UNITED STATES OF AMERICA
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
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PEGASUS SOLUTIONS, INC.
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(Name of Registrant as Specified In Its Charter)
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(PEGASUS SOLUTIONS LOGO)
CAMPBELL CENTRE I
8350 NORTH CENTRAL EXPRESSWAY, SUITE 1900
DALLAS, TEXAS 75206
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
---------------------
Dear Stockholders:
On Tuesday, May 6, 2003, Pegasus Solutions, Inc. will hold its annual
meeting of stockholders at the Hotel Crescent Court, 400 Crescent Court, Dallas,
Texas. The meeting will begin at 10:00 a.m. Dallas, Texas time.
Only stockholders that own stock at the close of business on March 11,
2003, can vote at this meeting. At the meeting we will:
1. Elect three Class III Directors to the Board of Directors; and
2. Attend to any other business properly brought before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES
TO SERVE ON THE BOARD OF DIRECTORS.
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 19, 2003
(PEGASUS SOLUTIONS LOGO)
CAMPBELL CENTRE I
8350 NORTH CENTRAL EXPRESSWAY, SUITE 1900
DALLAS, TEXAS 75206
PROXY STATEMENT
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Questions and Answers....................................... 1
Proposal You May Vote On.................................... 4
Nominees for Directors...................................... 4
Directors Continuing in Office.............................. 4
Statement of Corporate Governance........................... 5
Directors' Compensation..................................... 6
Executive Officers.......................................... 7
Named Executive Officers' Compensation...................... 8
Summary Compensation Table.................................. 8
Compensation Committee Report............................... 13
Audit Committee Report...................................... 14
Directors' and Officers' Ownership of Our Common Stock...... 15
Certain Transactions........................................ 16
Stock Performance Graph..................................... 17
Section 16(a) Beneficial Ownership Compliance............... 17
Independent Accountants..................................... 18
Other Matters............................................... 18
Annual Report............................................... 19
</Table>
QUESTIONS AND ANSWERS
1. Q: WHY AM I RECEIVING THIS PROXY STATEMENT?
A: Pegasus Solutions, Inc., a Delaware corporation ("Pegasus" or the
"Company"), is furnishing this proxy statement to stockholders of
Pegasus as of March 11, 2003, in connection with its 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 Hotel Crescent Court, 400 Crescent Court, Dallas, Texas,
on Tuesday, May 6, 2003, 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 $3,600 plus expenses for this service.
Pegasus will bear the cost of solicitation of proxies. In addition to
the use of the mail, 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 number 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 7,
2003.
4. Q: WHAT MAY I VOTE ON?
A: (1) The election of nominees to serve on the Board of Directors; and
(2) 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 OF DIRECTORS OF PEGASUS RECOMMEND I VOTE?
A: The Board of Directors of Pegasus recommends a vote FOR each of the
nominees to serve on the Board of Directors.
6. Q: WHO IS ENTITLED TO VOTE?
A: Stockholders of record at the close of business on March 11, 2003, which
is 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 the proxy card;
- By using the Internet and following the instructions for voting via
the Internet set forth on the proxy card; or
- In person, at the meeting.
If you hold your shares through a bank, broker or other nominee,
that institution will give you separate instructions for voting your
shares.
1
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., Campbell Center I, 8350 North Central Expressway, Suite 1900,
Dallas, Texas 75206;
(2) voting in person at the meeting;
(3) returning a later-dated proxy card revoking or changing the
previous vote that is received prior to the meeting; or
(4) subsequently voting by telephone or over the Internet following the
instructions found on the proxy card.
9. Q: WHO WILL COUNT THE VOTES?
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: Yes. 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 MAY I VOTE?
A: Every stockholder is entitled to one (1) vote for each share of common
stock held on the record date. As of the record date, 24,750,751 shares
of common stock were issued and outstanding.
12. Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your shares only if you instruct your broker how
to vote. Your broker will send you directions on how you can instruct
your broker to vote. Your broker cannot vote your shares without
instructions from you.
13. 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 present in person or represented by proxy for the meeting to be
held. The affirmative vote of a plurality of the shares of outstanding
common stock of Pegasus 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. 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. 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 have the effect of negative
votes, but broker non-votes have no effect since they are not treated as
shares entitled to vote on the matter.
2
14. Q: WHO MAY ATTEND THE ANNUAL MEETING AND HOW DO I GET ON THE GUEST LIST?
A: All stockholders as of the close of business on March 11, 2003, 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., Campbell Center I, 8350 North Central Expressway, Suite 1900,
Dallas, Texas 75206. 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.
15. Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: At this time, we do not know of any other business to be considered at
the 2003 annual meeting. If any other business is presented at the
annual meeting, your signed proxy card gives discretionary authority to
John F. Davis, III, President and Chief Executive Officer, or Ric L.
Floyd, Executive Vice President, Secretary and General Counsel, to vote
on such matters.
16. Q: WHEN ARE THE STOCKHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING DUE?
A: All stockholder proposals to be considered for inclusion in next year's
proxy statement and form of proxy must be submitted in writing to Ric L.
Floyd, Secretary, Pegasus Solutions, Inc., at Campbell Center I, 8350
North Central Expressway, Suite 1900, Dallas, Texas 75206. Any such
stockholder proposals must be received prior to December 8, 2003, which
is 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 2004
annual meeting of stockholders if Pegasus did not have notice of the
matter at least 45 days before April 7, 2004, which is the same month
and day in 2003 on which the registrant first mailed its proxy materials
for its 2003 annual meeting of stockholders.
3
PROPOSAL YOU MAY VOTE ON
ELECTION OF DIRECTORS
Pegasus 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. and Thomas F.
O'Toole, whose terms will expire at the annual meeting to be held in
2004.
- Class II Directors, which include Robert B. Collier, Pamela H. Patsley
and Bruce W. Wolff, whose terms will expire at the annual meeting to be
held in 2005.
- 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 6, 2003, three
Directors will be elected as Class III Directors for terms expiring at the
annual meeting to be held in 2006 and until their respective successors are
elected and qualified. Nominees for election this year are: Michael A. Barnett,
John F. Davis, III and Jeffrey A. Rich. Shares represented by returned and
executed proxies will be voted, unless otherwise specified, in favor of the
three nominees for the Board of Directors. If any Director is unable to stand
for re-election, the Board of Directors of Pegasus 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 NOMINEES FOR
DIRECTOR.
NOMINEES FOR DIRECTORS
MICHAEL A. BARNETT, age 49, has served as a director of Pegasus 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 Interests, Inc., a
diversified real estate management company. Since 1984, Mr. Barnett has served
as Chairman of the Board of Barnett Lane Investments, Inc., a real estate
investment and management company. Since 1986, Mr. Barnett has served as
President and Director of Quinlan Bancshares, Inc., a bank holding company.
JOHN F. DAVIS, III, age 50, has served as Chief Executive Officer of
Pegasus since February 1989, as a Director since July 1995, as Chairman of the
Board since March 2001 and as President since January 2003. Mr. Davis also
served as President of Pegasus from February 1989 to January 2001.
JEFFREY A. RICH, age 42, has served as a director of Pegasus since December
2000. Mr. Rich has served as Chief Executive Officer of Affiliated Computer
Services, Inc. ("ACS"), 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.
DIRECTORS CONTINUING IN OFFICE
ROBERT B. COLLIER, age 63, has served as a director of Pegasus since July
1998. From September 1998 to December 1999, Mr. Collier served as President of
RBC Associates, a consulting firm to the travel and tourism industry. 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
4
acquisition by Six Continents PLC. Mr. Collier currently serves as a
non-executive member of the boards of directors of a number of hotel, travel
technology and leisure companies in the United Kingdom.
WILLIAM C. HAMMETT, JR., age 56, has served as Vice Chairman of the Board
of Directors of Pegasus since May 2001, and as a director of Pegasus since
October 1995. From May 1998 to March 2001, Mr. Hammett served as Chairman of the
Board of Directors of Pegasus. From October 1995 to May 1998, Mr. Hammett served
as Vice Chairman of the Board of Directors of Pegasus. From December 2001 to
present, Mr. Hammett has served as Senior Vice President and Chief Financial
Officer of Dave and Busters, Inc., a retail restaurant and entertainment
company. Since December 1998, 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.
THOMAS F. O'TOOLE, age 45, has served as a director of Pegasus since May
1998. Since March 2003, Mr. O'Toole has served as Senior Vice
President - Strategy and Systems for both Hyatt Corporation, the parent company
of Hyatt Hotels Corporation, and AIC Holding Co., the parent company of Hyatt
International Corporation. From October 2000 to March 2003, Mr. O'Toole 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 Hotels Corporation. From July 1995 to March 1999,
Mr. O'Toole served as Vice President, Marketing for Hyatt Hotels Corporation.
PAMELA H. PATSLEY, age 46, has served as a director of Pegasus since May
2002. Ms. Patsley has served as Senior Executive Vice President of First Data
Corporation, a provider of electronic commerce and payment services, and since
May 2002 as President of its subsidiary, First Data International, responsible
for all operations outside of the US within the card issuing and merchant
services businesses of First Data Corporation. From March 2000 to May 2002, Ms
Patsley served as the President of First Data Corporation's merchant transaction
processing business unit. Ms. Patsley served as President and Chief Executive
Officer of Paymentech, Inc., a processor of bankcard transactions and issuer of
commercial cards from 1991 to February 2000. Ms. Patsley is also a director of
Adolph Coors Company.
BRUCE W. WOLFF, age 59, has served as a director of Pegasus since October
1995. Mr. Wolff has served as Senior Vice President, Distribution Sales and
Strategy 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 International, Inc.
STATEMENT OF CORPORATE GOVERNANCE
The Board of Directors held five meetings in 2002. All Directors attended
at least 75% of the Board meetings and all committee members attended at least
75% of the meetings of the Board committees on which that Director served.
The Board has established four standing committees.
Audit Committee. The Audit Committee assists the Board of Directors
in connection with the selection and monitoring of the Company's
independent auditors and the provision of their services and the Company's
financial reporting processes. Members of the Audit Committee include
Michael A. Barnett, William C. Hammett, Jr. and Pamela H. Patsley. The
Audit Committee met eight times during 2002.
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,
William C. Hammett, Jr. and Jeffrey A. Rich. The Compensation Committee met
six times during 2002.
5
Corporate Governance Committee. On May 8, 2001, the Nominating
Committee was reorganized as the Corporate Governance Committee. The
Corporate Governance Committee makes recommendations to the Board of
Directors regarding the composition of the Board and corporate governance
matters. The Corporate Governance Committee typically does not consider
nominees recommended by stockholders. Members of the Corporate Governance
Committee include William C. Hammett, Jr., Thomas F. O'Toole, Pamela H.
Patsley and Bruce W. Wolff. The Corporate Governance Committee met three
times during 2002.
Executive Committee. The Executive Committee exercises authority and
makes recommendations to the Board of Directors regarding matters
specifically delegated to it by the Board of Directors. Members of the
Executive Committee include Michael A. Barnett, John F. Davis, III and
William C. Hammett, Jr. The Executive Committee did not meet during 2002.
During 2002, the Board of Directors and management monitored the enactment
of the many new regulations relating to corporate governance, attended
presentations regarding newly enacted and currently proposed regulations and
reviewed our compliance. Although the new regulations impose significant new
requirements and will cause many companies to elect new boards, appoint new
committee members and change many of their current practices, Pegasus is, and
has been for some time, in substantial compliance with the new and currently
proposed Securities and Exchange Commission and National Association of
Securities Dealers, Inc. ("NASD") rules. We have not waited to react to what is
required but have taken the "right" steps long before the enactment of these new
laws to ensure that we exercise good corporate governance and are deserving of
the public trust.
Our long time commitment to corporate governance has been evidenced by some
of the following actions:
- we established a Corporate Governance Committee in 2001
- the substantial majority of our Board of Directors has been independent
(pursuant to current and currently proposed Securities and Exchange
Commission and NASD rules) since becoming a public company
- we have had a code of ethics applicable to all employees since becoming a
public company
- we believe that all members of our Audit Committee qualify as "audit
committee financial experts" as defined by Section 407 of the
Sarbanes-Oxley Act of 2002 and Securities and Exchange Commission rules
- our Audit Committee has had at least one "audit committee financial
expert" since becoming a public company
- all members of our Corporate Governance Committee have been independent
(pursuant to current and currently proposed Securities and Exchange
Commission and NASD rules) since its inception
- all members of our Audit Committee and Compensation Committee have been
independent (pursuant to current and currently proposed Securities and
Exchange Commission and NASD rules) since becoming a public company
- we have in place active internal control and disclosure committees
We are committed to good corporate governance and doing what is right to
earn and deserve the trust of our stockholders. We will continue to actively
monitor the enactment of new regulations, will keep our Board of Directors and
management informed and will take the steps necessary to assure our compliance.
DIRECTORS' COMPENSATION
During 2002, the Company's standard arrangements for director compensation
included an annual payment of $15,000, payable in quarterly installments, for a
non-employee Chairman of the Board. All other non-employee Directors receive
$10,000 annually, payable quarterly. Additionally, each non-employee Director
receives $2,500 for each Board meeting attended and $1,250 for each telephonic
Board meeting
6
attended. Each non-employee Director also receives $1,000 for each committee
meeting attended and $500 for each telephonic committee meeting attended. Each
Committee Chairman receives an additional $500 for each committee meeting
attended and an additional $250 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 Pegasus.
Non-employee Directors receive stock option grants as follows:
- 12,000 shares at the closing price on the date immediately preceding
election as a 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 ten-year term.
- An additional 5,000 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 ten-year term.
- Such additional grants at the discretion of the Compensation Committee.
During 2002, Messrs Collier, Hammett, O'Toole and Wolff each also received
a restricted stock award of $7,855, representing 575 shares of Pegasus common
stock at the closing price on that date, with the applicable restrictions
lapsing on the first anniversary date of issue.
EXECUTIVE OFFICERS
The executive officers of Pegasus are as follows:
<Table>
<Caption>
NAME POSITION
- ---- --------
John F. Davis, III................................... President, Chief Executive Officer and
Chairman of the Board
Joseph W. Nicholson.................................. Executive Vice President, Strategic
Planning and Corporate Development
Susan K. Cole........................................ Executive Vice President and Chief
Financial Officer
Mark C. Wells........................................ Executive Vice President and Chief
Operating Officer
Ric L. Floyd......................................... Executive Vice President, Secretary
and General Counsel
Gary Siegel.......................................... Executive Vice President, Human
Resources and Administration
</Table>
Set forth below is information concerning the business experience of the
executive officers of Pegasus that are not also Directors:
JOSEPH W. NICHOLSON, age 42, has served as Executive Vice President,
Strategic Planning and Corporate Development of Pegasus since January 2003. From
January 2001 to December 2002, Mr. Nicholson served as President of Pegasus.
From September 1998 to December 2002, Mr. Nicholson served as Vice President and
Chief Operating Officer of Pegasus. From September 1989 to September 1998, Mr.
Nicholson served as Chief Information Officer of Pegasus.
SUSAN K. COLE, age 39, has served as Executive Vice President and Chief
Financial Officer of Pegasus since May 2001. From May 1997 to April 2001, Ms.
Cole served as a partner in the Technology, Infocom, Communication and
Entertainment practice of PricewaterhouseCoopers LLP, a global public accounting
firm, in the Dallas, Texas office.
7
MARK C. WELLS, age 53, has served as Executive Vice President and Chief
Operating Officer of Pegasus since January 2003. From January 2000 to December
2002, Mr. Wells served as Executive Vice President of Pegasus and President and
Chief Operating Officer of Pegasus' subsidiary, Utell Limited. 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. From
September 1996 to January 2000, Mr. Wells served as a Director of Pegasus.
RIC L. FLOYD, age 51, has served as Secretary and General Counsel of
Pegasus since July 1997 and has served as Executive Vice President of Pegasus
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.
GARY SIEGEL, age 56, has served as Executive Vice President, Human
Resources and Administration, of Pegasus 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.
NAMED EXECUTIVE OFFICERS' 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, 2002, were in excess of $100,000.
In accordance with the rules of the Securities and Exchange 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
Named Executive Officer's salary and bonus disclosed in the table.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
AWARDS
----------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) OPTIONS(#) COMPENSATION
- --------------------------- ---- -------- -------- ---------- ---------- ------------
John F. Davis, III(3)............... 2002 $424,008 $118,616 $599,674 -- $65,740(2)
President, Chief Executive Officer 2001 $400,008 $133,336 -- 452,765 $17,962
and Chairman of the Board 2000 $400,338 $120,002 -- 80,000 $17,284
Joseph W. Nicholson(3).............. 2002 $344,500 $ 58,910 $399,897 -- $49,445(2)
Executive Vice President,
Strategic 2001 $325,000 $115,104 -- 175,000 $11,820
Planning and Corporate Development 2000 $265,137 $ 49,688 -- 110,000 $11,390
Susan K. Cole(3).................... 2002 $235,000 $ 38,047 -- -- $14,994(2)
Executive Vice President 2001(4) $153,106 $ 48,738 -- 55,000 $ 271
and Chief Financial Officer 2000 -- -- -- -- --
Mark C. Wells(3).................... 2002 $265,000 $124,974 $228,696 100,000 $17,549(2)
Executive Vice President 2001 $265,000 $ 26,500 -- 54,773 $ 9,924
and Chief Operating Officer 2000 $253,978 $ 47,509 -- 100,000 $ 8,123
Ric L. Floyd(3)..................... 2002 $231,000 $ 48,949 $100,060 -- $19,004(2)
Executive Vice President, 2001 $220,000 $ 55,000 -- 173,237 $ 9,311
Secretary and General Counsel 2000 $200,103 $ 52,500 -- 15,000 $ 8,411
</Table>
8
- ---------------
(1) The restricted stock value was calculated based upon the number of shares
issued multiplied by the closing price of the Company's stock on the date of
issue.
(2) Reflects (i) matching contributions made by Pegasus pursuant to our 401(k)
plan for the accounts of Messrs. Davis, Nicholson, Wells and Floyd and Ms.
Cole in the amounts of $10,000, $9,997, $8,000, $4,220 and $9,239,
respectively; (ii) contributions allocated by Pegasus under the Deferred
Compensation Plan for the accounts of Messrs. Davis, Nicholson, Wells and
Floyd and Ms. Cole in the amounts of $47,216, $35,750, $8,492, $13,834 and
$5,378, respectively; and (iii) premiums paid for life insurance policies
for the benefit of Messrs. Davis, Nicholson, Wells and Floyd and Ms. Cole in
the amounts of $8,524, $3,698, $1,057, $950 and $377, respectively.
(3) The salaries of Messrs. Davis, Nicholson, Wells and Floyd and Ms. Cole were
paid in accordance with the terms of their respective employment agreements.
(4) Ms. Cole became an employee of Pegasus in May 2001.
Option Grants In Last Fiscal Year. The following table sets forth the only
stock option grant made during the year ended December 31, 2002, to any Named
Executive Officer.
<Table>
<Caption>
% OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANT DATE
UNDERLYING OPTIONS GRANTED IN EXERCISE PRICE EXPIRATION PRESENT
NAME GRANTED(1) 2002(2) PER SHARE(3) DATE(4) VALUE(5)
- ---- ---------------------- ---------- -------------- ---------- ----------
Mark C. Wells............. 100,000 9.73% $13.40 06/14/12 $637,547
</Table>
- ---------------
(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 granted during 2002 to purchase an aggregate of 1,027,420
shares of common stock.
(3) The exercise price for the option is 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) All options have a term of ten (10) years, but may terminate before their
expiration date in the event of the death, disability or termination of
employment (other than for cause) 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:
<Table>
Volatility.................................................. 57.13%
Risk free rate of return.................................... 3.85%
Dividend Yield.............................................. 0.0%
Expected Life (years)....................................... 4
</Table>
9
Aggregate Fiscal Year-End Option Values. The following table sets forth
information concerning options exercised during 2002 and options held on
December 31, 2002, by our Named Executive Officers whose salary and bonus
exceeded $100,000 for 2002.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
John F. Davis, III.......... 60,000 $1,020,441 549,875 330,625 $2,409,458 $214,313
Joseph W. Nicholson......... 20,000 $ 277,051 284,000 205,000 $ 891,410 $ 70,000
Susan K. Cole............... -- -- 13,750 41,250 -- --
Mark C. Wells............... -- -- 61,687 155,813 $ 8,334 $ 25,003
Ric L. Floyd................ 9,750 $ 96,234 53,937 114,938 $ 2,662 $ 17,145
</Table>
- ---------------
(1) Based on the difference between the option exercise price and the closing
sale price of Pegasus' common stock as reported on the Nasdaq National
Market on the exercise date.
(2) Based on the difference between the option exercise price and the closing
sale price of $10.03 of Pegasus' common stock as reported on the Nasdaq
National Market on December 31, 2002, 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. Messrs. Davis, Nicholson, Wells and Floyd have four-year
employment agreements expiring December 31, 2003. Ms Cole has a four year
employment agreement expiring May 7, 2005. 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' Executive Retirement Program (described below).
Each employment agreement provides that Pegasus may terminate the Named
Executive Officer's employment with or without cause (as that term is defined in
the agreement) or upon death or disability. Each of the Named Executive Officers
may terminate the agreement for good reason (as that term is defined in the
agreement) or voluntarily.
If the Named Executive Officer's employment is terminated by Pegasus for
death or disability, the Named Executive Officer is entitled to all amounts
earned and accrued through the termination date, plus base salary and a pro rata
bonus for one year, options and other incentive based awards vest for one
additional year and payments as provided by the Executive Retirement Program. If
the Named Executive Officer's employment is terminated by Pegasus without cause
or by the Named Executive Officer for good reason, the Named Executive Officer
is entitled to all accrued compensation and a pro rata bonus, base salary and
bonus for 24 months, continuation of customary and usual benefits for 12 months,
options and other incentive based awards vest for an additional period or in
full, and some of the Named Executive Officers continue to accrue benefits and
vesting of service for two years for purposes of the Executive Retirement
Program.
Executive Retirement Program. Effective July 1, 2002, the Board of
Directors adopted an Executive Retirement Program, consisting of an amended and
restated Supplemental Executive Retirement Plan, or SERP, and a Deferred
Compensation Plan, or DCP. The purpose of the Executive Retirement Program is to
promote executive management's interest in the successful operation of the
business and increased efficiency in their work, to align the financial
interests of such employees with those of Company stockholders, to ensure
competitive pay and benefits for those individuals and to provide an opportunity
for accumulation of funds for their retirement. The Executive Retirement Program
provides supplemental retirement benefits to certain management employees of
Pegasus selected by the Compensation Committee in its discretion, permits such
employees to defer amounts of their compensation that exceed the permitted
savings limits under the Pegasus 401(k) plan, and rewards long-term service
through supplemental contributions to a deferred account for each participant.
No person has an automatic right to become a participant in the Executive
Retirement Program.
10
Supplemental Employee Retirement Plan. Benefits under the SERP are
computed on a single-life annuity basis and become payable to the participant or
his or her beneficiary, as applicable, upon retirement, death, total and
permanent disability or termination of employment (other than for cause). 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 benefits equal to the greater of (a) 3% of his
or her monthly targeted base salary and bonus as of July 1, 2002, multiplied by
his or her years of service as of July 1, 2002, increased by 5% per annum until
termination of employment (but not to exceed 60% or, in the case of the Chief
Executive Officer, 70%, of the participant's final average compensation; or if
greater, targeted July 1, 2002, compensation), or (b) one-half percent (1/2%) of
the participant's final average compensation multiplied by his or her years of
service. In the event of death, the participant's beneficiary will receive a
lump-sum payment equal to an actuarially equivalent amount. SERP benefits may
also be paid, at the option of the participant, in the form of an actuarially
equivalent ten-year fixed annuity, a joint and 50% or 100% survivor annuity, or,
in the Compensation Committee's discretion, a partial or full lump sum. Also,
within twelve months following a change of control of Pegasus, the participant
may, under certain conditions, receive an actuarially equivalent lump sum
payment of his or her benefit.
During 2002, Pegasus accrued a deferred compensation liability of $990,409
for future payments to Ms. Cole and Messrs. Davis, Nicholson, Wells, Floyd and
Siegel. Additionally, at December 31, 2002, the Company recorded an additional
minimum liability applicable to the SERP of $1,090,826 for the excess of the
SERP's unfunded accumulated benefit obligation over the SERP's unfunded accrued
pension cost. The current participants in the SERP are Ms. Cole and Messrs.
Davis, Nicholson, Wells, Floyd and Siegel.
The estimated annual benefit payable under the SERP upon retirement at
normal retirement age is, for Ms. Cole, $100,203, for Mr. Davis, $487,408, for
Mr. Nicholson, $510,282, for Mr. Wells, $43,435, for Mr. Floyd, $120,012, and
for Mr. Siegel, $16,853.
Deferred Compensation Plan. Effective July 1, 2002, the DCP permits each
participant to defer up to 100% of his or her compensation, to be credited to
his or her account in the DCP. Pegasus contributes to each participant's account
in the DCP (a) a restoration contribution equal to the maximum potential
matching contribution under the Pegasus 401(k) Plan (reduced by the actual match
for the participant for the year), (b) an employer contribution equal to 1% of
compensation multiplied by years of service (not to exceed 25% of compensation)
and (c) for 2003 through 2006, a supplemental contribution equal to $5,000 (for
the 2003 year, $10,000); multiplied by years of service determined as of the end
of the preceding year. During 2002, Pegasus accrued a deferred compensation
liability of $114,323 attributable to the DCP.
All Executive Retirement Program benefits are paid from the general assets
of Pegasus and the Executive Retirement Program is an unfunded deferred
compensation arrangement, not subject to the annual reporting and disclosure
requirements of the Employee Retirement Income Security Act of 1974. Pegasus has
created and is required to make deposits to a grantor trust (the assets of which
are available to its general creditors in the event of insolvency) representing
a portion of its accrued liabilities for deferred compensation.
Equity Compensation Plans. The Company's 1996 Stock Option Plan ("1996
Plan"), amended and approved by stockholders in March 1997, provides that
options to purchase 1.3 million shares of the Company's common stock may be
granted to Company employees. The Company's 1997 Stock Option Plan ("1997
Plan"), approved by stockholders in March 1997, provides that options to
purchase shares of the Company's common stock may be granted to Company
employees, non-employee directors and consultants. The 1997 Plan, amended and
approved by stockholders in May 2002 and renamed the "Pegasus Solutions, Inc.
2002 Stock Incentive Plan" (the "2002 Plan"), provides for the granting of
options to purchase common stock and for restricted stock awards. The number of
shares reserved for issuance as of December 31, 2002 (before the share
replenishment described in the following sentence), was 422,542. The 2002 Plan
further provides that the number of shares reserved for issuance as options or
restricted stock will be replenished by an amount equal to four percent of the
number of shares of Company stock outstanding as of the last day of the
immediately preceding year. The applicable number of shares outstanding as of
December 31, 2002 was 24,747,165. The 2002 Plan authorizes the grant of
restricted stock each year, not to exceed 2.5 percent of the number of shares
reserved for issuance under the 2002 Plan.
11
Options granted under the 1996 Plan and the 2002 Plan (collectively "the
Plans") may be in the form of incentive stock options or nonqualified stock
options. The Compensation Committee of the board of directors ("Committee")
administers the Plans and determines option grant prices. Options granted to
Company employees generally vest over a four-year period. Options granted to
non-employee directors and consultants vest and expire as determined by the
Committee. Options granted under the 1996 Plan before September 15, 1999, expire
in December 2005. Options granted to Company employees under the 2002 Plan
before September 15, 1999, expire in December 2006. Options granted to Company
employees on or after September 15, 1999, under the Plans expire ten years from
the date of grant. The Company's authorized but unissued common stock is used
for issuance of shares as stock options are exercised.
12
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors of Pegasus 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 and incentive plans for such awards to satisfy
Securities Exchange Act Rule 16b-3. No member of the Compensation Committee was
at any time during 2002, 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 2002 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; and
- 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 restricted stock
and 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 other companies 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.
2002 Chief Executive Officer Compensation. Mr. Davis' compensation for
2002 as Chief Executive Officer of Pegasus principally consisted of a base
salary, bonus and a restricted stock award. The Compensation Committee
determined Mr. Davis' 2002 base salary, bonus and restricted stock award 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. Additionally, in 2002, the Company contributed
$446,658 under the Executive Retirement Program for Mr. Davis' benefit. Mr.
Davis does not participate in the Compensation Committee's decisions 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 its 2002 Stock Incentive Plan (formerly the
1997 Stock Option Plan) to allow Pegasus to deduct the compensation expense paid
upon the exercise of stock options granted under the 2002 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.
JEFFREY A. RICH
13
AUDIT COMMITTEE REPORT
The Board of Directors maintains an Audit Committee, acting pursuant to a
written charter adopted by the Board, comprised of three non-employee Directors
of Pegasus, who are independent, as that term is used under the applicable rules
and regulations of the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc. ("NASD"). We believe all three members
of the Audit Committee qualify as "audit committee financial experts" under
current regulations. The Audit Committee believes that the Audit Committee's
current member composition satisfies the requirements of the Sarbanes-Oxley Act
of 2002, the recently enacted rules of the Securities and Exchange Commission
and the current and proposed rules of NASD that govern audit committee
composition.
The Audit Committee assists the Board in its oversight responsibilities
and, in particular, is responsible for (a) monitoring the integrity of the
Company's financial statements, financial reporting processes and systems of
internal controls regarding finance, accounting and legal compliance, (b)
selecting and appointing the Company's independent auditors and monitoring their
independence and performance, pre-approving all audit and non-audit services to
be provided, consistent with all applicable laws, to the Company by the
Company's independent auditors, and establishing the fees and other compensation
to be paid to the independent auditors, and (c) establishing procedures for the
receipt, retention, response to and treatment of complaints, including
confidential, anonymous submission by the Company's employees, regarding
accounting, internal controls or audit related matters. Management is
responsible for Pegasus' financial reporting process, including its system of
internal controls, and for the preparation of the consolidated financial
statements in accordance with generally accepted accounting principles. Pegasus'
independent auditors are responsible for auditing those financial statements.
Our responsibility is to monitor and review these processes. It is not our duty
or our responsibility to conduct auditing or accounting reviews or procedures.
We are not employees of Pegasus and we may not be, and we may not represent
ourselves to be or to serve as, accountants or auditors by profession, or
experts in the fields of accounting or auditing. Therefore, we have relied,
without independent verification, on management's representation that the
financial statements have been prepared with integrity and objectivity and in
conformity with accounting principles generally accepted in the United States of
America and on the representations of the independent auditors included in their
report on Pegasus' financial statements. Our oversight does not provide us with
an independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or policies, or appropriate
internal controls and procedures designed to assure compliance with accounting
standards and applicable laws and regulations. Furthermore, our considerations
and discussions with management and the independent auditors do not assure that
Pegasus' financial statements are presented in accordance with generally
accepted accounting principles, that the audit of our Pegasus' financial
statements has been carried out in accordance with generally accepted auditing
standards or that our company's independent accounts are in fact "independent".
The Audit Committee has reviewed and discussed the consolidated financial
statements with management and the independent auditor. Management represented
to the Audit Committee that Pegasus' consolidated financial statements were
prepared in accordance with generally accepted accounting principles and the
independent auditor represented that its presentations included the matters
required to be discussed with the independent auditor by Statement on Auditing
Standards No. 61, as amended, "Communication with Audit Committees."
Pegasus' independent auditor also provided the Audit Committee with the
written disclosures required by Independence Standards Board Standard No. 1
"Independence Discussions with Audit Committees," and the Audit Committee
discussed with the independent auditor that firm's independence.
Following the Audit Committee's discussions with management and the
independent auditor, the Audit Committee recommended that the Board of Directors
include the audited consolidated financial statements in Pegasus' annual report
on Form 10-K for the year ended December 31, 2002.
Submitted by the Audit Committee
of the Board of Directors
WILLIAM C. HAMMETT, JR., Chairman
MICHAEL A. BARNETT
PAMELA H. PATSLEY
14
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 11, 2003, 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 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
24,750,751 shares outstanding as of March 11, 2003. 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 upon 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 11, 2003, are also deemed outstanding and are shown in
the column labeled "Options". These shares, however, are not deemed outstanding
for the purpose of computing the beneficial ownership of any other person.
<Table>
<Caption>
SHARES BENEFICIALLY OWNED
-------------------------------
NAME NUMBER OPTIONS PERCENT
- ---- --------- --------- -------
Blum Capital Partners, L.P.(1).......................... 3,226,900 N/A 13.04%
Strong Capital Management, Inc.(2)...................... 1,620,255 N/A 6.55%
Reed Elsevier Group, PLC(3)............................. 1,434,767 N/A 5.80%
FMR Corp.(4)............................................ 1,258,840 N/A 5.09%
Michael A. Barnett...................................... 64,198 15,082 *
Susan K. Cole........................................... 1508 27,500 *
Robert B. Collier....................................... 2,975 12,082 *
John F. Davis, III...................................... 61,725 621,437 2.69%
Ric L. Floyd............................................ 8,574 63,031 *
William C. Hammett, Jr. ................................ 21,422 14,915 *
Joseph W. Nicholson..................................... 29,660 308,375 1.35%
Thomas F. O'Toole....................................... 575 14,915 *
Pamela H. Patsley....................................... -- 4,000 *
Jeffrey A. Rich......................................... 5,000 12,331 *
Gary Siegel............................................. -- 31,250 *
Mark C. Wells........................................... 19,350 86,187 *
Bruce W. Wolff.......................................... 3,575 12,082 *
Directors and executive officers as a group (13
persons).............................................. 218,562 1,223,187 5.55%
</Table>
- ---------------
* Less than one percent (1%)
(1) Information obtained from Blum Capital Partners, L.P. The address of Blum
Capital Partners L.P. is 909 Montgomery Street, Suite 400, San Francisco, CA
94133.
(2) Information obtained from filings with the Securities and Exchange
Commission. The address of Strong Capital Management, Inc. is 100 Heritage
Reserve, Menomonee Falls, WI 53051.
(3) Information obtained from Reed Elsevier Group, PLC. The address of Reed
Elsevier is 25 Victoria Street, London SW1H 0EX, United Kingdom.
(4) Information obtained from filings with the Securities and Exchange
Commission. The address of FMR Corp. is 82 Devonshire Street, Boston, MA
02109.
15
CERTAIN TRANSACTIONS
Mr. Wolff is a Director of Pegasus and serves as Senior Vice President,
Distribution, Sales and Strategy for the lodging division of Marriott
International, Inc. In 2002, Pegasus received $3.7 million from Marriott or its
affiliates for central reservation services, electronic distribution and Utell
services and paid Marriott $1.5 million for consolidating commission data and
funds from its properties.
Mr. O'Toole is a Director of Pegasus and serves as Senior Vice
President - Strategy and Systems for both Hyatt Corporation, the parent company
of Hyatt Hotels Corporation, and AIC Holding Co., the parent company of Hyatt
International Corporation. In 2002, Pegasus received $639,000 from Hyatt for
electronic distribution and commission processing services.
Mr. Rich is a Director of Pegasus and serves as Chief Executive Officer of
Affiliated Computer Services, Inc. ("ACS"). In 2002 ACS billed Pegasus $79,445
for services provided to us in connection with our commission processing
business.
16
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, the JP Morgan H & Q Information
Services Index and a peer group. Because the JP Morgan H & Q Information
Services Index terminated during 2002, Pegasus will use a peer group to compare
cumulative total return on investment. Pegasus' peer group includes Cendant
Corporation, MICROS Systems, Inc., Sabre Holdings Corporation and USA
Interactive.
COMPARISON OF 65 MONTH CUMULATIVE TOTAL RETURN*
AMONG PEGASUS SOLUTIONS, INC., THE RUSSELL 2000 INDEX,
THE JP MORGAN H & Q INFORMATION SERVICES INDEX AND A PEER GROUP
(STOCK PERFORMANCE GRAPH)
<Table>
<Caption>
8/7/97 12/97 12/98 12/99 12/00 12/01 12/02
------- ------- ------- ------- ------- ------- -------
PEGASUS SOLUTIONS,
INC. 100.00 114.52 277.15 464.33 80.12 163.97 115.82
RUSSELL 2000 100.00 104.66 102.00 123.68 119.94 122.93 122.39
JP MORGAN H&Q
INFORMATION
SERVICES 100.00 106.11 176.54 287.48 190.81 203.99
100.00 133.87 86.70 124.91 59.32 89.90 53.79
</Table>
* $100 invested on 8/7/97 in stock or index, including investment of dividends.
Fiscal year ending December 31.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
We believe that, during the year ended December 31, 2002, none of our
Directors, officers and 10% stockholders failed to file on a timely basis
reports required for compliance 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 and Exchange Commission or written notice provided to
Pegasus that no forms were required.
17
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP served as our independent accountants for the
year ended December 31, 2002, 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.
Principal Accountant Fees and Services. Aggregate fees for professional
services rendered for the Company by PricewaterhouseCoopers LLP as of and for
the years ended December 31, 2001 and 2002, were:
<Table>
<Caption>
2002(1) 2001(1)
-------- ----------
Audit....................................................... $557,389 $ 407,482
Audit Related............................................... $ 68,717 $ 978,808
Tax......................................................... $177,628 $ 317,490
All Other................................................... $ 68,663 $ 55,375
Total....................................................... $872,397 $1,759,155
</Table>
- ---------------
(1) The aggregate fees included in "Audit" are fees billed for the fiscal years
for the audit of the Company's annual financial statements and review of
financial statements and statutory and regulatory filings or engagements.
The aggregate fees included in each of the other categories are fees billed
in the fiscal years.
Audit Fees. Audit fees were for professional services rendered in
connection with audits and quarterly reviews of the consolidated financial
statements of the Company, review of and preparation of consents for
registration statements filed with the Securities and Exchange Commission, and
for subsidiary statutory audits.
Audit Related Fees. Audit related fees were for assurance and related
services related to employee benefit plan audits and consultations regarding
financial accounting and reporting standards. Audit related fees for the year
ended December 31, 2001, also include fees related to internal control reviews.
Tax Fees. Tax fees related to services for tax compliance and consulting.
All Other Fees. All other fees were for employee benefit plan advisory
services.
Audit Committee Pre-Approval Policies and Procedures. At its regularly
scheduled and special meetings, the Audit Committee of the Board of Directors
considers and pre-approves any audit and non-audit services to be performed by
the Company's independent accountants. The Audit Committee has delegated to its
chairman, an independent member of the Company's Board of Directors, the
authority to grant pre-approvals of non-audit services provided that any such
pre-approval by the chairman shall be reported to the Audit Committee at its
next regularly scheduled meeting.
Promptly after July 30, 2002, the effective date of the Sarbanes-Oxley Act
of 2002, the Audit Committee of the Board of Directors approved all non-audit
services being performed at that time by the Company's principal accountant and
adopted its pre-approval policies and procedures as set forth above. From the
date of that meeting there were no non-audit services performed by the Company's
principal accountant that were not pre-approved. Accordingly, there were no
services for which the de minimus exception (as defined in Section 202 of the
Sarbanes-Oxley Act of 2002) was applicable.
Pegasus' Audit Committee has considered whether the provision of the
non-audit services provided by PricewaterhouseCoopers LLP is compatible with
maintaining the principal accountant's independence.
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
18
intention of the persons named in the proxies to vote in accordance with the
recommendation of the Board of Directors of Pegasus. Discretionary authority for
them to do so is contained in the proxies.
ANNUAL REPORT
WE WILL PROVIDE A COPY OF OUR 2002 ANNUAL REPORT ON FORM 10-K (INCLUDING
THE FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 13a-1 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, FOR PEGASUS' MOST RECENT FISCAL
YEAR) WITHOUT CHARGE TO ANY STOCKHOLDER WHO MAKES A WRITTEN REQUEST TO RIC L.
FLOYD, SECRETARY, PEGASUS SOLUTIONS, INC., CAMPBELL CENTER I, 8350 NORTH CENTRAL
EXPRESSWAY, SUITE 1900, DALLAS, TEXAS 75206.
By Order of the Board of Directors,
RIC L. FLOYD
Secretary
March 19, 2003
19
ANNUAL MEETING OF STOCKHOLDERS OF
PEGASUS SOLUTIONS, INC.
MAY 6, 2003
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
o Please detach and mail in the envelope provided. o
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES FOR
DIRECTOR. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE
MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [x]
<Table>
1. ELECTION OF CLASS III DIRECTORS 2. IN THEIR DISCRETION TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING
NOMINEES
[ ] FOR ALL NOMINEES O Michael A. Barnett
O John F. Davis, III THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS
O Jeffrey A. Rich GIVEN ABOVE. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED
[ ] WITHHOLD AUTHORITY FOR THOSE NOMINEES AND THE PROPOSALS LISTED ABOVE
FOR ALL NOMINEES
[ ] FOR ALL EXCEPT PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED
(See instructions below) ENVELOPE.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: o
Signature of Stockholder Date: Signature of Stockholder Date:
------------------------- --------- ---------------------- ---------
</Table>
NOTE: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
PEGASUS SOLUTIONS, INC.
CAMPBELL CENTRE I, 8350 NORTH CENTRAL EXPRESSWAY,
SUITE 1900 DALLAS, TEXAS 75206
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 6, 2003
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 6, 2003,
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)
ANNUAL MEETING OF STOCKHOLDERS OF
PEGASUS SOLUTIONS, INC.
MAY 6, 2003
PROXY VOTING INSTRUCTIONS
MAIL - Date, sign and mail your proxy card in the
envelope provided as soon as possible. COMPANY NUMBER [ ]
- OR -
ACCOUNT NUMBER [ ]
TELEPHONE - Call toll-free 1-800-PROXIES from
any touch-tone telephone and follow the instruc-
tions. Have your control number and proxy card CONTROL NUMBER [ ]
available when you call.
- OR -
INTERNET - Access "WWW.VOTEPROXY.COM" and follow
the on-screen instructions. Have your control
number available when you access the web page.
Please detach and mail in the envelope provided
o IF you are not voting via telephone or the Internet. o
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES FOR
DIRECTOR. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE
MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [x]
<Table>
1. ELECTION OF CLASS III DIRECTORS 2. IN THEIR DISCRETION TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING
NOMINEES
[ ] FOR ALL NOMINEES O Michael A. Barnett
O John F. Davis, III THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS
O Jeffrey A. Rich GIVEN ABOVE. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED
[ ] WITHHOLD AUTHORITY FOR THOSE NOMINEES AND THE PROPOSALS LISTED ABOVE
FOR ALL NOMINEES
[ ] FOR ALL EXCEPT PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED
(See instructions below) ENVELOPE.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: o
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method. [ ]
Signature of Stockholder Date: Signature of Stockholder Date:
------------------------- --------- ---------------------- ---------
</Table>
NOTE: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.