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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
PEGASUS SOLUTIONS, 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.
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[PEGASUS LOGO]
3811 TURTLE CREEK BOULEVARD, SUITE 1100
DALLAS, TEXAS 75219
---------------------
NOTICE OF ANNUAL MEETING
---------------------
Dear Stockholders:
On Tuesday, May 8, 2001, Pegasus Solutions, Inc. will hold its annual
meeting of stockholders at the Crescent Hotel, 400 Crescent Court, Dallas,
Texas. The meeting will begin at 10:00 a.m.
Only stockholders that own stock at the close of business March 15, 2001
can vote at this meeting. At the meeting we will:
1. Elect two Class I Directors to the Board of Directors;
2. Approve amendments to our 1997 Amended Stock Option Plan that
provide for an annual replenishment of the number of shares of common stock
reserved for issuance under the plan, and deletes the right to reprice any
option grant or materially amend the plan without stockholder approval; and
3. Attend to any other business properly brought before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE TWO
PROPOSALS OUTLINED IN THIS PROXY STATEMENT.
By Order of the Board of Directors,
Ric L. Floyd,
Secretary
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD OR VOTE VIA THE INTERNET OR TELEPHONE FOLLOWING THE INSTRUCTIONS ON THE
PROXY CARD.
March 21, 2001
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[PEGASUS LOGO]
3811 TURTLE CREEK BOULEVARD, SUITE 1100
DALLAS, TEXAS 75219
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
----
Questions and Answers....................................... 1
Proposals You May Vote On................................... 4
Nominees for Directors...................................... 5
Directors Continuing in Office.............................. 5
Statement of Corporate Governance........................... 6
Directors' Compensation..................................... 6
Executive Officers.......................................... 7
Executive Compensation...................................... 8
Compensation Committee Report............................... 14
Audit Committee Report...................................... 15
Directors' and Officers' Ownership of Our Common Stock...... 16
Certain Transactions........................................ 17
Stock Performance Graph..................................... 18
Section 16(a) Beneficial Ownership Reporting Compliance..... 18
Independent Accountants..................................... 19
Other Matters............................................... 19
Annual Report............................................... 19
(ii)
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QUESTIONS AND ANSWERS
1. Q:WHY AM I RECEIVING THIS PROXY STATEMENT?
A:Pegasus Solutions, Inc., a Delaware corporation, is furnishing this
proxy statement to stockholders of Pegasus as of March 15, 2001 in
connection with the solicitation of proxies to be voted at Pegasus'
annual meeting of stockholders, or at any adjournment of the meeting,
for the purposes set forth in the accompanying Notice of Annual Meeting
of stockholders. The meeting will be held at the Crescent Hotel, 400
Crescent Court, Dallas, Texas, on Tuesday, May 8, 2001 at 10:00 a.m.,
Dallas, Texas time.
2. Q:WHO IS SOLICITING MY VOTE?
A:Pegasus has engaged American Stock Transfer & Trust Company to solicit
proxies from beneficial owners of shares held in the name of brokers and
other nominees. Pegasus has agreed to pay American Stock Transfer &
Trust Company an estimated $600 per month as a fee and reimburse
American Stock Transfer & Trust Company for expenses related to this
service. Pegasus will bear the cost of solicitation of proxies. In
addition to the use of the mails, proxies may also be solicited by
personal interview, facsimile transmission, and telephone by Directors,
officers, employees, and agents of Pegasus. Pegasus will also supply
brokers, nominees or other custodians with the numbers of proxy forms,
proxy statements, and annual reports they may require for forwarding to
beneficial owners, and Pegasus will reimburse these persons for their
expenses.
3. Q:WHEN WAS THIS PROXY STATEMENT MAILED TO STOCKHOLDERS?
A:This proxy statement was mailed to stockholders on or about April 2,
2001.
4. Q:WHAT MAY I VOTE ON?
A:(1) The election of nominees to serve on the Board of Directors;
(2) The approval of amendments to our 1997 Amended Stock Option Plan
that provide for an annual replenishment of the number of shares of
common stock reserved for issuance under the plan and deletes the
right to reprice any existing option or materially amend the plan
without stockholder approval; and
(3) At the discretion of the persons named in the enclosed form of
proxy, any other matter that may properly come before the meeting or
any adjournment thereof.
5. Q:HOW DOES THE BOARD RECOMMEND I VOTE?
A:(1) The Board recommends a vote FOR each of the nominees to serve on the
Board of Directors.
(2) The Board recommends a vote FOR the approval of amendments to our
1997 Amended Stock Option Plan that provide for an annual
replenishment of the number of shares of common stock reserved for
issuance under the plan and deletes the right to reprice any
existing option or materially amend the plan without stockholder
approval.
6. Q:WHO IS ENTITLED TO VOTE?
A:Stockholders of record at the close of business on March 15, 2001 (the
record date).
7. Q:HOW DO I VOTE?
A:By any one of the following methods:
- By signing, dating and completing the enclosed proxy card and
returning it in the enclosed self-addressed envelope by mail;
- By using the toll free telephone number and following the instructions
for voting by telephone set forth on your proxy card;
- By using the Internet and following the instructions for voting via
the Internet set forth on your proxy card; or
- In person, at the meeting.
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If you hold your shares though a bank, broker or other nominee, they
will give you separate instructions for voting your shares.
8. Q:HOW CAN I REVOKE OR CHANGE MY VOTE?
A:If you have already voted and wish to change or revoke your vote, you
may do so at any time prior to the meeting by any one of the following
methods:
(1) notifying in writing Ric L. Floyd, Secretary, Pegasus Solutions,
Inc., 3811 Turtle Creek Boulevard, Suite 1100, Dallas, Texas 75219;
(2) voting in person at the meeting;
(3) returning a later-dated proxy card stating the vote changes that is
received prior to the meeting; or
(4) subsequently voting by telephone or over the Internet following the
instructions found on your proxy card.
9. Q:WHO WILL COUNT THE VOTE?
A:A representative of our transfer agent, American Stock Transfer & Trust
Company, will count the votes and act as the inspector of the election.
10. Q:IS MY VOTE CONFIDENTIAL?
A:Proxy cards, ballots and voting tabulations of Internet and telephone
votes that identify individual stockholders are mailed or returned
directly to American Stock Transfer & Trust Company and handled in a
manner that protects your voting privacy. Your vote will not be
disclosed except:
(1) as needed to permit American Stock Transfer & Trust Company to
tabulate and certify the vote or
(2) as required by law.
Your identity will be kept confidential unless you ask that your name be
disclosed.
11. Q:HOW MANY SHARES CAN I VOTE?
A:As of the close of business on March 15, 2001, 24,698,089 shares of
common stock were issued and outstanding. Every stockholder is entitled
to one (1) vote for each share of common stock held.
12. Q:WHAT IS A "QUORUM" AND WHAT VOTE IS REQUIRED TO PASS PROPOSALS?
A:A "quorum" is a majority of the outstanding shares. There must be a
quorum for the meeting to be held. The affirmative vote of a plurality
of the shares of outstanding Pegasus common stock represented at the
meeting and entitled to vote is required for the election of Directors.
Cumulative voting is not permitted in the election of Directors.
Approval of the amendment to the 1997 Amended Stock Option Plan will be
decided by a majority of the shares of outstanding common stock
represented at the meeting and entitled to vote. Abstentions and broker
non-votes are each included in the determination of the number of shares
present at the meeting for purposes of determining a quorum. Abstentions
and broker non-votes have no effect on determinations of plurality,
except to the extent that they affect the total votes received by any
particular candidate. Abstentions and broker non-votes have the effect
of negative votes on matters requiring approval of a specified
percentage of the outstanding shares of Pegasus common stock. On a
matter requiring the approval of a specified percentage of outstanding
shares represented at the annual meeting and entitled to vote on the
matter, abstentions will have the effect of negative votes, but broker
non-votes will have no effect since they are not treated as shares
entitled to vote on such matter.
13. Q:WHO CAN ATTEND THE ANNUAL MEETING AND HOW DO I GET ON THE GUEST LIST?
A:All stockholders as of the close of business on March 15, 2001 may
attend. To be included on the guest list, you may check the box on your
proxy card. If your shares are held by a broker and you would like to
attend, please write to Ric L. Floyd, Secretary, Pegasus Solutions,
Inc., 3811 Turtle Creek Boulevard, Suite 1100, Dallas, Texas, 75219.
Include a copy of your brokerage account statement or omnibus proxy
(which you can get from your broker), and we will place your name on the
guest list.
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14. Q:HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A:We do not know of any other business to be considered at the 2001 annual
meeting. If any other business is presented at the annual meeting, your
signed proxy card gives discretionary authority to John F. Davis, III,
Chief Executive Officer, or Ric L. Floyd, Secretary and General Counsel,
to vote on such matters.
15. Q:WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING DUE?
A:All stockholder proposals to be considered for inclusion in next year's
proxy statement must be submitted in writing to Ric L. Floyd, Secretary,
Pegasus Solutions, Inc., 3811 Turtle Creek Boulevard, Suite 1100,
Dallas, Texas 75219 and must be received prior to November 15, 2001, not
less than 120 days prior to the date this year's proxy statement is
mailed. Additionally, the proxy for the annual meeting may confer
discretionary authority to Pegasus to vote on any matter at its 2002
annual meeting of stockholders if Pegasus did not have notice of the
matter at least 45 days before the date on which the registrant first
mailed its proxy materials for its 2002 annual meeting of stockholders.
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PROPOSALS YOU MAY VOTE ON
1. ELECTION OF DIRECTORS
The Company currently has authorized nine Directors with eight Directors
currently holding office. The Directors are divided into three classes with
staggered terms as follows:
- Class I Directors, which include William C. Hammett, Jr., Thomas F.
O'Toole and Paul J. Brown, whose terms will expire at the annual meeting
to be held in 2001.
- Class II Directors, which include Robert B. Collier and Bruce W. Wolff,
whose terms will expire at the annual meeting to be held in 2002.
- Class III Directors, which include Michael A. Barnett, John F. Davis, III
and Jeffrey A. Rich, whose terms will expire at the annual meeting to be
held in 2003.
Vacancies on the Board of Directors or newly created directorships may be
filled by a vote of the majority of the Directors then in office, and any
Director so chosen will hold office until the next election of the class for
which that Director was chosen.
At the annual meeting of stockholders to be held on May 8, 2001, two
Directors will be elected as Class I Directors for terms expiring at the annual
meeting to be held in 2004 and until their respective successors are elected and
qualified. Nominees for election this year are: William C. Hammett, Jr. and
Thomas F. O'Toole. Shares represented by returned and executed proxies will be
voted, unless otherwise specified, in favor of the two nominees for the Board of
Directors named below. If any Director is unable to stand for re-election, the
Board may reduce the Board's size or designate a substitute. If a substitute is
designated, proxies voting on the original Director candidate will be cast for
the substituted candidate. You may withhold authority to vote for any nominee by
marking the proxy as indicated for that purpose on the proxy card.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THESE DIRECTORS.
2. AMENDMENTS TO OUR 1997 AMENDED STOCK OPTION PLAN
The Company's 1997 Amended Stock Option Plan was originally adopted by the
Board of Directors and stockholders on March 25, 1997. It was later amended by
the Board and approved by the stockholders at the 1998, 1999 and 2000 annual
meetings of stockholders. The 1997 plan currently includes a formula to
replenish the number of shares available to grant as options such that, in the
aggregate and taking into account all option plans of the Company, total shares
available will equal 15% of the outstanding shares. This formula does not
provide for a fixed, predictable increase in the shares available for grant each
year, because the formula applies on an aggregate basis.
The Board of Directors has determined that, in order to recruit and retain
key employees, it is necessary that the shares available for grant under the
1997 plan as options be subject to an annual formula providing for a fixed
replenishment of shares. This will permit the Company's future option grants to
be made in accordance with predicted hiring and retention goals. Therefore, on
March 8, 2001, the Board of Directors unanimously approved an amendment to the
1997 plan, subject to stockholder approval, amending the current formula in the
plan that annually replenishes the number of shares available for grant. The
amendment provides for a fixed annual increase in the number of shares available
for grant equal to the lowest of the following: (i) four per cent of the fully
diluted outstanding shares on the last day of the immediately preceding fiscal
year, (ii) four million shares as adjusted from time to time to reflect any
subsequent stock dividends or stock splits or (iii) an amount lower than (i) or
(ii) as determined by the Board of Directors. This amendment continues to
protect against stockholder dilution by limiting the number of shares reserved
for issuance under the plan on an annual basis rather than an aggregate basis
and provides a predictable basis upon which we can meet our hiring and retention
goals.
Additionally, the proposed amendment deletes provisions in the plan
permitting re-pricing of options and prohibits the Board of Directors from
materially amending the plan without stockholder approval.
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The amendment to the 1997 plan will permit the Company to continue to
provide stock-based incentives to attract new employees and retain existing
employees into the foreseeable future.
YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENTS TO OUR 1997
AMENDED STOCK OPTION PLAN.
NOMINEES FOR DIRECTORS
WILLIAM C. HAMMETT, JR., age 54, has served as a director of the Company
since October 1995 and as Chairman of the Board of Directors from May 1998 to
March 2001. From October 1995 to May 1998, Mr. Hammett served as Vice Chairman
of the Board of Directors of the Company. From December 1998 to present, Mr.
Hammett has served as Chairman of the Board of Directors of Electrum
Corporation, a company engaged in the electronic payments business. Since July
1998, Mr. Hammett has served as President of Dogwood Creek Food Systems, Inc., a
private restaurant management company. From September 1997 to July 1998, Mr.
Hammett served as President of DB&K Enterprises, Inc., a private investment
company. From August 1996 through September 1997, Mr. Hammett served as Senior
Vice President and Chief Financial Officer of La Quinta Inns, Inc. From June
1992 to August 1996, Mr. Hammett served as Senior Vice President, Accounting and
Administration of La Quinta.
THOMAS F. O'TOOLE, age 43, has served as a director of the Company since
May 1998. Since October 2000, Mr. O'Toole has served as Senior Vice President,
Marketing and Information Technology for Hyatt Hotels Corporation. From March
1999 to October 2000, Mr. O'Toole served as Senior Vice President, Marketing for
Hyatt. From July 1995 to March 1999, Mr. O'Toole served as Vice President,
Marketing for Hyatt.
DIRECTORS CONTINUING IN OFFICE
MICHAEL A. BARNETT, age 48, has served as a director of the Company since
February 1999. Mr. Barnett has served as Chairman of the Board and Chief
Executive Officer of Benchmark Bank since 1988. Since 1983, Mr. Barnett has
served as President and Chairman of the Board of Barnett Interest, Inc., a
diversified real estate management company. Since 1986, Mr. Barnett has served
as President and Director of Quinlan Bancshares, Inc., a bank holding company.
Since 1984, Mr. Barnett has served as Chairman of the Board of Barnett Lane
Investments, Inc., a real estate investment and management company. Mr. Barnett
also served as a board member of The Hotel Clearing Corporation, a predecessor
of the Company, from 1993 to 1996.
JOHN F. DAVIS, III, age 48, has served as Chief Executive Officer of
Pegasus Solutions, Inc. since February 1989, a Director since July 1995 and
Chairman of the Board since March 2001. Mr. Davis also served as President of
Pegasus from February 1989 to January 2001. Before joining Pegasus, Mr. Davis
was the founder, President and a Director of Advanced Telemarketing Company, a
provider of inbound and outbound telemarketing services. He was also one of the
founders of 1-800-Flowers, LTD, a company offering quality floral arrangements
by telephone.
ROBERT B. COLLIER, age 61, has served as a director of the Company since
July 1998. Since September 1998, Mr. Collier has served as President of RBC
Associates. From January 1997 to September 1998, Mr. Collier held the position
of Vice Chairman of Saison Overseas Holdings, a majority stockholder of Inter-
Continental Hotels and Resorts prior to its acquisition by Bass Hotels and
Resorts. From January 1994 to January 1997, Mr. Collier served as Joint Managing
Director of Inter-Continental. Mr. Collier currently serves as a non-executive
member of the board of directors of a number of hotel, travel technology and
leisure companies in the United Kingdom.
BRUCE W. WOLFF, age 57, has served as a director of the Company since
October 1995. Mr. Wolff has served as Senior Vice President, Distribution Sales
and Marketing for the lodging division of Marriott International, Inc. since
1998. From 1984 to 1998, Mr. Wolff served as Vice President, Distribution, Sales
and Marketing for the lodging division of Marriott.
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JEFFREY A. RICH, age 40, has served as a director of the Company since
December 2000. Mr. Rich has served as Chief Executive Officer and President of
Affiliated Computer Services, Inc., a business process outsourcing company,
since February 1999. From April 1995 to February 1999, Mr. Rich served as
President and Chief Operating Officer of ACS. From July 1989 to April 1995, Mr.
Rich served as Chief Financial Officer of ACS.
STATEMENT OF CORPORATE GOVERNANCE
The Board of Directors held seven meetings in 2000. All Directors attended
at least 75% of the Board meetings and all committee members except as described
below attended at least 75% of the meetings of the Board committees on which
that Director served.
The Board considers all major decisions. The Board has established three
standing committees so that certain areas can be addressed in more depth than
may be possible at a full Board meeting.
Audit Committee. The Audit Committee makes recommendations to the
Board of Directors regarding the selection of independent auditors, reviews
the results and scope of the audit and other accounting related services,
and reviews and evaluates the Company's internal control functions. Members
of the Audit Committee include Michael A. Barnett, William C. Hammett, Jr.
and Thomas F. O'Toole. The Audit Committee met five times during 2000.
Compensation Committee. The Compensation Committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for Pegasus officers and employees and administers our
employee stock purchase plan and stock option plans. Members of the
Compensation Committee include Michael A. Barnett, Robert B. Collier and
William C. Hammett, Jr. The Compensation Committee met three times during
2000.
Nominating Committee. The Nominating Committee makes recommendations
to the Board of Directors regarding nominees for election to the Board of
Directors. Members of the Nominating Committee include Michael A. Barnett,
John F. Davis, III, William C. Hammett, Jr., Thomas F. O'Toole and Bruce W.
Wolff. The Nominating Committee typically does not consider nominees
recommended by stockholders. The Nominating Committee met one time during
2000. Mr. Barnett did not attend this meeting.
DIRECTORS' COMPENSATION
The Chairman of the Board receives $15,000 for each year of service,
payable in quarterly increments. All other Directors receive $10,000 for each
year of service, payable quarterly. Additionally, each Director receives $2,500
for each Board meeting attended and $1,250 for each telephonic Board meeting
attended. Each Director also receives $250 for each committee meeting attended
and $125 for each telephonic committee meeting attended. Each Committee Chairman
receives an additional $250 for each committee meeting attended and an
additional $125 for each telephonic committee meeting attended. Personal
attendance or attendance telephonically at informal Board and committee
gatherings is compensated in the same manner as formal meeting attendance or
telephonic meeting attendance, as the case may be. Directors are also reimbursed
for all reasonable expenses incurred while performing their duties as Directors
of the Company.
Directors also receive stock option grants as follows:
5,000 shares at the closing price on the day preceding the date of
election of the Director. The option grant vests 1/12 of the shares each
quarter during the term of office, vesting in full in three years. The
option grant has a five-year term.
There is an additional 3,000 share grant at the closing price of the
stock on the day preceding each subsequent anniversary date of election to
office. This option grant vests 25% each quarter during that term of
office, vesting in full in one year. These grants have a three-year term.
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EXECUTIVE OFFICERS
The executive officers of Pegasus are as follows:
NAME POSITION
- ---- --------
John F. Davis, III................................... Chief Executive Officer and Chairman
of the Board
Joseph W. Nicholson.................................. President and Chief Operating Officer
Jerome L. Galant..................................... Chief Financial Officer
Mark C. Wells........................................ Executive Vice President and
President and Chief Operating
Officer-Utell
Ric L. Floyd......................................... Executive Vice President, Secretary
and General Counsel
Steve Reynolds....................................... Executive Vice President, Information
Technology
Gary Siegel.......................................... Executive Vice President, Human
Resources
Set forth below is information concerning the business experience of the
executive officers of Pegasus that are not also Directors:
JOSEPH W. NICHOLSON, age 40, has served as the President since January 2001
and Chief Operating Officer since September 1998. From September 1998 to
December 2000, Mr. Nicholson served as Vice President of the Company. From
September 1989 to September 1998, Mr. Nicholson served as the Chief Information
Officer of the Company.
JEROME L. GALANT, age 50, has served as the Chief Financial Officer of
Pegasus since September 1996. From April 1996 to September 1996, Mr. Galant
served as the Chief Financial Officer of Personnel Security & Safety Systems,
Inc., a technology development company. From 1990 to February 1996, Mr. Galant
served in a variety of positions for The SABRE Group, including Managing
Director, Finance.
MARK C. WELLS, age 51, served as a Director of the Company from September
1996 to January 2000. Since January 2000, Mr. Wells has served as Executive Vice
President of the Company. Effective January 2001, Mr. Wells also serves as
President and Chief Operating Officer-Utell. From May 1998 to January 2000, Mr.
Wells served as Senior Vice President, Marketing of Choice Hotels International,
Inc. From February 1996 to May 1998, Mr. Wells served as Senior Vice President,
Franchise Operations for Promus Hotel Corporation.
RIC L. FLOYD, age 49, has served as Secretary and General Counsel of
Pegasus since July 1997 and has served as Executive Vice President of the
Company since December 1999. From July 1995 to July 1997, Mr. Floyd served as
Assistant Secretary and General Counsel of Pegasus. From March 1995 to December
1999, Mr. Floyd served as President of Floyd & Sloan, P.C., a law firm based in
Dallas, Texas.
STEVEN L. REYNOLDS, age 40, has served as Executive Vice President of
Information Technology since April 2000. From September 1998 to April 2000, Mr.
Reynolds served as the Chief Information Officer of the Company. From April 1996
to September 1998, Mr. Reynolds served as Vice President of Technology of the
Company. From November 1992 to April 1996, Mr. Reynolds served as Director of
Systems Development of the Company.
GARY SIEGEL, age 54, has served as Executive Vice President, Human
Resources, of the Company since August 2000. From December 1996 to July 2000,
Mr. Siegel served as Director of Worldwide Human Resource Programs for VeriFone,
an e-commerce division of Hewlett Packard Corporation. From February 1996 to
November 1996, Mr. Siegel served as Director of Corporate Human Resources for
Quaker State Corporation, a motor oil company.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation earned by our Chief Executive Officer and the four other most
highly compensated executive officers. These persons are collectively referred
to as the Named Executive Officers whose salary and bonus for the fiscal year
ended December 31, 2000 were in excess of $100,000.
In accordance with the rules of the Commission, the compensation described
in the following table does not include medical insurance, group life insurance
or other benefits received by the Named Executive Officers that are available
generally to all salaried Pegasus employees. In addition, the compensation
described in the following table may not include certain perquisites and other
personal benefits received by the Named Executive Officers that do not exceed
the lesser of $50,000 or 10% of the officer's salary and bonus disclosed in the
table.
SUMMARY COMPENSATION TABLE
LONG-TERM
AWARDS
ANNUAL COMPENSATION ----------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(#) COMPENSATION(2)
- --------------------------- ---- -------- -------- --------------- ---------- ---------------
John F. Davis, III(3)...... 2000 $400,338 $ 90,002 $8,000 80,000 $ 9,284
Chief Executive Officer 1999 $300,469 $120,188 $8,000 112,500 $10,356
1998 $300,000 $150,000 $8,000 120,000 $10,292
Joseph W. Nicholson(3)..... 2000 $265,137 $ 49,688 $8,000 110,000 $ 3,390
President and Chief 1999 $210,140 $ 73,549 $7,263 75,000 $ 3,269
Operating Officer 1998 $195,833 $ 68,548 $8,000 60,000 $ 3,191
Jerome L. Galant(3)........ 2000 $205,021 $ 38,438 $8,000 20,000 $ 588
Chief Financial Officer 1999 $170,028 $ 51,008 $6,900 26,250 $ 571
1998 $163,625 $ 57,269 $8,000 24,000 $ 546
Mark C. Wells(3)........... 2000 $253,978 $ 47,509 $7,736 100,000 $ 387
Executive Vice President 1999 -- -- -- -- --
and Chief Operating 1998 -- -- -- -- --
Officer-Utell
Ric L. Floyd(3)............ 2000 $200,103 $ 47,509 $8,000 15,000 $ 411
Executive Vice President, 1999(4) $ 50,000 -- -- -- --
Secretary and General 1998 -- -- -- -- --
Counsel
- ---------------
(1) Reflects matching contributions made by Pegasus pursuant to our 401(k) plan.
(2) Reflects premiums paid for life insurance policies for the benefit of the
Named Executive Officers.
(3) The salaries of Messrs. Davis, Nicholson, Galant, Wells and Floyd were paid
in accordance with the terms of their respective employment agreements.
(4) Mr. Floyd became an employee of Pegasus in October 1999.
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Option Grants In Last Fiscal Year. The following table sets forth each
stock option grant made during the year ended December 31, 2000 to the Named
Executive Officers.
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE GRANT DATE
UNDERLYING OPTIONS GRANTED IN PRICE PER EXPIRATION PRESENT
NAME GRANTED(1) 2000(3) SHARE(3) DATE(4) VALUE(5)
- ---- ------------------ ---------- --------- ---------- ----------
John F. Davis, III................. 80,000 5.04% $17.81 05/03/10 $876,488
Joseph W. Nicholson................ 60,000 3.78% $17.81 05/03/10 $657,366
50,000 3.15% $ 7.23 12/15/10 $277,700
Jerome L. Galant................... 20,000 1.26% $17.81 5/3/10 $219,122
Mark C. Wells...................... 39,000 2.46% $22.75 2/2/10 $535,860
61,000 3.45% $17.81 5/3/10 $668,860
Ric L. Floyd....................... 15,000 0.95% $17.81 5/3/10 $164,342
- ---------------
(1) The options vest over a four-year period with 25% of the shares vesting each
year. These options are subject to acceleration upon an acquisition event as
described in our stock option plans.
(2) Based on options to purchase an aggregate of 1,586,450 shares of common
stock granted during 2000.
(3) The exercise prices for options are equal to the closing price of the common
stock as quoted on the Nasdaq National Market on the date immediately
preceding the grant date.
(4) Options may terminate before their expiration date upon the death,
disability or termination of employment of the optionee.
(5) These values are determined using the Black-Scholes Option Pricing Model.
The Black-Scholes Option Pricing Model is one of the methods permitted by
the Securities and Exchange Commission for estimating the present value of
options. The Black-Scholes Option Pricing Model is based on assumptions as
to the variables described below, and it is not intended to estimate and has
no direct correlation to the value of stock options that an individual will
actually realize. The actual value of the stock options that a Named
Executive Officer may realize, if any, will depend on the excess of the
market price on the date of exercise over the exercise price. The values
listed above were based on the following assumptions:
OPTIONS EXPIRING OPTIONS EXPIRING OPTIONS EXPIRING
02/02/10 05/03/10 12/15/10
---------------- ---------------- ----------------
Volatility...................... 76.8% 78.8% 112.9%
Risk free rate of return........ 5.25% 5.25% 5.25%
Dividend Yield.................. 0.0% 0.0% 0.0%
Expected Life (years)........... 4 4 4
Aggregate Fiscal Year-End Option Values. The following table sets forth
information concerning options exercised during 2000 and options held on
December 31, 2000 by our Named Executive Officers whose salary and bonus
exceeded $100,000 for 2000.
NUMBER OF SECURITIES VALUE OF
UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
SHARES AT YEAR-END(#) AT YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
John F. Davis, III.... 45,000 $966,750 386,125 224,375 $1,704,305 $36,250
Joseph W. Nicholson... -- -- 168,750 196,250 $ 689,825 $18,125
Jerome L. Galant...... -- -- 83,665 55,344 $ 263,410 $ 4,531
Mark C. Wells......... 3,000 $ 26,025 4,000 100,000 -- --
Ric L. Floyd.......... 3,199 $ 57,657 8,864 36,375 $ 3,899 --
- ---------------
(1) Based on the difference between the option exercise price and the closing
sale price of the Pegasus common stock as reported on the Nasdaq National
Market on the exercise date.
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(2) Based on the difference between the option exercise price and the closing
sale price of $6.94 of Pegasus common stock as reported on the Nasdaq
National Market on December 29, 2000, the last trading day prior to the
closing of our fiscal year multiplied by the number of shares underlying the
options.
Employment Agreements. Pegasus has an employment agreement with each Named
Executive Officer. Each agreement has a term expiring January 1, 2004. The
agreements provide for annual base salaries, and eligibility to receive a
discretionary annual bonus in accordance with a bonus plan approved by the
Compensation Committee. Additionally, each Named Executive Officer is entitled
to participate in Pegasus' Supplemental Employee Retirement Plan.
Each employment agreement provides that Pegasus may terminate the
executive's employment for cause, upon death or disability. Each of the
executives may terminate the agreement for good reason (as that term is defined
in the agreement). Pegasus may terminate the executive's employment for cause
(as that term is defined in the agreement). Additionally, the executive or
Pegasus may voluntarily terminate the executive's employment at any time upon 30
days prior written notice.
If the executive's employment is terminated by Pegasus for cause or
voluntarily by the executive, Pegasus is obligated to pay the executive all
amounts earned and accrued through the date of termination. If the executive's
employment is terminated by Pegasus for disability, the executive is entitled to
all amounts earned and accrued through the termination date, base salary and a
pro rata bonus for one year and a monthly payment upon reaching age 60 as
provided by the Supplemental Employee Retirement Plan. If the executive's
employment is terminated by Pegasus on account of the executive's death, the
executive is entitled to all amounts earned and accrued through the date of
termination, base salary and a pro rata bonus for one year and a single payment
equal to the executive's total accrued benefit under the Supplemental Employee
Retirement Plan. If the executive's employment is voluntarily terminated by
Pegasus or by the executive for good reason, the Company is obligated to pay
executive the following:
- all accrued compensation and a pro rata bonus;
- base salary and bonus for a period of 24 months following termination;
- customary and usual benefits for 12 months;
- all restrictions on any outstanding stock options granted to executive
shall lapse and the options shall be 100% vested;
- continue for 2 years to contribute to the Supplemental Employee
Retirement Plan for the benefit of executive; and
- reimbursement for outplacement services costs not to exceed $15,000.
Supplemental Employee Retirement Plan. The Board of Directors of Pegasus
has adopted a Supplemental Employee Retirement Plan effective as of January 1,
2000. The purpose of the plan is to provide supplemental retirement benefits to
certain management employees of Pegasus selected by the Compensation Committee.
No person has any automatic right to become a participant in the plan. Benefits
under the plan will become payable to the participant or his or her beneficiary,
as applicable, upon the retirement, death, total and permanent disability or
termination of employment (other than for cause) of the participant. Upon
retirement, total and permanent disability or termination of employment (but
following disability or termination of employment, deferred until age 60), the
participant will receive monthly annuity benefits equal to 3% of his or her
highest average base salary and bonus during a three-year period occurring
within the ten years prior to his or her termination multiplied by his or her
years of service (not to exceed 60% or, in the case of the chief executive
officer, 70% of such highest average salary and bonus). In the event of death,
the beneficiary of the participant will receive a lump sum payment equal to an
actuarially equivalent amount. At the option of the participant, actuarially
equivalent benefits may be paid in the form of a ten-year fixed annuity, or 50%
or 100% annuity for the lifetime of the participant's beneficiary. All amounts
paid under the plan will be paid in cash from the general assets of Pegasus or
other payment arrangement as the Board of Directors may determine. All assets in
such arrangement will be subject to the general creditors of Pegasus.
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The plan is operated as an unfunded deferred compensation arrangement that is
not subject to the annual reporting and disclosure requirements of the Employee
Retirement Income Security Act of 1974. During 2000, the Company accrued a
deferred compensation liability of $536,000 for future payments to John F. Davis
III, Joseph W. Nicholson, Jerome L. Galant and Ric L. Floyd.
DESCRIPTION OF THE 1997 AMENDED STOCK OPTION PLAN
The following description of the 1997 Amended Stock Option Plan is
qualified in its entirety by reference to the full text of the 1997 plan, a copy
of which is attached as Appendix "A" to this proxy statement in the form as
amended pursuant to Proposal Number 2 to amend the plan.
Scope. The 1997 plan is designed to attract and retain qualified and
competent personnel and to provide additional incentive to employees,
consultants and non-employee directors of Pegasus. Options granted under the
1997 plan may be incentive stock options or non-qualified stock options, as
determined by the Administrator (as defined below) at the time of grant and
subject to the applicable provisions of the Internal Revenue Code of 1986, as
amended (referred to as the Code). If an option granted under the 1997 plan
expires or becomes unexercisable without having been exercised in full, or is
otherwise surrendered, the unpurchased shares may be available for future grants
or sale under the 1997 plan. The 1997 plan will terminate on March 25, 2007.
Eligibility. Persons eligible to participate in the 1997 plan include all
employees, consultants and non-employee directors of Pegasus. As of February 28,
2001, Pegasus has seven non-employee directors and 2,032 employees.
Non-qualified stock options may be granted to employees, consultants and
non-employee directors. Incentive stock options may be granted only to
employees. During any fiscal year, not more than 500,000 stock options may be
awarded to any one employee.
Administration. The 1997 plan may be administered by the Board of
Directors or a committee appointed by the Board (the "Administrator").
Currently, the Compensation Committee of the Board is the Administrator. The
Administrator has the authority to grant options under the 1997 plan and to
determine the vesting schedule and the exercise price of the options. The
Administrator also has full power and authority to construe, interpret and
administer the 1997 plan.
Option Exercise Price. The exercise price per share for the shares to be
issued pursuant to exercise of an option under the 1997 plan is determined by
the Administrator. The 1997 plan requires that the exercise price per share be
at least 100% of the fair market value, with the following limited exceptions.
First, incentive stock options awarded to an employee who owns more than 10% of
the voting power of all classes of stock of Pegasus must have an exercise price
of at least 110% of the fair market value on the date of grant. Second, non-
qualified stock options may be granted for not less than 85% of the fair market
value of the common stock on the date of grant if the grant is made to an
employee expressly in lieu of a reasonable amount of salary or cash bonus.
Pursuant to the amendments recently approved by the Board of Directors and
subject to stockholder approval, the plan prohibits any repricing of outstanding
options. For amendments to the 1997 plan approved by the Board, see "Proposals
You May Vote On -- Amendments to Our 1997 Amended Stock Option Plan."
Shares Reserved for Issuance Under the Plan. Pursuant to the amendments
recently approved by the Board of Directors, the number of shares which may be
optioned and sold under the plan will be replenished annually by an amount equal
to the lowest of the following: (i) four percent of the fully diluted
outstanding shares on the last day of the immediately preceding fiscal year,
(ii) four million shares as adjusted from time to time to reflect any subsequent
stock dividends or stock splits, or (iii) an amount lower than (i) or (ii) as
determined by the Board of Directors. For amendments to the 1997 plan approved
by the Board, see "Proposals You May Vote On -- Amendments to Our 1997 Amended
Stock Option Plan."
Adjustments, Terminations and Amendment. In the event of any change in
Pegasus's capitalization, including any stock split, reverse stock split, stock
dividend, combination or reclassification of the common stock, or any other
increase or decrease in the number of issued shares of common stock effected
without receipt of consideration by Pegasus, appropriate adjustments will be
made to the number of shares available under the 1997 plan as well as the price
per share of common stock covered by each outstanding option. Upon
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the occurrence of an acquisition event ("Acquisition Event") which shall mean
(i) certain mergers or consolidations of Pegasus with or into another
corporation; (ii) the sale of substantially all of the assets of Pegasus; (iii)
the complete liquidation of Pegasus; or (iv) the acquisition by another entity
of beneficial ownership of Pegasus's securities representing 50% or more of the
combined voting power of Pegasus's then outstanding securities, the Board of
Directors of Pegasus may (x) provide that each outstanding option shall be
assumed and/or an equivalent option be substituted by the successor corporation
or an affiliate thereof; (y) upon written notice to the optionees, provide that
all options then unexercised will become exercisable in full as of a specified
date prior to the Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event; or (z) if holders of common stock will
receive a cash payment for each share of common stock surrendered, provide that
all outstanding options shall terminate upon consummation of such Acquisition
Event, and each optionee shall receive, in exchange therefore, a cash payment
equal to the amount (if any) by which the acquisition price multiplied by the
number of shares of common stock subject to such outstanding Options (whether or
not then exercisable), exceeds the aggregate exercise price of such options. The
1997 plan may be suspended, terminated, altered or amended in any way by the
Board of Directors, except where stockholder approval of any plan amendment is
required by applicable provisions of the Securities Exchange Act of 1934, as
amended (the "Act"), the Code, any stock exchange rules, or other legal or
regulatory requirements. Furthermore, pursuant to the amendments recently
approved by the Board of Directors and subject to stockholder approval, there
may be no material amendment of the plan without stockholder approval. For
amendments to the 1997 plan approved by the Board, see "Proposals You May Vote
On -- Amendments to Our 1997 Amended Stock Option Plan." No suspension,
termination, alteration or amendment of the 1997 plan may alter or impair the
rights of any optionee under options previously granted.
For additional information concerning options granted to or held by
executive officers and Directors of Pegasus, see "Executive Compensation."
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the federal income tax consequences of the 1997
plan is not comprehensive and is based on current income tax laws, regulations
and rulings.
Incentive Stock Options. An optionee does not recognize income on the
grant of an ISO. Subject to the effect of the alternative minimum tax, discussed
below, if an optionee exercises an ISO and does not dispose of the shares
acquired within two years from the date of the grant of the option nor within
one year from the date of exercise, the optionee will not realize any income by
reason of the exercise and Pegasus will be allowed no deduction by reason of the
grant or exercise. The optionee's basis in the shares acquired upon exercise
will be the amount paid upon exercise. Provided the optionee holds the shares as
a capital asset at the time of sale or other disposition of the shares, his gain
or loss, if any, recognized on the sale or other disposition will be capital
gain or loss. The amount of his gain or loss will be the difference between the
amount realized on the disposition of the shares and his basis in the shares.
If an optionee disposes of the shares within two years from the date of
grant of the option or within one year from the date of exercise, referred to as
an Early Disposition, the optionee will realize ordinary income at the time of
such Early Disposition which will equal the excess, if any, of the lesser of (i)
the amount realized on the Early Disposition, or (ii) the fair market value of
the shares on the date of exercise, over the optionee's basis in the shares.
Pegasus will be entitled to a deduction in an amount equal to such income. The
excess, if any, of the amount realized on the Early Disposition of such shares
over the fair market value of the shares on the date of exercise will be
long-term or short-term capital gain, depending upon the holding period of the
shares, provided the optionee holds the shares as a capital asset at the time of
Early Disposition. If an optionee disposes of such shares for less than his
basis in the shares, the difference between the amount realized and his basis
will be a long-term or short-term capital loss, depending upon the holding
period of the shares, provided the optionee holds the shares as a capital asset
at the time of disposition.
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The excess of the fair market value of the shares at the time the ISO is
exercised over the exercise price for the shares is an amount included in an
optionee's alternative minimum taxable income, referred to as the Stock Option
Preference.
Non-qualified Stock Options. Non-qualified stock options do not qualify
for the special tax treatment accorded to ISO's under the Code. Although an
optionee does not recognize income at the time of the grant of the option, he
recognizes ordinary income upon the exercise of a non-qualified option in an
amount equal to the difference between the fair market value of the stock on the
date of exercise of the option and the amount of the exercise price.
As a result of the optionee's exercise of a non-qualified stock option,
Pegasus will be entitled to deduct as compensation an amount equal to the amount
included in the optionee's gross income. Pegasus's deduction will be taken in
Pegasus's taxable year in which the option is exercised.
Taxation of Preference Items. Section 55 of the Code imposes an
alternative minimum tax equal to the excess, if any, of (i) 26% of the
optionee's "alternative minimum taxable income" that does not exceed $175,000,
plus 28% of his "alternative minimum taxable income" in excess of $175,000, over
(ii) his "regular" federal income tax. Alternative minimum taxable income is
determined by adding the optionee's Stock Option Preference and any other items
of alternative minimum taxable income to the optionee's adjusted gross income
and then subtracting certain allowable deductions and an exemption amount. The
exemption amount is $33,750 for single taxpayers, $45,000 for married taxpayers
filing jointly, and $22,500 for married taxpayers filing separately. However,
these exemption amounts are phased out beginning at certain levels of
alternative minimum taxable income.
Change of Control. If there is an acceleration of the vesting of benefits
and/or an acceleration of the exercisability of stock options upon a Change of
Control (as defined in the 1997 plan), all or a portion of the accelerated
benefits may constitute "excess parachute payments" under Section 280G of the
Code. The employee receiving an excess parachute payment incurs an excise tax of
20% of the amount of the payment in excess of the employee's average annual
compensation over the five calendar years preceding the year of the Change of
Control, and Pegasus is not entitled to a deduction for such payment.
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COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board generally makes decisions on
compensation of our executive officers. Each Compensation Committee member is an
independent non-employee Director. The Board reviews all Compensation Committee
decisions relating to compensation of our executive officers. The Compensation
Committee makes decisions with respect to awards under Pegasus' stock option
plans for such awards to satisfy Securities Exchange Act Rule 16b-3. No member
of the Compensation Committee was at any time during 2000, or at any other time,
an officer or employee of Pegasus. Furthermore, there were no Compensation
Committee "interlocks" with any other company within the meaning of the
Securities Act of 1933. The Compensation Committee's report addressing our
executive compensation policies for 2000 is set forth below.
The Compensation Committee's executive compensation policies are designed
to:
- provide competitive levels of compensation that integrate pay with
Pegasus' annual and long-term performance goals
- reward above average corporate performance
- recognize individual initiative and achievements
- attract and retain qualified executives.
We believe stock ownership by management and performance-based compensation
arrangements are beneficial in aligning management's interests with those of our
stockholders. In addition to stock-based awards in the form of stock option
grants, each of our executive officers receives an annual base salary and is
eligible to receive an annual bonus. The Compensation Committee determines
annual bonuses based on a percentage of the executive's annual salary and
established financial and other corporate goals. An executive's bonus increases
to the extent established goals are exceeded up to a maximum amount per year.
Targeted levels of total executive compensation are generally set at levels we
believe to be consistent with others in Pegasus' industry. Actual compensation
levels in any particular year may be above or below those of our competitors
depending on the executive's or Pegasus' performance.
2000 Chief Executive Officer Compensation. Mr. Davis' compensation for
2000 as Chief Executive Officer of Pegasus principally consisted of a base
salary, bonus and stock options. The Compensation Committee determined Mr.
Davis' 2000 base salary, bonus and stock option grant based upon the terms of
his employment agreement and the factors discussed above relating to executive
compensation in general. Mr. Davis also received matching contributions under
Pegasus' 401(k) plan and Pegasus pays for life insurance premiums on Mr. Davis'
behalf. Mr. Davis does not participate in the Compensation Committee's decision
regarding his compensation.
Limit on Deductibility of Executive Compensation. In 1993, Congress
amended the Internal Revenue Code to add Section 162(m). This Section of the
Internal Revenue Code limits the deductibility of compensation paid to specified
executive officers to $1,000,000 per officer in any one year. Compensation that
qualifies as performance based compensation is not taken into account for the
purposes of this limitation. Pegasus obtained stockholder approval at the 1999
annual meeting of an amendment to the 1997 plan to allow Pegasus to deduct the
compensation expense paid upon the exercise of stock options granted under the
1997 plan even if the compensation paid to any of the Named Executive Officers
exceeds the deductible limit. The Compensation Committee intends to recommend
further action in connection with Pegasus' other benefit plans and salary and
bonus policies to address this issue if and when circumstances arise.
Submitted by the Compensation
Committee
of the Board of Directors
Robert B. Collier, Chairman
Michael A. Barnett
William C. Hammett, Jr.
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AUDIT COMMITTEE REPORT
The Board of Directors maintains an Audit Committee comprised of three of
the Company's outside directors. The Board of Directors and the Audit Committee
believe that the Audit Committee's current member composition satisfies the rule
of the National Association of Securities Dealers, Inc. ("NASD") that governs
audit committee composition, including the requirement that, subject to certain
exceptions, audit committee members all be "independent directors" as that term
is defined by NASD Rule 4200 (a)(14).
The Audit Committee oversees the Company's financial process on behalf of
the Board of Directors and reviews the independence of the Company's auditors.
Management has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls. The committee
reviewed and discussed the audited financial statements included in Pegasus'
Annual Report on Form 10-K for the 2000 fiscal year with management. The Board
has adopted a written Charter of the Audit Committee, a copy of which is
attached as Appendix B hereto.
The committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the acceptability and quality, of the Company's accounting principles and such
other matters as are required to be discussed with the committee under generally
accepted auditing standards, including Statement on Auditing Standards No. 61.
In addition, the committee has discussed with the independent auditors the
auditors' independence from Pegasus and its management, including the matters in
the written disclosures and the letter received by Pegasus from the independent
accountants required by the Independence Standards Board, Standard No. 1.
The committee discussed with Pegasus' independent auditors the overall
scope and plans for their audit. The committee meets with the independent
auditors, with and without management present, to discuss the results of their
examination, their evaluation of Pegasus' internal controls, and the overall
quality of the Company's financial reporting. The committee held five meetings
during fiscal 2000.
Audit Fees. Fees for the fiscal year 2000 audit and the review of the
Company's 2000 Forms 10-Q are $547,000, of which an aggregate amount of $381,000
has been billed through December 31, 2000. Fees for the fiscal year 1999 audit
billed in 2000 amounted to $47,920.
Financial Information Systems Design and Implementation
Fees. PricewaterhouseCoopers LLP did not render any services related to
financial information systems design and implementation for the fiscal year
ended December 31, 2000.
All Other Fees. Aggregate fees billed for all other services rendered by
PricewaterhouseCoopers LLP for the fiscal year ended December 31, 2000 are
$1,147,000.
In reliance of the reviews and discussions referred to above, the Audit
Committee recommended that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000
for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee of
the Board of Directors
Thomas F. O'Toole, Chairman
Michael A. Barnett
William C. Hammett, Jr.
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DIRECTORS' AND OFFICERS' OWNERSHIP OF OUR COMMON STOCK
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 15, 2001, for:
- each person who is known by us to beneficially own more than 5% of the
outstanding shares of our common stock;
- each of our Directors;
- each of our Named Executive Officers; and
- all of our Directors and executive officers as a group.
The percentages of shares owned provided in the table is based on
24,698,089 shares outstanding as of March 15, 2001. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, the persons named in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. The determination of whether these persons
have sole voting and investment power is based on information provided by them.
In computing an individual's beneficial ownership, the number of shares of
common stock subject to options held by that individual that are exercisable
within 60 days of March 15, 2001 are also deemed outstanding. These shares,
however, are not deemed outstanding for the purpose of computing the beneficial
ownership of any other person.
SHARES BENEFICIALLY
OWNED
-------------------
NAME NUMBER PERCENT
- ---- --------- -------
FMR Corp(1)................................................. 3,405,890 13.79%
Lord Abbett & Co(2)......................................... 2,039,269 8.26%
Blum Capital Partners LP(3)................................. 1,946,500 7.88%
Michael A. Barnett(4)....................................... 6,166 0.02%
Paul J. Brown(5)............................................ 6,000 0.02%
Robert B. Collier(6)........................................ 10,600 0.04%
John F. Davis, III(7)....................................... 598,718 2.42%
Ric L. Floyd(8)............................................. 46,205 0.19%
Jerome L. Galant(9)......................................... 131,660 0.53%
William C. Hammett, Jr.(10)................................. 24,265 0.10%
Joseph W. Nicholson(11)..................................... 305,882 1.24%
Thomas F. O'Toole(12)....................................... 9,000 0.04%
Steve Reynolds(13).......................................... 61,187 0.25%
Jeffrey A. Rich(14)......................................... 5,416 0.02%
Gary Siegel................................................. -- --
Mark C. Wells(15)........................................... 37,937 0.15%
Bruce W. Wolff(16).......................................... 15,000 0.06%
Directors and executive officers as a group (14
persons)(17).............................................. 1,258,036 5.09%
- ---------------
(1) Information obtained from a filing with the Securities and Exchange
Commission with an effective date of December 31, 2000. The address of FMR
Corp is 82 Devonshire Street, Boston, Massachusetts 02109.
(2) Information obtained from a filing with the Securities and Exchange
Commission with an effective date of December 31, 2000. The address of Lord
Abbett & Co is 90 Hudson Street, Jersey City, NJ 07302.
(3) Information obtained from a filing with the Securities and Exchange
Commission with an effective date of December 31, 2000. The address of Blum
Capital Partners LP is 909 Montgomery Street, Suite 400, San Francisco, CA
94133.
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(4) Includes exercisable options held by Mr. Barnett to purchase 4,249 shares
of common stock and options exercisable within 60 days of March 15, 2001 to
purchase 1,917 shares of common stock.
(5) Includes exercisable options held by Mr. Brown to purchase 3,750 shares of
common stock and options exercisable within 60 days of March 15, 2001 to
purchase 2,250 shares of common stock.
(6) Includes exercisable options held by Mr. Collier to purchase 6,750 shares
of common stock and options exercisable within 60 days of March 15, 2001 to
purchase 2,250 shares of common stock.
(7) Includes exercisable options held by Mr. Davis to purchase 552,656 shares
of common stock and options exercisable within 60 days of March 15, 2001 to
purchase 34,531 shares of common stock.
(8) Includes exercisable options held by Mr. Floyd to purchase 38,346 shares of
common stock and options exercisable within 60 days of March 15, 2001 to
purchase 6,610 shares of common stock.
(9) Includes exercisable options held by Mr. Galant to purchase 119,984 shares
of common stock and options exercisable within 60 days of March 15, 2001 to
purchase 9,547 shares of common stock.
(10) Includes exercisable options held by Mr. Hammett to purchase 9,750 shares
of common stock and options exercisable within 60 days of March 15, 2001 to
purchase 2,250 shares of common stock.
(11) Includes exercisable options held by Mr. Nicholson to purchase 282,187
shares of common stock and options exercisable within 60 days of March 15,
2001 to purchase 23,438 shares of common stock.
(12) Includes exercisable options held by Mr. O'Toole to purchase 6,750 shares
of common stock and options exercisable within 60 days of March 15, 2001 to
purchase 2,250 shares of common stock.
(13) Includes exercisable options held by Mr. Reynolds to purchase 50,351 shares
of common stock and options exercisable within 60 days of March 15, 2001 to
purchase 9,250 shares of common stock.
(14) Includes exercisable options held by Mr. Rich to purchase 416 shares of
common stock.
(15) Includes exercisable options held by Mr. Wells to purchase 16,750 shares of
common stock and options exercisable within 60 days of March 15, 2001 to
purchase 17,687 shares of common stock.
(16) Includes exercisable options held by Mr. Wolff to purchase 9,750 shares of
common stock and options exercisable within 60 days of March 15, 2001 to
purchase 2,250 shares of common stock.
(17) Includes exercisable options held by Messrs. Barnett, Brown, Collier,
Davis, Floyd, Galant, Hammett, Nicholson, O'Toole, Reynolds, Rich, Wells,
Wolff as a group to purchase 1,101,689 shares of common stock and options
exercisable within 60 days of March 15, 2001 to purchase, as a group,
114,230 shares of common stock.
CERTAIN TRANSACTIONS
Mr. Wolff is a Director of Pegasus and serves as Senior Vice President,
Distribution, Sales and Marketing for the lodging division of Marriott
International, Inc. In 2000, Pegasus received $3,098,024 from Marriott or its
affiliates for electronic distribution, business intelligence, commission
processing and property management system services and paid Marriott $1,824,802
for consolidating commission data and funds from its properties.
Mr. O'Toole is a Director of Pegasus and serves as Senior Vice President,
Marketing with Hyatt Hotels Corporation. In 2000, Pegasus received $1,217,549
from Hyatt for electronic distribution and commission processing services.
Prior to becoming an officer of Pegasus, Mr. Wells was a Director of
Pegasus and served as Senior Vice President, Marketing with Choice Hotels
International. In 2000, Pegasus received $787,333 from Choice or its affiliates
for electronic distribution and commission processing services. During 2000,
Pegasus paid Choice or its affiliates $104,782 for consolidating commission data
and funds from its properties.
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STOCK PERFORMANCE GRAPH
Research Data Group, Inc. prepared the following graph. It shows how an
initial investment of $100 in Pegasus common stock on August 7, 1997 (the date
of our initial public offering) would have compared to an equal investment in
The Russell 2000 Composite Stock Market Index, in the JP Morgan H & Q
Information Services Index.
COMPARISON OF 40 MONTH CUMULATIVE TOTAL RETURN*
AMONG PEGASUS SOLUTIONS, INC., THE RUSSELL 2000 INDEX
AND THE JP MORGAN H & Q INFORMATION SERVICES INDEX
[PERFORMANCE GRAPH]
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
8/7/97 12/97 12/98 12/99 12/00
- --------------------------------------------------------------------------------
PEGASUS SOLUTIONS, INC. 100.00 76.29 184.26 309.31 75.96
RUSSELL 2000 100.00 106.10 103.40 125.38 109.60
JP MORGAN H&Q
INFORMATION SERVICES 100.00 107.46 178.79 291.14 193.23
* $100 INVESTED ON 8/7/97 IN STOCK OR INDEX -- INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
We believe that, during the year ended December 31, 2000, none of our
Directors, officers and 10% stockholders failed to comply on a timely basis
reports required by complied with the requirements of Section 16(a) of the
Securities and Exchange Act. This belief is based on our review of forms filed
with the Securities Exchange Commission or written notice provided to Pegasus
that no forms were required.
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INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP served as our independent accountants for the
year ended December 31, 2000 and is expected to serve in that capacity for the
current year. Representatives of PricewaterhouseCoopers LLP are expected to be
present at the annual meeting, will have the opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions
presented at the annual meeting.
OTHER MATTERS
We do not know of any matter other than those discussed in the foregoing
materials contemplated for action at the annual meeting. Should any other matter
be properly brought before the annual meeting, it is the intention of the
persons named in the proxies to vote in accordance with the recommendation of
the Board. Discretionary authority for them to do so is contained in the proxy.
ANNUAL REPORT
We will provide a copy of our 2000 Annual Report on Form 10-K without
charge to any stockholder who makes a written request to Ric L. Floyd,
Secretary, Pegasus Solutions, Inc., 3811 Turtle Creek Boulevard, Suite 1100,
Dallas, Texas 75219.
By Order of the Board of Directors,
RIC L. FLOYD
Secretary
March 21, 2001
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APPENDIX A
PEGASUS SOLUTIONS, INC.
1997 AMENDED STOCK OPTION PLAN
WHEREAS, the Board of Directors and the stockholders of Pegasus Solutions,
Inc. (the "Company") adopted the Amended 1997 Stock Option Plan on March 25,
1997, and the stockholders of the Company approved amendments to the Amended
1997 Stock Option Plan at annual meetings during 1998, 1999 and 2000; and
WHEREAS, the Company desires to amend and restate the 1997 Stock Option
Plan in its entirety, such amended and restated Plan (the "Plan") to be
effective upon approval of the shareholders of the Company at the 2001 annual
meeting of stockholders;
NOW, THEREFORE, the provisions of the amended and restated Plan shall be as
follows:
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and any Parent or Subsidiary, to compensate Non-Employee Directors
of the Company and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code and the
regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or the Compensation Committee
appointed by the Board.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Compensation Committee appointed by the
Board of Directors.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Pegasus Solutions, Inc.
(g) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services.
(h) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company, any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. A leave of absence approved by the Company
shall include sick leave, military leave, or any other personal leave. For
purposes of Incentive Stock Options, no such leave may exceed 90 days,
unless reemployment upon expiration of such leave is guaranteed by statute
or contract, including Company policies. If reemployment upon expiration of
a leave of absence approved by the Company is not so guaranteed, on the
181st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated
for tax purposes as a Nonstatutory Stock Option.
(i) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(j) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for
the Common Stock on the last market trading day prior to the day of
determination; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(n) "Non-Employee Director" means any person who is a member of the
Board who is not an Employee.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Optioned Stock" means the Common Stock subject to an Option.
(r) "Optionee" means an Employee, Consultant or Non-Employee Director
who receives an Option.
(s) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "Permitted Transferee" means a member of a holder's immediate
family, trusts for the benefit of such immediate family members, and
partnerships in which the holder and such immediate family members are the
only partners, provided that no consideration is provided for the transfer.
A holder's immediate family includes a spouse, children or more remote
descendants (including stepchildren and adopted children), and parents.
(u) "Plan" means this 1997 Amended Stock Option Plan.
(v) "Section 16(b)" means Section 16(b) of the Securities Exchange Act
of 1934, as amended.
(w) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 below.
(x) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, beginning with fiscal 2002, the number of shares of Common Stock that
may be issued pursuant to grants under the Plan is automatically increased at
the beginning of each fiscal year by the lowest of the following: (i) four
percent of the fully diluted outstanding shares on the last day of the
immediately preceding fiscal year, (ii) four million shares as adjusted from
time to time to reflect any subsequent stock dividends or stock splits, or (iii)
an amount lower than (i) or (ii) as determined by the Board of Directors. The
maximum number of Shares with
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respect to which Options may be awarded under the Plan during any fiscal year to
any Employee shall be 500,000. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised
in full, or is surrendered pursuant to an option exchange program authorized by
the Administrator, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
repurchased by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Procedure. With respect to Option grants awarded to
Employees, Consultants or Non-Employee Directors, the Plan shall be
administered by (A) the Board or (B) the Compensation Committee designated
by the Board, which committee shall be constituted to satisfy the legal
requirements, if any, relating to the administration of incentive stock
option plans of state corporate and securities laws, of the Code, and of
any stock exchange or national market system upon which the Common Stock is
then listed or traded (the "Applicable Laws"). Once appointed, such
Committee shall serve in its designated capacity until otherwise directed
by the Board. The Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause) and substitute
new members, fill vacancies (however caused), and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan
and approval of any relevant authorities, including the approval, if
required, of any stock exchange or national market system upon which the
Common Stock is then listed, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and
conditions may include, but are not limited to, the exercise price, the
time or times when Options may be exercised, any vesting acceleration or
waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or the Shares relating thereto, based in each case
on such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 10(e) instead of Common Stock;
(viii) to provide for the early exercise of Options for the
purchase of unvested Shares, subject to such terms and conditions as the
Administrator may determine; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
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5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees,
Consultants and Non-Employee Directors. Incentive Stock Options may be
granted only to Employees. An Employee, Consultant or Non-Employee Director
who has been granted an Option may, if otherwise eligible, be granted
additional Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options.
For purposes of this Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with respect
to the continuation of the Optionee's employment or consulting relationship
with the Company, nor shall it interfere in any way with the Optionee's
right or the Company's right to terminate the Optionee's employment or
consulting relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders of
the Company, as described in Section 15 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 15 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of
grant.
(B) granted to any Employee other than an Employee described in
the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per share
exercise price shall be determined by the Administrator but shall not be
less than one hundred percent (100%) of the Fair Market Value per Share
on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall
be determined at the time of grant) and may consist entirely of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of
Shares acquired upon exercise of an Option have been owned by the Optionee
for more than six months on the date of surrender and (y) have
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a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which such Option shall be exercised,
(5) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the
Company of the sale or loan proceeds required to pay the exercise price, or
(6) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably
expected to benefit the Company.
9. Grants to Non-Employee Directors. The Administrator may, from time to
time, in its discretion, award Nonstatutory Stock Options to Non-Employee
Directors, for the number of shares of Common Stock, and upon such terms and
conditions as may be consistent with the Plan, based in each case on such
factors as the Administrator, in its sole discretion, shall determine.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received
by the Company. Full payment may, as authorized by the Administrator,
consist of any consideration and method of payment allowable under Section
8(b) of the Plan. Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 13 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
termination of an Optionee's Continuous Status as an Employee or
Consultant, other than upon the Optionee's death or Disability, the
Optionee may exercise his or her Option, but only within such period of
time as is specified in the Notice of Grant, and only to the extent that
the Optionee was entitled to exercise it at the date of termination (but in
no event later than the expiration of the term of such Option as set forth
in the Notice of Grant). In the absence of a specified time in the Notice
of Grant, the Option shall remain exercisable for ninety (90) days
following the Optionee's termination. In the case of an Incentive Stock
Option, such period of time for exercise shall not exceed ninety (90) days
from the date of termination. If, on the date of termination, the Optionee
is not entitled to exercise the Optionee's entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in
status from Consultant to Employee or Employee to Consultant, an Optionee's
Continuous Status as an Employee or Consultant shall not automatically
terminate solely as a result of such change in status. However, in such
event, an Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes
as a Nonstatutory Stock Option three months and one day following such
change of status.
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The provisions of this Section 10(b) shall not be applicable to
Non-Employee Directors.
(c) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of
his or her Disability, the Optionee may, but only within twelve (12) months
from the date of such termination (and in no event later than the
expiration date of the term of his or her Option as set forth in the Option
Agreement), exercise the Option to the extent the Optionee was otherwise
entitled to exercise it on the date of such termination. To the extent that
the Optionee is not entitled to exercise the Option on the date of
termination, or if the Optionee does not exercise the Option to the extent
so entitled within the time specified herein, the Option shall terminate,
and the Shares covered by the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant), by the Optionee's estate
or by a person who has acquired the right to exercise the Option by bequest
or inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert
to the Plan. If, after death, the Optionee's estate or a person who
acquires the right to exercise the Option by bequest or inheritance does
not exercise the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to persons subject to Section 16(b) of
the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this Section 11. When an Optionee incurs tax liability in
connection with an Option which tax liability is subject to tax withholding
under applicable tax laws, and the Optionee is obligated to pay the Company an
amount required to be withheld under applicable tax laws, the Optionee may
satisfy the withholding tax obligation by electing to have the Company withhold
from the Shares to be issued upon exercise of the Option that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
12. Transferability of Options and Rights. Incentive Stock Options granted
under the Plan shall not be transferable otherwise than by will or the laws of
descent and distribution, or pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act of
1974, as
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amended, or the rules thereunder. Incentive Stock Options shall be exercisable
during the lifetime of the Employee only by the Employee or by the Employee's
guardian or legal representative (unless such exercise would disqualify it as an
Incentive Stock Option). Unless the Administrator otherwise provides in an
agreement regarding the award of non-qualified stock options or rights (not
granted in connection with an Incentive Stock Option), non-qualified stock
options or rights (not granted in connection with Incentive Stock Options) may
be transferred by the holder to Permitted Transferees, provided that there
cannot be any consideration for the transfer.
13. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of issued shares of Common
Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for
an Optionee to have the right to exercise his or her Option until ten (10)
days prior to such transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. In addition, the Administrator may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an
Option shall lapse as to all such Shares, provided the proposed dissolution
or liquidation takes place at the time and in the manner contemplated. To
the extent it has not been previously exercised, an Option will terminate
immediately prior to the consummation of such proposed action.
(c) Acquisition Events
(1) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company of
any agreement with respect to an Acquisition Event, the Board shall take
any one or more of the following actions with respect to then
outstanding Options: (i) provide that outstanding Options shall be
assumed or equivalent Options shall be substituted by the acquiring or
succeeding entity (or an affiliate thereof), provided that any such
Options substituted for Incentive Stock Options shall satisfy, in the
determination of the Board, the requirements of Section 422(a) of the
Code; (ii) upon written notice to the Optionees, provide that all then
unexercised Options will become exercisable in full as of a specified
date (the "Acceleration Date") prior to the Acquisition Event and will
terminate immediately prior to the consummation of such Acquisition
Event, except to the extent exercised by the Optionees between the
Acceleration Date and the consummation of the Acquisition Event or (iii)
in the event of an Acquisition Event under the terms of which holders of
Common Stock will receive upon consummation thereof a cash payment for
each share of Common Stock surrendered pursuant to such Acquisition
Event (the "Acquisition Price") provide that all outstanding Options
shall terminate upon consummation of such Acquisition Event and each
Optionee shall receive, in exchange therefor, a cash payment equal to
the amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of
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Common Stock subject to such outstanding Options (whether or not then
exercisable), exceeds (B) the aggregate exercise price of such Options.
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving or acquiring entity) less than 60% of the combined voting
power of the voting securities of the Company or such surviving or
acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of
the Company; (c) the complete liquidation of the Company; or (d) the
acquisition of "beneficial ownership" (as defined in Rule 13d-3 under
the Exchange Act) of securities of the Company representing 50% or more
of the combined voting power of the Company's then outstanding
securities (other than through a merger or consolidation or an
acquisition of securities directly from the Company) by any "person," as
such term is used in Sections 13 (d) and 14 (d) of the Exchange Act
other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any entity
owned directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of stock of the
Company.
(2) Assumption of Options Upon Certain Events. The Board may grant
options under the Plan in substitution for stock and stock-based awards
held by employees of another entity who become Employees as a result of
a merger or consolidation of the employing entity with the Company or
the acquisition by the Company of property or stock of the employing
entity. The substitute options shall be granted on such terms and
conditions as the Board considers appropriate in the circumstances.
14. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, in the event of any material amendment to the Plan or to the
extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or
regulation, including the requirements of any stock exchange or national
market system upon which the Common Stock is then listed), the Company
shall obtain stockholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the
Optionee and the Board, which agreement must be in writing and signed by
the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or national market system
upon which the Common Stock is then listed or traded, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
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17. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
18. Agreements. Options shall be evidenced by written agreements in such
form as the Administrator shall approve from time to time.
19. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange or national market system upon which the Common
Stock is then listed or traded.
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APPENDIX B
FIRST AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
The Audit Committee (the "Committee") shall be comprised of three (3) or
more directors as determined by the Board of Directors (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 majority of the members of
the Committee shall have no relationship to the corporation that might interfere
with the exercise of their independence from management and the Company. All
members of the Committee shall have a working familiarity with basic finance and
accounting practices and at least one (1) member of the Committee shall have
accounting or related financial management expertise. Committee members may
enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Company or an outside consultant. A
Committee chairman shall be selected by the Chairman of the Board. Approval by
the majority of the Committee is necessary for Committee approval and such
approval may be evidenced by written consent without the necessity of a meeting.
The primary functions of the Committee are: (i) oversee the Company's
internal accounting controls, (ii) select the independent auditors, (iii) review
the annual audit plan with the independent auditors, and (iv) review the annual
report and the results of the independent audit. A brief description of these
general areas of responsibility are described below.
(i) Oversight of the Company's internal accounting controls is chiefly
concerned with those corporate controls designed to insure that assets are
safeguarded and, that transactions are authorized and properly recorded.
(ii) The Committee should focus on the scope and effectiveness of
internal audit activities. An effective review of the internal audit
activities should, at a minimum, cover the planned audit work, the results
of completed work and management's implementation of internal audit
recommendations.
(iii) The Committee is responsible for recommending to the Board of
Directors the firm of independent auditors that is to examine and report on
the financial statements issued by the Company. The independent auditor is
to be accountable to the Board of and the Committee as representative of
the stockholders of the Company and, as such, the Committee shall have the
responsibility to select, evaluate, reengage and, where appropriate,
replace the independent auditor. Considerations applicable to the
selection, evaluation, reengagement or replacement of the independent
auditor are, without limitation, independence, audit approach and
techniques, knowledge and experience in the industry, procedures followed
to assure the firm's independence, policy regarding personnel assigned to
the engagement, and the firm's quality control procedures.
(iv) The review of the audit plan is the Committee's opportunity to
satisfy itself that the audit will meet the needs of the Company's Board
and shareholders. Although the audit must be based upon the auditor's
professional judgment, the Committee can learn the basis for the auditor's
judgment and the extent of planned audit work.
(v) The Committee should carefully review and analyze the annual
report and the results of the audit and report to the Board regarding its
findings.
In addition to the above, the Committee is expected, in the course of
meeting the above and foregoing responsibilities, to:
(i) Review and update the Committee's charter annually.
(ii) Approve the independent auditors to be nominated, approve the
compensation of the independent auditor; and, if applicable, review the
discharge of the independent auditor.
(iii) Confirm and assure the independence of the independent auditor
by requiring a formal written statement delineating all relationships
between the independent auditor and the Company consistent with
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33
Independence Standards Board Standard 98-1, by actively engaging in a
dialog with the independent auditor with respect to any disclosed
relationships or services that may impact the auditor's objectivity and
independence and by taking, or recommending that the Board take appropriate
action to ensure the independence of the auditor.
(iv) Inquire of management and the independent auditor about
significant risk or exposure and assess the steps management has taken to
minimize such risks to the Company.
(v) Review the audit scope and plan of the independent auditor for the
Company and its subsidiaries and affiliates.
(vi) Consider and review with the independent auditor (a) the adequacy
of the Company's internal controls, including computerized information
systems controls and security where applicable and (b) any related
significant findings and recommendations of the independent auditor
together with management's responses thereto, including the Company's
subsidiaries and affiliates.
(vii) Review with management and the independent auditor at the
completion of the annual examination (a) the Company's annual financial
statements and related footnotes, (b) the independent auditor's audit of
the financial statements and report thereon, (c) any significant changes
required in the independent auditor's audit plan, (d) any significant
difficulties or disputes with management encountered during the court of
the audit and (e) any other matters related to the conduct of the audit
which are to be communicated to the Committee under generally accepted
auditing standards.
(viii) If applicable, review Annual Report and Securities and Exchange
Commission year end filings, prior to issuance when possible, and consider
whether the information contained in these documents is consistent with the
information contained in the financial statements.
(ix) If applicable, review with management and the independent auditor
any significant accounting or financial reporting issues prior to filing
interim financial reports with the Securities and Exchange Commission or
other regulators.
(x) Report Committee actions to the Board with such recommendations as
the Committee may deem appropriate.
(xi) The Committee shall have the power to conduct or authorize
investigations into any matters within the Committee's scope of
responsibilities. The Committee shall be empowered to retain independent
counsel, accountants, or others to assist it in the conduct of any
investigation.
(xii) The Committee shall meet at least four times per year, or more
frequently as circumstances require upon notice from the Chairman of the
Committee or the Chairman of the Board. The Committee may ask members of
management or others to attend the meeting and provide pertinent
information as necessary.
(xiii) The Committee will perform such other functions as required by
law, the Company's Charter or Bylaws, or the Board.
B-2
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ANNUAL MEETING OF STOCKHOLDERS OF
PEGASUS SOLUTIONS, INC.
MAY 8, 2001
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS
POSSIBLE.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
PLEASE CALL TOLL-FREE 1-800-776-9437 AND FOLLOW THE INSTRUCTIONS. HAVE YOUR
CONTROL NUMBER AND PROXY CARD AVAILABLE WHEN YOU CALL.
TO VOTE BY THE INTERNET
PLEASE ACCESS THE WEB PAGE AT WWW.VOTEPROXY.COM AND FOLLOW THE ON-SCREEN
INSTRUCTIONS. HAVE YOUR CONTROL NUMBER AVAILABLE WHEN YOU ACCESS THE WEB PAGE.
YOUR CONTROL NUMBER IS [ ]
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
[X] Please mark your
vote as in this
example
FOR all WITHHOLD
nominees AUTHORITY
listed at to vote
right (except for all
as marked to nominees
the contrary listed to
below) the right FOR AGAINST ABSTAIN
1. ELECTION OF Nominees: William C. Hammett, Jr. 2. Approval of Amendments [ ] [ ] [ ]
CLASS I Thomas F. O'Toole to the Company's 1997
DIRECTORS [ ] [ ] Amended Stock Option
Plan
(INSTRUCTION: To withhold authority to vote 3. In their discretion
for an individual nominee, write that to vote upon such
nominee's name in the space below) other business as
may properly come
before the meeting
- -------------------------------------------------- THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN ABOVE. IF NO INSTRUCTIONS
ARE GIVEN, THIS PROXY WILL BE VOTED FOR THOSE
NOMINEES AND THE PROPOSALS LISTED ABOVE.
Please mark, sign, date and return this proxy
card using the enclosed envelope.
SIGNATURE SIGNATURE IF HELD JOINTLY
---------------------------------------- ---------------------------------
DATED , 2001
---------------
NOTE: Please sign exactly as name appears hereon. When shares are held by Joint
Tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign for the partnership by authorized person.
35
PEGASUS SOLUTIONS, INC.
3811 Turtle Creek Blvd., Suite 1100
Dallas, Texas 75219
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 8, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints JOHN F. DAVIS, III and RIC L. FLOYD,
and each of them, Proxies, with full power of substitution in each of them, in
the name, place and stead of the undersigned, to vote at the Annual Meeting of
Stockholders of Pegasus Solutions, Inc. (the "Company") on Tuesday, May 8, 2001,
at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas or at any
adjournment or adjournments thereof, according to the number of votes that the
undersigned would be entitled to vote if personally present upon the following
matters:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)