SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 14a-11(c) or Section 14a-12
CRITICAL PATH, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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CRITICAL PATH LOGO
Critical Path, Inc.
350 The Embarcadero
San Francisco, California 94105-1204
April 30, 2002
To the Shareholders:
I am pleased to invite you to attend the Annual Meeting of Shareholders of
Critical Path, Inc. to be held on Wednesday, June 5, 2002 at 10:00 a.m. local
time at the Argent Hotel located at 50 Third Street, San Francisco, California.
The agenda for this year's meeting is identified and described in the
enclosed materials. The Proxy Statement describes in detail the proposed items
to be presented to the shareholders at the meeting. I encourage you to read the
proxy carefully.
I am delighted you have chosen to invest in Critical Path, Inc. and hope
that, whether or not you plan to attend the Annual Meeting, you will vote as
soon as possible by completing, signing and returning the enclosed proxy card in
the envelope provided. Your vote is important. Voting by written proxy will
ensure your representation at the Annual Meeting even if you do not attend in
person.
A copy of the Company's Annual Report to Shareholders has been mailed with
this Proxy Statement to all shareholders entitled to notice of and to vote at
the Annual Meeting.
Sincerely,
/s/ David C. Hayden
David C. Hayden
Executive Chairman of the
Board of Directors
CRITICAL PATH, INC.
350 THE EMBARCADERO
SAN FRANCISCO, CALIFORNIA 94105-1204
(415) 541-2500
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS -- JUNE 5, 2002
To the Shareholders:
The Annual Meeting of Shareholders of Critical Path, Inc., a California
corporation (the "Company"), will be held on Wednesday, June 5, 2002, at 10:00
a.m. local time at the Argent Hotel located at 50 Third Street, San Francisco,
California to:
- Elect four directors to serve until the next Annual Meeting or until
their successors have been duly elected and qualified.
- Ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for the 2002 fiscal year.
- Transact any other business as may properly come before the meeting or
any adjournments or postponements thereof.
The names and biographies of the nominees for director are set forth in the
enclosed Proxy Statement.
All shareholders are cordially invited and encouraged to attend the Annual
Meeting. In any event, to ensure your representation at the Annual Meeting,
please carefully read the accompanying Proxy Statement that describes the
matters to be voted on at the Annual Meeting and sign, date and return the
enclosed proxy card in the reply envelope provided. Should you receive more than
one proxy because your shares are registered in different names and addresses,
each proxy should be returned to assure that all of your shares will be voted.
If you attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
Only shareholders of record at the close of business on April 16, 2002 (the
"Record Date") are entitled to notice of and to vote at this meeting and at any
continuation or adjournment thereof. Please note that if your shares are held in
"street name," that is in the custody of a financial institution or other holder
of record, you will vote through the institution or holder in whose name the
shares are held. If you wish to vote at the meeting, you must obtain from the
record holder a proxy issued in your name.
By Order of the Board of Directors,
/s/ MICHAEL J. ZUKERMAN
Michael J. Zukerman
Senior Vice President, General Counsel
and Secretary
San Francisco, California
April 30, 2002
PROXY STATEMENT
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SOLICITATION OF PROXY, REVOCABILITY AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board of Directors" or the "Board") of Critical Path, Inc., a California
corporation (the "Company" or "Critical Path"), for use at the 2002 Annual
Meeting of Shareholders to be held at 10:00 a.m. local time on June 5, 2002 at
the Argent Hotel, located at 50 Third Street, San Francisco, California.
The Company's principal executive offices are located at 350 The
Embarcadero, San Francisco, California, 94105-1204. The approximate date on
which this Proxy Statement and the accompanying Proxy are first being sent to
shareholders is on or about May 3, 2002.
VOTING
Only shareholders of record of the Common Stock of the Company ("Common
Stock"), including the holders of certain securities that are convertible into
Common Stock at the close of business on April 16, 2002 will be entitled to vote
at the Annual Meeting and any adjournments or postponements thereof. Each share
of Common Stock is entitled to one vote. Cumulative voting is not permitted. On
April 16, 2002, there were 131,756,134 shares of Common Stock outstanding and
entitled to vote at the Annual Meeting, including the number of shares of Common
Stock issuable upon conversion or exchange of certain convertible voting
securities. Therefore, the presence at the Annual Meeting, either in person or
by proxy, of a majority, or 67,195,628 shares of Common Stock, including the
number of shares of Common Stock issuable upon conversion or exchange of certain
securities into Common Stock, will constitute a quorum for the transaction of
business at the Annual Meeting. See the section entitled Special Note About
Outstanding Shares for further information on the Common Stock issuable upon the
conversion or exchange of certain securities.
Directors are elected by a plurality vote. The nominees for director who
receive the most votes cast in favor will be elected. All other matters
submitted for shareholder approval require the affirmative vote of the majority
of shares present in person or represented by proxy and entitled to vote.
Abstentions and broker non-votes will be counted for the purpose of
determining if a quorum is present. Broker non-votes occur when a nominee, such
as a financial institution, returns a proxy, but does not have the authorization
from the beneficial owner to vote the owner's shares on a particular proposal
because the nominee did not receive voting instructions (via proxy vote) from
the beneficial owner. An automated system administered by ComputerShare Trust
Company, Inc., the Company's transfer agent, will tabulate votes cast by proxy
and an employee of the transfer agent will tabulate votes cast in person at the
Annual Meeting. An employee of the transfer agent also will tabulate separately
affirmative and negative votes, abstentions and broker non-votes.
Shareholders may vote their shares at the Annual Meeting in person. If any
shareholder is unable to attend the Annual Meeting, such shareholder may vote by
proxy. The enclosed proxy card, when returned properly completed, will be voted
as you direct on the proxy card. In the discretion of the proxy holder, shares
represented by such proxies will be voted upon any other business as may
properly come before the Annual Meeting. In the election of directors, the four
nominees receiving the highest number of votes will be elected.
Holders of Exchangeable Shares, as defined in the section entitled Special
Note About Outstanding Shares, will receive separate information regarding the
exercise of their voting rights, which information accompanies this Proxy
Statement.
REVOCABILITY OF PROXIES
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise. It may be revoked by
filing an instrument of revocation with the Secretary of the
Company or by the presentation, at the meeting, of a duly executed proxy bearing
a later date. It also may be revoked by attending the meeting and electing to
vote in person.
SOLICITATION
The Company will bear the entire cost of preparing, assembling, printing
and mailing this Proxy Statement, the accompanying proxy and any additional
material that may be furnished to shareholders. Copies of solicitation material
will be furnished to brokerage houses, fiduciaries and custodians to forward to
beneficial owners of stock held in the names of such nominees. The Company may
retain the services of an outside proxy solicitation firm at an estimated cost
of approximately $8,000 to $12,000. The solicitation of proxies may also be made
by the use of the mails and through direct communication with certain
shareholders or their representatives by officers, directors and employees of
the Company, who will receive no additional compensation for such solicitation.
This Proxy Statement and the accompanying form of proxy are being mailed to
shareholders on or about May 3, 2002.
SPECIAL NOTE ABOUT OUTSTANDING SHARES
Unless otherwise indicated, references to outstanding shares of Common
Stock includes 1,817,681 shares of Common Stock issuable to non-affiliates of
the Company upon the exchange of Class A Non-Voting shares of Critical Path
Messaging Co., a Nova Scotia subsidiary of the Company, for Common Stock of the
Company (the "Exchangeable Shares"). The Exchangeable Shares can be exchanged at
any time for Common Stock of the Company upon the election of the holder. The
holders of Exchangeable Shares are entitled to vote by directing the holder of
the Special Voting Share of the Company. The Special Voting Share has one vote
for each share of Class A Non-Voting stock outstanding.
Unless otherwise indicated, references to outstanding shares of Common
Stock includes 54,220,104 shares of Common Stock that would be issuable if the
4,000,000 issued and outstanding shares of the Company's Series D Cumulative
Redeemable Convertible Participating Preferred Stock (the "Series D Preferred
Stock") converted into Common Stock on April 16, 2002. The Series D Preferred
Stock is convertible into Common Stock at any time upon the election of the
holder. Every share of Common Stock into which the Series D Preferred Stock
would convert is entitled to one vote.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, four directors are to be elected to serve until the
next Annual Meeting and until their successors are duly elected and qualified,
or until the death, resignation, or removal of such director. It is intended
that the proxies will be voted for the election of David C. Hayden, William E.
McGlashan, Jr., Raul J. Fernandez and Jeffrey T. Webber as directors unless
authority to vote for any such nominee is withheld. The four nominees receiving
the highest number of votes will be elected. In the unanticipated event that a
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee named by the current Board of
Directors to fill the vacancy. As of the date of this Proxy Statement, the Board
of Directors is not aware of any nominee who is unable or will decline to serve
as a director.
Under the terms of the Company's agreement with the holders of Series D
Preferred Stock, as long as 500,000 shares of the Series D Preferred Stock
remain outstanding and certain investors hold at least a majority of the
outstanding Series D Preferred Stock, they are entitled to elect one director to
the Company's Board of Directors. In December 2001, the holders of the Series D
Preferred Stock elected William E. Ford to the Board of Directors.
In July 2001, the Board accepted the resignations of George Zachary and
Kevin Harvey as directors. Also in July 2001, the Board appointed Stephen
Richards, Lawrence Weber and Jeffrey T. Webber as directors. In December 2001,
the Board accepted the resignations of Stephen Richards and Lawrence Weber and
appointed Raul J. Fernandez to fill one of the vacancies left by these
resignations. In December 2001, William E. Ford was nominated and elected to
serve on the Board by the holders of the Series D Preferred stock. Mr. Ford
filled the last vacancy on the Board. The Company's Bylaws authorize the number
of directors to be not less than four or more than seven. The number of
directors on the Board is currently fixed at five.
Set forth below are the titles, biographical summaries and ages, as of
April 16, 2002, of (i) the four individuals (who are those designated as current
directors of the Company) that have been nominated by the Board for election as
directors; (ii) William E. Ford, the director elected by the holders of Series D
Preferred Stock in December 2001, who is not up for re-election at this time and
(iii) the executive officers of the Company.
BOARD OF DIRECTORS
DAVID C. HAYDEN, AGE 46; EXECUTIVE CHAIRMAN OF THE BOARD OF
DIRECTORS. David C. Hayden founded Critical Path and served as its Chairman,
President and Chief Executive Officer and Secretary from its inception in
February 1997 to October 1998. Mr. Hayden has served as Chairman of the Board of
Directors of Critical Path since October 1998 and was appointed Executive
Chairman of the Board in February 2001. From February 1993 to August 1996, Mr.
Hayden served as chairman, chief executive officer, and co-founder of The
McKinley Group, Inc., creators of Magellan, an Internet search engine. Mr.
Hayden is also a member of the Board of Directors of E*Trade Group, Inc.
WILLIAM E. MCGLASHAN, JR., AGE 38; VICE CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER. William E. McGlashan, Jr. served as interim
President and Chief Operating Officer of the Company from April 2001 until
August 2001 when he was appointed interim Chief Executive Officer. Mr. McGlashan
became our Chief Executive Officer in December 2001. He has served as a director
of the Company since May 2001 and was appointed Vice Chairman in December 2001.
Mr. McGlashan has served as the chief executive officer of Vectis Group, LLC, an
international venture corporation, since May 2000, and as a Venture Partner at
Whitney & Co., a venture firm, since December 1999. Mr. McGlashan co-founded and
served as president of Pharmanex, Inc., a phyto-pharmaceutical and dietary
supplement company from January 1994 to February 2000. He also co-founded and
served as chief executive officer of Generation Ventures, a venture firm, from
April 1993 to January 1998.
3
RAUL J. FERNANDEZ, AGE 35; DIRECTOR. Raul J. Fernandez has served as a
director of the Company since December 2001. Mr. Fernandez is the chief
executive officer of Dimension Data North America and was appointed to the board
of directors of Dimension Data Holdings in September 2001 following the Group's
acquisition of Proxicom Corporation during 2001. Mr. Fernandez was the founder
and chief executive officer of Proxicom. Mr. Fernandez also serves as a member
of the board of directors of Liz Claiborne, Inc.
WILIAM E. FORD, AGE 40; DIRECTOR. William E. Ford has served as a director
of the Company since December 2001. Mr. Ford is a general partner at General
Atlantic Partners LLC, a worldwide private equity firm, where he has worked
since July 1991. From August 1987 to June 1991, Mr. Ford worked at Morgan
Stanley & Co. as an investment banker, where he was a member of the merger and
acquisition and corporate finance departments.
JEFFREY T. WEBBER, AGE 49; DIRECTOR. Jeffrey T. Webber has served as a
director of the Company since July of 2001. He is the founder and partner of
R.B. Webber & Company, a technology management consulting firm where he has
worked since January 1991.
PIERRE VAN BENEDEN, AGE 48; PRESIDENT. Pierre Van Beneden has served as
President since October 2001. Prior to joining Critical Path, Mr. Van Beneden
was executive vice president, worldwide sales and services at the Lotus unit of
IBM Corp. from January 2000 to September 2001. From April 1995 to December 1999,
Mr. Van Beneden held a variety of other senior positions at Lotus and IBM Corp.,
last serving as senior vice president and general manager of Lotus, EMEA and
prior to that serving as vice president of software sales for the IBM Software
Brands, IBM EMEA.
LAUREEN DEBUONO, AGE 44; EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER. Laureen DeBuono has served as Executive Vice President and Chief
Financial Officer since January 2002 and joined Critical Path in September 2001
as Interim Chief Financial Officer. Prior to joining the Company, Ms. DeBuono
served as chief financial officer and chief operating officer of More.com from
October 1999 to October 2000. Prior to that, Ms. DeBuono served as chief
financial officer and chief operating officer for ReSound Corporation from July
1998 to September 1999. Prior to her role at ReSound, Ms. DeBuono held executive
management positions with Nellcor Puritan Bennett Inc. from March 1992 to March
1998.
BERNARD HARGUINDEGUY, AGE 44; EXECUTIVE VICE PRESIDENT, MARKETING AND
CORPORATE DEVELOPMENT. Bernard Harguindeguy has served as Executive Vice
President and Chief Marketing Officer since January 2002. Before joining
Critical Path, Mr. Harguindeguy provided consulting services for various
technology companies from June 2000 to January 2002. From December 1996 to
September 1999 he served as chief executive officer of Worldtalk Communications
Corporation, a software company. Prior to that, Harguindeguy also served as
acting general manager and vice president of worldwide marketing at Novell Inc.
LAURIE PRIDDY, AGE 39; EXECUTIVE VICE PRESIDENT, OPERATIONS AND GENERAL
MANAGER OF HOSTED OPERATIONS. Laurie Priddy has served as our Executive Vice
President, Operations and General Manager, Hosted Operations since March 2002.
Ms. Priddy joined Critical Path from Exodus Communications, where she last
served as executive vice president of operations from April 2001 to March 2002.
Ms. Priddy went to Exodus as part of the acquisition of GlobalCenter, where she
was co-chief operating officer from February 2000 to January 2001. Prior to
that, Ms. Priddy served as president and chief executive officer of NDTC, AT&T
Broadband and Internet Services, from March 1999 to February 2000. Prior to
that, from June 1997 to March 1999, Ms. Priddy was vice president, Advanced
Platforms and Servers at Cablelabs Inc.
MICHAEL J. ZUKERMAN, AGE 42; SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY. Michael J. Zukerman has served as our Senior Vice President, General
Counsel and Secretary since June 2001. From July 1999 through June 2001, Mr.
Zukerman served as vice president of business development for Driveway
Corporation. Prior to that, from October 1996 to June 1999, Mr. Zukerman was
senior vice president, business development, general counsel and secretary at
Sega.com (formerly SegaSoft Networks), a subsidiary of Sega Enterprises. From
September 1989 to October 1996, Mr. Zukerman served as general counsel of
Netopia, Inc. Mr. Zukerman was also an attorney at Brobeck, Phleger & Harrison
LLP.
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MENELAOS (MICHAEL) SERBINIS, AGE 28; VICE PRESIDENT, ENGINEERING AND CHIEF
TECHNOLOGY OFFICER. Michael Serbinis has served as Vice President and Chief
Technology Officer since February 2001. Mr. Serbinis joined Critical Path as its
Chief Security Officer in March 2000 and served in this capacity until February
2001. From November 1997 to March 2000, Mr. Serbinis was the chief technology
officer of the docSpace Company, which he co-founded in November 1997. From
September 1996 to October 1997, Mr. Serbinis was a software engineer for Total
Control, a subsidiary of General Electric. From April 1996 to August 1996, Mr.
Serbinis was responsible for search engine engineering at Zip2 Corporation.
VOTE REQUIRED
The Board of Directors has nominated David C. Hayden, William E. McGlashan,
Jr., Raul J. Fernandez and Jeffrey T. Webber for election as directors. The four
nominees receiving the highest number of votes will be elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FOUR NOMINEES
AS DIRECTORS OF THE COMPANY.
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INFORMATION ABOUT THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
COMPENSATION OF DIRECTORS. Critical Path reimburses each member of its
Board of Directors for out-of-pocket expenses incurred in connection with
attending Board meetings. No member of Critical Path's Board of Directors
receives any additional cash compensation for services rendered as a director.
Directors receive a one time non-discretionary option grant at the time of
joining the Board of an option to purchase 150,000 shares of the Company's
Common Stock.
MEETINGS OF THE BOARD OF DIRECTORS. During fiscal 2001, there were eight
regular meetings of the Board of Directors and six special meetings. During that
period or such shorter period as a director served, each director attended at
least 75% of the aggregate number of meetings of the Board of Directors and of
the committees on which such director served.
COMPENSATION COMMITTEE. Critical Path's Compensation Committee currently
consists of two non-employee directors: William E. Ford and Raul J. Fernandez
who have served on the Committee since December 2001. In fiscal 2001, the
Compensation Committee previously consisted of the following: (1) from June 2001
to December 2001, Stephen Richards, and from July 2001 to December 2001,
Lawrence Weber, (ii) from May 2001 to June 2001, Kevin Harvey and George
Zachary, and (iii) from January 2001 to May 2001, Lisa Gansky and Kevin Harvey.
The Committee met eight times during 2001 and acted by written consent an
additional eight times. The Committee is responsible for determining salaries,
bonuses, stock option grants, incentives and other forms of compensation for
Critical Path's directors and officers and administering the Company's various
stock and incentive compensation and benefit plans.
AUDIT COMMITTEE. Critical Path's Audit Committee currently consists of
three non-employee directors: William E. Ford, Raul J. Fernandez and Jeffrey T.
Webber. In fiscal 2001, the Audit Committee previously consisted of the
following: (i) from January 2001 to June 2001 George Zachary and from January
2001 to March 2001, James Smith, (ii) from March 2001 to June 2001, Amy Rao, and
(iii) from June 2001 to December 2001, Stephen Richards and (iv) from July 2001
to December 2001, Lawrence Weber. The Audit Committee met seven times in fiscal
2001. The Audit Committee meets independently with representatives of the
Company's independent accountants and with representatives of senior management.
The committee reviews the general scope of the Company's accounting, reporting,
annual audit, matters relating to internal control systems and the fee charged
by the independent accountants. In addition, the Audit Committee is responsible
for reviewing and monitoring the performance of non-audit services by the
Company's independent accountants and for the engagement or discharge of the
Company's independent accountants.
STOCK COMMITTEE. Critical Path's Stock Committee currently consists of one
director: David C. Hayden. The Stock Committee acted nine times in fiscal 2001.
The Stock Committee is responsible for granting stock options to all employees
of Critical Path who are not directors, executive officers or holders of more
than 10% of the Company's Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION
During fiscal 2001, Raul J. Fernandez, William E. Ford, Jeffrey T. Webber,
Lisa Gansky, Kevin Harvey, Stephen Richards, Lawrence Weber and George Zachary,
all non-employee directors of the Company, served at various times on the
Compensation Committee. During 2001, no member of the Company's Board of
Directors or Compensation Committee served as a member of the board of directors
or compensation committee of any entity that had one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. To its knowledge, the Company believes that during the fiscal year
ended December 31, 2001, its officers, directors and holders of
6
more than 10% of the Company's Common Stock complied with all Section 16(a)
filing requirements with the exception of the following late filings: (a)
Michael Serbinis failed to file a Form 4 for the month of September 2001 to
report one purchase transaction in a timely manner, but filed a Form 5 for the
year ended December 31, 2001, and (b) David C. Hayden failed to file a Form 4
for a sale of 778,409 shares by BancBoston Robertson Stephens, which Mr. Hayden
has disputed with Robertson Stephens, and which sale was reported on a Form 5
for the year ended December 31, 2001. In making this statement, the Company has
relied upon the written representations of its directors and officers.
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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of common stock as of April 16, 2002 by:
- each person or entity known to Critical Path to own beneficially more
than 5% of Critical Path's Common Stock;
- each of Critical Path's current directors;
- the Chief Executive Officer of the Company as of December 31, 2001, each
of the four other most highly compensated executive officers of the
Company whose total salary and bonus exceeded $100,000 during the year
ended December 31, 2001, and two former executive officers whose total
salary and bonus exceeded $100,000 during the year ended December 31,
2001 but who are no longer employed with the Company (collectively, the
"Named Executive Officers"); and
- all executive officers and directors as a group.
<Table>
<Caption>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
--------------------------------------------------
SHARES OF
SHARES OF SERIES D RIGHT TO ACQUIRE
COMMON PREFERRED BENEFICIAL OWNERSHIP
STOCK STOCK OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY BENEFICIALLY WITHIN 60 DAYS OF
OWNER(1) OWNED OWNED APRIL 16, 2002
- ------------------------------ ------------ ------------ --------------------
5% SHAREHOLDERS
General Atlantic Partners,
LLC(3)........................ -- 2,545,455 34,503,709
3 Pickwick Plaza
Greenwich, CT
Cheung Kong (Holdings)
Limited(4).................... -- 872,727 11,829,837
8th floor, Cheung Kong Center
2 Queen's Road Central
Hong Kong
Vectis Group, LLC(5)............ -- 581,818 8,351,558
c/o BPM
600 California Street
Suite 1300
San Francisco, CA 94180
Purnedu Chatterjee(6)........... -- -- 4,889,737
888 Seventh Avenue
New York, NY 10106
DIRECTORS AND NAMED EXECUTIVE
OFFICERS
David C. Hayden................. 2,242,416 -- 4,268,910(7)
William E. McGlashan, Jr........ -- 581,818(8) 9,357,558
Raul J. Fernandez............... 150,000 -- 15,625(9)
William E. Ford................. -- 2,545,455(10) 34,519,334(10)
Jeffrey T. Webber............... -- -- 62,500(11)
Pierre Van Beneden.............. -- -- 471,221(12)
Laureen DeBuono................. -- -- 868,019(13)
Kent Bridges(14)................ -- -- --
Susan Barsamian................. 216,000 -- 524,508(15)
Douglas T. Hickey............... 436,532(16) -- --
Lawrence Reinhold(17)........... -- -- --
Cynthia D. Whitehead(18)........ -- -- --
ALL NAMED EXECUTIVE OFFICERS AND
CURRENT DIRECTORS AND
EXECUTIVE OFFICERS AS A GROUP
(11) persons(19)..............
<Caption>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
--------------------------------------------------
PERCENT OF CLASS
BENEFICIALLY OWNED PERCENT OF
-------------------- VOTING
TOTAL OF SERIES D SECURITIES
NAME AND ADDRESS OF BENEFICIAL COMMON COMMON PREFERRED BENEFICIALLY
OWNER(1) STOCK STOCK(2) STOCK(2) OWNED(2)
- ------------------------------ ------------ -------- --------- ------------
5% SHAREHOLDERS
General Atlantic Partners,
LLC(3)........................ 34,503,709 -- 63.6% 30.8%
3 Pickwick Plaza
Greenwich, CT
Cheung Kong (Holdings)
Limited(4).................... 11,829,837 -- 21.8 13.2
8th floor, Cheung Kong Center
2 Queen's Road Central
Hong Kong
Vectis Group, LLC(5)............ 8,351,558 * 14.6 9.7
c/o BPM
600 California Street
Suite 1300
San Francisco, CA 94180
Purnedu Chatterjee(6)........... 4,889,737 5.9 -- 5.9
888 Seventh Avenue
New York, NY 10106
DIRECTORS AND NAMED EXECUTIVE
OFFICERS
David C. Hayden................. 6,511,326 8.0 -- 8.0
William E. McGlashan, Jr........ 9,357,558 1.9 14.6 10.8
Raul J. Fernandez............... 165,625 * -- *
William E. Ford................. 34,519,334 * 63.6 30.8
Jeffrey T. Webber............... 62,500 * -- *
Pierre Van Beneden.............. 471,221 * -- *
Laureen DeBuono................. 868,019 1.1 -- 1.1
Kent Bridges(14)................ -- -- -- *
Susan Barsamian................. 740,508 * -- *
Douglas T. Hickey............... 436,532 * -- *
Lawrence Reinhold(17)........... -- -- -- *
Cynthia D. Whitehead(18)........ -- -- -- *
ALL NAMED EXECUTIVE OFFICERS AND
CURRENT DIRECTORS AND
EXECUTIVE OFFICERS AS A GROUP
(11) persons(19).............. 53,410,653 12.4 78.2 40.8%
</Table>
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- ---------------
* Amount represents less than 1% of the Company's Common Stock.
(1) Unless otherwise indicated, the address for each of the executive officers
and directors above is c/o Critical Path, Inc., 350 The Embarcadero, San
Francisco, California 94105-1204.
(2) Applicable percentage ownership of Common Stock is based on 77,536,030
shares of Common Stock issued and outstanding as of April 16, 2002
including the Exchangeable Shares as described under the section of this
Proxy Statement entitled Special Note About Outstanding Shares. Applicable
percentage ownership of Series D Preferred Stock is based on 4,000,000
shares of Series D Preferred Stock issued and outstanding on April 16,
2002. Applicable percentage ownership of voting securities is based on
131,756,134 shares of Common Stock issued and outstanding as of April 16,
2002, including shares of Series D Preferred Stock convertible into Common
Stock and the Exchangeable Shares. Beneficial ownership is determined in
accordance with the rules and regulations of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options or convertible or exchangeable into such shares of
Common Stock, held by that person, that are currently exercisable or
exercisable within 60 days of April 16, 2002 are deemed outstanding. These
shares, however, are not deemed outstanding for the purposes of computing
the percentage ownership of another person. Except as indicated in the
footnotes to this table and pursuant to applicable community property
laws, each shareholder named in the table has sole voting and investment
power with respect to the shares set forth opposite such shareholder's
name.
(3) According to a Schedule 13D dated December 21, 2001, filed jointly by
General Atlantic Partners, LLC ("GAP"), General Atlantic Partners 74, L.P.
("GAP 74"), GapStar, LLC ("GapStar") and GAP Coinvestment Partners II,
L.P. "GAPCO" and, collectively with GAP, GAP 74 and GapStar, the
"Reporting Persons"), the Reporting Persons own no shares of the Company's
Common Stock. The Reporting Persons report collective beneficial ownership
as to 2,545,455 shares of the Company's Series D Preferred Stock and
warrants to purchase 2,500,000 shares of Common Stock that are not
exercisable within 60 days of April 16, 2002. GAP is the general partner
of GAP 74 and the Managing Member of GapStar. GAP and the GAP Managing
Members (defined below) report shared voting and dispositive power as to
the 33,333,339 shares of common stock into which the Series D Cumulative
Redeemable Convertible Participating Preferred Stock (the "Series D
Preferred Stock") would convert as of December 31, 2001. GAP 74 reports
shared voting and dispositive power as to 2,091,218 shares of Series D
Preferred Stock or 27,384,997 shares of Series D Preferred Stock on an as
converted basis. GapStar reports shared voting and dispositive power as to
159,091 shares of Series D Preferred Stock or 2,083,335 shares of Series D
Preferred Stock on an as converted basis. GAPCO reports that it
beneficially owns and has shared voting and dispositive power as to
295,146 shares of Series D Preferred Stock or 3,865,007 shares of Series D
Preferred Stock on an as converted basis. The number of shares of Common
Stock into which the Series D Preferred Stock convert as reflected in this
footnote does not include the accretion of dividends after the date of the
applicable Schedule 13D or 13G. The number of shares of Common Stock as
reflected in the table does include such accretion of dividends.
The managing members of GAP are Steven A. Denning, Peter L. Bloom, Mark F.
Dzialga, Erik Engstrom, Klaus Esser, David C. Hodgson, William O. Grabe,
William E. Ford, Braden R. Kelly, Rene M. Kern, William J. Lansing,
Clifton S. Robbins, Matthew Nimetz, Franchon M. Smithson, Tom C. Tinsley,
Florian Wendelstadt and John Wong (collectively, the "GAP Managing
Members"). The GAP Managing Members (other than Mr. Esser) are also the
general partners of GAPCO. Mr. Ford serves on the Board of Directors of
the Company. The business address of Mr. Esser is Koenigsallee 88, 40212,
Duesseldorf, Germany. The business address of Messrs. Kern and Wendelstadt
is 83 Pall Mall, Sixth Floor, London SW1Y 5ES, United Kingdom. The
business address of Messrs. Kelly and Lansing is 630 Hansen Way, Palo
Alto, California 94304. The business address of Mr. Wong is 24 Raffles
Place, 29-04 Clifford Center, Singapore 048621.
(4) According to a Schedule 13D dated December 22, 2001, filed by jointly by
Cheung Kong (Holdings) Limited ("Cheung Kong"), Campina Enterprises
Limited, an indirect wholly-owned subsidiary of Cheung Kong ("Campina"),
Hutchison Whampoa Limited ("HWL"), an entity in which Cheung Kong holds a
49.97% interest and Cenwell Limited, an indirect wholly-owned subsidiary
of HWL ("Cenwell"), Campina and Cenwell hold 436,363 and 436,364 shares of
the Company's Series D Preferred Stock, respectively, each convertible
into 5,714,278 shares of the Company's Common Stock. Cheung Kong and
Campina report shared voting and dispositive power as to the shares held
by Campina. Cheung Kong, HWL and Cenwell reported shared voting and
dispositive power as to the shares held by Campina. Cheung Kong, HWL and
Cenwell reported shared voting and dispositive power as to the 436,364
shares of Series D Preferred Stock held by Cenwell. Cheung King disclaims
beneficial ownership of the 5,714,278 shares of common stock beneficially
owned by Cenwell. The number of shares of Common Stock into which the
Series D Preferred Stock convert as reflected
9
in this footnote does not include the accretion of dividends after the
date of the applicable Schedule 13D or 13G. The number of shares of Common
Stock as reflected in the table does include such accretion of dividends.
(5) Vectis Group LLC ("Vectis") filed a Schedule 13G, dated as of April 30,
2002, with the Securities and Exchange Commission on behalf of itself and
related parties. According to the Schedule 13G, shares are held for the
account of Vectis, a Delaware limited liability company, the reporting
person. William McGlashan, Matthew Hobart and Peter Kellner are the
managing members of Vectis. The shares held consist of (i) 7,618,906
shares of common stock issuable upon the conversion of shares of Series D
Preferred Stock and (ii) 465,000 shares of common stock issuable subject
to warrants currently exercisable in full. Excludes shares held
individually by the principals of Vectis and shares beneficially owned by
the principals of Vectis subject to options exercisable within 60 days of
April 16, 2002. The number of shares of Common Stock into which the Series
D Preferred Stock convert as reflected in this footnote does not include
the accretion of dividends after the date of the applicable Schedule 13D
or 13G. The number of shares of Common Stock as reflected in the table
does include such accretion of dividends.
(6) Purnedu Chatterjee filed a Schedule 13G, dated as of June 4, 2001, with
the Securities and Exchange Commission on behalf of himself and related
parties described herein and then filed an Amendment No. 1 to Schedule 13G
on February 15, 2002. Purnedu Chatterjee reported beneficial ownership of
4,889,737 shares of Common Stock as of December 31, 2001. Shares are held
for the accounts of Winston Partners, L.P., a Delaware limited
partnership, Chatterjee Fund Management, L.P., a Delaware limited
partnership and the reporting person. Chatterjee Fund Management in the
general partner of Winston Partners, L.P. The reporting person is the sole
general partner of Chatterjee Fund Management. The shares held consist of
2,903,537 shares of Common Stock, held for the account of Winston
Partners, L.P., assuming the exercise as of December 31, 2001 of
$9,200,000 principal amount of 5 3/4% Convertible Notes due 2005 into
90,662 shares, 102,000 shares held for the account of Chatterjee Fund
Management, L.P. and 1,884,200 held for the account of the reporting
person. The reporting person reported sole voting power over 4,889,737
shares and sole dispositive power over 4,889,737 shares.
(7) David C. Hayden filed a Schedule 13G, dated as of April 25, 2002, with the
Securities and Exchange Commission on behalf of himself as reporting
person. The reporting person reported sole voting and dispositive power
over 2,242,416 shares. The beneficial ownership reported also includes
3,112,410 shares subject to options exercisable within 60 days of April
16, 2002.
(8) Includes (i) 1,006,000 shares subject to options exercisable within 60
days of April 16, 2002, (ii) 465,000 shares subject to warrants to
purchase shares of common stock held by Vectis Group LLC and exercisable
within 60 days of April 16, 2002, and (iii) 7,618,906 shares of common
stock issuable upon the conversion of shares of Series D Preferred Sock.
Mr. McGlashan disclaims beneficial ownership of the securities held by
Vectis Group LLC and its affiliates within the meaning of Rule l3d-3 under
the Securities Exchange Act of 1934. Excludes all shares subject to
options issued to other Vectis principals as part of their individual
employment agreements with the Company. Also excludes all shares
individually owned by other Vectis principals.
(9) Consists of 15,625 shares subject to options exercisable within 60 days of
April 16, 2002.
(10) Includes 33,333,339 shares issuable upon the conversion of the Series D
Preferred Stock into shares of common stock. Mr. Ford disclaims beneficial
ownership of the shares held by General Atlantic Partners and its
affiliates within the meaning of Rule l3d-3 under the Securities Exchange
Act of 1934. Also includes 15,625 shares subject to options exercisable
within 60 days of April 16, 2002.
(11) Consists of 62,500 shares subject to options exercisable within 60 days of
April 16, 2002.
(12) Consists of 471,221 shares subject to options exercisable within 60 days
of April 16, 2002.
(13) Consists of 868,019 shares subject to options exercisable within 60 days
of April 16, 2002.
(14) Mr. Bridges is the former Senior Vice President of Worldwide Sales of the
Company who terminated employment in January 2002.
(15) Ms. Barsamian is the former Senior Vice President of Marketing of the
Company who terminated employment in March 2002 but continues as a
consultant to the Company through May 2002. Includes 524,508 shares
subject to options exercisable within 60 days of April 16, 2002.
(16) Mr. Hickey is the former Chief Executive Officer and a former director, of
the Company, who terminated employment with the Company and resigned from
the Board in February 2001. Includes 38,160 shares held in the names of
Mr. Hickey's minor children.
10
(17) Mr. Reinhold is the former Executive Vice President and Chief Financial
Officer of the Company who terminated employment in August 2001.
(18) Ms. Whitehead is the former President and former Vice President of
Operations and Customer Service and the former President of the Company
who terminated employment in April 2001.
(19) Includes shares beneficially owned by the directors executive officers as
a group consisting of the Named Executive Officers and Mr. Harguindeguy,
Ms. Priddy, Mr. Zukerman and Mr. Serbinis. In addition to shares noted in
the table for the Named Executive Officers also includes an aggregate of
278,030 shares held by current executive officers subject to options
exercisable within 60 days of April 16, 2002.
11
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes all compensation earned by or paid to the
Named Executive Officers for services rendered in all capacities to Critical
Path during the fiscal years ended December 31, 2001, 2000, and 1999, where
applicable.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------
OTHER($) SECURITIES
ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION OPTIONS(#)
--------------------------- ---- --------- ----------- ------------ ------------
David C. Hayden(2)...................................... 2001 $ 1 -- $1,500,000 7,710,000
Executive Chairman of the Board of Directors 2000 $124,455 $200,000 -- --
1999 $222,157 -- -- --
William E. McGlashan, Jr.(3)............................ 2001 $189,000 $500,000 -- 4,013,000
Vice Chairman and Chief Executive Officer
Pierre Van Beneden(4)................................... 2001 $103,977 -- $ 362,375(4) 2,500,000
President
Laureen DeBuono......................................... 2001 $223,325 -- -- 668,019
Executive Vice President and Chief Financial Officer
Kent Bridges(5)......................................... 2001 $150,020 $112,480 -- 400,000
Former Senior Vice President of Sales
Susan Barsamian(6)...................................... 2001 $185,714 -- $ 3,750 771,000
Former Senior Vice President, Marketing 2000 132,069 -- -- 260,000
Douglas T. Hickey(7).................................... 2001 $482,392 -- -- --
Former Chief Executive Officer 2000 $350,000 $250,000 $ 61,281 --
1999 $332,373 $ 52,908 --
Lawrence Reinhold(8).................................... 2001 $200,000 $225,000 $1,711,807 121,875
Former Executive Vice President and Chief Financial
Officer
Cynthia D. Whitehead.................................... 2001 $ 61,667 -- $ 178,775 --
Former President(9) 2000 $185,000 $ 30,000 -- 100,000
1999 $126,614 $ 43,215 -- 230,000
</Table>
- ---------------
(1) The Company paid discretionary bonuses to certain of its officers in fiscal
2000. The Company paid no discretionary bonuses to officers in fiscal 2001,
but paid other compensation and, in one instance a bonus, to certain of its
officers in connection with certain employment agreements and commission
plans.
(2) Mr. Hayden served as the Company's Chairman, President, Chief Executive
Officer and Secretary from its inception in February 1997 to October 1998,
and as its Chairman of the Board of Directors and was an employee from
October 1998 to July 2000. Mr. Hayden ceased to be an employee of the
Company in July 2000, but continued as Chairman of the Board of Directors
until his appointment as Executive Chairman of the Board in February 2001.
Mr. Hayden was not compensated for his service as Chairman of the Board of
Directors after he ceased to be an employee. Mr. Hayden currently works full
time for the Company and is now compensated for his services in connection
with an employment agreement entered into in August 2001 which includes a
regular salary of $1.00 and option grants with various performance-based
vesting schedules in accordance with the terms of his option agreement and
his employment agreement. Mr. Hayden's compensation included a full recourse
loan of $1.5 million forgiveable upon the achievement of certain
performance-based milestones. See also the section of this Proxy Statement
entitled "Employment and Termination Agreements."
(3) Upon joining the Company in April 2001, Mr. McGlashan received no individual
compensation in connection with his services to the Company as interim Chief
Operating Officer and President, but rather received indirect compensation
in connection with the various consulting and transactional agreements the
Company entered into with the Vectis Group LLC, of which he is a principal
and chief executive officer. Vectis received approximately $4,050,000 in
consulting and transaction fees in the fiscal year ended 2001. In August
2001, Mr. McGlashan accepted the position of interim Chief Executive Officer
and entered into a direct employment agreement with the Company for which
his fiscal year 2001
12
compensation is noted. See also the sections of the Proxy Statement entitled
"Transactions with Related Parties" and "Employment and Termination
Agreements."
(4) Includes a loan in the amount of $350,000 that is forgivable over the first
year of his employment with the Company. The loan will become due and
payable if Mr. Van Beneden voluntarily leaves employment with the Company
during the first year of employment. Also includes $12,375 paid for the use
of a corporate apartment.
(5) Mr. Bridges terminated employment with the Company in January 2002.
(6) Ms. Barsamian terminated employment with the Company in March 2002 but
continues as a consultant through May 2002. Includes $3,750 in investment
counseling services reimbursed to Ms. Barsamian through December 31, 2001
(7) Mr. Hickey served as Chief Executive Officer of the Company from October
1998 until his resignation in February 2001, and was also its President from
October 1998 through January 2000. For fiscal year ended 2000, also
includes: (i) $38,400 paid to Mr. Hickey for use of a corporate apartment,
(ii) $10,881 for use of a corporate automobile, (iii) $12,000 for investment
advisory fees. For fiscal year ended 1999, includes: (i) $38,400 paid to Mr.
Hickey for use of a corporate apartment, and (ii) $14,508 for use of a
corporate automobile.
(8) In addition to regular salary earnings, includes: (i) a retention bonus of
$225,000 that was triggered by the circumstances of his separation from the
Company, (ii) $1,500,000 in loan forgiveness in accordance with terms of Mr.
Reinhold's employment agreement and the termination of his employment, (iii)
$150,000 in severance payments made in accordance with the terms of his
employment agreement and the termination of his employment, (iv) $29,570 for
use of a corporate apartment during his employment, (v) $10,562 in
relocation and moving expenses reimbursed by the Company, and (vi) $21,585
in investment counseling services reimbursed by the Company through December
31, 2001. Mr. Reinhold served as the Company's Executive Vice President and
Chief Financial Officer from January 2001 until his separation from the
Company in August 2001.
(9) In addition to regular salary through Ms. Whitehead's termination in April
2001, includes: (i) $168,775 paid in severance benefits upon such
termination, and (ii) $10,000 in investment counseling services reimbursed
by the Company through August 2001.
13
STOCK OPTIONS
The following table provides summary information concerning option grants
to the Named Executive Officers during 2001 and the potential realizable value
of the options held by each Named Executive Officer at the end of fiscal year
2001.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
INDIVIDUAL GRANTS AGGREGATE POTENTIAL
--------------------------------------------------------------- REALIZED VALUE AT
NUMBER OF PERCENTAGE OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3)(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED(#)(1) 2001(2) ($/SHARE)(3) DATE 5%($) 10%($)
---- ------------- -------------- ----------------- ---------- ----------- -----------
David C. Hayden(5)......... 5,000,000 19% $0.36 07/31/11 $3,057,874 $7,749,254
2,710,000 $1.13 11/09/11
William E. McGlashan, Jr.(6).. 1,500,000 10% $0.40 08/01/11 3,654,312 9,260,743
813,000 $1.13 11/09/11
1,700,000 $2.56 12/21/11
Pierre Van Beneden(7)...... 2,000,000 6% $0.59 10/08/11 1,097,421 2,781,081
500,000 $1.13 11/09/11
Laureen DeBuono(8)......... 200,000 2% $0.34 09/05/11 343,080 869,431
233,333 $0.91 11/01/11
234,686 $1.13 11/09/11
Kent Bridges(9)............ 400,000 1% $0.36 07/31/01 90,561 229,499
Susan Barsamian(10)........ 200,000 2% $1.09 05/23/11 397,606 1,007,612
300,000 $0.36 07/31/11
271,000 $1.13 11/09/11
Douglas T. Hickey.......... -- -- -- -- -- --
Lawrence Reinhold.......... 121,875 * $0.98 05/16/11 75,114 190,353
Cynthia D. Whitehead....... -- -- -- -- -- --
</Table>
- ---------------
* less than 1%
(1) Except where otherwise noted in the footnote below, these non-qualified
stock options have a ten-year term, vesting ratably on a monthly basis, and
become fully vested on the fourth anniversary of the vesting start date.
(2) Based on options to purchase an aggregate of 40,542,946 shares of Common
Stock granted during fiscal 2001 and vesting over various periods of time
based on continued employment and other performance metrics.
(3) The exercise price is equal to the closing price of the Company's Common
Stock on the Nasdaq National Market on the date of prior to the date of
grant.
(4) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent Critical Path's
estimate or projection of the future Common Stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
Actual gains, if any, on stock option exercises will depend on future
performance of the Company's Common Stock, the officer's continued
employment through applicable vesting periods and the date on which the
options are exercised.
(5) Vesting of these options is subject to various criteria including continued
employment and performance-based milestones in the option and employment
agreements with Mr. Hayden. See the section of the Proxy Statement entitled
Employment and Termination Agreements.
(6) Vesting of these options is subject to various criteria including continued
employment and performance-based milestones in the option and employment
agreements with Mr. McGlashan.
(7) These shares vest on a monthly basis over three years and are subject to
acceleration of vesting based upon triggers found in Mr. Van Beneden's
employment agreement.
14
(8) Options to purchase 601,351 shares of Common Stock held by Ms. DeBuono are
fully vested with the remaining options to purchase 66,668 shares vesting
on a monthly basis.
(9) Mr. Bridges terminated employment with the Company in January 2002. In
February 2002, Mr. Bridges exercised 50,000 options to purchase shares of
Common Stock that were vested at the time of termination.
(10) Ms. Barsamian terminated employment with the Company in March 2002.
FISCAL YEAR END OPTION VALUES
The following table provides summary information concerning stock options
held as of December 31, 2001 by each of the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<Table>
<Caption>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT FISCAL YEAR-END(#) FISCAL YEAR-END(#)(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------------- ----------- ------------- ----------- -------------
David C. Hayden.......... -- -- 3,112,410 4,626,000 6,581,776 9,757,860
William E. McGlashan,
Jr. ................... -- -- 771,000 3,242,000 1,606,310 3,518,620
Pierre Van Beneden....... -- -- 124,999 2,375,001 261,249 4,843,751
Laureen DeBuono.......... -- -- 601,351 66,668 1,124,841 160,003
Kent Bridges............. -- -- 0 350,000 -- 959,000
Susan Barsamian.......... -- -- 213,319 817,681 210,849 1,710,146
Douglas T. Hickey........ -- -- -- -- -- --
Lawrence Reinhold........ 121,875 $319,313 -- -- -- --
Cynthia D. Whitehead..... -- -- -- -- -- --
</Table>
- ---------------
(1) The value realized is calculated by determining the difference between the
fair market value of the securities underlying the options and the exercise
price of the options at the time of exercise.
(2) The value of unexercised in-the-money options at fiscal year-end is based on
a price per share of $2.74, the closing price quoted on the Nasdaq National
Market on December 29, 2001, minus the exercise price.
EMPLOYMENT AND TERMINATION AGREEMENTS
In August 2001, the Company entered into an agreement with David C. Hayden,
pursuant to which Mr. Hayden is employed as the Company's Executive Chairman at
an annual base salary of $1.00 per year. The Company also loaned Mr. Hayden $1.5
million pursuant to a full recourse loan under which portions of that loan could
be forgiven upon the achievement of performance-based milestones. Under the
agreement, which will be reviewed by the Compensation Committee in July 2002,
Mr. Hayden is eligible to receive up to three loan forgiveness events in the
amount of $500,000 each, upon achievement of each of the following
performance-based milestones: (i) Mr. Hayden hired a permanent outside Chief
Executive Officer, (ii) the Company achieved a positive earnings before interest
taxes depreciation and amortization, or EBITDA, during any fiscal quarter in or
before the end of the quarter ending June 30, 2002, and (iii) the daily closing
price of the Company's Common Stock exceeded an average of $5.00 per share for
at least twenty-two consecutive days prior to July 1, 2002. The loan is also
subject to forgiveness upon certain change of control events. No forgiveness has
occurred as to any portion of the loan. In February 2002, the Board approved an
amendment of Mr. Hayden's employment agreement such that the performance-based
milestones described above would be eliminated in favor of the achievement of a
single performance-based milestone: a change of control event in which the
consideration received by the shareholders pursuant to the transaction is at
least $10.00 per share. In addition, the Board increased the amount available
under the loan agreement by an additional $450,000 and provided that the entire
loan amount would be secured by a first priority security interest in all of
15
Mr. Hayden's shares and options in the Company. All other terms of the loan and
other agreements remained unchanged.
Mr. Hayden also received an option to purchase 5,000,000 shares of the
Company's Common Stock at an exercise price of $0.36, which was the fair market
value of the Company's Common Stock on the date of grant. The stock option
vested immediately as to 2,000,000 shares. An additional 2,000,000 shares vest
in equal monthly installments over a four-year period beginning on January 1,
2001; provided, however, if the daily closing price of the Company's Common
Stock exceeds an average of $5.00 per share for at least twenty-two consecutive
days prior to July 1, 2002, then 1,000,000 shares will become fully vested and,
upon the six-month anniversary of the Chief Executive Officer hired by Mr.
Hayden, 1,000,000 shares will become fully vested. The remaining 1,000,000
shares vest on December 31, 2004; provided, however, if the Company achieves a
positive EBITDA during any fiscal quarter in or before the end of the quarter
ending June 30, 2002, then the shares will become fully vested. The Company also
agreed to loan Mr. Hayden up to $2,500,000 to be used for the exercise of vested
stock options, secured by a pledge of the underlying grant shares but that loan
has not yet been funded. If Mr. Hayden's employment is terminated without cause
or if he resigns for good reason, the Company will pay Mr. Hayden $350,000 over
a twelve-month period and Mr. Hayden's option grants will vest in full.
In the event of a change in control of the Company, 50% of Mr. Hayden's
then unvested options will become vested, however all of his unvested options
shall become vested if the consideration received by shareholders pursuant to a
transaction is at least $10.00 per share.
In August 2001 William E. McGlashan, Jr. entered into an employment
agreement with the Company which in January 2002 was amended and restated in its
entirety. The employment agreement provides Mr. McGlashan, as the Company's
Chief Executive Officer, with an annual base salary of $450,000 per year. As an
inducement to enter into this agreement, Mr. McGlashan received a bonus of
$500,000 and a loan commitment in the amount of up to $4.0 million for the
purchase of a principal residence. This loan has not yet been funded by the
Company. The terms of such loan are discussed more fully in the section of this
Proxy Statement entitled "Transactions with Related Parties -- Loans to
Officers". Mr. McGlashan is eligible to receive an annual cash bonus of up to
200% of his base salary to be paid at the end of each fiscal year beginning with
the fiscal year ending December 31, 2002. Mr. McGlashan also received an option
to purchase 1,700,000 shares of the Company's Common Stock at an exercise price
of $.40, which was equal to the fair market value of the Company's Common Stock
on the date of grant. The option vests in equal monthly installments over a
three-year period.
Following a change in control of the Company, all of Mr. McGlashan's
unvested options will become vested in certain circumstances. In addition, in
the event Mr. McGlashan's employment is terminated for any reason other than for
cause or if he resigns as a result of constructive termination, the Company will
pay Mr. McGlashan a lump sum payment equal to the sum of twelve months of salary
and 50% of his prior year's bonus. Mr. McGlashan will also be entitled to
receive employee benefits, including health care coverage, for a period of
twelve months following his termination and any unvested stock options will vest
as to the amount that would have vested had Mr. McGlashan continued to work for
the Company for an additional twelve months.
In October 2001, the Company entered into an employment agreement with
Pierre Van Beneden, pursuant to which Mr. Van Beneden is employed as the
Company's President at a base salary of $450,000 per year. Mr. Van Beneden is
eligible to receive a quarterly cash bonus of $150,000 if the Company attains
its EBITDA target for each such quarter. Mr. Van Beneden also received a
forgivable loan in the amount of $350,000 as well as use of a corporate
apartment and automobile. Mr. Van Beneden also received an option to purchase
2,000,000 shares of the Company's Common Stock at an exercise price equal to the
closing price of the Company's Common Stock on the date of grant. The option
vests in equal monthly installments over a three-year period. In the event Mr.
Van Beneden is terminated for cause or is not offered the position of the
Company's Chief Executive Officer at the time of his one year anniversary, the
Company will grant him an additional option to purchase 333,333 shares of the
Company's Common Stock, which will be immediately vested and exercisable.
16
In August 2001, the Company entered into a Consulting Agreement with
Laureen DeBuono as interim Chief Financial Officer that provided for a monthly
retainer fee of $52,000 a month through February 2002. In addition, the Company
granted Ms. DeBuono an option to purchase 200,000 shares of the Company's Common
Stock at an exercise price equal to the closing price of the Company's Common
Stock on the first date of Ms. DeBuono's employment. The options vested in equal
monthly installments through the end of January 2002. Ms. DeBuono's agreement
also included a termination provision such that if Ms. DeBuono's employment is
terminated for any reason other than fraud or embezzlement, then she would
receive a payment equal to two months' consulting fees. In October 2001, the
Company and Ms. DeBuono amended the agreement such that the term of the
consulting was extended to September 2002 and an additional 233,333 fully-vested
options to purchase shares of the Company's Common Stock. In January 2002, the
Company and Ms. DeBuono again amended the agreement such that Ms. DeBuono
extended the term of her employment indefinitely and took the title of Executive
Vice President and Chief Financial Officer and Ms. DeBuono received an
additional fully-vested option grant of 200,000 shares of the Company's Common
Stock.
All the employment agreements summarized above are as more fully-described
in the agreements themselves, filed as Exhibits to our Annual Report on Form
10-K for the fiscal year ended December 31, 2001.
In connection with his separation from the Company, Kent Bridges received a
lump sum payment of $75,000 as well as acceleration with respect to 50,000
shares subject to options to purchase Common Stock held by him. In connection
with her separation from the Company, Susan Barsamian will also receive a lump
sum payment of $50,000 upon conclusion of the term of her consulting agreement,
as well as accelerated vesting with respect to 183,334 shares subject to options
to purchase Common Stock held by her.
In connection with their employment with the Company, each of Messrs.
Hayden, McGlashan and Van Beneden also received a loan from the Company. See
"Transaction with Related Parties -- Loans to Officers" for a description of
these loans.
For payments made to Mr. Hickey and Mr. Reinhold, see -- "Transactions with
Related Parties -- Severance Agreements."
17
REPORT OF THE COMPENSATION COMMITTEE
The Company applies a consistent philosophy to compensation for all
employees, including senior management. This philosophy is based on the premise
that the achievements of the Company result from the coordinated efforts of all
individuals working toward common objectives. The Company strives to achieve
those objectives through teamwork that is focused on meeting the expectations of
customers and shareholders.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance, and to enable the Company to attract,
retain and reward executive officers whose contributions are critical to the
long-term success of the Company. The Company's compensation program for
executive officers is based on the same four principles applicable worldwide to
compensation decisions for all employees of the Company:
- The Company pays its employees competitively. The Company is committed to
maintaining a pay program that helps attract and retain the best people
in the industry. To ensure that pay is competitive, the Company regularly
compares its pay practices with those of other leading companies and sets
its pay parameters based in part on this review.
- The Company compensates and incentivizes employees for sustained
performance. Executive officers are rewarded based upon corporate
performance, business unit performance and individual performance.
Corporate performance and business unit performance are evaluated by
reviewing the extent to which strategic and business plan goals are met,
including such factors as profitability, performance relative to
competitors and timely new product introductions. Individual performance
is evaluated by reviewing organizational and management development
progress against set objectives.
- The Company strives for fairness in the administration of pay. The
Company strives to compensate a particular individual equitably compared
to other executives at similar levels both inside the Company and at
comparable companies.
- The Company believes that employees, including executive officers, should
understand the performance evaluation and pay administration process. The
process of assessing an employee's performance is as follows: (i) at the
beginning of the performance cycle, the evaluating manager and the
employee, or the Compensation Committee and the executive officer, set
and agree upon objectives and key goals; (ii) the evaluating manager
gives the employee ongoing feedback on performance; (iii) at the end of
the performance cycle, the manager evaluates the accomplishment of
objectives and key goals; (iv) the evaluating manager communicates the
comparative results to the employee; and (v) the comparative results
affect decisions on salary and, if applicable, stock incentives.
COMPENSATION ELEMENTS
The Company has had a successful history of using a simple total
compensation program that consists of cash and equity-based compensation. Having
a compensation program that allows the Company to attract and retain key
employees permits it to provide useful products and services to customers,
enhance shareholder value, motivate technological innovation, foster teamwork,
and adequately reward employees. The elements of compensation are:
- CASH-BASED COMPENSATION
Salary
The Company establishes salary ranges for employees, including executive
officers, by reviewing the aggregate of base salaries for competitive
positions in the market. The Company uses salary survey data and
generally, the Company sets its competitive salary midpoint for an
executive officer position at the median level compared to those companies
it surveys. The Company then creates a salary range based on this
midpoint. The range is designed to place an executive officer at, above or
below the midpoint, according to that officer's overall individual
performance. As described above, overall
18
individual performance is measured against the following factors:
long-term strategic goals, short-term business goals, the development of
employees and the fostering of teamwork and other Company values. In both
setting goals and measuring an executive officer's performance against
those goals, the Company takes into account the performance of its
competitors and general economic and market conditions. None of the
factors included in the Company's strategic and business goals is assigned
a specific weight. Instead, the Company recognizes that these factors may
change in order to adapt to specific business challenges and to changing
economic and marketplace conditions.
Bonuses
For 2001, the Company had a bonus plan and had entered into individual
agreements with certain employees with respect to bonuses based on
triggers in the respective employment agreements. However, under the 2001
bonus plan none of the thresholds for which a payment of a cash bonus were
met by any of the Company's executive officers. Certain employees of the
Company received bonus payments in connection with their individually
negotiated employment and termination agreements. For 2002, the Company
has put in place a bonus plan for non-commissioned employees based in part
on the achievement of Company-wide metrics and in part on individual
discretionary performance goals.
- EQUITY-BASED COMPENSATION
Stock Incentive Program
The purpose of the Company's Stock Incentive program is to provide
additional incentives to employees to work towards maximizing shareholder
value. The Company also recognizes that a stock incentive program is a
necessary element of a competitive compensation package for its employees.
The program utilizes vesting periods to encourage key employees to
continue in the employ of the Company and thereby acts as a retention
device for key employees. The Company believes that the program encourages
employees to maintain a long-term perspective with a goal of contributing
to overall shareholder value.
CHIEF EXECUTIVE OFFICER COMPENSATION
Douglas T. Hickey served as the Chief Executive Officer and as a director
of Critical Path from October 1998 until February 2001. The Compensation
Committee had used the same compensation policy described above for all
employees to determine Mr. Hickey's fiscal 2001 compensation.
William E. McGlashan has served as the Company's Chief Executive Officer
since August 2001, first joining the Company as its interim President and Chief
Operating Officer in April 2001. The Compensation Committee used the same
overall compensation policy described above for all employees to determine Mr.
McGlashan's fiscal 2001 and beyond compensation package, which includes both
cash- and equity-based compensation and a long-term housing loan. In setting the
parameters of the compensation package, the Compensation Committee made an
overall assessment of Mr. McGlashan's leadership and achievement in reaching the
Company's long-term strategic and business goals.
COMPENSATION COMMITTEE
Raul J. Fernandez
William E. Ford
19
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return of the
Company's Common Stock with the cumulative total return on the Nasdaq Stock
Market (U.S. companies) Index and the JP Morgan H&Q Internet 100 Index (formerly
the Chase Internet Index). The period shown commences on March 29, 1999, the
Company's first trading day on the Nasdaq National Market, and ends on December
31, 2001, the end of the Company's last fiscal year. The graph assumes an
investment of $100 on March 29, 1999, and the reinvestment of any dividends. We
have been notified by JP Morgan H&Q that Internet 100 Index will be
discontinued. As a result the Company has included Standard & Poor Internet
Software and Services Index against which the Company will provide future stock
performance information. Both indexes are provided below.
The comparisons in the graph below are based on historical data and are not
indicative of, nor intended to forecast, future performance of the Company's
Common Stock.
COMPARISON OF 3 YEAR CUMULATIVE TOTAL RETURN*
AMONG CRITICAL PATH, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE JP MORGAN H & Q INTERNET 100 INDEX
AND THE STANDARD & POOR INTERNET SOFTWARE & SERVICES INDEX
[PERFORMANCE GRAPH]
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------------------------
Last Trading Day 3/29/99 3/31/99 6/30/99 9/30/99 12/31/99 3/31/00 6/30/00 9/29/00 12/29/00 3/30/01 6/29/01
- -----------------------------------------------------------------------------------------------------------------------------------
Critical Path, Inc. 100.00 116.89 83.97 61.24 143.26 129.03 88.52 92.22 46.68 3.08 1.55
Nasdaq Stock Market
(U.S.) 100.00 107.56 117.66 120.59 178.24 200.10 173.99 160.10 107.21 80.03 94.32
JP Morgan H&Q
Internet 100 100.00 127.07 130.88 134.53 260.42 272.01 201.79 194.13 100.20 61.95 78.03
S & P Internet
Software & Services 100.00 164.16 124.24 116.94 187.57 159.73 121.59 111.53 60.51 40.89 49.98
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
- --------------------- -------------------
Last Trading Day 9/28/01 12/29/01
- --------------------- -------------------
Critical Path, Inc. 0.88 4.16
Nasdaq Stock Market
(U.S.) 65.44 85.07
JP Morgan H&Q
Internet 100 45.33 64.48
S & P Internet
Software & Services 20.69 41.65
- -------------------------------------------------------------------------------------------------
</Table>
* $100 invested on 3/29/99 in stock or index -- including reinvestment of
dividends.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this proxy statement, in whole or in part, the preceding Report of the
Compensation Committee and the preceding Performance Graph shall not be
incorporated by reference into any of these filings; nor shall the report or
graph be incorporated by reference into any future filings.
20
TRANSACTIONS WITH RELATED PARTIES
SEVERANCE AGREEMENTS
In February 2001, Douglas T. Hickey terminated his employment as the
Company's Chief Executive Officer. In connection with his resignation, Mr.
Hickey entered into an agreement and release detailing his resignation from the
Company. Pursuant to the agreement, Mr. Hickey received (i) nine months of base
salary plus automobile allowance, (ii) immediate vesting of all stock options
that would vest on or prior to August 9, 2001, (iii) continuing health benefit
coverage through February 2002, including payment for his annual physical and
related travel expenses, (iv) continuation of existing financial planning
services through August 2001, and (v) use of the Company's corporate apartment
until May 2001. The Company and Mr. Hickey were parties to a letter agreement
dated October 1, 1998 governing his employment with the Company. The agreement
had set forth Mr. Hickey's compensation level and eligibility for salary
increases, bonuses, benefits and option grants under the 1998 Stock Plan. In
connection with his employment agreement, Mr. Hickey received a nonrecourse loan
in the amount of $500,000, bearing interest at 4.51%. Mr. Hickey repaid that
loan in full with interest in March 2002. In November 1998, the Company loaned
Mr. Hickey $1.1 million pursuant to a promissory note bearing interest at the
rate of 4.51% per annum. In connection with Mr. Hickey's resignation from the
Company, the repayment of the loan was extended until May 2002. Mr. Hickey
repaid that loan in full with interest in March 2002.
In April 2001, Cynthia D. Whitehead, the Company's former President,
terminated employment with the Company and received a lump sum payment of
$168,775.
Lawrence Reinhold resigned as Executive Vice President and Chief Financial
Officer of the Company in August 2001. In connection with his resignation, Mr.
Reinhold triggered provisions in his employment agreement that entitled him to
certain benefits under that agreement. Pursuant to the agreement, Mr. Reinhold
received: (i) forgiveness on loans in the amount of $1.5 million, (ii) a
retention bonus payment of $225,000 that was triggered and paid in accordance
with the terms and conditions of his employment agreement and the circumstances
of his separation from employment, and (iii) severance benefits in the amount of
$150,000.
LOANS TO OFFICERS
In January 1999, the Company loaned William Rinehart, the Company's former
Senior Vice President of Worldwide Sales, $65,000 pursuant to a promissory note
bearing interest at the rate of 4.64% per annum. The note is presently due and
payable. As of April 16, 2002, Mr. Rinehart has repaid $21,000 of the
outstanding balance and entered into a repayment plan with the Company for the
remainder of the outstanding balance.
In December 2000, the Company loaned Lawrence Reinhold, the Company's
former Executive Vice President and Chief Financial Officer, $1.7 million. The
loan was made pursuant to a full recourse note and accrued interest at 6.0% per
annum. Principal and accrued interest were forgiven over a specified period of
employment and repayment of the outstanding loan subject to certain change of
control and employment termination criteria. In August 2001 certain employment
criteria were triggered and acceleration of the loan occurred such that the
remaining portion, totaling $1.5 million, was forgiven.
During 2001 and in connection with each of their respective employment
agreements, the Company made loans and held notes receivable from David C.
Hayden, the Company's Executive Chairman, and Pierre Van Beneden, the Company's
President, totaling $1.5 million and $350,000, respectively. As amended in 2002,
Mr. Hayden's full recourse note accrues interest at the rate of 6.75% per annum
and may be forgiven upon the achievement of a performance-based milestone
whereby a change of control event occurs with consideration received by the
shareholders in excess of $10.00 per share. Mr. Hayden's loan is due and payable
on August 13, 2004; provided, however, if his employment is terminated without
cause or he resigns for good reason, the due date will be extended for two
years. As of April 16, 2002, accrued interest under Mr. Hayden's note totaled
approximately $40,000. Interest payments are due and payable on August 13th of
each year that the loan is outstanding. The terms of this loan are more fully
discussed in the section of this Proxy Statement entitled "Employment and
Termination Agreements." Mr. Van Beneden's loan is interest free for the first
year
21
and will be forgiven in monthly installments over the first year of Mr. Van
Beneden's employment through October 2002, resulting in a compensation charge to
operating expense ratably over the first twelve months of his employment. In the
event of Mr. Van Beneden's departure prior to one year from employment, the
entire principle balance shall be repayable and interest due in accordance with
the terms of his employment agreement. If Mr. Van Beneden resigns after the
first six months of his employment, the remaining, not yet forgiven principle
balance shall be repayable within ninety days of his resignation. In the event
of a change in control of the Company, the entire balance shall be forgiven.
In December 2001 and in connection with his amended and restated employment
agreement, the Board approved a secured loan to William E. McGlashan, Jr. of up
to $4.0 million to be used for the purchase of a principal residence in the San
Francisco Bay Area. The loan is to be secured by the residence, by the pledge of
Mr. McGlashan's personal options and shareholdings in the Company and other
assets of Mr. McGlashan to the extent necessary such that at all times the
assets securing the loan equal at least 120% of the principal and interest
outstanding. Interest on the loan is to be accrued at the higher of the prime
rate or the applicable federal rate, and is deferred until the principal is due,
over a 10 year term. The loan provides that it shall be forgiven upon a change
of control event where consideration received by the shareholders exceeds $10.00
per share. In the event Mr. McGlashan terminates his employment either by
voluntary resignation or for cause, as defined in the agreement, the loan shall
be due and payable, with interest, no later than 12 months following such
termination. In the event Mr. McGlashan is terminated for any reason other than
his voluntary resignation or cause, the loan shall remain outstanding for the
remainder of its term. The Company has not yet finalized all of the terms of nor
funded the loan and, accordingly, no accrued interest was outstanding as of
April 16, 2002.
COMMERCIAL RELATIONSHIPS
In March 2001, the Company entered into a series of certain consulting and
transactional agreements with Vectis Group, LLC ("Vectis") to engage Vectis as
an advisor to the Company with respect to various strategic alternatives and
other management related services. The agreement provided Vectis with: (i) a
$50,000 monthly retainer fee for consulting services during the term of the
agreement, (ii) a warrant to purchase 500,000 shares of the Company's Common
Stock at a price of $2.00 per share, and (iii) transaction fees in connection
with certain dispositions or acquisitions of assets in an amount equal to 5% of
proceeds, up to a maximum of $1 million per transaction. Also effective March
2001, the Company entered into an agreement with Vectis to engage Vectis as a
placement agent in connection with a possible private placement by Critical Path
of equity securities. Under the agreement, Vectis was entitled to 5% of the
gross proceeds raised by the Company from specified purchasers, payable in cash,
securities or a combination thereof at the election of Vectis. In April 2001,
the Company and Vectis agreed to enter into an additional agreement whereby
Vectis would act as an advisor with respect to a restructuring of and management
of the Company. The agreement provided Vectis with a monthly retainer fee of
$125,000 during the term of the agreement. All of the agreements with Vectis
were terminated effective September 30, 2001, at which time several employees of
Vectis joined the Company as regular full time employees. The Company paid fees
to Vectis in 2001 in the amount of $1,073,041 million for aggregate monthly
consulting service fees and expenses, and $3,057,928 in fees associated with the
Series D Preferred Stock investment in November 2001 and other transactions
regarding the Company's restructuring. Although the agreements were terminated,
certain obligations under the agreements survive including indemnification
obligations and some obligations with respect to expense reimbursements and
transactional fees.
William E. McGlashan, Jr., who was appointed the Company's interim
President and Chief Operating Officer in April 2001 and later Chief Executive
Officer in August 2001, served as a principal and the Chief Executive Officer of
Vectis and holds a significant beneficial ownership in Vectis. David Hayden, the
Company's Executive Chairman of the Board, serves on Vectis' Advisory Board and
Executive Committee (a body that provides input but does not have any decision
making authority with respect to Vectis). Mr. Hayden is also the Executive
Chairman and founder of Archipelago, a global holding company. Archipelago has a
commitment to invest $1.0 million in Vectis in exchange for (i) an 8% annual
return and (ii) a right, in its discretion, to purchase 15% of future investment
opportunities generated by Vectis. Mr. Hayden does not have
22
any equity or voting interests in Vectis and will not receive any compensation
related to the Company's relationship with Vectis.
In November 2001, the Company entered into a financing transaction with a
group of investors that resulted in gross cash proceeds to the Company of
approximately $30 million as well as the retirement of $65 million in face value
of its 5 3/4% Convertible Subordinated Notes. In connection with the financing,
the Company issued and sold four million shares of its Series D Preferred Stock
(convertible into approximately 52.4 million shares Common Stock) and warrants
to purchase 2.5 million shares of Common Stock, to a group of investors that
included General Atlantic Partners LLC and its affiliates ("General Atlantic"),
Vectis Group LLC and its affiliated entities ("Vectis") and Cheung Kong
(Holdings) Limited and its affiliated entities ("Cheung Kong"). The Preferred
Stock will accrue and cumulate dividends at 8% and is convertible into shares of
Common Stock at the option of the holder. The warrants are exercisable at any
time from November 8, 2002 until November 8, 2006 at an exercise price of $1.05
per share.
As a result of the transaction, General Atlantic, Vectis and Cheung Kong
are deemed to be beneficial owners of more than 5% of the Company's Common
Stock. In connection with the financing, General Atlantic purchased 708,037
shares of Series D Preferred Stock, convertible as of April 16, 2002 into
approximately 9,597,460 shares of Common Stock, and warrants to acquire
2,500,000 shares of Common Stock for an aggregate purchase price of
$10,735,508.75. General Atlantic also exchanged an aggregate face amount of
$64,630,000 of the Company's 5 3/4% Convertible Subordinated Notes due April 1,
2005, for which General Atlantic paid $25,264,495.35 for 1,837,418 shares of
Series D Preferred Stock, which as of April 16, 2002 are convertible into
approximately 24,941,248 shares of Common Stock. Vectis purchased 581,818 shares
of Series D Preferred Stock, which as of April 16, 2002 are convertible into
approximately 7,886,558 shares of Common Stock for a purchase price of
$7,999,997.50 and Cheung Kong purchased 872,727 shares of Series D Preferred
Stock, which as of April 16, 2002 are convertible into approximately 11,829,837
shares of Common Stock, for a purchase price of $11,999,996.25.
For so long as 500,000 shares of the Series D Preferred Stock is
outstanding and a majority of the Series D Preferred Stock is owned by General
Atlantic, the holders of the Series D Preferred Stock are entitled to elect one
of the Company's five directors. In December 2001, the holders of the Series D
Preferred Stock elected William E. Ford, a general partner of General Atlantic,
to serve on the Board of Directors. For so long as Cheung Kong owns 750,000
shares of Series D Preferred Stock, Cheung Kong is entitled to designate a
non-voting observer to the Board of Directors.
INDEMNIFICATION
The Company's articles of incorporation limit the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the California
Corporations Code. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Company's bylaws provide that the Company may indemnify its directors
and officers to the fullest extent permitted by California law, including in
circumstances in which indemnification is otherwise discretionary under
California law. The Company also has entered into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
23
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board has selected PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending December 31, 2002 and has
further directed that management submit the selection of independent accountants
for ratification by the shareholders at the Annual Meeting.
PricewaterhouseCoopers has audited the Company's financial statements since the
fiscal year ended 1999. Representatives of PricewaterhouseCoopers are expected
to be present at the Annual Meeting, will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions. Shareholder ratification of the selection of PricewaterhouseCoopers
as the Company's independent accountants is not required by the Company's Bylaws
or otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers to the shareholders for ratification. If the shareholders
fail to ratify the selection, the Audit Committee and the Board will reconsider
whether or not to retain that firm in 2003. Even if the selection is ratified,
the Audit Committee and the Board in their discretion may direct the appointment
of different independent accountants at any time during the year if they
determine that such a change would be in the best interests of the Company and
its shareholders.
AUDIT FEE DISCLOSURES
Set forth below is a discussion of the fees for which
PricewaterhouseCoopers LLP billed the Company in connection with fiscal year
2001.
AUDIT FEES. Fees billed to the Company by PricewaterhouseCoopers LLP for
the audit of the Company's annual financial statements for fiscal year 2001 and
for the review of the financial statements included in the Company's quarterly
reports on Form 10-Q totaled $398,500.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Fees billed
to the Company for financial information systems design and implementation
services provided by PricewaterhouseCoopers LLP during fiscal year 2001 totaled
$2,221,851.
ALL OTHER FEES. Fees billed to the Company by PricewaterhouseCoopers LLP
during fiscal year 2001 for all other non-audit services rendered, including tax
related services, totaled $620,720.
AUDIT COMMITTEE INDEPENDENCE. The Audit Committee has considered the role
of PricewaterhouseCoopers LLP in providing the Company with information
technology services and other non-audit services, such as tax related services
and valuations of the fair value and certain intangible assets, and has
concluded that such services are compatible with PricewaterhouseCoopers LLP's
independence from management and from the Company.
All persons who spent more then fifty percent of their hours of employment
on performing audits of us during fiscal year 2001 were full-time permanent
employees of PricewaterhouseCoopers LLP.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE RATIFICATION OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
24
REPORT OF THE AUDIT COMMITTEE
The Audit Committee acts under a written charter first adopted and approved
by the Board of Directors and the Audit Committee in June 2000 and amended in
April 2002. The members of the Audit Committee are Raul J. Fernandez, William E.
Ford and Jeffrey T. Webber, each of whom is independent as defined by the
Company's standards as set forth in the Audit Committee Charter and the
independence standards established by the Nasdaq Stock Market. A copy of the
current amended Audit Committee Charter is attached to this Proxy Statement as
Appendix A.
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. The Audit Committee is responsible for
providing independent, objective oversight of the Company's accounting functions
and internal controls. Management has the primary responsibility for the
financial statements and the reporting process, including the systems of
internal controls. It is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
In fulfilling its oversight responsibilities, the Audit Committee reviewed
and discussed the audited financial statements in the Company's Annual Report on
Form 10-K with management, including a discussion of the quality, not just the
acceptability, of the accounting principles, the reasonableness of significant
judgments, and the clarity of disclosures in the financial statements for the
fiscal year ended December 31, 2001. Additionally, in April 2002, the Board of
Directors amended the Audit Committee Charter.
The Audit Committee is responsible for recommending to the Board of
Directors that the Company's financial statements be included in the Company's
Annual Report on Form 10-K. The Audit Committee took several steps in making
this recommendation for 2001, including, discussing with PricewaterhouseCoopers
LLP, the Company's independent accountants, those matters the independent
accountants communicated to and reviewed with the Audit Committee under
applicable auditing standards, including information regarding the scope and
results of the audit. Additionally, the Audit Committee met with the independent
accountants, with and without management present, to discuss the results of
their examinations, their evaluations of the Company's internal controls, and
the overall quality of the Company's financial reporting. The Audit Committee
reviewed with the independent accountants, who are responsible for expressing an
opinion on the conformity of the Company's audited financial statements with
generally accepted accounting principles, their judgments as to the quality, not
just the acceptability, of the Company's accounting principles and such other
matters as are required to be discussed with the Audit Committee under generally
accepted auditing standards and in compliance with Statement on Auditing
Standards No. 61. These communications and discussions are intended to assist
the Audit Committee in overseeing the financial reporting and disclosure
process.
In addition, the Audit Committee has discussed with the Company's
independent accountants, their independence from management and the Company,
including the matters received in the written disclosures and the letter
required by the Independence Standards Board Standard No. 1. This discussion and
disclosure
25
informed the Audit Committee of the accountants' independence, and assisted the
Audit Committee in evaluating such independence.
Finally, the Audit Committee reviewed and discussed, with the Company's
management and the independent accountants, the Company's audited consolidated
balance sheet at December 31, 2001 and December 31, 2000, and consolidated
statements of operations, shareholders' equity and cash flows for the three
years ended December 31, 2001. In reliance on the reviews and discussions
referred to above, the Audit Committee recommended to the Board of Directors and
the Board approved the inclusion of the audited financial statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001 for
filing with the SEC.
AUDIT COMMITTEE
Raul J. Fernandez
William E. Ford
Jeffrey T. Webber
SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Proposals of shareholders that are intended to be presented at the
Company's Annual Meeting of Shareholders in 2003 must be received by the
Secretary of the Company by January 3, 2003, to be included in the Proxy
Statement and proxy relating to that meeting. Shareholder proposals received by
the Company after that time will be considered untimely. In addition, a
shareholder proposal will be ineligible for presentation at the meeting unless
the shareholder gives such timely notice of the proposal in writing to the
Secretary of the Company at the principal executive offices of the Company and
otherwise complies with the provisions of the Company's Bylaws. To be timely,
the Company's Bylaws provide that the Company must have received the
shareholder's notice not less than 120 days before the date the Company's Proxy
Statement released to shareholders in connection with the 2002 Annual Meeting,
or January 3, 2003.
MATTERS NOT DETERMINED AT THE TIME OF SOLICITATION
The Board is not aware of any other matters to come before the meeting. If
any other matter should come before the meeting, then the persons named in the
enclosed form of proxy will have discretionary authority to vote all proxies
with respect thereto in accordance with their judgment. Whether or not you
intend to be present at the Annual Meeting, we urge you to return your signed
Proxy promptly.
THE COMPANY'S 2001 ANNUAL REPORT ON FORM 10-K HAS BEEN MAILED WITH THIS
PROXY STATEMENT. THE COMPANY WILL PROVIDE COPIES OF THE EXHIBITS TO THE ANNUAL
REPORT ON FORM 10-K, BUT WILL CHARGE A REASONABLE FEE PER PAGE TO ANY REQUESTING
SHAREHOLDER. SHAREHOLDERS OF RECORD MAY MAKE SUCH REQUEST IN WRITING TO THE
COMPANY AT 350 THE EMBARCADERO, SAN FRANCISCO, CALIFORNIA 94105-1204, ATTENTION:
KIRSTEN N. MELLOR. THE REQUEST MUST INCLUDE A REPRESENTATION BY THE SHAREHOLDER
THAT AS OF APRIL 16, 2002, THE SHAREHOLDER WAS ENTITLED TO VOTE AT THE ANNUAL
MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ MICHAEL J. ZUKERMAN
MICHAEL J. ZUKERMAN
Senior Vice President,
General Counsel and Secretary
Dated: April 30, 2002
26
APPENDIX A
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF
CRITICAL PATH, INC.
PURPOSE:
The purpose of the Audit Committee of the Board of Directors of Critical
Path, Inc. (the "Company") shall be:
- to provide oversight and monitoring of Company management and the
independent accountants and their activities with respect to the
Company's financial reporting process;
- to provide the Company's Board of Directors with the results of its
monitoring and recommendations derived therefrom;
- to nominate to the Board of Directors independent accountants to audit
the Company's financial statements and oversee the activities and
independence of the accountants; and
- to provide to the Board of Directors such additional information and
materials as it may deem necessary to make the Board of Directors aware
of significant financial matters that require the attention of the Board
of Directors.
The Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
may from time to time prescribe.
MEMBERSHIP:
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors and will consist of at least three members
of the Board of Directors who meet the following criteria:
1. Each member will be an independent director, in accordance with the
Nasdaq National Market Audit Committee requirements;
2. Each member will be able to read and understand fundamental
financial statements, in accordance with the Nasdaq National Market Audit
Committee requirements; and
3. At least one member will have past employment experience in finance
or accounting, requisite professional certification in accounting, or other
comparable experience or background, including a current or past position
as a chief executive or financial officer or other senior officer with
financial oversight responsibilities.
RESPONSIBILITIES:
The responsibilities of the Audit Committee shall include:
- Providing oversight and monitoring of Company management and the
independent accountants and their activities with respect to the
Company's financial reporting process;
- Recommending the selection and, where appropriate, replacement of the
independent accountants to the Board of Directors;
- Reviewing fee arrangements with the independent accountants;
- Reviewing the independent accountants' proposed audit scope, approach and
independence;
- Reviewing the performance of the independent accountants, who shall be
accountable to the Board of Directors and the Audit Committee;
A-1
- Reviewing the resumes of, and conduct interviews with, the partners and
managers of Critical Path external independent accounting firm working on
the Critical Path audit. Such process will be required before any new
partner or manager begins work on the Critical Path audit.
- Reviewing the external independent accounting firm's internal control
procedures and any internal reports regarding the firm's policies and
practices.
- Reviewing, with the external independent accounting firm, the firm's
partner statement on professional responsibility.
- Reviewing, with the external independent accounting firm, the results of
the accounting profession's periodic "peer review" (or equivalent) of the
firm.
- Reviewing and approving the document retention policy of Critical Path's
external independent accounting firm. Any changes to this policy must be
approved, in advance, by the Committee and management before being
applied to Critical Path.
- Reviewing, with the external independent accounting firm, the Company's
revenue recognition policy and related internal controls surrounding
revenue recognition.
- Reviewing any disclosures of transactions with related party and Critical
Path's critical accounting policies for sufficiency and accuracy in all
S.E.C. filings.
- Requesting from the independent accountants a formal written statement
delineating all relationships between the accountants and the Company,
consistent with Independent Standards Board Standard No. 1, and engaging
in a dialogue with the accountants with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the accountants;
- Directing the Company's independent accountants to review before filing
with the Securities and Exchange Commission the Company's interim
financial statements included in Quarterly Reports on Form 10-Q, using
professional standards and procedures for conducting such reviews;
- Discussing with the Company's independent accountants the matters
required to be discussed by Statement on Accounting Standard No. 61, as
it may be modified or supplemented;
- Reviewing with management, before release, the audited financial
statements and Management's Discussion and Analysis in the Company's
Annual Report on Form 10-K;
- Providing a report in the Company's proxy statement in accordance with
the requirements of Item 306 of Regulation S-K and Item 7(e)(3) of
Schedule 14A;
- Reviewing the Audit Committee's own structure, processes and membership
requirements; and
- Performing such other duties as may be requested by the Board of
Directors.
COMMITTEE MANDATES OF THE COMPANY'S MANAGEMENT:
The Audit Committee will work with the Company's management to ensure that
the following policies are complied with related to the Company's external
independent accounting firm:
- Critical Path may not retain its external accounting firm, or any of the
firm's affiliates, to provide any internal audit services or any other
consulting services, specifically related to financial information
systems or acquisition/asset valuations. Critical Path may not retain its
external accounting firm, or any of the firm's affiliates, to provide any
other non-audit services unless such retention and the related fee is
approved in advance by the Audit Committee, provided that such advance
approval shall not be required for audit-related services designated by
the Committee, including employee benefit plan audits, tax compliance
work and statutory tax audits, revenue recognition or work performed on
S.E.C. filings.
- Critical Path may not hire any partner or manager of its external
accounting firm who worked on the Company's audit during the prior three
years.
A-2
- Management must notify the Audit Committee within 72 hours of any
communication, internal or otherwise, received by management, which
raises significant issues relating to Critical Path's accounting policies
or practices.
- The engagement partner within the Company's external independent
accounting firm who oversees the Company's audit may only act in this
role or any other role on the audit engagement for a maximum of a five
(5) year period. Such a partner may resume this role upon the five (5)
year anniversary of his last year on the Company's audit engagement.
MEETINGS:
The Audit Committee will meet at least quarterly. The Audit Committee may
establish its own schedule, which it will provide to the Board of Directors in
advance.
The Audit Committee will meet separately with the independent accountants
as well as members of the Company's management as it deems appropriate in order
to review the financial controls of the Company.
MINUTES:
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
REPORTS:
Apart from the report prepared pursuant to Item 306 of Regulation S-K and
Item 7(e)(3) of Schedule 14A, the Audit Committee will summarize its
examinations and recommendations to the Board from time to time as may be
appropriate, consistent with the Committee's charter.
A-3
CRITICAL PATH, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 5, 2002
The undersigned hereby appoints David C. Hayden and William E. McGlashan, Jr.,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of common stock of Critical Path,
Inc. which the undersigned may be entitled to vote at the Annual Meeting of
Shareholders of Critical Path, Inc. to be held at the Argent Hotel located at 50
Third Street, San Francisco, California on Wednesday, June 5, 2002 at 10:00 a.m.
local time, and at any and all postponements, continuations and adjournments
thereof, with all powers that the undersigned would possess if personally
present, upon and in respect of the following matters and in accordance with the
following instructions.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF DIRECTORS, FOR PROPOSAL 2, AS MORE SPECIFICALLY DESCRIBED IN THE
PROXY STATEMENT, AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
PROPOSAL 1: To elect four directors to serve until the next Annual Meeting or
until their successors have been duly elected and qualified
consisting of David C. Hayden, William E. McGlashan, Jr., Raul J.
Fernandez and Jeffrey T. Webber:
[ ] FOR ALL NOMINEES [ ] WITHHELD FROM ALL NOMINEES
[ ] FOR ALL NOMINEES, EXCEPT AS NOTED BELOW
(Instruction: To withhold authority to vote for any individual
nominee, write that nominee's name in the space provided
below).
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the 2002 fiscal year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, attorneys and proxies of the undersigned may act upon such
other business as may properly come before the meeting of any postponements,
continuations and adjournments thereof.
Dated:
----------------------------------- ,
2002
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SIGNATURE(S)
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and
have a duly authorized officer
sign, stating title. If signer is a
partnership, please sign in
partnership name by authorized
person.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE
THAT IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.