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. 1)
Filed by the Registrant
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Filed by a Party other than the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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TUMBLEWEED COMMUNICATIONS CORP.
(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):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Aggregate number of securities to which transaction applies:
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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
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Tumbleweed Communications Corp.
700 Saginaw Drive
Redwood City, California 94063
www.tumbleweed.com
To our Stockholders:
I am pleased to invite you to attend the 2008 Annual Meeting of Stockholders of Tumbleweed Communications Corp. to be held on June 10, 2008 at 10:00 a.m. Pacific Daylight Time at our corporate headquarters
located at 700 Saginaw Drive, Redwood City, California 94063.
Details regarding admission to the meeting and the business to be conducted
are more fully described in the accompanying Notice of Annual Meeting and Proxy Statement.
Your vote is important. Whether or not you plan
to attend the Annual Meeting, I hope you will vote as soon as possible. You may vote over the Internet, as well as by telephone or by mailing a proxy card. Voting over the Internet, by phone or by written proxy will ensure your representation at the
Annual Meeting if you do not attend in person. Please review the instructions on the proxy card regarding each of the voting options.
Thank you for your ongoing support of and continued interest in Tumbleweed Communications Corp.
Sincerely,
James P. Scullion
Chairman of the Board of Directors
and Chief Executive Officer
Redwood City, California
April 29, 2008
Tumbleweed Communications Corp.
700 Saginaw Drive
Redwood City, California 94063
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 2008
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TIME:
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10:00 a.m. Pacific Daylight Time
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PLACE:
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700 Saginaw Drive, Redwood City, California 94063
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ITEMS OF BUSINESS:
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To elect three Class III directors for three-year terms.
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To ratify the selection of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2008.
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To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.
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The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.
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RECORD DATE:
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Stockholders of record of Tumbleweed Communications Corp. at the close of business on April 11, 2008 are entitled to notice of and to vote at this Annual Meeting and at any
adjournment or postponement thereof.
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VOTING BY PROXY:
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Please submit a proxy as soon as possible so that your shares can be voted at the meeting in accordance with your instructions. You may submit your proxy (1) over the Internet,
(2) by telephone, or (3) by mail. For specific instructions, please refer to the section entitled “Questions and Answers about the Annual Meeting” beginning on page 1 of this Proxy Statement and the instructions on the proxy
card.
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By Order of the Board of Directors,
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Bernard J. Cassidy
Secretary
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Redwood City, California
April 29, 2008
This proxy statement and the accompanying proxy are being mailed on or about April 29, 2008 in connection with the solicitation of proxies on behalf of the Board of Directors of Tumbleweed Communications Corp. All stockholders are
cordially invited to attend the meeting in person. Your vote is important. Whether or not you expect to attend the Annual Meeting, please complete, date, sign, and return the enclosed proxy as promptly as possible in order to ensure your shares can
be voted at the Annual Meeting in accordance with your instructions. Even if you have given your proxy, you may still vote in person if you attend the Annual Meeting. Please refer to the enclosed proxy card for instructions.
2008 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
TUMBLEWEED COMMUNICATIONS CORP.
700 SAGINAW DRIVE, REDWOOD CITY, CALIFORNIA 94063
PROXY STATEMENT
This Proxy Statement contains information relating to the Annual Meeting of Stockholders of Tumbleweed Communications Corp., a Delaware corporation
(“Tumbleweed”, “us”, “we”, “our” or the “Company”), to be held on June 10, 2008, beginning at 10:00 a.m. Pacific Daylight Time, at our corporate headquarters located at 700 Saginaw Drive,
Redwood City, California 94063, and at any adjournment of the Annual Meeting. The Proxy Statement and accompanying proxy card are first being mailed on or about April 29, 2008 to all stockholders entitled to vote at the Annual Meeting.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
What is the purpose of the Annual Meeting?
At our Annual Meeting, stockholders will act upon the matters outlined in the accompanying Notice of Annual Meeting, including the following proposals:
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the election of three Class III directors for three-year terms; and
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the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2008.
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In addition, our management will report on our performance during the fiscal year ended December 31, 2007, and
respond to questions from stockholders.
What shares can I vote?
All shares of our common stock owned by you as of the close of business on the record date, April 11, 2008, may be voted by you. These shares include (1) shares held directly in your name as the stockholder
of record and (2) shares held for you as the beneficial owner through a stockbroker, bank or other nominee. Each share of common stock owned by you entitles you to cast one vote on each matter to be voted upon.
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
Most of our stockholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there
are some distinctions between shares held of record and those owned beneficially.
Stockholder of Record
If your shares are registered directly in your name with our transfer agent, Computershare Investor Services, you are considered the stockholder of record
with respect to those shares, and these proxy materials are being sent directly to you by us. As the stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the meeting. We have enclosed or sent a
proxy card for you to use for this purpose.
Beneficial Owner
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your
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broker, bank or nominee who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your
broker, bank or nominee on how to vote your shares and are also invited to attend the meeting. However, because you are not the stockholder of record, you may not vote these shares in person at the meeting unless you obtain a signed proxy from the
record holder giving you the right to vote the shares. Your broker, bank or nominee has enclosed or provided a voting instruction card for you to use in directing them how to vote your shares.
How can I vote my shares in person at the Annual Meeting?
Shares held directly in your name as the stockholder of record may be voted in person at the Annual Meeting. If you choose to do so, please bring the enclosed proxy card or proof of identification.
EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING, WE RECOMMEND THAT YOU ALSO SUBMIT YOUR PROXY AS DESCRIBED BELOW SO THAT YOUR VOTE WILL BE
COUNTED IF YOU LATER DECIDE NOT TO ATTEND THE ANNUAL MEETING. SHARES HELD BENEFICIALLY IN STREET NAME MAY BE VOTED IN PERSON BY YOU ONLY IF YOU OBTAIN A SIGNED PROXY FROM THE RECORD HOLDER GIVING YOU THE RIGHT TO VOTE THE SHARES.
How can I vote my shares without attending the Annual Meeting?
Whether you hold shares directly as the stockholder of record or beneficially in street name, you may direct your vote without attending the Annual Meeting. You may direct your vote by granting a proxy or, for shares
held in street name, by submitting voting instructions to your broker, bank or nominee. You can do this by mail or, in most instances, electronically over the Internet or by telephone. Please consult with your broker, bank or nominee if you have any
questions regarding the electronic voting of shares held in street name. The granting of proxies electronically is allowed by Section 212(c)(2) of the Delaware General Corporation Law.
Please refer to the summary instructions below and those included on your proxy card or, for shares held in street name, the voting instruction card
included by your broker, bank or nominee.
BY INTERNET—If you have Internet access, you may submit your proxy from any location in the
world by following the “Vote by Internet” instructions on the proxy card.
BY TELEPHONE—If you live in the United States or
Canada, you may submit your proxy by following the “Vote by Phone” instructions on the proxy card.
BY MAIL—You may do this
by completing, signing, dating and returning your proxy card or, for shares held in street name, the voting instruction card included by your broker, bank or nominee and mailing it in the accompanying enclosed, pre-addressed envelope. If you provide
specific voting instructions, your shares will be voted as you instruct.
Can I change my vote after I submit my proxy?
Yes. Even after you have submitted your proxy, if you are a stockholder of record you may change your vote at any time prior to the close of voting at the
Annual Meeting by filing a notice of revocation or by submitting a duly executed proxy bearing a later date with our Secretary at 700 Saginaw Drive, Redwood City, California 94063, by voting by telephone or Internet on a later date or by attending
the meeting and voting in person.
If your shares are held in a stock brokerage account or by a bank or other nominee, you may revoke your
proxy by following the instructions provided by your broker, bank or nominee.
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What constitutes a quorum?
The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding and entitled to vote as of April 11, 2008, the record date, will constitute a
quorum, permitting the Annual Meeting to conduct business. At the close of business on the record date, 51,176,142 shares of our common stock were issued and outstanding. Proxies received but marked as abstentions will be included in the calculation
of the number of shares considered to be present at the Annual Meeting for purposes of a quorum.
What are the Board of Directors’ recommendations?
Unless you give other instructions either via your proxy card or your electronic vote, the persons named as proxy holders on the proxy
card will vote in accordance with the recommendations of our Board of Directors. The Board of Directors’ recommendation is set forth together with the description of each item in this Proxy Statement. In summary, the Board of Directors
recommends a vote:
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“FOR” the election of each of our nominees to the Board of Directors; and
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“FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31,
2008.
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With respect to any other matter that properly comes before the Annual Meeting, the proxy holders will vote in
accordance with their judgment on such matter.
What vote is required to approve each item?
Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote at the Annual Meeting, and the director
nominees who receive the greatest number of votes at the Annual Meeting (up to the number of directors to be elected) will be elected. Abstentions and broker non-votes, if any, will not affect the outcome of the vote on the election of directors.
The ratification of KPMG as our independent registered public accounting firm will require the affirmative vote of a majority of
shares of common stock present in person or represented by proxy at the Annual Meeting. In determining whether this proposal received the requisite number of affirmative votes, abstentions will be counted and will have the same effect as a vote
against the proposal. Broker non-votes, if any, will not have any effect on the result for this proposal.
What does it mean if I receive more than
one proxy or voting instruction card?
It means your shares are registered differently or are in more than one account. Please provide
voting instructions for all proxy and voting instruction cards you receive.
Where can I find the voting results of the meeting?
We will announce preliminary voting results at the meeting and publish final results in our Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2008.
Who will count the votes?
A representative of Broadridge Investor Communication Services will tabulate the votes and act as the inspector of election.
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Who will bear the cost of this solicitation?
The enclosed proxy is solicited on behalf of our Board of Directors, and we will pay the entire cost of preparing, assembling, printing, mailing and
distributing these proxy materials. If you choose to access the proxy materials and/or vote over the Internet, however, you are responsible for Internet access charges you may incur. In addition to the mailing of these proxy materials, the
solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation activities. We also have hired
Broadridge Financial Solutions, Inc. to assist us in the distribution of proxy materials and the solicitation of votes. We will pay Broadridge Financial Solutions, Inc. a fee of approximately $35,000 including expenses for these services. We will
also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to stockholders.
May I propose actions for consideration at next year’s Annual Meeting of Stockholders?
For a stockholder’s proposal to be included in our Proxy Statement for the 2009 Annual Meeting of Stockholders, the stockholder must follow the
procedures of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the proposal must be received by our Secretary at 700 Saginaw Drive, Redwood City, California 94063 not later than December 30,
2008. In order for proposals of stockholders made outside of Rule 14a-8 under the Exchange Act to be considered timely, our Bylaws require that such proposals must be submitted to our Secretary not later than April 11, 2009 and not earlier than
March 12, 2009, unless the Annual Meeting is called for a date earlier than May 11, 2009 or later than July 10, 2009, in which case such proposal must be received not later than the close of business on the 10th day following the day
on which notice of the date of the meeting is mailed or public disclosure of the date of the meeting is made, whichever occurs first.
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS
Who are the members of the Board of Directors and are they independent?
The continuing members of the Board of Directors on the date of this Proxy Statement, and the committees of the Board on which they
serve, are identified below:
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Director
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Audit
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Nominating
Committee
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Compensation
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Dr. Taher A. Elgamal
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Christopher H. Greendale
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James A. Heisch
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Kenneth R. Klein
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Standish H. O’Grady
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Dr. Deborah D. Rieman
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James P. Scullion
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Jeffrey C. Smith
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Our Board of Directors has
determined that each of Messrs. Greendale, Heisch, Klein, O’Grady and Dr. Rieman meet the independence requirements of the Nasdaq Marketplace rules and listing standards.
How often did the Board of Directors meet during the fiscal year ended December 31, 2007?
During the fiscal year ended December 31, 2007, our Board of Directors held seven meetings. Each Board member attended 75% or more of the aggregate of the meetings of our Board of Directors and of the committees on which he or she
served that were held during the period for which he or she was a director or committee member, respectively, in the fiscal year ended December 31, 2007.
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Mr. Scullion attended the 2007 Annual Meeting of Stockholders. We do not have a policy on director
attendance at our Annual Meetings of Stockholders.
How do stockholders communicate with the Board of Directors?
Our Board of Directors has established a process to receive communications from stockholders. Stockholders may contact our Board of Directors or
individual directors by mail or electronically. Correspondence should be addressed to the Board or individual director(s) by either name or title, and mailed care of Secretary, Tumbleweed Communications Corp., 700 Saginaw Drive, Redwood City,
California 94063. To communicate with our Board of Directors electronically, stockholders should send an email message to directors@tumbleweed.com.
All communications received as set forth in the preceding paragraph will be opened by the office of our General Counsel for the sole purpose of determining whether the contents represent a message to our directors. Any contents that are not
in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee. In the case of communications to the Board of Directors or any group or committee of directors, the General
Counsel’s office will make sufficient copies of the contents to send to each director who is a member of the group or committee to which the envelope or e-mail is addressed.
Does the Company have a Code of Ethics?
Yes. We have adopted a code of conduct for all of our
employees and directors, including our Chief Executive Officer, Chief Financial Officer, other executive officers, and senior financial personnel. A copy of our code of conduct is available on our web site at www.tumbleweed.com under the caption
“Corporate Governance” on the Investor Relations page. We intend to post on our web site any material changes to, or waiver from our code of business conduct, if any, within four business days of such event. Information available on our
web site is not being incorporated into this Proxy Statement.
What are the standing committees of the Board of Directors?
Our Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating Committee.
Audit Committee
Our Audit Committee reviews our
internal accounting procedures and considers and reports to our Board of Directors with respect to other auditing and accounting matters, including the selection of our independent registered public accounting firm, the scope of annual audits, fees
to be paid to our independent registered public accounting firm and the performance of our independent registered public accounting firm. Our Audit Committee operates under a formal written charter available on our website at www.tumbleweed.com
under the caption “Corporate Governance” on the Investor Relations page. The current members of the Audit Committee are James A. Heisch (Chairman), Christopher H. Greendale, and Standish H. O’Grady, each of whom is an independent
director under the Securities and Exchange Commission (“SEC”) rules and regulations and Nasdaq Marketplace rules and listing standards. The Audit Committee did not change its composition during the fiscal year ended December 31, 2007.
Our Board of Directors has determined that Mr. Heisch, the Chairman of our Audit Committee, is qualified as an audit committee
financial expert within the meaning of SEC rules and regulations by virtue of his education and experience.
Compensation Committee
Our Compensation Committee reviews and recommends to our Board of Directors certain base salaries, cash bonuses, equity awards such as stock options, and
benefits for employees, consultants, directors and other
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individuals compensated by us. The current members of our Compensation Committee are Christopher H. Greendale (Chairman), James A. Heisch, and
Dr. Deborah D. Rieman, each of whom is an independent director, as determined by our Board of Directors, within the meaning of the Nasdaq Marketplace Rules and listing standards and regulations issued by the Internal Revenue Service and
the SEC. Our Board of Directors has adopted a Compensation Committee Charter, which is available on our website at www.tumbleweed.com under the caption “Corporate Governance” on the Investor Relations page. The charter is also available in
print to any stockholder who requests it.
Our Compensation Committee held eight meetings during the fiscal year ended December 31,
2007. Our Compensation Committee’s responsibilities, which are discussed in detail in its charter, include, among other duties, the responsibility to:
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establish the base salary, incentive compensation and any other compensation for our Chief Executive Officer and review and approve our Chief Executive
Officer’s recommendations for the compensation of certain Named Executive Officers reporting to him;
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monitor our management incentive and stock based compensation plans and discharge the duties imposed on our Compensation Committee by the terms of those plans; and
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perform other functions or duties deemed appropriate by our Board of Directors.
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Compensia, an outside consulting firm, assisted our Compensation Committee in delivering upon the responsibilities listed above.
The agenda for meetings of our Compensation Committee is determined by our Compensation Committee Chairman with the assistance of our Secretary and our
senior human resources personnel. Compensation Committee meetings are attended from time to time by our Chief Executive Officer and Chairman of the Board of Directors. Our Compensation Committee’s Chairman reports the committee’s
recommendations to our Board of Directors.
Our senior human resources personnel support our Compensation Committee in its duties and,
along with our Chief Executive Officer, may be delegated authority to fulfill certain administrative duties regarding our compensation programs. Our Compensation Committee has authority under its charter to retain, approve fees for, and terminate
advisors, consultants and agents as it deems necessary to assist in the fulfillment of its responsibilities.
Compensation Committee Interlocks and
Insider Participation
None of the members of our Compensation Committee during the fiscal year ended December 31, 2007
(1) was an officer or employee of ours or any of our subsidiaries, (2) was formerly an officer or an employee of ours or any of our subsidiaries, except for James A. Heisch, who served as our interim Chief Financial Officer in 2001, or
(3) had any relationship requiring disclosure by us under the rules of the SEC requiring disclosure of related party transactions.
Nominating
Committee
The functions of our Nominating Committee include the following: identifying and recommending to our Board of Directors
individuals qualified to serve as our directors and on committees of our Board of Directors, and advising our Board of Directors with respect to its and its committee’s composition and procedures. A copy of the charter is available on our
website at www.tumbleweed.com under the caption “Corporate Governance” on the Investor Relations page.
The members of our
Nominating Committee are Dr. Deborah D. Rieman (Chairman), and Standish H. O’Grady, each of whom is an independent director under the Nasdaq Marketplace Rules listing standards. Our Nominating Committee held one meeting during the
fiscal year ended December 31, 2007.
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Our Nominating Committee will consider director candidates recommended by stockholders. In considering
candidates submitted by stockholders, our Nominating Committee will take into consideration the needs of our Board of Directors and the qualifications of the candidate. Our Nominating Committee may also take into consideration the number of shares
held by the recommending stockholder and the length of time that such shares have been held. To have a candidate considered by our Nominating Committee, a stockholder must submit the recommendation in writing and include the following information:
the name of the stockholder evidence of their ownership of our stock, including the number of shares owned and the length of time of ownership; the name of the candidate and the candidate’s resume or a listing of their qualifications to be a
director of ours; and the candidate’s consent to be named as a director if selected by our Nominating Committee and nominated by our Board of Directors.
The stockholder recommendations and information described above must be sent to our Secretary at 700 Saginaw Drive, Redwood City, California. For a stockholder nominee to be considered for inclusion in our Proxy
Statement for 2009 Annual Meeting of Stockholders, such notice must be received by our Secretary in accordance with the procedures set out under the heading “May I propose actions for consideration at next year’s Annual Meeting of
Stockholders?” on page 3 of this Proxy Statement.
Our Nominating Committee believes that the minimum qualifications for serving as a
director of ours are that a nominee demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to our Board of Directors oversight of our business and affairs and have an impeccable record and
reputation for honest and ethical conduct in both his or her professional and personal activities. In addition, our Nominating Committee examines a candidate’s specific experiences and skills, time availability in light of other commitments,
potential conflicts of interest, and independence from management and Tumbleweed. Our Nominating Committee also seeks to have our Board of Directors represent a diversity of backgrounds, experience, gender, and race.
Our Nominating Committee identifies potential nominees by asking our current directors and others to notify the Nominating Committee if they become aware
of persons, meeting the criteria described above, who might be available to serve on our Board of Directors. Our Nominating Committee also, from time to time, may engage firms that specialize in identifying director candidates. As described above,
our Nominating Committee will also consider candidates recommended by our stockholders.
Once a person has been identified by our
Nominating Committee as a potential candidate, our Nominating Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If our Nominating Committee determines that
the candidate warrants further consideration, our Nominating Committee Chairman or another member of our Nominating Committee contacts the person. Generally, if the person expresses a willingness to be considered and to serve on our Board of
Directors, our Nominating Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, particularly in comparison to any other candidates that our Nominating Committee might be considering, and
conducts one or more interviews with the candidate. In certain instances, Nominating Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have
greater first-hand knowledge of the candidate’s accomplishments. Our Nominating Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although our Nominating Committee may take
into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held.
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PROPOSAL 1
ELECTION OF DIRECTORS
Our Certificate of Incorporation currently authorizes no fewer than one and no more than ten directors. Our Board of Directors is currently comprised of
eight directors. Our Certificate of Incorporation divides our Board of Directors into three classes—Class I, Class II and Class III—with members of each class serving staggered three-year terms. One class of directors is elected by the
stockholders at each Annual Meeting to serve a three-year term and until their successors are duly elected and qualified. The Class III directors will stand for reelection or election at the 2008 Annual Meeting. The Class I directors will stand for
reelection or election at the 2009 Annual Meeting and the Class II directors will stand for reelection or election at the 2010 Annual Meeting. If any nominee for any reason is unable to serve, or for good cause will not serve, as a director, the
proxies may be voted for such substitute nominee as the proxy holders may determine. We are not aware of any nominee who will be unable to serve, or for good cause will not serve, as a director.
The names of the nominees for election as Class III directors at the Annual Meeting and of the continuing Class I and Class II directors, and certain
information about them as of April 11, 2008, are set forth below:
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Principal Occupation/Position Held With Us
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Incumbent Class I directors:
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Kenneth R. Klein
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Chief Executive Officer, Wind River Systems, Inc.
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Jeffrey C. Smith
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Founder and Director
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Incumbent Class II directors:
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Dr. Taher A. Elgamal
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Director and Chief Technology Officer
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Dr. Deborah D. Rieman
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Private Investment Fund Manager
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James P. Scullion
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Chairman of the Board of Directors and Chief Executive Officer
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Nominees for Class III directors:
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Christopher H. Greendale
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General Partner, Kodiak Venture Partners
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James A. Heisch
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Independent Consultant
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Standish H. O’Grady
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Senior Managing Director, Granite Ventures, LLC
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James P. Scullion
, Chairman of the Board of Directors and Chief Executive Officer, is
responsible for our vision, strategy and overseeing our operations. Before being appointed as Chairman and Chief Executive Officer of Tumbleweed in January 2006, Mr. Scullion served as President and Chief Executive Officer of ComnetiX, Inc.
from January 2004 to January 2006. Prior to joining ComnetiX, Inc., Mr. Scullion held several leadership positions at Identix, Inc., where he served as President and Chief Operating Officer from April 1999 to June 2002, Executive Vice President
from 1996 to April 1999, and Chief Financial Officer from 1990 to April 2001. Mr. Scullion has served on our Board of Directors since April 2003 and was Chairman of our Audit Committee from April 2003 to January 2006. Mr. Scullion also was
a member of the Board of Directors of ComnetiX, Inc., a position he held from January 2004 to February 2007, and a member of the Board of Directors of Identix, Inc. from 1998 to June 2002. Mr. Scullion holds a B.S. in Business
Administration/Accounting from San Jose State University.
Dr. Taher A. Elgamal
, Director and Chief Technology Officer, is
responsible for our technical direction and for driving our innovative research and development initiatives. Dr. Elgamal has served on our Board of Directors since July 2003. Prior to joining Tumbleweed as Chief Technology Officer in October
2006, Dr. Elgamal served as Chairman and Chief Executive Officer of Ektasis, Inc. from April 2005 to September 2006. Prior to joining Ektasis, Inc., Dr. Elgamal was a founder and Chairman and Chief Technology Officer of Securify, Inc. from
June 1998 to March 2005. Prior to founding Securify, Inc., Dr. Elgamal served as the Chief Scientist at Netscape, Inc. from April 1995 to June 1998. Dr. Elgamal is also serving on the Board of Directors of HiFn, Inc. and has served on the
Board of Directors of Diversinet Corp., Phoenix Technologies Inc.,
8
Register.com, RSA Security Inc., and Valicert, Inc. Dr. Elgamal holds a B.S. in Electrical Engineering from Cairo University and a Ph.D. and M.S. in
Computer Science from Stanford University.
Christopher H. Greendale
has served on our Board of Directors since August 2001. From
May 2004 to present Mr. Greendale has been a General Partner with Kodiak Venture Partners and from May 2002 to May 2004, Mr. Greendale was a Venture Partner with Kodiak Venture Partners. From March of 2002 to March 2003, Mr. Greendale
was a Venture Partner of GrandBanks Capital. From September 2000 to March 2002, Mr. Greendale was engaged in independent venture capital investing. From January 1998 until September 2000, Mr. Greendale was a Managing Director with Internet
Capital Group. In addition, Mr. Greendale currently serves on the Board of Directors of a number of early stage systems integration and software companies. From 1991 to 1997 Mr. Greendale served as Executive Vice President, Marketing for
Cambridge Technology Partners Massachusetts Inc., which he also co-founded. Mr. Greendale holds a B.A. in Mathematics and an M.B.A. from Southern Illinois University.
James A. Heisch
has served on our Board of Directors since June 2006. Since 2002, Mr. Heisch has been an independent consultant. In 1999,
Mr. Heisch joined Worldtalk Corporation as Chief Financial Officer and later was promoted to President. We acquired Worldtalk Corporation in 2000, and subsequently Mr. Heisch served as our interim Chief Financial Officer during 2001. From
1994 to 1998, Mr. Heisch served with medical device company VidaMed, Inc., initially as Chief Financial Officer, and then as President and Chief Executive Officer. Additionally, Mr. Heisch has 17 years of experience with Arthur
Young & Company where he was an audit partner from 1977 to 1982. Mr. Heisch holds a B.S. in accounting from San Jose State University and M.B.A. from the Leavy School of Business at the University of Santa Clara.
Kenneth R. Klein
has served on our Board of Directors since February 2000. Mr. Klein has been President, Chief Executive Officer and Chairman
of the Board of Directors of Wind River Systems, Inc. since January 2004. Previously, Mr. Klein was employed by Mercury Interactive Corp. and held the positions of Chief Operating Officer from January 2000 to December 2003, President, North
American Operations from July 1998 to January 2000, and Vice President of North American Sales from April 1995 to July 1998. Prior to that, Mr. Klein served in a variety of engineering and sales management roles in the software industry.
Mr. Klein holds degrees in Electrical Engineering and Biomedical Engineering from the University of Southern California.
Standish
H. O’Grad
y has served on our Board of Directors since August 1997. Mr. O’Grady is a founder and Managing Director of Granite Ventures LLC. He previously served in various positions with Hambrecht & Quist Group’s
venture capital practice since 1986. Mr. O’Grady currently serves on the Board of Directors of Wind River Systems, Inc., Five Across, Inc., and StepUp Commerce, Inc. Mr. O’Grady also serves on the compensation and nominating
committees at Wind River Systems, Inc. Mr. O’Grady holds a B.S.E. in Chemical Engineering from Princeton University and an M.B.A. from the Amos Tuck School of Business Administration at Dartmouth College.
Dr. Deborah D. Rieman
has served on our Board of Directors since March 2001. Since 1999, Dr. Rieman has managed a private
investment fund. From 1995 to 1999, Dr. Rieman served as President and Chief Executive Officer of CheckPoint Software Technologies, Inc. Prior to joining CheckPoint Software Technologies, Inc. Dr. Rieman held various executive and
marketing positions with Adobe Systems, Inc., Sun Microsystems, Inc. and Xerox Corporation. Dr. Rieman also serves as a director of Keynote Systems, Inc., Kintera, Inc. and Corning, Inc. Dr. Rieman holds a B.A. in Mathematics from Sarah
Lawrence College and a Ph.D. in Mathematics from Columbia University.
Jeffrey C. Smith
founded Tumbleweed in June 1993.
Mr. Smith has served on our Board of Directors since June 1993, and served as our Chairman of the Board of Directors, President, and Chief Executive Officer from June 1993 through March 2001, and as our Chairman of the Board of Directors and
Chief Executive Officer from March 2001 through June 2005. Previously, Mr. Smith held various senior positions in research and development with the following firms: Frame Technology from January 1991 to June 1993; Aion Corp. from January 1990
to
9
January 1991; Hewlett-Packard Company from June 1988 to June 1989; and IBM Scientific Research Center in Palo Alto from June 1987 to June 1988.
Mr. Smith served as a lecturer in Software Engineering at Stanford University in 1988 and 1989. Mr. Smith holds a B.S. in Computer Science from Stanford University.
Information with respect to our Audit Committee is set forth above under the heading “What are the standing committees of the Board of
Directors?—Audit Committee” in this Proxy Statement.
Vote Required
Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote, and the director nominees who receive
the greatest number of votes at the Annual Meeting (up to the number of directors to be elected) will be elected. Proxies cannot be voted for a greater number of persons than the number of nominees named. Abstentions and Broker non-votes, if any,
will not affect the outcome of the vote on the election of directors. Unless instructed to the contrary in the proxy, the shares represented by proxies will be voted FOR the election of the nominated directors.
THE BOARD OF DIRECTORS RECOMMENDS
A
VOTE IN FAVOR OF EACH NAMED NOMINEE.
10
PROPOSAL 2
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Audit Committee has selected and our Board of Directors has ratified the selection of KPMG LLP to continue as our independent registered public
accounting firm for the fiscal year ending December 31, 2008 and has further directed that management submit the selection of independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. KPMG LLP
served as our independent registered public accounting firm for the fiscal year ending December 31, 2007. Representatives of KPMG LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so
desire, and will be available to respond to appropriate questions.
Stockholder ratification of the selection of KPMG LLP as our
independent registered public accounting firm is not required by our Bylaws or otherwise. However, our Board of Directors is submitting the selection of KPMG LLP to the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, our Audit Committee and our Board of Directors will reconsider whether or not to retain that firm. Even if the selection is ratified, our Audit Committee and our Board of Directors in their discretion may
direct the appointment of a different independent registered public accounting firm at any time during the year if they determine that such a change would be in the best interests of us and our stockholders.
Vote Required
The affirmative vote of a majority of
the shares of common stock present in person or represented by proxy at the Annual Meeting is required for the ratification of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008. In
determining whether the proposal has received the requisite number of affirmative votes, abstentions will be counted and will have the same effect as a vote against this proposal. Broker non-votes, if any, will not have any effect on the result of
the vote. Unless instructed to the contrary in the proxy, the shares represented by proxies will be voted FOR the proposal to ratify KPMG as our independent registered public accounting firm for the fiscal year ending December 31, 2008.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
11
EXECUTIVE COMPENSATION
Executive Officers of Tumbleweed Communications Corp.
James P. Scullion
, Chairman of the Board of Directors and Chief Executive Officer, is responsible for our vision, strategy and overseeing our
operations. Before being appointed as Chairman and Chief Executive Officer of Tumbleweed in January 2006, Mr. Scullion served as President and Chief Executive Officer of ComnetiX, Inc. from January 2004 to January 2006. Prior to ComnetiX, Inc.,
Mr. Scullion held several leadership positions at Identix, Inc., where he served as President and Chief Operating Officer from April 1999 to June 2002, Executive Vice President from 1996 to April 1999, and Chief Financial Officer from 1990 to
April 2001. Mr. Scullion has served on the Board of Directors of Tumbleweed since April 2003 and was Chairman of Tumbleweed’s Audit Committee from April 2003 to January 2006. Mr. Scullion also was a member of the Board of Directors of
ComnetiX, Inc., a position he has held from January 2004 to February 2007. Mr. Scullion holds a B.S. in Accounting from San Jose State University. Mr. Scullion is 52 years old.
Timothy G. Conley,
Senior Vice President of Finance and Chief Financial Officer, is responsible for the accounting, finance and investor relations
functions of Tumbleweed. Prior to joining Tumbleweed in July 2003, Mr. Conley served as Vice President, Finance and Chief Financial Officer for Valicert, Inc. from January 2000 to June 2003 when it was acquired by us. Prior to joining Valicert,
Inc., Mr. Conley was Vice President of Finance and Chief Financial Officer of Longboard, Inc. from September 1998 to January 2000. Prior to joining Longboard, Inc., Mr. Conley served as Vice President of Finance and Chief Financial Officer
of Logicvision, from June 1997 to August 1998. Previously, Mr. Conley was Vice President of Finance and Chief Financial Officer of Verilink Corporation from November 1989 to May 1997. Mr. Conley holds a B.S. in Business Administration from
Wisconsin State University. Mr. Conley is 59 years old.
Dr. Taher A. Elgamal,
Director and Chief Technology Officer,
is responsible for our technical direction and for driving our innovative research and development initiatives. Dr. Elgamal has served on our Board of Directors since July 2003. Prior to joining Tumbleweed as Chief Technology Officer in October
2006, Dr. Elgamal served as Chairman and Chief Executive Officer of Ektasis, Inc. from April 2005 to September 2006. Prior to joining Ektasis, Inc., Dr. Elgamal was a founder and Chairman and Chief Technology Officer of Securify, Inc. from
June 1998 to March 2005. Prior to founding Securify, Inc., Dr. Elgamal served as the Chief Scientist at Netscape, Inc. from April 1995 to June 1998. Dr. Elgamal is also serving on the Board of Directors of HiFn, Inc. and has served on the
Board of Directors of Diversinet Corp., Phoenix Technologies Inc., Register.com, RSA Security Inc., and Valicert, Inc. Dr. Elgamal holds a B.S. in Electrical Engineering from Cairo University and a Ph.D. and M.S. in Computer Science from
Stanford University. Dr. Elgamal is 52 years old.
Nicholas W. Hulse,
Executive Vice President of Worldwide Field Operations,
is responsible for overseeing sales, channel development, and professional services. Prior to joining Tumbleweed in March 2007, Mr. Hulse was Senior Vice President of Sales, Marketing, and Channel Development at FrontBridge Technologies, Inc.
from January 2005 to August 2006, prior to which Mr. Hulse was Vice President Global Alliances at FrontBridge Technologies, Inc. from March 2003 to January 2005. Prior to joining FrontBridge Technologies, Inc., Mr. Hulse was General
Manager/Senior Vice President at Cybertek Holdings/Secos, Inc. from May 2001 to December 2002. Prior to joining Cybertek Holdings/Secos, Inc., Mr. Hulse was a Vice President of Marketing, Product, and Channel Sales at Epoch Internet from
January 2000 to May 2001. Prior to joining Epoch Internet, Mr. Hulse was Vice President of Marketing and Business Development at Aris Corporation from April 1997 to September 1999. Mr. Hulse holds an O.N.D. in Business Studies from
Middlesex College and an H.N.D. in Business Studies from Newcastle Upon Tyne Polytechnic, United Kingdom. Mr. Hulse is 42 years old.
Bernard J. Cassidy,
Senior Vice President and General Counsel, is responsible for legal, corporate development, and human resources matters. Before joining Tumbleweed in May 1999, Mr. Cassidy was in private practice at
Wilson Sonsini Goodrich & Rosati from August 1992 to May 1999, and at Skadden, Arps, Slate Meagher & Flom LLP from September 1989 to July 1992. Mr. Cassidy holds a B.A. in Philosophy from Loyola University,
an M.A. in Philosophy from the University of Toronto and a J.D. from Harvard Law School. Mr. Cassidy is 53 years old.
There are no
family relationships among any of our directors and our executive officers.
12
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Objectives
The Compensation Committee of the Board of Directors is responsible for establishing and overseeing the goals and objectives of our executive compensation
plans and practices. These goals and objectives are:
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to attract, retain and reward executive officers who contribute to our success;
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to align the financial interests of our executive officers with our performance;
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to strengthen the relationship between executive pay and stockholder value;
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to motivate executive officers to achieve our business objectives; and
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to reward individual performance.
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The Compensation Committee annually reviews our executive compensation goals and objectives in light of our corporate goals and objectives, and makes recommendations to the Board of Directors for amendment if the Compensation Committee
deems appropriate.
Components of Compensation
The Compensation Committee is responsible for establishing and monitoring our executive compensation program, and reviewing and recommending for approval by the Board of Directors all aspects of executive compensation, including the
compensation of our Named Executive Officers. To accomplish the goals and objectives of our program, our executive compensation package consists of four components: base salary, non-equity incentive plan awards (cash bonuses), equity awards such as
stock options and restricted stock, and severance benefits. We also provide our executive officers with indemnification and compensation benefits generally available to our employees, such as health and welfare benefits and participation in a 401(k)
program. We may also provide reasonable perquisites as necessary. Based on benchmark compensation data, the Compensation Committee recommends for approval by the Board of Directors the elements that comprise the overall executive compensation
package to:
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•
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offer a total compensation package, of base salary, severance, and other compensation benefits, that is competitive with those offered by competitors in our
industry so that Tumbleweed can attract and retain top talent;
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provide cash bonuses to encourage the achievement of important corporate and individual objectives in the short-term and reward individual performance; and
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provide equity compensation to align executive and stockholder interests, and reward executives for increasing stockholder value.
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The Compensation Committee is responsible for making recommendations for approval by the Board of Directors regarding the compensation of the Named
Executive Officers, including salaries, cash bonuses, and equity awards. The Compensation Committee is also responsible for conducting the quarterly evaluation of the performance of our Chief Executive Officer. Our Chief Executive Officer also makes
periodical recommendations for the Compensation Committee for final approval by the Board of Directors regarding the compensation for our Named Executive Officers, and is also responsible for conducting quarterly evaluations of the performance of
our Named Executive Officers.
During the fiscal year ended December 31, 2007, the Compensation Committee obtained compensation market
information from Radford Aon Consulting, Inc. (“Radford”) to assist in analyzing our compensation strategy and determining the appropriate level and mix of compensation for our executive officers, including the Named Executive Officers. We
participate in the market surveys conducted by Radford, and receive survey information with respect to a peer group of technology and other companies with revenues similar to
13
Tumbleweed. The Compensation Committee reviews the peer group annually, and will make changes from time to time as it deems appropriate. For the fiscal year
ended December 31, 2007, the Compensation Committee used market survey information from a peer group composed of 173 public and private companies, primarily in the technology sector and with revenues under $200 million and averaging $65 million
(“the Comparison Group”), including Active Identity, Actuate Corp., Chordiant Software Inc., Entrust Inc., Phoenix Technologies Inc., SurfContorl, and Vignette Corp. We also engaged Compensia Consulting Services to evaluate the
competitiveness of the equity compensation component for our Named Executive Officers, and to recommend adjustments as appropriate to maintain competitiveness within a peer group of companies.
The Compensation Committee obtains benchmark compensation levels for executive positions from the survey information at percentile ranges for salaries
and bonuses. For the fiscal year ended December 31, 2007, the Compensation Committee targeted the overall compensation of our Named Executive Officers within 15 percent of the 50th percentile level of the Comparison Group, which the
Compensation Committee felt positioned Tumbleweed’s executive pay practices at an appropriately competitive position to our peers. The market data was also used to determine the appropriate target for non-cash compensation. In determining
target non-cash compensation, we relied on Compensia Consulting Services’ expertise.
In the fiscal year ended December 31, 2007, the Compensation Committee recommended and the Board of Directors approved compensation for Mr. Nicholas W. Hulse, Vice President of Worldwide Field Operations, who was appointed
our Executive Vice President of Worldwide Field Operations effective March 4, 2007.
The significant elements of our executive
compensation policy are described below.
Base Salaries
The first component of our executive compensation package is base salary. Tumbleweed provides base salaries to our employees, including the Named Executive Officers, to compensate them for services rendered, and base
salary is an element of compensation used to determine any incentive bonus for the Named Executive Officers.
In determining the base
salaries of Named Executive Officers, base salary levels are designed to be market-competitive for comparable positions at companies within our Comparison Group, with reference to the market survey information obtained by the Compensation Committee.
Base salaries above that level may be available to exceptional performers and key contributors to our success. In determining the appropriate base salary the Compensation Committee takes into account the executive’s responsibilities and
position, experience, specific competencies, comparable base salaries of our other executives, our overall budget for merit increases, and their individual performance and contributions to our performance. In the fiscal year ended December 31,
2007, the Compensation Committee targeted the base salary of our Named Executive Officers within 15 percent of the market median, or 50th percentile level, of the Comparison Group.
The Compensation Committee makes recommendations to the Board of Directors regarding base salary adjustments for our Named Executive Officers for
approval by the Board of Directors. Base salary adjustments may be awarded based on individual performance, assumption of new responsibilities, competitive data from the Comparison Group, employee retention efforts, and our overall annual salary
budget guidelines, with due regard to the industry experience of each executive, and current market conditions.
In 2006, we appointed Dr. Taher A. Elgamal as Chief Technology Officer. Dr. Elgamal’s initial annual base salary was set at $300,000, and was not increased in the fiscal year ended
December 31, 2007. Based on the market survey information obtained by the Compensation Committee, Dr. Elgamal’s base salary was in the excess of the 90
th
percentile during 2006 and 2007 and is in excess of 90
th
percentile for 2008, which is above the range of 15
percent of the 50th percentile level of the Comparison Group and which reflects Dr. Elgamal’s significant expertise and standing as an industry luminary, and the additional responsibilities for business development performed by
Dr. Elgamal as Chief Technology Officer.
14
In 2007, Tumbleweed hired Mr. Hulse as
Executive Vice President of Worldwide Field Operations. His annual base salary was set at $275,000, which was in the 80
th
percentile during 2007 and
is in the 90
th
percentile for 2008. Mr. Hulse’s base salary is above the target range of 15 percent of the 50th percentile level of
the Comparison Group. We established Mr. Hulse’s salary at the level that allowed us to stay competitive in our recruiting efforts.
In 2007, the base salaries of our Named Executive Officers ranged between the 45
th
and in excess of the 90
th
percentile compared to the
market survey information obtained by the Compensation Committee. These levels were deemed by the Compensation Committee to be consistent with our compensation goals and objectives. The base salaries of our existing Named Executive Officers
increased by a range of 0% to approximately 5% during the fiscal year ended December 31, 2007. For the fiscal year ended December 31, 2007, the Compensation Committee approved an increase in the base salary of Mr. Conley effective
January 1, 2007 since Mr. Conley was the only Named Executive Officer whose total compensation was below target range. The Committee determined to not provide increases to other continuing Named Executive Officers in 2007 since their
compensation was in line with the target.
Cash Bonuses
The second component of our executive compensation package is annual non-equity incentive plan awards, or cash bonuses. Cash bonuses are designed to focus the attention of our executives on the goals and activities
that are critical to our success, and to promote and reward performance and achievement of corporate objectives. For the fiscal year ended December 31, 2007, we provided cash bonuses to our Named Executive Officers through an annual executive
bonus program with quarterly reviews and a one-time discretionary retention bonus, each as described below. All of our Named Executive Officers, James P. Scullion, Timothy G. Conley, Dr. Taher A. Elgamal, Nicholas W. Hulse, Bernard J.
Cassidy and Daniel G. Greenberg, received cash bonuses during the fiscal year ended December 31, 2007, as described below.
Target Setting for Cash
Bonuses Program
The performance objectives for our Named Executive Officers during the fiscal year ended December 31, 2007 are
embedded in our strategic and operating plan which was approved by our Board of Directors during October 2006. Based on the corporate financial performance targets set in this strategic and operating plan, our Compensation Committee recommends
corporate financial performance targets for our Named Executive Officers for the approval of the Board of Directors. Also based on this strategic and operating plan, our Compensation Committee establishes individual objectives for our Chief
Executive Officer and our Chief Executive Officer establishes individual objectives for our Named Executive Officers at the beginning of the year. The individual objectives for all Named Executive Officers are designed to promote the execution of
the strategic initiatives identified in the company’s strategic and operating plan, to encourage strong financial results and maximize long-term shareholder value, and are established with a view towards metrically-driven objectives. In
establishing the objectives, the Compensation Committee and our Chief Executive Officer set standards at levels they believe are significant, but achievable with rigorous personal commitment. The specific objectives related to each executive
officer’s area of responsibility contain multiple measures that are tied directly to the realization of our overall strategy and the goals and initiatives for each executive officer’s areas of responsibility as set forth in our strategic
and operating plan, as discussed below. Achievement of the target performance for all measures would result in a full payout of the portion of the bonus dependent on executive-specific objectives.
Cash Bonuses Composition
Cash bonuses are generally
weighted so that fifty percent of the target amount is based on Tumbleweed financial performance and fifty percent is based on the achievement of the individual performance objectives of each Named Executive Officer. To the extent an executive
officer is responsible for a revenue-generating
15
business unit, however, more emphasis may be placed on such business unit’s financial results. During the year ended December 31, 2007, the
Compensation Committee set target bonuses for the Named Executive Officers at 50% of base pay for 2007, except for the revenue-generating Named Executive Officers, Messrs. Hulse and Cassidy, whose target bonuses for 2007 were set at 72.7% and 76.5%
of their base pay, respectively, based on the review of market data for our Comparison Group and taking into account the overall compensation package for those individuals. The amount of the bonus actually paid is not determined with reference to
the market data but rather with regard to the realization of the overall company and individual objectives that are evaluated quarterly. The Compensation Committee conducts a quarterly review of our Chief Executive Officer’s achievements
against his individual objectives. Our Chief Executive Officer conducts a quarterly review for the other Named Executive Officers’ achievements of their specific objectives. Each bonus is calculated by multiplying the percentage of individual
goals achieved by the percentage of the executive’s target bonus payout amount allocated towards individual achievement targets, which is then added to the percentage of the company goals achieved, multiplied by the corresponding target bonus
payout amount. Based on the recommendations of our Compensation Committee and current trends in executive compensation, the amounts of target bonuses for the Named Executive Officers for 2008 will be consistent with the target bonuses for 2007 and
will generally range between 50% and 63% of base salary. The Compensation Committee expects that the target bonus percentile of salary may change in the future. Discretionary cash bonuses are also available for awarding exceptional performance or to
function as a retention tool in unusual circumstances.
Tumbleweed Financial Objectives
The target bonuses for Messrs. Scullion, Conley, Elgamal, and Greenberg were weighted so that 50% of the target amounts were based on their achievement of
specific objectives and 50% were based on Tumbleweed achieving financial objectives for the fiscal year ended December 31, 2007 set by the Board of Directors in October 2006. Tumbleweed financial objectives consisted of achieving at least 19%
growth in revenue in 2007 as compared to 2006 and Tumbleweed being profitable on a non-GAAP basis (Non-GAAP results exclude stock-based compensation expense and intangible asset amortization expense) for 2007. These financial objectives were not
achieved, thus no bonus relate to the achievement of Tumbleweed financial objectives was paid out to the above-listed Named Executive Officers for the fiscal year ended December 31, 2007.
Individual Performance Objectives
Due to the fact
that the Company did not meet its financial guidance for both the three months ended June 30, 2007 and September 30, 2007, each executive agreed to forego the portion of his bonus related to the individual performance objectives for the
three months ended September 30, 2007.
Mr. Conley’s individual performance was evaluated by our Chief Executive Officer.
The process included Mr. Conley’s self-evaluation and an evaluation by our Chief Executive Officer of Mr. Conley’s overall performance and his contribution to the Company’s performance under our operating plan, which were
achieved at 88%, excluding impact of Mr. Conley foregoing the portion of his bonus related to his individual performance objectives for the three months ended September 30, 2007. Our Chief Executive Officer assessed Mr. Conley’s
achievement of his individual performance objectives for 2007 based on the following criteria: maintaining highest quality of financial data, maintaining highest quality and compliant internal controls, managing and developing the Company’s
budget and budgeting process, and increasing awareness of Tumbleweed in the investment community.
Dr. Elgamal’s individual
performance was evaluated by our Chief Executive Officer. The process included Dr. Elgamal’s self-evaluation and an evaluation by our Chief Executive Officer of Dr. Elgamal’s overall performance and his contribution to the
Company’s performance under our operating plan, which were achieved at 95%, excluding impact of Dr. Elgamal foregoing the portion of his bonus related to his individual performance objectives for the three months ended September 30,
2007. Our Chief Executive Officer assessed Dr. Elgamal’s achievement of his individual performance objectives for 2007 based on the following criteria: developing a solid
16
product roadmap and delivering high quality product releases per the approved product roadmap, continuing to advance our product development methodology,
continuing to upgrade the engineering organization with qualified and ambitious new hires, and managing within his expense budget.
The
target bonus for Mr. Hulse, our Executive Vice President of Worldwide Field Operations, was weighted so that 80% of the target amount was based on his performance under his sales commission plan, and 20% based on the achievement of specific
objectives. In connection with recruiting Mr. Hulse to the role of Executive Vice President of Worldwide Field Operations in March 2007, the Board of Directors guaranteed Mr. Hulse’s target bonus amount from his start date of
March 4, 2007 through June 30, 2007. As indicated above, Mr. Hulse forewent the portion of his bonus related to his individual performance objectives for the three months ended September 30, 2007. The process for evaluating
Mr. Hulse’s performance for the period October 1, 2007 through December 31, 2007 was consistent with that of other Named Executive Officers and included Mr. Hulse’s self-evaluation and an evaluation by our Chief
Executive Officer of Mr. Hulse’s overall performance and his contribution to the Company’s performance under our operating plan, which were achieved at 100%. Our Chief Executive Officer assessed Mr. Hulse’s achievement of
his individual performance objectives for 2007 based on the following criteria: developing and launching a new global sales partnership program, increasing international sales performance and presence, managing costs within his assigned budget, and
creating a consistent set of policies, and methodologies which are clear, concise, and applied globally. In addition, in January 2008, our Board of Directors awarded Mr. Hulse a one-time discretionary bonus of $15,000 for a high level
performance by our sales organization in the three months ended December 31, 2007, based on the recommendation of the Compensation Committee.
The target bonus for Mr. Cassidy, our Senior Vice President and General Counsel, was weighted so that 77% of the target amount is based on his performance under his intellectual property commission plan, and 23% based on the
achievement of specific objectives. Mr. Cassidy’s individual performance was evaluated by our Chief Executive Officer. The process included Mr. Cassidy’s self-evaluation and an evaluation by our Chief Executive Officer of
Mr. Cassidy’s overall performance and his contribution to the Company’s performance under our operating plan, which were achieved at 93%, excluding impact of Mr. Cassidy foregoing the portion of his bonus related to his
individual performance objectives for the three months ended September 30, 2007. Our Chief Executive Officer based Mr. Cassidy’s achievement of his individual performance objectives for 2007 based on the following criteria: providing
high quality legal services, executing on corporate development initiatives, and delivering enhanced employee training in key areas.
Mr. Greenberg’s individual performance was evaluated by the Chief Executive Officer. The process included Mr. Greenberg’s self-evaluation and an evaluation by our Chief Executive Officer of Mr. Greenberg’s
overall performance and his contribution to the Company’s performance under our operating plan. Mr. Greenberg achieved 48% of the objectives set in his individual performance plan due to the termination of his employment as our Chief
Marketing Officer effective August 8, 2007; Mr. Greenberg became ineligible for the incentive bonus in the second half of 2007. Our Chief Executive Officer based Mr. Greenberg’s achievement of his individual performance
objectives for 2007 based on the following criteria: creating a dominant and differentiated brand, growing the sales opportunities pipeline through effective lead generation program, building a strong marketing team, and creating a market-driven
organization.
Discretionary retention bonus
The Board of Directors also created a one-time discretionary retention bonus in connection with the appointment of James P. Scullion to the position of Chief Executive Officer in January 2006. The Board of Directors offered this retention
bonus to promote the retention and stability of executive management following the transition to a new Chief Executive Officer. All executives that were employed with Tumbleweed at the time of Mr. Scullion’s appointment, including the
Named Executive Officers, were offered this retention bonus in January 2006, in the amount of $50,000, provided they remained in service as Tumbleweed executives in January 2007. Messrs. Conley and Cassidy received this retention bonus during 2007.
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The bonus calculations and payouts for each Named Executive Officer during the fiscal year ended
December 31, 2007 are set forth in the table below.
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Name
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Annual
base
salary
($)
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Annual
target
bonus
amount
as a %
of salary
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Target
bonus
amount
($)
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Achievement
of
executive-
specific
objectives
%
|
|
|
Target bonus
amount
adjusted by
achievement
of executive-
specific
objectives
($)
|
|
Achievement
of
Tumbleweed
financial or
specific
commission
objectives(2)
%
|
|
Target bonus
amount
adjusted by
achievement
of
Tumbleweed
financial
or
specific
commission
objectives
($)
|
|
Discretionary/
one-time
bonus
($)
|
|
Total
bonus
payout
($)
|
|
|
|
(a)
|
|
(b)
|
|
(c)=(a)*(b)
|
|
(d)
|
|
|
(e)=
1
/
2
(c)*(d)
|
|
(f)
|
|
(g)=
1
/
2
(c)*(f)
|
|
(h)
|
|
(i)=(e)+(g)+(h)
|
|
James P. Scullion,
|
|
350,000
|
|
50
|
|
175,000
|
|
70
|
(1)
|
|
61,568
|
|
—
|
|
—
|
|
—
|
|
61,568
|
|
Chairman of the Board of Directors and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy G. Conley,
|
|
230,000
|
|
50
|
|
115,000
|
|
66
|
(1)
|
|
37,986
|
|
—
|
|
—
|
|
50,000
|
|
87,986
|
|
Senior Vice President of Finance and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Taher A. Elgamal,
|
|
300,000
|
|
50
|
|
150,000
|
|
71
|
(1)
|
|
53,532
|
|
—
|
|
—
|
|
—
|
|
53,532
|
|
Director and Chief Technology Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas W. Hulse,
|
|
275,000
|
|
72.7
|
|
165,500
|
|
70
|
(1)
|
|
23,100
|
|
40
|
|
52,400
|
|
15,000
|
|
90,500
|
|
Executive Vice President of Worldwide Field Operations(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bernard J. Cassidy,
|
|
230,000
|
|
76.5
|
|
176,000
|
|
70
|
(1)
|
|
27,950
|
|
—
|
|
—
|
|
50,000
|
|
77,950
|
|
Senior Vice President and General Counsel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel G. Greenberg,
|
|
250,000
|
|
50
|
|
125,000
|
|
48
|
|
|
30,000
|
|
—
|
|
—
|
|
—
|
|
30,000
|
|
Former Chief Marketing Officer(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As described above, each executive elected to forego the portion of his bonus related to the individual performance objectives for the three months ended September 30, 2007.
The percentages quoted above assume achievement of individual performance objectives for the three months ended September 30, 2007 at zero, thus making the achievement percentages computed here lower than the rate actually achieved.
|
|
(2)
|
As described above, Tumbleweed financial objectives were not achieved in the fiscal year ended December 31, 2007, thus no bonus adjusted by achievement of Tumbleweed financial
objectives was paid out to the Named Executive Officers for the fiscal year ended December 31, 2007.
|
|
(3)
|
Mr. Hulse became our Executive Vice President of Worldwide Field Operations effective March 4, 2007, thus his target annual bonus of $200,000 was prorated.
|
|
(4)
|
Mr. Greenberg was appointed Chief Marketing Officer effective April 2, 2006 and served in this capacity until August 9, 2007.
|
2008 Annual Bonuses Program
The annual bonus targets
for our Named Executive Officers for the fiscal year ended December 31, 2008 were recommended by our Compensation Committee and approved by our Board of Directors in February 2008. The bonus targets for 2008 for our Named Executive Officers
were set at 50% of their base salaries, except for the revenue-generating Named Executive Officers, Messrs. Hulse and Cassidy, whose target bonuses for 2008 were set at 72.8% and 61.8% of their base salaries, respectively, based on the review of
updated market data for our Comparison Group and taking into account the overall compensation packages for those individuals. While 2008 target bonus amounts remained relatively consistent with those for 2007, our Compensation Committee proposed,
and the Board of Directors approved, a change in the bonus structure effective January 1, 2008. The target bonuses for Messrs. Scullion, Conley, and Elgamal, including both the portion associated with the achievement of executive-specific
objectives and with Tumbleweed achieving financial objectives for the fiscal year ended December 31, 2008 are to be awarded in shares of restricted stock as opposed to in cash. The revenue-generating Named Executive Officers will still receive
cash for their performance under their sales commission plan, but the portion of their bonus associated with the achievement of executive-specific objectives will be awarded in shares of restricted stock and not in cash.
18
Equity Compensation
The third component of our executive compensation package is the award of equity, in the form of either stock options or shares of restricted stock, the split between which is determined based on the information on
our Comparison Group obtained primarily from Compensia Consulting Services. We believe equity awards are critical as an incentive tool designed to closely align the interests of our Named Executive Officers with the long-term interests of our
stockholders. All equity grants for our Named Executive Officers are reviewed and approved by our entire Board of Directors based on the recommendations of our Compensation Committee with reference to the Comparison Group. Grants include awards for
new-hire Named Executive Officers and awards based on individual performance, assumption of new responsibilities, competitive data from the Comparison Group, employee retention efforts, and our overall financial performance, with due regard to the
industry experience of each executive officer, and current market conditions. Awards are made under our equity plans. Please see the discussion of our equity plans under the heading “2007 Grants of Plan-Based Awards Table” in this Proxy
Statement.
In order to determine the number of stock options and/or restricted stock to be awarded, the Comparison Group data regarding
the fair value of equity awards was compared to the fair value of our stock options using a Black-Scholes-Merton option-pricing model or the fair value of restricted stock. All awards of stock options are made with an exercise price at the market
price at the time of the award or at the date of hire, which is equal to the closing price of our shares on the date of the grant or the date of hire.
Consistent with our goal of aligning the financial interests of our Named Executive Officers with our long-term performance, the following Named Executive Officers received stock option grants and/or grants of
restricted stock during fiscal year 2007: Timothy G. Conley, Nicholas W. Hulse, Bernard J. Cassidy and Daniel G. Greenberg. In January, 2007 our Board of Directors granted each of Messrs. Conley, Cassidy, and Greenberg 75,000 shares subject to
the option. This grant of options was used as a retention incentive. One forty-eighth (1/48th) of the shares subject to the option vested on the first monthly anniversary date of the vesting start date and thereafter one forty-eighth
(1/48th) of the shares subject to the option vest each month, so the entire option will have vested in full after four years. The Board of Directors approved 700,000 stock options and a grant of 50,000 shares of restricted stock to
Mr. Hulse on March 2, 2007, subsequent to Mr. Hulse’s acceptance of Executive Vice President of Worldwide Field Operations position, but prior to his start date of March 4, 2007. The amount of the grant was determined based
on competitive data regarding the fair value of equity awards from the Comparison Group and current market conditions. With the purposes of retaining and further incentivizing Mr. Hulse, our Board of Directors granted Mr. Hulse granted
additional 200,000 stock options in July 2007; the step was deemed necessary due to a drop in Tumbleweed stock price subsequent to the grant made to Mr. Hulse upon the commencement of his service with us.
On February 11, 2008, our Board of Directors granted restricted stock awards to all current
Named Executive Officers: Messrs. Scullion, Conley, Elgamal, Hulse, and Cassidy under our Deferred Stock Agreement. This grant was recommended and approved by our Board of Directors to further align the financial interests of our Named Executive
Officers with our long-term performance. Until the lapse of the Deferral Period (as defined therein), the Deferred Stock may not be sold or otherwise transferred and are subject to forfeiture upon termination of the executive’s employment with
the Company for any reason. One half (
1
/
2
) of these grants will vest on February 12, 2009 and the other one half (
1
/
2
) will vest on February 9, 2010. These grants will accelerate upon a change of control of Tumbleweed.
Severance Benefits
The fourth component of executive compensation is severance benefits. We provide certain severance payments and the acceleration of vesting of certain equity awards upon separation, subject to customary conditions, in order to be
competitive in the market for executive talent and promote the stability and continuity of senior management. We provide severance to our Named Executive Officers based on the information we
19
obtain on our Comparison Group and on our historical practices. Our severance benefits for our Named Executive Officers are described more fully in the
“Summaries of Employment Agreements” section of this Proxy Statement.
Other Compensation
Other than as described above, we do not provide benefits to our key Named Executive Officers that are different than or in addition to those provided to
our general employees.
Retirement
Our Named Executive Officers are allowed to participate in our company-sponsored 401(k)
retirement plan on the same terms and conditions as our other employees. For the fiscal year ended December 31, 2007, we did not provide any matching funds to either our executive officers or our general employees.
Health and Welfare
We provide our Named Executive Officers with health and welfare benefits that are available to all our employees,
including medical, dental and vision benefits, disability insurance and life insurance. These benefits are offered to attract and retain employees while providing our employees with protection from hardships that might otherwise arise from their
illness, disability or death.
Indemnification
Our Amended and Restated Certificate of Incorporation and our Amended and
Restated Bylaws provide for indemnification of our directors and officers against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent allowed under Delaware law. We also have a
director and officer indemnification policy. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors and officers under the foregoing provisions, we have been informed that, in the opinion of the
SEC, such indemnification is against public policy, as expressed in the Securities Act, and may therefore be unenforceable.
Section 162 Policy
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally provides that publicly held companies may not deduct compensation paid to certain of its top Named Executive Officers to
the extent such compensation exceeds $1 million per officer in any year. However, pursuant to regulations issued by the Treasury Department, certain limited exceptions to Section 162(m) apply with respect to “performance-based
compensation.” Awards granted under our 1999 Omnibus Stock Incentive Plan are intended to constitute qualified performance-based compensation eligible for such exceptions, and we will continue to monitor the applicability of Section 162(m)
to our ongoing compensation arrangements. We do not expect that amounts of compensation paid to our Named Executive Officers will fail to be deductible as a result of Section 162(m). Our Compensation Committee has not adopted a policy that all
compensation must be deductible under 162(m), to maintain flexibility with respect to its ability to promote varying corporate goals in our executive compensation program.
Chief Executive Officer’s Compensation
Our Compensation Committee is responsible for
reviewing and approving all aspects of compensation for our Chief Executive Officer, subject to the final approval by the Board of Directors. Mr. Scullion’s performance against his individual performance goals was evaluated by the
Compensation Committee in accordance with its quarterly Chief Executive Officer evaluation procedure, which includes a self-evaluation by the Chief Executive Officer and an evaluation by each Compensation Committee member of Mr. Scullion’s
overall performance and his contribution to the Company’s performance under our operating plan. Due to the fact that Tumbleweed did not meet its financial guidance for both the three months ended June 30, 2007 and September 30, 2007,
Mr. Scullion volunteered to forego the portion of his bonus related to the individual performance objectives for the three months ended September 30, 2007. During the fiscal year ended 2007, the Compensation Committee determined that
Mr. Scullion’s performance was achieved at 94% of his personal objectives, excluding impact of Mr. Scullion foregoing the portion of his bonus related to his individual performance objectives for the three months ended
September 30, 2007. The Compensation Committee assessed Mr. Scullion’s achievement of his
20
individual performance objectives for 2007 based on the following criteria: driving the company vision and strategy including expanding our customer
footprint, increasing our brand awareness, expanding our reseller sales channel, expanding internationally, and enhancing investor relations.
In connection with Mr. Scullion’s employment offer in January of 2006, our Board of Directors reviewed the compensation package offered to Mr. Scullion in accordance with the executive compensation objectives described above.
Our Board of Directors considered competitive compensation data obtained from Radford Aon Consulting Inc. as well as Mr. Scullion’s education and executive experience with other technology companies, including his service as Chief
Executive Officer of ComnetiX, Inc., and his services as President and Chief Operating Officer at Identix, Inc., and his prior services with Tumbleweed as a director. Based on this review, our Board of Directors determined that the total
compensation package offered to Mr. Scullion was appropriate under prevailing market conditions, and necessary to secure Mr. Scullion’s services. Mr. Scullion’s compensation package did not change during the fiscal year
ended December 31, 2007.
21
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(*)
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K
with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
|
|
|
Compensation Committee
|
|
|
|
Christopher H. Greendale (Chairman)
James A. Heisch
Dr. Deborah D. Rieman
|
|
(*)
|
The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the
Company under the Securities Act of 1933 (the “Securities Act”) or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.
|
22
SUMMARY COMPENSATION TABLE
The following table provides information on the compensation earned during the
fiscal years ended December 31, 2007 and December 31, 2006, other than for Bernard J. Cassidy and Nicholas W. Hulse, who became Named Executive Officers during 2007, for (i) all individuals that served as Chief Executive Officer and
Chief Financial Officer at any time during the fiscal year ended December 31, 2007; (ii) the three most highly compensated executive officers (other than Chief Executive Officer and Chief Financial Officer) whose salary and bonus exceeded
$100,000 in the fiscal year ended December 31, 2007 and who were serving as executive officers during the fiscal year ended December 31, 2007; and (iii) up to two additional former executive officers who no longer serve as executive
officers but whose total compensation over the fiscal year would put them in the three most highly compensated executive officers whose salary and bonus exceeded $100,000 in the fiscal year ended December 31, 2007. These six individuals are
referred to in this Proxy Statement as the “Named Executive Officers.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Discretionary/
One-time
Bonus
($)
|
|
Restricted
Stock
Awards(7)
($)
|
|
Option
Awards(7)
($)
|
|
|
Non-Equity
Incentive Plan
Compensation(8)
($)
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
James P. Scullion,
Chairman of the Board of
Directors and Chief Executive
Officer(1)
|
|
2007
2006
|
|
350,000
335,417
|
|
—
21,875
|
|
—
—
|
|
1,310,680
1,304,735
|
(10)
(11)
|
|
61,568
175,000
|
|
—
—
|
|
|
1,707,665
1,837,027
|
|
|
|
|
|
|
|
|
|
|
|
Timothy G. Conley,
Senior Vice President of Finance
and Chief Financial Officer(2)
|
|
2007
2006
|
|
230,000
220,000
|
|
50,000
—
|
|
—
—
|
|
92,860
245,602
|
|
|
37,986
102,300
|
|
—
—
|
|
|
401,263
567,902
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Taher A. Elgamal,
Director and Chief Technology
Officer(3)
|
|
2007
2006
|
|
300,000
112,010
|
|
—
—
|
|
—
—
|
|
507,010
289,505
|
(12)
(13)
|
|
53,532
37,500
|
|
—
—
|
|
|
848,042
439,015
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas W. Hulse,
Executive Vice President of
Worldwide Field Operations(4)
|
|
2007
|
|
215,769
|
|
15,000
|
|
45,135
|
|
438,394
|
|
|
75,500
|
|
—
|
|
|
789,798
|
|
|
|
|
|
|
|
|
|
|
|
Bernard J. Cassidy,
Senior Vice President and General
Counsel(5)
|
|
2007
|
|
230,000
|
|
50,000
|
|
—
|
|
68,376
|
|
|
27,950
|
|
—
|
|
|
366,743
|
|
|
|
|
|
|
|
|
|
|
|
Daniel G. Greenberg,
Former Chief Marketing
Officer(6)
|
|
2007
2006
|
|
153,646
210,000
|
|
—
—
|
|
—
—
|
|
172,180
187,643
|
(14)
|
|
30,000
91,287
|
|
421,665
—
|
(9)
|
|
777,491
488,930
|
|
(1)
|
Mr. Scullion was appointed Chief Executive Officer effective January 17, 2006.
|
|
(2)
|
Mr. Conley was Chief Financial Officer of Valicert, Inc. prior to its acquisition by us, and became our Chief Financial Officer effective July 7, 2003.
|
|
(3)
|
Dr. Elgamal was appointed Chief Technology Officer effective October 1, 2006.
|
|
(4)
|
Mr. Hulse was appointed Executive Vice President of Worldwide Field Operations effective March 4, 2007.
|
|
(5)
|
Mr. Cassidy joined Tumbleweed in May 1999 in the capacity of General Counsel and became a Named Executive Officer in May 2007.
|
|
(6)
|
Mr. Greenberg was appointed Chief Marketing Officer effective April 2, 2006 and served in this capacity until he left his position on August 9, 2007.
|
|
(7)
|
The amounts reported represent the dollar amount of stock option and restricted stock awards recognized as compensation costs for financial statement reporting purposes (excluding
any reduction for estimated forfeitures) in accordance with Statement of Financial Accounting Standards 123 (revised 2004),
Share-Based Payment
(“SFAS 123R”) for grants made during and, when applicable, before the fiscal year
ended December 31, 2007. See Note [2] of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for a discussion of the assumptions used to calculate the
grant-date fair value of stock option awards and restricted stock awards and the related stock-based compensation expense in accordance with SFAS 123R. Please see the discussion of the material terms of stock and option awards under the heading
“2007 Grants of Plan-Based Awards Table”.
|
23
|
(8)
|
The amounts reported represent the cash awards earned for performance under the executive officers’ non-equity incentive plans during the fiscal year ended December 31,
2007. For more information, refer to the Compensation Discussion and Analysis section of this Proxy Statement under the heading
Cash Bonuses
.
|
|
(9)
|
The amount reported represents severance benefits paid or accrued and consists of $187,500 severance, $218,215 value of stock options awards that continue vesting for 9 months
subsequent to Mr. Greenberg’s termination, and $15,950 in continuation of medical benefits for 9 months subsequent to Mr. Greenberg’s termination.
|
|
(10)
|
Mr. Scullion’s option awards expense includes $37,422 expense associated with vesting of the stock options awarded for his services as Tumbleweed Director prior to his
appointment as our Chief Executive Officer on January 17, 2006.
|
|
(11)
|
Mr. Scullion’s option awards expense includes $80,315 expense associated with vesting of the stock options awarded for his services as Tumbleweed Director prior to his
appointment as our Chief Executive Officer on January 17, 2006.
|
|
(12)
|
Dr. Elgamal’s option awards expense includes $133,065 expense associated with vesting of the stock options awarded for his services as Tumbleweed Director prior to his
appointment as our Chief Executive Officer on January 17, 2006.
|
|
(13)
|
Dr. Elgamal’s option awards expense includes $204,218 expense associated with vesting of the stock options awarded for his services as Tumbleweed Director prior to his
appointment as our Chief Executive Officer on January 17, 2006.
|
|
(14)
|
Dr. Elgamal’s option awards 2007 expense includes expense associated with vesting of his stock options prior to his departure on August 8, 2007. The expense
associated with vesting of his stock options subsequent to his departure is recognized in All Other Compensation column.
|
EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVE OFFICERS
James P. Scullion
On January 23, 2006, we executed an employment agreement (the “Employment Agreement”) with Mr. Scullion in connection with
Mr. Scullion’s appointment as our Chief Executive Officer. According to the terms of the Employment Agreement, Mr. Scullion is entitled to a base salary of $350,000 on an annualized basis, and is eligible for a quarterly performance
bonus with an annual target amount equivalent to 50% of Mr. Scullion’s base salary. The actual bonus payout is based upon achievement of mutually agreed upon performance objectives and generally is weighted so that 50% of the target amount
is based on our overall financial performance and 50% based on the achievement of specific operational objectives. Additionally, pursuant to the terms of the Employment Agreement, Mr. Scullion received an option to purchase 2,250,000 shares of
our common stock, with 20% of the options vesting immediately on the date of grant, and the remainder vesting in equal installments during the 38 months thereafter and contingent upon Mr. Scullion’s continued employment with us on the
applicable vesting dates. The Employment Agreement also provides that if Mr. Scullion is terminated from his position as Chief Executive Officer for any reason other than “cause” (as defined therein), death or disability, or
Mr. Scullion terminates his employment as Chief Executive Officer following a “constructive termination” (as defined therein), he will be entitled to: (i) continuation of his then-current base salary for one year;
(ii) continued vesting of his then-outstanding stock options for one year; and (iii) continuation of his health benefits for one year. Further, if a “change of ownership control” (as defined therein) occurs during
Mr. Scullion’s tenure as Chief Executive Officer, and within twelve months either Mr. Scullion’s employment is terminated or a “constructive termination” occurs, he will be entitled to: (i) continuation of his
then-current base salary for one year; (ii) acceleration and immediate vesting of 100% of his then-outstanding stock options; and (iii) continuation of his health benefits for one year. If a “change of ownership control” occurs
during the first two years of Mr. Scullion’s employment, he will also be eligible for certain reimbursement of personal income taxes, called a “tax gross-up payment.” If Mr. Scullion’s employment is terminated due to
Mr. Scullion’s death or “disability” (as defined therein), then, subject to a release of claims by Mr. Scullion or his estate in a form reasonably satisfactory to us, he or his estate will be entitled, at our option to be
exercised within 30 days after such termination, to either: (i) continuation for a period of one year of the vesting of Mr. Scullion’s then-outstanding stock options; or (ii) one year’s acceleration of the vesting of
Mr. Scullion’s then-outstanding stock options.
Timothy G. Conley
On April 28, 2006, we executed an amendment (the “Amendment”) with Mr. Conley to Mr. Conley’s original employment agreement
with us dated July 7, 2003. According to the terms of the Amendment,
24
Mr. Conley is entitled to a base salary of $220,000 on an annualized basis and is eligible for a quarterly performance bonus with an annual target
amount equivalent to 50% of Mr. Conley’s base salary. The actual bonus payout is based upon achievement of mutually agreed upon performance objectives and generally is weighted so that 50% of the target amount is based on our overall
financial performance and 50% based on the achievement of specific departmental objectives in Mr. Conley’s areas of responsibilities. The Amendment also provides that if Mr. Conley is terminated from his position as Chief Financial
Officer for any reason other than “cause” (as defined therein), death or disability, or Mr. Conley terminates his employment as Chief Financial Officer following a “constructive termination” (as defined therein), then,
subject to a release of claims by Mr. Conley in a form reasonably satisfactory to us, he will be entitled to: (i) continuation of his then-current base salary for nine months; (ii) continued vesting of his then-outstanding stock
options for nine months; and (iii) continuation of his health benefits for nine months. Further, if a “change of ownership control” (as defined therein) occurs during Mr. Conley’s tenure as Chief Financial Officer, and
within six months thereafter either Mr. Conley’s employment is terminated other than for “cause” (as defined therein) or Mr. Conley terminates his employment as Chief Financial Officer following a “constructive
termination” (as defined therein), then, subject to a release of claims by Mr. Conley in a form reasonably satisfactory to us, (i) 100% of Mr. Conley’s then-outstanding stock options will accelerate and vest immediately;
(ii) payment of Mr. Conley’s base salary will continue for twelve months; and (iii) Mr. Conley will be entitled to reimbursement of the costs of COBRA coverage for twelve months. If Mr. Conley’s employment is
terminated due to Mr. Conley’s death or “disability” (as defined therein), then, subject to a release of claims by Mr. Conley or his estate in a form reasonably satisfactory to us, he or his estate will be entitled to:
(i) continuation of his then-current base salary for six months; and (ii) as determined by us, either (a) continued vesting of his then-outstanding stock options for six months or (b) six month’s acceleration of the vesting
his then-outstanding stock options. On January 31, 2007, the Board of Directors of Tumbleweed approved an increase to Mr. Conley’s salary to $230,000 on an annualized basis.
Dr. Taher A. Elgamal
We executed an offer letter with Dr. Elgamal dated October 1, 2006 in connection with his
appointment as our Chief Technology Officer. According to the terms of the offer letter, Dr. Elgamal is entitled to a base salary of $300,000 per year on an annualized basis and a quarterly performance bonus with an annual target amount of
$150,000. The actual bonus payout is based upon achievement of mutually agreed upon performance objectives and generally is weighted so that 50% of the target amount is based on our overall financial performance and 50% based on the achievement of
specific departmental objectives in Dr. Elgamal’s areas of responsibilities. Additionally, Dr. Elgamal was granted stock options to purchase 750,000 shares of our common stock subject to monthly vesting over a four-year period at a
rate equal to one forty-eighth (1/48
th
) per month. The offer letter provides that if Dr. Elgamal is terminated for any reason other than
“cause” (as defined therein), death or “disability” (as defined therein), or if Dr. Elgamal terminates his employment following a “constructive termination” (as defined therein), then, subject to a release of
claims by Dr. Elgamal in a form reasonably satisfactory to us, he will be entitled to: (i) continuation of his then-current base salary for nine months; (ii) continued vesting of his then-outstanding stock options for nine months; and
(iii) continuation of his health benefits for a period of nine months, or, at our option, reimbursement of his COBRA premiums for a period of nine months (together, the “Severance Benefits”). Further, if a “change of ownership
control” (as defined therein) occurs during Dr. Elgamal’s tenure as Chief Technology Officer, and within six months thereafter either Dr. Elgamal’s employment is terminated other than for “cause” or he is subject
to a “constructive termination” (as defined therein), then, in addition to the Severance Benefits and subject to a release of claims by Dr. Elgamal in a form reasonably satisfactory to us, 100% of Dr. Elgamal’s
then-outstanding stock options will accelerate and vest immediately. Dr. Elgamal is also eligible to participate in our standard benefits program including medical, dental and vision insurance, life and disability insurance, and participation
in our 401(k) plan.
Nicholas W. Hulse
We executed an offer letter with Mr. Hulse dated February 22, 2007 in connection with his appointment as our Executive Vice President of Worldwide Field Operations. According to the terms of the offer letter,
25
Mr. Hulse is entitled to a base salary of $275,000 per year on an annualized basis and a quarterly performance bonus with an annual target amount of
$200,000. The actual bonus payout if based upon achievement of mutually agreed upon performance objectives and generally is weighted so that 80% of the target amount is based on Mr. Hulse’s performance under his Sales Commission Plan and
20% is based on the achievement of specific objectives in Mr. Hulse’s areas of responsibilities. Additionally, Mr. Hulse was granted stock options to purchase 700,000 shares of our common stock subject to vesting, whereby one-third of
the options vested upon completion of one year of employment at Tumbleweed, and the remaining options vesting monthly thereafter over a two-year period. Additionally, Mr. Hulse is entitled to 50,000 shares of our common stock at par value (the
“Restricted Stock”), which shall be subject to repurchase by us, such that one-third of Mr. Hulse’s interest in the Restricted Stock vested upon the completion of one year of employment at Tumbleweed and the remaining Restricted
Stock vesting annually thereafter over a two-year period. The offer letter confirms his “at-will” employment and provides that if Mr. Hulse is terminated from his position as Executive Vice President of Worldwide Field Operations for
any reason other than “cause” (as defined therein), death or “disability” (as defined therein), or if Mr. Hulse terminates his employment as Executive Vice President of Worldwide Field Operations following a
“constructive termination” (as defined therein), then, subject to a release of claims by Mr. Hulse in a form reasonably satisfactory to us, he will be entitled to: (i) continuation of his then-current base salary for six months;
(ii) continued vesting of his then-outstanding stock options for six months; and (iii) continuation of his health benefits for a period of six months. Further, if a “change of ownership control” (as defined therein) occurs during
Mr. Hulse’s tenure as Executive Vice President of Worldwide Field Operations, and within six months thereafter either Mr. Hulse’s employment is terminated other than for “cause” (as defined therein) or he is subject to
a “constructive termination”, then, subject to a release of claims by Mr. Hulse in a form reasonably satisfactory to us, 100% of Mr. Hulse’s then-outstanding stock options will accelerate and vest immediately. Mr. Hulse
is also eligible to participate in our standard benefits program including medical, dental and vision insurance, life and disability insurance, and participation in a 401(k) plan. On February 11, 2008, the Board of Directors of Tumbleweed
approved an amendment to Mr. Hulse’s offer letter, dated February 22, 2007 to provide that if Mr. Hulse is terminated from his position as Executive Vice President of Worldwide Field Operations for any reason other than
“cause” (as defined therein), death or disability, or if Mr. Hulse terminates his employment as Executive Vice President of Worldwide Field Operations following a “constructive termination” (as defined therein), then,
subject to a release of claims by Mr. Hulse, he will be entitled to continuation of (i) his then-current base salary, (ii) the vesting of his stock options, and (iii) his health benefits, each for a period of nine months.
Bernard J. Cassidy
On June 15,
2007, we executed an amendment (the “Amendment”) with Bernard J. Cassidy that superseded Mr. Cassidy’s employment agreements dated May 19, 1999, July 20, 2001, and June 29, 2006. According to the terms of the
Amendment, Mr. Cassidy is entitled to a base salary of $230,000 on an annualized basis and is eligible for an annual incentive bonus with an annual target amount equivalent to 76.5% of Mr. Cassidy’s base salary. The actual bonus
payout will be based upon achievement of mutually agreed upon performance objectives. The Amendment also provides that if Mr. Cassidy is terminated from his position as Senior Vice President and General Counsel for any reason other than
“cause” (as defined therein), death or “disability” (as defined therein), or Mr. Cassidy terminates his employment as Senior Vice President and General Counsel following a “constructive termination” (as defined
therein), then, subject to a release of claims by Mr. Cassidy in a form reasonably satisfactory to us, he will be entitled to: (i) continuation of his then-current base salary for nine months; (ii) continued vesting of his
then-outstanding stock options for nine months; and (iii) continuation of his health benefits for nine months. Further, if a “change of ownership control” (as defined therein) occurs during Mr. Cassidy’s tenure as Senior
Vice President and General Counsel, and within six months thereafter either Mr. Cassidy’s employment is terminated other than for “cause” (as defined therein) or Mr. Cassidy terminates his employment as Senior Vice President
and General Counsel following a “constructive termination” (as defined therein), then, subject to a release of claims by Mr. Cassidy in a form reasonably satisfactory to us, (i) 100% of Mr. Cassidy’s then-outstanding stock
options will accelerate and vest immediately, (ii) payment of Mr. Cassidy’s base salary will continue for nine months and (iii) Mr. Cassidy will be entitled to reimbursement of the costs of COBRA coverage for him and his
covered dependants for nine months. If Mr. Cassidy’s employment is
26
terminated due to Mr. Cassidy’s death or “disability” (as defined therein), then, subject to a release of claims by Mr. Cassidy or
his estate in a form reasonably satisfactory to us, he or his estate will be entitled to: (i) continuation of his then-current base salary for nine months; (ii) continued vesting of his then-outstanding stock options for nine month; and
(iii) continued health benefits for nine months.
Daniel G. Greenberg
Effective August 9, 2007, Mr. Greenberg left his position as our Chief Marketing Officer. Pursuant to the terms of his employment agreement,
upon Mr. Greenberg’s termination of employment with us, he was to continue to be paid his annual base salary of $250,000 for a period of nine months and 399,740 unvested options held by Mr. Greenberg were to continue vesting for nine
months as a result of which additional 107,813 options will be vested. In addition, Mr. Greenberg’s health benefits will continue for nine months from the date of termination.
Limitation of Liability and Indemnification
Our Certificate of Incorporation includes provisions
that eliminate the personal liability of our directors for monetary damages for breach of fiduciary duty as a director, except for liability:
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•
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for any breach of the director’s duty of loyalty to us or our stockholders;
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•
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for acts or omissions not in good faith or that involved intentional misconduct or a knowing violation of law;
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•
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under Section 174 of the Delaware law; or
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•
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for any transaction from which the director derives an improper personal benefit.
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Our Certificate of Incorporation and Bylaws further provide for the indemnification of our directors and officers to the fullest extent permitted by
Section 145 of the Delaware law, including circumstances in which indemnification is otherwise discretionary. Indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons
under the foregoing provisions, or otherwise. We have been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
We have entered into agreements to indemnify our directors and Named Executive Officers in addition to the indemnification provided for in our
Certificate of Incorporation and Bylaws. These agreements, among other things, provide for indemnification of our directors and Named Executive Officers for expenses, judgments, fines and settlement amounts incurred by any of these people in any
action or proceeding arising out of his or her services as a director or executive officer or at our request. We believe that these provisions and agreements are necessary to attract and retain qualified people as directors and Named Executive
Officers.
27
2007 GRANTS OF PLAN-BASED AWARDS TABLE
The following table provides information concerning grants of options
to purchase our common stock and of restricted stock awards made during the fiscal year ended December 31, 2007 to the Named Executive Officers.
In the fiscal year ended December 31, 2007, we granted awards of 83,000 shares of restricted stock and options to purchase up to an aggregate of 4,455,450 shares to employees and directors pursuant to the
following plans: Tumbleweed Communications Corp. 1999 Omnibus Stock Incentive Plan, as amended; 2000 NSO Incentive Stock Plan; and Valicert, Inc. 1998 Stock Plan. All of these options were granted at exercise prices equal to the fair market value of
our common stock on the date of grant and have a term of ten years. Our stock options generally either vest over four years, with 25% of the option shares vesting one year after the option grant date, or vest ratably each month over four years
beginning on the option grant date. Our restricted shares generally vest over three years, with one third of the restricted shares vesting on each one year anniversary of the shares grant date with the entire grant fully vesting within three years.
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Name
|
|
Grant
Date
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Date of
Board of
Directors
Meeting(1)
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All Option
Awards:
Number of
Securities
Underlying
Options
(#)
|
|
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Exercise
Price
of Option
Awards
($/Sh)
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Grant Date
Fair Value
of Option
Awards(2)
($)
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All Stock
Awards:
Number of
Shares of
Stock
(#)
|
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James P. Scullion,
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—
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—
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—
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—
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—
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—
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Chairman of the Board of Directors and Chief Executive Officer
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Timothy G. Conley,
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01/30/07
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—
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75,000
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(3)
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3.21
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151,995
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—
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Senior Vice President of Finance and Chief Financial Officer
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Dr. Taher A. Elgamal,
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—
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—
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—
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—
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—
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—
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Director and Chief Technology Officer
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Nicholas W. Hulse,
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03/04/07
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03/02/07
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700,000
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(4)
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3.28
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1,449,560
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50,000
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(4)
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Executive Vice President of Worldwide Field Operations
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07/31/07
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—
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200,000
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(5)
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2.28
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271,700
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—
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Bernard J. Cassidy,
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01/30/07
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—
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75,000
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(3)
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3.21
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151,995
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—
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Senior Vice President and General Counsel
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Daniel G. Greenberg,
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01/30/07
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—
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75,000
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(3)(6)
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3.21
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151,995
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—
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Former Chief Marketing Officer
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(1)
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The Board of Directors approved stock options and restricted stock grant to Mr. Hulse on March 2, 2007, subsequent to Mr. Hulse’s acceptance of Executive Vice
President of Worldwide Field Operations position, but prior to his start date of March 4, 2007.
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(2)
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The amounts reported represent the grant date fair value of option awards as of the date of the grant. The grant date fair value is calculated in accordance with Statement of
Financial Accounting Standards 123 (revised 2004),
Share-Based Payment
(“SFAS 123R”) for grants made during the fiscal year ended December 31, 2007. See Note [2] of the Notes to Consolidated Financial Statements included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for a discussion of the assumptions used to calculate the grant-date fair value of stock option awards in accordance with SFAS 123R.
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(3)
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Option awards were granted to Mr. Conley, Mr. Cassidy, and Mr. Greenberg as a retention tool to incentives these Named Executive Officers to remain employed with us.
One forty-eighth (1/48th) of the shares subject to the option shall vest on the first monthly anniversary date of the vesting start date and thereafter one forty-eighth (1/48th) of the shares subject to the option shall vest each month, so
the entire option will have vested in full after four years.
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(4)
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Option and stock awards were granted to Mr. Hulse upon his appointment as our Executive Vice President of Worldwide Field Operations in accordance with
Mr. Hulse’s Employment Contract. One third (1/3rd) of
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28
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the shares subject to the option shall vest on the first annual anniversary date of the vesting start date and thereafter one thirty-sixth (1/36th) of
the shares subject to the option each month, so the entire option will have vested in full after three years. One third (1/3rd) of the restricted shares vested on the first annual anniversary date of the vesting start date and thereafter one
third (1/3rd) of the shares subject are vesting each year, so the entire grant will have vested in full after three years.
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(5)
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Option award was granted to Mr. Hulse with the purposes of retaining and further incentivizing him; the step was deemed necessary due to a drop in Tumbleweed stock price
subsequent to the grant made to Mr. Hulse upon the commencement of his service with us. One thirty-sixth (1/36th) of the shares subject to the option shall vest on the first monthly anniversary date of the vesting start date and thereafter
one thirty-sixth (1/36th) of the shares subject to the option each month, so the entire option will have vested in full after three years.
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(6)
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Mr. Greenberg’s stock options are continuing to vest for 9 months subsequent to his departure on August 9, 2007,
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Material Terms and Conditions of Plans Governing Plan-Based Awards
1999 Employee Stock Purchase Plan
The
1999 Employee Stock Purchase Plan (“the Purchase Plan”) was approved by Tumbleweed’s stockholders on August 3, 1999, which allows eligible employees to purchase common stock at a discount from fair market value. A total of
500,000 shares of common stock has been reserved for issuance under the Purchase Plan for each fiscal year occurring during the term of the Purchase Plan, which will terminate in 2009. Tumbleweed suspended the Purchase Plan in 2002.
1993 Stock Option Plan
On
September 30, 1993, Tumbleweed adopted the 1993 Stock Option Plan (“the Plan”). In 1999, Tumbleweed’s Board of Directors approved an amendment to the plan to increase the number of shares authorized for issuance by 650,000 shares
to a total of 3,768,500 authorized shares. In August 1999, Tumbleweed ceased granting further options under the Plan. Under the Plan, the exercise price for incentive options is at least 100% of the fair market value on the date of grant. The
exercise price for nonqualified stock options is at least 85% of the fair market value on the date of grant. Options generally expire in ten years. Vesting periods are determined by Tumbleweed’s Board of Directors and generally provide for 25%
of the options to vest on the first anniversary date of the grant with the remaining options vesting monthly over the following 36 months.
1999 Omnibus Stock Incentive Plan
The 1999 Omnibus Stock Incentive Plan (“the Incentive Plan”) was approved by
Tumbleweed’s stockholders on August 3, 1999, for the benefit of Tumbleweed’s officers, directors, key employees, advisors and consultants. An aggregate of 16,882,858 shares of common stock is reserved for issuance under the Incentive
Plan, which provides for the issuance of stock-based incentive awards, including stock options, stock appreciation rights, limited stock appreciation rights, restricted stock, deferred stock, and performance shares. Options generally expire in ten
years. The Incentive Plan provides for an automatic annual increase in the number of stock options available for grant of the lesser of 2,000,000 shares or 5% of the number of Tumbleweed’s outstanding shares on the last day of the immediately
preceding fiscal year.
2000 NSO Incentive Stock Plan
The 2000 NSO Incentive Stock Plan (“the NSO Incentive Plan”) was adopted by Tumbleweed’s Board of Directors on July 10, 2000. The NSO Incentive Plan qualifies as a “broadly based” plan
and is for the benefit of Tumbleweed’s officers, directors, employees, advisors, and consultants. It provides for the issuance of stock-based incentive awards, including stock options, stock appreciation rights, restricted stock, deferred
stock, and performance shares or any combination of such. The options granted under the NSO Incentive Plan are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of
1986. An aggregate of 4,181,500 shares of common stock are reserved for issuance under the NSO Incentive Plan, which will terminate on July 10, 2010.
29
Under the terms of the NSO Incentive Plan, the exercise price for stock options is determined by the
Board of Directors, Compensation Committee, or Administrators, generally 100% of the fair market value on the date of grant. The option term is determined by the Board of Directors, Compensation Committee, or Administrators, generally no longer than
ten years. Vesting periods are determined by the Board of Directors, Compensation Committee, or Administrators and generally provide for 25% of the options to vest on the first anniversary date of the grant with the remaining options vesting monthly
over the following 36 months.
Interface Stock Option Plans
On September 1, 2000, Tumbleweed assumed the Interface 1992 Stock Option Plan (“the 1992 Plan”) in connection with the Interface, Inc.
(“Interface”) acquisition. The 1992 Plan provided for the grant of both incentive stock options and non-qualified options to officers and key employees at not less than market price on the date of grant as determined by the Board of
Directors. Under the 1992 Plan, options generally vest at the rate of 33% per year after one year from the date of grant and have a term of ten years.
Valicert Stock Option Plans
On June 23, 2003, Tumbleweed assumed the Valicert 1998 Stock Option
Plan, the 2001 Non-Statutory Stock Plan, the 1996 Equity Incentive Plan, and the Receipt.com Plan in connection with the acquisition of Valicert. These stock plans provide for the grant of options and restricted stock to employees, consultants and
directors. Incentive stock options are granted at fair market value on the date of grant. Non-statutory options may be offered at not less than 85% of the fair market value on the date of the grant. Options generally vest over four years, and have a
maximum term of ten years. The number of stock options available for grant automatically increases on the first day of each fiscal year by the lesser of 1,413,912 shares or 5% of the number of Tumbleweed’s outstanding shares on the last day of
the preceding year. An aggregate of 8,959,813 shares of common stock is reserved for issuance under the Valicert stock option plans.
Valicert stock option plans assumed by Tumbleweed were amended to conform with Tumbleweed stock option plans. This provides Tumbleweed with the flexibility to issue additional options as needed and promotes uniformity in new options issued
to ex-Valicert and Tumbleweed employees. Specifically, the 2001 Non-Statutory Stock Plan, the 1998 Stock Option Plan and the 1996 Equity Incentive Plan, were amended, including the forms of option agreements under each such plan, to conform the
terms and conditions applicable to options granted under such plans to the terms and conditions applicable to options granted under Tumbleweed’s 1999 Omnibus Incentive Plan, including the form of option agreement under such plan.
In addition to conforming the terms of the Valicert stock option plans assumed by Tumbleweed to Tumbleweed’s stock option plan, the 1998 Stock
Option Plan was further amended prior to the closing of the merger to provide the following:
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•
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the number of shares of Valicert common stock available for grant under the 1998 Stock Option Plan immediately following the close of the merger was no less than
1.5 million shares of Valicert common stock; and
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•
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the provision of the 1998 Stock Option Plan that provides for a 5% annual increase in the number of stock options available for grant under such plan shall be
calculated as a percentage of the number of Tumbleweed shares issued and outstanding rather than the number of Valicert shares issued and outstanding.
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Corvigo Stock Option Plan
On March 18, 2004, Tumbleweed assumed the Corvigo 2002 Stock Option
Plan in connection with the acquisition of Corvigo. This plan provides for the grant of options to employees, consultants and directors. Incentive stock options are granted at fair market value on the date of grant. Non-statutory options may be
offered at not less than 85% of the fair market value on the date of the grant. Generally, 25% of the options vest on the first anniversary date of the grant with the remaining options vesting monthly over the following 36 months. Options have a
maximum term of ten years. An aggregate of 884,678 shares of common stock is reserved for issuance under the Corvigo 2002 Stock Option Plan, which will not grant new options after November 15, 2012.
30
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
The following table provides information regarding unexercised
options and unvested stock awards for each Names Executive officer.
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Option Awards
|
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Stock Awards
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|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Vesting
Schedule
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have not
Vested
(#)
|
|
Market
Value of
Shares or
Units of
Stock That
Have not
Vested
($)
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Name
|
|
Exercisable
|
|
Unexercisable
|
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James P. Scullion,
|
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53,125
|
|
—
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1.24
|
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A
|
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04/10/13
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—
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—
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Chairman of the Board of Directors and Chief Executive Officer
|
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34,167
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5,833
|
|
2.93
|
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B
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07/20/14
|
|
—
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|
—
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11,250
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|
3,750
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|
3.36
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B
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12/16/14
|
|
—
|
|
—
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21,875
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|
15,000
|
|
2.38
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|
B
|
|
06/10/15
|
|
—
|
|
—
|
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1,539,474
|
|
710,526
|
|
2.61
|
|
C
|
|
01/14/16
|
|
—
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|
—
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|
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|
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1,659,891
|
|
735,109
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|
|
|
|
|
|
|
—
|
|
—
|
|
|
|
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|
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|
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|
Timothy G. Conley,
|
|
64,166
|
|
—
|
|
12.86
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|
H
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|
02/03/10
|
|
—
|
|
—
|
|
Senior Vice President of Finance and Chief Financial Officer
|
|
9,625
|
|
—
|
|
8.28
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|
G
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|
02/28/11
|
|
—
|
|
—
|
|
|
7,700
|
|
—
|
|
5.97
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|
G
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|
04/27/11
|
|
—
|
|
—
|
|
|
15,400
|
|
—
|
|
6.88
|
|
D
|
|
07/17/11
|
|
—
|
|
—
|
|
|
23,100
|
|
—
|
|
2.99
|
|
G
|
|
03/04/12
|
|
—
|
|
—
|
|
|
21,135
|
|
—
|
|
0.73
|
|
D
|
|
12/12/12
|
|
—
|
|
—
|
|
|
261,500
|
|
—
|
|
2.70
|
|
B
|
|
07/07/13
|
|
—
|
|
—
|
|
|
38,500
|
|
—
|
|
2.53
|
|
B
|
|
06/23/13
|
|
—
|
|
—
|
|
|
100,000
|
|
—
|
|
4.80
|
|
B
|
|
06/02/14
|
|
—
|
|
—
|
|
|
10,000
|
|
—
|
|
2.96
|
|
E
|
|
10/21/14
|
|
—
|
|
—
|
|
|
100,000
|
|
—
|
|
2.51
|
|
F
|
|
01/18/16
|
|
—
|
|
—
|
|
|
17,188
|
|
57,812
|
|
3.21
|
|
B
|
|
01/30/17
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668,314
|
|
57,812
|
|
|
|
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Dr. Taher A. Elgamal,
|
|
7,700
|
|
—
|
|
25.32
|
|
I
|
|
07/24/10
|
|
—
|
|
—
|
|
Director and Chief Technology Officer
|
|
3,850
|
|
—
|
|
6.88
|
|
E
|
|
07/17/11
|
|
—
|
|
—
|
|
|
|
3,850
|
|
—
|
|
1.79
|
|
G
|
|
05/29/12
|
|
—
|
|
—
|
|
|
|
4,235
|
|
—
|
|
0.73
|
|
D
|
|
12/12/12
|
|
|
|
|
|
|
|
135,000
|
|
—
|
|
2.70
|
|
A
|
|
07/07/13
|
|
—
|
|
—
|
|
|
|
25,625
|
|
4,375
|
|
2.93
|
|
B
|
|
07/20/14
|
|
—
|
|
—
|
|
|
|
18,750
|
|
11,250
|
|
2.38
|
|
B
|
|
06/10/15
|
|
—
|
|
—
|
|
|
|
11,250
|
|
18,750
|
|
2.86
|
|
B
|
|
06/09/16
|
|
—
|
|
—
|
|
|
|
125,000
|
|
—
|
|
2.85
|
|
E
|
|
06/30/16
|
|
—
|
|
—
|
|
|
|
218,749
|
|
531,251
|
|
2.82
|
|
B
|
|
10/01/16
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
554,009
|
|
565,626
|
|
|
|
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Nicholas W. Hulse,
|
|
—
|
|
700,000
|
|
3.28
|
|
J
|
|
03/04/17
|
|
50,000
|
|
164,000
|
|
Executive Vice President of Worldwide Field Operations
|
|
27,778
|
|
172,222
|
|
2.28
|
|
I
|
|
07/31/17
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,778
|
|
872,222
|
|
|
|
|
|
|
|
—
|
|
—
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
|
|
Option
Exercise
Price
($)
|
|
Option
Vesting
Schedule
|
|
Option
Expiration
Date
|
|
Number of
Shares or
Units of
Stock That
Have not
Vested
(#)
|
|
Market
Value of
Shares or
Units of
Stock That
Have not
Vested
($)
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
|
|
|
|
|
Bernard J. Cassidy,
|
|
10,000
|
|
—
|
|
12.00
|
|
A
|
|
08/02/09
|
|
—
|
|
—
|
|
Senior Vice President and General Counsel
|
|
20,000
|
|
—
|
|
22.00
|
|
A
|
|
10/19/09
|
|
—
|
|
—
|
|
|
|
30,000
|
|
—
|
|
31.75
|
|
A
|
|
04/30/10
|
|
—
|
|
—
|
|
|
|
752
|
|
—
|
|
42.63
|
|
K
|
|
07/27/10
|
|
—
|
|
—
|
|
|
|
35,000
|
|
—
|
|
20.94
|
|
A
|
|
11/20/10
|
|
—
|
|
—
|
|
|
|
40,000
|
|
—
|
|
3.25
|
|
B
|
|
01/10/11
|
|
—
|
|
—
|
|
|
|
38,167
|
|
—
|
|
1.39
|
|
B
|
|
04/10/11
|
|
—
|
|
—
|
|
|
|
50,000
|
|
—
|
|
3.61
|
|
A
|
|
06/04/11
|
|
—
|
|
—
|
|
|
|
19,996
|
|
—
|
|
3.15
|
|
A
|
|
08/13/11
|
|
—
|
|
—
|
|
|
|
150,000
|
|
—
|
|
3.32
|
|
A
|
|
04/16/12
|
|
—
|
|
—
|
|
|
|
50,000
|
|
—
|
|
0.98
|
|
B
|
|
09/19/12
|
|
—
|
|
—
|
|
|
|
40,000
|
|
—
|
|
1.35
|
|
B
|
|
12/17/12
|
|
—
|
|
—
|
|
|
|
80,000
|
|
—
|
|
4.80
|
|
B
|
|
06/02/14
|
|
—
|
|
—
|
|
|
|
10,000
|
|
—
|
|
2.87
|
|
E
|
|
01/14/15
|
|
—
|
|
—
|
|
|
|
100,000
|
|
—
|
|
2.51
|
|
F
|
|
01/18/16
|
|
—
|
|
—
|
|
|
|
17,188
|
|
57,812
|
|
3.21
|
|
B
|
|
01/30/17
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
691,103
|
|
57,812
|
|
|
|
|
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Daniel G. Greenberg,
|
|
208,333
|
|
291,667
|
|
2.99
|
|
B
|
|
04/02/16
|
|
—
|
|
—
|
|
former Chief Marketing Officer
|
|
17,188
|
|
57,812
|
|
3.21
|
|
B
|
|
01/30/17
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,521
|
|
349,479
|
|
|
|
|
|
|
|
—
|
|
—
|
|
A
|
—one fourth (1/4th) of the shares subject to the option shall vest on the first annual anniversary date of the vesting start date and thereafter one forty-eighth
(1/48th) of the shares subject to the option each month, so the entire option will have vested in full after four years.
|
|
B
|
—one forty-eighth (1/48th) of the shares subject to the option shall vest on the first monthly anniversary date of the vesting start date and thereafter one forty-eighth
(1/48th) of the shares subject to the option shall vest each month, so the entire option will have vested in full after four years.
|
|
C
|
—20% of the shares subject to the option shall vest on the grant date and the remaining shares shall vest ratably on a monthly basis over 38 months.
|
|
D
|
—one thirty-sixth (1/36th) of the shares subject to the option shall vest on the day of the grant and thereafter one thirty-sixth (1/36th) of the shares subject to
the option shall vest each month, so that the entire option shall vest in 35 months. Pursuant to the acquisition of Valicert Inc. by us, the remaining unvested options as of June 23, 2003 vested immediately on that date.
|
|
E
|
—one twelfth (1/12th) of the shares subject to the option shall vest on the first monthly anniversary date of the vesting start date and thereafter one twelfth
(1/12th) of the shares subject to the option each month, so the entire option will have vested in full after one year.
|
|
F
|
—100% of the shares subject to the option shall vest on the first annual anniversary date of the vesting start date.
|
|
G
|
—one forty-eighth (1/48th) of the shares subject to the option shall vest on the day of the grant and thereafter one forty-eighth (1/48th) of the shares subject to
the option shall vest each month, so the entire option will have vested in full after 47 months.
|
32
|
H
|
—3.33% of the shares subject to the option shall vest after six months from the vesting start date and the remaining shares subject to the option shall vest ratably each month,
so the entire option will have vested in full after 47 months.
|
|
I
|
—one thirty-sixth (1/36th) of the shares subject to the option shall vest on the first monthly anniversary date of the vesting start date and thereafter one thirty-sixth
(1/36th) of the shares subject to the option each month, so the entire option will have vested in full after three years.
|
|
J
|
—one third (1/3rd) of the shares subject to the option shall vest on the first annual anniversary date of the vesting start date and thereafter one thirty-sixth
(1/36th) of the shares subject to the option each month, so the entire option will have vested in full after three years.
|
|
K
|
—100% of the shares subject to the option shall vest on the date of the grant.
|
33
2007 OPTION EXERCISES AND STOCK VESTED
None of the Named Executive Officers exercised stock options and no
shares of restricted stock granted to any Named Executive Officers vested during the fiscal year ended December 31, 2007.
34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
How many shares of common stock do our directors, Named Executive Officers, and largest stockholders own?
The following table sets forth certain information regarding the ownership of our common stock as of April 11, 2008 by: (a) each current
director and nominee for director; (b) each of the Named Executive Officers and individuals named in the section entitled “Summary Compensation Table” of this Proxy Statement; (c) all of our Named Executive Officers and directors
as a group; and (d) all those known by us to be beneficial owners of more than five percent of our common stock. Unless otherwise indicated, the address of each of the individuals named in this table is: c/o Tumbleweed Communications Corp., 700
Saginaw Dr., Redwood City, CA 94063.
|
|
|
|
|
|
|
|
|
|
Beneficial
Ownership(1)
|
|
|
Name and Address of Beneficial Owner
|
|
Number
of Shares(2)
|
|
Percent
of Total(3)
|
|
|
Empire Capital Partners, L.P.(4)
1 Gorham Island, Westport, CT 06880
|
|
6,613,894
|
|
12.94
|
%
|
|
Diker GP, LLC(5)
745 Fifth Avenue, Suite 1409, New York, NY 10151
|
|
5,083,389
|
|
9.94
|
%
|
|
S Squared Technology, LLC(6)
515 Madison Avenue, New York, NY 10022
|
|
5,002,300
|
|
9.8
|
%
|
|
UBS AG(7)
Bahnhofstrasse 45, PO Box CH-8021, Zurich, Switzerland
|
|
3,352,962
|
|
6.6
|
%
|
|
|
|
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
James P. Scullion
|
|
2,296,462
|
|
4.5
|
%
|
|
Timothy G. Conley
|
|
903,282
|
|
1.8
|
%
|
|
Dr. Taher A. Elgamal
|
|
868,350
|
|
1.7
|
%
|
|
Nicholas W. Hulse
|
|
651,004
|
|
1.3
|
%
|
|
Bernard J. Cassidy
|
|
846,916
|
|
1.7
|
%
|
|
Jeffrey C. Smith
|
|
1,638,221
|
|
3.2
|
%
|
|
Dr. Deborah D. Rieman
|
|
320,521
|
|
*
|
|
|
Christopher H. Greendale
|
|
339,896
|
|
*
|
|
|
James A. Heisch
|
|
108,646
|
|
*
|
|
|
Standish H. O’Grady
|
|
262,084
|
|
*
|
|
|
Kenneth R. Klein
|
|
279,167
|
|
*
|
|
|
Daniel G. Greenberg
|
|
301,834
|
|
*
|
|
|
|
|
|
|
|
|
|
Total Named Executive Officers and Directors
|
|
8,816,383
|
|
17.2
|
%
|
|
Total
|
|
28,868,928
|
|
56.4
|
%
|
|
*
|
Less than 1% of the issued and outstanding shares of common stock.
|
|
(1)
|
Based upon information supplied by officers, directors or beneficial owners of more than five percent, as the case may be, and Schedules 13D and 13G, if any, filed with the SEC.
Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated
as beneficially owned.
|
|
(2)
|
Includes shares of common stock owned by executives, shares subject to options exercisable within 60 days of April 11, 2008, and restricted shares granted by April 11,
2008 as presented in the table above; however, unless otherwise indicated these shares do not include any options or restricted stock awarded after April 11, 2008.
|
35
|
(3)
|
Applicable percentages are based on 51,144,795 issued and outstanding shares on March 31, 2008 adjusted as required by rules promulgated by the SEC.
|
|
(4)
|
Based on information contained in a Schedule 13D/A dated February 4, 2008, and filed jointly by Empire Capital Partners, L.P., Empire GP, L.L.C., Empire Capital Management,
L.L.C., Scott A. Fine and Peter J. Richards with the SEC on February 5, 2008, in which each of Messrs. Fine and Richards report beneficial ownership of 6,613,894 shares of Common Stock (consisting of 6,613,894 shares as to which each has shared
dispositive and shared voting powers), and each of Empire Capital Partners, L.P. and Empire GP, L.L.C. report beneficial ownership of 2,884,316 shares of Common Stock (consisting of 2,884,316 shares as to which each has shred dispositive and shared
voting powers), and Empire Capital Management, L.L.C. reports beneficial ownership of 3,729,578 shares of Common Stock (consisting of 3,729,578 shares as to which it has shared dispositive power and shared voting power).
|
|
(5)
|
Based on information contained in a Schedule 13G/A dated December 31, 2007 and filed jointly by Diker GP, LLC, Diker Management, LLC, Charles M. Diker and Mark N. Diker with
the SEC on February 12, 2008, in which each of Diker Management, LLC, Charles M. Diker and Mark N. Diker report beneficial ownership of 5,083,389 shares of Common Stock (consisting of 5,083,389 shares as to which each has shared dispositive and
shared voting powers), and Diker GP, LLC reports beneficial ownership of 4,754,105 shares of Common Stock (consisting of 4,754,105 shares as to which it has shared dispositive power and shared voting power).
|
|
(6)
|
Based on information contained in a Schedule 13G dated December 31, 2007 and filed jointly by S Squared Technology, LLC, S Squared Technology Partners, L.P., Seymour L.
Goldblatt and Kenneth A. Goldblatt with the SEC on January 17, 2008, in which S Squared Technology, LLC reports beneficial ownership of 4,108,700 shares of Common Stock (consisting of 4,108,700 shares as to which it has sole dispositive power
and sole voting power), S Squared Technology Partners, L.P. reports beneficial ownership of 893,600 shares of Common Stock (consisting of 893,600 shares as to which it has sole dispositive power and sole voting power) and each of Seymour L.
Goldblatt and Kenneth A. Goldblatt report beneficial ownership of 5,002,300 shares of Common Stock (consisting of 5,002,300 shares as to which each has sole dispositive and sole voting powers).
|
|
(7)
|
Based on information contained in a Schedule 13G/A, dated December 31, 2007 and filed with the SEC on February 11, 2008, jointly by UBS AG, UBS Americas Inc. and UBS
Global Asset Management (Americas) Inc., in which UBS AG reports beneficial ownership of 3,352,962 shares of Common Stock (consisting of 3,352,962 shares as to which it has shared dispositive power and 2,775,241 as to which it has sole voting
power), UBS Americas Inc. reports beneficial ownership of 3,321,062 shares of Common Stock (consisting of 3,321,062 shares as to which it has shared dispositive power and 2,743,341 as to which it has sole voting power), and UBS Global Asset
Management (Americas) Inc. reports that it is the beneficial owner of 3,219,362 shares of Common Stock (consisting of 3,219,362 shares as to which it has shared dispositive power and 2,641,641 as to which it has sole voting power). The address of
UBS Americas Inc.’s principal business office is: 677 Washington Blvd., Stamford, CT 06901. The address of UBS Global AM’s principal business office is: One North Wacker, Chicago, Illinois 60606.
|
36
Equity Compensation Plan Information
The following table sets forth, as of December 31, 2007, our outstanding warrants and the number of stock options outstanding under our stock option plans, the weighted-average exercise price of the stock options
and warrants, and the number of stock options available for grant under our plans.
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and
rights
(a)
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available
for future
issuance under equity
compensation plans
(excluding
securities
reflected
in column (a))
|
|
Stock option plans approved by stockholders
|
|
10,592,761
|
|
$
|
3.12
|
|
3,147,570
|
|
Warrants and stock option plans not approved by stockholders
|
|
4,399,935
|
|
$
|
3.49
|
|
6,672,540
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
14,992,696
|
|
$
|
3.23
|
|
9,820,110
|
|
|
|
|
|
|
|
|
|
The Valicert 1998 Stock Option Plan provides for an automatic annual increase, without the
approval of stockholders, in the number of stock options available for grant of the lesser of 1,413,913 shares or 5% of the number of our shares that are issued and outstanding on the last day of the immediately preceding fiscal year.
The 1999 Omnibus Stock Incentive Plan provides for an automatic annual increase, without the approval of stockholders, in the number of stock options
available for grant of the lesser of 2,000,000 shares or 5% of the number of our outstanding shares on the last day of the immediately preceding fiscal year.
Section 16 Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors,
executive officers, and persons who own more than ten percent of Tumbleweed common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and
greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2007 all Section 16(a) filing
requirements applicable to our officers and directors were complied with, except that a late Form 3 was filed on behalf of Jorge E. Rodriguez, and a late Form 4 was filed on behalf of Mr. Rodriguez with respect to a stock option grant.
Based solely on a review of the publicly filed reports of persons who were greater than ten percent stockholders during the fiscal year
ended December 31, 2007, Empire Capital Management, L.L.C. and its affiliates filed a late Form 4 on November 20, 2007 with respect to three acquisition transactions reportedly made on November 14, 2007, and filed a late Form 4 on
October 31, 2007 with respect to an acquisition transaction reportedly made on October 26, 2007.
37
Compensation of Directors
2007 DIRECTOR COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
Name(1)
|
|
Fees
Earned or
Paid in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards(2)
($)
|
|
All other
Compensation
($)
|
|
Total
($)
|
|
Dr. Deborah D. Rieman
|
|
—
|
|
—
|
|
52,130
|
|
—
|
|
52,130
|
|
Standish H. O’Grady
|
|
—
|
|
—
|
|
58,042
|
|
—
|
|
58,042
|
|
Kenneth R. Klein
|
|
—
|
|
—
|
|
47,695
|
|
—
|
|
47,695
|
|
James A. Heisch
|
|
—
|
|
—
|
|
105,855
|
|
—
|
|
105,855
|
|
Christopher H. Greendale
|
|
—
|
|
—
|
|
62,566
|
|
—
|
|
62,566
|
|
Jeffrey C. Smith(3)
|
|
—
|
|
—
|
|
7,211
|
|
100,000
|
|
107,211
|
|
(1)
|
James P. Scullion, our Chief Executive Officer and Chairman of the Board of Directors, and Taher Elgamal, our Chief Technology Officer and Director, are not included in this table
because any compensation for their services as a director, are reflected in the Summary Compensation Table of this Proxy Statement.
|
|
(2)
|
The amounts reported represent the dollar amount of stock option and restricted stock awards recognized as compensation costs for financial statement reporting purposes (excluding
any reduction for estimated forfeitures) in accordance with Statement of Financial Accounting Standards 123 (revised 2004),
Share-Based Payment
(“SFAS 123R”) for grants made during and, when applicable, before the fiscal year
ended December 31, 2007. See Note [2] of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for a discussion of the assumptions used to calculate the
grant-date fair value of stock option awards and restricted stock awards and the related stock-based compensation expense in accordance with SFAS 123R.
|
|
(3)
|
Pursuant to the terms of Mr. Smith’s transition agreement and the amendment to that agreement dated August 2, 2007, Mr. Smith receives cash compensation of
$100,000 annually for his serves as a special advisor to Tumbleweed Chief Executive Officer.
|
Our Board of Directors makes
all decisions relating to the compensation of members of our Board of Directors. The Compensation Committee conducts an annual evaluation of the appropriate level of compensation for Board and Committee service by non-employee members of the Board,
and provides its recommendations to the Board of Directors.
Tumbleweed’s general policy is to provide non-employee directors with
equity-based compensation, and to not pay cash compensation to our directors. Other than our arrangement with Jeffrey C. Smith, described above, we did not pay cash compensation in fiscal 2007 and there were no other arrangements pursuant to which
any director was compensated during the year ended December 31, 2007 for service as a director. We do not provide any retirement benefits or other perquisites to our directors.
In July 2004, we adopted a program under which, following each Annual Meeting of Stockholders and contingent upon their continued service: (1) each
of our non-employee directors receives an option to purchase 30,000 shares of common stock; (2) each of our non-employee directors serving on the Audit Committee receives an option to purchase an additional 10,000 shares of common stock; and
(3) each of our non-employee directors serving on the Compensation Committee receives an option to purchase an additional 5,000 shares of common stock. Each of these annual grants is made on the day following the Annual Meeting of Stockholders
at the then-current fair market value. Options received by non-employee directors vest over four years of service with one forty-eighth (1/48th) of each grant vesting each month. We reimburse our non-employee directors for all out-of-pocket
expenses incurred in the performance of their duties as our directors. Directors who are employees of the Company currently receive no compensation for their services as directors.
Additionally, on April 29, 2008, the Board of Directors approved restricted stock awards to non-employee directors as follows: (1) each received a
restricted stock award of 35,750 shares of common stock for service on
38
the Board of Directors; (2) the chair of the Audit Committee received an additional restricted stock award of 5,300 shares, and other members of the Audit
Committee received an additional restricted stock award of 2,500 shares; (3) the chair of the Compensation Committee received an additional restricted stock award of 4,400 shares, and other members of the Compensation Committee received an
additional restricted stock award of 2,200 shares; and (4) the chair of the Nominating Committee received an additional restricted stock award of 2,200 shares, and other member of the Nominating Committee received an additional restricted stock
award of 1,000 shares. All shares granted pursuant to these restricted stock awards were granted at par value, subject to repurchase by Tumbleweed, such that the recipient’s interest in the restricted stock shall vest as to one third (1/3rd) of
such restricted stock on the date after the 2008 Annual Stockholders Meeting, as to an additional one-third (1/3rd) on the date after the first anniversary of such meeting, and as to the final one-third (1/3rd) on the date after the second
anniversary of such meeting, so as to be 100% vested on the date after the second anniversary of the 2008 Annual Stockholders Meeting. Vesting of these restricted stock awards occurs regardless of recipient’s status as a Board member at the
time of vesting and (ii) will accelerate 100% upon a change of ownership control.
On June 30, 2005, in connection with
Mr. Smith’s resignation from the role of Chief Executive Officer, we entered into a transition agreement providing for his continuation as a member of the Board and as a special advisor to the Chief Executive Officer until June 30,
2007. Pursuant to the terms of his transition agreement, Mr. Smith received a salary of $100,000 annually in addition to the standard compensation provided to directors. In addition, Mr. Smith’s unvested stock options continued to
vest, he and his dependents continued to participate in our employee benefit plans, and he continued to participate in the outstanding loan forgiveness program (the “Transition Consideration”).
On August 2, 2007, the transition agreement between Mr. Smith and Tumbleweed was amended. In accordance with the amendment to the transition
agreement, Mr. Smith receives a sum of $100,000 per year (“Director Compensation”) on a semi-monthly basis, less all applicable tax withholding, in addition to the standard compensation provided to directors and Mr. Smith’s
unvested stock options continue to vest in accordance with the terms and conditions of the option plans under which such options were granted; provided, however, that the Director Compensation is treated as 1099 income for tax purposes and
Mr. Smith is responsible for payment of all federal, state and local taxes with respect to such Director Compensation. Except for the payments and benefits described above, Mr. Smith is not entitled to receive any other compensation or
benefits of any sort including, without limitation, salary, bonuses or any other form of compensation or benefits from Tumbleweed or any of its officers, directors, employees, agents, insurance companies, subsidiaries, successors or assigns at any
time. The amendment to the transition agreement further provides that if a change of control occurs, 100% of Mr. Smith’s outstanding equity awards will vest.
The following table provides information concerning grants of options to purchase our common stock made during the fiscal year ended December 31, 2007 to the non-employee Directors.
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Name
|
|
Date of Grant
|
|
Number of Shares
Granted
|
|
Grant Date Fair Value
of the Option Awards(1)
($)
|
|
Exercise Price of
Grant
($)
|
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Dr. Deborah D. Rieman(2)
|
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June 13, 2007
|
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35,000
|
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57,666
|
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2.72
|
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Standish H. O’Grady(3)
|
|
June 13, 2007
|
|
40,000
|
|
65,904
|
|
2.72
|
|
Kenneth R. Klein(4)
|
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June 13, 2007
|
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30,000
|
|
49,428
|
|
2.72
|
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James A. Heisch(5)
|
|
June 13, 2007
|
|
45,000
|
|
74,142
|
|
2.72
|
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Christopher H. Greendale(6)
|
|
June 13, 2007
|
|
45,000
|
|
74,142
|
|
2.72
|
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Jeffrey C. Smith(7)
|
|
—
|
|
—
|
|
—
|
|
—
|
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(1)
|
The amounts reported represent the fair value of option awards as of the date of the grant. The fair value is calculated in accordance with Statement of Financial
Accounting Standards 123 (revised 2004),
Share-Based Payment
(“SFAS 123R”) for grants made during the fiscal year ended December 31, 2007. See Note [2] of the Notes to Consolidated Financial Statements included in our
Annual Report on Form 10-K for the
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39
|
|
fiscal year ended December 31, 2007 for a discussion of the assumptions used to calculate the grant-date fair value of stock option awards in accordance
with SFAS 123R.
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(2)
|
Aggregate number of option awards outstanding at December 31, 2007 is 380,000.
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(3)
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Aggregate number of option awards outstanding at December 31, 2007 is 315,000.
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(4)
|
Aggregate number of option awards outstanding at December 31, 2007 is 330,000.
|
|
(5)
|
Aggregate number of option awards outstanding at December 31, 2007 is 245,000.
|
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(6)
|
Aggregate number of option awards outstanding at December 31, 2007 is 410,000.
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(7)
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Aggregate number of option awards outstanding at December 31, 2007 is 702,720.
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40
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
We provide severance benefits to attract and
retain executive talent in light of current market conditions. In the table that follows, payments and other benefits payable upon early termination and change in control situations are estimated as if the terminations took place on
December 31, 2007, given Named Executive Officers’ compensation levels as of such date. In setting out such payments and benefits, amounts that had already been earned as of the termination date are not shown.
The amounts set forth below are estimates of the amounts that would be paid out to the Named Executive Officers upon their termination. The actual
amounts to be paid out can only be determined at the time of such Named Executive Officers’ separation from us. Details regarding the nature of these payments and benefits can be found in the Summaries of Employment Agreements section of this
Proxy Statement. Mr. Greenberg is excluded from the table below because he departed Tumbleweed during fiscal year ended December 31, 2007 and received the following severance benefits: $187,500 severance, $216,787 value of stock options
awards that continue vesting for 9 months subsequent to Mr. Greenberg’s termination, and $15,950 in continuation of medical benefits for 9 months subsequent to Mr. Greenberg’s termination.
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Name
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Benefit
|
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Termination
for Cause
($)
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Termination
w/o Cause
or
for
Good
Reason(1)
($)
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Termination
w/o Cause or
for Good
Reason
Following a
Change in
Control(1)
($)
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Death or
Disability(1)
($)
|
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James P. Scullion,
Chairman of the Board of
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Severance
Acceleration/continuation
of
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—
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350,000
|
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350,000
|
|
—
|
|
Directors and Chief Executive Officer
|
|
vesting of outstanding stock options
Benefits
Continuation
|
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—
—
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476,698
22,600
|
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591,390
22,600
|
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476,698
—
|
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Timothy G. Conley,
Senior Vice President of
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Severance
Acceleration/continuation
of
|
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—
|
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172,500
|
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230,000
|
|
115,000
|
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Finance and Chief Financial Officer
|
|
vesting of outstanding stock options
Benefits
Continuation
|
|
—
—
|
|
41,791
11,598
|
|
7,836
13,983
|
|
5,224
—
|
|
|
|
|
|
|
|
|
Dr. Taher A. Elgamal,
Director and Chief Technology
|
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Severance
Acceleration/continuation
of
|
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—
|
|
225,000
|
|
225,000
|
|
—
|
|
Officer
|
|
vesting of outstanding stock options
Benefits
Continuation
|
|
—
—
|
|
121,219
15,917
|
|
438,384
15,917
|
|
—
—
|
|
|
|
|
|
|
|
|
Nicholas W. Hulse,
Executive Vice President of
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|
Severance
Acceleration/continuation
of
|
|
—
|
|
137,500
|
|
137,500
|
|
—
|
|
Worldwide Field Operations(2)
|
|
vesting of outstanding stock options
Benefits
Continuation
|
|
—
—
|
|
136,946
11,413
|
|
811,844
11,413
|
|
—
—
|
|
|
|
|
|
|
|
|
Bernard J. Cassidy,
Senior Vice President and
|
|
Severance
Acceleration/continuation
of
|
|
—
|
|
172,500
|
|
172,500
|
|
172,500
|
|
General Counsel
|
|
vesting of outstanding stock options
Benefits
Continuation
|
|
—
—
|
|
10,166
17,028
|
|
41,791
51,917
|
|
10,166
17,028
|
|
(1)
|
The valuation of the acceleration/continuation of vesting of outstanding stock options reported is calculated in accordance with Statement of Financial Accounting Standards 123
(revised 2004), Share-Based Payment (“SFAS 123R”) (excluding any reduction for estimated forfeitures), as if the terminations took place on December 31, 2007.
|
|
(2)
|
The amounts reported for Mr. Hulse in the table above represent benefits Mr. Hulse was entitled to if the terminations took place on December 31, 2007. On
February 11, 2008, the Board of Directors of Tumbleweed approved an amendment to Mr. Hulse’s offer letter dated February 22, 2007 to extend his benefits from six to nine months. Should Mr. Hulse be terminated subsequent to
February 11, 2008 his benefits would be as follows: severance—$206,250, acceleration/continuation of vesting of outstanding stock options—$195,919, benefits continuation—$15,917.
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41
REPORT OF THE AUDIT COMMITTEE
OF THE BOARD OF
DIRECTORS
(*)
The Audit Committee
is comprised of three non-employee directors. After reviewing the qualifications of the current members of the committee, and any relationships they may have with Tumbleweed Communications Corp. that might affect their independence from Tumbleweed
Communications Corp., the Board of Directors determined that each member of the Audit Committee meets the independence requirements of the Nasdaq Marketplace Rules and of Rule 10A of the Exchange Act, that each member is able to read and understand
fundamental financial statements and that James A. Heisch qualifies as an “audit committee financial expert” under the applicable rules promulgated pursuant to the Exchange Act. The Audit Committee operates under a formal written charter,
which is available on our website at www.tumbleweed.com under the caption “Corporate Governance” on the Investor Relations page
The Audit Committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2007 with management and with our independent registered public accounting firm, KPMG LLP. The Audit Committee has
discussed with KPMG LLP the matters required to be discussed by Statement on Auditing Standards No. 61 relating to the conduct of the audit. The Audit Committee has received the written disclosures and the letter from KPMG LLP required by
Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees”, and has discussed with KPMG LLP their independence. The Audit Committee has considered the compatibility of the provision of non-audit
services with maintaining the registered public accounting firm’s independence.
Based on the Audit Committee’s review of the
audited financial statements and the review and discussions described in the foregoing paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements for the fiscal year ended December 31, 2007 be
included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the SEC.
|
|
|
Audit Committee
|
|
|
|
James A. Heisch (Chairman)
|
|
Standish H. O’Grady
|
|
Christopher H. Greendale
|
|
(*)
|
The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the
Company under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.
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42
AUDIT FEES AND PRE-APPROVAL POLICIES
The following table presents fees for professional services rendered by
KPMG LLP for the audit of our annual financial statements for the fiscal years ended December 31, 2007 and 2006, respectively, and fees for audit-related services, tax services and all other services rendered by KPMG LLP for the fiscal years
ended December 31, 2007 and 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Audit Fees
|
|
$
|
720,000
|
|
$
|
665,000
|
|
Audit-Related Fees
|
|
$
|
-0-
|
|
$
|
-0-
|
|
Tax Fees
|
|
$
|
-0-
|
|
$
|
-0-
|
|
All Other Fees
|
|
$
|
-0-
|
|
$
|
-0-
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
720,000
|
|
$
|
665,000
|
|
|
|
|
|
|
|
|
As provided in its charter, our Audit Committee reviews, and in its sole discretion pre-approves,
the independent registered public accounting firm’s annual engagement letter including proposed fees and all audit and non-audit services provided by the independent registered public accounting firm. All of the above services and estimates of
the expected fees were reviewed and approved by our Audit Committee before the respective services were rendered. Our Audit Committee has considered the nature and amount of the fees billed by KPMG LLP and believes that provision of the services for
activities unrelated to audit is compatible with maintaining KPMG LLP’s independence.
43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transaction Policy
Our board of directors has adopted a written Related Party Transaction Policy (the “Policy”). The purpose of the Policy, together with our Code
of Business Conduct and Ethics, memorializes our policies, practices and procedures concerning the review, approval or ratification of any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships
(including any indebtedness or guarantee of indebtedness) in which (1) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (2) the Company is a participant, and (3) any related party has or
will have a direct or indirect material interest. For purposes of the Policy, a “related party” is any executive officer, director or director nominee, security holder known to Tumbleweed to own greater than of our Common Stock, or an
immediate family member of any of the foregoing persons.
The Audit Committee, or another independent committee composed by a majority of
independent, non-interested board members if circumstances warrant (in each case, the “Oversight Body”), shall review the material facts of all related party transactions for approval or ratification. In determining whether to approve or
ratify a related party transaction, the Oversight Body will take into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the
same or similar circumstances, the extent of the related party’s interest in the transaction, and the expected benefits of the transaction to Tumbleweed.
No director may participate in any discussion or approval of a transaction for which he or she is a related party, except that the director shall provide all material information concerning the transaction to the
Oversight Body. If the related transaction will be ongoing, the Oversight Body may establish guidelines for management to follow in its ongoing dealings with the related party. Thereafter, the Oversight Body, on at least an annual basis, will review
and assess ongoing relationships with the related party to ensure compliance with the Related Party Transaction Policy and see that the related transaction remains appropriate.
Transactions
Since January 1, 2007, there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $120,000 and in which any director, executive officer or holder of more than 5% of our common stock, or an immediate family
member of any of the foregoing, had or will have a direct or indirect material interest other than the transaction described below.
Gregory C. Smith, a brother of Tumbleweed director Jeffrey C. Smith, is a partner of the law firm of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden Arps”), which began providing legal services to us in July 1998.
Total fees paid to Skadden Arps in 2007 were approximately $277,000 for matters relating to our corporate and securities matters, intellectual property, and litigation matters.
Director independence is discussed in the Corporate Governance and Board of Directors Matters section of this Proxy Statement.
44
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for consideration at
the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.
No person is authorized to give any information or to make any representation not contained in this Proxy Statement, and, if given or made, such
information or representation should not be relied upon as having been authorized. This Proxy Statement does not constitute the solicitation of a proxy, in any jurisdiction, from any person to whom it is unlawful to make such proxy solicitation in
such jurisdiction. The delivery of this Proxy Statement shall not, under any circumstances, imply that there has not been any change in the information set forth herein since the date of the Proxy Statement.
ADDITIONAL INFORMATION
The SEC has adopted rules that permit companies and intermediaries such as brokers to
satisfy delivery requirements for proxy statements with respect to multiple stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process of “householding” potentially provides
extra convenience for stockholders and cost savings for companies. Tumbleweed and some brokers household proxy materials, delivering a single proxy statement multiple stockholders sharing an address unless contrary instructions have been received
from the affected stockholders. Once you have received notice from your broker or us that they or we will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at
any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement, or if you are receiving multiple copies of the proxy statement and wish to receive only one, please notify your broker if your shares
are held in a brokerage account or us if you hold registered shares.
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By Order of the Board of Directors
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Bernard J. Cassidy
|
|
Secretary
|
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|
April 29, 2008
|
A copy of our Annual Report to the SEC on Form 10-K for the fiscal year ended
December 31, 2007 has been included within the package of materials sent to you.
45
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TUMBLEWEED
COMMUNICATIONS CORP.
ATTN: NATALIE MELAMED
700 SAGINAW DR.
REDWOOD CITY, CA 94063
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VOTE BY INTERNET
-
www.proxyvote.com
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Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your
proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
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ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER
COMMUNICATIONS
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If you would like to reduce the costs incurred by Tumbleweed Communications Corp. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual
reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access stockholder communications
electronically in future years.
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VOTE BY PHONE - 1-800-690-6903
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Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call
and then follow the instructions.
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VOTE BY MAIL
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Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Tumbleweed Communications Corp., c/o Broadridge, 51 Mercedes Way, Edgewood, NY
11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS
FOLLOWS:
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TMBWE1
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KEEP THIS PORTION FOR YOUR RECORDS
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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DETACH AND RETURN THIS PORTION ONLY
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TUMBLEWEED COMMUNICATIONS CORP.
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For All
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Withhold
All
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For All
Except
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To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE NOMINEES FOR DIRECTOR LISTED BELOW.
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1. Election of Directors
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¨
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¨
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¨
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Nominees:
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01) Christopher M. Greendale
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02) Standish H. O’Grady
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03) James A. Heisch
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THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
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For
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Against
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Abstain
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2. To ratify selection of KPMG LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2008.
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¨
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¨
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¨
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Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons or held as community property, each should sign. Executors, administrators, trustees, guardians and attorneys-in-fact should add their titles. If signer is a corporation, please give full corporate name
and have a duly authorized officer sign, stating title. If signer is a partnership, please sign in partnership name by authorized person.
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Please vote, sign, date and promptly return this proxy in the
enclosed return envelope which is postage prepaid if mailed in the United States.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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PROXY
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TUMBLEWEED COMMUNICATIONS CORP.
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PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF STOCKHOLDERS
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TO BE HELD ON JUNE 10, 2008
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The undersigned hereby acknowledges receipt
of the Notice of Annual Meeting of Stockholders and Proxy Statement, each dated April 29, 2008, and the 2007 Annual Report to Stockholders and hereby appoints Bernard J. Cassidy and James J. MacDonald, and each of them, as attorneys and proxies
of the undersigned, with full power to each of substitution, to vote all shares of stock of Tumbleweed Communications Corp. which the undersigned may be entitled to vote at the Annual Meeting of Stockholders of Tumbleweed Communications Corp. (the
“Company”) to be held at the Company’s corporate offices located at 700 Saginaw Drive, Redwood City, California, on June 10, 2008 at 10:00 a.m. (local time), and at any and all postponements, continuations and adjournments
thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the matters listed on the reverse side and in accordance with the instructions designated on the reverse side, with discretionary authority as
to any and all other matters that may properly come before the meeting.
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THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED
FOR
THE ELECTION OF THE NOMINATED DIRECTORS,
FOR
THE RATIFICATION OF KPMG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2008 AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
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SEE REVERSE
SIDE
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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SEE REVERSE
SIDE
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Tumbleweed Communications Corp (MM) (NASDAQ:TMWD)
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Tumbleweed Communications Corp (MM) (NASDAQ:TMWD)
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