Currently, there are five (5) members of the Board of Directors. At the
Annual Meeting of Stockholders, five (5) directors are to be elected by the
holders of Common Stock. Unless otherwise instructed, the proxy holders will
vote the proxies received by them for Management's five (5) nominees named
below. If any Management nominee is unable or declines to serve as a director at
the time of the Annual Meeting of Stockholders, the proxies will be voted for a
nominee designated by the present Board of Directors to fill the vacancy. The
Company is not aware of any nominee who will be unable to or will decline to
serve as a director. The term of office for each person elected as a director
will continue until the next Annual Meeting of Stockholders or until his
successor has been elected and qualified.
The names of the nominees and certain information about them are set
forth below:
L. George Klaus................58 President, Chairman of the Board,
Chief Executive Officer
W. Douglas Hajjar..............51 Director
Donald R. Dixon................51 Director
Arthur J. Marks................53 Director
L. John Doerr..................47 Director
The Board of Directors recommends a vote "FOR" the election of all of the
nominees listed above.
Mr. Klaus has been a Director of the Company and has served as President
and Chief Executive Officer of the Company since February 1996 and Chairman of
the Board since September 1996. From July 1993 to October 1995, Mr. Klaus served
as President, Chief Executive Officer and Chairman of the Board of Frame
Technology, Inc., a publicly held software company which produced software tools
for authoring, managing and distributing business-critical documents. From
October 1992 to July 1993, Mr. Klaus was Chairman of the Board and President at
Integral Development Corporation, a software company that produces software
tools and applications for the financial services industry. From December 1991
to May 1992, Mr. Klaus was Chief Operating Officer at Cadence Design Systems,
Inc., a publicly held software company. In addition, Mr. Klaus was President and
Chief Operating Officer at Valid Logic Systems, Inc., a publicly held supplier
of electronic design automation software tools from October 1989 to December
1991. Mr. Klaus currently serves on the board of FileNet Corporation, a public
company.
Mr. Hajjar has been a Director of the Company since April 1996. Mr.
Hajjar was Chairman of the Board of Control Data Systems, Inc., a publicly held
electronic commerce and systems integration company, from August 1995 to the
sale of the Company in July 1997. From December 1991 to May 1993, Mr. Hajjar
served as Vice Chairman of Cadence Design Systems, Inc., a publicly held
electronic design automation software company. From April 1987 until the merger
with Cadence in December 1991, Mr. Hajjar served as Chairman of the Board and
Chief Executive Officer of Valid Logic Systems, Inc., a publicly held supplier
of electronic design automation software tools. In addition, Mr. Hajjar served
as Chairman and Chief Executive Officer of Telesis Systems, a publicly held
electronic design automation company, from September 1985 to April 1987. Mr.
Hajjar currently serves on the boards of Control Data Systems and Silent
Systems, both private companies.
Mr. Dixon has been a Director of the Company since September 1995. Mr.
Dixon has served as President of Trident Capital, Inc., a private investment
firm, since June 1993, and before that as Co-President of Partech International,
Inc., an international venture capital and money management firm, from June 1988
until June 1993. Mr. Dixon also is a director of BankAmerica Merchant Services,
Inc., and Evolving Systems, Inc., all of which are public companies and several
other private companies.
3
Mr. Doerr has been a Director of the Company since October 1994. Mr.
Doerr has served as a general partner of Kleiner Perkins Caufield & Byers, a
venture capital firm specializing in information and life science companies,
since 1980. Mr. Doerr is currently on the Board of Directors of the following
public companies: Intuit, Inc., Macromedia, Inc., Sun Microsystems and Netscape
Communications Corporation.
Mr. Marks has been a Director of the Company since October 1994. Mr.
Marks is presently a general partner of and is the manager of the Information
Technology Group at New Enterprise Associates, a venture capital firm
specializing in technology companies. Mr. Marks has been a general partner of
New Enterprise Associates since 1984. Mr. Marks is currently on the Board of
Directors of the following publicly traded corporations: Netrix Corporation,
Object Design, Inc., and Progress Software Corporation.
COMMITTEES
The Board of Directors has a standing Compensation Committee, Audit
Committee and Executive Committee. The functions of the Compensation Committee
include advising the Board of Directors on officer compensation and on employee
compensation generally and administering the Company's stock option plans. See
"Report of the Compensation Committee on Executive Compensation" below. The
Compensation Committee, which presently consists of two outside directors,
Messrs. Dixon and Doerr, held two meetings during fiscal 1998. The Audit
Committee is responsible for recommending to the Board of Directors the
appointment of the Company's outside auditors, examining the results of audits
and quarterly reviews and reviewing internal accounting controls. The Audit
Committee, which presently consists of two outside directors, Messrs. Dixon and
Hajjar, held four meetings during fiscal 1998. The Executive Committee is
empowered to take day-to-day board actions between regularly scheduled board
meetings, and is presently comprised of two directors, Messrs. Dixon and Klaus.
During fiscal 1998 the Executive Committee held no meetings, but acted by
written consent on several occasions. The Board of Directors has no nominating
committee or any committee performing the functions of such a committee.
BOARD MEETINGS
The Board of Directors held a total of five meetings during fiscal 1998.
No member of the Board of Directors attended fewer than 75% of the meetings of
the Board of Directors, and no director attended fewer than 75% of the meetings
of committees upon which such director served.
OTHER EXECUTIVE OFFICERS
In addition to Mr. Klaus, the other current executive officers of the
Company are William R. Pieser, age 45, Executive Vice President, Product
Operations and Marketing and Ken Lally, age 55, Executive Vice President, Field
and Customer Operations.
Mr. Pieser joined the Company in February 1996. From February 1996 to
June 1998, Mr. Pieser served as Senior Vice President, Marketing and Business
Development of the Company. In July 1998, Mr. Pieser became Executive Vice
President, Product Operations and Marketing. Mr. Pieser served as Vice President
of Marketing at Frame Technology, Inc. from October 1993 to October 1995. From
October 1991 to October 1993, Mr. Pieser was Vice President of Marketing at
Raima Corporation, a supplier of development tools. From October 1990 through
October 1991, Mr. Pieser served as Director of Sales for HDC Computer
Corporation.
Mr. Lally joined the Company in April 1996. From April 1996 to June
1998, Mr. Lally served as Senior Vice President, Worldwide Field Operations of
the Company. In July 1998, Mr. Lally became Executive Vice President, Field and
Customer Operations. Mr. Lally served as Vice President of Spectrum Services for
Cadence Design Systems, Inc. from January 1995 through April 1996. Mr. Lally was
Vice President of North American Sales at Cadence from December 1991 through
January 1995. From December 1990 through December 1991, Mr. Lally was Vice
President of North American Sales at
4
Valid Logic Systems, Inc. Prior to joining Valid, Mr. Lally was employed at
Prime Computer for ten years.
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION. The following table sets forth summary
information concerning compensation paid or accrued for services rendered to the
Company in all capacities during the fiscal year ended June 30, 1998 to the
Company's Chief Executive Officer and to the Company's four most
highly-compensated executive officers:
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
----------------------------------- -----------------------
Name Other Restricted Securities All
and Annual Stock Underlying Other
Principal Salary Bonus Compensation Awards Options Compensation
Position Year ($) ($) ($) ($) (#) ($)
---------------------- ---- ------ ------- ------------ ---------- ---------- ------------
L. George Klaus 1998 527,500 509,456 423,058(1) - - -
Chairman of the Board, 1997 500,000 180,000 855,251(2) - - -
Chief Executive Officer 1996 198,865 98,630 (3) 0 (4) - -
and President
Michael J. Simmons (5) 1998 144,750 75,000 (3) - - -
Chief Financial Officer 1997 197,917 40,000 (3) - - -
1996 175,000 0 (3) - 140,000 -
Ken Lally 1998 211,000 243,000 169,544(6) - - -
Executive Vice President 1997 200,000 97,000 373,274(7) - - -
Worldwide Field 1996 34,848 17,260 (3) 0 (8) 25,000 -
Operations
William R. Pieser 1998 221,500 196,884 105,157(9) - - -
Executive Vice President 1997 210,000 75,000 192,544(10) - - -
Marketing and Business 1996 73,500 36,247 47,769(11) 0 (12) - -
Development
(1) Consists of waiver of accrued interest on two loans in the aggregate
principal amount of $7,000,000 and insurance which provides for
reimbursement for health and dental costs in excess of the amounts payable
under the Company's group health and dental plans. See "Employment
Agreements and Related Party Transactions" and "Report of Compensation
Committee on Executive Compensation."
(2) Includes relocation expenses related to Mr. Klaus moving from Northern
California to Southern California, including $623,276 relating to the sale
of Mr. Klaus' prior residence (comprised of the shortfall on the sale of
the residence, carrying costs for six months, sales commissions, legal
fees and taxes). Also includes golf club membership and moving expenses,
closing costs on a new residence and a tax gross up payment for certain
reimbursed costs.
(3) Miscellaneous perquisites which, in the aggregate, are less than ten
percent (10%) of base salary and bonus.
(4) Mr. Klaus received a restricted stock grant of 2,000,000 shares in
connection with his joining the Company in February 1996. See "Employment
Agreements and Related Party Transactions." Of the 2,000,000 shares,
350,000 vested on the grant date and 29,167 shares vest each month
thereafter for 36 months. The remaining 600,000 shares vest based on the
Company meeting operating revenue and profit after tax thresholds for
fiscal 1997, 1998 and 1999. If the Company does not meet the thresholds,
then the shares vest after 10 years. As of June 30, 1998, 1,595,843 shares
were vested. The value of Mr. Klaus' restricted stock holdings at June 30,
1998, was $33,313,222, which was determined by multiplying the number of
restricted shares times $24.375, the closing price of the Company's common
stock on June 30, 1998, net of the consideration paid for the restricted
shares.
(5) Mr. Simmons served as Chief Financial Officer through February 27, 1998.
(6) Consists of waiver of accrued interest on two loans in the aggregate
principal amount of $2,812,500 and insurance which provides for
reimbursement for health and dental costs in excess of the amounts payable
under the Company's group health and dental plans. See "Employment
Agreements and Related Party Transactions."
(7) Relocation expense related to Mr. Lally moving from Northern California to
Southern California including $121,338 representing the shortfall on the
sale of Mr. Lally's prior residence as well as moving expenses, closing
costs on a new residence, and a tax gross up payment of $166,664 for the
reimbursed costs.
Also includes golf club membership.
(8) Mr. Lally received a restricted stock grant of 450,000 shares in
connection with his joining the Company in April 1996. See "Employment
Agreements and Related Party Transactions." Of the 450,000 shares, 49,980
vested on the grant date and 6,945 shares vest each month thereafter for
36 months. The remaining 150,000 shares vest based on the Company meeting
operating revenue and profit after tax thresholds for fiscal 1997, 1998
and 1999. If the Company does not meet the thresholds, then the shares
vest after 10 years. As of June 30, 1998, 337,495 shares were vested. The
value of Mr. Lally's restricted stock holdings at June 30, 1998, was
$6,117,096, which was determined by multiplying the number of restricted
shares times $24.375, the closing price of the Company's common stock on
June 30, 1998, net of the consideration paid for the restricted shares.
5
(9) Consists of waiver of accrued interest on two loans in the aggregate
principal amount of $1,750,000 and insurance which provides for
reimbursement for health and dental costs in excess of the amounts payable
under the Company's group health and dental plans. See "Employment
Agreements and Related Party Transactions."
(10) Relocation expenses related to Mr. Pieser moving from Northern California
to Southern California including moving expenses, reimbursement of the
shortfall on the sale of Mr. Pieser's prior residence, closing costs on
the purchase of a new residence and $90,949 as a tax gross up payment for
certain reimbursed costs.
(11) Includes golf club membership of $22,500 and closing costs on purchase of
home of $25,269.
(12) Mr. Pieser received a restricted stock grant of 500,000 shares in
connection with his joining the Company in February 1996. See "Employment
Agreements and Related Party Transactions." Of the 500,000 shares, 50,000
vested on the grant date and 8,334 shares vest each month thereafter for
36 months. The remaining 150,000 shares vest based on the Company meeting
operating revenue and profit after tax thresholds for fiscal 1997, 1998
and 1999. If the Company does not meet the thresholds, then the shares
vest after 10 years. As of June 30, 1998, 391,686 shares were vested. The
value of Mr. Pieser's restricted stock holdings at June 30, 1998, was
$8,176,445, which was determined by multiplying the number of restricted
shares times $24.375, the closing price of the Company's common stock on
June 30, 1998, net of the consideration paid for the restricted shares.
Option Grants. There were no grants of stock options to the named
individuals in the Summary Compensation Table during the fiscal year ended June
30, 1998.
Option Exercises. The following table sets forth certain information
concerning the exercise of options by each of the Company's executive officers
named in the Summary Compensation Table during the fiscal year ended June 30,
1998, including the aggregate value of gains on the date of exercise. In
addition, the table includes the number of shares covered by both exercisable
and unexercisable stock options as of June 30, 1998. Also reported are the
values for "in the money" options that represent the positive spread between the
exercise prices of any of such existing stock options and the closing sale price
of the Company's Common Stock as of June 30, 1998.
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
-------------------------- ---------------------------
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End at Fiscal Year-End (1)
------------- --------- -------------------------- --------------------------
Shares Value
Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Name Exercise (#) (1)($) (#) (#) ($) ($)
--------------------- ----------- -------- ----------- ------------- ----------- -------------
Michael J. Simmons (2) 140,000 2,100,000 0 0 - -
L. George Klaus N/A N/A - - - -
Ken Lally N/A N/A 25,000(3) - 453,125 -
William R. Pieser N/A N/A - - - -
------------------------------
(1) Market value of underlying securities at exercise date or year-end, as the
case may be, minus the exercise or base price on "in-the-money" options.
The closing sale price for the Company's Common Stock as of June 30, 1998
on the NASDAQ National Market System was $24.375.
(2) Mr. Simmons served as Chief Financial Officer of the Company through
February 27, 1998.
(3) Consists of 25,000 shares exercisable at an exercise price of $6.25 per
share.
Compensation of Directors. Except for the Series B Preferred Directors,
each of the Company's non-employee directors receives annual retainers of
$24,000, of which $24,000 was paid during fiscal 1998.
Employment Agreements and Related Party Transactions. The Company
entered into an offer letter with L. George Klaus when he joined the Company as
President and Chief Executive Officer in February 1996. The offer letter
provided for a base salary of $500,000 together with an annual bonus on a fiscal
year basis of up to $250,000 based on a performance plan. The offer letter also
provided that Mr. Klaus could earn an additional incentive bonus of up to
$250,000 upon fulfillment of certain performance criteria. In addition, Mr.
Klaus purchased 2,000,000 shares of restricted stock at a purchase price of
$3.50 per share, the then fair market value of the Company's Common Stock. In
payment of one half of the purchase price, Mr. Klaus executed a secured
five-year promissory note in the principal amount of $3,500,000. The note bears
simple interest at 6% per annum, is a recourse promissory note, and is secured
by a stock pledge of 2,000,000 shares of the Company's Common Stock. In April
1998, the Company waived the collection of all accrued interest to date and
going forward with respect to the promissory note. See "Report of Compensation
Committee on Executive Compensation." The Company retained a repurchase right
with respect to the restricted stock. The repurchase right lapsed with respect
to 350,000 shares on the date of the restricted stock grant, and lapses with
respect to 29,167 shares each
6
month for 36 months so that after three years the repurchase right shall not
apply to 1,400,000 shares. The repurchase right with respect to the remaining
600,000 shares lapses based on fulfillment of certain performance criteria with
respect to the Company's operating revenues and profit after taxes for fiscal
1997, fiscal 1998 and fiscal 1999 years, or in any event after ten years. In
addition, the Company agreed to pay Mr. Klaus twelve months severance, including
salary and bonus in the event his employment is terminated without cause or in
the event that he is constructively terminated. In the event of termination
without cause or constructive termination, the Company's repurchase right lapses
with respect to the shares that would have vested during the twelve month period
following termination. Finally, the Company agreed to provide a relocation
package to Mr. Klaus to assist him to relocate from northern California to
Southern California. Such package included: (i) paying the shortfall on the sale
of his primary residence; (ii) reimbursing Mr. Klaus certain financing and
closing costs in connection with the purchase of a new home; (iii) providing
temporary housing in Southern California; and (iv) paying moving expenses. See
"Executive Compensation" for relocation amounts paid in fiscal 1997. The Company
has loaned to Mr. Klaus $3,500,000 pursuant to an unsecured five-year recourse
promissory note which bears interest at the rate of 6% per annum. This loan was
used to fund Mr. Klaus' restricted stock purchase along with the secured note
referenced above. In April 1998, the Company waived the collection of all
accrued interest to date and going forward with respect to this unsecured note.
See "Report of Compensation Committee on Executive Compensation."
The Company entered into an offer letter with William R. Pieser when he
joined the Company as Senior Vice President - Marketing and Business Development
in February 1996. The offer letter provided for a base salary of $210,000
together with an annual bonus on a fiscal year basis of up to $105,000 based on
a performance plan. The offer letter also provided that Mr. Pieser could earn an
additional incentive bonus of up to $105,000 upon fulfillment of certain
performance criteria. In addition, Mr. Pieser purchased 500,000 shares of
restricted stock at a purchase price of $3.50 per share, the then fair market
value of the Company's Common Stock. In payment of one half of the purchase
price, Mr. Pieser executed a secured five-year promissory note in the principal
amount of $875,000. The note bears simple interest at 6% per annum, is a
recourse promissory note, and is secured by a pledge of 500,000 shares of the
Company's Common Stock. In April 1998, the Company waived the collection of all
accrued interest to date and going forward with respect to the promissory note.
The Company retained a repurchase right with respect to the restricted stock.
The repurchase right lapsed with respect to 50,000 shares on the date of the
restricted stock grant, and lapses with respect to 8,334 shares each month for
36 months, so that after three years the repurchase right shall not apply to
350,000 shares. The repurchase right with respect to the remaining 150,000
shares lapses based on fulfillment of certain performance criteria with respect
to the Company's operating revenues and profit after taxes for fiscal 1997,
fiscal 1998 and fiscal 1999, or in any event after ten years. In addition, the
Company agreed to pay Mr. Pieser six months severance, including salary and
bonus in the event his employment is terminated without cause or in the event
that he is constructively terminated. In the event of termination without cause
or constructive termination, the Company's repurchase right lapses with respect
to the shares that would have vested during the six month period following
termination. Finally, the Company agreed to provide a relocation package to Mr.
Pieser to assist him to relocate from northern California to southern
California. The relocation package includes: (i) paying the shortfall on the
sale of his primary residence; (ii) reimbursing Mr. Pieser certain financing and
closing costs in connection with the purchase of a new home; (iii) providing
temporary housing in Southern California; and (iv) paying moving expenses. See
"Executive Compensation" for relocation amounts paid in fiscal 1997. The Company
also has loaned to Mr. Pieser $875,000 pursuant to a five-year unsecured
recourse promissory note, which bears interest at the rate of 6% per annum. This
loan was used to fund Mr. Pieser's restricted stock purchase along with the
secured note referenced above. In April 1998, the Company waived the collection
of all accrued interest to date and going forward with respect to this unsecured
note.
The Company entered into an offer letter with Ken Lally when he joined
the Company as Senior Vice President - Worldwide Field Operations in April 1996.
The offer letter provided for a base salary of $200,000 together with an annual
bonus on a fiscal year basis of up to $100,000 based on a performance plan. The
offer letter also provided that Mr. Lally could earn an additional incentive
bonus of up to $100,000 upon fulfillment of certain performance criteria. In
addition, Mr. Lally purchased 450,000 shares of restricted stock at a purchase
price of $6.25 per share, the then fair market value of the Company's Common
Stock. In payment of one half of the purchase price, Mr. Lally executed a
secured
7
five-year promissory note in the principal amount of $1,406,250. The
note bears simple interest at 6% per annum, is a recourse promissory note, and
is secured by a pledge of 450,000 shares of the Company's Common Stock. In April
1998, the Company waived the collection of all accrued interest to date and
going forward with respect to the promissory note. The Company retained a
purchase right with respect to the restricted stock. The repurchase right lapsed
with respect to 49,980 shares on the date of the restricted stock grant, and
lapses with respect to 6,945 shares each month thereafter for 36 months, so that
after three years the repurchase right shall not apply to 300,000 shares. The
repurchase right with respect to the remaining 150,000 shares lapses based on
fulfillment of certain performance criteria with respect to the Company's
operating revenues and profit after taxes for fiscal 1997, fiscal 1998 and
fiscal 1999, or in any event after ten years. In addition, the Company agreed to
pay Mr. Lally six months severance, including salary and bonus in the event his
employment is terminated without cause or in the event that he is constructively
terminated. In the event of termination without cause or constructive
termination, the Company's repurchase right lapses with respect to the shares
that would have vested during the six month period following termination.
Finally, the Company agreed to provide a relocation package to Mr. Lally to
assist him to relocate from northern California to Southern California. Such
package includes: (i) paying the shortfall on the sale of his primary residence;
(ii) reimbursing Mr. Lally certain financing in closing costs in connection with
the purchase of a new home; (iii) providing temporary housing in Southern
California; and (iv) paying moving expenses. See "Executive Compensation" for
relocation amounts paid in fiscal 1997. The Company also has loaned to Mr. Lally
$1,406,250 pursuant to a five-year unsecured promissory note, which bears
interest at 6% per annum. This loan was used to fund Mr. Lally's restricted
stock purchase along with the secured note referenced above. In April 1998, the
Company waived the collection of all accrued interest to date and going forward
with respect to this unsecured note.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From July 1, 1997 through May 31, 1998, Carmelo J. Santoro, the former
Chairman of the Board and Chief Executive Officer of the Company, served on the
Company's Compensation Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is a standing committee of the Board of
Directors of the Company as constituted at June 30, 1998. The Compensation
Committee is responsible for establishing and evaluating the effectiveness of
compensation policies and programs for the Company and for making determinations
regarding the compensation of the Company's executive officers.
The following report is submitted by the Compensation Committee with
respect to the executive compensation policies established by the Committee and
compensation paid or awarded to executive officers for the fiscal year ended
June 30, 1998.
COMPENSATION POLICIES AND OBJECTIVES
In establishing and evaluating the effectiveness of compensation
programs for executive officers, as well as other employees of the Company, the
Compensation Committee is guided by three basic principles:
The Company must offer competitive salaries to be able to attract
and retain highly-qualified and experienced executives and other
management personnel.
Annual executive compensation in excess of base salaries
primarily should be tied to the Company's performance.
The financial interests of the Company's executive officers
should be aligned with the financial interests of the stockholders,
primarily through stock option or restricted stock grants which reward
executives for improvements in the market performance of the Company's
Common Stock.
8
Salaries and Employee Benefits Programs. In order to retain executives
and other key employees, and to be able to attract additional well-qualified
executives when the need arises, the Company strives to offer salaries and
health care and other employee benefit programs to its executives and other key
employees which are comparable to those offered to persons with similar skills
and responsibilities by competing businesses in the Company's line of business.
In addition, the Company requires its executives be based in Irvine, California
and, as a result, provides relocation packages to executives and key employees
who are required to relocate. In recommending salaries for executive officers,
the Committee (i) reviews the historical performance of the executives, and (ii)
informally reviews available information, including information published in
secondary sources, regarding prevailing salaries and compensation programs
offered by competing businesses which are comparable to the Company in terms of
size, revenue, financial performance and industry group. Many, though not all,
of these competing businesses whose shares are publicly traded, are included in
the Center for Research in Securities Prices Index for NASDAQ Computer and Data
Processing Stocks included in the Performance Graph on page 11 of this Proxy
Statement. Another factor which is considered in establishing salaries of
executive officers is the cost-of-living in Southern California where the
Company and its executive offices are headquartered, as such cost generally is
higher than in other parts of the country.
Performance-Based Compensation. The Company has established a cash bonus
plan for executives and key employees. Payment of bonuses is dependent on the
Company's achieving specific performance criteria for the fiscal year. The
performance criteria includes a Company operating revenue target and a Company
profit before taxes goal. One half of the bonus is based on achieving the
operating revenue goal and the other half is tied to achieving the profit before
taxes goal. Potential cash bonuses under the plan range from 5% to 100% of an
individual's base salary.
The profit and revenue targets are established on the basis of annual
budget and forecasts developed by management and approved by the Compensation
Committee. This operating plan is developed on the basis of (i) the Company's
performance for the prior fiscal year, (ii) estimates of sales revenue for the
plan year based upon recent market conditions, trends and competition and other
factors which, based on historical experience, are expected to affect the level
of sales that can be achieved, (iii) historical operating costs and cost savings
that management believes can be realized, (iv) competitive conditions faced by
the Company, and (v) additional expenditures beyond prior fiscal years. By
taking all of these factors into account, including market conditions, the
earnings goal and revenue targets are determined.
As a result of this performance-based bonus program, executive
compensation, and the proportion of each executive's total cash compensation
that is represented by incentive or bonus income, may increase in those years in
which the Company's profitability increases.
Stock Options and Equity-Based Programs. The Compensation Committee
believes that the motivation of executives and key employees increases as the
market value of the Company's Common Stock increases. In order to align the
financial interests of executive officers and other key employees with those of
the stockholders, the Company grants stock options or makes restricted stock
grants to its executive officers and other key employees on a periodic basis,
taking into account, among other factors, the size and terms of previous grants
of equity-based compensation and stock holdings in determining awards. Stock
option or restricted stock grants, in particular, reward executive officers and
other key employees for performance that results in increases in the market
price of the Company's Common Stock, which directly benefits all stockholders,
Moreover, the Compensation Committee generally has followed the practice of
granting options on terms that provide that the options become exercisable in
cumulative annual installments, generally over a two to five-year period. The
Compensation Committee generally has followed the practice of making restricted
stock grants with vesting, tied, in part, to objective Company performance
targets. The Compensation Committee believes that these features of the option
and stock grants not only provide an incentive for executive officers to remain
in the employ of the Company, but also makes longer term growth in share prices
important for the executives who receive stock options or restricted stock
grants.
Other Matters. Section 162(m) of the Internal Revenue Code, enacted in
1993, generally disallows a tax deduction to public companies for compensation
over $1 million paid to any of the
9
Company's Chief Executive Officer and four other most highly compensated
executive officers. Certain performance-based compensation, however, is
specifically exempt from the deduction limit. The Company does not have a policy
that requires or encourages the Compensation Committee to qualify stock options
or restricted stock awarded to executive officers for deductibility under
Section 162(m) of the Internal Revenue Code. However, the Compensation Committee
does consider the net cost to the Company in making all compensation decisions.
FISCAL YEAR 1998 CEO COMPENSATION
The principal components of compensation for the Chief Executive Officer
for fiscal 1998 included base salary, bonuses and the waiver of accrued interest
on two loans. L. George Klaus, who joined the Company in February 1996 and has
served as President and Chief Executive Officer since February 1996 and Chairman
of the Board since September 1996, received a base salary of $527,500. Mr.
Klaus' base salary was negotiated as part of his compensation package when he
joined the Company in February 1996 and subsequently increased 6% for fiscal
1998. Mr. Klaus' base salary reflects a consideration of competitive forces as
well as the Company's desire to maintain a skilled senior executive of the
stature of Mr. Klaus who has a track record in company-turnaround situations.
Mr. Klaus also received a bonus of $509,456 for fiscal 1998. Mr. Klaus' bonus
plan for fiscal 1998 provided for a target bonus of $287,500. One half of the
target bonus was based on achieving an operating revenue goal for the Company,
and the other half was based upon the Company achieving a profit before taxes
goal. Additional amounts could be earned if the Company exceeded 100% of the
operating revenue and profit goals. The Company exceeded both the operating
revenue and the profit before taxes goals and, as a result, Mr. Klaus earned in
excess of the target bonus amount. The excess amount over the target bonus was
determined based on an objective formula. Also, in April 1998, the Company
waived the collection of all accrued interest, including interest that might
accrue in the future on two promissory notes in the aggregate principal amount
of $7,000,000. The total amount of interest waived as of April 22, 1998 was
$926,301 and the total amount of interest waived that accrued in fiscal 1998 was
$420,000. The interest was waived in recognition of the Company's financial
performance in fiscal 1998. In making this decision, the Compensation Committee
placed particular emphasis on the significant achievements of the Company during
fiscal 1998, including 62% revenue growth over fiscal 1997 and earnings per
share of $0.45 as compared to a loss per share of $0.20 in fiscal 1997.
Compensation Committee Donald Dixon
L. John Doerr
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS OR FUTURE FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"); OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
("EXCHANGE ACT"), THAT MIGHT INCORPORATE BY REFERENCE PREVIOUS OR FUTURE
FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE PRECEDING
REPORT AND THE PERFORMANCE GRAPH ON PAGE 11 SHALL NOT BE INCORPORATED BY
REFERENCE INTO ANY OF SUCH FILINGS.
10
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for
the Company, the Center for Research in Securities Prices Index for the NASDAQ
Stock Market (United States Companies) and the Center for Research in Securities
Prices Index for NASDAQ Computer and Data Processing Stocks (the "CRSP NASDAQ
Computer Index") for the period that commenced on October 22, 1992 (the date on
which the Company's Common Stock was first registered under the Exchange Act)
and ended on June 30, 1998. The graph assumes that all dividends have been
reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURNS
(PLATINUM SOFTWARE CORPORATION, CRSP NASDAQ INDEX, CRSP NASDAQ COMPUTER INDEX)
11
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of September 11,
1998 regarding the beneficial ownership of the Common Stock and Series C
Preferred Stock of the Company by (i) each person known by management to be the
beneficial owner of more than 5% of any class of the Company's capital stock
(based upon reports filed by such persons with the Securities and Exchange
Commission), (ii) each director of the Company, (iii) each of the executive
officers named in the Summary Compensation Table, and (iv) all directors and
executive officers of the Company as a group:
Series C
Common Stock Preferred Stock
------------------------------------ -----------------------------------
Name and Address Amount and Amount and
of Nature of Percentage Nature of Percentage
Beneficial Owner Beneficial Ownership(1) of Class Beneficial Ownership(1) of Class
-------------------------- ----------------------- ---------- ----------------------- ----------
Kleiner Perkins Caufield & 1,168,502(3) 4.1% 31,770(4) 33.3%
Byers VII
KPCB Information Sciences
Zaibatsu Fund
L. John Doerr (2)
2750 Sand Hill Road
Menlo Park, CA 94025
New Enterprise Associates 362,002 1.3% 38,120 40.0%
VI
Limited Partnership
Arthur J. Marks (5)
1119 St. Paul Street
Baltimore, MD 21202
Trident Capital Partners 15,062(7) * 25,415(8) 26.7%
Fund I, LP,
Trident Capital Partners
Fund I, C.V.
Donald R. Dixon (6)
2480 Sand Hill Road,
Ste. 100
Menlo Park, CA 94025
Capital Research and 2,075,000(9) 7.3% - -
Management Company
333 So. Hope Street
Los Angeles, CA 90071
SMALLCAP World Fund, Inc. 1,475,000(10) 5.2% - -
333 So. Hope Street
Los Angeles, CA 90071
BKP Capital Management, 1,496,700 5.3% - -
Inc.
One Sansome Street,
Suite 3900
San Francisco, CA
94104
W. Douglas Hajjar (11) 74,500(12) * - -
L. George Klaus (11) 2,000,000 7.0% - -
William R. Pieser (11) 500,000 1.8% - -
Ken Lally (11) 485,000(13) 1.7% - -
Directors and officers as 3,059,500 10.8% - *
a group
(7 persons) (14)
*Less than 1%
(1) Unless otherwise indicated, the persons named in the table have sole
voting and sole investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.
(2) L. John Doerr, a director of the Company, is a general partner of KPCB VII
Associates, which is a general partner of each of Kleiner Perkins Caufield
& Byers VII and KPCB Information Sciences Zaibatsu Fund. Mr. Doerr
disclaims beneficial ownership of these shares other than to the extent of
his individual partnership interest.
(3) Consists of 1,168,502 shares held by Kleiner Perkins Caufield & Byers VII.
(4) Consists of 30,181 shares held by Kleiner Perkins Caufield & Byers VII and
1,589 shares held by KPCB Information Sciences Zaibatsu Fund II.
(5) Arthur J. Marks, a director of the Company, is a general partner of NEA
Partners VI, which is the general partner of New Enterprise Associates VI,
Limited Partnership. Mr. Marks disclaims beneficial ownership of these
shares other than to the extent of his individual partnership interest.
12
(6) Donald R. Dixon, a director of the Company, is president of Trident
Capital Inc., which is the general partner of Trident Capital, L.P. which
is the general partner of Trident Capital Partners Fund-I, L.P. and
Trident Capital Partners Fund-I, C.V. Mr. Dixon disclaims beneficial
ownership of these shares, other than to the extent of his stock ownership
in Trident Capital, Inc.
(7) Consists of 14,247 shares held by Donald Dixon and 618 shares held by
Trident Capital, Inc. and 197 shares owned by Trident Administrator N.V.
(8) Consists of 21,218 shares held by Trident Capital Partners Fund-I, L.P.
and 4,197 shares held by Trident Capital Partners Fund-I, C.V.
(9) Capital Research and Management Company, an investment adviser registered
under Section 203 of the Investment Advisers Act of 1940 is deemed to be
the beneficial owner of 2,075,000 shares of Common Stock as a result of
acting as investment adviser to various investment companies registered
under Section 8 of the Investment Company Act of 1940.
(10) SMALLCAP World Fund, Inc., an investment company registered under the
Investment Company Act of 1940, which is advised by Capital Research and
Management Company, is the beneficial owner of 1,475,000 shares of Common
Stock..
(11) The business address of this individual is c/o Platinum Software
Corporation, 195 Technology Drive, Irvine, CA 92618-2402.
(12) Consists of 50,000 shares owned directly and 24,500 shares issuable
pursuant to options exercisable within sixty (60) days from the date
hereof.
(13) Consists of 460,000 shares owned directly and 25,000 shares issuable
pursuant to options exercisable within sixty (60) days from the date
hereof.
(14) Excludes all shares of common stock and Series C Preferred Stock owned by
Kleiner Perkins Caufield & Byers, New Enterprise Associates, Trident
Capital Partners, and related entities as to which the respective
affiliated directors disclaim beneficial ownership other than to the
extent of their individual partnership interests.
NATURE OF THE VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of a plurality of the shares of the Company's
Common Stock present or represented and voting at the Annual Meeting of
Stockholders will be required to elect Management's five (5) nominee directors.
Under applicable Delaware law, a broker non-vote will have no effect on the
outcome of the election of directors. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF MANAGEMENT'S FIVE (5)
NOMINEE DIRECTORS. Proxies solicited by Management will be voted FOR the
election of management's five (5) nominee directors.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young, LLP, independent
auditors, to audit the consolidated financial statements of the Company for the
fiscal year ending June 30, 1999, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection.
Ernst & Young LLP was chosen by the Board on July 15, 1994 to replace
Arthur Andersen LLP which had audited the Company's financial statements
annually since fiscal year 1987. Representatives of Ernst & Young LLP are
expected to be present at the meeting with the opportunity to make a statement
if they desire to do so and are expected to be available to respond to
appropriate questions.
In the Company's two most recent fiscal years there have been no
disagreements between the Company and Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
The audit report of Ernst & Young LLP on the Company's consolidated
financial statements for the fiscal years ended June 30, 1996, June 30, 1997 and
June 30, 1998 contained no adverse opinion or disclaimer of opinion and it was
not qualified or modified as to uncertainty, audit scope or accounting
principles.
13
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% stockholders
are required by regulations promulgated by the Securities and Exchange
Commission to furnish the Company with copies of all Section 16(a) reports they
file. Based solely on the review of copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that during the fiscal year ended June 30, 1998 the Company's
officers, directors and all persons who own more than 10% of a registered class
of the Company's equity securities complied with all Section 16(a) filing
requirements.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting of Stockholders. If other matters properly come before the meeting, it
is the intention of the persons named in the enclosed form of Proxy to vote the
shares they represent as the Board of Directors may recommend.
TRANSACTION OF OTHER BUSINESS
As of the date of the Proxy Statement, the Board of Directors is not
aware of any other matters other than those set forth herein and in the Notice
or Annual Meeting of Stockholders that will come before the Meeting. Should any
other matters requiring the vote of stockholders arise, it is intended that
proxies will be voted in respect thereto in accordance with the best judgment of
the person or persons voting the proxies.
Please return your proxy as soon as possible. Unless a quorum consisting
of a majority of the outstanding shares entitled to vote is represented at the
meeting, no business can be transacted. Therefore, please be sure to date and
sign your proxy exactly as you name appears on your stock certificate and return
it in the enclosed postage prepaid envelope.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND THE SCHEDULES THERETO, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE COMPANY'S FISCAL YEAR ENDED JUNE 30, 1998, WILL BE FURNISHED
TO THE COMPANY'S STOCKHOLDERS AS OF THE RECORD DATE FOR THE ANNUAL MEETING OF
STOCKHOLDERS, WITHOUT CHARGE, UPON WRITTEN REQUEST. IF YOU DESIRE TO OBTAIN A
COPY OF SUCH ANNUAL REPORT ON FORM 10-K, PLEASE DIRECT SUCH WRITTEN REQUEST TO
PLATINUM SOFTWARE CORPORATION, ATTENTION: INVESTOR RELATIONS, 195 TECHNOLOGY
DRIVE, IRVINE, CALIFORNIA 92618-2402.
THE BOARD OF DIRECTORS
Dated: September 28, 1998
14
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLATINUM SOFTWARE CORPORATION
The undersigned hereby appoints L. George Klaus and Perry Tarnofsky
proxies, with power to act without the other and with power of substitution,
and hereby authorizes them to represent and vote, as designated on the other
side, all the shares of stock of Platinum Software Corporation standing in the
name of the undersigned with all powers which the undersigned would possess if
present at the Annual Meeting of Stockholders of the Company to be held October
28, 1998 or any adjournment thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
FOLD AND DETACH HERE
Please mark
your vote as [X]
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
Item 1 - ELECTION OF DIRECTORS FOR WITHHELD FOR ALL
L. George Klaus Donald Dixon [ ] [ ]
W. Douglas Hajjar L. John Doerr
Arthur J. Marks
WITHHELD FOR: (Write that nominee's name in the space provided below).
Item 2 - APPOINTMENT OF ERNST & YOUNG, L.L.P. AS FOR AGAINST ABSTAIN
INDEPENDENT ACCOUNTANTS [ ] [ ] [ ]
Signature(s) Date
--------------------------------------- ------------------
Note: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
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