<PAGE> 1
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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
NOVADIGM, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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)(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> 2
NOVADIGM, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 21, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of NOVADIGM,
INC. (the "Company"), a Delaware corporation, will be held on Friday, November
21, 1997 at 9:00 a.m., local time, at The Ritz-Carlton Hotel, 600 Stockton
Street, San Francisco, California, for the following purposes:
1. To elect four (4) directors to serve for the ensuing year and until
their successors are duly elected and qualified.
2. To ratify the appointment of Arthur Andersen LLP as independent auditors
of the Company for the fiscal year ending March 31, 1998.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on September 30, 1997
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
Albion J. Fitzgerald
Chairman of the Board,
Chief Executive Officer and President
Mahwah, New Jersey
October 24, 1997
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENCLOSED ENVELOPE.
<PAGE> 3
NOVADIGM, INC.
------------------------
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 21, 1997
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of NOVADIGM, INC. (the "Company")
for use at the Annual Meeting of Stockholders to be held Friday, November 21,
1997 at 9:00 a.m., local time (the "Annual Meeting"), 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
Ritz-Carlton Hotel, 600 Stockton Street, San Francisco, California. The
Company's principal executive offices are located at One International
Boulevard, Suite 200, Mahwah, New Jersey 07495 and its telephone number at that
location is (201) 512-1000.
These proxy solicitation materials and the Annual Report to Stockholders
for the year ended March 31, 1997, including financial statements, will be first
mailed on or about October 24, 1997 to all stockholders entitled to vote at the
Annual Meeting.
PURPOSES OF THE ANNUAL MEETING
The purposes of the Annual Meeting are to (1) elect four (4) directors to
serve for the ensuing year and until their successors are duly elected and
qualified; (2) to ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending March 31, 1998; and (3)
transact such other business as may properly come before the meeting or any
adjournment thereof.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Stockholders of record at the close of business on September 30, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting. The Company
has one authorized class of capital stock outstanding, designated Common Stock,
$.001 par value. At the Record Date, 17,442,778 shares of the Company's Common
Stock were issued and outstanding. For information regarding holders of more
than 5% of the outstanding Common Stock, see "Beneficial Security Ownership of
Management and Certain Beneficial Owners." The closing sale price of the
Company's Common Stock on the Nasdaq National Market on the Record Date was
$5.625 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
Each holder of Common Stock is entitled to one vote for each share held as
of the record date with respect to all matters that may be considered at the
Annual Meeting. The cost of soliciting votes will be borne by the Company.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees without additional compensation, personally or by mail,
telephone or telegram.
<PAGE> 4
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Company intends to include abstentions and broker non-votes as present
or represented for purpose of establishing a quorum for the transaction of
business, to include abstentions as shares entitled to vote and to exclude
broker non-votes from the calculation of shares entitled to vote with respect to
any proposal for which authorization to vote was withheld.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the secretary of the Company at the Company's principal executive
offices no later than March 31, 1998 in order to be considered for inclusion in
the proxy statement and form of proxy relating to that meeting.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for fiscal year 1997 and
Amendment No. 1 thereto filed with the Securities and Exchange Commission may be
obtained without charge by sending a written request to Attn: Investor
Relations, Novadigm, Inc., 185 Berry Street, Suite 3515, San Francisco,
California 94107.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of four directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's four nominees named below, all of whom are presently directors
of the Company. In the event that any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the present Board of
Directors to fill the vacancy. It is not expected that any nominee will be
unable or will decline to serve as a director. The term of office of each person
elected as a director will continue until the next Annual Meeting of
Stockholders or until a successor has been elected and qualified.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE FOUR NOMINEES
LISTED BELOW.
The name of and certain information regarding each nominee is set forth
below, There are no family relationships among directors or executive officers
of the Company, except as set forth below.
<TABLE>
<CAPTION>
NAME AGE(1) PRINCIPAL OCCUPATION
- --------------------------- --- -----------------------------------------------------
<S> <C> <C>
Albion J. Fitzgerald 49 Chairman of the Board of Directors, President and
Chief Executive Officer of the Company
Robert B. Anderson 42 Executive Vice President, Chief Operating Officer and
Secretary
H. Kent Petzold 50 Consultant
Deborah Doyle McWhinney 42 Executive Vice President, Visa International, Inc.
</TABLE>
- ---------------
(1) As of September 30, 1997
Mr. Albion Fitzgerald co-founded the Company in February 1992, serving as
Chairman since that time, and currently as Chief Executive Officer and
President. Mr. Fitzgerald has previously served as Chief Technology Officer. In
May 1990, Mr. Fitzgerald founded Fitzgerald Associates, the Company's
predecessor, and served as the chief architect in the development of EDM
technology. From 1988 to 1990, Mr. Fitzgerald was Director of Advanced
Technology for Pansophic Systems, Inc., a manufacturer of systems and
applications software. Mr. Fitzgerald founded and served as President of
ASI/TeIeMetrix. Inc., from 1985 to 1988, and was the chief architect of
Teleview, a session manager product. Mr. Fitzgerald's brother-in-law is
2
<PAGE> 5
Wallace D. Ruiz, the Company's Chief Financial Officer, and Mr. Fitzgerald's
brother is Joseph Fitzgerald, the Company's Vice President, Development.
Mr. Anderson joined the Company in June 1992 and currently serves as
Executive Vice President, Chief Operating Officer, Secretary and as a director.
From 1990 to 1992, Mr. Anderson served as Senior Vice President at Stratagem, an
investment banking firm specializing in mergers, acquisitions and divestitures
in the software industry. Prior to Stratagem, Mr. Anderson was employed as a
Vice President in the Corporate Finance Software Specialty Group at Sutro &
Company, Inc.
Mr. Petzold has been a director of the Company since August 1992. From
August 1992 to May 1995, Mr. Petzold served as the President and Chief Executive
Officer of the Company. Prior to joining the Company, Mr. Petzold served as
Senior Vice President and General Manager, Software Products Division of
Pansophic Systems, Inc. from October 1990 to November 1991. From October 1985 to
October 1990, Mr. Petzold was the President and Chief Executive officer of
Viasoft, Inc. Mr. Petzold also serves as a director of Relay Technology, Inc., a
privately held software company.
Ms. McWhinney has been a director of the Company since September 1997.
Since 1995, Ms. McWhinney has been an Executive Vice President of Visa
International, Inc., a financial services company. Prior to joining Visa, Ms.
McWhinney was with BankAmerica Corporation, where she held several positions
including, from 1986 to 1995, Senior Vice President, Bank of America Consumer
Electronic Banking and Delivery.
REQUIRED VOTE
The four nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be elected
as directors. Votes withheld from any director are counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but they have no legal effect under Delaware law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 7 meetings during the
fiscal year ended March 31, 1997. No director, during the time he or she was a
member of the Board of Directors, attended fewer than 75% of the aggregate of
all meetings of the Board of Directors, or its committees on which he served
which occurred during fiscal 1997. The Board has an Audit Committee, a
Compensation Committee and a Stock Option Committee. It does not have a
nominating committee or a committee performing the functions of a nominating
committee.
The Audit Committee is responsible for (i) recommending engagement of the
Company's independent auditors, (ii) approving the services performed by such
auditors, (iii) consulting with such auditors and reviewing with them the
results of their examination, (iv) reviewing and approving any material
accounting policy changes affecting the Company's operating results, (v)
reviewing the Company's control procedures and personnel, and (vi) reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls. The Audit Committee held 1 meeting during fiscal 1997. The
Audit Committee currently consists of Deborah McWhinney and Kent Petzold.
The Compensation Committee is responsible for (i) reviewing and approving
the compensation and benefits for the Company's officers and other employees,
(ii) administering the Company's stock purchase and stock option plans, and
(iii) determining which eligible individuals (excluding nonemployee directors)
receive grants thereunder and the size of such grants. The Compensation
Committee held 1 meeting during fiscal 1997. The Compensation Committee
currently consists of Deborah McWhinney and Kent Petzold.
The Stock Option Committee is responsible for reviewing and approving
grants of options to non-officer employees under the Company's 1992 Stock Option
Plan. The Stock Option Committee acted 14 times by written consent during fiscal
1996. The Stock Option Committee currently consists of Albion Fitzgerald, Robert
Anderson and Kent Petzold.
3
<PAGE> 6
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 16, 1996. At the time of their resignations, 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 implementation of the Company's revenue
recognition policy as it relates to prepaid revenues.
Deborah McWhinney was appointed to the Board of Directors on September 19,
1997.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive additional
compensation for their services as directors of the Company, but are reimbursed
for out-of-pocket expenses in connection with attendance at committee meetings.
Nonemployee members of the Board of Directors receive $500 for each Board
meeting attended and $500 for each meeting attended of a committee to the Board
on which such director serves, in addition to reimbursement of expenses.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending March 31, 1998 and recommends that stockholders vote for
ratification of such appointment. Notwithstanding the selection. the Board, in
its discretion, may direct the appointment of new independent auditors at any
time during the year, if the, Board feels that such a change would be in the
best interests of the Company and its stockholders. In the event of a negative
vote on ratification, the Board of Directors will reconsider its selection.
Arthur Andersen LLP has audited the Company's financial statements annually
since the Company's inception in 1992. Representatives of Arthur Andersen LLP
are expected to be present at the meeting with the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS.
4
<PAGE> 7
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of September 30, 1997 for the
following: (i) each person or entity known by the Company to own beneficially
more than 5% of the outstanding shares of the Company's Common Stock, (ii) each
director of the Company, (iii) each of the Named Executive Officers and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER(1) OWNED(2) BENEFICIALLY OWNED
- ------------------------------------------------------------ ------------------- ------------------
<S> <C> <C>
Albion J. Fitzgerald (3).................................... 3,581,250 20.5%
c/o Novadigm, Inc.
One International Boulevard
Suite 200
Mahwah, New Jersey 07495
Joseph J. Fitzgerald........................................ 1,452,717 8.3%
c/o Novadigm, Inc.
One International Boulevard
Suite 200
Mahwah, New Jersey 07495
Shannon L. Ruiz (4)......................................... 870,000 5.0%
c/o Novadigm, Inc.
One International Boulevard
Suite 200
Mahwah, New Jersey 07495
Robert B. Anderson.......................................... 655,069 3.8%
H. Kent Petzold (5)......................................... 356,834 2.0%
Deborah McWhinney........................................... 2,500 *
Stuart A. Jacobson (6)...................................... 167,965 *
Wallace D. Ruiz (7)......................................... 104,311 *
All directors and executive officers as a group (9
persons)(8)............................................... 6,505,229 37.3%
</TABLE>
- ---------------
* Less than one percent.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock.
(2) Includes shares which could be acquired upon exercise of options if such
options are exercisable within 60 days after September 30, 1997.
(3) Excludes 870,000 shares held by Shannon L. Ruiz, Albion J. Fitzgerald's
spouse, as to which Mr. Fitzgerald disclaims beneficial ownership.
(4) Excludes 3,581,250 shares held by Albion J. Fitzgerald, Ms. Ruiz's spouse,
as to which Ms. Ruiz disclaims beneficial ownership.
(5) Includes options exercisable for an aggregate of 33,334 shares pursuant to
an option agreement between Mr. Petzold and a certain stockholder of the
Company.
(6) Includes 130,834 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of September 30, 1997 under the Company's 1992 Stock Option
Plan.
(7) Includes 91,146 shares of Common Stock which may be acquired upon exercise
of stock options which are presently exercisable or will become exercisable
within 60 days of September 30, 1997 under the Company's 1992 Stock Option
Plan.
(8) Includes options exercisable for 406,563 shares of Common Stock under the
Company's 1992 Stock Option Plan and options exercisable by H. Kent Petzold
for 33,334 shares of Common Stock pursuant to an agreement with a certain
stockholder of the Company. See note (6) above.
5
<PAGE> 8
EXECUTIVE COMPENSATION AND OTHER MATTERS
SUMMARY COMPENSATION TABLE
The following table shows, as to the Chief Executive Officer and each of
the other four most highly compensated executive officers who received in excess
of $100,000 during the last fiscal year, (the "Named Executive Officers"),
information concerning compensation awarded to, earned by or paid for services
to the Company in all capacities during the fiscal years ended March 31, 1997,
1996 and 1995.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES ALL OTHER
FISCAL -------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS ($)(1)
- ------------------------------------- ------ --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Albion J. Fitzgerald(2).............. 1997 $ 160,000 $ -- -- $ 258
President and Chief Executive 1996 160,000 -- -- 209
Officer 1995 160,000 -- -- 209
Robert Ernens(3)(4).................. 1997 228,228 -- 150,000(5) 21,508
Managing Director, Europe 1996 242,940 -- 100,000 3,974
1995 193,000 -- -- --
Michael P. Conti(6).................. 1997 175,000 -- 250,000(7) 288
Vice President, Direct Channels 1996 120,000 200,000 50,000 203
1995 89,000 111,000 140,000 146
Stuart A. Jacobson................... 1997 175,000 -- 260,000(8) 359
Executive Vice President, North 1996 120,000 150,000 100,000 351
America Operations 1995 80,000 105,000 140,000 263
Wallace D. Ruiz...................... 1997 165,000 -- 175,000(9) 359
Chief Financial Officer and 1996 146,875 -- 140,000 --
Treasurer 1995 -- -- -- --
</TABLE>
- ---------------
(1) Represents long-term disability insurance premiums paid by the Company,
except in the case of Mr. Ernens which amount represents lease payments for
an automobile.
(2) Mr. Fitzgerald succeeded H. Kent Petzold as President and Chief Executive
Officer as of May 18, 1995.
(3) Translated from French francs to United States dollars, computed at the
average exchange rate for the respective fiscal years.
(4) Mr. Ernens resigned from the Company effective as of May 20, 1997.
(5) Includes options to purchase an aggregate of 100,000 shares of Common Stock
which were granted to Mr. Ernens in connection with the Company's option
repricing program in exchange for options that had a higher exercise price.
(6) Mr. Conti resigned from the Company effective March 31, 1997. All of Mr.
Conti's options expired 30 days after his resignation.
(7) Includes options to purchase an aggregate of 150,000 shares of Common Stock
which were granted to Mr. Conti in connection with the Company's option
repricing program in exchange for options that had a higher exercise price.
(8) Includes options to purchase an aggregate of 200,000 shares of Common Stock
which were granted to Mr. Jacobson in connection with the Company's option
repricing program in exchange for options that had a higher exercise price.
(9) Includes options to purchase an aggregate of 140,000 shares of Common Stock
which were granted to Mr. Ruiz in connection with the Company's option
repricing program in exchange for options that had a higher exercise price.
6
<PAGE> 9
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning each grant of options
to purchase the Company's Common Stock made during the fiscal year ended March
31, 1997 to the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE MINUS EXERCISE
UNDERLYING PRICE AT ASSUMED
NUMBER OF # OF TOTAL ANNUAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM(1)
OPTIONS EMPLOYEES PER SHARE EXPIRATION ---------------------
NAME GRANTED(#)(2) IN FISCAL YEAR ($/SH)(3)(4) DATE 5% 10%
- ----------------------- ------------- -------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Albion J. Fitzgerald... -- -- -- -- -- --
Robert Ernens(5)....... 100,000(6) 5.67% $ 5.25 10/05/2000 $113,141 $243,652
50,000(7) 2.94% 5.25 10/01/2001 72,522 160,258
Michael P. Conti(9).... 50,000(6) 2.94% 5.25 4/30/1997 13,125 26,250
100,000 5.67% 6.8750 4/30/1997 ** **
100,000(6) 5.67% 5.25 4/30/1997 26,250 52,500
Stuart A. Jacobson..... 100,000(6) 5.67% 5.25 10/05/2000 113,141 243,652
100,000(8) 5.67% 6.8750 8/16/2001 ** **
100,000(6) 5.67% 5.25 8/16/2001 145,048 320,518
60,000(7) 3.40% 5.25 10/01/2001 87,028 192,311
Wallace D. Ruiz........ 140,000(6) 7.95% 5.25 4/19/2000 158,397 341,114
35,000 1.99% 5.25 10/1/2001 50,767 112,181
</TABLE>
- ---------------
** Such options were subsequently exchanged for options having lower exercise
prices in connection with the Company's option repricing program. See
"Report of Board of Directors on Executive Compensation -- Report on
Repricing of Options."
(1) Potential realizable value is based on the assumption that the Common Stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
(2) Except as otherwise noted, and subject to note 6 below, all options vest at
a rate of 25% after the first year and then 1/48th thereafter.
(3) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock, as determined by reference to the closing sale
price of the Common Stock on the Nasdaq National Market on the date of
grant.
(4) Exercise price may be paid in cash, promissory note, by delivery of
already-owned shares subject to certain conditions, or pursuant to a
cashless exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to the Company, out of the sale proceeds, an amount equal to the exercise
price plus all applicable withholding taxes.
(5) Mr. Ernens resigned from the Company effective May 20, 1997.
(6) In connection with the Company's option repricing program, such options were
granted in exchange for options having a higher exercise price. The new
options had the same vesting schedule as the options for which they were
exchanged except that the vesting schedule was extended by three months in
each case.
(7) All of the shares subject to such option will vest on the sixth anniversary
of the vesting start date.
(8) 50,000 of the shares subject to the option will vest on the sixth
anniversary of the vesting start date.
(9) Mr. Conti resigned from the Company effective March 31, 1997. All of Mr.
Conti's options expired 30 days after his resignation.
7
<PAGE> 10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
The following table shows stock options exercised by Named Executive
Officers during fiscal year 1997, including the aggregate value of gains on the
date of the exercise. In addition, this table includes the number of shares
covered by both exercisable and non-exercisable stock options as of fiscal
year-end. Also reported are the values for "in-the-money" options which
represent the positive spread between the exercise price of any such existing
stock options and the year-end price of the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON AT MARCH 31, 1997 AT MARCH 31, 1997(1)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Albion J. Fitzgerald......... -- -- -- -- -- --
Robert Ernens................ -- -- 154,583 135,417 -- --
Michael P. Conti............. -- -- 58,334 116,666 -- --
Stuart A. Jacobson........... 20,000 $254,280 70,000 295,000 -- --
Wallace D. Ruiz.............. -- -- 62,917 182,083 -- --
</TABLE>
- ---------------
(1) Based on the closing price of the Company's Common Stock on March 31, 1997
of $4.125 (U.S.), less the exercise price of the option.
EMPLOYMENT CONTRACTS AND CHANGE-OF-CONTROL ARRANGEMENTS
In October 1996, the Company entered into a letter agreement with Stuart A.
Jacobson, Executive Vice President, North America Operations, pursuant to which
any unvested options held by Mr. Jacobson will accelerate and vest upon the
occurrence of a change in control. In addition, in April 1997, the Company
entered into employment agreement with Wallace D. Ruiz, Chief Financial Officer
and Treasurer (the "Executive"), pursuant to which Mr. Ruiz is entitled to
receive an annual base salary of $165,000, subject to any increases as the Board
of Directors shall authorize from time to time in connection with an annual
review, plus additional variable compensation under the Company's executive
compensation plan.
Subject to certain limitations, Mr. Ruiz's employment agreement provides
that if the Executive is terminated at any time during the period beginning 90
days before and ending 12 months after a Change of Control (the "Change of
Control Period") then the Executive shall be entitled to receive, in the case of
an Involuntary or Constructive Termination other than for cause or as a result
of the Executive's death or disability, severance pay in an amount equal to 50%
of the Executive's base compensation plus a pro rata share of the bonus and
commissions that the Executive would have earned had he been employed by the
Company at the end of the year in which termination occurred and, in the case of
death or disability, such other benefits, if any, as may then be established
under the Company's then-existing benefit plans. In addition, any unvested
options held by the Executive prior to termination shall (i) in the case of
Involuntary or Constructive Termination other than for cause, accelerate and
become exercisable in full or (ii) in the case of death or disability,
accelerate and become exercisable as to that number of additional shares that
would have vested if the Executive had remained continuously employed for a
period of six months following such termination and shall remain exercisable for
the period prescribed in the stock option agreements.
If the Executive voluntarily resigns from the Company or if the Company
terminates the Executive for cause, the Executive shall not be entitled to
receive severance or other benefits except for those, if any, as may be
established under the Company's benefit plans as existing at the time of
termination.
For the purposes of Mr. Ruiz's employment agreement, a Change of Control
shall mean the occurrence of any of the following: (i) any person becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; (ii) a change in the composition of the
Board of Directors occurring within a two-year period as a result of which fewer
than a majority of the directors are Incumbent Directors (as defined); or (iii)
a
8
<PAGE> 11
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent at least
50% of the total voting power of the surviving entity immediately after such
merger or consolidation.
Involuntary or Constructive Termination is defined in the employment
agreement to mean (i) without the Executive's express written consent, the
assignment to the Executive of any duties or the significant reduction of the
Executive's duties, either of which is inconsistent with the Executive's
position with the Company and responsibilities in effect immediately prior to
such assignment, or the removal of the Executive from such position and
responsibilities; (ii) without the Executive's express written consent, a
substantial reduction, without good business reasons, of the facilities and
perquisites available to the Executive immediately prior to such reduction;
(iii) a reduction by the Company in the base compensation of the Executive as in
effect immediately prior to such reduction; (iv) a material reduction by the
Company in the kind or level of employee benefits to which the Executive is
entitled immediately prior to such reduction with the result that the
Executive's overall benefits package is significantly reduced; (v) any purported
termination of the Executive by the Company which is not effected for disability
or for Cause, or any purported termination for which the grounds relied upon are
not valid; or (vi) the failure of the Company to obtain the assumption of the
employment agreement by any successors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 19, 1997, the Company lent William Fitzgerald $94,717 evidenced by
a promissory note. Mr. Fitzgerald is an employee of the Company and the brother
of Albion Fitzgerald, the Chief Executive Officer of the Company. The promissory
note is due on March 19, 1998 and bears interest at a rate of 5.83%. The loan is
secured by 35,000 shares of Common Stock owned by Mr. Fitzgerald.
In September 1997, the Company terminated its part-time employment
relationship with Kent Petzold, which had been in place since Mr. Petzold
resigned as Chief Executive Officer and President in May 1995. Mr. Petzold will
remain a director of the company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. Such officers, directors and ten-percent stockholders
are also required by SEC rules to furnish the Company with copies of all such
forms that they file. Based solely on its review of the copies of such forms
received by the Company, or written representations from certain reporting
persons that no Forms 5 were required for such persons, the Company believes
that during fiscal 1996 all Section 16(a) filing requirements applicable to its
officers, directors and ten-percent stockholders were complied with.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
INTRODUCTION
Prior to the Company's initial public offering that was completed in July
1995, the Board of Directors was primarily responsible for establishing and
administering the Company's compensation policies. In this role, and consistent
with the Company's status as a privately held corporation, the Board determined
the Chief Executive Officer's salary directly and reviewed and approved
employment compensation matters for other management personnel. The Board of
Directors, through a Stock Option Committee consisting at that time of two
directors who were also executive officers of the Company, also administered the
Company's 1992 Stock Option Plan.
9
<PAGE> 12
The Compensation Committee of the Board of Directors (the "Committee") was
established in May 1995 and is composed only of outside directors. During fiscal
1997, the Compensation Committee consisted of Dennis DeCoste and Michelle
Axelson, both of whom resigned in July 1997. The Compensation Committee
currently consists of Kent Petzold and Deborah McWhinney. In general, the
Committee is responsible for reviewing and recommending for approval by the
Board of Directors the Company's compensation practices, including executive
salary levels and variable compensation programs. With respect to the
compensation of the Company's Chief Executive Officer, the Committee reviews and
submits to the Board for approval the various elements of the Chief Executive
Officer's compensation. With respect to other executive officers, the Committee
reviews the recommendations for such individuals presented by the Chief
Executive Officer and the basis therefor and approves or modifies the
compensation packages for such individuals. Base salary levels for executive
officers of the Company are generally established at or near the start of each
fiscal year, and final bonuses for executive officers are determined at the end
of each fiscal year based upon such individual's performance and, the
performance of the Company.
EXECUTIVE COMPENSATION
The Company has a compensation program which consists of two principal
components: cash-based compensation, both fixed and variable, and equity-based
compensation. These two principal components are intended to attract, retain,
motivate and reward executives who are expected to manage both the short-term
and long-term success of the Company.
Cash-based compensation.
Base salary -- The salaries of each of the executive officers (other than
the Chief Executive Officer) for the year ended March 31, 1997 were approved by
the Board of Directors, upon the recommendation of the Chief Executive Officer.
Bonuses -- The Company has a discretionary bonus pool pursuant to which
members of senior management, including the Company's executive officers, may
receive annual cash bonuses. The purpose of the bonuses is to motivate senior
management to perform to the best of their abilities in order to enhance
stockholder value through the achievement of corporate objectives. For the
fiscal year-ended March 31, 1997, the allocation of the bonus pool was
determined by the Chief Executive Officer, with the exception of his own bonus,
based upon subjective factors.
Equity-based compensation.
Stock options -- Stock options are periodically granted to provide
additional incentive to executives and other key employees to maximize long-term
total return to the Company's stockholders. Options generally vest over a four
year period to encourage option holders to continue in the employ of the
Company. The exercise price of options is the market price on the date of grant,
ensuring that the option will acquire value only to the extent that the price of
the Company's Common Stock increases relative to the market price at the date of
grant.
Option grants to executive officers will be determined by the Compensation
Committee, in its discretion, or in some cases by the Stock Option Committee,
subject to the oversight of the Compensation Committee. In making its
determination, the Compensation Committee intends to consider the executive's
position at the Company, such executive's individual performance, the number of
options held (if any) and any other factors that the Compensation Committee may
deem relevant.
CHIEF EXECUTIVE OFFICER COMPENSATION
During the year ended March 31, 1997, Mr. Fitzgerald received a base salary
approved by the Board of Directors upon the recommendation of the Compensation
Committee. This represented no increase from the base salary received by Mr.
Fitzgerald for the prior fiscal year. The Compensation Committee recommended
that no bonus be awarded to the Chief Executive Officer for this fiscal year.
The Board believed that
10
<PAGE> 13
Mr. Fitzgerald, as Chief Executive Officer, significantly and directly
influenced the Company's overall performance.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162 of the Code limits the federal income tax deductibility of
compensation 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 million 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.
REPORT ON REPRICING OF OPTIONS
In August 1996, the Board of Directors of the Company determined that the
purposes of the 1992 Stock Option Plan were not being adequately achieved with
respect to those employees holding options with exercise prices greater than the
then-current market value of the Company's Common Stock and that it was in the
best interests of the Company and the Company's stockholders that the Company
retain and motivate such employees. The Board of Directors further determined
that it would be in the best interests of the Company and the Company's
stockholders to provide such optionees the opportunity to exchange their options
with exercise prices equal to the then-current market value of the Company's
Common Stock. On October 1, 1996, upon approval of the Stock Option Committee of
the Board of Directors of the Company, the Company offered certain employees who
were holders of outstanding options under the 1992 Stock Option Plan at exercise
prices in excess of $5.25 per share the opportunity to exchange such options for
new stock options at an exercise price of $5.25 per share, the fair market value
of the Company's Common Stock at the close of business on that date. Any option
holder accepting such offer was required to extend the vesting period of
existing unvested shares by 3 months (vested options remained vested). A total
of 140 employees of the Company were eligible to participate in the repricing
and those employees' existing options had an average exercise price of $14.47
per share prior to the repricing. Of such eligible employees, 131 participated
in the repricing, including the Named Executive Officers noted in the table
below.
The following table sets forth certain information regarding the
participation of each of the Named Executive Officers in the Company's repricing
of options described above:
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF EXERCISE OPTION TERM
UNDERLYING STOCK AT PRICE AT REMAINING
OPTIONS TIME OF TIME OF AT DATE OF
REPRICED OR REPRICING OR REPRICING OR NEW EXERCISE REPRICING OR
NAME AND POSITION DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
- ----------------------------- ----------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert Ernens, October 1, 1996 100,000 $5.25 $ 15.4375 $5.25 1,465 days
Managing Director, Europe
Michael P. Conti October 1, 1996 50,000 5.25 15.4375 5.25 1,465 days
Vice President-Direct Sales October 1, 1996 100,000 5.25 6.875 5.25 1,780 days
Stuart A. Jacobson, October 1, 1996 100,000 5.25 15.4375 5.25 1,465 days
Executive Vice President, October 1, 1996 100,000 5.25 6.875 5.25 1,780 days
North America Operations
Wallace D. Ruiz, October 1, 1996 140,000 5.25 13.00 5.25 1,826 days
Vice President and Chief
Financial Officer
</TABLE>
11
<PAGE> 14
SUMMARY
The Board of Directors intends that its compensation program shall be fair
and motivating and shall be successful in attracting and retaining qualified
employees and in linking compensation directly to the Company's success. The
Board of Directors and the Compensation Committee intend to review this program
on an ongoing basis to evaluate its continued effectiveness.
THE COMPENSATION COMMITTEE
Kent Petzold
Deborah McWhinney
12
<PAGE> 15
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return with those of the Nasdaq Stock Market - U.S. Index and the Hambrecht &
Quist Technology Index. The graph assumes that $100 was invested on July 14,
1995 (the effective date of the Company's initial public offering) in (i) the
Company's Common Stock, (ii) the Nasdaq Stock Market (U.S.) Index and (iii) the
Hambrecht & Quist Technology Index, including reinvestment of dividends. Note
that historic stock price performance is not necessarily indicative of future
stock price performance.
COMPARISON OF TWENTY MONTH CUMULATIVE TOTAL RETURN*
AMONG NOVADIGM, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ STOCK
(FISCAL YEAR COVERED) NOVADIGM, INC. MARKET (U.S.) H & Q TECHNOLOGY
<S> <C> <C> <C>
7/14/95 100.00 100.00 100.00
3/96 101 111 99
3/97 28 123 116
</TABLE>
* $100 invested on July 14, 1996 in stock or index, including reinvestment of
dividends. Fiscal year ending March 31.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: October 24, 1997
13
<PAGE> 16
PROXY
NOVADIGM, INC.
PROXY FOR 1997 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of NOVADIGM, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement, each dated October 24, 1997, and hereby appoints Albion J.
Fitzgerald and Wallace D. Ruiz and each of them proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1997 Annual Meeting of
Stockholders of NOVADIGM, INC., to be held on Friday, November 21, 1997 at 9:00
a.m., local time, at The Ritz-Carlton Hotel, 600 Stockton Street, San
Francisco, California, and any adjournment(s) 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 on the reverse side.
(Continued and to be signed on reverse side)
- -----------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 17
Please mark
your vote as [X]
indicated in
this example
FOR WITHHOLD
all nominees listed AUTHORITY
below (except as marked to vote for all
to the contrary below) nominees listed below
[ ] [ ]
1. Election of directors:
Nominees: Albion J. Fitzgerald
Robert B. Anderson
H. Kent Petzold
Deborah McWhinney
__________________________________________________
Instruction: To withhold authority to vote for any
individual nominee, write that nominee(s) name(s)
on the line above.
2. Proposal to ratify the appointment of Arthur FOR AGAINST ABSTAIN
Andersen LLP as independent auditors for the
fiscal year ending March 31, 1998. [ ] [ ] [ ]
In their discretion, the proxies are authorized to vote upon such other
matter(s) which may properly come before the meeting and any adjournment(s)
thereof.
MARK HERE FOR ADDRESS CHANGE [ ]
AND NOTE BELOW
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED FOR THE LISTED NOMINEES IN THE ELECTION OF DIRECTORS AND FOR THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
FOR THE 1998 FISCAL YEAR.
Both of such attorneys or substitutes (if both are present and
acting at said meeting or any adjournment(s) thereof, or, if
only one shall be present and acting, then that one) shall have
and may exercise all of the powers of said attorneys-in-fact
hereunder.
Signature: Signature: Dated:
---------------------- --------------------- ----------
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
