SCHEDULE 14(A) INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement [ ] Confidential, for Use of
[ ] Definitive Additional Materials the Commission only (as
[ ] Soliciting Material Under Rule 14a-12 permitted by Rule 14a-6(e)(2))
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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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As filed with the Commission on March 27, 2003
MERCATOR SOFTWARE, INC.
45 DANBURY ROAD
WILTON, CONNECTICUT 06897
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 14, 2003
----------------
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
__________________, located at _______________________, 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 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 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) 431-9642 (IN THE UNITED STATES) OR (212) 269-5100 (COLLECT, FOR
INTERNATIONAL CALLS).
By Order of the Board of Directors
David L. Goret
Secretary
Wilton, Connecticut
April , 2003
2
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 _______________, located at ____________________________, 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 __,___,___ 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." SSH/Broken Arrow has taken this hostile
action even though Mercator's operating performance during 2002 exceeded that of
its peer group in nearly every category. In fact, during the year, when the
economy in general and the IT industry in particular suffered severe setbacks,
the Company significantly reduced its cost structure and simultaneously improved
service to customers and partners and made significant progress toward returning
to profitability. Although Mercator's revenue declined 13% in 2002, its net loss
decreased by 29% (excluding goodwill amortization) and its revenues per employee
increased 21%. Additionally, a reduced cost structure, the completion of a new
credit facility, a deferred revenue balance 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."
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. Additionally, SSH/Broken Arrow's proxy
materials do not state that they have extensive relevant industry experience.
Although we recognize that, if elected, these nominees would have fiduciary
obligations to all stockholders, we believe that, due to their inexperience and
limited familiarity with Mercator, they may give significant consideration to
the opinions and advice of SSH/Broken Arrow rather than concentrate on
optimizing value for all stockholders.
BACKGROUND - WHO IS SSH/BROKEN ARROW?
On November 29, 2002, SSH/Broken Arrow disclosed that it had acquired,
through various affiliates, 5.8% of the Company's outstanding shares of common
stock. Immediately after acquiring the foregoing shares, SSH/Broken Arrow
represented that it had acquired the shares for the purpose of obtaining a
significant equity position in Mercator, and that it considered the shares to be
an attractive investment at the price levels at which it acquired them. Since
that time, SSH/Broken Arrow has disclosed that it has sold stock, and it
presently owns 4.7% of Mercator's outstanding shares of common stock.
The nominees of SSH/Broken Arrow have limited, if any, investment in the
Company as opposed to your Board that controls 5,982,524 shares, or 15.4% of the
total. Additionally, the proxy materials of SSH/Broken Arrow indicate that their
nominees do not have the extensive industry experience of your Board and
executive officers.
Although the proxy materials of SSH/Broken Arrow state that its interest is
to "restore shareholder value," SSH/Broken Arrow has carefully crafted its
language such that there is no legal obligation for its nominees to take any
action to achieve this goal. On March 14, 2003, SSH/Broken Arrow formally
notified the Company of its intention to commence a proxy contest to replace all
seven of the Company's directors. Subsequently, on March 18, 2003, Michael J.
Turillo, Jr, a nominee put forth by SSH/Broken Arrow, abruptly resigned as an
SSH/Broken Arrow nominee. SSH/Broken Arrow is now currently seeking to place six
of seven Company nominated directors. 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. Your Board and management have adopted a long-term business
strategy that has led to development of leading-edge technology and products, as
well as customer commitments from leading global companies.
Because of the superior 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!
2
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) 431-9642 (in the United
States) or (212) 269-5100 (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) 431-9642 (in the United States) or (212) 269-5100 (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.
3
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.
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, _______ 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. Accordingly, abstentions and broker
non-votes do not have the effect of a vote against the election of any nominees.
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) 431-9642 (in the United States) or (212) 269-5550 (collect,
for international calls).
4
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. 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; and (v) SSH/Broken Arrow.
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..................................... 1,019,276 (4) 2.8%
Constance F. Galley............................. 963,304 (5) 2.7%
James P. Schadt................................. 598,457 (6) 1.7%
Kenneth J. Hall................................. 408,486 (7) 1.1%
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)................................. 5,982,524 (14) 15.4%
Strategic Software Holdings, LLC................ 1,672,500 (15) 4.8%
Charter Oak Partners, L.P....................... 1,000,000 (15) 2.8%
--------------------
* 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) 35,143,082 shares of common stock outstanding as
of March 25, 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 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 931,249 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
(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 3,647,317 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. 2, filed with the Securities and
Exchange Commission on March 14, 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. 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
1,000,000 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. 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
1,000,000 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 1,000,000 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.
6
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
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
7
Inc., Extenex 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 and software
company, most recently serving as its General Manager, Consulting and
Integration Services, Europe, Middle East and Africa. 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 1999 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.
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
8
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. Mr.
Schadt acted as interim Chairman of the Audit Committee from February 2002 until
April 2002, when he resigned from the Audit Committee. 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.
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
9
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.
COMPENSATION COMMITTEE REPORT
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
10
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 Align 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 reviews 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 Technology, Inc., and Webmethods, Inc. With respect
to our corporate executive officers, other than the CEO, the Compensation
Committee also has considered each executive's scope of responsibility,
performance, prior experience and salary history. The Compensation Committee
targeted above the mid-market level of the industry competitive base salary
range, linking a significant portion of these executives' total compensation to
an annual bonus. See "Incentive Awards" below. The Committee also emphasizes
longer-term compensation incentives for these executives as it believes that
these longer-term incentives help motivate the executives to better achieve the
Company's corporate performance goals, thereby more directly contributing to
stockholder value.
11
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
bonus based upon (i) the financial goals of the Company, as determined by the
Compensation Committee, and (ii) the employee's achievement of other corporate
objectives as determined by the Compensation Committee. The Compensation
Committee has the discretion to determine the individuals who are to receive
bonuses, the amount of the bonus and the weighting between the Company's
financial goals and other corporate objectives when determining an individual's
bonus. Beginning in 2003, 50% of the target bonus is eligible to be paid on a
quarterly basis.
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 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. 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
12
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.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- ------ ALL OTHER
SECURITIES COMPENSATION
OTHER ANNUAL UNDERLYING ------------
NAME AND PRINCIPAL POSITION YEAR (1) SALARY BONUS (2) COMPENSATION OPTIONS (3)
--------------------------- -------- ------ --------- ------------ ------- ---
Roy C. King 2002 $410,192 $200,000 $ ---- 300,000 $30,510
Chairman of the Board of 2001 351,923 ---- ---- 1,000,000 15,163
Directors, Chief Executive 2000 ---- ---- ---- ---- ----
Officer and President
Kenneth J. Hall 2002 $307,500 $ 25,000 $ ---- 300,000 $14,585
Executive Vice President, 2001 126,923 137,500 ---- 400,000 411
Chief Financial Officer and 2000 ---- ---- ---- ---- ----
Treasurer
Mark W. Register 2002 $235,617 $ 52,495 $ 304,116 (4) 300,000 $22,004
Executive Vice President and 2001 181,270 7,203 ---- 30,000 ----
President, Worldwide Field 2000 108,887 86,112 ---- 75,000 ----
Operations
David S. Linthicum 2002 $281,827 $100,000 $ ---- 300,000 $15,613
Executive Vice President, 2001 178,077 ---- ---- 350,000 685
Research and Development 2000 ---- ---- ---- ---- ----
And Chief Technology
Officer
Jill M. Donohoe 2002 $231,058 $ 97,500 $ ---- 200,000 $ 6,233
Senior Vice President, 2001 43,269 50,000 ---- 250,000 117
Global Alliances and 2000 ---- ---- ---- ---- ----
Corporate Development
Michael E. Wheeler 2002 $244,269 $200,000 $ ---- 50,000 $31,544
Senior Vice President, 2001 52,885 100,000 ---- 300,000 222
Manufacturing, Retail and 2000 ---- ---- ---- ---- ----
Distribution Industry
Solution Unit (5)
Robert J. Farrell 2002 $222,820 $150,000 $ ---- 50,000 $ 3,233
Senior Vice President, and 2001 103,846 ---- ---- 300,000 360
President, Americas (5) 2000 ---- ---- ---- ---- ----
13
--------------------
(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) Bonus amounts are reported in the year paid.
(3) 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) 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 and $57 for salary continuance insurance
premium, both for 2002; and (d) severance for Mr. Wheeler of $20,384.
(4) 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.
(5) 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 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 primary basis for the Stock Option Committee's
determinations to grant such stock options was to provide a significant
incentive for him to enhance long-term stockholder value. The Stock Option
Committee believes such grant reflected Mr. King's position, duties and
responsibilities in the Company.
This report is provided by the following directors who constitute the Stock
Option Committee:
Mark C. Stevens, Chairman
Dennis G. Sisco
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
14
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
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES PRICE PER EXPIRATION FOR OPTION TERM (2)
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.
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 IN-THE-
SHARES UNEXERCISED OPTIONS MONEY OPTIONS
ACQUIRED ON VALUE AT YEAR-END AT YEAR-END
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
15
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
SHARES UNEXERCISED OPTIONS MONEY OPTIONS
ACQUIRED ON VALUE AT YEAR-END AT YEAR-END
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
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, Financial Services 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 and software company, most
recently serving as its General Manager, Consulting and Integration Services,
Europe, Middle East and Africa. 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
16
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. For seven years prior thereto,
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 information technology services company, from
January 2000 to June 2000. Prior to Computer Sciences Corporation, he was at GE
Capital, IT Solutions from April 1994 to January 2000 in a number of senior
roles, serving as General Manager, Systems Integration and Managed Services,
from January 1999 until December 1999. Prior to that, he was Integration and
Quality leader for GE Capital IT Solutions from August 1999 through November
1999 and the General Manager of GE Capital IT Solutions' Eastern region from
January 1998 through July 1999. 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, Financial Services
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
17
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.
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 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
18
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. 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 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"). Harvard Pilgrim paid an annual
maintenance fee in 2002 of $84,150, which is comparable to the Company's regular
charges to its unaffiliated customers. The chief executive officer of Harvard
Pilgrim is Mr. Schadt's son-in-law.
19
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; (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 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: (i) a significant diminution of, or the assignment
to the employee of any duties inconsistent with the employee's title, status,
duties or responsibilities, (ii) a reduction in annual base salary, target bonus
or fringe benefit which by itself or in the aggregate is material to employee's
compensation, (iii) the relocation of employee's office more than fifty miles
from the employee's current location, or (iv) 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.
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.
20
[PERFORMANCE GRAPH]
Cumulative Total Return
----------------------------------------------------------------------
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
21
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.
22
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, the internet,
web page, telephone, facsimile, telegram, in person or otherwise. 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 $350,000 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
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.
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). As to any
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.
23
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) 431-9642 (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) 431-9642 (Toll Free in the United States)
24
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 each of
the 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 47,734 shares of the Company's common stock.
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)
1/2/2002 300,000 (1)
5/9/2001 15,500 (2)
5/17/2001 750,000 (1)
7/31/2001 2,312 (4)
1/31/2002 6,674 (4)
7/31/2002 4,055 (4)
11/4/2002 15,700 (2)
11/5/2002 14,600 (2)
A-1
Number of Shares of Common Stock, or
Options to purchase shares of Common
Name Date Stock, Acquired or (Disposed Of) Notes
---- ---- -------------------------------- -----
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)
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)
A-2
Number of Shares of Common Stock, or
Options to purchase shares of Common
Name Date Stock, Acquired or (Disposed Of) Notes
---- ---- -------------------------------- -----
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.
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-3
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.
|X| Please mark your votes
as in this example.
|_| FOR |_| WITHHOLD AUTHORITY
all nominees to vote for all
listed (except as nominees
marked to the listed
contrary below)
1. ELECTION OF DIRECTORS
Instruction: To withhold authority to NOMINEES:
vote for any individual nominee, write that Constance F. Galley
nominee's name in the space provided. Ernest E. Keet
Roy C. King
____________________________ Michael E. Lehman
James P. Schadt
Dennis G. Sisco
Mark C. Stevens
(THE PROXY CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE.)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
MERCATOR SOFTWARE, INC.
MAY 14, 2003
(Please detach and mail in the envelope provided)
2. RATIFICATION OF SELECTION OF KPMG LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2003.
FOR AGAINST ABSTAIN
|_| |_| |_|
(The Board of Directors recommends a vote "FOR" approval.)
3. IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING OR ANY POSTPONEMENT OR ADJOURNMENT THEREOF.
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.
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 plan to attend the Annual Meeting, place an X in this box.
SIGNATURE: DATE:
-------------------------------------------------- -------------
SIGNATURE: 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.
If you have any questions, or need assistance voting, please contact
D.F. King & Co., Inc., which is assisting us in the solicitation or proxies,
toll-free at 1-800-431-9642.
1