<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TouchStone Software Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
TouchStone Software Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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TOUCHSTONE SOFTWARE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 30, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders of
TouchStone Software Corporation (the "Company") will he held on July 30, 1999 at
10:00 a.m., local time, at the _____________________, California _________ to
act on the following matters:
1. To elect four directors of the Company to serve until the next Annual
meeting or the election of their successors.
2. To consider and vote upon a proposal to approve the issuance of
3,350,000 shares of the Company's Common Stock as payment of the balance of
the purchase price payable by the Company in connection with the Company's
March 8, 1999 acquisition of Unicore Software, Inc.
3. 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 June 22, 1999 are
entitled to notice of and to vote at the Annual Meeting.
The Company's Board of Directors has unanimously recommended that the
stockholders of the Company vote FOR the election of each of the director
nominees identified in the Proxy Statement, and FOR the approval of the proposal
to issue shares of the Company's Common Stock as payment of the balance of the
Unicore purchase price.
By Order of the Board of Directors
Larry W. Dingus,
Chairman of the Board of Directors
Huntington Beach, California
June __, 1999
________________________________________________________________________________
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.
________________________________________________________________________________
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TOUCHSTONE SOFTWARE CORPORATION
PROXY STATEMENT
1999 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 (the "Annual Meeting") to be held on July 30,
1999, at 10:00 a.m., local time, or at any adjournment or postponement thereof,
for purposes set forth herein. The Annual Meeting will be held at the
__________________________________.
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 June
__, 1999.
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 four nominee directors
specified herein and "FOR" approval of the issuance of 3,350,000 shares of the
Company's Common Stock as payment of the balance of the purchase price for the
acquisition of Unicore Software, Inc. ("Unicore"), 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 June 22,
1999, the record date as fixed by the Board of Directors, are entitled to vote
at the meeting. At the record date, approximately 7,990,060 shares of the
Company's common stock were issued and outstanding, and held by approximately
3,100 stockholders of record, and there were approximately 3,700 shareholders
whose shares are held in "street" or "nominee" names.
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
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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 Annual 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 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 Annual Meeting. All proxies and ballots delivered
to AST shall be kept confidential by AST.
The Company's 1998 Annual Report to Stockholders is being mailed to all of
the Company's stockholders with this Proxy Statement. The Annual Report to
Stockholders includes the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1998, as well as the Company's Current Report on Form 8-
K/A which was filed with the Securities and Exchange Commission on May 24, 1999
which contains audited financial statements of Unicore and certain pro forma
combined financial information, both without exhibits filed therewith. These
documents are not incorporated into this Proxy Statement and are not considered
proxy-soliciting material.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of common stock of
the Company as of June 22, 1999, by (a) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock; (b) each of the named
executive officers of the Company referred to below under "EXECUTIVE
COMPENSATION AND OTHER INFORMATION"; (c) each director of the Company; and (d)
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 Approximate
Name Beneficially Owned/(1)/ Percent Owned
- -------------------------------------- ----------------------- -------------
<S> <C> <C>
Larry S. Jordan 436,550/(2)/ 5.3%
C. Shannon Dingus 384,955/(3)/ 4.7%
Larry W. Dingus 379,753/(4)/ 4.7%
Ronald R. Maas 271,260/(5)/ 3.4%
Kenneth C. Welch III 253,574/(6)/ 3.2%
Pierre A. Narath 130,000/(7)/ 1.6%
Jason K. Raza - -
All Directors and Executive Officers
as a Group (5 individuals) 1,034,587/(8)/ 12.5%
</TABLE>
/(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. Excludes options that are not exercisable within 60 days of
the date of this Proxy Statement. As of June 22, 1999, an aggregate of
7,990,060 shares of common stock were outstanding.
/(2)/ Includes options to purchase 228,550 shares that currently are
exercisable.
/(3)/ Includes options to purchase 158,737 shares that currently are
exercisable. Does not include 232,370 shares of common stock or 147,383
shares of common stock issuable pursuant to currently exercisable options
that are beneficially owned by Larry W. Dingus (husband), with respect to
which Ms. Dingus disclaims beneficial ownership
/(4)/ Includes options to purchase 147,383 shares that currently are
exercisable. Does not include 226,218 shares of common stock or 158,737
shares issuable pursuant to currently exercisable options that are
beneficially owned by C. Shannon Dingus (wife), with respect to which Mr.
Dingus disclaims beneficial ownership.
/(5)/ Includes options to purchase 96,350 shares that currently are
exercisable.
/(6)/ Includes options to purchase 67,000 shares that currently are
exercisable.
/(7)/ Includes options to purchase 5,000 shares that currently are exercisable.
/(8)/ Includes officers' and directors' shares listed above, but does not
include 2,680,000 shares issuable to Mr. Narath or 670,000 shares
issuable to Mr. Raza in payment of the balance of the Unicore purchase
price. Assuming that 3,350,000 shares of the Company's Common Stock are
issued in payment of the balance of the Unicore purchase price, a total
of 11,340,060 shares would then be outstanding, of which Mr. Narath would
own beneficially 2,810,000 shares, or approximately 24.8%, and Mr. Raza
would own beneficially 670,000 shares, or approximately 5.9%.
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PROPOSAL NO. 1
--------------
ELECTION OF DIRECTORS
A board of four directors will be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR all four of the 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>
Pierre A. Narath................. 35 Chief Executive Officer and President 1998
Larry W. Dingus.................. 55 Chairman of InfoQuest Foundation 1982
Ronald R. Maas................... 53 Executive Vice President and Secretary 1993
Kenneth C. Welch III............. 41 Independent Software Consultant 1993
</TABLE>
Business Experience of Nominees for Election as Directors
Pierre Narath has served as President and Chief Executive Officer since
January 1999 and as a Director since July 1998. Mr. Narath served as Vice
President of Award Software International, Inc. and President of Unicore
Software, Inc. since May 1997. From February 1990 to May 1997, Mr. Narath
founded and served as President of Unicore Software, Inc.
Larry W. Dingus served as Chairman of the Company's Board of Directors from
1982 to June 1998, and from December 1998 to the present. Mr. Dingus also served
as Secretary of the Company from 1989 to 1995, and as Chief Executive Officer of
the Company from 1982 to 1989.
Ronald R. Maas served as Chief Financial Officer of the Company from 1991
to March 1999, and has served as Executive Vice President and as a director of
the Company since 1993. Mr. Maas has also served as the Corporate Secretary
since 1995.
Kenneth C. Welch III has served as a director of the Company since 1993.
From 1985 to the present, he has worked as an independent software consultant
and runs NewsReader.Com in the Washington DC area. From 1982 to 1985 he served
as the Company's Vice President of Development and served as a director of the
Company from 1982 to 1986.
<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, subject to the terms
of employment agreements with said officers. Biographical information with
respect to Messrs. Narath and Maas is set forth under the caption "ELECTION OF
DIRECTORS" above.
Name Age Position
- ---- --- --------
Pierre A. Narath 35 President and Chief Executive Officer
Ronald R. Maas 53 Executive Vice President and Secretary
Calvin Leong 39 Chief Financial Officer
Jason K. Raza 37 Vice President
Jason Raza has served as Vice President of Unicore Software Corporation
since 1990, and has served as Vice President of the Company since March 11,
1999.
Calvin Leong was elected to the position of Chief Financial Officer of the
Company on March 1, 1999. Mr. Leong served as Controller at Phoenix
Technologies from September 1998 to January 1999, and as Manager of Financial
Planning and Analysis for Award Software from December 1994 to September 1998.
Board of Director Meetings and Committees
During 1998, the Company's Board of Directors held eleven regular meetings
and otherwise took action by written consent.
The Board has established an Audit Committee, comprised of three directors,
Mr. Dingus, Mr. Welch, and Mr. Maas, the majority of whom are non-employees. The
Audit Committee meets to consult with the Company's independent auditors
concerning their engagement and audit plan. Thereafter the committee provides
consultation regarding 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 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
Each non-employee director is paid an annual retainer of $12,000, or the
equivalent in an auto allowance. The Company pays the expenses incurred by its
non-employee directors in attending Board meetings. In January 1998, the
Company issued a 10-year option to purchase 10,000 shares of common stock, at an
exercise price of $1.72 per share, with a four-year vesting schedule, to Mr.
Dingus for serving on the Company's Board of Directors. In October 1998, the
Company issued a 10-year option to purchase 20,000 shares of common stock, at an
exercise price of $.69 per share, with a four-year vesting schedule, to Mr.
Narath for serving on the Company's Board of Directors. In December 1998, the
Company issued a 10-year option to purchase 10,000 shares of common stock, at an
exercise price of $1.00 per share, with a two-year vesting schedule, to Mr.
Welch for serving on the Company's Board of Directors. No additional
compensation is paid to any of the employee directors.
<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 the other executive officer of the Company whose combined annual
salary and bonus exceed $100,000 (determined as of December 31, 1998) (referred
to herein as the "named executive officers") for the fiscal years ended December
31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Other Restricted
Name & Annual Stock All Other
Principal Compen- Awards Options/ LTIP Compen-
Position Year Salary ($) Bonus ($) sation ($) ($) SAR (#) Payouts sation
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
P.A. Narath 1998 N/A N/A N/A N/A 20,000 N/A N/A
Chief Executive 1997 N/A N/A N/A N/A 0 N/A N/A
Officer, President 1996 N/A N/A N/A N/A 0 N/A N/A
and Director
R. R. Maas 1998 101,149 0 0 0 0 0 0
Exec. V. P. and 1997 93,570 0 0 0 45,400 0 0
Director 1996 95,141 0 20,024 /(1)/ 0 0 0 0
</TABLE>
/(1)/ Represents income recognized upon the exercise of 8,467 stock purchase
warrants in July 1996.
The foregoing table does not include $257,765 in 1998 and $169,167 in 1997
paid to Larry S. Jordan, who served as the President and Chief Executive Officer
of the Company until he resigned in June 1998, nor $242,502 paid to Kenneth S.
Forbes, who became the Company's President and Chief Executive Officer in August
1998 and held those offices until his resignation in December 1998.
Option Grants in Last Fiscal Year
The Company did not grant stock appreciation rights in 1998 to any of the
executive officers named above. Grants of stock options to the named executive
officers in 1998 are summarized in the following table.
<TABLE>
<CAPTION>
Number of Securities % of Total Options Avg.
Underlying Options Granted to Employees Exercise Expiration
Name Granted in 1998 Price Date
- ---- ------- ------- ----- ----
<S> <C> <C> <C> <C>
P. A. Narath 20,000 2.90% $0.69 2008
</TABLE>
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Aggregated Option Exercises in 1998 and Option Values as of December 31, 1998
No options were exercised in 1998 by any of the named executive officers.
The value of unexercised options at December 31, 1998, for each of the executive
officers named above are as follows:
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised
Options/SARs at In-the-Money
12/31/98 (#) Options/SARs at
Shares 12/31/98 ($)
Acquired on Value Exercisable/(1)/ Exercisable/(1)/
Name Exercise (#) Realized ($) Unexercisable/(2)/ Unexercisable/(2)/
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
P. A. Narath 0 0 20,000/(2)/ $ 1,800/(2)/
R. R. Maas 0 0 91,350/(1)/ $28,000/(1)/
34,050/(2)/ $ 0/(2)/
</TABLE>
The value of unexercised in-the-money options is determined by using the
difference between the exercise price and the average bid price for a shares of
the Company's Common Stock on December 31, 1998, which was $.78.
Employment Agreements
In connection with the acquisition of Unicore, the Company entered into
three-year employment agreements with each of Pierre A. Narath and Jason K.
Raza. For a further description of these employment agreements, see Proposal 2
below.
The Company has also entered into a one-year agreement with Mr. Maas, which
automatically renews, on January 1 of each year unless either party gives notice
by December 1. Under this agreement, Mr. Maas is entitled to receive an annual
base salary determined by the Board of Directors, which for the year ending
December 31, 1999 has been set at $90,700. This agreement provides that, upon
termination of employment with the Company for any reason other than cause, Mr.
Maas 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. Mr. Maas is also eligible to receive stock option grants
and bonuses as determined by the Company's Board of Directors.
Certain Relationships and Related Transactions
On June 10, 1998, in connection with a corporate restructuring that
resulted in charges of $778,000 included in the Company's second quarter
reported loss of $1,960,000, Larry S. Jordan resigned the office of President
and Chief Executive Officer of the Corporation. Mr. Jordan served as the
President and Chief Executive Officer of the Company and as a member of the
Company's Board of Directors from 1996 until his resignation. As a part of these
restructuring charges, Mr. Jordan was paid $15,000 per month through March 1999
according to the employment contract in force at that time, and received a
severance payment in the amount of $300,000.
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On December 31, 1998, Kenneth S. Forbes resigned the office of President
and Chief Executive Officer of the Corporation. Included in the restructuring
charges of the fourth quarter of 1998 is a severance payment to Mr. Forbes in
the amount of $161,000. Mr. Forbes was also granted an extension until December
31, 1999 to exercise a vested option for 20,000 shares.
On June 19, 1998, the Company entered into a Source Code License and Binary
Code Distribution Agreement (the "Award Agreement") with Award Software
International Inc. ("Award"), pursuant to which the Company agreed to pay Award
fees according to a specified schedule for access to and distribution rights
regarding certain proprietary computer software products and related user's
manuals, with a minimum annual fee of $200,000 per year. As a consequence of the
Company's acquisition of Unicore, the Award Agreement is no longer in effect.
Pierre A. Narath held the office of Vice President of Award, and was President
of its subsidiary Unicore Software, Inc., at the time that the Award Agreement
was entered into and subsequently became a director of the Company on July 1,
1998.
For information concerning employment agreements with and stock options
granted to executive officers and directors of the Company, see "Election of
Directors -Compensation of Directors" and "Executive Compensation and Other
Information" above.
Mr. Dingus and Ms. Dingus are husband and wife.
For a description of the terms and conditions upon which the Company
acquired all of the issued and outstanding capital stock of Unicore from Messrs.
Narath and Raza, see Proposal No. 2 below.
See Proposal No. 2 below for a description of the employment agreements
between the Company and each of Messrs. Narath and Raza.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
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 shareholders 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, 1998.
9
<PAGE>
PROPOSAL NO. 2
APPROVAL OF ISSUANCE OF 3,350,000 SHARES OF COMMON STOCK
AS PAYMENT OF THE BALANCE OF THE PURCHASE PRICE OF UNICORE
Background
Effective as of the close of business on March 8, 1999, TouchStone Software
Corporation (the "Company") acquired all of the issued and outstanding capital
stock of Unicore Software, Inc., a Massachusetts corporation ("Unicore"). At the
time of the acquisition, Unicore was privately owned by Pierre A. Narath, the
Company's President and Chief Executive Officer and a member of the Company's
Board of Directors, and Jason K. Raza, who became a Vice President of the
Company in connection with the acquisition. Unicore is a provider of system
management software, including BIOS upgrades, PC Diagnostics and Year 2000
Solutions, whose customers consist of Fortune 500 corporations, government
agencies, and educational and financial institutions. The original Unicore was
founded by Mr. Narath in 1989, and sold to Award Software International, Inc.
("Award") in 1997. On October 27, 1998, following the merger of Award with and
into Phoenix Technologies Ltd. ("Phoenix"), Messrs. Narath and Raza formed
Unicore as a new Massachusetts corporation and used it to purchase all of the
assets of the original Unicore from Phoenix.
Pursuant to the terms and conditions of a definitive Agreement and Plan of
Acquisition dated as of March 5, 1999 (the "Acquisition Agreement"), the
acquisition of Unicore was accomplished through the merger of Unicore with and
into a newly-formed and wholly-owned subsidiary of the Company, whose corporate
name was changed to Unicore Software, Inc. Immediately prior to the
acquisition, the Company contributed all of the assets, products and operations
of its personal computer diagnostic software business to this newly-formed
corporation. As a consequence, since the closing of the Unicore acquisition the
Company has served as a holding company with a single, wholly-owned subsidiary
that currently conducts the business and activities that previously were
separately conducted by both the Company and Unicore. The acquisition is being
accounted for as a purchase by the Company of the net assets of Unicore.
The acquisition of Unicore by the Company was publicly announced on March
10, 1999, and reported in the Company's Current Report on Form 8-K, which was
filed with the Securities and Exchange Commission on March 19, 1999, and amended
on May 24, 1998. The 1998 Annual Report to Stockholders which accompanies this
Proxy Statement contains the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998 and the Company's current report on Form 8-K/A which
provides audited financials of Unicore and certain pro forma combined financial
information regarding the Company and Unicore. The 1998 Annual Report to
Stockholders also contains additional information concerning Unicore, its
products and operations, and its financial condition and recent financial
results.
Terms of the Acquisition
Pursuant to the Acquisition Agreement, the former shareholders of Unicore
received a total of $1,205,000 in cash at the closing as a consequence of the
Merger. In addition, the former shareholders of Unicore are entitled to receive
an aggregate of 3,350,000 shares of the Company's Common Stock as payment of the
balance of the Unicore purchase price, assuming that the stockholders of the
Company approve the issuance thereof at the Annual Meeting. See "Payment of the
Balance of the Purchase Price" below.
In connection with the acquisition, each of Messrs. Narath and Raza entered
into a three-year employment agreement with the Company, and each was granted
"piggy-back" registration rights with respect to any and all shares of the
Company's Common Stock owned by them, including any shares issued in payment of
the balance of the purchase price. Additionally, the Company deposited the sum
of $620,000 in cash with Lawrence Savings Bank of Massachusetts, in order to
obtain the release of Mr. Narath from his personal guarantee of approximately
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$620,000 of indebtedness owed by Unicore to Lawrence Savings Bank that was
incurred in connection with the purchase of Unicore from Phoenix/Award.
Under the terms of his employment agreement, Mr. Narath is to serve as the
President and Chief Executive Officer of the Company, and as a member of its
Board of Directors, and as the President, Chief Executive Officer and a director
of Unicore which currently operates as a wholly-owned subsidiary of the Company.
The employment agreement has an initial term of three years commencing March 1,
1999, and will automatically renew for an additional one-year period on each
March 1 unless terminated by either party on six months prior written notice.
For the year ending December 31, 1999, Mr. Narath is to be paid a base salary of
$200,000, with his base salary to increase to $210,000 for the year ending
December 31, 2000 and to $225,000 for the year ending December 31, 2001. In
addition to this base salary, Mr. Narath is to be paid a bonus equal to 3.5% of
all consolidated net sales in excess of $6,000,000 generated by the Company
during the year ending December 31, 1999, plus such other bonuses as the
Company's Board of Directors may determine. Mr. Narath's employment agreement
also provides that he is entitled to receive certain specified supplemental
health and life insurance and all costs of a motor vehicle to be selected by
him, in addition to reimbursement for all of his reasonable business expenses,
and to participate in all of the Company's existing benefit plans.
Should his employment with the Company be terminated for any reason other
than "cause" as defined therein, Mr. Narath would be entitled to receive, in one
payment, an amount equal to one year's base salary at the level then in effect,
plus an amount equal to any bonuses earned during the previous calendar year.
However, if Mr. Narath's employment is terminated for any reason within one year
following a specified change in control of the Company which is not approved by
the Company's Board of Directors, with Mr. Narath voting in favor thereof, the
Company would be obligated to pay Mr. Narath, in one payment, an amount equal to
200% of one year's salary at the level then in effect, plus 200% of any bonuses
earned during the previous calendar year and an additional amount equal to all
taxes payable by Mr. Narath on the full amount of such payment. In the event
that there is a change in control of the Company which has been approved by the
Company's Board of Directors, with Mr. Narath voting in favor thereof, he would
nevertheless be entitled to terminate his employment agreement for "good cause"
if his duties were substantially diminished within 12 months thereafter, in
which case the Company would be obligated to pay him, in one payment, an amount
equal to one year's base salary at the level then in effect, plus an amount
equal to any bonuses earned during the previous calendar year.
Mr. Rasa's employment agreement provides that he is to be employed as a
Vice President of both the Company and the operating subsidiary for a three-year
period commencing March 1, 1999, subject to the same provision for additional
one-year extensions. During each year of the initial term, Mr. Raza is to be
paid a base salary of not less than $110,000 and shall be entitled to receive
such bonuses as the Company's Board of Directors may determine. In the event
that his employment with the Company is terminated for any reason other than
"cause" as defined therein, Mr. Raza would be entitled to receive, in one
payment, an amount equal to one year's base salary at the level then in effect,
plus an amount equal to any bonuses earned during the previous calendar year.
Payment of the Balance of the Purchase Price
At the closing of the acquisition of Unicore by the Company, the former
shareholders of Unicore, Messrs. Narath and Raza, received an aggregate of
$1,205,000 in cash. The balance of the purchase price is to be paid through the
issuance of an aggregate of 3,350,000 shares of the Company's Common Stock
immediately following the Annual Meeting. On March 8, 1999, the effective date
of the acquisition, the closing price for a share of the Company's Common Stock
on The Nasdaq National Market was $0.69. However, because of the number of
shares to be issued and the fact that the primary recipient thereof, Mr. Narath,
is a director and the President and Chief Executive Officer of the Company, the
corporate governance rules for continued listing of the Company's Common Stock
on The Nasdaq National Market require that the Company obtain stockholder
approval of the issuance of these shares. Consequently, the Acquisition
Agreement provides that the payment of the balance of the purchase price be
deferred until after the upcoming Annual Meeting, in order to afford the
stockholders of the Company
11
<PAGE>
with the opportunity to consider and vote upon a proposal to approve the
issuance of shares of the Company's Common Stock in payment therefor.
At the Annual Meeting, the Company's stockholders will be asked to approve
the issuance of 3,350,000 shares of the authorized but previously unissued
shares of the Company's Common Stock, which would be delivered to the former
shareholders of Unicore in payment of the balance of the purchase price for
Unicore. In the event that the stockholders of the Company do not approve the
issuance of these 3,350,000 shares of Common Stock at the Annual Meeting, the
Acquisition Agreement provides that the balance of the Unicore purchase price be
paid with $3,350,000 in cash. In order to secure, in part, the obligation of
the Company to pay the balance of the purchase price, the Company deposited the
sum of $2,000,000 in cash into an interest-bearing escrow at the time of closing
of the Unicore acquisition.
Approval of the issuance of 3,350,000 shares of the Company's Common Stock
in payment of the balance of the Unicore purchase price is not required by
Delaware law. Consequently, the Company would have the corporate power and
authority to issue and deliver these shares to the former shareholders of
Unicore even if the Company's stockholders declined to approve the issuance
thereof at the Annual Meeting. Under certain circumstances specified in the
Acquisition Agreement, the former shareholders of Unicore would have the right
to insist that the balance of the purchase price be paid through issuance and
delivery of 3,350,000 shares of the Company's Common Stock, rather than in cash,
even if the issuance of these shares is not approved at the Annual Meeting. This
right would arise in the event that the closing price for a share of the
Company's Common Stock on The Nasdaq National Market has exceeded $1.00 at any
time following the effective date of the Acquisition Agreement and the date of
the Annual Meeting. Should the former shareholders of Unicore exercise their
right to receive shares of the Company's Common Stock in lieu of cash under
these circumstances, the continued listing of the Company's Common Stock on The
Nasdaq National Market could be jeopardized since the shares would be issued
without stockholder approval.
Subsequent to the consummation of the acquisition, the Company was notified
by Nasdaq that, in the opinion of Nasdaq, the right of the former stockholders
of Unicore to insist on receiving shares of the Company's Common Stock as
payment of the balance of the Unicore purchase price, even if the Company's
stockholders declined to approve the issuance thereof, violates the corporate
governance requirements for continued listing of the Company's Common Stock on
The Nasdaq National Market. In response, Messrs. Narath and Raza have agreed to
waive the right to require the Company to issue shares of its Common Stock in
payment of the balance of the Unicore purchase price despite the failure of the
Company's stockholders to approve the issuance thereof, provided that the
Company pays them the greater of (i) the aggregate fair market value of
3,350,000 shares of the Company's Common Stock, and (ii) $3,350,000. For these
purposes, the aggregate fair market value of 3,350,000 shares of the Company's
Common Stock would be determined by multiplying the weighted average closing
price for a share of the Company's Common Stock over the 20-day trading period
immediately preceding the date of the Annual Meeting by the 3,350,000 shares
that otherwise would have been issuable. Based upon the weighted average closing
price for a share of the Company's Common Stock on The Nasdaq National Market
over the 20 day trading period ending on May __, 1999, the day before the
mailing date of this Proxy Statement, if the Annual Meeting had been held on May
__, 1999 and the Company's stockholders had declined to approve the issuance of
3,350,000 shares of the Company's Common Stock as payment of the balance of the
Unicore purchase price, the former shareholders of Unicore would have been
entitled to receive an aggregate of $___________ in cash as the fair market
value of the shares not issued to them.
Even though the Acquisition Agreement provided for the payment of cash as a
possible alternative to the issuance of stock in payment of the balance of the
Unicore purchase price, it was and continues to be the intention of all parties
that the balance of the purchase price for Unicore be paid through the issuance
and delivery of an aggregate of 3,350,000 shares of the Company's Common Stock.
The Company's Board of Directors believes that payment of the balance of the
purchase price in shares of Common Stock will best serve the Company's long term
strategic objectives. The former Unicore shareholders are now the primary
executive officers of the Company with responsibilities for charting the
Company's future. Payment in shares rather than cash will provide Messrs. Narath
12
<PAGE>
and Raza with significant equity incentives to build value for themselves and
all of the Company's other stockholders, and will enable the Company to devote
its cash resources to developing and marketing new products.
The Company's Board of Directors also believes that the balance of the
purchase price for Unicore should be paid in shares of the Company's Common
Stock in order to preserve the Company's cash resources to finance the expansion
of the combined operations of Unicore following the acquisition. In order to
secure, in part, the obligation of the Company to pay the balance of the
purchase price, the Company deposited the sum of $2,000,000 in cash into an
interest-bearing escrow at the time of closing of the Unicore acquisition. As of
March 15, 1999, after payment of the $1,205,000 cash portion of the Unicore
purchase price and the deposit of this additional $2,000,000, the Company had
cash and cash investments totaling $6,396,000. Included in this sum is the
$620,000, which has been pledged to a Lawrence Savings Bank as described above.
In addition, the availability of a significant amount of cash is expected to
enhance the Company's ability to grow through one or more acquisitions of
complementary companies or product lines.
Accordingly, the Company's Board of Directors has unanimously recommended
that the stockholders of the Company vote in favor of Proposal 2. Approval of
the proposal to issue these 3,350,000 shares of the Company's Common Stock in
payment of the balance of the Unicore purchase price will require the
affirmative vote of the holders of a majority of the shares of Common Stock
voting on the Proposal at the Annual Meeting. Each of the executive officers and
directors of the Company, including Mr. Narath, has indicated the intention to
vote all of the shares of the Company's Common Stock over which such individual
has voting control in favor of the issuance of 3,350,000 shares of the Company's
Common Stock in payment of the balance of the purchase price for Unicore.
13
<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, 1998 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, will have an opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions.
STOCKHOLDERS PROPOSALS FOR 2000 ANNUAL MEETING
Proposals to be presented by stockholders of the Company at the 2000 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 2000 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 ON FORM 10-KSB
Copies of the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998, and the Company's Current Report on Form 8-K, as
amended, regarding the acquisition of Unicore and containing audited financial
statements of Unicore and certain pro forma combined financial information, are
available without charge to any stockholder entitled to notice of and to vote at
the Annual Meeting, by contacting the Company at (714) 969-7746.
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: June ___, 1999
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<PAGE>
PROXY TOUCHSTONE SOFTWARE CORPORATION PROXY
1999 ANNUAL MEETING OF SHAREHOLDERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of TouchStone Software Corporation hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement for the 1999 Annual Meeting of Shareholders of TouchStone Software
Corporation to be held on July 30, 1999 and hereby appoints Larry W. Dingus and
Ronald R. Maas and each of them, proxy and attorney-in-fact, with full power of
substitution, on behalf and in the name of the undersigned, to represent at such
meeting and at any adjournment or postponement thereof, and to vote all shares
of Common Stock which the undersigned would be entitled to vote if then and
there personally present, on the matters set forth below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 1 AND FOR PROPOSAL NO.
--- ---
2.
1. Election of Directors
(check one box only)
<TABLE>
<S> <C>
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
Pierre A. Narath, Larry W. Dingus, Ronald R. Maas and Kenneth C. Welch III.
(INSTRUCTION: To withhold authority to vote for any individual nominee, check
the "FOR" box above and write that nominee's name on the space provided below.)
________________________________________________________________________________
2. Proposal to approve the issuance of 3,350,000 shares of the Company's
Common Stock as payment of the balance of the purchase price payable by the
Company in connection with the Company's March 8, 1999 acquisition of Unicore
Software, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
3. In their discretion, the proxies are authorized to vote for the election of
such substitute nominee(s) as such proxies may select in the event that one or
more of the nominees named in Item 1 above becomes unable to serve, and upon
such other business as may properly come before the meeting or any adjournment
or postponement thereof.
The submission of this proxy if properly executed revokes all prior proxies
given by the undersigned.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned. If no direction is made, this proxy will be voted FOR
Proposal No. 1 and FOR Proposal No. 2.
(TO BE COMPLETED AND SIGNED ON THE OTHER SIDE.)
<PAGE>
Please sign exactly as name appears on this card.
When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator or guardian, please give
full title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Dated ________________________________________, 1999
__________________________________________
(Signature of stockholder)
__________________________________________
(Signature of stockholder if held jointly)
Note: Please sign, date and mail this proxy promptly in the enclosed postage-
paid envelope.
