<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
BSQUARE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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<PAGE> 2
[COMPANY LOGO]
BSQUARE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 2, 2000
TO THE SHAREHOLDERS:
Notice is hereby given that the 2000 Annual Meeting of Shareholders of
BSQUARE CORPORATION, a Washington corporation (the "Company"), will be held on
Tuesday, May 2, 2000 at 10:00 a.m., local time, at the Company's offices at 3150
139th Avenue S.E., Bellevue, Washington 98005, for the following purposes:
1. To elect two Class I directors to serve for the ensuing one year
and until their successors are duly elected, to elect two Class II
directors to serve for the ensuing two years and until their successors are
duly elected, and to elect two Class III directors to serve for the ensuing
three years and until their successors are duly elected.
2. To approve an amendment to the stock option plan to annually
increase the number of shares reserved for issuance during each of the
Company's fiscal years beginning on January 1, 2000 by an amount equal to
the lesser of (A) four percent (4%) of the Company's outstanding shares at
the end of such fiscal year or (B) an amount determined by the Board of
Directors.
3. To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized shares of
Common Stock from 50,000,000 shares to 150,000,000 shares.
4. To transact such other business as may properly come before the
meeting or any adjournment or adjournments 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 March 24, 2000 as
the record date for the determination of shareholders entitled to vote at this
meeting. Only shareholders of record at the close of business on March 24, 2000
are entitled to notice of and to vote at the meeting and any adjournment
thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if the shareholder has previously returned a
proxy.
By Order of the Board of Directors
/s/ Brian V. Turner
Brian V. Turner, Senior Vice President
of Operations, Chief Financial Officer
and Secretary
Bellevue, Washington
April 7, 2000
<PAGE> 3
BSQUARE CORPORATION
PROXY STATEMENT FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
PROCEDURAL MATTERS
GENERAL
The enclosed Proxy is solicited on behalf of BSQUARE CORPORATION, a
Washington corporation (the "Company"), for use at the 2000 Annual Meeting of
Shareholders (the "Annual Meeting") to be held on May 2, 2000 at 10:00 a.m.,
local time, and at any adjournment thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting of Shareholders. The Annual
Meeting will be held at the Company's principal executive offices at 3150 139th
Avenue S.E., Bellevue, Washington 98005. The Company's telephone number at its
principal business offices is (425) 519-5900.
These proxy solicitation materials were mailed on or about April 7, 2000 to
all shareholders entitled to vote at the Annual Meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Only shareholders of record at the close of business on March 24, 2000 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. The
only outstanding voting securities of the Company are shares of Common Stock, no
par value. As of the Record Date, 32,591,908 shares of the Company's Common
Stock were issued and outstanding and held of record by 140 shareholders. See
"Security Ownership of Certain Beneficial Owners and Management" below for
information regarding beneficial owners of more than five percent of the
Company's Common Stock.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time prior to its use by delivering to the Secretary of the
Company a written instrument revoking the proxy or a duly executed proxy bearing
a later date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
Each holder of Common Stock is entitled to one vote for each share held.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
may also be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Shares that are voted "FOR,"
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
While there is no definitive statutory authority in Washington as to the
proper treatment of abstentions or broker non-votes, the Company believes that
abstentions and broker non-votes should be counted for purposes of determining
the presence or absence of a quorum for the transaction of business. In
addition, the Company believes that abstentions and broker non-votes should be
counted for purposes of determining the total number of Votes Cast with respect
to the proposal to amend the Articles of Incorporation and thus will have the
same effect as a vote against that proposal. However, the Company believes that
abstentions and broker non-votes should not be counted for purposes of
determining the number of Votes Cast with respect to the election of
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directors or the proposal to amend the stock option plan and thus will not have
any effect on the outcome of the voting on either of those matters.
All shares entitled to vote and represented by properly executed, unrevoked
proxies received prior to the Annual Meeting will be voted at the Annual Meeting
in accordance with the instructions indicated on those proxies. If no
instructions are indicated on a properly executed proxy, the shares represented
by that proxy will be voted as recommended by the Board of Directors. If any
other matters are properly presented for consideration at the Annual Meeting,
including, among other things, consideration of a motion to adjourn the Annual
Meeting to another time or place (including, without limitation, for the purpose
of soliciting additional proxies), the persons named in the enclosed proxy and
acting thereunder will have discretion to vote on those matters in accordance
with their best judgment. The Company does not currently anticipate that any
other matters will be raised at the Annual Meeting.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholders are entitled to present proposals for action at a forthcoming
meeting if they comply with the requirements of the proxy rules promulgated by
the Securities and Exchange Commission (the "SEC"). Proposals of shareholders of
the Company intended to be presented for consideration at the Company's 2001
Annual Meeting of Shareholders must be received by the Company no later than
December 7, 2000 in order that they may be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
In addition, the Company's Bylaws establish an advance notice procedure
with regard to certain matters, including shareholder proposals not included in
the Company's proxy statement, to be brought before an annual meeting of
shareholders. In general, nominations for the election of directors may be made
by: (i) the Board of Directors or a committee appointed by the Board of
Directors, or (ii) any shareholder entitled to vote who has delivered written
notice to the Secretary of the Company 90 days prior to the date one year from
the date of the immediately preceding annual meeting of shareholders (or, with
respect to an election of directors to be held at a special meeting, the close
of business on the tenth day following the date on which notice of such meeting
is first given to shareholders), which notice must contain specified information
concerning the nominees and concerning the shareholder proposing such
nominations. The Company's Bylaws also provide that the only business that shall
be conducted at an annual meeting is business that is brought before such
meeting: (i) by or at the direction of the Board of Directors, or (ii) by any
shareholder entitled to vote who has delivered written notice to the Secretary
of the Company 90 days prior to the date one year from the date of the
immediately preceding annual meeting of shareholders, which notice must contain
specified information concerning the matters to be brought before such meeting
and concerning the shareholder proposing such matters. A copy of the full text
of the Bylaw provisions discussed above may be obtained by writing to the
Secretary of the Company. All notices of proposals by shareholders, whether or
not included in the Company's proxy materials, should be sent to BSQUARE
CORPORATION, 3150 139th Avenue S.E., Bellevue, Washington 98005, Attention:
Secretary.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of the Record Date as to:
- each person who is known by the Company to own beneficially more than
five percent of the outstanding shares of Common Stock;
- each director and each nominee for director of the Company;
- each of the executive officers of the Company named in the Summary
Compensation Table in "Executive Compensation and Other Matters" below;
and
- all directors and executive officers of the Company as a group.
Beneficial ownership is determined in accordance with the rules of the SEC.
For purposes of calculating the number of shares beneficially owned by a
shareholder and the percentage ownership of that shareholder,
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shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of the Record Date by that shareholder are deemed
outstanding. These options are listed below under the heading "Number of Shares
Underlying Options" and are not treated as outstanding for the purpose of
computing the percentage ownership of any other shareholder. Percentage
ownership is based on 32,591,908 shares of Common Stock outstanding as of the
Record Date.
Unless otherwise noted below, the address for each shareholder listed below
is: c/o BSQUARE Corporation, 3150 139th Avenue S.E., Bellevue, Washington 98005.
Unless otherwise noted, each of the shareholders listed below has sole
investment and voting power with respect to the Common Stock indicated, except
to the extent shared by spouses under applicable law.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------
BENEFICIALLY UNDERLYING PERCENT OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED DIRECTLY OPTIONS BENEFICIALLY OWNED
------------------------------------ -------------- ---------- ------------------
<S> <C> <C> <C>
Entities affiliated with TA Associates, Inc.(1)... 7,015,800 15,000 21.6%
High Street Tower
Suite 2500
Boston, MA 02110
Jeffrey T. Chambers(2)............................ 7,015,800 15,000 21.6
Albert T. Dosser.................................. 5,744,499 -- 17.6
Peter R. Gregory(3)............................... 5,731,056 -- 17.6
William T. Baxter................................. 5,016,295 -- 15.4
Scot E. Land(4)................................... 1,805,555 56,666 5.7
Entities affiliated with Encompass Ventures(5).... 1,805,555 41,666 5.7
4040 Lake Washington Blvd. N.E.
Suite 205
Kirkland, WA 98033
Vulcan Ventures Incorporated...................... 1,518,378 -- 4.7
110 110th Avenue N.E., Suite 550
Bellevue, WA 98004
David M. Moore(6)................................. 1,518,378 -- 4.7
Brian V. Turner................................... 500 300,000 *
William L. Larson................................. -- 40,000 *
David J. Bialer................................... -- 100,000 *
Donald L. Whitt................................... 5,000 7,500 *
All executive officers and directors as a group (9
persons)(7)..................................... 21,106,027 519,166 65.3%
</TABLE>
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* Less than 1%.
(1) The holding shown is as of February 15, 2000 as reported in a Schedule 13G
filed on behalf of a group consisting of TA/Advent VIII L.P., Advent
Atlantic and Pacific III, L.P., TA Executives Fund L.L.C. and TA Investors
L.L.C. Includes 5,722,076 shares held by TA/Advent VIII L.P., 1,073,990
shares held by Advent Atlantic and Pacific III, L.P., 114,497 shares held by
TA Investors L.L.C. and 105,237 shares held by TA Executives Fund L.L.C.,
all of which are funds managed by TA Associates.
(2) Includes 5,722,076 shares held by TA/Advent VIII L.P., 1,073,990 shares held
by Advent Atlantic and Pacific III, L.P., 114,497 shares held by TA
Investors L.L.C. and 105,237 shares held by TA Executives Fund L.L.C., all
of which are funds managed by TA Associates. Mr. Chambers is a managing
director of TA Associates. Mr. Chambers directly or indirectly shares voting
and investment power with respect to such shares but disclaims beneficial
ownership.
(3) Mr. Gregory was employed by the Company through November 1999.
(4) Includes 1,372,222 shares held by Encompass Group US Information Technology
Partners 1 LP, 277,778 shares held by TCI Club and 155,555 shares held by
Northwest Financing, L.L.C., all of which are funds managed by Encompass
Ventures. Also includes an option to purchase 41,666 shares held by
Encompass Europe, Inc., in which Encompass Ventures holds a minority
interest. Mr. Land is a managing director of
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Encompass Ventures and is a director of Encompass Europe. Mr. Land directly
or indirectly shares voting and investment power with respect to such shares
but disclaims beneficial ownership.
(5) Includes 1,372,222 shares held by Encompass Group US Information Technology
Partners 1 LP, 277,778 shares held by TCI Club and 155,555 shares held by
Northwest Financing, L.L.C., all of which are funds managed by Encompass
Ventures. Also includes an option to purchase 41,666 shares held by
Encompass Europe, Inc., in which Encompass Ventures holds a minority
interest. Encompass Ventures disclaims beneficial ownership of Encompass
Europe's shares.
(6) Includes 1,518,378 shares held by Vulcan Ventures Incorporated. Mr. Moore is
a Senior Analyst at Vulcan Northwest Inc., which is affiliated with Vulcan
Ventures Incorporated. Mr. Moore disclaims beneficial ownership of such
shares.
(7) See footnotes 2, 4 and 6 above.
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
We currently have authorized seven directors; however, the Company's Board
of Directors is currently comprised of six members and one Board seat remains
vacant. The Board of Directors intends to leave the remaining seat vacant until
an appropriate individual is identified and elected by the Board of Directors.
The Board of Directors is divided into three classes with overlapping three-year
terms. A director serves in office until his or her respective successor is duly
elected and qualified unless the director resigns or by reason of death or other
cause is unable to serve in the capacity of director. When the vacant Board seat
is filled, such director will be a Class I director. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of an equal number of directors. There are no family relationships
among our directors and officers.
NOMINEES FOR DIRECTORS
Two Class I directors are to be elected at the Annual Meeting for a
one-year term ending in 2001. Two Class II directors are to be elected at the
Annual Meeting for a two-year term ending in 2002. Two Class III directors are
to be elected for a three-year term ending in 2003. The Board of Directors has
nominated Scot E. Land and William L. Larson for election as Class I directors.
The Board of Directors has nominated Albert T. Dosser and Jeffrey T. Chambers
for election as Class II directors. The Board of Directors has nominated William
T. Baxter and David M. Moore for election as Class III directors.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the Company's nominees named below. The proxies cannot be
voted for a greater number of persons than the number of nominees named. In the
event that any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting of Shareholders, the proxies will be
voted for any nominee who shall be designated by the present Board of Directors
to fill the vacancy. It is not expected that any nominee will be unable or will
decline to serve as a director. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner as will assure the election of as many
of the nominees listed below as possible, and in such event, the specific
nominees to be voted for will be determined by the proxy holders.
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VOTE REQUIRED FOR ELECTION OF DIRECTORS
If a quorum is present and voting, the six (6) nominees receiving the
highest number of votes will be elected to the Board of Directors. Votes
withheld from any nominee, abstentions and broker non-votes will be counted for
purposes of determining the presence or absence of a quorum.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE
NOMINEES LISTED BELOW.
NOMINEES
The names of the nominees and certain information about them as of the
Record Date are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE POSITIONS WITH THE COMPANY SINCE
--------------- --- -------------------------- --------
<S> <C> <C> <C>
William T. Baxter.................... 37 Chairman of the Board, President and 1994
Chief Executive Officer
Albert T. Dosser..................... 42 Senior Vice President, Director 1994
Jeffrey T. Chambers(1)(2)............ 44 Director 1998
Scot E. Land(1)(2)................... 45 Director 1998
William L. Larson.................... 43 Director 1998
David M. Moore....................... 45 Director 1999
</TABLE>
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(1) Member of the Compensation Committee
(2) Member of the Audit Committee
William T. Baxter co-founded BSQUARE in July 1994 and has served as our
President, Chief Executive Officer and Chairman of the Board since our
inception. From June 1993 to October 1994, Mr. Baxter served as Principal
Engineer at Digital Equipment Corporation, a manufacturer of business and
networking computer systems. Between February 1990 and May 1993, Mr. Baxter
served as Manager of Compiler Development at Intergraph Corporation, a developer
and manufacturer of interactive computer graphics systems. Mr. Baxter holds a
B.S. and M.S. in computer science from the University of Wyoming.
Albert T. Dosser co-founded BSQUARE in July 1994 and has served as a Senior
Vice President and a director since our inception. From June 1992 to October
1994, Mr. Dosser served as a software engineer at Digital Equipment Corporation.
Between August 1984 and June 1992, Mr. Dosser served as a software engineer at
Telesoft, a software firm developing Ada compilers and related products, and
from July 1982 to August 1984, he served as a sales support analyst and as
assistant to the national product manager for the OEM Systems Division at NCR, a
manufacturer of business and networking computer systems. Mr. Dosser holds a
B.S. in information science, with a minor in mathematics, from East Tennessee
State University.
Jeffrey T. Chambers has been a director of BSQUARE since February 1998. Mr.
Chambers was elected to our board of directors in connection with the purchase
of shares of our preferred stock by affiliates of TA Associates, Inc., a venture
capital firm. Mr. Chambers has been employed by TA Associates or its predecessor
since 1980, where he currently serves as a managing director. In addition to
BSQUARE, Mr. Chambers currently serves as a director of several privately held
companies.
Scot E. Land has been a director of BSQUARE since February 1998. Mr. Land
was elected to our board of directors in connection with the purchase of shares
of our preferred stock by affiliates of Encompass Group, a venture capital firm.
Mr. Land is currently a managing director of Encompass Ventures, an affiliate of
Encompass Group, a position he has held since September 1997. Prior to joining
Encompass, Mr. Land was a Senior Technology Analyst and Strategic Planning
Consultant with Microsoft from June 1995 to September 1997, and a technology
research analyst and investment banker for First Marathon Securities, a Canadian
investment bank, from September 1993 to April 1995. From October 1988 to
February 1993, Mr. Land was the President and Chief Executive Officer of
InVision Technologies, a publicly traded company founded by Mr. Land in October
1988 that designs and manufacturers high-speed computer-aided topography systems
for
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automatic explosives detection for aviation security. Prior to founding InVision
Technologies, Mr. Land served as a principal in the international consulting
practice of Ernst and Young LLP, a public accounting firm, from April 1984 to
October 1988.
William L. Larson has been a director of BSQUARE since September 1998.
Since September 1993, Mr. Larson has been the Chief Executive Officer of Network
Associates, Inc., a software company, where he has also served as President and
a director since October 1993 and as Chairman of the Board since April 1995.
From August 1988 to September 1993, Mr. Larson served as a Vice President of
SunSoft, Inc., a systems software subsidiary of Sun Microsystems, where he was
responsible for worldwide sales and marketing.
David M. Moore has been a director of BSQUARE since October 1999. Since
November 1998, Mr. Moore has been a Senior Analyst at Vulcan Northwest Inc., a
venture capital firm, and has served as President of Paralex Corporation, a
consulting company, since October 1997. Prior to that, Mr. Moore worked at
Microsoft Corporation in various capacities, most recently as a Director of
Development.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings during
fiscal 1999. The Board of Directors has a Compensation Committee and an Audit
Committee. The Board of Directors has no nominating committee or any committee
performing such functions.
The Audit Committee currently consists of Mr. Chambers and Mr. Land. The
Audit Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the scope of audit and other services
by the Company's independent auditors, reviews the accounting principles and
auditing practices and procedures to be used for the Company's financial
statements and reviews the results of the Company's audits. The Audit Committee
held two meetings during fiscal 1999.
The Compensation Committee currently consists of Mr. Chambers and Mr. Land.
The Compensation Committee reviews and approves the compensation and benefits
for the Company's executive officers, grants stock options under the Company's
stock option plan and makes recommendations to the Board of Directors on
compensation matters. The Compensation Committee held two meetings during fiscal
1999.
No director attended fewer than 75% of the aggregate of the meetings of the
Board of Directors and committees thereof, if any, upon which such director
served during the period for which he has been a director or committee member.
COMPENSATION OF DIRECTORS
Directors are reimbursed for expenses incurred in connection with attending
Board of Directors and committee meetings but are not otherwise compensated for
their services as Board members. In August 1998, the Company granted to each of
TA Associates, with whom Jeffrey T. Chambers is affiliated, and Scot E. Land, an
option to purchase 45,000 shares of Common Stock at an exercise price of $1.80
per share, vesting in three annual installments of 15,000 shares each. In
October 1999, the Company granted to Mr. Land an option to purchase 40,000
shares of Common Stock at an exercise price of $12.00 per share, vesting in four
annual installments of 10,000 shares each. In July 1998, the Company granted to
William Larson an option to purchase 120,000 shares of Common Stock at an
exercise price of $1.80 per share, vesting in three annual installments of
40,000 shares each. In October 1999, the Company granted to David Moore an
option to purchase 35,000 shares of Common Stock at an exercise price of $39.56
per share, vesting in three annual installments of approximately 11,667 shares
each. The Company currently intends to make comparable option grants to future
non-employee directors.
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PROPOSAL TWO
APPROVAL OF AMENDMENT TO
THE STOCK OPTION PLAN TO INCREASE ANNUALLY
THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER
PROPOSED AMENDMENT
In February 2000, the Board approved an amendment to the stock option plan
to annually increase the number of shares reserved for issuance during each of
the Company's fiscal years beginning on January 1, 2000 by an amount equal to
the lesser of (A) four percent (4%) of the Company's outstanding shares at the
end of such fiscal year or (B) an amount determined by the Board of Directors.
REASONS FOR THE AMENDMENT
The Company relies upon the stock option plan as one of the benefits
necessary to attract and retain skilled employees. The Board of Directors
believes it is in the Company's best interests to provide for an annual increase
of the shares reserved for issuance under the stock option plan so that the
Company may continue to attract and retain the services of qualified employees
by providing employees an opportunity to purchase the Company's Common Stock
through option grants.
ACTIVITY UNDER THE STOCK OPTION PLAN
The Company believes that its stock option plan is an important factor in
attracting and retaining skilled personnel. From time to time, the Company
reviews the number of shares available for issuance under the stock option plan
and, based on the Company's estimates of the number of shares expected to be
issued under the stock option plan, management presents to the Board of
Directors a recommendation for the addition of shares reserved for issuance. The
Board reviews such recommendation and, if approved by the Board, presents a
proposal for the shareholders' approval.
As of the Record Date, 437,139 shares of Common Stock had been issued upon
exercise of stock options, options to purchase an aggregate of 3,491,822 shares
were outstanding at a weighted average exercise price of $4.99 per share, and
1,696,039 shares remained available for future issuance under the stock option
plan.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT
The affirmative vote of a majority of the Votes Cast will be required to
approve the amendment to the stock option plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE STOCK
OPTION PLAN.
SUMMARY OF THE STOCK OPTION PLAN
The essential features of the stock option plan are outlined below.
Purpose. The purpose of the stock option plan is to provide a means whereby
eligible employees, officers, directors, consultants and independent contractors
of the Company can acquire the Company's Common Stock.
Administration. The stock option plan may be administered by the Board or a
committee of the Board or individual designated by the Board (the "Plan
Administrator"). Subject to the other provisions of the stock option plan and
ratification by the Board, the Plan Administrator has the power to determine the
terms and conditions of any options granted, including but not limited to the
exercise price, the number of shares subject to the option and the
exercisability thereof. Mr. Baxter, our President and Chief Executive Officer,
currently serves as the Plan Administrator with respect to option grants to
certain specified employee classifications, and the Compensation Committee of
the Board serves as the Plan Administrator with respect to all other option
grants.
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Eligibility, Terms of Options and Limitations. The stock option plan
provides that nonstatutory stock options may be granted only to employees,
officers, directors, independent contractors and consultants of the Company.
Incentive stock options may be granted only to employees. With respect to any
optionee who owns stock possessing more than 10% of the voting power of all
classes of stock of the Company (a "10% Shareholder"), the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the maximum term of the option must not exceed five years.
The term of all other incentive stock options under the stock option plan may
not exceed ten years. The Plan Administrator selects the optionees and
determines the number of shares to be subject to each option. In making such
determination, the duties and responsibilities of the employee, director or
consultant, the value of his or her services, his or her present and potential
contribution to the success of the Company, the anticipated number of years of
future service and other relevant factors are taken into account.
Conditions of Options. Each option granted under the stock option plan is
evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following conditions:
(a) Exercise Price. The Plan Administrator determines the exercise
price of options to purchase shares of Common Stock. However, the exercise
price of an incentive stock option must not be less than 100% (110%, if
issued to a 10% Shareholder) of the fair market value of the Common Stock
on the date the option is granted. The exercise price of a nonstatutory
stock option shall be determined by the Plan Administrator. For so long as
the Company's Common Stock is traded on the Nasdaq National Market, the
fair market value of a share of Common Stock shall be the closing sale
price for such stock as quoted on the Nasdaq National Market for the day of
determination.
(b) Value Limitation. The aggregate fair market value of all shares of
Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year shall not exceed
$100,000. In the event the optionee holds two or more such options that
become exercisable for the first time in the same calendar year, such
limitation shall be applied on the basis of the order in which such options
are granted.
(c) Form of Consideration. The consideration to be paid for the shares
of Common Stock issued upon exercise of an option shall be cash or other
consideration as determined by the Plan Administrator.
(d) Exercise of the Option. Each stock option agreement will specify
the term of the option and the date when the option is to become
exercisable. The terms of such vesting are determined by the Plan
Administrator. Options granted under the stock option plan generally have a
ten-year term (five years, if issued to a 10% Shareholder) and to date
generally become exercisable annually over a four-year period, subject to
the optionee's continuation as a service provider. An option is exercised
by giving written notice of exercise to the Company and by tendering full
payment of the purchase price to the Company.
(e) Termination of Employment. The Plan Administrator shall establish
and set forth in each instrument that evidence an option whether the option
will continue to be exercisable, and the terms and conditions of such
exercise, if an optionee ceases to be employed by, or to provide services
to, the Company or an affiliate of the Company, which provisions may be
waived or modified by the Plan Administrator at any time.
(f) Assignability. Each option granted pursuant to the stock option
plan shall, during the optionee's lifetime, be exercisable only by him or
her, and the option is generally not transferable by the optionee.
(g) Termination of Options. Excluding incentive stock options issued
to 10% Shareholders, options granted under the stock option plan expire on
the date set forth in the option agreement (not to exceed ten years from
the date of grant in the case of incentive stock options). Incentive stock
options granted to 10% Shareholders expire five years from the date of
grant (or such shorter period set forth in the option agreement). No option
may be exercised by any person after the expiration of its term.
Adjustment Upon Changes in Capitalization. If there is any change in the
stock subject to the stock option plan or an option agreement through merger,
consolidation, reorganization, reincorporation, stock split,
8
<PAGE> 11
stock dividend or other change in the capital structure of the Company,
appropriate adjustments shall be made by the Plan Administrator in order to
preserve, but not to increase the benefits to the individual, including
adjustments to the aggregate number, kind and price per share of shares subject
to the stock option plan or an option agreement.
Change of Control. In the event a third party acquires the Company through
the purchase of all or substantially all of the Company's assets, a merger or
other business combination, if so provided in applicable stock option
agreements, the unexercised portion of outstanding options will vest and become
immediately exercisable.
Amendment and Termination of the stock option plan. The Board of Directors
may at any time amend or terminate this stock option plan as it deems advisable;
provided that such amendment or termination complies with all applicable
requirements of state and federal law, including any applicable requirement that
the stock option plan or an amendment to the stock option plan be approved by
the Company's shareholders.
No option may be granted nor any stock issued under the stock option plan
after the termination of the stock option plan, and no amendment or termination
of the stock option plan shall, without the affected individual's consent, alter
or impair any rights or obligations under any option previously granted under
the stock option plan. The stock option plan shall terminate in May 2007 unless
previously terminated by the Board.
FEDERAL TAX INFORMATION
Options granted under the stock option plan may be either incentive stock
options, as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. Any gain or loss recognized on such a premature
disposition of the shares in excess of the amount treated as ordinary income
will be characterized as long-term or short-term capital gain or loss, depending
on the holding period. A different rule for measuring ordinary income upon such
a premature disposition may apply if the optionee is also an officer, director,
or 10% shareholder of the Company. The Company will be entitled to a deduction
in the same amount as the ordinary income recognized by the optionee.
All of the options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any taxable
income at the time he is granted a nonstatutory option. However, upon its
exercise, the optionee will recognize taxable income generally measured as the
excess of the then fair market value of the shares purchased over the purchase
price. Any taxable income recognized in connection with an option exercise by an
optionee who is also an employee of the Company will be subject to tax
withholding by the Company. The Company will be entitled to a tax deduction in
the same amount as the ordinary income recognized by the optionee. Upon
disposition of such shares by the optionee, any difference between the sales
price and the optionee's purchase price, to the extent not recognized as taxable
income as described above, will be treated as long-term or short-term capital
gain or loss, depending on the holding period.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED UNDER THE
STOCK OPTION PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE SHOULD BE
MADE TO THE APPLICABLE PROVISIONS OF THE CODE. IN ADDITION, THIS SUMMARY DOES
NOT DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE
INCOME TAX LAWS OF ANY
9
<PAGE> 12
MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE EMPLOYEE OR
CONSULTANT MAY RESIDE.
PROPOSAL THREE
APPROVAL OF AMENDMENT
TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
PROPOSED AMENDMENT
The Company's Amended and Restated Articles of Incorporation (the
"Articles"), as currently in effect, provide that the Company is authorized to
issue 10,000,000 shares of Preferred Stock, no par value per share, and
50,000,000 shares of Common Stock, no par value per share. In February 2000, the
Board of Directors authorized an amendment to the Articles to increase the
authorized number of shares of Common Stock to 150,000,000 shares (the
"Amendment").
As of the Record Date, 32,591,908 shares of Common Stock were issued and
outstanding, 3,491,822 additional shares were issuable upon exercise of
outstanding options and approximately 1,696,039 shares were reserved for future
grants under the Company's stock plans.
PURPOSE AND EFFECT OF AMENDMENT
The principal purposes of the Amendment, among others, are to authorize
additional shares of Common Stock that will be available in the event that the
Board of Directors determines to authorize stock dividends or future stock
splits, to raise additional capital through the sale of securities, to acquire
another company or its business or assets or to establish a strategic
relationship with a corporate partner. If the Amendment is adopted, 100,000,000
additional shares of Common Stock of the Company will be available for issuance
by the Board of Directors without any further shareholder approval, although
certain large issuances of shares may require shareholder approval in accordance
with the requirements of the Nasdaq National Market. The Board of Directors
believes that it is desirable that the Company have the flexibility to issue the
additional shares without further shareholder approval. The holders of Common
Stock have no preemptive rights to purchase any stock of the Company. The
additional shares could be issued at such times and under such circumstances as
to have a dilutive effect on earnings per share and on the equity ownership of
the present holders of Common Stock.
The increase in the authorized number of shares of Common Stock is
necessary to provide shares for the proposed increase in the number of shares
reserved for issuance under the stock option plan pursuant to Proposal Two.
Other than the foregoing, the Company has no current plans or proposals to issue
any portion of the additional shares to be authorized under this proposal.
The flexibility of the Board of Directors to issue additional shares of
stock could enhance the Board's ability to negotiate on behalf of the
shareholders in a takeover situation. Although it is not the purpose of the
Amendment, the authorized but unissued shares of Common Stock (as well as the
authorized but unissued shares of Preferred Stock) also could be used by the
Board of Directors to discourage, delay or make more difficult a change in the
control of the Company. For example, such shares could be privately placed with
purchasers who might align themselves with the Board of Directors in opposing a
hostile takeover bid. The issuance of additional shares could serve to dilute
the stock ownership of persons seeking to obtain control and thereby increase
the cost of acquiring a given percentage of the outstanding stock. The Company
has previously adopted certain measures that may have the effect of delaying or
preventing an unsolicited takeover attempt, including provisions of the Articles
authorizing the Board to issue up to 10,000,000 shares of Preferred Stock with
terms, provisions and rights fixed by the Board, and a classified Board of
Directors in which the Board of Directors is divided into three classes. The
Board of Directors is not aware of any pending or proposed effort to acquire
control of the Company.
10
<PAGE> 13
VOTE REQUIRED FOR APPROVAL OF AMENDMENT
The approval of the Amendment requires the affirmative vote of a majority
of the outstanding shares of Common Stock of the Company. An abstention or
nonvote is not an affirmative vote and, therefore, will have the same effect as
a vote against the proposal.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED ARTICLES OF INCORPORATION.
ADDITIONAL INFORMATION RELATING TO
DIRECTORS AND OFFICERS OF THE COMPANY
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning compensation
for services rendered to the Company in all capacities during the fiscal year
ended December 31, 1999 by (i) the Company's chief executive officer, (ii) the
four other most highly compensated executive officers who were serving in such
capacities at the end of fiscal 1999 and whose salary and bonus for fiscal 1999
exceeded $100,000 and (iii) one former executive officer whose salary and bonus
for fiscal 1999 exceeded $100,000 but who was not serving as an executive
officer of the Company at the end of fiscal 1999.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION ALL OTHER COMPENSATION
ANNUAL ------------ ---------------------------------
COMPENSATION SECURITIES HEALTH LIFE AND
----------------- UNDERLYING INSURANCE DISABILITY MOVING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#S) PREMIUMS PREMIUMS EXPENSES
--------------------------- -------- ------ ------------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
William T. Baxter.................... $250,000 $ -- -- $2,224 $1,060 $ --
President and Chief
Executive Officer
Albert T. Dosser..................... 150,000 -- -- 1,915 1,305 --
Senior Vice President
Peter R. Gregory(1).................. 144,231 -- -- -- 1,070 --
Senior Vice President
Brian V. Turner(2)................... 133,730 -- 340,000 1,725 -- 7,493
Senior Vice President of Operations
and Chief Financial Officer
David J. Bialer...................... 131,541 950 30,000 2,707 -- 19,461
General Manager
Donald L. Whitt...................... 126,415 1,300 40,000 1,839 -- --
General Manager
</TABLE>
- ---------------
(1) Mr. Gregory was employed by the Company through November 1999.
(2) Mr. Turner was hired by the Company in April 1999.
11
<PAGE> 14
Option Grants in Fiscal Year 1999
The following table sets forth certain information with respect to stock
options granted to each of the Company's named executive officers during the
fiscal year ended December 31, 1999. In accordance with the rules of the SEC,
also shown below is the potential realizable value over the term of the option,
the period from the grant date to the expiration date, based on assumed rates of
stock appreciation of 5% and 10%, compounded annually. These rates are mandated
by the SEC and do not represent the Company's estimate of future stock price.
Actual gains, if any, on stock option exercises will depend on the future
performance of the Company's Common Stock. In the fiscal year ended December 31,
1999, the Company granted options to acquire up to an aggregate of 1,345,795
shares of Common Stock to employees and directors, all under the Company's stock
option plan and all at an exercise price equal to the fair market value of the
Company's Common Stock on the date of grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
NUMBER OF GRANTED TO EXERCISE OPTION TERM
SECURITIES UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME OPTIONS GRANTED FISCAL 1999 SHARE DATE 5% 10%
---- --------------------- ------------- --------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
William T. Baxter.... -- -- $ -- -- $ -- $ --
Albert T. Dosser..... -- -- -- -- -- --
Peter R. Gregory..... -- -- -- -- -- --
Brian V. Turner...... 300,000 22.0% 1.44 4/7/09 705,637 1,123,609
40,000 3.0% 12.00 10/15/09 781,869 1,244,996
David J. Bialer...... 30,000 2.0% 10.00 9/14/09 488,668 778,123
Donald L. Whitt...... 40,000 3.0% 2.50 7/5/09 162,889 259,374
</TABLE>
Aggregate Option Exercises in Fiscal Year 1999 and Fiscal Year-End Option Values
With respect to the Company's named executive officers, the following table
sets forth information concerning option exercises in the fiscal year ended
December 31, 1999 and exercisable and unexercisable options held as of December
31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON EXERCISE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
--------------------- OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999
VALUE ---------------------------- ----------------------------
NAME EXERCISED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William T. Baxter.... -- $ -- -- -- $ -- $ --
Albert T. Dosser..... -- -- -- -- -- --
Peter R. Gregory..... -- -- -- -- -- --
Brian V. Turner...... -- -- 300,000 40,000 12,149,400 1,197,520
David J. Bialer...... -- -- 100,000 30,000 4,093,800 958,140
Donald L. Whitt...... -- -- 7,500 57,500 311,787 2,303,439
</TABLE>
EMPLOYEE BENEFIT PLANS
Amended and Restated Stock Option Plan
The Company has an amended and restated stock option plan pursuant to which
options to purchase Common Stock are granted to officers and employees of the
Company. See Proposal Two for a description of the terms of this plan.
The stock option plan may be administered by the Company's Board of
Directors or a committee of the Board. The Company's Board of Directors
determines the terms of each option granted under the stock option plan,
including the number of shares subject to an option, exercise price, vesting
schedule and duration. The exercise price of all incentive stock options granted
under the stock option plan cannot be less than the fair market value of the
Common Stock on the date of grant and, in the case of incentive stock options
granted to holders of more than 10% of the Company's voting power, not less than
110% of the fair market value.
12
<PAGE> 15
Generally, options granted under the stock option plan have a term of ten years,
vest annually over a four-year period and are nontransferable. Payment of the
exercise price of options may be made in cash or other consideration as
determined by the Company's Board of Directors.
The Company's Board of Directors has the authority to amend or terminate
the stock option plan as long as such action does not adversely affect any
outstanding option and provided that shareholder approval for any amendments to
the stock option plan shall be obtained to the extent required by applicable
law.
Employee Stock Purchase Plan
The Company's Board of Directors and shareholders adopted an employee stock
purchase plan in August 1999, which was implemented as of October 19, 1999. The
employee stock purchase plan provides a convenient and practical means by which
employees may participate in stock ownership. The Company's Board of Directors
believes that the opportunity to acquire a proprietary interest in the Company's
success through the acquisition of shares of Common Stock pursuant to the
employee stock purchase plan is an important aspect of the Company's ability to
attract and retain highly qualified and motivated employees. The employee stock
purchase plan is intended to qualify as an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code. The employee stock
purchase plan may be administered by the Company's Board of Directors or by a
committee appointed by the Board. The plan administrator has the power to make
and interpret all rules and regulations it deems necessary to administer the
employee stock purchase plan. The Company's Board of Directors has broad
authority to amend the employee stock purchase plan, subject in some instances
to shareholder approval. All of the Company's employees who customarily work
more than 20 hours per week, including officers, are eligible to participate in
the employee stock purchase plan. Eligible employees may elect to contribute
from 1% to 10% of the compensation paid to them during each pay period towards
stock purchases under the plan. Other than the first offering, which will have a
duration of approximately 19 months, each participant may enroll in an 18-month
offering in which shares of Common Stock are purchased on the last day of each
six-month period during the offering. The first offering commenced on October
19, 1999 and will terminate on May 14, 2001. Thereafter, a separate offering
will commence on November 15 and May 15 of each year. The purchase price for
shares purchased under the employee stock purchase plan will be equal to 85% of
the lower of:
- the fair market value of the Common Stock on the enrollment date of the
offering; or
- the fair market value on the date of purchase.
Neither payroll deductions credited to an employee's account nor any rights with
regard to the purchase of shares under the employee stock purchase plan may be
assigned, transferred, pledged or otherwise disposed of in any way by a
participant, except that a participant may designate a beneficiary in the event
of his or her death.
Upon termination of employment due to death, retirement or disability, the
payroll deductions credited to an employee's account will be used to purchase
shares on the next purchase date. Any remaining balance will be returned to the
participant or his or her beneficiary. Upon termination of employment for any
other reason, any payroll deductions credited to an employee's account will be
returned to the participant. The Company has authorized the issuance of up to
1,500,000 shares of Common Stock under the employee stock purchase plan. In the
event of a merger, consolidation or acquisition by another corporation of all or
substantially all of the Company's assets, each outstanding right to purchase
shares under the employee stock purchase plan shall be assumed or an equivalent
stock purchase right substituted by the successor corporation. If the successor
corporation refuses to assume or substitute for the stock purchase right, the
offering period during which a participant may purchase stock will be shortened
to a specified date before the proposed merger or sale. Similarly, in the event
of the Company's liquidation or dissolution, the offering period during which a
participant may purchase stock will be shortened to a specified date before the
date of the liquidation or dissolution.
13
<PAGE> 16
401(k) Plan
In March 1997, the Company's Board of Directors adopted a tax-qualified
employee savings and retirement plan for eligible U.S. employees. Eligible
employees may elect to defer a percentage of their eligible compensation in the
401(k) plan, subject to the statutorily prescribed annual limit. The Company
makes matching contributions on behalf of all participants in the 401(k) plan in
the amount equal to one-half of the first 6% of an employee's contributions.
Matching contributions are subject to a vesting schedule; all other
contributions are at all times fully vested. The Company intends the 401(k) plan
to qualify under Sections 401(k) and 501 of the Internal Revenue Code so that
contributions by employees or the Company to the 401(k) plan, and income earned,
if any, on plan contributions, are not taxable to employees until withdrawn from
the 401(k) plan, and so that the Company will be able to deduct its
contributions when made. The trustee of the 401(k) plan, at the direction of
each participant, invests the assets of the 401(k) plan in any of a number of
investment options.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company currently does not have any employment agreements with any of
its named executive officers. The Company's stock option plan provides that in
the event a third party acquires the Company through the purchase of all or
substantially all of its assets, a merger or other business combination, if so
provided in applicable stock option agreements, the unexercised portion of
outstanding options will vest and become immediately exercisable. Only two of
the Company's officers have stock option agreements that contain change of
control provisions. David Bialer has a stock option agreement which provides for
the acceleration of vesting of 50% of any unvested portion of his options in the
event a third party acquires the Company. In addition, Brian V. Turner has a
stock option agreement pursuant to which his options are all immediately vested
but subject to repurchase by the Company over a period of four years from the
date of grant. Mr. Turner's option agreement also provides for the release of
50% of any unreleased portion of his options in the event a third party acquires
the Company. The Company does not have change of control arrangements with any
of the other named executive officers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's executive officers and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership on Form 3 and changes in
ownership on Form 4 and Form 5 with the SEC. Executive 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. Based solely in
its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that,
during fiscal 1999, it has complied with all filing requirements applicable to
its executive officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities with the exceptions of
the following, whose Forms 3 were not filed in a timely manner: Advent Atlantic
and Pacific III, L.P.; William T. Baxter; David J. Bialer; Jeffrey T. Chambers;
Albert T. Dosser; Encompass Europe, Inc.; Encompass Group US Information
Technology Partners I, LP; Peter R. Gregory; Scot E. Land; William L. Larson;
Northwest Financing, L.L.C.; TA/Advent VIII L.P.; TA Executives Fund L.L.C.; TA
Investors L.L.C.; TCI Club; Brian V. Turner; and Donald L. Whitt.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the Report of the Compensation Committee of the Company
describing the compensation policies and rationale applicable to the Company's
executive officers with respect to the compensation paid to such executive
officers for the year ended December 31, 1999. The information contained in the
report shall not be deemed to be "soliciting material" or to be "filed" with the
SEC and such information shall not be incorporated by reference into any future
filing under the Securities Act of 1933, as amended (the "Securities Act"), or
the Exchange Act except to the extent that the Company specifically incorporates
it by reference into such filing.
14
<PAGE> 17
During the fiscal year ended December 31, 1999, the Compensation Committee
of the Board of Directors was comprised of two non-employee directors. The
Compensation Committee of the Board of Directors establishes the general
compensation policies of the Company as well as the compensation plans and
specific compensation levels for executive officers. The Compensation Committee
seeks to provide the executive officers of the Company with competitive
compensation that enables the Company to attract and retain employees who
contribute to the success of the Company and maximize shareholder value.
Specifically for executive officers, compensation is determined according to the
criteria described below.
Compensation
The Compensation Committee establishes the salaries of the executive
officers by considering (i) the salaries of executive officers in similar
positions at comparably-sized peer companies, (ii) the Company's financial
performance over the past year based upon revenues and operating results and
(iii) the achievement of individual performance goals related to each executive
officer's duties and area of responsibility.
Equity-Based Compensation
The Compensation Committee views stock options as an important part of its
long-term, performance-based compensation program. The Compensation Committee
bases grants of stock options to the executive officers of the Company under the
stock option plan upon the Committee's estimation of each executive's
contribution to the long-term growth and profitability of the Company. The stock
option plan is intended to provide additional incentives to the executive
officers to maximize shareholder value. Options are generally granted under the
stock option plan at the then-current market price and are generally subject to
four-year vesting periods to encourage key employees to remain with the Company.
Compensation of the Chief Executive Officer
William T. Baxter, the Company's Chief Executive Officer, receives an
annual salary of $250,000. Mr. Baxter's annual salary was approved by the Board
of Directors by considering several factors including the attainment of
corporate revenue and operating results goals for the fiscal year, the Company's
progress in new product development and the contribution of the Chief Executive
Officer to the Company's strategic focus, market position and brand development.
No set formula is used for this determination, and no particular function is
weighted greater or lesser than the other.
Summary
The Compensation Committee believes that the Company's compensation
policies have been successful in attracting and retaining qualified employees
and in linking compensation directly to corporate performance relative to the
Company's goals. The Company's compensation policies will evolve over time as
the Company moves to attain the near-term goals it has set for itself while
maintaining its focus on building long-term shareholder value.
Members of the Compensation Committee:
Jeffrey T. Chambers
Scot E. Land
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 1999, Messrs. Chambers and Land served on the Company's
Compensation Committee. No interlocking relationship exists between any member
of the Company's Board of Directors or Compensation Committee and any member of
the Board of Directors or Compensation Committee of any other company, nor has
any such interlocking relationship existed in the past.
The Company has granted options to purchase Common Stock to Messrs.
Chambers and Land. Because of contractual obligations involving Mr. Chambers and
his affiliated investment entities, the option grant to Mr. Chambers was issued
in the name of TA Associates, Inc.
15
<PAGE> 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company granted options to purchase shares of Common Stock to the
following officers and directors on the date, for the number of shares and with
an exercise price indicated opposite each person's name:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING EXERCISE
NAME GRANT DATE OPTIONS PRICE
---- ---------- ---------------- --------
<S> <C> <C> <C>
David J. Bialer.......................... 9/25/98 100,000 $ 1.00
9/14/99 30,000 10.00
Jeffrey T. Chambers...................... 8/3/98 45,000 1.80
Scot E. Land............................. 8/3/98 45,000 1.80
10/15/99 40,000 12.00
William L. Larson........................ 7/20/98 120,000 1.80
David M. Moore........................... 10/29/99 35,000 39.56
Brian V. Turner.......................... 4/7/99 300,000 1.44
10/15/99 40,000 12.00
Donald L. Whitt.......................... 6/11/97 20,000 0.05
7/17/98 10,000 1.00
7/5/99 40,000 2.50
</TABLE>
Because of contractual obligations involving Mr. Chambers and his
affiliated investment entities, the option grant to Mr. Chambers was issued in
the name of TA Associates, Inc.
In September 1999, the Company sold 1,518,378 shares of Common Stock to
Vulcan Ventures for an aggregate purchase price of approximately $18.7 million.
In connection with its purchase of Common Stock, Vulcan Ventures received
piggy-back registration rights, and the Company may therefore become obligated
to register under the Securities Act shares of Common Stock held by Vulcan
Ventures. In addition, pursuant to the stock purchase agreement between the
Company and Vulcan Ventures, the Company has agreed to use its best efforts to
cause an individual selected by Vulcan Ventures and reasonably acceptable to the
Company to be elected to the Board of Directors.
16
<PAGE> 19
PERFORMANCE GRAPH
The graph below compares the annual percentage change in the cumulative
total return on the Common Stock with the Nasdaq Computer & Data Processing
Services Index and the Standard & Poors 500 Index for the period commencing
October 20, 1999, the first trading date following the effective date of the
Company's initial public offering, and ending December 31, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG BSQUARE CORPORATION,
NASDAQ COMPUTER & DATA PROCESSING SERVICES STOCKS INDEX AND
STANDARD & POORS 500 INDEX
<TABLE>
<CAPTION>
NASDAQ COMPUTER & STANDARD & POORS 500
BSQUARE CORPORATION DATA PROCESSING SERVICES INDEX
------------------- ------------------------ --------------------
<S> <C> <C> <C>
10/20/99 100.00 100.00 100.00
12/31/99 163.63 159.98 114.45
</TABLE>
Assumes that $100 was invested October 20, 1999 in the Company's Common
Stock and in each index, and that all dividends were reinvested. Shareholder
returns over the indicated period should not be considered indicative of future
returns.
TRANSACTION OF OTHER BUSINESS
The Board of Directors of the Company knows of no other matters to be
submitted at the meeting. If any other matters come before the meeting, it is
the intention of the persons named in the accompanying form of proxy to vote the
shares they represent as the Board of Directors may recommend.
By Order of the Board of Directors
LOGO
Brian V. Turner, Senior Vice President
of Operations,
Chief Financial Officer and Secretary
Bellevue, Washington
April 7, 2000
17
<PAGE> 20
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
BSQUARE CORPORATION
PROXY FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
MAY 2, 2000
The undersigned shareholder of BSQUARE CORPORATION (the "Company") hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement for the 2000 Annual Meeting of Shareholders of the Company to be
held on Tuesday, May 2, 2000 at 10:00 a.m., local time, at the Company's
offices located at 3150 139th Avenue S.E.,Bellevue, WA 98005, and hereby revokes
all previous proxies and appoints William T. Baxter or Brian V. Turner, or
either of them, with full power of substitution, Proxies and Attorneys-in-Fact,
on behalf and in the name of the undersigned, to vote and otherwise represent
all of the shares registered in the name of the undersigned at said Annual
Meeting, or any adjournment thereof, with the same effect as if the undersigned
were present and voting such shares, on the following matters and in the
following manner:
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND
DATE THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
(Continued and to be signed on other side)
FOLD AND DETACH HERE.
Please mark your [X] votes as indicated in this example
1. ELECTION OF DIRECTORS
Two Class I directors are to be elected at the Annual Meeting for a
one-year term ending 2001. Two Class II directors are to be elected at the
Annual Meeting for a two-year term ending in 2002. Two Class III directors
are to be elected for a three-year term ending in 2003. The Board of
Directors has nominated Scot E. Land and William L. Larson for election as
Class I directors. The Board of Directors has nominated Albert T. Dosser
and Jeffrey T. Chambers for election as Class II directors. The Board of
Directors has nominated William T. Baxter and David M. Moore for election
as Class III directors.
If you wish to withhold authority to vote for any individual nominee,
cross out that nominee's name in the list below:
Nominees: William T. Baxter
David M. Moore
Albert T. Dosser
Jeffrey T. Chambers
Scot E. Land
William L. Larson
FOR WITHHOLD AUTHORITY
all of the nominees listed to vote for all of the nominees
above (except those names listed above
that are crossed out)
[ ] [ ]
<PAGE> 21
2. Proposal to ratify and approve an amendment to the stock option plan to
annually increase the number of shares reserved for issuance during each of
the Company's fiscal years beginning on January 1, 2000 by an amount equal
to the lesser of (A) four percent (4%) of the Company's outstanding shares
at the end of such fiscal year and (B) an amount determined by the Board of
Directors.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to approve an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the number of authorized shares of
Common Stock from 50,000,000 shares to 150,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the Proxies
are entitled to vote upon such
other matters as may properly
come before the Annual Meeting
or any adjournments thereof.
THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED IN ACCORDANCE
WITH THE SPECIFICATIONS MADE. IF
NO SPECIFICATION IS MADE, THE
SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED FOR EACH OF THE
ABOVE PERSONS AND PROPOSALS, AND
FOR SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING
AS THE PROXYHOLDERS DEEM ADVISABLE.
Signature(s) Date , 2000
------------------------------------------ ---------------
(This proxy should be marked, dated and signed by each shareholder exactly as
such shareholder's name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. A
corporation is requested to sign its name by its President or other authorized
officer, with the office held designated. If shares are held by joint tenants
or as community property, both holders should sign.)
FOLD AND DETACH HERE.
