<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Filed by 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 ss. 240.14a-11(c) or ss. 240.14a-12
NETSOLVE, INCORPORATED
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(Name of Registrant as Specified in Its Charter)
NETSOLVE, INCORPORATED
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement
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:
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4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
5) Total fee paid:
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[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[NETSOLVE, INCORPORATED LOGO]
NETSOLVE, INCORPORATED
12331 Riata Trace Parkway
Austin, Texas 78727
(512) 340-3000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To our Stockholders:
On behalf of your board of directors and management, you are invited to
attend the 2000 annual meeting of stockholders of NetSolve, Incorporated. Our
meeting will be held at the Austin Marriott at the Capitol, 701 East 11/th/
Street, Austin, Texas on Tuesday, July 11, 2000, beginning at 10:30 a.m., local
time. At the meeting, stockholders will be asked to consider the following
matters, both of which are described in the accompanying proxy statement:
. To elect seven directors to serve until the next annual meeting of
stockholders
. To amend and reapprove our Long-Term Incentive Compensation Plan
You are entitled to vote at this meeting if you were a stockholder of
record at the close of business on May 15, 2000. The list of stockholders
entitled to vote will be available for inspection by any stockholder during the
ten days prior to July 11, 2000 at our offices located at 12331 Riata Trace
Parkway, Austin, Texas 78727.
Your vote is important to us. Whether or not you plan to attend the
meeting, please complete, date, sign and mail the enclosed proxy card promptly
in the return envelope provided.
BY ORDER OF THE BOARD OF DIRECTORS
Kenneth C. Kieley,
Vice President-Finance, Chief
Financial Officer and Secretary
Austin, Texas
May 30, 2000
<PAGE>
PROXY STATEMENT
--------------------------------------------------------------------------------
This proxy statement is being provided to you by the board of directors, or
Board, of NetSolve, Incorporated in connection with the solicitation of proxies
for use at our 2000 annual meeting of stockholders to be held on Tuesday, July
11, 2000, and any adjournment thereof. We are mailing this proxy statement and
the accompanying proxy card to stockholders beginning May 30, 2000.
Proposals to be Voted on and Voting Recommendation. There are two
--------------------------------------------------
proposals scheduled to be voted on at the meeting: (1) the election of
directors; and (2) amendment and reapproval of the Long-Term Incentive
Compensation Plan. Our Board recommends that you vote your shares "FOR" each of
the nominees to the Board and "FOR" Proposal No. 2.
Stockholders Entitled to Vote. Stockholders of record at the close of
-----------------------------
business on May 15, 2000, or record date, for the meeting, are entitled to
notice of and to vote at the meeting or any adjournment thereof. As of that
date, we had 14,465,076 shares of common stock, outstanding. You are entitled to
one vote for each share owned on the record date upon all matters to be
considered at the meeting.
Voting Your Shares. If the accompanying proxy card is properly signed and
------------------
returned to us, it will be voted as you direct. Unless you provide specific
voting instructions to the contrary, the persons designated as proxy holders in
the proxy card will vote your shares in accordance with the recommendations of
the Board. You may revoke your proxy at any time before it is voted at the
meeting by filing a written revocation or a duly executed proxy bearing a later
date with the Secretary of NetSolve at our principal executive office, 12331
Riata Trace Parkway, Austin, Texas 78727, or by attending the meeting and voting
in person. Attendance at the meeting will not, by itself, revoke a proxy.
Solicitation of Proxies. The enclosed proxy is solicited by and on behalf
-----------------------
of the Board. NetSolve will bear the entire cost of soliciting proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy card and any additional information furnished to stockholders. Copies
of solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their name shares of common stock
beneficially owned by others to forward to such beneficial owners.
Quorum and Votes Required for Approval. The presence at the meeting, in
--------------------------------------
person or by proxy, of the holders of a majority of the shares of common stock
outstanding and entitled to vote on the record date will constitute a quorum
entitled to conduct business at the meeting. Abstentions and broker non-votes
will be included in the calculation of the number of shares considered to be
present at the meeting. Broker non-votes refer to shares held by brokers and
other nominees or fiduciaries that are present at the meeting but not voted on a
matter. Directors are elected by plurality vote of the votes cast at the meeting
and the seven nominees who receive the highest number of votes will be elected.
The other proposal will require the affirmative vote of a majority of the shares
present, in person or represented by proxy, and entitled to vote. With respect
to the election of directors, abstentions and non-votes will have no effect. In
tabulating the votes for the amendment and reapproval of our Long-Term Incentive
Compensation Plan, abstentions will be treated as negative votes and broker non-
votes will have no effect on the outcome.
1
<PAGE>
STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
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The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of April 30, 2000 by our directors
and officers and the one stockholder we know to own beneficially more than five
percent of the outstanding shares of the common stock.
<TABLE>
<CAPTION>
Directors, Named Executive Officers Amount of Shares Options Included Percent
and all directors and executive officers Beneficially Owned within Shares Owned Owned
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C. Richard Kramlich 2,560,781 15,000 17.7%
Joel P. Adams 1,026,797 15,000 7.1%
Craig S. Tysdal 778,000 550,000 5.2%
John S. McCarthy 418,760 15,000 2.9%
J. Michael Gullard 363,564 215,000 1.9%
Kenneth C. Kieley 274,000 259,500 2.0%
Robert J. Pojman 185,600 180,000 1.3%
Christopher D. Buffum 141,300 140,000 *
Harry S. Budow 100,000 100,000 *
Howard D. Wolfe, Jr. 83,769 15,000 *
H. Leland Murphy 65,000 65,000 *
Suzanne C. Narducci 17,000 15,000 *
Directors and executive officers as a 6,105,571 1,669,000 37.9%
group (12 persons)
Other 5% Stockholders
-------------------------------------------------------------------------------------------------------------
New Enterprise Associates IV 2,523,109 ----- 17.5%
Limited Partnership
1119 St. Paul Street
Baltimore, MD 21202
</TABLE>
* Less than 1%
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except pursuant to applicable community
property laws or as indicated in the following paragraphs, to our knowledge,
each stockholder identified in the table possesses sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
that stockholder.
Several members of our board of directors are affiliated with some of our
stockholders and therefore are considered to have beneficial ownership of the
shares held by those particular stockholders. Each of the directors identified
below disclaims beneficial ownership of the shares held by the respective
affiliated stockholders, except with respect to any proportional pecuniary
interest therein.
C. Richard Kramlich. Of the 2,560,781 shares beneficially owned by Mr.
Kramlich, 2,523,109 are held by New Enterprise Associates IV, Limited
Partnership ("NEA IV"). Mr. Kramlich is the general partner of NEA Partners IV,
Limited Partnership ("NEA Partners"), and the general partner of NEA IV. He
shares voting and investment power with respect to shares held by NEA IV with
the other general partners of NEA.
2
<PAGE>
Joel P. Adams. Of the 1,024,768 shares beneficially owned by Mr. Adams,
672,820 shares are held by APA/Fostin Pennsylvania Venture Capital Fund and
333,835 shares are held by Fostin Capital Associates II. As to the shares held
by APA/Fostin Pennsylvania Venture Capital Fund, Mr. Adams shares voting and
investment power with Patvicof & Co. Ventures Inc. Mr. Adams serves as a general
partner to each of these entities.
John S. McCarthy. Of the 418,760 shares beneficially owned by Mr. McCarthy,
374,995 are held by Gateway Venture Partners III, L.P., of which Mr. McCarthy is
a general partner.
J. Michael Gullard. Of the 363,564 shares beneficially owned by Mr.
Gullard, 27,030 represents shares held by Cornerstone Ventures and Cornerstone
Ventures International CV., and 200,000 represents shares which may be acquired
within 60 days of June 30, 1999, upon the exercise of options held by these
entities. Mr. Gullard owns a majority interest of Cornerstone Management, a
general partner of both Cornerstone Ventures and Cornerstone Ventures
International C.V. Another 113,889 represent shares held by Cornerstone
Management and 3,645 shares are held by Cornerstone Management Profit Sharing
Plan, of which Mr. Gullard is a trustee and participant. In addition, these
shares include 3,000 shares held by the Gullard Family Trust, and 500 shares
held by each of Mr. Gullard's two children who reside with him. Mr. Gullard
expressly disclaims beneficial ownership with respect to the shares held by his
children.
Christopher D. Buffum. Of the 141,300 shares beneficially owned by Mr.
Buffum, 650 shares are held by a trust of which Mr. Buffum's spouse is a trustee
and beneficiary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, as amended, requires our executive
officers, directors and persons who beneficially own more than 10% of our common
stock to file reports of their ownership and changes in their ownership of our
common stock with the Securities and Exchange Commission. Our executive
officers, directors and ten percent stockholders became subject to these
requirements in September 1999.
Based solely on our review of the copies of these reports we received and
written representations from certain reporting persons, we believe that during
the 2000 fiscal year all of our executive officers, directors and ten percent
stockholders complied with all Section 16(a) filing requirements on a timely
basis, except that:
. Mr. Cheng filed a Form 4 in May 2000 relating to the exercise of an
option on September 28, 1999 to purchase 5,500 shares of our common
stock;
. Mr. Tysdal filed a Form 4 two days late relating to the exercise of
options in March 2000 to purchase 140,000 shares of our common stock;
. Messrs. Kieley and Tysdal each filed a Form 4 fourteen days late
relating to the exercise of options in January 2000 to purchase 1,000
and 100,000 shares, respectively;
. Messrs. Cheng, McCarthy and Pojman each filed a Form 4 in March 2000
relating to the September 29, 1999, purchase of 1,000, 5,000, and 650
shares of common stock, respectively;
. Mr. Buffum filed a Form 4 in March 2000, relating to his September 29,
1999, purchase of 650 shares of our common stock and the purchase of
650 shares of our common stock by a trust of which his spouse is the
trustee and beneficiary;
3
<PAGE>
. Mr. Gullard filed a Form 4 in March 2000 relating to his September 29,
1999, purchase of 3,000 shares of our common stock by a trust of which
he serves as trustee, and 500 shares of our common stock by each of
his two children; and
. Ms. Narducci filed a Form 4 in April 2000 relating to her purchase of
1,000 shares of our common stock in October 1999 and the purchase of
1,000 shares of common stock by her spouse on September 29, 1999.
THE BOARD OF DIRECTORS
--------------------------------------------------------------------------------
Board Meetings and Attendance. During the 2000 fiscal year, the board of
directors held four regular meetings and took action by unanimous written
consent in lieu of meetings on five occasions. Ms. Narducci attended 50% of the
total number of meetings of the Board during the 2000 fiscal year. All other
directors attended 100% of the total number of meetings of the Board and
Committees on which they served.
Committees. The Board has two standing committees, an audit committee and
a compensation committee. The following independent directors were members of
the respective committees during the past fiscal year:
Audit Committee Compensation Committee
--------------- ----------------------
C. Richard Kramlich (Chairman) J. Michael Gullard (Chairman)
John S. McCarthy Joel P. Adams
Howard D. Wolfe, Jr. H. Leland Murphy
The Audit Committee. The audit committee reviews the annual audit prepared
by our independent auditors. Its duties also include recommending to the Board
the appointment of the Company's principal independent auditors, reviewing the
organization and scope of the Company's internal system of audit and financial
controls, meeting with independent auditors to review the internal accounting
procedures and financial management practices, and performing any other duties
or functions deemed appropriate by the Board. The audit committee met one time
during the 2000 fiscal year.
The Compensation Committee. The compensation committee recommends to the
Board all aspects of compensation and benefits for executive officers, reviews
our general policies relating to the compensation and benefits of all employees
and administers our incentive compensation and stock option plans. The
compensation committee met four times during the 2000 fiscal year.
No compensation committee member is currently or has been an officer or
employee. No executive officer of the Company serves as a member of the board of
directors or compensation committee (or any entity serving an equivalent
function) of any other entity that has one or more executive officers serving on
our Board or compensation committee.
Director Compensation. Directors are entitled to receive cash compensation
in an amount equal to $2,000 for each Board meeting attended in person and $500
for each Board meeting attended by teleconference. Additionally, directors are
reimbursed for their reasonable expenses incurred in attending meetings of the
Board. Directors are eligible to participate in our 1988 Stock Option Plan and
Long-Term Incentive Compensation Plan.
4
<PAGE>
PROPOSALS BEFORE THE MEETING
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
---------------------
All of the following nominees, with the exception of G. Joseph Lueckenhoff,
have served as directors since the last annual meeting of stockholders and have
agreed to serve again, if elected. Management has no reason to believe that any
of the persons nominated will be unable or unwilling to serve; however, in the
event that one or more nominees are unable to accept election or if any other
unforeseen contingencies should arise, each proxy that does not direct otherwise
will be voted for the remaining nominees, if any, and for such other persons as
may be designated by the Board.
The names and ages of the nominees and information regarding their business
experience for at least the past five years is provided below.
J. Michael Gullard, age 55, is our chairman of the Board and has been one
of our directors since October 1992. He is a general partner of Cornerstone
Management, a venture capital firm that provides strategic focus and direction
for technology companies. Mr. Gullard is also the chairman of the board of
MERANT PLC, a developer of enterprise application system software, and a
director of JDA Software Group, Inc., a developer of software for the retail
industry.
Craig S. Tysdal, age 53, became our president and chief executive officer
and a member of our board of directors in September 1993. From May 1990 to March
1993, Mr. Tysdal was employed as senior vice president - worldwide sales at
Network Equipment Technologies, Inc., a worldwide supplier of WAN equipment. He
was also employed at Network Equipment Technologies, Inc. as its vice president-
product marketing from July 1989 to April 1990 and as its vice president --sales
from October 1986 to June 1989.
Joel P. Adams, age 42, has been a member of our board of directors since
December 1989. Mr. Adams has served as president of Adams Capital Management,
Inc. since 1994 (a national venture capital firm), and as general partner of
Fostin Capital Associates II since its inception in 1989 and the APA/Fostin Fund
since its inception in 1993. Each of these entities is a venture capital fund.
John S. McCarthy, age 51, has been a member of our board of directors since
August 1991. He has been the Managing General Partner of Gateway Associates,
L.P., a venture capital firm, since its inception in 1984. He is also a director
of several private companies including Digital Archaeology Corporation,
Intertech Management and Paylinx Corporation.
Suzanne C. Narducci, age 58, has been a member of our board of directors
since April 1999. She has been vice president for Service Provider Solutions
Integration and Alliances at Cisco Systems since February 1999. From July 1995
to February 1999, she held various positions at Cisco Systems, in which she was
responsible for sales and support to service providers within the continental
United States. Before joining Cisco, Ms. Narducci served as vice president of
sales and marketing at Eastern Telelogic, an access provider serving New Jersey,
Pennsylvania and Delaware from January 1993 to July 1995.
Howard D. Wolfe, Jr., age 59, has been a member of our board of directors
since October 1988. He has been the managing general partner of New Venture
Partners, L.P., New Venture Partners II, L.P., New Venture Partners III., L.P.
and New Venture Partners IV, L.P. all of which are venture capital firms, since
the inception of each firm. The initial firm, New Venture Partners, L.P. was
established in 1981.
G. Joseph Lueckenhoff, age 43, has been the vice president at Dell Computer
Corporation responsible for customer service and support since September 1999.
Before joining Dell, Mr. Lueckenhoff was the product management vice president
for AT&T in the Data Networking Division of Business Services.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
EACH DIRECTOR NOMINEE NAMED ABOVE.
5
<PAGE>
PROPOSAL NO. 2
AMENDMENT AND REAPPROVAL OF LONG-TERM INCENTIVE COMPENSATION PLAN
-----------------------------------------------------------------
The board of directors has unanimously approved, and recommends that you
consider and approve, an amendment to the Company's Long-Term Incentive
Compensation Plan. This amendment would increase the total number of shares of
common stock authorized for issuance under the Long-Term Incentive Compensation
Plan from 1,350,000 to 4,350,000 (an increase of 3,000,000 shares). The Board
adopted this amendment, and recommends its approval to the stockholders, to
ensure that we can continue to grant stock options to employees at levels
determined appropriate by the Board and compensation committee.
Regulations promulgated under Section 162(m) of the Internal Revenue Code
provide that, in order for the Company to continue to fully deduct for federal
income tax purposes compensation paid under the Long-Term Incentive Plan to its
most highly compensated officers, we must seek stockholder reapproval of the
Long-Term Incentive Plan following the initial public offering of our stock and,
thereafter, every five years.
Reapproval of the material terms of the Long-Term Incentive Plan, as
amended and summarized below, is being sought in order to comply with this
regulatory requirement. The Board and compensation committee believe the Long-
Term Incentive Plan is an effective tool in maintaining appropriate and
competitive compensation programs for our employees and the stockholders are
asked to reapprove the Long-Term Incentive Plan in order to permit the continued
federal income tax deduction of compensation provided under it to the full
extent permitted under the Internal Revenue Code.
Long-Term Incentive Compensation Plan, as Amended. Our Long-Term Incentive
Compensation Plan, or Long-Term Incentive Plan, was adopted by the Board and
approved by the stockholders in July 1997. It is administered by the
compensation committee. The purpose of the Long-Term Incentive Plan is to assist
us in attracting, retaining and motivating executive officers, key employees and
directors and consultants who are essential to our success, through performance-
related incentives linked to long-range performance goals. Performance goals
under the Long-Term Incentive Plan may be based on individual performance of the
particular employee and/or include criteria such as absolute or relative levels
of total stockholder return, revenues, sales, net income or net worth of our
Company or any of our subsidiaries, divisions, business units or other areas,
all as the compensation committee may determine.
The Long-Term Incentive Plan is a comprehensive, stock-based incentive
compensation plan, providing for discretionary awards of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted
stock, restricted stock units, performance shares, performance units, bonus
stock and other stock-based awards. All awards under the Long-Term Incentive
Plan are made in, or based on the value of, our common stock.
Our full-time employees, directors, and consultants are eligible to
participate in, and receive awards under, the Long-Term Incentive Plan. The
selection of participants under the Long-Term Incentive Plan, as well as all
terms, conditions, performance criteria and restrictions applicable to each
award, are determined by the compensation committee in its sole discretion.
The maximum number of shares of common stock for which awards may be
granted under the Long-Term Incentive Plan is 4,350,000, as amended, subject to
adjustment in the event of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, or other similar event. Shares
subject to previously canceled, lapsed, forfeited or repurchased awards, or
awards paid in cash, may be reissued under the Long-Term Incentive Plan. The
shares to be issued under the Long-Term Incentive Plan may consist of authorized
but unissued shares, shares issued and reacquired by us or shares purchased in
the open market.
6
<PAGE>
Federal Tax Considerations. We expect that awards made under the Long-Term
Incentive Plan will be fully deductible for federal income tax purposes. In this
connection, because we have become subject to Section 162(m) of the Internal
Revenue Code, which limits the deductions for awards to certain covered
participants, performance-based compensation that can be provided to any covered
participant in any year will be limited to stock options for up to 100,000
shares. No other types of awards may be made under the Long-Term Incentive Plan
to covered participants. As required by Section 162(m), the Long-Term Incentive
Plan is being submitted to the annual meeting for reapproval by the
stockholders. It is important to note that, other than increasing the maximum
number of shares, the principal terms of the Plan will remain unchanged. The
reapproval is being requested to comply with the Internal Revenue Code.
Outstanding Options. As of March 31, 2000, options covering an aggregate
of 1,121,382 shares of common stock had been granted under the Long-Term
Incentive Plan at exercise prices ranging from $2.80 to $33.25. Each of these
options has a term of ten years and may be exercised at any time during its
term. The exercise price may be paid in cash or shares of common stock already
held by the exercising participant, or a combination of cash and shares. Each
option vests over a four-year period, with twenty-five percent vesting after one
year from the grant date and one-sixteenth of the total amount vesting in each
subsequent calendar quarter. The unvested portion of any exercised options are
subject to our repurchase right upon termination of employment.
Amendment or Termination. The Long-Term Incentive Plan may be amended,
modified, suspended or terminated by the board of directors at any time. No
amendment is effective prior to approval of the stockholders to the extent that
approval is necessary to comply with any legal requirement. If not earlier
terminated, the Long-Term Incentive Plan will terminate on December 31, 2006.
Stock Options. The Long-Term Incentive Plan authorizes:
. the grant of options to purchase common stock intended to qualify as
incentive stock options under Section 422(b) of the Internal Revenue
Code of 1986, or incentive options; and
. the grant of options that do not so qualify, or nonqualified options.
The number of shares and other terms of each grant are determined by the
compensation committee. The exercise price of incentive options granted under
the Long-Term Incentive Plan must be at least equal to the fair market value of
the common stock on the date of grant. The exercise price of incentive options
granted to an optionee who owns stock possessing more than 10% of the voting
power of our outstanding capital stock must equal at least 110% of the fair
market value of the common stock on the grant date. The exercise price of non-
qualified options granted under the Long-Term Incentive Plan must not be less
than 50% of the fair market value of the common stock on the grant date.
Incentive options may be granted under the Long-Term Incentive Plan to
employees, including officers and directors who are also employees. Non-
qualified options may be granted under the Long-Term Incentive Plan to
employees, officers, consultants and directors, whether or not they are our
employees. The exercise price for options granted under the Long-Term Incentive
Plan may be paid in cash or with shares of common stock. Options granted under
the Long-Term Incentive Plan may remain outstanding for no more than ten years.
Stock Appreciation Rights. Stock appreciation rights, or SARs, entitle the
participant to receive, upon exercise of the SAR, cash or, at the election of
the administrator, shares of common stock or a combination thereof, in an amount
equal to the difference between the SAR exercise price and the fair market value
of the shares of common stock subject to the SAR. SARs may be granted to
participants under the Long-Term Incentive Plan on a freestanding basis or in
tandem with a stock option. The exercise price of SARs will not be less than
100% of the fair market value of the common stock on the date of grant. SARs
granted under the Long-Term Incentive Plan will not be exercisable until at
least six months following the
7
<PAGE>
date of grant and no later than ten years thereafter. Incentive options and SARs
may not be transferred other than by will or the laws of descent and
distribution.
Stock and Stock Unit Awards. The Long-Term Incentive Plan also provides
for the granting of restricted stock, restricted stock units, performance shares
and performance stock units, bonus stock and other stock-based awards. The
number of shares or units and all terms and conditions, including the
restriction period, performance criteria and other restrictions and conditions
applicable to each stock-based award, are determined by the compensation
committee. During the restriction period, participants may exercise full voting
rights, and are entitled to receive all dividends and other distributions paid,
with respect to restricted stock they have been granted, provided that stock
dividends, if any, remain subject to the same restrictions as the underlying
stock. Payment to the participant may be in shares of common stock or cash, or a
combination thereof, and in a lump sum or installments, all as determined by the
compensation committee. Shares of common stock may also be awarded to
participants under the Long-Term Incentive Plan as a bonus. These shares may be
granted with or without restrictions. Shares awarded subject to performance
criteria or other restrictions which are not satisfied, are forfeited and must
be returned to us. In addition to the foregoing types of awards, the Long-Term
Incentive Plan permits the compensation committee to grant any other stock-based
award as the administrator may determine. These stock-based awards may be in the
form of common stock or other securities, the value of which is based, in whole
or in part, on the value of common stock on the award date.
Acceleration of Vesting Upon Change in Control. In the event of a change
in control of our Company, all outstanding stock options and SARs would
immediately become fully vested, and all restrictions and performance criteria
relating to all outstanding awards would be deemed to have been fully satisfied,
unless the transaction or event constituting the change in control was approved
in advance by a majority of the board of directors. Under the terms of the Long-
Term Incentive Plan, a change in control occurs if:
. any person becomes the beneficial owner of 20% or more of our voting
securities;
. we are involved in a merger, acquisition or similar transaction
pursuant to which our directors immediately before the transaction
cease to constitute a majority of our directors after the transaction;
or
. we are involved in a transaction pursuant to which we are not the
surviving corporation, our common stock is exchanged for, or converted
into, securities of another entity, we become a subsidiary of another
entity, or 50% or more of our aggregate assets or earning power are
sold to another entity.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" THE AMENDMENT TO AND REAPPROVAL OF OUR LONG-TERM
INCENTIVE COMPENSATION PLAN.
8
<PAGE>
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
The following table sets forth the total compensation earned during the
three most recent fiscal years by our chief executive officer and four other
executive officers whose bonus and salary exceeded $100,000. We refer to these
individuals collectively as the Named Executive Officers.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------------------------------
Name and Principal Other Annual Securities All Other
Position Year Salary ($) Bonus ($) Compensation ($) Underlying (#) Compensation ($)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Craig S. Tysdal, President 2000 200,000 2,817 ----- ----- -----
and Chief Executive Officer
1999 189,583 1,746 ----- 200,000 -----
1998 175,000 6,719 ----- ----- -----
-------------------------------------------------------------------------------------------------------
Robert J. Pojman, Vice 2000 175,000 10,650 ----- 20,000 -----
President - Operations
1999 153,029 1,746 ----- 50,000 -----
1998 150,000 5,399 65,927 ----- -----
-------------------------------------------------------------------------------------------------------
Christopher D. Buffum, Vice 2000 150,000 63,075 ----- 20,000 -----
President - Sales
1999 150,000 70,896 ----- ----- -----
-------------------------------------------------------------------------------------------------------
Kenneth C. Kieley, Vice 2000 146,250 4,617 ----- ----- 1,247
President - Finance, Chief
Financial Officer and 1999 133,333 1,070 ----- 50,000 1,247
Secretary
1998 115,000 23,169 ----- ----- 1,247
-------------------------------------------------------------------------------------------------------
Harry S. Budow, Vice 2000 143,981 75,549 ----- 100,000 -----
President - Marketing -------------------------------------------------------------------------------------------------------
</TABLE>
Of the $63,075 reflected as a bonus for Mr. Buffum during fiscal year 2000,
$60,587 consisted of sales commissions and $2,488 consisted of his award under
our bonus program.
The amount included as other compensation paid to Mr. Kieley in fiscal year
2000 represents a reimbursement for long-term disability insurance premiums.
Mr. Budow accepted the position of our vice president - marketing
commencing in July 1999 with an initial base salary of $200,000 per year. Of the
$75,549 reflected as a bonus for Mr. Budow during fiscal year 2000, $74,608
consisted of reimbursement for relocation expenses and $941 consisted of his
award under our bonus program.
Long Term Compensation Awards. Amounts reported as Long-Term Compensation
in the Summary Compensation Table are attributable to the named officer's
participation in the Long-Term Incentive Plan and the Company's 1988 Stock
Option Plan. The Long-Term Incentive Plan is a comprehensive stock-based
incentive compensation plan providing for discretionary grants of common stock-
based awards, including incentive stock options and nonqualified stock options.
A summary of the proposed amendment and
9
<PAGE>
reapproval, and the material terms of the Long-Term Incentive Plan are contained
on pages 6 through 8 of this proxy statement.
401(k) Retirement Plan. In 1988, we established a 401(k) defined
contribution retirement plan, or Retirement Plan, covering all employees who are
at least 21 years of age and meet certain service requirements. In 1997, the
Retirement Plan was amended to eliminate any service eligibility requirement so
that employees who otherwise met the eligibility criteria could commence
participation upon being hired by us. The Retirement Plan provides for
voluntary, pre-tax employee contributions in amounts determined by the
employees, subject to a maximum limit allowed by Internal Revenue Service
guidelines. For 2000, this limit is $10,500. We may contribute certain amounts
to the accounts of Retirement Plan participants as determined in the discretion
the board of directors. To date, the Company has not made any contribution to
the Retirement Plan, and we do not anticipate making any contribution to the
Retirement Plan in the foreseeable future. We may amend or terminate the
Retirement Plan at any time.
Bonus Plan. In July 1998, we adopted a bonus plan pursuant to which
selected employees are eligible to receive cash bonuses on a quarterly basis
beginning with the quarter ended September 30, 1998 if, during such quarter, we
meet certain financial performance objectives established from time to time by
us. We may amend or terminate the bonus plan at any time.
Option Grants. The following table provides certain summary information
concerning the shares of common stock represented by stock options granted to
each of the Named Executive Officers during our 2000 fiscal year.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------
Number of Potential realizable value at
Securities Percentage of Total assumed annual rates of stock
Underlying Options Granted to price appreciation for option
Option Employees in Fiscal Exercise term
Granted (#) Year Price ($/sh) Expiration Date 5% ($) 10% ($)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Craig S. Tysdal -- -- -- -- -- --
Robert J. Pojman 20,000 3% 19.13 10/21/2009 240,552 609,606
Christopher J. Buffum 20,000 3% 19.13 10/21/2009 240,552 609,606
Kenneth C. Kieley -- -- -- -- -- --
Harry S. Budow 100,000 15% 9.00 06/21/2009 566,005 1,434,368
</TABLE>
All options were granted at their fair market value on the date of grant
and may be exercised at any time during the term of the option. Each option
vests over a four-year period with one-fourth of the total amount vesting one
year from the date of grant and one-sixteenth of the total amount vesting in
each calendar quarter remaining. The unvested portion of any previously
exercised option is subject to our repurchase right upon termination of the
executive's employment.
Under the terms of our Long-Term Incentive Plan, the board of directors
retains discretion, subject to certain limitations provided for in the plan, to
modify the terms of outstanding options. All options were granted for a term of
10 years, subject to earlier termination in certain events related to
termination of employment. The exercise price for all options may be paid in
cash or shares of our common stock or a combination for cash and shares.
10
<PAGE>
Fiscal 2000 Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options Options at March 31,
at March 31, 2000 (#) 2000 ($)
------------------------------- --------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Craig S. Tysdal 240,000 8,475,750 421,877 128,123 12,762,916 3,269,584
Robert C. Pojman 10,000 417,750 98,752 81,248 2,966,565 1,940,385
Christopher J. Buffum -- -- 60,000 80,000 1,767,000 2,029,500
Kenneth C. Kieley 6,000 89,300 245,750 33,750 7,628,263 848,813
Harry S. Budow -- -- -- 100,000 -0- 2,325,000
</TABLE>
Under our plan, the options granted are exercisable at any time, but the
unvested portion of any exercised options are subject to our repurchase right
upon termination of employment. For purposes of this table, those options still
subject to repurchase rights are identified as unexercisable.
The potential realizable values and the values of unexercised in-the-money
options in the tables have been calculated by determining the difference between
the fair market value of the common stock as of March 31, 2000, of $32.25 per
share, and the per share exercise prices of the options.
COMPENSATION COMMITTEE REPORT
--------------------------------------------------------------------------------
The compensation committee of the Board reviews and establishes the
executive officer compensation and administers the incentive compensation and
stock option plans for all employees. The compensation committee consists
entirely of directors who are not employees of the Company. The compensation
committee directed the preparation of this report and approved it for submission
to the stockholders in this proxy statement.
Compensation Philosophies. The compensation committee believes that
executive compensation should be based upon the performance of the Company and
its officers generally and should be in line with the Company's business
objectives. The Company's aim is to attract, retain and reward executive
officers and other key employees who contribute to the success of the Company
and to motivate those individuals to achieve both long-term and short-term
objectives. In keeping with this philosophy, the compensation committee adopted
an overall compensation program comprised of base salary, bonus and stock option
awards designed to achieve an appropriate and competitive balance between salary
and performance-based incentives. In establishing compensation packages, the
compensation committee considers the salaries and bonus programs paid by
competitors in its industry, as well as general economic conditions.
Base Salary. Each executive officer's base salary is reviewed on an annual
basis and reflects individual and corporate performance, as well as level of
responsibility.
Bonus. In July 1998, the Company adopted a bonus plan pursuant to which
all employees, including the executive officers, are eligible to receive cash
bonuses on a quarterly basis if, during such quarter, the Company meets certain
financial performance objectives which we establish from time to time.
Long-Term Incentives. Under the Company's Long-Term Incentive Plan,
employees, including executive officers, are eligible to receive a variety of
discretionary awards, including incentive stock options, nonqualified stock
options and other stock-based awards. Through option grants and other stock
awards, executives receive significant equity incentives and are encouraged to
build stockholder value. It is anticipated that performance-based incentive
awards will continue to comprise a significant portion of executives' total
compensation.
11
<PAGE>
In granting stock options to executive officers and all employees under the
Company's Long-Term Incentive Plan, the timing of the grants and the size and
allocation of the overall option pools are determined by the compensation
committee upon consideration of market conditions, as well as individual and
company performance and the current equity position of the employee. During the
2000 fiscal year, options were granted to three of our officers, Messrs. Buffum,
Cheng and Pojman, covering 20,000, 40,000 and 20,000, respectively. In
connection with Mr. Budow's acceptance of employment in July 1999, Mr. Budow was
granted an option covering 100,000 shares. No other executive officer of the
Company was granted a stock option during the 2000 fiscal year.
Certain Tax Considerations. Section 162(m) of the Internal Revenue Code,
or Code limits the deductibility of compensation which a publicly traded
corporation provides to its most highly compensated officers. Compensation above
$1 million may be deducted if it is "qualified performance-based compensation,"
as defined in the Code. As a general policy, the Company does not intend to
provide compensation which is not deductible for federal income tax purposes.
Compensation of Chief Executive Officer. In September 1998, the
compensation committee increased Mr. Tysdal's salary as President and Chief
Executive Officer to an annual rate of $200,000 for the remainder of the 1999
fiscal year and the entire 2000 fiscal year. This increase represents a
difference of $25,000 or approximately 14% over the annual rate of $175,000
received by Mr. Tysdal during the prior fiscal year. Mr. Tysdal also received an
annual bonus of $2,817 under the Company's bonus program which provides for an
equal award to all employees based on the Company's profits for the 2000 fiscal
year, compared to Mr. Tysdal's annual bonus of $1,746 during the 1999 fiscal
year. Mr. Tysdal's salary is comparable to the average salary of the chief
executive officers of competitors within the Company's industry.
COMPENSATION COMMITTEE
J. Michael Gullard, Chairman
Joel P. Adams
H. Leland Murphy
12
<PAGE>
STOCK PERFORMANCE GRAPH
--------------------------------------------------------------------------------
The following line graph compares the total stockholder return (stock price
growth) of the common stock from September 29, 1999 through March 31, 2000, with
the total stockholder return for the same period of a peer group index. The
graph assumes an investment of $100 in the common stock and each index on
September 29, 1999. The Company notes that the Company's initial public offering
occurred on September 29, 1999 and that the initial offering price of $13.00 was
used as the beginning price for the Company's stock price on the performance
graph.
[PERFORMANCE GRAPH]
The stockholder returns shown are neither determinative nor indicative of
future performance.
September 29, 1999 March 31, 2000
---------------------------------------------------------
NetSolve, Incorporated 100.00 181.69
Nasdaq Computers and 100.00 165.93
Data Processing Index
Nasdaq US Composite 100.00 165.69
Index
13
<PAGE>
OTHER BUSINESS
--------------------------------------------------------------------------------
Other than as stated herein, the board of directors does not intend to
bring any business before the annual meeting and it has not been informed of any
matters that may be presented to the annual meeting by others. However, if any
other matters properly come before the annual meeting, it is the intent of the
board of directors that the persons named in the proxy will vote pursuant to the
proxy in accordance with their judgment in such matters.
Auditors. The Board has selected Ernst & Young LLP, Independent Auditors,
as independent auditors for the Company for the fiscal year ending March 31,
2001. Representatives of Ernst & Young LLP are expected to be present at the
meeting with the opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Voting Upon Matters Unknown to Company at the Time the 2001 Proxy Statement
is Mailed. The rules of the Securities and Exchange Commission allow the Company
to use discretionary voting authority to vote on any matter coming before the
2001 annual meeting of stockholders that is not included in the proxy statement
for that meeting if the Company did not have notice of the matter by April 4,
2001.
Stockholder Proposals for 2001 Annual Meeting of Stockholders. If you wish
to present a proposal for consideration at the Company's 2001 annual meeting of
stockholders and to be included in the Company's proxy statement and form of
proxy for such annual meeting, you may do so by following the procedures
prescribed in Rule 14a-8 under the Securities Exchange Act of 1934. To be
eligible for inclusion, your proposal must be received by the Company's
Corporate Secretary no later than January 31, 2001.
BY ORDER OF THE BOARD OF DIRECTORS
Kenneth C. Kieley,
Vice President-Finance, Chief
Financial Officer and Secretary
Austin, Texas
May 30, 2000
14
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
NETSOLVE, INCORPORATED
July 11, 2000
<TABLE>
<CAPTION>
Please Detach and Mail in the Envelope Provided
A [ X ] Please mark your
votes as in this
example.
FOR all nominees WITHHOLD
listed to the right AUTHORITY to
(except as marked to vote for all nominees
the contrary) listed at right
<S> <C> <C> <C> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
1. ELECTION Nominees: J. Michael Gullard 2. PROPOSAL TO AMEND AND [ ] [ ] [ ]
OF [ ] [ ] REAPPROVE THE COMPANY'S
DIRECTORS Craig S. Tysdal LONG-TERM INCENTIVE
COMPENSATION PLAN
Joel P. Adams
INSTRUCTION: To withhold authority to vote John S. McCarthy
for any individual nominee, write that 3. IN THE DISCRETION OF THE PROXIES ON ANY OTHER
nominee's name on the line below: Suzanne C. Narducci MATTER THAT MAY PROPERLY COME BEFORE THE
MEETING.
------------------------------------------- Howard D. Wolfe, Jr.
The undersigned acknowledges receipt of the Notice
G. Joseph of Annual Meeting of Stockholders and Proxy
Lueckenhoff Statement dated May 23, 2000.
PLEASE DATE, SIGN AND MAIL THIS PROXY CARD IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES.
Dated: , 2000
------------------------------------------------- ------------------------------------------------- -------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Note: Please date this proxy and sign your name exactly as it appears hereon. When there is more than one owner, each should sign.
When signing as an attorney, administrator, executor, guardian or trustee please add your title as such. If executed by a
corporation the proxy should be signed by a duly authorized officer.
</TABLE>
<PAGE>
XXXX
PROXY
NETSOLVE, INCORPORATED
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Craig S. Tysdal and Kenneth C. Kieley, and
each of them severally, as their proxies with full power of substitution and
resubstitution for and in the name, place and stead of the undersigned to vote
upon and act with respect to all of the shares of Common Stock of the Company
standing in the name of the undersigned, or with respect to which the
undersigned is entitled to vote and act, as the meeting to be held on July 11,
2000 or any adjournment(s) thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR EACH OF THE LISTED NOMINEES FOR DIRECTOR AND FOR
PROPOSAL 2. If more than one of the proxies named shall be present in person or
by substitution at the meeting or at any adjournment thereof, the majority of
the proxies so present and voting, either in person or by substitute, shall
exercise all of the powers hereby given.
(Continued on reverse side)
