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:
<Table>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</Table>
PFSWEB, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
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PFSWEB, INC.
500 NORTH CENTRAL EXPRESSWAY
PLANO, TEXAS 75074
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of PFSweb, Inc. (the "Company"), which will be held at the Stonebriar Country
Club, Frisco, Texas, on Friday, June 7, 2002 at 10:00 a.m. (local time).
At the Annual Meeting, stockholders will be asked to elect three
directors, approve an amendment to the Company's Certificate of Incorporation to
authorize a reverse stock split and ratify the appointment of KPMG LLP as the
Company's independent auditors. Information about these matters is contained in
the attached Proxy Statement.
The Company's management would greatly appreciate your attendance at
the Annual Meeting. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, IT IS MOST IMPORTANT THAT YOUR SHARES BE REPRESENTED. Accordingly,
please sign, date and return the enclosed proxy card which will indicate your
vote upon the matters to be considered. If you do attend the meeting and desire
to vote in person, you may do so by withdrawing your proxy at that time.
I sincerely hope you will be able to attend the Annual Meeting, and I
look forward to seeing you on June 7, 2002.
Sincerely,
/s/ MARK C. LAYTON
Mark C. Layton
Chairman, President and Chief Executive Officer
April , 2002
PFSWEB, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2002
The Annual Meeting of Stockholders of PFSweb, Inc. (the "Company") will
be held on Friday, June 7, 2002 at 10:00 a.m. at the Stonebriar Country Club,
Frisco, Texas, for the following purposes:
1. To elect three Class III directors;
2. To amend our Certificate of Incorporation to effect a
reverse split of our outstanding common stock by a
ratio of no change to up to one-for-five and
authorize our Board to determine the exact ratio
within that range;
3. To ratify the appointment of KPMG LLP as the
Company's independent auditors for the fiscal year
ending December 31, 2002; and
4. To transact such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 15,
2002 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting. Each stockholder, even though he or she
may presently intend to attend the Annual Meeting, is requested to execute and
date the enclosed proxy card and return it without delay in the enclosed
postage-paid envelope. Any stockholder present at the Annual Meeting may
withdraw his or her proxy card and vote in person on each matter properly
brought before the Annual Meeting.
Please sign, date and mail the enclosed proxy in the enclosed envelope
promptly, so that your shares of stock may be represented at the meeting.
By Order of the Board of Directors
/s/ HARVEY H. ACHATZ
Harvey H. Achatz
Secretary
Plano, Texas
April , 2002
PFSWEB, INC.
500 NORTH CENTRAL EXPRESSWAY
PLANO, TEXAS 75074
(972) 881-2900
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders of PFSweb, Inc.,
a Delaware corporation ("PFSweb" or the "Company"), in connection with the
solicitation of proxies for use at the Company's Annual Meeting of Stockholders
(the "Annual Meeting"), to be held at the Stonebriar Country Club, Frisco,
Texas, on Friday, June 7, 2002, at 10:00 a.m. and at any and all adjournments
thereof.
This solicitation is being made on behalf of the Board of Directors of
the Company. This Proxy Statement, Notice of Annual Meeting of Stockholders, the
enclosed proxy card and the Company's 2001 Annual Report on Form 10-K were first
mailed to stockholders on or about May 3, 2002.
In July 2001, the Company announced a change in its fiscal year end
from March 31 to December 31. Consequently, for purposes of this Proxy
Statement, the Company's most recent fiscal period is the nine-month transition
period ended December 31, 2001.
The shares represented by a proxy in the enclosed form, if such proxy
is properly executed and is received by the Company prior to or at the Annual
Meeting, will be voted in accordance with the specifications made thereon.
Proxies on which no specification has been made by the stockholder will be
voted:
(i) in favor of the election of the nominees to
the Board of Directors listed in this Proxy
Statement;
(ii) in favor of the amendment to the Company's
Certificate of Incorporation to effect a
reverse split of our outstanding common
stock by a ratio of no change to up to
one-for-five and authorize our Board to
determine the exact ratio within that range;
and
(iii) to ratify the appointment of KPMG LLP as the
Company's independent auditors for the
fiscal year ending December 31, 2002.
Any proxy given by a stockholder may be revoked at any time before its
exercise by sending a subsequently dated proxy or by giving written notice of
revocation, in each case, to the Company's Secretary, at the Company's principal
executive offices at the address set forth above. Stockholders who attend the
Annual Meeting in person may withdraw their proxies at any time before their
shares are voted by voting their shares in person.
Stockholders of record at the close of business on April 15, 2002 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. On
the Record Date, the issued and
outstanding voting securities of the Company consisted of 18,183,272 shares of
common stock, excluding 86,300 shares of common stock in treasury, par value
$.001 per share (the "Common Stock"), each of which is entitled to one vote on
all matters which may properly come before the Annual Meeting or any adjournment
thereof.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum. The director nominees receiving the most votes will be
elected as directors. The affirmative vote of a majority of the shares present,
whether in person or by proxy, at the meeting will be sufficient to ratify the
selection of our independent auditors. The authorization of an amendment to our
certificate of incorporation to effect a reverse stock split will require the
affirmative vote of the holders of a majority of the outstanding shares of
common stock entitled to vote thereon. The inspector of elections appointed by
the Company will count all votes cast, in person or by submission of a properly
executed proxy, before the closing of the polls at the meeting. Abstentions and
"broker non-votes" (nominees holding shares for beneficial owners who have not
voted on a specific matter) will be treated as present for purposes of
determining whether a quorum is present at the Annual Meeting. However,
abstentions and broker non-votes will have the same effect as a vote against the
second two proposals.
ITEM I
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. Each class serves
three years, with the terms of office of the respective classes expiring in
successive years. The term of the Class III directors expires at the Annual
Meeting; the term of the Class II directors expires in 2004; and the term of the
Class I directors expires in 2003. The Board presently consists of five members,
two Class I directors and three Class III directors. There is presently a
vacancy in the Class II directors. The proxies will not be voted for any nominee
for the vacant position on the Board. Filling the vacancy requires either action
by the Board of Directors or the affirmative vote of a majority of the voting
power of all outstanding shares, and we do not plan to consider the vacancy at
the 2002 annual meeting. The Board of Directors may consider electing an
individual to the vacant position on the Board at a later time. The directors
elected as Class III directors at the Annual Meeting will have a term of three
years. The nominees as Class III directors are Mark Layton, Timothy Murray and
Dr. Neil W. Jacobs who have been nominated and recommended by the Board of
Directors. If elected, Messrs. Layton, Murray and Jacobs are expected to serve
until the Company's 2005 annual meeting of stockholders and until their
respective successors are elected and qualified. The shares represented by
proxies in the accompanying form will be voted for the election of these
nominees unless authority to so vote is withheld. The Board of Directors has no
reason to believe that such nominees will not serve if elected, but if any one
or more of them should become unavailable to serve as a director, and if the
Board designates a substitute nominee or nominees, the person named as proxies
will vote for the substitute nominee(s) designated by the Board.
The following information, which has been provided by the individuals
named, sets forth the nominees for election to the Board of Directors and the
continuing Class I directors, such person's
2
name, age, principal occupation or employment during at least the past five
years, the name of the corporation or other organization, if any, in which such
occupation or employment is carried on and the period during which such person
has served as a director of the Company.
DIRECTORS STANDING FOR ELECTION
CLASS III
TERM EXPIRES AT THE 2005 ANNUAL MEETING
MARK C. LAYTON, age 42, has served as Chairman of the Board, President
and Chief Executive Officer of PFSweb since its inception. Mr. Layton previously
held the following positions with Daisytek International Corporation
("Daisytek"), a leading global distributor of consumable computer supplies and
office products and the former parent corporation of the Company: Chairman of
the Board from September 1999 to October 2000; President, Chief Executive
Officer and Chief Operating Officer from April 1997 to February 2000; Director
from 1988 to October 2000; President, Chief Operating Officer and Chief
Financial Officer from 1993 to April 1997; Executive Vice President from 1990 to
1993; and Vice President - Operations from 1988 to 1990. Prior to joining
Daisytek, Mr. Layton served as a management consultant with Arthur Andersen &
Co., S.C. for six years through 1988 specializing in wholesale and retail
distribution and technology. Mr. Layton is also a director of PC Mall, Inc. a
direct marketer of computer products.
TIMOTHY M. MURRAY, age 49, has served as a non-employee Director of the
Company since its inception. Mr. Murray is a Principal of William Blair &
Company, L.L.C., an investment banking firm he joined in 1979. Mr. Murray is a
director of several privately held corporations.
DR. NEIL W. JACOBS, age 67, has served as a non-employee Director of
the Company since July 2000. Dr. Jacobs is a professor of computer information
systems and management at Northern Arizona University ("NAU") and a technology
industry veteran. Dr. Jacobs' academic area of expertise includes strategic
management issues and the role information technology plays in support of
strategy and operations. From 1996 to 1999, Dr. Jacobs served as associate dean
of the College of Business Administration at NAU.
DIRECTORS CONTINUING IN OFFICE
CLASS I
TERM EXPIRES AT THE 2003 ANNUAL MEETING
DAVID I. BEATSON, age 54, has served as a non-employee Director since
November 2000. Mr. Beatson is a Principal and Founder of Beatson Consulting
Group, a consulting practice directed at strategic positioning and corporate
business development plans and strategy. Mr. Beatson is a recognized leader in
the field of transportation, logistics and supply chain management having served
as Chairman and CEO of several leading companies in this industry. From June
2000 to July 2001, Mr. Beatson served as president, CEO and chairman of Supply
3
Links, Inc., an Internet-based B2B global supply chain network that links
customers to multiple transportation modes and service providers through a
single platform. From July 1998 to June 2000, Mr. Beatson served as chairman,
president and CEO of Circle International Group, Inc., a global transportation
and logistics company. From 1991 to June 1994, Mr. Beatson served as
vice-president of sales and marketing and then from June 1994 until July 1998 as
president and CEO of Emery Worldwide, a global transportation and logistics
company. Prior to 1991, Mr. Beatson held several management positions in the
logistics and transportation industry, including American Airlines and CF
Airfreight. Mr. Beatson also currently serves as an industry representative
member of the Executive Advisory Committee to the National Industrial
Transportation League, to which the Air Freight Association elected him in 1995.
He also serves on several industry boards including the Council of Logistics
Management.
JAMES F. REILLY, age 43, has served as a non-employee Director of the
Company since its inception. Mr. Reilly is a Managing Director of JPMorgan H&Q,
a division of J.P. Morgan Securities, Inc., an investment banking firm. Mr.
Reilly was previously a Managing Director in the Technology Group of Warburg
Dillon Read, the global investment banking division of UBS AG. Mr. Reilly was
associated with Warburg Dillon Read or one of its predecessor companies from
1983 to 1999 and specialized in corporate finance advisory work for a broad
range of technology companies.
EXECUTIVE OFFICERS AND OFFICERS
In addition to the individuals named above, the following are the
names, ages and positions of the other executive officers and officers of the
Company:
EXECUTIVE OFFICERS
STEVEN S. GRAHAM, age 50, has served as Executive Vice President and
Chief Technology Officer of the Company since its inception. Mr. Graham
previously served as Senior Vice President of Information Technologies and Chief
Information Officer of Daisytek, a position he held from 1996 to 2000. Prior to
joining Daisytek, Mr. Graham was employed by Ingram Micro, a major microcomputer
distributor. Mr. Graham has 28 years of experience in the information-technology
field.
THOMAS J. MADDEN, age 40, has served as Executive Vice President, Chief
Financial and Accounting Officer of the Company since its inception. Mr. Madden
previously served as Chief Financial Officer of Daisytek from 1997 to 2000, as
Vice President -- Finance, Treasurer and as Chief Accounting Officer of Daisytek
from 1994 to 2000 and as Controller of Daisytek from 1992 to 1994. From 1983 to
1992, Mr. Madden served in various capacities with Arthur Andersen & Co., S.C.,
including financial consulting and audit manager.
C. CLIFFORD DEFEE, age 42, has served as Executive Vice President --
Operations and Client Solutions and Chief Operating Officer of the Company since
its inception. From 1997 to 2000 Mr. Defee served as Vice President --
Operations of Daisytek, with primary responsibility for the Company's business
unit. From 1984 to 1997, Mr. Defee served as a management consultant with
Andersen Consulting, LLP specializing in retail distribution.
4
MICHAEL G. WILLOUGHBY, age 38, has served as Executive Vice President
and Chief Information Officer since October 2001 and served as Vice President--
E-Commerce Technologies of the Company since 1999. Mr. Willoughby served as
President and Chief Executive Officer of Design Technologies, Inc., an
e-commerce software development firm from 1994 to 1999. Prior to founding Design
Technologies, Inc., Mr. Willoughby served as President and Chief Executive
Officer of Integration Services, Inc., a mid-sized development services company.
HARVEY H. ACHATZ, age 61, has served as Vice President -- Administration and
Secretary of the Company since its inception. Mr. Achatz previously served as
Vice President -- Administration and Secretary of Daisytek from 1993 and 1984 to
2000, respectively, as Vice President -- Finance from 1985 to 1993, as
Controller from 1981 to 1985 and as a Director from 1984 to 1990.
OFFICERS
MARTIN L. ANDERSON, age 36, has served as Vice President -- Customer
Satisfaction of the Company since its inception. From 1998 to 2000 Mr. Anderson
served as Vice President -- Call Center Operations of Daisytek, with primary
responsibility for the Company's business unit and has served in various other
capacities for Daisytek since 1990.
LINDSLEY D. MEDLIN JR., age 37, has served as Vice President-- Global
Marketing since 2000. Mr. Medlin has been with the Company since its inception
and previously served as Vice President and Managing Director of European
Operations. Mr. Medlin previously served as a Managing Director of Daisytek,
with primary responsibility for the Company's European business unit and served
in various other capacities for Daisytek since1988.
SCOTT R. TALLEY, age 37, has served as Vice President -- International
Distribution for the Company since its inception. Mr. Talley previously served
as Vice President -- Distribution of Daisytek, with primary responsibility for
the Company's business unit and served in various other capacities for Daisytek
since 1991.
VALARIE J. REMMERS, age 41, has served as Vice President -- Information
Technology of the Company since November 1999. From 1998 to 1999 Ms. Remmers
served as Director of Information Technology of Daisytek, with primary
responsibility for the Company's business unit. From 1995 to 1998 Ms. Remmers
served in various capacities at PageNet in its information technology
department. Prior to 1995, Ms. Remmers served in various capacities at Sprint
and Andersen Consulting LLP. Ms. Remmers has over 19 years of experience in the
information-technology field.
CYNTHIA D. ALMOND, age 34, has served as Vice President -- Client
Services of the Company since March 2001. From 1999 to 2001, Ms. Almond served
as Director of Account Management. From 1991 to 1999, Ms. Almond served in
various marketing, product management and sales capabilities for Daisytek.
BRUCE E. MCCLUNG, age 64, has served as Vice President - Sales of the
Company since October 2001. From 1999 to 2001, Mr. McClung served in various
marketing and sales capabilities
5
for the Company. Mr. McClung has spent more than 25 years in sales, marketing
and management roles in systems and solutions organizations, including Daisytek,
IBM, Boeing and Perdata.
MEETINGS OF THE BOARD
The Board of Directors met nine times during the calendar year ended
December 31, 2001. No director attended fewer than 75% of the aggregate number
of meetings of the Board and Committees on which such director served.
COMMITTEES OF THE BOARD
The Board of Directors currently has standing Audit, Compensation and
Stock Option Committees and does not have a nominating committee.
The Audit Committee reviews, acts on and reports to the Board of
Directors with respect to various auditing and accounting matters, including the
selection of the Company's auditors, the scope of the annual audits, fees to be
paid to the auditors, the performance of the Company's independent auditors and
the accounting practices of the Company. The Board has adopted a written audit
committee charter setting out the audit-related functions of the Audit
Committee. The Audit Committee charter was attached as Appendix I to the
Company's proxy statement for the fiscal year ended March 31, 2001. The current
members of the Audit Committee are Messrs. Reilly, Beatson and Jacobs. None of
the current members of the Audit Committee is, or ever has been, an officer or
employee of the Company and all are considered "independent" for purposes of the
National Association of Securities Dealers' listing standards. The Audit
Committee met seven times during the calendar year ended December 31, 2001.
The Compensation Committee approves, or in some cases recommends, to
the Board, remuneration and compensation arrangements involving the Company's
executive officers and other key employees. The current members of the
Compensation Committee are Messrs. Murray and Reilly, who are non-employee
directors. The Compensation Committee also serves as the Stock Option Committee
to administer the Company's employee stock option and purchase plans. The
Compensation Committee and Stock Option Committee met twice during the calendar
year ended December 31, 2001.
COMPENSATION OF DIRECTORS
In June 1999 the Company adopted a Non-Employee Director Stock Option
and Retainer Plan (the "Non-Employee Director Plan"). As of the date of the
adoption of the Non-Employee Director Plan, each non-employee director received
an option to purchase 35,000 shares of common stock with an exercise price of
$10.45 per share. The Non-Employee Director Plan also provides for the future
issuance to each non-employee director of options to purchase 10,000 shares of
common stock as of the date of each annual meeting of stockholders (except that,
in connection with the option exchange Offer described below, no options were
issued at the time of the Annual Meeting held in September, 2001). In addition,
the Non-Employee Director Plan provides that if and to the
6
extent the Board authorizes the payment of non-employee director retainer fees,
each non-employee director may elect to receive payment of such fees in shares
of Common Stock in lieu of cash. Currently, non-employee directors do not
receive retainer fees for services rendered as non-employee directors.
All options to be issued to non-employee directors under the
Non-Employee Director Plan are non-qualified options for federal income tax
purposes and have an exercise price equal to the fair market value of a share of
common stock as of the date of the annual meeting upon which such option is
granted. All options have a ten year term and are subject to a one year vesting
schedule.
Generally, unless the Non-Employee Director Plan administrator
otherwise provides, options are non-transferable other than by will or the laws
of descent and distribution. At the time of any merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, or other change
in the corporate structure or capitalization affecting the Company's common
stock, the Non-Employee Director Plan administrator will make appropriate
adjustments to the exercise price, number and kind of shares to be issued under
the Non-Employee Director Plan and any outstanding options. Unless terminated
earlier, the Non-Employee Director Plan will terminate ten years from its
adoption, and no stock options will be granted after the Non-Employee Director
Plan terminates. The Board of Directors has the authority to amend, modify,
suspend or terminate the Non-Employee Director Plan at any time.
Directors who are also employees of the Company or any of its
subsidiaries receive no remuneration for serving as directors or Committee
members.
7
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to the Company's Chief Executive Officer and to each of the four most
highly compensated executive officers of the Company for services rendered to
the Company during the nine-month fiscal period ended December 31, 2001 and the
fiscal years ended March 31, 2001 and 2000.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
---------------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPLE POSITION PERIOD SALARY BONUS OPTIONS COMPENSATION (1)
- ------------------------------- ----------- -------- ------- ------------ ----------------
Mark C. Layton................. 9 Mos. 2001 283,080 28,125 594,056 (2) 16,783
Chairman, President, Chief FY 2001 363,603 28,125 554,056 (3) 20,963
Executive Officer FY 2000 337,857 -- 90,000 22,248
Christopher Yates (4).......... 9 Mos. 2001 188,346 15,625 -- 6,566
Executive Vice President - FY 2001 291,349 15,625 432,690 (3) 8,308
Chief Sales and FY 2000 263,361 -- 85,000 8,013
Marketing Officer
Steven S. Graham............... 9 Mos. 2001 179,723 15,625 607,449 (2) 5,133
Executive Vice President FY 2001 230,640 15,625 567,449 (3) 5,543
-Chief Technology Officer FY 2000 200,950 -- 75,000 7,783
Thomas J. Madden............... 9 Mos. 2001 153,846 13,750 344,673 (2) 4,609
Executive Vice President - FY 2001 200,000 13,750 294,673 (3) 5,060
Chief Financial Officer FY 2000 153,720 -- 85,000 4,690
C. Clifford Defee.............. 9 Mos. 2001 160,769 10,625 286,022 (2) 1,945
Executive Vice President - FY 2001 206,115 10,625 241,022 (3) 1,389
Chief Operating Officer FY 2000 194,709 -- 85,000 1,287
</Table>
- -------------------
(1) All Other Compensation represents compensation in respect of one or
more of the following: personal use of Company automobiles; life
insurance premiums paid by the Company for the benefit of the name
executive officer; tax return preparation services paid by the Company;
contributions to 401(k) accounts paid by the Company; personal travel
expenses and relocation costs.
(2) Represents options issued during the fiscal period ended December 31,
2001 pursuant to the Company's option exchange Offer described below.
See "Ten Year Option Repricings" and "Report on Repricing of Options."
(3) Includes the following options issued by the Company in July 2000 in
connection with the adjustment and conversion of pre-spin-off Daisytek
options into Company options upon the effective date of the spin-off:
Mark C. Layton - 504,056; Christopher Yates - 382.690; Steven S. Graham
- 532,449; Thomas J. Madden - 259,673; and C. Clifford Defee - 206,022.
(4) Mr. Yates resigned from all positions with the Company in November
2001.
The following table sets forth information with respect to grants of
stock options by the Company to purchase shares of the Company's common stock
during the nine-month fiscal period ended December 31, 2001 to the named
executive officers reflected in the Summary Compensation Table. All of these
option grants were made pursuant to the Company's option exchange Offer
described below. See "Ten Year Option Repricing" and "Report on Repricing of
Options."
8
OPTION GRANTS IN NINE-MONTH FISCAL PERIOD ENDED DECEMBER 31, 2001
<Table>
<Caption>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS (3)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------------
NAME GRANTS YEAR SHARE DATE 5% 10%
- ----------------------- ---------- ---------- --------- ---------- ---------- ---------
Mark C. Layton......... 90,000 (1) 2.8% $ 0.91 12/05/11 51,506 130,528
504,056 (2) 15.4% 0.91 12/05/11 288,468 731,035
Christopher Yates (4).. -- -- -- -- -- --
Steven S. Graham....... 75,000 (1) 2.3% 0.91 12/05/11 42,922 108,773
532,449 (2) 16.3% 0.91 12/05/11 304,717 772,214
Thomas J. Madden....... 85,000 (1) 2.6% 0.91 12/05/11 48,645 123,276
259,673 (2) 8.0% 0.91 12/05/11 148,609 376,605
C. Clifford Defee...... 80,000 (1) 2.5% 0.91 12/05/11 45,784 116,024
206,022 (2) 6.3% 0.91 12/05/11 117,905 298,795
</Table>
- ------------------
(1) Subject to vesting schedule pursuant to which 75% were vested on the date
of grant and 25% vest over a one year period in quarterly installments.
(2) Subject to quarterly vesting schedule over a one year period.
(3) These are hypothetical values using assumed annual rates of stock price
appreciation as prescribed by the rules of the SEC.
(4) Mr. Yates resigned from all positions with the Company in November 2001.
The following table sets forth information concerning the aggregate
Company stock option exercises during the nine-month fiscal period ended
December 31, 2001 and Company stock option values as of December 31, 2001 for
unexercised Company stock options held by each of the named executive officers.
AGGREGATED OPTION EXERCISES IN NINE-MONTH FISCAL PERIOD ENDED DECEMBER 31, 2001
AND OPTION VALUES AS OF DECEMBER 31, 2001
<Table>
<Caption>
NUMBER OF
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END (1)
ON VALUE --------------------------- -----------------------------
NAME EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- -------- --------- ----------- ------------- ----------- -------------
Mark C. Layton......... -- $ -- 97,083 546,973 $ -- $ --
Christopher Yates (2).. -- -- -- -- -- --
Steven S. Graham....... -- -- 70,833 571,616 -- --
Thomas J. Madden ...... -- -- 78,333 301,340 -- --
C. Clifford Defee...... -- -- 74,583 246,439 -- --
</Table>
================================================================================
(1) None of the options are deemed in-the-money since the exercise price
exceeds $0.85 (the last sale price of the Common Stock on December 31, 2001
as reported by the Nasdaq National Market).
(2) Mr. Yates resigned from all positions with the Company in November 2001.
9
CHANGE IN CONTROL AND SEVERANCE AGREEMENTS
The Company and each of the executive officers named above have entered
into Change in Control and Severance Agreements. Under these agreements, and in
consideration of certain commitments of the officer to continue employment, upon
the occurrence of a change in control, all unvested options held by the officer
immediately vest and become exercisable. If the change in control occurs prior
to June 30, 2002, each officer is entitled to receive a bonus amount equal to
the per share price of the Company's common stock payable in connection with
such change in control (or if no per share price is payable in connection with
the change in control, the closing price of the Company's common stock on the
effective date of the change in control) multiplied by a fixed bonus number for
each officer. In addition, during the two year period following a change in
control (whenever occurring), if the employment of the officer is terminated
(other than for cause, death, disability or retirement), or if there is a
material adverse change in the officer's responsibilities, compensation or
benefits to which the officer does not consent, then, in each case, the officer
is entitled to receive from the Company all salary and bonus amounts accrued
through the date of termination plus a severance payment equal to twice the
officer's salary and bonus. If applicable, the officer is also entitled to
receive an additional payment to compensate the officer for any additional
excise tax liability arising by reason of the receipt of such severance or bonus
payment. The agreement terminates upon the voluntary resignation or termination
of employment by the officer.
The following table sets forth certain information concerning all
repricing of options held by any executive officer of the Company during the
last ten completed fiscal years. There have been no SAR repricings during this
period.
OPTION EXCHANGE PROGRAM
TEN-YEAR OPTION REPRICINGS
<Table>
<Caption>
# OF
SECURITIES EXERCISE LENGTH OF
UNDERLYING MARKET PRICE OF PRICE AT ORIGINAL OPTION
OPTIONS STOCK AT TIME OF TIME OF NEW EXERCISE TERM REMAINING AT
NAME DATE REPRICED REPRICING REPRICING PRICE DATE OF REPRICING
---- ---- ---------- ---------------- --------- ------------ -----------------
Achatz, Harvey H. 12/05/01 2,905 $ 0.91 $ 4.51 $ 0.91 3.4
12/05/01 2,981 0.91 5.78 0.91 3.4
12/05/01 3,099 0.91 5.78 0.91 5.4
12/05/01 18,989 0.91 10.58 0.91 6.5
12/05/01 40,000 0.91 10.45 0.91 7.6
Defee, C. Clifford 12/05/01 12,279 0.91 5.78 0.91 5.4
12/05/01 38,095 0.91 10.58 0.91 6.5
12/05/01 155,648 0.91 5.95 0.91 7.0
12/05/01 80,000 0.91 10.45 0.91 7.6
Graham, Steven S. 12/05/01 108,089 0.91 5.78 0.91 5.4
12/05/01 21,618 0.91 5.78 0.91 5.4
12/05/01 78,477 0.91 10.58 0.91 6.5
12/05/01 324,265 0.91 5.95 0.91 7.0
12/05/01 75,000 0.91 10.45 0.91 7.6
Layton, Mark C. 12/05/01 56,618 0.91 5.78 0.91 5.4
12/05/01 42,975 0.91 5.78 0.91 5.4
12/05/01 112,585 0.91 10.58 0.91 6.5
12/05/01 291,878 0.91 5.95 0.91 7.0
12/05/01 90,000 0.91 10.45 0.91 7.6
Madden, Thomas J. 12/05/01 28,686 0.91 5.78 0.91 5.4
12/05/01 23,500 0.91 5.78 0.91 5.4
12/05/01 77.781 0.91 10.58 0.91 6.5
12/05/01 129,706 0.91 5.95 0.91 7.0
12/05/01 85,000 0.91 10.45 0.91 7.6
Willoughby, Michael G. 12/05/01 34,000 0.91 17.00 0.91 8.0
</Table>
10
Report on Repricing of Options. In April 2001, the Company offered (the
"Offer") to exchange all outstanding options held by its U.S. employees and
directors and having an exercise price of $4.00 per share or higher and issued
(i) under the Company's 1999 Employee Stock Option Plan or the Non-Employee
Director Plan (collectively, "Plan Options") or (ii) in connection with the
Company's spin-off from Daisytek, its former parent corporation ("Conversion
Options" and together with the Plan Options, the "Old Options") for new options
("New Options") to be issued not less than six months and one day from the
completion of the Offer. The Offer expired in May 2001 and the Company accepted
for exchange an aggregate of 3,753,044 Old Options. Pursuant to the Offer, in
December 2001, the Company issued an aggregate of 3,184,963 New Options. The New
Options are identical to the Old Options exchanged therefor, except that (i) the
exercise price of the New Options is $0.91 per share (the last reported sale
price on Nasdaq on the date of issuance), (ii) New Options issued in exchange
for Plan Options are 75% vested on the date of issuance and the remaining 25%
vests over a one year period in quarterly installments, (iii) New Options issued
in exchange for Conversion Options vest over a one year period in quarterly
installments and (iv) the New Options have a ten-year term from the date of
issuance. Pursuant to the Offer, the Company issued an aggregate of 2,020,341
New Options to its executive officers and directors, which includes 51,167 New
Options to Mr. Murray, of which 16,167 were issued in exchange for Plan Options
and 35,000 were issued in exchange for Conversion Options, and 35,000 New
Options to Mr. Reilly in exchange for Plan Options.
The Offer was made in response to and recognition of the fact that most
of the Company's then outstanding stock options had exercise prices in excess of
the then current market price. By making the Offer, the Company intends to
provide its employees and directors with the benefit of owning options that over
time may have a greater potential to increase in value, create better
performance incentives for employees and directors and thereby maximize
stockholder value. As a service company, the Company believes that providing
equity incentives is a critical ingredient for its development and success.
This report is submitted by the Board of Directors: David Beatson, Dr.
Neil Jacobs, Mark Layton, Timothy Murray and James Reilly.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the nine-month fiscal period ended December 31, 2001, the
members of the Compensation Committee of the Company's Board of Directors were
Timothy M. Murray and James F. Reilly who are non-employee directors.
11
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION FOR NINE-MONTH
FISCAL PERIOD ENDED DECEMBER 31, 2001
The Compensation Committee of the Board of Directors (the "Committee")
is responsible for approval or recommendation to the Board of Directors of the
compensation arrangements for the Company's senior executive officers. During
the nine-month fiscal period ended December 31, 2001, the members of the
Committee were Timothy M. Murray and James F. Reilly who are non-employee
directors.
The Committee believes that the total compensation of the Company's
senior executive officers should be primarily based on the subjective
determination of the Committee as to the Company's overall financial performance
and the individual contribution to such performance. The Committee further
believes that a portion of total compensation should consist of variable,
performance-based components such as stock option awards and bonuses, which it
can increase or decrease to reflect its assessment of changes in corporate and
individual performance. These incentive compensation programs are intended to
reinforce management's commitment to enhance profitability and stockholder
value.
In formulating compensation levels and policies for the fiscal period
ended December 31, 2001, the Committee did not retain an independent
compensation consultant, nor did the Committee rely upon any formal study or
review of comparable companies in the Company's industry.
The Committee annually establishes the salaries to be paid to the Chief
Executive Officer and other senior executive officers during each fiscal year.
Base salaries for senior executive officers are set to reflect the duties and
level of responsibility in each position. In setting salaries, the Committee
takes into account several factors including individual job performance, the
level of responsibility and, to the extent information is available, competitive
pay practices in the Company's industry. The Committee does not assign specific
relative weights to the various factors it considers, however, but rather
exercises its discretion and makes a judgment after considering all factors it
deems relevant.
For the fiscal period ended December 31, 2001 and for services rendered
to the Company, the base salary of Mr. Mark Layton, Chairman of the Board of
Directors, President and Chief Executive Officer, was $375,000 (annualized),
which remains unchanged from the end of the prior fiscal period. The Committee
believes that this amount appropriately reflected Mr. Layton's services to the
Company, although such determination was not based upon any specific qualitative
or quantitative formula.
The Committee also administers the Company's stock option plans and
recommends other option grants which are used to further link executive
compensation to the Company's performance. All options are subject to a
multi-year cumulative vesting schedule and have an exercise price not less than
the fair market value on the date of grant. During the fiscal period ended
December 31, 2001, Mr. Layton did not receive any options other than an
aggregate of 594,056 New Options pursuant to the Offer described above.
12
As part of its overall consideration of executive compensation, the
Committee considers the anticipated tax treatment of various payments and
benefits, including the applicability of Section 162(m) of the Internal Revenue
Code which provides a limit on the deductibility of compensation for certain
executive officers in excess of $1,000,000 per year. The Committee believes that
no named officer in the Summary Compensation Table had taxable compensation for
the fiscal period ended December 31, 2001 in excess of the deduction limit. The
Committee intends to continue to evaluate the impact of this Code provision.
The Committee believes that the policies and programs described above
have supported the Company's business objectives and have contributed to the
Company's performance.
COMPENSATION COMMITTEE
Timothy M. Murray
James F. Reilly
REPORT OF THE AUDIT COMMITTEE FOR THE FISCAL PERIOD ENDED DECEMBER 31, 2001
The Audit Committee of the Company's Board of Directors is comprised of
three independent directors. The Audit Committee meets at least twice a year.
The current members of the Audit Committee are Messrs. Reilly, Beatson and
Jacobs.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants ("auditors") are
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and issuing a report thereon. The Audit Committee's responsibility is to monitor
these processes. The Audit Committee meets with the auditors at least twice a
year. In addition, the Audit Committee has recommended to the Board the
appointment of the Company's auditors, KPMG, LLP.
The Audit Committee has discussed with the Company's auditors the
overall scope and plans for the independent audit. Management represented to the
Audit Committee that the Company's consolidated financial statements were
prepared in accordance with generally accepted accounting principles. The Audit
Committee has reviewed and discussed with management and the auditors the
Company's audited financial statements, including the auditor's judgments about
the quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements. The Audit Committee also discussed with the auditors the
other matters required by Statement on Auditing Standards No. 61 "Communication
with Audit Committees" as amended by Statement on Auditing Standards No. 90
"Audit Committee Communications".
The Company's auditors provided to the Audit Committee the written
disclosures required by Independence Standards Board Standard No. 1
"Independence Discussions with Audit Committees", and the Audit Committee
discussed with the auditors their independence from the Company and its
management.
13
Based on the Audit Committee's discussion with management and the
auditors and the Audit Committee's review of the representations of management
and the report of the auditors to the Audit Committee, the Audit Committee
recommended to the Board that the audited consolidated financial statements be
included in the Annual Report on Form 10-K for the nine month transition period
ended December 31, 2001 which was filed with the Securities and Exchange
Commission.
James F. Reilly
David I. Beatson
Dr. Neil W. Jacobs
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 15, 2002, certain
information regarding the beneficial ownership of the Company's Common Stock by
(i) each person who is known to the Company to beneficially own more than 5% of
the Common Stock, (ii) each of the Directors and executive officers of the
Company individually and (iii) the Directors and executive officers of the
Company as a group. The information contained in this table reflects "beneficial
ownership" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
14
<Table>
<Caption>
NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT(1)
------------------------------------- ---------- ----------
Gilder, Gagnon, Howe & Co. LLC (2) 2,538,035 14.0%
1775 Broadway, 26th Floor
New York, NY 10019
Wellington Management Company, LLP (3) 1,567,576 8.6%
75 State Street
Boston, MA 02109
Mark C. Layton (4) 832,638 4.5%
Steven S. Graham (5) 425,542 2.3%
Thomas J. Madden (6) 260,245 1.4%
C. Clifford Defee (7) 203,989 1.1%
Harvey H. Achatz (8) 114,210 *
Michael G. Willoughby (9) 58,775 *
James F. Reilly (10) 62,863 *
Timothy M. Murray (11) 153,631 *
David I. Beatson (12) 15,833 *
Dr. Neil W. Jacobs (13) 36,145 *
All directors and executive officers
As a group (10 persons) (14) 2,163,871 11.0%
========== =====
</Table>
- ----------
* Represents less than 1%
(1) This table is based on 18,183,272 shares of Common Stock outstanding
on April 15, 2002.
(2) Based upon a Schedule 13G, Amendment No. 1, dated February 15, 2002
filed by Gilder, Gagnon, Howe & Co. LLC stating beneficial ownership
and shared voting and dispositive power as of December 31, 2001.
(3) Based upon a Schedule 13G dated February 12, 2002 filed by Wellington
Management Company, LLP reporting beneficial ownership and shared
voting power of 1,142,000 shares and shared dispositive power of
1,567,576 shares as of December 31, 2001.
(4) Includes outstanding options to purchase 366,195 shares of Common
Stock, which are fully vested and exercisable.
(5) Includes outstanding options to purchase 353,516 shares of Common
Stock, which are fully vested and exercisable.
(6) Includes outstanding options to purchase 225,878 shares of Common
Stock, which are fully vested and exercisable.
15
(7) Includes outstanding options to purchase 194,260 shares of Common
Stock, which are fully vested and exercisable.
(8) Includes outstanding options to purchase 57,987 shares of Common
Stock, which are fully vested and exercisable.
(9) Includes outstanding options to purchase 56,830 shares of Common
Stock, which are fully vested and exercisable.
(10) Includes outstanding options to purchase 56,458 shares of Common
Stock, which are fully vested and exercisable.
(11) Includes outstanding options to purchase 64,542 shares of Common
Stock, which are fully vested and exercisable.
(12) Includes outstanding options to purchase 15,833 shares of Common
Stock, which are fully vested and exercisable.
(13) Includes outstanding options to purchase 35,833 shares of Common
Stock, which are fully vested and exercisable.
(14) Includes outstanding options to purchase 1,427,332 shares of Common
Stock, which are fully vested and exercisable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company owns a 49% equity interest in Business Supplies Distributors
Holdings, LLC ("Holdings") which is the parent company of Supplies Distributors,
Inc. (together with its Canadian and foreign subsidiaries, "Supplies
Distributors"). The Company and Supplies Distributors are parties to a
Transaction Management Services Agreement pursuant to which the Company provides
transaction management services to Supplies Distributors in connection with its
sale and distribution of IBM products. The Company has provided collateralized
guarantees to various institutional lenders in connection with certain lines of
credit available to Supplies Distributors in the maximum aggregate amount of
approximately $90 million. The Company has also provided subordinated loans to
Supplies Distributors which, as of April 15, 2002, had an outstanding balance of
$11.7 million. Inventory Financing Partners, LLC ("IFP") is the holder of a 51%
equity interest in Holdings. Each of Messrs. Layton, Graham, Murray and Madden
hold a 9.8% non-voting equity interest in IFP and each of Mr. McClung and Ms.
Almond hold a 4.9% non-voting equity interest in IFP.
16
PERFORMANCE GRAPH
The following line graph displays the cumulative total return to
stockholders of the Company's Common Stock from December 2, 1999 (the
commencement of trading of the Company's Common Stock) to December 31, 2001,
compared to the cumulative total return for the Total Return Index for The
Nasdaq Stock Market (US) and the Russell 2000 Index. The graph assumes a $100
investment in the Company's Common Stock, on December 2, 1999 at the initial
offering price of $17 per share, and in each of the above mentioned indices. The
Russell 2000 Index is an index of companies with market capitalizations similar
to the Company. The Company's management believes that an index of companies
with similar market capitalizations provides a reasonable basis for comparing
total shareholder returns.
17
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG PFSWEB INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RUSSELL 2000 INDEX
[CHART]
<Table>
<Caption>
- -----------------------------------------------------------------------------------
12/2/99 3/00 3/01 12/01
- -----------------------------------------------------------------------------------
PFSWEB INC.
- -----------------------------------------------------------------------------------
NASDAQ STOCK MARKET (U.S.)
- -----------------------------------------------------------------------------------
RUSSELL 2000
- -----------------------------------------------------------------------------------
</Table>
* $100 INVESTED ON 12/2/99 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
18
ITEM 2
AUTHORIZATION OF REVERSE STOCK SPLIT
The Board has unanimously adopted a resolution approving and
recommending to the stockholders for their approval an amendment to Article Four
of our restated certificate of incorporation authorizing a reverse split of the
outstanding shares of our common stock on the basis of one post-split share for
up to each presently outstanding five shares. This means that if the reverse
split is effected you will be deemed to hold one share of PFsweb common stock
for up to every five shares that you currently hold.
Whether to actually effect the reverse stock split and the exact ratio
of the reverse stock split will be determined by our Board at its discretion
based on the prevailing market conditions, the Board's judgment as to the best
course of action for the Company and its stockholders, and whether our common
stock has maintained a minimum bid of $1.00 per share for ten consecutive
trading days for the reason explained below. We are asking you to approve an
amendment to the restated certificate of incorporation with the ratio for the
reverse stock split to be in the range from no change to one share for more than
one and up to five shares, and with the Board having the authority to give its
final approval to a specific ratio. By approving the proposed reverse stock
split, you will be authorizing the Board of Directors to:
o determine the exact ratio of the reverse split so long as it is between
no change and up to one-for-five; and
o implement the reverse stock split at any time before June 7, 2003; or
o abandon the reverse stock split at any time prior to that date.
If the amendment to effect the reverse stock split has not been filed with the
Delaware Secretary of State by the close of business on June 7, 2003, the Board
of Directors will either resolicit stockholder approval or abandon the reverse
stock split. Even if the reverse split proposal is approved, the Board may
decide not to effect the reverse split if it determines that it is in the best
interests of the Company and its stockholders.
REASONS FOR THE REVERSE STOCK SPLIT
Our primary purpose for the reverse stock split is to increase the
trading price of our common stock to facilitate the continued listing of our
common stock for quotation on the Nasdaq National Market System or SmallCap
Market ("Nasdaq"). Our common stock is currently listed on the Nasdaq National
Market System. On February 14, 2002, the Company received notice from Nasdaq
that it had failed to maintain a minimum bid price of $1.00 over a 30
consecutive trading day period as required by Nasdaq Rule 4450(a)(5).
Consequently, the Company was given a 90-day period until May 15, 2002 to regain
compliance with this Rule, failing which the Company will be delisted from the
Nasdaq National Market System. To date, the Company has been unable to comply
with this Rule and the Company expects that it will be delisted. Under Nasdaq
rules, the Company has the right, and the Company presently intends, to
19
appeal the delisting to the Nasdaq Listing Qualification Panel and request an
extension of time to comply with the rule.
Until the Panel reaches its decision, the Company's common stock will
remain listed and will continue to trade on the Nasdaq National Market System.
There can be no assurance as to when the Panel will reach a decision or that
such a decision will be favorable to the Company. The Company's common stock
will be delisted from the Nasdaq National Market System if the appeal is denied.
In such event, the Company presently expects to apply to list its common stock
on the Nasdaq SmallCap Market or another quotation system or exchange on which
the shares of the Company would qualify. The delisting of the Common Stock from
the Nasdaq National Market System could have a material adverse effect on the
market price of, and the efficiency of the trading market for, the Common Stock.
In addition, if our common stock were to become delisted from trading
on the Nasdaq National Market System and the trading price were to remain below
$5.00 per share, trading in our common stock may also be subject to the
requirements of certain rules promulgated under the Securities Exchange Act of
1934, which require additional disclosures by broker-dealers in connection with
any trades involving a stock defined as a "penny stock." Generally, a "penny
stock" is defined as any non-Nasdaq equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. The additional burdens
imposed upon broker-dealers by these requirements could discourage
broker-dealers from facilitating trades in our shares, which could severely
limit the market liquidity of the stock and the ability of investors to trade
our common stock.
As noted above, if the Company's appeal is denied, the Company intends
to apply to list its common stock on the Nasdaq SmallCap Market. If the
Company's application is approved, under the current rules of the Nasdaq
SmallCap Market, the Company will have until August 13, 2002, and expects to
have an additional six month period thereafter, to meet the $1.00 minimum bid
price requirement.
The Board believes that if stockholders approve the proposed amendment
and the Board decides to effect a reverse stock split, our stock price should
increase to over the $1.00 per share minimum bid price, although no assurance
can be given in this regard.
We cannot guarantee that even with the reverse stock split, we will
meet or maintain all of Nasdaq's continued listing criteria in the future, or
that the price for shares of our common stock after the reverse stock split will
increase in proportion to the ratio of the reverse stock split. The delisting of
the Common Stock from the Nasdaq SmallCap Market could have a material adverse
effect on the market price of, and the efficiency of the trading market for, the
Common Stock.
The proposed reverse stock split amendment is not the first step in a
going private transaction.
20
POTENTIAL EFFECTS OF THE REVERSE STOCK SPLIT
A reverse stock split, if implemented, would reduce the number of
shares of common stock outstanding and potentially increase the trading price of
our common stock. However, we cannot predict the effect of any reverse stock
split upon the market price of our common stock. The history of reverse stock
splits for companies in similar circumstances varies. We cannot assure you that
the trading price of our common stock after the reverse stock split will rise in
exact proportion to the reduction in the number of shares of our common stock
outstanding. Also, as stated above, we cannot assure you that a reverse stock
split would lead to a sustained increase in the trading price of our common
stock, that the trading price would remain above the thresholds required by
Nasdaq, or that we will continue to meet the other continued listing
requirements of Nasdaq. The trading price of our common stock may change due to
a variety of other factors, including our operating results, other factors
related to our business and general market conditions.
The approximate number of shares of common stock that would be
outstanding as a result of the proposed reverse stock split, based on 18,183,272
shares of common stock outstanding as of April 15, 2002, would be as low as
3,636,655 if a 1:5 split were effected. The resulting decrease in the number of
shares of our common stock outstanding could potentially impact the liquidity of
our common stock on Nasdaq, especially in the case of larger block trades.
The reverse stock split, if implemented, would not change the number of
authorized shares of common stock as designated by the Company's restated
certificate of incorporation. Therefore, because the number of issued and
outstanding shares of common stock would decrease, the number of shares
remaining available for future issuance would increase.
Because a reverse stock split would result in an increased number of
authorized but unissued shares of our common stock, it may be construed as
having an anti-takeover effect, although neither the Board of Directors nor the
Company's management views this proposal as having such purpose. However, the
Board of Directors, subject to its fiduciary duties and applicable law, could
use this increased number of authorized but unissued shares to frustrate persons
seeking to take over or otherwise gain control of the Company by, for example,
privately placing shares with purchasers who might side with the Board of
Directors in opposing a hostile takeover bid. Shares of our common stock could
also be issued to a holder that would thereafter have sufficient voting power to
assure than any proposal to amend or repeal the Company's by-laws or certain
provisions of the Company's Restated Certificate of Incorporation would not
receive the requisite vote. Such uses of our common stock could render more
difficult, or discourage, an attempt to acquire control of the Company if such
transaction were opposed by the Board of Directors.
EFFECTS ON OWNERSHIP BY INDIVIDUAL STOCKHOLDERS
If we implement a reverse stock split, the number of shares of common
stock you hold would be reduced by dividing the number of shares held
immediately before the reverse split by the number fixed for the reverse split
by the Board, and then rounding up to the nearest whole share. This means that a
stockholder who would otherwise be entitled to receive a fractional
21
share following a reverse stock split will receive a whole share in lieu
thereof. The reverse stock split would affect our common stock uniformly and
would not affect your percentage of ownership interests in the Company or
proportionate voting power, except to the extent that interests in fractional
shares are rounded up to a whole share.
Effect on Outstanding Stock, Options. In addition, all the terms of
outstanding stock options of the Company entitling their holders to purchase
shares of our common stock would be adjusted as a result of the reverse stock
split, as required by the terms of these options. In particular, the number of
shares to be issued upon the exercise of outstanding options would be decreased,
and the exercise price for each such option, as applicable, would be increased,
in accordance with the ratio of the reverse stock split. None of the other
rights currently accruing to holders of outstanding options would be affected by
the reverse stock split. The number of options available for issuance under our
existing stock option plans would be adjusted proportionately based upon the
reverse stock split ratio.
Other Effects on Outstanding Shares. If we implement a reverse stock
split, the rights and preferences of the outstanding shares of common stock
would remain the same after the reverse stock split. Each share of common stock
issued pursuant to the reverse stock split would be fully paid and
nonassessable.
The reverse stock split would result in some stockholders owning
"odd-lots" of less than 100 shares of common stock. Brokerage commissions and
other costs of transactions in odd-lots may be higher than the costs of
transactions in "round-lots."
Our common stock is currently registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended. As a result, we are subject to the
periodic reporting and other requirements of the Exchange Act. The proposed
reverse stock split would not affect the registration of the common stock under
the Exchange Act.
PROCEDURE FOR EFFECTING THE REVERSE STOCK SPLIT AND EXCHANGE OF STOCK
CERTIFICATES
If you approve the proposed amendment to our certificate of
incorporation, the Board would implement the reverse stock split at its
discretion, determine the exact ratio of the reverse split and file the
amendment to the certificate of incorporation with the Delaware Secretary of
State. The reverse stock split would become effective on the date specified in
the amendment.
As of the effective date of the reverse stock split, we would consider,
for all corporate purposes, each certificate representing shares of our common
stock before the reverse stock split to represent the reduced number of shares
of common stock resulting from the reverse stock split. All outstanding stock
options also would be automatically adjusted on the effective date.
We expect that our transfer agent would act as the exchange agent for a
reverse stock split. As soon as practicable after the effective date, we would
notify you that the reverse split has been implemented. You would receive a
letter of transmittal requesting you to exchange your stock certificates for
stock certificates reflecting the appropriately adjusted number of shares. If
your shares are held in brokerage accounts or "street name" you would not need
to take any
22
further actions to exchange your certificates. We would not issue new
certificates to you until you have first surrendered your outstanding
certificate(s) together with the properly completed and executed transmittal
letter to the exchange agent. Until surrender, each certificate representing
shares before the reverse stock split would continue to be valid and would
represent the adjusted number of shares based on the exchange ratio of the
reverse stock split, rounded down to the nearest whole share. You should not
destroy any stock certificate and should not submit any certificates until you
receive a letter of transmittal.
FRACTIONAL SHARES
We would not issue fractional shares in connection with the reverse
stock split. If you would otherwise be entitled to receive fractional shares
because you hold a number of shares not evenly divisible by the exchange ratio,
you would instead receive a whole share upon surrender of the certificates as
described in the section above. The rounding of fractional shares will not
reduce the number of stockholders or stockholders of record.
ACCOUNTING CONSEQUENCES
The reverse stock split will not affect the par value of our common
stock. As a result, on the effective date of the reverse stock split, we will
reduce the common stock account on our balance sheet down in accordance with the
stock split ratio, and credit the capital in excess of par value account by the
same amount. We will increase the per share net income or loss and net book
value of our common stock because there will be fewer shares of our common stock
outstanding.
U.S. FEDERAL INCOME TAX CONSEQUENCES
For your convenience, we offer the following summary of material U.S.
federal income tax consequences of a reverse stock split to the stockholders of
the Company. This summary may be incomplete. It does not discuss any state,
local, foreign or minimum income or other tax consequences, if any. It does not
address the tax consequences to holders that are subject to special tax rules,
including banks, insurance companies, regulated investment companies, personal
holding companies, foreign entities, nonresident alien individuals,
broker-dealers and tax-exempt entities. The discussion is based on the
provisions of the United States federal income tax law as currently in effect on
the date hereof (which may change retroactively or prospectively). This summary
also assumes that the shares you hold are a "capital asset," as defined in the
Internal Revenue Code of 1986, as amended (generally, property held for
investment is regarded as a capital asset). Your tax treatment may vary
depending upon your particular facts and circumstances. We urge you to consult
with your tax advisor in analyzing the consequences of the reverse stock split.
You should not recognize a gain or loss upon the exchange of shares
pursuant to a reverse stock split, if implemented. The aggregate tax basis of
the shares received in the reverse stock split, including any fraction of a
share received, would be the same as your aggregate tax basis in the shares
exchanged. The holding period for the shares received pursuant to the reverse
stock split would include the period during which you held the shares
surrendered in the stock split.
23
The foregoing summary regarding the tax consequence of a reverse stock
split are not binding upon the Internal Revenue Service or the courts, and there
can be no assurance that the Internal Revenue Service or the courts will accept
the positions expressed above. The state and local tax consequences of the
reverse stock split may vary significantly as to each stockholder, depending
upon the state in which he or she resides.
NO APPRAISAL RIGHTS
The holders of shares of common stock have no appraisal rights under
Delaware law, the Company's Restated Certificate of Incorporation or the
Company's by-laws with respect to the proposed amendments to the Company's
Restated Certificate of Incorporation effecting a reverse stock split. If the
amendment is approved by the stockholders, any such amendment will become
effective, if at all, on the day a Certificate of Amendment required by the
General Corporation Law of the State of Delaware is filed with the Secretary of
State of the State of Delaware. However, the Board of Directors is authorized to
abandon the amendment at any time prior to effectiveness, without further action
by stockholders.
The Board of Directors of the Company recommends a vote FOR the
proposed amendment to the Company's Restated Certificate of Incorporation to
effect a reverse stock split as set forth in Proposal 2.
ITEM 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company has appointed KPMG LLP as the Company's independent auditors
for the fiscal year ending December 31, 2002. KPMG LLP audited the Company's
financial statements for the nine-month fiscal period ended December 31, 2001
and the fiscal year ended March 31, 2001. Ratification of the appointment of
KPMG LLP as the Company's independent auditors will require the affirmative vote
of a majority of the shares of Common Stock represented in person or by proxy
and entitled to vote at the Annual Meeting. In the event shareholders do not
ratify the appointment of KPMG LLP as the Company's independent auditors, such
appointment may be reconsidered by the Audit Committee and the Board of
Directors. Representatives of KPMG LLP will be present at the Annual Meeting to
respond to appropriate questions and to make such statements as they may desire.
The Board of Directors of the Company recommends a vote FOR ratification
of KPMG LLP as the Company's independent auditors for the fiscal year ending
December 31, 2002.
AUDIT FEES. The aggregate fees billed by KPMG LLP for professional
services rendered for the audit of the Company's annual financial statements for
the nine-month transition fiscal period ending December 31, 2001 fiscal year
were $150,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. There were
no fees billed by KPMG LLP for the professional services described in Paragraph
(c)(4)(ii) of Rule 2-01 of Regulation S-X for the nine-month transition fiscal
period ending December 31, 2001.
24
ALL OTHER FEES. The aggregate fees billed by KPMG LLP for all other
professional services rendered for the nine-month fiscal period ending December
31, 2001 were $76,213 for audit related services and $6,600 for non-audit
related services.
The Audit Committee considered whether the provision of the services
covered under the preceding two paragraphs is compatible with maintaining the
principal accountant's independence.
Prior to the appointment of KPMG, LLP, the Company's independent
auditors were Arthur Andersen LLP. On February 26, 2001, the Company and Arthur
Andersen LLP terminated their client-auditor relationship. The reports of Arthur
Andersen LLP on the consolidated financial statements for the past two years
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. The Audit
Committee of the Board of Directors of the Company approved the decision to
change independent accountants. In connection with its audits for the two most
recent fiscal years and through February 26, 2001, there were no disagreements
with Arthur Andersen LLP on any matter of accounting principles or practices,
consolidated financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP,
would have caused them to make reference thereto in their report on the
consolidated financial statements for such years. During the two most recent
fiscal years and through February 26, 2001, there were no reportable events (as
defined in Regulation S-K Item 304(a)(1)(v)). The Company requested that Arthur
Andersen LLP furnish it with a letter addressed to the Securities and Exchange
Commission stating whether or not it agrees with the above statements. A copy of
such letter, dated March 2, 2001, was received. The Company appointed KPMG LLP
as its new independent accountants as of February 26, 2001.
GENERAL INFORMATION
VOTING PROCEDURES
All matters specified in this Proxy Statement that are to be voted on at
the Annual Meeting will be by written ballot. One or more inspectors of election
will be appointed, among other things, to determine the number of shares
outstanding and the voting power of each, the shares represented at the Annual
Meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, to receive votes or ballots, to hear and determine all challenges and
questions in any way arising in connection with the right to vote, to count and
tabulate all votes and to determine the result.
SOLICITATION COSTS
The Company will pay the cost of preparing and mailing this Proxy
Statement and other costs of the proxy solicitation made by the Board of
Directors. Certain of the Company's officers and employees may solicit the
submission of proxies authorizing the voting of shares in accordance with the
Board of Directors' recommendations, but no additional remuneration will be paid
by the Company for the solicitation of those proxies. Such solicitations may be
made by personal interview or telephone. Arrangements have also been made with
brokerage firms and others for the forwarding of proxy solicitation materials to
the beneficial owners of Common Stock, and the
25
Company will reimburse such persons for reasonable out-of-pocket expenses
incurred in connection therewith.
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
A stockholder desiring to submit an otherwise eligible proposal for
inclusion in the Company's proxy statement for the 2003 annual meeting of
stockholders of the Company must deliver the proposal so that it is received by
the Company no later than December 31, 2002. The Company requests that all such
proposals be addressed to the Company's Secretary at the Company's principal
executive offices, 500 North Central Expressway, Plano, Texas 75074, and mailed
by certified mail, return-receipt requested.
COMPLIANCE WITH CERTAIN REPORTING OBLIGATIONS
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and controlling stockholders to file initial reports of
ownership and reports of changes of ownership of the Company's Common Stock with
the Securities and Exchange Commission and the Company. To the Company's
knowledge, all reports required to be so filed were filed in accordance with the
provisions of said Section 16(a).
FINANCIAL AND OTHER INFORMATION
The Company's Annual Report on Form 10-K for the nine-month transition
period ended December 31, 2001 is being sent to stockholders of record as of the
Record Date together with this Proxy Statement.
26
OTHER MATTERS
The Board of Directors knows of no matters other than those described in
this Proxy Statement which are likely to come before the Annual Meeting. If any
other matters properly come before the Annual Meeting, or any adjournment
thereof, the persons named in the accompanying form of proxy intend to vote the
proxies in accordance with their best judgment.
By Order of the Board of Directors,
/s/ HARVEY H. ACHATZ
Harvey H. Achatz
Secretary
Plano, Texas
April , 2002
27
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PFSweb, Inc.
The undersigned hereby appoints Mark C. Layton and Harvey H. Achatz as
proxies, with power to act without the other and with power of substitution, and
hereby authorizes them to represent and vote, as designated on the other side,
all the shares of stock of PFSweb, Inc. standing in the name of the undersigned
with all powers which the undersigned would possess if present at the Annual
Meeting of Stockholders of the Company to be held June 7, 2002 or any
adjournment thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
Please mark
your votes as [X]
indicated in
this example
<Table>
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR ITEMS 1, 2 AND 3.
FOR AGAINST ABSTAIN
ITEM 1 - ELECTION OF DIRECTORS ITEM 2 - TO CONSIDER AND VOTE UPON A PROPOSAL [ ] [ ] [ ]
TO AMEND THE COMPANY'S RESTATED
Nominee: FOR AGAINST ABSTAIN CERTIFICATE OF INCORPORATION TO
EFFECT A REVERSE SPLIT OF THE
Mark C. Layton [ ] [ ] [ ] COMPANY'S OUTSTANDING COMMON STOCK
BY A RATIO OF NO CHANGE TO UP TO
Timothy M. Murray [ ] [ ] [ ] ONE-FOR-FIVE AND AUTHORIZE THE
COMPANY'S BOARD OF DIRECTORS TO
Dr. Neil W. Jacobs [ ] [ ] [ ] DETERMINE THE EXACT RATIO WITHIN
THAT RANGE.
ITEM 3 - APPOINTMENT OF INDEPENDENT AUDITORS [ ] [ ] [ ]
Signature Signature Date
------------------------------------------ ------------------------------------------ ----------------------
</Table>
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH.