SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Section 240.14a-12
MERCATOR SOFTWARE, INC.
(Name of Registrant as Specified In Its Charter)
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:
------------------------------------------------------------------------
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):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
------------------------------------------------------------------------
[ ] 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:
------------------------------------------------------------------------
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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AS FILED WITH THE COMMISSION ON APRIL 16, 2003
MERCATOR SOFTWARE, INC.
45 DANBURY ROAD
WILTON, CONNECTICUT 06897
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 14, 2003
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To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Mercator
Software, Inc. ("Mercator" or the "Company") will be held at the office complex
located at 20 Westport Road, South Building, Wilton, Connecticut, on Wednesday,
May 14, 2003, at 9:00 a.m. Eastern Time.
At the meeting, you will be asked to consider and vote upon the following
matters:
1. The election of seven directors of the Company, each to serve until
Mercator's next Annual Meeting of Stockholders and until his or her
successor has been elected and qualified. THE BOARD UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE ELECTION OF ITS NOMINEES ON THE ENCLOSED
WHITE PROXY CARD. WE URGE YOU NOT TO VOTE FOR ANY INDIVIDUALS THAT MAY
BE NOMINATED BY SSH/BROKEN ARROW AND NOT TO EXECUTE ANY PROXY CARD
OTHER THAN A WHITE CARD.
2. A proposal to ratify the selection of KPMG LLP as the Company's
independent accountants for the fiscal year ending December 31, 2003.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on April 7, 2003 are entitled to notice of and to vote at the Meeting
or any adjournment or postponement thereof. You may examine a list of the
stockholders of record as of the close business on April 7, 2003 for any purpose
germane to the Meeting during the ten-day period preceding the date of the
Meeting at Mercator's offices, located at 45 Danbury Road, Wilton, Connecticut
06897.
THIS ANNUAL MEETING IS OF PARTICULAR IMPORTANCE TO ALL STOCKHOLDERS OF THE
COMPANY BECAUSE OF THE ATTEMPT OF SSH/BROKEN ARROW TO TAKE OVER YOUR BOARD.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE REQUESTED TO VOTE YOUR SHARES BY
FOLLOWING THE INSTRUCTIONS ON THE ATTACHED WHITE PROXY CARD, OR BY SIGNING,
DATING AND MAILING THE ENCLOSED WHITE PROXY CARD IN THE POSTAGE-PAID ENVELOPE
PROVIDED.
THE BOARD ALSO URGES YOU NOT TO SIGN ANY PROXY CARDS SENT TO YOU BY
SSH/BROKEN ARROW. YOU CAN REVOKE ANY SSH/BROKEN ARROW PROXY CARD YOU HAVE
PREVIOUSLY SIGNED BY SIGNING, DATING AND MAILING THE ENCLOSED WHITE PROXY CARD
IN THE POSTAGE-PAID ENVELOPE PROVIDED.
If you hold your shares through a broker or other nominee, proof of
ownership will be accepted by the Company only if you bring either a copy of the
voting instruction card provided by your broker or nominee, or a copy of a
brokerage statement showing your share ownership in the Company as of April 7,
2003.
IF YOU HAVE ANY QUESTIONS, OR NEED ASSISTANCE VOTING, PLEASE CONTACT THE
FIRM ASSISTING US IN THE SOLICITATION OF PROXIES, D.F. KING & CO., INC. TOLL
FREE AT (800) 859-8509 (IN THE UNITED STATES) OR (212) 269-5550 (COLLECT, FOR
INTERNATIONAL CALLS).
By Order of the Board of Directors
David L. Goret
SECRETARY
Wilton, Connecticut
April , 2003
MERCATOR SOFTWARE, INC.
45 DANBURY ROAD
WILTON, CONNECTICUT 06897
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PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 14, 2003
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The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of Mercator Software, Inc., a Delaware corporation (the "Company"
or "Mercator"), for use at the Annual Meeting of Stockholders of the Company to
be held at the office complex located at 20 Westport Road, South Building,
Wilton, Connecticut, on Wednesday, May 14, 2003, at 9:00 a.m. Eastern Time and
any adjournments or postponements thereof (the "Meeting"). This Proxy Statement
and the accompanying form of proxy are being mailed to stockholders on or about
April , 2003. The Company's Annual Report on Form 10-K for the year ended
December 31, 2002, which is not part of the proxy soliciting materials, is
enclosed. Only holders of record of the Company's common stock at the close of
business on the record date for the Meeting, which is April 7, 2003, will be
entitled to vote at the Meeting. A majority of the shares of common stock
outstanding on the record date will constitute a quorum for the transaction of
business at the Meeting. At the close of business on the record date, the
Company had 35,168,315 shares of common stock outstanding and entitled to vote.
THE PROXY CONTEST
A group called Strategic Software Holdings, LLC/Broken Arrow I, L.P.
("SSH/Broken Arrow") is seeking to take control of the Company's Board of
Directors. SSH/Broken Arrow contends that "the current board has steered the
Company into a precarious situation." In fact, during the year, when the economy
in general and the IT industry in particular suffered severe setbacks,
Mercator's net loss decreased by 29% (excluding goodwill amortization) and its
revenues per employee increased 21% despite a 13% decrease in revenues. The
Company significantly reduced its cost structure (total expenses decreased from
$188.3 million in 2001 to $139.1 million in 2002 and total employees decreased
from 659 on January 1, 2001 to 441 on December 31, 2002) and simultaneously
improved service to customers and partners and, we believe, made significant
progress toward returning to profitability. Additionally, a reduced cost
structure, the completion of a new credit facility, a deferred revenue balance
(a measure of backlog) at year-end of $24.5 million -- Mercator's largest ever
-- and the introduction of new Industry-Ready Integration Solutions within each
of the market segments on which we focus, all served to strengthen Mercator's
position for 2003.
Your Board is soliciting votes on the WHITE proxy card FOR the election of
the Company's nominees. We unanimously oppose SSH/Broken Arrow's solicitation
and urge you NOT to sign any BLUE proxy card sent to you by SSH/Broken Arrow.
Your Board and management are, in our view, in the best position to enhance
stockholder value, because of their significant management and board experience
at technology and other companies, as described below under "Proposal 1 --
Election of Directors -- Nominees" and " -- Compensation and Other Information
Concerning Executive Officers and Directors -- Executive Officers." Your Board
and management also have a significant investment in the Company (which gives
them a personal stake in enhancing stockholder value), as described below under
"Security Ownership of Certain Beneficial Owners and Management."
Other than Rodney Bienvenu (who beneficially owns 1,672,500 shares, or 4.7%
of our common stock), the nominees of SSH/Broken Arrow have limited, if any,
investment in the Company, certainly a more limited investment than that of
Mercator's executive officers and directors as a group (who beneficially own
5,952,837 shares, or 15.3% of our common stock). In light of the unfinanced
proposal by SSH/Broken Arrow to buy the Company for $2.17 per share, we believe
that their interests are clearly in conflict with the interests of other
Mercator stockholders. We believe this because one of their objectives is to buy
the Company as inexpensively as possible, while the objective of the other
stockholders (including your Board and management) is to maximize stockholder
value.
BACKGROUND -- WHO IS SSH/BROKEN ARROW?
Based on publicly available information, we believe that SSH/Broken Arrow
bought 2,000,000 shares of Mercator's common stock at $0.94 per share during
November 2002 and that, at the time of making the investment, SSH/Broken Arrow
was considering various courses of action with respect to its investment in
Mercator, including seeking representation on the Board and making
recommendations to members of management concerning various business strategies.
Starting on December 5, 2002, representatives of SSH/Broken Arrow had
several conversations with management, Mr. Bienvenu then contacted the Company
and verbally indicated that SSH was interested in acquiring 51% of the Company's
outstanding shares. In light of this verbal expression of interest, we
tentatively agreed to further discussions with these representatives to be held
on January 10, 2003. As a result of this verbal expression of interest and the
proposed meeting, the Board met on January 6, 2003 to discuss the nature and
terms of the verbal expression of interest, consider the Company's own strategic
plan and progress in achieving that plan and other prospects for achieving value
for stockholders and the relative valuation of the Company and its peers. Based
on these discussions, the Board determined that it would not be appropriate for
management to engage in further discussions with Mr. Bienvenu, except in so far
as the Company communicates with and informs stockholders in the ordinary
course. On January 9, 2003, we notified Rodney Bienvenu that we were canceling
the proposed meeting.
Between January 10, 2003 and February 3, 2003, SSH/Broken Arrow sold an
aggregate of 404,500 shares of common stock and received gross proceeds of
$696,119 (which yielded a profit of $315,889 on its original investment in those
shares of $380,230). On March 14, 2003, SSH/ Broken Arrow nominated a slate of
seven directors to replace the seven current members of the Board. The action
would, if successful, enable SSH/Broken Arrow to gain control of the Board
without buying any more stock.
On March 18, 2003, SSH/Broken Arrow also amended its filings with the SEC
to reflect the fact that one of its nominees had withdrawn from consideration as
a director. On the same day, the Board met to discuss the actions by SSH/Broken
Arrow and, in an effort to resolve the matter before an expensive and
distracting proxy contest, determined to contact representatives of SSH/Broken
Arrow in order to arrange a meeting with two directors, Constance F. Galley and
James P. Schadt.
After several attempts to contact Rodney Bienvenu, Ms. Galley and Mr.
Schadt met with him and his lawyer on March 20, 2003. At the meeting, Rodney
Bienvenu discussed, among other things, the possibility of taking Mercator
private and combining the Company with other companies controlled by him, and
the possibility of implementing a new business strategy, the details of which he
would not divulge. He further said that he would discuss these details at a
future meeting.
On March 24, 2003, Kenneth Hall, our Executive Vice President, Chief
Financial Officer and Treasurer, wrote to Rodney Bienvenu proposing a meeting on
April 1, 2003, at which two members of our Board, Dennis Sisco and Mark Stevens,
as well as an outside consultant and Mr. Hall would "collect the information
needed for the Board to make an informed decision" concerning the proposals by
SSH/Broken Arrow.
On March 25, 2003, Rodney Bienvenu wrote to Mr. Hall suggesting a
conference call on March 27, 2003 with, among others, a firm that was interested
in supplying the financing for a possible acquisition of Mercator by SSH/Broken
Arrow.
On March 26, 2003, Mr. Hall wrote to Rodney Bienvenu reiterating our
position that, given the importance of the issue at hand, the parties should
meet in prerson and any proposal by SSH would have to be presented in detail and
in advance to the group as described in his March 24, 2003 letter before being
presented to the full Board. We based this request, in part, on our continued
understanding of Rodney Bienvenu's intentions, as he had described them to Ms.
Galley and Mr. Schadt. We believed (and still believe) that he would need to
provide us with very convincing evidence that his plan was in the best interests
of our stockholders.
On March 28, 2003, Rodney Bienvenu again wrote to Mr. Hall requesting a
meeting before providing us with the detailed information needed to evaluate his
proposal to gain control of Mercator without buying any more stock.
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In his letter he also agreed to meet with us on April 1, 2003. Additionally,
Rodney Bienvenu for the first time expressed in writing his desire to discuss
"what we deem to be a fair price to sell the company," as well as other matters.
Later that day, Mr. Hall wrote back to Rodney Bienvenu , noting that he was
"encouraged" that SSH/Broken Arrow had accepted the offer to meet on April 1,
2003. Mr. Hall also noted that Mercator would need in advance a written
description "that must include a reasonable degree of specificity as to your
anticipated strategy for the Company or potential transaction structure." In his
March 24, 2003 letter to Rodney Bienvenu, Mr. Hall had indicated that the
information was needed in order for the Board to make an informed decision.
On March 31, 2003, SSH/Broken Arrow submitted a proposal directly to the
Board and issued a press release purporting to contain an offer, subject to,
among other things, receipt of financing, pursuant to which SSH/Broken Arrow
would acquire all of the outstanding shares of common stock not already owned by
Broken Arrow for $2.17 per share in cash. The proposal was also subject to
negotiation, preparation and execution of a definitive merger agreement
containing customary representations, warranties and closing conditions
including and the satisfaction of all applicable regulatory requirements.
On April 1, 2003, Rodney Bienvenu, two of his lawyers and a representative
from Digital Coast Partners met with Messrs. Stevens, Sisco and Hall, as well as
two representatives from Mercator's outside counsel, Jenkens & Gilchrist Parker
Chapin LLP. At the meeting, Rodney Bienvenu told us among other things, that:
o he had not yet received any financing for his offer to buy Mercator at
$2.17 per share in cash;
o the three companies currently owned by SSH have total combined annual
revenues of $7-$8 million and are not profitable; and
o the strategy he proposed for Mercator was "extremely risky."
On April 3, 2003, the Board met to consider Rodney Bienvenu's proposal.
After discussion and presentations from our legal counsel and JP Morgan, our
financial advisor, the Board unanimously determined that the proposal was not in
the best interests of stockholders.
On April 10, 2003, Rodney Bienvenu called Mr. Hall and asked to have a
meeting with him before beginning the proxy contest in earnest. Mr. Hall met
with Rodney Bienvenu later that day, and Mr. Bienvenu presented possible ways to
end the proxy contest. Mr. Hall agreed to have Rodney Bienvenu's proposals
considered, and Mr. Hall said he would provide a response by Monday, April 14th.
The parties held discussions regarding the terms of a possible settlement during
the week of April 14th.
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE THE "WHITE" PROXY CARD TODAY. DO
NOT SEND BACK THE "BLUE" PROXY CARD EVEN AS A VOTE OF PROTEST!
YOUR BOARD AND MANAGEMENT ARE HIGHLY QUALIFIED
Your Board and management have significant industry experience, first-hand
knowledge of the Company's strategy, operations, technology and personnel, and a
demonstrated history of operating the Company in a very difficult environment.
We believe that the existing Board and executive officers of Mercator have
superior board and management experience at technology and other companies. The
experience of your Board and executive officers is summarized below under
"Proposal 1 -- Election of Directors -- Nominees" and " -- Compensation and
Other Information Concerning Executive Officers and Directors -- Executive
Officers." In contrast, based on the proxy materials provided by SSH/Broken
Arrow, their nominees do not appear to have any experience in the business
segment in which we are engaged.
Based on the knowledge, experience and demonstrated track record of your
Board and management, we believe your Board and management are better qualified
to operate the Company in order to enhance value for all stockholders.
Your Board and management want to act in the best interest of all
stockholders and take your concerns very seriously. PLEASE VOTE THE "WHITE"
PROXY CARD TODAY!
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
HOW DO I VOTE IN PERSON?
If you owned shares of the Company's common stock on the record date, April
7, 2003, you may attend the 2003 Annual Meeting and vote in person. If you are
not the record holder of your shares, please refer to the discussion following
the question "What if I am not the record holder of my shares?" If you hold your
shares in the name of a bank or broker, you will not be able to vote in person
at the Annual Meeting, unless you have previously specially requested and
obtained a "legal proxy" from your bank or broker and present it at the Annual
Meeting.
HOW DO I VOTE BY PROXY?
To vote by proxy, you should complete, sign and date the enclosed WHITE
proxy card and return it promptly in the enclosed postage-paid envelope. To be
able to vote your shares in accordance with your instructions at the 2003 Annual
Meeting, we must receive your proxy as soon as possible but in any event prior
to the Annual Meeting.
WHAT IF I AM NOT THE RECORD HOLDER OF MY SHARES?
If your shares are held in the name of a brokerage firm, bank nominee or
other institution ("Custodian"), only it can give a proxy with respect to your
shares. You may have received either a blank, executed proxy card from your
Custodian (which you can complete and send directly to the Company) or an
instruction card (which you can complete and return to the Custodian to direct
its voting of your shares). If your Custodian has not sent you either a blank,
executed proxy card or an instruction card, you may contact the Custodian
directly to provide it with instructions. If you need assistance, please contact
our solicitor, D.F. King & Co., Inc., toll-free at (800) 859-8509 (in the United
States) or (212) 269-5550 (collect, for international calls).
If your shares are held in the name of a Custodian, and you want to vote in
person at the 2003 Annual Meeting, you may request a document called a "legal
proxy" from the Custodian and bring it to the 2003 Annual Meeting. If you need
assistance, please contact our solicitor, D.F. King & Co., Inc., toll-free at
(800) 859-8509 (in the United States) or (212) 269-5550 (collect, for
international calls).
WHAT SHOULD I DO IF I RECEIVE A BLUE PROXY CARD?
Proxies on the blue proxy card are being solicited by SSH/Broken Arrow. If
you submit a proxy to us by signing and returning the enclosed WHITE proxy card,
DO NOT SIGN OR RETURN THE BLUE PROXY CARD or follow any voting instructions
provided by SSH/Broken Arrow unless you intend to change your vote, because only
your latest-dated proxy will be counted.
If you have already sent a BLUE proxy card to SSH/Broken Arrow, you may
revoke it and provide your support to the Company's nominees by signing, dating
and returning the enclosed WHITE proxy card.
WHAT IF I WANT TO REVOKE MY PROXY?
If you give a proxy, you may revoke it at any time before it is voted on
your behalf. You may do so in three ways:
- By delivering a later-dated proxy to either our proxy solicitor, D.F.
King & Co., Inc., or our secretary; or
- By delivering a written notice of revocation to either our proxy
solicitor or our secretary; or
- By voting in person at the 2003 Annual Meeting.
IF I PLAN TO ATTEND THE 2003 ANNUAL MEETING, SHOULD I STILL SUBMIT A PROXY?
Whether you plan to attend the 2003 Annual Meeting or not, we urge you to
submit a WHITE proxy card. Returning the enclosed WHITE proxy card will not
affect your right to attend the 2003 Annual Meeting and vote.
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WHO CAN VOTE?
You are eligible to vote or to execute a proxy only if you owned shares of
the Company's common stock on the record date for the 2003 Annual Meeting, April
7, 2003. Even if you sell your shares after the record date, you will retain the
right to execute a proxy in connection with the 2003 Annual Meeting. It is
important that you grant a proxy regarding shares you held on the record date,
or vote those shares in person, even if you no longer own those shares. At the
close of business on April 7, 2003, 35,168,315 shares of the Company's common
stock were entitled to vote.
HOW MANY VOTES DO I HAVE?
With respect to each matter to be considered at the 2003 Annual Meeting,
each stockholder will have one vote for each share of the Company's common stock
held by it on the record date. The Company has no outstanding voting securities
other than its common stock.
HOW WILL MY SHARES BE VOTED?
If you give a proxy on the accompanying WHITE proxy card, your shares will
be voted as you direct. If you submit a proxy to us without instructions, our
representatives will vote your shares in favor of our nominees. Submitting a
WHITE proxy card will entitle our representatives to vote your shares in
accordance with their discretion on matters not described in this proxy
statement that may arise at the 2003 Annual Meeting.
Unless a proxy specifies otherwise, it will be presumed to relate to all
shares held of record on the record date by the person who submitted it.
WHAT IS A QUORUM AND WHY IS IT NECESSARY?
Conducting business at the 2003 Annual Meeting requires a quorum. For a
quorum to exist, stockholders representing a majority of the votes eligible to
be cast must be present in person or represented by proxy. Under the Delaware
General Corporation Law, the Company's certificate of incorporation and By-laws,
abstentions and broker non-votes are treated as present for purposes of
determining whether a quorum exists.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL AND HOW WILL VOTES BE COUNTED?
If a quorum is present, directors will be elected by a plurality of the
votes cast. This means that the seven nominees receiving the highest number of
votes will be elected as directors.
Broker-dealers do not have discretionary authority for beneficial owners in
contested matters that are solicited by both contestants. Accordingly,
abstentions and broker non-votes with respect to beneficial owners solicited by
both Mercator and SSH/Broken Arrow will not be counted for purposes of
determining whether a quorum is present and will not have the effect of a vote
for or against the election of any nominees. However, abstentions and broker
non-votes with respect to beneficial owners solicited only by Mercator will be
counted for purposes of determining whether a quorum is present and will have
the effect of a vote for the election of management's nominees (since Mercator
intends to solicit all of its beneficial owners, there will not be any broker
non-votes with respect to beneficial owners solicited only by SSH/Broken Arrow).
Stockholders do not have the right to cumulate their votes.
Each proposal other than the election of directors will be adopted if a
majority of the shares represented at the meeting and entitled to vote on the
proposal are voted in its favor. Accordingly, abstentions on each such proposal
will have the same effect as a vote against the proposal. Broker non-votes will
not have any effect on any such proposal.
HOW CAN I RECEIVE MORE INFORMATION?
If you have any questions about giving your proxy or about our
solicitation, or if you require assistance, please call D.F. King & Co., Inc.,
toll-free at (800) 859-8509 (in the United States) or (212) 269-5550 (collect,
for international calls).
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Mercator common stock as of April 7, 2003 by: (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Company's common stock; (ii) each director and nominee; (iii) each of the
named executive officers of the Company listed in the table under the caption
"Executive Compensation"; (iv) all directors and executive officers as a group;
and (v) SSH/Broken Arrow. Except as otherwise indicated in the footnotes to the
table, the beneficial owners have sole voting and investment power (subject to
community property laws where applicable) as to all of the shares beneficially
owned by them.
AMOUNT AND NATURE OF PERCENT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP COMMON STOCK (2)
---------------------------------------- -------------------- ----------------
Ernest E. Keet ...................................... 1,666,867 (3) 4.7%
Roy C. King ......................................... 989,589 (4) 2.7%
Constance F. Galley ................................. 963,304 (5) 2.7%
James P. Schadt ..................................... 598,457 (6) 1.7%
Kenneth J. Hall ..................................... 408,486 (7) 1.2%
David S. Linthicum .................................. 339,979 (8) *
Mark W. Register .................................... 234,706 (9) *
Jill M. Donohoe ..................................... 201,557 (10) *
Dennis G. Sisco ..................................... 110,000 (11) *
Mark C. Stevens ..................................... 60,000 (12) *
Michael E. Lehman ................................... 37,500 (13) *
Robert J. Farrell ................................... -- --
Michael E. Wheeler .................................. -- --
All executive officers and directors as a group
(17 persons) ...................................... 5,952,837 (14) 15.3%
Strategic Software Holdings, LLC .................... 1,672,500 (15) 4.7%
Rodney Bienvenu
James Dennedy
Charter Oak Partners, L.P ........................... 906,900 (15) 2.6%
Scott A. Fine
Peter J. Richards
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* Less than 1%
(1) Except as otherwise noted, the address of record is c/o Mercator Software,
Inc., 45 Danbury Road, Wilton, CT 06897.
(2) Based upon a total of (i) 35,168,315 shares of common stock outstanding as
of April 7, 2003, and (ii) shares of common stock issuable pursuant to
options held by the respective person or group which may be exercised
within 60 days of April 7, 2003. Shares of common stock subject to options
that are exercisable within 60 days of April 7, 2003 are deemed to be
outstanding and beneficially owned by the person holding such options for
the purpose of computing the percentage ownership of such person but are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(3) Consists of 98,000 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003 held by Ernest
E. Keet, 250,000 shares of common stock held of record by Vanguard Atlantic
Ltd. ("Vanguard"), 284,884 shares of common stock held of record by the
Ernest E. & Nancy R. Keet Foundation, 413,761 shares of common stock held
of record by the Ernest E. Keet Grantor Retained Annuity Trust, 499,136
shares of common stock held of record by the Ernest E. & Nancy R. Keet
Family Trust, and 121,086 shares of common stock held of record by Mr.
Keet. Mr. Keet exercises voting and investment power with respect to the
shares held by the Ernest E. & Nancy R. Keet Foundation, the Ernest E. Keet
Grantor Retained Annuity Trust, and the Ernest E. & Nancy R. Keet Family
Trust. Mr. Keet is the President of Vanguard and
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exercises voting and investment power with respect to its shares of the
Company's common stock and may be deemed to beneficially own the shares
owned by such entity. Mr. Keet disclaims beneficial ownership of the shares
held by Vanguard, the Ernest E. & Nancy R. Keet Foundation, the Ernest E. &
Nancy R. Keet Family Trust, and by the Ernest E. Keet Grantor Retained
Annuity Trust, except to the extent of his pecuniary interest therein. The
address of Mr. Keet is c/o Vanguard, P.O. Box 1360, Saranac Lake, NY 12983.
(4) Consists of 901,562 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003 and 88,027
shares of common stock held of record by Mr. King.
(5) Includes 432,500 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003, and 523,804
shares of common stock held of record by Ms. Galley. Also includes 7,000
shares of common stock owned by Ms. Galley's husband, Richard Galley, with
respect to which Ms. Galley disclaims beneficial ownership.
(6) Includes 543,500 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003 and 47,957
shares of common stock held of record by Mr. Schadt. Also includes 7,000
shares of common stock held by Mr. Schadt's wife, Barbara Schadt, with
respect to which Mr. Schadt disclaims beneficial ownership.
(7) Consists of 382,353 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003 and 26,133
shares of common stock held of record by Mr. Hall.
(8) Consists of 332,693 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003 and 7,286 shares
of common stock held of record by Mr. Linthicum.
(9) Consists of 223,669 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003 and 11,037
shares of common stock held of record by Mr. Register.
(10) Consists of 201,557 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003.
(11) Consists of 95,000 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003 and 15,000
shares of common stock held of record by Mr. Sisco.
(12) Consists of 59,500 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003 and 500 shares
of common stock held of record by The Stevens-Murphy Living Trust, of which
Mr. Stevens and his wife are Trustees.
(13) Consists of 17,500 shares of common stock subject to options currently
exercisable or exercisable within 60 days of April 7, 2003, and 20,000
shares of common stock held of record by Mr. Lehman.
(14) Includes an aggregate of 3,613,708 shares of common stock subject to
options currently exercisable or exercisable within 60 days of April 7,
2003.
(15) Pursuant to Schedule 13D, Amendment No. 4, filed with the Securities and
Exchange Commission on April 4, 2003, Strategic Software Holdings, LLC
("SSH"), on behalf of Broken Arrow I, L.P. ("Broken Arrow"), owns 1,672,500
shares of common stock. Bienvenu Management, LLC ("Bienvenu Management")
does not directly own any shares of common stock, but as the manager of
SSH/Broken Arrow, it may be deemed to be a beneficial owner of 1,672,500
shares of common stock. Messrs. Bienvenu and Dennedy, as the sole members
of Bienvenu Management, direct the operations of Bienvenu Management.
Neither Mr. Bienvenu nor Mr. Dennedy directly owns any shares of common
stock, but they have the sole voting and dispositive powers with respect to
the shares of common stock beneficially owned by SSH. By reason of the
provisions of Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), each may be deemed to beneficially own the shares
deemed beneficially owned by Bienvenu Management. Empire Capital Partners,
L.P. ("Empire Capital") does not directly own any shares of common stock
but because it has a majority ownership interest in Broken Arrow, Empire
Capital may be deemed to be a beneficial owner of 1,672,500 shares of
common stock. Empire GP, L.L.C. ("Empire GP"), as the general partner of
Empire Capital, may be deemed to be the beneficial owner of 1,672,500
shares of common stock. Empire GP, as an affiliate of Empire Capital
Management, L.L.C. ("Empire Capital Management"), may be deemed to be the
beneficial owner of an additional 906,900 shares of common stock. Messrs.
Fine and Richards, as the sole members of Empire GP, direct the operations
of Empire GP. Neither Mr. Fine nor Mr. Richards directly owns any shares of
common stock, but they have the sole voting
7
and dispositive powers with respect to the shares of common stock
beneficially owned by Charter Oak. By reason of the provisions of Rule
13d-3 of the Exchange Act, each may be deemed to beneficially own the
shares deemed beneficially owned by Empire Capital and Empire GP. Charter
Oak Partners, L.P. ("Charter Oak") beneficially owns 906,900 shares of
common stock. Pursuant to its discretionary investment management agreement
with Charter Oak, Empire Capital Management has the power to vote or direct
the vote and the power to dispose or direct the disposition of 906,900
shares of common stock. Empire Capital Management, as an affiliate of
Empire GP, may be deemed to be the beneficial owner of an additional
1,672,500 shares of common stock. Messrs. Fine and Richards, as the
managing members of Empire Capital Management, each may be deemed to
beneficially own the shares deemed beneficially owned by Empire Capital
Management. The address of Broken Arrow, SSH, Bienvenu Management, Mr.
Bienvenu and Mr. Dennedy is 1465 East Post Road, 2nd Floor, Westport, CT
06880. The address of Empire Capital, Empire GP, Empire Capital Management,
Mr. Fine and Mr. Richards is 1 Gorham Island, Westport, CT 06880. The
address of Charter Oak is 10 Wright Street, Building B, 4th Floor,
Westport, CT 06880.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board currently consists of seven directors, all of whom are nominated
for election at the Meeting. Each director will be elected to serve until the
next annual meeting of stockholders and until his or her successor is duly
elected and qualified or until such director's earlier resignation, death or
removal.
Shares represented by the accompanying WHITE proxy will be voted "for" the
election of the seven nominees recommended by the Board unless the proxy is
marked in such a manner as to withhold authority so to vote. In the event that
any nominee for any reason is unable to or will not serve, the proxies may be
voted for such substitute nominee as the proxy holders may determine. The
Company is not aware of any nominee who will be unable to or will not serve as a
director.
Directors will be elected by a plurality of the votes present in person or
represented by proxy at the Meeting and entitled to vote in the election of
directors. The seven nominees for election of directors who receive the greatest
number of votes cast for the election of directors at the meeting will become
directors at the conclusion of the tabulation of votes.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
FOLLOWING NOMINATED DIRECTORS.
NOMINEES
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them, are set
forth below:
NAME OF DIRECTOR AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
---------------- --- -------------------- --------------
Constance F. Galley ................. 61 Retired Chief Executive Officer & President, 1985
Mercator Software, Inc. and Consultant
Ernest E. Keet (1) .................. 62 President, Vanguard Atlantic Ltd. 1985
Roy C. King ......................... 49 Chairman of the Board of Directors, Chief 2001
Executive Officer & President
Michael E. Lehman (1) ............... 52 Financial Consultant 2002
James P. Schadt (2) ................. 64 Vice Chairman of the Board of Directors 1998
Dennis G. Sisco (1)(2)(3) ........... 56 Partner, Behrman Capital 1990
Mark C. Stevens (2)(3) .............. 43 Consultant 2000
--------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Stock Option Committee
8
Constance F. Galley has served as a Director of Mercator since April 1985.
From April 1985 until her retirement in November 2000, Ms. Galley was Chief
Executive Officer & President of the Company. Since November 2000, Ms. Galley
has been an independent consultant. Ms. Galley has over 30 years' experience in
the software industry, including technical and management positions at IBM and
Dun & Bradstreet. Ms. Galley received a BA from Duke University.
Ernest E. Keet has served as a Director of Mercator since April 1985. Mr.
Keet has been the President and a Director of Vanguard Atlantic Ltd., a venture
capital firm, since September 1984. Mr. Keet is a Director of Axolotl Corp.
(formerly AccentHealth) and serves on the boards of Engenia Software Inc.,
Cinemetrix Inc., ALARA Inc., the Trudeau Institute, and the Charles Babbage
Foundation. Mr. Keet received a BME from Cornell University and an MS from New
York University.
Roy C. King was elected Chief Executive Officer, President and a Director
of Mercator in January 2001 and Chairman of the Board in March 2001. Prior to
joining Mercator, Mr. King was President and CEO of Immedient Corporation, an
e-business solutions company, from May 2000 through November 2000. He previously
spent seven years at IBM, a multinational computer hardware, software and
services company. While at IBM, Mr. King served as Executive -- Business
Innovation Services-Industrial Sector from February 2000 to May 2000; he served
as General Manager, Consulting and Integration -- Europe, Middle East, Africa
from July 1997 through February 2000; he served as Vice President, Worldwide
Manufacturing Industries Consulting from January 1996 through July 1997; and he
served as Vice President, Manufacturing Industries Consulting -- North America
from July 1993 through January 1996. Mr. King received a BS from Iowa State
University and an MBA from Harvard University.
Michael E. Lehman has served as a Director of Mercator since April 2002.
Mr. Lehman has been an independent financial consultant since July 2002. From
July 2000 to July 2002, Mr. Lehman was Executive Vice President, Corporate
Resources and Chief Financial Officer of Sun Microsystems, Inc. and he served as
Vice President, Corporate Resources and Chief Financial Officer of Sun
Microsystems, Inc. from January 1998 to July 2000. Mr. Lehman serves on the
Boards of Sun Microsystems, Inc., Net IQ, MGIC, and Echelon, Inc. Mr. Lehman
received a BBA from University of Wisconsin.
James P. Schadt served as interim Chief Executive Officer of the Company
from November 2000 until January 2001. Mr. Schadt has served as a Director of
Mercator since August 1998 and was Chairman of the Board from August 2000 until
March 2001. He has been Vice Chairman since March 2001. Mr. Schadt served as the
Chairman of Dailey Capital Management, L.P. from December 1998 until January
2002. From July 1994 until his retirement in August 1997, Mr. Schadt was the
Chief Executive Officer of Readers Digest Association, Inc. Mr. Schadt received
a BA from Northwestern University.
Dennis G. Sisco has served as a Director of Mercator since January 1990.
Since January 1998, he has been a partner of Behrman Capital, a private equity
investment firm with more than $1.1 billion in assets under management.
Previously Mr. Sisco served as EVP of Dun & Bradstreet and one of its successor
entities, Cognizant Corporation. He also serves as a Director of Gartner Inc.
and several private companies. Mr. Sisco received a BA from McDaniel College and
is a member of the McDaniel College Board of Trustees.
Mark C. Stevens has served as a Director of Mercator since October 2000.
Mr. Stevens has been an independent consultant since August 2001. From January
1999 to August 2001, Mr. Stevens was Executive Vice President, Business
Development of At Home Corporation, where he was responsible for leading the
company's business and corporate development activities. At Home Corporation
filed for bankruptcy protection under Chapter 11 of the Federal bankruptcy laws
in November 2001. From June 1990 to January 1999, Mr. Stevens was a partner with
the law firm of Fenwick & West. Mr. Stevens received a BS from Santa Clara
University and a JD from Northwestern University.
9
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
BOARD OF DIRECTORS
The Board of Directors has standing Audit, Compensation and Stock Option
Committees. The Board of Directors does not have a nominating committee or a
committee performing similar functions, but has in the past performed such
functions itself.
During 2002, the Board met nine times. Diane Baker, who resigned as a
director on February 13, 2002, attended no meetings during 2002.
AUDIT COMMITTEE
The Audit Committee is comprised of Messrs. Lehman (Chairman), Keet and
Sisco, all of whom are independent (as independence is defined in Rule
4200(a)(14) of the Nasdaq Marketplace Rules). The Audit Committee met 10 times
during 2002. The Audit Committee meets with the Company's independent
accountants to review the adequacy of the Company's internal control systems and
financial reporting procedures; reviews the general scope of the Company's
annual audit and the fees charged by the independent accountants; reviews and
monitors the performance of non-audit services by the Company's independent
accountants; reviews the fairness of any proposed transaction between the
Company and any officer, director or other affiliate of the Company (other than
transactions subject to the review of the Compensation Committee), and after
such review, makes recommendations to the full Board; and performs such further
functions as may be required by the Nasdaq National Market, on which the
Company's common stock is listed.
Ms. Baker, Chairperson of the Audit Committee in 2001, resigned from the
Board and the Audit Committee in February 2002. Accordingly, in view of the
Company's need for an immediate replacement for Ms. Baker and its inability to
locate a new Audit Committee member on short notice, and under such limited and
exceptional circumstances, the Board appointed Mr. Schadt as interim Chairman of
the Audit Committee for the period from February 2002 until April 2002 based on
his knowledge and experience in financial matters. Mr. Schadt is not
"independent" as that term is defined in Rule 4200(a)(14) of the Nasdaq
Marketplace Rules because he was employed by the Company as Chairman of the
Board and interim Chief Executive Officer within the past three years. In April
2002, the Board elected Michael E. Lehman as a Director and as Chairman of the
Audit Committee to replace Mr. Schadt.
COMPENSATION COMMITTEE
Messrs. Schadt (Chairman), Sisco and Stevens comprise the Compensation
Committee. During 2002, the Compensation Committee met eight times. The
Compensation Committee recommends compensation for officers and key employees of
the Company.
STOCK OPTION COMMITTEE
Messrs. Stevens (Chairman) and Sisco comprise the Stock Option Committee.
Messrs. Stevens and Sisco are non-employee directors within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
and Messrs. Stevens and Sisco are "outside directors" within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
Neither of the members of the Stock Option Committee has any interlocking
relationships as defined by the Securities and Exchange Commission ("SEC").
During 2002, the Stock Option Committee met four times. The Stock Option
Committee is authorized to administer the Company's equity compensation plans
(other than the 1997 Directors Stock Option Plan) including granting stock
options and awarding restricted stock and stock bonuses pursuant to such plans.
The President/Chief Executive Officer has been delegated authority to grant
limited stock options to persons who are not subject to Section 16 of the
Exchange Act.
10
AUDIT COMMITTEE REPORT
The Audit Committee is presently comprised of Messrs. Lehman, Keet and
Sisco, all of whom have been determined to be independent as defined by the
Nasdaq Marketplace Rules. None of the members of the Audit Committee have a
relationship with the Company or its subsidiaries, which would interfere with
that Audit Committee member's exercise of independent judgment in carrying out
the responsibility of a director. In 2001, the Audit Committee adopted a written
charter which has been approved by the Board of Directors and was set forth as
an exhibit to the Company's proxy statement for the 2001 Annual Meeting of
Stockholders. That charter is currently in effect. The Audit Committee has
fulfilled its responsibilities and duties as set forth in the written charter.
The Audit Committee has reviewed and discussed the Company's audited
financial statements with management, which has primary responsibility for the
financial statements. KPMG LLP ("KPMG"), the Company's independent accountants
for 2002, is responsible for expressing an opinion on the conformity of the
Company's audited financial statements with accounting principles generally
accepted in the United States of America.
The Audit Committee has discussed with KPMG the matters that are required
to be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees), as modified or supplemented. The Audit Committee has received
from KPMG the written disclosures and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
as modified or supplemented, and the Audit Committee discussed and affirmed the
independence of KPMG from management and the Company. The Audit Committee has
received the reports of the Chief Executive Officer and the Chief Financial
Officer relating to their evaluation of the Company's internal controls. The
Audit Committee also considered whether KPMG's provision of non-audit services
(including those services included under the caption "All Other Fees") is
compatible with maintaining KPMG's independence.
Based on the review and discussions referred to above, and additional
matters deemed relevant and appropriate by the Audit Committee, the Audit
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 2002 and
that KPMG be appointed independent accountants for the Company for 2003.
This report is provided by the following directors who constitute the Audit
Committee:
Michael E. Lehman, Chairman
Ernest E. Keet
Dennis G. Sisco
INDEPENDENT ACCOUNTANTS FEES
In addition to retaining KPMG to audit the Company's consolidated financial
statements for 2002, the Company retained KPMG to provide various non-audit
services in 2002, and expects to continue to do so in the future. The aggregate
fees billed for professional services by KPMG in 2002 for these various services
were:
Audit Fees: $613,000 for professional services rendered for the audit of
the Company's consolidated financial statements for 2002 and the quarterly
reviews of the financial statements included in the Company's Quarterly Reports
on Form 10-Q for 2002.
Financial Information Systems Design and Implementation Fees: $0.
All Other Fees: $388,000 for tax services including tax return preparation
and tax planning, and $125,000 primarily for the audit of the Company's 401(k)
benefit plan and other accounting advice and assistance.
Although the Company expects to continue to retain KPMG for audit and other
services, the Company's managers are responsible for establishing and
maintaining the Company's system of internal accounting controls.
11
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board (the "Compensation Committee")
oversees Mercator's executive compensation program. The Compensation Committee
has three members: James P. Schadt, Chairman, Dennis G. Sisco and Mark C.
Stevens. Messrs. Sisco and Stevens are non-employee directors within the meaning
of Section 16 of the Exchange Act, and are "outside directors" within the
meaning of Section 162(m) of the Code. None of the members of the Compensation
Committee has any interlocking relationships as defined by the SEC.
GENERAL COMPENSATION PHILOSOPHY
The primary function of the Compensation Committee is to assist the Board
of Directors in fulfilling its responsibilities of establishing the general
compensation policy of the Company by (i) reviewing base salary levels and
target bonuses for the Chief Executive Officer ("CEO") and other executive
officers and key employees of the Company, and (ii) overseeing the Company's
incentive and equity plans together with the Company's Stock Option Committee.
The Compensation Committee typically reviews base salary levels and target
bonuses for the CEO and other executive officers and key employees of the
Company at or about the beginning of each year, based on input from, and
information compiled by, management. In addition to their base salaries, the
Company's executive officers, including the CEO, and key employees, are each
eligible to receive a cash bonus pursuant to a management incentive plan and are
entitled to participate in the 1997 Equity Incentive Plan.
The Company's compensation policy for executive officers and key employees
is to relate compensation directly to corporate performance and stockholder
value. The Compensation Committee establishes the Company's compensation
policies applicable to the executive officers and key employees, including the
CEO, and evaluates the performance of such persons. The Compensation Committee
has adopted the following guidelines for compensation decisions:
o provide a competitive total compensation package that enables the
Company to attract and retain key executive talent;
o plign all pay programs with the Company's annual and long-term
business strategies and objectives; and
o provide variable compensation opportunities that are directly linked
to the performance of the Company and that link executive reward to
stockholder return.
The Company's compensation policy relates a portion of each individual's
total compensation to Company-wide and individual objectives based on corporate
performance goals set forth at the beginning of the year.
The base salaries and incentive compensation of the executive officers are
determined by the Compensation Committee, and stock option grants to executive
officers are determined by the Stock Option Committee, in part by reviewing data
on prevailing compensation practices in companies with whom the Company competes
for executive talent, and by evaluating such information in connection with the
Company's corporate goals. In certain extraordinary circumstances, the
Compensation Committee may review and make recommendations with respect to stock
options. In order to determine base salary, target bonuses and total target cash
compensation, the Compensation Committee, in consultation with management, also
reviews general market conditions, compensation history of the candidate, and
compares the compensation of the Company's executive officers and key employees
with the compensation packages of similarly situated executives and employees at
comparable companies.
2002 EXECUTIVE COMPENSATION
BASE SALARY
In order to evaluate Mercator's competitive position in the industry, the
Compensation Committee reviewed and analyzes the compensation packages,
including base salary levels offered by other software companies that we believe
to be in our peer group, including companies such as SeeBeyond Technology
Corporation, Tibco Software Inc., Vitria
12
Technology, Inc., and Webmethods, Inc. In reviewing the compensation packages
offered by these other companies, the Compensation Committee examined a variety
of factors, including their relative size, performance and operational goals.
With respect to our corporate executive officers, other than the CEO, the
Compensation Committee also has considered other factors, such as each
executive's scope of responsibility, performance, prior experience and salary
history, as well as the compensation packages of other executives at Mercator.
The Compensation Committee initially targeted above the mid-market level of the
industry competitive base salary range and made adjustments (or not) based on
these other factors to arrive at base salary for the year. No specific fixed
weighting or formula was applied to these factors in determining base salary.
Rather, the Compensation Committee exercised its judgment in evaluating these
factors and in determining the appropriate base salary.
Our executives' base salaries are generally at or above those of executives
at companies in our peer group. Most of our current management was hired by the
Board early in 2001 to effect a turn-around of the Company. The executives we
hired were, in certain instances, paid above the 50th percentile of our peer
group in order to compensate them for increased risk and uncertainty in taking
on the challenges facing Mercator. Additionally, many executives at companies in
our peer group had been at their companies for a relatively long period of time
and, accordingly, their total compensation packages had a significant portion of
non-cash (i.e., stock or option-based) compensation. In lieu of significant
beneficial ownership for our new management, the Compensation Committee
determined in certain instances to provide total compensation packages with
relatively higher levels of cash compensation (both salary and bonus
opportunity) to reward a successful turn-around. Additionally, at the time these
executives were hired, the perceived value of equity-based compensation had
declined due to prevailing market conditions.
INCENTIVE AWARDS
In 2002, unless covered by an employment agreement, senior level managers
of the Company, including executive officers, were eligible to receive an annual
performance-based bonus based upon (i) the financial goals of the Company, as
determined by the Compensation Committee, and (ii) the employee's achievement of
other objectives as determined by the Compensation Committee. As discussed
above, the Compensation Committee also reviewed the bonus packages offered by
the other members of our peer group, targeting above the mid-market level of the
industry competitive bonus range if all operational and strategic targets are
achieved, and then examined other factors to determine the aggregate bonus
opportunity offered to our executives. The Compensation Committee has the
discretion to determine: the individuals who are to receive performance-based
bonuses; the amount of the bonus; the weighting between the Company's financial
goals and other corporate objectives when determining an individual's
performance-based bonus; and whether to revise performance-based bonus amounts
and targets during the year if market conditions warrant.
In 2002, each executive was eligible to receive a performance-based bonus
of up to 100% of their base salary if the Company achieved pre-determined
operational targets (e.g., revenue and EBITDA) and strategic targets (e.g.,
license revenues from partners and market capitalization). A portion of the
bonus was then earned for each target that was achieved. As discussed above,
each executive also had individual objectives. The original performance-based
bonus pool at 100% achievement of objectives would have paid $2.3 million to the
Company's executives. Based on the Company's performance relative to the revised
targets in 2002, the Company instead paid $1.1 million in bonuses.
LONG-TERM INCENTIVE AWARDS
The Compensation Committee believes that equity-based compensation in the
form of stock options links the interests of management and the Company's
stockholders by focusing employees and management on increasing stockholder
value. Stock options generally have value only if the price of the Company's
stock increases above the fair market value on the grant date and the option
grantee remains in the Company's employ for the period required for the shares
to vest.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee, together with the Board of Directors, will also
subjectively evaluate the level of performance of the CEO to determine current
and future appropriate base pay levels. For the CEO, the Compensation Committee
has in prior years targeted above the mid-market level of the base salary range
determined by its aforementioned competitive analysis, and has given significant
emphasis to annual bonus and longer-term
13
incentives for Mr. King's total compensation package. For fiscal year 2002, Mr.
King's base salary was $400,000. Total compensation paid in 2002 was $410,192 in
salary and $200,000 in bonus, with additional compensation in the form of
long-term incentive awards as described above. The additional $10,192 in salary
was due to a payroll change from bi-weekly to semi-monthly resulting in an
additional payroll for all employees for the period from December 21, 2002 to
December 31, 2002.
Mr. King's arrangements were determined in a manner consistent with the
factors described above for all executive officers and with available market
data as to competitive compensation terms. In January 2002, Mr. King's base
salary was increased from $375,000 to $400,000 in recognition of, among other
things, a significant increase in the Company's market capitalization during his
tenure through that date. His bonus compensation was determined based on his
achievement of certain operating targets (revenue and EBITDA) and certain
strategic targets (license revenue, revenue influenced by partners and market
capitalization). Mr. King has not received a base salary increase in 2003.
Mr. King did not participate in any compensation deliberations of the
Board, the Compensation Committee or the Stock Option Committee with respect to
any of his compensation. The Committee considered this compensation package
appropriate in view of Mr. King's effectiveness in management and cost-cutting
measures of the Company in an unusually challenging global economic environment.
INTERNAL REVENUE CODE SECTION 162(M) LIMITATION
In general, under Section 162(m) of the Code, the Company cannot deduct,
for federal income tax purposes, compensation in excess of $1,000,000 paid to
certain executive officers. This deduction limitation does not apply, however,
to compensation that constitutes "qualified performance-based compensation"
within the meaning of Section 162(m) of the Code and the regulations promulgated
thereunder. The Company has considered the limitations on deductions imposed by
Section 162(m) of the Code and it is the Company's present intention, for so
long as it is consistent with its overall compensation objective, to structure
executive compensation to minimize application of the deduction limitations of
Section 162(m) of the Code.
This report is provided by the following directors who constitute the
Compensation Committee:
James P. Schadt, Chairman
Dennis G. Sisco
Mark C. Stevens
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or awarded for services
rendered in all capacities to Mercator and its subsidiaries during 2000, 2001
and 2002 to: (i) Mercator's Chief Executive Officer during 2002, (ii) the
Company's four other most highly compensated executive officers who were serving
as executive officers during 2002, and (iii) two former executive officers of
the Company (collectively, (i), (ii) and (iii) are referred to as the "Named
Executive Officers"). This information includes base salaries and bonus awards,
the dollar values of shares subject to stock options granted and certain other
compensation, if any, whether paid or deferred. The Company does not grant stock
appreciation rights and has no long-term compensation benefits other than stock
options.
14
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR (1) SALARY BONUS COMPENSATION OPTIONS COMPENSATION (2)
--------------------------- -------- -------- --------- ------------ ------------ ----------------
Roy C. King ......................... 2002 $410,192 $259,845 $ -- 300,000 $30,510
Chairman of the Board of 2001 351,923 200,000 -- 1,000,000 15,163
Directors, Chief Executive 2000 -- -- -- -- --
Officer and President
Kenneth J. Hall ..................... 2002 $307,500 $162,442 $ -- 300,000 $14,585
Executive Vice President, 2001 126,923 162,500 -- 400,000 411
Chief Financial Officer and 2000 -- -- -- -- --
Treasurer
Mark W. Register .................... 2002 $235,617 $106,972 $304,116 (3) 300,000 $22,004
Executive Vice President and 2001 181,270 57,203 -- 30,000 --
President, Worldwide Field 2000 108,887 86,112 -- 75,000 --
Operations
David S. Linthicum .................. 2002 $281,827 $112,238 $ -- 300,000 $15,613
Executive Vice President, 2001 178,077 100,000 -- 350,000 685
Research and Development 2000 -- -- -- -- --
And Chief Technology
Officer
Jill M. Donohoe ..................... 2002 $231,058 $112,500 $ -- 200,000 $ 6,233
Senior Vice President, 2001 43,269 147,500 -- 250,000 117
Global Alliances and 2000 -- -- -- -- --
Corporate Development
Michael E. Wheeler .................. 2002 $244,269 $ -- $ -- 50,000 $31,544
Senior Vice President, 2001 52,885 300,000 -- 300,000 222
Manufacturing, Retail and 2000 -- -- -- -- --
Distribution Industry
Solution Unit (4)
Robert J. Farrell ................... 2002 $222,820 $ -- $ -- 50,000 $ 3,233
Senior Vice President, and 2001 103,846 150,000 -- 300,000 360
President, Americas (4) 2000 -- -- -- -- --
-------------------
(1) Mr. King became Chief Executive Officer and President of the Company on
January 16, 2001; Mr. Hall became Senior Vice President, Chief Financial
Officer and Treasurer on July 9, 2001; Mr. Linthicum became Senior Vice
President, Research and Development, and Chief Technology Officer on March
14, 2001; Ms. Donohoe became Senior Vice President, Global Alliances &
Corporate Development on October 15, 2001; Mr. Wheeler became Senior Vice
President, Product Intensive Enterprises on October 8, 2001; and Mr.
Farrell became Senior Vice President and President, Americas on July 9,
2001. The amounts shown in the table for 2001 with respect to these
officers are payments from such dates.
(2) Includes: (a) Company matching 401(k) contributions for: (i) Mr. King of
$5,683 and $5,481 for 2002 and 2001, respectively; (ii) Mr. Hall of $4,550
for 2002; (iii) Mr. Linthicum of $3,469 for 2002; (iv) Ms. Donohoe of
$1,692 for 2002; and (v) Mr. Wheeler of $5,420 for 2002; (b) insurance and
disability premiums and medical expense reimbursement for: (i) Mr. King of
$24,827 and $9,682 for 2002 and 2001, respectively; (ii) Mr. Hall of
$10,035 and $411 for 2002 and 2001, respectively; (iii) Mr. Linthicum of
$12,144 and $685 for 2002 and 2001, respectively; (iv) Ms. Donohoe of
$4,541 and $117 for 2002 and 2001, respectively; (v)
15
Mr. Register of $1,750 for 2002; (vi) Mr. Wheeler of $5,740 and $222 for
2002 and 2001, respectively; and (vii) Mr. Farrell of $3,233 and $360 for
2002 and 2001, respectively; (c) payments for Mr. Register under the
Australian Superannuation Plan of $20,197 (this payment is required to be
made for all Australian employees under applicable Australian law) and $57
for salary continuance insurance premium, both for 2002; and (d) severance
for Mr. Wheeler of $20,384.
(3) Includes relocation and related expenses for overseas assignments of
$105,407, relocation and related expenses for U.S. assignment of $41,486,
income tax payments of $144,521, social security payments and a car
allowance.
(4) Mr. Wheeler served until November 8, 2002 and Mr. Farrell served until
August 21, 2002.
STOCK OPTION COMMITTEE REPORT
In 2002, stock options were granted in accordance with the Company's 1997
Equity Incentive Plan to certain executive officers and key employees as
incentives for them to become employees or to aid in their retention and to
align their interests with those of the stockholders. Stock options typically
have been granted to executive officers when the executive first joins the
Company, in connection with a significant change in responsibilities and, in
certain cases, to achieve equity within a peer group. The Stock Option Committee
may grant stock options to retain executive officers and key employees in order
to strive to increase the value of the Company's common stock. The number of
shares subject to each stock option granted is within the discretion of the
Stock Option Committee and is based on anticipated future contribution and
ability to impact the Company's results, past performance or consistency within
the grantee's peer group. In 2002, the Stock Option Committee considered these
factors, as well as the number of unvested option shares held by the grantee as
of the date of grant. The stock options generally become exercisable over a
four-year period and are granted at a price that is equal to the fair market
value of the Company's common stock on the date of grant.
In January 2002, the Stock Option Committee granted Mr. King, the Company's
Chairman of the Board of Directors, Chief Executive Officer and President,
300,000 options. The Stock Option Committee's determination to grant such stock
options was based on Company performance in 2001 (and that such performance was
the result of his contributions) and the significant increase in market
valuation realized by the Company and to provide a significant incentive for him
to enhance long-term stockholder value. Additionally, the Board considered stock
ownership of chief executive officers at other companies in Mercator's peer
group.
The Company also granted other executives stock options in January 2002
based on Company performance in 2001. In December 2002, in light of the
significant industry-wide decrease in the market valuation of technology
companies (which, in many cases, resulted in a corresponding decline in value of
stock options previously granted) the decision was made to provide additional
options for purposes of motivation and retention, to a broad list of employees,
whose present and potential contributions were considered to be important to the
success of the Company during the current challenging business period. These
grants, made in December 2002, are intended to cover grants through and
including December 31, 2004 (effectively covering two years of grants). This was
deemed necessary and appropriate in light of the Company's recently-undertaken
workforce reduction. The Board approved the proposed option grants stipulating
no further grants would be made to existing employees for 2003 or 2004 unless
specifically approved by the Stock Option Committee in connection with a
promotion or other extraordinary circumstances.
This report is provided by the following directors who constitute the Stock
Option Committee:
Mark C. Stevens, Chairman
Dennis G. Sisco
16
OPTION GRANTS IN 2002
The following table sets forth information regarding option grants during
2002 pursuant to the Company's 1997 Equity Incentive Plan (the "1997 Plan") to
each of the Named Executive Officers. The table sets forth the hypothetical
gains or "option spreads" that would exist for the options at the end of their
respective ten-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term, as required by applicable SEC rules. They
do not represent the Company's estimate or projection of future common stock
price or value.
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE ANNUAL RATES OF
NUMBER OF OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------------
NAME GRANTED (1) IN 2002 SHARE DATE 5% 10%
---- ----------- --------- --------- ---------- ------------- -------------
Roy C. King ..................... 300,000(3) 4.6% $ 8.89 1/2/12 $ 1,677,262 $ 4,250,511
David S. Linthicum .............. 100,000(4) 1.5% $ 8.89 1/2/12 $ 559,087 $ 1,416,837
200,000(4) 3.1% 1.169 11/27/12 147,036 372,617
Kenneth J. Hall ................. 120,000(4) 1.8% $ 8.89 1/2/12 $ 670,905 $ 1,700,204
180,000(4) 2.7% 0.94 12/18/12 106,409 269,661
Jill M. Donohoe ................. 50,000(4) 0.8% $ 8.89 1/2/12 $ 279,544 $ 708,418
150,000(4) 2.3% 0.94 12/18/12 88,674 224,718
Mark W. Register ................ 95,000(4) 1.4% $ 8.89 1/2/12 $ 531,133 $ 1,345,995
100,000(4) 1.5% 1.39 7/30/12 87,416 221,530
105,000(4) 1.6% 0.94 12/18/12 62,072 157,302
Michael E. Wheeler .............. 50,000(4) 0.8% $ 8.89 1/2/12 $ 279,544 $ 708,418
Robert J. Farrell ............... 50,000(4) 0.8% $ 8.89 1/2/12 $ 279,544 $ 708,418
--------------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options (to the extent permitted under the Code) and will
expire ten years from the date of grant, subject to earlier termination
upon termination of the optionee's employment.
(2) Potential realizable values are calculated based on the fair market value
of the Company's common stock at the date of grant minus the exercise
price.
(3) These options vest 50% on each of 1/2/2005 and 1/2/2006.
(4) These options vest 25% on the date of grant and the remaining 75% quarterly
thereafter for four years.
17
AGGREGATE OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES
There were no option exercises by the Named Executive Officers during 2002.
The following table consists of the number of shares covered by both exercisable
and unexercisable stock options as of December 31, 2002 and indicates values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $0.97 per share, which was the
closing price of Mercator's common stock as reported on the Nasdaq National
Market on December 31, 2002, the last day of trading for 2002. These values may
not be realized.
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE- MONEY OPTIONS
SHARES AT YEAR-END AT YEAR-END
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Roy C. King ................... -- -- 750,000 550,000 $ -- $ --
David S. Linthicum ............ -- -- 266,960 383,040 -- --
Kenneth J. Hall ............... -- -- 299,025 400,975 1,350 4,050
Jill M. Donohoe ............... -- -- 166,404 283,596 1,125 3,375
Mark W. Register .............. -- -- 145,389 259,611 788 2,363
Michael E. Wheeler ............ -- -- 150,777 -- -- --
Robert J. Farrell ............. -- -- 129,686 -- -- --
COMPENSATION AND OTHER INFORMATION
CONCERNING EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS
NAME AGE POSITION IN THE COMPANY
---- --- -----------------------
Roy C. King ........................... 49 Chairman of the Board, Chief Executive Officer and President
Michael J. Collins .................... 39 Senior Vice President, Chief Marketing Officer
Jill M. Donohoe ....................... 33 Senior Vice President, Global Alliances and Corporate
Development
David L. Goret ........................ 39 Senior Vice President, General Counsel and Secretary
Kenneth J. Hall ....................... 45 Executive Vice President, Chief Financial Officer and Treasurer
Gerald E. Klein ....................... 54 Vice President, Americas, and Assistant Secretary
David S. Linthicum .................... 40 Executive Vice President, Research and Development, and Chief
Technology Officer
Mark W. Register ...................... 40 Executive Vice President and President, Worldwide Field
Operations
Ronald R. Smith ....................... 56 Senior Vice President and Chief Administrative Officer
Thracy P. Varvoglis ................... 54 Senior Vice President, Industry Solutions Group
Roy C. King was elected Chief Executive Officer, President and a Director
in January 2001 and Chairman of the Board in March 2001. Prior to joining
Mercator, Mr. King was President and CEO of Immedient Corporation, an e-business
solutions company, from May 2000 through November 2000. He previously spent
seven years at IBM, a multinational computer hardware, software and services
company. While at IBM, Mr. King served as Executive --Business Innovation
Services-Industrial Sector from February 2000 to May 2000; he served as General
Manager, Consulting and Integration -- Europe, Middle East, Africa from July
1997 through February 2000; he served as Vice President, Worldwide Manufacturing
Industries Consulting from January 1996 through July 1997; and he
18
served as Vice President, Manufacturing Industries Consulting -- North America
from July 1993 through January 1996. Mr. King received a BS from Iowa State
University and an MBA from Harvard University.
Michael J. Collins has been Senior Vice President and Chief Marketing
Officer since August 2002. From August 2001 to August 2002, Mr. Collins was
Senior Vice President and Chief Marketing Officer at Xchange, Inc., a provider
of customer relationship management solutions. From February 2000 to May 2001,
he was Senior Vice President and Chief Marketing Officer at Metiom, Inc., a web
site company providing group purchasing power to small business owners, and from
August 1997 to February 2000, he was Vice President, Worldwide Corporate
Marketing at Saga Software, Inc., a provider of enterprise systems software. Mr.
Collins received a BA from Rowan University.
Jill M. Donohoe has been Senior Vice President, Global Alliances and
Corporate Development since October 2001. From June 2000 to October 2001, Ms.
Donohoe was a Vice President at the investment banking firm, MAST Services, LLC,
a Monitor Group Company. From June 1999 to June 2000, she was Executive Vice
President, Business Development at Rxcentric, Inc., an eHealth start-up that
focused on eDetailing and online marketing/ education for pharmaceutical
companies. From September 1998 to June 1999, she was a Global Client Partner at
iXL Inc., an information technology services company. Prior to that, Ms. Donohoe
was the Senior Director of Business Development at Larry Miller Productions, a
marketing, communications and internet solutions company that was acquired by
iXL. Ms. Donohoe received a BA from Providence College.
David L. Goret became Senior Vice President, General Counsel and Secretary
in September 2002. Prior to joining Mercator, from April 2000 to August 2002, he
was Executive Vice President, Administration and General Counsel of Hawk
Holdings, a technology holding company. From January 1999 to April 2000, Mr.
Goret was Vice President, Internet & Multimedia Law at Qwest Internet Solutions,
a wholly-owned subsidiary of Qwest Communications, a telecommunications company,
and from February 1996 to December 1998, he was Vice President, General Counsel
at Icon CMT Corp., an Internet solutions provider, which was acquired by Qwest
in 1998. Mr. Goret received a BA from Duke University and a JD from University
of Michigan Law School.
Kenneth J. Hall became Senior Vice President, Chief Financial Officer and
Treasurer in July 2001. In December 2001, he was promoted to his current
position of Executive Vice President, Chief Financial Officer and Treasurer.
From April 2000 to June 2001, Mr. Hall worked as an independent consultant
advising companies on strategic and financial matters. From July 1999 to March
2000, Mr. Hall was Executive Vice President and Chief Financial Officer at
Onsite Access, Inc., an early stage broadband communications company. OnSite
Access filed for bankruptcy protection under Chapter 11 of the Federal
bankruptcy laws in May 2001. From March 1997 to December 1998, he was Senior
Vice President, Chief Financial Officer and Treasurer at Icon CMT Corp. until
its acquisition by Qwest Communications International Inc., and he served in the
same capacity at Qwest Internet Solutions, Inc., a successor-in-interest to Icon
CMT Corp. and wholly-owned subsidiary of Qwest Communications International,
Inc. until April 1999. Mr. Hall received a BS from Lehigh University and an MBA
from Golden Gate University.
Gerald E. Klein became General Counsel, Americas and Assistant Secretary in
September 2002. He was General Counsel, Americas and Secretary in August 2000
and became Vice President, Americas in May 2001. From November 1993 through May
2000, Mr. Klein was Purchasing and Credit Counsel at Union Carbide Corporation,
a multinational chemical company. Mr. Klein received a BA from Brooklyn College
and a JD from New York University.
David S. Linthicum became Senior Vice President, Software Development and
Chief Technology Officer in March 2001. In December 2001, he was promoted to his
current position of Executive Vice President, Research and Development and Chief
Technology Officer. From December 1997 to February 2001, Mr. Linthicum was Chief
Technology Officer of Saga Software, Inc., a provider of enterprise systems
software. Mr. Linthicum has a BS from George Mason University.
Mark W. Register became Vice President, Asia Pacific in June 2000. He was
promoted to President, Asia Pacific in January 2001, and was promoted to
Executive Vice President & President, Worldwide Field Operations in October
2001. He was Vice President, Application Services of Computer Sciences
Corporation (Australia), an
19
information technology services company, from January 2000 to June 2000. Prior
to Computer Sciences Corporation, he was at GE Capital, IT Solutions where he
served as General Manager, Systems Integration and Managed Services, from
January 1999 until December 1999, Integration and Quality Leader from August
1998 through December 1998, the General Manager of GE Capital IT Solutions'
Eastern Region from April 1997 through August 1998 and the General Manager for
Integrated Outsourcing from September 1996 through April 1997. Mr. Register
graduated from Curtin University of Technology in Perth Western Australia and
attended Auckland Institute of Technology (formerly Auckland Technical
Institute).
Ronald R. Smith served as an operations consultant for Mercator from
February 2001 through June 2001 before being appointed Mercator's Vice
President, Global Operations in June 2001. In January 2002, he was promoted to
Senior Vice President and Chief Administrative Officer. From March 2000 until
February 2001, Mr. Smith taught leadership development at Northwood University.
From January 1995 to March 2000, Mr. Smith was a Business Operations Manager at
IBM Corp. Mr. Smith received a BS from Youngstown State University.
Thracy P. Varvoglis has been Senior Vice President, Industry Solutions
Group since August 2002. He joined Mercator as Vice President, Financial
Solutions in March 2002. From March 2001 to March 2002, Mr. Varvoglis was a Vice
President at Compaq. From September 1992 to March 2001, he was a Vice President
for IBM's Global Services Division. Mr. Varvoglis received a BEE from Pratt
Institute and an MEE from Stevens Institute.
COMPENSATION AGREEMENTS
The Company has entered into agreements with the Named Executive Officers
as described below:
Mr. King's agreement provides for an annual base salary of $375,000 and an
option grant to purchase an aggregate of 1,000,000 shares of common stock,
250,000 shares of which were granted upon commencement of employment and 750,000
shares of which were issued on May 17, 2001. Mr. King currently receives an
annual base salary of $400,000. The term of the agreement is five years
commencing January 16, 2001. Mr. King shall be eligible to receive an annual
operational bonus equal to 100% of his base salary upon achievement of certain
profit and revenue targets. Mr. King is also eligible to receive an annual
strategic bonus equal to 100% of his base salary upon achievement of certain
strategic initiatives as set by the Compensation Committee at the beginning of
each year. As a condition to receive the strategic bonus, Mr. King must achieve
the minimum performance under the operational bonus. If Mr. King is terminated
without cause or if he leaves with good reason, he will be entitled to receive
unpaid salary through the termination date, severance compensation of 18 months
base salary, a bonus amount equal to his operational bonus pro rated through the
termination date, a bonus equal to 150% of his annual operational bonus payable
during the 18 month severance period and 18 months of eligible benefits. Upon
any such termination, stock options already vested shall remain vested and
exercisable for the remainder of their originally stated term up to the maximum
extension permitted by the 1997 Equity Incentive Plan, and any options to become
vested within 18 months of the termination date shall vest and remain vested and
exercisable for the remainder of their originally stated terms up to the maximum
extension permitted by such Plan. Mr. King receives term life insurance valued
at $3,050,000, with premiums paid by the Company. Upon the constructive
termination of Mr. King's employment within one year of a change of control, Mr.
King will receive the same payments and benefits as if he were terminated
without cause, however, he will receive such payments and benefits for a three
year period. Also, upon a change of control, Mr. King is eligible to receive
certain additional benefits. See "Change of Control Plan," infra.
Mr. Hall's agreement provides for an annual base salary of $275,000 and an
option grant to purchase an aggregate of 400,000 shares of common stock. Mr.
Hall currently receives an annual base salary of $300,000. Mr. Hall is eligible
for a target bonus of 100% of his base salary, with a payout range of 0% to 300%
of his base salary based upon meeting certain corporate performance and goals.
If Mr. Hall is terminated for any reason other than for cause, the agreement
provides for severance of twelve months' salary plus a bonus at 100% of his then
base salary, and twelve months of continued eligible benefits and other
executive perquisites. Mr. Hall is entitled to receive term life insurance
valued at $1,000,000 paid by the Company. Upon a change of control, Mr. Hall is
eligible to receive certain benefits. See "Change of Control Plan," infra.
20
Mr. Linthicum's agreement provides for an annual base salary of $200,000
and an option grant to purchase an aggregate of 250,000 shares of common stock.
Mr. Linthicum currently receives an annual base salary of $275,000. He is
eligible for a target bonus of 100% of his base salary with a payout range of 0%
to 300% of his base salary based upon meeting certain corporate performance and
goals. If Mr. Linthicum is terminated for any reason other than for cause, the
agreement provides for severance of twelve months' salary, medical insurance and
other executive perquisites. Mr. Linthicum is entitled to receive term life
insurance valued at $1,150,000 paid by the Company. Upon a change of control,
Mr. Linthicum is eligible to receive certain benefits. See "Change of Control
Plan," infra.
Ms. Donohoe's agreement provides for an annual base salary of $225,000 (her
current salary) and an option grant to purchase an aggregate of 250,000 shares
of common stock. Ms. Donohoe received a sign-on bonus of $100,000. Ms. Donohoe
is eligible for a target bonus of 100% of her base salary, with a payout range
of 0% to 300% of her base salary based upon meeting certain corporate and
business unit performance goals. If Ms. Donohoe is terminated for any reason
other than for cause, her agreement provides for severance of salary, executive
benefits for medical insurance and other executive perquisites for twelve
months. Ms. Donohoe is entitled to receive term life insurance valued at
$500,000 paid by the Company. Upon a change of control, Ms. Donohoe is eligible
to receive certain benefits. See "Change of Control Plan," infra.
Mr. Register's agreement provides for an annual base salary of $225,000.
Mr. Register currently receives an annual base salary of $250,000. He is
eligible for a target bonus of 100% of base salary with a payout range of 0% to
300% of his base salary based upon meeting operational and strategic results.
Mr. Register was on an assignment in Germany and as such received paid benefits
including housing, education for family members, relocation expenses and certain
tax equalization payments. Mr. Register is now on a two-year assignment in the
United States as of August 1, 2002. If Mr. Register is terminated for any reason
other than for cause before the completion of his U.S. assignment, his agreement
provides for severance equal to twelve month's base salary and certain
relocation benefits. Mr. Register is entitled to receive term life insurance
valued at approximately $500,000 paid by the Company. Upon a change of control,
Mr. Register is eligible to receive certain benefits. See "Change of Control
Plan," infra.
Mr. Wheeler's agreement provides for an annual base salary of $250,000 and
an option grant to purchase an aggregate of 300,000 shares of common stock. In
2001, Mr. Wheeler received a sign-on bonus of $100,000. Mr. Wheeler left the
Company on November 8, 2002 with an annual salary of $265,000. Mr. Wheeler is
receiving severance payments equal to his annual salary and continued medical,
dental and MERP benefits under COBRA for a period of twelve months from his
termination date.
Mr. Farrell's agreement provides for an annual base salary of $225,000 and
an option grant to purchase an aggregate of 200,000 shares of common stock. Mr.
Farrell left the Company on August 21, 2002. Mr. Farrell's vested option
expiration date was extended until February 28, 2003. Mr. Farrell received two
month's base salary at termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Schadt, a member of the Company's Compensation Committee, was a former
officer of the Company, the interim Chairman and Chief Executive Officer of the
Company from November 2000 to May 2001. Mr. Schadt's son-in-law is the chief
executive officer of Harvard Pilgrim Health Care, with whom Mercator has entered
into a license agreement described under " -- Certain Relationships and Related
Transactions." Messrs. Sisco and Stevens, who are also members of the
Compensation Committee, have no interlocking relationships as defined by the
SEC.
DIRECTOR COMPENSATION
The Company reimburses its Directors for reasonable expenses associated
with their attendance at Board and committee meetings. Directors who are not
employees also receive cash compensation as follows: (a) an annual retainer of
$15,000, (b) $1,500 per Board meeting attended, and (c) $500 per committee
meeting attended. Directors
21
are eligible to participate in the Company's 1997 Directors Stock Option Plan
(the "Directors Plan") and the 1997 Equity Incentive Plan (the "1997 Plan"). In
December 2002, the Board of Directors revised the annual option grant
compensation to: (a) 50,000 options as an initial grant for new Directors, (b)
20,000 options each year for continuing directors, and (c) 3,000 option grants
for chairpersons of the Board committees. This revision had the effect of
increasing the annual grant by 10,000 options retroactive to the 2002 grants and
then the Board accelerated the 2003 grant to be issued in December 2002 thereby
giving each continuing director a total of 30,000 options in December 2002.
During 2002, the following stock options to purchase shares of the Company's
common stock were granted to non-employee directors under the Directors Plan and
the 1997 Plan: Constance Galley received an option grant under the Directors
Plan to purchase 10,000 shares at an exercise price of $1.50 per share and an
option grant under the 1997 Plan to purchase 30,000 shares at an exercise price
of $0.94 per share; Ernest Keet received an option grant under the Directors
Plan to purchase 10,000 shares at an exercise price of $1.50 and an option grant
under the 1997 Plan to purchase 30,000 shares at an exercise price of $0.94 per
share; Michael Lehman received three option grants under the Directors Plan to
purchase a total of 73,000 shares at an exercise price of $3.60 and $1.50,
respectively, and an option grant under the 1997 Plan to purchase 30,000 shares
at an exercise price of $0.94 per share; James Schadt received two option grants
under the Directors Plan to purchase a total of 13,000 shares at an exercise
price of $1.50 per share and an option grant under the 1997 Plan to purchase
30,000 shares at an exercise price of $0.94 per share; Dennis Sisco received an
option grant under the Directors Plan to purchase 10,000 shares at an exercise
price of $1.50 per share and an option grant under the 1997 Plan to purchase
30,000 shares at an exercise price of $0.94 per share; and Mark Stevens received
two option grants under the Directors Plan to purchase a total of 13,000 shares
at an exercise price of $1.50 per share and an option grant under the 1997 Plan
to purchase 30,000 shares at an exercise price of $0.94 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 2000, the Company entered into a license agreement with Harvard
Pilgrim Health Care ("Harvard Pilgrim"). The chief executive officer of Harvard
Pilgrim is Mr. Schadt's son-in-law. Under the license agreement, Harvard Pilgrim
purchased for $495,000 the right to use Mercator's electronic data interchange,
or EDI, software and certain health care transaction processing software.
Harvard Pilgrim also paid Mercator a maintenance fee of $84,150 in 2001 and
2002; and will pay a maintenance fee of $87,516 for 2003. The purchase price for
the license and the annual maintenance fees are comparable to the amounts
charged to Mercator's other customers for such products and services.
CHANGE OF CONTROL PLAN
In December 2001, the Compensation Committee of the Board adopted a Change
of Control Protection Plan. Such plan provides that, upon a change of control as
defined below:
(a) the Chief Executive Officer, Chief Financial Officer and Chief
Technology Officer will receive (i) full acceleration of unvested options,
and (ii) in the event of constructive termination, as defined below, within
one year of the change in control, pro-ration of year-to-date annual bonus,
eighteen months severance (salary and target bonus) and continued benefits
for eighteen months (pursuant to his employment agreement, the Chief
Executive Officer will receive three years severance (salary and target
bonus) and benefits);
(b) Senior Vice Presidents, and certain selected Vice Presidents, will
receive (i) 50% acceleration of unvested stock options, and (ii) if
constructively terminated within one year of the change of control, full
acceleration of unvested stock options, pro-ration of year to date annual
bonus, 12 months severance (salary and target bonus) and benefits; and
(c) all other employees will receive (i) one year acceleration of
unvested stock options, and (ii) if constructively terminated within six
months, full acceleration of unvested stock options.
"Change of Control" is defined in the plan as having occurred if:
(a) any "person," (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than a trustee or other fiduciary holding shares
under an employee benefit plan of the Company, or a corporation
22
owned, directly or indirectly by the stockholders of the Company in
substantially the same proportions, becomes after the date hereof the
beneficial owner (as defined in Rule 13d-3 under Exchange Act), directly or
indirectly, of securities of Mercator representing fifty percent (50%) or
more of the combined voting power of the Company's then outstanding shares;
(b) the composition of the Board changes such that individuals who on
November 13, 2001 constituted the Board and any new director whose election
by the Board or nomination for election by the Company's stockholders was
approved by a vote of at least three-fourths (3/4) of the directors then
still in office who either were directors on the date hereof or whose
election or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof;
(c) substantially all the assets of the Company are disposed of by the
Company pursuant to a merger, consolidation, partial or complete
liquidation, a sale of assets (including stock of a subsidiary) or
otherwise, but not including a reincorporation or similar transaction
resulting in a change only in the form of ownership of such assets, or
(d) the Company combines with another company and is the surviving
corporation, but, immediately after the combination, the stockholders of
the Company immediately prior to the combination hold, directly or
indirectly, fifty percent (50%) or less of the voting stock of the combined
company.
"Constructive Termination" is defined as the occurrence of any of the
following, without employee's written consent:
(a) a significant diminution of, or the assignment to the employee of
any duties inconsistent with the employee's title, status, duties or
responsibilities;
(b) a reduction in annual base salary, target bonus or fringe benefit
which by itself or in the aggregate is material to employee's compensation;
(c) the relocation of employee's office more than fifty miles from the
employee's current location; or
(d) the failure to obtain the written assumption of employee's
employment agreement by any successor to all or substantially all of the
Company's assets or business within thirty days after a merger,
consolidation, sale or a change of control.
23
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the SEC and shall
not be deemed to be incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933, as amended, or under the Securities Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
soliciting material or filed under such Acts.
The graph below compares the cumulative total stockholder return on the
common stock of the Company from July 3, 1997 to December 31, 2002 with the
cumulative total return on the Nasdaq Stock Market -- U.S. Index, the J.P.
Morgan H&Q Index ("H&Q Index") and the RDG Software Composite ("RDG Index") over
the same period (assuming the investment of $100 in the common stock of Company
and in each of the other indices on July 3, 1997, and reinvestment of all
dividends, if any). The Company used the H&Q Index as its published line of
business index in preparing this performance graph until J.P. Morgan stopped
publishing the H&Q Index effective February 2002. The H&Q Index has been
replaced by the RDG Index, which is similar in components to the H&Q Index.
COMPARISON OF 66 MONTH CUMULATIVE TOTAL RETURN*
AMONG MERCATOR SOFTWARE, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE JP MORGAN H & Q COMPUTER SOFTWARE INDEX
AND THE RDG SOFTWARE INDEX
7/3/97 12/97 12/98 12/99 12/00 12/01 12/02
------ ------ ------ ------- ------ ------ ------
MERCATOR SOFTWARE INC 100.00 105.56 531.94 1258.33 119.44 185.78 21.56
NASDAQ STOCK MARKET (U.S.) 100.00 109.46 154.33 286.22 172.31 136.70 94.49
JP MORGAN H & Q COMPUTER SOFTWARE 100.00 111.56 145.74 331.59 247.91 162.20
RDG SOFTWARE COMPOSITE 100.00 105.91 191.56 400.00 224.25 189.13 131.62
24
PROPOSAL NO. 2 -- RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company has selected KPMG LLP ("KPMG") as its independent accountants
to perform the audit of the Company's financial statements for 2003, and the
stockholders are being asked to ratify such selection. KPMG was engaged as the
Company's independent accountants for the year ended December 31, 2002.
Representatives of KPMG will be present at the Meeting, will have the
opportunity to make a statement at the Meeting if they desire to do so, and will
be available to respond to appropriate questions.
The affirmative vote of a majority of the shares of common stock present in
person or represented by proxy at the Meeting and entitled to vote on the
proposal is required to approve the ratification of selection of independent
accountants.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF KPMG LLP.
STOCKHOLDER PROPOSALS FOR 2004
PROXY STATEMENT PROPOSALS
Under the rules of the SEC, proposals of stockholders intended for
inclusion in the proxy statement to be furnished by Mercator to stockholders
entitled to vote at its 2004 Annual Meeting must be received at the Company's
principal executive offices no later than December 16, 2003.
OTHER PROPOSALS
The Company's By-laws provide that any proposals that are not included in
the proxy statement, to be eligible for consideration at the 2004 Annual Meeting
of the Company, must be received at the Company's principal executive offices
not later than the close of business on March 15, 2004 nor earlier than the
close of business on February 14, 2004. The proposal must also comply with the
other procedural requirements set forth in the Company's By-laws, a copy of
which may be obtained from the Company. It is suggested that proponents submit
their proposals by Certified Mail-Return Receipt Requested.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the SEC. Such persons are required by SEC regulations
to furnish the Company with copies of all forms under Section 16(a). Based
solely on its review of the copies of such forms furnished to the Company and
written representations from the officers and directors of the Company, to the
Company's knowledge, all such filings were made on a timely basis, except the
November 27, 2002 Form 4 for David S. Linthicum, which was due on December 2,
2002, was filed on December 6, 2002; and the December 18, 2002 Form 4's for
Constance F. Galley, Ernest E. Keet, James P. Schadt, Michael E. Lehman, Dennis
G. Sisco, Mark C. Stevens, Roy C. King, David L. Goret, Gerald E. Klein, Gregory
G. O'Brien, Kenneth J. Hall, Jill M. Donohoe, Michael J. Collins, Mark W.
Register, Ronald R. Smith and Thracy P. Varvoglis, which were due on December
20, 2002, were filed on December 23, 2002.
25
METHOD AND COST OF PROXY SOLICITATION
Proxies may be solicited without additional compensation by all directors
and such officers of the Company listed on Appendix A by e-mail, web page (or
web site), telephone, facsimile, telegram or in person. Appendix A sets forth
certain information relating to such persons who will be soliciting proxies on
the Company's behalf (the "Participants").
The Company will bear all costs related to the solicitation of proxies
pursuant to this Proxy Statement, including the preparation, printing and
mailing of proxy materials. The Company has spent approximately $50,000 thus far
in connection with the solicitation of proxies and estimates that it will spend
a total of $550,000 beyond what it would normally spend for the solicitation of
proxies in connection with an annual meeting.
The Company has retained D.F. King & Co., Inc. to assist in soliciting
proxies. D.F. King & Co., Inc. will employ approximately 40 people in connection
with the solicitation, at an approximate aggregate cost of $125,000.
The Company requests that banks, brokers and other custodians, nominees and
fiduciaries forward proxy materials to the beneficial owners of the Company's
Company Stock and obtain their voting instructions. The Company will reimburse
those firms for their expenses in accordance with SEC rules.
YOUR VOTE AT THIS YEAR'S ANNUAL MEETING IS ESPECIALLY IMPORTANT. PLEASE
SIGN AND DATE THE ENCLOSED WHITE PROXY CARD AND RETURN IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE PROMPTLY.
WE URGE YOU NOT TO SIGN OR RETURN ANY PROXY CARD THAT MAY BE SENT TO YOU BY
SSH/BROKEN ARROW, EVEN AS A PROTEST VOTE AGAINST SSH/BROKEN ARROW. If you
previously voted on an SSH/Broken Arrow BLUE proxy card, you have every legal
right to change your vote. You can do so simply by signing, dating and returning
the enclosed WHITE proxy card. A person giving any proxy has the power to revoke
it (whether such proxy was solicited by the Board of Directors or by SSH/Broken
Arrow) at any time before the voting by submitting to the Company or to
SSH/Broken Arrow a written revocation or duly executed proxy card bearing a
later date. ONLY YOUR LATEST DATED PROXY CARD WILL COUNT. Please refer to "What
if I want to revoke my Proxy?" on page 3 for a discussion of how to revoke your
proxy.
FORWARD LOOKING STATEMENTS
Statements made by the Company in this Proxy Statement that are not
strictly historical facts are "forward looking" statements that are based on
current expectations about the markets in which the Company does business and
assumptions made by management. Such statements should be considered as subject
to risks and uncertainties that exist in the Company's operations and business
environment and could render actual outcomes and results materially different
than predicted. For a description of some of the factors and uncertainties which
could cause actual results to differ, reference is made to the section entitled
"Risk Factors" in the Company's 2002 Annual Report on Form 10-K. All
forward-looking statements and reasons why results might differ included in this
proxy statement are made as of the date hereof based on information available to
the Company as of the date hereof. The Company assumes no obligation to update
any such forward-looking statement or reasons why results might differ.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the notice of the Meeting (other than
a proposal by SSH/Broken Arrow to repeal any amendments to the Company's By-laws
adopted on or after March 14, 2003 -- however, since the Board does not intend
to make any such amendments to the By-laws, the Company does not expect that
such proposal by SSH/Broken Arrow will be presented at the Meeting). The
proposal regarding repeal of any such By-law amendments would require the vote
of a majority of the common stock outstanding on the record date. Abstentions
will therefore be treated as a vote against the proposal. Mercator will not seek
the discretionary authority of broker-dealers with respect to the proposal
regarding repeal of any such Bylaw amendments. However, the Company believes
that the execution of a white proxy card will revoke the right
26
of proxies granted under a prior dated blue proxy card to vote on your behalf in
favor of the by-law repeal proposal. As to any other business that may properly
come before the Meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the judgment of
the persons voting such proxies.
Stockholders are urged to sign, date and return the enclosed WHITE proxy in
the enclosed return envelope. Prompt response is helpful, and your cooperation
will be appreciated.
Stockholders may obtain without charge a copy of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002. Requests should
be directed to Mercator Software, Inc., 45 Danbury Road, Wilton, Connecticut
06897, Attn.: Stockholder Relations or:
D.F. King & Co., Inc.
48 Wall Street
New York, New York 10005
(212) 269-5550 (Collect)
or
(800) 859-8509 (Toll Free in the United States)
Dated: April , 2003
IMPORTANT
If your shares of common stock are held in the name of a brokerage firm,
bank, nominee or other institution, only it can sign a WHITE proxy card with
respect to your shares and only upon specific instructions from you. Please
contact the person responsible for your account and give instructions for a
WHITE proxy card to be signed representing your shares of the Company's common
stock. We urge you to confirm in writing your instructions to the person
responsible for your account and to provide a copy of such instructions to the
Company's proxy solicitor, D.F. King & Co., Inc., at the address indicated below
so that D.F. King & Co., Inc. can attempt to ensure that your instructions are
followed.
If you have any questions about executing your proxy or require assistance,
please contact:
D.F. King & Co., Inc.
48 Wall Street
New York, New York 10005
(212) 269-5550 (Collect)
or
(800) 859-8509 (Toll Free in the United States)
27
APPENDIX A
INFORMATION CONCERNING PARTICIPANTS IN THE SOLICITATION
Under applicable SEC regulations, the members of the Board of Directors and
certain executive officers of Mercator may be deemed to be "participants" in the
Company's solicitation of proxies from the Company's stockholders to vote in
favor of the election of the directors nominated by the Board, and ratification
of the Board's appointment of KPMG LLP as the Company's independent auditors for
the fiscal year ending December 31, 2003.
Set forth below with respect to each participant are his or her name,
principal occupation or employment, business address, the number of shares of
the Company's common stock beneficially owned and additional information
concerning transactions in shares of common stock of the Company during the past
two years.
DIRECTORS AND EXECUTIVE OFFICERS
The name and principal occupation of each of the Company's directors, all
of whom are participants in the Company's solicitation of proxies in connection
with its 2003 Annual Meeting, are set forth under "Proposal 1 --Election of
Directors" in this proxy statement. Additionally, Jill M. Donohoe, David L.
Goret, Kenneth J. Hall and Mark W. Register, all of whom are executive officers
of Mercator, may also be deemed to be participants in the Company's solicitation
of proxies in connection with its 2003 Annual Meeting. The principal occupation
of each of these executive officers is set forth in the proxy statement under
"Proposal 1 -- Election of Directors --Compensation and Other Information
Concerning Executive Officers and Directors." The business address for Mr. Keet
is Vanguard Atlantic Ltd., P.O. Box 1360, Saranac Lake, NY 12983, and the
business address for Mr. Sisco is Behrman Capital, 126 East 56th Street,, New
York, NY 10022. The business address for each of the other directors and for
each of these executive officers is 45 Danbury Road, Wilton, Connecticut 06897.
INFORMATION REGARDING OWNERSHIP
OF THE COMPANY'S SECURITIES BY PARTICIPANTS
None of the participants owns any of the Company's common stock of record
but not beneficially. The number of shares of the Company's common stock held by
the directors and the named executive officers (other than David L. Goret) is
set forth under the "Security Ownership of Certain Beneficial Owners and
Management" section of this proxy statement. As of April 7, 2003, David L. Goret
beneficially owned 52,421 shares of the Company's common stock.
A-1
INFORMATION REGARDING TRANSACTIONS
IN THE COMPANY'S SECURITIES BY PARTICIPANTS
The following table sets forth purchases and sales of shares of the
Company's common stock by the participants listed below during the past two
years. Unless otherwise indicated, all transactions were made in the public
market.
NUMBER OF SHARES OF COMMON STOCK, OR
OPTIONS TO PURCHASE SHARES OF COMMON
NAME DATE STOCK, ACQUIRED OR (DISPOSED OF) NOTES
---- ----------- ------------------------------------ -----
DIRECTORS:
Roy C. King ...................... 1/16/2001 250,000 (1)
5/9/2001 15,500 (2)
5/17/2001 750,000 (1)
7/31/2001 2,312 (4)
1/2/2002 300,000 (1)
1/31/2002 6,674 (4)
7/31/2002 4,055 (4)
11/4/2002 15,700 (2)
11/5/2002 14,600 (2)
1/2/2003 300,000 (1)
1/31/2003 19,686 (4)
James P. Schadt .................. 8/15/2001 33,000 (1)
8/15/2002 13,000 (1)
12/18/2002 30,000 (1)
Constance F. Galley .............. 5/8/2001 (84,500) (6)
8/15/2001 50,000 (1)
5/3/2002 50,010 (7)
8/15/2002 10,000 (1)
11/29/2002 (3,000) (5)
12/18/2002 30,000 (1)
2/28/2003 3,922 (3)
Ernest E. Keet ................... 8/15/2001 30,000 (1)
11/2/2001 776,695 (5)
11/2/2001 (804,768) (5)
8/15/2002 10,000 (1)
12/18/2002 30,000 (1)
Michael E. Lehman ................ 4/12/2002 70,000 (1)
8/15/2002 3,000 (1)
12/18/2002 30,000 (1)
Dennis G. Sisco .................. 8/15/2001 30,000 (1)
8/15/2002 10,000 (1)
12/18/2002 30,000 (1)
Mark C. Stevens .................. 8/15/2001 13,000 (1)
8/15/2002 13,000 (1)
12/18/2002 30,000 (1)
A-2
NUMBER OF SHARES OF COMMON STOCK, OR
OPTIONS TO PURCHASE SHARES OF COMMON
NAME DATE STOCK, ACQUIRED OR (DISPOSED OF) NOTES
---- ----------- ------------------------------------ -----
EXECUTIVE OFFICERS:
Jill M. Donohoe .................. 10/15/2001 250,000 (1)
1/2/2002 50,000 (1)
12/18/2002 150,000 (1)
David L. Goret ................... 9/3/2002 100,000 (1)
12/18/2002 45,000 (1)
Kenneth J. Hall .................. 7/9/2001 400,000 (1)
1/2/2002 120,000 (1)
1/31/2002 10,166 (4)
7/13/2002 11,293 (4)
12/18/2002 180,000 (1)
1/2/2003 70,000 (1)
1/31/2003 4,674 (4)
Mark W. Register ................. 7/31/2001 786 (4)
9/26/2001 30,000 (1)
1/2/2002 95,000 (1)
1/31/2002 2,565 (4)
7/30/2002 100,000 (1)
7/31/2002 4,800 (4)
12/18/2002 105,000 (1)
1/2/2003 145,000 (1)
1/31/2003 2,886 (4)
------------------
(1) Grant of stock option.
(2) Open market purchase.
(3) Exercise of stock option.
(4) Purchase under the Company's Employee Stock Purchase Plan.
(5) Received or (granted) shares as a gift.
(6) Open market sale.
(7) Exercise of warrant.
A-3
MISCELLANEOUS INFORMATION CONCERNING PARTICIPANTS
Except as described in this Appendix A or in the proxy statement, to the
best knowledge of the Company, none of the participants nor any of their
respective affiliates or associates (together, the "Participant Affiliates") (i)
directly or indirectly beneficially owns any shares of the Company's Common
Stock or any securities of any subsidiary of the Company or (ii) has had any
relationship with the Company in any capacity other than as a stockholder,
employee, officer or director.
Furthermore, except as described in this Appendix A or in this proxy
statement, to the best knowledge of the Company, no participant or Participant
Affiliate is either a party to any transaction or series of transactions since
the beginning of the Company's last fiscal year, or has knowledge of any
currently proposed transaction or series of transactions, (i) in which the
Company or any of its subsidiaries was or is to be a party, (ii) in which the
amount involved exceeds $60,000, and (iii) in which any participant or
Participant Affiliate had or will have, a direct or indirect material interest.
Except as described in this Appendix A or in the proxy statement, to the
knowledge of the Company, no participant or Participant Affiliate has any
substantial interest, direct or indirect, by security holdings or otherwise, in
any matter to be acted upon at the 2003 Annual Meeting of Stockholders.
To the knowledge of the Company, no participant or Participant Affiliate
has entered into any agreement or understanding with any person respecting any
future employment by the Company or its affiliates or any future transactions to
which the Company or any of its affiliates will or may be a party.
Except as described in this Appendix A or in the proxy statement, there are
no contracts, arrangements or understandings by any participant or Participant
Affiliate within the past year with any person with respect to the Company's
securities, including, but not limited to, joint ventures, loan or option
arrangements, puts or calls, guarantees against loss or guarantees of profit,
division of losses or profits, or the giving or withholding of proxies.
A-4
FORM OF PROXY CARD
------------------
MERCATOR SOFTWARE, INC.
PROXY FOR 2003 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Roy C. King and David L. Goret, and each of
them, with full power of substitution, and hereby authorizes each of them to
represent and vote, as designated on the reverse hereof, all shares of Common
Stock of Mercator Software, Inc. (the "Company") held of record by the
undersigned on April 7, 2003, at the Annual Meeting of Stockholders to be held
on May 14, 2003, or any adjournment thereof, upon all such matters as may
properly come before the Meeting.
(THE PROXY CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE.)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
1
MERCATOR SOFTWARE, INC.
PROXY FOR 2003 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Roy C. King and David L. Goret, and each of
them, with full power of substitution, and hereby authorizes each of them to
represent and vote, as designated on the reverse hereof, all shares of Common
Stock of Mercator Software, Inc. (the "Company") held of record by the
undersigned on April 7, 2003, at the Annual Meeting of Stockholders to be held
on May 14, 2003, or any adjournment thereof, upon all such matters as may
properly come before the Meeting and hereby revokes all proxies previously given
with respect to the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY, IF
PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED; IN THE ABSENCE OF DIRECTION, THIS
PROXY WILL BE VOTED "FOR" ITEMS 1, 2, AND 3.
(THE PROXY CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE.)
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!
[X] Please mark your votes as in this example.
------------------------------------------------------------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS 2. RATIFICATION OF SELECTION OF KPMG LLP AS
THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY THE FISCAL YEAR ENDING DECEMBER 31, 2003.
(except as marked to the contrary below) to vote for all nominees listed
NOMINEES: Constance F. Galley Ernest E. Keet Roy C. King Michael E. Lehman FOR AGAINST ABSTAIN
James P. Schadt Dennis G. Sisco Mark C. Stevens [ ] [ ] [ ]
(The Board of Directors recommends a
vote "FOR" approval.)
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided. 3. IN THEIR DISCRETION UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE
ANNUAL MEETING OR ANY POSTPONEMENT OR
-------------------------------------------------------------------------------- ADJOURNMENT THEREOF.
[ ] If you plan to attend the Annual
Meeting, place an X in this box.
SIGNATURE:__________________________________________
SIGNATURE:__________________________________________
TITLE:______________________________________________
DATE: ______________________________________________
NOTE: Please sign exactly as name or names appear on
stock certificate as indicated hereon. Joint owners
each should sign. When signing as an attorney,
executor, administrator or guardian, please give
full title as such.
Stockholders are urged to date, mark, sign and return this proxy promptly in the envelope provided, which requires no postage if
mailed within the United States. If you have any questions, or need assistance voting, please contact D.F. King & Co., Inc., which
is assisting us in the solicitation of proxies, toll-free at 1-800-859-8509.