TOUCHSTONE SOFTWARE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 27, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
TouchStone Software Corporation (the "Company") will he held on Monday, October
27, 1997, at 10:00 a.m., local time, at the Double Tree Hotel, 3050 Bristol
Street, Costa Mesa, California to act on the following matters:
1. To elect five directors of the Company to serve until the next
Annual meeting or the election of their successors.
2. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement
accompanying this Notice.
Only stockholders of record at the close of business on September 15, 1997
are entitled to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors
Larry W. Dingus
Chairman of the Board of Directors
Huntington Beach, California
September 15, 1997
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
All Stockholders are cordially invited to attend in person. However, to
ensure your representation at the meeting, please mark, sign, date and return
the enclosed proxy card as soon as possible in the enclosed postage-paid
envelope. If you attend the meeting, you may vote in person even if you have
previously returned a proxy.
- --------------------------------------------------------------------------------
<PAGE>
TOUCHSTONE SOFTWARE CORPORATION
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
General
The enclosed proxy is solicited on behalf of the Board of Directors of
TouchStone Software Corporation (the "Company" or TouchStone") for use at the
Annual Meeting of Stockholders to be held on October 27, 1997, at 10:00 a.m.,
local time, or at any adjournment or postponement thereof, for purposes set
forth herein. The Annual Meeting will he held at the Double Tree Hotel, 3050
Bristol Street, Costa Mesa, California.
The Company's telephone number is (714) 969-7746. This Proxy Statement
and the accompanying proxy card are being mailed to stockholders on or about
September 15, 1997.
Proxies
If any stockholder is unable to attend the Annual Meeting, such
stockholder may vote by proxy. The enclosed proxy is solicited by the Company's
Board of Directors, (the "Board of Directors" or the "Board") and, when the
proxy card is returned properly completed, it will be voted as directed by the
stockholder on the proxy card. Stockholders are urged to specify their choices
on the enclosed proxy card. If a proxy card is signed and returned without
choices specified, in the absence of contrary instructions, the shares of Common
Stock represented by such proxy will be voted "FOR" the election of all five
nominee directors specified herein and will be voted in the proxy holders'
discretion as to other matters that may properly come before the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by (i) delivering to the Company at the
Company's principal executive office, 2124 Main Street, Suite 250, Huntington
Beach, California 92648, Attention: Chief Financial Officer, a written notice of
revocation or duly executed proxy bearing a later date, or (ii) attending the
Annual Meeting and voting in person.
The cost of soliciting proxies will be borne by the Company. The
Company expects to reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by certain of the
Company's directors, officers and regular employees in person or by telephone or
facsimile. No additional compensation will be paid to directors, officers or
other regular employees for such services.
Share Ownership and Voting
Only holders of Common Stock of record at the close of business on
September 15, 1997, the record date as fixed by the Board of Directors, are
entitled to vote at the meeting. At the record date, approximately 7,852,110
shares of the Company's Common Stock were issued and outstanding, held by
approximately 3300 stockholders of record.
Each share of Common Stock outstanding on the record date is entitled
to vote. A majority of the shares of Common Stock will constitute a quorum for
the transaction of business at the Annual Meeting. Except to the extent that a
stockholder withholds votes for the nominees, the proxy holders named in the
accompanying form of proxy, in their sole discretion, will vote such proxy for
the election of the nominees listed below as directors of the Company.
An affirmative vote of a majority of the shares of Common Stock present
and voting at the meeting is required for approval of all items being submitted
to the stockholders for their consideration. An automated system administered by
the Company's transfer agent tabulates stockholder votes. Under the Company's
bylaws and Delaware law, shares represented by proxies that reflect abstentions
or "broker non-votes" (i.e., shares held by a broker or nominee which are
represented at the Meeting, but with respect to which such broker or nominee is
not empowered to vote on a particular proposal) will be counted as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. Any shares not voted (whether by abstention, broker non-vote or
otherwise) will have no impact in the election of directors, except to the
<PAGE>
extent that the failure to vote for an individual results in another individual
receiving a larger proportion of votes. American Securities Transfer & Trust,
Inc. ("AST"), the transfer agent and registrar for the Common Stock, has been
approved by the Board of Directors to serve as Inspector of Election at the
Meeting. All proxies and ballots delivered to AST shall be kept confidential by
AST.
The Annual Report of the Company for the fiscal year ended December 31,
1996 is being mailed to all of the Company's stockholders with this Proxy
Statement. The Annual Report is not incorporated into this Proxy Statement and
is not considered proxy soliciting material.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock
of the Company as of September 15, 1997, by (a) each person known by the Company
to own beneficially more than 5% of the outstanding Common Stock; (b) the Chief
Executive Officer of the Company; (c) each of the named executive officers of
the Company referred to below under "EXECUTIVE COMPENSATION AND OTHER
INFORMATION"; (d) each director of the Company; and (e) all directors and
executive officers as a group. Except as otherwise indicated, the address of
each holder identified below is in care of the Company, 2124 Main Street, Suite
250, Huntington Beach, California 92648.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Approximate
Name Owned Percent Owned
- ------------------------------------------------ ----------------- --------------
<S> <C> <C>
Larry W. Dingus(2).............................. 267,253 3.4%
Larry S. Jordan(3).............................. 258,000 3.3%
Ronald R. Maas(4)............................... 382,000 4.8%
C. Shannon Dingus(5)............................ 721,518 9.0%
Kenneth C. Welch III(6)......................... 238,574 3.0%
All executive officers and directors as
a group (5 persons)(7)..................... 1,867,345 22.5%
- ---------------
<FN>
(1) Except as indicated in the footnotes to this table, the stockholders
named in the table are known to the Company to have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable. As of September 15, 1997, an aggregate of 7,852,110 shares
of Common Stock were outstanding.
(2) Includes options to purchase 134,883 shares exercisable on or before October 27, 1997.
Does not include 721,518 beneficially owned by C. Shannon Dingus (wife).
(3) Includes options to purchase 50,000 shares exercisable on or before October 27, 1997.
(4) Includes options to purchase 80,000 shares exercisable on or before October 27, 1997.
(5) Includes options to purchase 134,300 shares exercisable on or before October 27, 1997.
Does not include 267,253 shares beneficially owned by Larry Dingus (husband)
(6) Includes options to purchase 52,000 shares exercisable on or before October 27, 1997.
(7) Includes officers' and directors' shares listed above.
</FN>
</TABLE>
3
<PAGE>
PROPOSAL NO. 1
--------------
ELECTION OF DIRECTORS
A board of five directors will be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the five nominees to the Board of Directors named below. Each of the
nominees is a current member of the Company's Board of Directors. If a nominee
is unable or declines to serve as a director at the time of the Annual Meeting,
the proxies will be voted for any nominee designated by the proxy holders to
fill such vacancy. However, it is not expected that any nominee will be unable
or will decline to serve as a director. If a nomination is made to elect an
individual to the vacant position on the Board, the proxy holders will propose a
nominee to fill such position and vote all proxies received by them. If
stockholders nominate persons other than the Company's nominees for election as
directors, the proxy holders will vote all proxies received by them. The term of
office of each person elected as a director will continue until the next Annual
Meeting of Stockholders or until the director's successor has been elected.
The Company's Board of Directors recommends that stockholders vote FOR
the nominees listed below:
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
--------------- --- -------------------- -----
<S> <C> <C> <C>
Larry W. Dingus...................... 53 Chairman of the Board of Directors 1982
Larry S. Jordan...................... 53 President and Chief Executive Officer 1996
of the Company
Ronald R. Maas....................... 51 Executive Vice President, Chief 1993
Financial Officer and Secretary
C. Shannon Dingus.................... 50 Chief Technology Officer 1982
Kenneth C. Welch III................. 40 Independent Software Consultant 1993
</TABLE>
Business Experience of Nominees for Election as Directors
Larry W. Dingus, age 53, has served as Chairman of the Company's Board
of Directors since the Company was founded in September 1982, and served as
Secretary of the Company from 1989 to October 1995. He resigned as President of
the Company on February 15, 1988, and as Chief Executive Officer of the Company
on February 16, 1989, posts he had held since September 1982.
Larry Jordan, age 53, joined the Company in January 1996 as President
and Chief Operating Officer. In June 1996, Mr. Jordan replaced C. Shannon Dingus
as Chief Executive Officer of the Company. Prior to joining the Company, Mr.
Jordan was with FileNet Corporation, a leading developer of workflow and
document imaging software, from 1984 to 1996, holding the position of Senior
Vice President of Sales since 1992.
Ronald R. Maas, age 51, joined the Company in 1991 as Vice President of
Finance and Operations and Chief Financial Officer. In 1993, Mr. Maas was
promoted to Executive Vice President of the Company, and was elected to the
Company's Board of Directors. In October 1995 he was elected Corporate
Secretary. Prior to joining the Company, Mr. Maas served from March 1990 through
January 1991 as the Controller of Bell & Howell Quintar Company, a manufacturer
of computer peripheral equipment.
C. Shannon Dingus, age 50, has served as the Company's Chief Technology
Officer since June 1996. Between February 1989 and June 1996, Ms. Dingus served
as the Company's Chief Executive Officer. She served as the Company's President
from March 1988 until January 1996. She served as the Company's Vice President
of Marketing from September 1982 until January 1986, when she became the
Company's Executive Vice President, and since September 1982, she has also
served as a Director.
Kenneth C. Welch III, age 40, has been a Director of the Company since
August 1993. From September 1985 to the present, he has worked as an independent
software consultant in the Washington, DC area. From September 1982 to May 1985
he served as the Company's Vice President of Development, and was a Director of
the Company from September 1982 to August 1986.
4
<PAGE>
Executive Officers
The following table sets forth the name, age and position with the
Company of each of the executive officers of the Company. The executive officers
serve at the pleasure of the Board of Directors of the Company. Biographical
information with respect to each of the Company's executive officers is set
forth under the caption "ELECTION OF DIRECTORS" above.
<TABLE>
<CAPTION>
Name Age Position
- ------------------------- --------- -----------------------------------------------------
<S> <C> <C>
Larry S. Jordan 53 President and Chief Executive Officer
Ronald R. Maas 51 Executive Vice President, Chief Financial Officer and
Secretary
C. Shannon Dingus 50 Chief Technology Officer
</TABLE>
Board Meetings and Committees
During 1996, the Company's Board of Directors held 4 regular and 2 special
meetings and otherwise took action by written consent. The Board has established
an Executive Committee comprised of Ms. Dingus, Mr. Jordan and Mr. Maas and an
Options Committee comprised of Mr. Jordan and Mr. Maas. The Executive Committee
acts on behalf of the Board in all day to day operating activities. The Options
Committee determines the persons, other than the Executive Committee, entitled
to participate in stock option plans.
The Board has also established an Audit Committee, which is presently
comprised of non-employee directors Mr. Dingus and Mr. Welch, which meets to
consult with the Company's independent auditors concerning their engagement and
audit plan, and thereafter concerning the auditors' report, and management
letter, and with the assistance of the independent auditors, also monitors the
adequacy of the Company's internal accounting controls.
The Compensation Committee, which also consisted of non-employee directors
Mr. Dingus, Mr. Welch and Mr. Brail (who is not standing for re-election) in
1996, held one regularly scheduled meeting during the last fiscal year. The
Compensation Committee reviews and makes recommendations to the Board concerning
the Company's executive compensation policy, bonus plans and incentive stock
option plans, and approves the granting of stock options to officers.
The Board of Directors meets as a committee of the whole to nominate the
individuals to be proposed by the Board of Directors for election as directors
of the Company, and has no separate nominating committee.
Compensation of Directors
Non-employee directors are paid an annual retainer of $1,200 plus $100 per
each board meeting attended and each board meeting and committee meeting
attended. The Company pays the expenses incurred by its non-employee directors
in attending Board meetings. No additional compensation is paid to any of the
employee directors.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10 percent of the
Company's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (SEC). Officers, directors, and
greater than 10 percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Management
believes all such individuals were in compliance with Section 16(a) at December
31, 1996, except Mr. L.W. Dingus who failed to timely file a Form 4. This report
was subsequently filed.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning
compensation paid or accrued by the Company to the Company's Chief Executive
Officer and each of the three other most highly compensated executive officers
of the Company whose combined annual salary and bonus exceed $100,000
(determined as of December 31, 1996) (referred to herein as the "named executive
officers") for the fiscal years ended December 31, 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation for
services in all capacities paid or accrued for the fiscal years indicated by the
Company to each of the officers identified above.
<TABLE>
<CAPTION>
Other All
Annual Restricted Other
Compensation Stock Awards Options/SARs LTIP Compen-
Name and Principal Position(1) Year Salary ($) Bonus ($) ($) ($) (#) Payouts sation
- ------------------------------------ ---- ---------- -------- -------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry W. Dingus .................... 1996 51,429 0 0 0 0 0 0
Chairman of the Board of Directors . 1995 71,489 73,289 0 0 0 0 0
1994 95,333 73,683 0 0 138,300 0 0
Larry S. Jordan .................... 1996 162,824 0 0 0 200,000 0 0
Chief Executive Officer and Director 1995 (1)
1994
C. Shannon Dingus .................. 1996 126,659 0 0 0 0 0 0
Chief Technology Officer 1995 125,750 88,911 0 0 0 0 0
1994 112,400 89,657 0 0 138,300 0 0
Ronald R. Maas ..................... 1996 95,141 0 20,024(2) 0 0 0 0
Executive Vice President 1995 85,862 43,444 0 0 0 0 0
and Director 1994 83,800 47,449 0 0 92,467 0 0
- ---------------
<FN>
(1) Mr. Jordan was first employed as President in January 1996.
(2) Represents income recognized upon the exercise of 8,467 stock purchase warrants in July 1996.
</FN>
</TABLE>
Option Grants in Last Fiscal Year
The Company did not grant stock appreciation rights in 1996 to any of
the named executive officers. Grants of stock options to the named executive
officers in 1996 are summarized in the following table.
<TABLE>
<CAPTION>
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise Expiration
Name Granted in 1996 Price Date
---- ------- ------- ----- ----
<S> <C> <C> <C> <C>
L.S Jordan 200,000 47.7% $2.55 12-28-2005
</TABLE>
6
<PAGE>
Aggregated Option Exercises in 1996 and Option Values as of December 31, 1996
The value of options exercised in 1996 and the value of unexercised options
at December 31, 1996, for each of the named executive officers are:
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Options/SARs at In-the-Money
12/31/96(#) Options/SARs at
Shares 12/31/96($)
Acquired on Value Exercisable(1)/ Exercisable(1)/
Name Exercise(#) Realized($) Unexercisable(2) Unexercisable(2)
---- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
L.W. Dingus 0 0 134,883(1) $262,078(1)
L.S. Jordan 0 0 50,000(1) 0(1)
150,000(2) 0(2)
C.S. Dingus 0 0
134,000(1) $260,845(1)
R.R. Maas 8,467 20,024 80,000(1) $155,600(1)
</TABLE>
The value of unexercised in-the-money options is determined by using
the difference between the exercise price and the average bid price at December
31, 1996.
Employment Agreements
The Company has entered into an employment agreement with each of its
three executive officers. Ms. Dingus and Mr. Maas have one-year agreements that
automatically renew, on January 1 of each year unless either party gives notice
by December 1. Mr. Jordan has a three-year agreement commencing January 16, 1996
that automatically renews, for a one-year term each year on January 16, unless
either party gives notice by December 16. Each agreement provides that, upon
termination of employment with the Company for any reason other than cause, the
executive officer will continue to receive compensation at the level in effect
on the date of termination of employment for the remainder of the contract or
nine months, whichever is longer. In the event that the termination of
employment of any of the executive officers occurs following a change in control
of the Company, the exercisability of all stock options and warrants held by the
terminated officer will automatically be accelerated, and the purchase price of
all shares of the Company's Common Stock issuable upon exercise of such options
and warrants can be paid by the terminated executive pursuant to a promissory
note due and payable in two years.
Bonus Plan
The Company established a bonus plan for the years ending December 31,
1996 and 1997 (the "Bonus Plan"). Under the Bonus Plan, participants selected by
the Board of Directors were eligible to receive bonuses determined quarterly
based upon the Company's net income before taxes for the quarter, with 60% of
the earned bonus payable following the end of the quarter. The 40% balance of
the earned bonus will be deferred until the end of the year. The bonuses will be
payable only if the maximum payable to all participants in the Bonus Plan, as a
group, is that amount which does not exceed 18.5% of the Company's pre-tax
income for any quarter or the full year, as appropriate. Each of the named
executive officers was eligible to participate in the Bonus Plan. No bonuses
were paid to any of these executive officers in 1996 under the Bonus Plan.
Employee Stock Purchase Plan
In August 1994, the Company's Board of Directors adopted an employee
stock purchase plan pursuant to which an aggregate of 260,900 shares of Common
Stock were sold to a total of 21 employees, including 20,000 shares purchased by
each of Mr. Dingus, Ms. Dingus and Mr. Maas. Each participating employee was
entitled to purchase, for cash, promissory notes, or through semi-monthly
payroll deductions, up to 20,000 shares of Common Stock at $.22 per share, which
price was equal to 85% of the most recent bid price per share of the Common
Stock. In addition, each participant received a warrant to purchase, at any time
prior to August 14, 1997, one additional share of Common Stock, at the same
price per share, for every share purchased under the employee stock purchase
plan. In 1994, Mr. Dingus, Ms. Dingus and Mr. Maas each purchased 20,000 shares
of the Company's Common Stock by providing non-interest bearing notes to the
Company in the principal amount of $4,400 each. These notes were paid in full in
August 1995.
7
<PAGE>
Certain Relationships and Related Transactions
Mr. Dingus and Ms. Dingus are related by reason of marriage.
Limitation of Directors' and Officers' Liability and Indemnification
The Company's Bylaws provide that the Company may indemnify its
officers and directors, employees and other agents in certain circumstances. As
described more fully in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996, the Company and Larry W. Dingus, C. Shannon
Dingus, Ronald R. Maas, Kenneth C. Welch III, Donald C. Watters, and Sigmund
Fidyke III were named as defendants in three purported class and derivative
actions alleging violations of federal securities laws and various state
statutes sounding in fraud. The cases were consolidated and a settlement has
been reached. On April 17, 1997, the United States District Court entered a
final order approving the settlement and dismissing the class action in its
entirety. The basic terms of the settlement call for the establishment of a
settlement fund consisting of $500,000 cash and 200,000 newly issued shares of
the Company's stock.
In accordance with the Company's Bylaws and Delaware law, the Company
has agreed to advance all expenses incurred in defending such actions upon
receipt from each of the individual defendants of a written undertaking to repay
the expenses advanced by the Company for their respective accounts if it is
determined ultimately that any of them is not entitled to be indemnified by the
Company. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to officers, directors or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
8
<PAGE>
INDEPENDENT AUDITORS
Selection of the independent auditors will be made by the Board of
Directors upon consultation with the Audit Committee. The Company's independent
auditors for the fiscal year ended December 31, 1996 were Deloitte & Touche LLP.
The Board of directors will vote upon the selection of auditors for the current
fiscal year at a future Board meeting. Representatives of Deloitte & Touche LLP
are expected to attend the Annual Meeting and be available to respond to
appropriate questions.
STOCKHOLDERS PROPOSALS FOR 1998 ANNUAL MEETING
Proposals to be presented by stockholders of the Company at the 1998
Annual Meeting must be received by the Company at its principal executive office
not less than 30 days nor more than 60 days prior to the scheduled date of the
meeting (or, if less than 40 days' notice or prior public disclosure of the date
of the meeting is given, the 10th day following the earlier of (i) the day such
notice was mailed or (ii) the day such public disclosure was made) to be
considered for inclusion in the proxy statement and form of proxy relating to
the 1998 Annual Meeting of Stockholders.
Under Rule 14a-8 adopted by the Commission under the Exchange Act,
proposals of stockholders must conform to certain requirements as to form and
may be omitted from the proxy statement and proxy under certain circumstances.
In order to avoid unnecessary expenditures of time and money by stockholders,
stockholders are urged to review this rule and, if questions arise, to consult
legal counsel prior to submitting a proposal.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1996 is being mailed to all of the Company's stockholders with this
Proxy Statement. Any stockholders entitled to notice of and to vote at the
Annual Meeting who have not previously received a copy of the Annual Report may
obtain one by contacting the Company at (714) 969-7746. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy soliciting
material.
FORM 10-KSB
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN
REQUEST A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1996, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF
EXHIBITS. REQUESTS SHOULD BE SENT TO CORPORATE COMMUNICATIONS, TOUCHSTONE
SOFTWARE CORPORATION, 2124 MAIN STREET, SUITE 250, HUNTINGTON BEACH, CALIFORNIA
92648.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, the persons named in the
accompanying form of proxy will vote the shares represented by proxy as the
Board of Directors may recommend or as the proxy holders, acting in their sole
discretion, may determine.
By Order of the Board of Directors
Larry W. Dingus
Chairman of the Board of Directors
Dated: September 15, 1997
9
