HWD2 885627v1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION
14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[__] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Netegrity, Inc.
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Netegrity, Inc.
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NETEGRITY, INC.
52 Second Avenue
Waltham, MA 02451
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
to be held
May 17, 2001
To Our Stockholders:
An Annual Meeting of Stockholders of Netegrity, Inc., a Delaware
corporation (the "Company" or "Netegrity"), will be held on Thursday, May 17,
2001, at 9:00 a.m., local time, at the Company's principal executive offices
located at 52 Second Avenue, Waltham, MA 02451 (the "Meeting") for the following
purposes:
1. To elect a Board of Directors as described herein.
2. To consider and act upon a proposal to amend the 2000 Stock Option Plan
to increase the number of shares of Common Stock reserved for issuance
thereunder to 6,500,000 shares.
3. To consider and act upon a proposal to amend the 2000 Stock Option Plan
to increase automatically on an annual basis the number of shares of
Common Stock reserved for issuance thereunder.
4. To consider and act upon a proposal to amend the Certificate of
Incorporation of the Company to increase the number of shares of Common
Stock which the Company has the authority to issue from 55,000,000 to
135,000,000 shares.
5. To consider and act upon any other business which may properly come
before the Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on April 6,
2001, as the record date for the Meeting. All stockholders of record on the
books of the Company at the close of business on April 6, 2001 are entitled to
notice of, and to vote at, the Meeting.
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING IN PERSON.
All stockholders are cordially invited to attend the Meeting.
By Order of the Board of Directors,
Barry N. Bycoff,
President and Chief Executive Officer
April 13, 2001
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. THE PROXY MAY BE REVOKED BY THE PERSON
EXECUTING THE PROXY BY FILING WITH THE SECRETARY OF THE COMPANY AN INSTRUMENT OF
REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER DATE, OR BY ELECTING TO VOTE
IN PERSON AT THE MEETING. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS MAILED IN
THE UNITED STATES.
NETEGRITY, INC.
PROXY STATEMENT
2001 ANNUAL MEETING OF STOCKHOLDERS
May 17, 2001
Proxies in the form enclosed with this proxy statement are solicited by
the Board of Directors of Netegrity, Inc., a Delaware corporation (the
"Company"), for use at the 2001 Annual Meeting of Stockholders to be held on
Thursday, May 17, 2001, at 9:00 a.m., local time, at the Company's principal
executive offices located at 52 Second Avenue, Waltham, MA 02451, and any
adjournments thereof (the "Meeting").
If the enclosed proxy is properly executed and returned, it will be
voted in the manner directed by the stockholder. If no specification is made,
such shares will be voted for the election of Directors as set forth in this
Proxy Statement and for the proposals set forth in the Notice of Meeting. With
respect to the election of directors, any stockholder submitting a proxy has the
right to withhold authority to vote for any individual nominee or group of
nominees to the Board of Directors by writing the name of such individual or
group in the space provided on the proxy. Any person giving the enclosed form of
proxy has the power to revoke it by executing a proxy bearing a later date, by
voting in person at the meeting, or by giving written notice of revocation to
the Secretary of the Corporation at any time before the proxy is exercised.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock is necessary to establish a quorum for the
transaction of business. The election of the nominees for Director will be
decided by a plurality vote. The proposal to amend of the Certificate of
Incorporation requires the affirmative vote of a majority of the shares of
Common Stock outstanding and entitled to vote therein. All other matters being
submitted to stockholders require the affirmative vote of the majority of voting
shares present in person or represented by proxy at the Meeting (following the
determination of a quorum). Both abstentions and broker "non-votes" are counted
as present for the purposes of determining the existence of a quorum for the
transaction of business. However, for purposes of determining the number of
shares voting on a particular proposal (except for the proposal to amend the
Certificate of Incorporation), abstentions and broker "non-votes" are not
counted as votes cast or shares voting.
An Annual Report to Stockholders, containing financial statements for
the fiscal year ended December 31, 2000, is being mailed with this Proxy
Statement to all stockholders entitled to vote. This proxy statement and the
form of proxy were first mailed to the Company's stockholders on or about April
13, 2001.
The Company's principal executive offices are located at 52 Second
Avenue, Waltham, Massachusetts 02451, telephone number (781) 890-1700.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on April 6, 2001
are entitled to notice of and to vote at the meeting. On April 6, 2001, the
Company had outstanding __________ shares of Common Stock, par value $.01 per
share. Each outstanding share of Common Stock entitles the record holder to one
vote.
MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of February 28, 2001, the beneficial
ownership of shares of capital stock of (i) each person known by the Company to
own beneficially more than 5% of the issued and outstanding shares of Common
Stock outstanding on that date, (ii) each director or nominee, and (iii) each
executive officer identified in the Summary Compensation Table, and (iv) the
directors, nominees and executive officers as a group, both with respect to the
number of shares owned by each person and the percentage of the outstanding
shares represented thereby.
Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership (1)
Pequot Capital Management, Inc. 3,651,179 11.78%
500 Ayala Farm Road
Westport, CT 06880
FMR Corp.(2) 2,754,460 8.95%
82 Devonshire Street
Boston, MA 02109
Marsh & McLennan Companies, Inc. (3) 2,112,354 6.87%
1166 Avenue of the Americas
New York, NY 10036
Lawrence D. Lenihan, Jr. (4) 3,681,804 11.97%
Barry N. Bycoff (5) 1,008,950 3.45%
James E. Hayden (6) 166,950 *
Deepak Taneja (7) 160,094 *
Thomas M. Palka (8) 128,414 *
James Rosen (9) 113,850 *
Michael L. Mark (10) 139,954 *
Ralph B. Wagner (11) 72,500 *
Paul F. Deninger (12) 1,875 *
Eric R. Giler (13) 938 *
All executive officers and directors as a group (10 persons) 5,548,204 17.40%
(4) (5) (6) (7) (8) (9) (10) (11) (12) (13)
---------
* less than 1%
(1) Except as otherwise noted below, the Company believes each beneficial
owner has the sole voting and investment power with respect to all
shares of Common Stock (or options, warrants or other securities
convertible into or exchangeable for Common Stock) shown as
beneficially owned by him. All numbers and percentages, except as
otherwise noted, do not assume the exercise of outstanding options or
warrants. Pursuant to the rules of the Securities and Exchange
Commission, shares of Common Stock which an individual or group has a
right to acquire within 60 days of February 28, 2001 pursuant to the
exercise of presently exercisable or outstanding options, warrants or
conversion privileges are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but are
not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person or group shown in the table.
(2) Includes 2,401,260 shares beneficially owned by Fidelity Management &
Research Company ("Fidelity") as a result of its acting as an
investment advisor to various funds, 306,000 shares beneficially owned
by Fidelity Management Trust Company ("FMTC") as a result of its
serving as an investment manager to certain institutional accounts, and
47,200 shares owned by Fidelity International Limited
("International"). Fidelity and FMTC are wholly owned subsidiaries of
FMR Corp. and a majority of the outstanding shares of International are
owned by the shareholders of FMR Corp. FMR Corp. shares voting and/or
dispository control of the shares of Common Stock held by Fidelity and
FMTC. FMR Corp. has no voting or dispository power over the shares of
Common Stock held by International and disclaims any beneficial
ownership interest of such shares.
(3) Includes 1,866,504 shares beneficially owned by Putnam Investment
Management, Inc. ("PIM") and 245,850 shares beneficially owned by
Putnam Advisory Company, Inc. ("PAC"), which are wholly owned
subsidiaries of Putnam Investment, Inc. ("PI"), which is a wholly owned
subsidiary of Marsh & McLennan Companies, Inc. ("MMC"). Neither PI or
MMC share voting or dispository power over the shares held by PIM and
PAC and each disclaims any beneficial ownership interest of such
shares.
(4) Mr. Lenihan is a Managing Director of Pequot Capital Management, Inc.
and may be deemed to beneficially own the 3,651,179 shares
held by Pequot Capital Management, Inc. Mr. Lenihan disclaims
beneficial ownership of these shares, except to the extent of his
primary interest.
(5) Includes 411,300 shares of Common Stock, 15,000 shares held in trust
for the benefit of Mr. Bycoff's children and options to
purchase up to 656,150 shares of Common Stock.
(6) Includes 17,100 shares of Common Stock and options to purchase up to
149,850 shares of Common Stock.
(7) Includes 100,094 shares of Common Stock and options to purchase up to
60,000 shares of Common Stock.
(8) Includes 914 shares of Common Stock and options to purchase up to
127,500 shares of Common Stock.
(9) Includes 19,350 shares of Common Stock and options to purchase up to
94,500 shares of Common Stock.
(10) Includes 139,016 shares of Common Stock and options to purchase up to
938 shares of Common Stock..
(11) Includes 29,375 shares of Common Stock and options to purchase up to
43,125 shares of Common Stock.
(13) Includes options to purchase up to 1,875 shares of Common Stock.
(13) Includes options to purchase up to 938 shares of Common Stock.
ELECTION OF DIRECTORS
At the meeting, six directors are to be elected, constituting the
entire Board of Directors. The directors of the Company shall hold office for
the terms set forth below and until their successors have been elected and
qualified.
No proxy may be voted for more people than the number of nominees
listed below. Shares represented by all proxies received by the Board of
Directors and not so marked as to withhold authority to vote for any individual
director (by writing that individual director's name where indicated on the
proxy) or for all directors will be voted FOR the election of all the nominees
named below. If one or more nominees are unable or unwilling to serve, which is
not anticipated, the persons named in the accompanying proxy will vote for such
substitutes as management may recommend. Should management not recommend a
substitute for any nominee, the proxy will be voted for the election of the
remaining nominees.
The Board of Directors knows of no reason why any such nominee would be
unable or unwilling to serve, but if such should be the case, proxies may be
voted for the election of some other person.
The Board of Directors held five (5) meetings during the year ended
December 31, 2000. Each Director attended more than 75% of all meetings held by
the Board of Directors in the 2000 fiscal year during their respective tenures
as directors.
The Compensation and Stock Option Committee of the Board of Directors
(the "Compensation Committee"), of which Messrs. Giler, Mark and Wagner are
currently members, determines who should receive stock options under the
Company's various stock plans and also reviews and recommends officer
compensation, including salary and bonus plans. The Compensation Committee held
four (4) meetings during the 2000 fiscal year.
The Audit Committee of the Board of Directors at year end was composed
of Messrs. Deninger, Lenihan and Mark. The principal functions of the Audit
Committee include overseeing the performance and reviewing the scope of the
audit function of the Company's independent auditors. The Audit Committee also
reviews, among other things, audit plans and procedures, various accounting and
financial reporting issues, and changes in accounting policies. The Audit
Committee held two (2) meetings during the 2000 fiscal year.
Each Director attended all of the committee meetings held in the 2000
fiscal year during their respective tenure as a member of such committees.
Occupations and Biographies of Directors and Nominees
Barry N. Bycoff, 52 years old, was appointed President and Chief Executive
Officer and Director of the Company in April 1993. In November 1999, Mr. Bycoff
was also appointed Chairman of the Board. From December 1991 to December 1992,
during his tenure at MapInfo Corporation, a provider of desktop mapping
software, he held positions as Chief Operating Officer, Senior Vice President of
Sales and Marketing, and Director. From January 1984 to October 1991, he
successfully ran a number of business units for Prime Computer Inc., a
manufacturer of mainframe and minicomputer systems, holding such positions as
Vice President-Marketing in the Computer Systems Business Unit, Vice
President-General Purpose Product Line, Vice President-Prime Information
Business Group, Director-Finance and Administration/Worldwide Sales and
Director-Corporate Planning and Analysis. Prior to that, Mr. Bycoff held various
management positions at Gillette Company from November 1973 to December 1983.
Ralph B. Wagner, 67 years old, became a Director of the Company in
September 1992. Mr. Wagner is a Director and co-founder of icomXpress, Inc., a
company producing Workflow Software for electronic commerce applications. He is
a principal of Walnut Venture Associates, an early state technology funding
partnership. Mr. Wagner serves as a director of several private companies
including Collego Corporation, a provider of XML-based content and catalog
management software; DYS Analytics, a developer, manufacturer and marketer of
software programs; and Softrax, a software developer specializing in software
for the Software Industry.
Michael L. Mark, 55 years old, became a Director of the Company in October
1994. Mr. Mark is a private investor and member of Walnut Venture Associates.
Previously, he served as Vice President, System Integration at Interleaf, Inc.,
an electronic publishing software developer, and was Vice President and
co-founder of Cadmus Computer Corporation, a workstation manufacturer. Mr. Mark
also serves as a director of Progress Software Corporation, a manufacturer of
software development tools, and two other private companies.
Eric R. Giler, 45 years old, became a Director of the Company in December
1996. Mr. Giler is founder and since 1984 has been President and Director of
Brooktrout Technology, Inc., a leading supplier of advanced software and
hardware products in the electronic messaging market. Prior to founding
Brooktrout, he worked primarily in the area of technical marketing and sales as
a product manager with Teradyne, Inc. and an applications engineer manager for
Intec Corporation. Mr. Giler serves on the boards of the MIT Enterprise Forum,
the Massachusetts Telecommunications Council and the New England-Israel Chamber
of Commerce. Mr. Giler is also a member of both the American Electronics
Association and the Massachusetts Computer Software Council.
Paul F. Deninger, 42 years old, became a Director of the Company in
February 2000. Mr. Deninger is Chairman and CEO of Broadview Holdings LLP, a
merger and acquisition advisor and private equity investing firm. He joined
Broadview in 1987 after several years in the software industry. Mr. Deninger was
elected Managing Director in 1991, CEO in 1996 and Chairman in 1997. Mr.
Deninger serves on the Board of Directors of the Boston Globe Newspaper; TechNet
Mass, a bipartisan political organization serving the interests of the
technology industry; and the Advisory Board of the Media and Technology Charter
High School in Boston.
Lawrence D. Lenihan, Jr., 36 years old, became a Director of the Company in
November 2000. Mr. Lenihan is a Managing Director co-manager of Pequot Capital
Management, Inc., a venture capital fund management company. Prior to joining
Pequot in 1996, he was a principal of Broadview Associates L.L.C., a technology
oriented investment banking firm. Prior to joining Broadview, he held several
positions at IBM, including as the leader of the interactive multimedia software
product business. Mr. Lenihan also serves on the Board of Directors of Digital
Generation Systems, Inc., a software company focused on physical distribution
and post-production services for audio and video content; Mediaplex, Inc., an
advertising technology company; U.S. Search.com, Inc.; an online provider of
public record information about individuals and companies; and several other
private companies.
The Board of Directors Recommends a Vote for the Election
of the Above Nominees.
Occupation and Biography of Executive Officers
James E. Hayden, 47 years old, joined the Company as Vice President and
Chief Financial Officer and Treasurer of the Company in April 1998. From 1994 to
1998, he was with Computervision Corporation, a software and service company,
serving as Principal Accounting Officer (and Acting Chief Financial Officer in
1997) and Director of Finance for Worldwide Field Operations from 1993 to 1994.
From 1989 to 1993, he served as Finance Director for Prime
Computer/Computervision's Northern European Region. From 1986 to 1989, he served
in various finance management positions for Prime Computer/Computervision.
James Rosen, 47 years old, joined the Company as Vice President
Business Development in April 1997. From 1995 to 1997, he was Director of
Business Alliances at BBN Planet Corporation, an internet services provider, now
GTE Internetworking. From 1991 to 1995, Mr. Rosen held various positions at
Lotus Development Corporation, including Director of Stategic Alliances, Senior
Manager of Lotus Notes Alliance Partner Program, and Senior Manager of Notes
Product Management. From 1985 to 1991, he was a co-founder and held senior
management positions, including Executive Vice President, Vice President and
Vice President of Systems Integration for LanSystems, Inc., a system integration
and software firm.
Deepak Taneja, 40 years old, joined the Company as Vice President
Engineering Development in January 1998. From 1996 to 1998, he was Director of
Development for Switchboard, Inc. an Internet directory services firm. From 1988
to 1996, Mr. Taneja held various positions at Banyan Systems, Inc., a developer
of network software products, including Director of Development for Messaging
Products and Director of Development for Network and Systems Management
products. From June 1983 to November 1987, he was a Senior Engineer with Intel
Corporation.
Thomas Palka, 59 years old, joined the Company as Vice President Sales
in September 1998. From 1997 to 1998, he was Vice President of Worldwide Sales &
Consulting Services for VenturCom Software, a developer of software tools for
the embedded and real-time market. From 1991 to 1997, Mr. Palka was with Ardent
Software, a database, data warehouse, and development tools company, where he
served as Vice President of Worldwide Sales from 1991 to 1995 and Vice President
of Marketing from 1996 to 1997. From 1990 to 1991, he was Vice President of
North American Sales at Data General Corporation, and from 1981 to 1990, he was
Vice President of North American Sales at Prime Computer, Inc., a manufacturer
of mainframe and minicomputer systems.
William Bartow, 38, joined the Company as Vice President Marketing in
October 1999. From August 1998 to October 1999, he was Vice President of
Marketing and Engineering at the internet division of Powersoft Corporation, a
subsidiary of Sybase, Inc. Mr. Bartow was employed by Powersoft Corporation as
Director of the Power Builder Product Line from July 1996 to July 1998 and as
Power Builder Product Marketing Manager from July 1995 to July 1996. From June
1994 to July 1995, he was a senior product manager at Lotus Development
Corporation.
Under the Company's Amended and Restated By-Laws, officers are elected
annually.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1996, Mr. Bycoff exercised an option to purchase 200,000 shares of
the Company's Common Stock at a price of $1.00 per share. The Company's Board of
Directors approved a loan to Mr. Bycoff as payment for this transaction. Mr.
Bycoff issued the Company a full recourse note that is secured by the 200,000
shares of Common Stock. This note has an interest rate of 7% per annum and is
due and payable on demand by the Company in the discretion of the Board of
Directors. Mr. Bycoff has repaid $70,000 on principal and interest on the Note
as of February 28, 2001.
The Board of Directors has adopted a policy that all transactions between
the Company and its officers, directors and principal stockholders or any
affiliates thereof will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties. Such transactions will also be
approved by a majority of the disinterested, outside directors. All loans to
Company officers will also be approved by a majority of the disinterested,
outside directors.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
Executive Compensation
The following table sets forth the annual and long-term compensation
for services in all capacities to the Company for the Company's most recent
three years ended December 31, 2000, of those persons who (i) served as the
Chief Executive Officer of the Company during any part of the year ended
December 31, 2000, and (ii) the four most highly compensated executive officers
of the Company at December 31, 2000 whose annual compensation and bonus exceeded
$100,000 (the "Named Officers"):
Long-Term Compensation Awards (2)
Calendar Annual Compensation (1) Options/ Restricted
Name and Principal Position Year Salary($) Bonus($) SARs(#) Stock
Awards($)
Barry N. Bycoff 2000 $250,000 $250,000 0 0
Chairman, Chief Executive Officer, 1999 190,000 216,310 450,000 0
President & Director 1998 166,666 0 195,000 0
James E. Hayden 2000 $170,000 $98,125 0 0
Vice President of Finance and 1999 130,000 43,245 150,000 0
Administration, Chief Financial Officer and 1998 81,458 0 315,000 0
Treasurer
James Rosen 2000 $150,000 $58,763 0 0
Vice President of Marketing and Business 1999 122,500 26,419 150,000 0
Development 1998 112,500 0 105,000 0
Deepak Taneja 2000 $170,000 $97,150 0 0
Vice President of Development 1999 135,000 43,020 150,000 0
1998 123,157 35,000 345,000 0
Thomas Palka 2000 $150,000 $118,645 0 0
Vice President of Sales and Service 1999 150,000 63,145 150,000 0
1998 42,115 0 300,000 0
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(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer is less than the lesser of $50,000 or 10% of
the total salary and bonus reported.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights ("SARs") or make any long-term incentive plan payouts during the three
years ended December 31, 2000.
OPTION GRANTS IN THE LAST FISCAL YEAR
The Company did not grant any stock options pursuant to either the
Company's 1994 Stock Option Plan, 1997 Stock Option Plan or 2000 Stock Option
Plan (the "Employee Option Plans") during the fiscal year ended December 31,
2000 to the Named Officers.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options to
purchase the Company's Common Stock granted to the Named Officers under the
Company's Employee Option Plans, including (i) the number of shares purchased
upon exercise of options in the most recent fiscal year, (ii) the net value
realized upon such exercise, (iii) the number of unexercised options outstanding
at December 31, 2000, and (iv) the value of such unexercised options at December
31, 2000:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
DECEMBER 31, 2000 OPTION VALUES
Name Shares Value Number of Unexercised Options at Value of Unexercised In-the-money
Acquired On Exercise Realized($) December 31, 2000(#) Options at December 31, 2000($)(1)
Exercisable Unexercisable Exercisable Unexercisable
Barry N. Bycoff 510,000 $24,182,400 883,650 352,800 $43,016,965 $6,962,814
James E. Hayden 142,350 7,667,958 179,850 127,800 8,204,981 2,847,569
Tom Palka 127,500 7,263,720 157,500 150,000 7,056,675 4,048,500
Deepak Taneja 211,650 11,535,610 104,850 163,500 4,263,956 4,734,717
James Rosen 139,950 7,725,200 139,350 148,201 6,103,600 3,924,498
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(1) Value is based on the difference between option exercise price
and the fair market value at 2000 fiscal year-end ($54.38 per
share, the closing price on the Nasdaq National Market on
December 31, 2000) multiplied by the number of shares
underlying the option.
COMPENSATION OF DIRECTORS
As compensation for serving on the Board of Directors, each
non-employee director is paid his expenses by the Company for each quarter
during which they attend meetings. In addition, the Company's policy to
compensate each non-employee director at a rate of $1,500 for each quarter.
Depending on certain eligibility requirements, each non-employee
director of the Company has participated in several stock option plans,
including the Company's 1991 Non-Employee Director Stock Option Plan, 1993
Non-Employee Director Stock Option Plan, 1994 Non-Employee Director Plan and
1997 Non-Employee Director Plan (together, the "Director Plans"). The Director
Plans authorized grants of stock options to members of the Company's Board of
Directors who are neither an employee or officer of the Company. In Fiscal 2000,
no options were granted pursuant to the Director Plans. Messrs. Deninger, Giler,
Mark and Wagner were, however, granted options to purchase 51,375, 15,000,
15,000 and 15,000 shares, respectively, pursuant to the Company's 2000 Stock
Option Plan during Fiscal 2000.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION(1)
The Company's executive compensation program is administered by the
Compensation and Stock Option Committee of the Board of Directors, currently
consisting of Ralph Wagner, as Chairman, Eric Giler and Michael L. Mark (the
"Compensation Committee"). All members of the Compensation Committee are
non-employee directors. Pursuant to the authority delegated by the Board of
Directors, the Compensation Committee establishes each year the compensation of
senior management, including approval of annual salaries and bonuses, the review
and approval of bonus plans for executive officers, as well as the grant of
stock options to officers, employees and consultants.
One of the Company's primary business objectives is to maximize
long-term stockholder returns. To achieve this objective, the Company believes
it is necessary to attract, retain and motivate qualified executives in a
competitive industry. The Compensation Committee and the Board of Directors
therefore apply the philosophy that compensation of executive officers,
specifically including that of the Chief Executive Officer and President, should
be linked to revenue growth, profitability, earnings per share performance, and
long-term increase in stock price and quality of earnings.
Establishing compensation programs generally and determining the
compensation of individual executive officers are complex matters involving
numerous issues and a variety of data. The approach of the Compensation
Committee is primarily subjective in nature. The Compensation Committee
identifies relevant factors to be considered, such as the need to be competitive
in the market for executive talent, retain and motivate existing officers with
competitive salary and option programs and to provide incentives and rewards for
individual and corporate performance. However, the Compensation Committee
maintains a flexible approach that is based on the exercise of judgment and
discretion and reflects the Company's entrepreneurial operating environment and
long-term performance orientation. Precise formulas, targets or goals are not
utilized and specific weights are not assigned to the various factors. The
Compensation Committee focuses on the Company's goal of long-term enhancement of
stockholder value by stressing long-term goals and by using stock-based
incentive programs with extended vesting schedules. The Compensation Committee
believes the use of such incentives to retain and motivate individuals who have
developed the skills and expertise required to lead the Company is key to the
Company's success.
Under the supervision of the Compensation Committee, the Company has
developed and implemented certain compensation policies. The Compensation
Committee's executive compensation policies are designed to (i) enhance
profitability of the Company and shareholder value, (ii) integrate compensation
with the Company's annual and long-term performance goals, (iii) reward
corporate performance, (iv) recognize individual initiative, achievement and
hard work, (v) assist the Company in attracting and retaining qualified
executive officers and (vi) retain and motivate existing officers to perform.
Compensation is comprised of cash compensation in the form of annual base salary
and performance-based bonuses and long-term incentive compensation in the form
of stock options.
In setting cash compensation levels for executive officers (including
the Chief Executive Officer), the Compensation Committee prepares a salary
review annually. The base salaries are fixed at levels comparable to the amounts
paid to senior executives with comparable qualifications, experience and
responsibilities at other technology companies located in the northeastern
United States with approximately the same number of employees as the Company and
engaged in similar businesses to that of the Company. Nonetheless, since the
Company believes that those organizations that are constituents of the Nasdaq
Computer Software Index used in the performance graph on page [____] include
companies which may not be similar to the Company, the Company believes it is
appropriate to attempt to establish salaries consistent with those of fewer and
more comparable companies, which the Company nonetheless believes are
represented in the performance graph. Although the Compensation Committee
reviews such information for general guidance, it does not specifically target
compensation of the executive officers to compensation levels at other
companies.
The compensation for Barry N. Bycoff, the Chief Executive Officer and
President of the Company, is designed to reward performance that enhances
shareholder value. Financial goals are based on the achievement of significant
increases in net income as specified in the Company's annual operating plan. The
plan establishes milestones for revenue growth and operating expenses. The cash
compensation package is comprised of base pay, which is not related to the
performance of the Company, and with an opportunity for a bonus based on the
achievement of certain profitability milestones. Both components are affected by
the Company's revenue growth, market share growth, profitability, quality of
earnings and growth in earnings per share. Mr. Bycoff's annual bonus of
$250,000, for the fiscal year ended December 31, 2000, was based upon the
achievement by the Company of pre-determined targets set for the fiscal year and
Mr. Bycoff's role in achieving those targets.
The compensation program for the remaining members of the executive
group is based upon the attainment of objectives for profitability similar to
the Chief Executive Officer. Bonus amounts are predicated upon improvement in
Company operating performance as well as attainment of planned objectives. In
the past, the Chief Executive Officer and President has made recommendations to
the Compensation Committee regarding the planned objectives and executive
compensation levels. For fiscal year ended December 31, 2000, bonuses were paid
to executive officers based on the achievement of certain objectives and on the
Compensation Committee's qualitative assessment of performance. The overall
plans and operating performance levels upon which management compensation is
based are approved by the Compensation Committee on an annual basis.
The Compensation Committee relies on incentive compensation in the form
of performance-based bonuses and stock options to retain and motivate executive
officers. Incentive compensation in the form of performance-based bonuses for
the Chief Executive Officer and the Company's other executive officers is based
upon management's success in meeting the Company's financial and strategic
goals. The plan establishes milestones for revenue growth and operating
expenses. Strategic goals focus on increasing market share and Company growth
and improving the Company's strategic position in the market and the quality of
earnings.
Incentive compensation in the form of stock options is designed to
provide long-term incentives to executive officers and other employees, to
encourage the executive officers and other employees to remain with the Company
and to enable optionees to develop and maintain a significant, long-term stock
ownership position in the Company's Common Stock, which in turn motivates the
recipient to focus on long-term enhancement in stockholder value. The Company's
2000 Stock Option Plan, administered by the Compensation Committee, is the
vehicle for the granting of stock options.
Factors reviewed by the Compensation Committee in determining whether
to grant options are similar to those considered in determining salaries and
bonuses described above. Several other factors, however, such as an employee's
individual initiative, achievement and performance are also considered by the
Compensation Committee. In making specific grants to executives, the
Compensation Committee evaluates each officer's total equity compensation
package. The Compensation Committee generally reviews the option holdings of
each of the executive officers including vesting and exercise price and the then
current value of such unvested options. The Compensation Committee considers
equity compensation to be an integral part of a competitive executive
compensation package, a way to reinforce the individual's commitment to the
Company and an important mechanism to align the interests of management with
those of the Company's stockholders. The Compensation Committee determined not
to grant any options to the named officers the year ended December 31, 2001.
The Compensation Committee is satisfied that the executive officers of
the Company are dedicated to achieving significant improvements in the long-term
financial performance of the Company and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute towards achieving this goal.
This report has been submitted by the members of the Compensation
Committee: Ralph B. Wagner, as Chairman, Eric Giler and
Michael L. Mark.
PERFORMANCE GRAPH
The following graph illustrates a five year comparison of cumulative
total stockholder return among the Company, the University of Chicago's Center
for Research in Security Prices ("CRSP") Index for the Nasdaq Stock Market and
the CRSP Index for the Nasdaq Computer Software Industry Index. The comparison
assumes $100 was invested on December 31, 1992 in the Company's Common Stock and
in each of the foregoing indices and assumes reinvestment of dividends, if any.
[CHART TO BE INCLUDED]
PROPOSAL TO INCREASE THE SHARES RESERVED FOR ISSUANCE UNDER
THE 2000 STOCK INCENTIVE PLAN TO 6,500,000 SHARES
There will be presented at the meeting a proposal to approve an
amendment of the Company's 2000 Stock Incentive Plan (the "2000 Plan") which
amendment was approved by the Board of Directors on March 9, 2001, whereby the
number of shares reserved for issuance under the 2000 Plan was increased from
3,000,000 shares of Common Stock to 6,500,000 shares of Common Stock. At
February 28, 2001, options for the purchase of 2,527,613 shares of Common Stock
were outstanding under the 2000 Plan.
The Board of Directors Recommends a Vote for the Proposed Increase in Shares
Reserved for Issuance Under the 2000 Plan to 6,500,000 Shares
PROPOSAL TO INCREASE AUTOMATICALLY ON AN ANNUAL BASIS THE
SHARES RESERVED FOR ISSUANCE UNDER THE 2000 STOCK INCENTIVE PLAN
There will be presented at the meeting a proposal to approve an
amendment to the 2000 Plan, which amendment was approved by the Board of
Directors on March 9, 2001, whereby the number of shares reserved for issuance
under the 2000 Plan would increase automatically on an annual basis. Effective
January 1, 2002 and each January 1 thereafter during the term of the 2000 Plan,
the maximum number of shares of Common Stock available for grants of stock
options and stock awards made after such January 1 under the 2000 Plan shall be
increased automatically to an amount equal to 4.5% of the total number of issued
and outstanding shares of Common Stock (including shares held in treasury) as of
the close of business on December 31 of the preceding year, such additional
amount being subject to downward adjustment by the Board of Directors.
Notwithstanding the foregoing, the maximum cumulative number of shares of Common
Stock available for grants of Incentive Stock Options under the 2000 Plan shall
be 6,500,000.
The Board of Directors Recommends a Vote for the Proposal to Increase
Automatically on an Annual Basis the Shares Reserved for Issuance under the
2000 Plan
THE 2000 STOCK INCENTIVE PLAN
Set forth below is a summary of the principal provisions of the 2000
Plan, a copy of which may be obtained from the Secretary of the Company.
General
The 2000 Plan is intended to attract and retain key employees,
directors and consultants of the Company, to provide an incentive for them to
achieve long-range performance goals and to enable them to participate in the
long-term growth of the Company. Under the 2000 Plan, incentive stock options
may be granted to employees and officers of the Company or any subsidiary and
non-qualified stock options may be granted to employees, officers, directors and
consultants of the Company or any subsidiary.
The shares issued pursuant to the 2000 Plan shall be either shares of
the company's authorized but unissued Common Stock or shares of Common Stock
reacquired by the Company and held as treasury shares. The number of shares
issuable under the 2000 Plan is subject to appropriate adjustment in the event
of a stock split, a subdivision or consolidation of shares of Common Stock,
capital adjustments or payments of stock dividends or distributions or other
increases or decreases in the outstanding shares of Common Stock effected
without receipt of consideration by the Company.
Administration
The 2000 Plan is administered by the Compensation Committee of the
Board of Directors, subject to the supervision and control of the entire Board.
The members of the Compensation Committee are appointed by the Board of
Directors, and the Board may from time to time appoint a member or members of
the Compensation Committee in substitution for or in addition to the member or
members then in office and may fill vacancies on the Compensation Committee
however caused. The present members of the Compensation Committee are Messrs.
Wagner, Giler and Mark.
Eligibility
Subject to the provisions of the 2000 Plan, the Compensation Committee
has the authority to select optionees and to determine the terms of the options
granted, including (i) the number of shares subject to each option, (ii) when
the option becomes exercisable, (iii) the exercise price of the option, (iv) the
duration of the option (which in the case of an incentive stock option granted
to employees or officers holding 10% or more of the voting stock of the Company
cannot be in excess of five years), and (v) the time, manner and form of payment
upon exercise of an option.
In determining the eligibility of an individual to be granted an
option, as well as in determining the number of shares to be optioned to any
individual, the Compensation Committee takes into account the position and
responsibilities of the individual being considered, the nature and value to the
Company or its subsidiaries of the individual's service and accomplishments, his
or her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Compensation Committee deems
relevant.
Terms of Options
Options granted under the 2000 Plan are exercisable at such times and
during such period as is set forth in the option agreement, but cannot have a
term in excess of ten years from the date of grant. The Compensation Committee
is entitled to accelerate the date of exercise of any installment of any option,
except that without the consent of the optionee, the Compensation Committee
shall not accelerate the exercise date of any installment of any incentive stock
option if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Internal Revenue Code of 1986, as amended
(the "Code"). The option agreement may contain such provisions and conditions as
may be determined by the Compensation Committee. The option exercise price for
options designated as non-qualified stock options granted under the 2000 Plan is
determined by the Compensation Committee. The option exercise price for
incentive stock options granted under the 2000 Plan shall be no less than fair
market value of the Common Stock of the Company at the time the option is
granted and no less than 110% of the fair market value in the case of employees
or officers holding 10% or more of the voting stock of the Company. Options
granted under the 2000 Plan may provide for the payment of the exercise price by
delivery of cash or a check payable to the Company or shares of Common Stock of
the Company owned by the optionee having a fair market value equal in amount to
the exercise price of the options being exercised, or any combination thereof.
The maximum number of shares of Common Stock with respect to which an option or
options may be granted to any employee in any one calendar year cannot exceed
750,000 shares.
An option is not transferable by the optionee except by will or by the
laws of descent and distribution; provided, however, that the Compensation
Committee may permit the further transferability on a general or specific basis.
Options are exercisable only while the optionee remains in the employ of the
Company or for a limited period of time thereafter.
Termination or Amendment of the 2000 Plan
Unless sooner terminated, the 2000 Plan shall terminate on January 3,
2010, ten years from the date on which the 2000 Plan was adopted by the Board of
Directors of the Company. The Board of Directors may at any time terminate the
2000 Plan or make such modification or amendment as it deems advisable;
provided, however, that the Board of Directors may not, without stockholder
approval, increase the maximum number of shares for which options may be granted
or change the designation of the class of persons eligible to receive options
under the 2000 Plan or make any other change in the 2000 Plan which requires
stockholder approval under applicable law or regulations. The Compensation
Committee may terminate, amend or modify any outstanding option without the
consent of the option holder, provided however that, without the consent of the
optionee, the Compensation Committee shall not change the number of shares
subject to an option, or the exercise price or term thereof.
Recapitalization, Reorganization and Other Events
The 2000 Plan provides that the number and kind of shares as to which
options may be granted thereunder and as to which outstanding options then
unexercised shall be exercisable shall be adjusted to prevent dilution in the
event of any reorganization or recapitalization (other than as the result of an
Acquisition, as such term is hereinafter defined), reclassification, stock
subdivision, combination of shares or dividends payable in capital stock. If the
Company is to be consolidated with or acquired by another entity in a merger or
in a sale of all or substantially all of the Company's assets or otherwise (an
"Acquisition"), the Compensation Committee or the Board of Directors of any
entity assuming the obligations of the Company (the "Successor Board"), shall,
as to outstanding options, either (i) make appropriate provision for the
continuation of such options by substituting on an equitable basis for the
shares then subject to such options the consideration payable with respect to
the outstanding shares of Common Stock in connection with the Acquisition, (ii)
upon written notice to the optionees, provide that all options must be exercised
(to the extent then exercisable) within a specified number of days of the date
of such notice, at the end of which period the options shall terminate, or (iii)
terminate all options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such options (to the extent then
exercisable) over the exercise price thereof.
Upon dissolution or liquidation of the Company, all options granted under the
2000 Plan shall terminate.
Tax Effects of Participation in the 2000 Plan
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. In addition, if the optionee
holds the shares received pursuant to the exercise of the option for more than
one year after the date of transfer of stock to the optionee upon exercise of
the option and for more than two years after the option is granted, the optionee
will recognize long-term capital gain or loss upon the disposition of the stock
measured by the difference between the option exercise price and the amount
received for such shares upon disposition.
In the event that the optionee disposes of the stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will recognize ordinary income to the extent of the lesser of
(i) the fair market value of the stock at the time of exercise over the exercise
price, or (ii) the amount received for the stock upon disposition over the
exercise price. The basis in the stock acquired upon exercise of the option will
equal the amount of income recognized by the optionee plus the option exercise
price. Upon eventual disposition of the stock, the optionee will recognize
long-term or short-term capital gain or loss, depending on the holding period of
the stock and the difference between the amount realized by the optionee upon
disposition of the stock and his basis in the stock.
For alternative minimum tax purposes, the excess of the fair market
value of stock on the date of the exercise of the incentive stock option over
the exercise price of the option is included in alternative minimum taxable
income for alternative minimum tax purposes. If the alternative minimum tax does
apply to the optionee, an alternative minimum tax credit may reduce the regular
tax upon eventual disposition of the stock.
The Company will not be allowed an income tax deduction upon the grant
or exercise of an incentive stock option. Upon a disqualifying disposition of
shares by the optionee acquired upon exercise of the incentive stock option, the
Company generally will be allowed a deduction in an amount equal to the ordinary
income recognized by the optionee.
Under proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired stock of the Company will be
treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will retain
the basis and, except, as provided below, the holding periods of the previously
acquired shares. The second transaction will be the issuance of additional new
shares having a value equal to the difference between the aggregate fair market
value of all of the new shares being acquired and the aggregate option exercise
price for those shares. Because the exercise of an incentive stock option does
not result in the recognition by the optionee of income, this issuance will also
be tax-free (unless the alternative minimum tax applies, as described above).
The optionee's basis in these additional shares will be zero and the optionee's
holding period for these shares will commence on the date on which the shares
are transferred. For purposes of the one and two-year holding period
requirements which must be met for favorable incentive stock option tax
treatment to apply, the holding periods of previously acquired shares are
disregarded.
Non-Qualified Stock Options. As in the case of incentive stock options,
no income is recognized by the optionee on the grant of a nonqualified stock
option. On the exercise by an optionee of a non-qualified option, generally the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) generally deductible for income tax purposes by the Company. The
optionee's tax basis in his stock will equal his cost for the stock plus the
amount of ordinary income he had to recognize with respect to the non-qualified
stock option.
The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already owned stock of the Company as two transactions. First,
there will be a tax-free exchange of the old shares for a like number of new
shares under Section 1036 of the Code, with the exchanged shares retaining the
basis and holding periods of the old shares. Second, there will be an issuance
of additional new shares representing the spread between the fair market value
of all the new shares (including the exchanged shares and the additional new
shares) and the aggregate option price therefor. The fair market value of the
additional new shares will be taxable as ordinary income to the employee under
Section 83 of the Code. The additional new shares will have a basis equal to the
fair market value of the additional new shares.
Accordingly, upon a subsequent disposition of stock acquired upon the
exercise of a non-qualified option, the optionee will recognize short-term or
long-term capital gain or loss, depending upon the holding period of the stock
equal to the difference between the amount realized upon disposition of the
stock by the optionee and his basis in the stock.
New Plan Benefits
It is not possible to state the persons who will receive stock options
under the 2000 Plan in the future, nor the amount of options which will be
granted thereunder.
PROPOSAL TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION
On March 3, 2001 the Board of Directors adopted an amendment to the
Restated Certificate of Incorporation, subject to approval by the stockholders,
to increase the number of authorized shares of capital stock from 60,000,000
shares, of which 5,000,000 shares are Preferred Stock, to 140,000,000, including
the same 5,000,000 shares of Preferred Stock, and increasing the shares of
Common Stock from 55,000,000 to 135,000,000. The Board of Directors also
directed that the proposed amendment be submitted for action at the Annual
Meeting of Stockholders to be held on May 17, 2001.
Increase the Number of Shares of Common Stock
The Company's Restated Certificate of Incorporation currently
authorizes the issuance of a total of 60,000,000 shares, consisting of
55,000,000 shares of Common Stock, par value $.01 per share, and 5,000,000
shares of Preferred Stock, par value $.01 per share. The proposed amendment (the
"Amendment") will increase the total number of authorized shares to 140,000,000
and the number of shares of Common Stock authorized to 135,000,000. The
Amendment will not change the currently authorized number of shares of Preferred
Stock, which will remain set at 5,000,000. The Amendment will modify the first
paragraph of Article FOURTH of the Restated Certificate of Incorporation to read
as follows:
FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is140,000,000
shares, consisting of 135,000,000 shares of Common Stock with a par
value of $.01 per share (herein called the "Common Stock"), and
5,000,000 shares of Preferred Stock with a par value of $.01 per share
(herein called the "Preferred Stock").
Purpose and Effect of the Proposed Amendment
The Board of Directors believes that it is in the Company's best
interests to increase the number of shares of Common Stock that the Company is
authorized to issue. The Board of Directors believes that the availability of
additional authorized but unissued shares will provide the Company with the
flexibility to issue Common Stock for proper corporate purposes which may be
identified in the future, such as to raise equity capital, to make acquisitions
through the use of stock, to establish strategic relationships with other
companies, to adopt additional employee benefit plans or reserve additional
shares for issuance under such plans and to effect stock splits, where the Board
of Directors determines it advisable to do so. Other than the proposals set
forth in this proxy regarding the 2000 Plan, the Board of Directors is not
actively considering any of these corporate purposes.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock now authorized. Adoption of the
Amendment and the issuance of Common Stock would not affect the rights of
holders of currently outstanding Common Stock, except for effects incidental to
increasing the number of shares of Common Stock outstanding. Holders of Common
Stock do not have preemptive rights to subscribe to additional securities that
may be issued by the Company, which means that current stockholders do not have
a prior right to purchase any new issue of capital stock of the Company in order
to maintain their proportionate ownership thereof. In addition, if the Board of
Directors elects to issue additional shares of Common Stock, such issuance could
have a dilutive effect on earnings per share, voting power and share holdings of
current stockholders. If the Amendment is adopted, it will become effective upon
the filing of the proposed amendment with the Delaware Secretary of State.
The proposed Amendment could, under certain circumstances, have an
anti-takeover effect. For example, in the event of an attempt to take control of
the Company, it may be possible for the Company to endeavor to impede the
attempt by issuing shares of the Common Stock, thereby diluting the voting power
of the other outstanding shares and increasing the potential cost to acquire
control of the Company. The Amendment therefore may have the effect of
discouraging unsolicited takeover attempts. By potentially discouraging
initiation of any such unsolicited takeover attempt, the proposed Amendment may
limit the opportunity for the Company 's stockholders to dispose of their shares
at the higher price generally available in takeover attempts or that may be
available under a merger proposal. The proposed Amendment may have the effect of
permitting the Company 's current management, including the current Board of
Directors, to retain its position, and place it in a better position to resist
changes that stockholders may wish to make if they are dissatisfied with the
conduct of the Company 's business. However, the Board of Directors is not
currently aware of any attempt to take control of the Company and the Board of
Directors has not presented this proposal in response to any such attempt.
The Board of Directors Recommends a Vote for the Proposed Amendment to the
Restated Certificate of Incorporation
AMENDMENT TO AMENDED AND RESTATED BY-LAWS
Article IX of the Company's Amended and Restated Bylaws ("ByLaws")
requires the Company to provide notice to its stockholders with respect to any
amendments made to the ByLaws. The Board of Directors has amended the ByLaws
with respect to the provisions relating to annual meetings of stockholders as
set forth below. Previously, the ByLaws required that the Annual Meeting be held
on the third Friday in September of each year. Copies of the ByLaws, as amended,
are available from the Secretary of the Company upon request.
Annual Meeting. Annual meetings of stockholders shall be held on such
date and time as shall be designated from time to time by the Board of Directors
or Chief Executive Officer, at which meeting the stockholders shall elect by a
plurality vote a Board of Directors and shall transact such other businesses as
may properly be brought before the meeting.
REPORT OF THE AUDIT COMMITTEE (1)
The following is the report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2000.
The Audit Committee has reviewed and discussed the Company's audited
financial statements with management. The Audit Committee has discussed with
PricewaterhouseCoopers LLP, the Company's independent accountants, the matters
required to be discussed by Statement of Auditing Standards No. 61,
Communication with Audit Committees which provides that certain matters related
to the conduct of the audit of the Company's financial statements are to be
communicated to the Audit Committee. The Audit Committee has also received the
written disclosures and the letter from Arthur Andersen LLP required by
Independence Standards Board Standard No. 1 relating to the accountant's
independence from the Company, has discussed with PricewaterhouseCoopers LLP
their independence from the Company, and has considered the compatibility of
non-audit services with the accountant's independence.
The Audit Committee acts pursuant to the Audit Committee Charter, a
copy of which is attached as Appendix "A" to this Proxy Statement. Each of the
members of the Audit Committee qualifies as an "independent" Director under the
current listing standards of Nasdaq.
Fees charged by PricewaterhouseCoopers LLP for services rendered in
auditing the Company's annual financial statements for the most recent fiscal
year and reviewing the financial statements included in the Company's quarterly
reports on Form 10-Q for the most recent fiscal year, as well as the fees
charged by PricewaterhouseCoopers LLP for other professional services rendered
during the most recent fiscal year are as follows: Audit fees of $66,900 and tax
service fees of $28,850.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Company's Board of Directors that the Company's
audited financial statements be included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2000.
AUDIT COMMITTEE
Paul F. Deninger, Chairman
Lawrence D. Lenihan, Jr.
Michael L. Mark
INDEPENDENT PUBLIC ACCOUNTANTS
On March 13, 2001, the Company terminated the engagement of
PricewaterhouseCoopers LLP ("PwC") as the Company's independent public
accountants. This decision was approved by the Audit Committee of The Company's
Board of Directors and by the Board of Directors. PwC's report on the Company's
financial statements for the fiscal years ended December 31, 1999 and December
31, 2000 did not contain an adverse opinion, a disclaimer of opinion or any
qualifications or modifications related to uncertainty, limitation of audit
scope or application of accounting principles. During the fiscal years ended
December 31, 1999 and December 31, 2000 and through the date of termination of
the engagement, there were no disagreements with PwC on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure with respect to the Company's financial statements that, if not
resolved to PwC's satisfaction, would have caused PwC to make reference to the
subject matter of the disagreement in connection with PwC's reports.
During the fiscal years ended December 31, 1999 and December 31, 2000
and through the date of termination of the engagement, there were no reportable
events as defined in Item 304(a)(1)(v) of Regulation S-K promulgated by the
Securities and Exchange Commission (the "Commission").
On March 13, 2001, the Company engaged Arthur Andersen LLP ("AA") as
its independent public accountants for the fiscal year ending December 31, 2001.
The engagement was approved by the Audit Committee of the Company's Board of
Directors and by the Board of Directors. The Company did not consult with AA
during the fiscal years ended December 31, 1999 and December 31, 2000 nor during
the subsequent period to the date of such engagement regarding either (i) the
application of accounting principles to a specified transaction or transactions,
either completed or proposed, or (ii) the type of audit opinion AA might render
on the Company's financial statements.
Representatives of both PwC and AA are expected to be present at the
annual meeting, will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers, and persons who own more
than 10% of a registered class of the Company's equity securities (collectively,
"Reporting Persons"), to file initial reports of ownership and reports of
changes in ownership of Common Stock of the Company with the Securities and
Exchange Commission (the "SEC"). Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it
with respect to fiscal 2000, or written representations from certain reporting
persons, the Company believes that all Reporting Persons complied with all
Section 16(a) filing requirements in fiscal 2000, except as follows: each of
Messrs. Bycoff, Hayden, Palka, Rosen and Wagner were late in filing two Forms 4
in fiscal 2000 and Mr. Taneja was late in filing three Forms 4 during this same
year. In the filings, Messrs. Bycoff, Hayden, Palka and Rosen had two
transactions in one month and three in the second month; Mr. Wagner had two
transactions in one month and five in the second month; and Mr. Taneja had two
transactions in one month and three in each of the other two months.
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 the Company must be received at the Company's principal executive offices not
later than December _____, 2001. In order to curtail 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.
In accordance with the provisions of Rule 14a-4(c) promulgated under
the Securities Exchange Act of 1934, if the Company does not receive notice of a
shareholder proposal to be raised at its 2002 Annual Meeting on or before
___________________, then in such event, the management proxies shall be allowed
to use their discretionary voting authority when the proposal is raised at the
2002 Annual Meeting.
OTHER BUSINESS
The Board of Directors knows of no business that will be presented for
consideration at the Meeting other than those items stated above. If any other
business should before the Meeting, votes may be cast pursuant to proxies in
respect to any such business in the best judgment of the person or persons
acting under the proxies.
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.
10-K REPORT
THE COMPANY WILL PROVIDE EACH BENEFICIAL OWNER OF ITS SECURITIES WITH A COPY OF
ITS ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES
THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR
THE COMPANY'S MOST RECENT FISCAL YEAR WITHOUT CHARGE UPON RECEIPT OF A WRITTEN
REQUEST FROM SUCH PERSON. SUCH REQUESTS SHOULD BE DIRECTED TO BARRY N. BYCOFF,
PRESIDENT AND CHIEF EXECUTIVE OFFICER, NETEGRITY, INC., 52 SECOND STREET,
WALTHAM, MASSACHUSETTS 02451.
By Order of the Board of Directors,
Barry N. Bycoff
President And Chief Executive Officer
APPENDIX 1
AUDIT COMMITTEE CHARTER
I. PURPOSE
The Audit Committee (the "Committee") has been appointed by the Board
of Directors (the "Board") to assist the Board by providing general oversight of
the Company's financial accounting and reporting process, system of internal
controls, audit process and the process for monitoring compliance with the
Company's standards of business conduct established by the Board. In so doing,
it is the responsibility of this audit committee to maintain free and open
communication among the independent accountants, the internal auditors and the
Company's management.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors, as
determined by the Board, each of whom shall be independent directors within the
meaning of applicable Nasdaq regulations. Each member of the Committee shall be
financially literate, and at least one member of the Committee shall have
accounting or related financial management expertise.
III. MEETINGS
Members of the Committee may participate in meetings of the Committee
by conference telephone and participation by such means shall constitute
presence in person at a meeting. A majority of the Committee members shall be
present to constitute a quorum for the transaction of the Committee's business.
Unless a chairman of the Committee is appointed by the Board, the members of the
Committee may designate a chair by majority vote of the full Committee
membership.
IV. RESPONSIBILITIES
The Committee shall:
1. Review this Charter at least annually.
2. Make recommendations to the full Board of Directors annually
regarding the firm of independent accountants to be employed
by the Company. The independent accountants shall ultimately
be accountable to the Board of Directors and the Committee, as
representatives of the shareholders; and the Board, after
considering the recommendation of the Committee, shall have
the ultimate authority and responsibility to select, evaluate
and, where appropriate, replace the independent accountants.
3. Annually review and approve the scope of the independent audit for the
current fiscal year and the audit fee.
4. In consultation with the independent accountants, review the integrity
of the Company's financial reporting processes, both internal and
external.
5. Take, or recommend that the full Board take, appropriate action to
oversee the independence of the independent accountants.
6. Review and discuss with the independent accountants their
annual written statement delineating all relationships between
the independent accountants and the Company, consistent with
Independence Standards Board Standard 1, and actively engage
in a dialogue with the independent accountants with respect to
any disclosed relationships or services that may impact the
objectivity and the independence of the independent
accountants, including in particular any services other than
those relating to the annual audit of the Company's financial
statements and reviews of the Company's quarterly financial
statements.
7. Review the Company's audited annual financial statements and
the independent accountants' opinion thereon. In reviewing the
Company's audited annual financial statements, confer with the
Company's independent accountants and management and consider
the following:
o Changes in accounting principles or the application
thereof; significant judgment areas; significant risks and
exposures and the steps management has taken to minimize
such risks to the Company; and significant and complex
transactions.
o The results of the independent accountants' audit for the
year, including the independent accountants' judgments on
the quality, appropriateness and consistent application of
the Company's accounting principles, disclosures and
underlying estimates in the financial statements.
o The effectiveness and adequacy of the Company's internal
accounting procedures and the effectiveness and adequacy
of internal financial controls. Particular emphasis should
be given to the adequacy of internal controls to expose
any payments, transactions, or procedures that might be
deemed illegal or otherwise improper.
o Any comments and recommendations of the independent
accountants, including any serious difficulties or
disputes with management encountered during the course of
the audit.
8. Review with management and the independent accountants the
interim financial statements and the results of the
independent accountants' review, including the independent
accountants' judgments on the quality and consistent
application of the Company's accounting principles,
disclosures and underlying estimates in the interim financial
statements.
9. Discuss with the independent accountants any audit findings
pursuant to Section 10A of the Private Litigation Reform Act
of 1995. (Among other things, this section requires each audit
to include procedures regarding detection of illegal acts,
identification of related party transactions and evaluation of
the issuer's ability to continue as a going concern.)
10. Discuss with the independent accountants the matters required
to be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit including internal
control matters, fraud, the auditor's responsibility under
generally accepted auditing standards, significant audit
adjustments and other such items.
11. Provide any recommendation, certifications and reports that may be
required by Nasdaq or the Securities and Exchange Commission. The
report required by the Securities and Exchange Commission to be
included in the Company's annual proxy statement shall affirm that the
Committee is governed by a charter and has (i) reviewed and discussed
the audited financial statements with management, (ii) discussed with
the independent accountants the matters required to be discussed by
SAS 61, (iii) received the written disclosures and the letter from the
independent accountants required by Independence Standards Board
Standard No.1 and has discussed with the independent accountants the
independent accountants' independence and (iv) recommended to the
Board that the audited financial statements be included in the
Company's Annual Report on Form 10-K.
12. Conduct or authorize investigations into any matters within
the Committee's scope of responsibilities. The Committee shall
be empowered to retain independent counsel, accountants and
others to assist it in the conduct of any investigation.
13. Provide sufficient opportunity for each of the chief financial
officer, and the independent accountants to meet separately
with members of the Audit Committee without other members of
management present. Among the matters to be discussed in these
meetings are the independent accountants' evaluation of the
Company's financial accounting personnel and the cooperation
that the independent accountants received during the course of
the audit.
--------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing
of the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as
amended, whether made before or after the date hereof and irrespective
of any general incorporation language in any such filing.
(1) The material in this report, including the Audit Committee Charter, is not
"soliciting material," is not deemed filed with the SEC and is not to be
incorporated by reference in any filing of the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing.
HWD2 886201v1
REVOCABLE PROXY
NETEGRITY, INC.
[x] PLEASE MARK VOTES AS IN THIS EXAMPLE
SPECIAL MEETING OF STOCKHOLDERS
May 17, 2001
The undersigned hereby appoints Ralph B. Wagner and Barry N. Bycoff,
and each of them, as proxies, with full power of substitution, to vote all
shares of capital stock of Netegrity, Inc. (the "Company") which the undersigned
is entitled to vote at the Special Meeting of Stockholders of the Company to be
held on Thursday, May 17, 2001, at 9:00 a.m., local time, at the offices of
Hutchins, Wheeler & Dittmar, A Professional Corporation, Suite 3100, 101 Federal
Street, Boston, Massachusetts, and at any adjournments thereof, upon the matters
set forth in the Notice of Special Meeting of Stockholders and related Proxy
Statement dated April 1, 2001, a copy of which has been received by the
undersigned.
[x] PLEASE MARK VOTES AS IN THIS EXAMPLE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE BOARD
RECOMMENDS AN AFFIRMATIVE VOTE ON ALL PROPOSALS SPECIFIED. SHARES WILL BE VOTED
AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED WILL BE VOTED
FOR PROPOSALS 1, 2, 3 AND4.
1. Election of Directors For Against Abstain
[ ] [ ] [ ]
Nominees: BARRY N. BYCOFF, RALPH B. WAGNER, MICHAEL L. MARK, ERIC R. GILER, LAWRENCE D. LENIHAN, JR. AND PAUL F. DENINGER
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S
NAME IN THE SPACE PROVIDED BELOW.
2. Approval to consider and act upon a proposal to For Against Abstain
amend the Netegrity, Inc., 2000 Stock Option Plan to increase the [ ] [ ] [ ]
number of shares of Common Stock reserved for issuance thereunder
to 6,500,000
3. Approval to consider and act upon a proposal to amend the 2000 Stock Option
Plan to increase automatically on an annual basis the number of shares of Common
Stock reserved for issuance thereunder.
4. Approval to consider and act upon a proposal to amend the Certificate of
Incorporation of the Company to increase the number of shares of Common Stock
which the Company has the authority to issue from 55,000,000 to 135,000,000
shares.
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND MEETING [ ]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THE BOARD
RECOMMENDS AN AFFIRMATIVE VOTE ON ALL PROPOSALS SPECIFIED. SHARES WILL BE VOTED
AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED WILL BE VOTED
FOR THE ELECTION OF DIRECTORS AS SET FORTH IN THE PROXY STATEMENT AND FOR
PROPOSAL 2.
Date
Please be sure to sign and date this Proxy in the box below.
Stockholder sign above - Co-holder (if any) sign above
DETACH ABOVE CARD, SIGN DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
NETEGRITY, INC.
Please sign exactly as your name(s) appear(s) on this Proxy. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
PLEASE ACT PROMPTLY
DATE AND SIGN THIS PROXY IN
THE SPACE PROVIDED AND
RETURN IT IN THE
ENCLOSED ENVELOPE
WHETHER OR NOT YOU
EXPECT TO ATTEND THE
MEETING IN PERSON.