: Mr.
Bildner, 10,000 shares of Class A Common Stock and 258,299 shares of Class
B Common Stock; Mr. Barton, 10,000 shares of Class A Common Stock and
193,082 of Class B Common Stock; Mr. McCaul, 5,000 shares of Class B
Common Stock; Mr. Nickels, 15,000 shares of Class B Common Stock; Mr.
Bowen, 3,333 shares of Class B Common Stock; Mr. Ross, 151,632 shares of
Class B Common Stock; Mr. Rossetti, 46,666 shares of Class B Common Stock;
Mr. Cabot, 46,666 shares of Class B Common Stock; Mr. Van Faasen, 20,000
shares of Class B Common Stock; Mr. Weaver, 16,666 shares of Class B
Common Stock; Mr. Guenther, 10,000 shares of Class B Common Stock and Mr.
McCarty, 25,000 shares of Class B Common Stock; and all officers and
directors as a group, 20,000 shares of Class A Common Stock and 798,760
shares of Class B Common Stock.
(3) 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.
(4) 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 10,843,007 shares of Class B Common Stock
and 1,639,762 shares of Class A Common Stock outstanding as of September
30, 1999.
9
<PAGE>
(5) 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 each disclaim beneficial ownership of 1,219,762
shares of Class A Common Stock held in the Voting Trust.
(6) Includes 51,072 shares of Class B Common Stock held by Mr. Barton's wife.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity
securities, to file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that an
initial report of ownership was filed late by Mr. Guenther.
10
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
The members of the Company's Board are reimbursed for reasonable travel
expenses incurred in attending Board meetings. In addition, non-employee
members of the Board receive a grant, upon their initial appointment, of fully
vested options to purchase 10,000 shares of Class B Common Stock and an annual
grant, upon their re-election thereafter, of fully vested options to purchase
10,000 shares of Class B Common Stock under the Plan.
In general, option grants to the non-employee directors are non-
discretionary. The exercise price of options granted to the directors is 100%
of the fair market value of the Class B Common Stock subject to the option on
the date of the option grant. Options granted to non-employee directors are
fully vested on the date of grant. The term of options granted to non-employee
directors is ten years. In the event of a merger of the Company with or into
another corporation or a consolidation, acquisition of assets or other change-
in-control transaction involving the Company, at the sole discretion of the
Board and to the extent permitted by applicable law, any surviving
corporation: (i) shall assume all options under the Plan, (ii) shall
substitute similar options for those outstanding under the Plan, (iii) shall
accelerate the time during which such options may be exercised and the options
terminated if not exercised prior to such event, or (iv) such options shall
continue in full force and effect. In addition, the non-employee directors may
receive discretionary option grants. During the year ended September 30, 1999,
discretionary fully-vested options to purchase 20,000 shares of Class B Common
Stock were issued to Messrs. Rossetti and Cabot and discretionary fully-vested
options to purchase 10,000 shares of Class B Common Stock were issued to Mr.
Van Faasen. Such grants were accepted in lieu of non-discretionary grants to
be granted upon their re-election at the Annual Meeting.
Executive Officers
The executive officers of the Company are chosen and appointed by the
Board. In addition to Messrs. Bildner and Barton, as of September 30, 1999 the
Company's executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position With The Company
---- --- -------------------------
<S> <C> <C>
George K. Ross 58 Executive Vice President, Chief Financial Officer, Secretary and Treasurer
James R. Weaver 42 President, Government Services Division
David Laidlaw 58 President, International Operations
Stephen McCarty 46 Senior Vice President, Human Resources Management
Laura B. DePole 35 Senior Vice President, Finance and Chief Accounting Officer
</TABLE>
Mr. Ross has been a Director of Tier since January 1996, has served as
Executive Vice President since 1998, as Chief Financial Officer since February
1997 and as Secretary and Treasurer 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. Mr. Ross received a B.A. from Ohio Wesleyan University and an
MBA from Ohio State University. Mr. Ross is a Certified Public Accountant. As
indicated in Proposal 1, Mr. Ross is not seeking reelection to the Board of
Directors at the Annual Meeting. In addition, effective as of the date of the
Annual Meeting, Mr. Ross will resign as Chief Financial Officer, Secretary and
Treasurer of the Company. Mr. Ross will retain the position of Executive Vice
President of Business Affairs. Effective as of the date of the Annual Meeting,
the Board has elected Ms. DePole to serve as Chief Financial Officer,
Secretary and Treasurer of the Company.
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 information technology
company, where he was responsible for 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 information technology
company. From May 1991 to May 1997, 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 University of
Pennsylvania.
11
<PAGE>
Mr. Laidlaw joined the Company as President, International Operations in
March 1999. From January 1996 through February 1999, Mr. Laidlaw served as
General Manager for the IBM Global Services Australia Consulting and Systems
Integration Unit. From 1966 through December 1995 Mr. Laidlaw held various
other positions within IBM information technology services units in Australia,
the United Kingdom and the Asia Pacific region. Mr. Laidlaw received a B.S. and
M.S. in Engineering from Melbourne University.
Mr. McCarty joined the Company as Senior 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. 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 Senior Vice President, Finance since April 1999 and
Chief Accounting Officer since August 1997. From October 1998 to April 1999,
Ms. DePole was Vice President, Finance and 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. As indicated above,
effective as of the Annual Meeting, the Board has elected Ms. DePole to serve
as Chief Financial Officer, Secretary and Treasurer of the Company.
Compensation of Executive Officers
SUMMARY OF COMPENSATION
The following table shows compensation awarded or paid to, or earned by, the
Company's Chief Executive Officer and its other four most highly compensated
executive officers (the "Named Executive Officers") for the fiscal years ended
September 30, 1999 and 1998 and the twelve-month period ended September 30,
1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
-------------
Annual Compensation(1) Number of
------------------------------------ Shares
Other Annual Underlying
Compensation Options
Name and Principal Position Year Salary($) Bonus($) ($) Granted(#)(2)
- --------------------------- ---- --------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
James L. Bildner(3)................... 1999 $487,083 $ -- $84,555(4) 138,299
Chairman of the Board and Chief 1998 406,250 -- 68,785(5) 120,000
Executive Officer 1997 242,293 171,931 43,749(6) 720,000
William G. Barton(3).................. 1999 328,333 -- 23,455(7) 93,082
President and Chief Technology
Officer 1998 278,125 -- -- 90,000
1997 209,856 139,785 520,000
George K. Ross(3)..................... 1999 252,917 -- 7,549(8) 74,132
Executive Vice President and 1998 209,375 -- -- 80,000
Chief Financial Officer 1997 109,375 17,500 6,565(9) 130,000
James R. Weaver....................... 1999 209,167 50,000 19,350(10) 35,000
President, Government Services
Division 1998 70,513 -- -- 50,000
Stephen McCarty....................... 1999 201,201 -- 5,318(11) 110,000
Senior Vice President, Human
Resources
Management
</TABLE>
12
<PAGE>
- --------
(1) In accordance with the rules of the SEC, 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. For Messrs. Bildner, Barton and Ross, the number of
shares underlying options granted in fiscal year 1999 includes options to
purchase 88,299, 53,082 and 34,132 shares of common stock, respectively,
granted on December 31, 1998 as annual incentive compensation for
employment in fiscal year 1998.
(3) Messrs. Bildner, Barton and Ross will receive annual incentive
compensation for fiscal year 1999 in the form of options. The number of
options to be received by each will be calculated using the Black-Scholes
option valuation methodology and any such options will be granted on
December 31, 1999 and reported in the Company's proxy statement for
fiscal year 2000.
(4) 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 and certain non-business travel expenses
in the amount of $30,743.
(5) 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.
(6) Represents forgiveness of debt and accrued interest thereon owed by Mr.
Bildner to the Company in the amount of $43,749.
(7) Represents forgiveness of debt and accrued interest thereon owed by Mr.
Barton to the Company arising from an education loan.
(8) Represents forgiveness of debt and accrued interest thereon owed by Mr.
Ross to the Company arising from a housing and relocation loan.
(9) Represents forgiveness of debt and accrued interest thereon in the amount
of $4,065 owed by Mr. Ross to the Company arising from a housing and
relocation loan and $2,500 of other compensation paid to Mr. Ross.
(10) Represents forgiveness of debt owed by Mr. Weaver to the Company.
(11) Represents forgiveness of debt owed by Mr. McCarty in the amount of
$3,299 arising from certain obligations in connection with his prior
employment and non-business travel expenses in the amount of $2,019.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the Company's
Amended and Restated 1996 Equity Incentive Plan (the "Plan"). As of November
30, 1999, options to purchase a total of 3,842,535 shares were outstanding
under the Plan and options to purchase 1,507,016 shares remained available for
grant thereunder.
13
<PAGE>
The following tables show for the twelve-month period ended September 30,
1999, certain information regarding options granted to, exercised by, and held
at year-end by, the Named Executive Officers:
OPTION GRANTS IN TWELVE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grants(1) Option Term (4)
----------------------------------------------------- -----------------
Percent of
Number of Shares Total Options Exercise
Underlying Granted to Price Expiration
Name Options Granted(#) Employees(2) ($/Sh)(3) Date 5%($) 10%($)
---- ----------------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James L. Bildner 88,299 Class B(5) 4.6% $16.125 12/30/08 -- $148,453
25,000 Class B(7) 1.3 6.000 05/02/09 $130,156 295,156
25,000 Class B(6) 1.3 7.781 07/31/09 85,631 250,631
William G. Barton 53,082 Class B(5) 2.7 16.125 12/30/08 89,244
25,000 Class B(7) 1.3 6.000 05/02/09 130,156 295,156
15,000 Class B(6) * 7.781 07/31/09 51,379 150,379
George K. Ross 34,132 Class B(5) 1.8 16.125 12/30/08 -- 57,384
25,000 Class B(7) 1.3 6.000 05/02/09 130,156 295,156
15,000 Class B(6) * 7.781 07/31/09 51,379 150,379
James R. Weaver 25,000 Class B(7) 1.3 6.000 05/02/09 130,156 295,156
10,000 Class B(6) * 7.781 07/31/09 34,253 100,253
Stephen McCarty 75,000 Class B(8) 3.9 14.063 12/02/08 -- 280,744
25,000 Class B(7) 1.3 6.000 05/02/09 130,156 295,156
10,000 Class B(6) * 7.781 07/31/09 34,253 100,253
</TABLE>
- --------
* Less than 1%
(1) All options are subject to acceleration upon certain changes of control.
(2) Based on options to purchase an aggregate of 1,935,632 shares granted to
employees in the twelve-month period ended September 30, 1999, including
options granted to the Named Executive Officers.
(3) The exercise price is equal to or exceeds the fair market value on the
date of grant as reported on the Nasdaq National Market.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years) and the fair market value per share
of the Company's Class B Common Stock as of September 30, 1999 of $6.875.
It is calculated assuming that the stock price on the date of grant
appreciates at the indicated annual rate, compounded annually. The total
appreciation of the options over their 10-year terms at 5% and 10% is 63%
and 159%, respectively, and does not reflect the Company's estimate or
projection of the future stock price performance. Actual gains, if any,
are dependent on the actual future price of the Company's Class B Common
Stock.
(5) Options fully vest on date of grant.
(6) Options vest thirty-three and one-third percent each year on the
anniversary of the date of grant for three years.
(7) Options vest twenty-five percent each year on the anniversary of the date
of grant for four years.
(8) Options vest thirty-three and one-third percent each year beginning on
October 26, 1999, for three years.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN TWELVE-MONTH PERIOD ENDED SEPTEMBER 30, 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at Fiscal Year- the-Money Options at
End (#) Fiscal Year-End ($)(2)
-------------------------- -------------------------
Shares
Acquired
on Value
Exercise Realized
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Bildner........ -- -- 268,299(3) 100,000 $87,950 $76,875
William G. Barton....... -- -- 203,082(3) 90,000 87,950 76,875
George K. Ross.......... -- -- 142,108 97,024 147,188 169,063
James R. Weaver......... -- -- 16,666 68,334 -- 21,875
Stephen McCarty......... -- -- -- 110,000 -- 21,875
</TABLE>
- --------
(1) The value realized is based on the market price per share of Class B
Common Stock at the date of exercise, less the exercise date.
(2) The value of unexercised in-the-money options is calculated based on the
fair market value of the Class B Common Stock on September 30, 1999.
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.
(3) Includes, for each, an option to purchase 10,000 shares of the Company's
Class A Common 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. The agreement was amended
as of February 16, 1998. Pursuant to a resolution of the Compensation
Committee dated January 28, 1998, Mr. Bildner receives an annual base salary
of $525,000 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 1999, the Compensation Committee has determined that 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. Any options
issued as annual incentive compensation for 1999 will be granted on December
31, 1999. 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 equal to 100% of the fair market value of such
15
<PAGE>
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.
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. The agreement was amended as of February
16, 1998. Pursuant to a resolution of the Compensation Committee dated
January 28, 1999, Mr. Barton receives an annual base salary of $350,000 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 1999, the
Compensation Committee has determined that 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. Any options issued as annual incentive
compensation for 1999 will be granted on December 31, 1999. Under the
agreement, Mr. Barton also received an education loan of approximately
$48,000, 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 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.
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. The agreement was amended
as of February 16, 1998. Pursuant to a resolution of the Compensation
Committee dated January 28, 1999, Mr. Ross receives an annual base salary of
$280,000 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 1999,
the Compensation Committee has determined that 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. Any options issued as annual incentive
compensation for 1999 will be granted on December 31, 1999. In accordance with
the agreement, the Company made an unsecured relocation loan of $20,000 to Mr.
Ross, 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 (the
"Relocation Loan"). The agreement also provides, among other things, that if
Mr. Ross' employment with the Company is terminated (i) by the Company for
cause (as defined in the agreement), the Company will pay to Mr. Ross his base
salary through the date of termination; or (ii) by the Company other than for
cause or by Mr. Ross 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. Ross will
immediately vest and the Company will pay to Mr. Ross a lump sum amount equal
to the discounted present value of six months of a base salary plus a pro rata
portion of the maximum amount of incentive compensation Mr. Ross 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. Ross' employment due to death
or disability and, upon any event of termination, the Company will take all
action required to release Mr. Ross from any personal guaranties of Company
indebtedness. Pursuant to this agreement, Mr. Ross received an option to
purchase
16
<PAGE>
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 options fully vest immediately.
In April 1998, the Company entered into a letter agreement with James R.
Weaver, the Company's President, Government Services Division. Pursuant to the
letter agreement, Mr. Weaver receives an annual base salary of $200,000 and is
eligible to receive an annual incentive bonus of approximately 50% of base
salary based on achievement of certain performance criteria. Pursuant to the
terms of the letter agreement, the Company provided Mr. Weaver with a
relocation loan of $100,000, which bears interest at 5.50% per annum, which
principal amount shall be forgiven over three years for so long as Mr. Weaver
remains employed by the Company. The Company also provided Mr. Weaver with a
loan of $19,350 to repay certain obligations incurred by Mr. Weaver in
connection with his prior employment, which bears interest at 5.50% per annum,
which principal amount was forgiven in accordance with the agreement based on
Mr. Weaver remaining employed by the Company on May 22, 1999. The letter
agreement also provides that in the event Mr. Weaver's employment is
terminated by the Company other than for cause, all outstanding unvested
options held by Mr. Weaver will immediately vest and the Company will pay Mr.
Weaver his salary and benefits for 18 months. In the Company's discretion,
this may be paid in one lump sum based on the discounted present value of Mr.
Weaver's salary. Pursuant to the letter agreement, Mr. Weaver received an
option to purchase 50,000 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 options vest over three years from the date of grant. An additional
option grant of at least 37,500 shares of Class B Common Stock will be awarded
to Mr. Weaver upon the achievement of certain performance criteria. In the
event of a change in control of the Company which results in the termination
of Mr. Weaver's employment with the Company, the options vest fully.
In October 1998, the Company entered into a letter agreement with Stephen
McCarty, the Company's Senior Vice President, Human Resources Management.
Pursuant to the letter agreement, Mr. McCarty receives an annual base salary
of $225,000 and is eligible to receive an annual incentive bonus of
approximately 45% of base salary based on achievement of certain performance
criteria. Pursuant to the terms of the letter agreement, the Company provided
Mr. McCarty with a loan of $12,500 to repay certain obligations incurred by
Mr. McCarty in connection with his prior employment, which bears interest at
5.50% per annum, which amount shall be forgiven over three years so long as
Mr. McCarty remains employed by the Company. Pursuant to the letter agreement,
Mr. McCarty received an option to purchase 75,000 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 vest over three years from Mr. McCarty's hire
date. In the event of a sale of substantially all of the assets of the
Company, a change in control of the Company or upon termination of James L.
Bildner as Chief Executive Officer of the Company, the options vest fully.
17
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION/1/
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 and currently is comprised of Messrs.
Cabot, Guenther and Rossetti.
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.
Pursuant to its growth strategy, the Company made four strategic
acquisitions of other IT service companies to expand its professional
resources and further develop its service offering. The Company's revenues
increased 59.3% over the prior twelve-month period; however diluted net income
per share decreased to $0.08 for the twelve months ended September 30, 1999
from $0.39 for the twelve months ended September 30, 1998. The decrease in net
income from $4.1 million to $1.0 million resulted primarily from the purchase
of a large scale, enterprise-wide commercial billing system under development
by the Company for a client. 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 1999, 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. During the second quarter of fiscal
1999, after a review of an independent study of comparative compensation
arrangements and noting the outstanding performance of the Company and its
management in fiscal 1998, the Committee provided Messrs. Bildner, Barton and
Ross with increases in annual base salary to $525,000, $350,000 and $280,000,
respectively.
- --------
/1/ The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any
filing of the Company under the 1933 Act or 1934 Act, whether made before or
after the date hereof and irrespective of any general incorporation language
contained in such filing.
18
<PAGE>
Annual Bonus 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. Incentives are due as of the end of each calendar year. During the
fiscal year ended September 30, 1999, the calendar 1998 bonuses were paid in
the form of stock options to Messrs. Bildner, Barton, and Ross. The grants
were made on December 31, 1998 for 88,299, 53,082 and 34,132 shares of Class B
common stock, respectively, which were immediately vested. These option grants
were determined using a Black-Scholes valuation.
For the fiscal year ended September 30, 1999, the annual bonus is payable
in the form of stock option awards which will be granted, contingent on
employment, as of December 31, 1999 based on certain performance criteria
being met. For fiscal 1999, the Company's performance exceeded the revenue
performance criteria and did not meet the earnings per share performance
criteria, as a result, these executives will receive one-half of their
targeted bonus levels.
Stock Options
Stock options are designed to provide long-term incentives and rewards tied
to the price of the 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 1999,
approximately 481 officers and other employees received stock option grants.
The table of Option Grants in Twelve-Month Period Ended September 30, 1999
shows the options granted to the Named Executive Officers during fiscal 1999.
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,
education 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.
During the fiscal year ended September 30, 1999, the Compensation Committee
approved the issuance of a corporate guaranty with respect to Mr. Bildner's
California residence. The Company's liability under the
19
<PAGE>
guaranty is capped at $1,000,000. In connection with the guaranty, Mr. Bildner
originally pledged shares to the Company with a fair market value in excess of
110% of the guaranty and agreed to indemnify the Company for any loss,
liability or expense incurred in connection with the guaranty. Due to the
administrative burden of tracking the pledged shares due to market
fluctuations, the Compensation Committee in June of 1999 fixed the number of
shares pledged under the guaranty at 126,619 shares of Class B common stock.
CEO Performance Evaluation
For fiscal 1999, 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. Mr. Bildner's base salary was $525,000 and he
was entitled to receive an annual incentive bonus stock option award of up to
85% of base salary based on the achievement of certain performance milestones:
42.5% of his base salary upon achievement of the Company's fiscal 1999 revenue
projections and 42.5% of his base salary upon achievement of the Company's
fiscal 1999 earnings per share projections. In addition to the performance
criteria, the stock option award is contingent upon Mr. Bildner remaining
employed with the Company as of the December 31, 1999 stock option grant date.
As a result of the Company exceeding its revenue expectations and not meeting
its earnings per share expectations for fiscal 1999 and Mr. Bildner's
individual performance, he will be entitled to receive one-half of his maximum
potential annual stock option award together with his loan forgiveness as
described in the Summary Compensation Table.
The foregoing report is given by the members of the Compensation Committee,
namely:
Samuel Cabot III
Morgan P. Guenther
Ronald L. Rossetti
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Samuel Cabot III, Morgan P.
Guenther 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.
20
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's total share price performance on
the 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, 1999, 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 Class B Common Stock and in each of the foregoing indices and
assumes reinvestment of all dividends, if any.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Date Tier Russell 2000 Nasdaq
---------------- ------ ------------ ------
<S> <C> <C> <C>
9/30/99 73.33 100.20 177.47
6/30/99 74.67 107.33 173.59
3/31/99 92.67 93.24 159.07
12/31/98 184.00 98.95 141.70
9/30/98 176.00 85.26 109.47
6/30/98 190.01 107.26 122.45
3/31/98 184.00 112.72 118.63
12/31/97 114.67 102.48 101.49
12/17/97 100.00 100.00 100.00
</TABLE>
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.
CERTAIN TRANSACTIONS
During the fiscal year ended September 30, 1999, the Compensation Committee
approved the issuance of a corporate guaranty with respect to Mr. Bildner's
California residence. The Company's liability under the guaranty is capped at
$1,000,000. In connection with the guaranty, Mr. Bildner originally pledged
shares to the Company with a fair market value in excess of 110% of the
guaranty and agreed to indemnify the Company for any loss, liability or expense
incurred in connection with the guaranty. Due to the administrative burden of
tracking the pledged shares due to market fluctuations, the Compensation
Committee in June of 1999, fixed the number of shares pledged under the
guaranty at 126,619 shares of Class B common stock.
21
<PAGE>
The Company has entered into indemnification agreements with each of its
directors and executive 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.
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 housing,
education 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 4.33%
to 7.18% and vary based on the term of the loan and its date of origination.
The loans have terms from one to ten years. Forgivable loans have terms from
one to three years and are typically forgiven ratably over the note's term for
so long as the employee remains employed by the Company. As of September 30,
1999, the outstanding balance of loans to Messrs. Bildner, Barton, Ross and
Weaver, including accrued interest, totaled $1,848,115, $1,128,826, $42,913
and $54,286, respectively. As of November 30, 1999, the outstanding balance of
loans and accrued interest to Mr. Bildner totaled $1,860,784, of which none is
forgivable; to Mr. Barton totaled $1,137,362, of which none is forgivable; to
Mr. Ross totaled $43,716, which amount plus accrued interest may be forgiven
in its entirety; and to Mr. Weaver totaled $48,571, which amount may be
forgiven in its entirety. See "Employment Agreements."
OTHER MATTERS
The Board knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ GEORGE K. ROSS
George K. Ross
Secretary
December 15, 1999
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended September 30, 1999 is
available without charge upon written request to: Corporate Secretary, Tier
Technologies, Inc., 1350 Treat Boulevard, Suite 250, Walnut Creek, California
94596.
22
<PAGE>
TIER TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
----------------------------------------
AMENDED BY THE BOARD OF DIRECTORS ON NOVEMBER 23, 1999 AND
APPROVED BY THE SHAREHOLDERS ON ___________________
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Tier Technologies, Inc. by providing eligible employees with the opportunity
to acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Class B Common Stock, including shares of
Class B Common Stock purchased on the open market. The maximum number of shares
of Class B Common Stock which may be issued over the term of the Plan shall not
exceed 300,000 shares.
B. Should any change be made to the Class B Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Class B Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. PURCHASE PERIODS
A. Shares of Class B Common Stock shall be offered for purchase
under the Plan through a series of successive Purchase Periods until such time
as (i) the maximum number
<PAGE>
of shares of Class B Common Stock available for issuance under the Plan shall
have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each Purchase Period shall be six (6) months in duration, unless
otherwise determined by the Plan Administrator prior to the start date of the
Purchase Period, and provided that the initial Purchase Period shall commence at
the Effective Time and shall terminate on the last business day in May 1998.
The next Purchase Period shall commence on the first business day in June 1998
and shall terminate on the last business day in November 1998; subsequent
Purchase Periods shall commence every six (6) months thereafter on the first
business day in December and June each year, unless otherwise designated by the
Plan Administrator. The Plan Administrator shall have complete discretion to
change the start date and the duration of a Purchase Period, provided Eligible
Employees are notified prior to the start date of any Purchase Period for which
such change is to be effective and provided, further, that no Purchase Period
shall have a duration exceeding twenty-seven (27) months.
V. ELIGIBILITY
A. Each Eligible Employee of a Participating Corporation shall be
eligible to participate in the Plan in accordance with the following provisions:
(i) An individual who is an Eligible Employee on the start date
of any Purchase Period under the Plan shall be eligible to commence
participation in that Purchase Period on such start date.
(ii) An individual who first becomes an Eligible Employee after
the start date of any Purchase Period will not be eligible to commence
participation under the Plan until the start date of the next Purchase Period on
which he/she remains an Eligible Employee.
B. To participate in the Plan for a particular Purchase Period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (which may include a stock purchase agreement and a payroll
deduction authorization form) and file such forms with the Plan Administrator
(or its designate) on or before the start date for the Purchase Period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Class B Common Stock under the Plan may be any multiple
of one percent (1%) of the Cash Compensation paid to the Participant during that
Purchase Period, up to a maximum of ten percent (10%). The deduction rate so
authorized shall continue in effect for the remainder of the Purchase Period,
except to the extent such rate is changed in accordance with the following
guidelines:
(i) The Participant may, at any time during the Purchase
Period, reduce his or her rate of payroll deduction to become effective as soon
as possible after filing the
2
<PAGE>
appropriate form with the Plan Administrator. The Participant may not, however,
effect more than one (1) such reduction per Purchase Period.
(ii) The Participant may, prior to the commencement of any new
Purchase Period, increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may not exceed
the ten percent (10%) maximum) shall become effective as of the start date of
the Purchase Period following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
start date for the Purchase Period and shall (unless sooner terminated by the
Participant) continue through the pay day ending with or immediately prior to
the last day of that Purchase Period. The amounts so collected shall be credited
to the Participant's book account under the Plan, but no interest shall be paid
on the balance from time to time outstanding in such account. The amounts
collected from the Participant shall not be held in any segregated account or
trust fund and may be commingled with the general assets of the Corporation and
used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Class B Common Stock under the
Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Class B Common Stock on any subsequent Purchase Date.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
-----------------------
separate purchase right for each Purchase Period in which he or she
participates. The purchase right shall be granted on the start date of the
Purchase Period and shall provide the Participant with the right to purchase
shares of Class B Common Stock, upon the terms set forth below. The purchase
right shall continue until the end of the Purchase Period, and shall be
automatically exercised on the last business day of the respective Purchase
Period each year (the last business day of May and the last business day of
November) or such other date as may be selected by the Plan Administrator as the
ending date for the Purchase Period). The Participant shall execute a stock
purchase agreement embodying such terms and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)), or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
------------------------------
automatically exercised on the respective Purchase Date, and shares of Class B
Common Stock shall accordingly be purchased on behalf of each Participant (other
than any Participant whose
3
<PAGE>
payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such Purchase Date. The
purchase shall be effected by applying the Participant's payroll deductions for
the Purchase Period ending on such Purchase Date (together with any carryover
deductions from the preceding Purchase Period) to the purchase of whole shares
of Class B Common Stock (subject to the limitation on the maximum number of
shares purchasable per Participant on any one Purchase Date) at the purchase
price in effect for the Participant for that Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Class B
--------------
Common Stock will be purchased on the Participant's behalf on each Purchase Date
shall be equal to eighty-five percent (85%) of the lower of (i) the Fair Market
Value per share of Class B Common Stock on the start date for that Purchase
Period or (ii) the Fair Market Value per share of Class B Common Stock on that
Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Class B
----------------------------
Common Stock purchasable by a Participant on each Purchase Date shall be the
number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the Purchase Period ending with
that Purchase Date (together with any carryover deductions from the preceding
Purchase Period) by the purchase price in effect for the Participant for that
Purchase Date. However, the maximum number of shares of Class B Common Stock
purchasable per Participant on any Purchase Date shall not exceed five hundred
(500) shares, subject to periodic adjustments in the event of certain changes in
the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
-------------------------
the purchase of shares of Class B Common Stock on any Purchase Date because they
are not sufficient to purchase a whole share of Class B Common Stock shall be
held for the purchase of Class B Common Stock on the next Purchase Date, or at
the option of the Plan Administrator, may be used to buy fractional shares.
However, any payroll deductions not applied to the purchase of Class B Common
Stock by reason of the limitation on the maximum number of shares purchasable by
the Participant on the Purchase Date shall be promptly refunded, without
interest.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next Purchase
Date , terminate his or her outstanding purchase right by filing the appropriate
form with the Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during the Purchase
Period in which such termination occurs shall, at the Participant's election, be
immediately refunded, without interest, or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such purchase
right is terminated, then the payroll deductions collected with respect to the
terminated right shall be refunded as soon as possible, without interest.
4
<PAGE>
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the Purchase Period
for which the terminated purchase right was granted. In order to resume
participation in any subsequent Purchase Period, such individual must re-enroll
in the Plan (by making a timely filing of the prescribed enrollment forms) on or
before the start date for that Purchase Period.
(iii) Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for the
Purchase Period in which the purchase right so terminates shall be immediately
refunded. However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant shall have
the election, exercisable up until the last business day of the Purchase Period
in which such leave commences, to (a) withdraw all the funds in the
Participant's payroll account at the time of the commencement of such leave or
(b) have such funds held for the purchase of shares at the end of such Purchase
Period. In no event, however, shall any further payroll deductions be added to
the Participant's account during such leave. Upon the Participant's return to
active service, his or her payroll deductions under the Plan shall automatically
resume at the rate in effect at the time the leave began, provided the
Participant returns to service prior to the expiration date of the Purchase
Period in which such leave began.
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
---------------------
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Class B Common Stock at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Class B Common Stock on the start date for the Purchase Period in which
such Corporate Transaction occurs or (ii) the Fair Market Value per share of
Class B Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable limitation on the number of shares of
Class B Common Stock purchasable per Participant shall continue to apply to any
such purchase.
The Corporation shall use its best efforts to provide at least ten
(10) days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
----------------------------
of Class B Common Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall either (i)
make a pro-rata allocation of the available shares on a uniform and
nondiscriminatory basis, in which case the payroll deductions of each
Participant, to the extent in excess of the aggregate purchase price payable for
the Class B Common Stock pro-rated to such individual, shall be refunded,
without interest, or (ii) increase the number of shares then available for
issuance under the Plan, subject to shareholder approval, by an amount
5
<PAGE>
at least sufficient to permit the purchase of all shares which are to be
purchased pursuant to outstanding purchase rights on such date
I. ASSIGNABILITY. During the Participant's lifetime, the purchase
-------------
right shall be exercisable only by the Participant and shall not be assignable
or transferable by the Participant.
J. SHAREHOLDER RIGHTS. A Participant shall have no shareholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Class B Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Class B Common Stock accrued under any other purchase right granted under this
Plan and (ii) similar rights accrued under other employee stock purchase plans
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than twenty-
five thousand dollars ($25,000) worth of stock of the Corporation or any
Corporate Affiliate (determined on the basis of the Fair Market Value of such
stock on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations, the
following provisions shall be in effect:
(i) The right to acquire Class B Common Stock under each
outstanding purchase right shall accrue on each successive Purchase Date.
(ii) No right to acquire Class B Common Stock under any
outstanding purchase right shall accrue to the extent the Participant has
already accrued in the same calendar year the right to acquire Class B Common
Stock under one or more other purchase rights in an amount equal to twenty-five
thousand dollars ($25,000) worth of Class B Common Stock (determined on the
basis of the Fair Market Value of such stock on the date or dates of grant) for
each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of
a Participant does not accrue for a particular Purchase Period, then the payroll
deductions which the Participant made during that Purchase Period with respect
to such purchase right shall be promptly refunded, without interest.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
6
<PAGE>
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board as of October 1, 1997, and
approved by the shareholders as of December 3, 1997. It shall become effective
at the Effective Time, provided no purchase rights granted under the Plan shall
--------
be exercised, and no shares of Class B Common Stock shall be issued hereunder,
until the Corporation shall have complied with all applicable requirements of
the 1933 Act (including the registration of the shares of Class B Common Stock
issuable under the Plan on a Form S-8 registration statement filed with the
Securities and Exchange Commission), all applicable listing requirements of any
stock exchange (or the Nasdaq National Market, if applicable) on which the Class
B Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such shareholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in September 2007, (ii)
the date on which all shares available for issuance under the Plan shall have
been sold pursuant to purchase rights exercised under the Plan or (iii) the date
on which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following its
termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at
any time, to become effective immediately following the close of any Purchase
Period. However, the Board may not, without the approval of the Corporation's
shareholders, (i) materially increase the number of shares of Class B Common
Stock issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization as provided in
Section III.B hereof, (ii) alter the purchase price formula so as to reduce the
purchase price payable for the shares of Class B Common Stock purchasable under
the Plan, or (iii) materially modify the requirements for eligibility to
participate in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
7
<PAGE>
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
D. The Plan is designed to qualify under Section 423 of the Code.
Payroll deductions will be made on an after-tax basis.
8
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Tier Technologies, Inc.
Tier Technologies (UK), Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CASH COMPENSATION shall mean the (i) regular base salary paid to
-----------------
a Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus (ii) all of the following amounts to
the extent paid in cash: overtime payments, bonuses, commissions, profit-sharing
distributions and other incentive-type payments (including, in the case of any
amounts referred to in clause (i) or (ii), any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate). However, Eligible Earnings shall not include any
contributions (other than Code Section 401(k) or Code Section 125 contributions)
made on the Participant's behalf by the Corporation or any Corporate Affiliate
to any deferred compensation plan or welfare benefit program now or hereafter
established.
C. CLASS B COMMON STOCK shall mean the Corporation's Class B Common
--------------------
Stock.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
---------------------
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean Tier Technologies, Inc., a California
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Tier Technologies, Inc. which shall by appropriate
action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
--------------
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a
A-1
<PAGE>
Participating Corporation after such Effective Time shall designate a subsequent
Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any employee, except any person who
-----------------
is engaged, on a regularly-scheduled basis for fewer than twenty (20) hours per
week or for fewer than five (5) months per calendar year, in the rendition of
personal services to any Participating Corporation as an employee for earnings
considered wages under Code Section 3401(a).
J. FAIR MARKET VALUE per share of Class B Common Stock on any
-----------------
relevant date shall be determined in accordance with the following provisions:
(i) If the Class B Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing selling
price per share of Class B Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling price
for the Class B Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Class B Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling price
per share of Class B Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the Class B
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Class B Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such quotation
exists.
(iii) For purposes of the initial offering period which begins at
the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Class B Common Stock is sold in the initial public
offering pursuant to the Underwriting Agreement.
K. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
L. PARTICIPANT shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
M. PARTICIPATING CORPORATION shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
N. PLAN shall mean the Corporation's Employee Stock Purchase Plan,
----
as set forth in this document.
A-2
<PAGE>
O. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
P. PURCHASE DATE shall mean the last business day of each Purchase
-------------
Period. The initial Purchase Date shall be May 29, 1998.
Q. PURCHASE PERIOD shall mean each successive period at the end of
---------------
which there shall be purchased shares of Class B Common Stock on behalf of each
Participant.
R. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
S. UNDERWRITING AGREEMENT shall mean the agreement among the
----------------------
Corporation, the selling shareholders and the underwriters managing the initial
public offering of the Class B Common Stock.
A-3
<PAGE>
TIER TECHNOLOGIES, INC.
CLASS B COMMON STOCK PROXY
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 11, 2000
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 offices of Cooley Godward LLP, One Maritime
Plaza, 22nd Floor, San Francisco, California at 2:00 p.m. local time on January
11, 2000, 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 AND FOR PROPOSAL NO. 3.
PROPOSAL NO. 1:
Nominees for Director: William G. Barton, James L. Bildner, Samuel Cabot III,
Morgan P. Guenther, Ronald L. Rossetti and William C. Van Faasen
[_] For
[_] Withhold
Withhold authority to vote for the nominee(s) listed: ___________________
<TABLE>
<S> <C> <C> <C>
PROPOSAL NO. 2:
Approval of Amendment to Employee Stock Purchase Plan FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL NO. 3:
Ratification of Appointment of FOR [_] AGAINST [_] ABSTAIN [_]
PricewaterhouseCoopers LLP as
Independent Accountants
</TABLE>
<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 15, 1999, and of
the Company's Annual Report for the fiscal year ended September 30, 1999.
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 ______________, _____ _________________________________________________
Signature
_________________________________________________
Signature if held jointly
