<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
SILKNET SOFTWARE, INC.
(Name of Registrant as Specified In Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
SILKNET SOFTWARE, INC.
THE GATEWAY BUILDING
50 PHILLIPPE COTE STREET
MANCHESTER, NH 03101
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 12, 1999
To the Stockholders of Silknet Software, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of Silknet
Software, Inc., a Delaware corporation (the "Company"), will be held at 10:00
a.m., local time, on Friday, November 12, 1999, at the offices of Testa, Hurwitz
& Thibeault, LLP, 125 High Street, High Street Tower, Boston, Massachusetts
02110, to consider and act upon the following proposals:
1. To elect a Board of Directors for the ensuing year.
2. To ratify the selection of the firm of PricewaterhouseCoopers LLP,
independent public accountants, as auditors for the fiscal year ending
June 30, 2000.
3. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
Only stockholders of record at the close of business on September 27, 1999
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person. To
ensure your representation at the meeting, however, you are urged to mark, sign,
date and return the enclosed proxy card as promptly as possible in the enclosed
postage-prepaid envelope. You may revoke your proxy in the manner described in
the accompanying Proxy Statement at any time before it has been voted at the
Annual Meeting. Any stockholder attending the Annual Meeting may vote in person
even if he or she has returned a proxy.
By Order of the Board of Directors,
Patrick J. Scannell, Jr.
Secretary
Manchester, New Hampshire
October 8, 1999
<PAGE> 3
SILKNET SOFTWARE, INC.
THE GATEWAY BUILDING
50 PHILLIPPE COTE STREET
MANCHESTER, NH 03101
PROXY STATEMENT
October 8, 1999
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Silknet Software, Inc., a Delaware
corporation (the "Company"), for use at the Annual Meeting of the Company's
stockholders to be held on Friday, November 12, 1999 (the "Annual Meeting") at
10:00 a.m., local time, at the offices of Testa, Hurwitz & Thibeault, LLP, 125
High Street, High Street Tower, Boston, Massachusetts 02110, or at any
adjournments thereof. The Company's Annual Report, which includes financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations for the fiscal year ended June 30, 1999, is being mailed
together with this Proxy Statement to all stockholders entitled to vote at the
Annual Meeting. This Proxy Statement and form of proxy will be mailed to
stockholders on or about October 8, 1999.
Only stockholders of record at the close of business on September 27, 1999
(the "Record Date") will be entitled to notice of, and to vote at, the Annual
Meeting or an adjournment thereof. As of the Record Date, an aggregate of
15,600,647 shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company were issued and outstanding. The holders of Common Stock
are entitled to one vote per share on any proposal presented at the Annual
Meeting. Stockholders may vote in person or by proxy. Execution of a proxy will
not in any way affect a stockholder's right to attend the Annual Meeting and
vote in person. Any proxy may be revoked by the person giving it at any time
before its exercise by (1) filing with the Secretary of the Company, before the
taking of the vote at the Annual Meeting, a written notice of revocation bearing
a later date than the proxy, (2) duly executing a later dated proxy relating to
the same shares and delivering it to the Secretary of the Company before the
taking of the vote at the Annual Meeting or (3) attending the Annual Meeting and
voting in person (although attendance at the Annual Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Silknet Software, Inc.,
The Gateway Building, 50 Phillippe Cote Street, Manchester, NH 03101, Attention:
Secretary, at or before the taking of the vote at the Annual Meeting.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to establish a quorum for the transaction of business at the Annual
Meeting. Votes withheld from any nominee for director, abstentions and broker
"non-votes" are counted as present or represented for purposes of determining
the presence or absence of a quorum. A "non-vote" occurs when a broker holding
shares for a beneficial owner votes on one proposal, but does not vote on
another proposal because, in respect of such other proposal, the broker does not
have discretionary voting power and has not received instructions from the
beneficial owner.
The election of directors by the stockholders shall be determined by a
plurality of the votes cast by stockholders entitled to vote. On all other
matters being submitted to stockholders, the affirmative vote of a majority of
shares present, in person or represented by proxy, and voting on each such
matter is required for approval. An automated system administered by the
Company's transfer agent tabulates the votes. The vote on each matter submitted
to stockholders is tabulated separately. Abstentions are included in the number
of shares present or represented and voting on each matter. Broker "non-votes"
are not considered voted for the particular matter and have the effect of
reducing the number of affirmative votes required to achieve a majority for such
matter by reducing the total number of shares from which the majority is
calculated.
The persons named as attorneys-in-fact in the proxy card were selected by
the Board of Directors and are officers and/or directors of the Company. All
properly executed proxies returned in time to be counted at the Annual Meeting
will be voted. Any stockholder giving a proxy has the right to withhold
authority to vote for any individual nominee to the Board of Directors by
writing that nominee's name in the space provided on the
<PAGE> 4
proxy. In addition to the election of directors, the stockholders will consider
and vote upon a proposal to ratify the selection of auditors, all as further
described in this Proxy Statement. ALL SHARES REPRESENTED BY PROXIES WILL BE
VOTED IN ACCORDANCE WITH THE STOCKHOLDERS' INSTRUCTIONS, AND IF NO CHOICE IS
SPECIFIED, THE SHARES REPRESENTED BY PROXIES WILL BE VOTED IN FAVOR OF THE
MATTERS SET FORTH IN THE ACCOMPANYING NOTICE OF ANNUAL MEETING.
The Board of Directors knows of no other matter to be presented at the
Annual Meeting. If any other matter should be presented at the meeting upon
which a vote may properly be taken, shares represented by all proxies received
by the Board of Directors will be voted with respect thereto in accordance with
the judgment of the persons named as attorneys in the proxies.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date: (i) the name of each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) the name of each director or nominee
for director of the Company; (iii) the name of each executive officer of the
Company named in the Summary Compensation Table set forth below; and (iv) the
number of shares beneficially owned by each such person and all directors,
nominees for director and executive officers of the Company as a group and the
percentage of the outstanding shares represented thereby.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF PERCENT
OF BENEFICIAL OWNER(1) OWNERSHIP(2) OF CLASS(3)
- ---------------------- ------------ -----------
<S> <C> <C>
CMG @Ventures II LLC........................................ 2,835,876 18.09%
c/o CMG Information Services, Inc.
100 Brickstone Square, 5th Floor
Andover, MA 01810
Zero Stage Capital V, L.P................................... 1,952,108 12.26%
101 Main Street
Kendall Square
Cambridge, MA 02142
BancBoston Ventures Inc..................................... 1,944,605 12.27%
175 Federal Street
10th Floor
Boston, MA 02110
The Vertex entities(4)...................................... 1,028,802 6.55%
Three Lagoon Drive, Ste. 220
Redwood City, CA 94065
James C. Wood(5)............................................ 1,865,350 11.96%
Guy Bradley(6).............................................. 2,845,876 18.16%
Joo Hock Chua............................................... -- --
Stanley Fung(7)............................................. 1,955,047 12.28%
Andrew Goldfarb............................................. -- --
Nigel K. Donovan(8)......................................... 475,587 *
Patrick J. Scannell, Jr(9).................................. 37,375 *
All directors and executive officers as a group (7
persons)(10).............................................. 6,784,055 42.19%
</TABLE>
- ---------------
* Less than one percent of the outstanding Common Stock.
(1) Unless otherwise indicated, the address for each beneficial owner is c/o
Silknet Software, Inc., The Gateway Building, 50 Phillippe Cote Street,
Manchester, NH 03101.
(2) The persons named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them, except as noted
in the footnotes below.
2
<PAGE> 5
(3) Applicable percentage ownership as of the Record Date is based upon
15,600,647 shares of Common Stock outstanding. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares.
Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days after the Record Date ("presently exercisable
stock options") are deemed outstanding for computing the percentage
ownership of the person holding such options, but are not deemed
outstanding for computing the percentage ownership of any other person.
(4) Includes 400,000 shares held by Vertex Investment (II) Ltd., 100,000 shares
held by HWH Investment Pte Ltd and 428,802 shares held by Vertex Technology
Fund Pte Ltd. Also includes 80,000 and 20,000 shares of common stock
issuable upon exercise of warrants held by Vertex Investment (II) Ltd. and
HWH Investment Pte Ltd. Vertex Management (II) Pte Ltd., of which Mr. Chua
is Vice President/ Assistant General Manager, is the investment manager of
the Vertex entities and may be deemed to share voting and investment power
with respect to all shares held by the Vertex entities.
(5) Includes 200,000 shares held by the James C. Wood Grantor Retained Annuity
Trust, an aggregate of 20,000 shares held in trust for Mr. Donovan's two
children and an aggregate of 7,500 shares held in trust for the three
children of Mr. James P. Davis. Mr. Wood disclaims beneficial ownership of
all shares held in trust for the children of Messrs. Donovan and Davis.
Excludes 25,000 shares issuable pursuant to stock options that are not
presently exercisable.
(6) Includes 2,761,536 shares held by CMG @Ventures II LLC. Also includes
74,340 shares of common stock issuable upon exercise of warrants held by
CMG @Ventures II LLC. Mr. Bradley is a managing member of CMG @Ventures II
LLC and may be deemed to share voting and investment power with respect to
all shares held by CMG @Ventures II LLC. Mr. Bradley disclaims beneficial
ownership of such shares. Excludes 10,000 shares issuable pursuant to stock
options that are not presently exercisable.
(7) Includes 1,627,768 shares held by Zero Stage Capital V, L.P. Also includes
324,340 shares of common stock issuable upon exercise of warrants held by
Zero Stage Capital V, L.P. Mr. Fung is a managing partner of Zero Stage
Capital V, L.P. and may be deemed to share voting and investment power with
respect to all shares held by Zero Stage Capital V, L.P. Mr. Fung disclaims
beneficial ownership of such shares. Excludes 10,000 shares issuable
pursuant to stock options that are not presently exercisable.
(8) Includes 445,587 shares issuable pursuant to presently exercisable stock
options. Excludes 59,063 shares issuable pursuant to stock options that are
not presently exercisable.
(9) Includes 34,375 shares issuable pursuant to presently exercisable stock
options. Excludes 140,625 shares issuable pursuant to stock options that
are not presently exercisable.
(10) See Notes 5 through 9.
3
<PAGE> 6
PROPOSAL 1
ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office until the
next annual meeting of stockholders and until their successors shall have been
elected and shall have qualified. Shares represented by all proxies received by
the Board of Directors and not so marked as to withhold authority to vote for
any individual director or for all directors will be voted (unless one or more
nominees are unable to serve) for the election of the nominees named below.
The Board of Directors knows of no reason why any such nominee should be
unable or unwilling to serve, but if such should be the case, proxies will be
voted for the election of some other person or for fixing the number of
directors at a lesser number.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR " THE NOMINEES LISTED BELOW
<TABLE>
<CAPTION>
DIRECTOR'S NAME AND YEAR POSITION(S) WITH
DIRECTOR FIRST BECAME A DIRECTOR THE COMPANY
- -------------------------------- ----------------
<S> <C>
James C. Wood (1995)........ Chairman of the Board, President and Chief Executive Officer
Guy Bradley (1996).......... Director
Joo Hock Chua (1998)........ Director
Stanley Fung (1996)......... Director
Andrew Goldfarb (1999)...... Director
</TABLE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth for the nominees for Director and the
executive officers of the Company, their ages and current positions with the
Company as of the Record Date:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James C. Wood.............. 42 Chairman of the Board, President and Chief Executive Officer
Nigel K. Donovan........... 44 Senior Vice President and Chief Operating Officer
Patrick J. Scannell, Jr.... 46 Vice President, Chief Financial Officer, Treasurer and
Secretary
Guy Bradley(1)............. 36 Director
Joo Hock Chua(1)........... 43 Director
Stanley Fung(2)............ 42 Director
Andrew Goldfarb(2)......... 31 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee
James C. Wood founded the Company and has served as Chairman of the Board,
President and Chief Executive Officer since the Company's inception in March
1995. From January 1988 until November 1994, he served as President and Chief
Executive Officer of CODA Incorporated, a subsidiary of CODA Limited, a
financial accounting software company. Mr. Wood also served as a Director of
CODA Limited from November 1988 until November 1994.
Nigel K. Donovan has served as the Company's Senior Vice President and
Chief Operating Officer since February 1999. From November 1995 to February 1999
he served as Vice President -- Professional Services. From November 1996 to
October 1998, he also served as the Company's Treasurer and from May 1997 to
October 1998 as the Company's Chief Financial Officer. In addition, Mr. Donovan
served as director from
4
<PAGE> 7
October 1996 to February 1999. From March 1988 until October 1995, Mr. Donovan
served as Vice President -- Professional Services at CODA Incorporated.
Patrick J. Scannell, Jr. has served as the Company's Chief Financial
Officer and Treasurer since November 1998 and was named Vice President and
Secretary in February 1999. From September 1992 until October 1998, Mr. Scannell
served as Executive Vice President, Chief Financial Officer and Treasurer of
Applix, Inc., a customer interaction software company.
Guy Bradley has served as a director of the Company since October 1996. Mr.
Bradley has been affiliated with CMG @Ventures since August 1994. He has been a
general partner or managing member of CMG @Ventures since January 1995. He was
Director of International Sales and Marketing for Booklink, Inc., an affiliate
of CMG @Ventures, from August 1994 to December 1994.
Joo Hock Chua has served as director of the Company since October 1998. Mr.
Chua has been a Vice President/Assistant General Manager at Vertex Management
(II) Pte Ltd since July 1995, a Senior Manager from July 1991 to June 1995 and a
Manager from June 1988 to June 1991. Mr. Chua is a director of Ultro
Technologies Ltd and ASA Ceramic Ltd, both publicly-listed in Singapore, and
several privately held companies in the US, Singapore and the People's Republic
of China.
Stanley Fung has served as a director of the Company since October 1996.
Mr. Fung has been with Zero Stage Capital since 1992, as Managing Director since
December 1998, as General Partner from October 1994 to December 1998 and as Vice
President from April 1992 to October 1994. Mr. Fung is a director of RoweCom
Inc. and several privately-held companies.
Andrew Goldfarb has served as a director of the Company since February
1999. Since March 1997, Mr. Goldfarb has been a Managing Principal at JAFCO
America Ventures, Inc. Mr. Goldfarb was employed by Trans National Group, as
Vice President from August 1996 to March 1997 and as director of Trans National
Ventures, the venture capital division of Trans National Group, from September
1994 to July 1996.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met nine times and acted by unanimous written
consent four times during the fiscal year ended June 30, 1999. The Board of
Directors has a standing Audit Committee and a standing Compensation Committee.
The Audit Committee, which oversees the accounting, financial functions and
regulatory affairs of the Company, did not hold any meetings during the fiscal
year ended June 30, 1999. Messrs. Goldfarb and Fung are the current members of
the Audit Committee. The Compensation Committee of the Company, which evaluates
the salaries and incentive compensation of management and key employees of the
Company and administers the Company's stock plans, met two times during the
fiscal year ended June 30, 1999. Messrs. Bradley and Chua are the current
members of the Compensation Committee. During the fiscal year ended June 30,
1999, each of the Company's directors attended at least 75 percent of the total
number of meetings of the Board of Directors and all committees of the Board of
Directors on which he served.
5
<PAGE> 8
COMPENSATION AND OTHER INFORMATION CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth the annual and long-term compensation of the
Company's Chief Executive Officer and each of the Company's two other most
highly compensated executive officers (collectively, the "Named Executive
Officers") for fiscal years ended June 30, 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
---------------------
ANNUAL COMPENSATION SECURITIES UNDERLYING
----------------------------- OPTIONS(1)
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) (# OF SHARES)
- --------------------------- ---- --------- -------- ---------------------
<S> <C> <C> <C> <C>
James C. Wood....................................... 1999 186,122 100,000 --
Chairman of the Board, President 1998 140,881 -- --
and Chief Executive Officer 1997 139,994 -- --
Nigel K. Donovan.................................... 1999 158,290 100,000 45,000
Senior Vice President and Chief 1998 120,750 -- --
Operating Officer 1997 120,000 -- --
Patrick J. Scannell, Jr.(2)......................... 1999 106,375 100,000 150,000
Vice President, Chief Financial 1998 -- -- --
Officer, Treasurer and Secretary 1997 -- -- --
</TABLE>
- ---------------
(1) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long term incentive plan payouts to the Named Executive
Officers during the fiscal years ended June 30, 1999, 1998 and 1997.
(2) Mr. Scannell commenced employment with the Company in November 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning grants of
stock options pursuant to the Company's Employee Stock Option Plan dated August
8, 1995 (the "1995 Option Plan") and the Company's 1999 Stock Option and
Incentive Plan, as amended (the "1999 Stock Incentive Plan") to the Named
Executive Officers during the fiscal year ended June 30, 1999. Six months after
the date of grant, 12.5% of the shares underlying such options become
exercisable. The remaining shares become exercisable in 42 equal monthly
installments thereafter. The Company did not grant any stock appreciation rights
in the fiscal year ended June 30, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE)(2) DATE 5% 10%
- ---- ---------- ------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
James C. Wood(1)................ -- -- -- -- -- --
Nigel K. Donovan................ 45,000 3.2% $1.75 8/19/08 $ 49,525 $125,507
Patrick J. Scannell, Jr......... 100,000 7.2% $1.75 11/2/08 $395,113 $732,810
50,000 3.6% $5.50 2/22/09 $321,175 $674,310
</TABLE>
- ---------------
(1) The Company did not grant any stock options to Mr. Wood during the fiscal
year ended June 30, 1999.
(2) The exercise price per share of each option was determined by the Board of
Directors to be equal to the fair market value per share of Common Stock on
the date of grant. These options have a term of ten years from the date of
grant.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast future
appreciation of the Company's stock price. The potential realizable value
computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock. This table
does not take into account any appreciation in the price of the Common Stock
since the date of grant.
6
<PAGE> 9
FISCAL YEAR-END STOCK OPTION VALUES
There were no stock options exercised by any of the Named Executive
Officers during the fiscal year ended June 30, 1999. The following table sets
forth certain information with respect to the value of options held by such
officers at the fiscal year end based upon the last reported sales price for the
Company's Common Stock on June 30, 1999.
FISCAL YEAR-END STOCK OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED,
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James C. Wood............................ -- -- -- --
Nigel K. Donovan......................... 411,602 68,048 $14,133,964 $2,277,518
Patrick J. Scannell, Jr.................. 14,583 135,417 477,593 4,247,407
</TABLE>
- ---------------
(1) Amounts calculated by subtracting the exercise price of the options from the
fair market value of the underlying Common Stock as quoted on The Nasdaq
Stock Market of $34.50 per share on June 30, 1999, multiplied by the number
of shares underlying the options, and do not reflect amounts that may be
actually received by the Named Executive Officers upon exercise of options.
EMPLOYMENT ARRANGEMENTS
The Company has entered into an employment agreement and a noncompetition,
confidentiality and inventions agreement (the "Agreements") with each of its
Named Executive Officers. Each employment agreement provides for the payment of
salary and bonus, terminates on June 30, 2001 unless earlier terminated and may
be extended upon mutual agreement of the parties. In addition, each employment
agreement provides that if the officer is terminated without just cause, as
defined in each employment agreement, the officer will receive a severance
payment equal to twelve months salary. Finally, in the event of an acquisition,
as defined in each employment agreement, if the officer (i) is not offered
employment by the acquiring corporation in a comparable position and at a
comparable salary; or (ii) is terminated at any time for other than just cause
within twelve months following the completion of the acquisition, the officer
will receive a severance payment equal to twelve months salary and all unvested
options held by the officer will accelerate and become exercisable for a period
of six months.
The Agreements also include certain restrictive covenants for the benefit
of the Company relating to non-disclosure by the officer of the Company's
confidential business information and the Company's right to inventions and
technical improvements made by the officer. The Agreements also contain a
provision prohibiting the officer from soliciting employees or customers of the
Company for a period of two years after any termination of the officer's
employment.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by the Compensation Committee. The Compensation
Committee during fiscal year 1999 was comprised of Messrs. Bradley and Chua,
both of whom are non-employee directors. Pursuant to authority delegated by the
Board of Directors, the Compensation Committee is responsible for reviewing and
administering the Company's stock plans and reviewing and approving compensation
matters concerning the executive officers and key employees of the Company. This
report addresses the compensation policies determined by Messrs. Bradley and
Chua for fiscal year 1999 as they applied to Mr. Wood, in his capacity as
President and Chief Executive Officer of the Company, and other officers of the
Company.
7
<PAGE> 10
Overview and Philosophy. The Company uses its compensation program to
achieve the following objectives:
- To provide compensation that attracts, motivates and retains the
talented, high caliber officers and employees necessary to achieve the
Company's strategic objectives, as determined by the Board of Directors.
- To align the interest of officers with the success of the Company.
- To align the interest of officers with stockholders by including
long-term equity incentives.
- To increase the long-term profitability of the Company and, accordingly,
increase stockholder value.
Compensation under the executive compensation program is comprised of cash
compensation in the form of base salary, annual cash incentive bonuses, and
long-term incentive awards in the form of stock option grants. It is the
Compensation Committee's objective to have a portion of each officer's cash
compensation contingent upon the achievement of specific predetermined corporate
objectives as well as upon each officer's individual level of performance. In
addition, the compensation program includes various other benefits, including
medical and insurance plans, the Company's 401(k) Plan, the 1995 Option Plan,
the 1999 Stock Incentive Plan and the 1999 Employee Stock Purchase Plan, which
plans are generally available to all employees of the Company.
The principal factors which the Compensation Committee considered with
respect to each officer's compensation package for fiscal year 1999 are
summarized below. The Compensation Committee may, however, in its discretion,
apply different or additional factors in making decisions with respect to
executive compensation in future years.
Base Salary. Compensation levels for each of the Company's officers,
including the Chief Executive Officer, are generally set within the range of
salaries that the Compensation Committee believes are paid to officers with
comparable qualifications, experience and responsibilities at similar companies.
In setting compensation levels, the Compensation Committee takes into account
such factors as (i) the Company's past performance and future expectations, (ii)
individual performance and experience and (iii) past salary levels. The
Compensation Committee does not assign relative weights or rankings to these
factors, but instead makes a determination based upon the consideration of all
of these factors as well as the progress made with respect to the Company's
long-term goals and strategies. Generally, salary decisions for the Company's
officers are made near the end of each fiscal year.
Base salaries for the fiscal year ended June 30, 1999 were determined by
the Compensation Committee after considering the base salary level of the
officers in prior years, and taking into account for each officer the amount of
base salary as a component of total compensation. Base salary, while reviewed
annually, is only adjusted as deemed necessary by the Compensation Committee in
determining total compensation for each officer. Base salary levels for each of
the Company's officers, other than the Chief Executive Officer, were also based
in part upon evaluations and recommendations made by the Chief Executive
Officer.
Bonus Compensation. The Company's executive officers are eligible for an
annual cash bonus based on the Company's achievement of predetermined corporate
objectives, individual performance, and on a comparison of each executive's
actual performance against his performance objectives.
Stock Options. The Compensation Committee believes that stock option
participation aligns officers' interests with those of the stockholders. In
addition, the Compensation Committee believes that equity ownership by officers
helps to balance the short term focus of annual incentive compensation with a
longer term view and may help to retain key executive officers. Long term
incentive compensation, in the form of stock options, allows the officers to
share in any appreciation in the value of the Company's Common Stock. The
Committee generally grants options that become exercisable over a four year
period as a means of encouraging executives to remain with the Company and
promote its success. In general, the Compensation Committee awards executives of
the Company stock options with exercise prices equal to the market price of
8
<PAGE> 11
the Common Stock on the date of grant. As a result, executives will benefit from
these stock option grants only to the extent that the price of the Company's
Common Stock increases and the Company's stockholders have also benefited.
When establishing stock option grant levels, the Compensation Committee
considers general corporate performance, the Chief Executive Officer's
recommendations, level of seniority and experience, existing levels of stock
ownership, previous grants of stock options, vesting schedules of outstanding
options and the current stock price.
It is the standard policy of the Company to grant an initial stock option
grant to all executive officers at the time they commence employment consistent
with the number of options granted to executive officers within and without the
industry at similar levels of seniority. In addition, the Compensation Committee
may from time-to-time make performance-based grants as it deems appropriate. In
making such performance-based grants, the Compensation Committee considers
individual contributions to the Company's financial, operational and strategic
objectives.
Other Benefits. The Company also has various broad-based employee benefit
plans. Executive officers participate in these plans on the same terms as
eligible, non-executive employees, subject to any legal limits on the amounts
that may be contributed or paid to executive officers under these plans. The
Company offers a stock purchase plan, under which employees may purchase Common
Stock at a discount, and a 401(k) plan, which allows employees to invest in a
wide array of funds on a pre-tax basis. The Company also maintains insurance and
other benefit plans for its employees, including executive officers of the
Company.
Chief Executive Officer Compensation. In fiscal year 1999, the Company's
President and Chief Executive Officer, James C. Wood, received a base salary of
$186,122, which represents an increase of $45,241 or 32.1% over his 1998 base
salary. The base salary is believed by the Committee to be consistent with the
range of salary levels received by executives in a similar capacity in companies
of comparable size and stage of development. Mr. Wood received bonus
compensation of $100,000, which was determined based on corporate performance
and the achievement of various milestones in the Company's growth and
development over the year, including the Company's initial public offering in
May 1999.
Tax Deductibility of Executive Compensation. Section 162(m) of the Code
limits the tax deduction to the Company to $1 million for compensation paid to
any of the Named Executive Officers unless certain requirements are met. The
Compensation Committee has considered these requirements and the regulations. It
is the Compensation Committee's present intention that, so long as it is
consistent with its overall compensation objectives, substantially all executive
compensation be deductible for United States federal income tax purposes. The
Compensation Committee believes that any compensation deductions attributable to
options granted under the 1999 Stock Incentive Plan currently qualify for an
exception to the requirements of Section 162(m).
Respectfully Submitted by the
Compensation Committee:
Guy Bradley
Joo Hock Chua
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Bradley and Chua, both non-employee directors, comprise the
Compensation Committee of the Board of Directors. No person who served as a
member of the Compensation Committee was, during the fiscal year ended June 30,
1999, an officer or employee of the Company, was formerly an officer of the
Company, or had any relationship requiring disclosure herein. No executive
officer of the Company served as a member of the compensation committee (or
other committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served as a director of the Company.
9
<PAGE> 12
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company, who currently consist of
Messrs. Bradley, Chua, Fung and Goldfarb, are reimbursed for reasonable
out-of-pocket expenses incurred in attending such meetings. Such non-employee
directors are also eligible for participation in the Company's 1999 Non-Employee
Director Stock Option Plan.
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
stockholder return on the Company's Common Stock during the period from the
Company's initial public offering on May 5, 1999 through June 30, 1999, with the
cumulative total return of the Nasdaq Stock Market--U.S. Index and the H&Q
Internet Index. The comparison assumes $100 was invested on May 5, 1999 at the
$15.00 initial offering price in the Company's Common Stock and in each of the
foregoing indices and assumes dividends, if any, were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG SILKNET SOFTWARE, INC.,
NASDAQ STOCK MARKET--U.S. INDEX AND THE H&Q INTERNET INDEX(1)(2)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
5/5/99 6/30/99
------ -------
<S> <C> <C>
Silknet Software, Inc............................... 100.00 270.00
H&Q Internet........................................ 100.00 95.68
Nasdaq Stock Market--U.S............................ 100.00 106.38
</TABLE>
- ---------------
(1) Prior to May 5, 1999 the Company's Common Stock was not publicly traded.
Comparative data is provided only for the period since that date. This graph
is not "soliciting material," is not deemed filed with the Securities and
Exchange Commission and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
(2) The stock price information shown on the graph is not necessarily indicative
of future price performance. Information used on the graph was obtained from
Hambrecht & Quist, a source believed to be reliable, but the Company is not
responsible for any errors or omissions in such information.
10
<PAGE> 13
PROPOSAL 2
RATIFICATION OF SELECTION OF AUDITORS
Subject to ratification by the stockholders, the Board of Directors has
selected the firm of PricewaterhouseCoopers LLP, independent certified
accountants, to serve as auditors for the fiscal year ending June 30, 2000. It
is expected that a member of the firm of PricewaterhouseCoopers LLP will be
present at the Annual Meeting with an opportunity to make a statement if so
desired and will be available to respond to appropriate questions from the
Company's stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE RATIFICATION OF THIS SELECTION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and holders of more than 10% of the Company's Common
Stock (collectively, the "Reporting Persons") to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock of the Company. Such persons are required by
regulations of the Commission to furnish the Company with copies of all such
filings. Based solely on its review of the copies of such filings received by it
with respect to the period ended June 30, 1999, the Company believes that all
Reporting Persons complied with Section 16(a) filing requirements in the period
ended June 30, 1999.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Annual Meeting of
Stockholders for the fiscal year ending June 30, 2000 must be received no later
than the close of business on June 10, 2000 at the Company's principal executive
offices in order to be included in the Company's proxy statement for that
meeting. In order to curtail controversy as to the date on which a proposal was
received by the Company, it is suggested that proponents submit their proposals
by certified mail, return receipt requested to Silknet Software, Inc., The
Gateway Building, 50 Phillippe Cote Street, Manchester, NH 03101, Attention:
Secretary.
Under the Company's by-laws, stockholders who wish to make a proposal at
the Annual Meeting of Stockholders for the fiscal year ending June 30, 2000,
other than one that will be included in the Company's proxy materials, must
notify the Company no earlier than the close of business on May 11, 2000 and no
later than June 10, 2000. If a stockholder who wishes to present a proposal
fails to notify the Company by June 10, 2000, the stockholder will not be
entitled to present the proposal at the meeting. If, however, notwithstanding
the requirements of the Company's by-laws, the proposal is brought before the
annual meeting of stockholders, then under the proxy rules of the Securities and
Exchange Commission (the "SEC"), the proxies solicited by management with
respect to the next annual meeting of stockholders will confer discretionary
voting authority with respect to the stockholder's proposal on the persons
selected by management to vote the proxies. If a stockholder makes a timely
notification, the persons appointed as proxies may still exercise discretionary
voting authority under circumstances consistent with the SEC's proxy rules.
11
<PAGE> 14
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement has been or will be specifically
incorporated by reference into any filing by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, the
sections of the Proxy Statement entitled "Compensation Committee Report on
Executive Compensation" and "Stock Performance Graph" shall not be deemed to be
so incorporated, unless specifically otherwise provided in any such filing.
EXPENSES AND SOLICITATION
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, certain of the Company's directors, officers
and regular employees, without additional remuneration, may solicit proxies in
person or by telephone or telegraph. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting material to the owners of stock held in
their names, and the Company will reimburse them for their reasonable
out-of-pocket costs. Solicitation by officers and employees of the Company may
also be made of some stockholders in person or by mail, telephone or telegraph
following the original solicitation.
The contents and the sending of this Proxy Statement has been approved by
the Board of Directors of the Company.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999 filed with the Securities and Exchange Commission will be
sent without charge upon written request directed to Silknet Software, Inc., The
Gateway Building, 50 Phillippe Cote Street, Manchester, NH 03101, Attention:
Secretary.
Manchester, New Hampshire
October 8, 1999
12
<PAGE> 15
- ------------------------------------------------------------------------------
PROXY
SILKNET SOFTWARE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 12, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James C. Wood and Patrick J. Scannell, Jr.,
and each or both of them, proxies, with full power of substitution, to vote all
shares of Silknet Software, Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be held
on Friday, November 12, 1999 at 10:00 A.M. at the offices of Testa, Hurwitz &
Thibeault, LLP, 125 High Street, High Street Tower, Boston, Massachusetts, and
at any adjournments thereof, upon matters set forth in the Notice of Annual
Meeting of Stockholders and Proxy Statement dated October 8, 1999, a copy of
which has been received by the undersigned. The proxies are further authorized
to vote, in their discretion, upon such other business as may properly come
before the meeting or any adjournment thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
- ------------------------------------------------------------------------------
<PAGE> 16
- ------------------------------------------------------------------------------
PLEASE MARK
VOTES AS IN THIS
EXAMPLE.
/ X /
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AS DESCRIBED IN
ITEM 1, FOR THE PROPOSAL IN ITEM 2, AND IN THE JUDGMENT OF THE PROXIES NAMED
HEREIN WITH RESPECT TO ITEM 3.
1. To elect five directors to the Company's Board of Directors to serve for a
term of one year or until successors are elected and qualified.
FOR WITHHELD Nominees: James C. Wood
Guy Bradley
/ / / / Joo Hock Chua
Stanley Fung
Andrew Goldfarb
------------------------------------------------
For both nominees except as noted above
2. To ratify the selection of the firm of PricewaterhouseCoopers LLP,
independent public accountants, as auditors for the fiscal year ending June 30,
2000.
FOR AGAINST ABSTAIN
/ / / / / /
3. To transact such other business as may properly come before the meeting and
any adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Signature: __________ Date:_________ Signature: ______________ Date:__________
Please sign exactly as your name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- ------------------------------------------------------------------------------
