<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
MISSION CRITICAL SOFTWARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(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)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies: ______________________________
(2) Aggregate number of securities to which transaction applies:
_____________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined): __________________________________
(4) Proposed maximum aggregate value of transaction: ___________
(5) Total fee paid: ________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid: _________________
(2) Form, Schedule or Registration Statement No.: ______________
(3) Filing Party: _________________
(4) Date Filed: ___________________
<PAGE>
[LOGO OF MISSION CRITICAL SOFTWARE, INC. APPEARS HERE]
MISSION CRITICAL SOFTWARE, INC.
13939 Northwest Freeway
Houston, Texas 77040
(713) 548-1700
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to
be held at 13939 Northwest Freeway, Houston, Texas 77040, at 9:30 a.m., local
time, on Friday, October 29, 1999.
The Notice of Annual Meeting of Stockholders and the Proxy Statement which
follow describe the matters to come before the meeting. During the meeting, we
will also review the activities of the past year and items of general interest
about the Company.
We are also enclosing a copy of Mission Critical Software, Inc.'s
Prospectus, dated August 4, 1999 in lieu of an Annual Report to Stockholders.
This document shall not constitute an offer to sell or a solicitation of an
offer to buy, nor shall there be any sale of these securities in any state or
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state or
jurisdiction. However, please see the following pages in the prospectus, which
sets forth the information required to be disclosed in an annual report:
. Audited Financial Statements - pages F-1 to F-20;
. Selected Financial Data - page 22;
. Management's Discussion and Analysis of Financial Condition and Results of
Operation - pages 23- 35;
. Risk Factors - pages 7 to 18;
. Business - pages 36 to 48;
. Management - pages 49 to 51; and
. Dividends - page 19.
We hope that you will be able to attend the meeting in person and we look
forward to seeing you. Please mark, date and sign the enclosed proxy and return
it in the accompanying envelope as quickly as possible, even if you plan to
attend the Annual Meeting. You may revoke the proxy and vote in person at that
time if you so desire.
Sincerely,
/s/ MICHAEL S. BENNETT
Michael S. Bennett
Chairman, President and Chief Executive Officer
October 1, 1999
<PAGE>
[LOGO OF MISSION CRITICAL APPEARS HERE]
MISSION CRITICAL SOFTWARE, INC.
____________________________________________
Notice of Annual Meeting of Stockholders
to be held on October 29, 1999
____________________________________________
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
------
Meeting") of Mission Critical Software, Inc., a Delaware corporation (the
- -------
"Company"), will be held at 13939 Northwest Freeway, Houston, Texas 77040, at
-------
9:30 a.m., local time, on Friday, October 29, 1999 for the following purposes:
1. To elect three directors of the Company to serve for a three year term
that expires upon the Annual Meeting of Stockholders in 2002, or until their
successors are duly elected.
2. To transact such other business as may properly be brought before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only holders of record of the Company's common stock, $0.001 par value (the
"Common Stock"), at the close of business on September 28, 1999, the record
------------
date, are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. 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
Houston, Texas
October 1, 1999
- --------------------------------------------------------------------------------
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
MISSION CRITICAL SOFTWARE, INC.
______________________
PROXY STATEMENT
FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
______________________
PROCEDURAL MATTERS
General
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Mission Critical Software, Inc., a
Delaware corporation (the "Company"), for use at the Company's Annual Meeting of
-------
Stockholders (the "Annual Meeting") to be held on Friday, October 29, 1999 at
--------------
9:30 a.m., local time, or at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Annual Meeting of Stockholders. The
Annual Meeting will be held at the Company's principal executive offices at
13939 Northwest Freeway, Houston, Texas 77040. The Company's telephone number is
(713) 548-1700.
This proxy statement and the enclosed proxy were mailed on or about October
1, 1999, to all stockholders entitled to vote at the Annual Meeting.
Record Date
Stockholders of record at the close of business on September 28, 1999 (the
"Record Date") are entitled to notice of and to vote at the meeting. Such
- ------------
stockholders are entitled to cast one vote for each share of Common Stock held
as of the Record Date on all matters to be presented at the Annual Meeting. As
of the Record Date, 13,894,748 shares of the Company's Common Stock, par value
$0.001, were issued and outstanding.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. A proxy may be revoked (i) by delivery
of a written notice of revocation or a duly executed proxy to the Secretary of
the Company bearing a date later than the prior proxy relating to the same
shares, or (ii) by attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not itself revoke a proxy). Any written
notice of revocation or subsequent proxy must be received by the Secretary of
the Company prior to the taking of the vote at the Annual Meeting. The last vote
received will be the vote that is counted.
Voting at the Annual Meeting
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date. Directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the Annual Meeting. Broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number
1
<PAGE>
of votes cast with respect to the particular proposal on which a broker has not
voted. Thus, a broker non-vote will not effect the outcome of voting on a
particular proposal.
Proxies
All shares entitled to vote and represented by properly executed proxies
received prior to the Annual Meeting will be voted at the Annual Meeting in
accordance with the instructions indicated on those proxies, if not revoked
prior thereto. If no instructions are indicated on a properly executed proxy,
the shares represented by that proxy will be voted as recommended by the Board
of Directors. If any other matters are properly presented for consideration at
the Annual Meeting, the proxy holders will have discretion to vote on those
matters in accordance with their best judgment.
Expenses of Solicitation
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. The Company may
reimburse brokerage firms, custodians, nominees, fiduciaries and other persons
representing beneficial owners of Common Stock for their reasonable expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of the Company's directors, officers and employees,
personally or by telephone, telegram, facsimile, or other means of
communication. No additional compensation will be paid for such services.
Stockholder Proposals
Stockholders of the Company may submit proposals which they believe should
be voted on at the 2000 Annual Meeting or nominate persons for election to the
Board of Directors. In order to be timely and properly submitted, these
proposals must be submitted in accordance with the Company's Bylaws, the
applicable provisions of which are summarized below. In addition, in order for a
proposal to be included in the Company's proxy statement for the 2000 Annual
Meeting, such proposals must be received by the Company no later than June 30,
2000, and must otherwise comply with the requirements of Regulation 14A of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
------------
In order for nominations to the Board of Directors or other business to be
properly submitted, the Company's Bylaws require that such stockholder must
provide written notice, delivered or mailed and received, to the Secretary of
the Company, at the principal executive offices of the Company at the address
set forth on the cover page of this proxy statement, not less than one hundred
twenty (120) calendar days prior to the first anniversary of the preceding
year's annual meeting of stockholders. This notice must contain specified
information concerning the matters to be brought before such meeting and
concerning the stockholder proposing such matters. A copy of the full text of
the Bylaw provisions discussed above may be obtained by writing to the Secretary
of the Company. Stockholders interested in submitting such a proposal are
advised to contact knowledgeable counsel with regard to the detailed
requirements of such securities rules.
The enclosed proxy grants the proxy holders discretionary authority to vote
on any matter raised at the Annual Meeting. If a stockholder intends to submit a
proposal at the Company's 2000 Annual Meeting, which is not eligible for
inclusion in the proxy statement and form of proxy relating to the meeting, the
stockholder must do so no later than June 30, 2000. If such stockholder fails to
comply with the foregoing notice provision, the proxy holders will be allowed to
use their discretionary voting authority when the proposal is raised at the 2000
Annual Meeting.
2
<PAGE>
Share Ownership
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock of the Company as of September 1, 1999 by
(i) each person known by the Company to be a beneficial owner of five percent
(5%) or more of the Company's outstanding Common Stock, (ii) each director,
(iii) each executive officer named in the Summary Compensation Table below and
(iv) all directors and executive officers as a group:
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
-------------------------------
Five Percent Stockholders, Directors and Executive Officers (2) Number Percent
----------------------------------------------------------- -------------- ---------------
<S> <C> <C>
New Enterprise Associates Entities (3)................................. 2,025,671 14.6%
2490 Sand Hill Road
Menlo Park, CA 94025
Austin Ventures Entities (4)........................................... 1,316,349 9.5%
114 W. 7/th/ Street, Suite 1300
Austin, TX 78701
JMI Equity Fund III, L.P. (5).......................................... 712,469 5.1%
12680 High Bluff Drive
San Diego, CA 92130
International Capital Partners, Inc. (6)............................... 137,414 *
300 First Stamford Place
Stamford, CT 060902
Zesiger Capital Group LLC (7).......................................... 1,792,815 12.9%
320 Park Avenue
New York, NY 10022
Mission Critical Software I, Inc. (8).................................. 750,000 5.4%
Michael S. Bennett (9)................................................. 420,887 3.0%
Thomas P. Bernhardt (10)............................................... 1,010,336 7.2%
Stephen E. Odom (11)................................................... 103,649 *
Olivier J. Thierry (12)................................................ 99,999 *
Brian J. McGrath (13).................................................. 287,999 2.1%
Scott D. Sandell (3)................................................... 2,025,671 14.6%
John D. Thornton (4)................................................... 1,316,349 9.5%
Douglas L. Ayer (6).................................................... 137,414 *
Michael J. Maples...................................................... --- ---
John J. Moores (5)..................................................... 712,469 5.1%
All executive officers and directors as group (10 persons) (14)........ 6,117,773 42.5%
</TABLE>
________________________
*Less than 1%.
(1) Applicable percentage ownership based on 13,894,748 shares of Common Stock
outstanding as of September 1, 1999. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. Shares
of Common Stock subject to options currently exercisable or exercisable
within 60 days after September 1, 1999 are deemed to be beneficially owned
by the person holding such option for computing the percentage ownership of
such person but are not treated as outstanding for computing the percentage
of any other person.
(2) Except as otherwise noted above, the address of each person listed on the
table is 13939 Northwest Freeway, Houston, Texas 77040.
3
<PAGE>
(3) The beneficial ownership reported for New Enterprise Associates entities
and Mr. Sandell includes 1,913,455 shares held by New Enterprise Associates
VII Ltd. Partnership, 82,691 shares held by NEA President's Fund, L.P. and
5,306 shares held by NEA Ventures 1996, L.P. Mr. Sandell disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest. New Enterprise Associates VII Ltd. Partnership has one general
partner, NEA Partners VII, L.P. The general partners of NEA Partners VII,
L.P. are Peter J. Barris, Nancy L. Dorman, Ronald H. Kase, C. Richard
Kramlich, Arthur C. Marks, Thomas C. McConnell, Peter T. Morris, Charles W.
Newhall, John M. Niera and Mark W. Perry. The general partner of NEA
Presidents Fund, L.P. is NEA General Partners, L.P. The general partners of
NEA General Partners, L.P. are Peter J. Barris, Frank A. Bonsol, Jr., Nancy
L. Dorman, Ronald H. Kase, C. Richard Kramlich, Arthur C. Marks, Thomas C.
McConnell, Charles W. Newhall, John M. Niera and Mark W. Perry. These
numbers and percentages also include 24,219 shares subject to options
exercisable within 60 days from September 1, 1999 held by Mr. Sandell.
(4) The beneficial ownership reported for Austin Ventures entities and Mr.
Thornton includes 1,233,654 shares held by Austin Venture V, L.P. and
61,691 shares held by Austin Ventures V Affiliates Fund, L.P. Mr. Thornton
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. Austin Ventures V, L.P. and Austin Ventures V
Affiliates Fund, L.P. have one general partner, Austin Ventures Partners V,
L.P. The general partners of Austin Ventures Partners V, L.P. are Joseph
Aragona, Kenneth P. DeAngelis, John D. Thornton, Blaine F. Wesner and Jeff
Garvey. These numbers and percentages also include 21,094 shares subject to
options exercisable within 60 days from September 1, 1999 held by Mr.
Thornton.
(5) Mr. Moores disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest. The general partners of JMI Equity Fund
III, L.P. are Charles E. Noell, Harry S. Gruner, Norris Van der Berg, Paul
Barber and Robert Sywolski. These numbers and percentages also include
21,094 shares subject to options exercisable within 60 days of September 1,
1999 held by Mr. Moores.
(6) The managing partners of International Capital Partners, Inc. are Douglas
L. Ayer, president and managing partner, Ajit G. Hutheesing, chairman and
managing partner and Nicholas E. Sinacori, managing partner. Mr. Ayers
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest. These numbers and percentages also include 22,656
shares subject to options exercisable within 60 days from September 1, 1999
held by Mr. Ayers.
(7) The beneficial ownership reported for Zesiger Capital includes 1,837,242
shares over which Zesiger has voting and dispositive power, but the shares
are held in the names of the individuals for whom Zesiger acts as an
investment advisor.
(8) James R. Woodhill is the sole stockholder of Mission Critical Software I,
Inc. and is deemed to beneficially own 750,000 shares held by Mission
Critical Software I, Inc.
(9) Consists of 220,887 shares subject to options exercisable within 60 days
after September 1, 1999.
(10) Consists of 66,042 shares subject to options exercisable within 60 days
after September 1, 1999.
(11) Consists of 33,461 shares subject to options exercisable within 60 days
after September 1, 1999.
(12) Consists of 30,000 shares subject to options exercisable within 60 days
after September 1, 1999.
(13) Consists of 44,376 shares subject to options exercisable within 60 days
after September 1, 1999.
(14) Includes 485,392 shares subject to options exercisable within 60 days after
September 1, 1999.
4
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
General
The Company's Board of Directors currently consists of seven persons,
divided into three classes serving staggered terms of office. Currently there
are three directors of Class I, one director of Class II and three directors of
Class III. Three Class I directors are to be elected at the Annual Meeting. The
Class I directors elected at the Annual Meeting will serve for three-year terms,
or until their successors have been duly elected and qualified.
Vote Required
A plurality of votes duly cast at the Annual Meeting will be required to
elect each director.
The Board of Directors recommends a vote FOR the election of all nominees
for director named below.
Directors and Nominees for Director
The following table sets forth the name, age and certain other information
regarding the nominees for director.
<TABLE>
<CAPTION>
Director
Name of Nominee Age Positions with the Company Since
- -------------------------- ----- ----------------------------------------------------------------- ------------
<S> <C> <C> <C>
Michael S. Bennett........ 47 Chairman of the Board, President and Chief Executive Officer 1998
Scott D. Sandell (1)...... 35 Director 1996
John D. Thornton (1),(2).. 34 Director 1997
</TABLE>
(1) Member of the compensation committee
(2) Member of the audit committee
Michael S. Bennett has served as the President, Chief Executive Officer and
a member of the board of directors of the Company since May 1998. He was
appointed Chairman of the Board in February 1999. From August 1996 until April
1998, he served as President and Chief Executive Officer of Learmonth & Burchett
Management Systems plc, a provider of process management tools for software
development. Prior to joining Learmonth & Burchett in August 1996, Mr. Bennett
served as President and Chief Executive Officer of Summagraphics from June 1993
to July 1996, until its acquisition by Lockheed Martin's CalComp subsidiary.
Prior to that time, Mr. Bennett served as a senior executive with Dell Computer
Corporation and as chief executive officer of several high technology
organizations.
Scott D. Sandell has served as a director of the Company since September
1996. Mr. Sandell is a partner of New Enterprise Associates, a venture capital
firm, and has served in other capacities at such firm since January 1996. Prior
to joining New Enterprise Associates, Mr. Sandell was the President of Yankee
Pacific Company, a marketing and business strategy consulting firm from March
1994 to December 1995. He is also a member of the boards of directors of several
privately held companies. Mr. Sandell holds a B.S. degree in Engineering
Sciences from Dartmouth College and a M.B.A. degree from the Stanford Graduate
School of Business.
5
<PAGE>
John D. Thornton has served as a director of the Company since June 1997.
Mr. Thornton is a general partner of Austin Ventures, a venture capital firm,
where he has been employed in various capacities since 1991. Prior to joining
Austin Ventures, Mr. Thornton was a consultant with McKinsey & Co., an
international consulting firm. Mr. Thornton also serves on the board of
directors of Vignette Corporation, an Internet relationship management software
company, and is also a member of the boards of directors of several privately
held companies. Mr. Thornton holds a B.A. degree in Economics from Trinity
University and an M.B.A. degree from the Stanford Graduate School of Business.
The remaining directors of the Company as of the date of this Proxy
Statement, and certain information about them as of the Record Date, are set
forth below.
<TABLE>
<CAPTION>
Director
Name of Nominee Age Positions with the Company Since
- ------------------------- ------ -------------------------------------------------- ----------
<S> <C> <C> <C>
Thomas P. Bernhardt 46 Chief Technology Officer and Director 1996
Douglas L. Ayer (1) 62 Director 1996
Michael J. Maples 57 Director 1999
John J. Moores (2) 54 Director 1997
</TABLE>
(1) Member of the compensation committee
(2) Member of the audit committee
Thomas P. Bernhardt is a founder of the Company and has served as a
director since July 1996. Mr. Bernhardt was a consultant to the Company from
September 1996 to January 1997, when he joined us on a full time basis as the
Company's Chief Technology Officer, which is his current role. From February
1998 to May 1998, he also served as the Company's interim President and Chief
Executive Officer. From January 1989 to December 1996, Mr. Bernhardt was a
consultant with RCG International, an information technology consulting services
company. Mr. Bernhardt holds a B.S. degree in Experimental Psychology from the
University of Notre Dame.
Douglas L. Ayer has served as a director of the Company since September
1996. Mr. Ayer has served as President and Managing Partner of International
Capital Partners, Inc., a venture capital firm, since 1989. Prior to joining
International Capital Partners, Mr. Ayer was the Chief Executive Officer of
Cametrics, Inc., a manufacturer of engineered metal components. Mr. Ayer also
serves as a member of the boards of directors of Biopool, Inc., a medical
diagnostic test kit company, and Coffee People, Inc., a coffee retailer and
franchise company. Mr. Ayer holds a B.S.E. degree in Aeronautical Engineering
from Princeton University and an M.B.A. degree from Harvard University.
Michael J. Maples has served as a director of the Company since April 1999.
Mr. Maples manages private investments. From April 1988 to July 1995, Mr. Maples
held various management positions at Microsoft Corporation, the most recent of
which was Executive Vice President of the Worldwide Products Group and a member
of the office of the president. Prior to that, he served as a Director of
Software Strategy for IBM. He also serves as a director of J.D. Edwards &
Company, an enterprise software company, Lexmark International, Inc., a laser
and inkjet printer company, and PSW Technologies, a software company. Mr. Maples
is also a member of the Board of Visitors for the Engineering School at the
University of Oklahoma and the College of Engineering Foundation Advisory
Council at the University of Texas at Austin. Mr. Maples holds a B.S. degree in
electrical engineering from the University of Oklahoma and an M.B.A. degree from
Oklahoma City University.
6
<PAGE>
John J. Moores has served as a director of the Company since June 1997. Mr.
Moores has served as owner and Chairman of the Board of the San Diego Padres
Baseball Club, L.P. since December 1994 and since September 1991 as Chairman of
the Board of JMI Services, Inc., a private investment company. In 1980, Mr.
Moores founded BMC Software, Inc., a vendor of system software utilities, and
served as its President and Chief Executive Officer until 1986 and as its
Chairman of the Board until 1992. Mr. Moores also serves as Chairman of the
Board of Peregrine Systems, Inc., an infrastructure management software company,
and of Neon Systems, Inc., an enterprise middleware and systems management
software company, as well as numerous privately held companies. Mr. Moores
serves as a director of BindView Development Corporation, a systems management
software company. Mr. Moores is a member of the Board of Regents of The
University of California, The Carter Center of Emory University and Scripps
Research, Inc. Mr. Moores holds a B.S. degree in Economics and a J.D. degree
from University of Houston.
Mr. Sandell is Mr. Ayer's son-in-law. There are no other family
relationships among any of our directors, officers or key employees.
Board Meetings and Committees
The Board of Directors of the Company held eight meetings during the fiscal
year ended June 30, 1999, and all of the incumbent directors attended seventy-
five percent (75%) or more of the meetings of the Board of Directors and
committees, if any, upon which such directors served. Certain matters were
approved by the Board of Directors by unanimous written consent.
The Board of Directors of the Company currently has a standing Audit
Committee and Compensation Committee. However, there is no standing Nominating
Committee.
Audit Committee. The Company's Audit Committee consists of Messrs. Moores
and Thornton. The Audit Committee reviews the Company's internal accounting
procedures and consults with and reviews the services provided by the Company's
independent accountants. No member of the Audit Committee is an officer or
employee of the Company. The Audit Committee met three times during fiscal 1999
and did not act by unanimous written consent.
Compensation Committee. The Company's Compensation Committee consists of
Messrs. Ayer, Thornton and Sandell. The Compensation Committee reviews and
recommends to the board of directors the compensation and benefits to be
provided to the executive officers of and directors of the Company and any
subsidiaries of the Company, including stock compensation and loans, and to
review and establish general policies relating to compensation and benefits of
all employees, including all bonus and stock compensation to all employees. No
member of the Compensation Committee is an officer or employee of the Company.
The Compensation Committee met fourteen times during fiscal 1999 and certain
matters were approved by unanimous written consent.
Director Compensation
Directors do not currently receive any cash compensation from the Company
for the director's services as members of the Company's Board of Directors,
although the directors are reimbursed for travel expenses in connection with
attendance at board and committee meetings. Under the Company's 1997 Stock Plan,
nonemployee directors are eligible to receive stock option grants at the
discretion of the Board of Directors. In addition, the Company's 1999 Director
Option Plan provides for an initial grant to a nonemployee director of an option
to purchase 37,500 shares on the date on which he or she becomes a
7
<PAGE>
member of the board of directors. Each nonemployee director will thereafter
automatically be granted an additional option to purchase 12,500 shares of
common stock at the next meeting of the board of directors following the annual
meeting of stockholders, if on the date of the annual meeting the director has
served on the board of directors for at least six months. The initial 37,500
share grants will become exercisable at a rate of one-third of the shares on the
first anniversary of the grant date and at a rate of 1/36/th/ of the shares per
month thereafter. The subsequent 12,500 share grants will become exercisable at
the rate of one-half of the shares on the first anniversary of the grant date
and at a rate of 1/24/th/ of the shares per month thereafter.
8
<PAGE>
SUMMARY COMPENSATION TABLE
Summary Compensation Table. The following table sets forth the compensation
paid by the Company during the fiscal year ended June 30, 1999 to (i) the Chief
Executive Officer and (ii) each of the four other most highly compensated
executive officers of the Company whose total annual salary and bonus exceeded
$100,000 ((i) and (ii) collectively, the "Named Executive Officers"):
------------------------
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------ --------------
Securities
Underlying All Other
Fiscal Salary Bonus Options/SARS Compensation
Name and Principal Position Year ($) ($) (#) ($) (1)
- ------------------------------------------------------ --------- -------- ------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Michael S. Bennett..................................... 1999 200,016 134,167 250,000 1,696
President and Chief Executive Officer (2)
Thomas P. Bernhardt.................................... 1999 172,916 30,000 160,000 1,696
Chief Technology Officer
Stephen E. Odom ....................................... 1999 200,016 28,000 100,000 1,696
Chief Operating Officer, Chief Financial
Officer, Treasurer and Secretary (3)
Brian McGrath.......................................... 1999 200,016 718,801(4) -- 7,371
Vice President of Sales
Olivier J. Thierry..................................... 1999 175,008- 46,667 -- 80,999
Vice President of Product Management
</TABLE>
_______________________
(1) All other compensation represents excess compensation associated with
premiums for life insurance of $1,696 for each of Messrs. Bennett,
Bernhardt, Odom and Thierry and $7,371 for Mr. McGrath. Mr. Thierry also
received $79,303 for moving expenses paid in connection with his relocation
agreement.
(2) Mr. Bennett joined the Company in May 1998.
(3) Mr. Odom joined the Company in May 1998.
(4) Mr. McGrath received sales commissions of $718,801. Commissions are
variable cash-based incentive compensation that are payable as a percentage
of revenue cash collected.
(5) Mr. Thierry joined the Company in February 1998.
9
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers during the fiscal year
ended June 30, 1999.
<TABLE>
<CAPTION>
Individual Grants
Percent of
Number of Total
Securities Options Potential Realizable Value at
Underlying Granted to Assumed Annual Rates of Stock
Options Employees Exercise Price Appreciation for Option
Granted in Fiscal Price Expiration Terms (3)
-----------------------------
Name (#)(1) Year (2) Per Share Date 5% ($) 10% ($)
- ----------------------- ---------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Bennett..... 250,000 11.7% $ 15.00 06/21/09 $2,358,355 $5,976,634
Thomas P. Bernhardt.... 160,000 7.5% $ 2.75 (4) 08/27/03 $3,469,347 $5,784,982
Stephen E. Odom........ 100,000 4.7% $ 15.00 06/21/09 $ 943,342 $2,390,614
Brian McGrath.......... -- -- -- -- -- --
Olivier J. Thierry..... -- -- -- -- -- --
</TABLE>
__________________
(1) Options under the stock option plan generally vest over four years with 25%
of the shares subject to the option vesting on the first anniversary of the
grant date, and the remaining option shares vesting ratably monthly
thereafter. Mr. Bennett's option vests as to 1/36/th/ of the shares per
month as to 125,000 shares over the first three years and as to 1/12th of
the remaining shares per month in months 37 through 48. Mr. Odom's option
vests as to 1/48th of the shares per month for 48 months.
(2) In the fiscal year ended June 30, 1999, the Company granted options to
purchase an aggregate of 2,131,510 shares to employees and consultants.
(3) The potential realizable value is based on a 10-year term of each option at
the time of grant. Assumed stock price appreciation of 5% and 10% is
mandated by rules of the Securities and Exchange Commission and is not
intended to forecast actual future financial performance or possible future
appreciation. The potential realizable value is calculated by assuming that
the deemed fair value of the Company's Common Stock for financial statement
purposes on the date of grant appreciates at the indicated rate for the
entire term of the option and that the option is exercised at the exercise
price and sold on the last day of its term at the appreciated price.
(4) The exercise price of the option grant to Mr. Bernhardt was equal to 110% of
the fair market value of the common stock on the date of grant as determined
by the board of directors.
10
<PAGE>
AGGREGATE OPTION
EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, as to the Named Executive Officers, certain
information concerning stock options exercised during the fiscal year ended June
30, 1999 and the number of shares subject to both exercisable and unexercisable
stock options held as of June 30, 1999. Also reported are values for unexercised
"in-the-money" options, exercise prices of outstanding stock options and the
fair market value of the Company's Common Stock as of June 30, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options at June
Options at June 30, 1999 (#) 30, 1999 ($) (2)
---------------------------- ----------------------------
Shares Value
Acquired on Realized
Name Exercise ($) (1) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Bennett..... 200,000 2,400,000 136,378 850,270 1,977,481 8,703,915
Thomas P. Bernhardt.... -- -- 16,857 173,125 244,688 2,150,313
Stephen E. Odom........ 50,184 602,208 8,364 242,188 121,278 2,061,726
Brian McGrath.......... 70,623 415,314 15,002 94,375 217,529 1,368,438
Olivier J. Thierry..... 69,999 839,988 10,000 160,001 154,000 2,320,015
</TABLE>
__________________
(1) The value realized is calculated on the basis of the fair market value of
the common stock on the date of exercise minus the exercise price. It does
not necessarily indicate that the optionee sold the stock for the amount
listed.
(2) The value of in-the-money options represents the positive spread between the
exercise price of the stock options and the fair market value of the common
stock on the date of exercise as determined by our board of directors. The
fair market value of the common stock was $15.00 per share as of June 30,
1999.
11
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
Notwithstanding any statement to the contrary in any of the Company's
previous or future filings with the Securities and Exchange Commission, this
Report of the Compensation Committee of the Board of Directors shall not be
deemed "filed" with the Commission and shall not be incorporated by reference in
any such filings. The following report is provided to stockholders by the
Compensation Committee of the Board of Directors. The members of the
Compensation Committee are Douglas L. Ayer, John D. Thornton and Scott D.
Sandell.
The Compensation Committee (the "Committee") of the Board of Directors
---------
reviews and recommends to the Board of Directors the compensation and benefits
to be provided to the executive officers of and directors of the Company and any
subsidiaries of the Company, including stock compensation and loans, and to
review and establish general policies relating to compensation and benefits of
all employees, including all bonus and stock compensation to all employees.
Compensation Philosophy
The Company's compensation philosophy is to provide compensation to the
Company's officers, directors and employees in such a manner as to attract and
retain the best available personnel for positions with the Company, to provide
incentives for such persons to perform to the best of their abilities for the
Company and to promote the success of the Company's business. The Company
endeavors to achieve its compensation goals through the implementation of
policies that are based on the following principles:
. The Company pays competitively for experienced, highly skilled
executives:
. The Company operates in a competitive and rapidly changing high
technology business environment. Executive base compensation is based
on a range of comparable salaries. The individual executive's salary
is adjusted annually based on individual performance, corporate
performance, and the relative compensation of the individual compared
to the comparable salaries.
. The Company rewards executives for superior performance:
. The Committee believes that a substantial portion of each executive's
compensation should be in the form of bonuses. Executive bonuses are
based on the attainment of corporate goals. In order to attract and
retain executives who are qualified to excel in a high technology
business environment, performance in excess of the corporate goals
results in higher bonuses.
. The Company strives to align long-term stockholder and executive
interests:
In order to align the long-term interests of executives with those of
stockholders, the Company grants all employees, and particularly
executives, options to purchase stock. Options are granted at the
fair market value on the date of grant and will provide value only
when the price of the Common Stock increases above the exercise price.
Options are subject to vesting provisions designed to encourage
executives to remain employed by the Company. Additional options are
granted from time to time based on individual performance and the
prior level of grants.
12
<PAGE>
Other elements of executive compensation include payment of life insurance
premiums, Company-wide medical benefits, the employee stock purchase plan and
the ability to defer compensation pursuant to a 401(k) plan.
Compensation of Michael S. Bennett, President and Chief Executive Officer
During 1999, the compensation of Mr. Bennett was determined by applying the
same criteria discussed at the beginning of this report used to determine
compensation and bonuses for all executive officers. Mr. Bennett's compensation
for 1999 is set forth in the Summary Compensation Table appearing on page 10.
Based on the Company's quarterly performance during 1999, Mr. Bennett was paid a
quarterly bonus based on the degree to which corporate goals were attained.
Tax Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") limits the federal income tax deductibility of compensation in excess of
----
$1,000,000 paid to the Company's Chief Executive Officer and to each of the
other four most highly-compensated executive officers. The Company may deduct
such compensation only to the extent that during any fiscal year the
compensation paid to such individual does not exceed $1,000,000 or meet certain
specified conditions (including stockholder approval). Based on the Company's
current compensation plans and policies and proposed regulations interpreting
this provision of the Code, the Company and the Committee believe that, for the
near future, there is little risk that the Company will lose any significant tax
deduction for executive compensation.
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors established its compensation committee in
December 1997. Prior to establishing the compensation committee, the Company's
board of directors as a whole performed the functions delegated to the
compensation committee. No interlocking relationship exists between any member
of the Company's compensation committee and any member of any other company's
board of directors or compensation committee.
COMPENSATION COMMITTEE
Douglas L. Ayer
John D. Thornton
Scott D. Sandell
13
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of ownership
on Form 3 and changes in ownership on Forms 4 or 5 with the Securities and
Exchange Commission (the "SEC"). Such officers, directors, and 10% stockholders
---
are also required by SEC rules to furnish the Company with copies of all Section
16(a) reports they file. The Company's officers, directors, and 10%
stockholders did not become reporting persons under Section 16(a) until the
Company's initial public offering in August 1999. As a result, no filings were
made during the year ended June 30, 1999. However, each officer and director
timely filed their respective initial ownership report on Form 3.
EMPLOYMENT CONTRACTS; SEVERANCE, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Employment Agreements
The Company has entered into the following employment, noncompete and
change in control arrangements and agreements with its Named Executive Officers.
Michael S. Bennett, the Company's Chairman of the Board, Chief Executive
Officer and President, entered into an offer letter with the Company dated April
13, 1998 under which he is entitled to acceleration of 100% of his then unvested
option grants if after the first anniversary of his employment and prior to the
fourth such anniversary, the Company is acquired by another company and he is:
. terminated;
. assigned a position of lesser responsibility or compensation in the
resulting organization; or
. required to relocate.
Mr. Bennett will have twelve months following his separation from the
Company or its successor, regardless of whether his termination is voluntary or
involuntary, to exercise his vested options. Mr. Bennett is also entitled to
severance payments of $200,000 in the event that he is terminated other than for
cause.
Thomas P. Bernhardt, the Company's Chief Technology Officer, entered into
an employment agreement with the Company dated January 1, 1997. This agreement
provides that Mr. Bernhardt is entitled to severance equal to six months salary
in the event he is terminated without cause by the Company. Mr. Bernhardt has
agreed that for a period of one year after his separation from the Company,
regardless of the reason, he will not:
. engage in direct competition with the Company;
. conduct a business of the type or character engaged in by the Company
at the time of his separation; or
. develop, market, sell and/or distribute products or services directly
competitive with the Company. Mr. Bernhardt has also agreed to not
employ any of the Company's employees or induce or attempt to
influence any of the Company's employees to voluntarily terminate his
14
<PAGE>
or her employment with the Company other than those employees not
directly involved in the development, marketing, sales and/or
distribution of the Company's products or services during Mr.
Bernhardt's employment.
Stephen E. Odom, the Company's Chief Operating Officer, Chief Financial
Officer, Treasurer and Secretary, entered into an offer letter with the Company
dated April 13, 1998 under which he is entitled to acceleration of 100% of his
then unvested options if after the first anniversary of his employment and prior
to the fourth such anniversary, the Company is acquired by another company and
he is (1) terminated or (2) assigned a position of lesser responsibility or
compensation in the resulting organization, Mr. Odom will have twelve months
following his separation from the Company or its successor to exercise his
vested options, regardless of whether his termination is voluntary or
involuntary. Mr. Odom is also entitled to severance payments of six months of
his then-current salary in the event that he is terminated other than for cause.
Brian J. McGrath, the Company's Vice President of Sales, entered into an
employment agreement with the Company dated August 6, 1997 and a letter
agreement dated January 13, 1999 intended to clarify the terms of his employment
agreement. These agreements provide that Mr. McGrath is entitled to severance
equal to six months salary upon his termination by the Company, other than for
cause. In addition, the January 1999 amendment provides that effective July 1,
1999, Mr. McGrath's compensation consists of a base salary of $200,000 and an
additional $200,000 in commissions contingent upon meeting specified operating
targets. Prior to July 1, 1999, Mr. McGrath's commission plan depended on
meeting specific operating targets and sales to specified customers. The Company
has agreed with Mr. McGrath that for a six month period after his separation
from the Company, he will not compete with the Company and will not solicit a
list of customers set forth in the January 1999 agreement as amended by the
Company from time to time. Mr. McGrath agreed that for a period of one year
following termination to not employ any of the Company's employees or induce or
attempt to influence any of the Company's employees to voluntarily terminate his
or her employment with the Company.
Olivier J. Thierry, the Company's Vice President of Product Management,
entered into an employment agreement with the Company dated February 23, 1998.
This agreement provides that Mr. Thierry is entitled to severance equal to six
months salary upon his termination by the Company, other than for cause. Mr.
Thierry has agreed that for a period of one year after his separation from the
Company, regardless of the reason, he will not (1) engage in direct competition
with the Company or (2) develop, market, sell and/or distribute products or
services directly competitive with the Company's. Mr. Thierry has also agreed
for a period of two years following termination to not employ any of the
Company's employees or induce or attempt to influence any of the Company's
employees to voluntarily terminate his or her employment with the Company.
Under the February 23, 1998 agreement, the Company also agreed to grant Mr.
Thierry a relocation loan of $80,000. This noninterest bearing relocation loan
is due and payable in February 2002. The Company agreed to forgive the principal
and interest due on the relocation loan in the amount of 1/48th per month for
each month Mr. Thierry remains the Company's employee. In addition, the Company
also agreed to provide additional payments to make Mr. Thierry whole for any
taxes payable upon the income realized from the loan forgiveness, net of any
deductions Mr. Thierry is entitled to claim for moving expenses. The Company
also agreed to forgive the balance of the relocation loan in the event that:
. Mr. Thierry is terminated other than for cause or he voluntarily
leaves the Company;
15
<PAGE>
. the Company is acquired by another company and Mr. Thierry's position
is eliminated, downgraded, modified or geographically transferred; or
. new senior management replaces Mr. Thierry with another individual in
the same position other than for cause.
In the fiscal year ended June 30, 1999, the Company paid $79,303 to Mr.
Thierry for loan forgiveness and tax reimbursement.
Company Performance
The Company's Common Stock was registered under Section 12 of the Exchange
Act on August 4, 1999. Accordingly, no Company performance graph is available
for the fiscal year end.
16
<PAGE>
ADDITIONAL MATTERS
As of the date of this Proxy Statement, management knows of no matters that
will be presented for determination at the meeting other than those referred to
herein. If any other matters properly come before the Annual Meeting calling for
a vote of stockholders, it is intended that the shares of Common Stock
represented by the proxies solicited by the Board of Directors will be voted by
the persons named therein in accordance with their best judgment.
By Order of the Board of Directors
Dated: October 1, 1999
17
