SCHEDULE 14A
(Rule 14-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
----------------------
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant toss. 240.14a-11(c) orss. 240.14a-12
VIRAGE, INC.
------------
(Name of Registrant as Specified in Its Charter)
----------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0- 11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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VIRAGE LOGO
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 4, 2002
----------------------------------------------------
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of Virage, Inc., a Delaware corporation ("Virage"), will be
held on Wednesday, September 4, 2002 at 10:00 a.m., local time, at Virage's
headquarters located at 411 Borel Avenue, Suite 100 South, San Mateo, CA 94402,
for the following purposes:
1. To elect two Class II directors for a term of three years and until
their successors are duly elected and qualified.
2. To ratify the appointment by the Board of Directors of the firm Ernst &
Young LLP as Virage's independent accountants for the year ending March
31, 2003.
3. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice of Annual Meeting.
Only holders of record of Virage's common stock at the close of business
on July 24, 2002, the record date, are entitled to vote on the matters listed
in this Notice of Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, please
complete, sign, date and promptly return the enclosed proxy card in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy
card.
By Order of the Board of Directors
of Virage, Inc.
/S/ Paul G. Lego
Paul G. Lego
Chairman of the Board of Directors, President and
Chief Executive Officer
San Mateo, California
August 2, 2002
- --------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
VIRAGE, INC.
-----------------------
PROXY STATEMENT
FOR
2002 ANNUAL MEETING OF STOCKHOLDERS
-----------------------
PROCEDURAL MATTERS
General
This Proxy Statement is being furnished to holders of common stock, par
value $0.001 per share (the "Common Stock"), of Virage, Inc., a Delaware
corporation ("Virage" or the "Company"), in connection with the solicitation of
proxies by the Board of Directors of Virage for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on Wednesday, September 4, 2002
at 10:00 a.m., local time, and at any adjournment or postponement thereof for
the purpose of considering and acting upon the matters set forth herein. The
Annual Meeting will be held at the Company's headquarters located at 411 Borel
Avenue, Suite 100 South, San Mateo, CA 94402. The telephone number at that
location is (650) 573-3210.
This Proxy Statement, the accompanying form of proxy card and the
Company's Annual Report on Form 10-K are first being mailed on or about August
2, 2002 to all holders of Common Stock entitled to vote at the meeting.
Stockholders Entitled to Vote; Record Date
Only holders of record of Virage's Common Stock at the close of business
on July 24, 2002 (the "Record Date") are entitled to notice of and to vote at
the Annual Meeting. Such stockholders are entitled to cast one vote for each
share of Common Stock held as of the Record Date on all matters properly
submitted for the vote of stockholders at the Annual Meeting. As of the record
date, there were 20,754,461 shares of Virage Common Stock outstanding and
entitled to vote at the Annual Meeting. No shares of preferred stock were
outstanding. For information regarding security ownership by management and by
the beneficial owners of more than 5% of Virage's Common Stock, see "Share
Ownership by Principal Stockholders and Management."
Quorum; Required Vote
The presence of the holders of a majority of the shares entitled to vote
is necessary to constitute a quorum at the Annual Meeting. Such holders are
counted as present at the meeting if they (1) are present in person at the
Annual Meeting, or (2) have properly submitted a proxy card. Under the General
Corporation Law of the State of Delaware, an abstaining vote and a broker
"non-vote" are counted as present and entitled to vote and are, therefore,
included for purposes of determining whether a quorum of shares is present at a
meeting.
A plurality of the votes duly cast is required for the election of
directors. A plurality of the votes duly cast means that only affirmative votes
will affect the outcome of the election. Therefore, neither abstentions nor
broker "non-votes" will have any impact on the election of directors.
The affirmative vote of a majority of the votes duly cast is required to
ratify the appointment of auditors. Abstentions are deemed to be "votes cast"
and will have the effect of votes in opposition to ratify the appointment of
auditors. However, broker "non-votes" are not deemed to be "votes cast." As a
result, broker "non-votes" are not included in the tabulation of the voting
results on the election of directors or issues requiring approval of a majority
of the votes cast and, therefore, do not have the effect of votes in opposition
in such tabulations. 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 item and
has not received instructions from the beneficial owner.
1
Voting
Voting by Attending the Meeting. A stockholder may vote his or her shares
in person at the Annual Meeting. A stockholder planning to attend the meeting
should bring proof of identification for entrance to the meeting.
Voting by Proxy Card. All shares entitled to vote and represented by
properly executed proxy cards received prior to the Annual Meeting, and not
revoked, will be voted at the Annual Meeting in accordance with the
instructions indicated on those proxy cards. If no instructions are indicated
on a properly executed proxy card, the shares represented by that proxy card
will be voted as recommended by the Board of Directors. If any other matters
are properly presented for consideration at the Annual Meeting, including,
among other things, consideration of a motion to adjourn the Annual Meeting to
another time or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed proxy card
and acting thereunder will have discretion to vote on those matters in
accordance with their best judgment. The Company does not currently anticipate
that any other matters will be raised at the Annual Meeting. Any proxy card
given pursuant to this solicitation may be revoked by the person giving it at
any time before it is voted at the Annual Meeting. A proxy card may be revoked
(1) by filing with the Secretary of the Company, at or before the taking of the
vote at the Annual Meeting, a written notice of revocation or a duly executed
proxy card, in either case dated later than the prior proxy card relating to
the same shares, or (2) by attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not of itself revoke a proxy).
Any written notice of revocation or subsequent proxy card must be received by
the Secretary of the Company prior to the taking of the vote at the Annual
Meeting. Such written notice of revocation or subsequent proxy card should be
hand delivered to the Secretary of the Company or should be sent to Virage,
Inc., 411 Borel Avenue, Suite 100 South, San Mateo, CA 94402, Attention: Frank
Pao, Corporate Secretary.
Expenses of Solicitation
Virage will bear all expenses of this solicitation, including the cost of
preparing and mailing this proxy material. The Company may reimburse brokerage
firms, custodians, nominees, fiduciaries and other persons representing
beneficial owners of Common Stock for their reasonable expenses in forwarding
solicitation material to such beneficial owners. Directors, officers and
employees of the Company may also solicit proxies in person or by telephone,
letter, email, telegram, facsimile or other means of communication. Such
directors, officers and employees will not be additionally compensated, but
they may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. The Company may engage the services of a professional proxy
solicitation firm to aid in the solicitation of proxies from certain brokers,
bank nominees and other institutional owners. The Company's costs for such
services, if retained, will not be material.
Procedure for Submitting Stockholder Proposals
Requirements for Stockholder Proposals to be Considered for Inclusion in
the Company's Proxy Material. Stockholders may present proper proposals for
inclusion in the Company's proxy statement and for consideration at the next
annual meeting of its stockholders by submitting their proposals in writing to
the Secretary of the Company in a timely manner. In order to be included in the
Company's proxy materials for the 2003 annual meeting of stockholders,
stockholder proposals must be received by the Secretary of the Company no later
than March 28, 2003, and must otherwise comply with the requirements of Rule
14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Requirements for Stockholder Proposals to be Brought Before an Annual
Meeting. In addition, the Company's Bylaws establish an advance notice
procedure for stockholders who wish to present certain matters before an annual
meeting of stockholders. The Company's Bylaws provide that the only business
that may be conducted at an annual meeting is business that is (1) specified in
the notice of meeting given by or at the direction of the Board of Directors,
(2) properly brought before the meeting by or at the direction of the Board of
Directors, or (3) properly brought before the meeting by any stockholder
entitled to vote who has delivered written notice to the Secretary of the
Company within the Notice
2
Period (as defined below), which notice must contain specified information
concerning the matters to be brought before such meeting and concerning the
stockholder proposing such matters.
The "Notice Period" is defined as that period no later than the close of
business on the tenth day following the date on which such notice of the date
of the meeting was mailed or such public disclosure was made. As a result, the
Notice Period for the 2002 Annual Meeting shall end on August 16, 2002.
If a stockholder who has notified the Company of his or her intention to
present a proposal at an annual meeting does not appear to present his or her
proposal at such meeting, the Company need not present the proposal for vote at
such meeting.
A copy of the full text of the Bylaw provisions discussed above may be
obtained by writing to the Secretary of the Company. All notices of proposals
by stockholders, whether or not included in the Company's proxy materials,
should be sent to Virage, Inc., 411 Borel Avenue, Suite 100 South, San Mateo,
CA 94402, Attention: Frank Pao, Corporate Secretary.
3
PROPOSAL ONE
ELECTION OF DIRECTORS
General
The Company's Board of Directors is currently comprised of seven members
who are divided into three classes with overlapping three-year terms. A
director serves in office until his or her respective successor is duly elected
and qualified or until his or her death or resignation. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of an equal number of directors.
Nominees for Class II Directors
Two Class II directors are to be elected at the Annual Meeting for a
three-year term ending in 2005. The Board of Directors has nominated Randall S.
Livingston and William H. Younger, Jr. for election as Class II directors.
Unless otherwise instructed, the proxyholders will vote the proxies received by
them for the election of Mr. Livingston and Mr. Younger. The Company expects
that Mr. Livingston and Mr. Younger will accept such nominations. However, in
the event that the nominees are unable or decline to serve as directors at the
time of the meeting, the proxies will be voted for any nominees designated by
the Board of Directors to fill any vacancies. The term of office of the persons
elected as directors will continue until such directors' term expires in 2005
or until such directors' successor has been elected and qualified. There is no
family relationship among any of our directors or executive officers.
The Board of Directors Recommends a Vote "FOR" the Nominees Listed Above.
Information Regarding Nominees and Other Directors
Nominees for Class II Directors for a Term Expiring in 2005
Name Age Principal Occupation and Business Experience
- ---------------------------------- ----- ---------------------------------------------------------
Randall S. Livingston ............ 48 Chief Financial Officer and Vice President of Business
Affairs At Stanford University. Randall S. Livingston has
served as a director of Virage since May 2001. Mr.
Livingston has been the Vice President of Business Affairs
and Chief Financial Officer of Stanford University since
March 2001. From September 1999 to March 2001 he was
Executive Vice President, Office of the CEO, Chief
Financial Officer and director of OpenTV Corp. From 1996
to 1999 Mr. Livingston was a consultant and part-time
executive for multiple Silicon Valley technology
companies. Mr. Livingston holds a B.S. in Mechanical
Engineering and an M.B.A. from Stanford University. He
currently is a director of the Stanford Management
Company.
William H. Younger, Jr. .......... 52 Managing Director of the General Partner of Sutter Hill
Ventures. William H. Younger, Jr. has served as a director
of Virage since April 1995. Mr. Younger is currently a
managing director of the general partner of Sutter Hill
Ventures, a venture capital management firm, which he
joined in 1981. Mr. Younger currently serves as a director
of Vitria Technology and Omnicell, as well as several
private companies. Mr. Younger holds a B.S.E.E. from the
University of Michigan and an M.B.A. from Stanford
University.
4
Incumbent Class I Directors Whose Terms Expire in 2004
Name Age Principal Occupation and Business Experience
- ---------------------------------- ----- ---------------------------------------------------------
Paul G. Lego .............. 43 President and Chief Executive Officer of the Company. Paul
G. Lego joined Virage in January 1996 as President and
Chief Executive Officer. Mr. Lego also became chairman of
our board of directors in December 1999. From January 1995
to January 1996, Mr. Lego was an associate at Sutter Hill
Ventures, a venture capital firm. From June 1988 to
December 1994, Mr. Lego was the chief operating officer at
Digidesign, a manufacturer of digital audio recording and
editing systems which was acquired by Avid Technology in
January 1995. Mr. Lego has also held various marketing,
manufacturing and engineering positions with Pyramid
Technology Corporation, the General Electric Company and
Digital Equipment Corporation. Mr. Lego holds a B.S. in
electrical engineering from Cornell University and an
M.B.A. from Harvard Business School.
Alar E. Arras ............. 52 Senior Executive Vice President of Audio/Video and
ATLINKS, Thomson multimedia Inc. Alar E. Arras has served
as a director of Virage since July 2001. Mr. Arras had
previously been named Executive Vice President for Audio &
Communications in July 1997. He was appointed Chief
Executive Officer of ATLINKS, the communications product
joint venture with Alcatel, formed in January 2000. From
October 1995 to July 1997, Mr. Arras served as Vice
President for Manufacturing Operations in Asia. Between
1980 and 1995, he held various management positions in the
Audio Division as Vice President of the Audio Division,
Vice President for Home Audio Systems, Hi-Fi General
Manager, Business Development Manager for Audio &
Communications, Market and Audio Manager, Tape Manager,
Market Development Manager and Product Manager. Mr. Arras
is a graduate of Cornell University.
Ronald E.F. Codd .......... 46 Independent Consultant. Ronald E.F. Codd has served as a
director of Virage since January 2001. Mr. Codd served as
President, Chief Executive Officer and Director of
Momentum Business Applications, Inc. from December 1998
through April 2002. From September 1991 through December
1998, Mr. Codd was the Chief Financial Officer of
PeopleSoft, Inc., an enterprise application software
company. In addition, from March 1992 through December
1998, he was Secretary of PeopleSoft, and from November
1993 through December 1998, he was PeopleSoft's Senior
Vice President of Finance and Administration. Prior to
joining PeopleSoft, Mr. Codd was Corporate Controller of
MIPS Computer Systems, Inc., a microprocessor designer and
computer manufacturer, from March 1989 through September
1991. From March 1984 through March 1989, he was Corporate
Controller and Chief Accounting Officer for Wyse
Technology, Inc., a computer and peripheral manufacturer.
Mr. Codd also serves on the Boards of Directors of Adept
Technology, Inc., Intraware, Inc., Interwoven, Inc. and
one private company. He received a B.Sc. in Business
Administration from the University of California, Berkeley
and an M.M. degree from the J.L. Kellogg Graduate School
of Management (Northwestern University).
5
Incumbent Class III Directors Whose Terms Expire in 2003
Name Age Principal Occupation and Business Experience
- ---------------------------------- ----- ---------------------------------------------------------
Philip W. Halperin ........... 39 General Partner of Weston Presidio Capital. Philip W.
Halperin has served as a director of Virage since
September 1999. Mr. Halperin has been a general partner of
Weston Presidio Capital, a venture capital firm, since
October 1993. Mr. Halperin currently serves as a director
of several private companies. Mr. Halperin holds an A.B.
in political science from Stanford University and an
M.B.A. from Harvard Business School.
Standish H. O'Grady .......... 42 Senior Managing Director of Granite Ventures, LLC.
Standish H. O'Grady has served as a director of Virage
since April 1998. Mr. O'Grady is senior managing director
of Granite Ventures, LLC, a venture capital firm that he
co-founded in July 1998. Mr. O'Grady previously served in
various positions with Hambrecht & Quist Group's venture
capital department from 1986 to 1998. Mr. O'Grady
currently serves as a director of Tumbleweed
Communications, as well as several private companies. Mr.
O'Grady holds a B.S.E. in chemical engineering from
Princeton University, and an M.B.A. from Tuck Business
School at Dartmouth College.
Board Meetings and Committees
During the fiscal year ended March 31, 2002, the Board of Directors held
five meetings (including regularly scheduled and special meetings), and no
incumbent directors attended fewer than 75% of the total number of meetings
(subsequent to joining the Board of Directors) of the Board of Directors and of
the committees, if any, of which he was a member, except for Mr. Arras who
joined the Board of Directors in the middle of the past fiscal year and attended
one out of two meetings of the Board of Directors held subsequent to his
appointment during such fiscal year.
The Board of Directors currently has two standing committees: an Audit
Committee and a Compensation Committee. The Board of Directors has no nominating
committee or any committee performing a similar function. The Audit Committee
currently consists of Mr. Codd, Mr. Halperin and Mr. Livingston. The
Compensation Committee currently consists of Mr. Halperin, Mr. O'Grady and Mr.
Younger.
Audit Committee. The Audit Committee, which met four times in the fiscal
year ended March 31, 2002, is primarily responsible for approving the services
performed by the Company's independent auditors and for reviewing and evaluating
the Company's accounting principles and its systems of internal accounting
controls, as well as other matters which may come before it or as directed by
the Board of Directors.
Compensation Committee. The Compensation Committee, which met one time in
the fiscal year ended March 31, 2002, reviews and approves the compensation and
benefits for the Company's executive officers and performs such other duties as
may from time to time be determined by the Board of Directors.
Director Compensation
Directors do not receive cash compensation for service on the Board of
Directors. Directors receive cash compensation for their services as members of
committees of the Board of Directors. These directors receive $1,000 to attend a
committee meeting in person and $500 to attend a committee meeting by telephone
unless the meetings are for a duration of less than one hour, in which case
directors receive no compensation for their attendance. The Company also
reimburses directors for their reasonable expenses incurred in attending
meetings of the Board of Directors and of committees of the Board of Directors.
Directors are eligible to receive options to purchase the Company's Common Stock
pursuant to the
6
Company's 1997 Stock Option Plan (the "1997 Plan"). Each new non-employee
director will receive a nonqualified stock option grant of 30,000 shares of the
Company's Common Stock upon his or her initial election to the Board of
Directors. These option shares vest over a four-year period as follows: 25%
upon the first anniversary of the option grant date with the remainder vesting
ratably on a monthly basis for the 36 months beginning one year after the date
of grant. Each subsequent year thereafter, each individual who is at the time
continuing to serve as a non-employee director is granted an option to purchase
10,000 shares of the Company's Common Stock. These subsequent options vest
ratably on a monthly basis for 24 months beginning on the date of grant. All
options granted to non-employee directors have an exercise price equal to 100%
of the fair market value on the date of grant. To date, the Company has granted
each of the Company's incumbent non-employee directors an option to purchase
the Company's Common Stock in the amount of 40,000 shares for recent directors,
except for one recent director who received no shares, or 45,000 shares for
directors in their positions as of the Company's initial public offering. Audit
Committee members have received an additional grant of 15,000 shares vesting
ratably on a monthly basis for 24 months, in connection with their serving on
the Company's Audit Committee. The total number of options granted to directors
to date total 295,000 shares of Common Stock.
Required Vote
The two nominees receiving the highest number of affirmative votes of the
outstanding shares of our common stock present in person or represented by proxy
and entitled to vote at the Annual Meeting shall be elected as directors of the
Company, whether or not such affirmative votes constitute a majority of the
shares voted. Abstentions and broker non-votes will have no effect on the
outcome of the vote.
7
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Ernst & Young LLP as independent
auditors of the Company to audit the consolidated financial statements of the
Company for the year ending March 31, 2003, and has determined that it would be
desirable to request that the stockholders ratify such appointment.
Ernst & Young LLP has audited our financial statements since April 1995. A
representative of Ernst & Young LLP is expected to be present at the Annual
Meeting with the opportunity to make a statement if he or she desires to do so,
and is expected to be available to respond to appropriate questions. It is the
policy of Ernst & Young LLP to rotate a coordinating audit partner upon the
completion of a certain number of years of service for a client. The audit of
the Company's consolidated financial statements for the year ending March 31,
2003 will be under the coordination of a new engagement partner pursuant to
this policy.
Required Vote
Although stockholder approval is not required for the appointment of Ernst
& Young LLP since the Board of Directors has the responsibility for selecting
auditors, the Board of Directors has conditioned its appointment of the
Company's independent auditors upon the receipt of the affirmative vote of a
majority of the votes duly cast at the Annual Meeting. In the event that the
stockholders do not approve the selection of Ernst & Young LLP, the Board of
Directors will reconsider its selection. The effect of an abstention is the
same as a vote against the ratification of Ernst & Young LLP as our independent
auditors. Broker non-votes are counted towards a quorum, but will have no
effect on the outcome of the vote.
The Board of Directors Recommends a Vote "FOR" This Proposal.
Fee Disclosure
The Company and its Audit Committee have adopted a policy that prohibits
certain types of non-audit services and also restricts the amount and scope of
non-audit services that Ernst & Young LLP can perform for the Company.
Audit Fees. Fees billed by Ernst & Young LLP for professional services
rendered for the audit of the Company's annual financial statements for the
year ended March 31, 2002 and for the reviews of the financial statements
included in the Company's Quarterly Reports on Form 10-Q for that year were
approximately $153,000.
Financial Information Systems Design and Implementation Fees. The Company
did not engage Ernst & Young LLP to provide advice to the Company regarding
financial information systems design and implementation for the fiscal year
ended March 31, 2002.
All Other Fees. This category consists of fees for audit-related services
($35,000) and other services ($103,000). Audit-related services are closely
related to the financial audit process and primarily consist of statutory
audits required by non-U.S. jurisdictions. Other services consist largely of
tax services provided in various countries.
8
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of Virage's Common Stock as of June 30, 2002 for the
following: (1) each person or entity who is known by the Company to own
beneficially more than 5% of the outstanding shares of Company Common Stock,
(2) each of the Company's directors; (3) each of the executive officers named
in the Summary Compensation Table; and (4) all directors and executive officers
of the Company as a group.
Percentage of beneficial ownership is based on 20,754,239 shares of common
stock outstanding as of June 30, 2002.
Common Stock Percentage
Name Beneficially Owned(1) Beneficially Owned
- -------------------------------------------------------------------------- ----------------------- -------------------
5% STOCKHOLDERS:
Paul G. Lego (2) ......................................................... 2,353,642 10.86%
411 Borel Avenue, Suite 100 South
San Mateo, CA 94402
Entities affiliated with D3 Family Fund, L.P. (3) ........................ 2,296,762 11.07%
19605 NE 8th Street
Camas, WA 98607
Entities affiliated with Weston Presidio Capital(4) ...................... 1,483,170 7.13%
Pier 1, Bay 2
San Francisco, CA 94111
William H. Younger, Jr.(5) ............................................... 1,154,087 5.55%
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Paul G. Lego(2) .......................................................... 2,353,642 10.86%
David J. Girouard(6) ..................................................... 186,710 *
Joseph Hyrkin(7) ......................................................... 127,045 *
Michael Lock(8) .......................................................... 602,500 2.82%
Mark K. Rattley(9) ....................................................... 82,400 *
Alar E. Arras(10) ........................................................ 909,190 4.38%
Ronald E. F. Codd(11) .................................................... 30,000 *
Philip W. Halperin(4) .................................................... 1,483,170 7.13%
Randall S. Livingston(12) ................................................ 30,500 *
Standish H. O'Grady(13) .................................................. 154,629 *
Lawrence K. Orr(14) ...................................................... 258,927 1.25%
William H. Younger, Jr.(5) ............................................... 1,154,087 5.55%
All executive officers and directors as a group (13 persons)(15) ......... 8,481,246 35.58%
- ------------
* Less than one percent of the outstanding common stock.
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act and the information is not
necessarily indicative of beneficial ownership for any other purpose.
Under such rule, beneficial ownership includes any shares as to which the
individual or entity has voting power or investment power and any shares
which the individual has the right to acquire within 60 days of June 30,
2002 through the exercise of any stock option or other right. Unless
otherwise indicated in the footnotes, each person or entity has sole
voting and investment power (or shares such powers with his or her spouse)
with respect to the shares shown as beneficially owned.
(2) Includes 916,667 shares subject to options exercisable within 60 days of
June 30, 2002.
9
(3) Includes 2,146,580 shares held by The D3 Family Fund, L.P.; 50,606 shares
held by Haredale, Ltd.; 25,000 shares held by Olivier Roux; 20,000 shares
held by James Henry Hildebrandt; 17,000 shares held by Toxford
Corporation; 10,300 shares held by Florence Cies; 4,000 shares held by
Henry Hooper; 12,276 shares held by The Nierenberg Family 1993 Trust; and
11,000 shares held by The David and Patricia Nierenberg 1993 Irrevocable
Trust. David Nierenberg is a general partner of The D3 Family Fund, L.P.
and disclaims beneficial ownership of the shares held by The D3 Family
Fund, L.P., except to the extent of his proportionate partnership interest
therein. Mr. Nierenberg is an investment manager for Haredale, Ltd.,
Oliver Roux, James Henry Hildebrandt, Toxford Corporation and Florence
Cies and disclaims beneficial ownership of the shares held by Haredale,
Ltd., Oliver Roux, James Henry Hildebrandt, Toxford Corporation and
Florence Cies. Mr. Nierenberg is a trustee of The Nierenberg Family 1993
Trust. Mr. Nierenberg has sole voting and investment power with respect to
the shares held by The D3 Family Fund, L.P., Haredale, Ltd., Oliver Roux,
James Henry Hildebrandt, Toxford Corporation, Florence Cies and The
Nierenberg Family 1993 Trust. Henry Hooper is a general partner of The D3
Family Fund, L.P. and has sole voting and investment power with respect to
the shares held by Henry Hooper. Lawrence Orr is the trustee of The David
and Patricia Nierenberg 1993 Irrevocable Trust and has sole voting and
investment power with respect to the shares held by The David and Patricia
Nierenberg 1993 Irrevocable Trust. Mr. Orr disclaims beneficial ownership
of the shares held by The David and Patricia Nierenberg 1993 Irrevocable
Trust.
(4) Includes 1,379,501 shares held by Weston Presidio Capital III, LLC; 68,669
shares held by Weston Presidio Capital Entrepreneur Fund, L.P.; and 35,000
shares subject to options exercisable within 60 days of June 30, 2002 held
by Philip W. Halperin. Mr. Halperin is a general partner of Weston
Presidio Capital and disclaims beneficial ownership of the shares held by
Weston Presidio Capital III, LLC and Weston Presidio Capital Entrepreneur
Fund, L.P. except to the extent of his proportionate partnership interest
therein.
(5) Includes 942,724 shares held by Sutter Hill Ventures; 7,988 shares held by
Sutter Hill Entrepreneurs Fund (AI), L.P.; 20,227 shares held by Sutter
Hill Entrepreneurs Fund (QP), L.P.; 114,814 shares held by William H.
Younger, Jr., Trustee, The Younger Living Trust; 33,334 shares held by the
retirement trust of William H. Younger, Jr.; and 35,000 shares subject to
options exercisable within 60 days of June 30, 2002 held by Mr. Younger.
Mr. Younger is a managing director of the general partner of Sutter Hill
Ventures, Sutter Hill Entrepreneurs Fund (AI), L.P. and Sutter Hill
Entrepreneurs Fund (QP), L.P. and disclaims beneficial ownership of the
shares held by Sutter Hill Ventures, Sutter Hill Entrepreneurs Fund (AI),
L.P. and Sutter Hill Entrepreneurs Fund (QP), L.P. except to the extent of
his proportionate partnership interest therein.
(6) Includes 140,000 shares subject to options exercisable within 60 days of
June 30, 2002.
(7) Includes 116,791 shares subject to options exercisable within 60 days of
June 30, 2002. As of May 31, 2002, Mr. Hyrkin was no longer an officer of
the Company.
(8) Includes 600,000 shares subject to options exercisable within 60 days of
June 30, 2002.
(9) Includes 80,000 shares subject to options exercisable within 60 days of
June 30, 2002. As of May 31, 2002, Mr. Rattley was no longer an officer of
the Company.
(10) Includes 909,090 shares held by Thomson multimedia Inc. Mr. Arras is the
Senior Executive Vice President of Audio and ATLINKS of Thomson multimedia
Inc. and disclaims beneficial ownership of the shares held by Thomson
multimedia Inc.
(11) Includes 30,000 shares subject to options exercisable within 60 days of
June 30, 2002.
(12) Includes 30,000 shares subject to options exercisable within 60 days of
June 30, 2002. Mr. Livingston joined as a director of the Company in May
2001.
(13) Includes 639 shares held by Granite Ventures LLC; 65,856 shares held by
Adobe Ventures II, L.P.; 19,177 shares held by H&Q Virage Investors, L.P.;
8,630 shares held by H&Q Adobe Ventures Management II, LLC; and 35,000
shares subject to options exercisable within 60 days of June 30, 2002. Mr.
O'Grady is senior managing director of Granite Ventures LLC and a member of
each of
10
the general partners of Adobe Ventures II, L.P., H&Q Virage Investors, L.P.
and H&Q Adobe Ventures Management II, LLC. Mr. O'Grady disclaims beneficial
ownership of the shares held by Granite Ventures LLC, Adobe Ventures II,
L.P., H&Q Virage Investors, L.P. and H&Q Adobe Ventures Management II, LLC
except to the extent of his proportionate partnership interest therein.
(14) Includes 190,241 shares held by Trinity Ventures IV, L.P.; 10,916 shares
held by Trinity IV Side-By-Side Fund, L.P.; 11,626 shares held by
Lederer-Orr Family Trust; 144 shares held by Trinity Management Corp.;
11,000 shares held by The David and Patricia Nierenberg 1993 Irrevocable
Trust; and 35,000 shares subject to options exercisable within 60 days of
June 30, 2002 held by Lawrence K. Orr. Mr. Orr is a general partner of
Trinity Ventures and an officer of Trinity Management Corp., and disclaims
beneficial ownership of the shares held by Trinity Ventures IV, L.P.,
Trinity IV Side-By-Side Fund, L.P. and Trinity Management Corp., except to
the extent of his proportionate partnership interest therein. Mr. Orr is
trustee of The David and Patricia Nierenberg 1993 Irrevocable Trust and
disclaims beneficial ownership of the shares held by The David and Patricia
Nierenberg 1993 Irrevocable Trust. Mr. Orr is a trustee of the Lederer-Orr
Family Trust. Mr. Orr was a director of Virage until July 25, 2002.
(15) Includes 3,085,398 shares subject to options exercisable within 60 days of
June 30, 2002 held by all executive officers and directors as a group. Does
not include the shares and shares subject to options exercisable within 60
days of June 30, 2002 held by either Mr. Hyrkin or Mr. Rattley, both of
whom were no longer officers of the Company as of May 31, 2002.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
executive officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities ("10% Stockholders"), to
file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5
with the Securities and Exchange Commission (the "SEC"). Such executive
officers, directors and 10% Stockholders are also required by SEC rules to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received, or written
representations from certain reporting persons that no filings on Forms 5 were
required for such persons, the Company believes that, during fiscal 2002, its
executive officers, directors and 10% Stockholders complied with all applicable
Section 16(a) filing requirements except as set forth below. Mr. Lego failed to
report the acquisition of 1,057 shares pursuant to a distribution by a venture
capital fund to its limited partners on June 5, 2001. A fully executed Form 4
disclosing such acquisition was subsequently filed for Mr. Lego. Mr. Girouard,
Mr. Horowitz, Mr. Hyrkin, Mr. Langhoff, Mr. Pao and Mr. Rattley did not timely
report the cancellation on February 6, 2002 of various options to purchase
common stock pursuant to the Company's option exchange program. Fully executed
Form 4s disclosing such cancelled options were subsequently filed for Mr.
Girouard, Mr. Horowitz, Mr. Hyrkin, Mr. Langhoff, Mr. Pao and Mr. Rattley.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is currently composed of Mr.
Halperin, Mr. O'Grady and Mr. Younger. No interlocking relationship exists
between any member of the Company's Compensation Committee and any member of
the compensation committee of any other company, nor has any such interlocking
relationship existed in the past. No member of the Compensation Committee is or
was formerly an officer or an employee of the Company.
The Company has entered into indemnification agreements with each of its
directors and officers. Such agreements require the Company to indemnify such
individuals to the fullest extent permitted by law.
11
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning total
compensation received by the Chief Executive Officer and each of the four most
highly compensated executive officers who served as executive officers at March
31, 2002 (the "Named Officers") for services rendered to Virage in all
capacities for the three years ended March 31, 2002:
Long-term
Compensation
Annual Compensation Awards
----------------------------------- --------------
Number of
Shares
Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options Compensation
- -------------------------------------- ------ ------------ ----------- -------------- ----------------
Paul G. Lego ......................... 2002 $250,000 $ -- 200,000 --
President, Chief Executive Officer 2001 250,000 75,000 -- --
and Chairman of the Board 2000 210,000 40,000 500,000 --
David J. Girouard .................... 2002 232,000 24,000 40,000 --
Senior Vice President, Marketing and 2001 205,417 40,000 100,000 --
Corporate Strategy 2000 160,000 40,000 175,000
Joseph A. Hyrkin ..................... 2002 189,583 103,963 30,000 --
Vice President, Strategic Accounts and 2001 160,833 171,611 200,000 --
Asia-pacific Sales 2000 98,333 121,434 87,500 --
Michael H. Lock ...................... 2002 200,000 85,849 20,000 --
Senior Vice President, Worldwide 2001 50,000 43,752 380,000 --
Sales(1) 2000 -- -- -- --
Mark K. Rattley ...................... 2002 186,374 80,059 30,000 190,327(2)
Vice President and General Manager, 2001 181,250 98,016 40,000 --
European Operations(2) 2000 -- -- 200,000 --
- ----------------
(1) Mr. Lock began employment with the Company in January 2001.
(2) Mr. Rattley worked as a consultant of the Company through March 2000. Mr.
Rattley began employment with the Company in April 2000. The amount listed
in the All Other Compensation column is composed of an amount paid to Mr.
Rattley during 2002 in exchange for his assumption of certain potential
foreign tax liabilities related to stock options granted to him.
12
Option Grants in Last Year
The following table sets forth, as to the Named Officers, information
concerning stock options granted during the year ended March 31, 2002.
Individual Options
Potential Realizable Value At
Number of % of Total Assumed Annual Rates of Stock
Shares Options Price Appreciation for
Underlying Granted to Exercise Option Term(4)
Options Employees in Price Per Expiration ---------------------------
Name Granted(1) Year(2) Share Date(3) 5% 10%
- --------------------------- ------------ -------------- ----------- ------------ ----------- -------------
Paul G. Lego .............. 200,000 8.41% $ 4.15 4/27/11 $521,983 $1,322,806
David J. Girouard ......... 40,000 1.68% 4.15 4/27/11 104,397 264,561
Joseph A. Hyrkin .......... 30,000 1.26% 4.15 4/27/11 78,297 198,421
Michael H. Lock ........... 20,000 0.84% 4.15 4/27/11 52,198 132,281
Mark K. Rattley ........... 30,000 1.26% 4.15 4/27/11 78,297 198,421
- ----------------
(1) The options in this table are incentive stock options or nonstatutory stock
options, except as otherwise provided, granted under the 1997 Plan and have
exercise prices equal to the fair market value of the Company's Common Stock
on the date of grant. All of the options reflected in this table have
ten-year terms and, with the exception of the options granted to Paul G.
Lego and Michael H. Lock which vest over a period of two years at a rate of
1/24th each month, all such options vest over a period of four years at a
rate of 1/48th each month.
(2) The Company granted (or assumed) options to purchase 2,377,525 shares of
Common Stock in fiscal year 2002.
(3) The options in this table may terminate before their expiration upon the
termination of the optionee's status as an employee or consultant or upon
the optionee's disability or death.
(4) Under rules promulgated by the SEC, the amounts in these two columns
represent the hypothetical gain or "option spread" that would exist for the
options in this table based on assumed stock price appreciation from the
date of grant until the end of such options' ten-year term at assumed annual
rates of 5% and 10%. Annual compounding results in total appreciation of 63%
(at 5% per year) and 159% (at 10% per year). The 5% and 10% assumed annual
rates of appreciation are specified in SEC rules and do not represent the
Company's estimate or projection of future stock price growth. The Company
does not necessarily agree that this method can properly determine the value
of an option and there can be no assurance that the potential realizable
values shown in this table will be achieved.
13
Option Exercises and Holdings
The following table sets forth, as to the Named Officers, certain
information concerning the number of shares subject to both exercisable and
unexercisable stock options as of March 31, 2002. Also reported are values for
"in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and the fair market
value of the Company's Common Stock as of March 28, 2002, the last trading day
of the 2002 fiscal year.
Aggregated Option Exercises in Last Year
and Year-end Option Values
Number of Shares Underlying Value of Unexercised
Unexercised Options At In-the-money Options At
Shares Year-end Year-end(1)
Acquired On ----------------------------- ----------------------------
Name Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------- ---------------- ------------- --------------- ------------- --------------
Paul G. Lego .............. 38,750 $75,563 616,667 -- -- --
16,666 29,665 -- -- -- --
David J. Girouard ......... -- -- 140,000 -- $57,500 --
Joseph A. Hyrkin .......... -- -- 116,791 -- 16,791 --
Michael H. Lock ........... -- -- 400,000 -- -- --
Mark K. Rattley ........... -- -- 80,000 -- 85,000 --
- ----------------
(1) Market value of underlying securities is based on the closing price of the
Company's Common Stock on March 28, 2002 (the last trading day of the 2002
fiscal year), which was $2.07. For a majority of the options reflected in
this table, the exercise price is higher than the fair market value of the
stock on March 28, 2002.
Stock Option Exchange Program
In November 2001, Virage's Board of Directors approved a Stock Option
Exchange Program. Under this program, all employees (excluding certain
executive officers and all members of the Board of Directors) were given the
opportunity to cancel one or more stock options previously granted to them in
exchange for one or more new stock options to be granted at least six months
and one day from the date the old options are cancelled, provided the
individual is still employed on such date. Generally, only options granted
pursuant to the Company s 1997 Stock Option Plan with an exercise price equal
to or greater than $5.00 per share were eligible for exchange. In addition,
participants in the program were required to also cancel any options granted
during the six months prior to the commencement of the program, irrespective of
the exercise price of such options. The participation deadline for the program
was 9:00 p.m. Pacific Standard Time on February 5, 2002 and the options
tendered for exchange were cancelled on February 6, 2002. Each of these
cancelled options is currently expected to be replaced with a new stock option
in August 2002. The number of shares subject to the new options will be equal
to the number of shares subject to the old options, and the exercise price of
the new options will be the fair market value of Virage Common Stock, as
determined by the closing price reported by the Nasdaq National Market on the
date of grant of the new options. The new options will have the same vesting
schedule as the old options and will be immediately exercisable as to vested
shares when granted. The executive officers of the Company cancelled a total of
1,327,500 shares in the Stock Option Exchange Program with option prices
ranging between $2.50 and $12.00.
14
The following table sets forth certain information with respect to the
participation of the executive officers, including the Named Officers, in
Virage's Stock Option Exchange Program during the fiscal year ended March 31,
2002:
Executive Officer Stock Option Exchange
Market
Date Number of Price of
Original Securities Stock At
Stock Underlying Time of
Options Options Cancellation
Name & Position Cancelled Exchanged (1)
- -------------------------------------- ----------- ------------ --------------
Paul G. Lego(4) ...................... -- -- --
President, Chief Executive Officer
& Chairman of the Board
Alfred J. Castino(4) ................. -- -- --
Vice President, Finance and Chief
Financial Officer
David J. Girouard .................... 2/6/02 200,000 $ 2.36
Senior Vice President, Marketing &
Corporate Strategy
Bradley J. Horowitz .................. 2/6/02 325,000 $ 2.36
Chief Technologist
Joseph A. Hyrkin ..................... 2/6/02 192,500 $ 2.36
Vice President, Strategic Accounts
and Asia-pacific Sales
Andrew P. Langhoff ................... 2/6/02 275,000 $ 2.36
Vice President, Business
Development
Michael H. Lock(4) ................... -- -- --
Senior Vice President, Worldwide Sales
Frank H. Pao ......................... 2/6/02 95,000 $ 2.36
Vice President, Business Affairs
Mark K. Rattley ...................... 2/6/02 240,000 $ 2.36
Vice President and General Manager,
European Operations
Date
Exchange Termination
Exercise Stock New Date of
Price At Time Options Exercise Original
of Granted Price Option At Date
Name & Position Cancellation (2) (3) Cancellation
- -------------------------------------- ----------------- ---------- ---------- -----------------
Paul G. Lego(4) ...................... -- -- -- --
President, Chief Executive Officer
& Chairman of the Board
Alfred J. Castino(4) ................. -- -- -- --
Vice President, Finance and Chief
Financial Officer
David J. Girouard .................... $ 6.00-$11.00 * * 12/1/09-10/26/10
Senior Vice President, Marketing &
Corporate Strategy
Bradley J. Horowitz .................. $ 2.50-$12.00 * * 3/16/10-8/21/11
Chief Technologist
Joseph A. Hyrkin ..................... $ 10.80-$11.875 * * 2/17/10-10/26/10
Vice President, Strategic Accounts
and Asia-pacific Sales
Andrew P. Langhoff ................... $ 8.00-$12.00 * * 1/10/10-10/26/10
Vice President, Business
Development
Michael H. Lock(4) ................... -- -- -- --
Senior Vice President, Worldwide Sales
Frank H. Pao ......................... $ 8.00-$11.00 * * 1/10/10-10/26/10
Vice President, Business Affairs
Mark K. Rattley ...................... $ 6.00-$11.00 * * 12/1/09-10/26/10
Vice President and General Manager,
European Operations
- ----------------
(1) Market price of Common Stock at time of cancellation was the closing price
of our Common Stock on the date of cancellation, February 5, 2002.
(2) New stock options are currently expected to be granted in August 2002.
(3) New exercise price will be determined by using the closing price of our
Common Stock on the date the new stock options are granted.
(4) Paul G. Lego, Alfred J. Castino and Michael H. Lock were not eligible to
participate in the Stock Option Exchange.
15
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
The Company routinely delivers written offer letters containing provisions
on salary, bonuses, benefits and stock option grants to prospective members of
management and other employees. In addition, as of March 31, 2002, the Company
has entered into agreements containing employment and change-in-control
provisions with our Named Officers as described below.
The stock option agreements between Virage and Paul G. Lego, our president
and chief executive officer, in which Mr. Lego was granted options to purchase
802,500 shares of common stock, of which options for 602,500 shares have been
exercised, provide for full acceleration of vesting of all unvested options
upon a change-in-control event in which Mr. Lego is terminated or
constructively dismissed. The stock option agreement between Virage and Mr.
Lego, in which Mr. Lego was granted options to purchase 500,000 shares of
common stock, provides for 50% acceleration of vesting of all unvested options
upon a change-in-control event.
The stock option agreements between Virage and David J. Girouard, our
senior vice president, marketing and corporate strategy, subsequent to his
promotion to an officer of the Company, provide for 50% acceleration of vesting
of all unvested options upon a change-in-control event in which he is
terminated or constructively dismissed.
The stock option agreements between Virage and Michael H. Lock, our senior
vice president, worldwide sales, provide for 50% acceleration of vesting of all
unvested options upon a change-in-control event in which he is terminated or
constructively dismissed.
The stock option agreements between Virage and Joseph A. Hyrkin, our vice
president, strategic accounts and Asia-Pacific sales, subsequent to his
promotion to an officer of the Company, provide for 50% acceleration of vesting
of all unvested options upon a change-in-control event in which he is
terminated or constructively dismissed.
The stock option agreements between Virage and Mark K. Rattley, our vice
president and general manager, European operations, provide for 50%
acceleration of vesting of all unvested options upon a change-in-control event
in which Mr. Rattley is terminated or constructively dismissed and six months
acceleration of vesting of unvested options if he is terminated or
constructively dismissed without cause. In addition, Mr. Rattley receives six
months of his target earnings and benefits if he is terminated without cause.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Membership and Role of the Audit Committee
The Audit Committee consists of the following members of Virage's Board of
Directors: Ronald E.F. Codd, Philip W. Halperin, and Randall S. Livingston.
Each of the members of the Audit Committee is independent as defined under the
National Association of Securities Dealers' listing standards. The Audit
Committee operates under a written charter adopted by the Board of Directors
which is included in this proxy statement as Appendix A and has fulfilled the
responsibilities delineated in this charter.
The primary function of the Audit Committee is to assist the Board of
Directors (the "Board") in fulfilling its financial oversight responsibilities
by reviewing and reporting to the Board upon: the financial reports and other
financial information provided by the Company to any governmental body or to
the public; the Company's systems of internal and external controls regarding
finance, accounting, legal compliance and ethics that management and the Board
have established; and the Company's auditing, accounting and financial
reporting processes in general. The Audit Committee's primary duties and
responsibilities are to: (1) serve as an independent and objective party to
monitor Virage's financial reporting process and internal control system; (2)
review and appraise the audit efforts of Virage's independent accountants; and
(3) provide an open avenue of communication among the independent accountants,
financial and senior management, counsel and the Board of Directors.
16
Quarterly Review
The Audit Committee met following the end of each quarter and prior to the
public release of the Company's financial statements for that quarter. At each
meeting, the Audit Committee reviewed the company's financial results and the
draft press release for publicly reporting results. In addition, the Audit
Committee reviewed the Company's accounting policies for revenue recognition,
cost accruals, reserves and other accounting issues that would have a material
impact on the Company's reported financial results.
Review of Virage's Audited Financial Statements for the Fiscal Year Ended March
31, 2002
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended March 31, 2002 with
Virage's management. The Audit Committee has discussed with Ernst & Young LLP,
the Company's independent public accountants, the matters required to be
discussed by Statement of Auditing Standards No. 61 (Communication with Audit
Committees).
The Audit Committee has also received the written disclosures and the
letter from Ernst & Young LLP required by Independence Standards Board Standard
No. 1 (Independence Discussion with Audit Committees) and the Audit Committee
has discussed the independence of Ernst & Young LLP with that firm.
The Audit Committee has considered the fees paid to Ernst & Young LLP for
non-audit related services and does not feel that these fees compromise Ernst &
Young LLP's independence in performing Virage's audit.
Based upon the reports and discussions described in this Report, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended March 31, 2002.
AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
Ronald E.F. Codd
Philip W. Halperin
Randall S. Livingston
THE FOREGOING AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE "SOLICITING
MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH INFORMATION BE
INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING UNDER THE SECURITIES
ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY
INCORPORATES IT BY REFERENCE INTO SUCH FILING.
17
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board currently consists of Messrs.
Halperin*, O'Grady and Younger. The Compensation Committee of the Board of
Directors generally reviews and approves the Company's executive compensation
policies, including the base salary levels and target incentives for the
Company's executive officers at the beginning of each fiscal year, and approves
the performance objectives of the officers in their areas of responsibility. No
member of the Compensation Committee is a former or current officer or employee
of Virage or any of its subsidiaries. Meetings of the Compensation Committee
are also attended by Mr. Lego, except to the extent his own compensation is
discussed, who provides background and market information and makes
recommendations to the Compensation Committee on salary levels, officer
performance objectives, and corporate financial goals. However, Mr. Lego is not
entitled to vote on any actions taken by the Compensation Committee.
Executive Officer Compensation Programs
The objectives of the executive officer compensation program are to
attract, retain, motivate and reward key personnel who possess the necessary
leadership and management skills, through competitive base salary, annual cash
bonus incentives, long-term incentive compensation in the form of stock
options, and various benefits. The executive compensation policies of the
Compensation Committee are intended to combine competitive levels of
compensation and rewards for above average performance and to align relative
compensation with the achievements of key business objectives, optimal
satisfaction of customers, and maximization of stockholder value. The
Compensation Committee believes that stock ownership by management is
beneficial in aligning management and stockholder interests, thereby enhancing
stockholder value.
Base Salaries. Salaries for the Company's executive officers are
determined primarily on the basis of the executive officer's responsibility,
general salary practices of peer companies and the officer's individual
qualifications and experience. The base salaries are reviewed annually and may
be adjusted by the Compensation Committee in accordance with certain criteria
which include individual performance, the functions performed by the executive
officer, the scope of the executive officer's on going duties, general changes
in the compensation peer group in which the Company competes for executive
talent, and the Company's financial performance generally. The weight given
each such factor by the Compensation Committee may vary from individual to
individual.
Incentive Bonuses. The Compensation Committee believes that a cash
incentive bonus plan can serve to motivate the Company's executive officers and
management to address annual performance goals, using more immediate measures
for performance than those reflected in the appreciation in value of stock
options. The bonus amounts are based upon recommendations by management and a
subjective consideration of factors including such officer's level of
responsibility, individual performance, contributions to the Company's success
and the Company's financial performance generally.
Stock Option Grants. Stock options may be granted to executive officers
and other employees under the 1997 Plan and/or the 2001 Plan. Because of the
direct relationship between the value of an option and the stock price, the
Compensation Committee believes that options motivate executive officers to
manage the Company in a manner that is consistent with stockholder interests.
Stock option grants are intended to focus the attention of the recipient on the
Company's long-term performance which the Company believes results in improved
stockholder value, and to retain the services of the executive officers in a
competitive job market by providing significant long-term earnings potential.
To this end, stock options generally vest and become fully exercisable over a
four-year period. The principal factors considered in granting stock options to
executive officers of the Company are prior performance, level of
responsibility, other compensation and the executive officer's ability to
influence the Company's long-term growth and profitability. However, the 1997
Plan and 2001 Plan do not provide for any quantitative method for weighting
these factors, and a decision to grant an award is primarily based upon a
subjective evaluation of the past as well as future anticipated performance. In
November, 2001, Virage's Board of Directors approved a Stock Option Exchange
Program to give the Company's employees (excluding certain executive officers
and all members of the Board of Directors) the opportunity to exchange certain
18
options previously granted to them under the 1997 Plan for new options to be
granted at least six months and one day from the date the old options are
cancelled, provided the individual is still employed. Please see description
under "Stock Option Exchange Program."
Other Compensation Plans. The Company has adopted certain general employee
benefit plans in which executive officers are permitted to participate on
parity with other employees. The Company also provides a 401(k) deferred
compensation plan.
Deductibility of Compensation. Section 162(m) of the Internal Revenue Code
("IRC") disallows a deduction by the Company for compensation exceeding $1.0
million paid to certain executive officers, excluding, among other things,
performance based compensation. Although, as a result of certain option
exercises, compensation paid to certain executive officers has exceeded this
limitation, applicable exemptions allow the deduction by the Company for such
compensation. Because the compensation paid to other executive officers has not
approached the limitation, the Compensation Committee has not had to use any of
the available exemptions from the deduction limit with regard to such officers'
compensation. The Compensation Committee remains aware of the IRC Section
162(m) limitations, and the available exemptions, and will address the issue of
deductibility when and if circumstances continue to warrant the use of such
exemptions.
Chief Executive Officer Compensation
The compensation of the Chief Executive Officer is reviewed annually on
the same basis as discussed above for all executive officers. Mr. Lego's base
salary for the year ended March 31, 2002 was $250,000. Mr. Lego's base salary
was established in part by comparing the base salaries of chief executive
officers at other companies of similar size. Mr. Lego received a stock option
grant for 200,000 shares and voluntarily relinquished a $38,000 bonus for the
year ended March 31, 2002.
COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Standish H. O'Grady
Lawrence K. Orr*
William H. Younger, Jr.
* Mr. Orr served on the Compensation Committee until July 25, 2002, when
he resigned from the Board of Directors of the Company. He has been replaced on
the Compensation Committee by Mr. Halperin.
THE FOREGOING COMPENSATION COMMITTEE REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH INFORMATION
BE INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING UNDER THE
SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
19
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders
on the Company's Common Stock with the cumulative total return of the NASDAQ
Composite Index and the NASDAQ Computer and Data Processing Services Index. The
graph assumes that $100 was invested on June 29, 2000 (the date of the
Company's initial public offering) in the Company's Common Stock and in each of
the indices discussed above, including reinvestment of dividends. No dividends
have been declared or paid on the Company's Common Stock. Note that historic
stock price performance is not necessarily indicative of future stock price
performance.
[GRAPHIC OMITTED]
6/29/00 3/30/01 3/28/02
------- ------- -------
NASDAQ C&DPS Index 100.00 112.74 114.84
NASDAQ Composite 100.00 47.05 47.38
Virage, Inc. 100.00 12.20 16.00
THE INFORMATION CONTAINED IN THE STOCK PERFORMANCE GRAPH SHALL NOT BE
DEEMED TO BE "SOLICITING MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH
INFORMATION BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE
SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
20
ANNUAL REPORT ON FORM 10-K
A COPY OF VIRAGE'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED MARCH 31,
2002 ACCOMPANIES THIS PROXY STATEMENT. AN ADDITIONAL COPY WILL BE FURNISHED
WITHOUT CHARGE TO BENEFICIAL STOCKHOLDERS OR STOCKHOLDERS OF RECORD UPON
REQUEST TO INVESTOR RELATIONS, VIRAGE, INC., 411 BOREL AVENUE, SUITE 100 SOUTH,
SAN MATEO, CA 94402.
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented
at the Annual Meeting. If any additional matters are properly presented at the
Annual Meeting, the persons named in the enclosed proxy card will have
discretion to vote shares they represent in accordance with their own judgement
on such matters.
It is important that your shares be represented at the Annual Meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
execute and return, at your earliest convenience, the enclosed proxy card in
the envelope which has also been enclosed.
THE BOARD OF DIRECTORS
San Mateo, California
July 26, 2002
21
APPENDIX A
VIRAGE, INC.
AUDIT COMMITTEE CHARTER
I. STATEMENT OF POLICY
This Charter specifies the scope of the Audit Committee's (the
"Committee") responsibilities, and how it carries out those responsibilities,
including the structure, processes, and membership requirements. The primary
function of the Committee is to assist the Board of Directors (the "Board") in
fulfilling its financial oversight responsibilities by reviewing and reporting
to the Board upon: the financial reports and other financial information
provided by the Company to any governmental body or to the public; the
Company's systems of internal and external controls regarding finance,
accounting, legal compliance and ethics that management and the Board have
established; and the Company's auditing, accounting and financial reporting
processes in general. Consistent with this function, the Committee encourages
continuous improvement of, and fosters adherence to, the Company's financial
policies, procedures and practices at all levels.
The Committee's primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the Company's
financial reporting process and internal control systems.
o Review and appraise the audit efforts and independence of the Company's
auditors.
o Provide an open avenue of communication among the independent auditors,
financial and senior management, and the Board.
The Committee will primarily fulfill these responsibilities, and others as
may be prescribed by the Board from time to time, by carrying out the
activities enumerated in Section IV of this Charter.
II. ORGANIZATION AND MEMBERSHIP REQUIREMENTS
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent directors, and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee. A
member of the Committee shall be considered independent if, among other things,
such Director:
a. Is not an employee of the Company or its affiliates and has not been
employed by the Company or its affiliates within the past three
years.
b. Is not a member of the immediate family of an executive officer of
the Company or its affiliates who currently serves in that role or
did so during the past three years.
c. Has not accepted more than $60,000 in compensation from the Company
during the previous fiscal year (excluding compensation and the
related benefits for Board service, retirement plan benefits or
non-discretionary compensation).
d. Has not been a partner, controlling shareholder or an executive
officer of any for-profit business to which the Company made, or
from which it received, payments (other than those which arise
solely from investments in the Company's securities) that exceed
five percent of the Company's consolidated gross revenues for that
year, or $200,000, whichever is more, in any of the past three
years.
e. Is not an executive of another corporation on whose Compensation
Committee any of the Company's current executives serves.
All members of the Committee must be able to read and understand
fundamental financial statements, including a balance sheet, income statement,
and cash flow statement. In addition, at least one member must have past
employment experience in finance or accounting, professional certification in
accounting, or other comparable experience or background resulting in the
individual's financial sophistication, including being or having been a chief
executive, chief financial, or other senior officer with financial oversight
responsibilities.
A-1
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve until their successors
shall be duly elected and qualified. Unless a chairman is elected by the full
Board, the members of the Committee may designate a chairman by majority vote
of the full Committee membership.
III. MEETINGS
As part of its job to foster open communication, the Committee must meet
at least annually with management and the independent auditors in separate
executive sessions to discuss any matters that the Committee or each of these
groups believe should be discussed privately. In addition, the Committee or at
least its Chair should meet with the independent auditors and management
quarterly to review the Company's financial statements consistent with Section
IV.6. below.
IV. PROCESSES
To fulfill its responsibilities and duties the Committee shall:
1. Obtain the Board members' approval of this Charter.
2. Review and reassess the Charter's adequacy periodically, at least annually,
or as conditions dictate.
3. Review the organization's annual audited financial statements and any
reports or other financial information submitted to any governmental body,
or the public, including any certification, report, opinion, or review
rendered by the independent auditors.
4. Review the regular Management Letter to management prepared by the
independent auditors and management's response.
5. Review related party transactions for potential conflicts of interests.
6. Review the interim financial statements with financial management and the
independent auditors prior to the filing of the Company's Form 10-K and
Form 10-Qs. The chairman of the Committee may represent the entire
Committee for purposes of this review. These meetings should include a
discussion of the independent auditors judgment quality of the Company's
accounting and any uncorrected misstatements as a result of the auditors
quarterly review.
7. Maintain written minutes of its meetings, which minutes will be filed with
the minutes of the meetings of the Board.
8. Recommend to the Board the selection of the independent auditors,
considering independence and effectiveness.
9. Obtain from the independent auditors a formal written statement delineating
all relationships between the auditor and the Company, and discussing with
the auditor any disclosed relationships or services that may impact auditor
objectivity and independence (consistent with Independence Standards Board
Standard No. 1).
10. Taking, or recommending that the Board take, appropriate action to oversee
the independence of the outside auditor.
11. Review the performance of the independent auditors and approve any proposed
discharge of the independent auditors when circumstances warrant.
12. Periodically consult with the independent auditors out of the presence of
management about internal controls and the fullness and accuracy of the
Company's financial statements.
13. In consultation with the independent auditors, review the integrity of the
Company's financial reporting processes, both internal and external.
14. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
15. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the
independent auditors or management.
A-2
16. Review with both management and the independent auditors any significant
judgments made in management's preparation of the financial statements and
the view of each as to appropriateness of such judgments.
17. Review with both management and the independent auditors any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required information.
18. Review any significant disagreement among management and the independent
auditors in connection with the preparation of the financial statements.
19. Review with the independent auditors and management the extent to which
changes or improvements in financial or accounting practices, as approved
by the Committee, have been implemented.
20. Provide oversight and review of the Company's asset management policies,
including an annual review of the Company's investment policies and
performance for cash and short-term investments.
21. Ensure that management has set an appropriate corporate "tone" for quality
financial reporting, sound business practices and ethical behavior and
provide management.
22. Ensure that management has the proper review system in place to ensure that
Company's financial statements, reports and other financial information
disseminated to governmental organizations and the public satisfy legal
requirements.
23. Review management's monitoring of compliance with the Foreign Corrupt
Practices Act.
24. Review, with the Company's counsel, legal compliance matters including
corporate securities trading policies.
25. Review, with the Company's counsel, any legal matter that could have a
significant impact on the Company's financial statements.
26. Perform any other activities consistent with this Charter, the Company's
Bylaws and governing law, as the Committee or the Board deems necessary or
appropriate.
27. If necessary, initiate special investigations, and if appropriate, hire
special counsel or experts to assist the Committee.
A-3
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VIRAGE, INC.
ANNUAL MEETING OF STOCKHOLDERS
This Proxy is Solicited On Behalf of the Board of Directors
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and accompanying Proxy Statement each dated August 2, 2002 and
hereby appoints Frank H. Pao as proxy and attorney-in-fact to represent the
undersigned at the Annual Meeting of Stockholders to be held at 411 Borel
Avenue, Suite 100 South, San Mateo, California on September 4, 2002 at 10:00
a.m., local time, and at any adjournments thereof, and to vote the shares of
Common Stock the undersigned would be entitled to vote if personally present,
as indicated below.
1. Election of Directors
[ ] FOR all nominees listed below (except as marked to the contrary
below)
[ ] WITHHOLDING AUTHORITY to vote for all nominees listed below
Randall S. Livingston and William H. Younger, Jr.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
print that nominee's name on the line provided below.)
----------------------------------------------
2. Approval of the appointment of Ernst & Young LLP as independent auditors
of Virage for the year ending March 31, 2003.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The shares of Common Stock represented by this proxy will be voted as
directed; however, if no direction is given, the shares of Common Stock Will be
Voted for the Selection of the Nominees and FOR the approval of the appointment
of Ernst & Young LLP as the independent auditors of the Company.
(Continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
ATTENTION: PLEASE NOTE THAT THIS BOX WILL NOT BE PRINTED. IT IS TO
SHOW THE TEXT POSITION ON THE FRONT OF THIS PROXY CARD.
- --------------------------------------------------------------------------------
(Continued from other side)
If any other business is presented at the meeting, this proxy will be voted by
those named in this proxy in their best judgment. At the present time, the Board
of Directors knows of no other business to be presented at the meeting.
DATED: ________________ , 2002
------------------------------
Signature
------------------------------
Signature if held jointly
(Please date, sign as name
appears at the left, and
return promptly. If the shares
are registered in the names of
two or more persons, each
person should sign. When
signing as Corporate Officer,
Partner, Executor,
Administrator, Trustee or
Guardian, please give full
title. Please note any changes
in your address alongside the
address as it appears in the
proxy.)
- --------------------------------------------------------------------------------
ATTENTION: PLEASE NOTE THAT THIS BOX WILL NOT BE PRINTED. IT IS TO
SHOW THE TEXT POSITION ON THE BACK OF THIS PROXY CARD.