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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-12
EVOLVE SOFTWARE, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[EVOLVE LOGO]
EVOLVE SOFTWARE, INC.
1400 65th Street
Suite 100
Emeryville, CA 94608
______________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held November __, 2001
To The Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Evolve
Software, Inc., a Delaware corporation (the "Company"), will be held
on_________, November __, 2001 at 10:00 a.m., local time, at the offices of the
Company, located at 1400 65th Street, Suite 100, Emeryville, CA 94608, for the
following purposes:
1. To elect two Class I directors to serve a term of three years or until
their successors are duly elected and qualified. The Company's Board
of Directors intends to present the following nominees for election as
directors: Cary Davis and Jeffrey M. Drazan.
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock by 90,000,000 shares, from 110,000,000 to
200,000,000 shares.
3. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to enable the holders of Preferred Stock
of the Company to act by written consent (the "Written Consent
Amendment").
4. To approve an amendment to the Company's 2000 Stock Plan to increase
the maximum number of shares of Common Stock authorized for issuance
under the plan by 10,000,000 shares, to 16,000,000 shares, exclusive
of future annual increases, and to provide that the shares authorized
for issuance under the plan be increased annually by the least of (i)
the aggregate number of shares subject to grants made in the previous
year, (ii) 15,000,000 and (iii) any lesser amount determined by our
Board of Directors.
5. To ratify the appointment of PricewaterhouseCoopers LLP as independent
public accountants of the Company for the fiscal year ending June 30,
2002.
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only holders of record of our Common Stock at the close of business on
September 27, 2001 and holders of record of our Series A Preferred Stock at the
close of business on October 10, 2001 are entitled to receive notice of and to
vote at the meeting and any adjournments. For ten days prior to the meeting,
any stockholder can examine a complete list of the registered stockholders
entitled to vote at the meeting for any purpose germane to the meeting during
ordinary business hours at our offices at 1400 65th Street, Suite 100,
Emeryville, CA 94608.
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 as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the meeting may vote in person if he or she returned a proxy.
Sincerely,
/s/ Christopher B. Boas
Christopher B. Boas
Assistant Secretary
Emeryville, California
October __, 2001
2
ANNUAL MEETING OF STOCKHOLDERS
OF
EVOLVE SOFTWARE, INC.
______________
PROXY STATEMENT
______________
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed Proxy is solicited on behalf of Evolve Software, Inc., a
Delaware corporation ("we," "us" or the "Company"), for the Annual Meeting of
Stockholders to be held on ________, November __, 2001 at 10:00 a.m., local time
(the "Annual Meeting"), at the offices of the Company, located at 1400 65th
Street, Suite 100, Emeryville, CA 94608, or any adjournment or adjournments
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Company's telephone number is (510)
428-6000. Any questions regarding the contents of this statement may be directed
to Kenneth J. Bozzini, Chief Financial Officer, of the Company.
These proxy materials were first mailed on or about October __, 2001 to all
stockholders entitled to vote at the meeting.
CERTAIN FINANCIAL INFORMATION
Please note that our financial statements and related information are
included with our Annual Report to Stockholders on Form 10-K, which is enclosed
with this Proxy Statement. These financial statements and related information
are incorporated by reference into this Proxy Statement.
VOTING SECURITIES
Only holders of record of our Common Stock as of the close of business on
September 27, 2001 (the "Record Date") and holders of record of our Series A
Preferred Stock as of the close of business on October 10, 2001 (the "Preferred
Stock Record Date") will be entitled to vote at the meeting and any adjournment.
As of the Record Date, there were 40,836,547 shares of the Company's Common
Stock issued and outstanding, and as of the Preferred Stock Record Date there
were 1,300,000 shares of the Company's Series A Preferred Stock issued and
outstanding. Stockholders may vote in person or by proxy. Each share of Common
Stock issued and outstanding as of the Record Date shall have one vote on the
matters presented herein. Each share of Series A Preferred Stock issued and
outstanding as of the Preferred Stock Record Date shall have 20 votes on the
matters presented herein. As of the Record Date, Sierra Ventures VI, L.P. and
its affiliates ("Sierra"), the Goldman Sachs Group, Inc. and its affiliates and
Vivant! Corporation held 18.8%, 6.3% and 5.4%, respectively, of our outstanding
shares of Common Stock. As of the Preferred Stock Record Date, Warburg Pincus
Private Equity VIII, L.P. ("Warburg"), Index Ventures I, L.P. and its affiliates
and Sierra held 76.9%, 11.5% and 7.7%, respectively, of our outstanding shares
of Series A Preferred Stock. We are not aware of any other holders of record of
5% or more of our outstanding Common Stock or Series A Preferred Stock. See
"Stock Ownership of Certain Beneficial Owners and Management." There is no
cumulative voting in the election of our directors.
Warburg has entered into agreements with Sierra and certain other
stockholders, including each of the directors and officers of the Company,
whereby the parties to such agreements have committed to vote in favor of the
matters set forth under "Proposal Two" below. The parties to such agreements
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with Warburg held an aggregate of 10,770,132 shares of Common Stock, or
approximately 26.4% of our total outstanding shares of Common Stock, as of the
Record Date.
SOLICITATION OF PROXIES
We will pay the cost of soliciting proxies. In addition to soliciting
stockholders by mail and through our regular employees, we will request banks
and brokers, and other custodians, nominees and fiduciaries, to solicit their
customers who have our stock registered in their names and will reimburse them
for their reasonable, out-of-pocket costs. We may use our officers, directors
and others to solicit proxies, personally or by telephone, facsimile or
electronic mail, without additional compensation.
VOTING OF PROXIES
All valid proxies received prior to the Annual Meeting will be voted. All
shares represented by a proxy will be voted, and where a stockholder specifies
through the proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with that specification. If you do not
indicate a choice on the proxy, your shares will be voted "FOR" the nominees for
election to the Board of Directors named in this Proxy Statement; "FOR" approval
of the amendment and restatement of the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") increasing the
authorized shares of Common Stock from 110,000,000 to 200,000,000 and adopting
the Written Consent Amendment; "FOR" approval of the increase in the shares
reserved under the Company's 2000 Stock Plan in the amount of 10,000,000 shares
and the increase in the number of shares added to the Stock Plan on an annual
basis; and "FOR" the ratification of independent public accountants. The shares
will be voted as the proxy holders may determine in their discretion with
respect to any other matters that properly come before the meeting. A
stockholder giving a proxy has the power to revoke his or her proxy, at any time
prior to the time it is voted, by (i) delivering to the Company's Assistant
Secretary either a written instrument revoking the proxy or a valid proxy with a
later date, or (ii) attending the Annual Meeting and voting in person.
QUORUM
The required quorum for the transaction of business at the Annual Meeting
is a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the Record Date and the shares of Preferred
Stock outstanding on the Preferred Stock Record Date. Shares that are voted
"FOR," "AGAINST" or "WITHHELD FROM" a matter (the "Votes Cast") are treated as
being present at the meeting for purposes of establishing a quorum and are also
treated as shares entitled to vote at the Annual Meeting with respect to such
matter.
ABSTENTIONS
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the number of Votes Cast
with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
4
BROKER NON-VOTES
Broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of Votes Cast with respect to the
particular proposal on which the broker has expressly not voted. Accordingly,
broker non-votes will not affect the outcome of the voting on a proposal that
requires a majority of the Votes Cast (such as the proposed amendments to our
2000 Stock Plan). With respect to a proposal that requires a majority of the
outstanding shares (such as the proposed amendments to our Certificate of
Incorporation), however, a broker non-vote has the same effect as a vote against
the proposal.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the Record Date,
September 27, 2001, with respect to the beneficial ownership of the Company's
Common Stock and as of Preferred Record Date, October 10, 2001, with respect to
beneficial ownership of the Company's Series A Preferred Stock by (i) each
director of the Company; (ii) each executive officer of the Company included in
the Summary Compensation Table below under the heading "Executive Compensation
and Other Matters" (the "Named Executive Officers"); (iii) all current executive
officers and directors of the Company as a group; and (iv) all persons who are
the beneficial owner of more than 5% of the Company's Common Stock or Series A
Preferred Stock. Unless otherwise indicated, the address for each listed
stockholder is c/o Evolve Software, 1400 65th Street, Suite 100, Emeryville, CA
94608.
COMMON STOCK PREFERRED STOCK
--------------------------- -------------------------
AMOUNT AND
AMOUNT AND PERCENT OF NATURE OF PERCENTAGE
NATURE OF SHARES BENEFICIAL OF SHARES
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL OUTSTANDING OWNERSHIP OUTSTANDING
OWNER OWNERSHIP (1) (1) (1) (1)
-------------------------------------- ------------- ------------ ----------- ------------
Warburg Pincus Private Equity VIII, 50,003,298 55.0% 2,000,000 87.0%
L.P. (2)
466 Lexington Avenue
New York, NY 10017
Sierra Ventures VI, L.P. (3) 12,683,310 27.7% 200,000 14.2%
3000 Sand Hill Road, Building 4
Suite 210
Menlo Park, CA 94025
The Goldman Sachs Group (4) 2,571,434 6.3% -- *
85 Broad Street
New York, NY 10004
VivCorp, Inc. (5) 2,216,749 5.4% -- *
6114 LaSalle Avenue
No. 323
Oakland, CA 94611
Index Ventures I (Jersey), L.P. (6) 8,347,420 17.27% 300,000 20.7%
2 Rue de Jargonnant
1207 Geneva, Switzerland
John P. Bantleman (7) 1,313,128 3.2% -- *
James J. Bozzini (8) 799,181 2.0% -- *
Marc C. Ferrie (9) 541,667 1.3% -- *
John R. Oltman (10) 440,778 1.1% -- *
Douglas S. Sinclair (11) 416,667 1.0% -- *
Kurt M. Heikkinen (12) 340,387 * -- *
5
Anil K. Gupta (13) 293,856 * -- *
Joseph A. Fuca (14) 270,833 * -- *
Paul Rochester (15) 173,333 * -- *
Judith H. Hamilton (16) 166,667 * -- *
Jeffrey M. Drazan (17) 160,123 * -- *
Gayle Crowell (18) - - -- *
Cary Davis (19) 50,000,000 55.0% 2,000,000 87.0%
Nancy Martin (19) 50,000,000 55.0% 2,000,000 87.0%
All Current Directors & Officers as a 2,426,503 5.9% -- *
Group (13 persons) (20)
________________________
*Less than 1% of outstanding shares of Common Stock.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). To our knowledge, except as indicated
in the footnotes to this table, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable. Applicable percentages are based on 40,836,547 shares of
Common Stock outstanding on September 27, 2001, and 1,300,000 shares of
Series A Preferred Stock outstanding on October 10, 2001, adjusted as
required by rules promulgated by the SEC.
(2) As of September 27, 2001 Warburg Pincus Private Equity VIII, L.P. ("WP
VIII") had rights to acquire up to 50,000,000 shares of our Common Stock,
which rights were exercisable within 60 days of September 27, 2001 and one
principal of WP VIII beneficially owned 3,298 shares of our Common Stock
for his own account. At October 10, 2001, WP VIII had rights to acquire
1,000,000 shares of our Series A Preferred Stock, which rights were
exercisable within 60 days of October 10, 2001. Warburg, Pincus & Co.
("WP") is the sole general partner of WP VIII. WP VIII is managed by
Warburg Pincus LLC ("WP LLC"). Lionel I. Pincus is the managing partner of
WP and the managing member of WP LLC and may be deemed to control both
entities.
(3) Includes 6,163,594 shares of Common Stock held by Sierra Ventures VI, L.P.,
616,361 shares of Common Stock held by its general partner, SV Associates
VI, L.P., as nominee for its general partners UA dated January 14, 1997,
821,448 shares of Common Stock held by Sierra Ventures VII, L.P. ("SV VII")
and 81,907 shares of Common Stock held by Sierra Ventures Associates VII,
LLC ("SVA VII") as nominee for its members (collectively, the "Sierra
Entities"). At September 27, 2001, SV VII had rights to acquire up to an
additional 4,546,650 shares of our Common Stock, and SVA VII had rights to
acquire up to an additional 453,350 shares of our Common Stock, which
rights were exercisable within 60 days of September 27, 2001. Includes
90,933 shares of Series A Preferred Stock held by SV VII and 9,067 shares
of Series A Preferred Stock held by SVA VII. At October 10, 2001, SV VII
had rights to acquire up to an additional 90,933 shares of our Series A
Preferred Stock and SVA VII had rights to acquire up to an additional 9,067
shares of our Series A Preferred Stock, which rights were exercisable
within 60 days of October 10, 2001. Jeffrey M. Drazan, a director of the
Company, is a managing member of SV Associates VI, L.P., which is the
general partner of Sierra Ventures VI, L.P., and is a managing member of
SVA VII, which is the general partner of SV VII. Mr. Drazan disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in them arising from his interest in these limited partnerships
and limited liability company. Mr. Drazan, David C. Schwab and Peter C.
Wendell are general partners of Sierra Ventures VI, L.P. and may be deemed
6
to hold voting and dispositive power over shares held by Sierra Ventures
VI, L.P. and SV Associates VI, L.P. Messrs. Drazan, Schwab and Wendell and
Steven P. Williams are managing members of SVA II and may be deemed to hold
voting and dispositive power over shares held by SV VII and SVA II.
(4) Includes 2,452,386 shares of Common Stock held by The Goldman Sachs Group,
Inc. ("GSG") and 119,048 shares of Common Stock held by Stone Street Fund
1999, L.P., an affiliate of GSG that shares voting and investing power with
GSG.
(5) Cynthia B. Padnos, President and Chief Executive of VivCorp, Inc., and
Brian Grossi and Christopher Greendale, the principals of a major
stockholder of VivCorp Inc., may be deemed to hold voting and dispositive
power over the shares held by VivCorp, Inc.
(6) Includes rights to purchase 4,121,150 shares of Common Stock, which are
exercisable within 60 days of September 27, 2001, and rights to purchase
82,423 shares of Series A Preferred Stock, which rights were exercisable
within 60 days of October 10, 2001. Also includes rights to purchase, as of
September 27, 2001, 2,616,750, 142,450, 574,650 and 45,000 shares of our
Common Stock held, respectively, by Index Ventures I (Delaware) L.P., Index
Ventures I Parallel Entrepreneur Fund (Jersey) L.P., Index Ventures I GmbH
& Co. Kg and Index Ventures Management SA, which rights were exercisable
within 60 days of September 27, 2001. Also includes, as of October 10,
2001, 52,335, 2,849, 11,493 and 900 shares of Series A Preferred Stock, and
rights to acquire equal numbers of shares of Series A Preferred Stock,
which rights were exercisable within 60 days of October 10, 2001, held,
respectively, by Index Ventures I (Delaware) L.P., Index Ventures I
Parallel Entrepreneur Fund (Jersey) L.P., Index Ventures I GmbH & Co. Kg
and Index Ventures Management SA.
(7) Includes 493,057 shares of Common Stock subject to our right of repurchase,
which lapses over time. Also includes options to purchase 98,987 shares of
Common Stock exercisable within 60 days of September 27, 2001.
(8) Includes 406,250 shares of Common Stock subject to our right of repurchase,
which lapses over time. Also includes options to purchase 46,875 shares of
Common Stock exercisable within 60 days of September 27, 2001.
(9) Includes 211,530 shares of Common Stock subject to our right of repurchase,
which lapses over time.
(10) Includes 166,667 shares of Common Stock subject to our right of repurchase,
which lapses over time. These shares are held by JRO Consulting, Inc. Mr.
Oltman, the President of JRO Consulting, Inc. is the beneficial owner of
these shares. Also includes options to purchase 41,667 shares of Common
Stock exercisable within 60 days of September 27, 2001.
(11) Includes 279,515 shares of Common Stock subject to our right of repurchase,
which lapses over time.
(12) Includes 170,388 shares of Common Stock subject to our right of repurchase,
which lapses over time. Also includes options to purchase 46,875 shares of
Common Stock exercisable within 60 days of September 27, 2001.
(13) Includes 211,806 shares of Common Stock subject to our right of repurchase,
which lapses over time.
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(14) Includes 158,854 shares of Common Stock subject to our right of repurchase,
which lapses over time. Also includes options to purchase 12,500 shares of
Common Stock exercisable within 60 days of September 27, 2001.
(15) Includes 58,333 shares of Common Stock subject to our right of repurchase,
which lapses over time. Also includes options to purchase 45,000 shares of
Common Stock exercisable within 60 days of September 27, 2001.
(16) Includes 50,347 shares of Common Stock subject to our right of repurchase,
which lapses over time. Also includes options to purchase 41,667 shares of
Common Stock exercisable within 60 days of September 27, 2001.
(17) Includes 75,522 shares of Common Stock subject to our right of repurchase,
which lapses over time. Does not include shares held by the Sierra
Entities.
(18) Ms. Crowell is a full-time advisor of WP LLC and may not be deemed a
beneficial owner of shares that WP VIII has the right to acquire.
(19) Mr. Davis and Dr. Martin are general partners of WP and managing directors
and members of WP LLC, affiliates of WP VIII. As of September 27, 2001, WP
VIII had rights to acquire up to 50,000,000 shares of our Common Stock,
which rights were exercisable within 60 days of September 27, 2001. As of
October 10, 2001, WP VIII had rights to acquire 1,000,000 shares of our
Series A Preferred Stock, which rights were exercisable within 60 days of
October 10, 2001. Mr. Davis and Dr. Martin disclaim beneficial ownership of
all shares held by WP VIII, except to the extent of any pecuniary interest
they may hold in WP VIII.
(20) Includes an aggregate of 1,107,745 shares of Common Stock subject to our
right of repurchase, which lapses over time. Also includes options to
purchase an aggregate of 267,917 shares of Common Stock exercisable within
60 days of September 27, 2001. Does not include shares held by the Sierra
Entities and WP VIII.
8
PROPOSAL ONE: ELECTION OF DIRECTORS
Our Certificate of Incorporation provides that our Board of Directors
shall be divided into three classes, with the classes of directors serving for
staggered three-year terms. The term of office of the Class I directors shall
extend until the 2001 annual meeting of stockholders, the term of office for the
Class II directors shall extend until the 2002 annual meeting of stockholders,
and the term of office for the Class III directors shall extend until the 2003
annual meeting of stockholders, or until each director's earlier death,
resignation, retirement or removal or until his or her successor is elected and
qualified. Class I and Class III currently have two members each, and Class II
currently has two members. The Class I directors to be elected at the 2001
Annual Meeting are to be elected to hold office until the year 2004 Annual
Meeting and until their successors have been elected and qualified or until
their earlier death, resignation, retirement or removal from office.
Of the two Class I directors to be elected at the Annual Meeting, one
director (the "Class I Series A Director") is to be elected by holders of the
Company's Series A Preferred Stock voting as a separate class. The other
director to be elected at the Annual Meeting (the "Class I General Director")
will be elected by holders of the Company's Common Stock and Series A Preferred
Stock voting together as a single class.
The Company's nominee for election at the Annual Meeting to Class I Series
A Director is Cary Davis. The Company's nominee for election at the Annual
Meeting to Class I General Director is Jeffrey M. Drazan. Mr. Davis and Mr.
Drazan are seeking re-election to serve for the full duration of the next term
of office. The remaining five directors will continue to serve the terms
described below. Mr. Davis has been a director since October 2001. He was
appointed to the Board of Directors in connection with the purchase of shares of
our Series A Preferred Stock by Warburg. Warburg has nominated Mr. Davis for
election at the Annual Meeting. Mr. Drazan has been a director since November
1998. Information regarding Mr. Davis's and Mr. Drazan's business experience is
provided below.
In the event that Mr. Davis or Mr. Drazan become unavailable or decline to
serve as directors at the time of the Annual Meeting, the proxy holders will
vote the proxies in their discretion for any nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that Mr.
Davis or Mr. Drazan will be unavailable to serve.
VOTE REQUIRED
The two nominees for director receiving the highest number of affirmative
votes of the shares entitled to be voted for them shall be elected as directors.
Votes withheld from any director are counted for purposes of determining the
presence or absence of a quorum, but have no other legal effect under Delaware
law.
NOMINEES AND OTHER DIRECTORS
The following table sets forth the name and age of each of the nominees and
each director of the Company whose term of office continues after the Annual
Meeting, the principal occupation of each during the past five years and the
period during which each has served as a director of the Company. There are no
family relationships among any directors or executive officers.
NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR A TERM EXPIRING IN 2004
DIRECTOR
NAME PRINCIPAL OCCUPATION DURING PAST FIVE YEARS AGE SINCE
----------------- --------------------------------------------------------------------- ----- --------
Cary Davis Mr. Davis joined our Board of Directors in October 2001, as 35 2001
discussed above. Mr. Davis has served as a general partner
of Warburg, Pincus & Co. and a Member and Managing Director
of Warburg Pincus LLC ("WP LLC") since January 1999, and has
9
been employed by WP LLC since October 1994. From August 1992
to September 1994, Mr. Davis was employed by Dell Computer
Corporation, where he was Executive Assistant to Michael
Dell and his last position was Manager of Worldwide Desktop
Marketing. Mr. Davis is currently a director of Dice Inc.,
and several privately held companies, including WebGain Inc.
and TradeCard Inc. Mr. Davis received a B.A. from Yale
University and an M.B.A. from Harvard Business School, and
is an adjunct professor at Columbia Business School and
Treasurer of the Jewish Community House of Bensonhurst
Jeffrey M. Drazan Mr. Drazan has served on our Board of Directors since November 42 1998
1998. Mr. Drazan has been a General Partner of Sierra Ventures since
1984. Prior to joining Sierra Ventures, Mr. Drazan was employed by
AT&T, where he held various management positions within the
operating divisions of AT&T Long Lines, AT&T Information
Systems, and Bell Laboratories. He currently serves on the Board of
Directors of Vertel Corporation, a telecommunications systems
vendor, and other private companies. Mr. Drazan holds an M.B.A.
from New York University's Graduate School of Business
Administration and a B.S. Degree in Engineering from Princeton
University.
INCUMBENT CLASS II DIRECTORS SERVING FOR A TERM EXPIRING IN 2002
John R. Oltman Mr. Oltman has served on our Board of Directors since August 1999, 56 1999
and has served as Chairman of the Board of Directors since November
1999. Mr. Oltman has been President of JRO Consulting, Inc. since
January 1995, in which role he serves as director, advisory and
investor in leading technology companies and investment firms. Mr.
Oltman also currently serves as the Vice-Chairman of Lante
Corporation and Chairman of XOR, Inc. Mr. Oltman also serves as a
director for Exalt, Inc., Alysis Technologies, Inc., InaCom Corp. and
Premier Systems Integrators, Inc. From February 1996 through
August 1997, Mr. Oltman served as Chairman and senior member of
the Executive Committee of TSW International, a global leader in
asset care software and services. From July 1991 to November 1995,
Mr. Oltman served as the Chairman and Chief Executive Officer of
SHL Systemhouse, a large provider of client/server systems
integration and technology outsourcing. Before joining SHL
Systemhouse, Mr. Oltman was managing partner for Andersen
Consulting's Chicago Consulting Group. From 1967 to 1970, Mr.
Oltman was a member of the technical staff at Bell Laboratories. Mr.
Oltman received a B.S. degree from the University of Illinois in 1967
and an M.B.A. degree from Northwestern University's Kellogg
School of Management in 1970.
Paul Rochester Mr. Rochester has served on our Board of Directors since July 2000. 54 2000
Mr. Rochester has been Vice President and General Manager of
Professional Services at Sun Microsystems, a worldwide provider of
computer systems, software and services, since September 1995.
10
From February 1991 to September 1995, he was Senior Partner at
CSC Consulting, a global information technology services company.
From September 1989 to February 1991, Mr. Rochester was a
partner at Ernst & Young, an international consulting firm. From
September 1979 to January 1989, he was a consulting manager with
SHL Systemhouse (now MCI Systemhouse), an information
technology integration consulting company. Mr. Rochester holds a
B.S. degree in Applied Science (Electrical Engineering) from
Queens University (Canada) and an M.B.A. in Marketing and
Finance from the University of Ottawa, Canada.
Nancy Martin Dr. Martin joined our Board of Directors in October 2001 in 60 2001
connection with the purchase of shares of our Series A
Preferred Stock by Warburg. Dr. Martin joined Warburg Pincus
in January 1999 as a partner of Warburg Pincus and a
Managing Director and Member of WP LLC. Prior to joining
Warburg, Pincus, she was Vice President for Research and
Development for MCI Systemhouse. Dr. Martin was Executive
Director for Advanced Technology for Melville Corporation
and a Partner with Coopers & Lybrand where she directed
advanced technology nationally. She was CEO and Founder of
SoftPert Systems. Dr. Martin was founding professor of
Software Engineering at Wang Institute of Graduate Studies
and Visiting Professor at Stanford University. She is a
Director of Apar Holding Corp., Artesia Technologies, Inc.,
HiddenMind Technology, Inc. and WebGain, Inc. She received a
B.A. from Stanford University and a Ph.D. from The
University of Michigan in Computer and Communication
Science.
INCUMBENT CLASS III DIRECTORS SERVING FOR A TERM EXPIRING IN 2003
Judith H. Ms. Hamilton has served on our Board of Directors since March 1999. 57 1999
Hamilton Ms. Hamilton has served as President and Chief Executive Officer of
Classroom Connect since January 1999. Prior to this, she served as
President and Chief Executive Officer of First Floor, Inc. from April
1996 to July 1998. Ms. Hamilton also served as President and Chief
Executive Officer of Dataquest, Inc. from July 1992 to March 1996.
She currently serves on the Board of Directors of R.R. Donnelley &
Sons Company, a financial printing services company, and Lante
Corporation, a consulting firm. Ms. Hamilton holds a B.A. Degree in
History and Political Science from Indiana University and has
completed post-graduate studies in International Relations at Boston
University in Heidelberg, Germany as well as Executive Management
at the UCLA Graduate School of Management.
Gayle Crowell Ms. Crowell was appointed Chairman of our Board of Directors 51 2001
in October 2001 in connection with the purchase of shares of
our Series A Preferred Stock by Warburg. She joined Warburg
Pincus in May 2001 as a consultant for its Technology Group.
Prior to joining Warburg Pincus, Ms. Crowell was President,
CEO and Chairman of the Board of RightPoint from February
1998 until January 2000. In January 2000, RightPoint was
acquired by E.piphany, where she remained on the company's
Board of Directors through June 2001. From 1994 to 1998, Ms.
11
Crowell was Senior Vice President and General Manager of
Worldwide Operations for Mosaix, Inc. She is currently on
the Board of Directors of Indus and Uniscape. Ms. Crowell
began her career as an educator for the State of Nevada and
received a B.A. degree from the University of Nevada, Reno.
BOARD RECOMMENDATION
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" BOTH
OF THE NOMINEES SET FORTH ABOVE.
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended June 30, 2001 our Board of Directors held
twelve (12) meetings, including regular meetings and special meetings. We
currently have an audit committee and a compensation committee. We do not have a
nominating committee or a committee performing the functions of a nominating
committee.
During fiscal 2001, our audit committee met five (5) times. The audit
committee consists of Jeffrey M. Drazan, John R. Oltman and Judith H. Hamilton.
The audit committee reviews our internal accounting procedures, consults with
and reviews the services provided by our independent accountants and makes
recommendations to the Board of Directors regarding the selection of independent
accountants. For additional information concerning the Audit Committee, see
"REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS."
During fiscal 2001, our compensation committee met three (3) times. The
compensation committee consists of Jeffrey M. Drazan and John R. Oltman. The
compensation committee reviews and recommends to the Board of Directors the
salaries, incentive compensation and benefits of our officers and employees and
administers our stock plans and employee benefit plans. For additional
information concerning the Compensation Committee, see "REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION."
All directors have attended no less than 75% of the total number of
meetings of the Board of Directors and committees on which they served.
12
PROPOSAL TWO: APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED SHARES OF COMMON STOCK BY 90,000,000 SHARES
In September 2001, our Board of Directors adopted an amendment to the
Company's Certificate of Incorporation ("Certificate"), subject to stockholder
approval, to increase the authorized number of shares of Common Stock of the
Company by 90,000,000, from 110,000,000 to 200,000,000 shares (the "Share
Increase Amendment"). A copy of the Certificate, as proposed to be amended, may
be obtained free of charge from the Secretary of the Company.
At the meeting, stockholders of the Company are being asked to approve the
Share Increase Amendment described above. The proposed Share Increase Amendment
would give the Board of Directors the authority to issue additional shares of
Common Stock without requiring future stockholder approval of such issuances,
except as may otherwise be required by applicable law.
Of the 110,000,000 currently authorized shares of Common Stock, 40,166,616
shares were issued and outstanding as of August 31, 2001. In addition, as of
such date:
- approximately 5,092,616 shares of Common Stock were reserved for
issuance upon exercise of outstanding options under our 1995 Stock
Plan and 2000 Stock Plan;
- approximately 2,533,725 shares were reserved for future grants under
the 2000 Stock Plan;
- a total of 215,000 shares were reserved for issuance upon exercise of
outstanding options granted outside any plan;
- approximately 1,885,340 shares were reserved for future issuances
under our 2000 Employee Stock Purchase Plan;
- a total of 9,167 shares were reserved for issuances upon exercise of
outstanding warrants; and
- additional shares were subject to potential issuance to Vivant!
Corporation ("Vivant") pursuant to the terms of agreement between the
Company and Vivant relating to the acquisition of assets of such
corporation.
The sum of all shares of Common Stock issued and reserved for issuance as
of August 31, 2001, was 55,346,812, and thus the shares of authorized but
unissued and unreserved Common Stock available for issuance was 54,653,188.
The number of shares remaining available for issuance is no longer
sufficient to meet the Company's immediate requirements, as a result of the
following factors:
- On September 23, 2001, the Company entered into a definitive agreement
(the "Purchase Agreement") to issue and sell to investors 1.3 million
shares of its Series A Preferred Stock, which are convertible into 26
million shares of Common Stock, and warrants to purchase an additional
6.5 million shares of Common Stock. The Purchase Agreement also
provides for issuance of warrants to purchase an additional 1.3
million shares of Series A Preferred Stock, which are convertible into
26 million shares of Common Stock, and upon exercise of such warrants,
additional warrants to purchase 6.5 million shares of Common Stock. An
aggregate of 65 million shares of Common Stock is required to permit
the issuance and conversion of all shares of Series A Preferred Stock,
13
and the exercise of all warrants, to be issued under the Purchase
Agreement. The terms of the Purchase Agreement and related agreements
are further described below.
- The Board of Directors has authorized an increase of 10 million shares
in the number of shares reserved for issuance under the Company's 2000
Stock Plan, as well an increase in the maximum number of shares added
to the reserve under the 2000 Stock Plan on an annual basis. The
Company believes that making additional shares available for grant
under the 2000 Stock Plan is necessary in order for the Company to
continue to retain and provide incentives to its current employees and
attract new employees, while conserving the Company's cash resources.
See "Proposal Four" below for a further description of the proposed
amendments to the 2000 Stock Plan.
As the number of shares needed for the foregoing purposes and to meet the
Company's future needs exceeds the Company's available Common Stock, the Board
of Directors has approved a 90,000,000 share increase in our authorized shares
of Common Stock.
PURPOSE OF THE AMENDMENT
The principal purpose of this proposed amendment to the Certificate to
increase the authorized shares of Common Stock is to make such shares available
to effect the issuances described above and for future use by the Board of
Directors as it deems appropriate or necessary. For example, in addition to the
above-referenced issuances, such shares may be needed in connection with raising
additional capital through the sale of the Company's securities, acquisition of
other businesses or assets, and establishing strategic relationships with
corporate partners.
Except for the issuances described above, the Board of Directors has no
present understanding or plan with respect to the issuance of any such shares.
If the stockholders approve the Amendment, the Board of Directors does not
intend to solicit further stockholder approval prior to the issuance of any
additional shares of Common Stock, except as may be required by applicable law.
Holders of the Company's securities have no statutory preemptive rights with
respect to issuances of Common Stock.
SERIES A PREFERRED STOCK OFFERING
The Company completed the sale of Series A Preferred Stock pursuant to the
Purchase Agreement (the "Series A Preferred Financing") on October 9, 2001. The
Company issued the following securities and rights to the investors
participating in the Series A Preferred Financing:
- an aggregate of 1.3 million shares of the Company's Series A Preferred
Stock at a price of $10 per share
- warrants to purchase up to an aggregate of 1,300,000 additional shares
of Series A Preferred Stock at a price of $10 per share (the
"Preferred Stock Warrants")
- warrants to purchase up to 6,500,000 shares of Common Stock at a price
of $1.00 per share (the "Common Stock Warrants")
- the right to receive additional Common Stock Warrants to purchase a
number of shares of Common Stock equal to 25% of the number of shares
of Common Stock into which the shares of Series A Preferred Stock
issued upon exercise of the Preferred Stock Warrants are convertible,
at the time such Preferred Stock Warrants are exercised.
14
The Company received an aggregate purchase price of $13,000,000 for the
1,300,000 shares of Series A Preferred Stock sold. If the Preferred Stock
Warrants and the Common Stock Warrants are exercised in full for cash, the
Company will receive an additional $26,000,000 in aggregate proceeds. The
Company has no plans to issue additional shares of Series A Preferred Stock,
other than upon exercise of the warrants described above. The Company intends to
use the proceeds from the Series A Preferred Financing for general working
capital purposes.
Conversion Rights. Each share of Series A Preferred Stock is convertible
into Common Stock at an initial conversion price of $0.50, or at an initial
conversion rate of 20 shares of Common Stock for each share of Series A
Preferred Stock. The conversion rate accretes at a rate of 8.00% per annum. The
conversion rate is also subject to certain adjustments as set forth in the
Certificate of Designation of Series A Preferred Stock of the Company, in the
event of dilutive stock issuances by the Company and in the event the Company
incurs litigation- or tax-related expenses in excess of certain limitations. The
Series A Preferred Stock may be converted at any time at the election of each
holder. The Company may cause all of the shares of Series A Preferred Stock to
be automatically converted into Common Stock at any time after the fifth
anniversary of the date of initial issuance of these shares, provided that the
Common Stock has been trading at a value of at least $5.00 for a specified
period.
Liquidation Preference. In the event of a transaction involving a
dissolution of the Company, the holders of Series A Preferred Stock will be
entitled to payment of a liquidation preference equal to the initial purchase
price of their shares of Series A Preferred Stock, plus an 8.00% annual rate of
return, prior to any payment to holders of Common Stock and other junior
securities. In the event of certain transactions involving a change of control
of the Company, a liquidation preference equal to the initial purchase price of
the Series A Preferred shares held plus an 8.00% rate of return computed over a
five-year period is payable to the holders of Series A Preferred Stock,
irrespective of when such a transaction occurs.
Voting Rights. Holders of Series A Preferred Stock are generally entitled
to one vote for each share of Common Stock into which their Series A Preferred
Stock is convertible. In addition, the Company may not, without the affirmative
vote of the holders of a majority of the outstanding shares of Series A
Preferred Stock:
- amend or repeal the provisions of the Certificate of Designation of
Series A Preferred Stock
- enter into a transaction involving a change of control of the Company,
unless such transaction would result in aggregate consideration paid
in respect of all Series A Preferred Stock equal to the original
purchase price these shares, plus an internal rate of return of at
least 50%
- authorize or issue any securities senior to the Series A Preferred
Stock
- issue any debt obligations other than trade debt in the ordinary
course of business
- pay any dividends on or repurchase any junior securities, subject to
certain exceptions
- amend the Company's bylaws to increase the authorized number of
directors of the Company to more than eight
- authorize or issue any shares of any class or series of stock on
parity with the Series A Preferred Stock under certain circumstances.
Board Representation. The holders of the Series A Preferred Stock, voting
as a separate class, are entitled to elect three members to our Board of
Directors. All other directors will be elected by the holders of the Common
Stock and the Series A Preferred Stock voting as a single class. The number of
directors appointed by the holders of Series A Preferred Stock is reduced as
follows:
15
- to two if less than 75% but at least 50% of the shares of Series A
Preferred Stock issued by the Company remain outstanding, or if
Warburg does not exercise Preferred Stock Warrants to purchase at
least 500,000 shares of Series A Preferred Stock prior to expiration
of such warrants.
- to one if less than 50% but at least 25% of the shares of Series A
Preferred Stock issued by the Company remain outstanding
- to zero, if less than 25% of the shares of Series A Preferred Stock
issued by the Company remain outstanding.
Preferred Stock Warrants. The Preferred Stock Warrants are exercisable to
purchase up to an aggregate of 1,300,000 shares of Series A Preferred stock at a
Common Stock-equivalent price of $.50 per share, payable in cash. 50% of the
Preferred Stock Warrants expire if not exercised within 30 days after the
Company's appointment of a new permanent Chief Executive Officer. If these first
warrants are exercised in full, then the balance of the Preferred Stock Warrants
may be exercised for up to one year after issuance.
Common Stock Warrants. The Common Stock Warrants issued to the investors
are exercisable for up to 6,500,000 shares of Common Stock, and the Company will
issue warrants to purchase up to an additional 6,500,000 shares of Common Stock
if the Preferred Stock Warrants are exercised in full. The Common Stock Warrants
have an exercise price of $1.00 per share, which is subject to adjustment if the
Company issues securities at less than fair market value and under certain other
circumstances. The Common Stock Warrants may be exercised for cash, or on a
cashless basis by converting the Common Stock Warrants into a number of shares
with a value equal to the spread between the market value of the shares subject
to the Common Stock Warrants and the exercise price. In addition, in the event
of certain transactions involving a change of control of the Company, holders of
Common Stock Warrants will have the right to deliver these Warrants to the
Company in exchange for payments equal to the market value of such warrants at
the time of the change of control transaction, payable in cash or, subject to
certain conditions, shares of Common Stock of the Company. The Common Stock
Warrants have a term of seven years.
Preemptive Rights. The Company has granted to the holders of the Series A
Preferred Stock rights to maintain their percentage ownership in the Company by
purchasing additional shares in connection with future equity issuances by the
Company.
Registration Rights. The Company has agreed to prepare and file with the
Securities and Exchange Commission, upon request of the holders of Series A
Preferred Stock after June 1, 2002, registration statements to enable the resale
of the shares of Common Stock issued or issuable upon conversion of the Series A
Preferred Stock and the Warrants.
Interest of Affiliates; Potential Change of Control. Because Warburg
acquired a substantial interest in the Company as a result of the Series A
Preferred Stock Financing, the Series A Preferred Stock Financing could be
deemed a change of control transaction. For a discussion of the interests of
Warburg and certain other affiliates of the Company in the Series A Preferred
Financing, please "Certain Relationships and Related Transactions - Sale of
Series A Preferred Stock" below.
EFFECT OF THE AMENDMENT
The increase in the authorized shares of Common Stock will not have any
immediate effect on the rights of existing stockholders. To the extent that the
additional authorized shares are issued in the future, they will decrease the
existing stockholders' percentage equity ownership and, depending on the price
at which they are issued, could be dilutive to the existing stockholders. In
particular, the increase in authorized shares will allow the Warrants described
16
above to be exercised in full. Although the Warrants have an exercise price
which is higher than the current market price of our Common Stock, in the event
the Common Stock appreciates in value in the future, the exercise of the
Warrants could be dilutive to stockholders.
The Company may incur significant financial liabilities if the Shares
Increase Amendment is not approved by the stockholders. The Purchase Agreement
provides that in such an event, the Company may be required to redeem any
portion of the Preferred Stock Warrants and Common Stock Warrants which cannot
be exercised because of a lack of sufficient authorized shares. The redemption
price will be equal to the difference between the aggregate exercise price for
the shares of Common Stock underlying the redeemed portion of the Warrants and
the market value of these shares of Common Stock. Accordingly, the amount of the
redemption price for which the Company will be liable is contingent of the
market price of the Common Stock, but could be substantial if the Common Stock
appreciates significantly.
In addition, in the event stockholders fail to approve the Share Increase
Amendment, the Company will not have shares available for other corporate
purposes. For instance, the Company would not be able to grant additional stock
options or other equity incentives to current and future employees, including
the additional shares proposed to be authorized under the Company's 2000 Stock
Plan, as discussed under "Proposal Four" below. This may make it difficult for
the Company to attract and retain qualified employees, officers and directors.
The Company would also not be able to issue equity securities to raise
additional capital to fund the Company's operations, to acquire complementary
businesses or technologies, or to compensate and provide incentives to its
business partners, customers and suppliers who wish to obtain an equity interest
in the Company.
POTENTIAL ANTI-TAKEOVER EFFECT
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could be issued in
one or more transactions that would make a change in control of the Company more
difficult, and therefore less likely. Any such issuance of stock could have the
effect of diluting the book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of the Company.
The Company has previously adopted certain measures that may have the
effect of helping to resist an unsolicited takeover attempt, including:
Election and Removal of Directors. Our Certificate of Incorporation
provides for the division of our Board of Directors into three classes, as
nearly equal in number as possible, with the directors in each class serving for
a three-year term, and one class being elected each year by our stockholders.
This system of electing and removing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of us
and may maintain the incumbency of the Board of Directors, as it generally makes
it more difficult for stockholders to replace a majority of the directors.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the Board of
Directors or a committee thereof.
Stockholder Meetings. Under our Certificate of Incorporation and bylaws,
only our Board of Directors, Chairman of the Board or Chief Executive Officer
may call special meetings of stockholders.
17
Elimination of Cumulative Voting. Our Certificate of Incorporation and
bylaws do not provide for cumulative voting in the election of directors.
Cumulative voting provides for a minority stockholder to vote a portion or all
of its shares for one or more candidates for seats on the Board of Directors.
Without cumulative voting, a minority stockholder will not be able to gain as
many seats on our Board of Directors based on the number of shares of our stock
that such stockholder holds than if cumulative voting were permitted. The
elimination of cumulative voting makes it more difficult for a minority
stockholder to gain a seat on our Board of Directors and to influence the Board
of Directors's decision regarding a takeover.
Undesignated Preferred Stock. The authorization of undesignated Preferred
Stock makes it possible for the Board of Directors to issue Preferred Stock with
voting or other rights or preferences that could impede the success of any
attempt to change the control of the Company. These and other provisions may
have the effect of deterring hostile takeovers or delaying changes in control or
management of the Company.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding Common Stock.
VOTE REQUIRED
Approval of the Share Increase Amendment requires the affirmative vote of
the holders of not less than a majority of the shares of Common Stock
outstanding on the Record Date and a majority of the shares of Series A
Preferred Stock outstanding on the Preferred Stock Record Date.
BOARD RECOMMENDATION
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
PROPOSAL SET FORTH HEREIN.
18
PROPOSAL THREE: APPROVAL OF AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO PERMIT HOLDERS OF PREFERRED STOCK TO ACT BY
WRITTEN CONSENT
The Company's Certificate currently requires that any actions to be taken
by a vote of the stockholders of the Company be taken at a duly convened meeting
of the stockholders of the Company, and prohibits stockholder action by written
consent. In connection with the Company's sale of Series A Preferred Stock as
described in Proposal Two above, our Board of Directors adopted an amendment to
the Certificate, subject to stockholder approval, to permit the holders of
Preferred Stock of the Company to act by written consent on matters for which
the Series A Preferred Stock is entitled to a separate class vote (collectively,
the "Written Consent Amendment"). A copy of the Certificate, as proposed to be
amended, may be obtained free of charge from the Secretary of the Company. The
stockholders of the Company are being asked to approve the Written Consent
Amendment at the Annual Meeting.
PURPOSE AND EFFECT OF AMENDMENT
The principal purpose of the proposed Written Consent Amendment is to
minimize the time and cost involved with obtaining stockholder approval to take
corporate actions requiring prior approval of holders of the Preferred Stock.
Currently, the Certificate provides that the Company's stockholders may not act
by written consent, but must act at an annual or special meeting. Through this
amendment, the Company will be able to obtain the approval of the holders of
Preferred Stock without convening a meeting of stockholders. There are currently
fewer than ten holders of record of shares of Preferred Stock. Accordingly,
In the event that the prospective purchasers of Series A Preferred Stock
exercise the warrants issued to them pursuant to the Purchase Agreement, the
holders of Series A Preferred Stock may hold a majority of the voting stock of
the Company and may be able to approve corporate actions requiring stockholder
approval without the separate approval of the holders of Common Stock. The
matters that are require a separate class vote of the Series A Preferred Stock
and could accordingly be approved by written consent of the holders of the
Series A Preferred Stock, are described under "Proposal Two" above, under the
caption "Voting Rights." If the Written Consent Amendment is approved, the
holders of the Series A Preferred Stock will be able to act on such matters by
written consent and without prior notice to or approval by the holders of Common
Stock, unless such notice or consent are required by applicable law or
regulations.
VOTE REQUIRED
Approval of the amendment to the Certificate to permit holders of Preferred
Stock to act by written consent requires the affirmative vote of the holders of
not less than a majority of the shares of Common Stock outstanding on the Record
Date and a majority of the shares of Series A Preferred Stock outstanding on the
Preferred Stock Record Date.
BOARD RECOMMENDATION
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
PROPOSAL SET FORTH HEREIN.
19
PROPOSAL FOUR: INCREASE OF THE SHARES RESERVED UNDER
THE 2000 STOCK PLAN BY 10,000,000 SHARES AND OF THE
MAXIMUM ANNUAL INCREASE TO 15,000,000 SHARES
OVERVIEW
At the Annual Meeting, the Company's stockholders are being asked to
approve an amendment (the "Plan Amendment") of the Company's 2000 Stock Plan
(the "Plan") to:
- increase the maximum number of shares of Common Stock authorized under the
Plan by 10 million shares; and
- increase the maximum number of additional shares by which the Plan reserve
may be increased on an annual basis to 15 million shares.
The plan was initially approved and adopted by the Board of Directors in
July 2000 and approved by the stockholders of the Company in July 2000. The Plan
initially authorized the issuance of up to 4 million shares of the Company's
Common Stock, with annual increases on the first day of the Company's fiscal
year equal to the least of (i) 2 million shares, (ii) the number of shares
granted pursuant to the Plan during the preceding fiscal year, and (iii) an
amount determined by the Board of Directors. On July 1, 2001, an additional 2
million shares were authorized under the Plan pursuant to the first such annual
increase. Under the Plan Amendment, the total number of shares reserved under
the Plan is increased to a total of 16 million shares, and future annual
increases will equal the least of (i) 15 million shares, (ii) the number of
shares granted pursuant to the Plan during the preceding fiscal year, and (iii)
an amount determined by the Board of Directors.
As of August 31, 2001, options to purchase 3,466,275 shares had been
granted and were outstanding, and 2,533,725 shares remained available for future
grant. All outstanding options under the Plan were granted at exercise prices in
excess of the current market value of our Common Stock. Accordingly, the Board
of Directors believes that these outstanding options do not provide adequate
incentives for current employees. Moreover, the number of shares reserved under
the Plan was determined immediately prior to the Company's initial public stock
offering, when the Company's Common Stock was expected to trade at valuations
substantially higher than the current market valuation of the Common Stock. The
lower current market value of our Common Stock means that new and existing
employees must receive substantially more shares than anticipated in order to
have meaningful incentives to promote the success of the Company.
The Board of Directors has approved the Plan Amendment by unanimous vote of
the directors. Increasing the shares available for grant under the Plan is
considered necessary and in the best interests of the Company and the
stockholders because significant additional option grants will be necessary in
order to retain and provide incentives to its current employees, and align their
interests with the interests of the stockholders, as well as to attract new
employees.
GRANTS UNDER PLAN
The following table sets forth information with respect to the stock
options that have been granted under the Plan as of August 31, 2001 to the Named
Executive Officers, all current executive officers as a group, all current
directors who are not executive officers as a group, and all employees who are
not executive officers as a group. Because grants under the Plan are
discretionary, these figures may not be indicative of future awards.
20
GRANTS UNDER PLAN THROUGH AUGUST 31, 2001
--------------------------------------------------------------------------------------------
NAME OF INDIVIDUAL OR IDENTITY OF GROUP AND NUMBER OF OPTIONS GRANT PRICE
POSITION GRANTED (#) ($/SH.)
--------------------------------------------------------- ------------------ -------------
John P. Bantleman 416,667 $ 4.54 (1)
James J. Bozzini 250,000 1.56
Joseph A. Fuca 100,000 1.20
Kurt M. Heikkinen 250,000 1.56
Marc C. Ferrie 0 -
Douglas S. Sinclair 0 -
Anil K. Gupta 0 -
All Named Executive Officers as a group 600,000 1.50 (1)
All current executive officers as a group 1,050,000 1.66 (1)
All current directors who are not executive officers as a
group 0 -
All other employees as a group 2,952,290 3.57 (1)
_________________________
(1) Represents weighted average per share grant price.
SUMMARY OF PROVISIONS OF THE 2000 STOCK PLAN
A summary of the Plan is included in this Proxy Statement under Compensation
Plans-2000 Stock Plan. This summary is qualified in its entirety by the specific
language of the Plan, as amended. Copies of the Plan are available to any
stockholder upon request addressed to Chris Boas, Assistant Secretary, Evolve
Software, Inc., 1400 65th Street, Suite 100, Emeryville, CA 94608. In addition,
the 2000 Stock Plan has been filed as an exhibit to our Registration Statement
on Form S-1 dated August 8, 2000 and may be obtained through the website of the
Securities and Exchange Commission at www.sec.gov.
-----------
SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income. If these
holding periods are not satisfied, the optionee recognizes ordinary income at
the time of disposition equal to the difference between the exercise price and
the lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the sale price of the shares. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. Unless limited by Section 162(m) of
the Code, the Company is entitled to a deduction in the same amount as the
ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
21
amount as the ordinary income recognized by the optionee. Upon a disposition of
such shares by the optionee, any difference between the sale price and the
optionee's exercise price, to the extent not recognized as taxable income as
provided above, is treated as long-term or short-term capital gain or loss,
depending on the holding period. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income. Different
rules may apply if the optionee is also an officer, director, or 10% shareholder
of the Company.
Stock Purchase Rights. Stock purchase rights will generally be taxed in the
same manner as nonstatutory stock options. However, restricted stock is subject
to a "substantial risk of forfeiture" within the meaning of Section 83 of the
Code, because the Company may repurchase the stock when the purchaser ceases to
provide services to the Company. As a result of this substantial risk of
forfeiture, the purchaser will not recognize ordinary income at the time of
purchase. Instead, the purchaser will recognize ordinary income on the dates
when the stock is no longer subject to a substantial risk of forfeiture (i.e.,
when the Company's right of repurchase lapses). The purchaser's ordinary income
is measured as the difference between the purchase price and the fair market
value of the stock on the date the stock is no longer subject to right of
repurchase.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and begin his or her capital gains holding period by
timely filing (i.e., within thirty days of purchase), an election pursuant to
Section 83(b) of the Code. In such event, the ordinary income recognized, if
any, is measured as the difference between the purchase price and the fair
market value of the stock on the date of purchase, and the capital gain holding
period commences on such date. The ordinary income recognized by a purchaser who
is an employee will be subject to tax withholding by the Company. Different
rules may apply if the purchaser is also an officer, director, or 10%
shareholder of the Company.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
UNDER THE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX
CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
EMPLOYEE OR CONSULTANT MAY RESIDE.
VOTE REQUIRED
Approval of the amendments to the Plan requires the affirmative vote of a
majority of the Votes Cast.
BOARD RECOMMENDATION
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
FOREGOING PROPOSAL.
22
PROPOSAL FIVE: RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending June 30, 2002, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on
ratification, the Board of Directors will reconsider its selection.
Representatives of PricewaterhouseCoopers will 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 answer appropriate questions.
VOTE REQUIRED
The ratification of the appointment of PricewaterhouseCoopers requires the
affirmative vote of a majority of the Votes Cast.
BOARD RECOMMENDATION
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
FOREGOING PROPOSAL.
23
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
(i) the Company's Chief Executive Officer as of the end of fiscal 2001, (ii) the
four other most highly compensated executive officers of the Company (based on
salary plus bonus for fiscal 2001) who were serving as such at the end of fiscal
2001, and (iii) two former executive officers who were not serving as executive
officers at fiscal year end:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ----------
OTHER SECURITIES
ANNUAL UNDERLYING
NAME AND FISCAL SALARY BONUS COMPENSATION OPTIONS
PRINCIPAL POSITION YEAR ($) ($) ($) (1) (#)
------------------------------------- ------ -------- -------- ------------- -----------
John P. Bantleman (2) 2001 255,000 110,625 - 416,667
Former President and Chief Executive 2000 234,579 265,625 - -
Officer 1999 187,500 135,520 - -
James J. Bozzini (3) 2001 200,000 47,500 - 250,000
Chief Operating Officer 2000 133,333 105,000 - -
Joseph A. Fuca (4) 2001 156,250 210,000 - 100,000
Vice President, North American Sales 2000 47,822 157,000 - 258,333
Kurt M. Heikkinen (5) 2001 170,417 28,500 - 250,000
Vice President, Engineering 2000 80,000 20,000 - -
Anil K. Gupta (6) 2001 199,554 28,500 - -
Former Vice President, Business 2000 57,576 18,000 - -
Development & Strategy
Douglas S. Sinclair (7) 2001 200,000 21,250 - -
Former Chief Financial Officer 2000 45,833 12,500 - -
Marc C. Ferrie (8) 2001 273,291 43,500 - -
Former Vice President, Engineering 2000 182,500 113,250 - -
1999 162,500 35,363 - -
__________________
(1) Under applicable SEC rules, perquisites are excluded if the aggregate
value is less than the lesser of $50,000 or 10% of the executive
officer's salary plus bonus.
(2) Mr. Bantleman resigned from the Company in October 2001.
(3) Mr. Bozzini joined the Company in November 1999.
(4) Mr. Fuca joined the Company in March 2000.
(5) Mr. Heikkinen joined the Company in December 1999.
(6) Mr. Gupta joined the Company in March 2000 and resigned from the
Company in June 2001.
24
(7) Mr. Sinclair joined the Company in April 2000 and resigned from the
Company in June 2001.
(8) Mr. Ferrie resigned from the Company in February 2001.
The following table provides information concerning grants of options to
purchase our Common Stock made during fiscal 2001 to the executive officers
listed in the Summary Compensation Table. Messrs. Ferrie, Gupta and Sinclair
received no option grants in fiscal 2001 and held no options at June 30, 2001.
OPTION GRANTS IN FISCAL 2001
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS POTENTIAL REALIZABLE VALUE AT
OPTIONS GRANTED TO EXERCISE ASSUMED ANNUAL RATES OF
GRANTED (#) EMPLOYEES PRICE EXPIRATION STOCK PRICE APPRECIATION FOR
NAME (1) IN FISCAL YEAR ($/SH.) (2) DATE OPTION TERM (3)
----------------- ----------- --------------- ------------ ---------- ------------------------------
5% ($) 10% ($)
-------------- --------------
John P. Bantleman 166,667 4.3% $ 9.00 8/9/10 $ 943,344 $ 2,390,618
250,000 6.4 1.56 4/26/11 245,269 621,560
James J. Bozzini 250,000 6.4 1.56 4/26/11 245,269 621,260
Joseph A. Fuca 100,000 2.6 1.20 5/16/11 75,467 191,249
Kurt M. Heikkinen 250,000 6.4 1.56 4/26/11 245,269 621,560
____________________________
(1) All of the above options are subject to the terms of our 2000 Stock Plan
(the "2000 Stock Plan"). All options are not exercisable until vested. The
options granted to each executive officer generally vest as to 25% of the
underlying shares on the first anniversary of the date of grant and in
equal monthly increments over a 36-month period thereafter, provided the
optionee continues to provide services to us. The options have a term of 10
years from the date of grant.
(2) All options were granted at an exercise price equal to the fair market
value of our Common Stock on the date of grant.
(3) Potential realizable values are net of exercise price, but before deduction
of taxes associated with exercise. These amounts represent certain assumed
rates of appreciation only, based on the Securities and Exchange Commission
rules, and do not represent our estimate of future stock prices. No gain to
an optionee is possible without an increase in stock price, which will
benefit all stockholders commensurately. A zero percent gain in stock price
will result in zero dollars for the optionee. Actual realizable values, if
any, on stock option exercises are dependent on the future performance of
our Common Stock, overall market conditions and the option holders'
continued service to the Company through the vesting period.
25
The following table provides the specified information concerning option
exercises during fiscal 2001 and exercisable and unexercisable options held as
of June 30, 2001 by the executive officers listed in the Summary Compensation
Table. Messrs. Ferrie, Gupta and Sinclair received no option grants in fiscal
2001 and held no options at June 30, 2001.
AGGREGATED OPTION EXERCISES IN FISCAL
2001 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES ACQUIRED UNEXERCISED IN-THE-MONEY
ON VALUE OPTIONS AT JUNE 30, 2001 (#) OPTIONS AT JUNE 30, 2001 (1) ($)
---------------------------- --------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ------------ ------------ ------------ -------------- ------------- --------------
John P. Bantleman - - 55,555 361,112 - -
21
James J. Bozzini - - 20,833 229,167 - -
Joseph A. Fuca - - 2,083 97,917 - -
Kurt M. Heikkinen - - 20,833 229,167 - -
(1) Based on a fair market value of $0.57 per share as of June 29, 2001, the
closing sale price of our Common Stock on that date as reported by the
Nasdaq National Market. None of the options held by the Named Executive
Officers were "in-the-money."
26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALE OF SERIES A PREFERRED STOCK
Pursuant to a Series A Preferred Stock Purchase Agreement (the "Purchase
Agreement") dated as of September 23, 2001, between the Company and
certain investors:
- On October 9, 2001, Warburg Pincus Private Equity VIII, L.P.
("Warburg"), Sierra Ventures VII, L.P. ("Sierra Ventures VII") and
Sierra Ventures Associates VII LLC ("SV Associates VII") purchased
1,000,000, 90,933 and 9,067 shares, respectively, of the Company's
Series A Preferred Stock at a price of $10 per share, with the
purchase price paid in cash at the closing of the sale of such shares
(the "Closing");
- At the Closing, the Company issued to Warburg, Sierra Ventures VII and
SV Associates VII Preferred Stock Warrants to purchase up to an
aggregate of 1,000,000, 90,933 and 9,067 additional shares,
respectively, of Series A Preferred Stock at a price of $10 per share
in cash, which warrants are exercisable for up to one year after the
Closing under certain circumstances;
- At the Closing, the Company issued to Warburg, Sierra Ventures VII and
SV Associates VII Common Stock Warrants to purchase up to 5,000,000,
454,665 and 45,335 shares, respectively, of Common Stock at a price of
$1.00 per share, which warrants are exercisable for up to seven years;
and
- The Company agreed to grant to Warburg, Sierra Ventures VII and SV
Associates VII additional Common Stock Warrants to purchase that
number of shares of Common Stock equal to 25% of the number of shares
of Common Stock into which shares of Series A Preferred Stock issued
upon exercise of the Preferred Stock Warrants are convertible, at the
time such Preferred Stock Warrants are exercised.
Each share of Series A Preferred Stock is convertible into Common Stock at
an initial conversion price of $0.50, or at an initial conversion rate of twenty
(20) shares of Common Stock for each share of Series A Preferred Stock, subject
to certain adjustments as set forth in the Certificate of Designation of Series
A Preferred Stock of the Company. The number of shares into which each share of
Series A Preferred Stock is convertible accretes at a rate of 8.00% per annum.
The total amount of funds paid in consideration of the Series A Preferred
Stock at the Closing was $10,000,000 in the case of Warburg, $909,330 in the
case of Sierra Ventures VII and $90,670 in the case of SV Associates VI. If all
Preferred Stock Warrants and Common Stock Warrants issued or issuable to Warburg
were exercised in full and if all shares of Series A Preferred Stock issued or
issuable to Warburg were converted into shares of Common Stock, Warburg would
beneficially own 50,003,298 shares of Common Stock or 55.0% of all outstanding
shares of Common Stock of the Company as of September 27, 2001 (without taking
into account the shares of Common Stock issuable to the other Investors). Based
on information set forth in Warburg's Schedule 13-D report dated October 3,
2001, the aggregate purchase price for the shares of Series A Preferred stock
acquired by Warburg was paid out of the working capital of Warburg.
We issued these securities pursuant to agreements under which we made
representations, warranties and covenants and provided the purchasers with
registration rights and information rights, among other privileges. For
additional information about the Series A Preferred Stock offering and related
agreements, please see the discussion under "Proposed Two" above.
27
Jeffrey M. Drazan, a director of the Company, is a managing member of SV
Associates VII, which is the general partner of Sierra Ventures VII.
Cary Davis and Nancy Martin, directors of the Company, are partners of
Warburg Pincus & Co. and Managing Directors of Warburg Pincus LLC, the general
partner of Warburg, and Gayle Crowell, a director of the Company, is a full-time
advisor to of Warburg Pincus LLC. Mr. Davis, Dr. Martin and Ms. Crowell were
each apointed to our Board of Directors upon the closing of the sale of the
Series A Preferred Stock in accordance with the terms of the Purchase Agreement.
SEVERANCE AGREEMENTS
On March 19, 2001, we entered into a severance agreement with Douglas S.
Sinclair, our former Chief Financial Officer, pursuant to which it was agreed
that his employee termination date would be June 28, 2001, followed by a
six-month tenure as consultant to the Company, which would terminate on December
31, 2001. The Company agreed to pay Mr. Sinclair all accrued salary and all
accrued and unused vacation through his employee termination date, as well as
all group health insurance benefits. During Mr. Sinclair's consulting period,
the Company agreed to make quarterly payments in advance to Mr. Sinclair in the
amount of $58,750. The Company also agreed to allow Mr. Sinclair's two
Restricted Stock Awards to continue vesting through the end of his consultancy
period, pursuant to the terms of the Restricted Stock Purchase Agreements. The
Company will retain its right to repurchase all of the unvested shares as of
December 31, 2001 pursuant to the Restricted Stock Purchase Agreements, and upon
any such repurchase the Company has agreed to forgive all principal and accrued
interest on the portion of the shares so repurchased. Additionally, on the first
anniversary of the date of termination of the Consulting Period, or December 31,
2002, the Company will, at Mr. Sinclair's sole discretion, repurchase some or
all of the remaining shares then held by him at a purchase price equivalent to
the amount paid to purchase the shares plus accrued interest due to the Company.
Any remaining principal and accrued interest will become due and payable to the
Company within ten days of the foregoing anniversary.
On February 21, 2001, we entered into a severance agreement with Marc C.
Ferrie, our former Vice President, Engineering, pursuant to which it was agreed
that his employee termination date would be February 22, 2001, followed by a
one-year tenure as consultant to the Company, which would terminate on February
23, 2002. The Company agreed to pay Mr. Ferrie all accrued salary and all
accrued and unused vacation through his employee termination date, as well as
all group health insurance benefits. During Mr. Ferrie's consulting period, the
Company agreed to make quarterly payments of $62,500 to Mr. Ferrie on February
26, 2001, April 2, 2001, July 1, 2001 and November 1, 2001. The Company also
agreed to allow Mr. Ferrie's three Restricted Stock Awards and two
early-exercised incentive stock options to continue vesting through the end of
his consultancy period, pursuant to the terms of those agreements. The Company
will retain its right to repurchase all of the unvested shares as of the end of
Mr. Ferrie's consulting period, and upon any such repurchase the Company has
agreed to forgive all principal and accrued interest on the portion of the
shares so repurchased. All principal and accrued interest on the remaining
shares are due to the Company within six months of the termination of the
consulting period.
On June 6, 2001, we entered into a severance agreement with Anil K. Gupta,
our former Vice President, Business Development and Strategy, pursuant to which
it was agreed that his employee termination date would be June 29, 2001,
followed by a tenure as consultant to the Company through October 26, 2001,
followed by an extension of the consulting period to December 28, 2001, provided
that Mr. Gupta had not found new comparable employment by that date. The Company
agreed to pay Mr. Gupta all accrued salary and all accrued and unused vacation
through his employee termination date, as well as all group health insurance
benefits. During Mr. Gupta's consulting period, the Company agreed to make
monthly payments on the first of every month to him in the amount of $15,833.
The Company also agreed to allow Mr. Gupta's two Restricted Stock Awards to
continue vesting through the end of his consultancy period, pursuant to the
terms of the Restricted Stock Purchase Agreements. The Company will retain its
right to repurchase all of the unvested shares as of the end of Mr. Gupta's
28
consultancy period no earlier than ten days and no later than fifteen days after
the termination of the Consulting Period. Pursuant to the Restricted Stock
Purchase Agreements, and upon any such repurchase, the Company has agreed to
forgive all principal and accrued interest on the portion of the shares so
repurchased. Additionally, on or before the first anniversary of the date of
termination of the Consulting Period, on a one-time basis only, the Company
will, at Mr. Gupta's sole discretion, repurchase some or all of the remaining
shares then held by him at a purchase price equivalent to the amount paid to
purchase the shares plus accrued interest due to the Company. Any remaining
principal and accrued interest will become due and payable to the Company with
ten days of the foregoing anniversary.
In October 2001, we entered into a Separation and Consulting Agreement with
John Bantleman, our former President and Chief Executive Officer, pursuant to
which it was agreed that he would resign his employment and his position on the
Company's Board of Directors effective October 5, 2001 and begin tenure as a
consultant to the Company and its Board of Directors through December 31, 2001.
The Company agreed to pay Mr. Bantleman all accrued salary and all accrued and
unused vacation time through October 5, 2001, as well as health insurance
benefits through March 1, 2002. As compensation for Mr. Bantleman's consulting
work for the Company, we agreed to pay him a lump sum of $65,250. If Mr.
Bantleman executes a general release by November 4, 2001, we will pay him an
additional lump sum of $65,250. Additionally, because we closed a financing in
excess of $10 million within the first 30 days after his departure, we agreed to
pay Mr. Bantleman two additional payments of $65,250 on each of April 1, 2002
and July 1, 2002. The Company also agreed to allow options to purchase 104,292
shares of common stock (25 percent of the 417,167 options covered under three
stock option agreements) to immediately vest and to allow 312,500 shares
purchased under three restricted stock purchase agreements (25 percent of the
1,250,000 shares purchased under such restricted stock purchase agreements) to
immediately vest. Further, we forgave notes that Mr. Bantleman issued to us
totaling $175,000 (plus approximately $14,650 accrued interest as of August 31,
2001), and we amended additional notes that Mr. Bantleman issued to us totaling
$975,000 to purchase shares under restricted stock purchase agreements, to make
them non-recourse as to Mr. Bantleman and to extend the due date of these notes
until fifteen months after termination of his employment.
INDEBTEDNESS OF MANAGEMENT
LOANS TO OFFICER
In June 2001, we entered into a promissory note and security agreement with
Mr. Bantleman, pursuant to which we loaned him $75,000. Mr. Bantleman delivered
us a promissory note that accrues interest at the rate of 7.50% per year. The
note, plus any accrued and unpaid interest, is due and payable on October 19,
2001. To secure the loan, Mr. Bantleman granted us a security interest in his
shares of Common Stock of the Company, which shares also secure the promissory
notes Mr. Bantleman delivered to us as payment for his restricted stock purchase
agreements of January 1998, February 1999 and November 1999.
We also loaned Mr. Bantleman $20,000 on March 9, 1999, $40,000 on June 30,
1999, and $40,000 on September 30, 1999. Each loan was made pursuant to a
promissory note that accrues interest at a rate of 6.0%. These loans are secured
by shares of our Common Stock held by Mr. Bantleman. The largest aggregate
amount of indebtedness since June 30, 2000 on each note (including accrued
interest) was $23,112, $45,398 and $44,736, respectively, each on August 31,
2001.
29
LOANS TO PURCHASE SHARES
In July 2000, we entered into restricted stock purchase agreements with Mr.
Ferrie, Mr. Gupta, Kurt M. Heikkinen, our current Vice President, Engineering,
and Mr. Sinclair. Pursuant to such agreements, each of these executive officers
purchased shares of our Common Stock at a price of $4.50 per share. Mr. Sinclair
purchased 166,667 shares for an aggregate purchase price of $750,000; and
Messrs. Ferrie, Gupta and Heikkinen each purchased 41,667 shares of our Common
Stock for an aggregate purchase of $187,500. The purchase price for each of the
foregoing stock purchases was paid for with a promissory note from each of the
respective officers that accrues interest at a rate of 6.62% per year. The
largest aggregate amount of indebtedness since inception on each note (including
accrued interest) was $201,711, $201,711, $201,711 and $806,844, respectively,
each on August 31, 2001.
In March 2000, we entered into a restricted stock purchase agreement with
Mr. Sinclair pursuant to which he purchased 250,000 shares of our Common Stock
at a price of $6.00 per share, for an aggregate purchase price of $1,500,000.
The purchase price was paid for with a promissory note that accrues interest at
the rate of 6.80% per year. The largest aggregate amount of indebtedness since
June 30, 2000 on the note (including accrued interest) was $1,652,144, on August
31, 2001.
In February 2000, we entered into a restricted stock purchase agreement
with Judith H. Hamilton, one of our directors. Pursuant to this agreement, Ms.
Hamilton purchased 83,333 shares of our Common Stock at a price of $3.00 per
share for an aggregate purchase price of $250,000. The purchase price was paid
with a promissory note that accrues interest at the rate of 6.56% per year. The
largest aggregate amount of indebtedness since June 30, 2000 on the note
(including accrued interest) was $276,078, on August 31, 2001.
Also in February 2000, we entered into restricted stock purchase agreements
with each of J. Russell DeLeon, our former Vice President, International
Business Development, Jeffrey McClure, our Former Vice President, Marketplace
Services, and Messrs. Heikkinen and Gupta. Pursuant to such agreements, each of
these executive officers purchased shares of our Common Stock at a price of
$3.00 per share. Mr. DeLeon purchased 66,667 shares for an aggregate purchase
price of $200,000; Mr. McClure purchased 54,167 shares for an aggregate purchase
price of $162,500; Mr. Heikkinen purchased 25,000 shares for an aggregate
purchase price of $75,000; and Mr. Gupta purchased 250,000 shares for an
aggregate purchase price of $750,000. The purchase price for each of the
foregoing stock purchases was paid for with a promissory note from each of the
respective officers that accrues interest at the rate of 6.56% per year. The
largest aggregate amount of indebtedness since June 30, 2000 on each note
(including accrued interest) was $220,594, $179,232, $82,723 and $828,235,
respectively, each on August 31, 2001.
In November 1999, we entered into restricted stock purchase agreements with
each of Mr. Bantleman, James Bozzini, our Chief Operating Officer, Mark Davis,
our former Vice President, Marketing, and Messrs. Ferrie, Heikkinen and DeLeon.
Pursuant to such agreements, each of these executive officers purchased shares
of our Common Stock at a price of $1.20 per share. Mr. Bantleman purchased
416,667 shares for an aggregate purchase price of $500,000; Mr. Bozzini
purchased 750,000 shares for an aggregate purchase price of $900,000; Mr. Davis
purchased 333,333 shares for an aggregate purchase price of $400,000; Mr. Ferrie
purchased 133,333 shares for an aggregate purchase price of $160,000; Mr.
Heikkinen purchased 225,000 shares for an aggregate purchase price of $270,000;
and Mr. DeLeon purchased 41,667 shares for an aggregate purchase price of
$50,000. The purchase price for each of the foregoing stock purchases was paid
with a promissory note from each of the respective officers that
accrues interest at the rate of 6.08% per year. The largest aggregate amount of
indebtedness since June 30, 2000 on each note (including accrued interest) was
$555,596, $1,000,073, $249,857, $177,791, $300,022 and $55,560, respectively,
each on August 31, 2001.
30
Also in November 1999, we sold 83,333 shares of restricted Common Stock to
Jeffrey M. Drazan, one of our directors, at a price of $1.20 per share for an
aggregate purchase price of $100,000. The purchase price for the foregoing stock
purchase was paid with a promissory note to us from Mr. Drazan that accrues
interest at the rate of 6.08% per year. The largest aggregate amount of
indebtedness since June 30, 2000 on the note (including accrued interest) was
$111,119, on August 31, 2001.
In October 1999, we sold 333,333 shares of restricted Common Stock to JRO
Consulting, Inc. at a price of $0.30 per share for an aggregate purchase price
of $100,000. The purchase price was paid with a promissory note that accrues
interest at the rate of 7.0% per year. John R. Oltman, the President of JRO
Consulting, Inc., is one of our a directors and the beneficial owner of these
shares. The largest aggregate amount of indebtedness since June 30, 2000 on the
note (including accrued interest) was $113,455, on August 31, 2001.
In February 1999, we entered into restricted stock purchase agreements with
Messrs. Bantleman, Ferrie and DeLeon. Pursuant to such agreements, each of these
executive officers purchased shares of our Common Stock at a price of $0.30 per
share. Mr. Bantleman purchased 683,333 shares for an aggregate purchase price of
$205,000; Mr. Ferrie purchased 316,667 shares for an aggregate purchase price of
$95,000; and Mr. DeLeon purchased 91,750 shares for an aggregate purchase price
of $27,525. The purchase price for each of the stock purchases described above
was paid with a promissory note from each of the respective executive officers
to us. The largest aggregate amount of indebtedness since June 30, 2000 on each
note (including accrued interest) was $232,509, $107,748, and $31,218,
respectively, each on August 31, 2001.
In January 1998 we entered into a restricted stock purchase agreement with
Mr. Bantleman. Pursuant to the agreement, Mr. Bantleman purchased 150,000 shares
of our stock at a price of $1.80 per share for an aggregate purchase price of
$270,000 in exchange for a promissory note. We have the right to repurchase
these shares from Mr. Bantleman that have not been released from our repurchase
option at a price of $1.80 per share. The largest aggregate amount of
indebtedness since June 30, 2000 on the note (including accrued interest) was
$329,223, on August 31, 2001.
We loaned Mr. Ferrie $90,000 on November 17, 1999, Mr. McClure $135,000 on
December 14, 1999, and Joseph A. Fuca, our Vice President, Sales, $375,000 on
February 15, 2000 and $937,500 on May 30, 2000, each loan pursuant to promissory
notes that accrue interest at a rate of 6.00%, 6.20%, 6.56% and 6.40%,
respectively, per year. These amounts were borrowed to exercise incentive stock
options to purchase shares of our Common Stock. The largest aggregate amount of
indebtedness since June 30, 2000 on each note (including accrued interest) was
$99,889, $149,672, $413,613 and 1,013,392, respectively, each on August 31,
2001.
COMPENSATION OF DIRECTORS
Our Board of Directors is reimbursed for expenses incurred in attending any
meeting of the Board of Directors or any committee thereof. We pay the Chairman
of our Board of Directors $2,500 per month. We have adopted a policy whereby
each new non-employee director will receive a grant of a stock option to
purchase 125,000 shares of our Common Stock on the date on which such person
becomes a director, and an additional grant of a stock option to purchase 35,000
shares of our Common Stock on the date of each annual meeting of stockholders
after such director has served on our Board of Directors for at least one full
year. The options vest over four years. Twenty-five percent of the shares
subject to such options vest on the first anniversary of the date on which the
person becomes a director, and 1/48th of the total number of shares vest
each month thereafter. Our directors may also be given the opportunity from time
to time to purchase shares of our Common Stock pursuant to restricted stock
purchase agreements.
In August 2000, we issued options to purchase 41,667 shares of Common Stock
to each of Jeffrey M. Drazan, Judith H. Hamilton, Paul Rochester and JRO
Consulting, Inc. In addition, in July 2000, we issued an option to purchase
83,333 shares of Common Stock to Paul Rochester in connection with his joining
our Board of Directors. Ms. Hamilton and Messrs. Drazan and Rochester are
31
members of our Board of Directors. John R. Oltman, the President of JRO
Consulting, Inc., is a director of Evolve and the beneficial owner of shares
held by JRO Consulting, Inc. The options have an exercise price of $9.00 per
share, vested with respect to 25% of the shares purchased in on the one-year
anniversary date of their grants and will vest with respect to 1/48 of the
underlying shares each month thereafter.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires our executive officers, directors and persons who beneficially own more
than 10% of our Common Stock to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission. These persons
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms filed by such persons.
Based on our review of such forms furnished to us and written
representations from certain reporting persons, we believe that all filing
requirements applicable to our executive officers, directors and more than 10%
stockholders were complied with in a timely manner during fiscal 2001; however,
Mr. Bantleman's Form 4 filing on June 11, 2001 was labeled deficient by the
Securities and Exchange Commission because the filing (made by facsimile) was
illegible. Mr. Bantleman subsequently re-filed the Form 4.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board of Directors established a compensation committee in December
1998. Prior to establishing the compensation committee, our Board of Directors
as a whole performed the functions delegated to the compensation committee.
During the 2001 fiscal year:
- None of the members of the Compensation Committee was an officer (or
former officer) or employee of the Company or any of its subsidiaries;
- None of the members of the Compensation Committee entered into (or
agreed to enter into) any transaction or series of transactions with
the Company or any of its subsidiaries in which the amount involved
exceeds $60,000, except as disclosed above;
- None of the Company's executive officers served on the Compensation
Committee (or another Board committee with similar functions or, if
there was no committee like that, the entire Board of Directors) of
another entity where one of that entity's executive officers served on
the Company's Compensation Committee;
- None of the Company's executive officers was a director of another
entity where one of that entity's executive officers served on the
Company's Compensation Committee; and
- None of the Company's executive officers served on the Compensation
Committee (or another Board committee with similar functions or, if
there was no committee like that, the entire Board of Directors) of
another entity where one of that entity's executive officers served as
a director on the Company's Board.
32
EXECUTIVE OFFICERS OF THE COMPANY
The following persons served as executive officers of the Company as of
October 22, 2001;
NAME AGE POSITION
------------------ --- ----------------------------------------------------
Lin Johnstone 48 Interim President and Chief Executive Officer
James J. Bozzini 34 Chief Operating Officer
Kenneth J. Bozzini 41 Chief Financial Officer, Vice President of Finance
Kurt M. Heikkinen 34 Vice President, Engineering and Customer Service
Joseph A. Fuca 36 Vice President, North American Sales
David Hsieh 37 Vice President, Marketing
Ian Reay 59 Vice President, Human Resources
Lin Johnstone joined the Company as Interim President and Chief Executive
Officer in October 2001. Prior to joining the Company, Ms. Johnstone was Vice
President, UK for E.piphany from January, 2000 to May 2001. She also was
Managing Director for Europe, Middle East and Africa (EMEA) for RightPoint from
August 1999 to May 2001. Before RightPoint she was Vice President (EMEA) for
Aspect Communications from September 1988 to August 1999. Ms. Johnstone has an
MBA from Oxford Brooks University, England.
James J. Bozzini has served as Chief Operating Officer since November 1999.
From 1991 to 1999, Mr. Bozzini held various executive positions at PeopleSoft,
an applications software vendor, including Senior Vice President of Worldwide
Services Operations from January 1998 to July 1999, Vice President, Customer
Services from December 1995 until December 1997 and Vice President of
Professional Services and Director of European Operations from 1991 to 1995.
From 1988 to 1991, Mr. Bozzini also held various positions at Andersen
Consulting, an international management and technology consulting organization.
Mr. Bozzini holds a B.S. in Business from California State University, Chico.
Kenneth J. Bozzini has served as Chief Financial Officer since April 2001,
as Vice President of Finance since January 2001, and prior to that served as
Director of Finance since September 1999. Prior to joining Evolve, Mr. Bozzini
was Chief Financial Officer of PKR Development and Management Company, a
restaurant management and development company, from September 1997 to August
1999. From May 1996 to August 1997, Mr. Bozzini was Vice President, Finance and
Administration for Action Technologies, Inc. Mr. Bozzini holds a Masters Degree
in Business Administration from the University of California, Berkeley and a
degree in accounting from Golden Gate University, where he graduated Magna Cum
Laude. Mr. Bozzini is a Certified Public Accountant.
Kurt M. Heikkinen has served as Vice President, Engineering and Customer
Service since February 2001 and prior to that served as Vice President,
Worldwide Customer Service since December 1999. Prior to joining Evolve, Mr.
Heikkinen held various positions at PeopleSoft. From August 1999 to November
1999, he served as General Manager of the Human Resource Management Solutions
("HRMS") product division; from October 1997 until August 1999 he served as Vice
President, Global Support Services; from July 1996 until October 1997 he served
as Development Manager, Asia Pacific HRMS; and from March 1994 until July 1996
he was a Senior Account Manager. Mr. Heikkinen holds a B.S. degree from the
University of Wisconsin, Milwaukee.
Joseph A. Fuca has served as Vice President, North American Sales since
March 2000. From August 1998 to February 2000, Mr. Fuca was Vice President and
General Manager of the North American High-Technology and Telecommunications
business unit of FirePond, a provider of integrated sales software. From January
1991 to July 1998, Mr. Fuca served in various sales executive positions with
Merant (formerly known as INTERSOLV), an e-business software provider. From June
33
1997 to July 1998, Mr. Fuca was Vice President of Sales for INTERSOLV's
Enterprise Solutions Group. From January 1995 to May 1997, Mr. Fuca was Vice
President of Sales for Strategic National Accounts at INTERSOLV. Mr. Fuca holds
a B.A. in both Business Administration and Communication Arts from California
Lutheran University.
David Hsieh has been Vice President, Marketing since May 2001. Mr. Hsieh is
responsible for our marketing, business development and corporate development
activities. Prior to joining Evolve, Mr. Hsieh was Vice President of
Marketing and Business Development of FaceTime Communications from November 1998
to April 2001, and prior to that he was Chief Executive Officer of FaceTime from
November 1997 to November 1998. Mr. Hsieh was also a co-founder of FaceTime.
From May 1997 to October 1997, Mr. Hsieh was an entrepreneur-in-residence at
Institutional Venture Partners (IVP), and from April 1996 to May 1997 he was
Vice President of Enterprise Product Marketing at Sybase. Mr. Hsieh is a
graduate of Northwestern University.
Ian Reay has been Vice President, Human Resources since January 2001. Prior
to this, from January 2000 to December 2000, Mr. Reay was Director of Global
Staffing for WebMD. From February 1997 to January 2000, he served as a Staffing
Leader for Kaiser Permanente, and from September 1995 to January 1997, Mr. Reay
was Director of Human Resources for ComStream Holdings. Although he has
specialized in staffing during recent years at WebMD and Kaiser Permanente, he
has also served as an active member of senior executive teams at the Director or
VP level at ComStream, Proxima Corporation, NCA Corporation, and Victor
Technologies.
34
COMPENSATION PLANS
2000 STOCK PLAN
The 2000 Stock Plan provides for the grant of incentive stock options to
employees, including officers and employee directors, and for the grant of
non-statutory stock options and stock purchase rights to employees, directors
and consultants. The total number of shares of Common Stock currently reserved
for issuance under the 2000 Stock Plan is 6,000,000 (proposed to be increased by
10,000,000, to 16,000,000 shares). A number of shares is added to the 2000 Stock
Plan on an annual basis equal to the least of the aggregate number of shares
subject to grants made in the previous year, 2,000,000 (proposed to be increased
to 15,000,000) shares and any lesser amount determined by our Board of
Directors.
Unless terminated sooner, the 2000 Stock Plan will terminate automatically
on August 9, 2010.
The administrator of our 2000 Stock Plan has the power to determine:
- the terms of the options or stock purchase rights granted, including
the exercise price of the options or stock purchase rights;
- the number of shares subject to each option or stock purchase right;
- the vesting schedule of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
Options and stock purchase rights granted under our 2000 Stock Plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 2000 Stock Plan must generally be exercised within
three months after the end of optionee's status as an employee, director or
consultant of the Company, or within twelve months after such optionee's
termination by death or disability, but not later than the expiration of the
option's term.
The exercise price of all incentive stock options granted under the 2000
Stock Plan must be at least equal to the fair market value of the Common Stock
on the date of grant. The exercise price of nonstatutory stock options and stock
purchase rights granted under the 2000 Stock Plan is determined by the
administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Internal Revenue Code, the exercise price must be at least equal to the
fair market value of our Common Stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal to 110% of the fair market value on
the grant date and the term of such incentive stock option must not exceed five
years. The term of all other options granted under the 2000 Stock Plan may not
exceed ten years.
The 2000 Stock Plan provides that if we merge with or into another
corporation, or sell substantially all of our assets, each option and stock
purchase right must be assumed or an equivalent option or stock purchase right
substituted for by the successor corporation. If the outstanding options and
stock purchase rights are not assumed or substituted for by the successor
corporation, the optionees shall become fully vested in and have the right to
exercise such options or stock purchase rights. If an option or stock purchase
right becomes fully vested and exercisable in the event of a merger or sale of
assets, the administrator must notify the optionee that the option or stock
purchase right is fully exercisable for a period of 15 days from the date of the
notice, and the option or stock purchase right will terminate upon the
expiration of the 15 day period.
35
2000 EMPLOYEE STOCK PURCHASE PLAN
A total of 2,207,882 shares of Common Stock have been reserved for issuance
under our 2000 Employee Stock Purchase Plan (the "Purchase Plan"), plus annual
increases equal to the least of the aggregate number of shares issued pursuant
to the Purchase Plan in the previous year, 1,000,000 shares, and any lesser
amount determined by our Board of Directors. As of the date of this Proxy
Statement, 322,542 shares had been issued under our Purchase Plan.
The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, is implemented by a series of overlapping offering
periods of 24 months' duration, with new offering periods, other than the first
offering period, commencing on or about February 1 and August 1 of each year.
Each offering period consists of four consecutive purchase periods of
approximately six months' duration, at the end of which, an automatic purchase
is made for participants. The initial offering period commenced on August 9,
2001 and will end on July 31, 2002. The present purchase period began on August
1, 2001 and will end on January 31, 2001. Participants generally may not
purchase more than 5,000 shares, or such other number of shares established by
our Board of Directors, on any purchase date or purchase stock having a value
measured at the beginning of the offering period greater than $25,000 in any
calendar year.
Employees are eligible to participate in the Purchase Plan if they are
customarily employed by us or any participating subsidiary for at least 20 hours
per week and more than five months in any calendar year. However, any employee
who immediately after grant of a purchase right under the Purchase Plan would
own stock possessing 5% or more of the total combined voting power or value of
all classes of our capital stock, or whose rights to purchase stock under all of
our Purchase Plans accrues at a rate that exceeds $25,000 worth of stock for
each calendar year may not be granted an option to purchase stock under this
plan. The Purchase Plan permits participants to purchase Common Stock through
payroll deductions of up to 15% of the participant's base compensation.
Amounts deducted and accumulated by the participant are used to purchase
shares of Common Stock at the end of each purchase period. The price of stock
purchased under the Purchase Plan is generally 85% of the lower of the fair
market value of the Common Stock at the beginning of the offering period or at
the end of the purchase period. Participants may end their participation at any
time during an offering period, and they will be paid their payroll deductions
to date. Participation ends automatically upon termination of employment with
us.
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. The new
offering period will use the lower fair market value as of the first date of the
new offering period to determine the purchase price for future purchase periods.
Rights granted under the Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the plan. The Purchase Plan provides that, in the event
of our merger with or into another corporation or a sale of substantially all
our assets, each outstanding option may be assumed or substituted for by the
successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding options, the offering period then in progress
will be shortened and a new exercise date will be set. The new exercise date
will be set prior to the proposed date of the merger or sale of assets.
The Board has the authority to amend or terminate the purchase plan, except
that no such action may adversely affect any outstanding rights to purchase
stock under the purchase plan. The Board has the exclusive authority to
interpret and apply the provisions of the purchase plan. The Purchase Plan will
terminate automatically in 2010, unless terminated earlier.
36
1995 STOCK OPTION PLAN, AS AMENDED
Our 1995 Stock Option Plan, as amended, was adopted by our Board of
Directors and by our stockholders in 1995, and it was amended in 1996, 1998,
1999 and 2000. The 1995 Stock Option Plan was terminated as to new issuances in
August 2000, upon the commencement of the 2000 Stock Plan. As of June 30, 2001,
we had reserved a total of 5,583,333 shares of our Common Stock for issuance
upon exercise of options granted under the plan. The 1995 Stock Option Plan, as
amended, provides for the granting to our employees of incentive stock options
within the meaning of Section 422 of the United States tax code, and for the
granting to employees, including officers and directors, non-employee directors
and consultants of non-statutory stock options. No further grants will be made
under the 1995 Stock Option Plan.
Options granted under our 1995 Stock Option Plan, as amended, are not
generally transferable by the optionee, and each option is exercisable during
the lifetime of the optionee only by the optionee. Options granted under the
1995 Stock Option Plan, as amended, must generally be exercised within three
months of the end of optionee's status as our employee or consultant, or within
twelve months after his or her termination by death or disability, but in no
event later than the expiration of the option's ten year term.
Options granted under our 1995 Stock Option Plan, as amended, will
accelerate and become fully vested in the event we are acquired, unless the
successor corporation assumes or substitutes other options in their place.
401(K) PLAN
In April 1996, we adopted a 401(k) plan to provide eligible employees with
a tax preferential savings and investment program. Eligible participants may
elect to reduce their current compensation up to the lesser of 15% of eligible
compensation and the statutorily prescribed annual limit and have such reduction
contributed to the 401(k) plan. At the direction of each participant, the
trustee of the 401(k) plan invests the assets of the 401(k) plan in selected
investment options. Contributions by participants to the 401(k) plan, and income
earned on plan contributions, are generally not taxable to the participants
until withdrawn.
37
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. Management has the primary responsibility for
the Company's financial statements and the overall reporting process, including
the Company's system of financial controls. In fulfilling its oversight
responsibilities during fiscal year 2001, the Committee periodically:
- reviewed and discussed the audited financial statements with the Company's
management,
- reviewed the unaudited and audited financial statements with management and
the Company's independent public accountants, PricewaterhouseCoopers LLP,
- discussed the accounting principles, significant assumptions, estimates and
matters of judgment used in preparing the financial statements with
management and PricewaterhouseCoopers,
- reviewed the Company's financial controls and financial reporting process,
and
- reviewed significant financial reporting issues and practices, including
changes in accounting principles and disclosure practices.
The Committee also reviewed with PricewaterhouseCoopers, who are
responsible for expressing an opinion on the conformity of the audited financial
statements with generally accepted accounting principles, their judgment as to
the quality, and not just the acceptability, of the Company's accounting
principles and such other matters as are required to be discussed with the
Committee under generally accepted accounting principles. The Committee
periodically met with PricewaterhouseCoopers, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls and the overall quality of the Company's financial
reporting.
In addition, the Committee has discussed with PricewaterhouseCoopers their
independence from management and the Company including the matters in the
written disclosures required by the Independence Standards Board and discussed
with PricewaterhouseCoopers any matters required to be discussed by Statement on
Auditing Standards No. 61 (Communications with Audit Committees). The Committee
also considered the compatibility of PricewaterhouseCoopers's non-audit services
(principally tax advisory services) with the standards for auditor independence.
The Committee discussed with PricewaterhouseCoopers the overall scope and plans
for their audit.
The directors who serve on the Committee are all "independent" for purposes
of the rules of the Nasdaq Stock Market, and further all meet the financial
literacy and expertise tests recommended by the Blue Ribbon Committee on
Improving the Effectiveness of Corporate Audit Committees. During fiscal 2001,
the committee met five (5) times, with all members in attendance at each
meeting.
38
In reliance on the reviews and discussions referred to above and
representations by management that the financial statements were prepared in
accordance with generally accepted accounting principles, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2001. The Committee also recommended to the Board of Directors, subject
to stockholder ratification, the selection of PricewaterhouseCoopers as the
Company's independent auditors for the fiscal year ending June 30, 2002.
THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
John R. Oltman
Jeffrey M. Drazan
Judith H. Hamilton
34
AUDIT AND RELATED FEES
AUDIT FEES
Fees for professional services rendered by PricewaterhouseCoopers LLP for
the audit of the our annual financial statements for the year ended June 30,
2001 and for reviews of the financial statements included in our quarterly
reports for that fiscal year were $150,350, of which $38,850 had been billed
through June 30, 2001.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
The Company did not engage PricewaterhouseCoopers LLP to provide advice to
the Company regarding financial information systems design and implementation
during the fiscal year ended June 30, 2001.
ALL OTHER FEES
During the fiscal year ended June 30, 2001, the aggregate fees billed by
PricewaterhouseCoopers LLP for professional services other than audit fees was
$486,346, which consisted of $110,427 in tax fees and $375,919 in fees related
to our filing of our Form S-1 and Form S-8/S-3 registration statements, all of
which had been billed through June 30, 2001
The Audit Committee considered and determined that the provision of the
services other than the services described under "Audit Fees" is compatible with
maintaining the independence of the independent auditors.
39
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
Our compensation program's goals are to:
- Attract, retain and motivate highly-qualified executive officers who
can provide operational and strategic excellence that will produce
on-going success for the company;
- Align compensation for the executive officers with the Company's
business objectives and performance; and
- Align incentives for executive officers with the interests of
stockholders to enhance financial performance and stockholder value.
We emphasize performance-based compensation that is competitive with the
marketplace, and the importance of clearly communicating performance objectives.
We annually review our compensation practices by comparing them to surveys of
other companies against which we compete in business or for talent, and other
companies of comparable size and complexity. The Committee also examines
emerging trends and practices in the overall software market. We then set
objective compensation parameters based on this review.
Our compensation program for all employees includes both cash and
equity-based elements. Because it is most directly linked to our stockholders'
interests, equity-based compensation is emphasized in our compensation programs.
Consistent with competitive practices, we also use a cash bonus plan based on
achievement of financial performance and key operational objectives.
CASH COMPENSATION
Salary. We set a base salary range for each executive officer, including
the Chief Executive Officer, by reviewing the base salary for comparable
positions of a broad peer group, including competing companies similar in size
and companies against which we compete in business or for talent. We set
individual salaries for each executive officer relative to this range based on
sustained individual performance, contribution to our results and internal
comparison of duties and responsibilities.
Cash Bonus. In order to help recruit, retain and motivate executives with
market-competitive incentives in the current business environment, in fiscal
2001, we provided a cash bonus program for executives, based on performance. In
fiscal 2002, we will employ similar performance measures for cash bonus
incentives.
EQUITY-BASED COMPENSATION
Executive equity grants are determined using the Black-Scholes method of
evaluating the Company's stock option grants against a Black-Scholes evaluation
of grants by our peer group competitors. Options granted to executive officers
are subject to vesting over time. Initial or "new-hire" options are typically
granted to executive officers when they first join the Company. All options that
we grant are issued with an exercise price at the then-current fair market value
and thus become valuable only if the executive officer continues to serve at the
Company and the price of our stock subsequently increases.
40
CEO COMPENSATION
Our Chief Executive Officer's salary and performance stock option grants
follow the policies set forth above. Our CEO's base annual salary for fiscal
2001 was $255,000, compared to $200,000 in fiscal 2000. For fiscal 2002, our
CEO's target annual incentive will be consistent with market cash incentives.
Our CEO's compensation package is designed to be strongly aligned with the
interests of stockholders by making his cash incentives directly tied to
achieving specific targets and by granting stock options that become valuable
only if he continues to serve at the Company and the price of our stock
subsequently rises.
TAX DEDUCTIBILITY
The Company is subject to Section 162(m) of the Internal Revenue Code,
which imposes a limitation on the deductibility of nonperformance-based
compensation in excess of $1 million paid to Named Executive Officers. The
Company believes that compensation resulting from the exercise of stock options
granted by the Company is deductible as performance based compensation. The
Company intends to comply with the provisions of Section 162(m) so as to
preserve the related federal income tax deductions, although individual
exceptions may occur. The Company, however, has not sought to qualify its cash
bonus plan for executives under Section 162(m) as deductible compensation.
THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
John R. Oltman
Jeffrey M. Drazan
41
COMPARISON OF STOCKHOLDER RETURN
Set forth below is a line graph comparing the cumulative total return on
our Common Stock with the cumulative total return of the Nasdaq Composite Index
and the J.P. Morgan H&Q Technology Index on a quarterly basis for the period
commencing on August 10, 2000 (the date of our initial public offering) and
ending on June 30, 2001. The diagram assumes that $100.00 was invested on August
10, 2000 in our Common Stock and in each index, and that all dividends were
reinvested. No cash dividends have been declared on our Common Stock.
Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
[GRAPHIC OMITTED]
Cumulative Total Return
--------------------------------------------
8/10/00 9/30/00 12/31/00 3/31/01 6/30/01
EVOLVE SOFTWARE, INC. 100.00 266.67 54.17 31.60 6.33
NASDAQ COMPOSITE INDEX 100.00 104.09 67.64 47.30 52.73
JP MORGAN H&Q TECHNOLOGY INDEX 100.00 97.46 65.27 48.72 57.42
42
STOCKHOLDER PROPOSALS TO BE PRESENTED AT THE NEXT ANNUAL MEETING
Stockholders of the Company may submit proposals for consideration at
future stockholder meetings, including director nominations. The Company expects
to hold its 2002 annual meeting in November 2002. Proposals of stockholders of
the Company, including director nominations, that are intended to be presented
by such stockholders at the Company's next annual meeting of stockholders and
that such stockholders desire to have included in the Company's proxy statement
relating to such meeting must be received by the Company no later than June __,
2002 (120 calendar days prior to the anniversary of the mailing date of this
proxy statement) in order to be considered for possible inclusion in the
Company's proxy statement and form of proxy relating to that meeting.
If a stockholder wishes to present a proposal, including a director
nomination, at the Company's 2002 annual meeting and the proposal is not
intended to be included in the Company's proxy statement relating to that
meeting, the stockholder must give advance notice to the Company prior to
September __, 2002 (30 calendar days prior to the anniversary of the mailing
date of this proxy statement). However, in the event that less than 50 days
notice or public disclosure of the date of the 2002 meeting is given or made to
stockholders, a stockholder notice of a proposal must be received not later than
the close of business on the 7th day following the date on which such notice of
the date of meeting was mailed or such public disclosure was made. If a
stockholder gives notice of such a proposal after the applicable deadline, the
Company's proxy holders will be allowed to use their discretionary voting
authority to vote against the stockholder proposal when and if the proposal is
raised at the Company's year 2002 annual meeting.
Any proposals submitted by stockholders must comply with the requirements
for stockholder proposals set forth in the Company's Bylaws. A copy of the full
text of the applicable bylaw provisions may be obtained by writing to the
Secretary of the Company. All notices of proposals by stockholders, whether or
not included in the Company's proxy materials, should be sent to General
Counsel, Evolve Software, Inc., 1400 65th Street, Suite 100, Emeryville, CA
94608.
The Company has not been notified by any stockholder of his or her intent
to present a stockholder proposal from the floor at this year's Annual Meeting.
The enclosed proxy card grants the proxy holders discretionary authority to vote
on any matter properly brought before the Annual Meeting.
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business that the Board of
Directors intends to present or knows that others will present at the meeting is
as set forth above. If any other matter or matters are properly brought before
the meeting, or any adjournment thereof, it is the intention of the persons
named in the accompanying form of proxy to vote the proxy on such matters in
accordance with their best judgment.
By Order of the Board of Directors
/s/ Christopher B. Boas
Christopher B. Boas
Assistant Secretary
October ___, 2001
43
EVOLVE SOFTWARE, INC.
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER ___, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Evolve Software, Inc. hereby acknowledges
receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement,
each dated October ___, 2001, and hereby appoints John R. Oltman and James J.
Bozzini, and each of them, with full power of substitution, as Proxy or Proxies,
to vote all shares of the Common Stock of the undersigned at the Annual Meeting
of Stockholders of Evolve Software, Inc. to be held on November ___, 2001, and
at any adjournments thereof, upon the proposals set forth on this form of proxy
and described in the Proxy Statement, and in their discretion with respect to
such other matters as may be properly brought before the meeting or any
adjournments thereof.
1. To elect two Class I members of the Board of Directors:
[_] FOR the nominees listed [_] WITHHOLD authority to vote
below (except as indicated) for the nominees listed below
If you wish to withhold authority to vote for an individual nominee,
strike a line through that nominee's name in the list below.
Cary Davis
Jeffrey M. Drazan
2. To approve an amendments to the Company's Amended and Restated
Certificate of Incorporation (the "Restated Certificate") to increase the number
of authorized shares of Common Stock by 90,000,000 shares, from 110,000,000 to
200,000,000 shares:
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve an amendment to the Restated Certificate to enable the
holders of Preferred Stock to act by written consent:
[_] FOR [_] AGAINST [_] ABSTAIN
4. To approve an amendment to the Company's 2000 Stock Plan to increase
the maximum number of shares of Common Stock authorized under the plan by
10,000,000 shares, to 16,000,000 shares, exclusive of future annual increases,
and to provide that the shares authorized for issuance under the plan be
increased annually by the least of (i) the aggregate number of shares subject to
grants made in the previous year, (ii) 15,000,000 and (iii) any lesser amount
determined by our Board of Directors:
[_] FOR [_] AGAINST [_] ABSTAIN
5. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending June 30, 2002:
[_] FOR [_] AGAINST [_] ABSTAIN
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Either of such Proxies or substitutes shall have and may exercise all of the
powers of said proxies hereunder.
Dated:
---------------------------
---------------------------------
(Signature)
---------------------------------
(Signature)
(This proxy should be marked, dated,
signed by the stockholder or stockholders
exactly as the stockholder's or stockholders'
names appear hereon, and returned promptly in
the enclosed envelope. Persons signing in a
fiduciary or representative capacity should
so indicate. If shares are held by joint
tenants, as community property or otherwise
by more than one person, all should sign.)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED FOR EACH OF THE PROPOSALS LISTED ABOVE, AND AS SAID PROXIES DEEM ADVISABLE
ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING