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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[ ] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
PFSweb, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
PFSweb, Inc.
500 NORTH CENTRAL EXPRESSWAY
PLANO, TEXAS 75074
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of PFSweb, Inc. (the "Company"), which will be held at the Stonebriar Country
Club, Frisco, Texas, on Friday, June 6, 2003 at 10:00 a.m. (local time).
At the Annual Meeting, stockholders will be asked to elect two
directors, approve an amendment to the Company's Certificate of Incorporation to
authorize a reverse stock split and ratify the appointment of KPMG LLP as the
Company's independent auditors. Information about these matters is contained in
the attached Proxy Statement.
The Company's management would greatly appreciate your attendance at
the Annual Meeting. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL
MEETING, IT IS MOST IMPORTANT THAT YOUR SHARES BE REPRESENTED. Accordingly,
please sign, date and return the enclosed proxy card which will indicate your
vote upon the matters to be considered. If you do attend the meeting and desire
to vote in person, you may do so by withdrawing your proxy at that time.
I sincerely hope you will be able to attend the Annual Meeting, and I
look forward to seeing you on June 6, 2003.
Sincerely,
/s/ Mark C. Layton
Mark C. Layton
Chairman, President and Chief
Executive Officer
April , 2003
--
PFSweb, Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JUNE 6, 2003
The Annual Meeting of Stockholders of PFSweb, Inc. (the "Company") will
be held on Friday, June 6, 2003 at 10:00 a.m. at the Stonebriar Country Club,
Frisco, Texas, for the following purposes:
1. To elect two Class I directors;
2. To amend our Certificate of Incorporation to effect a reverse
split of our outstanding common stock by a ratio of no change
to up to one-for-ten and authorize our Board to determine the
exact ratio within that range;
3. To ratify the appointment of KPMG LLP as the Company's
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 adjournment thereof.
The Board of Directors has fixed the close of business on April 15,
2003 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Annual Meeting. Each stockholder, even though he or she
may presently intend to attend the Annual Meeting, is requested to execute and
date the enclosed proxy card and return it without delay in the enclosed
postage-paid envelope. Any stockholder present at the Annual Meeting may
withdraw his or her proxy card and vote in person on each matter properly
brought before the Annual Meeting.
Please sign, date and mail the enclosed proxy in the enclosed envelope
promptly, so that your shares of stock may be represented at the meeting.
By Order of the Board of Directors
/s/ Harvey H. Achatz
Harvey H. Achatz
Secretary
Plano, Texas
April , 2003
--
PFSweb, Inc.
500 NORTH CENTRAL EXPRESSWAY
PLANO, TEXAS 75074
(972) 881-2900
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders of PFSweb, Inc.,
a Delaware corporation ("PFSweb" or the "Company"), in connection with the
solicitation of proxies for use at the Company's Annual Meeting of Stockholders
(the "Annual Meeting"), to be held at the Stonebriar Country Club, Frisco,
Texas, on Friday, June 6, 2003, at 10:00 a.m. and at any and all adjournments
thereof.
This solicitation is being made on behalf of the Board of Directors of
the Company. This Proxy Statement, Notice of Annual Meeting of Stockholders, the
enclosed proxy card and the Company's 2002 Annual Report on Form 10-K will first
be mailed to stockholders on or about May 6, 2003.
The shares represented by a proxy in the enclosed form, if such proxy
is properly executed and is received by the Company prior to or at the Annual
Meeting, will be voted in accordance with the specifications made thereon.
Proxies on which no specification has been made by the stockholder will be
voted:
(i) in favor of the election of the nominees to the Board of
Directors listed in this Proxy Statement;
(ii) in favor of the amendment to the Company's Certificate of
Incorporation to effect a reverse split of our outstanding
common stock by a ratio of no change to up to one-for-ten and
authorize our Board to determine the exact ratio within that
range; and
(iii) to ratify the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31,
2003.
Any proxy given by a stockholder may be revoked at any time before its
exercise by sending a subsequently dated proxy or by giving written notice of
revocation, in each case, to the Company's Secretary, at the Company's principal
executive offices at the address set forth above. Stockholders who attend the
Annual Meeting in person may withdraw their proxies at any time before their
shares are voted by voting their shares in person.
Stockholders of record at the close of business on April 15, 2003 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. On
the Record Date, the issued and outstanding voting securities of the Company
consisted of 18,428,871 shares of common stock, excluding 86,300 shares of
common stock in treasury, par value $.001 per share (the "Common Stock"), each
of which is entitled to one vote on all matters that may properly come before
the Annual Meeting or any adjournment thereof.
The presence at the Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum. The director nominees receiving the most votes will be
elected as directors. The affirmative vote of a majority of the shares present,
whether in person or by proxy, at the meeting will be sufficient to ratify the
selection of our independent auditors. The authorization of an amendment to our
certificate of incorporation to effect a reverse stock split will require the
affirmative vote of the holders of a majority of the outstanding shares of
common stock entitled to vote thereon. The inspector of elections appointed by
the Company will count all votes cast, in person or by submission of a properly
executed proxy, before the closing of the polls at the meeting. Abstentions and
"broker non-votes" (nominees holding shares for beneficial owners who have not
voted on a specific matter) will be treated as present for purposes of
determining whether a quorum is present at the Annual Meeting. However,
abstentions and broker non-votes will have the same effect as a vote against the
second two proposals.
ITEM I
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. Each class serves
three years, with the terms of office of the respective classes expiring in
successive years. The term of the Class I directors expires at the Annual
Meeting; the term of the Class II directors expires in 2004; and the term of the
Class III directors expires in 2005. The Board presently consists of five
members, two Class I directors and three Class III directors. There are
presently no Class II directors. The proxies will not be voted for any nominee
for the vacant Class II positions on the Board. Filling the vacancies requires
either action by the Board of Directors or the affirmative vote of a majority of
the voting power of all outstanding shares, and we do not plan to consider the
Class II vacancies at the 2003 annual meeting. The Board of Directors may
consider electing an individual to the Class II vacant positions on the Board at
a later time. The directors elected as Class I directors at the Annual Meeting
will have a term of three years. The nominees as Class I directors are David I.
Beatson and James F. Reilly who have been nominated and recommended by the Board
of Directors. If elected, Messrs. Beatson and Reilly are expected to serve until
the Company's 2006 annual meeting of stockholders and until their respective
successors are elected and qualified. The shares represented by proxies in the
accompanying form will be voted for the election of these nominees unless
authority to so vote is withheld. The Board of Directors has no reason to
believe that such nominees will not serve if elected, but if any one or more of
them should become unavailable to serve as a director, and if the Board
designates a substitute nominee or nominees, the person named as proxies will
vote for the substitute nominee(s) designated by the Board.
The following information, which has been provided by the individuals
named, sets forth the nominees for election to the Board of Directors and the
continuing Class III directors, such person's name, age, principal occupation or
employment during at least the past five years, the name of the corporation or
other organization, if any, in which such occupation or employment is carried on
and the period during which such person has served as a director of the Company.
DIRECTORS STANDING FOR ELECTION CLASS I
TERM EXPIRES AT THE 2006 ANNUAL MEETING
DAVID I. BEATSON, age 55, has served as a non-employee Director since
November 2000. Mr. Beatson is a Principal and Founder of Ascent Advisors, LLC, a
consulting practice directed at strategic positioning and corporate business
development plans and strategy. Mr. Beatson is a recognized leader in the field
of transportation, logistics and supply chain management having served as
Chairman and CEO of several leading companies in this industry. From June 2000
to July 2001, Mr. Beatson served as president, CEO and chairman of Supply Links,
Inc., an Internet-based B2B global supply chain network that links customers to
multiple transportation modes and service providers through a single platform.
From July 1998 to June 2000, Mr. Beatson served as chairman, president and CEO
of Circle International Group, Inc., a global transportation and logistics
company. From 1991 to June 1994, Mr. Beatson served as vice-president of sales
and marketing and then from June 1994 until July 1998 as president and CEO of
Emery Worldwide, a global transportation and logistics company. Prior to 1991,
Mr. Beatson held several management positions in the logistics and
transportation industry, including American Airlines and CF Airfreight. Mr.
Beatson also currently serves as an industry representative member of the
Executive Advisory Committee to the National Industrial Transportation League,
to which the Air Freight Association elected him in 1995. He also serves on
several industry boards including the Council of Logistics Management.
JAMES F. REILLY, age 44, has served as a non-employee Director of the
Company since its inception. Mr. Reilly recently served as a Managing Director
of J.P. Morgan Securities, Inc., an investment banking firm. Mr. Reilly was
previously a Managing Director in the Technology Group of Warburg Dillon Read,
the global investment banking division of UBS AG. Mr. Reilly was associated with
Warburg Dillon Read or one of its predecessor companies from 1983 to 1999 and
specialized in corporate finance advisory work for a broad range of technology
companies.
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DIRECTORS CONTINUING IN OFFICE
CLASS III
TERM EXPIRES AT THE 2005 ANNUAL MEETING
MARK C. LAYTON, age 43, has served as Chairman of the Board, President
and Chief Executive Officer of PFSweb since its inception. Mr. Layton previously
held the following positions with Daisytek International Corporation
("Daisytek"), a leading global distributor of consumable computer supplies and
office products and the former parent corporation of the Company: Chairman of
the Board from September 1999 to October 2000; President, Chief Executive
Officer and Chief Operating Officer from April 1997 to February 2000; Director
from 1988 to October 2000; President, Chief Operating Officer and Chief
Financial Officer from 1993 to April 1997; Executive Vice President from 1990 to
1993; and Vice President - Operations from 1988 to 1990. Prior to joining
Daisytek, Mr. Layton served as a management consultant with Arthur Andersen &
Co., S.C. for six years through 1988 specializing in wholesale and retail
distribution and technology. Mr. Layton is also a director of PC Mall, Inc. a
direct marketer of computer products.
TIMOTHY M. MURRAY, age 50, has served as a non-employee Director of the
Company since its inception. Mr. Murray is a Principal of William Blair &
Company, L.L.C., an investment banking firm he joined in 1979. Mr. Murray is a
director of several privately held corporations.
DR. NEIL W. JACOBS, age 68, has served as a non-employee Director of
the Company since July 2000. Dr. Jacobs is a professor of computer information
systems and management at Northern Arizona University ("NAU") and a technology
industry veteran. Dr. Jacobs' academic area of expertise includes strategic
management issues and the role information technology plays in support of
strategy and operations. From 1996 to 1999, Dr. Jacobs served as associate dean
of the College of Business Administration at NAU.
EXECUTIVE OFFICERS AND OFFICERS
In addition to the individuals named above, the following are the
names, ages and positions of the other executive officers and officers of the
Company:
EXECUTIVE OFFICERS
STEVEN S. GRAHAM, age 51, has served as Executive Vice President and
Chief Technology Officer of the Company since its inception. Mr. Graham
previously served as Senior Vice President of Information Technologies and Chief
Information Officer of Daisytek, a position he held from 1996 to 2000. Prior to
joining Daisytek, Mr. Graham was employed by Ingram Micro, a major microcomputer
distributor. Mr. Graham has over 25 years of experience in the
information-technology field.
THOMAS J. MADDEN, age 41, has served as Executive Vice President, Chief
Financial and Accounting Officer of the Company since its inception. Mr. Madden
previously served as Chief Financial Officer of Daisytek from 1997 to 2000, as
Vice President -- Finance, Treasurer and as Chief Accounting Officer of Daisytek
from 1994 to 2000 and as Controller of Daisytek from 1992 to 1994. From 1983 to
1992, Mr. Madden served in various capacities with Arthur Andersen & Co., S.C.,
including financial consulting and audit manager.
MICHAEL G. WILLOUGHBY, age 39, has served as Executive Vice President
and Chief Information Officer since October 2001 and served as Vice President --
E-Commerce Technologies of the Company since 1999. Mr. Willoughby served as
President and Chief Executive Officer of Design Technologies, Inc., an
e-commerce software development firm from 1994 to 1999. Prior to founding Design
Technologies, Inc., Mr. Willoughby served as President and Chief Executive
Officer of Integration Services, Inc., a mid-sized development services company.
HARVEY H. ACHATZ, age 62, has served as Vice President --
Administration and Secretary of the Company since its inception. Mr. Achatz
previously served as Vice President -- Administration and Secretary of Daisytek
from 1993 and 1984 to 2000, respectively, as Vice President -- Finance from 1985
to 1993, as Controller from 1981 to 1985 and as a Director from 1984 to 1990.
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OFFICERS
SCOTT R. TALLEY, age 38, has served as Vice President -- International
Distribution for the Company since its inception. Mr. Talley previously served
in various capacities for Daisytek since 1991, most recently as Vice President
-- Distribution.
CYNTHIA D. ALMOND, age 35, has served as Vice President -- Client
Services of the Company since March 2001. From 1999 to 2001, Ms. Almond served
as Director of Account Management. From 1991 to 1999, Ms. Almond served in
various marketing, product management and sales capacities for Daisytek.
BRUCE E. MCCLUNG, age 65, has served as Vice President - Sales of the
Company since October 2001. From 1999 to 2001, Mr. McClung served in various
marketing and sales capabilities for the Company. Mr. McClung has spent more
than 25 years in sales, marketing and management roles in systems and solutions
organizations, including Daisytek, IBM, Boeing and Perdata.
MEETINGS OF THE BOARD
The Board of Directors met ten times during the calendar year ended
December 31, 2002. No director attended fewer than 90% of the aggregate number
of meetings of the Board and Committees on which such director served.
COMMITTEES OF THE BOARD
The Board of Directors currently has standing Audit, Compensation and
Stock Option Committees and does not have a nominating committee.
The Audit Committee is established for the purpose of overseeing the
Company's accounting and financial reporting processes and audits of the
Company's financial statements. The Committee is established to assist the Board
in fulfilling its oversight responsibilities by reviewing and reporting to the
Board on the integrity of the financial reports and other financial information
provided by the Company to its shareholders. The Committee is directly
responsible for the appointment, compensation, retention and oversight of the
work of any independent auditor employed by the Company (including resolution of
disagreements between management and the auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work or
performing other audit, review or attest services for the Company. The Company's
auditors report directly to the Committee.
The Committee has adopted a written amended and restated audit
committee charter setting out the audit-related functions of the Audit
Committee. The Audit Committee charter is attached as Appendix I to this proxy
statement. The current members of the Audit Committee are Messrs. Reilly,
Beatson and Jacobs. None of the current members of the Audit Committee is, or
ever has been, an officer or employee of the Company and all are considered
"independent" for purposes of the National Association of Securities Dealers'
listing standards. The Audit Committee met five times during the calendar year
ended December 31, 2002.
The Compensation Committee approves, or in some cases recommends, to
the Board, remuneration and compensation arrangements involving the Company's
executive officers and other key employees. The current members of the
Compensation Committee are Messrs. Murray and Reilly, who are non-employee
directors. The Compensation Committee also serves as the Stock Option Committee
to administer the Company's employee stock option and purchase plans. The
Compensation Committee and Stock Option Committee met once during the calendar
year ended December 31, 2002.
COMPENSATION OF DIRECTORS
In June 1999 the Company adopted a Non-Employee Director Stock Option
and Retainer Plan (the "Non-Employee Director Plan"). As of the date of the
adoption of the Non-Employee Director Plan, each non-employee director received
an option to purchase 35,000 shares of common stock. The Non-Employee Director
Plan also provides for the future issuance to each non-employee director of
options to purchase 10,000 shares of common stock as of the date of each annual
meeting of stockholders, except that no options were issued at the time of the
Annual Meeting held
4
in September 2001. Accordingly, at the time of the Company's Annual Meeting held
in June 2002, each non-employee director received an option to purchase 10,000
shares of common stock with an exercise price of $0.44 per share. In addition,
the Non-Employee Director Plan provides that if and to the extent the Board
authorizes the payment of non-employee director retainer fees, each non-employee
director may elect to receive payment of such fees in shares of Common Stock in
lieu of cash. Currently, non-employee directors do not receive retainer fees for
services rendered as non-employee directors.
All options to be issued to non-employee directors under the
Non-Employee Director Plan are non-qualified options for federal income tax
purposes and have an exercise price equal to the fair market value of a share of
common stock as of the date of the annual meeting upon which such option is
granted. All options have a ten year term and are subject to a one year vesting
schedule.
Generally, unless the Non-Employee Director Plan administrator
otherwise provides, options are non-transferable other than by will or the laws
of descent and distribution. At the time of any merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, or other change
in the corporate structure or capitalization affecting the Company's common
stock, the Non-Employee Director Plan administrator will make appropriate
adjustments to the exercise price, number and kind of shares to be issued under
the Non-Employee Director Plan and any outstanding options. Unless terminated
earlier, the Non-Employee Director Plan will terminate ten years from its
adoption, and no stock options will be granted after the Non-Employee Director
Plan terminates. The Board of Directors has the authority to amend, modify,
suspend or terminate the Non-Employee Director Plan at any time.
In January 2002, the Company also issued non-employee directors
additional options to purchase shares of common stock. Messrs. Beatson, Jacobs,
Murray and Reilly each received an option to purchase 10,000 shares of common
stock with an exercise price of $.0.84 per share.
Directors who are also employees of the Company or any of its
subsidiaries receive no remuneration for serving as directors or Committee
members.
During the year ended December 31, 2002, the Company paid $50,000 to
Beatson Consulting Group for assistance with sales lead generation and strategic
marketing efforts. Mr. Beatson, a non-employee director, is the principal and
founder of Beatson Consulting Group.
5
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to the Company's Chief Executive Officer and to each of the four most
highly compensated executive officers of the Company for services rendered to
the Company during the fiscal year ended December 31, 2002 ("CY 2002"), the
nine-month fiscal period ended December 31, 2001 and the fiscal year ended March
31, 2001 ("FY 2001").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
---------------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPLE POSITION PERIOD SALARY BONUS OPTIONS COMPENSATION (1)
----------------------------- ----------- ---------- --------- ------------ ----------------
Mark C. Layton.............. CY 2002 $ 328,991 $ -- -- $ 14,613
Chairman, President, Chief 9 Mos. 2001 283,080 28,125 594,056 (2) 16,783
Executive Officer FY 2001 363,603 28,125 554,056 (3) 20,963
Steven S. Graham............ CY 2002 226,684 -- 15,000 5,748
Executive Vice President 9 Mos. 2001 179,723 15,625 607,449 (2) 5,133
-Chief Technology Officer FY 2001 230,640 15,625 567,449 (3) 5,543
Michael G. Willoughby....... CY 2002 220,846 -- 80,000 240
Executive Vice President 9 Mos. 2001 122,308 3,750 34,000 (2) 186
-Chief Information FY 2001 159,000 3,750 35,000 -
Officer
Thomas J. Madden............ CY 2002 176,923 -- 15,000 6,361
Executive Vice President 9 Mos. 2001 153,846 13,750 344,673 (2) 4,609
-Chief Financial Officer FY 2001 200,000 13,750 294,673 (3) 5,060
C. Clifford Defee (4)....... CY 2002 189,000 -- -- 61,288 (4)
Executive Vice President - 9 Mos. 2001 160,769 10,625 286,022 (2) 1,945
Chief Operating Officer FY 2001 206,115 10,625 241,022 (3) 1,389
Harvey H. Achatz............ CY 2002 109,530 -- 3,000 5,600
Vice President - 9 Mos. 2001 91,768 2,500 67,974 (2) 5,133
Administration and FY 2001 118,103 2,500 82,974 (3) 5,774
Secretary
----------
(1) All Other Compensation represents compensation in respect of one or
more of the following: personal use of Company automobiles; life
insurance premiums paid by the Company for the benefit of the named
executive officer; tax return preparation services paid by the Company;
contributions to 401(k) accounts paid by the Company; personal travel
expenses and relocation costs.
(2) Represents options issued during the fiscal period ended December 31,
2001 pursuant to a Company option exchange offer.
(3) Includes the following options issued by the Company in July 2000 in
connection with the adjustment and conversion of pre-spin-off Daisytek
options into Company options upon the effective date of the spin-off:
Mark C. Layton - 504,056; C. Clifford Defee - 206,022; Steven S. Graham
- 532,449; Thomas J. Madden - 259,673; and Harvey H. Achatz - 27,974.
(4) Mr. Defee's position as an executive officer was terminated as part of
a restructuring in September 2002. In addition to the items described
in item (1) above, All Other Compensation for Mr. Defee also includes
$60,000 paid to Mr. Defee in consideration for the sale and transfer of
certain vested, non-cancelable stock options held by him to purchase
331,022 shares of common stock at various prices.
6
The following table sets forth information with respect to grants of
stock options by the Company to purchase shares of the Company's common stock
during the fiscal year ended December 31, 2002 to the named executive officers
reflected in the Summary Compensation Table.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2002
INDIVIDUAL GRANTS
--------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERMS (2)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------------
NAME GRANTS(1) YEAR SHARE DATE 5% 10%
----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Mark C. Layton .................... -- -- $ -- -- $ -- $ --
Steven S. Graham .................. 15,000 1.4% 0.84 1/25/12 7,924 20,081
Michael G. Willoughby ............. 80,000 7.3% 0.84 1/25/12 42,262 107,099
Thomas J. Madden .................. 15,000 1.4% 0.84 1/25/12 7,294 20,081
C. Clifford Defee (3) ............. -- -- -- -- -- --
Harvey H. Achatz .................. 3,000 0.3% 0.84 1/25/12 1,585 4,016
----------
(1) Subject to quarterly vesting schedule over a three year period.
(2) These are hypothetical values using assumed annual rates of stock price
appreciation as prescribed by the rules of the SEC.
(3) Mr. Defee's position as an executive officer was terminated as part of
a restructuring in September 2002.
The following table sets forth information concerning the aggregate
Company stock option exercises during the fiscal year ended December 31, 2002
and Company stock option values as of December 31, 2002 for unexercised Company
stock options held by each of the named executive officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 2002
AND OPTION VALUES AS OF DECEMBER 31, 2002
NUMBER OF
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END (1)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE RECEIVED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------ ----------- ----------- ----------- ------------- ----------- -------------
Mark C. Layton ............... -- $ -- 635,306 8,750 $ -- $ --
Steven S. Graham ............. -- -- 637,449 20,000 -- --
Michael G. Willoughby ........ -- -- 80,250 68,750 -- --
Thomas J. Madden ............. -- -- 374,673 20,000 -- --
C. Clifford Defee (2) ........ -- -- 31,000 -- -- --
Harvey H. Achatz ............. -- -- 79,974 6,000 -- --
----------
(1) None of the options are deemed in-the-money since the exercise price
exceeds $0.42 (the last sale price of the Common Stock on December 31,
2002 as reported by the Nasdaq National Market).
(2) Mr. Defee's position as an executive officer was terminated as part of
a restructuring in September 2002.
CHANGE IN CONTROL AND SEVERANCE AGREEMENTS
The Company and each of the executive officers named above have entered
into Change in Control and Severance Agreements. Under these agreements, and in
consideration of certain commitments of the officer to continue employment, upon
the occurrence of a change in control, all unvested options held by the officer
immediately vest and become exercisable. During the two year period following a
change in control (whenever occurring), if the employment of the officer is
terminated (other than for cause, death, disability or retirement), or if there
is a material adverse change in the officer's responsibilities, compensation or
benefits to which the officer does not consent, then, in each case, the officer
is entitled to receive from the Company all salary and bonus amounts accrued
through the date of termination plus a severance payment equal to twice the
officer's salary and bonus. If applicable, the officer is also entitled to
receive an additional payment to compensate the officer for any additional
7
excise tax liability arising by reason of the receipt of such severance or bonus
payment. The agreement terminates upon the voluntary resignation or termination
of employment by the officer.
The Company and each of the executive officers named above have also
entered into Executive Severance Agreements. Under these agreements, and in
consideration for, among other things, the agreement by the executive to be
bound by a restrictive covenant, in the event of the termination of the
employment of the executive other than for cause, the executive is entitled to a
severance payment up to a maximum of twice the executive's salary and bonus. In
addition, in the event of termination without cause, the executive is entitled
to a continuation of benefits and to the accelerated vesting of all options then
held by the executive. The severance payment and benefits are reduced by any
compensation or benefits received by the executive from any subsequent employer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 2002, the members of the
Compensation Committee of the Company's Board of Directors were Timothy M.
Murray and James F. Reilly who are non-employee directors.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION FOR FISCAL YEAR
ENDED DECEMBER 31, 2002
The Compensation Committee of the Board of Directors (the "Committee")
is responsible for approval or recommendation to the Board of Directors of the
compensation arrangements for the Company's executive officers. During the
fiscal year ended December 31, 2002, the members of the Committee were Timothy
M. Murray and James F. Reilly who are non-employee directors.
The Committee believes that the total compensation of the Company's
executive officers should be primarily based on the subjective determination of
the Committee as to the Company's overall financial performance and the
individual contribution to such performance. The Committee further believes that
a portion of total compensation should consist of variable, performance-based
components such as stock option awards and bonuses, which it can increase or
decrease to reflect its assessment of changes in corporate and individual
performance. These incentive compensation programs are intended to reinforce
management's commitment to enhance profitability and stockholder value.
In formulating compensation levels and policies for the fiscal year
ended December 31, 2002, the Committee did not retain an independent
compensation consultant, nor did the Committee rely upon any formal study or
review of comparable companies in the Company's industry.
The Committee annually establishes the salaries to be paid to the Chief
Executive Officer and other executive officers during each fiscal year. Base
salaries for executive officers are set to reflect the duties and level of
responsibility in each position. In setting salaries, the Committee takes into
account several factors including individual job performance, the level of
responsibility, competitive pay practices in the Company's industry, to the
extent information is available, and overall company performance. The Committee
does not assign specific relative weights to the various factors it considers,
however, but rather exercises its discretion and makes a judgment after
considering all factors it deems relevant.
For the fiscal year ended December 31, 2002 and for services rendered
to the Company, the base salary of Mr. Mark Layton, Chairman of the Board of
Directors, President and Chief Executive Officer, was $328,991, which reflects a
reduction from the prior fiscal year. This reduction was made as part of certain
temporary cost containment measures by the Company in response to a difficult
economic and business climate.
The Committee also administers the Company's stock option plans and
recommends other option grants that are used to further link executive
compensation to the Company's performance. All options are subject to a
multi-year cumulative vesting schedule and have an exercise price not less than
the fair market value on the date of grant. During the year ended December 31,
2002, Mr. Layton did not receive any options.
As part of its overall consideration of executive compensation, the
Committee considers the anticipated tax treatment of various payments and
benefits, including the applicability of Section 162(m) of the Internal Revenue
8
Code, which provides a limit on the deductibility of compensation for certain
executive officers in excess of $1,000,000 per year. The Committee believes that
no named officer in the Summary Compensation Table had taxable compensation for
the fiscal year ended December 31, 2002 in excess of the deduction limit. The
Committee intends to continue to evaluate the impact of this Code provision.
The Committee believes that the policies and programs described above
have supported the Company's business objectives and have contributed to the
Company's performance.
COMPENSATION COMMITTEE
Timothy M. Murray
James F. Reilly
REPORT OF THE AUDIT COMMITTEE FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
The Audit Committee of the Company's Board of Directors is comprised of
three independent directors. The Audit Committee meets at least twice a year.
The current members of the Audit Committee are Messrs. Reilly, Beatson and
Jacobs.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants ("auditors") are
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and issuing a report thereon. The Audit Committee's responsibility is to monitor
these processes. The Audit Committee meets with the auditors at least twice a
year. In addition, the Audit Committee has approved the appointment of the
Company's auditors, KPMG, LLP.
The Audit Committee discussed with the Company's auditors the overall
scope and plans for the independent audit. Management represented to the Audit
Committee that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles. The Audit Committee
has reviewed and discussed with management and the auditors the Company's
audited financial statements, including the auditor's judgments about the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the
financial statements. The Audit Committee also discussed with the auditors the
other matters required by Statement on Auditing Standards No. 61 "Communication
with Audit Committees" as amended by Statement on Auditing Standards No. 90
"Audit Committee Communications".
The Company's auditors provided to the Audit Committee the written
disclosures required by Independence Standards Board Standard No. 1
"Independence Discussions with Audit Committees," and the Audit Committee
discussed with the auditors their independence from the Company and its
management.
Based on the Audit Committee's discussion with management and the
auditors and the Audit Committee's review of the representations of management
and the report of the auditors to the Audit Committee, the Audit Committee
recommended to the Board that the audited consolidated financial statements be
included in the Annual Report on Form 10-K for the fiscal year ended December
31, 2002, which was filed with the Securities and Exchange Commission.
James F. Reilly
David I. Beatson
Dr. Neil W. Jacobs
9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 15, 2003, certain
information regarding the beneficial ownership of the Company's Common Stock by
(i) each person who is known to the Company to beneficially own more than 5% of
the Common Stock, (ii) each of the Directors and named executive officers of the
Company individually and (iii) the Directors and executive officers of the
Company as a group. The information contained in this table reflects "beneficial
ownership" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and, as such, also includes shares acquirable
within 60 days. Unless otherwise indicated, the stockholders identified in this
table have sole voting and investment power with respect to the shares owned of
record by them.
NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT (1)
------------------------------------- ------------- -----------
Gilder, Gagnon, Howe & Co. LLC (2) 2,361,030 12.8%
1775 Broadway, 26th Floor
New York, NY 10019
Mark C. Layton (3) 1,187,568 6.2%
Steven S. Graham (3) 757,805 4.0%
Thomas J. Madden (3) 469,628 2.5%
Timothy M. Murray (3) 185,256 1.0%
Harvey H. Achatz (3) 149,196 *
Michael G. Willoughby (3) 101,354 *
James F. Reilly (3) 86,405 *
C. Clifford Defee (3) (4) 45,435 *
David I. Beatson (3) 35,000 *
Dr. Neil W. Jacobs (3) 55,312 *
All directors and executive officers
As a group (10 persons) (5) 3,072,959 14.9%
========= =====
----------
* Represents less than 1%
(1) This table is based on 18,428,871 shares of Common Stock
outstanding on April 15, 2003.
(2) Based upon a Schedule 13G, Amendment No. 1, dated February 10,
2003 filed by Gilder, Gagnon, Howe & Co. LLC stating
beneficial ownership and shared voting and dispositive power
as of December 31, 2002.
(3) Includes the following outstanding options to purchase the
specified number of shares of Common Stock, which are fully
vested and exercisable: Mark C. Layton - 641,137; Steven S.
Graham - 645,779; Thomas J. Madden - 383,003; Timothy M.
Murray - 96,167; Harvey H. Achatz - 82,973; Michael G.
Willoughby - 99,409; James F. Reilly - 80,000; C. Clifford
Defee - 31,000; David I. Beatson - 35,000; and Dr. Neil W.
Jacobs - 55,000.
(4) Mr. Defee's position as an executive officer was terminated as
part of a restructuring in September 2002.
(5) Includes outstanding options to purchase 2,149,468 shares of
Common Stock, which are fully vested and exercisable.
10
PERFORMANCE GRAPH
The following line graph displays the cumulative total return to
stockholders of the Company's Common Stock from December 2, 1999 (the
commencement of trading of the Company's Common Stock) to December 31, 2002,
compared to the cumulative total return for the Total Return Index for The
Nasdaq Stock Market (US) and the Russell 2000 Index. The graph assumes a $100
investment in the Company's Common Stock, on December 2, 1999 at the initial
offering price of $17 per share, and in each of the above mentioned indices. The
Russell 2000 Index is an index of companies with market capitalizations similar
to the Company. The Company's management believes that an index of companies
with similar market capitalizations provides a reasonable basis for comparing
total shareholder returns.
(PERFORMANCE GRAPH)
12/2/99 3/31/00 3/31/01 12/31/01 12/31/02
---------------------------------------- ------------- ------------- ------------- ------------- -------------
PFSweb Inc. 100.00 94.12 5.70 5.00 2.47
NASDAQ Stock Market (U.S.) 100.00 136.32 54.52 57.96 40.06
Russell 2000 100.00 119.30 101.02 110.73 88.05
11
ITEM 2
AUTHORIZATION OF REVERSE STOCK SPLIT
The Board has unanimously adopted a resolution approving and
recommending to the stockholders for their approval an amendment to Article Four
of our restated certificate of incorporation authorizing a reverse split of the
outstanding shares of our common stock on the basis of one post-split share for
up to each presently outstanding ten shares. This means that if the reverse
split is effected you will be deemed to hold one share of PFsweb common stock
for up to every ten shares that you currently hold.
Whether to actually effect the reverse stock split and the exact ratio
of the reverse stock split will be determined by our Board at its discretion
based on the prevailing market conditions, the Board's judgment as to the best
course of action for the Company and its stockholders, and whether our common
stock has maintained a minimum bid of $1.00 per share for ten consecutive
trading days for the reason explained below. We are asking you to approve an
amendment to the restated certificate of incorporation with the ratio for the
reverse stock split to be in the range from no change to one share for more than
one and up to ten shares, and with the Board having the authority to give its
final approval to a specific ratio. By approving the proposed reverse stock
split, you will be authorizing the Board of Directors to:
o determine the exact ratio of the reverse split so long as it is
between no change and up to one-for-ten; and
o implement the reverse stock split at any time before June 6, 2004; or
o abandon the reverse stock split at any time prior to that date.
If the amendment to effect the reverse stock split has not been filed
with the Delaware Secretary of State by the close of business on June 6, 2004,
the Board of Directors will either resolicit stockholder approval or abandon the
reverse stock split. Even if the reverse split proposal is approved, the Board
may decide not to effect the reverse split if it determines that it is in the
best interests of the Company and its stockholders.
At our annual shareholders' meeting on June 7, 2002, the shareholders
approved a similar amendment with the ratio of a reverse stock split in the
range from no change to one share for more than one and up to five shares. They
also gave the Board the authority to make the final determination as to the
exact ratio of reverse split and whether to implement the reverse split. As of
this date, the Board has not enacted this reverse stock split. This
authorization expires on June 7, 2003.
REASONS FOR THE REVERSE STOCK SPLIT
Our primary purpose for the reverse stock split is to increase the
trading price of our common stock to facilitate the continued listing of our
common stock for quotation on the NASDAQ National Market System or SmallCap
Market ("NASDAQ"). Our common stock was originally listed on the NASDAQ National
Market. On February 14, 2002, the Company received notice from NASDAQ that it
had failed to maintain a minimum bid price of $1.00 over a 30 consecutive
trading day period as required by NASDAQ Rule 4450(a)(5). In response to this,
in June 2002, the NASDAQ approved our transition from the NASDAQ National Market
System to the NASDAQ SmallCap Market, on which market our securities began
trading on June 10, 2002.
Due to our compliance with the initial listing requirements for the
NASDAQ SmallCap Market (other than the $1.00 minimum bid price), on August 14,
2002, we were provided a 180 day grace period, or until February 10, 2003, to
comply with the minimum bid price requirement. We were unable to comply with
this requirement and on March 14, 2003 we were provided an additional 90 day
grace period, or until May 12, 2003, to regain compliance. To date, we have been
unable to comply with this Rule and we presently cannot determine when we will
be able to comply with this Rule. To date, we have not received notice from
NASDAQ of any delisting action, and we understand that NASDAQ has proposed
extending the minimum bid requirement grace periods for SmallCap companies for
up to 18 months (assuming compliance with the core listing requirements). We
currently comply with
12
the SmallCap core listing requirement and would be eligible for the proposed
extended grace period if enacted. If the extended grace periods are not
implemented, our common stock would be subject to delisting from the SmallCap
Market. In such event, under NASDAQ rules, we have the right, and presently
intend, to appeal the delisting to the NASDAQ Listing Qualification Panel
("Panel") and request an extension of time to comply with the rule.
The Board does not currently plan to implement a reverse stock split
unless we receive a delisting determination letter from NASDAQ or the Board
otherwise determines it is in the best interests of the Company. If we receive a
delisting determination letter, we currently intend to appeal to the Panel and
base our appeal, in part, upon a reverse stock split. Accordingly, we are
re-submitting this proposal to provide the Board with the authority to implement
a reverse stock split in a ratio between no change and up to one-for-ten shares.
However, we can provide no assurance that a reverse stock split will lead to a
successful appeal with the Panel.
Until the Panel reaches its decision, the Company's common stock will
remain listed and will continue to trade on the NASDAQ SmallCap Market. There
can be no assurance as to when the Panel will reach a decision or that such a
decision will be favorable to the Company. The Company's common stock will be
delisted from the NASDAQ SmallCap Market if the appeal is denied. In such event,
the Company presently expects to apply to list its common stock on another
quotation system or exchange on which the shares of the Company would qualify.
The delisting of the Common Stock from the NASDAQ SmallCap Market could have a
material adverse effect on the market price of, and the efficiency of the
trading market for, the Common Stock.
In addition, if our common stock were to become delisted from trading
on the NASDAQ SmallCap Market and the trading price were to remain below $5.00
per share, trading in our common stock may also be subject to the requirements
of certain rules promulgated under the Securities Exchange Act of 1934, which
require additional disclosures by broker-dealers in connection with any trades
involving a stock defined as a "penny stock." Generally, a "penny stock" is
defined as any non-NASDAQ equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. The additional burdens imposed
upon broker-dealers by these requirements could discourage broker-dealers from
facilitating trades in our shares, which could severely limit the market
liquidity of the stock and the ability of investors to trade our common stock.
The Board believes that if stockholders approve the proposed amendment
and the Board decides to effect a reverse stock split, our stock price should
increase to over the $1.00 per share minimum bid price, although no assurance
can be given in this regard.
We cannot guarantee that even with the reverse stock split, we will
meet or maintain all of NASDAQ's continued listing criteria in the future, or
that the price for shares of our common stock after the reverse stock split will
increase in proportion to the ratio of the reverse stock split. The delisting of
the Common Stock from the NASDAQ SmallCap Market could have a material adverse
effect on the market price of, and the efficiency of the trading market for, the
Common Stock.
The proposed reverse stock split amendment is not the first step in a
going private transaction.
POTENTIAL EFFECTS OF THE REVERSE STOCK SPLIT
A reverse stock split, if implemented, would reduce the number of
shares of common stock outstanding and potentially increase the trading price of
our common stock. However, we cannot predict the effect of any reverse stock
split upon the market price of our common stock. The history of reverse stock
splits for companies in similar circumstances varies. We cannot assure you that
the trading price of our common stock after the reverse stock split will rise in
exact proportion to the reduction in the number of shares of our common stock
outstanding. Also, as stated above, we cannot assure you that a reverse stock
split would lead to a sustained increase in the trading price of our common
stock, that the trading price would remain above the thresholds required by
NASDAQ, or that we will continue to meet the other continued listing
requirements of NASDAQ. The trading price of our common stock may change due to
a variety of other factors, including our operating results, other factors
related to our business and general market conditions.
The approximate number of shares of common stock that would be
outstanding as a result of the proposed reverse stock split, based on 18,428,871
shares of common stock outstanding as of April 15, 2003, would be as low
13
as 1,842,887 if a 1:10 split were effected. The resulting decrease in the number
of shares of our common stock outstanding could potentially impact the liquidity
of our common stock on NASDAQ, especially in the case of larger block trades.
The reverse stock split, if implemented, would not change the number of
authorized shares of common stock as designated by the Company's restated
certificate of incorporation. Therefore, because the number of issued and
outstanding shares of common stock would decrease, the number of shares
remaining available for future issuance would increase.
Because a reverse stock split would result in an increased number of
authorized but unissued shares of our common stock, it may be construed as
having an anti-takeover effect, although neither the Board of Directors nor the
Company's management views this proposal as having such purpose. However, the
Board of Directors, subject to its fiduciary duties and applicable law, could
use this increased number of authorized but unissued shares to frustrate persons
seeking to take over or otherwise gain control of the Company by, for example,
privately placing shares with purchasers who might side with the Board of
Directors in opposing a hostile takeover bid. Shares of our common stock could
also be issued to a holder that would thereafter have sufficient voting power to
assure than any proposal to amend or repeal the Company's by-laws or certain
provisions of the Company's Restated Certificate of Incorporation would not
receive the requisite vote. Such uses of our common stock could render more
difficult, or discourage, an attempt to acquire control of the Company if such
transaction were opposed by the Board of Directors.
EFFECTS ON OWNERSHIP BY INDIVIDUAL STOCKHOLDERS
If we implement a reverse stock split, the number of shares of common
stock you hold would be reduced by dividing the number of shares held
immediately before the reverse split by the number fixed for the reverse split
by the Board, and then rounding up to the nearest whole share. This means that a
stockholder who would otherwise be entitled to receive a fractional share
following a reverse stock split will receive a whole share in lieu thereof. The
reverse stock split would affect our common stock uniformly and would not affect
your percentage of ownership interests in the Company or proportionate voting
power, except to the extent that interests in fractional shares are rounded up
to a whole share.
Effect on Outstanding Stock, Options. In addition, all the terms of
outstanding stock options of the Company entitling their holders to purchase
shares of our common stock would be adjusted as a result of the reverse stock
split, as required by the terms of these options. In particular, the number of
shares to be issued upon the exercise of outstanding options would be decreased,
and the exercise price for each such option, as applicable, would be increased,
in accordance with the ratio of the reverse stock split. None of the other
rights currently accruing to holders of outstanding options would be affected by
the reverse stock split. The number of options available for issuance under our
existing stock option plans would be adjusted proportionately based upon the
reverse stock split ratio.
Other Effects on Outstanding Shares. If we implement a reverse stock
split, the rights and preferences of the outstanding shares of common stock
would remain the same after the reverse stock split. Each share of common stock
issued pursuant to the reverse stock split would be fully paid and
nonassessable.
The reverse stock split would result in some stockholders owning
"odd-lots" of less than 100 shares of common stock. Brokerage commissions and
other costs of transactions in odd-lots may be higher than the costs of
transactions in "round-lots."
Our common stock is currently registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended. As a result, we are subject to the
periodic reporting and other requirements of the Exchange Act. The proposed
reverse stock split would not affect the registration of the common stock under
the Exchange Act.
PROCEDURE FOR EFFECTING THE REVERSE STOCK SPLIT AND EXCHANGE OF STOCK
CERTIFICATES
If you approve the proposed amendment to our certificate of
incorporation, the Board would implement the reverse stock split at its
discretion, determine the exact ratio of the reverse split and file the
amendment to the
14
certificate of incorporation with the Delaware Secretary of State. The reverse
stock split would become effective on the date specified in the amendment.
As of the effective date of the reverse stock split, we would consider,
for all corporate purposes, each certificate representing shares of our common
stock before the reverse stock split to represent the reduced number of shares
of common stock resulting from the reverse stock split. All outstanding stock
options also would be automatically adjusted on the effective date.
We expect that our transfer agent would act as the exchange agent for a
reverse stock split. As soon as practicable after the effective date, we would
notify you that the reverse split has been implemented. You would receive a
letter of transmittal requesting you to exchange your stock certificates for
stock certificates reflecting the appropriately adjusted number of shares. If
your shares are held in brokerage accounts or "street name" you would not need
to take any further actions to exchange your certificates. We would not issue
new certificates to you until you have first surrendered your outstanding
certificate(s) together with the properly completed and executed transmittal
letter to the exchange agent. Until surrender, each certificate representing
shares before the reverse stock split would continue to be valid and would
represent the adjusted number of shares based on the exchange ratio of the
reverse stock split, rounded down to the nearest whole share. You should not
destroy any stock certificate and should not submit any certificates until you
receive a letter of transmittal.
FRACTIONAL SHARES
We would not issue fractional shares in connection with the reverse
stock split. If you would otherwise be entitled to receive fractional shares
because you hold a number of shares not evenly divisible by the exchange ratio,
you would instead receive a whole share upon surrender of the certificates as
described in the section above. The rounding of fractional shares will not
reduce the number of stockholders or stockholders of record.
ACCOUNTING CONSEQUENCES
The reverse stock split will not affect the par value of our common
stock. As a result, on the effective date of the reverse stock split, we will
reduce the common stock account on our balance sheet down in accordance with the
stock split ratio, and credit the capital in excess of par value account by the
same amount. We will increase the per share net income or loss and net book
value of our common stock because there will be fewer shares of our common stock
outstanding.
U.S. FEDERAL INCOME TAX CONSEQUENCES
For your convenience, we offer the following summary of material U.S.
federal income tax consequences of a reverse stock split to the stockholders of
the Company. This summary may be incomplete. It does not discuss any state,
local, foreign or minimum income or other tax consequences, if any. It does not
address the tax consequences to holders that are subject to special tax rules,
including banks, insurance companies, regulated investment companies, personal
holding companies, foreign entities, nonresident alien individuals,
broker-dealers and tax-exempt entities. The discussion is based on the
provisions of the United States federal income tax law as currently in effect on
the date hereof (that may change retroactively or prospectively). This summary
also assumes that the shares you hold are a "capital asset," as defined in the
Internal Revenue Code of 1986, as amended (generally, property held for
investment is regarded as a capital asset). Your tax treatment may vary
depending upon your particular facts and circumstances. We urge you to consult
with your tax advisor in analyzing the consequences of the reverse stock split.
You should not recognize a gain or loss upon the exchange of shares
pursuant to a reverse stock split, if implemented. The aggregate tax basis of
the shares received in the reverse stock split, including any fraction of a
share received, would be the same as your aggregate tax basis in the shares
exchanged. The holding period for the shares received pursuant to the reverse
stock split would include the period during which you held the shares
surrendered in the stock split.
The foregoing summary regarding the tax consequence of a reverse stock
split are not binding upon the Internal Revenue Service or the courts, and there
can be no assurance that the Internal Revenue Service or the courts
15
will accept the positions expressed above. The state and local tax consequences
of the reverse stock split may vary significantly as to each stockholder,
depending upon the state in which he or she resides.
NO APPRAISAL RIGHTS
The holders of shares of common stock have no appraisal rights under
Delaware law, the Company's Restated Certificate of Incorporation or the
Company's by-laws with respect to the proposed amendments to the Company's
Restated Certificate of Incorporation effecting a reverse stock split. If the
amendment is approved by the stockholders, any such amendment will become
effective, if at all, on the day a Certificate of Amendment required by the
General Corporation Law of the State of Delaware is filed with the Secretary of
State of the State of Delaware. However, the Board of Directors is authorized to
abandon the amendment at any time prior to effectiveness, without further action
by stockholders.
The Board of Directors of the Company recommends a vote FOR the
proposed amendment to the Company's Restated Certificate of Incorporation to
effect a reverse stock split as set forth in Proposal 2.
ITEM 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company has appointed KPMG LLP as the Company's independent auditors
for the fiscal year ending December 31, 2003. KPMG LLP audited the Company's
financial statements for the fiscal year ended December 31, 2002, the nine-month
fiscal period ended December 31, 2001 and the fiscal year ended March 31, 2001.
Ratification of the appointment of KPMG LLP as the Company's independent
auditors will require the affirmative vote of a majority of the shares of Common
Stock represented in person or by proxy and entitled to vote at the Annual
Meeting. In the event shareholders do not ratify the appointment of KPMG LLP as
the Company's independent auditors, such appointment may be reconsidered by the
Audit Committee and the Board of Directors. Representatives of KPMG LLP will be
present at the Annual Meeting to respond to appropriate questions and to make
such statements as they may desire.
The Board of Directors of the Company recommends a vote FOR ratification of
KPMG LLP as the Company's independent auditors for the fiscal year ending
December 31, 2003.
AUDIT FEES. The aggregate fees billed by KPMG LLP for professional services
rendered in connection with the audit of the annual financial statements and
reviews of the quarterly financial statements for the fiscal year ended December
31, 2002 were $206,465.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. There were no
fees billed by KPMG LLP for the professional services described in Paragraph
(c)(4)(ii) of Rule 2-01 of Regulation S-X for the fiscal year ended December 31,
2002.
ALL OTHER FEES. The aggregate fees billed by KPMG LLP for all other
professional services rendered for the fiscal year ended December 31, 2002 were
$141,278 for audit related services and $157,733 for tax compliance and related
services. Fees for audit related services were paid primarily for the audit of
the Company's subsidiary, Supplies Distributors, to satisfy requirements of its
senior debt agreements.
The Audit Committee considered whether the provision of the services
covered under the preceding two paragraphs is compatible with maintaining the
principal accountant's independence.
GENERAL INFORMATION
VOTING PROCEDURES
All matters specified in this Proxy Statement that are to be voted on at
the Annual Meeting will be by written ballot. One or more inspectors of election
will be appointed, among other things, to determine the number of shares
outstanding and the voting power of each, the shares represented at the Annual
Meeting, the existence of a quorum and the authenticity, validity and effect of
proxies, to receive votes or ballots, to hear and determine all challenges and
16
questions in any way arising in connection with the right to vote, to count and
tabulate all votes and to determine the result.
SOLICITATION COSTS
The Company will pay the cost of preparing and mailing this Proxy Statement
and other costs of the proxy solicitation made by the Board of Directors.
Certain of the Company's officers and employees may solicit the submission of
proxies authorizing the voting of shares in accordance with the Board of
Directors' recommendations, but no additional remuneration will be paid by the
Company for the solicitation of those proxies. Such solicitations may be made by
personal interview or telephone. Arrangements have also been made with brokerage
firms and others for the forwarding of proxy solicitation materials to the
beneficial owners of Common Stock, and the Company will reimburse such persons
for reasonable out-of-pocket expenses incurred in connection therewith.
STOCKHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING
A stockholder desiring to submit an otherwise eligible proposal for
inclusion in the Company's proxy statement for the 2004 annual meeting of
stockholders of the Company must deliver the proposal so that it is received by
the Company no later than December 31, 2003. The Company requests that all such
proposals be addressed to the Company's Secretary at the Company's principal
executive offices, 500 North Central Expressway, Plano, Texas 75074, and mailed
by certified mail, return-receipt requested.
COMPLIANCE WITH CERTAIN REPORTING OBLIGATIONS
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and controlling stockholders to file initial reports of
ownership and reports of changes of ownership of the Company's Common Stock with
the Securities and Exchange Commission and the Company. To the Company's
knowledge, all reports required to be so filed were filed in accordance with the
provisions of said Section 16(a).
FINANCIAL AND OTHER INFORMATION
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2002 is being sent to stockholders of record as of the Record Date together
with this Proxy Statement.
OTHER MATTERS
The Board of Directors knows of no matters other than those described in
this Proxy Statement that are likely to come before the Annual Meeting. If any
other matters properly come before the Annual Meeting, or any adjournment
thereof, the persons named in the accompanying form of proxy intend to vote the
proxies in accordance with their best judgment.
By Order of the Board of Directors,
/s/ Harvey H. Achatz
Harvey H. Achatz
Secretary
Plano, Texas
April , 2003
--
17
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PFSweb, INC.
The undersigned hereby appoints Mark C. Layton and Harvey H. Achatz as
proxies, with power to act without the other and with power of substitution, and
hereby authorizes them to represent and vote, as designated on the other side,
all the shares of stock of PFSweb, Inc. standing in the name of the undersigned
with all powers that the undersigned would possess if present at the Annual
Meeting of Stockholders of the Company to be held June 6, 2003 or any
adjournment thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
Please mark
your vote as [X]
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ITEMS 1, 2, AND 3.
FOR AGAINST ABSTAIN
ITEM 1- ELECTION OF DIRECTORS ITEM 2- TO CONSIDER AND VOTE UPON A PROPOSAL TO [ ] [ ] [ ]
FOR AGAINST ABSTAIN AMEND THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION TO EFFECT A REVERSE SPLIT OF
Nominees: THE COMPANY'S COMMON STOCK BY A RATIO OF NO
CHANGE TO UP TO ONE-FOR-TEN AND AUTHORIZE
David I. Beatson [ ] [ ] [ ] THE COMPANY'S BOARD OF DIRECTORS TO
DETERMINE THE EXACT RATIO WITHIN THAT RANGE
James F. Reilly
ITEM 3- APPOINTMENT OF INDEPENDENT [ ] [ ] [ ]
ACCOUNTANTS
Signature Signature Date
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Note: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.