SCHEDULE 14A INFORMATION
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CAPTIVA SOFTWARE INC.
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(NameCORPORATION
(Name of Registrant as Specified Inin Its Charter)
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CAPTIVA SOFTWARE INC.
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CORPORATION
10145 Pacific Heights Boulevard
San Diego, CA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1999
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To Our Stockholders:
Be Held On June 18, 2003
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of INPUT SOFTWARE, INC.Captiva Software Corporation, a Delaware corporation (the "Company"“Company”), which. The meeting will be held on Wednesday, June 18, 2003 at the Company's
principal executive offices, 1299 Parkmoor Avenue, San Jose, California, at 9:10:00 a.m. on May 27, 1999,local time at Woodfin Suites Hotel, 10044 Pacific Mesa Boulevard, San Diego, CA 92121, for the following purposes:
1.
| 1. | To elect seven directors to serve for the ensuing year and until their successors are elected. |
| 2. | To ratify the selection by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP as independent accountants of the Company for its fiscal year ending December 31, 2003. |
| 3. | To conduct any other business properly brought before the meeting. |
These items of business are more fully described in the Proxy Statement accompanying this Notice.
The record date for the ensuing year or until their
successors are elected;
2. To approve an amendment to the Company's 1993 Stock Option/Stock
Issuance Plan to increase the numberAnnual Meeting is April 25, 2003. Only stockholders of shares of Common Stock available
for issuance thereunder by 300,000 shares;
3. To approve an amendment to the Company's 1998 Employee Stock Purchase
Plan to increase the number of shares of Common Stock available for
issuance thereunder by 50,000 shares;
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
public accountants for the Company for the fiscal year ending December
31, 1999; and
5. To act upon such other business as may properly come before the meeting
orrecord at any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on that date may vote at the meeting or any adjournment thereof.
By Order of the Board of Directors
Bradford Weller
Secretary
San Diego, California
April 8, 1999,30, 2003
You are cordially invited to attend the meeting in person. Whether or not you expect to attend the meeting, please complete, date, sign and return the enclosed proxy, as promptly as possible in order to ensure your representation at the meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the meeting. Please note, however, that if your shares are held of record date for determining those stockholders who will be entitledby a broker, bank or other nominee and you wish to vote at the meeting. The stock transfer books will not be closed between themeeting, you must obtain a proxy issued in your name from that record date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of the Company is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTENDholder.
CAPTIVA SOFTWARE CORPORATION
10145 Pacific Heights Boulevard
San Diego, CA 92121
PROXY STATEMENT
FOR THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. You may revoke your proxy at any
time prior to the time it is voted. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
/s/ KIMRA D. HAWLEY
Kimra D. Hawley
PRESIDENT AND CHIEF EXECUTIVE OFFICER
San Jose, California
April 19, 1999
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
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PROXY STATEMENT
FOR2003 ANNUAL MEETING OF STOCKHOLDERS OF
INPUT SOFTWARE, INC.
TO BE HELD MAY 27, 1999
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This Proxy Statement is furnished in connection with
To Be Held On June 18, 2003
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
Why am I receiving these materials?
We sent you this proxy statement and the solicitation byenclosed proxy card because the Board of Directors of INPUT SOFTWARE, INC. ("Input"Captiva Software Corporation (sometimes referred to as the “Company” or the "Company"“Captiva”) of proxiesis soliciting your proxy to be votedvote at the Annual Meeting of Stockholders which will be held at 9:00
a.m. on May 27, 1999, at the Company's principal executive offices 1299 Parkmoor
Avenue, San Jose, California, or at any adjournments or postponements thereof,
for the purposes set forth in the accompanying Notice of2003 Annual Meeting of Stockholders. This Proxy StatementYou are invited to attend the annual meeting and we request that you vote on the proposals described in this proxy statement. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card.
The Company intends to mail this proxy statement and accompanying proxy card were first mailed to
stockholders on or about April 19, 1999.
VOTING RIGHTS AND SOLICITATION
The close of business on April 8, 1999, was the record date for stockholders
entitledMay 7, 2003 to notice of and to vote at the Annual Meeting. As of that date, Input
had 4,592,227 shares of common stock, $0.01 par value per share (the "Common
Stock"), issued and outstanding, exclusive of treasury stock. All of the shares
of the Company's Common Stock outstanding on the record date are entitled to
vote at the Annual Meeting, andall stockholders of record entitled to vote at the annual meeting.
Who can vote at the annual meeting?
Only stockholders of record at the close of business on April 25, 2003 will be entitled to vote at the annual meeting. On this date, there were 8,924,796 shares of common stock outstanding and entitled to vote.
Stockholder of Record: Shares Registered in Your Name
If on April 25, 2003 your shares were registered directly in your name with Captiva’s transfer agent, EquiServe Trust Company, then you are a stockholder of record. As a stockholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to fill out and return the enclosed proxy card to ensure your vote is counted.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on April 25, 2003 your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the annual meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.
What am I voting on?
There are two matters scheduled for a vote:
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How do I vote?
You may either vote “For” all the nominees to the Board of Directors or you may abstain from voting for any nominee you specify. For the other matter to be voted on, you may vote “For” or “Against” or abstain from voting. The procedures for voting are fairly simple:
Stockholder of Record: Shares Registered in Your Name
If you are a stockholder of record, you may vote in person at the annual meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy.
Beneficial Owner: Shares Registered in the Name of Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Captiva. Simply complete and mail the proxy card to ensure that your vote is counted. To vote in person at the annual meeting, you must obtain a valid proxy from your broker, bank, or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.
How many votes do I have?
On each matter to be voted upon, you have one vote for each share so held on the matters to be voted
upon.
Shares of the Company's Common Stock represented by proxies in the
accompanying form that are properly executedcommon stock you own as of April 25, 2003.
What if I return a proxy card but do not make specific choices?
If you return a signed and returned to Inputdated proxy card without marking any voting selections, your shares will be voted at the Annual Meeting of Stockholders in accordance with the stockholders'
instructions contained therein. In the absence of contrary instructions, shares
represented by such proxies will be voted FOR“For” the election of each of the
directors as described herein under "Proposal 1--Election of Directors," FOR
approval of the amendment to the Input 1993 Stock Option/Stock Issuance Plan as
described herein under "Proposal 2--Approval of Amendment to the 1993 Stock
Option/Stock Issuance Plan," FOR approval of the amendment to the Input 1998
Employee Stock Purchase Plan as described herein under "Proposal 3--Approval of
the Amendment to the 1998 Employee Stock Purchase Plan,"all seven nominees for director and FOR“For” ratification of the selection of PricewaterhouseCoopers LLP as independent accountants as described herein under "Proposal 4--Ratification
of Selection of Independent Public Accountants." Management does not know ofthe Company for its fiscal year ending December 31, 2003. If any matters to beother matter is properly presented at this Annual Meeting other than those set forth in
this Proxy Statement and in the Notice accompanying this Proxy Statement. If
other matters should properly come before the meeting, your proxy (one of the individuals named on your proxy holderscard) will vote on such matters in accordance with their best judgment. Any stockholder has
the right to revokeyour shares using his or her best judgment.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors, employees and The Altman Group may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies, but The Altman Group will be paid its customary fee of approximately $4,000 plus out-of-pocket expenses if it solicits proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and returneach proxy card to ensure that all of your shares are voted.
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Can I change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before itthe final vote at the meeting. You may revoke your proxy in any one of three ways:
When are stockholder proposals due for next year’s annual meeting?
To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by January 8, 2004, to Captiva Software Corporation, 10145 Pacific Heights Boulevard, San Diego, CA 92121, attn: Corporate Secretary. If you wish to submit a proposal that is voted.
The entire costnot to be included in next year’s proxy materials, you must do so by written notice delivered to or mailed or received at Captiva Software Corporation, 10145 Pacific Heights Boulevard, San Diego, CA 92121, attn: Corporate Secretary, not less than twenty (20) days nor more than sixty (60) days prior to the date of soliciting proxiesthe meeting.
How are votes counted?
Votes will be bornecounted by Input. Proxiesthe inspector of election appointed for the meeting, who will separately count “For” and (with respect to proposals other than the election of directors) “Against” votes, abstentions and broker non-votes. A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that proposal and has not received instructions with respect to that proposal from the beneficial owner (despite voting on at least one other proposal for which it does have discretionary authority or for which it has received instructions). Abstentions will be solicited principally throughcounted towards the usevote total for each proposal, and will have the same effect as “Against” votes. Broker non-votes have no effect and will not be counted towards the vote total for any proposal.
How many votes are needed to approve each proposal?
What is the outcomequorum requirement?
A quorum of the vote.
PROPOSAL 3. Approval of the adoption of the amendmentstockholders is necessary to the Company's 1998
Employee Stock Purchase Plan requires the affirmative vote ofhold a valid meeting. A quorum will be present if at least a majority of thosethe outstanding shares present in person, orare represented by proxy,votes at the meeting or by proxy. On the record date, there were 8,924,796 shares outstanding and entitled to vote. Thus 4,462,399 shares must be represented by votes at the meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy vote or vote at the Annual Meeting. Abstentions will be treated as votes against the proposal.
Broker non-votes will be treated as not entitled to vote on this matter and thus
will have no effect on the outcome of the vote.
PROPOSAL 4. Ratification of the appointment of PricewaterhouseCoopers LLP
as the Company's independent public accountants for the fiscal year ending
December 31, 1999, requires the affirmative vote of a majority of those shares
present in person, or represented by proxy, and cast either affirmatively or
negatively at the Annual Meeting.meeting. Abstentions and broker non-votes will not be counted as having been voted ontowards the proposal.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be consideredquorum requirement. If there is no quorum, a majority of the votes present at the 2000 Annual Meetingmeeting may adjourn the meeting to another date.
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How can I find out the results of Stockholders mustthe voting at the annual meeting?
Preliminary voting results will be received by Input no later than December 21, 1999. The
proposal mustannounced at the annual meeting. Final voting results will be mailed topublished in the Company's principal executive offices, 1299
Parkmoor Avenue, San Jose, California 95126, Attention: Corporate Secretary.
Such proposals may be included in next year's proxy statement if they comply
with certain rules and regulations promulgated byCompany’s quarterly report on Form 10-Q for the Securities and Exchange
Commission.
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MATTERS TO BE CONSIDERED AT ANNUAL MEETING
second quarter of 2003.
PROPOSAL 1:
1
ELECTION OF DIRECTORS
The
Captiva’s board of directors consists of seven directors. There are seven nominees for director this year. Each director to be elected will hold office until the Boardnext annual meeting of Directors (the "Board") are set forth below.
The proxy holders intend to vote all proxies received by them instockholders and until his or her successor is elected, or until the accompanying formdirector’s death, resignation or removal. Except for the nominees for directorsJeffrey Lenches, each nominee listed below. In the event any
nomineebelow is unable or declines to serve ascurrently a director at the time of the Annual
Meeting,Company. All of the current directors that have been nominated for election at this meeting were elected by the stockholders, except for Reynolds C. Bish, James Berglund and Mel S. Lavitt, who were appointed to fill vacancies after the merger of ActionPoint, Inc. and Captiva Software Corporation, a California corporation, completed in July of 2002 (the “Merger”). Although ActionPoint, Inc. was the surviving corporation, it changed its name to Captiva Software Corporation. The California corporation that merged with ActionPoint is referred to as “Old Captiva” in this proxy statement.
Directors are elected by a plurality of the votes properly cast in person or by proxy. The seven nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the seven nominees named below. If any nominee who shallbecomes unavailable for election as a result of an unexpected occurrence, your shares will be designatedvoted for the election of a substitute nominee proposed by the present Board of Directors to fill the vacancy. In the event that additional
persons areCaptiva’s management. Each person nominated for election as directors, the proxy holders intendhas agreed to vote all proxies received by them for the nominees listed below. As of the date
of this Proxy Statement, the Board is not aware ofserve if elected. The Company has no reason to believe that any nominee who iswill be unable or
will decline to serve as a director.
NOMINEES TOserve.
THE BOARD OF DIRECTORS
DIRECTOR
NAME SINCE AGE
- ------------------------------------ ----------- ---
James Crawford, III................. 1991 53
John Finegan........................ 1997 49
Kimra D. Hawley..................... 1998 42
Johannes P. Schmidt................. 1998 34
Bruce Silver........................ 1995 50
Daniel D. Tompkins.................. 1992 58
Thomas T. van Overbeek.............. 1988 49
Mr. Crawford has been a director since February, 1991. HeRECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Nominees
The following is a general
partnerbrief biography of Frontenac Company, a venture capital fund that he joined in
September, 1992. From February, 1984, to August, 1992, Mr. Crawford was a
general partnereach nominee for director.
Name | Age | Director Since | Principal Occupation/ Position Held With the Company | |||
Kimra D. Hawley | 46 | 1998 | Chairman of the Board of Directors | |||
Reynolds C. Bish | 50 | 2002 | President, Chief Executive Officer and Director | |||
James Berglund | 70 | 2002 | Director | |||
Patrick L. Edsell | 54 | 2001 | Director | |||
Mel S. Lavitt | 65 | 2002 | Director | |||
Jeffrey J. Lenches | 55 | n/a | n/a | |||
Bruce Silver | 54 | 1995 | Director |
Kimra D. Hawley has served as Captiva’s chairman of William Blair Venture Management Co. ("Blair Management
Co."), the general partnerboard of William Blair Venture Partners III, a venture
capital fund. He was also a general partner of William Blair & Company, an
investment bank and brokerage affiliated with Blair Management Co., from
January, 1987, to August, 1992.
Mr. Finegan joined the Company in July 1989 and was elected Chief Financial
Officer in July 1990 and was elected to the Board indirectors since June 1997. Mr. Finegan was
elected Secretary in June 1993. From September 1988 until joining Input, Mr.
Finegan was a self-employed financial consultant. From March 1984 to September
1988, he was Vice President of Finance at Faraday Electronics-Western Digital.
Mr. Finegan holds a B.S. in Engineering from Tufts University and a M.B.A. from
the University of Massachusetts.
Ms. Hawley joined the Company in February 19922001, when she resigned as the Product Marketing
Director and became Vice President of Input Subsystems and Software Tools in
November 1994 and in November 1996 was appointed Senior Vice President and General Manager for the Software Division. In April 1998,Chief Executive Officer. Ms. Hawley became Chief Executive Officer and President and was alsofirst elected as a director in April 1998. From November 1996 to April 1998, Ms. Hawley served as Senior Vice President and General Manager for Captiva’s Software Division. From November 1994 to November 1996, Ms. Hawley served as Vice President of Captiva’s Input Subsystems and Software Tools Division. Prior to that time, Ms. Hawley had served as the Board.Product Marketing Director since joining Captiva in February 1992. Prior to joining Captiva, Ms. Hawley was a principal in MarketBound Associates, a marketing consulting firm. Ms. Hawley holds a B.S. in Psychology from Pittsburgh State University.
Johannes Schmidt joined
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Reynolds C. Bishhas served as President, Chief Executive Officer and a director of Captiva since the Companycompletion of the Merger in June 1994 whenJuly 2002. Mr. Bish served as Old Captiva’s President, Chief Executive Officer and chairman of the old Captiva board of directors since co-founding that company he
founded, Pixel Translations, was acquired. In 1995,in 1989. From 1986 to 1989, Mr. Schmidt assumed the roleBish served as President, Chief Executive Officer and a director of Unibase Systems, Inc. Prior to his employment with Unibase, Mr. Bish spent three years as Vice President of Software DevelopmentFinance and Chief Financial Officer at Covalent Systems Corporation, which he co-founded, six years as Vice President of Finance and Chief Financial Officer at Fafco, Inc. and three years as a Certified Public Accountant at Price Waterhouse. Mr. Bish holds a B.S. in November 1996Business Administration from Pennsylvania State University.
James Berglund became a director of the Company upon completion of the Merger, and had been a member of Old Captiva’s board of directors since October of 1994. He has been a general partner of Enterprise Partners Venture Capital since 1985. From 1978 to 1980, he served as President of Continuous Curve Contact Lenses, Inc From 1973 to 1976 he served as General Manager of the American Optical Contact Lens Division of American Optical Corporation, a wholly owned subsidiary of Warner Lambert Company, which acquired Central Laboratories, Inc., of which Mr. Berglund was appointed
Chief Technical OfficerPresident from 1971 to 1973. Mr. Berglund is a director of eight companies and was elected to the Boardgeneral partner of six different venture capital partnerships. Mr. Berglund holds a B.S. in November, 1998.Economics from University of Wisconsin at Madison and a Doctorate in Optometry from Pacific University.
Patrick L. Edsell has served on the board of directors since August 2001. Since 2002, Mr. Schmidt founded Pixel Translations in 1990 andEdsell has served as President and CEO.Chief Executive Officer of Gigabit Optics, a privately held supplier of components for optical networks. From 1997 to 2002, Mr. SchmidtEdsell was President and Chief Executive Officer for Spectra-Physics, a supplier of laser and optics products. Mr. Edsell holds B.S. in Economics from the United States Air Force Academy, a M.A. in Economics from Ohio State University and a M.B.A. from the University of New Mexico.
Mel S. Lavitt became a director of the Company upon completion of the Merger, and had been a member of Old Captiva’s board of directors since August 2000. Mr. Lavitt has been Managing Director at the investment banking firm of C.E. Unterberg, Towbin (or its predecessor) since 1992 and is currently serving as Vice Chairman and Managing Director. From 1987 to 1992, he was President of Lavitt Management, Inc., a business consulting firm. From 1978 until 1987, Mr. Lavitt served as an Administrative Managing Director for the investment banking firm of L.F. Rothschild, Unterberg, Towbin, Inc. Mr. Lavitt is also a director of Jabil Circuit, Inc. and St. Bernard Software. Mr. Lavitt holds a B.S. in Engineering and Applied Sciencebachelors degree from the California
Institute of Technology.
Mr. SilverBrown University.
Jeffrey J. Lenches has been a directorprivate investor and consultant from 1998 to 2003. From 1990 to 1998, Mr. Lenches was employed by Electronics for Imaging, Inc., serving as Executive Vice President before retiring. Mr. Lenches has a bachelor’s in business administration from Ohio University and an MBA from Pepperdine University.
Bruce Silver has served on board of directors since July 1995. Since October 1994, Mr. Silver has also been a principal of Bruce Silver Associates, a document imagingan e-business consulting firm that he founded in 1994. PriorFrom May 1990 to founding
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Bruce Silver Associates,October 1994, Mr. Silver was a vice president of BIS Strategic Decisions from May, 1990, until October, 1994.
Mr. Tompkins has been a director since June, 1992. Since June, 1994, Mr.
Tompkins has beenDecisions.
Board Committees and Meetings
During the managing general partner of DT Associates, a partnership
which is the managing general partner of Novus Ventures, a venture capital
partnership licensed as an S.B.I.P. by the Small Business Administration. From
March, 1988, until October, 1993, he was the managing general partner of DSC
Associates, which was the general partner of DSC Ventures, a venture capital
firm. Mr. Tompkins is a director of two private companies.
Mr. van Overbeek joined the Company as President and was elected tofiscal year ended December 31, 2002 the Board of Directors in 1988. He was elected Chief Executive Officer in July,
1990. Upon completionheld fourteen meetings and acted by unanimous written consent three times. The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating & Corporate Governance Committee (appointed October 24, 2002). In connection with evaluation of the sale of the Company's display products division in
1998, Mr. Van Overbeek resigned as President and CEO and became Chairman ofMerger, the Board of Directors. Mr. Van Overbeek is presently CEODirectors also appointed a Special Committee in January of Wavtrace, Inc. Prior to
joining Input, Mr. van Overbeek held various positions from March, 1984, to May,
1988, at Western Digital Corporation-Paradise Systems, most recently as
President2002, comprised of Paradise Systems.
Mr. van Overbeek, ChairmanBruce Silver and Patrick Edsell, which met nine times during the fiscal year.
The Audit Committee of the Board of Directors of the Company oversees the Company’s corporate accounting and financial reporting process. For this purpose, the Audit Committee performs several functions. The Audit Committee evaluates the performance of and assesses the qualifications and independence of the
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independent accountants; determines the engagement of the independent accountants; determines whether to retain or terminate the existing independent accountants or to appoint and engage new independent accountants; reviews and approves the retention of the independent accountants to perform any proposed non-audit services; monitors the rotation of partners of the independent accountants on the Company engagement team as required by law; reviews the financial statements to be included in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q; and discusses with management and the independent accountants the results of the annual audit and quarterly reviews.
Three directors comprise the Audit Committee: Patrick L. Edsell; Bruce Silver and Daniel Tompkins (until August 2, 2002) and James Berglund (from August 2, 2002 to the present). All members of the Company’s Audit Committee are independent (as independence is married to Ms. Hawley, Presidentcurrently defined in Rule 4200(a)(14) of the NASD listing standards). During the year ended December 31, 2002, the Audit Committee met four times. SeeAppendix A, which includes the report of the Audit Committee of the Board of Directors, andAppendix B, which includes the charter of the Audit Committee of the Board of Directors.
The Compensation Committee reviews and approves the overall compensation strategy and policies for the Company. The Compensation Committee reviews and approves the compensation of the Company’s executive officers and other senior management; reviews and approves the compensation and other terms of employment of the Company’s Chief Executive Officer. There are noOfficer; and administers the Company’s stock option and purchase plans, pension and profit sharing plans, stock bonus plans, deferred compensation plans and other family relationships among executive officers orsimilar programs. Two non-employee directors comprise the Compensation Committee: Patrick L. Edsell and Daniel Tompkins (until August 2, 2002), and Mel S. Lavitt (from August 2, 2002 to the present). The Compensation Committee met three times during the fiscal year ended December 31, 2002 and acted by unanimous written consent three times.
The Nominating & Corporate Governance Committee interviews, evaluates, nominates and recommends individuals for membership on the Company’s board of directors and its various committees. No procedure has been established for the Company.
BOARD MEETINGS AND COMMITTEES
consideration of nominees recommended by stockholders. The Nominating & Corporate Governance Committee also reviews and evaluates the Company’s corporate governance policies, procedures and compliance in light of recent changes to the laws and regulations related to corporate governance. The Committee was formed October 24, 2002, once in the fiscal year ended December 31, 2002, and is comprised of two non-employee directors: Mel S. Lavitt and Bruce Silver.
During the fiscal year ended December 31, 1998, the2002, each Board of Directors of
the Company held a total of seven meetings. During this period, all directorsmember attended or participated in at least 75% of the aggregate of (i) the total
number of meetings of the Board and (ii) the total number of meetings held by
all committees of the Boardcommittees on which they were members.
he or she served, held during the period for which he or she was a director or committee member, respectively.
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PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company has an Audit Committee and a Compensation Committee of the Board of Directors. There is no nominating committee or committee performing the
functions of such committee.
The Audit Committee meets with the Company's financial management and its
independent accountants at various times during each year and reviews internal
control conditions, audit plans and results, and financial reporting procedures.
This Committee, consisting of Messrs. Crawford and Tompkins, held two meetings
during fiscal 1998.
The Compensation Committee reviews and approves the Company's compensation
arrangements for management. This Committee, consisting of Messrs. Crawford and
Tompkins, held five meetings during fiscal 1998.
DIRECTOR REMUNERATION
Non-employee members of the Board are each paid a fee of $3,000 per calendar
quarter and are reimbursed for all out-of-pocket costs incurred in connection
with their attendance at Board and committee meetings.
Under the automatic option grant program in effect under the Company's 1993
Stock Option/Stock Issuance Plan, an individual who first becomes a non-employee
member of the Board will receive an automatic option grant for 10,000 shares of
the Company's Common Stock upon commencement of Board service, and each
individual with six or more months of Board service will receive an automatic
option grant for an additional 2,500 shares at each Annual Stockholders Meeting
at which he or she continues to serve as a non-employee Board member. See
Proposal 2.
No other compensation is paid to the non-employee members of the Board with
respect to their service on the Board.
4
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
election of each of the above nominees.
PROPOSAL 2:
APPROVAL OF AMENDMENT TO THE 1993 STOCK OPTION/STOCK ISSUANCE PLAN
The stockholders are being asked to vote on a proposal to amend the 1993
Stock Option/Stock Issuance Plan (the "1993 Plan"). The 1993 Plan was amended by
the Board on January 22, 1999, to increase the number of shares of Common Stock
authorized for issuance thereunder by 300,000 shares to 2,974,852 shares. The
1993 Plan was adopted by the Board on August 11, 1993, to be effective on
September 8, 1993 (the date of the Company's initial public offering, the
"Effective Date") to provide a means whereby employees, officers, directors,
consultants, and independent advisers of the Company or parent or subsidiary
corporations may be given an opportunity to purchase shares of Common Stock. The
Board believes the amendment is necessary in order to provide the Company with a
sufficient reserve of Common Stock for future option grants needed to attract,
employ, and retain employees, directors, and consultants of outstanding ability.
The principal terms and provisions of the 1993 Plan, as modified by the
recent amendment, are summarized below. The summary, however, does not purport
to be a complete description of all the provisions of the 1993 Plan. Any
stockholder of the Company who wishes to obtain a copy of the actual plan
document may do so by written request to the Corporate Secretary at the
Company's principal executive offices in San Jose.
STRUCTURE
The 1993 Plan includes three separate equity incentive programs: (i) a
Discretionary Option Grant Program, under which eligible individuals may be
granted options to purchase shares of Common Stock at an exercise price not less
than 85% of their fair market value on the grant date, (ii) an Automatic Option
Grant Program, under which option grants will automatically be made to eligible
non-employee members of the Board to purchase shares of Common Stock at an
exercise price equal to their fair market value on the grant date, and (iii) a
Stock Issuance Program, under which eligible individuals may be issued shares of
Common Stock directly, through the immediate purchase of the shares or as a
bonus tied to the performance of services or the Company's attainment of
financial objectives, at a price not less than 85% of their fair market value on
the stock issuance date.
Options granted under the Discretionary Option Grant Program may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code (the "Code") or non-statutory options not intended to
satisfy such requirements. All grants under the Automatic Option Grant Program
will be non-statutory options.
SECURITIES SUBJECT TO THE 1993 PLAN
2,674,852 shares of Common Stock have been reserved for issuance over the
ten-year term of the 1993 Plan. If Proposal 2 is approved, that number will
increase by 300,000 shares to 2,974,852 shares. The 1993 Plan has been amended
on several prior occasions, including an amendment to increase the share reserve
by 200,000 shares, approved in 1998.
Shares of Common Stock will be drawn from either the Company's authorized
but unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Company on the open market. Should an option
(including outstanding options incorporated into the 1993 Plan from the
predecessor plans) expire or terminate for any reason prior to exercise in full
(including options canceled in accordance with the cancellation-regrant
provisions of the 1993 Plan), the shares
5
subject to the portion of the option not so exercised will be available for
subsequent issuance under the 1993 Plan. Shares subject to any option
surrendered or canceled in accordance with the stock appreciation right
provisions of the 1993 Plan and all stock issuances under the 1993 Plan, whether
or not the shares are subsequently reacquired by the Company pursuant to its
repurchase rights under the 1993 Plan, will reduce on a share-for-share basis
the number of shares of Common Stock available for subsequent issuance.
No individual participating in the 1993 Plan may be granted stock options
and direct stock issuances for more than 500,000 shares of Common Stock in the
aggregate over the term of the 1993 Plan, exclusive of option grants or stock
awards made prior to January 1, 1996.
PLAN ADMINISTRATION
The 1993 Plan (other than the Automatic Option Grant Program) is
administered by a committee (the "Committee") comprised of two or more
non-employee Board members appointed by the Board. The Committee has discretion
(subject to the provisions of the 1993 Plan) to authorize stock option grants
and direct stock issuances. The 1993 Plan may be administered with respect to
participants who are not directors by a secondary committee comprised of one or
more Board members or by the full Board. All grants under the Automatic Option
Grant Program will be made in compliance with the provisions of the program, and
no administrative discretion will be exercised with respect to the automatic
grants.
The Committee (or Board or secondary committee to the extent acting as plan
administrator) has full authority (subject to the express provisions of the 1993
Plan) to determine the eligible individuals who are to receive grants under the
1993 Plan and stock awards under the Stock Issuance Program, the number of
shares to be covered by each granted option and stock award, the date or dates
on which each option is to become exercisable, the maximum term for which each
option is to remain outstanding, whether a granted option will be an incentive
stock option ("Incentive Stock Option") which satisfies the requirements of
section 422 of the Code or a non-statutory option not intended to meet such
requirements, and the remaining provisions of the option grant or stock
issuance.
ELIGIBILITY
Officers and other employees, non-employee members of the Board who do not
serve on the Committee, and independent consultants and advisors to the Company
(or any parent or subsidiary corporation) are eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs. All non-employee members
of the Board participate in the Automatic Option Grant Program.
As of March 31, 1999, it was estimated that nine executive officers and
approximately 110 other employees were eligible to participate in the 1993 Plan
and three non-employee Board members were eligible to participate in the
Automatic Option Grant Program.
VALUATION
The fair market value per share of Common Stock on any relevant date under
the 1993 Plan will be the closing price per share on that date on The Nasdaq
National Market ("Nasdaq"). If there is no reported closing price for such date,
then the closing price for the last previous date for which such quotation
exists will be determinative of fair market value. The fair market value of
Common Stock on March 1, 1999, as reported on Nasdaq, was $5.75 per share.
6
DISCRETIONARY OPTION GRANT PROGRAM
PRICE AND EXERCISABILITY
Under the Discretionary Option Grant Program, the exercise price per share
of Common Stock subject to an Incentive Stock Option may not be less than 100%
of the fair market value per share on the grant date. The exercise price per
share of the Common Stock subject to a non-statutory option may not be less than
85% of the fair market value of that security on the grant date, except that
grants intended to be exempt from the $1 million limitation on compensation
deductions will be made at 100% of fair market value. No option will have a
maximum term in excess of ten years measured from the grant date. The Committee
has discretion to grant options (i) that are immediately exercisable for vested
or unvested shares or (ii) that become exercisable in installments for vested
shares over the optionee's period of service.
The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. Options may also be exercised through
a same-day sale program, pursuant to which a designated brokerage firm is to
effect the immediate sale of the shares purchased under the option and pay over
to the Company, out of the sale proceeds on the settlement date, sufficient
funds to cover the exercise price for the purchased shares plus all applicable
withholding taxes. The Committee may also assist any optionee (including an
officer or director) in the exercise of his or her outstanding options by (a)
authorizing a Company loan to the optionee, or (b) permitting the optionee to
pay the exercise price in installments over a period of years. The terms and
conditions of any such loan or installment payment will be established by the
Committee in its sole discretion.
The Committee will have the authority to effect, on one or more separate
occasions, the cancellation of outstanding options under the Discretionary
Option Grant Program (including outstanding options incorporated from the
predecessor plans) and to issue replacement options with an exercise price based
on the market price of Common Stock at the time of the new grant.
TERMINATION OF SERVICE.
Any option held by the optionee at the time of cessation of service will
normally not remain exercisable beyond the limited period designated by the
Committee (not to exceed 36 months) at the time of the option grant. During that
period, the option will generally be exercisable only for the number of shares
in which the optionee is vested at the time of cessation of service. Under no
circumstances, however, may any option be exercised after the specified
expiration date of the option term. The Committee may extend the period
following the optionee's cessation of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part at any time while the options remain
outstanding.
Any unvested shares of Common Stock will be subject to repurchase by the
Company, at the original exercise price paid per share, upon the optionee's
cessation of service prior to vesting in those shares. The Committee will have
complete discretion in establishing the vesting schedule for any such unvested
shares and will have full authority to cancel the Company's outstanding
repurchase rights with respect to those shares in whole or in part at any time.
The optionee does not have any stockholder rights with respect to the option
shares until the option is exercised and the exercise price is paid for the
purchased shares. Options are not assignable or transferable other than by will
or by the laws of inheritance following the optionee's death, and the option
may, during the optionee's lifetime, be exercised only by the optionee.
INCENTIVE STOCK OPTIONS.
Incentive Stock Options may only be granted to individuals who are employees
of the Company or its parent or subsidiary corporation. During any calendar
year, the aggregate fair market value (determined as
7
of the grant date(s)) of the Common Stock for which one or more options granted
to any employee under the 1993 Plan (or any other option plan of the Company or
its parent or subsidiary corporations) may for the first time become exercisable
as Incentive Stock Options cannot exceed $100,000.
TANDEM STOCK APPRECIATION RIGHTS.
The Committee is authorized to issue tandem stock appreciation rights in
connection with option grants under the Discretionary Option Grant Program.
Tandem stock appreciation rights provide the holders with the right to surrender
their options for an appreciation distribution from the Company equal in amount
to the excess of (i) the fair market value of the vested shares of Common Stock
subject to the surrendered option over (ii) the aggregate exercise price payable
for such vested shares. Such appreciation distribution may, in the discretion of
the Committee, be made in cash or in shares of Common Stock.
LIMITED STOCK APPRECIATION RIGHTS.
Officers of the Company subject to the short-swing profit restrictions of
the Federal securities laws may be granted limited stock appreciation rights in
connection with their option grants, at the discretion of the Committee. Any
option with such a limited stock appreciation right in effect for at least six
months may be surrendered to the Company upon the successful completion of a
hostile tender offer for securities possessing more than 50% of the combined
voting power of the Company's outstanding securities. In return for the
surrendered option, the officer will be entitled to a cash distribution from the
Company in an amount per vested share of Common Stock subject to the surrendered
option equal to the excess of (i) the price per share of Common Stock paid in
such hostile tender offer over (ii) the option exercise price.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who was serving as
a non-employee Board member on November 5, 1993, was automatically granted a
non-statutory option to purchase 10,000 shares of Common Stock. In addition,
each individual who first becomes a non-employee Board member after November 5,
1993, whether through election by the Company's stockholders or appointment by
the Board, will automatically be granted at the time of such election or
appointment a non-statutory option to purchase 10,000 shares of Common Stock. On
the date of each Annual Stockholders Meeting, beginning with the 1995 Annual
Meeting, each individual who is then serving as a non-employee Board member,
whether or not standing for re-election at that meeting, will automatically be
granted a non-statutory option to purchase 2,500 shares of Common Stock,
provided such individual has served as a Board member for at least six months.
No non-employee Board member who has previously been in the employ of the
Company or any parent or subsidiary corporation will be eligible to receive an
automatic option grant.
The exercise price per share of the Common Stock subject to an automatic
option grant will equal the fair market value per share of Common Stock on the
automatic grant date. Each option will have a term of ten years measured from
the grant date. Each 10,000-share option will become exercisable for the option
shares in a series of four equal annual installments over the first four years
of the optionee's period of Board service. Each 2,500-share option will become
exercisable for the option shares on the fourth anniversary of the automatic
grant date provided the optionee remains in Board service. The option will
remain exercisable for a three-month period following the optionee's cessation
of Board service for any reason other than death and for a twelve-month period
following death. In no event, however, may the option be exercised after the
expiration date of the option term. During the applicable exercise period, the
option may not be exercised for more than the number of shares (if any) in which
the optionee is vested at the time of the optionee's cessation of Board service.
However, should the optionee die while serving as a Board member and holding one
or more automatic option grants that had been outstanding for at least one year,
then each such option will become fully vested and remain exercisable for a
twelve-month period
8
following such optionee's death and may be exercised by the personal
representative of the optionee's estate or the person to whom the grant is
transferred by the optionee's will or the laws of inheritance.
Each automatic option grant will become exercisable in full upon the
occurrence of certain changes in control or ownership of the Company, as
explained in more detail below in the subsection entitled "Option/Vesting
Acceleration." Upon the successful completion of a hostile tender offer for
securities possessing more than 50% of the combined voting power of the
Company's outstanding securities, each automatic option grant that has been
outstanding for at least six months may be surrendered to the Company for a cash
distribution per surrendered option share in an amount equal to the excess of
(i) the price per share of Common Stock paid in such tender offer over (ii) the
exercise price payable for such share.
STOCK ISSUANCE PROGRAM
Shares may be sold under the Stock Issuance Program at a price per share not
less than 85% of the fair market value, payable in cash or through a promissory
note payable to the Company, or as a bonus for past services. Shares issued
under the Stock Issuance Program may either be vested upon issuance or subject
to a vesting schedule tied to the participant's period of service or the
attainment of designated performance goals. Unvested shares will be subject to
certain transfer restrictions and to repurchase or cancellation by the Company
upon either the participant's cessation of service prior to vesting in those
shares or the non-attainment of the applicable performance goals. The Committee
has discretion to accelerate the vesting of any issued shares in whole or in
part at any time. Individuals holding shares under the Stock Issuance Program
will have full stockholder rights with respect to those shares, whether the
shares are vested or unvested.
GENERAL PROVISIONS
OPTION/VESTING ACCELERATION
Outstanding options under the 1993 Plan will become immediately exercisable
in full, and unvested shares issued under the 1993 Plan will become fully
vested, in the event of certain changes in the ownership or control of the
Company. The transactions that will trigger such option/vesting acceleration are
as follows:
CORPORATE TRANSACTION: any one of the following stockholder-approved
transactions:
- a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated,
- the sale, transfer or other disposition of all or substantially all of the
Company's assets in complete liquidation or dissolution of the Company, or
- any reverse merger in which the Company is the surviving entity but in
which securities possessing more than 50% of the total combined voting
power of the Company's outstanding securities are transferred to a person
or persons different from those who held such securities immediately prior
to the merger.
CHANGE IN CONTROL: a change in ownership or control of the Company effected
through either of the following transactions:
- any person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Company) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Act of 1934, as amended) of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made
9
directly to the Company's stockholders, which the Board does not recommend
such stockholders to accept; or
- a change in the composition of the Board over a period of 36 consecutive
months or less such that a majority of the Board members (rounded up to
the next whole number) ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who either
(i) have been Board members continuously since the beginning of such
period or (ii) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such election
or nomination was approved by the Board.
Immediately following the consummation of a Corporate Transaction, all
outstanding options under the 1993 Plan will, to the extent not previously
exercised by the optionees or assumed by the successor corporation (or its
parent company), terminate and cease to be exercisable. Options under the 1993
Plan that are accelerated in connection with a Change in Control will remain so
exercisable until the expiration or sooner termination of the option term.
Certain outstanding stock options under the predecessor plans that were
incorporated into the 1993 Plan do not contain any automatic acceleration
provisions that would allow the option to become immediately exercisable upon a
Corporate Transaction or change in control of the Company, and certain other
such incorporated options will accelerate on an acquisition subject to certain
limitations. The Committee has discretion to extend the automatic acceleration
provisions of the 1993 Plan to any or all stock options incorporated from the
predecessor plans.
The acceleration of options or vesting of shares in the event of a Corporate
Transaction or Change in Control may be seen as an anti-takeover provision and
may have the effect of discouraging a merger proposal, a takeover attempt or
other efforts to gain control of the Company.
CHANGES IN CAPITALIZATION
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the maximum number and/or class of securities issuable under the
1993 Plan, (ii) the maximum number and/or class of securities for which any one
individual may be granted stock options and direct share issuances in the
aggregate over the term of the 1993 Plan, (iii) the number and/or class of
securities and price per share in effect under each outstanding option,
including options from the predecessor plans incorporated into the 1993 Plan,
and (iv) the number and/or class of securities for which automatic option grants
will subsequently be made under the Automatic Option Grant Program per non-
employee Board member.
SPECIAL TAX ELECTION
The Committee may provide one or more holders of non-statutory options or
unvested shares under the Discretionary Option Grant or Stock Issuance Program
with the right to have the Company withhold a portion of the shares of Common
Stock otherwise issuable to such individuals in satisfaction of the Federal,
state and local income and employment tax liability incurred by such individuals
in connection with the exercise of those options or the vesting of the shares.
Alternatively, the Committee may allow such individuals to deliver previously
acquired shares of Common Stock in payment of such tax liability.
10
AMENDMENT AND TERMINATION
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever. However, no such amendment may adversely affect the rights of
existing optionees or holders of unvested shares without their consent. In
addition, the Board may not, without the approval of the Company's stockholders,
(i) materially increase the maximum number of shares issuable under the 1993
Plan (except in connection with certain changes in the Company's capital
structure), (ii) materially modify the eligibility requirements for option
grants or share issuances or (iii) otherwise materially increase the benefits
accruing to participants under the 1993 Plan.
Unless sooner terminated by the Board, the 1993 Plan will in all events
terminate on August 10, 2003. Each stock option or unvested share issuance
outstanding at the time of such termination will remain in force in accordance
with the provisions of the instruments evidencing such grant or issuance.
As of March 1, 1999, options covering 1,976,000 shares were outstanding
under the 1993 Plan, 544,000 shares remained available for future grants,
assuming approval of Proposal 2, and 540,000 shares have been issued under the
1993 Plan. The expiration dates for all such options range from April 4, 1999 to
March 24, 2000.
NEW PLAN BENEFITS
Because the 1993 Plan is discretionary, benefits to be received by
individual optionees are not determinable. However, each of Messrs. Crawford,
Silver and Tompkins will receive an option grant to purchase 2,500 shares under
the Automatic Option Grant Program on the date of the Annual Meeting, with an
exercise price per share equal to the closing price per share of Common Stock on
the date of the Annual Meeting. To date, no options have been granted with
respect to the 300,000 share increase in the 1993 Plan's reserve being submitted
to the stockholders as Proposal 2.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS GRANTED UNDER THE 1993 PLAN
Options granted under the 1993 Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the amount by which the fair market
value (at the time of exercise) of the purchased shares exceeds the exercise
price paid for those shares will constitute an adjustment to income for purposes
of the alternative minimum tax. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition. For Federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. The optionee will make a
qualifying disposition of the purchased shares if the sale or other disposition
of such shares is made after the optionee has held the shares for more than two
years after the grant date of the option and more than one year after the
exercise date. If the optionee fails to satisfy either of these two holding
periods prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then generally the excess of (i) the fair market value of those
shares on the date the option was exercised over (ii) the exercise price paid
for the shares will be taxable as ordinary income. Any additional gain
recognized upon the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction for the taxable
year in which such disposition occurs equal to the
11
amount of ordinary income recognized by the optionee. In no other instance will
the Company be allowed a deduction with respect to the optionee's disposition of
the purchased shares. The Company anticipates that any compensation deemed paid
by the Company upon one or more disqualifying dispositions of incentive stock
option shares by the Company's executive officers will remain deductible by the
Company and will not have to be taken into account for purposes of the $1
million limitation per covered individual on the deductibility of the
compensation paid to certain executive officers of the Company.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income in the year in which the option is exercised equal to the excess
of the fair market value of the purchased shares on the exercise date over the
exercise price paid for the shares, and the optionee (if an employee or former
employee) will be required to satisfy the tax withholding requirements
applicable to such income.
Special provisions of the Internal Revenue Code apply to the acquisition of
Common Stock under a non-statutory option if the purchased shares are subject to
repurchase by the Company. These special provisions may be summarized as
follows:
(i) If the shares acquired upon exercise of the non-statutory option are
subject to repurchase by the Company at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when the
Company's repurchase right lapses, an amount equal to the excess of (a) the
fair market value of the shares on the date such repurchase right lapses
with respect to such shares over (b) the exercise price paid for the shares.
(ii) The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
of the non-statutory option an amount equal to the excess of (a) the fair
market value of the purchased shares on the exercise date (determined as if
the shares were not subject to the Company's repurchase right) over (b) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
repurchase right lapses.
The Company will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised non-statutory option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee. The Company anticipates that the compensation deemed paid by the
Company upon the exercise of non-statutory options with exercise prices equal to
the fair market value of the option shares on the grant date will remain
deductible by the Company and will not have to be taken into account for
purposes of the $1 million limitation per covered individual on the
deductibility of the compensation paid to certain executive officers of the
Company.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. The Company will be entitled to a business
expense deduction equal to the appreciation distribution for the taxable year of
the Company in which the ordinary income is recognized by the optionee.
STOCK ISSUANCES. The tax principles applicable to direct stock issuances
under the 1993 Plan will be substantially the same as those summarized above for
the exercise of nonstatutory option grants.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote on Proposal 2 at the 1999
Annual Meeting is required for approval of the amendment to the 1993 Plan.
SHOULD SUCH STOCKHOLDER APPROVAL NOT BE OBTAINED, THEN THE AMENDMENT TO
12
THE 1993 PLAN WILL NOT BECOME EFFECTIVE, AND ANY OUTSTANDING OPTIONS GRANTED ON
THE BASIS OF THE 300,000 SHARE INCREASE WILL TERMINATE WITHOUT EVER BECOMING
EXERCISABLE FOR ANY OF THE OPTION SHARES.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the 1993 Plan.
PROPOSAL 3:
APPROVAL OF THE AMENDMENT TO THE 1998 EMPLOYEE STOCK PURCHASE PLAN
The stockholders are being asked to vote on a proposal to amend the 1998
Employee Stock Purchase Plan (the "ESPP"). The Board of Directors adopted the
ESPP in March of 1998 to provide employees of the Company with an opportunity to
purchase Common Stock through payroll deductions. The principal provisions of
the ESPP are summarized below. The summary, however, does not purport to be a
complete description of the ESPP. Any stockholder who would like to obtain a
copy of the plan text may request one in writing from the Corporate Secretary at
the Company's principal offices in San Jose.
SUMMARY OF ESPP
The ESPP became effective on July 1, 1998, and replaced an employee stock
purchase plan that the Company maintained since 1993. Under the ESPP, 50,000
shares of Common Stock are available for issuance during each semi-annual
accumulation period. Shares that are not used during a semi-annual accumulation
period may not be carried forward to any subsequent accumulation period. A total
of 150,000 shares are available for issuance during the life of the Plan,
including the 50,000 share increase being submitted to the stockholders for
approval. All full-time regular employees who have completed at least 30 days of
service (approximately 120 individuals) will be eligible to participate in the
ESPP.
Eligible employees may contribute up to 10% of their base salaries to the
ESPP. Amounts withheld are applied at the end of every six-month accumulation
period to purchase shares of Common Stock, but not more than 1,000 shares per
accumulation period. The value of the Common Stock (determined as of the
beginning of the offering period) that may be purchased by any participant in a
calendar year is limited to $25,000. The closing price of Common Stock was $5.75
per share on March 1, 1999. Participants may withdraw their contributions at any
time before stock is purchased.
The purchase price is equal to 85% of the lower of (a) the market price of
Common Stock immediately before the beginning of the applicable offering period
or (b) the market price of Common Stock at the time of the purchase. In general,
each offering period is 24 months long, but a new offering period begins every
six months. Thus up to four overlapping offering periods may be in effect at the
same time. An offering period continues to apply to a participant for the full
24 months, unless the market price of Common Stock is lower when a subsequent
offering period begins. In that event, the subsequent offering period
automatically becomes the applicable period for purposes of determining the
purchase price.
The Board of Directors may amend any provision of the ESPP. Amendments do
not require stockholder approval, unless the aggregate number of shares of
Common Stock available for purchase under the ESPP is increased. The ESPP may be
terminated at any time by the Board of Directors.
NEW PLAN BENEFITS
Since purchase rights are subject to discretion, including an employee's
decision not to participate in the ESPP, awards under the ESPP for the current
fiscal year are not determinable. No purchase rights have been granted to date
under the ESPP with respect to the 50,000 share increase in the ESPP's reserve
being submitted to the stockholders as Proposal 3.
13
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of certain federal income tax
consequences of the ESPP. This description does not purport to be complete.
The ESPP is intended to qualify as an "employee stock purchase plan" under
section 423 of the Code. No income is recognized by a participant at the time a
right to purchase shares is granted. Likewise, no taxable income is recognized
at the time of the purchase, even though the purchase price reflects a discount
from the market value of the shares at that time.
A participant must recognize taxable income upon a disposition of shares
acquired under the ESPP. The tax treatment may be more favorable if the
disposition occurs after the holding-period requirements of section 423 have
been satisfied (a "qualifying disposition"). To satisfy the holding-period
requirements of section 423, shares acquired under the ESPP cannot be disposed
of within two years after the first day of the offering period during which the
shares were purchased nor within one year after the shares were purchased. The
U.S. income tax consequences of a qualifying disposition are as follows:
The participant recognizes ordinary income equal to the lower of (a) the
excess of the fair market value of the shares on the date of the disposition
over the purchase price or (b) 15% of the fair market value of the shares on the
first day of the applicable offering period. The Company will not be entitled to
any deduction under these circumstances. The excess, if any, of the fair market
value of the shares on the date of the disposition over the sum of the purchase
price plus the amount of ordinary income recognized (as described above) will be
taxed as a long-term capital gain. If a taxable disposition produces a loss
(i.e., the fair market value of the shares on the date of the disposition is
less than the purchase price) and the disposition involves certain unrelated
parties, then the loss will be a capital loss.
A participant who disposes of shares acquired under the ESPP without meeting
the holding-period requirements makes a disqualifying disposition of such
shares. The U.S. income tax consequences of a disqualifying disposition are as
follows:
The entire difference between the purchase price and the market value of the
shares on the date of purchase will be taxed to the participant as ordinary
income in the year of disposition. The Company will be entitled to a deduction
for the same amount, subject to certain conditions. The excess, if any, of the
market value of the shares on the date of disposition over their market value on
the date of purchase will be taxed as a capital gain (long-term or short-term,
depending on how long the shares have been held). If the value of the shares on
the date of disposition is less than their value on the date of purchase, then
the difference will result in a capital loss (long-term or short-term, depending
on the holding period), provided the disposition involves certain unrelated
parties. Any such loss will not affect the ordinary income recognized upon the
disposition.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote FOR the
approval of the amendment to the ESPP.
PROPOSAL 4:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm ofselected PricewaterhouseCoopers LLP served as the Company’s independent public
accountants for the Company for the fiscal year ended December 31, 1998. The
Board of Directors desires the firm to continue in this capacity for the current
fiscal year. Accordingly, a resolution will be presented to the meeting to
ratify the selection of PricewaterhouseCoopers LLP by the Board of Directors as
independent public accountants to audit the accounts and records of the Company for the fiscal year ending December 31, 1999,2003 and has further directed that management submit the selection of independent accountants for ratification by the stockholders at the Annual Meeting. PricewaterhouseCoopers LLP has audited the Company’s financial statements since its inception in 1993. Representatives of PricewaterhouseCoopers LLP are expected to 14
performbe present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
Neither the Company’s Bylaws nor other appropriate services. Ingoverning documents or law require stockholder ratification of the event thatselection of PricewaterhouseCoopers LLP as the Company’s independent accountants. However, the Audit Committee is submitting the selection of PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, of PricewaterhouseCoopers LLP, the Board of Directors wouldAudit Committee will reconsider such selection.whether or not to retain that firm. Even if the selection is ratified, the Board of
DirectorsAudit Committee in its discretion may direct the appointment of a different independent auditing firmaccountants at any time during the year if the Board of Directors
believesthey determine that such a change would be in the best interests of the Company and its stockholders.
A representative
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting will be required to ratify the selection of PricewaterhouseCoopers LLPLLP. Abstentions will be present atcounted toward the Annual
Meetingtabulation of votes cast on proposals presented to respondthe stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.
Independent Accountants’ Fees
Audit Fees. Audit fees billed by PricewaterhouseCoopers LLP related to appropriate questionsthe fiscal year ended December 31, 2002 were approximately $228,522. For 2001, such fees were approximately $103,000.
Audit Related Fees. During the fiscal year ended December 31, 2002, audit related fees billed by PricewaterhouseCoopers LLP were approximately $90,298. There were no audit related fees billed for 2001.
Tax Fees. During the fiscal year ended December 31, 2002, tax fees billed by PricewaterhouseCoopers LLP were approximately $8,275. For 2001, such fees were approximately $78,320.
All Other Fees. No other fees were billed by PricewaterhouseCoopers LLP during the year ended December 31, 2002 or 2001.
The Audit Committee has determined the rendering of any information technology consulting fees and to make a statement if such
representative desires to do so.
RECOMMENDATION OF all other non-audit services by PricewaterhouseCoopers LLP is compatible with maintaining the auditor’s independence.
THE BOARD OF DIRECTORS The Board of Directors recommends that the stockholders vote FOR the
ratification of the selection of PricewaterhouseCoopers LLP to serve as the
Company's independent auditors for the fiscal year ending December 31, 1999.RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
7
SECURITY OWNERSHIP OF SECURITIESCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND DIRECTORS
The following table sets forth certain information regarding the beneficial ownership of the Company's
Common StockCompany’s common stock as of March 1, 1999, by31, 2003 by: (i) each director,nominee for director; (ii) each of the executive officerofficers named in the Summary Compensation Table in the "Executive Compensation" section below,
andTable; (iii) all directors and executive officers and directors of the Company as a group. All shares are subjectgroup; and (iv) all those known by the Company to the named person's sole voting and investment power except where otherwise
indicated.
be beneficial owners of more than five percent of its common stock.
Beneficial Ownership (1) | |||||
Beneficial Owner | Number of Shares | Percent of Total | |||
5% Stockholders | |||||
Thomas I. Unterberg(2) c/o C.E. Unterberg, Towbin 350 Madison Avenue New York, NY 10017 | 1,153,179 | 13.01 | % | ||
C.E. Unterberg, Towbin Advisors L.L.C.(3) 350 Madison Avenue New York, NY 10017 | 651,314 | 7.35 |
| ||
Enterprise Partners III, L.P.(4) 2223 Avenida de la Playa, Ste. 300 La Jolla, CA 92037 | 595,994 | 6.71 |
| ||
Andrew Arno(5) 350 Madison Avenue New York, NY 10017 | 887,818 | 10.02 |
| ||
J.F. Shea Company 644 Brea Canyon Road Walnut, CA 91789 | 476,149 | 5.37 |
| ||
Directors and Executive Officers | |||||
Kimra Hawley(6) | 739,352 | 8.05 |
| ||
Reynolds C. Bish(7) | 568,119 | 6.08 |
| ||
James Berglund(4) | 595,994 | 6.71 |
| ||
Mel Lavitt(8) | 96,493 | 1.09 |
| ||
Bruce Silver(9) | 28,975 | * |
| ||
Patrick L. Edsell(10) | 14,375 | * |
| ||
Jeffrey J. Lenches | — | * |
| ||
Rick Russo(11) | 36,341 | * |
| ||
Blaine J. Owens(12) | 30,196 | * |
| ||
Steven D. Burton(13) | 270,533 | 2.99 |
| ||
James Vickers(14) | 46,875 | * |
| ||
Stephen S. Francis(15) | 459,376 | 4.98 |
| ||
John Finegan(16) | 234,716 | 2.58 |
| ||
Matt Albanese(17) | 152,183 | 1.69 |
| ||
All executive officers and directors as a group (12 persons)(18) | 2,886,629 | 33.64 |
| ||
| * | Less than one percent. |
| (1) | This table is based upon information supplied by officers, directors and |
8
| (2) | Includes 651,314 shares held by C.E Unterberg, Towbin Advisors, L.L.C., 189,272 shares held by C.E. Unterberg, Towbin L.L.C., 188,647 shares personally held by him, 50,408 shares held by the Marjorie and Clarence Unterberg Foundation, 23,132 shares held by the Bella and Israel Unterberg Foundation, 25,203 shares held by the E. Celli Family Trust, and 25,203 shares held by the E. Satloff Family Trust. Mr. Unterberg disclaims beneficial ownership in each case except to the extent of his pecuniary interest therein. |
| (3) | Includes 73,632 shares held by UT Technology Fund Ltd., 230,473 shares held by UT Technology Partners I, L.P., 62,056 shares held by UT Technology Partners II, L.P. and 285,153 shares held by C.E. Unterberg, Towbin Partners I, L.P. C.E. Unterberg, Towbin Advisors, L.L.C. manages and serves as financial advisor to each of these entities and may be deemed the beneficial owner of the shares held by each of the entities. Andrew Arno and Thomas Unterberg exercise shared voting and dispositive powers with respect to shares held by C.E. Unterberg, Towbin Advisors, L.L.C. C.E. Unterberg, Towbin Advisors, L.L.C. disclaims beneficial ownership in each case except to the extent of its pecuniary interest therein. |
| (4) | Includes 535,668 shares held by Enterprise Partners III, L.P., 46,576 shares held by Enterprise Partners III Associates, L.P., and 13,750 shares beneficially owned by James Berglund (consisting of 13,750 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003). Enterprise Partners is the general partner for each of the limited partnerships identified above and may be deemed the beneficial owner of the shares held by each. James Berglund is a general partner of Enterprise Partners Venture Capital and may be deemed the beneficial owner of the shares beneficially owned by Enterprise Partners Venture Capital. Mr. Berglund disclaims beneficial ownership in each case except to the extent of his pecuniary interest therein. |
| (5) | Includes 651,314 shares held by C.E. Unterberg, Towbin Advisors, L.L.C., 189,272 shares held by C.E. Unterberg, Towbin L.L.C., 23,656 shares personally held by him, 11,788 shares held by Mr. Arno as custodian for Jesse Arno under the New York Uniform Gift to Minors Act and 11,788 shares held by Mr. Arno as custodian for Matthew Arno under the New York Uniform Gift to Minors Act. Mr. Arno disclaims beneficial ownership in each case except to the extent of his pecuniary interest therein. |
| (6) | Includes 316,500 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003, 183,828 shares held by Novus Ventures, L.P. Ms. Hawley’s husband is a general partner of Novus Ventures and she may therefore be deemed the beneficial owner of the shares beneficially owned by Novus Ventures), and 181,449 shares beneficially owned by Ms. Hawley’s husband. Ms. Hawley disclaims beneficial ownership in each case except to the extent of her pecuniary interest therein. |
| (7) | Includes 474,376 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003, 86,997 shares held by Mr. Bish as joint trustee of the Bish Family Trust and 6,746 shares held by Mr. Bish as joint trustee of the Norman Family Trust. Mr. Bish disclaims beneficial ownership in each case except to the extent of his pecuniary interest therein. |
| (8) | Includes 13,750 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003, 18,503 shares held by Mr. Lavitt, 37,304 shares held by Mr. Lavitt’s wife, and 26,936 shares held by Park City Investments, which is wholly owned by Mr. Lavitt. |
| (9) | Includes 26,875 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. |
| (10) | Includes 9,375 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. |
| (11) | Includes 20,250 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. |
| (12) | Includes 20,250 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. |
| (13) | Includes 189,062 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. |
| (14) | Includes 46,875 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. |
9
| (15) | Includes 338,750 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003 and 27,047 beneficially owned by Mr. Francis’ wife (including 19,500 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003). |
| (16) | Includes 218,125 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. |
| (17) | Includes 138,750 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. |
| (18) | Includes 1,489,313 shares purchasable under stock options that are currently exercisable or that will become exercisable within 60 days of March 31, 2003. This group |
Section 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the “1934 Act”) requires the Company'sCompany’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company'sCompany’s equity securities, to file with the Securities
and Exchange Commission (the "SEC")SEC initial reports of ownership and reports of changes in ownership of Common Stockcommon stock and other equity securities of the Company. Officers, directors and greater than ten percent beneficial ownersstockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) reportsforms they file.
Based
To the Company’s knowledge, based solely uponon a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the
Company believes that, except as further described below, there was compliance
forduring the fiscal year ended December 31, 1998, with2002, all Section 16(a) filing requirements applicable to the Company'sits officers, directors and greater than ten percent beneficial owners.
17
10
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
OFFICERS
The following table sets forthexecutive officers who are not directors of the compensation earnedCompany, the positions held by them and their ages as of March 31, 2003, are as follows:
Name | Age | Position | ||
Rick Russo | 52 | Chief Financial Officer | ||
Steven D. Burton | 43 | Chief Technology Officer | ||
Blaine J. Owens | 41 | Vice President of Worldwide Sales | ||
James Vickers | 43 | Chief Marketing Officer and General Manager of Pixel Translations | ||
Bradford Weller | 44 | General Counsel, Vice President of Legal Affairs and Secretary |
Rick Russo became the Company's
Chief ExecutiveFinancial Officer formerof the Company upon completion of the Merger. Mr. Russo joined Old Captiva in 2000 as Chief ExecutiveFinancial Officer. Mr. Russo was previously Vice President of Finance at Epicor Software Corporation (formerly Data Works, an ERP software company) from 1992 through 2000. From 1982 to 1991, Mr. Russo was Vice President of Finance for Media Duplication Services Ltd., a wholly-owned subsidiary of Polaroid Corporation that provided software manufacturing services, and was Controller for Media Systems Technology, Inc., a manufacturer of disk duplication hardware. Mr. Russo is a Certified Public Accountant and holds a B.S. in Accounting from Syracuse University.
Steven D. Burton became the Chief Technology Officer of the Company upon completion of the Merger. Since 2001 Mr. Burton served as the Chief Technology Officer for Old Captiva, after serving as Vice President of Software Development for old Captiva since co-founding that company in 1989. From 1983 through 1989 Mr. Burton was with Unibase, where he was part of the original programming staff and eventually managed the overall product development effort.
Blaine J. Owensbecame the Vice President of Worldwide Sales of the Company upon completion of the Merger. Since January 2001, Mr. Owens served as Vice President of Sales for Old Captiva. From 1998 to 2001, Mr. Owens served as old Captiva’s Director of Business Development. Prior to joining Captiva, Mr. Owens served in a variety of technical, marketing and sales management positions with BancTec, Inc., Recognition Equipment International and EDS. Mr. Owens holds a B.S. in Computer Science from Ohio Wesleyan University.
James Vickers became Chief Marketing Officer and eachGeneral Manager of Pixel Translations upon completion of the Company's four other highest-paid executive officers (the "Named Executives")
(as determinedMerger. Prior to the Merger, he served as Senior Vice President of Sales since joining the company in December 2001. Prior to that time, Mr. Vickers served as Executive Vice President of Sales and Marketing at TR Systems, a provider of software solutions for digital document communications. From 1995 to 2000, Mr. Vickers served in senior sales management positions for Electronics for Imaging, Inc., including Worldwide Vice President of OEM Sales. From 1983 to 1995, Mr. Vickers served in a variety of senior sales and sales management positions for Canon Inc. Mr. Vickers holds a B.S. in Business Administration from California State University at Long Beach.
Bradford Weller joined Captiva in September 2002 as Vice President of Legal Affairs and General Counsel, and has served as Secretary of the endCompany since October 2002. From September 1999 to August 2002, Mr. Weller served as General Counsel, Vice President of Legal Affairs and Secretary of Wireless Facilities, Inc., a provider of radio frequency engineering and network deployment services to the wireless telecommunications carriers and vendors. From 1992 to August 1999 Mr. Weller served as General Counsel for Mosaix, Inc., a telecommunications equipment and business application software developer that was acquired by Lucent Technologies in July 1999. He holds a B.A. in economics from Stanford University, and a J.D. from Hastings College of the last fiscal year) for services rendered in
all capacities toLaw.
11
EXECUTIVE COMPENSATION
Compensation of Directors
Each non-employee director of the Company is paid a quarterly retainer of $3,000 and its subsidiaries$1,000 for each meeting he or she attends. In the three fiscal yearsyear ended December 31, 1998. No executive officers who would have otherwise been
includible2002, the total compensation paid to non-employee directors was $73,051. The members of the Board of Directors are also eligible for reimbursement for their expenses incurred in such tableattending Board meetings in accordance with Company policy. At a meeting of the Board of Directors held April 24, 2003, the Board approved a quarterly retainer of $750 per committee served upon for any non-employee director serving on a committee of the basisBoard, commencing April 1, 2003.
Each non-employee director of salary and bonus earned for the 1998
fiscal year have resigned or terminated employment during the fiscal year.
SUMMARY COMPENSATION TABLE
At the 2002 Annual Meeting of Stockholders, an amendment to the 1993 Plan was approved, effective as of that meeting, increasing the number of options granted under the 1993 Plan to a complete descriptionone-time grant of 20,000 options to non-employee directors upon their election or appointment to the board, and annual grants of 5,000 each year of service as a non-employee director. At a meeting of the Board of Directors held April 24, 2003, the Board amended the 1993 Plan eliminating the provisions of the 1993 Plan see
Proposal 2. All of the options granted become exercisable as follows: 25%
upon the completion of each of the first year of service measured from the
vesting date, and an additional 2.083% upon the completion of each full
calendar month elapsed thereafter, until theregarding such non-discretionary option is fully vested upon the
completion of the fourth year of service from the vesting date. The options
were granted and began vesting on the date ten years before the expiration
date set forth in the table. Each option will become exercisable and then
terminate in the event the Company is acquired by a merger or in the event
of a liquidation or acquisitiongrants to non-employee directors of the Company, except thatand adopted a resolution providing for a plan to make discretionary option grants under the option does
not terminate if it is assumed by1993 Plan as follows: (1) one-time grants of 20,000 options to non-employee directors upon their election or appointment to the acquiring entity. Each optionboard, vesting monthly over two years, commencing the first day of the month following the date of grant; and (2) on July 1 of each year, a grant of 7,000 options to each non-employee director who has a
maximum termserved at least six month prior to such date, vesting monthly over twelve months, commencing the first day of ten years, subjectthe month following the date of grant.
During 2002 the Company granted options to earlier terminationnon-employee directors of the Company as listed in the event of
the optionee's cessation of service with the Company.
(2)following table. The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state tax liability incurred in connection with such exercise.
The optionee may be permitted, subject to the approval of the plan
administrator, to apply a portion of the shares purchased under the option
(or to deliver existing shares of Common Stock) in satisfaction of such tax
liability. The plan administrator also has the authority to reprice
outstanding options through the cancellation of those options and the grant
of replacement options with an exercise price equal to the fair market value of the option sharesunderlying common stock on the regrant date.
(3) The 5% and 10% assumed annual ratesdate of compounded stock price appreciation
are mandatedgrant was determined by the rulesclosing sales price reported on the Nasdaq National Market for the date of the Securities and Exchange Commission. There
is no assurance provided to any executive officer or any other holdergrant.
Director | Number of Options Granted | Grant Date | Exercise Price | Vesting | |||||
James Berglund | 20,000 | August 2, 2002 | $ | 1.44 | 50% on grant; balance quarterly over 2 years | ||||
Patrick L. Edsell | 10,000 5,000 | July 30, 2002 July 30, 2002 | $ $ | 1.15 1.15 | 50% on grant; balance quarterly over 2 years After 4 years | ||||
Mel S. Lavitt | 20,000 | August 2, 2002 | $ | 1.44 | 50% on grant; balance quarterly over 2 years | ||||
Bruce Silver | 10,000 5,000 | July 30, 2002 July 30, 2002 | $ $ | 1.15 1.15 | 50% on grant; balance quarterly over 2 years After 4 years | ||||
12
Compensation of the
Company's securities that the actual stock price appreciation over the
ten-year option term will be at the assumed 5% or 10% levels or at any other
defined level. Unless the market price of the Common Stock does in fact
appreciate over the option term, no value will be realized from the option
grants.
19
OPTION EXERCISES AND HOLDINGS
Executive Officers
The following table providesshows for the fiscal years ended December 31, 2000, 2001 and 2002, compensation awarded or paid to, or earned by, the Company’s Chief Executive Officer and its other four most highly compensated executive officers at December 31, 2002, plus one former Chief Executive Officer who became Chief Operating Officer upon closing of the Merger, and terminated his employment with the Company in September 2002, and two former executive officers who ceased serving as executive officers during fiscal year 2002 (the “Named Executive Officers”):
SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Long-Term Compensation | All Other Compensation ($)(2) | ||||||||||||||||
Annual Compensation | Awards | Payouts | |||||||||||||||||
Salary ($) | Bonus ($)(1) | Other Annual Compen-sation($) | Restricted Stock Awards ($) | Securities Underlying Options/ SARs(#) | LTIP Payouts ($) | ||||||||||||||
Reynolds C. Bish (3) President & Chief Executive Officer | 2002 2001 2000 | $ | 76,262 — — | $ | 78,002 — | — — — | — — — | 690,000 — — | — — — | $ 385 — — | |||||||||
James Vickers (4) Chief Marketing Officer, & General Manager Pixel Translations | 2002 2001 2000 | 191,667 | — — | 132,708 — — | — — — | — 150,000 — | — — — | 27,189 — — | |||||||||||
Blaine J. Owens (3) Vice President of Worldwide Sales | 2002 2001 2000 | 53,764 — | 60,275 — | 26,998 — — | — — — | 135,000 — — | — — — | 150 — — | |||||||||||
Rick Russo (3) Chief Financial Officer | 2002 2001 2000 | 79,356 — | 50,233 — | — — — | — — — | 135,000 — — | — — — | 154 — — | |||||||||||
Steven D. Burton (3) Chief Technology Officer | 2002 2001 2000 | 47,497 — — | 36,115 — — | — — — | — — — | 275,000 — — | — — — | — — — | |||||||||||
Stephen S. Francis (5) Former Chief Executive Officer | 2002 2001 2000 | 160,000 | 48,169 | — — — | — — — | 7,250 220,000 — | — — — | 242,000 2,000 2,000 | |||||||||||
John Finegan (6) Former Executive Vice President, Finance | 2002 2001 2000 | 200,000 | 76,387 | — — — | — — — | 169,271 10,000 — | (7) | — — — | 169,500 2,000 2,000 | ||||||||||
Matt Albanese (8) Vice President of Technical Services | 2002 2001 2000 | 194,013 | 52,868 | — — — | — — — | 138,750 20,000 60,000 | (7) | — — — | 2,000 2,000 2,000 | ||||||||||
| (1) | Substantially all of the bonus payments made in 2000 were made pursuant to the Company’s special incentive bonus plan, a stock price-based incentive plan. This plan was adopted in October 1999 to create an additional incentive for the Company’s management team to increase stockholder value. The bonus payments under the plan were contingent upon the attainment of certain stock price levels for the Company’s common stock over an extended period of time. The applicable price level objectives were achieved in February 2000. |
| (2) | Includes matching contributions under the Company’s 401(k) plan. Also includes severance of $167,500 awarded to Mr. Finegan in 2002 and paid in 2003 and severance of $240,000 awarded and paid to Mr. Francis and relocation and rental costs of $22,189 reimbursed to Mr. Vickers. |
| (3) | Each of Messrs. Bish, Owens, Russo and Burton joined the Company on August 1, 2002 in connection with the Merger. |
13
| (4) | Mr. Vickers served as Vice President of Sales from the time he joined the Company in December 2001 until August 2002, when he became Chief Marketing Officer and General Manager of Pixel Translations. |
| (5) | Mr. Francis ceased serving as Chief Executive Officer effective August 1, 2002 but continued serving as Chief Operating Officer of the Company through September 30, 2002. |
| (6) | Mr. Finegan ceased serving as Chief Financial Officer of the Company effective August 1, 2002, but continued serving as Executive Vice President of Finance of the Company through March 15, 2003. |
| (7) | Granted pursuant to the Company’s option exchange program adopted in 2001. |
| (8) | Mr. Albanese ceased serving as an executive officer of the Company August 1, 2002, but continues to serve as Vice President of Technical Services. |
14
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1993 Plan. As of March 31, 2003, options to purchase approximately 2,128,000 shares were outstanding under the 1993 Plan and options to purchase approximately 545,000 shares remained available for grant under the plan. The following tables show for the fiscal year ended December 31, 2002, certain information with respectregarding options granted to, exercised by, and held at year end by, the Named Executives concerning the exercise of options during the 1998 fiscal year and
unexercised options held as of the end of the 1998 fiscal year.
Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
Name | Individual Grants | Exercise Or Base Price ($/Sh) | Expiration Date | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term | |||||||||||||
Number of Securities Under-lying Options Granted (#) | % of Total Options Granted to Employees in Fiscal Year | ||||||||||||||||
5% ($) | 10% ($) | ||||||||||||||||
Reynolds C. Bish | 345,000 345,000 | (1) (2) | 9.9276 9.9276 | %
| $ | 2.43 | 07/31/12 07/31/12 | $ | 38,321 | $ | 557,602 | ||||||
James Vickers | — |
| — |
|
| — | — |
| — |
| — | ||||||
Blaine J. Owens(3) | 135,000 |
| 3.8847 |
|
| 2.43 | 07/31/12 |
| 14,995 |
| 218,192 | ||||||
Rick Russo(3) | 135,000 |
| 3.8847 |
|
| 2.43 | 07/31/12 |
| 14,995 |
| 218,192 | ||||||
Steven D. Burton | 137,500 137,500 | (2) (1) | 3.9567 3.9567 |
| | 0.52 | 07/31/12 07/31/12 | | 227,898 | | 484,858 | ||||||
Stephen S. Francis(4) | 2,250 5,000 |
| 0.0647 0.1439 |
| | 2.43 | 03/31/07 06/29/07 | | 1,538 | | 3,405 | ||||||
John Finegan(5) | 10,000 12,500 25,000 30,000 30,000 36,771 25,000 |
| 0.2878 0.3597 0.7194 0.8633 0.8633 1.0581 0.7194 |
| | 2.43 | 02/04/11 08/10/03 05/01/06 02/14/07 11/11/08 07/09/09 04/30/06 | | 13,266 | | 32,610 | ||||||
Matt Albanese(5) | 45,000 45,000 2,501 25,000 15,000 20,000 17,499 8,000 9,500 5,000 |
| 1.1249 1.1249 0.0720 0.7194 0.4317 0.5756 0.5035 0.2302 0.2734 0.1439 |
| | 2.43 | 07/30/10 07/09/09 05/01/06 06/03/08 01/29/09 02/04/11 04/30/06 02/28/07 04/30/07 11/13/07 | | 55,482 | | 134,415 | ||||||
| (1) | Vesting monthly over a period of 24 months from the date of grant, which was the effective date of the Merger. |
| (2) | Vesting 100% upon the date of grant. |
| (3) | Vesting as to 15% upon the date of grant, 35% one year from date of grant, and the remainder monthly over the following 36 months. |
| (4) | Granted to Mr. Francis’ spouse in connection with the Company’s option exchange program completed in March 2002. Vesting for each grant is same as vesting for options cancelled, which was 25% one year from the date of the original grant date, and the remainder quarterly over the following 12 quarters. |
15
| (5) | Granted in connection with the Company’s option exchange program completed in March 2002. Vesting for each grant is same as vesting for options cancelled, which was 25% one year from the date of the original grant date, and the remainder quarterly over the following 12 quarters. |
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING
VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
SHARES VALUE YEAR-END (#) YEAR-END ($)(2)
ACQUIRED ON REALIZED ------------------------------- -------------------------------
NAME EXERCISE (#) ($)(1) EXERCISABLE (3) UNEXERCISABLE EXERCISABLE (3) UNEXERCISABLE
- ----------------------------------- ------------- --------- --------------- ------------- --------------- -------------
Thomas T. van Overbeek............. 0 0 103,125 21,875 3,750 0
Kimra D. Hawley.................... 0 0 100,483 166,017 21,000 31,500
Joe Falk........................... 0 0 16,250 68,750 5,625 16,875
John Finegan....................... 0 0 64,812 87,688 9,000 13,500
Stephen Francis.................... 0 0 69,500 70,500 9,000 13,500
Johannes P. Schmidt................ 0 0 114,874 140,125 21,000 31,500
- ------------------------
Name | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Securities Underlying Unexercised Options/SARs at FY-End (#) | Value of Unexercised In-the-Money Options/SARs at FY-End ($) | |||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||
Reynolds C. Bish | — | — | 416,875 | 273,125 | $ | 372,600 | — | ||||||
James Vickers | — | — | 37,500 | 112,500 |
| 5,625 | 16,875 | ||||||
Blaine J. Owens | — | — | 20,250 | 114,750 |
| — | — | ||||||
Rick Russo | — | — | 20,250 | 114,750 |
| — | — | ||||||
Steven D. Burton | — | — | 166,146 | 108,854 |
| 148,500 | — | ||||||
Stephen S. Francis | — | — | 317,500 | 142,500 |
| — | — | ||||||
John Finegan | — | — | 213,125 | 9,375 |
| — | — | ||||||
Matt Albanese | — | — | 158,751 | 33,749 |
| — | — | ||||||
EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS
Employment Agreements. In 2002, the Company entered into employment agreements with Mr. Bish and Mr. Russo providing for base salaries of $250,000 per year for Mr. Bish and $200,000 per year for Mr. Russo, benefits, annual discretionary bonuses of up to 50% of base for Mr. Bish and 35% of base for Mr. Russo as determined each year by the Compensation Committee of the Board, and severance benefits in the event their employment is terminated without cause, and for the acceleration of unvested options to purchase common stock of the Company in the event of termination without cause within 12 months of a change of control of the Company.
Severance Agreements. In 2002, in connection with the Merger, the Company entered into severance agreements with each of Messrs. Francis, Finegan, Albanese and Vickers, providing for severance benefits in the event their employment is terminated. These severance agreements were in addition to prior existing severance agreements with each of Messrs. Francis, Finegan, and Albanese. These officers will not be entitled to any severance benefits under the prior existing severance agreements as a result of the Merger.
Separation and Release Agreements. In June 2001, the Company entered into a separation and release agreement with Ms. Hawley. The terms of the agreement provide that the Company will reimburse Ms. Hawley for monthly premiums paid under COBRA so long as Ms. Hawley remains eligible under COBRA rules. Ms. Hawley agreed to release the Company from any and all claims arising or relating to her employment with the Company and to surrender vested options to purchase up to 72,500 shares of the Company’s common stock.
16
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION1
The following is the report of the compensation committee of the board of directors, describing the compensation policies and rationale applicable to the Company’s executive officers with respect to the compensation paid to such executive officers for the year ended December 31, 2002.
Purpose of the Compensation Committee. The committee is responsible for determining compensation levels for the Company’s executive officers for each fiscal year based upon a consistent set of policies and procedures.
Committee Structure. The committee is made up of two independent, non-employee members of the board of directors who meet during the first quarter of each fiscal year to set executive officer salaries, and as needed thereafter. No prior or current member of the committee has any interlocking relationships as defined by the Securities and Exchange Commission.
Objectives of the Compensation Program. The objectives of the compensation program are: (1) Basedto provide a means for the Company to attract and retain high-quality executives, (2) to tie executive compensation directly to the Company’s business and performance objectives, and (3) to reward outstanding individual performance that contributes to the long-term success of the Company.
Elements of Compensation. Each executive officer’s compensation package is ordinarily comprised of three elements: (1) base compensation, which reflects individual performance and is designed primarily to be competitive with salary levels in a comparative group, (2) annual bonus plan compensation ordinarily payable in cash and tied to both the achievement of individual performance objectives and company financial performance goals established by the committee, and (3) long-term stock-based incentive compensation that emphasizes a focus on company growth and increased stockholder value.
Base Compensation. The base compensation for each executive officer is determined by analysing competitive salary ranges of companies similar in size and business that compete with the Company in the recruitment and retention of senior personnel. The committee believes that the Company’s most direct competitors for executive talent are not necessarily all of the companies that the Company would use in a comparison of stockholder returns.
For executive officers other than the Company’s chief executive officer, the committee considers specifically the following factors in determining base compensation: (1) a comparison of the Company’s growth and financial performance relative to the performance of competitors, (2) salary levels for comparable positions in the compensation comparison group and (3) each executive’s responsibility level and financial and strategic objectives for the subsequent year. The committee believes that the current base compensation for executive officers is at the mid-range of the companies in the compensation comparison group with which the Company competes for talent.
Annual Bonus Plan Compensation. The Company’s annual bonus plan provides for incentive bonus compensation to all officers and a number of key employees based on the achievement of specific corporate performance targets established during the year.
Long-Term Stock-Based Incentive Compensation. Long-term incentives are provided through stock option grants. The grants are designed to align the interests of each executive officer with those of the stockholders and
1 This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the 1933 Act or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
17
provide each individual with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. Each grant generally allows the officer to acquire shares of the Company’s common stock at a fixed price per share (the market price on the grant date) over a specified period of time (up to 10 years). Each option generally becomes exercisable in instalments over a four-year period, contingent upon the executive officer’s continued employment with the Company. Accordingly, the option will provide a return to the executive officer only if the executive officer remains employed by the Company during the vesting periods, and then only if the market price of the shares appreciates over the option term. The size of the option grant to each executive officer is generally set to a level the committee deems appropriate in order to create a meaningful opportunity for stock ownership based upon the individual’s current position with the Company, taking into account comparable awards to individuals in similar positions in the industry, the individual’s potential for future responsibility and promotion over the option term and the individual’s personal performance in recent periods. The committee also takes into account the number of vested and unvested options held by the executive officer in order to maintain an appropriate amount of equity incentive for that individual. The weight of these various factors will vary over time and with respect to each individual. However, the committee does not adhere to any specific guidelines as to the relative option holdings of the Company’s executive officers.
The Company’s Option Exchange Program. On July 10, 2001, the Company’s board of directors approved an option exchange program pursuant to which certain executive officers and employees were allowed to exchange all outstanding options. Options were tendered by 81 employees and 3 executive officers, and those options were cancelled by the Company on August 31, 2001. Under the option exchange program, new options having exercise prices equal to $2.43, the fair market value of the sharesCompany common stock on March 2, 2002, were granted to replace the options cancelled on August 31, 2001. The replacement options were issued with the same vesting terms as the options which they replaced. Any employee whose employment terminated prior to March 2, 2002 was not eligible to have his or her options replaced.
Stock options are intended to provide incentives to the Company’s executive officers and employees. The compensation committee believes that such equity incentives are a significant factor in the Company’s ability to attract, retain and motivate key employees who are critical to the Company’s long-term success. The compensation committee further believes that, at their original exercise date lessprices, the disparity between the exercise price paidof these options and the then market prices for the shares.
(2) BasedCompany’s common stock did not provide meaningful incentives to the employees holding the options. A review of other companies in the software industry indicates that some of these companies have been confronted with this problem and have made similar adjustments in option prices to motivate their employees.
The board of directors approved the option exchange program as a means of ensuring that optionees will continue to have meaningful equity incentives to work toward the Company’s success. The option exchange program was deemed by the board of directors to be in the best interests of the Company and its stockholders.
Chief Executive Officer’s Compensation. Compensation for the chief executive officer is generally determined by a process similar to that discussed above for executive officers. Mr. Bish’s base compensation for fiscal 2002 was established by the board of directors in July 2002, based on the fair market valueobjective of having his base salary keep pace with salaries being paid to similarly situated chief executive officers, although in the sharesfuture, the committee intends to take into account an evaluation of his personal performance. The committee intends base salary to provide Mr. Bish with a level of stability and certainty each year and intends that this particular component of compensation not be affected to any significant degree by company performance factors.
The remaining components of Mr. Bish’s 2002 compensation, however, are dependent upon the company’s financial performance and provide no dollar guarantees. Incentive bonus compensation for Mr. Bish for the 2002 fiscal year was largely dependent on the last dayachievement of specific corporate performance targets established in the middle of the fiscal year ($5.75when Mr. Bish was appointed president and chief executive officer, as set forth above in the discussion of the annual bonus plan compensation.
18
Deduction Limit for Executive Compensation. Section 162(m) of the Internal Revenue Code, enacted in 1993, limits federal income tax deductions for compensation paid to the chief executive officer and the four other most highly compensated officers of a public company to $1 million per share) lessyear, but contains an exception for performance-based compensation that satisfies certain conditions.
The committee believes that option grants under the exercise price1993 option plan are exempt from the deduction limit. Because it is unlikely that other compensation payable to any executive of the Company has materially exceeded or would exceed the deduction limit in the near future, the Committee has not yet considered whether it will seek to qualify compensation other than options for such shares.
(3) Includes sharesthe performance-based exception or will prohibit the payment of compensation that upon exercise, are subjectwould materially exceed the deduction limit. However, in approving the amount and form of compensation for executives of the Company, the committee will continue to repurchaseconsider all elements of cost to the Company of providing that compensation.
Submitted by the Company.
compensation committee of the Company’s board of directors:
Mel S. Lavitt, Chairman
Patrick L. Edsell
19
OPTION REPRICING INFORMATION
The following table shows certain information concerning the repricing of options received by the Named Executive Officers during the last ten years.
Name | Date(1) | Number of Securities Underlying Options Repriced Or Amended (#) | Market Price Of Stock At Time Of Repricing Or Amendment ($) | Exercise Price At Time Of Repricing Or Amendment ($) | New Exercise Price ($) | Length Of Original Option Term Remaining At Date Of Repricing Or Amendment(2) | |||||||||
John Finegan | 3/2/2002 | 50,000 | $ | 2.43 | $ | 8.63 | $ | 2.43 | 4 yrs, 2 mos | ||||||
12,500 |
| 2.43 |
| 8.00 |
| 2.43 | 1 yr, 5 mos | ||||||||
30,000 |
| 2.43 |
| 7.88 |
| 2.43 | 4 yrs, 11 mos | ||||||||
30,000 |
| 2.43 |
| 7.25 |
| 2.43 | 5 yrs, 8 mos | ||||||||
10,000 |
| 2.43 |
| 5.38 |
| 2.43 | 8 yrs, 11 mos | ||||||||
36,771 |
| 2.43 |
| 5.31 |
| 2.43 | 7 yrs, 4 mos | ||||||||
Matthew Albanese | 3/2/2002 | 20,000 |
| 2.43 |
| 8.63 |
| 2.43 | 4 yrs, 2 mos | ||||||
8,000 |
| 2.43 |
| 8.50 |
| 2.43 | 5 yrs | ||||||||
9,500 |
| 2.43 |
| 8.25 |
| 2.43 | 5 yrs, 2 mos | ||||||||
25,000 |
| 2.43 |
| 6.38 |
| 2.43 | 6 yrs, 3 mos | ||||||||
15,000 |
| 2.43 |
| 6.13 |
| 2.43 | 6 yrs, 11 mos | ||||||||
20,000 |
| 2.43 |
| 5.38 |
| 2.43 | 8 yrs, 11 mos | ||||||||
45,000 |
| 2.43 |
| 5.31 |
| 2.43 | 7 yrs, 4 mos | ||||||||
5,000 |
| 2.43 |
| 5.00 |
| 2.43 | 4 yrs, 8 mos | ||||||||
45,000 |
| 2.43 |
| 4.56 |
| 2.43 | 8 yrs, 5 mos | ||||||||
| (1) | Options were cancelled on August 31, 2001 and regranted on March 2, 2002 at the then current market price. |
| (2) | Length of original option term remained unchanged following the regrant. |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation CommitteeCompany’s compensation committee is a former or current officer or employee of the Company or any of its subsidiaries. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's BoardCompany’s board of Directorsdirectors or Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE
compensation committee.
20
PERFORMANCE MEASUREMENT COMPARISON(1)
The following isgraph shows the Reporttotal stockholder return of the Compensation Committeean investment of the Board of
Directors, describing the compensation policies and rationale applicable to the
Company's executive officers with respect to the compensation paid to such
executive officers for the year ended$100 in cash on December 31, 1998.
PURPOSE OF THE COMPENSATION COMMITTEE
The Committee is responsible1997 for determining compensation levels for(i) the executive officers for each fiscal year based upon a consistent set of policies
and procedures.
COMMITTEE STRUCTURE
The Committee is made up of two independent, non-employee members of the
Board of Directors who meet during the first quarter of each fiscal year to set
executive officer salaries, and as needed thereafter. No prior or current member
of the Committee has any interlocking relationships as defined by the SEC.
20
OBJECTIVES OF THE COMPENSATION PROGRAM
The objectives of the compensation program are: (1) to provide a means for
the Company to attract and retain high-quality executives; (2) to tie executive
compensation directly to the Company's business and performance objectives; and
(3) to reward outstanding individual performance that contributes to the
long-term success of the Company.
ELEMENTS OF COMPENSATION
Each executive officer's compensation package is comprised of three
elements: (1) base compensation, which reflects individual performance and is
designed primarily to be competitive with salary levels in a comparative group,
(2) annual bonus plan compensation payable in cash and tied to the achievement
of financial performance goals established by the Committee, and (3) long-term
stock-based incentive compensation which emphasizes a focus on Company growth
and increased stockholder value.
BASE COMPENSATION
The base compensation for each executive officer is determined using an
analysis of competitive salary ranges provided by an independent public
accounting firm which focuses on companies similar in size and business who
compete with Input in the recruitment and retention of senior personnel. The
Committee believes that the Company's most direct competitors for executive
talent are not necessarily all of the companies that the Company would use in a
comparison of stockholder returns. Therefore, the compensation comparison group
is not the same as the industry group in the index used in the PERFORMANCE
GRAPH, below.
The Committee considers specifically the following factors in determining
base compensation: (1) a comparison of the Company's growth and financial
performance relative to the performance of competitors, (2) salary levels for
comparable positions in the compensation comparison group and (3) each
executive's responsibility level and financial and strategic objectives for the
subsequent year. The Committee believes that the current base compensation for
executive officers is at the low end of the companies in the compensation
comparison group with which the Company competes for talent.
ANNUAL BONUS PLAN COMPENSATION
The Company's annual bonus plan provides for incentive bonus compensation to
all officers and a number of key employees based on the achievement of specific
corporate performance targets established at the beginning of the fiscal year
relating to revenues and operating profits. For fiscal year 1998, a bonus range
was established such that achievement of planned revenue and operating profits
would result in a specified bonus level. For performance levels over plan, the
bonus compensation amount would increase proportionately. For fiscal year 1998,
revenue and operating profits were slightly below established targets and
bonuses were paid in accordance with the plan. In addition, Messrs. van Overbeek
and Finegan were awarded bonuses in conjunction with the sale of the Company's
display division.
The Company's incentive bonus compensation structure was reviewed and
revised for fiscal year 1998 to include specific corporate performance targets
relating to revenues and net profits as well as specific individual performance
objectives.
LONG-TERM STOCK-BASED INCENTIVE COMPENSATION
Long-term incentives are provided through stock option grants. The grants
are designed to align the interests of each executive officer with those of the
stockholders and provide each individual with a significant incentive to manage
the Company from the perspective of an owner with an equity stake in the
business. Each grant generally allows the officer to acquire shares of the
Company'sCompany’s common stock, at a fixed price per share (the market price on(ii) the grant
date) over a specified period of time (up to ten years). Each option generally
becomes exercisable in installments over a four-year period, contingent upon the
21
executive officer's continued employment with the Company. Accordingly, the
option will provide a return to the executive officer only if the executive
officer remains employed by the Company during the four-year vesting period, and
then only if the market price of the shares appreciates over the option term.
The size of the option grant to each executive officer, based on the aggregate
exercise price, generally is set to a multiple of salary that the Committee
deems appropriate in order to create a meaningful opportunity for stock
ownership based upon the individual's current position with the Company, but
also takes into account comparable awards to individuals in similar positions in
the industry as reflected in external surveys, the individual's potential for
future responsibility and promotion over the option term and the individual's
personal performance in recent periods. The Committee also takes into account
the number of vested and unvested options held by the executive officer in order
to maintain an appropriate amount of equity incentive for that individual. The
weight of these various factors will vary over time and with respect to each
individual. However, the Committee does not adhere to any specific guidelines as
to the relative option holdings of the Company's executive officers.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Compensation for the Chief Executive Officer is determined by a process
similar to that discussed above for executive officers. Ms. Hawley's base
compensation for fiscal 1998 was established by the Board of Directors in the
first quarter of 1998 and was increased by the Committee effective September 1,
1998. The Committee established Ms. Hawley's base salary adjustment based on an
evaluation of her personal performance and the objective of having her base
salary keep pace with salaries being paid to similarly situated chief executive
officers. Further, the Committee intends base salary to provide Ms. Hawley with
a level of stability and certainty each year and intends that this particular
component of compensation not be affected to any significant degree by Company
performance factors.
The remaining components of Ms. Hawley's 1998 compensation, however, were
dependent upon financial performance and provided no dollar guarantees. The
incentive bonus compensation for Ms. Hawley for the 1998 fiscal year was
dependent on the achievements of specific corporate performance targets
established at the beginning of the fiscal year, and adjusted in June, as set
forth above in the discussion in Annual Bonus Plan Compensation.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code, enacted in 1993, limits federal
income tax deductions for compensation paid to the Chief Executive Officer and
the four other most highly compensated officers of a public company to $1
million per year, but contains an exception for performance-based compensation
that satisfies certain conditions.
The Committee believes that option grants under the 1993 Plan are exempt
from the deduction limit. Because it is unlikely that other compensation payable
to any Company executive would exceed the deduction limit in the near future,
the Committee has not yet considered whether it will seek to qualify
compensation other than options for the performance-based exception or will
prohibit the payment of compensation that would exceed the deduction limit.
However, in approving the amount and form of compensation for Company
executives, the Committee will continue to consider all elements of cost to the
Company of providing that compensation.
Submitted by the Compensation Committee of the Company's Board of Directors:
DANIEL D. TOMPKINS, CHAIRMAN
JAMES CRAWFORD III
22
COMPARISON OF STOCKHOLDER RETURN
This graph reflects a comparison of the cumulative total return (change in
stock price plus reinvested dividends) of the Company's Common Stock price with
the cumulative total returns of the S&P & P Midcap 400 Index and (iii) the S&P High & P Information Technology Composite Index. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEARS ENDING DEC93 DEC94 DEC95 DEC96 DEC97 DEC98
INPUT SOFTWARE INC 100 $103.3898 $98.30508 $49.15254 $34.31864 $38.98305
S&P MIDCAP 400 INDEX 100 $96.41515 $126.2483 $150.4894 $199.0277 $237.054
TECHNOLOGY-500 100 $116.5486 $167.8807 $238.1729 $300.3195 $519.4816
DOLLARS
- ------------------------
(1) The graph coversAll values assume reinvestment of the five period from January 1, 1994, through the fiscal
year endedfull amount of all dividends and are calculated as of December 31 1998.
(2) The graph assumes that $100 was invested on January 1, 1994,of each year:
| (1) | This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in |
CERTAIN TRANSACTIONS
Agreement with Patricia M. Norman. In 2002, the Company underentered into an agreement with Patricia M. Norman, the Securities Actestranged spouse of 1933, as amended, or the Securities Exchange Act of 1934,
whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language in any such filing.
CERTAIN TRANSACTIONS
On April 10, 1997, Mr. van Overbeek,Reynolds C. Bish, President and Chief Executive Officer of the Company and a director, in connection with termination of her employment with the Company, providing for payment of severance compensation and reimbursement of the cost of COBRA benefits.
Novus Ventures. Kimra Hawley is married to a general partner of Novus Ventures, L.P., which was an investor in Old Captiva and received approximately 181,706 shares of the Company’s common stock in connection with the Merger.
C.E. Unterberg, Towbin. Mel Lavitt is Vice Chairman and Managing Director of C.E. Unterberg, Towbin, which provided financial advisory and investment banking services to Old Captiva related to the Merger pursuant to an engagement letter dated as of December 11, 2001 between Old Captiva and C.E. Unterberg, Towbin. Old Captiva paid C.E. Unterberg, Towbin $350,000 for advisory and investment banking services rendered pursuant to this agreement. C.E. Unterberg, Towbin converted $2,560,000 principal amount of Old Captiva promissory
21
notes, either owned or beneficially owned by C.E. Unterberg, Towbin and its affiliates into shares of Old Captiva common stock contingent upon the occurrence of and effective immediately prior to the Merger. Also, Mr. Lavitt converted $100,000 of Old Captiva’s promissory notes directly or beneficially owned by him into shares of Old Captiva common stock contingent upon the occurrence of and effective immediately prior to the Merger.
Enterprise Partners Venture Capital. James Berglund is a loangeneral partner of Enterprise Partners Venture Capital which converted $1,070,000 of Old Captiva’s promissory notes either owned or beneficially owned by Enterprise Partners Venture Capital and its affiliates into shares of Old Captiva common stock contingent upon the occurrence of and effective immediately prior to the Merger.
Pursuant to its certificate of incorporation, the Company limits the liability of its directors for monetary damages arising from a breach of their fiduciary duty as directors, except to the extent otherwise required by Delaware law. Such limitation of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. In addition, the bylaws of the Company require that the Company indemnify its directors and officers to the fullest extent permitted by Delaware law, including circumstances in which indemnification is otherwise discretionary under Delaware law. The Company has also entered into indemnity agreements with certain officers and directors which provide, among other things, that the Company will indemnify such officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as a director, officer or other agent of the Company, and otherwise to the fullest extent permitted under Delaware law and the Company’s Bylaws.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are Captiva stockholders will be “householding” our proxy materials. A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the Companyaffected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker, direct your written request to Captiva Software Corporation, Investor Relations, 10145 Pacific Heights Boulevard, San Diego, CA 92121.
Stockholders who currently receive multiple copies of $276,000. the proxy statement at their address and would like to request “householding” of their communications should contact their broker.
22
OTHER MATTERS
The loan has an
interest rateBoard of 8.25% per annum and a two year term andDirectors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is secured by certainthe intention of Mr. van Overbeek's personal assets. At February 28, 1998, the total amount
owed by Mr. van Overbeek, including principal and interest amounts, was
$322,974.
ANNUAL REPORT
persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Bradford Weller
Secretary
April 30, 2003
A copy of the Annual Report of the Company for the fiscal year ended
December 31, 1998, has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. Except for
"Executive Officers" from Part I of the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998,2002, as filed with the Annual ReportSecurities and Exchange Commission, is not incorporated
intobeing sent to stockholders with this Proxy Statementproxy statement and is not considered proxy solicitation material.
23
FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC. Stockholders
may obtain a copy of this report,available without charge by writing to Mr. John
Finegan,upon written request to: Corporate Secretary, at the Company's executive offices at 1299 Parkmoor Avenue,Captiva Software Corporation, 10145 Pacific Heights Boulevard, San Jose, California 95126.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.Diego, CA 92121.
23
APPENDIX A
Audit Committee Report
A-1
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF INPUT(APRIL 24, 2003)
The Company’s management has primary responsibility for preparing the Company’s financial statements and the financial reporting process. The Company’s independent public accountants, PricewaterhouseCoopers LLP, are responsible for expressing an opinion on the conformity of the Company’s audited financial statements to generally accepted accounting principles. The Audit Committee has general oversight responsibility with respect to the Company’s financial reporting and reviews the results and scope of the audit and other services provided by the independent public accountants.
In this context, the Audit Committee hereby reports as follows:
The Audit Committee has reviewed and discussed the audited financial statements with the Company’s management and the independent public accountants.
The Audit Committee has discussed with the independent accountants the matters required to be discussed by Statement on Auditing Standards No. 61.
The Audit Committee discussed with the independent accountants the accountants’ independence from the Company and its management. The Audit Committee has received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1.
Based on the review and discussions referred to above, the Audit Committee recommended to the board of directors of the Company, and the board has approved, that the audited financial statements be included in the Company’s annual report for the fiscal year ended December 31, 2002, for filing with the Securities and Exchange Commission. The Committee and the Board also have recommended, subject to stockholder approval, the selection of PricewaterhouseCoopers LLP as our independent accountants.
Each of the members of the Audit Committee is independent as defined under the current listing standards of The Nasdaq National Market.
Audit Committee
Patrick L. Edsell
James Berglund
Bruce Silver
A-2
APPENDIX B
Audit Committee Charter (last revised February 6, 2003)
B-1
CAPTIVA SOFTWARE INC.
April 19, 1999
San Jose, California
24
1209-PS-99
INPUTCORPORATION
AUDIT COMMITTEE CHARTER2
Role & Purpose
The purpose of the Audit Committee (the “Audit Committee” or “Committee”) of the Board of Directors of Captiva Software Corporation (the “Company”) is to assist the Board of Directors in fulfilling the oversight responsibilities it has with respect to (i) integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the qualifications and independence of the Company’s independent auditor, (iv) the performance of the Company’s independent auditor and the Company’s internal audit function (if applicable), (v) the Company’s systems of internal controls regarding finance and accounting established by Management and the Board, and (vi) the Company’s auditing, accounting, and financial reporting processes generally. The Company’s independent auditors, in their capacity as independent public accountants, shall be responsible to the Board and the Committee as representatives of the stockholders. The Committee is expected to maintain free and open communication (including private executive sessions at least annually) with the independent auditors and Management of the Company. In discharging this oversight role, the Committee is empowered to investigate any matter brought to its attention, with full power to retain outside counsel or other experts for this purpose.
Composition and Organization
Members shall be elected annually by the full Board and shall serve until the earlier of the appointment of their respective successors, the end of their service as a Director of the Company or their resignation from the Committee. A chairperson of the Committee may be appointed either by the Board of Directors or by election by vote of a majority of the full Committee. The Committee may form and delegate authority to subcommittees when appropriate.
The Audit Committee shall be composed entirely of independent Directors. The membership of the Committee shall consist of at least three Directors, each of whom shall satisfy the independence, financial literacy and experience requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and Nasdaq’s Marketplace Rules listing requirements as in effect from time to time. At least one member of the Committee shall (i) have “accounting or related financial management expertise” (within the meaning of such term as defined from time to time by Nasdaq) by the deadlines established by the Nasdaq National Market (“Nasdaq”) from time to time for having a member with such expertise as determined by the Board, and (ii) be a “financial expert” (as such term may be defined by the Securities and Exchange Commission (the “SEC”)), no later than the deadline established by the SEC for affected issuers to have such a Director.
To the extent contemplated by the requirements of Nasdaq, Director’s fees are the only compensation that an Audit Committee member may receive from the Company.
The Audit Committee shall hold such regular or special meetings as its members shall deem necessary or appropriate. Minutes of each meeting of the Audit Committee shall be prepared and maintained with the Company’s corporate records. The operation of the Audit Committee shall be subject to the Bylaws of the Company as in effect from time to time and Section 141 of the Delaware General Corporation Law.
No Audit Committee member may serve on the audit committee of more than three public companies at any one time.
2 This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the 1933 Act or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
B-2
Duties & Responsibilities
The Audit Committee’s responsibilities and duties shall be to:
B-3
Authority and Resources
The Committee shall have the sole authority to hire and fire independent auditors and to approve any significant non-audit relationship with the independent auditors.
The Committee shall have the authority to retain outside legal, accounting or other advisors, as it determines necessary to carry out its duties. The Committee shall determine the extent of funding necessary for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any independent legal, accounting or other advisors retained to advise the Committee.
Interpretation and Determination
The Committee shall have the power and authority to interpret this Charter and make any determinations as to whether any act taken has been taken in compliance with the terms hereof.
B-4
Evaluation
The Committee shall conduct an annual performance evaluation of this Committee.
Disclosure
This Charter shall be made available on the Company’s website.
B-5
CAPTIVA SOFTWARE INC.
CORPORATION
PROXY
ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999
Annual Meeting of Stockholders
June 18, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints KIMRA HAWLEYREYNOLDS C. BISH and JOHN FINEGANRICK RUSSO and each or either of them as Proxies of the undersigned, with full power of substitution, and hereby authorizes them to represent and to vote, as designated below, all of the shares of Common Stock of INPUT SOFTWARE, INC.Captiva Software Corporation., held of record by the undersigned on April 8, 1999,25, 2003, at the Annual Meeting of Stockholders of InputCaptiva Software Inc.Corporation to be held May 27, 1999,June 18, 2003, or at any adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
The Board of Directors recommends a vote FOR PROPOSAL NOS.Proposal Nos. 1 and 2. This Proxy, when properly executed, will be voted as specified on the reverse side. This Proxy will be voted FOR Proposal Nos. 1 and 2 3 AND
4. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE. THIS PROXY WILL BE VOTED FOR PROPOSAL NOS. 1, 2, 3 AND 4 IF NO
SPECIFICATION IS MADE.
- ------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
/ / 1 FOR all nominees / / 2 WITHHOLD AUTHORITY
to vote for all nominees
/ / 3 EXCEPTIONS
listed below
if no specification is made.
| 1. | ELECTION OF DIRECTORS |
¨ 1FOR all nominees listed below | ¨ 2 WITHHOLD AUTHORITY to vote for all nominees | ¨ 3EXCEPTIONS | ||
INSTRUCTION: To withhold authority to vote for any individual nominee, mark the "EXCEPTIONS"“EXCEPTIONS” box and strike a line through the nominee'snominee’s name in the list below:
James Crawford III Bruce Silver
Kimra Hawley Daniel D. Tompkins
Thomas T. van Overbeek Johannes P. Schmidt
John Finegan
2. To approve an amendment to the Company's 1993 Stock Option/Stock Issuance
Plan to increase the number of shares of Common Stock for issuance thereunder
by 300,000 shares to 2,974,852 shares.
/ / 4 FOR / / 5 AGAINST / / 6 ABSTAIN
3. To approve an amendment to the Company's 1998 Employee Stock Purchase Plan
to increase the number of shares of Common Stock for issuance thereunder by
50,000 shares to 150,000 shares.
/ / 7 FOR / / 8 AGAINST / / 9 ABSTAIN
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company.
/ / 10 FOR / / 11 AGAINST / / 12 ABSTAIN
5. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
Reynolds C. Bish | Bruce Silver | |
Kimra D. Hawley | Jeffrey J. Lenches | |
James Berglund | Mel S. Lavitt | |
Patrick L. Edsell |
| 2. | To ratify the selection of PricewaterhouseCoopers LLP as independent accountants of the Company. |
¨4 FOR | ¨5 AGAINST | ¨6 ABSTAIN |
| 3. | In their discretion, the Proxies are authorized to vote upon such other matters as may properly come before the meeting. |
Please sign exactly as your name(s) is (are) shown on the share certificate to which the Proxy applies. When shares are held by joint tenants, both should sign. When signing as an attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person.
DATED: ___________________________, 1999
, 2003
Signature ________________________________________________________________
________________________________________________________________
(Additional
(Additional signature if held jointly)
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.