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:
|_| 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
Prophet 21, Inc.
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(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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:
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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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<PAGE>
[COMPANY LOGO]
PROPHET 21, INC.
19 West College Avenue
Yardley, Pennsylvania 19067
To Our Stockholders:
You are most cordially invited to attend the 2000 Annual Meeting of
Stockholders of Prophet 21, Inc. at 1:00 P.M., local time, on Thursday, January
25, 2001, at the offices of the Company, 19 West College Avenue, Yardley,
Pennsylvania.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented to the meeting.
It is important that your shares be represented at this meeting to assure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your stock represented by signing, dating and returning your
proxy in the enclosed envelope, which requires no postage if mailed in the
United States, as soon as possible. Your stock will be voted in accordance with
-- ---- -- --------
the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
/s/ John E. Meggitt, Ph.D.
John E. Meggitt, Ph.D.
Chairman of the Board
<PAGE>
PROPHET 21, INC.
19 West College Avenue
Yardley, Pennsylvania 19067
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held January 25, 2001
The Annual Meeting of Stockholders (the "Meeting") of PROPHET 21, INC., a
Delaware corporation (the "Company"), will be held at the offices of the
Company, 19 West College Avenue, Yardley, Pennsylvania, on Thursday, January 25,
2001, at 1:00 P.M., local time, for the following purposes:
(1) To elect five directors to serve until the next Annual Meeting of
Stockholders and until their respective successors shall have been duly
elected and qualified;
(2) To amend the Company's 1993 Stock Plan, as amended (the "1993 Plan"), to
increase the maximum number of shares of Common Stock available for
issuance under the 1993 Plan from 1,000,000 to 1,200,000 shares and to
reserve an additional 200,000 shares of Common Stock of the Company for
issuance upon the exercise of stock options granted or for the issuance of
stock purchase rights under the 1993 Plan;
(3) To amend the Company's 1997 Employee Stock Purchase Plan, as amended (the
"1997 Plan"), to increase the maximum number of shares of Common Stock
available for issuance under the 1997 Plan from 100,000 to 200,000 shares
and to reserve an additional 100,000 shares of Common Stock of the Company
for issuance upon the purchase of Common Stock under the 1997 Plan;
(4) To ratify the appointment of KPMG LLP as independent auditors for the year
ending June 30, 2001; and
(5) To transact such other business as may properly come before the Meeting or
any adjournment or adjournments thereof.
Holders of Common Stock of record at the close of business on November 27,
2000 are entitled to notice of and to vote at the Meeting, or any adjournment or
adjournments thereof. A complete list of such stockholders will be open to the
examination of any stockholder at the Company's principal executive offices at
19 West College Avenue, Yardley, Pennsylvania 19067 for a period of 10 days
prior to the Meeting. The Meeting may be adjourned from time to time without
notice other than by announcement at the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER
OF SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL ENSURE A QUORUM
AND SAVE THE COMPANY THE EXPENSE OF FURTHER SOLICITATION. EACH PROXY GRANTED MAY
BE REVOKED BY THE STOCKHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS
VOTED. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE
REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE
SIGNED AND RETURNED TO ASSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors
/s/ Dorothy M. Meggitt
Dorothy M. Meggitt
Secretary
Yardley, Pennsylvania
December 29, 2000
THE COMPANY'S 2000 ANNUAL REPORT ACCOMPANIES THE PROXY STATEMENT.
<PAGE>
PROPHET 21, INC.
19 West College Avenue
Yardley, PA 19067
---------------------------------------------
PROXY STATEMENT
---------------------------------------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Prophet 21, Inc. (the "Company") of proxies to be
voted at the Annual Meeting of Stockholders of the Company to be held on January
25, 2001 (the "Meeting") at the offices of the Company, 19 West College Avenue,
Yardley, Pennsylvania at 1:00 P.M., local time, and at any adjournment or
adjournments thereof. Holders of record of Common Stock, $.01 par value ("Common
Stock"), as of the close of business on November 27, 2000 will be entitled to
notice of and to vote at the Meeting and any adjournment or adjournments
thereof. As of that date, there were 3,734,280 shares of Common Stock issued and
outstanding and entitled to vote. Each share of Common Stock is entitled to one
vote on any matter presented at the Meeting.
If proxies in the accompanying form are properly executed and returned,
the Common Stock represented thereby will be voted in the manner specified
therein. If not otherwise specified, the Common Stock represented by the proxies
will be voted (i) FOR the election of the five nominees named below as
Directors, (ii) FOR a proposal to amend the Company's 1993 Stock Plan, as
amended (the "1993 Plan"), to increase the maximum number of shares of Common
Stock available for issuance under the 1993 Plan from 1,000,000 to 1,200,000
shares and to reserve an additional 200,000 shares of Common Stock of the
Company for issuance upon the exercise of stock options granted or for the
issuance of stock purchase rights under the 1993 Plan, (iii) FOR a proposal to
amend the Company's 1997 Employee Stock Purchase Plan (the "1997 Plan"), to
increase the maximum number of shares of Common Stock available for purchase
under the 1997 Plan from 100,000 to 200,000 shares and to reserve an additional
100,000 shares of Common Stock of the Company for issuance upon the purchase of
Comnon Stock under the 1997 Plan, (iv) FOR the ratification of the appointment
of KPMG LLP as independent auditors for the year ending June 30, 2001, and (v)
in the discretion of the persons named in the enclosed form of proxy, on any
other proposals which may properly come before the Meeting or any adjournment or
adjournments thereof. Any Stockholder who has submitted a proxy may revoke it at
any time before it is voted, by written notice addressed to and received by the
Secretary of the Company, by submitting a duly executed proxy bearing a later
date or by electing to vote in person at the Meeting. The mere presence at the
Meeting of the person appointing a proxy does not, however, revoke the
appointment.
The presence, in person or by proxy, of holders of Common Stock having a
majority of the votes entitled to be cast at the Meeting shall constitute a
quorum. The affirmative vote of holders of a plurality of the shares of Common
Stock represented at the Meeting is required for the election of Directors,
provided a quorum is present in person or by proxy. All actions proposed herein
other than the election of Directors may be taken upon the affirmative vote of
Stockholders possessing a majority of the voting power represented at the
Meeting, provided a quorum is present in person or by proxy.
Abstentions are included in the shares present at the Meeting for purposes
of determining whether a quorum is present, and are counted as a vote against
for purposes of determining whether a proposal is approved. Broker non-votes
(when shares are represented at the Meeting by a proxy specifically conferring
only limited authority to vote on certain matters and no authority to vote on
other matters) are included in the determination of the number of shares
represented at the Meeting for purposes of determining whether a quorum is
present but are not counted for purposes of determining whether a proposal has
been approved and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy card, is being
mailed to the Stockholders of the Company on or about December 29, 2000. The
Annual Report to Stockholders of the Company for the year ended June 30, 2000,
including financial statements (the "Annual Report"), is being mailed together
with this Proxy Statement to all Stockholders of record as of November 27, 2000.
In addition, the Company has provided brokers, dealers, banks, voting trustees
and their nominees, at the Company's expense, with additional copies of the
Annual Report so that such record holders could supply such material to
beneficial owners as of November 27, 2000.
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, five Directors are to be elected (which number shall
constitute the entire Board of Directors of the Company) to hold office until
the next Annual Meeting of Stockholders and until their successors shall have
been elected and qualified.
It is the intention of the persons named in the enclosed form of proxy to
vote the stock represented thereby, unless otherwise specified in the proxy, for
the election as Directors of the persons whose names and biographies appear
below. All of the persons whose names and biographies appear below are at
present Directors of the Company. In the event any of the nominees should become
unavailable or unable to serve as a Director, it is intended that votes will be
cast for a substitute nominee designated by the Board of Directors. The Board of
Directors has no reason to believe that the nominees named will be unable to
serve if elected. Each of the nominees has consented to being named in this
Proxy Statement and to serve if elected.
The current members of the Board of Directors who are also nominees for
election to the Board are as follows:
SERVED AS A POSITIONS WITH
NAME AGE DIRECTOR SINCE THE COMPANY
---- --- -------------- -----------
John E. Meggitt, Ph.D 69 1967 Chairman of the Board
and Director
Charles L. Boyle, III 47 1993 President, Chief
Executive Officer and
Director
Dorothy M. Meggitt 66 1967 Secretary and Director
Additional nominees for election to the Board who are not current members
of the Board of Directors are as follows:
NAME AGE
---- ---
David D. Gathman 53
Daniel J. Malcolm 49
Other than Dr. John E. Meggitt and Dorothy M. Meggitt, who are husband and
wife, there are no family relationships among any of the Directors, executive
officers and key employees of the Company.
The principal occupations and business experience, for at least the past
five years, of each Director and nominee is as follows:
Dr. Meggitt founded the Company and has served as a Director of the
Company since its inception in 1967. From the Company's inception through August
13, 1996, he was also President and Chief Executive Officer of the Company. In
addition, Dr. Meggitt served as Treasurer of the Company from its inception
through December 1993. Prior to founding the Company, he directed system
programming operations for Electronic Associates, Inc. and, earlier, conducted
computer research for IBM.
Mr. Boyle joined the Company in 1984 and, effective August 13, 1996, was
elected to the offices of President and Chief Executive Officer. Prior to
serving in his current capacities, Mr. Boyle served as Executive Vice President
from September 1992 to August 1996, Chief Financial Officer from September 1992
to December 1995, Chief Operating Officer from December 1995 to August 1996 and
Treasurer from December 1993 to August 1996. He has been a Director since
December 1993. Prior to joining the Company, Mr. Boyle held various financial
and management positions with Colt Industries, Inc.
Mrs. Meggitt joined the Company upon its inception in 1967 and has served
as Secretary and a Director since that time. Mrs. Meggitt managed the Company's
human resources and facilities departments from 1967 through 1987.
-2-
<PAGE>
David D. Gathman is a Managing Director of C-Level Partners, LLC, a
company that delivers executive level management consulting to venture capital
firms and information technology companies. From January 1999 to September 2000,
Mr. Gathman was Chief Financial Officer of Internet Capital Group, Inc., a
holding company actively involved in the acquisition and development of over 75
companies in a number of Business-to-Business markets. From March 1994 to
December 1998, he was Executive Vice President and Chief Financial Officer and a
member of the Board of Directors of Integrated Systems Consulting Group, Inc.,
an information services consulting firm that provides software applications
integration and development primarily in the pharmaceutical and life sciences
industries. From December 1982 through March 1994, Mr. Gathman was Vice
President - Finance and Chief Financial Officer of SunGard Data Systems Inc., a
computer software and services company.
Daniel J. Malcolm currently serves as Senior Vice President of Sales
Development for COVAD, a national DSL broadband service provider, a position he
has held since COVAD's purchase of LaserLink.net in March of 2000. From April
1999 to March of 2000, Mr. Malcolm served as Vice Chairman and Chief Operating
Officer for LaserLink.net, a provider of branded Internet access. Before joining
LaserLink.net in April 1999, he was Corporate Vice President of Central and
Eastern Customer Operation for Shared Medical Systems (SMS), where he directed
the company's sales and marketing operations. Mr. Malcolm also served as
Executive Vice President and Chief Operating Officer of American Healthware
Systems before it was acquired by SMS. Prior to American Healthware Systems and
SMS, Mr. Malcolm served as President of Integra, a mental health substance abuse
provider. Mr. Malcolm also had positions in marketing and sales management with
IBM for 14 years.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
-3-
<PAGE>
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors has an Audit Committee, a Compensation Committee
and an Option Committee.
Audit Committee. The primary responsibilities of the Audit Committee, as
more fully set forth in the Audit Committee Charter adopted by the Company on
May 1, 2000, and attached hereto as Appendix A, include (i) evaluating, and
recommending to the Board of Directors the engagement of, the Company's
independent auditors, (ii) reviewing the results of their auditing findings, and
(iii) monitoring on a periodic basis the internal controls of the Company.
Pursuant to the Audit Committee Charter, the Audit Committee has reviewed
and discussed the audited financial statements for fiscal year 2000 with the
management of the Company. Additionally, the Audit Committee has discussed with
the independent auditors the matters required by SAS 61, has received the
written disclosures and the letter from the independent auditors required by the
Independence Standards Board Standard No. 1 and has discussed with the
independent auditors the independent auditors' independence. Based in part on
the foregoing, the Audit Committee recommended to the Board of Directors that
the financial statements as of and for the years ended June 30, 2000 audited by
KPMG LLP be included in the Company's Annual Report on SEC Form 10-K.
The Audit Committee currently consists of Messrs. Meggitt, Timmerman and
Cissone. The Audit Committee had one meeting during fiscal 2000. It is
anticipated that David D. Gathman and Daniel J. Malcolm, if elected by the
Stockholders of the Company, will serve on the Audit Committee.
Compensation Committee. The Compensation Committee approves salaries and
-----------------------
certain incentive compensation for top level employees of and consultants to the
Company. The Compensation Committee currently consists of John E. Meggitt,
Ph.D., Charles L. Boyle, III, Mark A. Timmerman and Louis J. Cissone. The
Compensation Committee had one meeting during fiscal 2000. It is anticipated
that David D. Gathman and Daniel J. Malcolm, if elected by the Stockholders of
the Company, will serve on the Compensation Committee.
Option Committee. The Option Committee makes recommendations about stock
-----------------
option awards to employees of and consultants to the Company. The Option
Committee currently consists of Messrs. Timmerman and Cissone. The Option
Committee had two meetings during fiscal 2000. It is anticipated that David D.
Gathman and Daniel J. Malcolm, if elected by the Stockholders of the Company,
will serve on the Option Committee.
There were eight Board of Directors Meetings in fiscal 2000. During fiscal
2000, each incumbent Director attended all meetings of the Board of Directors
and all meetings of Committees on which he or she served.
COMPENSATION OF DIRECTORS
Non-employee Directors receive an annual fee of $5,000 for services on the
Board of Directors or any committee thereof plus $1,000 and reimbursement of
their expenses for each quarterly meeting attended and $500 and reimbursement of
their expenses for each special meeting attended. The Company may from time to
time, and at the discretion of the Board of Directors, grant stock options to
Directors for their service on the Board of Directors. During fiscal 2000, each
non-employee Director (consisting solely of Messrs. Timmerman and Cissone)
received options to purchase 2,000 shares of the Company's Common Stock, each at
an exercise price of $9.125 per share, the fair market value of the Company's
Common Stock on the date of the grant.
-4-
<PAGE>
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company:
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVED POSITION SINCE
---- --- ------------ --------------
John E. Meggitt, Ph.D 69 Chairman of the 1967
Board and Director
Charles L. Boyle, III 47 President, Chief 1996
Executive Officer
and Director
Thomas M. Giuliani, CPA (1) 43 Chief Financial 1996
Officer and
Treasurer
Dorothy M. Meggitt 66 Secretary and 1967
Director
------
(1) Mr. Giuliani joined the Company in 1989 and currently serves as its
Chief Financial Officer and Treasurer. Prior to joining the Company,
Mr. Giuliani held various accounting and financial positions for
Deloitte & Touche, Commodore International Ltd., Fox Chase Cancer
Center and Robinson Alarm Company.
Other than Dr. John E. Meggitt and Dorothy M. Meggitt, who are husband and
wife, there are no family relationships among any of the Directors, executive
officers and key employees of the Company. Executive officers of the Company are
elected annually by the Board of Directors and serve until their successors are
duly elected and qualified.
-5-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN FISCAL 2000, 1999 AND 1998.
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to (i)
each person who served as the Company's Chief Executive Officer for fiscal 2000
and (ii) the most highly compensated executive officer of the Company (other
than the Chief Executive Officer) whose aggregate cash compensation exceeded
$100,000 and who was serving as executive officer at the end of fiscal 2000
(collectively, the "Named Executives") during the years ended June 30, 2000,
1999 and 1998.
<TABLE>
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SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------------------------
Awards
------------
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
(a) (b) ($)(c) ($)(d) (#)(g) ($)(i)(1)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Charles L. Boyle, III,
President and Chief
Executive Officer......... 2000 $230,198 $55,000 15,000 $ 9,733
1999 $200,000 $90,000 14,000 $14,096
1998 $199,643 $90,000 20,000 $ 9,698
Thomas M. Giuliani, Chief
Financial Officer
and Treasurer............. 2000 $143,279 $18,750 10,000 $ 5,747
1999 $124,949 $31,050 10,000 $ 6,431
1998 $114,577 $30,950 10,000 $ 4,628
---------------------------------------------------------------------------------------------------
</TABLE>
------
(1) Includes Company contributions to its 401(k) plan and supplemental life
insurance and long-term disability premiums paid by the Company on behalf
of its executive officers.
-6-
<PAGE>
OPTION GRANTS IN FISCAL 2000
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1993 Stock Plan during fiscal 2000
to each of the Named Executives. The Company has never granted any stock
appreciation rights.
<TABLE>
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OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------------------------------------------------------------------------------
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
Annual Rates of Stock
Price Appreciation for
Option Term(2)
---------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options
Options Granted Exercise or
Granted to Employees Base Price Expiration
Name (#)(1) in Fiscal Year ($/Sh) Date 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Boyle, III... 15,000 10.1 $9.125 7/27/09 $86,081 $218,138
Thomas M. Giuliani...... 10,000 6.8 $9.125 7/27/09 $57,387 $145,425
---------------------------------------------------------------------------------------------------------
</TABLE>
------
(1) The options disclosed herein were granted pursuant to the Company's 1993
Stock Plan and become exercisable to the extent of one-third of the
options on the first anniversary from the date of grant (July 27, 1999)
with an additional one-third of the options granted becoming exercisable
on each of the second and third anniversary of the date of grant. The
options terminate on the expiration date, subject to earlier termination
on the optionee's death, disability or termination of employment with the
Company. Options are not assignable or otherwise transferable except by
will or the laws of descent and distribution.
(2) Based on a grant date fair market value of $9.125.
AGGREGATED OPTION EXERCISES IN FISCAL 2000 AND FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning each exercise of
options during fiscal 2000 by each of the Named Executives and the year end
value of unexercised in-the-money options.
<TABLE>
---------------------------------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
---------------------------------------------------------------------------------------------------------
<CAPTION>
Number of Securities Value of Unexercised
Underlying In-The-Money Options
Unexercised Options at at Fiscal
Fiscal Year-End Year-End
(#) ($)(1)
---------------------------------------------------------------------------------------------------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized($) Unexercisable Unexercisable
(a) (#)(b) (c) (d) (e)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles L. Boyle, III... -- -- 197,999 / 31,001 $1,589,998 / 120,627
Thomas M. Giuliani...... -- -- 40,999 / 20,001 $339,416 / 73,754
---------------------------------------------------------------------------------------------------------
</TABLE>
--------
(1) Based on a closing price of $14.50 per share of Common Stock as listed on
the Nasdaq National Market at June 30, 2000.
-7-
<PAGE>
EMPLOYMENT ARRANGEMENTS AND TERMINATION OF EMPLOYMENT
Each of Dr. Meggitt, Mr. Boyle and Mr. Giuliani are employed by the Company
as employees at will. In fiscal 2000, Messrs. Boyle and Giuliani earned bonuses
of $55,000 and $18,750, respectively. Such bonuses were paid to such executive
officers subsequent to June 30, 2000.
In addition to the requirement of each of Dr. Meggitt and Mr. Boyle to
maintain the confidentiality of Company information and assign inventions to the
Company, each of such executive officers has agreed that during the term of his
respective employment and thereafter for the greater of two years or the period
of time for which such executive officer is being compensated under such
employment, such person will not compete with the Company by engaging in any
capacity in any business which is competitive with the business of the Company.
The Company has executed indemnification agreements with each of its
executive officers and Directors pursuant to which the Company has agreed to
indemnify such parties to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.
The Company has executed change in control agreements with each of Mr.
Boyle and Mr. Giuliani. The terms and conditions of such agreements become
effective only if a change in control occurs on or before December 31, 2000. If,
during the three-month period immediately preceding a change in control or
during the three-year period immediately following a change in control, such
executive officer's employment with the Company is terminated by (i) the Company
for no reason or any reason other than cause or (ii) such executive officer for
good reason, then such executive officer receives (a) three times base salary in
the case of Mr. Boyle and two times base salary in the case of Mr. Giuliani, (b)
continuation of health care benefits for 36 months and (c) immediate vesting of
all stock options owned.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors, officers and stockholders who
beneficially own more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Exchange Act (collectively, the
"Reporting Persons") to file initial statements of beneficial ownership of
securities and statements of changes in beneficial ownership of securities with
respect to the Company's equity securities with the Securities and Exchange
Commission (the "SEC"). All Reporting Persons are required by SEC regulation to
furnish the Company with copies of all reports that such Reporting Persons file
with the SEC pursuant to Section 16(a).
Based solely on the Company's review of the copies of such forms received
by the Company and upon written representations of the Company's Reporting
Persons received by the Company, the Company believes that there has been
compliance with all Section 16(a) filing requirements applicable to such
Reporting Persons.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of John E. Meggitt, Ph.D., Charles
L. Boyle, III, Mark A. Timmerman and Louis J. Cissone.
The Company's headquarters in Yardley, Pennsylvania are leased to the
Company by John E. Meggitt, Ph.D., the Chairman of the Board, and Dorothy M.
Meggitt, his wife and Secretary of the Company. Dr. and Mrs. Meggitt also are
Directors and majority stockholders of the Company. See "Security Ownership of
Certain Beneficial Owners and Management." On July 1, 1998, the Company and Dr.
and Mrs. Meggitt entered into a five-year lease for the Yardley facilities.
Under such lease arrangement, the Company made rental payments to Dr. and Mrs.
Meggitt totaling $446,400 during the year ended June 30, 2000. In addition, the
Company paid $63,261 during the year ended June 30, 2000 for property taxes due
on such property. The Company believes that the terms of the lease are at least
as favorable to the Company as the terms that may have been available from
unrelated third parties. In addition, the Company has determined that any future
transactions between the Company and its officers, Directors, principal
stockholders and their affiliates shall be on terms no less favorable to the
Company than could be obtained from unrelated third parties.
In fiscal 2000, the Company paid $83,259 in salary and $58,915 in
compensation from stock options exercised to Peter Meggitt, the son of Dr. and
Mrs. Meggitt. Mr. Meggitt serves as a systems programmer for the Company.
-8-
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return on the Nasdaq Composite
Index and the S&P Computer Systems Index (capitalization weighted) for the
period beginning on June 30, 1995.
COMPARISON OF CUMULATIVE TOTAL RETURN (1)(2)(3)
Among the Company, the Nasdaq Composite Index and the S&P Computer Systems Index
[PERFORMANCE GRAPH INSERTED HERE]
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
06/30/95 06/30/96 06/30/97 06/30/98 06/30/99 06/30/00
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Prophet 21, Inc. $ 100.00 $ 138.89 $ 119.44 $ 325.00 $ 161.11 $ 322.22
------------------------------------------------------------------------------------------------------
Nasdaq Composite Index $ 100.00 $ 126.95 $ 154.49 $ 202.98 $ 287.76 $ 424.89
------------------------------------------------------------------------------------------------------
S&P Computer Systems Index $ 100.00 $ 111.51 $ 169.04 $ 239.57 $ 434.93 $ 614.44
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Graph assumes $100.00 invested on June 30, 1995 in the Company's Common
Stock, the Nasdaq Composite Index and the S&P Computer Systems Index.
(2) Total return assumes reinvestment of dividends.
(3) Fiscal year ending June 30.
-9-
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report:
The Company's executive compensation policy is designed to attract and
retain highly qualified individuals for its executive positions and to provide
incentives for such executives to achieve maximum Company performance by
aligning the executives' interest with that of shareholders by basing a portion
of compensation on corporate performance.
The Compensation Committee generally determines base salary levels for
executive officers of the Company, who are not subject to an employment
agreement, at or about the start of the fiscal year and determines actual
bonuses after the end of the fiscal year based upon Company and individual
performance. Each of Dr. Meggitt, Mr. Boyle and Mr. Giuliani are employed by the
Company as employees at will.
The Company's executive officer compensation program is comprised of base
salary, conditional cash bonuses, stock options granted at the discretion of the
Option Committee and various other benefits, including stock purchase rights,
medical insurance and a 401(k) Plan which are generally available to all
employees of the Company.
Salaries, whether established pursuant to contract or otherwise, are
established in accordance with industry standards through review of publicly
available information concerning the compensation of officers of comparable
companies. Consideration is also given to relative responsibility, seniority,
individual experience and performance. Salaries for each of Dr. Meggitt, Mr.
Boyle and Mr. Giuliani are determined by the Board of Directors. Salary
increases for other executives are generally made based on increases in the
industry for similar companies with similar performance profiles and/or
attainment of certain division or Company goals.
The stock option and stock purchase programs are designed to relate
executives' long-term interests to stockholders' long-term interests. Stock
options and stock purchase rights will be awarded on the basis of individual
performance and/or the achievement of internal strategic objectives.
Based on review of available information, the Committee believes that the
Chief Executive Officer's total annual compensation is reasonable and
appropriate given the size, complexity and historical performance of the
Company's business, the Company's position as compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as changes in the market for computer products and manufacturers' product lines,
as well as variations in prices and distribution channels, and other industry
factors. No specific weight was assigned to any of the criteria relative to the
Chief Executive Officer's compensation.
Compensation Committee Members
John E. Meggitt, Ph.D.
Charles L. Boyle, III
Louis J. Cissone
Mark A. Timmerman
-10-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There are, as of November 27, 2000, approximately 150 holders of record and
1,799 beneficial holders of the Company's Common Stock. The following table sets
forth certain information, as of November 27, 2000, regarding the beneficial
ownership of the Company's Common Stock by (i) each person who is known to the
Company to own beneficially more than 5% of the total number of shares of Common
Stock outstanding as of such date, (ii) each of the Company's Directors (which
includes all nominees) and Named Executives, and (iii) all Directors and
executive officers as a group.
Name and Address Amount and Nature Percent
of Beneficial Owner(1) of Beneficial Ownership(1) of Class(2)
------------------- ----------------------- --------
(i) Certain Beneficial Owners:
John E. Meggitt, Ph.D. and
Dorothy M. Meggitt 2,179,020(3)(8) 58.4
(ii) Directors (which includes all
nominees) and Named Executives:
Charles L. Boyle, III 221,795(4)(8) 5.6
Thomas M. Giuliani 52,512(5)(8) 1.4
Louis J. Cissone 4,332(6)(8) *
Mark A. Timmerman 5,832(7)(8) *
David D. Gathman --(8) *
Daniel J. Malcolm --(8) *
(iii) All current Directors and
executive officers as a group 2,463,491(3)(4)(5)(6)(7) 61.5
(6 persons)
--------------
* Less than one percent.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have
sole voting and investment power with respect to all shares.
(2) Applicable percentage of ownership is based on 3,734,280 shares of Common
Stock outstanding on November 27, 2000.
(3) John E. Meggitt, Ph.D., Chairman of the Board and Director, and Dorothy M.
Meggitt, Secretary and Director, are husband and wife. Includes 1,787,692
shares of Common Stock held by Dr. Meggitt and 391,328 shares of Common
Stock held by Mrs. Meggitt. Does not include shares of Common Stock owned
of record by Dr. and Mrs. Meggitt's adult children (and their spouses) and
grandchildren, as to which shares Dr. and Mrs. Meggitt disclaim beneficial
ownership.
(4) Represents 7,462 shares of Common Stock owned of record and 214,333 shares
of Common Stock subject to options which were exercisable as of November
27, 2000 or which will become exercisable within 60 days after such date.
Excludes 39,667 shares underlying options which become exercisable over
time after such period.
(5) Represents 1,513 shares of Common Stock owned of record and 50,999 shares
of Common Stock subject to options which were exercisable as of November
27, 2000 or which will become exercisable within 60 days after such date.
Excludes 25,001 shares underlying options which become exercisable over
time after such period.
(6) Represents 500 shares of Common Stock owned of record and 3,832 shares of
Common Stock subject to options which were exercisable as of November 27,
2000 or which will become exercisable within 60 days after such date.
Excludes 4,168 shares underlying options which become exercisable over
time after such period.
(7) Represents 2,000 shares of Common Stock owned of record and 3,832 shares
of Common Stock subject to options which were exercisable as of November
27, 2000 or which will become exercisable within 60 days after such date.
Excludes 4,168 shares underlying options which become exercisable over
time after such period.
(8) The address for each of the persons noted is 19 West College Avenue,
Yardley, PA 19067.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has executed indemnification agreements with each of its
Directors and executive officers pursuant to which the Company has agreed to
indemnify such parties to the full extent permitted by law, subject to certain
exceptions, if such party becomes subject to an action because such party is a
Director, officer, employee, agent or fiduciary of the Company.
Transactions involving Dr. and Mrs. Meggitt are reported in "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation."
PROPOSED AMENDMENT TO THE 1993 STOCK PLAN
SUMMARY OF CURRENT PLAN
The 1993 Plan was adopted by the Board of Directors and approved by the
Stockholders of the Company on December 6, 1993 for employees, officers,
Directors and consultants of the Company and its subsidiaries. The 1993 Plan was
amended on December 14, 1993. The 1993 Plan was adopted to promote the growth
and profitability of the Company by enabling it to furnish maximum incentive to
those employees deemed capable of improving operations and increasing profits
and encouraging such persons to accept or continue employment with the Company
and its subsidiaries and become owners of shares of its Common Stock. Currently,
there are 1,000,000 shares of Common Stock reserved for issuance upon the
exercise of options granted under the 1993 Plan.
The 1993 Plan is administered by the Option Committee (the "Committee") of
the Board of Directors, which determines, among other things, the nature of the
options to be granted, the persons who are to receive options (each a
"Grantee"), the number of shares to be subject to each option, the exercise
price of the options and the vesting schedule of the options. The 1993 Plan
provides for the granting of options intended to qualify as incentive stock
options ("ISOs"), as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), to employees of the Company as well as
non-qualified stock options ("NQSOs") to employees, Directors and consultants
who perform services for the Company or its subsidiaries. The exercise price of
all ISOs granted under the 1993 Plan may not be less than the fair market value
of the shares at the time the option is granted. In addition, no ISO may be
granted to an employee who owns more than 10% of the total combined voting power
of all classes of stock of the Company unless the exercise price as to that
employee is at least 110% of the fair market value of the stock at the time of
the grant. No employee may be granted ISOs for shares having an aggregate fair
market value greater than $100,000 in any calendar year. Options may be for a
period of not more than ten years from the date of grant, provided, however that
the term of an ISO granted to an employee who owns more than 10% of the total
combined voting power of all classes of stock of the Company may not exceed five
years. The exercise price of a NQSO may not be less than 75% of the fair market
value per share of the Common Stock on the date of grant. An option is
exercisable as determined by the Committee. The 1993 Plan will terminate on
December 6, 2003. Subject to the terms as specified in any option agreement, if
a Grantee's employment or consulting relationship terminates on account of
disability, the Grantee may exercise any outstanding option for one year
following the termination. If a Grantee dies while in the employ of the Company
or during the period of the consulting arrangement, the Grantee's estate may
exercise any outstanding option for one year following the Grantee's death. If
termination is for any other reason, the Grantee may exercise any outstanding
option for ninety days following the termination. Outstanding options are
exercisable after any termination only to the extent such options are
exercisable at such termination. Options are not assignable or otherwise
transferable except by will or the laws of descent and distribution and shall be
exercisable during the Grantee's lifetime only by the Grantee.
The 1993 Plan provides that, in the event of a reorganization,
recapitalization, stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other change in the corporate
structure or shares of the Company, the Board of Directors shall make
adjustments with respect to the shares that may be issued under the 1993 Plan or
that are covered by outstanding options, or in the option price per share.
In the event of a dissolution or liquidation of the Company, the Board
shall notify the Grantee at least fifteen days prior to such proposed action. To
the extent not previously exercised, the outstanding options will terminate
immediately prior to the consummation of such proposed action. In the event of a
merger or consolidation of the Company with or into another corporation or the
sale of all or substantially all of the Company's assets (hereinafter, a
"merger"), then the outstanding options will be assumed or an equivalent option
will be substituted by such successor corporation or a parent or subsidiary of
-12-
<PAGE>
such successor corporation. In the event that such successor corporation does
not agree to assume the outstanding options or to substitute equivalent options,
the Board of Directors will, in lieu of such assumption or substitution, provide
for the Grantee to have the right to exercise all of his outstanding options. If
the Board of Directors makes an option fully exercisable in lieu of assumption
or substitution in the event of a merger, the Board of Directors shall notify
the Grantee that the option will be fully exercisable for a period of fifteen
days from the date of such notice, and the option will terminate upon the
expiration of such period. The option will be considered assumed if, following
the merger, the option confers the right to purchase, for each share of Common
Stock subject to the option immediately prior to the merger, the consideration
(whether stock, cash, or other securities or property) received in the merger by
holders of Common Stock for each share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares). If
such consideration received in the merger was not solely common stock of the
successor corporation or its parent, the Board of Directors may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of an option, for each share of
stock subject to the option, to be solely common stock of the successor
corporation or its parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
The Board may at any time amend, alter, suspend or discontinue the 1993
Plan, but no amendment, alteration, suspension or discontinuation will be made
which would impair the rights of any Grantee under any grant theretofore made,
without such Grantee's consent. In addition, to the extent necessary and
desirable to comply with Rule 16b-3 under the Exchange Act, or with Section 422
of the Code (or any other applicable law or regulation, including the
requirements of the National Association of Securities Dealers or an established
stock exchange), the Company shall obtain shareholder approval of any 1993 Plan
amendment in such a manner and to such a degree as required. Any such amendment
or termination of the 1993 Plan is not permitted to affect options already
granted and such options will remain in full force and effect as if the 1993
Plan had not been amended or terminated, unless mutually agreed otherwise
between the Grantee and the Board of Directors, which agreement must be in
writing and signed by the Grantee and the Company.
FEDERAL INCOME TAX ASPECTS
The Company believes that, under the present law, the following are the
federal tax consequences generally arising with respect to awards granted under
the 1993 Plan. The grant of an option will create no tax consequences for an
optionee or the Company. The optionee will have no taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction when an ISO is exercised. Upon exercising an
option other than an ISO, the optionee must recognize ordinary income equal to
the difference between the exercise price and the fair market value of the stock
on the date of exercise; the Company will be entitled to a deduction for the
same amount. The treatment of an optionee on a disposition of shares acquired
through the exercise of an option depends on how long the shares have been held
and on whether such shares were acquired by exercising an ISO or by exercising
an option other than an ISO. Generally, there will be no tax consequences to the
Company in connection with a disposition of shares acquired under an option
except that the Company may be entitled to a deduction in the case of a
disposition of shares acquired under an ISO before the applicable ISO holding
periods have been satisfied.
With respect to other awards granted under the 1993 Plan that are settled
either in cash or in stock or other property that is either transferable or not
subject to substantial risk of forfeiture, the participant must recognize
ordinary income equal to the cash or the fair market value of shares or other
property received; the Company will be entitled to a deduction for the same
amount. With respect to awards that are settled in stock or other property that
is restricted as to transferability and subject to substantial risk of
forfeiture, the participant must recognize ordinary income equal to the fair
market value of the shares or other property received at the time the shares or
other property become transferable or not subject to substantial risk of
forfeiture, whichever occurs earlier; the Company will be entitled to a
deduction for the same amount. The participant may elect to recognize such
income equal to the fair market value of the shares or other property received
at the time such award is made, in which case the Company will be entitled to a
deduction for the same amount at such time. Different tax rules may apply with
respect to participants who are subject to Section 16 of the 1934 Act.
-13-
<PAGE>
PREVIOUSLY GRANTED OPTIONS UNDER THE 1993 PLAN
As of June 30, 2000, the Company had granted options to purchase an
aggregate of 977,500 shares of Common Stock under the 1993 Plan at an average
exercise price of $8.01 per share. As of June 30, 2000, 522,567 options to
purchase shares were vested and 253,488 options to purchase shares had been
exercised under the 1993 Plan. The following table sets forth the options
granted under the 1993 Plan to: (i) the Named Executives; (ii) all current
executive officers as a group; (iii) each nominee for election as a Director;
(iv) all current Directors who are not executive officers as a group; (v) each
associate of any of such Directors, executive officers or nominees; (vi) each
person who has received or is to receive 5% of such options or rights; and (vii)
all employees, including all current officers who are not executive officers, as
a group:
<TABLE>
<CAPTION>
OPTIONS GRANTED WEIGHTED AVERAGE
NAME THROUGH JUNE 30, 2000 EXERCISE PRICE
---- --------------------- ----------------
<S> <C> <C>
John E. Meggitt, Ph.D.................................. -- $ --
Charles L. Boyle, III.................................. 229,000 7.14
Thomas M. Giuliani..................................... 61,000 8.01
Dorothy M. Meggitt..................................... -- --
Louis J. Cissone....................................... 5,500 13.23
Mark A. Timmerman...................................... 5,500 13.23
All current executive officers as a group (4 persons).. 290,000 7.32
All current Directors who are not executive officers
as a group (2 persons)............................. 11,000 --
All employees, including all current officers who are
not executive officers as a group (67 persons)..... 676,500 8.22
</TABLE>
As of June 30, 2000, the market value of the Common Stock underlying the
1993 Plan was $14.50 per share.
PROPOSED AMENDMENT
Stockholders are being asked to consider and vote upon a proposed amendment
(the "Amendment") to the 1993 Plan to increase the maximum number of shares of
Common Stock available for issuance under the 1993 Plan from 1,000,000 to
1,200,000 shares and to reserve an additional 200,000 shares of Common Stock of
the Company for issuance upon the exercise of stock options granted or for the
issuance of stock purchase rights under the 1993 Plan.
The Board of Directors believes that the Amendment provides an important
inducement to recruit and retain the best available personnel. The Board of
Directors believes that providing employees with an opportunity to invest in the
Company rewards them appropriately for their efforts on behalf of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT.
PROPOSED AMENDMENT TO THE 1997 EMPLOYEE STOCK PURCHASE PLAN
The 1997 Plan was adopted by the Board of Directors and approved by the
stockholders of the Company on October 23, 1997. The purpose of the 1997 Plan is
to provide a further incentive for employees to promote the best interests of
the Company and to encourage stock ownership by employees in order to
participate in the Company's economic progress. Currently, a total of 100,000
shares is available for purchase pursuant to the 1997 Plan.
In general, the 1997 Plan provides for eligible employees to designate in
advance of specified purchase periods (which will be annual, semi-annual or
quarterly) a percentage of compensation (up to 10%) to be withheld from their
pay and applied toward the purchase of such number of whole shares of Common
Stock as can be purchased at a price of 85%
-14-
<PAGE>
of the lesser of the stock's trading price at the beginning or the end of each
such period. No employee can purchase more than $5,000 worth of stock annually,
and no stock can be purchased by any person which would result in the purchaser
owning five percent or more of the total combined voting power or value of all
classes of stock of the Company.
The 1997 Plan is intended to satisfy the requirements of Section 423(b) of
the Code which requires that it be approved by stockholders within one year of
the earlier of its adoption by the Board of Directors or the 1997 Plan's
effective date. The 1997 Plan was adopted by the Board of Directors on September
4, 1997. In addition, the 1997 Plan is intended to comply with certain
requirements of Rule 16b-3 under the Exchange Act.
The term of the 1997 Plan will extend through December 31, 2001, unless
terminated earlier by the Board of Directors. The Board of Directors generally
has the right to amend or terminate the 1997 Plan without the consent of
participants or stockholders, subject to certain exceptions.
Each person employed by the Company (except short-term, part-time, or
seasonal employees) is eligible to participate in the 1997 Plan (an "Eligible
Employee"), provided he or she is not, as of the day preceding the first day of
the Purchase Period (as defined below), deemed, for purposes of Section
423(b)(3) of the Code, to own stock possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company.
The purchase price per share of the Common Stock sold under the 1997 Plan
for any Purchase Period will be equal to the lesser of (a) 85% of the "fair
market value" of a share of Common Stock on the first day of such Purchase
Period, or (b) 85% of the "fair market value" of a share of Common Stock on the
last day of such Purchase Period (the "Exercise Date"). The fair market value
will be deemed to be the average of the last bid and asked prices of the Common
Stock reported by Nasdaq, or if the Common Stock is traded on the Nasdaq
National Market or a national securities exchange, the closing sale price of the
Common Stock thereon, in each case on the applicable date or, if there is no
such sale on that day, then on the last preceding date on which such a sale was
reported.
Under the 1997 Plan, a separate option to purchase shares of Common Stock
will be granted to each Eligible Employee as of the first day of each "Purchase
Period". The option grant applies automatically to all Eligible Employees, but
to participate in the 1997 Plan, further action is required as explained below.
A Purchase Period will be a period of three, six or twelve months (as elected in
advance by the committee administering the 1997 Plan), during which time payroll
deductions will be made to fund the purchase of shares subject to option. The
first Purchase Period will commence on January 1, 1998 and end on March 31,
1998. The maximum number of shares an Eligible Employee is eligible to purchase
for any Purchase Period is $5,000 ($1,250 for a three-month Purchase Period and
$2,500 for a six-month Purchase Period) divided by 100% of the fair market value
of a share of Common Stock on the first day of each applicable Purchase Period.
If, as of the first day of each such Purchase Period, an Eligible Employee would
be deemed for purposes of Section 423(b)(3) of the Code to own stock of the
Company (including any number of shares which such person is entitled to
purchase under the 1997 Plan) possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company, the maximum number of
shares such person will be entitled to purchase pursuant to the 1997 Plan will
be reduced. Options granted to Eligible Employees who fail to authorize payroll
deductions will automatically lapse.
In order to purchase shares pursuant to an option, an Eligible Employee
must sign a Stock Purchase Agreement and properly return it as instructed in
advance of the first day of each Purchase Period. By doing so, the employee
becomes a Participant in the 1997 Plan. Under the Stock Purchase Agreement, each
Eligible Employee who elects to participate in the 1997 Plan must authorize
contributions to the 1997 Plan through regular payroll deductions, effective as
of the first day of the relevant Purchase Period. A Participant may authorize
payroll deductions from his or her cash W-2 compensation, as defined in the 1997
Plan ("Compensation"), for each payroll period, of a specified percentage of
such compensation, not less than 1% and not more than 10%, in multiples of 1/2%.
The amount of payroll deduction must be established at the beginning of a
Purchase Period and may not be altered, except for complete discontinuance. The
payroll deduction authorized by a Participant will be credited to an individual
account maintained for the Participant under the 1997 Plan (an "Account").
For any particular Purchase Period, the committee administering the 1997
Plan may elect, in advance, a "Trust Administration Option" whereby the amounts
of payroll deductions taken for Participants will be deposited regularly in a
trust established by the Company with an institutional trustee for the benefit
of Participants. Unless withdrawn earlier, the
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<PAGE>
funds held for the respective Participants (together with applicable earnings)
will be applied by the trustee on the Exercise Date to purchase shares of Common
Stock for each such Participant in accordance with the 1997 Plan. The Company
will pay all the expenses of trust establishment and administration, but will
not have a lien over, reversionary interest in, the trust assets. Withdrawals by
Participants during a Purchase Period while the Trust Administration Option is
in effect will entitle the withdrawing Participants to their respective shares
of earnings by the trust on their accumulated payroll deductions.
Shares of Common Stock acquired pursuant to the exercise of options under
the 1997 Plan and funded pursuant to payroll deductions as provided in the Stock
Purchase Agreement are to be offered and sold to Eligible Employees solely
pursuant to an effective Registration Statement filed under the Securities Act
of 1933, as amended.
If there is credited to the Account of a Participant as of any Exercise
Date an amount at least equal to the purchase price determined under the 1997
Plan of one share of Common Stock for the current Purchase Period, the
Participant will purchase, and the Company will sell, at such price the largest
number of whole shares of Common Stock which can be purchased with the amount
credited to his or her Account. In no event will fractional shares be issued.
Any balance remaining in a Participant's Account at the end of a Purchase Period
(not in excess of the purchase price of one share of Common Stock) will be
carried forward into a Participant's Account for the following Purchase Period.
No Participant may, in any calendar year, purchase such number of shares
under the 1997 Plan which, when aggregated with all other shares of stock of the
Company which he or she may be entitled to purchase under any other employee
stock purchase plans of the Company which meets the requirements of Section
423(b) of the Code, exceeds $5,000 in fair market value. Since the exclusive
method for purchasing shares under the 1997 Plan is through payroll deductions
whose maximum limit is 10% of Compensation, the 10% limitation will be the
effective limit on purchases of stock under the 1997 Plan for substantially all
employees.
If, as of the Exercise Date in any Purchase Period, the aggregate funds
available for the purchase of shares of Common Stock would result in a purchase
of shares in excess of the maximum number of shares then available for purchase
under the 1997 Plan, the number of shares which would otherwise be purchased by
each Participant on the Exercise Date will be reduced by a factor relative to
the payroll deduction accumulation for each Participant.
Options issued under the 1997 Plan are intended to be options issued
pursuant to an "Employee Stock Purchase Plan" within the meaning of Section 423
of the Code. Accordingly, if a Participant exercises an option and holds the
shares for the applicable holding period, and remains an employee at all times
during the period beginning with the date the option is granted and ending three
months before the date it is exercised, he or she will be entitled for Federal
income tax purposes to special tax treatment. Under such circumstances, any gain
realized upon disposition of the shares will be treated as ordinary income to
the extent of the lesser of (i) 15% of the fair market value of the shares on
the date the option was granted, or (ii) the amount by which the fair market
value of the shares on the date of disposition exceeded the option price. Any
further gain will be treated as long-term capital gain. The applicable holding
period is the longer of (i) two years after the date the option is granted, or
(ii) one year after the shares are issued. The Company will not be entitled to
any tax deduction for Federal income tax purposes with respect to shares so
acquired and disposed of by a Participant.
The 1997 Plan does not contain any provisions requiring a Participant to
hold the optioned stock for any period after exercise of the option, nor to
acquire such stock for investment purposes. However, unless a Participant holds
the stock for more than two years after the option is granted and one year after
the stock is issued, he or she will not be entitled to long-term capital gain
treatment for Federal income tax purposes on any increase in fair market value
of the stock between the date the option was granted and the date the option was
exercised. If the Participant disposes of the stock within such one-year period
or such two-year period, any excess of the fair market value on the date of
exercise over the option price is taxable as ordinary income to him or her and
is deductible by the Company for Federal income tax purposes.
The number of shares of Common Stock which can be purchased pursuant to
options under the 1997 Plan are subject to adjustment in the event of certain
recapitalizations of the Company. Participants' rights to purchase stock
pursuant to the 1997 Plan are not transferable. Generally, the Company's Board
of Directors, without the consent of Participants, can terminate or amend the
1997 Plan, except that no such action can adversely affect options previously
granted and, without stockholder approval, the Board may not: (i) increase the
total amount of Common Stock allocated to
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<PAGE>
the 1997 Plan (except for permitted capital adjustments); (ii) change the class
of Eligible Employees; (iii) decrease the minimum purchase price; (iv) extend a
Purchase Period; or (v) extend the term of the 1997 Plan.
SHARES PREVIOUSLY PURCHASED UNDER THE 1993 PLAN
As of June 30, 2000, an aggregate of 66,320 shares of Common Stock had been
purchased under the 1997 Plan at an average purchase price of $8.75 per share.
The following table sets forth the shares of Common Stock purchased under the
1997 Plan to: (i) the Named Executives; (ii) all current executive officers as a
group; (iii) each nominee for election as a Director; (iv) all current Directors
who are not executive officers as a group; (v) each associate of any of such
Directors, executive officers or nominees; (vi) each person who has received or
is to receive 5% of such options or rights; and (vii) all employees, including
all current officers who are not executive officers, as a group:
<TABLE>
<CAPTION>
SHARES PURCHASED WEIGHTED AVERAGE
NAME THROUGH JUNE 30, 2000 PURCHASE PRICE
---- --------------------- ----------------
<S> <C> <C>
John E. Meggitt, Ph.D.................................. -- $ --
Charles L. Boyle, III.................................. 1,462 8.59
Thomas M. Giuliani..................................... 1,213 8.48
Dorothy M. Meggitt..................................... -- --
Louis J. Cissone....................................... -- --
Mark A. Timmerman...................................... -- --
All current executive officers as a group (4 persons).. 2,675 8.54
All current Directors who are not executive officers
as a group (2 persons)............................. -- --
All employees, including all current officers who are
not executive officers as a group (109 persons).... 63,645 8.76
</TABLE>
As of June 30, 2000, the market value of the Common Stock underlying the
1997 Plan was $14.50 per share.
PROPOSED AMENDMENT
Stockholders are being asked to consider and vote upon a proposed amendment
(the "Amendment") to the 1997 Plan to increase the maximum number of shares of
Common Stock available for issuance under the 1997 Plan from 100,000 to 200,000
shares and to reserve an additional 100,000 shares of Common Stock of the
Company for issuance upon the purchase of Common Stock under the 1997 Plan.
The Board of Directors believes that the Amendment provides an important
inducement to recruit and retain the best available personnel. The Board of
Directors believes that providing employees with an opportunity to invest in the
Company rewards them appropriately for their efforts on behalf of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT.
-17-
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has, subject to stockholder approval,
retained KPMG LLP as independent auditors of the Company for the year ending
June 30, 2001. KPMG LLP has served as the Company's independent auditors since
February 1, 2000. Neither the firm nor any of its members has any direct or
indirect financial interest in or any connection with the Company in any
capacity other than as independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR THE
FISCAL YEAR ENDING JUNE 30, 2001.
One or more representatives of KPMG LLP is expected to attend the Meeting
and have an opportunity to make a statement and/or respond to appropriate
questions from Stockholders.
On January 26, 2000, the Company dismissed PricewaterhouseCoopers LLP
("PWC"), as its independent accountants. In connection with its audits for each
of the two years in the period ended June 30, 1999 and through January 26, 2000,
there were no disagreements with PWC on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
caused disagreements if not resolved to the satisfaction of PWC would have
caused them to make reference thereto in their reports on the financial
statements of the Company for such years. The report of PWC on the Company's
financial statements for each of the two years in the period ended June 30, 1999
contained no adverse opinion or disclaimer of opinion and was not modified or
qualified as to uncertainty, audit scope, or accounting principle. The decision
to dismiss PWC was approved by both the Audit Committee of the Board of
Directors and by the full Board of Directors of the Company. PWC has furnished
the Company with a letter addressed to the Securities and Exchange Commission
stating their agreement with the above statements.
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<PAGE>
STOCKHOLDERS' PROPOSALS
Stockholders who wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 2001 Annual Meeting of
Stockholders must advise the Secretary of the Company of such proposals in
writing within a reasonable time before the Company begins to print and mail its
proxy materials to its Stockholders.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Meeting other than the matters referred to above and does not
intend to bring any other matters before the Meeting. However, if other matters
should come before the Meeting, it is intended that holders of the proxies will
vote thereon in their discretion.
GENERAL
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by Directors, executive officers and other
employees of the Company who will not be specially compensated for these
services. The Company will also request that brokers, nominees, custodians and
other fiduciaries forward soliciting materials to the beneficial owners of
shares held of record by such brokers, nominees, custodians and other
fiduciaries. The Company will reimburse such persons for their reasonable
expenses in connection therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of Directors and executive officers of the
Company is based upon information received from the individual Directors and
officers.
PROPHET 21, INC. WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON FORM
10-K FOR THE YEAR ENDED JUNE 30, 2000, INCLUDING FINANCIAL STATEMENTS AND
SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS STOCKHOLDERS OF
RECORD ON NOVEMBER 27, 2000, AND TO EACH BENEFICIAL STOCKHOLDER ON THAT DATE
UPON WRITTEN REQUEST MADE TO THE SECRETARY OF THE COMPANY. A REASONABLE FEE WILL
BE CHARGED FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
/s/ Dorothy M. Meggitt
Dorothy M. Meggitt
Secretary
Yardley, Pennsylvania
December 29, 2000
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<PAGE>
PROPHET 21, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby constitutes and appoints John E. Meggitt, Ph.D. and
Charles L. Boyle, III, and each of them, his or her true and lawful agent and
proxy with full power of substitution in each, to represent and to vote on
behalf of the undersigned all of the shares of Common Stock of Prophet 21, Inc.
(the "Company") which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the Company's offices, 19 West
College Avenue, Yardley, Pennsylvania 19067 at 1:00 P.M., local time, on
Thursday, January 25, 2001 and at any adjournment or adjournments thereof, upon
the following proposals more fully described in the Notice of Annual Meeting of
Stockholders and Proxy Statement for the Meeting (receipt of which is hereby
acknowledged).
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
1. ELECTION OF DIRECTORS.
Nominees: John E. Meggitt, Ph.D.
Charles L. Boyle, III
VOTE FOR all nominees listed at right [ ] Dorothy M. Meggitt
David D. Gathman
Daniel J. Malcolm
FOR, except vote withheld from the following nominees
(if any):
-----------------------------------------------------
VOTE WITHHELD from all nominees listed at right [ ]
2. APPROVAL OF A PROPOSAL TO AMEND THE COMPANY'S 1993 STOCK PLAN, AS AMENDED
(THE "1993 PLAN"), TO INCREASE THE MAXIMUM NUMBER OF SHARES OF COMMON STOCK
AVAILABLE FOR ISSUANCE UNDER THE 1993 PLAN FROM 1,000,000 TO 1,200,000 SHARES
AND TO RESERVE AN ADDITIONAL 200,000 SHARES OF COMMON STOCK OF THE COMPANY FOR
ISSUANCE UPON THE EXERCISE OF STOCK OPTIONS GRANTED OR FOR THE ISSUANCE OF STOCK
PURCHASE RIGHTS UNDER THE 1993 PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPROVAL OF A PROPOSAL TO AMEND THE COMPANY'S 1997 EMPLOYEE STOCK PURCHASE
PLAN, AS AMENDED (THE "1997 PLAN"), TO INCREASE THE MAXIMUM NUMBER OF SHARES OF
COMMON STOCK AVAILABLE FOR PURCHASE UNDER THE 1997 PLAN FROM 100,000 TO 200,000
SHARES AND TO RESERVE AN ADDITIONAL 100,000 SHARES OF COMMON STOCK OF THE
COMPANY FOR ISSUANCE UPON THE PURCHASE OF STOCK UNDER THE 1997 PLAN.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. APPROVAL OF PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE YEAR ENDING JUNE 30, 2001.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In his discretion, the proxy is authorized to vote upon other matters as may
properly come before the Meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, this proxy will be voted
FOR proposals 1, 2, 3 and 4.
<PAGE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
I will will not
[ ] [ ]
attend the Meeting
Date: NOTE: This proxy must be signed
------------------------------ exactly as the name appears hereon.
When shares are held by joint
----------------------------------- tenants, both should sign. If the
Signature of Stockholder signer is a corporation, please sign
full corporate name by duly authorized
Date: officer, giving full title as such. If a
------------------------------ partnership, please sign in partnership
name by authorized person.
-----------------------------------
Signature of Stockholder if held
jointly
