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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities and Exchange Act of
1934 (Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
EPICOR SOFTWARE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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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. Identifying 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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EPICOR SOFTWARE CORPORATION
195 Technology Drive
Irvine, California 92618-2402
[EPICOR LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TO BE HELD MAY 15, 2001
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Epicor
Software Corporation (the "Company"), a Delaware corporation, will be held on
Tuesday, May 15, 2001 at 10:00 a.m., Pacific Time, at the offices of the Company
located at 195 Technology Drive, Irvine, California 92618-2402, telephone number
(949) 585-4000, for the following purposes:
1. To elect four (4) directors to serve until the next annual
meeting of stockholders or until their successors are elected and
qualified.
2. To ratify the appointment of Deloitte & Touche, LLP, as
independent auditors of the Company for the fiscal year ending December
31, 2001.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 16, 2001
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting. However,
in order to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors
/s/ L. George Klaus
Chairman of the Board
Irvine, California
April 13, 2001
YOUR VOTE IS IMPORTANT. THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING
YOU SHOULD COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. Any stockholder
present at the meeting may withdraw his or her proxy and vote personally on each
matter brought before the meeting. Stockholders attending the meeting whose
shares are held in the name of a broker or other nominee who desire to vote
their shares at the meeting must bring with them a proxy or letter from that
firm confirming their ownership of shares.
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EPICOR SOFTWARE CORPORATION
[EPICOR LOGO]
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PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board" or "Board of Directors") of EPICOR SOFTWARE CORPORATION (the "Company")
for use at the Annual Meeting of Stockholders (the "Annual Meeting of
Stockholders") to be held on Tuesday, May 15, 2001, at 10:00 a.m., Pacific Time,
or at any adjournment or postponement thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting of Stockholders. The Annual
Meeting of Stockholders will be held at the principal executive offices of the
Company located at 195 Technology Drive, Irvine, California 92618-2402. The
telephone number at that location is (949) 585-4000. When proxies are properly
dated, executed and returned, the shares they represent will be voted at the
Annual Meeting in accordance with the instructions of the stockholder. If no
specific instructions are given, the shares will be voted for the election of
the nominees for directors set forth herein and for the ratification of the
appointment of Deloitte & Touche, LLP, as independent auditors and, at the
discretion of the proxy holders, upon such other business as may properly come
before the meeting or any adjournment or postponement thereof.
These proxy solicitation materials and the Form 10-K, including the
financial statements and the schedules thereto (but excluding exhibits), filed
with the Securities and Exchange Commission for the Company's fiscal year ended
December 31, 2000, were first mailed on or about April 13, 2001, to all
stockholders entitled to vote at the Annual Meeting of Stockholders.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT MEETING
The Company currently intends to hold its 2002 Annual Meeting of
Stockholders in late April 2002 and to mail Proxy Statements relating to such
meeting in early March 2002. Proposals that are intended to be presented by
stockholders of the Company at the Company's 2002 Annual Meeting of Stockholders
and that such stockholders wish to have included in the Company's proxy
statement relating to that meeting must be received by the Company at its
principal executive offices no later than December 4, 2001, in order to be
considered for possible inclusion in the Company's proxy statement relating to
that meeting.
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If a stockholder wishes to present a proposal at the Company's annual
meeting in the year 2002 and the proposal is not intended to be included in the
Company's proxy statement relating to that meeting, the stockholder must give
advance notice to the Company prior to February 27, 2002 (45 calendar days prior
to the anniversary of the mailing date of this proxy statement) in order to be
timely. If a stockholder gives notice of such a proposal after that deadline,
the Company's proxy holders will be allowed to use their discretionary voting
authority to vote against the stockholder proposal when and if the proposal is
raised at the Company's 2002 annual meeting.
The Company has not been notified by any stockholder of his or her
intent to present a stockholder proposal from the floor at this year's Annual
Meeting. The enclosed proxy card grants the proxy holders discretionary
authority to vote on any matter properly brought before the Annual Meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing a written notice of revocation bearing a later date than the proxy with
the Secretary of the Company at or before the taking of the vote at the Annual
Meeting, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting or (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be delivered to Epicor Software Corporation at 195
Technology Drive, Irvine, California 92618, Attention: Secretary of the Company,
or hand-delivered to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual
Meeting is a majority of the votes eligible to be cast by holders of shares of
Common Stock and Series C Preferred Stock issued and outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST" or "ABSTAINED" on a matter are
treated as being present at the Annual Meeting for purposes of establishing a
quorum and are also treated as shares entitled to vote at the Annual Meeting
with respect to such matter (the "Votes Cast").
While there is no definitive statutory or case law authority in Delaware
as to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
While broker non-votes will be counted for purpose of determining the
presence or absence of a quorum for the transaction of business, broker
non-votes will not be counted for purposes of determining the number of Votes
Cast with respect to the particular proposal on which the broker has expressly
not voted. Thus, a broker non-vote will not affect the outcome of the voting on
any proposal described in this proxy statement.
INTERNET AND TELEPHONE VOTING
Stockholders holding Company common shares, whether they are registered
directly with the Company's transfer agent, Mellon Investor Services, or held
with a bank or broker, may be eligible to vote via the Internet or to vote
telephonically. If a stockholder's shares are held in an account with a broker
or bank, the information on how to vote via the Internet or by telephone will be
provided on the voting instruction form. If a stockholder's shares are
registered directly with Mellon Investor Services, the information on how to
vote via the Internet or by telephone will be provided on the proxy card.
Votes submitted via the Internet or by telephone must be received by
11:59 p.m., Eastern Time, on May 14, 2001. Submitting a proxy via the Internet
or by telephone will not affect a stockholder's right to vote in person should
they decide to attend the Annual Meeting.
The telephone and Internet voting procedures are designed to
authenticate stockholders' identities, to allow stockholders to give their
voting instructions and to confirm that stockholders' instructions have been
recorded properly.
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Stockholders voting via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by the stockholder.
SOLICITATION
The Company will bear the entire cost of the solicitation of proxies,
including costs incurred in connection with the preparation, assembly, printing
and mailing of this proxy statement, the proxy and any additional information
furnished to the Company's stockholders in relation to the Annual Meeting of
Stockholders. Copies of solicitation materials will be furnished to banks,
brokerage houses, fiduciaries and custodians holding in their names shares of
Common Stock of the Company beneficially owned by others for forwarding to such
beneficial owners. The Company may reimburse persons representing beneficial
owners of Common Stock of the Company for their costs of forwarding solicitation
materials to such beneficial owners. Original solicitation of proxies by mail
may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other regular employees of the Company. No additional
compensation will be paid to directors, officers or other regular employees for
such services.
RECORD DATE AND SHARES OUTSTANDING
Stockholders of record at the close of business on March 16, 2001
("Record Date") are entitled to notice of and to vote at the Annual Meeting of
Stockholders. The Company has two (2) classes of equity securities outstanding,
designated Common Stock, $.001 par value ("Common Stock" or the "Company's
Common Stock"), and Series C Preferred Stock, $.001 par value ("Series C
Preferred Stock"). At the Record Date, 41,786,497 shares of Common Stock and
95,305 shares of Series C Preferred Stock were issued and outstanding.
VOTING AND CONVERSION RIGHTS OF COMMON STOCK AND SERIES C PREFERRED STOCK
Each share of Common Stock outstanding at the record date will be
entitled to one (1) vote with respect to each proposal herein and any other
matter that properly may come before the Annual Meeting of Stockholders. Each
share of Series C Preferred Stock is convertible into ten (10) shares of Common
Stock, as adjusted for any stock dividends, combinations or splits with respect
to such shares, at any time at the option of the holder. In addition, each share
of Series C Preferred Stock automatically converts into ten (10) shares of
Common Stock, as adjusted as provided above, ten (10) days following the date
that the average closing price of the Common Stock for twenty (20) consecutive
days has exceeded $25.00 per share, as adjusted as provided above. Each share of
Series C Preferred Stock will be entitled to vote with the holders of Common
Stock on an as-converted basis on all matters presented for stockholder
approval. Thus, a total of 42,739,547 votes are eligible to be cast at the
Annual Meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
Currently, there are five (5) members of the Board of Directors. Arthur
J. Marks, currently serving as a director, has decided not to stand for
reelection. Effective May 15, 2001, the number of authorized directors will be
reduced to four (4). Accordingly, at the Annual Meeting of Stockholders, four
(4) directors are to be elected by the holders of Common Stock and Series C
Preferred Stock. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's four (4) nominees named below. All
nominees are currently directors of the Company. If any Company nominee is
unable or declines to serve as a director at the time of the Annual Meeting of
Stockholders, the proxies will be voted for a nominee designated by the present
Board of Directors to fill the vacancy. The Company is not aware of any nominee
who will be unable to or will decline to serve as a director. The term of office
for each person elected as a director will continue until the next Annual
Meeting of Stockholders or until his successor has been elected and qualified.
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The names of the nominees and certain information about them are set
forth below:
Name Age Title Director Since
------------------ --- ----------------------- --------------
L. George Klaus 60 Chairman of the Board, 1996
Chief Executive Officer
Donald R. Dixon 53 Director 1995
Charles Boesenberg 52 Director 2000
Thomas Kelly 48 Director 2000
The Board of Directors recommends a vote "FOR" the election of all of the
nominees listed above.
Mr. Klaus has been a Director of the Company and has served as Chief
Executive Officer of the Company since February 1996 and Chairman of the Board
since September 1996. Mr. Klaus also served as President of the Company from
February 1996 through November 1999. From July 1993 through October 1995, Mr.
Klaus served as President, Chief Executive Officer and Chairman of the Board of
Frame Technology, Inc., a software company that produces software tools for
authoring, managing and distributing business-critical documents. Mr. Klaus
currently serves on the board of FileNet Corporation. Mr. Klaus is also a member
of the Board of Advisors of Broadview Capital Partners and the Information and
Computer Science CEO Advisory Board for the University of California, Irvine.
Mr. Dixon has been a Director of the Company since September 1995. Mr.
Dixon has served as President of Trident Capital, Inc., a private investment
firm, since June 1993, and before that as Co-President of Partech International,
Inc., an international venture capital and money management firm, from June 1988
until June 1993. Mr. Dixon also is a director of Evolving Systems, Inc. and
several private companies.
Mr. Kelly has been a Director of the Company since January 2000. Mr.
Kelly has been Chairman and Chief Executive Officer of eOnline, Inc., an
enterprise resource planning software hosting company, since January 2001. From
July 1998 through December 2000, Mr. Kelly was Chairman and Chief Executive
Officer of Blaze Software, Inc., a provider of rules-based e-business software
that enables personalized interaction across an enterprise's electronic contact
points. From March 1996 through March 1998, Mr. Kelly was employed at Cirrus
Logic, Inc. as Executive Vice President and Chief Financial Officer, and then
subsequently Chief Operating Officer. From September 1993 through December 1995,
Mr. Kelly served as Executive Vice President and Chief Financial Officer of
Frame Technology Corporation, a software company that produces software tools
for authoring, managing and distributing business-critical documents.
Mr. Boesenberg has been a director of the Company since December 2000.
Mr. Boesenberg has been President of Post PC Ventures, a management and
investment group focusing on eCommerce, Internet appliances, enterprise security
and B2B Internet infrastructure companies, since February 2000. Prior to joining
Post PC Ventures, Mr. Boesenberg was President and Chief Executive Officer of
Integrated Systems, Inc. (ISI) from December 1998 until February 2000, when the
company was acquired by Wind River Systems, Inc. From January 1994 through
November 1998, Mr. Boesenberg was President and CEO of Magellan Corporation and
its predecessor Ashtech Inc., both global positioning systems companies. Mr.
Boesenberg is also a director of Symantec Corporation, Immersion Corporation and
several private companies.
VOTE REQUIRED
The four (4) nominees for director receiving the highest number of
affirmative votes from holders of shares entitled to be voted for them shall be
elected as directors. Votes withheld from any director are counted for purposes
of determining the presence or absence of a quorum, but have no other legal
effect under Delaware law. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS VOTE FOR THE ELECTION OF THE COMPANY'S FOUR (4) NOMINEE
DIRECTORS. Proxies solicited by the Company will be voted FOR the election of
the Company's four (4) nominee directors.
COMMITTEES
The Board of Directors has a standing Compensation Committee and Audit
Committee.
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The functions of the Compensation Committee include advising the Board
of Directors on officer compensation and employee compensation generally as well
as administering the Company's stock option plans. See "Report of the
Compensation Committee on Executive Compensation" below. The Compensation
Committee, which presently consists of two outside directors, Messrs. Dixon and
Marks, held two meetings during 2000.
The Audit Committee is responsible for recommending to the Board of
Directors the appointment of the Company's outside auditors, examining the
results of audits and quarterly reviews as well as reviewing internal accounting
controls. The Audit Committee, which presently consists of these outside
directors, Messrs. Dixon, Marks and Kelly, held eight meetings during 2000. On
April 27, 2000 the Company adopted a written charter for the Audit Committee.
This charter is attached to this proxy statement as Exhibit A. All members of
the Audit Committee are independent under the requirements of Rule 4200(a)(15)
of the National Association of Securities Dealers' listing standards.
The Board of Directors has no nominating committee or any committee
performing the functions of such a committee.
BOARD MEETINGS
The Board of Directors held a total of four meetings during 2000. No
member of the Board of Directors who is standing for reelection attended fewer
than 75% of the meetings of the Board of Directors, and no incumbent director
attended fewer than 75% of the meetings of committees upon which such director
served.
OTHER EXECUTIVE OFFICERS
The names of the current executive officers and certain information
about them are set forth below:
Name Age Title
------------------- ----- ---------------------
L. George Klaus 60 Chief Executive Officer, Chairman of the Board
Richard L. Roll 51 President, Chief Operating Officer
Lee Kim 42 Vice President, Chief Financial Officer
Vincent Sheeran 43 Senior Vice President Worldwide Sales
Daniel Whelan 40 Senior Vice President Consulting and Support
Mr. Roll joined the Company in November 1999 and has served as President
and Chief Operating Officer since joining the Company. From 1996 through July
1999, Mr. Roll was employed at Hitachi Koki Imaging Solutions, Inc., an imaging
solutions company, where he served as President and Chief Executive Officer from
1998 through July 1999, as Chief Operating Officer from 1997 to 1998, and as
Senior Vice President, Americas Printer division from 1996 to 1997.
Mr. Kim has served as Chief Financial Officer of the Company since
October 1999. From February 1999 to October 1999, Mr. Kim served as Vice
President and Controller of the Company. From October 1997 to February 1999, Mr.
Kim was Vice President, Controller and Chief Accounting Officer for FileNet
Corporation, a provider of integrated document management software products.
Between August 1993 and October 1997, Mr. Kim was employed at Wonderware
Corporation, a provider of industrial automation software. During this period,
Mr. Kim served as Manager of Finance from August 1993 to August 1994, Director
of Finance from August 1994 to October 1997, and Acting Chief Financial Officer
from January 1996 to March 1996.
Mr. Sheeran has served as Senior Vice President Worldwide Sales of the
Company since April 2000. From June 1999 to March 2000, Mr. Sheeran served as
Senior Vice President Marketing of the Company. From June 1997 to May 1999, Mr.
Sheeran was Vice President Clientele Products for the Company, and from 1995 to
1997 he was Vice President of Epicor's Eastern Region.
Mr. Whelan has served as Senior Vice President of Professional Services
and Customer Support for North America of the Company since January 2001. From
January 2000 to December 2000, Mr. Whelan served as Senior Vice President,
Professional Services for North America, and from March 1994 through December
1999 as Vice President, Professional Services.
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EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION. The following table sets forth summary
information concerning compensation paid or accrued for services rendered to the
Company in all capacities to the Company's Chief Executive Officer and to the
Company's four most highly-compensated executive officers.
SUMMARY COMPENSATION TABLE(1)
Long-Term Compensation
Annual Compensation Awards
--------------------------------------- -------------------------
Other Annual Restricted Securities All Other
Fiscal Year Compensation Stock Awards Underlying Compensation
Name and Principal Position Ended (1) Salary ($) Bonus ($) ($) ($) Options (#) ($)
- --------------------------- --------- ---------- ---------- ------------ ------------ ----------- ---------
L. George Klaus(2) 12-31-00 630,000 73,710 556,635(3) (8) -- 3,564(9)
Chairman of the Board, 12-31-99 630,000 133,262 456,489(4) -- 100,000
and Chief Executive Officer 12-31-98 559,167(5) 620,216(6) 444,188(7) -- 500,000 --
06-30-98 527,500 509,456 423,058(7) -- -- --
Richard L. Roll 12-31-00 400,000 29,250 -- -- 230,000 1,242(9)
President and 12-31-99 50,000 8,886 6,000(10) -- 700,000 155(9)
Chief Operating Officer
Lee Kim 12-31-00 183,333 17,550 1,625(15) -- 75,000 370(9)
Vice President and 12-31-99 137,037 16,863 65,728(16) -- 175,000 --
Chief Financial Officer
Vincent Sheeran 12-31-00 274,794 -- 55,235(11) -- 50,000 540(9)
Senior Vice President 12-31-99 229,167 102,882 85,147(12) -- 140,000 629(9)
Worldwide Sales 12-31-98 158,333(5) 224,020(13) -- -- 25,000 --
06-30-98 75,000 50,000(14) -- -- -- --
Daniel Whelan 12-31-00 197,400 65,712 18,076(15) -- 25,000 410(9)
Senior Vice President 12-31-99 188,000 39,838(17) 65,728(18) -- 115,000 380(9)
Professional Services and 12-31-98 147,500(5) 153,965(19) 209,850(22) -- 20,000 --
Customer Support 06-30-98 70,000 17,787(20) 209,850(21) -- 22,000 --
(1) Effective December 30, 1998, the Company changed its fiscal year end from
June 30 to December 31. The information presented in this table includes
the fiscal years ended December 31, 2000, December 31, 1999, the 12 months
ended December 31, 1998 and the fiscal year ended June 30, 1998.
(2) Mr. Klaus also served as President until November 16, 1999.
(3) Amount stated reflects $420,000 in waiver of accrued interest on two loans
in the aggregate principal amount of $7,000,000; additional amount stated
reflects relocation expenses.
(4) Amount stated reflects $420,000 in waiver of accrued interest on two loans
in the aggregate principal amount of $7,000,000; premiums for insurance
that provides for reimbursement for health and dental costs in excess of
the amounts payable under the Company's group health and dental plans; fees
paid in connection with a golf club membership; and taxes paid in
connection with such golf club membership fee. See "Employment Agreements
and Related Party Transactions."
(5) Includes salary for the final six months of the fiscal year ended June 30,
1998 and the final six months of the calendar year ended December 31, 1998.
(6) Includes bonus for the fiscal year ended June 30, 1998 as well as prorated
bonus for six months ended December 31, 1998.
(7) Amount stated reflects $420,000 in waiver of accrued interest on two loans
in the aggregate principal amount of $7,000,000; and premiums for insurance
that provides for reimbursement for health and dental costs in excess of
the amounts payable under the Company's group health and dental plans. See
"Employment Agreements and Related Party Transactions."
(8) Mr. Klaus received a restricted stock grant of 2,000,000 shares in
connection with his joining the Company in February 1996. See "Employment
Agreements and Related Party Transactions." Of the 2,000,000 shares,
350,000 vested on the grant date and 29,167 shares vested each month
thereafter for 36 months. The remaining 600,000 shares vest based on the
Company meeting operating revenue and profit after tax thresholds for
fiscal 1997, 1998 and 1999. As of December 31, 2000, all 2,000,000 shares
were vested. The value of Mr. Klaus' restricted stock holdings at December
31, 2000, was $1,625,000, which was determined by multiplying the number of
restricted shares times $0.8125, the closing price of the Company's common
stock on December 29, 2000, net of the consideration paid for the
restricted shares. The restricted stock is entitled to the same dividends
as are paid to the common stock generally.
(9) Amount stated reflects premium for group term life insurance.
(10) Amount stated reflects amount budgeted for attendance at an Epicor
conference.
(11) Amount stated reflects $21,634 for paid time off; and $32,759 for
relocation expenses.
(12) Amount stated reflects $18,790 for relocation expenses; and $65,728 for
fees paid in connection with a golf club membership.
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(13) Amount stated reflects $174,020, for bonus payment; and $50,000 for sales
commissions.
(14) Amount stated reflects $25,000 for bonus payment; and $25,000 for sales
commissions.
(15) Amount stated reflects money paid for paid time off.
(16) Amount stated reflects $35,000 for fees paid in connection with a golf club
membership; and taxes paid in connection with such golf club membership.
(17) Amount stated reflects $39,838 in bonus payment.
(18) Amount stated reflects fees for a golf club membership.
(19) Amount stated reflects $42,500 in bonus payment and $111,465 in sales
commissions.
(20) Amount stated reflects sales commission.
(21) Amount stated reflects the net income; after taxes, from the exercise of
non-qualified stock options by Mr. Whelan.
(22) Amount stated reflects the same annual compensation as in footnote 21 for
the period ending June 30, 1998; it is also reflected here due to change in
fiscal year end (see footnote 1).
Option Grants. The following table sets forth certain information
concerning grants of stock options to each of the persons named in the Summary
Compensation Table during the fiscal year ended December 31, 2000. In addition,
in accordance with the rules and regulations of the Securities and Exchange
Commission, the following table sets forth the hypothetical gains or "option
spreads" that would exist for the options at the end of their respective terms.
Such gains are based on assumed rates of annual compound stock appreciation of
5% and 10% from the date on which the options were granted over the full term of
the options. No assurance can be given that the rates of annual compound stock
appreciation assumed for the purposes of the following table will be achieved.
The Company did not grant any stock appreciation rights during 2000.
Options granted have a term of ten (10) years, subject to earlier
termination in certain events related to termination of employment. The exercise
price of each option is equal to the fair market value of the common stock on
the date of grant. In January 2001, each of the persons named in the Summary
Compensation Table exchanged all of the options listed in the table below for
restricted shares of the Company's common stock. See "Related Party Transactions
- -- Exchange of Options for Common Stock."
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock Price
Individual Grants Appreciation for Option Term
----------------------------------------------------------------------------------- ------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
--------- ------------ ------------ ------------ ------------ ------------ ------------
L. George Klaus -- -- -- -- -- --
Richard L. Roll 20,000 0.97 5.9375 1/12/10 74,681 189,257
10,000 0.49 4.0000 4/28/10 25,156 63,750
200,000 9.72 1.1562 11/1/10 145,426 368,537
Lee Kim 25,000 1.22 4.0000 4/28/10 62,889 159,374
50,000 2.43 1.1562 11/1/10 36,356 92,134
Vince Sheeran 50,000 2.43 4.0000 4/28/10 125,779 318,748
Daniel Whelan 25,000 1.22 4.0000 4/28/10 62,889 159,374
Option Exercises. The following table sets forth certain information
concerning the exercise of options by each of the Company's executive officers
named in the Summary Compensation Table during the fiscal year ended December
31, 2000, including the aggregate value of gains on the date of exercise. In
addition, the table includes the number of shares covered by both exercisable
and unexercisable stock options outstanding as of December 31, 2000. Also
reported are the values for "in the money" options that represent the positive
spread between the exercise prices of any of such existing stock options and the
closing sale price of the Company's Common Stock as of December 31, 2000.
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Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Year-End Options at Fiscal Year-End(1)
-------------------------------------- ---------------------------------
Shares Value
Acquired on Realized
Name Exercise (#) (1)($) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
- --------------- ------------ ------------ --------------- ----------------- --------------- -----------------
L. George Klaus -- -- 333,334 266,666 -- --
Richard L. Roll -- -- 177,500 752,500 -- --
Lee Kim -- -- 41,250 208,750 -- --
Vincent Sheeran -- -- 127,250 183,750 -- --
Daniel Whelan -- -- 81,700 130,500 -- --
(1) Market value of underlying securities at exercise date or year-end, as the
case may be, minus the exercise or base price on "in-the-money" options.
The closing sale price for the Company's Common Stock as of December 31,
2000 on the NASDAQ National Market System was $0.8125.
Compensation of Directors. The Company pays each non-employee director
of the Company a $10,000 retainer fee and a $5,000 fee for physical attendance
at a board meeting. The board meeting fee is $2,500 if attendance is via phone.
During 2000, board fees were paid to the current directors. Also, beginning in
January 2000 each non-employee director of the Company received an option to
purchase 35,000 shares upon commencement of service as a director and an option
to purchase 10,000 shares upon each subsequent reelection to the Board. The
options are and will be priced at the fair market value of the Company's common
stock on the date of grant.
RELATED PARTY TRANSACTIONS
Employment and Severance Agreements
1. The Company entered into an offer letter with L. George Klaus when he
joined the Company as President and Chief Executive Officer in February 1996.
The offer letter initially provided for a base salary of $500,000, together with
an annual bonus on a fiscal year basis of up to $250,000 based on a performance
plan. The offer letter also initially provided that Mr. Klaus could earn an
additional incentive bonus of up to $250,000 upon fulfillment of certain
performance criteria. Mr. Klaus' base salary has been increased since the time
he joined the Company and his bonus plan also has been modified. See "REPORT OF
THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION-CEO Compensation for Fiscal
2000."
In addition, Mr. Klaus purchased 2,000,000 shares of restricted stock at
a purchase price of $3.50 per share, the then fair market value of the Company's
Common Stock. As payment for one-half of the purchase price, Mr. Klaus executed
a secured five-year promissory note in the principal amount of $3,500,000. The
note bears simple interest at 6% per annum, is a full recourse promissory note,
and is secured by a stock pledge of 2,000,000 shares of the Company's Common
Stock. In April 1998, the Company waived the collection of all accrued interest
to date and going forward with respect to the promissory note. The Company
retained a repurchase right with respect to the restricted stock. The repurchase
right lapsed with respect to 350,000 shares on the date of the restricted stock
grant, and lapsed with respect to 29,167 shares each month for 36 months so
that, as of February 7, 1999, the repurchase right no longer applied to
1,400,000 shares. The repurchase right with respect to the remaining 600,000
shares lapsed based on fulfillment of certain performance criteria with respect
to the Company's operating revenues and profit after taxes for fiscal years
1997, 1998 and 1999.
In addition, the Company agreed to pay Mr. Klaus 12 months severance,
including salary and bonus, in the event his employment is terminated without
cause or in the event that he is constructively terminated.
Finally, the Company agreed to provide a relocation package to Mr. Klaus
to assist him in relocating from Northern California to Southern California.
Such package included: (i) paying the shortfall on the sale of his primary
residence; (ii) reimbursing Mr. Klaus certain financing and closing costs in
connection with the purchase of a new home; (iii) providing temporary housing in
Southern California; and (iv) paying moving expenses.
The Company has loaned to Mr. Klaus $3,500,000 pursuant to an unsecured
five-year full recourse promissory note, which bears interest at the rate of 6%
per annum. This loan was used to fund Mr. Klaus' restricted stock purchase along
with the secured note referenced above. In April 1998, the Company waived the
collection of all accrued interest
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to date and going forward with respect to this unsecured note. In January 2001,
the Company extended the maturity date of Mr. Klaus' two notes to the Company,
in an aggregate initial principal amount of $7,000,000, to February 7, 2003 and
reinstated the accrual of 6% interest per annum on such notes, beginning January
4, 2001.
In February 2001, the Company agreed to pay Mr. Klaus a bonus in the
amount of $350,000 on February 1, 2002, provided Mr. Klaus remains a director of
the Company through January 31, 2002.
The largest principal amount outstanding during 2000 under all loans to
Mr. Klaus was $7,000,000, and the amount outstanding as of December 31, 2000 was
$7,000,000.
2. The Company entered into an offer letter with Richard L. Roll when he
joined the Company in November 1999 as President and Chief Operating Officer.
The offer letter provides for a base salary of $400,000, together with a target
annual bonus on a fiscal year basis of $150,000 based on a performance plan. The
target bonus may increase to $375,000 if the performance targets are exceeded.
In addition, Mr. Roll was granted an option to purchase 500,000 shares
of Common Stock at an exercise price of $6.3594 per share. The options vest with
respect to 350,000 shares as follows: (i) 80,000 shares vest immediately upon
commencement of employment; (ii) 90,000 shares vest on the first anniversary of
the employment start date; and (iii) 7,500 shares vest on the first day of each
month beginning on the first day of the thirteenth month after the employment
start date. Vesting with respect to the remaining 150,000 shares is tied to
Company performance targets for fiscal years 2000, 2001 and 2002. If the
performance targets are not fulfilled, then the shares that would have vested
based upon fulfillment of the performance targets vest on the fifth anniversary
of the employment start date.
Mr. Roll also was granted an option to purchase 200,000 shares of Common
Stock at an exercise price of $6.3594 per share. Vesting of this option would
commence if Mr. Roll fulfilled a performance target on or before January 1,
2001. Upon fulfillment of the performance target, the options would vest with
respect to 5,556 shares monthly over a period of 36 months. As the performance
target was not fulfilled prior to January 1, 2001, the option will vest on the
fifth anniversary of the grant date.
In addition, the Company agreed to pay Mr. Roll 12 months severance,
including salary and bonus, in the event his employment is terminated without
cause or in the event that he is constructively terminated. In the event of
termination without cause or a constructive termination, the shares of Common
Stock that would have vested under Mr. Roll's options during the next 12-month
period shall accelerate and become vested. If a change of control occurs
following the first anniversary date of Mr. Roll's employment, then all shares
subject to his options shall become fully vested upon the change of control.
In November 2000, Mr. Roll was granted an option to purchase an
additional 200,000 shares of Common Stock at an exercise price of $1.1560 per
share. Vesting of this option will commence if Mr. Roll fulfills a performance
target on or before January 1, 2002. Upon fulfillment of the performance target,
the options would vest with respect to 5,556 shares monthly over a period of 36
months. If the performance target is not fulfilled prior to January 1, 2002, the
option will vest on the fifth anniversary of the grant date.
3. The Company entered into an offer letter with Ken Lally when he
joined the Company as Senior Vice President - Worldwide Field Operations in
April 1996. The offer letter provided for a base salary of $200,000, together
with an annual bonus on a fiscal year basis of up to $100,000 based on a
performance plan. The offer letter also provided that Mr. Lally could earn an
additional incentive bonus of up to $100,000 upon fulfillment of certain
performance criteria. Mr. Lally's base salary and bonus changed during his
employment with the Company.
In addition, Mr. Lally purchased 450,000 shares of restricted stock at a
purchase price of $6.25 per share, the then fair market value of the Company's
Common Stock. In payment of one half of the purchase price, Mr. Lally executed a
secured five-year promissory note in the principal amount of $1,406,250. The
note bears simple interest at 6% per annum, is a full recourse promissory note,
and is secured by a pledge of 450,000 shares of the Company's Common Stock. In
April 1998, the Company waived the collection of all accrued interest to date
and going forward with respect to the promissory note. The Company retained a
purchase right with respect to the restricted stock. The repurchase right lapsed
with respect to 49,980 shares on the date of the restricted stock grant, and
lapsed with respect to 6,945 shares each month thereafter for 36 months, so that
as of April 10, 1999 the repurchase right did not apply to 300,000 shares. The
repurchase right with respect to the remaining 150,000 shares lapses based on
fulfillment of certain performance criteria
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with respect to the Company's operating revenues and profit after taxes for
fiscal 1997, fiscal 1998 and fiscal 1999, or in any event after ten years. For
fiscal 1999, the initial performance target was revised during 1999. As of
December 31, 1999, the repurchase right lapsed with respect to 145,000 of the
150,000 shares.
In addition, the Company agreed to pay Mr. Lally six months severance,
including salary and bonus, in the event his employment was terminated without
cause or in the event that he was constructively terminated. In the event of
termination without cause or constructive termination, the Company's repurchase
right would lapse with respect to the shares that would have vested during the
six-month period following termination.
Finally, the Company provided a relocation package to Mr. Lally to
assist him to relocate from Northern California to Southern California. Such
package included: (i) paying the shortfall on the sale of his primary residence;
(ii) reimbursing Mr. Lally certain financing and closing costs in connection
with the purchase of a new home; (iii) providing temporary housing in Southern
California; and (iv) paying moving expenses.
The Company also has loaned to Mr. Lally $1,406,250 pursuant to a
five-year unsecured full recourse promissory note, which bears interest at 6%
per annum. This loan was used to fund Mr. Lally's restricted stock purchase
along with the secured note referenced above. In April 1998, the Company waived
the collection of all accrued interest to date and going forward with respect to
this unsecured note.
In April 2000, Mr. Lally terminated his employment with the Company.
Under Mr. Lally's severance arrangements, he will continue to serve as a
consultant to the Company, will continue to be paid his base salary as of the
date of termination, and will continue to vest in his options until October 31,
2000. In addition, Mr. Lally remained eligible for a fiscal year 2000 bonus,
prorated for the portion of 2000 in which he served as an employee to the
Company. The Company also repurchased 5,000 unvested shares of the Company's
common stock held by Mr. Lally, in exchange for the cancellation of $31,250 of
Mr. Lally's indebtedness to the Company under the April 1996 promissory note.
The Company also agreed to provide Mr. Lally a relocation package to assist him
in moving from Southern California to Northern California. All amounts due under
Mr. Lally's promissory notes to the Company were due and payable on or before
April 10, 2001. In January 2001, the Company extended the maturity date of Mr.
Lally's two notes to the Company, in an aggregate initial principal amount of
$2,812,500, to April 10, 2002 and reinstated the accrual of 6% interest per
annum on such notes, beginning January 4, 2001.
The largest aggregate principal amount outstanding during 2000 on all
loans to Mr. Lally was $2,812,500 and the amount outstanding at December 31,
2000 was $2,781,250.
4. The Company has entered into an agreement with each of Lee Kim (Vice
President and Chief Financial Officer), Vincent Sheeran (Senior Vice President
Worldwide Sales) and Daniel Whelan (Senior Vice President Consulting and
Support), providing that, if such person's employment is involuntarily
terminated within six months following a change of control of the Company or if
there is a constructive termination of such person's employment within six
months following a change of control, then such person will be entitled to
receive six months of base salary plus an additional week's pay for each full
year of service to the Company.
For purposes of the above discussion, the phrase "change of control" is
defined to generally include the following: (i) the sale, lease, conveyance or
other disposition of all or substantially all of the Company's assets as an
entirety or substantially as an entirety to any person, entity or group of
persons acting in concert, (ii) any transaction or series of transactions that
results in, or that is in connection with, any person, entity or group acting in
concert (other than existing affiliates of the Company), acquiring "beneficial
ownership" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of such percentage of the aggregate voting power of all
classes of voting equity stock of the Company as shall exceed fifty percent
(50%) of such aggregate voting power, (iii) a merger or consolidation in which
the Company is not the surviving entity, except for a transaction, the principal
purpose of which is to change the state in which the Company is incorporated; or
(iv) any reverse merger in which the Company is a surviving entity but in which
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately prior to
such reverse merger; or (v) a liquidation of the Company. For purposes of the
above discussion, "cause" shall mean the willful and repeated failure to comply
with the lawful directions of the Company's Board of Directors; gross negligence
or willful misconduct in the performance of duties to the Company and/or its
subsidiaries; commission of any act of fraud with respect to the Company and/or
its subsidiaries; or the conviction of a felony or a crime involving moral
turpitude causing material harm to the standing and reputation of the Company
and/or
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its subsidiaries, in each case as determined in good faith by the Company's
Board of Directors. For purposes of the above discussion, the term "constructive
termination" shall be deemed to occur if there is a material adverse change in
the individual's position causing it to be of less stature or of less
responsibility; a change in the persons to whom the individual reports (other
than a change in Board of Director composition); or a reduction of more than 20%
of the individual's base compensation and the Company shall fail to correct the
occurrence of any of these events to the reasonable satisfaction of the
individual following written notice within thirty (30) days.
Additional Indebtedness of Management
In May 2000, the Company made loans to certain of its executive
officers. Each executive officer recipient of such a loan issued the Company a
promissory note in the initial principal amount. Such notes bear 6.53% interest
per annum and were initially due and payable at the earlier of February 20, 2001
or when the executive officer was paid his bonus for fiscal year 2000. In
February 2001, these notes were amended to extended the maturity date to
February 20, 2002. These amendments also provided that interest from the date of
the notes until February 20, 2001 was forgiven. Those executive officers who
received loans and were indebted to the Company in an amount in excess of
$60,000 during fiscal year 2000 are described below.
- The Company loaned Richard L. Roll, its President and Chief
Operating Officer, $112,500. The largest aggregate principal amount
outstanding during 2000 on all loans to Mr. Roll was $112,500 and
the amount outstanding at December 31, 2000 was $112,500.
- The Company loaned Vincent Sheeran, its Senior Vice President of
Worldwide Sales, $192,822. The largest aggregate principal amount
outstanding during 2000 on all loans to Mr. Sheeran was $192,822 and
the amount outstanding at December 31, 2000 was $192,822.
Exchange of Options for Restricted Common Stock
In January 2001, the Company offered all of its director and employee
option holders the ability to exchange their options to purchase Company common
stock for restricted shares of the Company's common stock. The Company issued
each optionee who participated in the exchange one share of restricted common
stock in exchange for two options and $0.001 per share of restricted stock. The
Company has a repurchase right on these restricted shares. With respect to
shares issued in exchange for vested options, the repurchase right lapses over a
two-year period. With respect to shares issued in exchange for unvested options,
the repurchase right lapses over a four-year period. If, prior to one year after
the exchange, an employee optionee is terminated by the Company without cause,
then on the one-year anniversary of the exchange, the Company's repurchase right
will lapse with respect to one-half of the number of such employee's restricted
shares that would have vested at such time had he or she remained an employee of
the Company. In the event of a change of control of the Company, the repurchase
right will lapse as to all shares of such restricted stock.
Indemnification. Pursuant to the Merger Agreement between the Company
and DataWorks, the Company has agreed to cause the surviving corporation in the
merger to fulfill and honor in all respects the obligations of DataWorks
pursuant to any indemnification agreements between DataWorks and its directors
and officers as of the time of the merger (the "Indemnified Parties") and any
indemnification provisions under DataWorks' Certificate of Incorporation
("DataWorks' Certificate") and DataWorks' Bylaws as in effect on the date of the
Merger Agreement. The Certificate of Incorporation and Bylaws of the Company
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those in DataWorks' Certificate
and Bylaws as in effect on the date of the Merger Agreement, which provisions
will not be amended, repealed or otherwise modified for a period of six years
from the time of the merger in any manner that would adversely affect the rights
under those documents of individuals who, immediately prior to the merger, were
directors, officers, employees or agents of DataWorks, unless such modification
is required by law. None of the persons who were officers or directors of
DataWorks are presently serving as directors or executive officers of the
Company.
Pursuant to the Merger Agreement, for six years after the merger, the
Company agreed to cause the surviving corporation in the merger to use its
commercially reasonable efforts to maintain in effect, if available, director's
and officer's liability insurance covering those persons who were covered by
DataWorks' director's and officer's liability insurance policy on terms
comparable to those applicable to the DataWorks director and officer insurance
policy, except that the Company or the surviving corporation in the merger is
not required to spend greater than 150% of the annual
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premium paid by DataWorks for such coverage (or such coverage as is available
for such 150% of such annual premium).
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REPORT OF THE AUDIT COMMITTEE
The Audit Committee has:
- reviewed and discussed the Company's audited financial statements
for the fiscal year ended December 31, 2000 with the Company's
management;
- discussed with Ernst & Young LLP, the Company's auditors for 2000,
the matters required to be discussed by SAS 61; and
- received the written disclosures and the letter from Ernst & Young
LLP required by Independence Standards Board Standard No. 1, and has
discussed with Ernst & Young LLP its independence.
Based on the review and discussions discussed above, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the fiscal year ended December 31, 2000 be included in the Company's Annual
Report on Form 10-K for filing with the Securities and Exchange Commission.
Audit Committee: Donald R. Dixon
Arthur J. Marks
Thomas Kelly
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for establishing and
evaluating the effectiveness of compensation policies and programs for the
Company and for making determinations regarding the compensation of the
Company's executive officers.
The following report is submitted by the Compensation Committee with
respect to the executive compensation policies established by the Committee and
compensation paid or awarded to executive officers for the fiscal year ended
December 31, 2000.
COMPENSATION POLICIES AND OBJECTIVES
In establishing and evaluating the effectiveness of compensation
programs for executive officers, as well as other employees of the Company, the
Compensation Committee is guided by three basic principles:
- The Company must offer competitive salaries to be able to attract
and retain highly-qualified and experienced executives and other
management personnel.
- Annual executive compensation in excess of base salaries primarily
should be tied to the Company's performance.
- The financial interests of the Company's executive officers should
be aligned with the financial interests of the stockholders,
primarily through stock option or restricted stock grants that
reward executives for improvements in the market performance of the
Company's Common Stock.
Salaries and Employee Benefit Programs. In order to retain executives
and other key employees, and to be able to attract additional well-qualified
executives when the need arises, the Company strives to offer salaries and
health care and other employee benefit programs to its executives and other key
employees that are comparable to those offered to persons with similar skills
and responsibilities by competing businesses in the Company's line of business.
In addition, the Company requires its executives be based in Irvine, California
and, as a result, provides relocation packages to executives and key employees
who are required to relocate. In recommending salaries for executive officers,
the Committee (i) reviews the historical performance of the executives, and (ii)
informally reviews available information,
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including information published in secondary sources, regarding prevailing
salaries and compensation programs offered by competing businesses that are
comparable to the Company in terms of size, revenue, financial performance and
industry group. Many, though not all, of these competing businesses whose shares
are publicly traded are included in the Center for Research in Securities Prices
Index for NASDAQ Computer and Data Processing Stocks included in the Performance
Graph on page 17 of this Proxy Statement. Another factor that is considered in
establishing salaries of executive officers is the cost of living in Southern
California where the Company and its executive offices are headquartered, as
such cost generally is higher than in other parts of the country.
Base salaries are reviewed and adjusted annually based principally on an
evaluation of individual contributions to corporate goals, comparable market
salary data, growth in the Company's size and complexity, increases or decreases
in an executive's responsibilities, and Company performance. The base salaries
of Messrs. Sheeran, Kim, and Whelan in 2000 increased by 20%, 15% and 5%,
respectively, over December 1999 levels following an assessment of the above
factors.
Performance-Based Cash Compensation. The Company has established a cash
bonus plan for executives and key employees. Payment of bonuses is dependent on
the Company's achieving specific performance criteria for the fiscal year. The
performance criteria include a Company operating revenue target and a Company
profit before taxes goal. One half of the bonus is based on achieving the
operating revenue goal and the other half is tied to achieving the profit before
taxes goal. Potential cash bonuses under the plan range from 5% to 100% of an
individual's base salary and can exceed 100% of base salary if greater than 100%
of the performance criteria are achieved. Bonuses are paid if 75% of either the
operating revenue or profit before taxes goals are met.
The profit and revenue targets are established on the basis of annual
budget and forecasts developed by management and approved by the Compensation
Committee. This operating plan is developed on the basis of (i) the Company's
performance for the prior fiscal year, (ii) estimates of sales revenue for the
plan year based upon recent market conditions, trends and competition and other
factors that, based on historical experience, are expected to affect the level
of sales that can be achieved, (iii) historical operating costs and cost savings
that management believes can be realized, (iv) competitive conditions faced by
the Company, and (v) additional expenditures beyond prior fiscal years. By
taking all of these factors into account, including market conditions, the
earnings goal and revenue targets are determined. For 2000, the profit and
revenue targets were set at the beginning of the year. In April 2000, the
objective targets were reduced and the potential individual payout amounts were
reduced to 75% of the original payout amounts. The changes were made to give the
employees a potential to receive a bonus which was done in an effort to retain
key management employees. Given the variety of employment alternatives in both
established and start-up high technology companies, the Committee concluded that
the change to the bonus plan could assist the Company in retaining and
motivating its key management employees.
As a result of this performance-based bonus program, executive
compensation, and the proportion of each executive's total cash compensation
that is represented by incentive or bonus income, may increase in those years in
which the Company's profitability increases.
Stock Options and Equity-Based Programs. The Compensation Committee
believes that the motivation of executives and key employees increases as the
market value of the Company's Common Stock increases. In order to align the
financial interests of executive officers and other key employees with those of
the stockholders, the Company grants stock options or makes restricted stock
grants to its executive officers and other key employees on a periodic basis,
taking into account, among other factors, the size and terms of previous grants
of equity-based compensation and stock holdings in determining awards. Stock
option or restricted stock grants, in particular, reward executive officers and
other key employees for performance that results in increases in the market
price of the Company's Common Stock, which directly benefits all stockholders.
Moreover, the Compensation Committee generally has followed the practice of
granting options on terms that provide that the options become exercisable in
cumulative annual installments, generally over a two to five-year period. The
Compensation Committee generally has followed the practice of making restricted
stock grants with vesting tied, in part, to objective Company performance
targets. The Compensation Committee believes that these features of the option
and stock grants not only provide an incentive for executive officers to remain
in the employ of the Company, but also makes longer term growth in share prices
important for the executives who receive stock options or restricted stock
grants.
In 2000, Richard Roll received three separate option grants. See
"Executive Compensation Option Grants in Last Fiscal Year." Two of the grants
reflect a desire to provide specific equity incentives for improved Company
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financial performance for the fiscal year 2000 and for the fourth quarter of
fiscal year 2000. The final grant provided for vesting which is tied to Mr.
Roll's fulfillment of a performance target on or before January 1, 2002.
In 2000, Lee Kim received two separate option grants. See "Executive
Compensation Option Grants in Last Fiscal Year." Both of the grants were
intended to retain and motivate Mr. Kim, a key management employee.
Other Matters. Section 162(m) of the Internal Revenue Code, enacted in
1993, generally disallows a tax deduction to public companies for compensation
over $1 million paid to any of the Company's Chief Executive Officer and four
other most highly compensated executive officers. Certain performance-based
compensation, however, is specifically exempt from the deduction limit. The
Company does not have a policy that requires or encourages the Compensation
Committee to qualify stock options or restricted stock awarded to executive
officers for deductibility under Section 162(m) of the Internal Revenue Code.
However, the Compensation Committee does consider the net cost to the Company in
making all compensation decisions.
CEO COMPENSATION FOR FISCAL 2000
The principal components of compensation for the Chief Executive Officer
for fiscal 2000 included base salary, bonus, the waiver of accrued interest on
two loans and an option grant. L. George Klaus, the Company's Chief Executive
Officer, received a salary of $630,000 during fiscal 2000. Mr. Klaus' base
salary was negotiated as part of his compensation package when he joined the
Company in February 1996 and has been subsequently increased on an annual basis.
Mr. Klaus' base salary did not increase in 2000 over his salary at December 31,
1999. Mr. Klaus also received a bonus of $73,710 for fiscal 2000. Mr. Klaus'
bonus plan for fiscal 2000 provided for a target bonus of $283,500. One half of
the target bonus was based on achieving an operating revenue goal for the
Company, and the other half was based upon the Company achieving a profit before
taxes goal. Additional amounts could be earned if the Company exceeded 100% of
the operating revenue and profit goals. Bonuses are paid if 75% of either the
operating revenue or profit before taxes goals are met based on objective
formulas. For 2000, the profit and revenue targets were set at the beginning of
the year. In April 2000, the objective targets were reduced and the potential
payout amount was reduced to 75% of the original target bonus. The changes were
made to assist the Company in retaining and motivating its key management
employees, including Mr. Klaus. The Company achieved approximately 88% of the
revised operating revenue target and did not achieve the revised net income
target. In April 1998, the Company waived the collection of all accrued
interest, including interest that might accrue in the future on two promissory
notes in the aggregate principal amount of $7,000,000. The total amount of
interest waived during fiscal 2000 was $420,000. In October 1999, Mr. Klaus was
granted an option to purchase 100,000 shares of common stock at an exercise
price of $4.25. The option vests in full on December 31, 2000 if the Company
fulfills an earnings per share target for its 2000 fiscal year. The target was
not fulfilled, thus the option vests in full on the fifth anniversary of the
grant date. The option grant reflected a desire to provide specific equity
incentive to Mr. Klaus for improved Company financial performance for the year
ended December 31, 2000. When Mr. Klaus joined the Company in 1996, he purchased
2,000,000 shares of restricted common stock. The Company retained a repurchase
right with respect to the restricted stock and such repurchase right with
respect to 100,000 shares was tied to an objective profit after taxes target for
the fiscal year ending June 30, 1999. In December 1998, the Company changed its
fiscal year end to December 31. In October 1999, the above referenced profit
after taxes target was replaced with another objective target which Mr. Klaus
fulfilled.
Compensation Committee Donald R. Dixon
Arthur J. Marks
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PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for
the Company, the Center for Research in Securities Prices Index for the NASDAQ
Stock Market (United States Companies) (the "CRSP NASDAQ Index") and the Center
for Research in Securities Prices Index for NASDAQ Computer and Data Processing
Stocks (the "CRSP NASDAQ Computer Index") for the last five fiscal years ended
on December 31, 2000 (last market date was December 29, 2000). The graph assumes
that all dividends have been reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
(EPICOR SOFTWARE CORPORATION, CRSP NASDAQ INDEX, CRSP NASDAQ COMPUTER INDEX)
- --------------------------------------------------------------------------------
Legend
Symbol CRSP Total Returns Index for: 12/1995 12/1996 12/1997 12/1998 12/1999 12/2000
- ------ ----------------------------- ------- ------- ------- ------- ------- -------
___________ (square) EPICOR SOFTWARE CORPORATION 100.0 211.1 208.9 227.8 90.0 14.4
__ __ __ __ * Nasdaq Stock Market (US Companies) 100.0 128.0 150.7 212.5 394.8 237.4
_ _ _ _ _ _ (triangle) Nasdaq Computer and Data Processing Stocks 100.0 123.4 151.7 270.6 594.7 278.7
SIC 7370 - 7379 US & Foreign
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/29/1995.
- --------------------------------------------------------------------------------
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of March 13, 2001
regarding the beneficial ownership of the Common Stock and Series C Preferred
Stock of the Company by (i) each person known by management to be the beneficial
owner of more than 5% of any class of the Company's capital stock (based upon
reports filed by such persons with the Securities and Exchange Commission), (ii)
each director of the Company, (iii) each of the executive officers and former
executive officers named in the Summary Compensation Table, and (iv) all current
directors and executive officers of the Company as a group:
Common Stock Series C Preferred Stock Total Voting Power
---------------------------- --------------------------- ----------------------
Amount and Amount
Name and Address Nature of and Nature
of Beneficial Percentage of Beneficial Percentage Total
Beneficial Owner Ownership(1) of Class Ownership(1) of Class Votes Percentage
---------------- ------------- ----------- -------------- ---------- -------- ---------
Kleiner Perkins Caufield & Byers VII 1,168,502 2.79% 31,770(2) 33.33% 1,486,202 3.50%
KPCB Information Sciences Zaibatsu Fund
2750 Sand Hill Road
Menlo Park, CA 94025
New Enterprise Associates VI 285,000(3) -- 38,120(3) 40.00% 666,200 1.57%
Limited Partnership
New Enterprise Associates VIII
Limited Partnership
1119 St. Paul Street
Baltimore, MD 21202
Arthur J. Marks 300,285(4) * 38,120(3) -- 666,200 *
11951 Freedom Drive, Ste. 1240
Reston, VA 20190
Trident Capital Partners Fund I, LP, -- * 25,415(6)(7) 26.67% 254,150 *
Trident Capital Partners Fund I, C.V.
2480 Sand Hill Road, Ste. 100
Menlo Park, CA 94025
Fuller & Thaler Asset Management, Inc. 3,754,400(8) 8.98% -- -- 3,754,400 8.78%
411 Borel Avenue, Suite 402
San Mateo, CA 94402
L. George Klaus(5) 2,660,000(10) 6.37% -- -- 2,660,000 6.22%
Charles Boesenberg 8,000 * -- -- 8,000 *
13936 Albar Court
Saratoga, CA 95070
Donald R. Dixon 30,000(9) * 25,415(7) 26.67% 284,150 *
505 Hamilton Avenue, Ste. 200
Palo Alto, CA 94301
Thomas Kelly 30,000(10) * -- -- 30,000 *
1310 Villa Street
Mountain View, CA 94041
Richard L. Roll(5) 578,228(10) 1.38% -- -- 578,228 1.35%
Vincent Sheeran(5) 245,500(10) * -- -- 245,500 *
Lee Kim(5) 133,702(10) * -- -- 133,702 *
Daniel Whelan(5) 136,176(10) * -- -- 136,176 *
All current directors and officers as a
group (9 persons)(5) 4,121,891(11) 9.86% 95,305(11) 100.00% 4,741,956 11.09%
- -------------------
* Less than 1%
(1) Unless otherwise indicated, the persons named in the table have sole voting
and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
(2) Consists of 30,181 shares held by Kleiner Perkins Caufield & Byers VII and
1,589 shares held by KPCB Information Sciences Zaibatsu Fund II.
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(3) Arthur J. Marks, a director of the Company, is general partner of New
Enterprise Associates, which is the general partner of New Enterprise
Associates VI, L.P. and New Enterprise Associates VIII, L.P. Mr. Marks
disclaims beneficial ownership of these shares, other than to the extent of
his stock ownership in New Enterprise Associates.
(4) Includes 285,000 shares held by entities affiliated with New Enterprise
Associates. Arthur J. Marks, a director of the Company, is general partner
of New Enterprise Associates which is general partner of New Enterprise
Associates VI, L.P. and New Enterprises Associates VIII, L.P. Mr. Marks
disclaims beneficial ownership of these shares other than to the extent of
his stock ownership of New Enterprise Associates.
(5) The business address of this individual is c/o Epicor Software Corporation,
195 Technology Drive, Irvine, CA 92618-2402.
(6) Donald R. Dixon, a director of the Company, is president of Trident Capital
Inc., which is the general partner of Trident Capital, L.P. which is the
general partner of Trident Capital Partners Fund-I, L.P. and Trident
Capital Partners Fund-I, C.V. Mr. Dixon disclaims beneficial ownership of
these shares, other than to the extent of his stock ownership in Trident
Capital, Inc.
(7) Consists of 21,218 shares held by Trident Capital Partners Fund-I, L.P. and
4,197 shares held by Trident Capital Partners Fund-I, C.V.
(8) This information is based solely upon a Schedule 13G filed February 13,
2001.
(9) Consists of 30,000 shares held directly by Donald Dixon, including shares
subject to a right of repurchase by the Company as of March 13, 2001, which
right of repurchase lapses over a two-year period as to some shares and a
four-year period as to other shares.
(10) Includes shares subject to a right of repurchase by the Company as of March
13, 2001, which right of repurchase lapses over a two-year period as to
some shares and a four-year period as to other shares.
(11) Includes all shares of common stock and Series C Preferred Stock, as
applicable, owned by Kleiner Perkins Caufield & Byers, New Enterprise
Associates, Trident Capital Partners, and related entities as to which the
respective affiliated directors disclaim beneficial ownership.
VOTE REQUIRED AND VOTING PROCEDURES
The affirmative vote of a majority of the shares of the Company's Common
Stock and Series C Preferred Stock (on an as-converted basis) present or
represented and voting at the Annual Meeting of Stockholders will be required to
elect the Company's four (4) nominee directors. Under applicable Delaware law, a
broker non-vote will have no effect on the outcome of the election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE COMPANY'S FOUR (4) NOMINEE DIRECTORS. Proxies solicited by the
Company will be voted FOR the election of the Company's four (4) nominee
directors.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP ("D&T"),
independent auditors, to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 2001, and recommends that
stockholders vote for ratification of such appointment. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection. Representatives of D&T are expected to be present at the meeting with
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
On April 10, 2001, the Company informed Ernst & Young LLP ("E&Y") that
E&Y would no longer be retained as the Company's independent auditor. E&Y
audited the Company's consolidated financial statements for the year ended
December 31, 2000. E&Y's reports on the Company's consolidated financial
statements for the years ended December 31, 2000 and 1999 did not contain an
adverse opinion nor a disclaimer of opinion, nor were such reports qualified or
modified as to uncertainty, audit scope, or accounting principles.
During the years ended December 31, 2000 and 1999 and during the portion
of 2001 prior to the audit committee's decision to make a change, there were no
disagreements between the Company and E&Y on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of E&Y,
would have caused it to make reference to the subject matter of the disagreement
in connection with its reports.
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The decision not to retain E&Y has been approved by the audit committee
of the Company's board of directors. The audit committee has also approved the
retention of D&T as the Company's new independent auditor. During the Company's
two most recent fiscal years and during the portion of 2001 prior to the audit
committee's decision, the Company did not consult with D&T regarding the
application of accounting principles to a specified transaction nor the type of
audit opinion that might be rendered on the Company's consolidated financial
statements.
FEES BILLED TO THE COMPANY BY ERNST & YOUNG LLP DURING FISCAL 2000
Fees billed by Ernst & Young LLP for the audit of the Company's
consolidated financial statements as of and for the year ended December 31, 2000
totaled $836,000. All other fees billed to the Company by Ernst & Young LLP were
approximately $187,000, including audit related services of $27,000 and nonaudit
services of $160,000.
The Audit Committee has considered and determined that the fees paid to
E&Y for other audit-related services is compatible with E&Y's independence.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE RATIFICATION OF DELOITTE & TOUCHE AS THE COMPANY'S INDEPENDENT AUDITORS
FOR FISCAL YEAR 2001.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
Section 16 officers and persons who own more than 10% of a registered class of
the Company's equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% stockholders
are required by regulations promulgated by the Securities and Exchange
Commission to furnish the Company with copies of all Section 16(a) reports they
file. Based solely on the review of copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that, during the fiscal year ended December 31, 2000, the
Company's officers, directors and all persons who own more than 10% of a
registered class of the Company's equity securities complied with all Section
16(a) filing requirements with the exception of Statements of Changes in
Beneficial Ownership on Form 4 for the month of December which was inadvertently
filed late by Vincent Sheeran. The filings reported one transaction each.
OTHER MATTERS
As of the date of the Proxy Statement, the Company knows of no other
matters to be submitted to the Annual Meeting of Stockholders other than those
set forth herein and in the Notice of Annual Meeting of Stockholders. If other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed form of Proxy to use their discretionary authority to vote
the shares they represent in accordance with their best judgment.
Please return your proxy as soon as possible. Unless a quorum consisting
of a majority of the votes entitled to be cast by the outstanding shares
represented at the meeting, no business can be transacted. Therefore, please be
sure to date and sign your proxy exactly as your name appears on your stock
certificate and return it in the enclosed postage prepaid envelope.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND THE SCHEDULES THERETO (BUT EXCLUDING EXHIBITS), FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE COMPANY'S FISCAL YEAR ENDED DECEMBER
31, 2000, WILL BE FURNISHED TO THE COMPANY'S STOCKHOLDERS AS OF THE RECORD DATE
FOR THE ANNUAL MEETING OF STOCKHOLDERS, WITHOUT CHARGE, UPON WRITTEN REQUEST. IF
YOU DESIRE TO OBTAIN A COPY OF SUCH ANNUAL REPORT ON FORM 10-K, PLEASE DIRECT
SUCH WRITTEN REQUEST TO EPICOR SOFTWARE CORPORATION, ATTENTION: INVESTOR
RELATIONS, 195 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA 92618-2402.
THE BOARD OF DIRECTORS
Dated: April 13, 2001
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EXHIBIT A
EPICOR SOFTWARE CORPORATION
AUDIT COMMITTEE CHARTER
Organization
This charter governs the operations of the audit committee. The
committee shall review and reassess the charter at least annually and obtain the
approval of the board of directors. The committee shall be appointed by the
board of directors and shall be comprised of at least three directors, each of
whom are independent of management and the Company. A director shall be
considered independent if they comply with the definition of an "independent
director" as specified in the NASD rules. All committee members shall be
financially literate, and at least one member shall have accounting or related
financial management expertise.
Statement of Policy
The audit committee shall provide assistance to the board of directors
in fulfilling their oversight responsibility to the stockholders, potential
stockholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
and other compliance programs established by management and the board of
directors of the Company. In so doing, it is the responsibility of the committee
to maintain free and open communication between the committee, independent
auditors, the internal auditor and management of the Company. In discharging its
oversight role, the committee is empowered to investigate any matter brought to
its attention with full access to all books, records, facilities, and personnel
of the Company and the power to retain outside counsel, or other experts for
this purpose.
Responsibilities and Processes
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board of directors and
report the results of their activities to the board of directors. Management is
responsible for preparing the Company's financial statements, and the
independent auditors are responsible for auditing those financial statements.
The committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices, and
ethical behavior. The committee shall adopt policies and procedures as it deems
appropriate which policies and procedures may be modified from time to time
based on changing conditions and circumstances.
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate.
- The committee shall have a clear understanding with management and
the independent auditors that the independent auditors are
ultimately accountable to the board of directors and the audit
committee, as representatives of the Company's stockholders. The
committee shall have the ultimate authority and responsibility to
evaluate and, where appropriate, replace the independent auditors.
The committee shall discuss with the auditors their independence
from management and the Company and the matters included in the
written disclosures required by the Independence Standards Board.
Annually, the committee shall review and recommend to the board of
directors the selection of the Company's independent auditors,
subject to stockholders' approval.
- The committee shall discuss with the internal auditor and the
independent auditors the overall scope and plans for their
respective audits including the adequacy of staffing and
compensation. Also, the committee shall discuss with management, the
internal auditor, and the independent auditors the adequacy and
effectiveness of the accounting and financial controls, including
the Company's system to monitor and manage business risk, and legal
and other compliance programs. Further, the committee shall meet
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separately with the internal auditor and the independent auditors,
with and without management present, to discuss the results of their
examinations.
- The committee shall review the interim financial statements with
management and the independent auditor prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent
auditors under generally accepted auditing standards. The chairman
of the committee may represent the entire committee for the purposes
of this review.
- The committee shall review with management and the independent
auditors the financial statements to be included in the Company's
Annual Report on Form 10-K (or the annual report to stockholders if
distributed prior to the filing of Form 10-K), including their
judgment about the quality, not just acceptability, of accounting
principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the
committee shall discuss the results of the annual audit and any
other matters required to be communicated to the committee by the
independent auditors under generally accepted auditing standards.
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24
[epicor Software Corporation logo]
PROXY SERVICES
P.O. BOX 9141
FARMINGDALE, NY 11735
VOTE BY INTERNET - www.proxyvote.com
Use the internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day before the
cut-off date or meeting date. Have your proxy card in hand when you access the
web site. You will be prompted to enter your 12-digit Control Number which is
located below to obtain your records and to create an electronic voting
instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be prompted to enter your 12-digit
Control Number which is located below and then follow the simple instructions
the Vote Voice provides you.
VOTE BY MAIL -
Mark, sign, and date your proxy card and return it in the postage-paid envelope
we have provided or return it to Epicor Software Corporation, c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK:
EPICOR
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
EPICOR SOFTWARE CORPORATION
Proposals to be Voted Upon
1. Election of Directors - The names of the nominees are
01) Donald R. Dixon, 02) Charles M. Bosenberg, 03) Thomas F. Kelly,
and 04) L. George Klaus
FOR WITHHOLD FOR ALL To withhold authority to vote mark "For All Except"
ALL ALL EXCEPT and write the nominee's number on the line below
[ ] [ ] [ ] _______________________________
2. Appointment of Deloitte & Touche, LLP as
Independent Accountants - To ratify the
appointment of Deloitte & Touche, LLP as
independent accountants for the year ended
December 31, 2001
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To transact such other business as may
properly come before the meeting or
any postponements or adjournments
_______________________________________________
|_______________________________________________|
SIGNATURE (Please sign within box) Date
_______________________________________________
|_______________________________________________|
SIGNATURES (Joint Owner)] Date
25
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
EPICOR SOFTWARE CORPORATION
The undersigned stockholder of Epicor Software Corporation, a Delaware
corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated April 13, 2001, and
hereby appoints L. George Klaus, Richard L. Roll and Lee Kim, or any of them,
proxies and attorneys-in-fact, with full power to each of substitution, on
behalf of the name of the undersigned, to represent the undersigned at the
Annual Meeting of Stockholders of Epicor Software Corporation to be held on May
15, 2001 at 10:00 a.m. local time, and at any adjournment(s) thereof, and to
vote all shares of stock which the undersigned would be entitled to vote if then
and there personally present, on the matters set forth on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTORS, AND FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT
ACCOUNTANTS, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
Important: This proxy should be marked, dated and signed by each shareholder
exactly as your name appears on your stock certificate, and returned promptly in
the enclosed envelope. Persons signing in a fiduciary capacity should so
indicate. A corporation is requested to sign its name by its President or other
authorized officer, with the office held designated. If the shares are held by
joint tenants or as community property, both holders should sign.