SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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MRO SOFTWARE, INC.
(Name of Registrant as Specified In Its Charter)
Not Applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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previously. Identify the
previous filing by registration statement number, or the form or schedule and
the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement no.:
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* * * * *
MRO SOFTWARE, INC.
Annual Meeting of Stockholders
March 4, 2003
Notice is hereby given that the Annual Meeting of Stockholders of MRO
Software, Inc., (the "Company") will be held at the offices of the Company, 100
Crosby Drive, Bedford, Massachusetts 01730 on Tuesday, March 4, 2003, and
beginning at 10:00 A.M., local time, for the following purposes:
1. To elect Robert L. Daniels and John A. McMullen as Class I Directors
of the Company for a term of three years;
2. To ratify the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent public
accountants for the current fiscal year; and
3. To transact such further business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on Friday, January
10, 2003, as the record date for the determination of the stockholders of the
Company entitled to notice of, and to vote at, said Meeting and any adjournment
thereof. Only stockholders of record on such date are entitled to notice of, and
to vote at, said Meeting or any adjournment thereof.
By Order of the Board of Directors,
/s/ Craig Newfield
----------------------------------------
Craig Newfield
Vice President, General Counsel
& Clerk
Bedford, Massachusetts
January 28, 2003
YOUR VOTE IS IMPORTANT
Please sign and return the enclosed proxy, whether or not you
plan to attend the Meeting.
MRO SOFTWARE, INC.
100 Crosby Drive
Bedford, Massachusetts 01730
(781) 280-2000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
March 4, 2003
This Proxy Statement and the enclosed form of proxy are being mailed to
stockholders on or about January 30, 2003 in connection with the solicitation by
the Board of Directors of MRO Software, Inc., a Massachusetts corporation (the
"Company"), of proxies to be used at the Annual Meeting of Stockholders of the
Company, to be held on Tuesday, March 4, 2003, and at any and all adjournments
thereof (the "Annual Meeting"). When proxies are returned properly executed, the
shares represented will be voted in accordance with the stockholders'
directions. Stockholders are encouraged to vote on the matters to be considered.
If no choice has been specified by a stockholder with respect to a proposal as
to which the Board of Directors has made a recommendation, however, the shares
covered by any executed proxy will be voted as indicated in this proxy
statement. Any stockholder may revoke his proxy at any time before it has been
exercised.
The Board of Directors of the Company has fixed the close of business on
Friday, January 10, 2003, as the record date for the determination of the
stockholders of the Company entitled to notice of, and to vote at, the Annual
Meeting. Only stockholders of record on such date are entitled to notice of, and
to vote at, the Annual Meeting. At the close of business on the record date,
there were issued and outstanding 24,374,504 shares of the Company's Common
Stock, $.01 par value ("Common Stock"). Each share of Common Stock outstanding
on the record date will be entitled to cast one vote.
QUORUM AND TABULATION OF VOTES
The By-Laws of the Company provide that the holders of a majority of shares
of Common Stock issued and outstanding and entitled to vote thereat will
constitute a quorum at the Annual Meeting. Shares of Common Stock represented by
a properly signed and returned proxy will be treated as present at the Annual
Meeting for purposes of determining a quorum. In general, votes withheld from
any nominee for election as director, abstentions (if applicable) and broker
"non-votes" (if applicable) are counted as present or represented for purposes
of determining the presence or absence of a quorum for the Annual Meeting. A
"non-vote" occurs when a broker or nominee holding shares for a beneficial owner
votes on one proposal, but does not vote on another proposal because, in respect
of such other proposal, the broker or nominee does not have discretionary voting
power and has not received instructions from the beneficial owner.
The affirmative vote of a plurality of the shares of Common Stock properly
cast at the Annual Meeting will be necessary to elect each Class I Director
(Proposal One). Votes "withheld" from director-nominees, and broker "non-votes"
will not be included in calculating the number of votes cast for election of the
Class I Directors. The affirmative vote of a majority of the shares of Common
Stock properly cast at the Annual Meeting will be necessary to approve the
ratification of
the Company's selection of PricewaterhouseCoopers LLP as its independent
auditors for fiscal 2003 (Proposal Two). Abstentions and broker "non-votes" will
not be included in calculating the number of votes cast on Proposal Two.
Votes will be tabulated by the Company's transfer agent, EquiServe Trust
Company, N.A. The vote on each matter submitted to stockholders will be
tabulated separately.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company has a Board of Directors consisting of six directors, divided
into three classes, as nearly equal in size as practicable, referred to as Class
I, Class II and Class III.
The terms of the Company's Class I Directors, Robert L. Daniels and John A.
McMullen, will expire at the Annual Meeting. Mr. Daniels and Mr. McMullen were
elected to the Board of Directors at the Company's Special Meeting in Lieu of
Annual Meeting held on April 25, 2000. The terms of the Company's Class II
Directors, Alan L. Stanzler and Stephen B. Sayre, will expire at the annual
meeting to be held with respect to the Company's 2003 fiscal year. Mr. Stanzler
was first elected to the Board in 1998, and was re-elected in 2001. Mr. Sayre
was first elected to the Board of Directors by the members of the then existing
Board to fill a vacancy on the Board, and was re-elected by the Company's
stockholders in March 2001. The terms of the Company's Class III Directors,
Norman E. Drapeau, Jr. and Richard P. Fishman, will expire at the annual meeting
to be held with respect to the Company's 2004 fiscal year. Mr. Drapeau and Mr.
Fishman were elected to the Board of Directors at the Company's Special Meeting
in Lieu of Annual Meeting held on March 24, 1999, and re-elected on March 5,
2002. The Directors in each Class serve for a term of three years and until
their successors are duly elected and qualified. As the term of one Class
expires, a successor director or directors for that Class are elected at the
annual meeting of stockholders for that year.
The full Board of Directors has nominated each of Mr. Daniels and Mr.
McMullen for election to an additional three-year term as a Class I Director.
Mr. Daniels and Mr. McMullen have each agreed to serve if elected, and the
Company has no reason to believe that either of them will be unable to serve. In
the event that Mr. Daniels or Mr. McMullen is unable or declines to serve as a
director at the time of the Annual Meeting, proxies will be voted for such other
nominee as is then designated by the Board.
Unless authority to do so has been limited in a proxy, it is the intention
of the persons named as proxies to vote the shares represented by the proxy FOR
the election of Mr. Daniels and Mr. McMullen as Class I Directors.
The Board of Directors recommends that you vote FOR the election of Mr.
Daniels and Mr. McMullen as Class I Directors.
2
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Norman E. Drapeau, Jr 42 President, Chief Executive Officer and Director - Class III
Robert L. Daniels (1) 60 Executive Chairman of the Board - Class I
Peter J. Rice 50 Executive Vice President - Finance and Administration,
Chief Financial Officer and Treasurer
Patricia C. Foye 47 Executive Vice President - Global Marketing & Strategic
Alliances
William J. Sawyer 56 Executive Vice President- Operations
Ted D. Williams 54 Executive Vice President- Worldwide Sales
John W. Young 50 Executive Vice President - Products and Technology
Craig Newfield 43 Vice President, General Counsel and Clerk
Richard P. Fishman (1)(2) 56 Director - Class III
John A. McMullen (2)(3) 60 Director - Class I
Stephen B. Sayre (3) 51 Director - Class II
Alan L. Stanzler (1)(3) 59 Director - Class II
- ----------
(1) Member of the Nominating Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Norman E. Drapeau, Jr. joined the Company in 1982 as an applications
analyst. Since that time, he has held various positions with the Company,
including, from 1984 to 1987, that of Manager of Customer Support and from 1989
through 1991, that of Director, Product Marketing. In 1991, Mr. Drapeau was
appointed Vice President, Corporate Marketing, in 1992 was appointed Vice
President - Americas and in July 1996 was appointed Executive Vice President -
Worldwide Sales and Marketing, serving in that capacity until January 1998. In
January 1998, Mr. Drapeau was appointed Executive Vice President and Chief
Operating Officer and was also elected a director of the Company. In May 1998,
Mr. Drapeau was elected President and Chief Executive Officer.
Robert L. Daniels founded the Company in 1968 and has been a director since
that time. Mr. Daniels served as Chairman of the Board and Chief Executive
Officer from 1968 to 1996 and as President from 1968 to 1995. In May 1998, Mr.
Daniels was elected Executive Chairman of the Board.
Peter J. Rice joined the Company in 2000 as Executive Vice President of
Finance and Administration, Chief Financial Officer and Treasurer. From 1998 to
2000, Mr. Rice was Vice President of Finance and Administration, Chief Financial
Officer and Treasurer of Interleaf, Inc., a developer of e-publishing and
e-content software products. Interleaf was sold to Broadvision, Inc. in 2000.
From 1995 to 1998, Mr. Rice was Vice President, Chief Financial Officer and
Treasurer of
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Media 100, Inc., a provider of digital media and content design, creation and
delivery tools. From 1990 to 1995, Mr. Rice was Vice President, Corporate
Controller and Chief Accounting Officer of M/A Com, Inc. Prior thereto, Mr. Rice
held senior financial management positions at Apollo Computer and Atex, Inc. On
December 10, 2001, Mr. Rice was appointed to the board of directors of Engage,
Inc.
Patricia C. Foye joined the Company in July 2001 as Executive Vice
President, Global Marketing and Strategic Alliances. From September 2000 to May
2001, Ms. Foye was Vice President, Worldwide Sales and Marketing of HMS
Software, Inc., an application software company focused on the aerospace defense
markets. From May 1999 to May 2000, Ms. Foye was President of Allenbrook, Inc.,
a private firm focused on the development of a policy management system for
insurance and financial markets. From 1998 to 1999, Ms. Foye was Vice President
and General Manager of QAD, Inc., leading the Electronics and Industrial
business segment, the largest vertical business for QAD. From 1994 to 1998, Ms.
Foye held senior management positions at Digital Equipment Corporation, a
hardware and software vendor, and Marcam Corporation, an ERP applications
vendor.
William J. Sawyer joined the Company in 1978 as an applications consultant
and served in various sales and services positions from 1978 to 1984. Mr. Sawyer
was a Vice President of the Company from 1984 to 1990 and Executive Vice
President from 1990 until November 1997. In November 1997, Mr. Sawyer left the
Company and joined Peritus Software Services, Inc., a software application
company, as Vice President, Operations. Mr. Sawyer rejoined the Company in
October 1998 as Executive Vice President, Operations.
Ted D. Williams originally joined the Company in 1984 and served as
Director, MAXIMO until 1988. From 1988 to 1993, Mr. Williams was President and
Chief Operating Officer of Comac Systems Corporation, a software application
company. In 1993, Mr. Williams rejoined the Company as Director, Eastern
Regional Sales. He was appointed Vice President-North American Sales in 1996 and
Vice President-Worldwide sales in January 1998. In October 1998, Mr. Williams
was appointed Executive Vice President-Worldwide Sales.
John W. Young originally joined the Company in 1985 and served until 1988
as MAXIMO Product Manager. From 1988 to 1992, Mr. Young was Vice President of
Sales of Comac Systems Corporation, a software application company. In 1992 he
rejoined the Company as Director of MAXIMO Product Design, was appointed Vice
President - Research and Development of the Company in 1995, and was appointed
Executive Vice President - Products and Technology of the Company in 1998.
Craig Newfield joined the Company as Vice President, General Counsel and
Clerk in September 2000. From October 1997 through August 2000, Mr. Newfield was
Vice President, General Counsel and Clerk of Interleaf, Inc., a developer of
e-publishing and e-content software products. Interleaf was sold to Broadvision,
Inc. in 2000. From April 1996 through September 1997, Mr. Newfield was General
Counsel and Secretary of OneWave, Inc., since renamed Primix Solutions, an IT
services provider. From February 1993 to April 1996, Mr. Newfield served as
in-house counsel of Marcam Corporation.
4
Richard P. Fishman - a director since March 1999, Mr. Fishman is currently
Executive Vice President at MacAndrews & Forbes Group, Inc., where he is
responsible for venture capital investing. From 1995 to 1997, Mr. Fishman served
as Managing Director of GeoPartners Research, Inc., a strategy and management
consulting firm, where he headed the firm's venture capital activities. From
1995 to 1997, Mr. Fishman was also Of Counsel at the law firm of Atkin, Gump,
Strauss, Hauer & Feld L.L.P. Mr. Fishman served as President and Chief Executive
Officer of Thinking Machines Corporation from 1993 to 1994, and was a partner at
the law firm of Milbank, Tweed, Hadley & McCoy from 1987 until 1993.
John A. McMullen - a director since April 2000, Mr. McMullen is the
Managing Principal of Cambridge Meridian Group, Inc., a strategy-consulting firm
that serves Fortune 500 and technology-based companies, with which he has been
employed since 1985. Mr. McMullen taught business strategy at Harvard Law School
from the mid 1980's to 1990 and, as one of the original members of CMGI's Board
of Directors, served on that Board from 1988 through 1999. He currently serves
on the Board of Ezenia!, Inc., a Nasdaq listed company, in a term that began
last year. In addition, he serves, or has served, on the boards of twelve other
private, chiefly technology-oriented companies. From 1993 to 1997 he was an
informal advisor to Senator Bill Bradley (NJ). In 1998 he ran for the United
States Senate from Vermont.
Stephen B. Sayre - a director since September 1998, Mr. Sayre is currently
the Vice President of Marketing and Business Development for Endeca
Technologies, Inc., a provider of software infrastructure for information
delivery. From June 2000 to March 2001, Mr. Sayre was Vice President of
Marketing for Idiom, Inc., a provider of software and services for enterprise
globalization. From 1994 to 2000, he was the Senior Vice President of Marketing
at Lotus Development Corporation, a subsidiary of IBM Corporation, a hardware
and software vendor. Prior to joining Lotus in 1994, Mr. Sayre was President of
Boston Treasury Systems and has held other senior executive level positions with
Cullinet Software and Easel Corporation.
Alan L. Stanzler - a director since May 1998, Mr. Stanzler served as a
director of the Company from 1992 to 1994 and as Clerk of the Company from 1990
to 1996. Mr. Stanzler is Of Counsel at the law firm of Stanzler, Funderburk &
Castellon, L.L.P. From 1998 to September 2001, Mr. Stanzler was a partner of the
law firm of Maselan Jones & Stanzler, P.C. From 1995 to 1998, Mr. Stanzler was a
member of the law firm of Davis, Malm & D'Agostine, P.C.
All directors hold office until the expiration of their respective terms as
described above and until their respective successors are duly elected and
qualified. Executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors.
Committees and Meetings of the Board
During the fiscal year ended September 30, 2002 ("fiscal 2002"), the Board
met eleven times. No incumbent director attended fewer than 75% of the total
number of meetings held by the Board and Committees of the Board on which he
served.
The Board of Directors has an Audit Committee, a Compensation Committee,
and a Nominating Committee. The Audit Committee (currently composed of Messrs.
Sayre, Stanzler and
5
McMullen) reviews the internal accounting procedures of the Company and consults
with and reviews the services provided by the Company's independent auditors.
The Audit Committee met five times during fiscal 2002. The Compensation
Committee (currently composed of Messrs. Fishman and McMullen) has general
responsibility for the Company's executive compensation policies and practices,
including making specific recommendations to the Board concerning compensation
for the Company's executive officers and administering the Company's Amended and
Restated 1999 Equity Incentive Plan (the "1999 Equity Plan"), 1994 Incentive and
Nonqualified Stock Option Plan (the "1994 Stock Option Plan") and 2002 Employee
Stock Purchase Plan (the "Stock Purchase Plan"). The Compensation Committee met
six times during fiscal 2002.
The Nominating Committee (currently composed of Messrs. Daniels, Fishman
and Stanzler) is responsible for making recommendations to the full Board
regarding candidates for election to the Board of Directors. However, the full
Board of Directors has desired to be directly involved in the nomination
process, and as a result the Nominating Committee did not meet during fiscal
2002, and the full Board of Directors considered and nominated the candidates
proposed for election as directors at the Annual Meeting. If a Company
stockholder wishes to propose alternative nominee(s) for election as
director(s), the Nominating Committee will consider such alternative nominee(s),
provided that written notice has been given to the Company at least 60 days
prior to the date of the Annual Meeting, including such information as required
under the Company's By-Laws. If a stockholder nominee is eligible, and if the
nomination is proper, the Nomination Committee would then consider the merits of
the nominee in making its recommendation to the Board of Directors.
Report of the Audit Committee
The Board of Directors has appointed an Audit Committee consisting of
Messrs. Stanzler, McMullen and Sayre. All members of the Audit Committee are
"independent" as that term is currently used in the Marketplace Rules of The
Nasdaq Stock Market ("Nasdaq") and as defined under Section 301 of the
Sarbanes-Oxley Act of 2002.
Under the Sarbanes-Oxley Act of 2002, the Audit Committee is directly
responsible for the appointment, compensation and oversight of the Company's
independent accountants, including the approval of both audit and permitted
non-audit services and the resolution of disagreements between management and
the auditors regarding financial reporting. In carrying out its role, the Audit
Committee (i) makes such examinations as are necessary to monitor the Company's
financial reporting, its external audits and its process for compliance with
laws and regulations, (ii) provides to the Board of Directors the results of its
examinations and recommendations derived therefrom, (iii) proposes to the Board
of Directors improvements in internal accounting controls, (iv) reviews the
results and scope of the annual audit of the Company's financial statements
conducted by the Company's independent accountants, (v) reviews the scope of
other services provided by the Company's independent accountants, and (vi)
provides to the Board of Directors such additional information and materials as
it may deem necessary to make the Board aware of significant financial matters
that require Board attention.
The Audit Committee also maintains a telephone "hotline" by which Company
employees can directly communicate to the Audit Committee any concerns that they
may have regarding financial or other matters.
6
Management has the primary responsibility for the Company's financial
statements and the reporting process, including the systems of internal controls
and for the preparation of financial statements in accordance with generally
accepted accounting principles. The Company's independent accountants are
responsible for auditing the financial statements and expressing an opinion on
the conformity of those audited financial statements with generally accepted
accounting principles. The Audit Committee monitors and reviews these processes,
but is not responsible for the preparation of the Company's financial
statements. Audit Committee members are not professionally engaged in the
practice of accounting or auditing and are not experts in the fields of
accounting or auditing, including with respect to auditors' independence, but
under the Sarbanes-Oxley Act of 2002 the Audit Committee is authorized to engage
independent counsel and other advisors it determines necessary to carry out its
duties.
In fulfilling its oversight responsibilities, the Audit Committee discussed
with representatives of PricewaterhouseCoopers LLP, the Company's independent
accountants for fiscal 2002, the overall scope and plans for
PricewaterhouseCoopers LLP's audit of the Company's financial statements for
fiscal 2002. The Audit Committee met with PricewaterhouseCoopers LLP, with and
without Company management present, to discuss the results of
PricewaterhouseCoopers LLP's examinations and evaluations of the Company's
internal controls, and the overall quality of the Company's financial reporting.
Beginning in October 2002 the Chairman of the Audit Committee met with the
Company's Chief Executive and Chief Financial Officers to discuss their review
of the Company's disclosure controls and procedures and internal controls in
connection with the filing of periodic reports with the Securities and Exchange
Commission.
The Audit Committee reviewed and discussed the Company's audited financial
statements for fiscal 2002 with management and PricewaterhouseCoopers LLP. The
Audit Committee discussed with PricewaterhouseCoopers LLP the matters required
to be discussed by Statement of Auditing Standards No. 61 "Communication's with
Audit Committees" as amended, including a discussion of PricewaterhouseCoopers
LLP's judgments as to the quality, not just the acceptability, of the Company's
financial statements, changes in accounting policies, sensitive accounting
estimates, accounting principles and such other matters as are required to be
discussed with audit committees under generally accepted auditing standards.
In addition, the Audit Committee received from and discussed with
PricewaterhouseCoopers LLP the written disclosures and the letter required by
Independence Standards Board Standard No. 1 "Independence Discussions with Audit
Committees" and discussed the disclosures with PricewaterhouseCoopers LLP, as
well as other matters relevant to PricewaterhouseCoopers LLP's independence from
management and the Company. The Audit Committee considered whether the services
PricewaterhouseCoopers LLP provided to the Company beyond their audit of the
Company's financial statements was compatible with maintaining
PricewaterhouseCoopers LLP's independence. The Audit Committee also considered
the amount of fees PricewaterhouseCoopers LLP received for audit and non-audit
services.
Based on the Audit Committee's reviews, meetings and discussions referred
to above, the Audit Committee recommended to the Board of Directors, and the
Board directed, that the Company's audited financial statements be included in
its Annual Report on Form 10-K for the year
7
ended September 30, 2002 for filing with the Securities and Exchange Commission.
The Audit Committee and the Board of Directors also have recommended that
Pricewaterhouse Coopers LLP be selected as the Company's independent public
accountants for fiscal 2003. See Proposal Two for detailed information.
The Audit Committee is governed by a written charter, adopted by the Board
of Directors, a copy of which was included as Appendix A to the Definitive Proxy
Statement in connection with the annual meeting of stockholders held on March 6,
2001, as filed with the Securities and Exchange Commission on February 6, 2001.
The Audit Committee intends to update its charter as appropriate in light of the
regulations implementing the Sarbanes-Oxley Act of 2002, once such regulations
relevant to the Audit Committee are adopted.
The Audit Committee
Alan L. Stanzler, Chairman
John A. McMullen
Stephen B. Sayre
REMUNERATION OF EXECUTIVE OFFICERS AND DIRECTORS
Directors' Compensation
During fiscal 2002, members of the Board of Directors who were not
employees of the Company or one of the Company's subsidiaries ("Non-Employee
Directors") received a quarterly stipend of $7,500, with no additional fees
being payable for attendance at Board or committee meetings. Non-Employee
Directors were also reimbursed for out-of-pocket expenses incurred in the
performance of their duties as directors of the Company. Directors who were
employees of the Company are not paid any separate fees for serving as
directors.
Non-Employee Directors are eligible to receive stock options and other
equity-based incentive awards under the 1999 Equity Plan in the same manner and
to the same degree as all other eligible persons, as determined by the Board of
Directors on a discretionary basis. Options granted to Non-Employee Directors
are subject to acceleration of vesting under certain circumstances.
At the request of the Board of Directors, during the first quarter of
fiscal 2003 the Compensation Committee conducted a comprehensive review of the
compensation of Non-Employee Directors, consulted with independent experts in
these matters, and reported its findings to the full Board. Based on this review
and consultation, and in light of the increased responsibilities and potential
exposures undertaken by Non-Employee Directors under the Sarbanes-Oxley Act of
2002 and in general, and by committee members and committee chairmen in
particular, the Board of Directors decided to increase the cash compensation of,
and to issue a grant of restricted stock to, the Non-Employee Directors, as
follows. Effective January 1, 2003, Non-Employee Directors will receive a
quarterly stipend of $10,000, plus a quarterly stipend of $2,500 for each active
committee of which they are a member, except that the chairman of the Audit
Committee will receive a quarterly stipend of $7,500, and the chairman of the
Compensation Committee will receive a quarterly stipend of $6,250. No additional
fees are payable for attendance at Board or committee meetings, and Non-Employee
Directors will continue to be reimbursed for out-of-pocket expenses
8
incurred in the performance of their duties as directors of the Company. In
addition, the Board has recently approved a one-time grant to each Non-Employee
Director of 6,250 shares of restricted stock under the terms of the 1999 Equity
Plan, vesting on a quarterly basis over three years, with twelve equal
installments vesting on the 15th day of the second month of each quarter,
subject to 100% acceleration under certain circumstances.
Executive Compensation
Summary Compensation Table. The following table sets forth certain
information concerning the compensation earned by the Company's Chief Executive
Officer and the six other most highly paid executive officers of the Company
(collectively, the "named executive officers") for services rendered in all
capacities to the Company during fiscal 2002.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------- Securities
Fiscal Other Annual Underlying All Other
Name and Principal Position Year Salary($)(1) Bonus($) Compensation Options(#)(2) Compensation ($)(3)
- --------------------------- ---- ------------ -------- ------------ ------------- -------------------
Norman E. Drapeau, Jr 2002 $350,000 $185,513 (4) -- -- $2,750
President and Chief 2001 $343,750 $376,773 (5) -- 150,000 $2,625
Executive Officer 2000 $317,500 $137,495 (6) -- 200,000 $2,400
Robert L. Daniels 2002 $350,000 $141,763 (4) -- -- --
Executive Chairman of the 2001 $343,750 $376,773 (5) $11,027 (7) -- --
Board 2000 $317,500 $137,495 (6) -- -- --
Peter J. Rice 2002 $215,000 $ 91,166 (4) -- -- --
Executive Vice President 2001 $211,250 $185,157 (5) -- 50,000 --
Finance & Administration, 2000 $ 51,539 $ 4,748 (6) $20,000 (8) 102,000 --
Chief Financial Officer and
Treasurer
Patricia C. Foye 2002 $215,000 $ 91,166 (4) -- -- --
Executive Vice President 2001 $ 44,792 $ 31,100 (5) -- --
Global Marketing and
Strategic Alliances
William J. Sawyer 2002 $215,000 $ 91,166 (4) -- -- $2,750
Executive Vice President of 2001 $211,250 $185,157 (5) -- 30,000 $2,625
Operations 2000 $196,672 $ 67,690 (6) -- 55,000 $2,400
Ted D. Williams 2002 $215,000 $ 91,166 (4) -- -- $2,750
Executive Vice President 2001 $211,250 $185,157 (5) -- 30,000 $2,625
Worldwide Sales 2000 $192,502 $ 67,926 (6) -- 55,000 $2,400
John W. Young 2002 $215,000 $ 91,166 (4) -- -- $2,750
Executive Vice President 2001 $211,250 $185,157 (5) -- 30,000 $2,625
Products and Technology 2000 $197,500 $ 67,690 (6) -- 60,000 $2,400
- ----------
(1) Salaries for the named executive officers during fiscal 2001 were increased
at the end of the first quarter of fiscal 2001, and were continued at the
same level through the balance of fiscal 2001 and all of fiscal 2002.
(2) Represents shares of Common Stock issuable upon exercise of stock options
granted under the Company's 1994 Stock Option Plan or under the 1999 Equity
Plan.
9
(3) The amounts reported represent contributions made by the Company pursuant
to the Company's 401(k) Plan and Trust.
(4) Represents bonuses paid under the Company's 2002 Executive Bonus Plan.
(5) Represents bonuses paid under the Company's 2001 Executive Bonus Plan.
(6) Represents bonuses paid under the Company's 2000 Executive Bonus Plan.
(7) Represents reimbursement of certain expenses.
(8) Represents a sign-on bonus paid to Mr. Rice upon his employment with the
Company.
Equity Compensation Plan Information. As of the end of fiscal 2002, all
stock options and other equity-based incentives (including individual
compensation arrangements) were authorized for issuance pursuant to compensation
plans that were previously approved by the Company's stockholders (except for a
single grant of 15,000 shares of restricted stock, as noted below).
EQUITY COMPENSATION PLAN INFORMATION
- --------------------------------------------------------------------------------------------------------------------------
Weighted-average
Number of securities to be exercise price of Number of securities remaining
issued upon exercise of out-standing available for future issuance under
out-standing options, options, warrants equity compensation plans (excluding
Plan Category warrants and rights and rights securities reflected in column (a))
- ------------- ------------------- ---------- -----------------------------------
Equity compensation plans
approved by
security holders 3,576,099(1) $19.99 1,344,462(3)
Equity compensation plans
not approved by
security holders --(2) -- --
Total ..................... 3,576,099 $19.99 1,344,462
- --------------------------------------------------------------------------------------------------------------------------
- ----------
(1) Does not include 25,000 shares of restricted stock that were previously
issued under the 1999 Equity Plan.
(2) Does not include 15,000 shares of restricted stock that were issued to one
individual in fiscal year 2000 in connection with an acquisition.
(3) Includes up to 175,000 shares that may be issued in the form of restricted
stock under the 1999 Equity Plan.
Option Grants in Last Fiscal Year. During fiscal 2002, there were no stock
options granted by the Company to the named executive officers.
10
Option Exercises and Fiscal Year-End Values. The following table sets forth
certain information concerning stock options exercised during fiscal 2002 and
stock options held as of September 30, 2002 by each of the named executive
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Shares Options at In-The-Money Options
Acquired Fiscal Year-End at Fiscal Year End ($) (3)
On Value --------------- --------------------------
Name Exercise (#)(1) Realized ($)(2) Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Norman E. Drapeau, Jr 95,000 $1,816,315 350,748 243,750 $11,250 $18,750
Robert L. Daniels -- -- -- -- -- --
Peter J. Rice -- -- 69,750 82,250 $ 3,750 $ 6,250
Patricia C. Foye -- -- 21,874 53,126 -- --
William J. Sawyer 10,000 $ 180,875 81,250 68,750 $ 2,250 $ 3,750
Ted D. Williams 55,856 $ 859,313 38,750 63,750 $ 2,250 $ 3,750
John W. Young 100,000 $1,693,628 53,748 71,250 $ 2,250 $ 3,750
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------
(1) All options were exercised on a "cashless" basis, whereby the shares were
purchased by the executive upon exercise of the stock option, and sold in
the open market, in contemporaneous transactions. Does not include any
shares of stock purchased under the Stock Purchase Plan.
(2) Value is based on the actual sale price of the shares less the applicable
option exercise price.
(3) Value is based on the last sale price of the Common Stock on September 30,
2002, as reported by Nasdaq ($8.70 per share), less the applicable option
exercise price. These values have not been and may never be realized.
Actual gains, if any, on exercise will depend on the value of the Common
Stock on the date of the sale of the shares.
Compensation Committee Interlocks and Insider Participation
John A. McMullen and Richard P. Fishman served on the Compensation
Committee during fiscal 2002. Neither Messrs. McMullen or Fishman, nor any
executive officer of the Company, has any relationship requiring disclosure by
the Company pursuant to item 402(j) of Regulation S-K promulgated by the SEC.
Compensation Committee Report on Executive Compensation
The Compensation Committee established by the Board of Directors is
composed of two non-employee directors of the Company, currently Mr. Fishman and
Mr. McMullen. The Compensation Committee has general responsibility for the
Company's executive compensation policies and practices, including making
specific recommendations to the Board concerning compensation for the Company's
executive officers. The following report is made by Messrs. Fishman and
McMullen, and summarizes the Company's executive officer compensation policies
for fiscal 2002.
Compensation Objectives
The Company's executive compensation programs are generally designed to
relate a substantial part of executive compensation to attainment of the
Company's internal goals for financial performance and corresponding increases
in stockholder value. Decisions concerning executive compensation are guided by
the following underlying principles:
11
o to establish incentives which will link executive officer compensation
to the Company's financial performance and will motivate executives to
attain the Company's quarterly and annual financial targets; and
o to provide a total compensation package that is competitive within the
software industry and which will assist the Company in attracting and
retaining executives who will contribute to the long-term financial
success of the Company.
The Securities and Exchange Commission requires that this Report comment
upon the Compensation Committee's policy with respect to Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Tax Code"), which limits the
Company's tax deduction with regard to compensation in excess of $1 million paid
to the chief executive officer and the four most highly compensated officers
(other than the chief executive officer) at the end of any fiscal year unless
the compensation qualifies as "performance-based compensation." The Compensation
Committee's policy with respect to Section 162(m) is to make every reasonable
effort to cause compensation to be deductible by the Company while
simultaneously providing executive officers of the Company with appropriate
rewards for their performance.
Executive Compensation Programs
The Company's compensation package normally consists of three principal
components: (1) salary; (2) cash bonuses tied to quarterly and annual revenue,
earnings, stock price and personal performance; and (3) where appropriate to
provide longer-term incentive to executive officers, stock options. The
Company's executive officers are also eligible to participate in other employee
benefit plans, including health and life insurance plans, a 401(k) retirement
plan and the Stock Purchase Plan, on substantially the same terms as other
employees who meet applicable eligibility criteria, subject to any legal
limitations on the amounts that may be contributed or the benefits that may be
payable under these Company plans.
The Company's executive officer compensation policy emphasizes bonuses and
stock options, which align the interests of management with the stockholders'
interest in the financial performance of the Company for fiscal quarters, the
fiscal year and the longer term. Consistent with this approach, in fiscal 2002 a
substantial part of potential cash compensation for all executives was tied to
the Company's performance. Executive officers' salaries for fiscal 2002 were
maintained at the same levels as such salaries for the previous fiscal year (see
the Summary Compensation Table), in light of the sluggish economy and consistent
with the Company's overall cost control initiatives.
In fiscal 2002, the Company maintained an Executive Bonus Plan (the "2002
Executive Bonus Plan") intended by the Compensation Committee to align the
interests of its participants with those of the stockholders and provide
additional incentive to executives to enhance Company performance. The
participants in the 2002 Executive Bonus Plan were Ms. Foye and Messrs. Drapeau,
Daniels, Young, Sawyer, Williams, Rice and Newfield. Under the 2002 Executive
Bonus Plan a participant's bonus was determined as follows:
o 40% of the bonus was based on the Company's quarterly revenue and
earnings-per-share ("EPS") performance, with payment starting at 95%
of goal attainment and capped at 125% of the on-target amount;
12
o 20% of the bonus was based on the Company's annual revenue and EPS
performance, with payment starting at 95% of goal attainment and
capped at 125% of the on-target amount;
o 20% of the bonus was based on appreciation of the price of the
Company's Common Stock during the course of fiscal 2002;
o 20% of the bonus was based on achievement of individual performance
goals evaluated by the Company's Chief Executive Officer; and
o In the case of the CEO and Executive Chairman, 20% of the bonus was
based on achievement of overall performance goals, as evaluated by the
Compensation Committee.
During fiscal 2002, the Company met at least 95% of its profitability goals
for three of the four quarters, and met its revenue targets for one quarter. The
value of the Company's Common Stock at the end of fiscal 2002 was not greater
than its value at the beginning of fiscal 2002, and no amounts were paid with
respect to this component of the plan. Performance against individual
performance goals was measured for each executive. As a result, the Company paid
$814,910 in bonuses to its eight executive officers under the 2002 Executive
Bonus Plan.
In fiscal 2002, stock options were not a component of the Company's
approach to compensation for its executive officers. See "Option Grants in Last
Fiscal Year". The Compensation Committee has consulted with independent experts
in these matters, believes that stock options with future vesting dates provide
a significant incentive to executive officers to continue their employment with
the Company and create long term value for its stockholders, and has recently
approved a grant of stock options to executive officers.
Chief Executive Officer and Executive Chairman Compensation
Consistent with the overall executive officer compensation policy, the
Company's approach to the Chief Executive Officer's and the Executive Chairman's
compensation packages in fiscal 2002 was to be competitive with other successful
companies in the software industry and to tie a large percentage of the Chief
Executive Officer's and the Executive Chairman's total compensation packages to
Company performance. The Compensation Committee believes that this approach
provides additional incentives to the Chief Executive Officer and the Executive
Chairman to achieve the Company's performance goals and enhance stockholder
value.
Salaries for the Company's Chief Executive Officer and the Executive
Chairman were designed to give them assurance of a base level of compensation
commensurate with each of their positions and durations of employment with the
Company, and to be competitive with salaries for officers holding comparable
positions in the software industry. The Chief Executive Officer and the
Executive Chairman were each a participant in the 2002 Executive Bonus Plan, and
his bonus for fiscal 2002 was based on the factors and criteria discussed above.
Mr. Drapeau was Chief Executive Officer and Mr. Daniels was Executive Chairman
of the Company during fiscal 2002.
The Compensation Committee
Richard P. Fishman, Chairman
John A. McMullen
13
Performance Graph
The following Performance Graph compares the performance of the Company's
cumulative stockholder return with that of a broad market index, the Nasdaq
Stock Market Composite Index for U.S. Companies, and a published industry index,
the Nasdaq Computer & Data Processing Index. The cumulative stockholder returns
for shares of the Company's Common Stock and for the market and industry indices
are calculated through September 30, 2002 (the last trading day of fiscal 2002),
assuming $100 was invested on September 30, 1998 (the last trading day preceding
the Company's 1999 fiscal year). The Company paid no cash dividends during the
periods shown. The performance of the market and industry indices is shown on a
total return (dividends reinvested) basis.
Comparison of Five-Year Cumulative Return (1)
Among MRO Software, Inc., The Nasdaq Stock Market (U.S.) Composite Index
And the Nasdaq Computer & Data Processing Index
[The following was represented as a line chart in the printed material]
Nasdaq Computer
MRO Software, Inc. and Data Processing Nasdaq Composite
----------------- ------------------- ----------------
9/30/1998 100 100 100
9/30/1999 407.588 169.765 163.089
9/29/2000 236.889 212.989 218.122
9/28/2001 155.417 76.452 89.011
9/30/2002 132.561 60.076 69.606
- ----------
(1) $100 invested on 9/30/98 in stock or index - including reinvestment of
dividends.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of January 10, 2003 by (i)
each person known by the Company to own beneficially more than five percent of
the Common Stock as of such date, (ii) each director of the Company, (iii) each
named executive officer, (iv) each nominee as a director of the Company, and (v)
all executive officers and directors of the Company as a group:
Shares Beneficially
Owned (1)
---------
Name Number Percent
- ---- ------ -------
Robert L. Daniels (2)................................................ 4,348,413 17.8%
100 Crosby Drive
Bedford, MA 01730
Liberty Wanger Asset Management, L.P. (3)............................ 2,783,300 11.4%
227 West Monroe Street, Suite 3000
Chicago, IL 60606-5016
Kopp Investment Advisors, Inc. (4)................................... 2,039,179 8.4%
7701 France Avenue South, Suite 500
Edina, MN 55435
Westport Asset Management, Inc. (5) ................................. 1,323,000 5.4%
253 Riverside Avenue
Westport, CT 06880
Norman E. Drapeau, Jr. (6)........................................... 436,373 1.8%
William J. Sawyer (7)................................................ 116,417 *
John W. Young (6).................................................... 86,873 *
Peter J. Rice (6).................................................... 74,958 *
Ted D. Williams (8).................................................. 66,324 *
Patricia C. Foye (9)................................................. 30,437 *
Alan L. Stanzler (10)................................................ 86,750 *
Stephen B. Sayre (11)................................................ 66,250 *
Richard P. Fishman (12).............................................. 56,600 *
John A. McMullen (13) ............................................... 45,910 *
All directors and executive officers as a group......................
(12 persons)(2)(6)(7)(8)(9)(10)(11)(12)(13)(14) 5,462,584 21.4%
- ----------
* Less than one percent.
(1) The persons named in this table have sole voting and investment power with
respect to the shares listed, except as otherwise indicated. The inclusion
herein of shares listed as beneficially owned does not constitute an
admission of beneficial ownership.
(2) Includes 1,131,758 shares owned by Susan H. Daniels, over which Robert L.
Daniels has voting control pursuant to a Shareholders' Agreement dated as
of August 1, 2001 (the "Voting Agreement"). Mr. Daniels also owns 3,216,655
shares apart from the Voting Agreement. Robert and Susan Daniels are
divorced. Excludes 182,400 shares held for the benefit
15
of Mr. Daniels' two adult children; each of Robert L. Daniels and Susan H.
Daniels disclaims beneficial ownership of these shares. Excludes 13,800
shares held by Mr. Daniels as custodian for the benefit of two minor
children, and excludes 82,700 shares held by Anja Eckbo-Daniels, Robert L.
Daniels' spouse; Mr. Daniels disclaims beneficial ownership of these
shares.
(3) This information is as of December 31, 2002 and is based upon information
obtained through Nasdaq.
(4) This information is as of December 31, 2002 and is based upon a report on
Schedule 13G dated January 16, 2003 filed by Kopp Investment Advisors, Inc.
with the Securities and Exchange Commission.
(5) This information is as of January 10, 2003, and is based upon information
obtained through Nasdaq and confirmed by Westport Asset Management, Inc.
(6) Represents shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(7) Includes 113,125 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(8) Includes 65,625 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(9) Includes 29,687 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(10) Includes 67,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(11) Includes 60,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(12) Includes 42,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(13) Includes 42,000 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table.
(14) Includes 26,875 shares issuable pursuant to outstanding stock options
exercisable within 60 days of the date of this table, held by executives
who are not named executive officers.
Change-in-Control Arrangements
Under a plan adopted by the Company's Board of Directors, each of the
Company's executive officers will receive a payment equal to (i) such officer's
base salary for the current year plus (ii) one times the average of the
officer's bonuses for the three most recent years in the event that such officer
is terminated or terminates his employment for Good Reason in connection with a
change-in-control. Good Reason for termination by an executive of his employment
will exist if (i) within two years after the change-in-control the Company, or
any successor entity then employing the executive, materially diminishes the
responsibilities and authority of the executive or materially reduces the rate
of compensation of the executive (including by way of determining the
eligibility of such executive to earn bonus or incentive compensation), in
either case compared with his responsibilities and authority or rate of
compensation, as the case may be, in effect immediately prior to such
change-in-control and (ii) within 30 days following such diminution or reduction
the executive resigns from his employment.
Certain Relationships and Related Transactions
In December 2001, the Company's Board of Directors engaged Alan L.
Stanzler, a non-Employee Director, as Executive Director to perform certain
consulting services at the rate of $7,500 per month through June 2002. Marc
Daniels, 28, has been employed by the Company since 1999 in various capacities,
and is currently a Senior Product Manager with compensation at market rates, in
excess of $60,000 per year. Marc Daniels is Robert L. Daniels' son.
16
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
Although Massachusetts law does not require that the selection by the Board
of Directors of the Company's accountants be approved each year by the
stockholders, the Board believes it is appropriate to submit its selection to
the stockholders for their approval and to abide by the result of the
stockholders' vote. The Board of Directors recommends that the stockholders
ratify the appointment of PricewaterhouseCoopers LLP as independent accountants
to audit the financial statements of the Company for the fiscal year ending
September 30, 2003.
Audit Fees. The total fees paid and payable to PricewaterhouseCoopers LLP
in connection with PricewaterhouseCoopers LLP's audit and quarterly reviews of
financial statements for fiscal 2002, were $271,532. Financial information
systems design and implementation fees for fiscal 2002 were $0. Fees for tax
preparation, tax planning, international statutory compliance audits and other
accounting-related consulting services in fiscal 2002 were $313,699.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting, will have an opportunity to make a statement if they wish, and will be
available to respond to appropriate questions from stockholders.
The Board of Directors recommends that stockholders vote FOR the proposal
to ratify the selection of PricewaterhouseCoopers LLP as independent accountants
for the fiscal year ending September 30, 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Officers,
directors and greater-than-ten-percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely upon review of Forms 3 and 4 and amendments thereto furnished
to the Company during fiscal 2002, and Forms 5 and amendments thereto furnished
to the Company with respect to fiscal 2002, or representations that Form 5 was
not required, the Company believes that all Section 16(a) filing requirements
applicable to its officers, directors and greater-than-ten percent stockholders
were fulfilled in a timely manner, except that Ms. Foye and Mr. Newfield
disclosed their respective purchases of shares under the Stock Purchase Plan in
November 2002 on Form 4s which were not filed within the required time period,
and they did not file Form 5s with respect to those purchases. After
investigating these matters, the Company has concluded that any omissions were
inadvertent, and that none of the transactions gave rise to liability under
Section 16(b) of the Exchange Act for recapture of short-swing profits.
17
SOLICITATION
No compensation will be paid by any person in connection with the
solicitation of proxies. Brokers, banks and other nominees will be reimbursed
for their out-of-pocket expenses and other reasonable clerical expenses incurred
in obtaining instructions from beneficial owners of the Common Stock. In
addition to the solicitation by mail, directors, officers and certain employees
of the Company may in certain instances, make special solicitation of proxies
personally or by telephone. It is expected that the expense of such special
solicitation will be nominal. All expenses incurred in connection with this
solicitation will be borne by the Company.
STOCKHOLDER PROPOSALS
Stockholder proposals for inclusion in the proxy materials related to the
2004 Annual Meeting of Stockholders or Special Meeting in lieu thereof must be
received by the Company at its Executive Offices no later than October 2, 2003
or, if the date of such meeting is more than 30 calendar days before or after
March 5, 2003, a reasonable time before the solicitation of proxies by the
Company with respect to such meeting is made.
In addition, the Company's By-Laws provide that a stockholder must give
written notice to the Company of any business to be conducted at any meeting of
stockholders in accordance with the procedural requirements fully set forth in
Article III of the Company's By-Laws. In the case of a regularly scheduled
annual meeting, such notice must be given not less than sixty days prior to the
scheduled annual meeting describing any proposal to be brought before such
meeting, even if such item is not to be included in the Company's proxy
statement relating to such meeting. To bring an item of business before the 2003
Annual Meeting, a stockholder must have delivered the requisite notice of such
item to the Company no later than January 3, 2003.
MISCELLANEOUS
The Board does not intend to present to the Annual Meeting any business
other than the proposals listed herein, and the Board was not aware, a
reasonable time before mailing this Proxy Statement to stockholders, of any
other business, which properly may be presented for action at the Annual
Meeting. If any other business should come before the Annual Meeting, the
persons present will have discretionary authority to vote the shares they own or
represent by proxy in accordance with their judgment.
AVAILABLE INFORMATION
Stockholders of record on January 10, 2003 will receive a Proxy Statement
and the Company's Annual Report to Stockholders, which contains detailed
financial information concerning the Company. The Annual Report is not
incorporated herein and is not deemed a part hereof.
18