<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 18, 1997
NOVADIGM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-26156 22-3160347
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer Iden-
of incorporation) File Number) tification No.)
One International Blvd., Suite 200, Mahwah, New Jersey 07495
- --------------------------------------------------------------------------------
(Address of principal executive offices of Registrant)
Registrant's telephone number, including area code: (201) 512-1000
Not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 6. Resignations of Registrant's Directors
On July 18, 1997, the Company received a letter dated July 16, 1997
from Dennis DeCoste in which he cited the reasons for his resignation as a
director from the Company's Board of Directors on July 14, 1997. The stated
reasons for Mr. DeCoste's resignation included the management's failure to: (i)
abide by the majority vote of the Board of Directors to remove a director and
officer of the Company whose actions, in view of the Board, compromised the
integrity of the Company's representations to the financial community and to its
stockholders; (ii) abide by the agreement of the Board's Audit Committee with
the Company's auditors to modify the Company's revenue recognition policy with
respect to prepaid revenues to more fairly reflect the Company's performance;
and (iii) abide by a majority vote of the Board of Directors to immediately
engage financial advisors for the purpose of selling the Company and engage a
search firm for purpose of hiring a new Chief Executive Officer. Mr. DeCoste's
letter also cited his protest of management's refusal to: (i) inform the Board
of merger inquiries from prospective buyers; (ii) suspend the Company's share
repurchase program at the direction of the Audit Committee; and (iii) submit to
the orderly process of corporate governance by the Board of Directors and a
reckless disregard of management for the interests of outside stockholders. A
copy of Mr. DeCoste's letter has been filed as an exhibit to the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
July 25, 1997.
Michele Axelson tendered her resignation as a director from the
Company's Board of Directors on July 17, 1997. Mr. DeCoste and Ms. Axelson
comprised the directors on the Board's Audit Committee and Compensation
Committee.
The Company believes that Mr. DeCoste's letter of resignation misstates
or fails to acknowledge the facts underlying the issues that confronted the
Board in respect of each of the allegations contained in Mr. DeCoste's letter.
The Company believes that the frustrations that led to Mr. DeCoste's and Ms.
Axelson's resignations from the Board were principally attributable to
legitimate differences of opinion with respect to the Company's strategic
alternatives. The Company disagrees with each of Mr. DeCoste's allegations,
including in particular his allegation concerning the integrity of management's
representations to the financial community and the Company's stockholders, as
well as his allegation concerning the modification of the Company's revenue
recognition policy as it relates to prepaid revenues. The Company's detailed
response to the issues presented by Mr. DeCoste is as follows:
1. Management does not have the authority to remove a director;
only the stockholders have such authority. In any case, the Company denies the
allegation that any director or officer of the Company has ever misrepresented
the Company's business or financial affairs to the financial community or the
Company's stockholders.
2. The Company's management of its distributor relationships,
including prepaid and quarterly royalty revenues, has been performed on an
ongoing basis in a manner consistent with management's best business judgment in
the interests of the stockholders, and in full conformance with
-2-
<PAGE> 3
all appropriate financial reporting requirements, as presented in the Company's
Annual Report on Form 10-K for the 1997 fiscal year, which report was signed by
all of the directors on the Board, including Mr. DeCoste. The Company's
management has no knowledge of any "agreement" with the Audit Committee
concerning modification of the recognition policy on prepaid revenues. The
Company continues to believe that the ongoing treatment of prepaid and quarterly
royalty revenues fairly reflects the Company's financial performance in the
context of its business relationship with its distributors and is in the best
interests of the Company.
3. The Board of Directors on May 29, 1997 authorized management
to engage an investment banker as financial advisor to assist the Company in
considering alternative strategic transactions which could potentially provide
additional value to the Company's stockholders. In anticipation of an imminent
formal commitment, the Company's management conducted a planning discussion with
its principal investment banker about overall time frames, activities and major
milestones for the engagement, with a working meeting scheduled to follow a
Board discussion on July 14, 1997. As a result of Mr. DeCoste's and Ms.
Axelson's resignations, this discussion never took place. Management continues
to pursue this activity at the Board's direction.
4. Mr. Kent Petzold in his capacity as director was designated
by the Board on May 29, 1997 as the person responsible for identifying and
retaining an executive search firm for the purpose of assisting the Company in
identifying and hiring a President.
5. The Company has, as a matter of course, involved its
principal investment banker in any interaction with other companies which could
have possibly led to a strategic transaction, as contrasted with the marketing,
distribution and licensing discussions which are part of the Company's normal
business activities, and subsequently so informed the Board at its next
meetings.
6. The Company's share repurchase program was authorized by a
unanimous Board resolution in May 1996, and continues to be executed within the
parameters set by the Board in the absence of a countermanding Board resolution.
The Audit Committee has no authority to override the Board in this matter, and
the Company continues to feel that the potential risk of compromising a future
merger by pooling is relatively small compared to the real benefits to the
stockholders from the program.
7. The Company feels that the "orderly process of corporate
governance" has been impaired by what are essentially legitimate differences of
opinion among Board members including Mr. DeCoste with respect to a variety of
strategic alternatives and tactical issues facing the Company, compounded by Mr.
DeCoste's interpretations of the Board's resolutions, management's execution,
and the Audit Committee's role in corporate governance. The Company's Board of
Directors and management continue to exercise their every effort and best
judgment on behalf of the stockholders.
The Company has initiated a search to identify two disinterested
directors to replace Mr. DeCoste and Ms. Axelson as quickly as possible.
-3-
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 25, 1997 NOVADIGM, INC.
By: /s/ Albion J. Fitzgerald
---------------------------------------
Albion J. Fitzgerald, Chairman of the
Board and Chief Executive Officer
-4-
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
17.1 Letter dated as of July 16, 1997 from Dennis DeCoste to Doug
Collom, Esq. of Wilson Sonsini Goodrich & Rosati, counsel to
Novadigm, Inc.
</TABLE>
-5-
<PAGE> 1
EXHIBIT 17.1
16 July 1997
Doug Collom
Wilson, Sonsini, Goodrich & Rosati
Corporate Counsel
Novadigm, Inc. BY FAX
650 Page Mill Road
Palo Alto, CA 94304
Dear Doug,
I hereby elect, in connection with my resignation from the Board of Directors of
Novadigm, Inc., to instruct the Company to communicate to all shareholders the
reasons for my resignation.
I have resigned from the Board of Directors on which I serve as a member of the
audit committee and the compensation committee because of a refusal of
management to:
1. Abide by a majority vote of the Board of Directors to
remove a director and officer of the Company whose
actions, in the view of the Board, compromised the
integrity of the Company's representations to the
financial community and to its shareholders.
2. A refusal of management to abide by the audit
committee's agreement with the Company's auditors to
modify the Company's revenue recognition policy with
respect to prepaid revenues to more fairly reflect the
Company's performance.
3. A refusal of management to abide by a majority vote of
the Board to immediately engage financial advisors for
the purpose of selling the Company.
4. A refusal of management to abide by a majority vote of
the Board to immediately engage a search firm for the
purpose of hiring a new CEO for the Company.
And further, I have resigned:
5. To protest the apparent refusal of management to
inform the Board of merger inquiries from prospective
buyers as and when those inquiries arose.
6. To protest a refusal of management to suspend the
Company's share buy back activities at the direction
of the audit committee so as not to compromise a
merger by pooling of interests.
<PAGE> 2
7. To protest management's continuous refusal to submit
to the orderly process of corporate governance by the
Board of Directors and a reckless disregard of
management for the interests of outside shareholders.
I trust these reasons for my resignation from the Board will be
communicated to the Company's shareholders as required by law in view of the
fact that these reasons, when known, may materially affect the market for the
shares of the Company.
I am sorry this step has become necessary but actions of management
leave me no other recourse to honorably discharge my duties as a Director of
Novadigm.
Yours truly,
/s/ Dennis DeCoste
-------------------------------
Dennis DeCoste
