SOFTECH, INC.
TWO HIGHWOOD DRIVE
TEWKSBURY, MA 01876
_______________
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 30, 2004
_______________
To the Stockholders of SofTech, Inc.:
The 2003 Annual Meeting of Stockholders of SofTech, Inc. (the "Company"), a
Massachusetts company, will be held on June 30, 2004 at 10:00 a.m., at the
Corporation's offices located at Two Highwood Drive, Tewksbury, Massachusetts,
01876 for the following purposes:
1. To consider and vote upon a proposal to amend the Company's Amended
Certificate of Incorporation to authorize a class of Preferred Stock
consisting of 20 million shares with a par value of $1.00 per share
and to provide the Board of Directors with the authority from time to
time to issue Preferred Stock in an amount and under such terms as
deemed appropriate (the "Amendment");
2. To elect two (2) Class II directors to serve for a three-year term or
until their successors are elected and qualified; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only stockholders of record at the close of business on May 10, 2004 are
entitled to notice of and to vote at the meeting and any adjournments thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person even if such stockholder has returned a proxy.
By Order of the Board of Directors
/s/ Joseph P. Mullaney
Joseph P. Mullaney
President and COO
Tewksbury, Massachusetts
May __, 2004
SOFTECH, INC.
_________________
PROXY STATEMENT
May ___, 2004
Proxies in the form enclosed with this Proxy Statement are solicited by the
Board of Directors of SofTech, Inc. (the "Company"), a Massachusetts company,
for use at the Annual Meeting of Stockholders to be held on June 30, 2004, at
10:00 a.m., local time, at the Company's headquarters located at Two Highwood
Drive, Tewksbury, MA 01876.
Only stockholders of record at the close of business on May 10, 2004 (the
"Record Date") will be entitled to receive notice of and to vote at the meeting
and any adjournments thereof. As of the Record Date, 12,205,236 shares of
common stock, $.10 par value per share (the "Common Stock"), of the Company were
issued and outstanding. The holders of Common Stock are entitled to one vote
per share on any proposal presented at the meeting. Stockholders may vote in
person or by proxy. Execution of a proxy will not in any way affect a
stockholder's right to attend the meeting and vote in person. Any stockholder
giving a proxy has the right to revoke it (i) by filing a later-dated proxy or a
written notice of revocation with the Secretary of the Company at any time
before it is exercised or (ii) by voting in person at the Annual Meeting
(although attendance at the Annual Meeting will not, in itself, constitute
revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to SofTech, Inc., Two Highwood Drive,
Tewksbury, MA 01876, Attention: Clerk, at or before the taking of the vote at
the Annual Meeting.
The representation in person or by proxy of at least a majority of the
outstanding Common Stock entitled to vote at the meeting is necessary to
constitute a quorum for the transaction of business. Votes withheld from a
nominee for election as a director, as well as abstentions and broker
"non-votes" with respect to all other matters being submitted to stockholders,
are counted as present or represented for purposes of determining the presence
or absence of a quorum for the meeting. A "non-vote" occurs when a nominee
holding shares for a beneficial owner votes on one proposal, but does not vote
on another proposal because, in respect to such other proposal, the nominee does
not have discretionary voting power and has not received instructions from the
beneficial owner.
Regarding the Amendment described in Proposal 1, an affirmative vote of at
least two-thirds of the shares present or represented and voting is required for
approval. In the election of the Class II directors, the nominee receiving the
highest number of affirmative votes of the shares present or represented and
entitled to vote at the meeting shall be elected as a director. On all other
matters being submitted to stockholders, an affirmative vote of a majority of
the shares present or represented and voting on each such matter is required for
approval. An automated system administered by the Company's transfer agent
tabulates the votes. The vote on each matter submitted to stockholders is
tabulated separately. Abstentions are included in the number of shares present
or represented and voting on each matter. Broker "non-votes" are not so
included.
The person named as attorney-in-fact in the proxies, Joseph P. Mullaney, is
an employee and officer of the Company. All properly executed proxies returned
in time to be counted at the meeting will be voted as stated below under
"Election of Director." Any stockholder giving a proxy has the right to
withhold authority to vote for any individual nominee to the Board of Directors
by marking withheld in the space provided on the proxy. Where a choice has been
specified on the proxy with respect to the foregoing matter, the shares
represented by the proxy will be voted in accordance with the specifications and
will be voted FOR if no specification is indicated.
The Board of Directors knows of no other matters to be presented at the
meeting. If any other matter should be presented at the meeting upon which a
vote properly may be taken and upon which the proxies may exercise discretion
under applicable law, shares represented by all proxies received by the Board of
Directors will be voted with respect thereto in accordance with the judgment of
the person named as attorney in the proxies.
An Annual Report to Stockholders, containing financial statements for the
fiscal year ended May 31, 2003, is being mailed together with this Proxy
Statement to all stockholders entitled to vote. This Proxy Statement and the
form of proxy were first mailed to stockholders on or about May 15, 2004.
MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of August 15, 2003: (i) the name and
address of each person who, to the knowledge of the Company, owned beneficially
more than 5% of the Common Stock of the Company outstanding at such date; (ii)
the name of each director or nominee; and (iii) the name of each executive
officer identified in the Summary Compensation Table set forth below under
"Compensation and Other Information Concerning Directors and Officers," the
number of shares owned by each of such persons and the percentage of the
outstanding shares represented thereby, and also sets forth such information for
all officers, directors and nominees as a group.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF OWNERSHIP(1) OF CLASS(2)
------------------------------------------------ ------------------ -----------
William D. Johnston 5,258,372(3)(4) 43.1 %
Joseph P. Mullaney 114,319(3) *
Jean J. Croteau 20,000(3) *
Victor G. Bovey 26,350(3) *
Timothy L. Tyler 24,000(3) *
Ronald A. Elenbaas 61,700(3) *
Frederick A. Lake 10,400(3) *
Barry Bedford 8,400(3) *
All officers, directors and nominees as a group
(8 persons) (3) 5,523,541(5) 44.8%
______________________________
* Less than 1.0%.
(1) Except as otherwise noted, each person or entity named in the table has
sole voting and investment power with respect to the shares. The inclusion
herein of any shares of Common Stock deemed beneficially owned does not
constitute an admission of beneficial ownership of those shares.
(2) Applicable percentage of ownership as of the Record Date is based upon
12,205,236 shares of Common Stock outstanding on such date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the "Commission"), and includes voting and investment
power with respect to shares. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of August 15, 2003 are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage of any other person.
(3) Includes 126,800 shares of Common Stock which may be purchased within 60
days of August 15, 2003 upon the exercise of stock options as follows: Mr.
Johnston - 19,000; Mr. Mullaney - 20,000: Mr. Croteau - 20,000; Mr. Bovey -
6,000; Mr. Tyler - 24,000; Mr. Elenbaas - 19,000; Mr. Lake - 10,400; and
Mr. Bedford - 8,400.
(4) Mr. Johnston's business address is Greenleaf Capital, 3505 Greenleaf
Boulevard, Kalamazoo, Michigan, 49008.
(5) Includes 126,800 shares issuable upon exercise of stock options held by all
Directors and executive officers as a group.
PROPOSAL 1
APPROVAL OF BOARD OF DIRECTORS AUTHORITY TO ISSUE PREFERRED STOCK
The Board of Directors has unanimously adopted a resolution recommending
that the stockholders authorize an amendment to the Company's Amended
Certificate of Incorporation (the "Amendment") to authorize a class of Preferred
Stock consisting of 20 million shares and to provide the Board of Directors with
the authority to issue preferred stock from time to time in an amount and under
terms as deemed appropriate. No other changes to the Company's Amended
Certificate of Incorporation are presently under consideration.
PURPOSE OF THE AMENDMENT
The purpose of seeking shareholder approval of the Amendment to authorize
Preferred Stock and to provide the Board of Directors with the authority to
issue Preferred Stock is to provide the Company with the opportunity to seek
additional equity investment for the purposes of funding growth, debt repayment
and providing additional liquidity as may be needed in the future.
The Company has reached a tentative agreement with Greenleaf Capital, Inc.
to convert up to $14 million of its debt to preferred shares effective March 31,
2004 subject to approval by the Company's shareholders of the Amendment.
The Company has experienced 58% revenue growth during the six month period
ended November 30, 2003 as compared to the same period in the prior fiscal year.
For the year ended May 31, 2003 the Company's revenue increased approximately
22% as compared the same period in the prior fiscal year. In addition, in
December 2002 the Company made an acquisition of a significant complementary
technology. To date, that acquisition and the revenue growth described above
have been financed with increased borrowings and positive cash flow (net loss
plus non-cash expenditures). There may be an opportunity to raise capital
through the issuance of preferred stock in the future and the Company would like
to have the flexibility of reacting quickly to such alternatives.
Regarding the Agreement entered into with Greenleaf subject to approval of
this Amendment, the benefits to the Company and ist common shareholders of
converting the $14 million in debt to preferred stock which we expect will be
classified as an equity investment on our consolidated balance sheet are as
follows:
- The Company had a stockholders deficit of approximately $(3.6) million as
of its most recently filed Form 10-Q for the period ended November 30,
2003. This debt conversion will put an additional $14 million in
stockholders equity into the Company.
- This conversion will improve the working capital by eliminating the $2.1
million of debt principal that would otherwise be due in the next twelve
month period.
- Approximately $1.4 million of annual interest expense and fees related to
debt service will be eliminated from the expenses on the Company's income
statement and will instead be categorized as dividend payments.
- The cash flows from operations as presented on the Company's Statement of
Cash Flows will improve in that dividend payments are categorized as
financing activities while interest expense is categorized as operating
activities.
- The Company will increase its opportunity to utilize income tax net
operating loss and tax credit carryforwards before they expire.
- The Board of Directors will have the authority to quickly respond to
funding opportunities to bring additional capital into the Company. Without
this authority, opportunities to raise additional capital through the
issuance of Preferred Shares may be lost due to the time and effort
required to get shareholder approval.
- The additional equity will improve the Company's chances of meeting the
listing requirements of the NASDAQ market and may allow it to file a
request to become listed on the Small Cap market.
This Amendment, if approved, will allow for the conversion of the existing $14
million in debt to equity while also allowing the Company the ability to quickly
capitalize on equity funding opportunities in the future. The debt conversion,
will improve the Company's financial performance and financial position as
reflected on its financial statements.
The tables below compare the condensed consolidated balance sheet as of May 31,
2003 and the related condensed consolidated statements of operations and cash
flows for the fiscal year ended May 31, 2003 as reported in the audited Form
10-K to the Pro Forma consolidated condensed financial statements assuming the
conversion of the debt to equity had occurred at the beginning of that period
(in thousands):
18
BALANCE SHEETS
AS REPORTED PRO FORMA
AS OF MAY 31, 2003 AS OF MAY 31, 2003
(AUDITED) (UNAUDITED)
-------------------- --------------------
Total current assets $ 2,179 $ 2,179
Total assets 16,123 16,123
Total current liabilities 7,392 5,292
Total long term debt 12,282 -
Total stockholders' deficit (3,551) 10,831
Working capital (5,213) (3,113)
INCOME STATEMENTS
AS REPORTED PRO FORMA
FOR THE YEAR ENDED FOR THE YEAR ENDED
MAY 31, 2003 MAY 31, 2003
(AUDITED) (UNAUDITED)
-------------------- --------------------
Revenue $ 10,688 $ 10,688
Loss from operations (712) (242)
Interest expense 1,130 -
Net loss (1,852) (252)
Dividends to preferred shares - 1,600
Net loss to common shareholders (1,852) (1,852)
Net loss per share to common shareholders (.15) (.15)
STATEMENT OF CASH FLOWS
AS REPORTED PRO FORMA
FOR THE YEAR ENDED FOR THE YEAR ENDED
MAY 31, 2003 MAY 31, 2003
(AUDITED) (UNAUDITED)
-------------------- --------------------
Net cash provided by operating activities $ 697 $ 2,297
Net cash used in investing activities (3,464) (3,464)
Net cash provided (used) by financing activities 2,778 1,178
Net increase in cash 11 11
Beginning cash 708 708
Ending cash 719 719
The tables below compare the condensed consolidated balance sheet as of November
30, 2003 and the related condensed consolidated statements of operations and
cash flows for the three and six month periods ended November 30, 2003 as
reported in the most recently filed Form 10-Q to the Pro Forma consolidated
condensed financial statements assuming the conversion of the debt to equity had
occurred at the beginning of each of the periods presented (in thousands):
BALANCE SHEET
AS REPORTED PRO FORMA
NOVEMBER 30, 2003 NOVEMBER 30, 2003
(UNAUDITED) (UNAUDITED)
------------------- -------------------
Total current assets $ 2,179 $ 2,179
Total assets 16,123 16,123
Total current liabilities 7,392 5,292
Total long term debt 12,282 -
Total stockholders' deficit (3,551) 10,831
Working capital (5,213) (3,113)
INCOME STATEMENTS
AS REPORTED PRO FORMA
FOR THE THREE MONTH PERIOD FOR THE THREE MONTH PERIOD
ENDED NOVEMBER 30, 2003 ENDED NOVEMBER 30, 2003
(UNAUDITED) (UNAUDITED)
---------------------------- ----------------------------
Revenue $ 3,310 $ 3,310
Income from operations 3 94
Interest expense 249 -
Net income (loss) (246) 94
Dividends to preferred shares - (340)
Net loss to common shareholders (246) (246)
Net loss per share to common shareholders. (.02) (.02)
INCOME STATEMENTS
AS REPORTED PRO FORMA
FOR THE SIX MONTH PERIOD FOR THE SIX MONTH PERIOD
ENDED NOVEMBER 30, 2003 ENDED NOVEMBER 30, 2003
(UNAUDITED) (UNAUDITED)
-------------------------- --------------------------
Revenue $ 6,253 $ 6,253
Loss from operations (222) (40)
Interest expense 502 -
Net loss (724) (40)
Dividends to preferred shares - (684)
Net loss to common shareholders (724) (724)
Net loss per share to common shareholders (.06) (.06)
STATEMENT OF CASH FLOWS
AS REPORTED PRO FORMA
FOR THE SIX MONTH PERIOD FOR THE SIX MONTH PERIOD
ENDED NOVEMBER 30, 2003 ENDED NOVEMBER 30, 2003
(UNAUDITED) (UNAUDITED)
-------------------------- --------------------------
Net cash provided by operating activities $ 697 $ 2,297
Net cash used in investing activities (3,464) (3,464)
Net cash provided (used) by financing activities 2,778 1,178
Net increase in cash 11 11
Beginning cash 708 708
Ending cash 719 719
It is the Company's opinion that seeking such a funding arrangement through
a preferred stock issuance would be greatly hampered by the fact that the
Company's Certificate of Incorporation does not specifically provide for the
issuance of preferred stock. This Amendment will provide the Board of Directors
with the ability to capitalize quickly on such opportunities which could benefit
all common shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
PROPOSAL 2
ELECTION OF DIRECTORS
The Board of Directors is currently fixed at five members. The Board of
Directors is divided into three classes, each class of which may consist as
nearly as possible of one-third of the directors. As of the date of this Proxy
Statement, there are two Class II directors whose terms will expire at this
Meeting. All directors will hold office until their successors have been duly
elected and qualified or until their earlier death, resignation or removal.
Messrs. Elenbaas and Lake are the current Class II directors.
The Board of Directors has nominated and recommended that Messrs. Elenbaas
and Lake, who are currently a Class II Directors, be elected as Class II
directors, to hold office until the 2006 Annual Meeting of Stockholders or until
their successors have been duly elected and qualified or until their earlier
resignation or removal. The Board of Directors knows of no reason why these
nominees should be unable or unwilling to serve, but if the nominees should for
any reason be unable or unwilling to serve, the proxies will be voted for the
election of such other persons for the office of director as the Board of
Directors may recommend in the place of such nominee.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE ELECTION OF THESE NOMINEES.
The following table sets forth the nominees to be elected at the meeting
and the year such nominee or director was first elected a director, the position
currently held by the nominee and each director with the Company, the Annual
Meeting at which the nominee's or director's term will expire and class of
director of the nominee and each director:
NOMINEE'S OR DIRECTOR'S NAME
AND YEAR NOMINEE OR DIRECTOR . POSITION WITH YEAR TERM CLASS OF
FIRST BECAME A DIRECTOR THE COMPANY WILL EXPIRE DIRECTOR
------------------------------ --------------------- ----------- --------
NOMINEES:
------------------------------
Timothy L. Tyler
1996
Director 2005 I
Ronald A. Elenbaas
1996 Director
2003 II
Frederick A. Lake
2000
Director 2003 II
William D. Johnston
1996
Chairman and Director 2004 III
Barry Bedford
2000
Director 2004 III
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information regarding the Directors and
Executive Officers of the Company as of May ___, 2004, based on information
furnished by them to the Company.
DIRECTORS
The following provides biographical information with respect to the Directors:
Ronald A. Elenbaas, 50, term expires at this Annual Meeting; Mr. Elenbaas
is currently retired. From 1975 to 2000, Mr. Elenbaas was employed by Stryker
Corporation in various positions, most recently as President of Stryker Surgical
Group, a division of Stryker Corporation. Mr. Elenbaas also serves on the Board
of the American Red Cross (Kalamazoo and Cass County, Michigan). Mr. Elenbaas
was appointed a Director of the Company in September 1996.
William D. Johnston, 57, term expires at the 2004 Annual Meeting; Mr.
Johnston serves as Chairman of the Company and has been a Director since 1996.
Mr. Johnston is President, Chairman and CEO of the Greenleaf Companies. Included
in the Greenleaf Companies are Greenleaf Trust, a Michigan chartered bank,
Greenleaf Capital, Inc., a venture capital company and primary and secondary
lender to SofTech, Greenleaf Ventures, Inc., a management company delivering
management services to the host industry and Greenleaf Holdings L.L.C., a
commercial real estate development company.
Timothy L. Tyler, 49, term expires at the 2005 Annual Meeting; Mr. Tyler
has served since 1995 as President of Borroughs corporation, a privately held,
Michigan-based business that designs, manufactures and markets industrial and
library shelving units, metal office furniture and check out stands primarily in
the United States. Mr. Tyler served as President and General Manager of Tyler
Supply Company from 1979 to 1995. Mr. Tyler was appointed a Director of the
Company in September 1996.
Barry Bedford, 45, term expires at the 2004 Annual Meeting; Mr. Bedford
has served as Chief Financial Officer of the Greenleaf Companies since April
2000. Prior to joining Greenleaf, Mr. Bedford was the Chief Financial Officer of
Johnson and Rauhofs, a Michigan advertising firm, since 1991. Mr. Bedford was
appointed a Director of the Company in July 2000.
Frederick A. Lake, 68, term expires at this Annual Meeting; Mr. Lake is a
partner in the law firm of Lake, Stover & Schau, PLC, a Michigan based law firm.
Mr. Lake has been with Lake, Stover & Schau, PLC, and its predecessors for more
than five years. Mr. Lake also serves as corporate counsel for Greenleaf
Companies and other entities. Mr. Lake was appointed a Director of the Company
in July 2000.
Each member of the Board of Directors also serves on the Audit Committee
of the Board of Directors. The Audit Committee recommends the engagement of the
Company's independent accountants. In addition, the Audit Committee reviews
comments made by the independent accountants with respect to internal controls
and considers any corrective action to be taken by management; reviews internal
accounting procedures and controls within the Company's financial and accounting
staff; and reviews the need for any non-audit services to be provided by the
independent accountants. The Audit Committee operates under a written charter.
Each member of the Board of Directors also serves on the Compensation
Committee of the Board of Directors. The Compensation Committee recommends
salaries and bonuses for officers and general managers and establishes general
policies and procedures for salary and performance reviews and the granting of
bonuses to other employees. It also administers the Company's 1994 Stock Option
Plan (the "Plan") and the SofTech Employee Stock Purchase Plan.
EXECUTIVE OFFICERS
The following provides biographical information with respect to the Executive
Officers:
Joseph P. Mullaney was appointed President and Chief Operating Officer in
June 2001. Previously he served as Vice President, Treasurer, and Chief
Financial Officer of the Company from November 1993 to June 2001. He joined the
Company in May 1990 as Assistant Controller and was promoted to Corporate
Controller in June 1990. Prior to his employment with SofTech he was employed
for seven years at the Boston office of Coopers & Lybrand LLP (now
PriceWaterhouseCoopers LLP) as an auditor in various staff and management
positions.
Jean J. Croteau was appointed Vice President, Operations at the July 2001.
He started with the Company in 1981 as Senior Contracts Administrator and was
promoted to various positions of greater responsibilities until his departure in
1995. Mr. Croteau rejoined SofTech in 1998. From 1995 through 1998 he served as
the Director of Business Operations for the Energy Services Division of XENERGY,
Inc.
Victor G. Bovey was appointed Vice President of Engineering of the Company
in March 2000. He started with the Company in November 1997 as Director of
Product Development. Prior to his employment with SofTech he was employed for
thirteen years with CIMLINC Incorporated in various engineering and product
development positions.
Executive officers of the Company are elected at the first Board of
Directors meeting following the Stockholders' meeting at which the Directors are
elected.
RELATED PARTY TRANSACTIONS
Greenleaf Capital, Inc. has been and continues to be the Company's primary
source of capital. Mr. Johnston, SofTech's Chairman, its largest shareholder and
a Director since 1996, is also the President, Chairman and CEO of Greenleaf
Capital. The Company paid Greenleaf Capital approximately $1.6 million in fiscal
2003 in interest payments on borrowings from Greenleaf and in management fees
for services provided by them. Greenleaf Trust also serves as the trustee and
investment advisor for the Company's 401-K Plan.
The President of the Company was extended a non-interest bearing note in
the amount of $134,000 related to a stock transaction from May 1998. The note is
secured by all Company shares and stock options held by that Officer.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)") requires the Company's Directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities (collectively, "Section 16 reporting persons"), to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Section 16 reporting persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and on written representations that no other
reports were required, during the fiscal year ended May 31, 2003, the Section 16
reporting persons complied with all Section 16(a) filing requirements applicable
to them.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met nine times during the fiscal year ended May 31,
2003. Each of the directors attended more than 75% of the regularly scheduled
and special meetings of the Board of Directors and the Committees on which they
served except Mr. Tyler who attended four Board meetings and one of the two
Audit Committee meetings. The Audit Committee of the Board of Directors reviews
with management and the Company's independent public accountants the Company's
financial statements, the accounting principles applied in their preparation,
the scope of the audit, any comments made by the independent accountants upon
the financial condition of the Company and its accounting controls and
procedures and such other matters as the committee deems appropriate. During
fiscal 2003, the Audit Committee, which consisted of all members of the Board of
Directors of the Company, met two times. The Compensation Committee makes
recommendations concerning the salaries and incentive compensation of executive
officers of the Corporation and administers the Corporation's stock plans.
During fiscal 2003, the Compensation Committee, which consisted of all members
of the Board of Directors, dealt with these compensation issues as part of the
regularly scheduled Board meetings. The Board of Directors does not currently
have a standing nominating committee.
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth summary information concerning the
compensation paid or earned for services rendered to the Company in all
capacities during the fiscal years ended May 31, 2003, 2002 and 2001 as
applicable, to the (i) Company's President and (ii) each of the other executive
officers of the Company. These three individuals are collectively referred to
as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
----------------------- ---------------
SECURITIES
NAME AND PRINCIPAL POSITION FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
---------------------------------- ------- ----------------------- ------------- ------------ ------------ --------------
Joseph P. Mullaney(3) 2003 $ 210,000 $ 75,000 - 100,000 $ 16,005(6)
President and Chief Operating 2002 195,000 45,000 - - 16,000(6)
Officer, Former Vice President. 2001 160,000 - - - 13,920(6)
and Chief Financial Officer
Jean J. Croteau(5) 2003 150,000 103,515 - - 1,805
Vice President, Operations 2002 127,348 33,000 - 50,000 1,573
2001 121,275 20,000 - - 2,820
Victor G. Bovey(4) 2003 130,000 9,486 - - 2,840
Vice President, Research and 2002 125,000 4,000 - 15,000 2,604
Development 2001 125,000 - - - 2,500
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Executive Officers
which are available to all employees of the Company. Annual compensation
includes amounts deferred under the Company's 401(k) plan.
(2) Except as otherwise noted, amounts listed in this column reflect the
Company's contributions to each of the Named Executive Officers accounts
under the Company's 401(k) plan.
(3) Mr. Mullaney was appointed President and COO in June 2001. Prior to June
2001, Mr. Mullaney served as Vice President and CFO.
(4) Mr. Bovey was appointed Vice President, Research & Development in March
2000. Prior to March 2000, Mr. Bovey served as Director of Product
Development
(5) Mr. Croteau was appointed Vice President of Operations in July 2001.
(6) Includes imputed compensation related to a non-interest bearing note
receivable.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the year
ended May 31, 2003 pursuant to the Corporation's 1994 Stock Plan to the Named
Executive Officers.
INDIVIDUAL GRANTS(1)(2)
----------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM(4)
OPTIONS IN FISCAL PRICE(3) EXPIRATION ---------------------
NAME GRANTED(#) YEAR ($/SHARE) DATE 5%($) 10%($)
------------------ ----------------- ----------- ---------- ---------- ----------- --------
Joseph P. Mullaney 100,000 87% $ .09 8/29/2012 $ 5,660 $ 14,344
(1) The Company granted options representing an aggregate of 115,000 shares to
6 employees and directors of the Corporation in fiscal 2003 under its 1994
Stock Plan.
(2) The options vest at the rate of 20% of the shares underlying the options
each year on the anniversary date of the award.
(3) The exercise price per share of each option was equal to the fair market
value per share of Common Stock on the date of grant.
(4) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation of the
Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercises and the future
performance of the Company's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals.
AGGREGATE OPTION EXERCISES AND YEAR-END VALUES
Shown below is information with respect to (i) exercises of stock options
of the Named Executive Officers during the fiscal year ended May 31, 2003 and
(ii) unexercised options outstanding at May 31, 2003 and the value of such
unexercised in-the-money options at May 31, 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
SHARES MAY 31, 2003 OPTIONS/SARS AT
ACQUIRED (#) MAY 31, 2003 ($)(1)
ON VALUE --------------------------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ ----------- ----------- ---------------------- --------------------- ----------- -------------
Joseph P. Mullaney - - - 100,000 - 4,000
Victor G. Bovey - - 6,000 9,000 120 360
Jean J. Croteau - - 20,000 30,000 800 1,200
(1) As of May 31, 2003, the exercise price of the options were equal to the
fair market value of the Corporation's Common Stock.
EMPLOYMENT CONTRACTS
The Company has not executed any employment contracts with its Named
Executive Officers.
COMPENSATION OF DIRECTORS
Since fiscal 1998, non-employee Directors have received options in lieu of
cash remuneration for their services. Employee Directors are not paid any fees
or additional compensation for service as members of the Board of Directors or
any committee thereof.
Pursuant to the Company's 1994 Stock Option Plan (the "1994 Stock
Option Plan"), non-employee Directors may be granted non-qualified options to
purchase shares of Common Stock of the Company. The Compensation Committee of
the Board of Directors administers the 1994 Stock Option Plan. Under the Plan,
all non-employee Directors receive 10,000 options upon appointment to the Board
and receive 3,000 options on the anniversary date of the initial award for as
long as the Director serves the Company in that capacity. Such options vest over
a five year period in equal increments and have an expiration date ten years
after award. Stock options typically terminate upon a Director leaving his or
her position for any reason other than death or disability. During the fiscal
year ended May 31, 2003 there were 15,000 options granted to non-employee
Directors.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
General. The Compensation Committee of the Board of Directors (the
"Committee") is currently composed of all of the members of the Board of
Directors and meets or takes action as many times during the year as is deemed
necessary. The Committee's responsibilities include making recommendations to
the Board for officers on the key components of the Company's executive
compensation program, base salary, annual incentive awards, long-term incentives
in the form of stock options, and other benefits typically offered to executives
by comparable companies.
Compensation Philosophy. The Company's compensation program has been
designed to:
- Support a pay for performance policy that differentiates in compensation
amounts based on Company and individual performance;
- Provide compensation opportunities that are comparable to those offered by
comparable companies, thus allowing the Company to retain and compete for
fully qualified executives who are in the competitive high technology and
professional services marketplace; and
- Align the interests of executives with the long-term interests of
stockholders through award opportunities that can result in ownership of
Common Stock of the Company.
Consistent with the objectives of the compensation philosophy, the
percentage of an executive's potential total compensation that is based on
performance incentives increases with their level of responsibility. This
results in an executive's total compensation varying from year to year based on
the performance of the Company and the individual.
Base Salaries. Base salary levels for the President and COO, and other
executive officers are reviewed annually by the Committee. Certain of the
officers were granted base salary increases during the year based upon a number
of factors, including individual performance, contributions towards the growth
of the Company, and increases in responsibilities.
Annual Cash Incentives. All officers participate in incentive plans which
compensate these individuals in the form of cash bonuses. Awards under these
plans are based on the attainment of specific Company and individual performance
measures established by the Compensation Committee at the beginning of the
fiscal year. For the fiscal year ended May 31, 2003, these executive officers
earned bonuses calculated in accordance with those plans as identified within
this proxy in the table appearing under the heading Executive Compensation
Summary.
Long Term Incentives. 1994 Stock Option Plan. The Company's 1994 Stock
Option Plan is designed to align a portion of the executive compensation program
with stockholder interests by providing for the grant of options to employees,
directors, officers and consultants to purchase up to 1,000,000 shares of Common
Stock of the Company. The 1994 Stock Option Plan was adopted at the Annual
Meeting of Stockholders on November 1, 1994.
The Committee believes that stock options provide greater incentives to
executives to improve the performance of the Company and thereby increase the
value of its stock. It is only by increasing the Company's stock price that
executives are able to realize the economic value of stock options. The
Committee believes that this more closely aligns the interests of the Company's
officers with those of the Company's stockholders.
The Committee administers the Plan and determines which officers will
receive stock options, the number of shares subject to each stock option, the
vesting schedule of the options, and the other terms and provisions of the
options granted. When recommending option awards, the following guidelines were
used: (i) the individual's current contribution to Company performance, (ii) the
anticipated contribution in meeting the Company's long term strategic
performance goals, (iii) the employee's ability to impact corporate and/or
business unit results; and (iv) the employee's current incentive to maximize
operating results based on stock ownership and option awards.
President and COO Compensation. Mr. Mullaney's compensation for fiscal year
2003 was composed of base salary compensation and a discretionary incentive
bonus based on overall achievement of budget and other goals established for him
at the beginning of the fiscal year. The discretionary 2003 bonus was awarded by
the Compensation Committee after the fiscal year end after reviewing his
performance against those established goals. His base compensation for the
fiscal year was $210,000. Mr. Mullaney's bonus award for fiscal year 2003 was
$75,000.
Respectfully submitted by the Compensation Committee this ___th day of May 2004:
William D. Johnston
Ronald A. Elenbaas
Timothy L. Tyler
Barry Bedford
Frederick A. Lake
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
This report is submitted by the Audit Committee of the Board, which reviews
with the independent auditors and management the annual financial statements and
independent auditors' opinion, reviews the results of the audit of the Company's
annual financial statements and the results of the reviews of the quarterly
financial statements for each of the first three quarters in the fiscal year
with the independent auditors, recommends the retention of the independent
auditors to the Board and periodically reviews the Company's accounting policies
and internal accounting and financial controls for the fiscal year ended May 31,
2003. Messrs. Johnston, Elenbass, Bedford, Lake and Tyler served on the Audit
Committee for the fiscal year ended May 31, 2003. None of Messrs. Johnston,
Elenbass, Bedford, Lake or Tyler are officers or employees of the Company, and
aside from being directors of the Company, each is otherwise independent of the
Company (as independence is defined pursuant to Rule 4200(a)(15) of the National
Association of Securities Dealers' listing standards). The Audit Committee
operates under a written charter adopted by the Board of Directors.
The Audit Committee has reviewed the audited balance sheets of the Company
as of May 31, 2003 and 2002, and the audited statements of operations,
stockholders' equity and cash flows for each of the three years ended May 31,
2003, and has discussed them with both management and Grant Thornton LLP, the
Company's independent auditors. The Audit Committee has also discussed with the
independent auditors the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees), as currently
in effect. The Audit Committee has received the written disclosures and the
letter from the independent auditors required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), as currently in
effect, and has discussed with Grant Thornton LLP that firm's independence.
Based on its review of the financial statements and these discussions, the Audit
Committee concluded that it would be reasonable to recommend, and on that basis
did recommend, to the Board of Directors that the audited financial statements
be included in the Company's Annual Report on Form 10-KSB for the fiscal year
ended May 31, 2003.
Respectfully submitted by the Audit Committee this ___th day of May 2004:
William D. Johnston
Ronald A. Elenbaas
Timothy L. Tyler
Barry Bedford
Frederick A. Lake
AUDIT FEES
The aggregate fees billed by Grant Thornton LLP for professional services
rendered for the audit of the Company's annual financial statements for the
fiscal year ended May 31, 2003 and for the review of the financial statements
included in the Company's Forms 10-QSB for the fiscal year ended May 31, 2003
were approximately $96,000.
Financial Information Systems Design and Implementation Fees
------------------------------------------------------------------
There were no fees billed by Grant Thornton LLP for financial information
systems design and implementation professional services for the fiscal year
ended May 31, 2003.
All Other Fees
----------------
The aggregate fees billed by Grant Thornton LLP for services other than
those described above for the fiscal year ended May 31, 2003 totaled
approximately $47,000 and were primarily for the preparation of the Company's
state and federal tax returns, the audit of the Company's 401-K, and for certain
audit and advisory services related to the Company's acquisition of Workgroup
Technology Corporation during fiscal 2003. The Company's Audit Committee has
determined that the provision of the services provided by Grant Thornton LLP as
set forth herein are compatible with maintaining their independence.
AUDITORS FOR FISCAL 2004
The Company's management and the Audit Committee of the Board of Directors
is awaiting an audit fee proposal from Grant Thornton, LLC, ("Grant") its
auditor of three years, for the 2004 audit of the Company's financial
statements. Grant has provided a preliminary audit fee which contemplates a rate
increase of between 30% and 50% from fiscal 2003. The Audit Committee expects to
receive a final proposal from Grant in the near term and make a decision
regarding the 2004 audit shortly thereafter.
OTHER MATTERS
The Board of Directors does not intend to bring any matters before the
Annual Meeting other than those specifically set forth in the Notice of Meeting
and it knows of no matters to be brought before the Annual Meeting by others.
If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the accompanying proxies to vote such proxies
in accordance with the judgment of the Board of Directors.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the Proxy Statement to
be furnished to all stockholders entitled to vote at the next Annual Meeting of
Stockholders of the Company must be received at the Company's principal
executive offices no later than July 1, 2004. Further, any proposals must comply
with the other procedural requirements set forth in the Company's By-laws, a
copy of which is on file with the Commission, and as set forth by the
Commission. In order to curtail any controversy as to the date on which a
proposal was received by the Company, it is suggested that proponents submit
their proposals by Certified Mail, Return Receipt Requested to SofTech, Inc.,
Two Highwood Drive, Tewksbury, MA, 01876, Attention: Corporate Secretary.
INCORPORATION BY REFERENCE
To the extent that this Proxy Statement has been or will be specifically
incorporated by reference into any filing by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, the
sections of the Proxy Statement entitled "Report on Executive Compensation"
shall not be deemed to be so incorporated, unless specifically otherwise
provided in any such filing.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company, and in
addition to soliciting Stockholders by mail through its regular employees, the
Company may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Company registered
in the names of a nominee and, if so, will reimburse such banks, brokers and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Company may also be made
of some Stockholders in person or by mail, telephone or telegraph following the
original solicitation.
The contents and the sending of this Proxy Statement have been approved by
the Board of Directors of the Company.