SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Concero Inc.
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(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] 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:
Common Stock, $0.01 par value
(2) Aggregate number of securities to which transaction applies:
10,237,890
(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):
$0.50 (maximum anticipated distribution per share) x 10,237,890
(aggregate number of shares outstanding)
(4) Proposed maximum aggregate value of transaction: $5,118.945
(5) Total fee paid: $1,023.79
[_] Fee paid previously with preliminary materials
[X] 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: $1,023.79
(2) Form, Schedule or Registration Statement No.: Schedule 14A
(3) Filing Party: Concero Inc.
(4) Date Filed: November 21, 2002
CONCERO INC.
October 31, 2003
Dear Stockholder:
You are cordially invited to attend the 2003 annual meeting of stockholders
of Concero Inc., which will be held at the offices of Andrews Kurth LLP at 111
Congress Avenue, Suite 1700, Austin, Texas on Tuesday, December 2, 2003 at 9:00
a.m. (Central Time). Details of the business to be conducted at the meeting are
given in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement. After careful consideration, our Board of Directors has unanimously
approved the proposals set forth in the Proxy Statement and recommends that you
vote in favor of all such proposals.
As you may recall, in December 2002, Concero mailed a proxy statement to
stockholders relating to a special meeting scheduled for December 30, 2002, for
the purposes of ratifying and approving a Plan of Complete Liquidation,
Dissolution and Distribution (the "Plan of Dissolution"). However, subsequent to
the mailing of the proxy statement but prior to the planned December 30, 2002
meeting date, a party unaffiliated with Concero or any member of our management
contacted our Board of Directors regarding a proposed acquisition of a
controlling interest in Concero. Discussions with this third party were at an
early stage at the time of the December 30, 2002 meeting date. To provide our
Board of Directors with additional time to evaluate the proposed alternative
transaction, the original December 30, 2002 meeting was convened but then
immediately adjourned until January 7, 2003. Discussions with the third party
continued throughout the spring of 2003, which caused the Company to further
adjourn the special stockholders meeting (without any action being taken on the
Plan of Dissolution) following January 29, 2003 until an unspecified future
date. The discussions with the party that proposed the alternative transaction
have since terminated and our Board of Directors has determined to proceed with
the Plan of Dissolution.
The Plan of Dissolution is being proposed because our Board of Directors
believes that, if adopted, the Plan of Dissolution would enhance stockholder
value. Because of the uncertainties as to the precise net realizable value of
our assets that we have not yet sold and the ultimate settlement amount of our
liabilities, it is impossible to predict with certainty the aggregate net
values, if any, which may ultimately be distributed to our stockholders or the
timing of distributions if the Plan of Dissolution is approved. However, based
upon information presently available to us, we believe our stockholders could
receive aggregate proceeds from a liquidation of approximately $0.46 per share
with the initial distribution of liquidation proceeds of approximately $0.36 per
share to occur not later than the first fiscal quarter of 2004. We currently
anticipate that the majority of the remaining proceeds from the liquidation, if
any, would be distributed over a period of approximately three years.
You may vote your shares by signing, dating, and returning the enclosed
proxy promptly in the accompanying reply envelope. Representation of your shares
at the annual meeting is very important. Accordingly, whether or not you plan to
attend the meeting, we urge you to submit your proxy promptly. If you are able
to attend the meeting and wish to change your proxy vote, you may do so simply
by voting in person at the meeting. We look forward to seeing you at the
meeting.
Sincerely,
The Concero Inc. Board of Directors
CONCERO INC.
40 FULTON STREET
NEW YORK, NEW YORK 10038
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 2, 2003
TO THE STOCKHOLDERS OF CONCERO INC.:
NOTICE IS HEREBY GIVEN that the 2003 Annual Meeting of Stockholders of
Concero Inc., a Delaware corporation (the "Company"), will be held on Tuesday,
December 2, 2003 at 9:00 a.m., local time, at the offices of Andrews Kurth LLP
at 111 Congress Avenue, Suite 1700, Austin, Texas for the following purposes:
1. to approve and adopt the Plan of Complete Liquidation, Dissolution and
Distribution, in the form of Exhibit A to the accompanying proxy
statement (the "Plan of Dissolution"), and such further actions as may
be necessary or desirable to consummate such transaction;
2. to elect four directors to serve until the next annual stockholders'
meeting, or in each case until their respective successors have been
elected and qualified;
3. to ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2003; and
4. to transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Only stockholders of record at the close of business on October 30, 2003
are entitled to notice of, and to vote at, the meeting. Our stock transfer books
will remain open between the record date and the date of the meeting. A list of
stockholders entitled to vote at the meeting will be available for inspection at
our executive offices.
Whether or not you plan to attend the meeting in person, please sign, date
and return the enclosed proxy card in the reply envelope provided. Should you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be signed and returned to assure that all
of your shares are voted. You may revoke your proxy at any time. If you attend
the meeting and vote by ballot, your proxy will be revoked automatically and
only your vote at the meeting will be counted. The prompt return of your proxy
card will assist us in preparing for the meeting. The foregoing matters are
described in more detail in the enclosed proxy statement.
By Order of the Board of Directors,
Kevin Kurtzman
President, Chief Executive Officer
and Secretary
Austin, Texas
October 31, 2003
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE READ THE ATTACHED PROXY
STATEMENT CAREFULLY, AND VOTE YOUR SHARES BY COMPLETING, SIGNING AND DATING THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURNING IT IN THE ENCLOSED
ENVELOPE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU
ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD
BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE MEETING AND THE PROPOSALS ............................. 1
GENERAL INFORMATION ................................................................... 7
Voting ............................................................................. 7
Proxies ............................................................................ 7
Solicitation ....................................................................... 7
Deadline for Receipt of Stockholder Proposals ...................................... 7
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ....................... 8
PROPOSAL 1: APPROVAL AND ADOPTION OF THE PLAN OF DISSOLUTION .......................... 9
General Overview ................................................................... 9
Company Background ................................................................. 9
Reasons for Adopting the Plan ...................................................... 10
The Plan of Dissolution ............................................................ 11
Dissolution Under Delaware Law .................................................. 11
Description of the Dissolution Process .......................................... 12
Conduct Following the Dissolution ............................................... 13
Right to Modify, Amend or Terminate the Plan of Dissolution ..................... 13
Liquidating Distributions; Nature; Amount; Timing ............................... 13
Sales of Our Assets ............................................................. 15
Continuing Insurance ............................................................ 15
Reporting Requirements .......................................................... 15
Contingent Liabilities; Contingency Reserve; Liquidating Trust .................. 15
Final Record Date ............................................................... 17
Trading of Common Stock and Interests in Any Liquidating Trust or Trusts ........ 17
Absence of Appraisal Rights ..................................................... 18
Regulatory Approvals ............................................................ 18
Certain Federal and State Income Tax Consequences .................................. 18
Federal Income Taxation of the Company .......................................... 18
Federal Income Taxation of the Stockholders ..................................... 19
Liquidating Trusts .............................................................. 19
State and Local Tax ............................................................. 20
Backup Withholding .............................................................. 20
Factors to be Considered by Stockholders in Deciding Whether to Approve the Plan
of Dissolution .................................................................. 20
Selected Financial Data ............................................................ 22
Interests of Directors and Officers in the Plan of Dissolution ..................... 25
Vote Required and Recommendation of the Board of Directors ......................... 26
PROPOSAL 2: ELECTION OF DIRECTORS ..................................................... 26
General ............................................................................ 26
Nominees for Director .............................................................. 26
Board and Committee Meetings ....................................................... 27
Committees of the Board of Directors ............................................... 27
Director Compensation and Indemnification Agreements ............................... 27
Vote Required and Recommendation of the Board of Directors ......................... 28
EXECUTIVE COMPENSATION ................................................................ 28
Summary Compensation Information ................................................... 28
Stock Options and Stock Appreciation Rights ........................................ 29
Employment Contracts and Change of Control Arrangements ............................ 31
Key-Person Life Insurance .......................................................... 32
Compensation Committee Interlocks and Insider Participation ........................ 32
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Board Compensation Committee Report on Executive Compensation During 2002 .. 32
Report of the Board of Directors on Audit Matters .......................... 34
Stock Performance Graph .................................................... 35
Certain Transactions with Management ....................................... 36
PROPOSAL 3: RATIFICATION OF INDEPENDENT AUDITORS .............................. 36
Audit Services ............................................................. 37
Audit-Related Services ..................................................... 37
Tax Services ............................................................... 37
Other Services ............................................................. 37
Vote Required and Recommendation of the Board of Directors ................. 37
ITEMS NOT INCORPORATED BY REFERENCE ........................................... 37
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ............................. 37
ADDITIONAL INFORMATION ........................................................ 38
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING ............................... 38
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CONCERO INC.
40 FULTON STREET
NEW YORK, NEW YORK 10038
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PROXY STATEMENT
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FOR 2003 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
DECEMBER 2, 2003
Proxies in the form enclosed with this Proxy Statement are solicited on
behalf of the Board of Directors of Concero Inc., a Delaware corporation (the
"Company"), for use at the 2003 Annual Meeting of Stockholders of the Company to
be held on Tuesday, December 2, 2003 at 9:00 a.m., local time (the "Annual
Meeting") or at any adjournment or postponement thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the offices of Andrews Kurth LLP at 111
Congress Avenue, Suite 1700, Austin, Texas. This proxy statement and the
accompanying proxy card are first being mailed on or about November 6, 2003 to
all stockholders entitled to vote at the Annual Meeting.
QUESTIONS AND ANSWERS ABOUT THE MEETING AND THE PROPOSALS
What are the purposes of the Annual Meeting?
o At the Annual Meeting, stockholders will be asked to consider and vote
on proposals to: approve the Plan of Complete Liquidation, Dissolution
and Distribution (the "Plan of Dissolution") attached as Exhibit A;
elect four members to the Board of Directors; and ratify the
appointment of Ernst & Young LLP as our independent auditors.
Wasn't action on the Plan of Dissolution taken by stockholders at the special
meeting held in December 2002?
o No. Beginning on December 9, 2002, the Company mailed a proxy
statement to stockholders relating to a special meeting scheduled for
December 30, 2002 for the purposes of ratifying and approving the Plan
of Dissolution. However, subsequent to the mailing of the proxy
statement but prior to the planned date of the special stockholders'
meeting on December 30, 2002, a party unaffiliated with the Company or
any member of our management contacted our Board of Directors
regarding a proposed acquisition of a controlling interest in the
Company. Discussions with this third party were at an early stage at
the time of the December 30, 2002 meeting date. To provide our Board
of Directors with additional time to evaluate the proposed alternative
transaction, the original December 30, 2002 meeting was convened but
then immediately adjourned until January 7, 2003. Discussions with the
third party continued throughout January, which caused the Company to
further adjourn the special stockholders meeting (without any action
on the Plan of Dissolution) following January 29, 2003 until an
unspecified future date.
Why has the Board adopted the Plan of Dissolution?
o Our Board of Directors has determined that it would not be advisable
to continue to operate the Company on an independent basis given our
limited cash resources and the unsatisfactory results of our efforts
to obtain customers for our products, and that, considering these
factors, a decision to continue the development and marketing of our
products might ultimately jeopardize the assets that might otherwise
remain available to stockholders in a liquidation. Additionally, our
Board of Directors recognized that it
was reasonably unlikely that we would receive, within a reasonable
period of time under the circumstances, any viable offer to engage in
an attractive, alternative transaction. See "Proposal 1: Approval and
Adoption of the Plan of Dissolution -- Reasons for Adopting the Plan."
o After considering a variety of factors, including (i) the precipitous
decline in our revenue; (ii) the highly unlikely improvement of sales
for the foreseeable future; (iii) the deemed unlikely availability of
reasonable financing to raise the capital necessary to complete
product trials; (iv) indications that, despite significant cutbacks in
our workforce, significant operating losses would continue; (v) the
likely inability to gain rapid market acceptance for products; (vi)
prevailing negative economic conditions both generally and within the
software industry; (vii) our inability to identify an acceptable
buyer, strategic alliance partner or merger candidate; and (viii) the
significant risks associated with restructuring our business,
including the risk that positive operating income could not be reached
prior to insolvency, our Board of Directors concluded that the
liquidation of the Company was in the best interests of stockholders,
and, accordingly, on August 8, 2002 approved a resolution directing
the cessation of the Company's operations and the liquidation of the
Company. See "Proposal 1: Approval and Adoption of the Plan of
Dissolution -- Reasons for Adopting the Plan."
What will happen if the Plan of Dissolution is approved?
o If the Plan of Dissolution is approved, we will take the following
actions:
o file a Certificate of Dissolution with the Secretary of State of the
State of Delaware;
o continue to only conduct business operations to the extent necessary
to wind-up our business affairs;
o continue to attempt to convert all of our remaining assets into cash
or cash equivalents in an orderly fashion;
o continue to pay or attempt to adequately provide for the payment of
all or our known obligations and liabilities;
o establish a contingency reserve designed to satisfy any additional
liabilities; and
o distribute pro rata in one or more liquidating distributions to or for
the benefit of our stockholders, as of the applicable record date(s),
all of our remaining assets.
See "Proposal 1: Approval and Adoption of the Plan of Dissolution -- The Plan of
Dissolution -- Description of the Dissolution Process."
What will happen if the Plan of Dissolution is not approved?
o If the Plan of Dissolution is not authorized and approved by the
stockholders, our Board of Directors will continue to manage the
company as a publicly owned entity and will explore what, if any,
alternatives are then available to maximize stockholder value.
Can the Plan of Dissolution be modified, amended or terminated?
o The Board may modify or amend the Plan of Dissolution at any time
without stockholder approval, if it determines that such action would
be in the best interests of the Company and its stockholders. If any
amendment or modification appears necessary, and in the judgment of
the Board of Directors would materially and adversely affect the
interest of stockholders, the Board of Directors is required to submit
such amendment or modification to stockholders for approval. The Board
of Directors may terminate the Plan of Dissolution without stockholder
approval at any time, if it determines that termination would be in
the best interest of the Company and its stockholders.
When will stockholders receive payment of any available liquidation proceeds?
o We are currently unable to predict the precise timing of any
distributions pursuant to the Plan of Dissolution. The timing of any
distributions will be determined by our Board of Directors and will
depend in part upon our ability to convert our remaining assets into
cash and pay and settle our significant
2
remaining liabilities and obligations, including contingent claims. We
anticipate that the initial distribution proceeds will be made to
stockholders not later than the first fiscal quarter of 2004.
Thereafter, as we liquidate our remaining assets and properties, we
will distribute available liquidation proceeds, if any, to
stockholders as the Board of Directors deems appropriate. We
anticipate that the majority of the remaining liquidation proceeds
will be distributed over a period of three years. See "Proposal 1:
Approval and Adoption of the Plan of Dissolution -- The Plan of
Dissolution -- Liquidating Distributions; Nature; Amount; Timing."
o In addition, the existence of contingent claims could delay the making
of any distributions in connection with the Plan of Dissolution.
What will stockholders receive in the liquidation?
o Because of the uncertainties as to the precise net realizable value of
our assets that we have not yet sold and the ultimate settlement
amount of our liabilities, it is impossible to predict with certainty
the aggregate net values, if any, which may ultimately be distributed
to our stockholders or the timing of distributions if the Plan of
Dissolution is approved. However, based upon information presently
available to us, we believe our stockholders could receive aggregate
proceeds from a liquidation of approximately $0.46 per share with the
initial distribution of liquidation proceeds of approximately $0.36
per share to occur not later than the first fiscal quarter of 2004.
See "Proposal 1: Approval and Adoption of the Plan of Dissolution --
The Plan of Dissolution -- Liquidating Distributions; Nature; Amount;
Timing." We are unable at this time to predict the precise nature,
amount and timing of any additional distributions.
o In addition, we may incur additional liabilities arising out of
contingent claims that are not yet reflected as liabilities on our
balance sheet. We are unable at this time to predict what amount, if
any, may be paid on these contingent claims. We are unable at this
time to predict the precise nature, amount and timing of any
distributions, due in part to our inability to predict the net value
of our non-cash assets and the ultimate amount of our liabilities,
many of which have not been settled. See "Proposal 1: Approval and
Adoption of the Plan of Dissolution -- The Plan of Dissolution --
Contingent Liabilities; Contingency Reserve; Liquidating Trust." The
sale of our non-cash assets could yield less than we expect, we may
incur additional liabilities, or the settlement of our existing
liabilities (including contingent claims) could cost more than we
anticipate, any of which could result in a substantially lower
distribution to our stockholders.
Do directors and officers have interests in the plan of dissolution that differ
from mine?
o In considering the Board of Directors' recommendation to approve the
Plan of Dissolution, you should be aware that some of the directors
and officers may have interests that are different from or in addition
to your interests as a stockholder. For a detailed description of the
interests of directors and officers that differ from yours, see
"Proposal 1: Approval and Adoption of the Plan of Dissolution --
Interests of Directors and Officers in the Plan of Dissolution."
Can I still sell my shares?
o Yes, you may sell your shares at this time. However, if the Plan of
Dissolution is approved by the stockholders, it is likely that we will
close our stock transfer books and restrict transfers of our common
stock after filing the Certificate of Dissolution with the State of
Delaware, which will occur promptly following the Annual Meeting. See
"Proposal 1: Approval and Adoption of the Plan of Dissolution -- The
Plan of Dissolution -- Final Record Date."
What are the tax consequences of the liquidation?
o Generally, as a result of our liquidation, for federal income tax
purposes stockholders will recognize gain or loss equal to the
difference between (i) the sum of the amount of cash distributed to
them and the aggregate fair market value (at the time of distribution)
of any property distributed to them, and (ii) their tax basis for
their shares of our capital stock. A stockholder's tax basis in his or
her shares will depend
3
upon various factors, including the stockholder's cost and the amount
and nature of any distributions received with respect thereto. Any
loss will generally be recognized only when the final distribution
from us has been received, which may be as long as three years after
the date that the Plan of Dissolution is adopted. See "Proposal 1:
Approval and Adoption of the Plan of Dissolution -- Certain Federal
and State Income Tax Consequences."
o Tax consequences to stockholders may differ depending on their
circumstances. You should consult your tax advisor as to the tax
effect of your particular circumstances.
Who is entitled to vote?
o The record date for the Annual Meeting is October 30, 2003. Only
stockholders of record at the close of business on that date are
entitled to notice of and to vote at the Annual Meeting. At the close
of business on the record date, there were 10,237,890 shares of common
stock outstanding.
o Except as otherwise required by law, the holders of shares of our
common stock vote together as a single class on all matters presented
to the stockholders. Each registered holder of common stock of record
at the close of business on October 30, 2003 is entitled to one vote
per share on each matter to be voted on at the Annual Meeting.
How many votes are required to authorize and approve each proposal?
o The authorization and approval of the Plan of Dissolution requires the
affirmative vote of the holders of a majority of the outstanding
shares of common stock.
o The four nominees receiving the greatest number of votes of the shares
present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors shall be elected to our
Board of Directors, even if any such nominee receives the vote of
less than a majority of the outstanding shares.
o The ratification of Ernst & Young LLP as independent auditors requires
the affirmative vote of at least a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual
Meeting.
o Members of our Board of Directors and our executive officers who hold
(or are deemed to hold) as of the record date for the Annual Meeting
an aggregate of 4.1 million shares of common stock (approximately 39%
of the outstanding shares of common stock as of the record date) have
indicated that they will vote for all proposals described herein and
each director nominee named herein.
How does the Board of Directors recommend I vote on the proposals?
o Our Board of Directors recommends that you vote "FOR" the
authorization and approval of the Plan of Dissolution, "FOR" the
ratification of Ernst & Young LLP as independent auditors, and "FOR"
the election of each director nominee named herein.
What if my shares are held in "street name" by a broker?
o If you are the beneficial owner of shares held in "street name" by
a broker, your broker, as the record holder of the shares, is
required to vote those shares in accordance with your instructions.
Stockholders should follow the directions provided by their brokers
regarding how to instruct brokers to vote the shares.
How many shares must be present to hold the Annual Meeting?
o A quorum must be present at the Annual Meeting for any business to be
conducted. The presence at the Annual Meeting, in person or by proxy,
of the holders of a majority of the shares of common stock outstanding
on the record date will constitute a quorum. Proxies received but
marked as abstentions or broker non-votes will be included in the
calculation of the number of shares considered to be present for
quorum purposes at the Annual Meeting.
4
What if a quorum is not present at the Annual Meeting?
o If a quorum is not present at the scheduled time of the Annual
Meeting, the stockholders who are represented may adjourn the meeting
until a quorum is present. The time and place of the adjourned meeting
will be announced at the time the adjournment is taken, and no other
notice will be given. An adjournment will have no effect on the
business that may be conducted at the meeting.
How do I vote?
o You may vote by mail. If you properly complete and sign the
accompanying proxy card and return it in the enclosed envelope, it
will be voted in accordance with your instructions. The enclosed
envelope requires no additional postage if mailed in the United
States.
o If your shares are held in "street name" by broker, bank or other
nominee, and such holder permits, you may vote by telephone or the
internet. You should check the voting form used by that firm to
determine whether you will be able to vote by telephone or the
internet.
o You may vote in person at the Annual Meeting. If you plan to attend
the Annual Meeting and wish to vote in person, we will give you a
ballot at the Annual Meeting. However, if your shares are held in the
name of your broker, bank or other nominee, you will need to obtain a
proxy form from the institution that holds your shares indicating that
you were the beneficial owner of our common stock on October 30, 2003,
the record date for voting at the Annual Meeting.
What if I submitted a proxy for the December 30, 2002 meeting?
o You must submit a new proxy even if one was properly submitted in
connection with the December 2002 proxy statement, whether or not you
wish to revoke your proxy or change your vote. Any previously
submitted proxy is not valid for the Annual Meeting.
Can I change my vote after I submit my proxy?
o Yes, you may revoke your proxy and change your vote at any time before
the polls close at the meeting by:
o signing another proxy with a later date;
o giving written notice of the revocation of your proxy to our
Secretary prior to the Annual Meeting; or
o voting in person at the Annual Meeting.
What if I do not specify how my shares are to be voted?
o If you submit an executed proxy but do not indicate any voting
instructions, your shares will be voted FOR the election of the
directors proposed by our Board of Directors unless the authority to
vote for the election of such directors is withheld and, if no
contrary instructions are given, your shares will be voted FOR the
approval of Proposals 1 and 3 described in the accompanying notice and
this proxy statement, and you will give the proxies the discretion to
vote on other matters that may properly come before the Annual
Meeting.
Will any other business be conducted at the Annual Meeting?
o At this time, our Board of Directors knows of no other business that
will be presented at the Annual Meeting. If any other proposal
properly comes before the stockholders for a vote at the Annual
Meeting, however, the proxy holders will vote all shares for which
they have been delegated discretionary voting power in the enclosed
proxy in accordance with their best judgment.
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Do I have dissenters' appraisal rights with respect to the Plan of Dissolution?
o No. Under Delaware law, stockholders will not have dissenters'
appraisal rights in connection with the Plan of Dissolution.
What do stockholders need to do now?
o After carefully reading and considering the information contained in
this proxy statement, each stockholder should complete and sign his or
her proxy and return it in the enclosed return envelope as soon as
possible so that his or her shares may be represented at the Annual
Meeting. A majority of shares entitled to vote must be represented at
the Annual Meeting to enable us to conduct business at the meeting.
Who can help answer questions?
o If you have any additional questions about the proposed Plan of
Dissolution or if you need additional copies of this proxy statement
or any public filings referred to in this proxy statement, you should
contact Concero at (512) 343-6581. Our public filings can also be
accessed at the SEC's web site at www.sec.gov.
6
GENERAL INFORMATION
Voting
The specific proposals to be considered and acted upon at our Annual
Meeting are summarized in the accompanying notice and are described in more
detail in this proxy statement. On October 30, 2003, the record date for
determination of stockholders entitled to notice of, and to vote at, the Annual
Meeting, we had outstanding 10,237,890 shares of our common stock. Each
stockholder is entitled to one vote for each share of common stock held by such
stockholder on the record date. Stockholders may not cumulate votes in the
election of directors.
All votes will be tabulated by the inspector of election appointed for the
meeting who will separately tabulate affirmative and negative votes, abstentions
and broker non-votes. Abstentions and broker non-votes are counted as present
for purposes of determining the presence or absence of a quorum for the
transaction of business. Abstentions will be counted towards the tabulations of
votes cast on proposals presented to the stockholders and will have the same
effect as negative votes, whereas broker non-votes will not be counted for
purposes of determining whether a proposal has been approved. Instructions
withholding voting authority as to any nominee for election as a director will
have no effect on the determination of plurality, except to the extent that they
affect the total votes received by any particular nominee.
Proxies
If the enclosed form of proxy is properly signed and returned, the share
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If you sign and return your proxy without
specifying how the shares represented thereby are to be voted, the proxy will be
voted FOR the election of the directors proposed by our board unless the
authority to vote for the election of such directors is withheld and, if no
contrary instructions are given, the proxy will be voted FOR the approval of
Proposals 1 and 3 and FOR the election of each director nominee described under
Proposal 2 in the accompanying notice and this proxy statement and will give the
proxies the discretion to vote on other matters that may properly come before
the Annual Meeting. You may revoke or change your proxy at any time before the
Annual Meeting by filing with our Corporate Secretary at our executive offices
at 40 Fulton Street New York, New York 10038, a notice of revocation or another
signed proxy with a later date. You may also revoke your proxy by attending the
Annual Meeting and voting in person.
Solicitation
We will bear the entire cost of solicitation, including the preparation,
assembly, printing and mailing of this proxy statement, the proxy and any
additional solicitation material furnished to stockholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in the names that are beneficially owned by others so
that they may forward this solicitation material to such beneficial owners. In
addition, we may reimburse such persons for their costs in forwarding the
solicitation material to such beneficial owners. The original solicitation of
proxies by mail may be supplemented by a solicitation by telephone, telegram or
other means by our directors, officers or employees. No additional compensation
will be paid to these individuals for any such services. We do not presently
intend to solicit proxies other than by mail.
Deadline for Receipt of Stockholder Proposals
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934,
stockholder proposals to be presented at our next annual meeting of stockholders
and included in our proxy statement and form of proxy relating to that meeting,
must be received by us at our principal executive offices and addressed to our
Corporate Secretary, not later than the date which is 120 calendar days prior to
October 31, 2004. With respect to any stockholder proposal not submitted
pursuant to Rule 14a-8 and unless we receive notice in the manner specified in
the previous sentence, persons acting as proxies shall have discretionary
authority to vote against any proposal presented at that annual meeting of
stockholders. These proposals must comply with applicable Delaware law, the
rules and regulations promulgated by the Securities and Exchange Commission and
the procedures set forth in our bylaws.
7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of October 30, 2003 by:
o each person who is known by us to be a beneficial owner of more than
5% of our common stock;
o each of our directors;
o our chief executive officer during our last fiscal year, each of our
other four most highly compensated executive officers who were serving
as executive officers at the end of our last fiscal year, and our
current chief executive officer and chief financial officer; and
o all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to the securities. Except as indicated in the notes following the table,
and subject to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The number of shares of common stock
used to calculate the percentage ownership of each listed person includes shares
of common stock underlying options or warrants held by such persons that are
exercisable within sixty (60) days of October 30, 2003 The percentage of
beneficial ownership is based on 10,237,890 shares of common stock outstanding
as of October 30, 2003.
Our common stock is the only class of voting securities outstanding.
Shares Percentage
Beneficial Owner Beneficially Owned of Shares Beneficially Owned
---------------- ------------------ ----------------------------
Wade E. Saadi (1) .................................................... 1,693,393 (2) 16.4%
Edward C. Ateyeh, Jr. (1) ............................................ 1,693,392 (3) 16.4
Edgar G. Saadi (1) ................................................... 1,630,093 (4) 15.9
W. Frank King, Ph.D. ................................................. 641,046 (5) 6.2
Kevin B. Kurtzman .................................................... 84,841 (6) *
Timothy D. Webb (7) .................................................. 84,000 *
John M. Velasquez (7) ................................................ 49,470 *
Wayne E. Mock (7) .................................................... 2,443 *
Keith D. Thatcher (7) ................................................ 0 *
All current directors and officers as a group (four persons) ......... 4,112,672 (8) 38.7%
------------
* Indicates less than one percent of the outstanding common stock.
(1) Such person's address is c/o Pencom Systems Incorporated, 40 Fulton Street,
New York, New York 10038.
(2) Includes exercisable warrants to purchase 14,705 shares of common stock and
exercisable options to purchase 63,303 shares of common stock, of which
15,000 shares are unvested. All of Mr. Saadi's unvested shares will vest
immediately prior to the dissolution of Concero.
(3) Includes exercisable warrants to purchase 14,704 shares of common stock and
exercisable options to purchase 63,303 shares of common stock, of which
15,000 shares are unvested. All of Mr. Ateyeh's unvested shares will vest
immediately prior to the dissolution of Concero.
(4) Includes exercisable warrants to purchase 14,708 shares of common stock.
(5) Includes exercisable options to purchase 148,000 shares of common stock, of
which 47,000 shares are unvested. The address for Mr. King is 24 Pascal
Lane, Austin, Texas 78746. All of Mr. King's unvested shares will vest
immediately prior to the dissolution of Concero.
(6) Includes exercisable options to purchase 84,841 shares of common stock, of
which 15,000 shares are unvested. All of Mr. Kurtzman's unvested shares
will vest immediately prior to the dissolution of Concero.
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(7) Terminated employment not later than January 2003. Stated beneficial
ownership for this individual is based on information known by Concero as
of such termination.
(8) See notes (2), (3), (5) and (6).
PROPOSAL 1: APPROVAL AND ADOPTION OF THE PLAN OF DISSOLUTION
General Overview
Our Board of Directors adopted resolutions on November 15, 2002, which
authorized, subject to stockholder approval, the orderly liquidation of our
assets pursuant to the Plan of Dissolution. The Plan of Dissolution provides
that, if the requisite approval of our stockholders is received, our officers
and directors will undertake our complete liquidation and dissolution. After the
date the Plan of Dissolution is adopted by our stockholders, we will not engage
in any business activities, except for the purpose of preserving the value of
our assets, prosecuting and defending lawsuits by or against us, adjusting and
winding up our business and affairs, selling and liquidating our properties and
assets, including our intellectual property and other intangible assets, paying
our creditors, terminating commercial agreements and relationships and preparing
to make distributions to stockholders, in each case in accordance with the Plan
of Dissolution. If the Plan of Dissolution is approved by our stockholders, we
will file a Certificate of Dissolution with the Secretary of State of the State
of Delaware promptly after the Annual Meeting.
Our Board of Directors may, at any time, in addition to or in substitution
for Messrs. Webb and Mock, retain a third party to complete the liquidation of
our remaining assets and distribute proceeds from the sale of assets to our
stockholders pursuant to the Plan of Dissolution. This third-party management
may involve a liquidating trust, which, if created, would succeed to all of our
assets, liabilities and obligations. Our Board of Directors may appoint one or
more of our directors or officers or a third party to act as trustee or trustees
of such liquidating trust. If, however, all of our assets are not distributed
within three years after the date our Certificate of Dissolution is filed with
the State of Delaware, we will transfer our remaining assets to a liquidating
trust if we have not already done so. Your authorization and approval of the
Plan of Dissolution will also constitute your approval of any appointment and
compensation of such trustees.
Certain material features of the Plan of Dissolution are summarized below.
This summary is qualified by reference to the complete text of the Plan of
Dissolution and the relevant portions of the Delaware General Corporation Law. A
complete copy of the Plan of Dissolution is attached to this proxy statement as
Exhibit A.
STOCKHOLDERS SHOULD CAREFULLY READ THE PLAN OF DISSOLUTION IN ITS ENTIRETY.
Company Background
For more than a decade, we provided software development services to
customers that were innovators, early technology adopters and market leaders.
Prior to the incorporation of Concero in 1996, we conducted our business and
operations as the software division of Pencom Systems Incorporated. Pencom
determined that its software division would be better able to meet the
mission-critical needs of its clients by defining its own priorities as an
independent entity and, in October 1996, Pencom contributed the assets and
associated liabilities of its software division to the Company. We completed the
initial public offering of our common stock in June 1997.
In 1999, we undertook a change in our business focus from software
development services to strategic consulting for the definition, design,
development and deployment of e-business services. Our management team executed
a strategy of providing high value-added e-business services emphasizing
relationships with leading technology providers aligned with our e-business
focus, including Vignette Corporation, Scientific-Atlanta and Mercury
Interactive.
As a result of this change in strategy and a robust U.S. economy, we
experienced significant revenue growth during the period from the beginning of
1999 through the second quarter of 2000. Our revenue increased 25% to $57.3
million in 2000 from $45.8 million in 1999; however, beginning in the third
quarter of 2000, the market for e-business services began to deteriorate and our
revenue declined precipitously. In the second half of 2000, we
9
experienced a 17% decrease in revenue as compared to the first half of 2000.
Although we reported net income of $1.7 million for the first half of 2000, we
experienced a net loss of $5.6 million for the second half of 2000, resulting in
a net loss of $3.9 million for the year. We believe that our revenue decrease
was primarily attributable to reduced and deferred spending by Internet-related
technology businesses resulting from a deteriorating business climate for
technology companies, particularly those focused on e-business.
Beginning in late 2000, our board of directors began an extensive analysis
of our business affairs and rapidly declining revenue, as well as our overall
financial condition. As a result of this analysis, we initiated cost reduction
measures in late 2000, including the closure of our Seattle office and a
workforce reduction and hiring freeze, which reduced our total headcount from
508 at the end of the third quarter of 2000 to 457 at the end of 2000.
Additionally, we narrowed our service offerings around strategy, enterprise
portals, content chains and interactive television.
In 2001, our performance continued to be considerably and negatively
affected by a weakening U.S. economy and substantial decreases in capital
spending by our customers and potential customers. For the year 2001, our
revenue declined by 65% to $20.2 million from $57.3 million in 2000, resulting
in a net loss of $21.7 million. We continued to provide strategic consulting
skills with deep technology and integration expertise to our remaining
customers; however, we further narrowed our focus around interactive television.
During 2001, we also began development of our Marquee software suite to enable
on-demand interactive television applications and services, which we believed
would leverage our technical expertise and marketing alliances around
interactive television. As a result of continued analysis and extensive
discussion of our business affairs and financial condition by our board of
directors, we implemented additional cost reduction measures in 2001 to further
reduce our cost structure. These additional cost reduction measures included the
closure of our Boston, Chicago, Los Angeles, New York and San Francisco offices,
efforts to mitigate the expense of lease commitments associated with our unused
Austin office space, and dramatic reductions our headcount to 76 by the end of
2001.
During the first half of 2002, we devoted our efforts to the launch of the
Marquee software suite, including product development, marketing and sales.
These marketing and selling activities included extensive participation in trade
shows and the solicitation of potential customers. Marquee was first
demonstrated at the National Cable & Telecommunications Association's "Cable
2002" trade show in May 2002. This was followed by an expanded demonstration at
the Cable Television Administration and Marketing convention in July 2002. Our
sales team conducted following up meetings and technology review sessions with
many of the major North American cable operators. The focus of these discussions
was to initiate customer trials of Marquee during the second half of 2002.
Despite our efforts to develop and promote the Marquee software suite, we
continued to experience significant losses. For the six months ended June 30,
2002, we reported total revenue of $996,000 and a net loss of $2.4 million.
Our common stock was involuntarily delisted from the Nasdaq National Market
effective in early August 2002 as a result of our failure to meet the minimum
required bid price and market value of public float. Our common stock then
traded on the over-the-counter bulletin board through approximately May 29, 2003
and subsequently has traded in the over-the-counter pink sheets.
Reasons for Adopting the Plan
Our Board of Directors has been kept informed continuously of our business,
affairs and financial condition and, beginning in late 2000, has convened
numerous special meetings in addition to regularly scheduled meetings to
consider means to address our deteriorating business and financial performance
and condition. Our Board of Directors was encouraged by the initial positive
market reaction to Marquee at the "Cable 2002" trade show and Cable Television
Administration and Marketing convention. However, our potential customers
remained pressured to reduce and defer expenses in light of the deterioration of
general economic conditions in the United States. Our Board of Directors
concluded that in order to continue to pursue customer product trials, we would
need to raise additional capital before the end of 2002. Moreover, there was no
assurance that Marquee would be successful in product trials or generate
significant revenue. Our Board of Directors and senior management team engaged
in extensive discussions and market research regarding our ability to raise
additional capital, and
10
concluded that our progress to date in marketing Marquee and the poor state of
the capital markets would not be sufficient to raise additional capital.
Beginning in mid-2001, our Board of Directors and senior management team
investigated various potential strategic alternatives and engaged in inquiries
regarding possible merger and asset sale transactions with potential business
partners in an effort to protect the interests of stockholders and enhance
stockholder value. These discussions included the marketing and sale of the
Marquee product and related assets. Throughout the period, our management
engaged in discussions with numerous companies regarding various strategic
transactions, including mergers, asset sales or strategic licensing
arrangements. Our Board of Directors received comparisons of the Company's net
asset value to the prices at which our common stock was trading at different
points in time and analyzed the results of management's investigation of various
acquisition, investment and strategic partnering opportunities. Few of those
discussions resulted in serious proposals for consideration by our Board of
Directors. Our management reviewed all credible potential transactions with the
Board of Directors at its periodic meetings and concluded that none of these
potential transactions was in the best interest of our stockholders.
In the summer of 2002, our Board of Directors determined that it would not
be advisable to continue to operate the Company on an independent basis
indefinitely given our limited cash resources and the unsatisfactory results of
our efforts to obtain customers for our Marquee software suite, and that,
considering these factors, a decision to continue the development and marketing
of Marquee might ultimately jeopardize the assets that otherwise may have been
available to stockholders in a liquidation. Additionally, our Board of Directors
recognized that it was reasonably unlikely that we would receive, within a
reasonable period of time under the circumstances, any viable offer to engage in
an attractive, alternative transaction.
After considering a variety of factors, including (i) the precipitous
decline in our revenue; (ii) the highly unlikely improvement of sales for the
foreseeable future; (iii) the deemed unlikely availability of reasonable
financing to raise the capital necessary to complete Marquee product trials;
(iv) indications that, despite significant cutbacks in our workforce,
significant operating losses would continue; (v) the likely inability to gain
rapid market acceptance for Marquee; (vi) prevailing negative economic
conditions both generally and within the software industry; (vii) our inability
to identify an acceptable buyer, strategic alliance partner or merger candidate;
and (viii) the significant risks associated with restructuring our business,
including the risk that positive operating income could not be reached prior to
insolvency, our Board of Directors concluded that the liquidation of the Company
was in the best interests of stockholders, and accordingly, on August 8, 2002
approved a resolution directing the cessation of the Company's operations and
the liquidation of the Company.
Following the August 8, 2002 meeting of the Board of Directors, we have
been engaged in the process of (i) soliciting potential buyers for Marquee and
other assets (such as furniture and equipment) and (ii) performing significant
diligence to determine our known and contingent liabilities. On November 15,
2002, our Board of Directors adopted the Plan of Dissolution. Pursuant to the
Plan of Dissolution, we intend to convert all of our remaining assets to cash
and to implement the Plan of Dissolution, whereby we would satisfy or settle all
of our remaining liabilities, establish appropriate reserves for any remaining
contingencies, pay the premiums on additional insurance to cover certain
contingencies and distribute our remaining cash, if any, to our stockholders.
In January 2003, we completed the sale of our Marquee software suite and
related assets to Motorola, Inc. in consideration of the extinguishment of
approximately $333,333 in liabilities owed by us to Motorola.
In mid-December 2002, a party unaffiliated with the Company or any member
of our management contacted our Board of Directors regarding a proposed
acquisition of a controlling interest in the Company. Discussions with this
party stalled in late February 2003 and our Board determined to continue
proceeding with the Plan of Dissolution.
The Plan of Dissolution
Dissolution Under Delaware Law
Section 275 of the Delaware General Corporation Law provides that a
corporation may dissolve upon either (a) a majority vote of the Board of
Directors of the corporation followed by a majority vote of its stockholders or
(b) a unanimous stockholder consent. Following such approval, the dissolution is
effected by filing a Certificate of
11
Dissolution with the Secretary of State of the State of Delaware. Once a
corporation is dissolved, its existence is automatically continued for a term of
three years, but solely for the purpose of winding up its business. The process
of winding up includes:
o the prosecution and defense of lawsuits, if any;
o the settling and closing of any business;
o the disposition and conveyance of any property;
o the discharge of any liabilities; and
o the distribution of any remaining assets to the stockholders of the
corporation.
If any action, suit or proceeding is commenced by or against the
corporation before or within the winding up period, the corporation will, solely
for the purpose of such action, suit or proceeding, automatically continue to
exist beyond the three-year period until any judgments, orders or decrees are
fully executed.
Description of the Dissolution Process
The following is a brief summary of the Plan of Dissolution. It is
qualified in its entirety by reference to the full text of the Plan of
Dissolution attached hereto as Exhibit A and incorporated herein by reference.
You should read the Plan of Dissolution carefully.
We will distribute pro-rata to our stockholders, in cash or in-kind, or
sell or otherwise dispose of, all of our property and assets. Through September
30, 2003, we have sold substantially all of our non-cash assets. We have sold an
immaterial amount of our assets to certain of our affiliates; however, the
aggregate value of these assets is less than $2,000. The terms of each of these
sales have been substantially similar to the terms of our sales of similar
assets to independent third parties. We do not intend to sell any material
amount of our assets to any of our affiliates or related parties of our
affiliates in connection with our liquidation. Agreements for the sale of assets
may be entered into prior to the Annual Meeting and, if entered into, may be
contingent on the approval of the Plan of Dissolution at the Annual Meeting. The
sale of our assets will be concluded prior to the third anniversary of the
filing of the Certificate of Dissolution with the Delaware Secretary of State by
a final liquidating distribution either directly to the stockholders or to one
or more liquidating trusts. Any sales of our assets have been and will be made
in private or public transactions and on such terms as are approved by our Board
of Directors. It is not anticipated that any further votes of our stockholders
will be solicited with respect to the approval of the specific terms of any
particular sales of assets approved by our Board of Directors. See "-- Sales of
Our Assets" below.
Subject to the payment or the provision for payment of our indebtedness and
other obligations, our cash on hand, together with the cash proceeds of any
sales of our other assets, will be distributed from time to time pro-rata to the
holders of common stock. We intend to establish a reasonable contingency reserve
in an amount determined by our Board of Directors to be sufficient to satisfy
our liabilities, expenses and obligations not otherwise paid, provided for or
discharged. The net balance, if any, of any such contingency reserve remaining
after payment, provision or discharge of all such liabilities, expenses and
obligations will also be distributed to our stockholders pro-rata. No assurances
can be given that available cash and amounts received from the sale of assets
will be adequate to provide for our obligations, liabilities, expenses and
claims and to make cash distributions to stockholders. See "-- Liquidating
Distributions; Nature; Amount; Timing" and "-- Contingent Liabilities;
Contingency Reserve; Liquidating Trust" below.
If deemed necessary by our Board of Directors for any reason, we may, from
time to time, transfer any of our unsold assets to one or more trusts
established for the benefit of our stockholders, which assets would thereafter
be sold or distributed on terms approved by each trust's trustees. If all of our
assets (other than the contingency reserve) are not sold or distributed prior to
the third anniversary of the effectiveness of our dissolution, we will transfer
in final distribution such remaining assets to a trust. The Board of Directors
may also elect in its discretion to transfer the contingency reserve, if any, to
such a trust. Any of such trusts are referred to in this proxy statement as
"liquidating trusts." Notwithstanding the foregoing, to the extent that a
distribution or transfer of any asset cannot be effected without the consent of
a governmental authority, no such distribution or
12
transfer shall be effected without such consent. In the event of a transfer of
assets to a liquidating trust, we would distribute, pro-rata to the holders of
our capital stock, beneficial interests in any such liquidating trust or trusts.
It is anticipated that the interests in any such trusts will not be
transferable; therefore, although the recipients of the interests would be
treated for tax purposes as having received their pro-rata share of property
transferred to the liquidating trust or trusts and will thereafter take into
account for tax purposes their allocable portion of any income, gain or loss
realized by such liquidating trust or trusts, the recipients of the interests
will not receive the value thereof unless and until such liquidating trust or
trusts distributes cash or other assets to them. The Plan of Dissolution
authorizes our Board of Directors to appoint one or more individuals or entities
to act as trustee or trustees of the liquidating trust or trusts and to cause us
to enter into a liquidating trust agreement or agreements with such trustee or
trustees on such terms and conditions as may be approved by our Board of
Directors. Approval and authorization of the Plan of Dissolution also will
constitute the approval by our stockholders of any such appointment and any
liquidating trust agreement or agreements. For further information relating to
liquidating trusts, the appointment of trustees and the liquidating trust
agreements, reference is made to "-- Contingent Liabilities; Contingent Reserve;
Liquidating Trust."
We intend to close our stock transfer books and discontinue recording
transfers of shares of common stock on the earliest to occur of (i) the close of
business on the record date fixed by the Board of Directors for the final
liquidating distribution, (ii) the close of business on the date on which our
remaining assets are transferred to a liquidating trust, or (iii) the Final
Record Date, the date fixed by the Board of Directors for filing the Certificate
of Dissolution, and, thereafter, certificates representing shares of common
stock will not be assignable or transferable on our books except by will,
intestate succession or operation of law. After the Final Record Date, we will
not issue any new stock certificates, other than replacement certificates. Any
person holding options, warrants or other rights to purchase common stock must
exercise such instruments or rights prior to the Final Record Date. See "--
Trading of Common Stock and Interests in Any Liquidating Trust or Trusts" and
"-- Final Record Date" below.
Conduct Following the Dissolution
Once the Certificate of Dissolution is filed and effective, we will
continue to exist, but only for the purpose of winding up our affairs, and we
will undertake to (a) convert to cash, by sales, as much of our remaining
non-cash assets as possible, (b) withdraw from any jurisdiction in which we are
qualified to do business, (c) pay or make provision for the payment of all of
our expenses and liabilities, (d) continue to indemnify our directors and
officers as required by our Certificate of Incorporation and Bylaws, and in
connection therewith continue to pay the premiums on director and officer
liability insurance, (e) create reserves for contingencies, (f) prosecute,
defend and settle lawsuits, if any, (g) distribute our remaining assets, if any,
to stockholders, and (h) do any other act necessary to wind up and liquidate our
business and affairs. Our Board of Directors and officers will oversee our
dissolution and liquidation.
Right to Modify, Amend or Terminate the Plan of Dissolution
By approving the Plan of Dissolution, stockholders will be granting our
Board of Directors the authority to modify, amend or terminate the Plan of
Dissolution. The Board may modify or amend the Plan at any time without
stockholder approval, if it determines that such action would be in the best
interests of the Company and its stockholders. If any amendment or modification
appears necessary, and in the judgment of the Board of Directors would
materially and adversely affect the interest of stockholders, the Board of
Directors is required to submit such amendment or modification to stockholders
for approval. The Board of Directors may terminate the Plan of Dissolution
without stockholder approval at any time, if it determines that termination
would be in the best interest of the Company and its stockholders.
Liquidating Distributions; Nature; Amount; Timing
Although our Board of Directors has not established a firm timetable for
distributions to our stockholders if the Plan of Dissolution is authorized and
approved by the stockholders, our Board of Directors intends, subject to
contingencies inherent in winding up our business, to make such distributions as
promptly as practicable. The liquidation is expected to be concluded prior to
the third anniversary of the filing of the Certificate of Dissolution in
Delaware by a final liquidating distribution either directly to the stockholders
or to a liquidating trust. The
13
proportionate interests of all of our stockholders shall be fixed on the basis
of their respective stock holdings at the close of business on the Final Record
Date, and after that date, any distributions made by us shall be made solely to
stockholders of record on the close of business on the Final Record Date, except
for permitted transfers. The actual nature, amount and timing of all
distributions will be determined by our Board of Directors, in its sole
discretion, and will depend in part upon our ability to convert our remaining
assets into cash and pay and settle our remaining liabilities and obligations.
We are currently unable to predict the precise nature, amount or timing of
any distributions pursuant to the Plan of Dissolution, due in part to our
inability to predict the net value of our non-cash assets and the ultimate
amount of our liabilities, many of which have not been settled. Additionally,
there are substantial uncertainties in carrying out the orderly wind down of
operations and the estimated costs associated with the wind down may materially
differ from our estimates, and the Company may be liable for claims that have
not been asserted and of which we are not aware. However, based upon information
presently available to us, we believe our stockholders could receive aggregate
proceeds from a liquidation of approximately $0.46 per share with the initial
distribution of liquidation proceeds of approximately $0.36 per share to occur
not later than the first fiscal quarter of 2004. We currently anticipate that
the majority of the remaining proceeds from the liquidation, if any, would be
distributed over a period of approximately three years.
In the section of this proxy statement entitled "-- Selected Financial
Data," we have estimated that our net assets in liquidation as of June 30, 2003
were $4,791,000, or $0.46 per share. Under the liquidation basis of accounting,
we have stated assets at their net realizable values, contractual liabilities at
contractual amounts, and estimated costs through the liquidation date are
recorded to the extent they are reasonably determinable. The liquidation basis
of accounting requires many estimates and assumptions, and there are substantial
uncertainties in carrying out the orderly wind down of operations. The actual
values and costs are expected to differ from the amounts indicated in our
estimate and could be higher or lower than the amounts recorded. For example,
our estimate of net assets in liquidation assumes that the liability associated
with our current lease obligations will be the full contractual amounts, and the
estimate also contains assumptions regarding potential dissolution costs related
to items such as continuing insurance coverage. In the event that we are able to
successfully market our leased office space and certain of our assumptions
regarding dissolution costs prove to be too high, the proceeds to our
stockholders could be greater than $0.46 per share. Conversely, our estimate of
net assets in liquidation does not include accrued expenses for claims, asserted
or unasserted, which we have determined are unlikely to occur or are without
merit, or for which we have determined that it is unlikely we will incur a
material liability. These potential claims include items such as claims that may
be asserted by our former vendors and the insurance retention amounts payable in
connection with any securities related claim. In the event that a number of such
claims are asserted, and are ultimately successful, the proceeds to our
stockholders could be less than $0.46 per share.
We do not plan to satisfy all of our liabilities and obligations prior to
making distributions to stockholders, but instead will reserve assets deemed by
management and our Board of Directors to be adequate to provide for these
liabilities and obligations. See "-- Contingent Liabilities; Contingency
Reserve; Liquidating Trust" below.
Uncertainties as to the precise net value of our non-cash assets and the
ultimate amount of our liabilities make it impracticable to predict the
aggregate net value ultimately distributable to stockholders. Claims,
liabilities and expenses from operations (including operating costs, salaries,
income taxes, payroll and local taxes, legal and accounting fees and
miscellaneous office expenses), although currently declining, will continue to
be incurred following stockholder authorization and approval of the Plan of
Dissolution. These expenses will reduce the amount of assets available for
ultimate distribution to stockholders, and, while we do not believe that a
precise estimate of those expenses can currently be made, management and our
Board of Directors believe that available cash and amounts received on the sale
of assets will be adequate to provide for our obligations, liabilities, expenses
and claims (including contingent liabilities) and to make cash distributions to
stockholders. However, no assurances can be given that available cash and
amounts received on the sale of assets will be adequate to provide for our
obligations, liabilities, expenses and claims and to make cash distributions to
stockholders. If available cash and amounts received on the sale of assets are
not adequate to provide for our obligations, liabilities, expenses and claims,
distributions of cash and other assets to our stockholders will be
proportionately reduced.
14
Sales of Our Assets
The Plan of Dissolution gives our Board of Directors the authority to sell
all of our assets. We have sold substantially all of our non-cash assets,
including the sale of an immaterial amount of our assets to certain of our
affiliates; however, the aggregate value of those assets sold to affiliates is
less than $2,000. The terms of each of these sales have been substantially
similar to the terms of our sales of similar assets to independent third
parties. We do not intend to sell any additional assets to any of our affiliates
or related parties of our affiliates in connection with our liquidation.
Agreements for the sale of assets may be entered into prior to the Annual
Meeting and, if entered into, may be contingent on approval of the Plan of
Dissolution at the Annual Meeting. Authorization and approval of the Plan of
Dissolution will constitute approval of any such agreements and sales. Sales of
our remaining non-cash assets will be made on such terms as are approved by our
Board of Directors and may be conducted by either competitive bidding, public
sales or privately negotiated sales. We do not anticipate that any further
stockholder votes will be solicited with respect to the approval of the specific
terms of any particular sales of assets approved by our Board of Directors. We
do not anticipate amending or supplementing this proxy statement to reflect any
such agreement or sale, unless required by applicable law. The prices at which
we will be able to sell our various assets depends largely on factors beyond our
control, including, without limitation, the condition of financial markets, the
availability of financing to prospective purchasers of the assets, United States
and foreign regulatory approvals, public market perceptions, and limitations on
transferability of individual assets. In addition, we may not obtain as high a
price for a particular asset as we might secure if we were not in liquidation.
Continuing Insurance
Following stockholder approval of the Plan of Dissolution, we will continue
to indemnify our officers, directors, employees and agents for their lawful
actions in accordance with our certificate of incorporation and bylaws,
including for lawful actions taken in connection with the Plan of Dissolution
and the wind-down of our business and affairs. We have maintained, and intend to
continue to maintain, director and officer liability insurance for the benefit
of such persons. As part of our wind-down, we intend to prepay the premium to
continue to maintain such insurance for claims made following the filing of our
Certificate of Dissolution. Since our insurance policy may, depending upon the
circumstances, require us to pay the initial amount of any liability incurred
and then to pay the further costs of defending a claim, subject to reimbursement
from the insurance carrier, we intend to establish a contingency reserve to
cover such possible contingency.
Reporting Requirements
In order to curtail expenses, we will seek relief from the SEC from the
applicable reporting requirements of the Securities Exchange Act of 1934 to the
extent that continued reporting is otherwise required. However, other companies
in liquidation have sought such relief from the SEC and been denied. We
anticipate that, if such relief is granted and continued reporting is required
in the absence of such relief, we would continue to file current reports on Form
8-K to disclose material events relating to our liquidation and dissolution.
Contingent Liabilities; Contingency Reserve; Liquidating Trust
Under Delaware law, we are required, in connection with our dissolution, to
pay or provide for payment of all of our liabilities and obligations. Following
the authorization and approval of the Plan of Dissolution by our stockholders,
we will pay all expenses and fixed and other known liabilities, or set aside as
a contingency reserve cash and other assets which we believe to be sufficient,
based on factors known to us, to satisfy such liabilities and other claims that
might arise. We are currently unable to estimate with precision the amount of
any contingency reserve which may be required, but that amount (in addition to
any cash contributed to a liquidating trust, if one is utilized) will be
deducted before the determination of amounts available for distribution to
stockholders.
We may incur additional liabilities arising out of contingent claims, such
as the claims described below, that are not yet reflected on our balance sheet.
We are unable at this time to predict what amount, if any, may be paid on these
contingent claims.
The actual amount of the contingency reserve will be based upon estimates
and opinions of management and our Board of Directors and derived from
consultations with outside experts and review of our estimated operating
15
expenses and future estimated liabilities, including, without limitation,
anticipated compensation payments, estimated legal and accounting fees,
operating lease expenses, payroll and other taxes payable, miscellaneous office
expenses, expenses accrued in our financial statements, and reserves for
litigation expenses. There can be no assurance that the contingency reserve in
fact will be sufficient. We have not made any specific provision for an increase
in the amount of the contingency reserve. Subsequent to the establishment of the
contingency reserve, we will distribute to our stockholders any portions of the
contingency reserve which are deemed no longer to be required. After the
liabilities, expenses and obligations for which the contingency reserve had been
established have been satisfied in full, we will distribute to our stockholders
any remaining portion of the contingency reserve.
If deemed necessary, appropriate or desirable by our Board of Directors for
any reason, we may, from time to time, transfer any of our unsold assets to one
or more liquidating trusts, or other structure it deems appropriate, established
for the benefit of our stockholders, which property would thereafter be sold or
distributed on terms approved by each trust's trustees. Our Board of Directors
and management may determine to transfer assets to a liquidating trust in
circumstances where the nature of an asset is not susceptible to distribution
(for example, interests in intangibles) or where our Board of Directors
determines that it would not be in the best interests of our business and our
stockholders for such assets to be distributed directly to the stockholders at
that time. If all of our assets (other then the contingency reserve) are not
sold or distributed prior to the third anniversary of the effectiveness of our
dissolution, we must transfer in final distribution those remaining assets to a
liquidating trust. Our Board of Directors may also elect in its discretion to
transfer the contingency reserve, if any, to such a liquidating trust. The
purpose of a liquidating trust would be to distribute such property or to sell
such property on terms satisfactory to the liquidating trustees, and distribute
the proceeds of such sale after paying our liabilities, if any, assumed by the
trust, to our stockholders. Any liquidating trust acquiring all of our unsold
assets will assume all of our liabilities and obligations and will be obligated
to pay any of our expenses and liabilities that remain unsatisfied. If the
contingency reserve transferred to the liquidating trust is exhausted, such
expenses and liabilities will be satisfied out of the liquidating trust's other
unsold assets.
The Plan of Dissolution authorizes our Board of Directors to appoint one or
more individuals or entities to act as trustee or trustees of the liquidating
trust or trusts and to cause us to enter into a liquidating trust agreement or
agreements with such trustee or trustees on such terms and conditions as may be
approved by our Board of Directors. It is anticipated that our Board of
Directors will select such trustee or trustees on the basis of the experience of
such individual or entity in administering and disposing of assets and
discharging liabilities of the kind to be held by the liquidating trust or
trusts and the ability of such individual or entity to serve the best interests
of our stockholders. Approval of the Plan of Dissolution by our stockholders
will also constitute the approval by our stockholders of any such appointment
and any liquidating trust agreement or agreements.
We may decide to use a liquidating trust or trusts, and our Board of
Directors believes the flexibility provided by the Plan of Dissolution with
respect to the liquidating trusts to be advisable. The trust would be evidenced
by a trust agreement between the trustees and us. The purpose of the trust would
be to serve as a temporary repository for the trust property prior to its
disposition or distribution to our stockholders. The transfer to the trust and
distribution of interests therein to our stockholders would enable us to divest
the trust property and permit our stockholders to enjoy the economic benefits of
ownership thereof. Pursuant to the trust agreement, the trust property would be
transferred to the trustees immediately prior to the distribution of interests
in the trust to our stockholders, to be held in trust for the benefit of the
stockholder beneficiaries subject to the terms of the trust agreement. It is
anticipated that the interests would be evidenced only by the records of the
trust and there would be no certificates or other tangible evidence of such
interests and that no holder of common stock would be required to pay any cash
or other consideration for the interests to be received in the distribution or
to surrender or exchange shares of common stock in order to receive the
interests. It is further anticipated that pursuant to the trust agreements (i) a
majority of the trustees would be required to be independent of our management;
(ii) approval of a majority of the trustees would be required to take any
action; and (iii) the trust would be irrevocable and would terminate after the
earliest to occur of (x) the trust property having been fully distributed, or
(y) a majority in interest of the beneficiaries of the trust, or a majority of
the trustees, having approved of such termination, or (z) a specified number of
years having elapsed after the creation of the trust.
16
Under Delaware law, in the event we fail to create an adequate contingency
reserve for payment of our expenses and liabilities, or should such contingency
reserve and the assets held by the liquidating trust or trusts be exceeded by
the amount ultimately found payable in respect of expenses and liabilities, each
stockholder could be held liable for the payment to creditors of such
stockholder's pro-rata share of such excess, limited to the amounts theretofore
received by such stockholder from us and from the liquidating trust or trusts.
If we were held by a court to have failed to make adequate provision for
our expenses and liabilities or if the amount ultimately required to be paid in
respect of such liabilities exceeded the amount available from the contingency
reserve and the assets of the liquidating trust or trusts, a creditor of ours
could seek an injunction against the making of distributions under the Plan of
Dissolution on the ground that the amounts to be distributed were needed to
provide for the payment of our expenses and liabilities. Any such action could
delay or substantially diminish the cash distributions to be made to
stockholders and/or interest holders under the Plan of Dissolution.
Final Record Date
We intend to close our stock transfer books and discontinue recording
transfers of shares of common stock on the earliest to occur of (i) the close of
business on the record date fixed by the Board of Directors for the final
liquidating distribution, (ii) the close of business on the date on which our
remaining assets are transferred to a liquidating trust, or (iii) the date fixed
by the Board of Directors for filing the Certificate of Dissolution (such
earliest date being the "Final Record Date"), and thereafter certificates
representing shares of common stock will not be assignable or transferable on
our books except by will, intestate succession or operation of law. After the
Final Record Date, we will not issue any new stock certificates, other than new
stock certificates for option holders who exercise their options after the Final
Record Date and replacement certificates. We anticipate that no further trading
of our shares will occur on or after the Final Record Date. See "-- Trading of
Common Stock and Interests in Any Liquidating Trust or Trusts" below. All
liquidating distributions from us or a liquidating trust on or after the Final
Record Date will be made to stockholders according to their holdings of capital
stock as of the Final Record Date. Subsequent to the Final Record Date, we may
at our election require stockholders to surrender certificates representing
their shares of the capital stock in order to receive subsequent distributions.
Stockholders should not forward their stock certificates before receiving
instructions to do so. If surrender of stock certificates should be required,
all distributions otherwise payable by us or the liquidating trust, if any, to
stockholders who have not surrendered their stock certificates may be held in
trust for those stockholders, without interest, until the surrender of their
certificates (subject to escheat pursuant to the laws relating to unclaimed
property). If a stockholder's certificate evidencing capital stock has been
lost, stolen or destroyed, the stockholder may be required to furnish us with
satisfactory evidence of the loss, theft or destruction thereof, together with a
surety bond or other indemnity, as a condition to the receipt of any
distribution.
Trading of Common Stock and Interests in Any Liquidating Trust or Trusts
We currently intend to close our stock transfer books on the Final Record
Date and to cease recording stock transfers and issuing stock certificates
(other than replacement certificates) at that time. Accordingly, we expect that
trading in our shares will cease on and after that date.
In any event, we will close our stock transfer books upon the filing of the
Certificate of Dissolution. Thereafter, the stockholders will not be able to
transfer their shares. We anticipate that the interests in a liquidating trust
or trusts will not be transferable, although no determination has yet been made.
This determination will be made by our Board of Directors and management prior
to the transfer of unsold assets to the liquidating trust and will be based on,
among other things, our Board of Directors', and management's estimate of the
value of the assets being transferred to the liquidating trust or trusts, tax
consequences and the impact of compliance with applicable securities laws.
Interests in the liquidating trust or trusts may be required to comply with the
periodic reporting and proxy requirements of the Securities Exchange Act of
1934. The costs of compliance with such requirements would reduce the amount
which otherwise could be distributed to interest holders. Even if transferable,
the interests are not expected to be listed on a national securities exchange or
quoted through Nasdaq, and the extent of any trading market therein cannot be
predicted. Moreover, the interests may not be accepted by commercial lenders as
security for loans as readily as more conventional securities with established
trading markets.
17
As stockholders will be deemed to have received a liquidating distribution
equal to their pro-rata share of the value of the net assets distributed to an
entity which is treated as a liquidating trust for tax purposes (see "-- Certain
Federal and State Income Tax Consequences"), the distribution of
non-transferable interests could result in tax liability to the interest holders
without their being readily able to realize the value of such interests to pay
such taxes or otherwise.
Absence of Appraisal Rights
Under Delaware law, our stockholders are not entitled to appraisal rights
for their shares of common stock in connection with the transactions
contemplated by the Plan of Dissolution.
Regulatory Approvals
Except for filing the Certificate of Dissolution with the Secretary of
State of Delaware and compliance with Delaware General Corporation law, the
rules and regulations of the Securities and Exchange Commission and the United
States Internal Revenue Code, no United States federal or state regulatory
requirements must be complied with or approvals obtained in connection with the
liquidation.
Certain Federal and State Income Tax Consequences
The following discussion is a general summary of the material United States
federal income tax consequences affecting the Company's stockholders that are
anticipated to result from the dissolution and liquidation of the Company. This
discussion is limited to those stockholders who hold their Company stock as a
capital asset and does not purport to be a complete analysis of all the
potential tax effects. Moreover, the discussion does not address the tax
consequences that may be relevant to particular categories of stockholders
subject to special treatment under certain federal income tax laws (such as
dealers in securities, banks, insurance companies, tax-exempt organizations,
retirement plans, mutual funds, foreign individuals and entities, persons
subject to alternative minimum tax, persons who hold their Company stock through
partnerships or other pass-through entities, persons who hold their Company
stock as part of a straddle, a hedge against currency risk, or as part of a
constructive sale or conversion transaction, and persons who acquired their
Company stock upon exercise of stock options or in other compensatory
transactions). It also does not specifically address any tax consequences
arising under the laws of any state, local or foreign jurisdiction. The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
Regulations, Internal Revenue Service ("IRS") rulings, and judicial decisions
now in effect, all of which are subject to change at any time; any such changes
may be applied retroactively. Distributions pursuant to the Plan of Dissolution
may occur at various times and in more than one tax year. No assurance can be
given that the tax treatment described herein will remain unchanged at the time
of such distributions.
The following discussion has no binding effect on the IRS or the courts and
assumes that the Company will liquidate in accordance with the Plan of
Dissolution in all material respects. No ruling has been requested from the IRS
with respect to the anticipated tax treatment of the Plan of Dissolution, and
the Company will not seek an opinion of counsel with respect to the anticipated
tax treatment. If any of the anticipated tax consequences described herein
proves to be incorrect, the result could be increased taxation at the corporate
and/or stockholder level, thus reducing the benefit to the stockholders and the
Company from the liquidation. Tax considerations applicable to particular
stockholders may vary with and be contingent on the stockholder's individual
circumstances. This discussion does not constitute legal advice to any
stockholder.
Federal Income Taxation of the Company
After the approval of the Plan of Dissolution and until the liquidation is
completed, the Company will continue to be subject to federal income tax on its
taxable income, if any. The Company will recognize gain or loss on sales of its
assets pursuant to the Plan of Dissolution. Upon the distribution of any
property, other than cash, to stockholders pursuant to the Plan of Dissolution,
the Company will recognize gain or loss as if such property were sold to the
stockholders at its fair market value, unless certain exceptions to the
recognition of loss apply. Any losses and net operating loss carry-forwards that
the Company has may be available to offset any gains recognized on sales or
distributions of Company assets.
18
Federal Income Taxation of the Stockholders
As a result of the liquidation of the Company, for federal income tax
purposes stockholders will recognize gain or loss equal to the difference
between (i) the sum of the amount of cash distributed to them and the fair
market value (at the time of distribution) of any property distributed to them,
and (ii) their tax basis in their shares of the Company's capital stock. A
stockholder's tax basis in his or her shares will depend upon various factors,
including the stockholder's cost and the amount and nature of any distributions
received with respect thereto.
A stockholder's gain or loss will be computed on a "per share" basis. The
Company expects to make more than one liquidating distribution, each of which
will be allocated proportionately to each share of stock owned by a stockholder.
The value of each liquidating distribution will be applied against and reduce a
stockholder's tax basis in his or her shares of stock. Gain will be recognized
as a result of a liquidating distribution to the extent that the aggregate value
of the distribution and prior liquidating distributions received by a
stockholder with respect to a share exceeds his or her tax basis in that share.
Any loss will generally be recognized only when the final distribution from the
Company has been received and then only if the aggregate value of all
liquidating distributions with respect to a share is less than the stockholder's
tax basis for that share. Gain or loss recognized by a stockholder will be
capital gain or loss provided the shares are held as capital assets, and will be
long-term capital gain or loss if the stock has been held for more than one
year. If it were to be determined that distributions made pursuant to the Plan
of Dissolution were not liquidating distributions, the result could be treatment
of distributions as dividends taxable at ordinary income rates if the Company
were to have any earnings and profits for federal income tax purposes,
determined either on an historic or a current year basis, for the year of
distribution.
Upon any distribution of property, the stockholder's tax basis in such
property immediately after the distribution would be the fair market value of
such property at the time of distribution. The gain or loss realized upon the
stockholder's future sale of that property will be measured by the difference
between the stockholder's tax basis in the property at the time of such sale and
the proceeds of such sale.
After the close of each taxable year, the Company will provide stockholders
and the IRS with a statement of the amount of cash distributed to the
stockholders and its best estimate as to the value of any property distributed
to them during that year. There is no assurance that the IRS will not challenge
any such valuation. As a result of such a challenge, the amount of gain or loss
recognized by stockholders might be changed. Distributions of property other
than cash to stockholders could result in tax liability to any given stockholder
exceeding the amount of cash received, requiring the stockholder to meet the tax
obligations from other sources or by selling all or a portion of the assets
received.
It is possible that the Company will have liabilities not fully covered by
its contingency reserve for which the stockholders will be liable up to the
extent of any liquidating distributions they have received. See "-- Contingent
Liabilities; Contingency Reserve; Liquidating Trust." Such a liability could
require a stockholder to satisfy a portion of such liability out of prior
liquidating distributions received from the Company and any liquidating trust or
trusts. Payments by stockholders in satisfaction of such liabilities would
commonly produce a capital loss, the deductibility of which is limited and
which, in the hands of individual stockholders, could not be carried back to
prior years to offset capital gains realized from liquidating distributions in
those years.
Liquidating Trusts
If the Company transfers assets to a liquidating trust or trusts, the
Company intends to structure such trust or trusts so that stockholders will be
treated for tax purposes as having received their pro-rata share of the property
transferred to the liquidating trust or trusts, reduced by the amount of known
liabilities assumed by the liquidating trust or trusts or to which the property
transferred is subject. Assuming such treatment is achieved, assets transferred
to a liquidating trust will cause the stockholder to be treated in the same
manner for federal income tax purposes as if the stockholder had received a
distribution directly from the Company. The liquidating trust or trusts
themselves should not be subject to federal income tax, assuming that they are
treated as liquidating trusts for federal income tax purposes. After formation
of any liquidating trust or trusts, stockholders must take into account for
federal income tax purposes their allocable portion of any income, gain or loss
recognized by the liquidating trust or trusts. As a result of the transfer of
property to any liquidating trust or trusts and the ongoing operations of the
liquidating trust or trusts, stockholders should be aware that they may be
subject to tax, whether
19
or not they have received any actual distributions from the liquidating trust or
trusts with which to pay such tax. There can be no assurance that the
liquidating trust or trusts described in the Plan of Dissolution will be treated
as a liquidating trust or trusts for federal income tax purposes.
State and Local Tax
The Company may be subject to liability for state or local taxes with
respect to the sale of its assets. Stockholders may also be subject to state or
local taxes, including with respect to liquidating distributions received by
them or paid to a liquidating trust on their behalf, and with respect to any
income derived by a liquidating trust. Stockholders should consult their tax
advisors with respect to the state and local tax consequences of the Plan of
Dissolution.
Backup Withholding
Unless a stockholder complies with certain reporting and/or certification
procedures or is an exempt recipient under applicable provisions of the United
States Internal Revenue Code and Treasury Regulations promulgated thereunder,
such stockholder may be subject to backup withholding tax at a rate of up to 30%
with respect to any distributions received pursuant to the liquidation. Backup
withholding generally will not apply to distributions made to certain exempt
recipients such as a corporation or financial institution or to a stockholder
who furnishes a correct taxpayer identification number or provides a certificate
of foreign status and provides certain other required information. If backup
withholding applies, the amount withheld is not an additional tax, but is
credited against that stockholder's U.S. federal income tax liability.
THE FOREGOING SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS
INCLUDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO
ANY STOCKHOLDER. THE TAX CONSEQUENCES OF THE PLAN OF DISSOLUTION MAY VARY
DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF THE STOCKHOLDER. THE COMPANY
RECOMMENDS THAT EACH STOCKHOLDER CONSULT ITS OWN TAX ADVISOR REGARDING THE
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF DISSOLUTION AS WELL AS THE STATE,
LOCAL, AND FOREIGN TAX CONSEQUENCES.
Factors to be Considered by Stockholders in Deciding Whether to Approve the Plan
of Dissolution
There are many factors that the Company's stockholders should consider when
deciding whether to vote to approve and adopt the proposed Plan of Dissolution.
Such factors include those set forth in the Company's publicly filed reports,
including its Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2003, as well as those factors set forth below.
There are risks associated with forward looking statements.
This proxy statement contains certain forward looking statements, including
statements concerning the value of the Company's net assets, the anticipated
liquidation value per share of common stock, and the likelihood of stockholder
value resulting from sale of certain of its significant assets. Some of our
other assets may be difficult for us to convert into cash, and we can make no
assurance that we will receive any material amounts in respect of such assets.
No assurance can be given that the amount to be received in liquidation will
equal or exceed the price or prices at which the common stock has recently
traded or may trade in the future, or that the liquidation value will exceed
zero. Stockholders who disagree with the Board of Directors' determination that
the ratification and adoption of the Plan of Dissolution is in the best
interests of the Company and its stockholders should vote "against" ratification
and approval of the Plan of Dissolution.
Stockholders could be liable to the extent of liquidating distributions
received if contingent reserves are insufficient to satisfy the Company's
liabilities.
If we fail to create an adequate contingency reserve for payment of our
expenses and liabilities, or if we transfer our assets to a liquidating trust
and the contingency reserve and the assets held by the liquidating trust are
less than the amount ultimately found payable in respect of expenses and
liabilities, each stockholder could be held liable for the payment to creditors
of such stockholder's pro-rata portion of the excess, limited to the amounts
previously received by the stockholder in distributions from us or the
liquidating trust.
20
If a court holds at any time that we have failed to make adequate provision
for our expenses and liabilities or if the amount ultimately required to be paid
in respect of such liabilities exceeds the amount available from the contingency
reserve and the assets of the liquidating trust, our creditors could seek an
injunction against the making of distributions under the Plan of Dissolution on
the grounds that the amounts to be distributed are needed to provide for the
payment of our expenses and liabilities. Any such action could delay or
substantially diminish the cash distributions to be made to stockholders and/or
holders of beneficial interests of any liquidating trust under the Plan of
Dissolution. See "-- The Plan of Dissolution -- Contingent Liabilities;
Contingency Reserve; Liquidating Trust," above.
Anticipated timing of liquidation may not be achieved.
Immediately after the Annual Meeting, if the Plan of Dissolution is
approved by stockholders, we intend to file a Certificate of Dissolution with
the Secretary of State of the State of Delaware. Although we anticipate that we
will substantially complete the sale of our assets within a 12-month period, our
Board of Directors may determine that it is in the best interest of our
stockholders that some assets be placed into a liquidating trust, which could
delay the receipt by stockholders of the final proceeds of the liquidation.
The liquidation may not result in greater returns to stockholders than our
continuing as a going concern or through a business combination with another
company.
We cannot assure you that the Plan of Dissolution will result in greater
returns to stockholders than our continuing as a going concern or through a
business combination with a third party. If the Plan of Dissolution is not
authorized and approved by the stockholders, our Board of Directors will
continue to manage the Company as a publicly owned entity and will explore what,
if any, alternatives are then available for the future of our assets.
Our stock transfer books will close on the Final Record Date, after which
it will not be possible for stockholders to publicly trade in our stock.
We intend to close our stock transfer books and discontinue recording
transfers of common stock at the close of business on the Final Record Date,
which we anticipate will be the date of filing of the Certificate of
Dissolution. Thereafter, certificates representing the common stock shall not be
assignable or transferable on our books except by will, intestate succession or
operation of law. The proportionate interests of all of our stockholders shall
be fixed on the basis of their respective stock holdings at the close of
business on the Final Record Date, and, after the Final Record Date, any
distributions made by us shall be made solely to the stockholders of record at
the close of business on the Final Record Date, except as may be necessary to
reflect subsequent transfers recorded on our books as a result of any
assignments by will, intestate succession or operation of law.
Our directors and officers may have interests in our liquidation and
dissolution that are different from the interests of other stockholders.
Members of our Board of Directors and our executive officers may be deemed
to have a potential conflict of interest in recommending authorization and
approval of the Plan of Dissolution. See "-- Interests of Directors and Officers
in the Plan of Dissolution" below.
No further stockholder approval will be required.
The approval of the Plan of Dissolution requires the affirmative vote of
the holders of a majority of all shares of our common stock outstanding and
entitled to vote. If our stockholders approve the Plan of Dissolution, we will
be authorized to dispose of our assets without further approval of our
stockholders.
The authorization and approval of the Plan of Dissolution requires the
affirmative vote of the holders of a majority of the outstanding shares of our
common stock. Members of our Board of Directors and our executive officers who
hold (or are deemed to hold) as of the October 30, 2003 record date an aggregate
of 4.1 million shares of common stock (approximately 39% of the outstanding
shares of common stock as of the record date) have indicated that they will vote
in favor of the Plan of Dissolution.
21
Stockholders may not be able to recognize a loss for federal income tax
purposes until they receive a final distribution from us, which may be as long
as three years.
Generally, as a result of our liquidation, for federal income tax purposes,
stockholders will recognize gain or loss equal to the difference between (i) the
sum of the amount of cash distributed to them and the aggregate fair market
value (at the time of distribution) of any property distributed to them, and
(ii) their tax basis for their shares of our capital stock. A stockholder's tax
basis in his or her shares will depend upon various factors, including the
stockholder's cost and the amount and nature of any distributions received with
respect thereto. Any loss will generally be recognized only when the final
distribution from us has been received, which may be as long as three years
after the date that the Plan of Dissolution is adopted.
Selected Financial Data
Going Concern Basis
The statements of operations data and balance sheet data presented below
for the four years ended December 31, 2002 and the six months ended June 30,
2002 are derived from our audited financial statements that do not appear
herein. The information presented below reflects the financial condition and
results of our operations on a going concern basis through June 30, 2002 and it
is not necessarily indicative of future results. The following should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and notes thereto
appearing in our Form 10-K filed for the year ended December 31, 2001 and Form
10-Q for the quarter ended June 30, 2002.
22
Year Ended December 31, Six Months
--------------------------------------------------------- Ended
1998 1999 2000 2001 June 30, 2002
------------ ------------ ------------ ------------ -----------------
In thousands, except per share data
Statements of Operations Data:
Revenue ...................................... $ 39,101 $ 45,823 $ 57,290 $ 20,223 $ 996
Operating expenses:
Technical staff ............................. 23,440 25,377 33,833 14,670 731
Selling and administrative staff ............ 10,121 9,034 10,872 5,424 1,088
Other expenses .............................. 8,933 9,520 18,178 20,094 2,281
Special compensation expense ................ 75 -- -- -- --
Total operating expenses .................. 42,569 43,931 62,883 40,188 4,100
Income (loss) from operations ................ (3,468) 1,892 (5,593) (19,965) (3,104)
Interest income (expenses), net .............. 946 1,018 943 596 118
Income (loss) before provision (benefit)
for income taxes ............................ (2,522) 2,910 (4,650) (19,369) (2,986)
-------- -------- -------- --------- -------
Provision (benefit) for income taxes ......... (1,060) 1,130 (725) 2,281 605
Net income (loss) ............................ $ (1,462) $ 1,780 $ (3,925) $ (21,650) $(2,381)
======== ======== ======== ========= =======
Diluted earnings (loss) per share ............ $ (0.16) $ 0.17 $ (0.39) $ (2.13) $ (0.23)
======== ======== ======== ========= =======
Shares used in diluted earnings (loss) per
share calculation ........................... 9,113 10,501 9,971 10,188 10,227
======== ======== ======== ========= =======
December 31,
---------------------------------------------------------
1998 1999 2000 2001 June 30, 2002
------------ ----------- ------------ ------------- -----------------
Working capital .............................. $ 27,379 $ 29,260 $ 24,161 $ 9,579 $ 7,672
Total assets ................................. 33,351 37,816 35,806 16,644 11,542
Total stockholders' equity ................... 31,068 33,422 32,760 11,133 8,756
Liquidation Basis
On August 8, 2002, our Board of Directors approved the cessation of our
operations and the liquidation of our company, subject to required stockholder
approval. We have ceased operating activities and have commenced the orderly
wind down of our affairs. As a result, we adopted the liquidation basis of
accounting for the presentation of our consolidated financial statements for
periods subsequent to June 30, 2002. We do not present Concero's operations for
the period from July 1, 2002 to August 7, 2002 (prior to the Board of Directors'
conclusion to liquidate Concero) separately using the going concern basis of
accounting because revenues in that period were minimal, we had already begun
terminating employees, expenses were related primarily to fixed facility costs,
and there were no service contracts in effect. The liquidation basis of
accounting is appropriate when, among other things, liquidation of a company
appears imminent and the net realizable values of its assets are reasonably
determinable. Under the liquidation basis of accounting, we have stated our
assets at their net realizable values, contractual liabilities at contractual
amounts, and estimated costs through the liquidation date are recorded to the
extent they are reasonably determinable. The liquidation basis of accounting
requires many estimates and assumptions, and there are substantial uncertainties
in carrying out the orderly wind down of operations. The actual values and costs
are expected to differ from the amounts shown herein and could be higher or
lower than the amounts recorded.
The statements of net assets in liquidation and changes in net assets in
liquidation presented below have been derived from our audited financial
statements that appear herein and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes thereto
appearing in our Form 10-K filed for the year ended December 31, 2002.
23
Condensed Consolidated Statement of Net Assets in Liquidation
(Liquidation Basis)
At December 31, 2002
(In thousands, except per share data)
Assets
Cash ....................................................... $ 4,670
Short-term investments ..................................... 1,991
Assets held for sale ....................................... 348
Other assets ............................................... 193
--------
Total assets ................................................ $ 7,202
--------
Liabilities
Accounts payable ........................................... 24
Accrued expenses and other liabilities ..................... 2,770
--------
Net assets in liquidation ................................... $ 4,408
--------
Shares used ................................................. 10,377
========
Net assets in liquidation per share of common stock ......... $ 0.42
========
Condensed Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
(in thousands)
Net assets on a going concern basis as of June 30, 2002 .................. $8,756
------
Adjustments to reflect liquidation basis accounting:
Write-down to net realizable value of software and property and equipment 584
Accrual of remaining lease obligations ................................... 1,819
Estimated expenses to be incurred through liquidation .................... 2,503
------
Net adjustments to reflect liquidation basis accounting .................. $4,906
------
Net assets in liquidation as of June 30, 2002 ............................ $3,850
======
Changes in estimated liquidation values:
Assets held for sale ..................................................... $ 64
Accrued expenses and other liabilities ................................... 494
------
Net change in estimated liquidation value ................................ $ 558
======
Net assets in liquidation as of December 31, 2002 ........................ $4,408
======
The net assets in liquidation and statement of changes in net assets in
liquidation presented below have been derived from our unaudited financial
statements that do not appear herein and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes thereto appearing in our Form
10-Q filed for the quarter ended June 30, 2003.
24
Condensed Consolidated Statement of Net Assets in Liquidation
(Liquidation Basis)
At June 30, 2003
(in thousands, except per share data)
(Unaudited)
Assets
Cash ....................................................... $ 6,251
Other assets ............................................... 189
--------
Total assets ................................................ $ 6,440
--------
Liabilities
Accounts payable ........................................... 205
Accrued expenses and other liabilities ..................... 1,444
--------
Net assets in liquidation ................................... $ 4,791
========
Shares used ................................................. 10,377
========
Net assets in liquidation per share of common stock ......... $ 0.46
========
Condensed Consolidated Statement of Changes in Net Assets in Liquidation
(Liquidation Basis)
Six Months Ended June 30, 2003
(in thousands)
(Unaudited)
Net assets on a going concern basis as of December 31, 2002 ......... $ 4,408
-------
Changes in estimated liquidation values:
Accrued and other liabilities ...................................... 383
-------
Net changes in estimated liquidation values ......................... 383
=======
Net assets in liquidation as of June 30, 2003 ....................... $ 4,791
=======
Interests of Directors and Officers in the Plan of Dissolution
In considering the Board of Directors' recommendation to approve the Plan
of Dissolution, you should be aware that some of our directors and officers may
have interests that are different from or in addition to your interests as a
stockholder, including those set forth below. Other than as set forth below, it
is not currently anticipated that our liquidation will result in any material
benefit to any of our officers or to directors who participated in the vote to
adopt the Plan of Dissolution.
Kevin B. Kurtzman, our current Chief Executive Officer and a member of our
Board of Directors, has received a salary of $9,250 per month since September
2002 for serving as our Chief Executive Officer and is expected to continue
receiving that salary until our Board of Directors determines that such amount
is no longer commensurate with the responsibilities and commitment required of
that position.
Keith D. Thatcher, our immediate past Chief Financial Officer, received a
severance payment of $42,000, in addition to his annual salary of $166,250, for
continuing his employment following the August 2002 cessation of our operations
and our commencement of liquidation proceedings. The severance was paid on the
termination of his employment on December 31, 2002.
Timothy D. Webb, our immediate past Chief Executive Officer, and Wayne E.
Mock, our former Vice President and Chief Technology Officer, assisted us in
negotiating the sale of our Marquee software suite and related assets for which
they received commissions of approximately $97,500 and $41,800, respectively, in
2003.
Our Board of Directors may confer other benefits or bonuses to our
employees and our officers, including officers who are also directors, in
recognition of their services to us based on the performance of such employees
and officers, including performance during our liquidation process.
25
All of our current executive officers and directors hold shares of common
stock or options to acquire shares of common stock. The table below sets forth
information relating to stock options and warrants to acquire common stock held
by each of our officers and directors as of October 30, 2003 for which the
exercise price is less than the maximum anticipated liquidation distribution of
$0.46 per share. See "Proposal 1: Approval and Adoption of the Plan of
Dissolution -- The Plan of Dissolution -- Liquidating Distributions; Nature;
Amount; Timing." The estimated value of the stock options is based on the
difference between the exercise price of $0.36 and the maximum anticipated
liquidation distribution of $0.46 per share. The estimated value of the warrants
is based on the difference between the exercise price of $0.04 and the maximum
anticipated liquidation distribution of $0.46 per share.
Number of Underlying
Shares
of Common Stock
---------------------- Estimated
Officers and Directors Options Warrants Value
---------------------- --------- ---------- ----------
Wade E. Saadi ................. 4,000 14,705 $6,576
Edward C. Ateyeh, Jr. ......... 4,000 14,704 $6,576
W. Frank King, Ph.D. .......... 4,000 -- $ 400
Kevin B. Kurtzman ............. 4,000 -- $ 400
Vote Required and Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote
FOR the ratification and approval of the Plan of Dissolution. The authorization
and approval of the Plan of Dissolution requires the affirmative vote of the
holders of a majority of the outstanding shares of common stock.
PROPOSAL 2: ELECTION OF DIRECTORS
General
At the Annual Meeting, we will be electing four directors to hold office
until their term expires at the next annual meeting of stockholders or until
their successors are duly elected and qualified. Our board currently consists of
four directors and each of the nominees listed below is a current director.
The nominees for election have agreed to serve if elected, and management
has no reason to believe that the nominees will be unavailable to serve. In the
event a nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who may be designated
by our present Board of Directors to fill the vacancy. Unless otherwise
instructed, the proxy holders will vote the proxies received by them FOR the
nominees named below.
Nominees for Director
Name Age Current Position
---- --- ----------------
Wade E. Saadi ................... 54 Chairman of the Board
Edward. C. Ateyeh, Jr. .......... 51 Director
W. Frank King, Ph.D. ............ 63 Director
Kevin B. Kurtzman ............... 55 President, Chief Executive Officer,
Secretary and Director
Mr. Saadi has served on our Board of Directors since October 1, 1996. He is
the founder of Pencom Systems Incorporated, a privately held New York
corporation and has served as its President and Chief Executive Officer since
its inception in 1973. In 1996, Mr. Saadi won the Technology Entrepreneur of the
Year Award[RegTM] in New York City. Mr. Saadi is a governor of the Board of the
Collectors Club and a regional vice president of the United States Philatelic
Classics Society. Mr. Saadi attended the Polytechnic Institute of Brooklyn where
he majored in chemical engineering.
Mr. Ateyeh has served on our Board of Directors since October 1, 1996. He
is presently an Executive Vice President of Pencom Systems Incorporated, where
he has been employed since 1977. Mr. Ateyeh served as
26
President of Pencom's software division, the predecessor to Concero, from 1989
to 1992. In 1994, Mr. Ateyeh founded Collective Technologies, Pencom's system
management consulting division where he currently serves as President and Chief
Executive Officer. Mr. Ateyeh is a board member of the Economic Development
Council of the Greater Austin Chamber of Commerce, a member of the Austin
Community College Software Industry Advisory Council, as well as the Austin
Software Council's President/CEO Peer Group. Mr. Ateyeh earned a Bachelor of
Science degree from the University of Notre Dame.
Dr. King has served on our Board of Directors since October 1, 1996. From
1992 to September 1, 1998, Dr. King served as our President and Chief Executive
Officer. From 1988 to 1992, Dr. King was Senior Vice President of the Software
Business group of Lotus, a software publishing company. Prior to joining Lotus,
Dr. King was with IBM, a technology company, for 19 years, where his last
position was Vice President of Development for the Personal Computing Division.
Dr. King serves on the boards of directors of several companies, including
Natural Microsystems, Inc., Eon Communications, Inc. and Perficient Inc. Dr.
King earned a doctorate in electrical engineering from Princeton University, a
master's degree in electrical engineering from Stanford University, and a
bachelor's degree in electrical engineering from the University of Florida.
Mr. Kurtzman has served on our Board of Directors since December 1996 and
has served as our President and Chief Executive Officer since August 2002. He is
also the current Chief Financial Officer of Pencom, a position he has held since
July 1997. Prior to that, Mr. Kurtzman had been with Margolin, Winer & Evens
LLP, a certified public accounting firm, since 1972 and was a Partner and a
member of its executive committee and an Audit and Business Advisory Partner.
Mr. Kurtzman is a former officer and director of CPA Associates International.
Mr. Kurtzman received a bachelor's degree in accounting from Queens College of
the City University of New York.
Board and Committee Meetings
In 2002, our Board of Directors met 14 times and acted a number of times by
written consent. Each of the incumbent directors attended at least 75% of the
aggregate of (a) the total meetings of the board and (b) the total number of
meetings held by all committees of the board on which they served.
Committees of the Board of Directors
We no longer have audit and compensation committees of our Board of
Directors. We do not have a standing nominating committee or any other committee
performing similar functions. Such matters are considered at meetings of the
full Board of Directors.
Director Compensation and Indemnification Agreements
We pay each of our non-employee directors $3,750 per calendar quarter,
which may be in the form of cash or, at the discretion of each eligible
director, may be applied to the acquisition of an option to purchase common
stock pursuant to the director Fee Option Grant Program in effect under our 1996
Stock Option/Stock Issuance Plan. Under the Automatic Option Grant Program of
the plan, eligible non-employee board members receive a series of option grants
over their period of board service. Each non-employee board member will, at the
time of his or her initial election or appointment to the board, receive an
option to purchase 20,000 shares of common stock, provided such individual has
not previously been in our employ. On the date of the first annual stockholders
meeting following the fourth anniversary of the date on which a non-employee
board member joined our board and following each four-year period of board
service thereafter, he or she will receive an option to purchase 20,000 shares
of common stock, provided he or she will continue to serve as a non-employee
board member. In addition, on the date of each annual stockholders meeting, each
individual who is to continue to serve as a non-employee board member will
automatically be granted an option to purchase 4,000 shares of common stock,
provided he or she has served as a non-employee board member for at least six
months. Each automatic grant will have an exercise price per share equal to the
fair market value per share of common stock on the grant date and will have a
maximum term of 10 years, subject to earlier termination following the
optionee's cessation of board service. Each automatic option will be immediately
exercisable for all of the option shares; however, any unvested shares purchased
under such option will be subject to our repurchase, at the exercise price paid
per
27
share, should the optionee cease board service prior to vesting in those shares.
The shares subject to each initial 20,000-share automatic option grant and each
subsequent 20,000-share automatic grant will vest in a series of four successive
equal annual installments upon the optionee's completion of each year of board
service over the four-year period measured from the grant date. The shares
subject to each annual 4,000-share automatic grant will vest upon the optionee's
completion of one-year of board service measured from the grant date. However,
the shares subject to each outstanding automatic option grant will immediately
vest in full upon certain changes in control or ownership of Concero or upon the
optionee's death or disability while a board member. Following the optionee's
cessation of board service for any reason, each option will remain exercisable
for a 12-month period and may be exercised during that time for any or all
shares in which the optionee is vested at the time of such cessation of board
service.
On the date of our 2002 annual stockholders meeting on May 21, 2002,
Messrs. Saadi, Ateyeh and Kurtzman and Dr. King each received an option to
purchase 4,000 shares of our common stock, in accordance with the automatic
option grant provisions described above. All options had an exercise price of
$0.36 per share, the fair market value of our common stock on such date.
Our certificate of incorporation limits the liability of our directors to
us and our stockholders for breaches of the directors' fiduciary duties to the
fullest extent permitted by Delaware law. In addition, our certificate of
incorporation and bylaws provide for mandatory indemnification of directors and
officers to the fullest extent permitted by Delaware law. We also maintain
directors' and officers' liability insurance and have entered into
indemnification agreements with all of our directors and executive officers.
Vote Required and Recommendation of the Board of Directors
Our Board of Directors unanimously recommends that the stockholders vote
FOR the election of all of the nominees listed above. The affirmative vote of at
least a plurality of the shares of our common stock present in person or
represented by proxy at the Annual Meeting and entitled to vote on the election
of directors is necessary for the election of a director. As a result, the four
nominees receiving the greatest number of votes of the shares present in person
or represented by proxy at the Annual Meeting and entitled to vote on the
election of directors shall be elected to our Board of Directors, even if any
such nominee receives the vote of less than a majority of the outstanding
shares.
EXECUTIVE COMPENSATION
Summary Compensation Information
The following table provides certain summary information concerning the
compensation earned by the individuals that served as our Chief Executive
Officer during 2002 and certain other individuals that served as an executive
officer during 2002 and whose salary and bonus for 2002 exceeded $100,000 for
services rendered in all capacities to us and our subsidiaries for 2002. Then
individuals are referred to as our "Named Executive Officers."
28
Summary Compensation Table
Annual compensation Long-Term Compensation
-------------------------- -------------------------------------------
Securities Underlying All Other
Name and Principal Position(s) Year Salary (1) Bonus ($) Options (#) Compensation (2)
-------------------------------- ------ ------------ ----------- ----------------------- -----------------
Kevin B. Kurtzman (3) .......... 2002 $39,500 -- 4,000 --
President and Chief Executive 2001 -- -- 24,000 --
Officer 2000 -- -- 4,000 --
Timothy D. Webb (4) ............ 2002 274,911 -- 300,000 $109,615
President and Chief Executive
2001 325,186 -- 128,355 2,500
Officer
2000 342,528 -- 100,000 2,500
John M. Velaquez (5) ........... 2002 136,440 -- 125,000 $ 66,052
Vice Senior President
2001 222,000 -- 89,355 2,500
2000 237,500 -- 25,000 2,500
Keith D. Thatcher (6) .......... 2002 162,566 -- 125,000 $ 46,889
Chief Financial Officer
2001 161,875 -- 59,115 2,500
2000 170,833 -- 25,000 2,500
Wayne E. Mock (5) .............. 2002 106,619 -- 130,000 $ 56,538
Vice President and Chief
2001 157,250 51,000 38,710 2,500
Technology Officer
2000 130,000 -- 22,000 2,500
------------
(1) All Named Executive Officers (other than Mr. Kurtzman, who was not a Named
Executive Officer at the time) agreed to participate in a 10% pay reduction
effective April 1, 2001 to March 31, 2002, as part of our cost reduction
measures. Additionally, the salary figures shown include salary deferral
contributions to our 401(k) Plan.
(2) All other compensation for each Named Executive Officer for 2002 is
comprised of the following:
401(k) Plan
Name Severance Vacation Contribution
---- --------- -------- ------------
Kevin B. Kurtzman ......... -- -- --
Timothy D. Webb ........... $95,051 $12,064 $2,500
John M. Velaquez .......... 57,000 6,577 2,475
Keith D. Thatcher ......... 41,563 2,957 2,369
Wayne E. Mock ............. 50,000 4,038 2,500
For 2001 and 2000, the indicated amount for each Named Executive Officer is
the contribution we made on behalf of such individual to our 401(k) Plan.
(3) Mr. Kurtzman was elected Chief Executive Officer, President and Secretary
upon Mr. Webb's resignation in August 2002.
(4) Mr. Webb's employment terminated in September 2002.
(5) Such individual's employment terminated in August 2002.
(6) Mr. Thatcher's employment terminated in December 2002.
Stock Options and Stock Appreciation Rights
The following table sets forth certain information regarding option grants
made pursuant to our 1996 Plan during 2002 to each of the Named Executive
Officers. No stock appreciation rights were granted to the Named Executive
Officers during 2002.
29
Option Grants in 2002
Potential Realizable
Value at
Individual Grants Assumed Annual Rates
----------------------------------------------------------- of
Number of % of Total Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term (5)
Options Employees Exercise Price Expiration ---------------------
Name Granted in 2002 (3) Per Share (4) Date 5% 10%
---- ------------------ ------------- ---------------- ----------- ---------- ----------
Kevin B. Kurtzman........ 4,000 (1) 0.4% $0.36 5/21/12 $ 906 $ 2,295
Timothy D. Webb ......... 300,000 (2) 27.6% 0.60 5/30/12 113,201 286,874
John M. Velaquez ........ 125,000 (2) 11.5% 0.60 5/30/12 47,167 119,531
Keith D. Thatcher........ 125,000 (2) 11.5% 0.60 5/30/12 47,167 119,531
Wayne E. Mock ........... 130,000 (2) 12.0% 0.60 5/30/12 49,054 124,312
------------
(1) The option shall be immediately exercisable, shall be subject to repurchase
by Concero upon the optionee's cessation of service prior to vesting and
shall vest in full upon the optionee's completion of one year of service
measured from the grant date. The option will become exercisable on an
accelerated basis upon a liquidation or dissolution of Concero or a merger
or consolidation in which there is a change in ownership of securities
possessing more than 50% of the total combined voting power of our
outstanding securities, unless the option is assumed by the surviving
entity, and will become fully exercisable following such events upon
termination of employment under certain circumstances. In addition, our
Board of Directors may accelerate the vesting of the option in the event
(i) there is a change in the composition of our Board of Directors over a
period of three years or less such that those individuals serving as
directors at the beginning of the period cease to represent a majority of
the board or (ii) change of ownership of securities possessing more than
50% of the total combined voting power of our outstanding securities
pursuant to a hostile tender offer.
(2) The option will become exercisable in four successive equal annual
installments upon the optionee's completion of each year of service
measured from the grant date. The option will become exercisable on an
accelerated basis upon a liquidation or dissolution of Concero or a merger
or consolidation in which there is a change in ownership of securities
possessing more than 50% of the total combined voting power of our
outstanding securities, unless the option is assumed by the surviving
entity, and will become fully exercisable following such events upon
termination of employment under certain circumstances. In addition, our
Board of Directors may accelerate the vesting of the option in the event
(i) there is a change in the composition of our Board of Directors over a
period of three years or less such that those individuals serving as
directors at the beginning of the period cease to represent a majority of
the board or (ii) change of ownership of securities possessing more than
50% of the total combined voting power of our outstanding securities
pursuant to a hostile tender offer.
(3) Based on options to purchase an aggregate of 1,088,940 shares of common
stock that were granted to employees in 2002, including options granted to
the Named Executive Officers.
(4) The exercise price may be paid in cash or in shares of common stock valued
at fair market value on the exercise date. Alternately, the option may be
exercised through a cashless exercise procedure pursuant to which the
optionee provides irrevocable instructions to a brokerage firm to sell the
purchased shares and to remit to us, out of the sales proceeds, an amount
equal to the exercise price plus all applicable withholding taxes.
(5) Amounts represent hypothetical gains that could be achieved for the
respective options at the end of the 10-year option term. The assumed 5%
and 10% rates of stock appreciation are mandated by rules of the SEC and do
not represent our estimate of the future market price of our common stock.
These amounts were calculated based on the fair market value on the date of
grant and do not take into account any other appreciation, or decline in
the price of the common stock from the date of grant to the current date.
None of the Named Executive Officers exercised options in 2002. The
following table sets forth for each of the Named Executive Officers certain
information concerning the value of unexercised options at the end of 2002. No
Named Executive Officer held any stock appreciation rights at the end of 2002.
30
Fiscal 2002 Option Values
Value of Unexercised
Number of Unexercised Options in-the-Money
at Options at December 31, 2002
December 31, 2002 (1)
----------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- --------------- ------------- --------------
Kevin B. Kurtzman ......... 65,841 19,000 $ 0 $ 0
Timothy D. Webb ........... -- -- -- --
John M. Velaquez .......... -- -- -- --
Keith D. Thatcher ......... 100,797 178,842 0 0
Wayne E. Mock ............. -- -- -- --
------------
(1) Value is determined by subtracting the aggregate exercise price from the
market value of our common stock at December 31, 2002 ($0.33 per share
based upon the last sale price of our common stock on the over-the-counter
bulletin board on such date) and multiplying by the number of shares
underlying the options.
Employment Contracts and Change of Control Arrangements
We were a party to an employment agreement with Timothy D. Webb dated
August 28, 1998. Pursuant to the agreement, we agreed to pay Mr. Webb an annual
base salary of $325,000 with an annual increase of four percent. In addition, we
issued to Mr. Webb options to purchase an aggregate of 500,000 shares of common
stock at $3.50 per share. The options were scheduled to vested over six (6)
years with 100,000 vesting upon Mr. Webb's completion of six months of
employment, an additional 100,000 vesting upon the completion of two years of
employment, an additional 100,000 vesting upon the completion of three years of
employment, an additional 25,000 vesting upon the completion of four years of
employment, an additional 75,000 vesting upon the completion of five years of
employment, and the final 100,000 vesting upon the completion of six years of
service. On July 31, 2001, the agreement was modified and we agreed to grant Mr.
Webb an option to purchase an additional 100,000 shares of common stock at $0.47
per share, which was the fair market value of the common stock on such date,
plus the payment of a cash bonus of $50,000 on March 31, 2002. Mr. Webb's
employment and the agreement were terminated effective September 2002 and he
received three months of salary and health and welfare benefits as severance in
accordance with the agreement.
We were a party to an employment agreement with John M. Velasquez dated
January 25, 1999. Pursuant to the agreement, we agreed to pay Mr. Velasquez an
annual base salary of $225,000, a transition bonus of $30,000 and a guaranteed
bonus of $72,140 for calendar year 1999. In addition, we agreed to grant Mr.
Velasquez an option to purchase 150,000 shares of common stock. The option was
granted on January 25, 1999 and had an exercise price of $3.06 per share, which
was the fair market value on the date of grant. The option was scheduled to vest
in a series of four equal annual installments, with the first installment having
vested July 25, 1999 and the successive three installments vesting annually on
that date thereafter. We terminated Mr. Velasquez's employment and the agreement
in August 2002 and he received three months of salary as severance in accordance
with the agreement.
We were a party to an employment agreement with Mr. Thatcher dated June 13,
1996 and an employment agreement with Mr. Mock dated December 13, 1991. Under
each agreement, either party could terminate without cause upon two weeks' prior
written notice. In addition, we could terminate immediately without prior notice
and without cause upon our payment of two weeks of salary to the employee and
immediately with cause and without prior notice. We terminated Mr. Mock's
employment and his employment agreement in August 2002 and he received three
months of salary as severance. In August 2002, we agreed to pay Mr. Thatcher a
severance payment of $42,000, in addition to his then-current annual salary of
$166,250, for continuing employment through December 31, 2002 to assist with our
liquidation, which severance was paid on the termination of his employment on
December 31, 2002.
All of the above agreements provided for customary fringe benefits and
contained provisions which, among others, prohibited the employee from
disclosing or otherwise using certain confidential information, assigned
inventions or ideas conceived by the employee during his employment with us,
prohibited solicitation by the
31
employee of our clients and other employees and prohibited the employee from
accepting any opportunity (whether by contract or full-time employment) with our
clients.
Our Board of Directors, as plan administrator of the 1996 Stock
Option/Stock Incentive Plan, has the authority to provide for the accelerated
vesting of outstanding options held by any executive officer or the shares of
common stock subject to direct issuances held by any such individual, in
connection with certain changes in control of Concero or the subsequent
termination of the officer's employment following the change in control event.
Key-Person Life Insurance
We do not maintain key-person life insurance policies on the lives of any
of our executive officers.
Compensation Committee Interlocks and Insider Participation
During 2002, the compensation committee of our Board of Directors consisted
of three non-employee directors: Messrs. Saadi and Ateyeh and Dr. King. None of
these individuals was an officer or employee of Concero at any time during 2002
or at any other time except for Dr. King. During 2002, no current executive
officer of Concero served as a member of the Board of Directors or compensation
committee of any other entity that has or has had one or more executive officers
serving as a member of our Board of Directors or compensation committee.
Board Compensation Committee Report on Executive Compensation During 2002
Prior to its dissolution in November 2002, it was the duty of the
compensation committee of the Board of Directors to review and provide
recommendations to the full Board regarding the salaries and incentive
compensation, including long-term incentives like stock option grants, of our
executives, including the President and Chief Executive Officer, employees and
consultants. The board would then approve the compensation committee's
recommendations. The following are the compensation committee's compensation
policies in effect during 2002 for our Chief Executive Officer and other
executive officers.
The compensation committee believes that the compensation programs for our
executive officers should reflect our performance and the value created for our
stockholders. In addition, the compensation programs should support our
short-term and long-term strategic goals and values and should reward individual
contribution to our success. The market for system integration and software
development services is very competitive, and our success depends upon its
ability to attract and retain qualified executives through the competitive
compensation packages we offer to such individuals.
General Compensation Policy. The compensation committee's policy is to
provide our executive officers with compensation opportunities which are based
upon their personal performance, our financial performance and their
contribution to that performance and which are competitive enough to attract and
retain highly skilled individuals. Each executive officer's compensation package
is comprised of three elements: (1) base salary that is competitive with the
market and reflects individual performance, (2) annual variable performance
awards payable in cash or stock options and tied to our achievement of annual
financial performance goals and (3) long-term stock based incentive awards
designed to strengthen the mutuality of interests between the executive officers
and our stockholders. As an officer's level of responsibility increases, a
greater proportion of his or her total compensation will be dependent upon our
financial performance and stock price appreciation rather than base salary.
Base Salary. The base salary for each executive officer reflects the salary
levels for comparable positions in similar companies, such as systems
integrators and software companies, as well as the individual's personal
performance and internal alignment considerations. The relative weight given to
each factor varies with each individual in the sole discretion of the
compensation committee. Each executive officer's base salary is subject to
minimums set forth in their respective employment agreements and is adjusted
each year on the basis of (1) the compensation committee's evaluation of the
officer's personal performance for the year and (2) the competitive marketplace
for persons in comparable positions. Our performance and profitability may also
be a factor in determining the base salaries of executive officers.
32
Annual Incentives. We generally maintain a cash incentive to reward
executive officers and employees for attaining defined performance targets. For
most executive officers and employees, bonuses are based primarily on
company-wide performance targets. Upon achievement of a performance target, an
employee is entitled to a cash payment.
In setting performance targets for 2002, we considered our historical
performance and underlying business model, and external as well as internal
expectations related to 2002 revenue and operating results. The financial
factors were derived directly from our operating plan for 2002.
Long-Term Incentives. Generally, the compensation committee reviews stock
option grants for our executive officers annually. Each grant is designed to
maintain a significant unvested position to provide incentives to create
stockholder value and allows the officer to acquire shares of our common stock
at a fixed price per share (the fair value on the grant date) over a specified
period of time (up to ten years). Certain option grants are immediately
exercisable, but option shares that are purchased subject to vesting
restrictions are re-purchasable by us at the exercise price, if the officer's
employment is terminated prior to the vesting date.
The size of the option grant to each executive officer, including the Chief
Executive Officer, is set by the compensation committee at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with us, the individual's personal performance in
recent periods and his or her potential for future responsibility and promotion
over the option term. The relevant weight given to each of these factors varies
from individual to individual. The compensation committee has established
certain guidelines with respect to the option grants made to the executive
officers, but has the flexibility to make adjustments to those guidelines at its
discretion.
CEO Compensation. The total compensation paid to Mr. Webb, President and
Chief Executive Officer until his termination in September 2002, was governed by
the terms of his employment agreement dated August 28, 1998. The agreement
provided for an annual base salary of $365,580. Mr. Webb agreed to participate
in a ten percent (10%) pay reduction effective April 1, 2001 to March 31, 2002,
as part of our cost reduction measures. On July 31, 2001, the agreement was
modified and we agreed to grant Mr. Webb an option to purchase an additional
100,000 shares of common stock at $0.47 per share, which was the fair market
value of the common stock on such date, plus the payment of a cash retention
payment of $50,000 on March 31, 2002. Kevin Kurtzman was elected President and
Chief Executive Officer upon Mr. Webb's termination. Mr. Kurtzman is being paid
$9,250 per month for his services.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code provides that a publicly traded corporation cannot deduct
compensation paid to certain of its executives, to the extent that the
executive's compensation exceeds $1 million per year. The compensation paid to
our executives who were subject to Section 162(m) in 2002 did not exceed the $1
million limitation. The income that our executives recognize because of the
operation of our 1996 Plan is taken into account for purposes of the Section
162(m) limitation, unless their stock option grants qualify as
"performance-based compensation." The grants of stock options that were made in
2002 will not qualify as performance-based compensation. Although the
compensation committee intends on structuring compensation packages so that any
compensation in excess of the $1 million limitation will qualify as
performance-based compensation, it retains the flexibility to design
compensation arrangements that do not so qualify.
It is the opinion of the full Board of Directors that these executive
compensation policies and plans provide the necessary total remuneration program
to properly align our performance and the interests of our stockholders through
the use of competitive and equitable executive compensation in a balanced and
reasonable manner, for both the short and long term.
Submitted by the full Board of Directors:
Wade E. Saadi (Chairman of the Board)
Edward. C. Ateyeh, Jr.
W. Frank King, Ph.D
Kevin B. Kurtzman
33
Report of the Board of Directors on Audit Matters
The following report with respect to our audited financial statements for
the year ended December 31, 2002, included in our Annual Report on Form 10-K for
that year, is submitted by the full Board of Directors.
Our Board of Directors has reviewed and discussed those audited financial
statements with management of Concero. The Board of Directors has discussed with
Concero's independent auditors, Ernst & Young LLP, the matters required to be
discussed by SAS 61 (Codification of Statements on Auditing Standards, AU
Section 380) as amended, which includes, among other items, matters related to
the conduct of the audit of the financial statements. The Board of Directors has
received the written disclosures and the letter from Ernst & Young LLP required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), as amended, and has discussed with Ernst & Young LLP the
independence of Ernst & Young LLP from Concero. The Board of Directors has also
considered whether the provision of services by Ernst & Young LLP to Concero as
described under the caption "Proposal 3: Ratification of Independent
Accountants" is compatible with maintaining the independence of Ernst & Young
LLP.
Based on the review and discussions referred to above in this report, the
Board of Directors approved the inclusion of the audited financial statements in
Concero's Annual Report on Form 10-K for the year ended December 31, 2002 for
filing with the Securities and Exchange Commission.
Submitted by the full Board of Directors:
Wade E. Saadi (Chairman of the Board)
Edward. C. Ateyeh, Jr.
W. Frank King, Ph.D
Kevin B. Kurtzman
34
Stock Performance Graph
The graph depicted below compares the cumulative total return for an
investment in Concero common stock to the cumulative total return for the Nasdaq
Composite Index and for the S&P Computers (Software & Services) Index. However,
no comparison is provided to the S&P Computers (Software & Services) Index, or
any published industry or line-of-business index or peer company group, for the
year ended December 31, 2002 due to the cessation of Concero's business in 2002
and the resulting lack of a comparable measurement for such period. The graph
assumes the investment of $100 in Concero's common stock on December 31, 1997
and further assumes investments on the same date in each of the Nasdaq Composite
Index and S&P Computer (Software & Services) Index.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
Concero, Inc. 100 28.708 190.81 28.708 3.6364 3.1579
Nasdaq composite index 100 139.63 259.13 157.32 124.2 85.045
S&P Computers
(Software & Services) 100 181.19 335.08 158.32 159.34
35
Certain Transactions with Management
We have entered into an agreement with each of our existing stockholders
and warrant holders pursuant to which such stockholders and warrant holders were
granted certain rights to include the underlying shares in registered offerings
of our common stock.
We loaned approximately $62,000 to John Velasquez, one of our former
executive officers, pursuant to a promissory note dated January 1, 2002. The
note bore interest at a rate of 6.75% per annum. Principal and interest was
payable in twenty-three (23) semi-monthly payments of $671.75 with a final
balloon payment of $50,000 due and payable on December 31, 2002. The loan was
repaid in full in August 2002.
Keith D. Thatcher, our immediate past Chief Financial Officer, received a
severance payment of approximately $42,000, in addition to his annual salary of
$166,250, for continuing his employment following the August 2002 cessation of
our operations and our commencement of liquidation proceedings. The severance
was paid on the termination of his employment on December 31, 2002.
Timothy D. Webb, our immediate past Chief Executive Officer, and Wayne E.
Mock, our former Vice President and Chief Technology Officer, assisted us in
negotiating the sale of our Marquee software suite and related assets from
September 2002 until January 2003 for which Mr. Webb received in 2003 a
commission of approximately $97,500 and Mr. Mock received in 2003 a commission
of approximately $41,808, which is in addition to the compensation listed for
Messrs. Webb and Mock in the Summary Compensation Table above.
Our Board of Directors may confer other benefits or bonuses to our
employees and our officers, including officers who are also directors, in
recognition of their services to us based on the performance of such employees
and officers, including performance during our liquidation process.
All of our current executive officers and directors hold shares of common
stock or options to acquire shares of common stock. The table below sets forth
information relating to stock options and warrants to acquire common stock held
by each of our officers and directors as of July 31, 2003 for which the exercise
price is less than the maximum anticipated liquidation distribution of $0.46 per
share. The estimated value of the stock options is based on the difference
between the exercise price of $0.36 and the maximum anticipated liquidation
distribution of $0.46 per share. The estimated value of the warrants is based on
the difference between the exercise price of $0.04 and the maximum anticipated
liquidation distribution of $0.46 per share.
Number of Underlying
Shares
of Common Stock
----------------------
Estimated
Name Options Warrants Value
---- --------- ---------- ----------
Wade E. Saadi ................. 4,000 14,705 $6,576
Edward C. Ateyeh, Jr. ......... 4,000 14,704 6,576
W. Frank King, Ph.D. .......... 4,000 -- 400
Kevin B. Kurtzman ............. 4,000 -- 400
PROPOSAL 3: RATIFICATION OF INDEPENDENT AUDITORS
Our Board of Directors appointed the firm of Ernst & Young LLP, as
independent auditors for the year ended December 31, 2002 and has appointed
Ernst & Young LLP to serve in the same capacity for the year ended December 31,
2003. The board is asking the stockholders to ratify this appointment.
In the event that the stockholders fail to ratify the appointment, our
Board of Directors will reconsider its selection. Even if the selection is
ratified, the Board of Directors, in its discretion, may direct the appointment
of a different independent accounting firm at any time during the year if the
Board of Directors believes that such change would be in Concero's and the
stockholders' best interests.
Set forth below is a summary of certain fees that we paid to Ernst & Young
for services rendered in the fiscal years ended December 31, 2002 and 2001.
36
Audit Services
The aggregate fees billed by Ernst & Young for 2002 audit services were
$53,000. Audit services include professional services rendered for (1) the audit
of Concero's annual financial statements for the fiscal year ended December 31,
2002, (2) the reviews of the financial statements included in Concero's
Quarterly Reports on Form 10-Q for 2002, and (3) accounting consultations
performed in connection with the audit of Concero's annual financial statements
for the fiscal year ended December 31, 2002. The aggregate fees billed by Ernst
& Young for 2001 audit services were $59,500.
Audit-Related Services
The aggregate fees billed by Ernst & Young for 2002 audit-related services
were $13,500. Audit related services include professional services rendered for
the audits of Concero's annual financial statements for its existing employee
benefit plans for the year ended December 31, 2002. The aggregate fees billed by
Ernst & Young for 2001 audit-related services were $13,500.
Tax Services
The aggregate fees billed by Ernst & Young for 2002 tax services were
$56,775. Tax services include professional services rendered for preparation of
Concero's federal and state income tax returns for the fiscal year ended
December 31, 2002. The aggregate fees billed by Ernst & Young for 2001 tax
services were $58,975.
Other Services
Ernst & Young did not provide Other Services to Concero, other than the
services described above under "Audit Services", "Audit-Related Services" and
"Tax Services," for the fiscal years ended December 31, 2002 and 2001.
The Board of Directors, as stated in report on audit matters included
elsewhere in this proxy statement, has considered whether the provision of the
services described in the preceding paragraphs is compatible with maintaining
the independence of Ernst & Young LLP.
A representative of Ernst & Young will be present at the Annual Meeting,
will have the opportunity to make a statement if he or she desires to do so, and
will be available to respond to appropriate questions.
Vote Required and Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote
FOR the ratification and approval of the selection of Ernst & Young LLP as our
independent auditors. The affirmative vote of a majority of the shares
represented and entitled to vote at the Annual Meeting is required to ratify the
selection of Ernst & Young LLP.
ITEMS NOT INCORPORATED BY REFERENCE
Notwithstanding anything to the contrary set forth in any of our previous
or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, which might incorporate this proxy
statement or future filings made by us under those statutes, the preceding
Report on Executive Compensation, Audit Committee Report and the Stock
Performance Graph are not deemed filed with the Securities and Exchange
Commission and shall not be incorporated by reference into any of those prior
filings or into any future filings made by us under those acts.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than 10% of a registered class of our
equity securities, to file reports of ownership and changes in ownership of our
common stock and securities with the SEC. These filing persons are required by
SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to us or
written representations from certain reporting persons that no Forms 5 were
required, we believe that, during 2002, our executive officers, directors, and
greater than 10% beneficial owners complied with all applicable Section 16(a)
reporting requirements.
37
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, and we file reports, proxy statements and other information with the
SEC. You may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the Public Reference
Room. Our public filings are also available to the public from commercial
document retrieval services and at the Internet web site maintained by the SEC
at http://www.sec.gov.
The SEC allows us to "incorporate by reference" into this document. This
means that we can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this document, except for any information
superseded by information in this document. This document incorporates by
reference the documents set forth below that we have previously filed with the
SEC. These documents contain important information about us and our finances.
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
2002;
2. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31 and June 30, 2003; and
3. Our Current Reports on Form 8-K filed January 7, 2003, January 14,
2003, January 22, 2003 and January 30, 2003.
We are also incorporating by reference additional documents that we may
file with the SEC between the date of this proxy statement and the date of the
Annual Meeting.
In conjunction with this proxy statement, we are also sending you copies of
our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and
our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2003,
each referenced above, but neither of those reports is considered proxy
solicitation material. You can obtain additional copies of our annual and
quarterly reports as well as any of the other incorporated documents by
contacting us. We will send you the documents incorporated by reference without
charge.
Stockholders may obtain documents incorporated by reference in this proxy
statement by requesting them in writing or by telephone from the following:
Kevin Kurtzman, Corporate Secretary, Concero Inc., 40 Fulton Street, New York,
NY 10038, (512) 343-6581.
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
Our Board of Directors knows of no other business that currently is
intended to come before the Annual Meeting. However, if any other matters are
properly presented to the Annual Meeting or any adjournment or postponement
thereof, the persons named in the proxies will vote upon them in accordance with
their best judgment. Discretionary authority with respect to such other matters
is granted by the execution of the enclosed proxy card.
By Order of the Board of Directors,
Date: October 31, 2003
Kevin Kurtzman,
President, Chief Executive Officer
and Secretary
38
EXHIBIT A
PLAN OF COMPLETE LIQUIDATION, DISSOLUTION AND DISTRIBUTION
OF
CONCERO INC.
THIS PLAN OF COMPLETE LIQUIDATION, DISSOLUTION AND DISTRIBUTION, dated as
of November 15, 2002 (the "Plan"), is adopted to accomplish the complete
liquidation and dissolution of Concero Inc., a Delaware corporation (the
"Company"), in accordance with the Delaware General Corporation Law (the "DGCL")
and Section 331 of the Internal Revenue Code of 1986, as amended (the "Code"),
as follows:
1. Adoption of the Plan. The board of directors of the Company (the "Board
of Directors") has adopted resolutions deeming it advisable and in the best
interest of the Company to dissolve the Company, adopt the Plan, and call a
meeting (the "Meeting") of the holders of the Company's common stock, par value
$0.01 per share (the "Common Stock"), to adopt the Plan and ratify the Company's
actions taken to date on the Plan. If stockholders holding a majority of the
outstanding shares of Common Stock vote in favor of the proposed dissolution of
the Company and the adoption of the Plan at a special meeting of the holders of
shares of Common Stock (the "Meeting"), the Plan shall constitute the adopted
Plan of the Company as of the date of the Meeting, or such later date on which
the stockholders may approve the Plan if the Meeting is adjourned to a later
date (the "Adoption Date").
2. Cessation of Business Activities. After the Adoption Date and in
accordance with Section 278 of the DGCL, the Company shall not engage in any
business activities, except for the purpose of prosecuting and defending suits,
whether civil, criminal or administrative, by or against the Company, and to
gradually settle and close the business of the Company, to dispose of and convey
the property of the Company, to discharge the liabilities of the Company and to
distribute to the stockholders of the Company any remaining assets, but not for
the purpose of continuing the business for which the Company was organized. No
later than 30 days following the Adoption Date, the Company shall file a Form
966 with the Internal Revenue Service.
3. Continuing Employees and Consultants. For the purpose of effecting the
dissolution of the Company and in accordance with the provisions hereof, the
Company shall hire or retain, at the discretion of the Board of Directors, such
employees and consultants as the Board of Directors deems necessary or desirable
to supervise the dissolution.
4. Liquidation Process. From and after the Adoption Date and subject to the
provisions hereof, the Company shall complete the following corporate actions:
(a) Liquidation of Assets. The Company shall determine whether and
when to (i) transfer the Company's property and assets (other than cash, cash
equivalents and accounts receivable) to a liquidating trust (established
pursuant to Section 7), or (ii) collect, sell, exchange or otherwise dispose of
its remaining property and assets in one or more transactions upon such terms
and conditions as the Board of Directors, in its absolute discretion, deems
expedient and in the best interests of the Company and the stockholders, without
any further vote or action by the Company's stockholders. The Company shall
comply with applicable laws and requirements in connection with the liquidation
of its assets, including, without limitation, the DGCL and laws relating to
privacy policies. The Company's assets and properties may be sold in bulk to one
buyer or a small number of buyers or on a piece-meal basis to numerous buyers.
The Company shall not be required to obtain appraisals or other third-party
opinions as to the value of its properties and assets in connection with the
liquidation. In connection with such collection, sale, exchange and other
disposition, the Company shall collect or make provision for the collection of
all accounts receivable, debts and claims owing to the Company.
(b) Payment Obligations. The Company shall, as determined by the Board
of Directors, (i) pay or make reasonable provision to pay all claims and
obligations, including all contingent, conditional or unmatured contractual
claims known to the Company, (ii) make such provisions as will be reasonably
likely to be sufficient to provide compensation for any claim against the
Company which is the subject of a pending action, suit or proceeding to which
the Company is a party, and (iii) make such provision as will be reasonably
likely to be sufficient to provide compensation for claims that have not been
made known to the Company or that have not
A-1
arisen but that, based on facts known to the Company, are likely to arise or to
become known to the Company within 10 years after the date of dissolution. Such
claims shall be paid in full and any such provision for payment shall be made in
full if there are sufficient assets of the Company. If there are insufficient
assets of the Company, such claims and obligations of the Company shall be paid
or provided for in accordance with their priority and, among claims of equal
priority, ratably to the extent of assets of the Company legally available
therefor. If and to the extent deemed necessary, appropriate or desirable by the
Board of Directors or the Trustees (as defined in Section 7), in their absolute
discretion, the Company may establish and set aside a reasonable amount of cash
and/or property (the "Contingency Reserve") to satisfy such claims and
obligations against the Company, including, without limitation, tax obligations,
and all expenses related to the sale of the Company's property and assets, all
expenses related to the collection and defense of the Company's property and
assets, and the liquidation and dissolution provided for in this Plan.
(c) Distributions to Stockholders. Any assets of the Company remaining
after the payment of claims or the provision for payment of claims and
obligations of the Company as provided in subsection (b) above, shall be
distributed by the Company pro-rata to its stockholders. Such distribution may
occur all at once or in a series of distributions and shall be in cash or
assets, in such amounts, and at such time or times, as the Board of Directors or
the Trustees, in their absolute discretion, may determine.
5. Cancellation of Stock. The distributions to stockholders pursuant to
Sections 4, 7 and 8 shall be in complete redemption and cancellation of all of
the outstanding shares of Common Stock. As a condition to receipt of any
distribution to the Company's stockholders, the Board of Directors or the
Trustees, in their absolute discretion, may require the stockholders to (i)
surrender their certificates evidencing the Common Stock to the Company or its
agents for recording of such distributions thereon or (ii) furnish the Company
with evidence satisfactory to the Board of Directors or the Trustees of the
loss, theft or destruction of their certificates evidencing the Common Stock,
together with such surety bond or other security or indemnity as may be
required by and satisfactory to the Board of Directors or the Trustees. The
Company will finally close its stock transfer books and discontinue recording
transfers of Common Stock on the earliest to occur of (i) the close of business
on the record date fixed by the Board of Directors for the final liquidating
distribution, (ii) the close of business on the date on which the remaining
assets of the Company are transferred to the Trust or (iii) the date on which
the Company files its Certificate of Dissolution under the DGCL, and thereafter
certificates representing Common Stock will not be assignable or transferable
on the books of the Company except by will, intestate succession, or operation
of law.
6. Abandoned Property. If any distribution to a stockholder cannot be
made, whether because the stockholder cannot be located, has not surrendered
its certificates evidencing the Common Stock as required hereunder or for any
other reason, the distribution to which such stockholder is entitled (unless
transferred to the Trust established pursuant to Section 7) shall be
transferred, at such time as the final liquidating distribution is made by the
Company, to the official of such state or other jurisdiction authorized by
applicable law to receive the proceeds of such distribution. The proceeds of
such distribution shall thereafter be held solely for the benefit of and for
ultimate distribution to such stockholder as the sole equitable owner thereof
and shall be treated as abandoned property and escheat to the applicable state
or other jurisdiction in accordance with applicable law. In no event shall the
proceeds of any such distribution revert to or become the property of the
Company.
7. Liquidating Trust. If deemed necessary, appropriate or desirable by
the Board of Directors, in its absolute discretion, in furtherance of the
liquidation and distribution of the Company's assets to the stockholders in
accordance with the provisions hereof, as a final liquidating distribution or
from time to time, the Company may transfer to one or more liquidating
trustees, for the benefit of its stockholders (the "Trustees"), under a
liquidating trust (the "Trust"), any assets of the Company which are (i) not
reasonably susceptible to distribution to the stockholders, including without
limitation non-cash assets and assets held on behalf of stockholders (a) who
cannot be located or who do not tender their certificates evidencing the Common
Stock to the Company or its agent as required herein or (b) to whom
distributions may not be made based upon restrictions under contract or law,
including, without limitation, restrictions of the Federal securities laws and
regulations promulgated thereunder, or (ii) held as the Contingency Reserve.
The Board of Directors is hereby authorized to appoint one or more individuals,
corporations, partnerships or other persons, or any combination thereof,
including, without
A-2
limitation, any one or more officers, directors, employees, agents or
representatives of the Company, to act as the initial Trustee or Trustees for
the benefit of the stockholders and to receive any assets of the Company. Any
Trustees appointed as provided in the preceding sentence shall succeed to all
right, title and interest of the Company of any kind and character with respect
to such transferred assets and, to the extent of the assets so transferred and
solely in their capacity as Trustees, shall assume all of the claims and
obligations of the Company as provided in Section 4(b) hereof including, without
limitation, any unsatisfied claims and unascertained or contingent liabilities.
Further, any conveyance of assets to the Trustees shall be deemed to be a
distribution of property and assets by the Company to the stockholders for the
purposes of Section 4(c) of this Plan. Any such conveyance to the Trustees shall
be treated for federal and state income tax purposes as if the Company made such
distribution to the stockholders and the assets conveyed shall be held in trust
for the stockholders of the Company. The Company, subject to this Section 7 and
as authorized by the Board of Directors, in its absolute discretion, may enter
into a liquidating trust agreement with the Trustees, on such terms and
conditions as the Board of Directors, in its absolute discretion, may deem
necessary, appropriate or desirable. Adoption of the Plan by a majority of the
outstanding shares of Common Stock shall constitute the approval of the
stockholders of any such appointment, any such liquidating trust agreement and
any transfer of assets by the Company to the Trust as their act and as a part
hereof as if herein written.
8. Timing of Distribution. Whether or not a Trust shall have been
previously established pursuant to Section 7, if it should not be feasible for
the Company to make the final distribution to its stockholders of all assets and
properties of the Company prior to the third anniversary of the filing of its
Certificate of Dissolution then, on or before such date, the Company shall be
required to establish a Trust and transfer any remaining assets and properties
(including, without limitation, any uncollected claims, contingent assets and
the Contingency Reserve) to the Trustees as set forth in Section 7.
9. Certificate of Dissolution. After the Adoption Date, the officers of the
Company shall, at such time as the Board of Directors, in its absolute
discretion, deems necessary, appropriate or desirable, obtain any certificates
required from the Delaware tax authorities and, upon obtaining such certificates
and paying such taxes as may be owing, the Company shall file with the Secretary
of State of the State of Delaware a Certificate of Dissolution (the "Certificate
of Dissolution") in accordance with the DGCL.
10. Stockholder Consent to Sale of Assets. Approval of the proposed
dissolution and adoption of the Plan by holders of a majority of the outstanding
shares of Common Stock shall constitute the approval of the stockholders of the
Company of the dissolution of the Company and the sale, exchange or other
disposition in liquidation of all of the property and assets of the Company
pursuant to the terms hereof, whether such sale, exchange or other disposition
occurs in one transaction or a series of transactions, and shall constitute
ratification of all contracts for sale, exchange or other disposition which are
conditioned on adoption of the Plan.
11. Expenses of Dissolution. In connection with and for the purposes of
implementing and assuring completion of the Plan, the Company may, in the
absolute discretion of the Board of Directors, pay any brokerage, agency,
professional, legal and other fees and expenses of persons rendering services
to the Company in connection with the collection, sale, exchange or other
disposition of the Company's property and assets and the implementation of the
Plan. Adoption of the Plan shall constitute approval of such payments by the
stockholders of the Company.
12. Compensation. In connection with and for the purpose of implementing
and assuring completion of the Plan, the Company may, in the absolute discretion
of the Board of Directors, but subject to applicable legal and regulatory
requirements, pay the Company's officers, directors, employees, agents and
representatives, or any of them, compensation or additional compensation above
their regular compensation, in money or other property, as severance, bonus,
acceleration of vesting of stock or stock options, or in any other form, in
recognition of the extraordinary efforts they, or any of them, will be required
to undertake, or actually undertake, or otherwise necessary retain the services
of any of them, in connection with the implementation of the Plan.
13. Indemnification. The Company shall continue to indemnify its officers,
directors, employees, agents and representatives in accordance with its
certificate of incorporation, as amended, and bylaws and any contractual
arrangements, for the actions taken in connection with the Plan and the winding
up of the affairs of
A-3
the Company. The Company's obligation to indemnify such persons may also be
satisfied out of the assets of the Trust. The Board of Directors and the
Trustees, in their absolute discretion, are authorized to obtain and maintain
insurance as may be necessary or appropriate to cover the Company's obligations
hereunder, including seeking an extension in time and coverage of the Company's
insurance policies currently in effect.
14. Modification or Abandonment of the Plan. Notwithstanding authorization
or consent to the Plan and the transactions contemplated hereby by the Company's
stockholders, the Board of Directors may modify, amend or abandon the Plan and
the transactions contemplated hereby without further action by the stockholders
to the extent permitted by the DGCL.
15. Authorization. The Board of Directors of the Company is hereby
authorized, without further action by the Company's stockholders, to do and
perform or cause the officers of the Company, subject to approval of the Board
of Directors, to do and perform, any and all acts, and to make, execute, deliver
or adopt any and all agreements, resolutions, conveyances, certificates and
other documents of every kind which are deemed necessary, appropriate or
desirable, in the absolute discretion of the Board of Directors, to implement
the Plan and the transactions contemplated hereby, including, without
limitation, all filings or acts required by any state or Federal law or
regulation to wind up its affairs.
A-4
DETACH HERE
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PROXY
CONCERO INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR 2003 ANNUAL MEETING ON DECEMBER 2, 2003
The undersigned hereby constitutes and appoints Edward C. Ateyeh, Jr., W.
Frank King, Ph.D. and Kevin Kurtzman, and each of them singly, with full power
of substitution, as proxies to vote and act at the Concero Inc. 2003 Annual
Meeting of Stockholders to be held on December 2, 2003 at 9:00 a.m., local time,
and at any and all postponements and adjournments thereof (the "Annual
Meeting"), upon and with respect to the number of shares of the common stock of
Concero Inc., $0.01 par value per share ("Common Stock"), as to which the
undersigned may be entitled to vote or act. The undersigned instructs such
proxies, or their substitutes, to vote as designated on the reverse side and in
favor of the recommendations management on any other matters which may come
before the Annual Meeting and any adjournment or postponement thereof and, in
their discretion, upon such other business as may properly come before the
Annual Meeting, or any adjournment or postponement thereof, all as further
described in the accompanying Notice of Annual Meeting of Stockholders and proxy
statement. If no such directions are indicated, the proxies or their substitutes
will have authority to vote FOR Items 1, 2, 3 and 4.
---------------- ----------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
---------------- ----------------
Concero Inc.
Dear Stockholder;
Please take note of the important information enclosed with this proxy card.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach and return it in the enclosed postage paid
envelope.
Your vote must be received prior to the Annual Meeting of Stockholders on
December 2, 2003. Whether or not you plan to be personally present at the Annual
Meeting, please complete, date and sign the enclosed proxy and return it
promptly in the enclosed envelope. If you later desire to revoke your proxy, you
may do so at any time before it is exercised by following the instructions on
page two of the accompanying proxy statement. Thank you in advance for your
prompt consideration.
Sincerely,
Concero Inc.
DETACH HERE
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[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
1. To approve and adopt the proposed Plan of Liquidation, Dissolution and
Distribution and such further actions as may be necessary or desirable to
consummate such transaction.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. The election of directors.
FOR all nominees WITHHOLD AUTHORITY to Nominees: Wade E. Saadi
listed to the right vote for all nominees Edward. C. Ateyeh, Jr.
(except as marked to listed to the right W. Frank King, Ph.D
the contrary) Kevin B. Kurtzman
|_| |_| For, except vote withheld
from the following
nominee(s):______________
_________________________
3. To ratify the appointment of Ernst & Young LLP as independent auditors for
the fiscal year 2003.
FOR AGAINST ABSTAIN
|_| |_| |_|
4. In their discretion, to act upon any matters incidental to the foregoing
and such other business as may properly come before the Annual Meeting or
any adjournment thereof.
FOR AGAINST ABSTAIN
|_| |_| |_|
Receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement
dated October 31, 2003 relating to the Annual Meeting is hereby acknowledged.
MARK HERE FOR ADDRESS CHANGE AND NOTE IMMEDIATELY BELOW : |_|
Please sign exactly as your name(s) appear(s) hereon. Joint owners should each
sign. If a corporation, sign in full corporate name by president or authorized
officer. If a partnership, sign in partnership name by an authorized person.
When signing as attorney, executor, administrator, trustee or guardian, please
give your full title as such.
Signature: ____________________________________ Date: ______________________
Signature: ____________________________________ Date: ______________________