QAD DEF 14A 2007
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
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6450 Via Real
Carpinteria, California 93013
May 18, 2007
To All QAD Inc. Stockholders:
On behalf of the Board of Directors of QAD Inc. (QAD), I cordially invite you to attend the Annual Meeting of Stockholders of QAD to be held at the QAD corporate headquarters located at 2111 Ortega Hill Road, Summerland, California, on Wednesday, June 6, 2007, at 10:00 a.m. Pacific Daylight Time. A Notice of the Annual Meeting of Stockholders, proxy card and proxy statement containing information about the matters to be acted upon at the Annual Meeting are enclosed.
At this years meeting you will be asked to elect five directors. The accompanying Notice of Annual Meeting and proxy statement describe these proposals. We encourage you to read the enclosed information carefully.
Whether in person or by proxy, it is important that your shares be represented at the Annual Meeting. To ensure your participation in the Annual Meeting, regardless of whether or not you plan to attend in person, please promptly complete, sign, date and return the enclosed proxy card. If you do attend the Annual Meeting, you may revoke your previously returned proxy at that time if you wish, and vote in person. If you plan to vote your shares at the Annual Meeting, please note the instructions on page 3 of the enclosed proxy statement.
We look forward to seeing you at the Annual Meeting.
Karl F. Lopker
Chief Executive Officer
TABLE OF CONTENTS
Notice is hereby given that the Annual Meeting of Stockholders of QAD Inc. will be held on Wednesday, June 6, 2007, at 10:00 a.m. Pacific Daylight Time, at the QAD corporate headquarters located at 2111 Ortega Hill Road, Summerland, California, for the following purposes:
1. To elect five directors to serve until the next Annual Meeting of Stockholders and until their respective successors are elected and qualified; and
2. To transact any other business that may properly come before the meeting or any adjournment thereof.
Our Board of Directors recommends that you vote FOR the election of each of the nominees to the Board of Directors.
Only stockholders of record at the close of business on April 16, 2007 are entitled to notice of and to vote at the Annual Meeting and any adjournment or postponement thereof.
All stockholders are invited to attend the Annual Meeting. Please let us know if you plan to attend the meeting by marking the appropriate box on the enclosed proxy card. If you are a stockholder of record as of April 16, 2007, you will be admitted to the meeting if you present a form of photo identification. If you own stock beneficially through a bank, broker or otherwise, you will be admitted to the meeting if you present a form of photo identification and proof of ownership of such stock or a valid proxy signed by the record holder. Examples of proof of ownership are a recent brokerage statement or a letter from a bank or broker. Whether or not you intend to be present in person at the Annual Meeting, please sign and date the enclosed proxy card and return it promptly in the enclosed envelope.
By Order of the Board of Directors
Roland B. Desilets
May 18, 2007
6450 Via Real
Carpinteria, CA 93013
This proxy statement and the enclosed proxy card are being mailed to you by the Board of Directors of QAD Inc., a Delaware corporation, (QAD, the Company, we or us) on or about May 18, 2007. The Board of Directors requests that your shares be represented by the proxies named on the proxy card at the Annual Meeting of Stockholders to be held on June 6, 2007.
ABOUT THE MEETING
The Board of Directors of QAD is soliciting your vote at the 2007 Annual Meeting of Stockholders.
You will be voting on:
The Board recommends a vote:
The Board of Directors set April 16, 2007 as the record date for the Annual Meeting. All stockholders who owned QAD common stock at the close of business on April 16, 2007 may attend and vote at the Annual Meeting.
You will have one vote for each share of QAD common stock you owned at the close of business on the record date, provided each share was either held directly in your name as the stockholder of record or held for you as the beneficial owner through a broker, bank or other nominee.
Most stockholders of the Company hold their shares through a broker, 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 QADs transfer agent, American Stock Transfer and Trust Company (AST), you are considered the stockholder of record with respect to those shares, and these proxy materials are being sent directly to you by QAD. As the stockholder of record, you have the right to grant your voting proxy directly to us or to vote in person at the Annual Meeting. We have enclosed a proxy card for you to use.
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 the shares which are held in street name and these proxy materials are being forwarded to you by your broker, bank or nominee who is considered the stockholder of record with respect to these shares. As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you request, complete and deliver a proxy from your broker, bank or nominee. Your broker, bank or nominee has enclosed a voting instruction card for you to use in directing the broker, bank or nominee how to vote your shares.
Each share of QAD common stock is entitled to one vote. There is no cumulative voting. We had 32,614,069 shares of common stock outstanding and entitled to vote on the record date. The enclosed proxy card shows the number of shares you are entitled to vote.
A majority of the Companys outstanding shares as of the record date must be present at the Annual Meeting in order to hold the Annual Meeting and conduct business. This is called a quorum. Shares are counted as present at the Annual Meeting if you are present and vote in person at the Annual Meeting or a proxy card has been properly submitted by you or on your behalf. Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of a quorum.
Directors are elected by a plurality of the votes cast. If you withhold authority to vote with respect to the election of some or all of the nominees, your shares will not be voted with respect to those nominees indicated. Your shares will be counted for purposes of determining whether there is a quorum, but will have no effect on the election of those nominees.
If you return your signed proxy card or voting instruction card in the enclosed envelope, but do not mark selections, it will be voted in accordance with the recommendations of the Board of Directors. If you indicate a choice with respect to any matter to be acted upon on your proxy card or voting instruction card, the shares will be voted in accordance with your instructions.
If you are a beneficial owner and hold your shares in street name through a broker and do not return the voting instruction card, the broker or other nominee will determine if it has the discretionary authority to vote on the particular matter. Under applicable rules, brokers have the discretion to vote on routine matters, such as the uncontested election of directors, but do not have discretion to vote on non-routine matters.
If you do not provide voting instructions to your broker and the broker has indicated on the proxy card that it does not have discretionary authority to vote on a particular proposal, your shares will be considered broker non-votes with regard to that matter. Broker non-votes will be considered as represented for purposes of determining a quorum, but generally will not be considered as entitled to vote with respect to that proposal. Broker non-votes are not counted in the tabulation of the voting results with respect to the election of directors or for purposes of determining the number of votes cast with respect to a particular proposal. Thus, a broker non-vote will make a quorum more readily obtainable, but the broker non-vote will not otherwise affect the outcome of the vote on a proposal that requires a majority of the votes cast. With respect to a proposal that requires a majority of the outstanding shares, a broker non-vote has the same effect as a vote against the proposal.
Yes. Even if you sign the proxy card or voting instruction card in the form accompanying this proxy statement, you retain the power to revoke your proxy or change your vote. You can revoke your proxy or change your vote by giving written notice to the Secretary of QAD at any time before your vote is exercised, specifying such revocation. You may also change your vote by timely delivery of a valid, later-dated proxy or by voting by ballot at the Annual Meeting.
All stockholders as of the record date, or their duly appointed proxies, may attend.
In order to be admitted to the Annual Meeting, a stockholder must present an admission ticket or proof of ownership of QAD stock on the record date. Any holder of a proxy from a stockholder must present the proxy card, properly executed, and an admission ticket.
An admission ticket is attached to the bottom of the proxy card. If you plan to attend the Annual Meeting, please keep this ticket and bring it with you to the Annual Meeting. If a stockholder does not bring an admission ticket, proof of ownership of QAD stock on the record date will be needed to be admitted. If your shares are held in the name of a bank, broker or other holder of record, a brokerage statement or letter from a bank or broker is an example of proof of ownership.
Vote by Mail. If you choose to vote by mail, simply mark your proxy card or voting instruction card, date and sign it, and return it in the postage-paid envelope provided.
Voting at the Annual Meeting. Voting by mail will not limit your right to vote at the Annual Meeting, if you attend the meeting and vote in person. However, if your shares are held in the name of a bank, broker or other nominee, you must obtain a proxy, executed in your favor, from the holder of record to be able to vote at the Annual Meeting.
The shares represented by the proxy cards received, properly marked, dated, signed and not revoked, will be voted at the Annual Meeting. If you sign and return your proxy card or voting instruction card, but do not give voting instructions, the shares represented by that proxy card or voting instruction card will be voted as recommended by the Board of Directors.
If you have a disability, we can provide reasonable assistance to help you participate in the Annual Meeting if you tell us about your disability and your plan to attend. Please notify the Secretary of QAD in writing at least three days before the Annual Meeting if you desire such assistance.
QAD will bear the expense of printing and mailing proxy materials. In addition to this solicitation of proxies by mail, our directors, officers and other employees may solicit proxies by personal interview, telephone, facsimile or email. They will not be paid any additional compensation for such solicitation. We will request brokers and nominees who hold shares of common stock in their names to furnish proxy material to beneficial owners of the shares. We will reimburse such brokers and nominees for their reasonable expenses incurred in forwarding solicitation materials to such beneficial owners.
We are not currently aware of any other business to be acted upon at the Annual Meeting. However, if other matters are properly brought before the Annual Meeting, or any adjourned meeting, your proxy will have the right, in his or her discretion, to vote or act on those matters according to his or her best judgment.
Adjournment may be made from time to time by approval of the holders of shares representing a majority of votes present in person or by proxy at the meeting, whether or not a quorum exists, without further notice other than by an announcement made at the Annual Meeting.
NASDAQ has established specific exemptions from its listing standards for controlled companies, i.e., companies of which more than 50% of the voting power is held by an individual, a group or another entity. QAD is a controlled company by virtue of the fact that Ms. Pamela Lopker, Chairman of the Board and President of the Company, and Mr. Karl Lopker, Chief Executive Officer and Director of the Company, jointly control a majority interest in the stock of the Company as evidenced by their filing a Schedule 13G with the Securities and Exchange Commission (SEC) affirming that as members of a group they share voting power of over 50% of the Companys outstanding voting stock. Please see Stock Ownership of Directors, Executive Officers and Certain Beneficial Owners.
The Company has elected to rely upon certain of the exemptions provided in the rules. Specifically, the Company will rely on exceptions to the requirements that listed companies (i) have a majority of independent directors, (ii) select, or recommend for the Boards selection, director nominees by a majority of independent directors or a nominating committee comprised solely of independent directors, and (iii) determine officer compensation by a majority of independent directors or a compensation committee comprised solely of independent directors. Notwithstanding the above, QADs current practices include (i) having a majority of independent directors, (ii) selecting director nominees by the full Board of Directors, and (iii) determining officer compensation by a majority of independent directors or a compensation committee comprised solely of independent directors.
We have enclosed a copy of our 2007 Annual Report on Form 10-K with this proxy statement. If you would like an additional copy, we will send you one without charge. Please call 805-566-5139 or write to:
6450 Via Real
Carpinteria, CA 93013
Attn: Investor Relations
The Annual Report including the Form 10-K and this proxy statement are available in the Investor Relations section of the QAD web site at www.qad.com. The SEC also maintains an Internet site at http://www.sec.gov that contains all SEC filings made by QAD Inc.
ELECTION OF DIRECTORS
There are five nominees for election to the Board of Directors at the Annual Meeting. Each nominee currently serves as a director. Biographical information for each nominee for director is set forth below. Five directors will be elected at the 2007 Annual Meeting. Valid proxies received will be voted, unless contrary instructions are given, to elect the nominees named in the following table. Should any nominee decline or be unable to accept the nomination to serve as director, an event that we do not currently anticipate, your proxy will have the right, in his or her discretion, to vote for a substitute nominee designated by the Board of Directors, to the extent consistent with the QAD Certificate of Incorporation and its Bylaws.
The nominees for director to be elected by the stockholders are currently members of the Board of Directors. If elected, the nominees will hold office until the Annual Meeting of Stockholders in 2008, in the capacity as specified in the table and until their successors are duly elected and qualified.
Set forth below is information with respect to the nominees for election to the Board of Directors who are standing for election at the 2007 Annual Meeting. The age of the director nominees is as of March 31, 2007.
Karl F. Lopker has served as Chief Executive Officer and a Director of the Company since joining QAD in 1981. Previously, he was President of Deckers Outdoor Corporation, a company he founded in 1973. Mr. Lopker is certified in Production and Inventory Management by the American Production and Inventory Control Society. He received a Bachelor of Science degree in Electrical Engineering from the University of California, Santa Barbara. Mr. Lopker is married to Pamela M. Lopker, Chairman of the Board and President of QAD.
Pamela M. Lopker founded QAD in 1979 and has been Chairman of the Board and President since the Companys incorporation in 1981. Previously, Ms. Lopker served as Senior Systems Analyst for Comtek Research from 1977 to 1979. She is certified in Production and Inventory Management by the American Production and Inventory Control Society. Ms. Lopker earned a Bachelor of Arts degree in Mathematics from the University of California, Santa Barbara. She is married to Karl F. Lopker, Chief Executive Officer of QAD.
Peter R. van Cuylenburg was appointed director in November 1997. Dr. van Cuylenburg served as President and Chief Operating Officer of InterTrust Technologies Corporation and later as advisor to its Chairman between October 1999 and December 2000. Prior to that, Dr. van Cuylenburg served as President of Quantum Corporations DLTtape and Storage Systems Group from September 1996 to October 1999. He also serves as Director of Verimatrix, Inc., a privately-held company and on a part-time basis as a General Partner in Crescendo Ventures. Past board memberships include: ARC International plc (LSE;ARK), JNI Inc (JNIC), Peregrine Systems Inc (PRGNQ), Transitive Technologies Ltd., ClearSpeed Technologies Group plc, SealedMedia Ltd., Anadigm Ltd., Elixent Ltd., Mitel Corporation, Dynatech Corporation, NeXT Computer, Inc., and Cable and Wireless plc. Dr. van Cuylenburgs career includes executive posts at Xerox Corporation, NeXT Computer, Inc., Cable and Wireless plc., and Texas Instruments, in the U.K., U.S. and France. Dr. van Cuylenburg holds a Diploma in Electrical Engineering from Bristol Polytechnic and an Honorary Doctorate of Technology from Bristol Polytechnic.
Dr. van Cuylenburg is an independent director as defined under Rule 4200 of the National Association of Securities Dealers listing standards and has also been designated as an Audit Committee financial expert by the Board of Directors.
Scott J. Adelson has been a director of QAD since April 2006. Mr. Adelson is a Senior Managing Director and Global Co-Head of Investment Banking for Houlihan Lokey Howard & Zukin, a leading international investment bank. During his 18 years with the firm, Mr. Adelson has helped advise hundreds of companies on a diverse and in-depth variety of corporate finance issues, including mergers and acquisitions. Mr. Adelson has written extensively on a number of corporate finance and securities valuation subjects and is a frequent commentator for CNBC, CNN and various business publications. He is an active board member of various middle-market businesses as well as several recognized non-profit organizations, such as the USC Entrepreneur Program. Mr. Adelson holds a bachelor degree from the University of Southern California and a Master of Business Administration degree from the University of Chicago, Graduate School of Business.
Mr. Adelson is an independent director as defined under Rule 4200 of the National Association of Securities Dealers listing standards.
Thomas J. OMalia was appointed director in August 2006. Mr. OMalia is the Program Director of the Lloyd Greif Center for Entrepreneurship Studies at the University of Southern California Marshall School of Business. Prior to serving as Program Director, Mr. OMalia served on the faculty from 1981 to 1991 and again from 1995 to the present. Over his 40 year career, Mr. OMalia has held several senior executive positions in the fields of technology and banking. He founded and was Chief Executive Officer of ShopTrac Data Collections Systems, Inc., a software provider that supports manufacturers in improving labor productivity and operational efficiency on the shop floor. ShopTrac was sold to Kronos in 1994. Mr. OMalia has considerable experience as an advisor, investor and fundraiser and has successfully engineered six corporate turnarounds. Mr. OMalia wrote and hosted the award winning distance-learning program Introduction to Entrepreneurship: Building the Dream, which is nationally televised on PBS University. He is a frequent corporate lecturer and has written or co-authored several books including The Entrepreneurial Journey and the Bankers Guide to Financial Statements.
Mr. OMalia is an independent director as defined under Rule 4200 of the National Association of Securities Dealers listing standards and has also been designated as an Audit Committee financial expert by the Board of Directors.
CORPORATE GOVERNANCE AND RELATED MATTERS
Our Board of Directors currently has six members and one vacancy. Four current directors are non-management directors. Five of the directors were elected at the 2006 Annual Meeting and Mr. Thomas J. OMalia was appointed as a member of the Board of Directors in August 2006. All members of the Board of Directors are elected annually for a term of one year. All Board of Directors terms expire at the subsequent Annual Meeting.
One current director, A. Barry Patmore, has chosen not to stand for re-election to the Board of Directors. Mr. Patmore has served as a member of the Board of Directors since 2003 and as Chairman of the Compensation Committee for the past three years. With his departure, the number of directors will be five.
Due to the decision of Mr. Patmore not to stand for re-election, two vacancies will exist on the Board at the close of the polls for election of Board members. The Board has determined that it would not be reasonably possible to identify nominees for these vacancies in time for such candidates to be voted upon at the 2007 Annual Meeting. Accordingly, the Board has determined to promptly seek qualified candidates for these two Board positions. Any new director will serve the remainder of the term until the next election at the 2008 Annual Meeting.
If stockholders or other interested parties wish to communicate with non-management directors, they should write to QAD Inc., Attention: Corporate Secretary, 6450 Via Real, Carpinteria, California 93013. Further information concerning contacting our Board is available through our investor relations website at www.qad.com, under Investor Relations Corporate Governance.
Directors are encouraged to attend annual meetings of stockholders, but we have no specific policy requiring attendance by directors at such meetings. All directors who were on the Board at the time attended our 2006 Annual Meeting of Stockholders.
For additional information on our corporate governance, including Board committee charters, our corporate governance guidelines and our code of business conduct and ethics, visit our investor relations website at www.qad.com, under Investor Relations Corporate Governance. Each of these documents is also available in print, free of charge, to any stockholder who requests it by writing to QAD Inc., Attention: Investor Relations, 6450 Via Real, Carpinteria, CA 93013.
The Board has determined that the following four current directors are independent under the corporate governance listing standards as defined under NASDAQ Rule 4200 of the National Association of Securities Dealers listing standards: Peter R. van Cuylenburg, A. Barry Patmore, Scott J. Adelson and Thomas J. OMalia.
During fiscal year 2007, the Board of Directors held four regularly scheduled meetings and three special meetings. No director attended fewer than 80% of the total number of meetings of the Board of Directors and of the committees of which such director was a member during fiscal year 2007.
The Board appoints committees to help carry out its duties. In particular, Board committees work on key issues in greater detail than would be possible at full Board meetings. Each committee reviews the results of its meeting with the full Board. There are currently two permanent committees: Audit and Compensation. A third committee, the Strategy Committee, served for part of the 2007 fiscal year and met once. At the September 2006 meeting of the Board of Directors, the Strategy Committee was deemed to have fulfilled the purpose for which it was formed and was dissolved.
The table below provides the current membership and number of fiscal year 2007 meetings held for each existing Board committee.
The functions performed by these committees are summarized below, and are set forth in more detail in their charters. The complete text of the charters for both the Compensation Committee and the Audit Committee can be found on our website at www.qad.com, under Investor Relations Corporate Governance.
Our business, property and affairs are managed under the direction of our Board of Directors. Members of our Board are kept informed of our business through discussions with our Chairman, Chief Executive Officer and other officers and members of management, by reviewing materials provided to them, by visiting our offices and by participating in meetings of the Board and its committees.
During the past year, each of the directors on the Audit Committee was independent as the term is defined in Rule 4200 of the National Association of Securities Dealers listing standards. The current Audit Committee members are Mr. Patmore, Mr. OMalia and Dr. van Cuylenburg. The Board of Directors has determined that
Mr. OMalia and Dr. van Cuylenburg qualify as financial experts under the requirements of the Sarbanes-Oxley Act. Mr. OMalia was appointed to the Board of Directors in August 2006 and assumed his position as Chairman of the Audit Committee at that time. At the beginning of the last fiscal year, the Chairman of the Audit Committee was Mr. Larry Wolfe. Mr. Wolfe chose not to seek re-election to the Board at the Annual Meeting in June 2006. During the period between the departure of Mr. Wolfe and the election of Mr. OMalia, Mr. Adelson served as a member of the Audit Committee. He resigned his position on the Committee upon the election of Mr. OMalia.
The Audit Committee assists the Board of Directors in its oversight of the quality and integrity of the accounting, auditing and reporting practices of the Company. The Audit Committees role includes overseeing the work of the Companys internal accounting, financial reporting and internal auditing processes. Further, the Committee discusses with management the Companys processes to manage business and financial risk and to comply with significant applicable legal, ethical and regulatory requirements.
The Audit Committee is responsible for the appointment, compensation, retention and oversight of the independent auditor engaged to prepare or issue audit reports on the financial statements and internal control over financial reporting of the Company. The Audit Committee relies on the expertise and knowledge of management, the internal auditors and the independent auditor in carrying out its oversight responsibilities. The Committees specific responsibilities are delineated in the Audit Committee Charter. The Board of Directors has determined that each Audit Committee member has sufficient knowledge in financial and auditing matters to serve on the Committee.
The Compensation Committee is comprised of up to four members of the Board of Directors. The current Compensation Committee members are Mr. Patmore, Mr. OMalia and Dr. van Cuylenburg, each of whom is both a Non-Employee Director, and an Independent Director, as well as Mr. Lopker. Mr. OMalia was appointed as a member of the Compensation Committee in September 2006. At the beginning of the last fiscal year, Mr. Larry Wolfe was a member of the Compensation Committee. Mr. Wolfe chose not to seek re-election to the Board at the Annual Meeting in June 2006. Mr. Patmore, the current Chairman of the Compensation Committee, has chosen not to stand for re-election at the 2007 Annual Meeting.
The primary responsibilities of the Compensation Committee are to: (a) review and approve the annual goals and objectives of the President and the Chief Executive Officer and evaluate performance against those goals and objectives, (b) approve the compensation of the President and the Chief Executive Officer; (c) oversee the performance evaluation of the Companys other executive officers and approve their compensation; (d) oversee and advise the Board on the adoption of policies that govern the Companys compensation programs; (e) oversee the Companys administration of its equity-based compensation and other benefit plans; and (f) approve grants of equity compensation awards under the Companys stock plan. The Compensation Committees role includes producing the report on executive compensation required by SEC rules. The specific responsibilities and functions of the Compensation Committee are delineated in the Compensation Committee Charter which is available on our website at www.qad.com, under Investor Relations Corporate Governance.
Mr. Lopker is the Chief Executive Officer of QAD and is married to Pamela Lopker, Chairman of the Board and President. He is recused from all matters involving QADs Chairman of the Board and President, and the Chief Executive Officer. He does not participate in approving grants or awards under the QAD Inc. 2006 Stock Incentive Program to persons who are subject to Section 16 of the Exchange Act. During fiscal year 2007, a sub-committee of the Compensation Committee of the three non-employee members of the Compensation Committee administered and made all ongoing determinations concerning matters relevant to grants or awards under the stock incentive program to persons who were subject to Section 16 of the Exchange Act. None of QADs executive officers currently serves as a director or member of the compensation committee of another entity, or of any other committee of the Board of Directors of another entity performing similar functions, where any of our directors are employed as executive officers.
The non-employee directors meet in executive sessions without management present. During these sessions, the non-employee directors, among other matters, review management performance and composition,
compensation, strategic issues for Board consideration, communication among members of the Board, and corporate governance matters. During fiscal year 2007, non-employee directors of the Board met in executive session on at least four occasions.
The Board does not have a formal nominating committee. QAD is a controlled company as such term is used in the NASDAQ rules, and accordingly, is exempted from certain regulations pertaining to the director nomination process. Please see Exemptions for a Controlled Company Election beginning on page 4 of this proxy statement. The Board has determined that director nominees be recommended for the Boards selection by a designated committee of one or more directors. These directors do not operate under a charter, but meet as appropriate to recommend nominees to the Board for service on the Companys Board of Directors and to recommend to the Board such persons to fill any vacancy which may arise between Annual Meetings of the Stockholders. The directors nominated for election identified in this proxy statement were nominated unanimously by the full Board.
When evaluating potential director nominees, the committee designated by the Board considers the listing requirements of NASDAQ as well as a potential nominees personal and professional integrity, experience in corporate management, time available for service, experience in the Companys industry, global business and social perspective, experience as a board member of another publicly held company, ability to make independent analytical inquiries and practical business judgment. After the potential nominees are evaluated, the committee nominating directors makes recommendations regarding nominations to the Board.
The committee may retain, at the Companys expense, any independent search firm, experts or advisors that it believes are appropriate in connection with the nomination process.
The policy of the Board is to have the nominating committee consider properly submitted stockholder recommendations for candidates for membership to the Board. In evaluating nominees recommended by stockholders, the committee will utilize the same criteria for nominees initially proposed by the Board members. To recommend directors for election to the Board, recommendations must be submitted in writing to the address set forth below. In addition, to nominate directors for election to the Board at next years Annual Meeting, nominations must comply with Section 2.7 of our bylaws and must also be submitted in writing to the following address:
6450 Via Real
Carpinteria, CA 93013
Attention: Secretary of the Board
Our directors play a critical role in guiding QADs strategic direction and oversee the management of the Company. We seek to attract and retain highly qualified directors who have sufficient time to attend to their substantial duties and responsibilities to the Company. Recent developments in corporate governance and financial reporting have resulted in an increased demand for such highly qualified and productive public company directors.
The many responsibilities and risks and the substantial time commitment of being a director of a public company require that we provide adequate incentives for our directors continued performance by paying compensation commensurate with our directors workload and opportunity costs. Our non-employee directors are compensated based upon their respective levels of Board participation and responsibilities, including service on board committees. Annual cash retainers and stock option grants to the non-employee directors are intended to correlate with the responsibilities of each such director.
For fiscal year 2007, each of our non-employee directors received the applicable retainers and fees set forth below for serving as a chair or a member of one or more of the committees of the Board.
All annual retainers are paid in equal quarterly installments at the beginning of each fiscal quarter. Directors are also reimbursed for direct expenses relating to their activities as members of the Board of Directors.
The Board of Directors has approved a compensation plan for the non-employee Board members that provides for the following equity compensation:
The table below sets forth information concerning the compensation of our non-employee Board members for fiscal year 2007.
STOCK OWNERSHIP AND EQUITY COMPENSATION PLAN INFORMATION
The following table shows the number of shares of QAD common stock beneficially owned on April 16, 2007 by each executive named in the Summary Compensation Table on page 19, each non-employee director and any person known to the Company to be the beneficial owner of more than five percent of the Companys common stock. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options, SARs, warrants and other rights held by that person that are currently exercisable or become exercisable within 60 days following April 16, 2007, are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite the stockholders name.
Pamela M. Lopker and Karl F. Lopker hold the following: 17,416,601 shares held jointly in the Lopker Living Trust, 590,855 shares held in trust for their children, 12,222 shares held in the Lopker Family 1997 Charitable Remainder Trust of which Pamela M. Lopker and Karl F. Lopker act as joint trustees, and 80,636 shares (to which Pamela M. Lopker and Karl F. Lopker disclaim beneficial ownership) held by the Lopker Family Foundation. Pamela M. Lopker and Karl F. Lopker are members of the Board of Directors of the Lopker Family Foundation and officers of the aforementioned Charitable Trust. Ms. Lopker holds 10,000 shares in an IRA account. Mr. Lopker holds 10,340 shares in his name only which were transferred from the estate of Julia Lopker.
Information as of January 31, 2007 regarding equity compensation plans approved and not approved by stockholders is summarized in the following table:
COMPENSATION DISCUSSION AND ANALYSIS
We have adopted a basic philosophy and practice of offering market competitive compensation that is designed to attract, retain and motivate a highly qualified executive management team. With respect to our Chief Executive Officer, Chief Financial Officer and the other three most highly-compensated executive officers (collectively referred to as the Named Executives), this Compensation Analysis and Discussion describes our compensation philosophy and objectives, the methodologies used for establishing the compensation programs for the Named Executives, and the policies and practices used to administer such programs.
To assist the Boards oversight of compensation matters at the Company, the Board of Directors of QAD has established a compensation committee (the Committee). The Committee is comprised of three non-employee directors and the Chief Executive Officer.
The Committee discharges the Boards responsibilities relating to compensation of the Companys executive officers, including reviewing the competitiveness of executive compensation programs, evaluating the performance of the Companys executive officers and approving their annual compensation. The Committee also reviews and approves the goals of the President and Chief Executive Officer, evaluates the performance of the President and Chief Executive Officer and sets compensation for the President and Chief Executive Officer. The specific responsibilities and functions of the Committee are delineated in the Compensation Committee Charter which is available on our website at www.qad.com under Investor Relations Corporate Governance.
In addition to offering market competitive compensation programs, QAD places significant emphasis on pay for performance, for which the primary aim is to motivate executive management to achieve the business and strategic objectives that drive shareholder value. Our executive compensation programs have been designed and are maintained by the Committee to achieve the following objectives:
In pursuit of these objectives, the Committee believes that the compensation packages provided to the Named Executives should include both cash and stock-based compensation, with an emphasis on pay for performance. To assist the Committee in establishing and maintaining competitive compensation packages, the Committee engaged Mercer Human Resource Consulting as compensation consultants for fiscal year 2007.
When determining the appropriate compensation levels for both our President and our Chief Executive Officer, the Committee meets outside the presence of all of our executive officers. With respect to the compensation levels of all other Named Executives, the Committee meets outside the presence of all executive officers, except our Chief Executive Officer and our Chief People Officer. Mr. Karl Lopker, our Chief Executive Officer, annually reviews the performance of each Named Executive, other than himself and our President, with the Committee. The non-employee director-members of the Committee meet in executive session to review the performance of our Chief Executive Officer and President.
With the input of our human resources department and our compensation consultants, the Chief Executive Officer makes recommendations to the Committee regarding base salary levels, target incentive awards, long-term incentive awards and performance goals. In conjunction with the annual performance review of each Named Executive, the Committee carefully considers the recommendations of the Chief Executive Officer when making decisions on setting base salary, targets for payments under the annual incentive plan, special bonuses and long-term equity incentive awards. The Committee also reviews the analyses and recommendations of our human resources organization and of our executive compensation consultants, and approves the recommendations with modifications as deemed appropriate by the Committee. To determine market competitive pay levels for the Named Executives, the human resources department, with the assistance of our compensation consultants, conducts an analysis of market practices based on published survey data and on the compensation practices of publicly-traded companies comparable to QAD (Compensation Peer Group). Each element of the compensation mix, as well as the total direct compensation provided, is compared against the market data. The Compensation Peer Group is periodically reviewed by the Committee. The Compensation Peer Group consists of companies against which the Committee believes that we compete in the market for executive talent. The Committee reviews factors such as industry, annual revenues and market capitalization in making their selection. The Compensation Peer Group consists of a sample of companies from the following:
Because we compete aggressively with both large and middle market companies in the market for executive talent, the Committee generally sets total direct compensation (i.e., base salary, annual cash incentives and value of long-term equity incentives) for the Named Executives around the 50th percentile of the market data. The allocation between cash and non-cash compensation is based on the market practices of the Compensation Peer Group. For the fiscal year ended January 31, 2007, the elements of the compensation mix included:
We establish the base salary of each Named Executive based on consideration of median pay levels within the Compensation Peer Group, published survey data and other internal factors, such as the individuals performance and experience, company performance and internal equity. The market analysis is performed by our human resources department and our compensation consultants. It is reviewed by our Chief Executive Officer and the Committee. The Committee considers the recommendations of our Chief Executive Officer, human resources department and compensation consultants in determining the appropriate base salary levels for the Named Executives. Although the Committee believes that competitive base salaries are necessary to attract and retain a highly-qualified executive team, they also believe that a significant portion of executive compensation should be based on pay for performance.
For our Named Executives, annual cash incentive payments are based upon the achievement of individual goals by the Named Executive. These individual cash bonuses make up 30% of each Named Executives total annual target bonus (see Plan-Based Award table on page 20). For fiscal year 2007, these individual goals were set by Mr. Lopker for Mr. Lender and Mr. Desilets and by Ms. Lopker for Mr. Niedzielski. The individual goals for Mr. Lopker and Ms. Lopker were set by the Compensation Committee.
In setting the target bonus amounts for each of the Named Executives, we consider bonus levels at the 50th percentile of the Compensation Peer Group and published survey data. The amount of bonuses paid to the Named Executives is subject to the discretion of the Committee based on its assessment of the participants contribution to the organization as well as general and industry-specific conditions existing during the applicable period. For fiscal year 2007, the Committee approved individual bonus payments earned under our Executive Incentive Plan as follows:
In addition to the cash bonuses payable under the Executive Incentive Plan, to reward extraordinary performance and achievements, special bonuses may be awarded to the Named Executives from time to time. These special bonus payments are based on the recommendation of the Chief Executive Officer and are subject to the approval of the Committee. With respect to the Named Executives, the Committee approved special bonuses for fiscal year 2007 in the amount of $21,373 for Mr. Desilets.
For our Named Executives, quarterly and annual cash incentive payments are based upon the attainment of specified revenue, profitability and days sales outstanding (DSO) targets by the Company. These corporate cash bonuses make up 70% of each Named Executives total annual target bonus (see Plan-Based Award table on page 20). In setting the target bonus amounts for each of the Named Executives, we consider bonus levels at the 50th percentile of the Compensation Peer Group and published survey data. The amount of bonuses paid to the Named Executives is based upon the performance of the Company based upon operational reporting compared to
specified goals. For fiscal year 2007, the Committee approved corporate bonus payments earned under our Executive Incentive Plan as follows:
In fiscal year 2007, SARs were granted to the Named Executives to aid in their long-term retention and to align their interests with those of our stockholders. Historically, the Board of Directors has emphasized equity-based compensation in the form of stock option grants. However, partly as a result of the adoption of SFAS 123R the Board of Directors decided to alter its equity-compensation practices by awarding stock settled SARs. The Board of Directors determined that this would be less dilutive to our current stockholders than its traditional stock option award practice while providing effective, equivalent compensation value to the Named Executives.
The equity-based compensation awarded to the Named Executives is set by the Committee based on the practices of the Compensation Peer Group, published survey data and the recommendation of the Chief Executive Officer and our compensation consultants. In addition, the Committee considered each executives replacement cost, individual performance and achievements.
During fiscal year 2007, the Named Executives received SARs under the 2006 Stock Incentive Program at exercise prices equal to the fair market value of our common stock on the grant dates of the SARs. Except with respect to the grants to our Chief Executive Officer and our President, these SARs were granted on the same day as all other employees received their annual SARs grant, which was on the day of our June board meeting. The SARs grant to each of our Chief Executive Officer and President occurred on the date of our September board meeting. These SARs vest over a four-year period after grant, subject to each Named Executives continued employment with the Company. All SARs granted to the Named Executives in fiscal year 2007 expire eight years from the grant date unless the participants employment with the Company terminates before the end of such eight-year period.
For each of the Named Executives, the Board of Directors has approved a Change in Control Agreement (CIC) with the Company. All CIC agreements of the Named Executives are substantially the same, providing cash severance, accelerated vesting of certain previously granted, unvested, equity-based compensation and continuation of benefits coverage.
All CIC agreements for the Named Executives provide that fifty percent (50%) of the previously granted, unvested, equity-based compensation for the Named Executive vest immediately upon a change in control. The remaining unvested awards vest upon the first anniversary date of the change in control, provided the Named Executive remains employed by the Company as of this date. For all other benefits, all CIC agreements of the Named Executives are double trigger agreements, which means that the payment of cash severance, accelerated vesting of the remaining 50% of the previously granted, unvested, equity-based compensation and continuation of benefits require both (1) a change in control of QAD and (2) the termination of a Named Executives employment by the Company without cause within 18 months following a change in control or, in certain circumstances,
within 60 days preceding a change in control. The terms change in control and cause are defined in the CIC agreements. Upon being triggered, the CIC agreements provide for the following:
On March 14, 2007, Vincent P. Niedzielski and the Company entered into a Settlement and Release Agreement (the Settlement Agreement). In full consideration of Mr. Niedzielski entering into the Settlement Agreement, he received a lump sum payment of $150,000 and is entitled to six months of benefits. On March 15, 2007, Mr. Niedzielski and the Company entered into a Technical Services Agreement (the Consulting Agreement). Pursuant to the Consulting Agreement, which was effective as of March 12, 2007, Mr. Niedzielski will make himself available to perform transitional services for the Company from March 23, 2007 through June 21, 2007, and for such services will receive payment of $5,770 per week ($75,010 for the entire period).
These benefits include health, dental, vision, disability and life insurance, healthcare and dependent care savings accounts, limited health club membership reimbursement, paid vacation time and company contributions to a 401(k) profit-sharing retirement plan. Benefits are provided to all employees in accordance with practices within the marketplace and are a necessary element of compensation in attracting and retaining employees.
Nonqualified Deferred Compensation
We currently do not offer a deferred compensation plan.
We have no defined benefit pension plans or supplemental retirement plans for executives.
Mr. Lender and Mr. Niedzielski have arrangements to receive six months base salary upon termination without cause. Other than such arrangements with Mr. Lender and Mr. Niedzielski and the CIC agreements as described above, we have no plans or arrangements in respect of remuneration received or that may be received by our Named Executives to compensate such officers in the event of termination of employment (as a result of resignation, retirement or change in control) or a change of responsibilities following a change in control, where the value of such compensation exceeds $10,000 per Named Executive.
The following table reflects the amounts that would be paid if a change in control or other termination event occurred on January 31, 2007 and our stock price per share was the closing market price as of that date. The closing market price of our common stock at January 31, 2007 was $8.10.
In administering the compensation programs of the Named Executives, the Committee typically meets at least four times a year on the day of regularly scheduled Board of Director meetings. At the end of each such meeting, executive sessions are conducted in accordance with recommended best practices. The Committee also meets telephonically to discuss extraordinary items (such as the hiring or dismissal of a Named Executive). The Committee members regularly confer with their compensation consultants and our human resources department on matters regarding the compensation of the Named Executives and other executive officers.
The Chief People Officer is the primary contact between management and the Committee. Each quarter, the Chief People Officer presents appropriate reports to the Committee, including information on the top 25 most highly compensated employees, a 401(k) update and the status of any recruitment of senior management. Other directors may be invited to meetings as well as certain employees, including the Chief People Officer, the Chief Financial Officer and the General Counsel, who serves as secretary of the Committee.
It has been our practice to use the date the Committee approves grants of options and SARs for purposes of establishing the exercise price of such equity grants awarded to the Named Executives. In fiscal year 2007, we granted SARs to the Named Executives, other than the Chief Executive Officer and the President, on June 7, 2006, the date of a regularly scheduled meeting of the Board of Directors and the grants were effective that day. The grants to our Chief Executive Officer and President were approved at the Committee meeting on September 6, 2006, the date of a regularly scheduled meeting of the Board of Directors, and were effective that day.
Exercise Price. In all instances, the exercise price for equity grants is set at the closing price of the Companys common stock on the grant date.
Restricted Stock Units. For fiscal year 2008, the Committee is reviewing the use of restricted stock units as a form of compensation for executives and for the Board of Directors.
Stock ownership guidelines have not been implemented by the Committee for our Named Executives. We will continue to periodically review best practices and re-evaluate our position with respect to stock ownership guidelines.
Section 162(m) of the Internal Revenue Code (Section 162(m)) generally limits the corporate deduction for compensation paid to the Chief Executive Officer and other Named Executives to $1 million per individual, unless certain requirements are met which establish the compensation as performance-based. The Committee has considered the impact of this tax code provision and attempts, to the extent practical, to implement compensation policies and practices that maximize the potential income tax deductions available to the Company by qualifying such compensation as performance-based compensation exempt from the deduction limits of Section 162(m).
The Committee will continue to review and modify our compensation practices and programs as necessary to ensure our ability to attract and retain key executives while taking into account the deductibility of compensation payments. Under the 2006 Stock Incentive Program, awards of equity grants are designed generally to satisfy the deductibility requirements of Section 162(m). However, the Committee has deemed it desirable to retain flexibility in rewarding senior management for extraordinary contributions that cannot properly be recognized under a predetermined quantitative plan. Therefore, bonuses to our Named Executives outside a predetermined qualitative plan generally will be counted against the $1 million limitation on deductible compensation, and any compensation in excess of such limitation will not be deductible by us. Neither the Chief Executive Officer nor any other Named Executive received compensation in excess of such limitation in fiscal year 2007.
The Committee is comprised of up to four members of the Board of Directors. Pursuant to the Compensation Committee Charter, as long as QADs common stock remains publicly traded, the Committee must consist of at least two members who qualify as (i) Non-Employee Directors under Rule 16b-3(b)(3)(i) promulgated under the Securities Exchange Act of 1934, and (ii) as Outside Directors under the rules promulgated under Section 162(m). During fiscal year 2007, the Committee included Mr. Wolfe (part-year), Mr. OMalia (part-year). The Committee also included Mr. Patmore and Dr. van Cuylenburg, each of whom is both a Non-Employee Director, and an Outside Director, as well as Mr. Lopker. Mr. Wolfe did not stand for reelection at the 2006 Annual Meeting and was replaced by Mr. OMalia as a member of the Committee in September 2006.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this proxy statement with QADs management as required by Item 402(b) of Regulation S-K. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in our proxy statement and incorporated by reference into our Annual Report on Form 10-K for the year ended January 31, 2007, for filing with the SEC.
Thomas J. OMalia
Peter R. van Cuylenburg
Karl F. Lopker
Summary Compensation Table for Fiscal Year 2007
The following table sets forth information concerning compensation paid or accrued to our Chief Executive Officer, our Chief Financial Officer and the other three Named Executives for fiscal year 2007.
Neither QADs stock options nor SARs are currently transferable, and the actual value of the stock options and SARs that an employee may realize, if any, will depend on the excess of the market price on the date of exercise over the exercise price. There is no assurance that the value realized by a Named Executive will be at or near the value estimated by the Black-Scholes pricing model. The assumption for stock price volatility is based on the variance of daily closing prices of QAD common stock. The risk-free rate of return used equals the yield to maturity on a 5-year zero coupon U.S. Treasury bond. No discount was applied to the value of the grants for non-transferability. Risk of forfeiture was accounted for in the expected life of the equity award granted. The inputs used to calculate the fair-value of awards under the Black-Scholes pricing model are disclosed in QADs Form 10-K.
Grants of Plan-Based Awards During Fiscal Year 2007
The following table sets forth information concerning grants of plan-based awards to our Named Executives during fiscal year 2007.
Outstanding Equity Awards at 2007 Fiscal Year-End
The following table contains information concerning unexercised stock options and stock-settled SARs that have not vested for each of the Named Executives as of January 31, 2007.
The table below sets forth information concerning the exercise of stock options for each Named Executive during fiscal year 2007.
REPORT OF AUDIT COMMITTEE
The current Audit Committee members are Dr. van Cuylenburg, Mr. Patmore and Mr. OMalia. The Chairman of the Audit Committee is Mr. OMalia, who was elected to the Board of Directors in August 2006 and assumed his position as Chairman at that time. At the beginning of the last fiscal year, the Chairman of the Audit Committee was Mr. Larry Wolfe. Mr. Wolfe chose not to seek re-election to the Board at the Annual Meeting in June 2006. During the period between the departure of Mr. Wolfe and the election of Mr. OMalia, Mr. Adelson served as a member of the Audit Committee. He resigned his position on the Audit Committee upon the election of Mr. OMalia. Mr. Patmore has chosen not to seek re-election to the Board at the Annual Meeting in June 2007.
The Audit Committee met on five occasions during fiscal year 2007. All members of the Audit Committee attended all meetings for which they were responsible except for one absence by Mr. Patmore at a meeting and one absence by Dr. van Cuylenburg at another meeting.
The Audit Committees specific responsibilities are delineated in the Audit Committee Charter which is available on the QAD website at www.qad.com.
During fiscal year 2007, at each of its regularly scheduled meetings, the Audit Committee met with the senior members of the Companys financial management team, the partner of our audit firm that serves as our outsourced internal audit department and the partner of the Companys Registered Independent Public Accounting Firm (independent auditor). The Audit Committees agenda is established by the Chairman of the Audit Committee. At each of its regularly scheduled meetings, the Audit Committee had separate private sessions with the Companys independent auditors and the accounting firm that handles certain internal audit functions for us, at which candid discussions regarding financial management, legal, accounting, auditing and internal control issues took place.
The Board annually reviews the NASDAQ listing standards definition of independence for audit committee members and has determined that each member of the Audit Committee meets that standard. In addition, the Board has determined that each of Mr. OMalia and Dr. van Cuylenburg is an audit committee financial expert as defined by the SEC and the National Association of Securities Dealers rules.
The Board of Directors has the ultimate authority for effective corporate governance, including the role of oversight of the management of the Company. The Audit Committees purpose is to assist the Board of Directors in fulfilling its responsibilities by overseeing the Companys accounting and financial reporting processes, the audits of the Companys consolidated financial statements, the qualifications of the independent registered public accounting firm engaged as the Companys independent auditor, and the performance of the Companys internal auditors and independent auditors.
The Committee relies on the expertise and knowledge of management, the internal auditors and the independent auditor in carrying out its oversight responsibilities. Management is responsible for the preparation, presentation, and integrity of the Companys consolidated financial statements, accounting and financial reporting principles, internal control over financial reporting, and procedures designed to ensure compliance with accounting standards, applicable laws, and regulations. Management is responsible for objectively reviewing and evaluating the adequacy, effectiveness, and quality of the Companys system of internal control.
The Companys independent auditor, KPMG LLP (KPMG), is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States. The independent auditor is also responsible for expressing opinions on managements assessment of the effectiveness of the Companys internal control over financial reporting and on the effectiveness of the Companys internal control over financial reporting.
During the fiscal year ended January 31, 2007, the Audit Committee fulfilled its duties and responsibilities generally as outlined in the charter. Specifically, the Audit Committee, among other actions:
The Audit Committee recognizes the importance of maintaining the independence of the Companys independent auditor, both in fact and appearance. Consistent with its charter, the Audit Committee has evaluated the independent auditors qualifications, performance, and independence, including that of the lead audit partner. The Audit Committee has established a policy pursuant to which all services, audit and non-audit, provided by the independent auditor must be pre-approved by the Audit Committee or its delegate. The Audit Committee has concluded that provision of the non-audit services described below under Principle Accounting Fees and Services is compatible with maintaining the independence of the independent auditor. In addition, the independent auditor has provided the Audit Committee with the letter required by the Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and the Audit Committee has engaged in dialogue with the independent auditor regarding its independence.
Based on the reviews, discussions and evaluations described above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements of the Company for the fiscal year ended January 31, 2007 be included in the Companys Annual Report on Form 10-K for the fiscal year ended January 31, 2007 for filing with the SEC.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Auditor
All audit and non-audit services to be performed by the independent auditor require pre-approval by the Audit Committee or its Chairman, provided that the Chairman reports any decisions to pre-approve such audit-related or non-audit services and fees to the full Audit Committee at its next regular meeting. Each year, the Audit Committee approves the terms on which the independent auditor is engaged for the ensuing fiscal year. KPMG currently serves as the Companys independent auditor. A representative of KPMG is expected to be present at the Annual Meeting and is expected to be available to respond to appropriate questions from stockholders.
A. Barry Patmore
Peter R. van Cuylenburg
The Audit Committee Report is not deemed to be soliciting material or to be filed with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act or the Exchange Act, except to the extent that QAD specifically incorporates it by reference in such filing.
The fees billed by KPMG for fiscal years 2007 and 2006 for services rendered to the Company were as follows:
Audit Fees. These amounts represent fees for the audit of the Companys annual consolidated financial statements, the review of financial statements included in the Companys quarterly Form 10-Q reports, the Sarbanes-Oxley Act required audit of managements assessment of the effectiveness of the Companys internal control over financial reporting and the KPMG independent audit of internal controls over financial reports, and the services that an independent auditor would customarily provide in connection with subsidiary audits, statutory requirements, regulatory filings, and similar engagements for the fiscal year.
Audit-Related Fees. Audit-Related Fees consist of assurance and related services that are reasonably related to the performance of the audit review of the Companys consolidated financial statements. This category includes fees related to a benefit plan audit in one of our foreign jurisdictions and the appropriateness of retained earnings in one of our foreign jurisdictions.
Tax Fees. These fees consist generally of the two categories of tax compliance and return preparation, and of tax planning and advice. For fiscal year 2007, fees for tax compliance and return preparation were $9,000 and fees for tax planning and advice were $22,000. For fiscal year 2006, fees incurred for tax compliance and return preparation were $17,000 and fees for tax planning and advice were $37,000. The tax compliance and return preparation services consisted of the preparation of original and amended tax returns, claims for refunds, and support during income tax audit or inquiries.
Management has a Compliance Committee of certain executive and non-executive officers to oversee the Companys compliance with its obligations related to certification of appropriate disclosure controls and internal controls over financial reporting. The Compliance Committee administers a set of procedures to oversee such compliance, including a requirement that certain members of management sign certifications each fiscal quarter that, to their knowledge, the operations within their span of control are fairly presented and appropriate internal controls are in place to ensure the accuracy of such results. The Compliance Committee typically meets at least twice quarterly, or more often if needed, and has reported its findings to the Audit Committee in each quarter of fiscal year 2007. In fiscal year 2007, the Compliance Committee met 14 times.
With oversight from the Audit Committee, the Company has established procedures to receive, retain and address employee complaints communicated to QAD. These procedures include a confidential hotline to answer employees ethics questions and to report employees ethical concerns and incidents including, without limitation, concerns about accounting, internal controls or auditing matters. This hotline is available 24 hours a day, seven days a week, and callers may choose to remain anonymous.
The Board has also approved, and the Company has adopted, the Code of Ethics for the Chief Executive Officer and Senior Financial Officers of QAD Inc., which is published on the Companys website at www.qad.com.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
We have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $120,000 and in which, to our knowledge, any of our directors, officers, five percent beneficial security holders, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest.
Our Corporate Code of Conduct outlines the principles, policies and values that govern the activities of our company and it applies to all of our directors, officers and employees. Our Corporate Code of Conduct outlines our policy on conflicts of interest.
A conflict of interest exists any time directors, officers or employees face a choice between what is in their personal interest (financial or otherwise) and the interests of our company. A conflict of interest also exists when a director, officer or employee takes actions or has interests that make it difficult to perform effectively his or her duties on behalf of our company.
It is specifically required by our Corporate Code of Conduct that all of our directors, officers and employees (1) fully disclose to the appropriate parties all actual or perceived conflicts of interest and (2) refrain from undertaking certain delineated actions that give rise to actual or perceived conflicts of interest.
In addition, we require our directors and executive officers to complete annually a directors and officers questionnaire which requires disclosure of any related party transactions.
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons who own more than 10% of a registered class of our securities, to file initial reports of ownership and reports of changes in ownership with the SEC. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations from our executive officers and directors, all required filings pursuant to Section 16(a) were timely made during fiscal year 2007 other than as discussed herein.
As part of this review, we determined that the initial statements of beneficial ownership of securities on Form 3 for Mr. Adelson and Mr. OMalia on April 24, 2006, and August 23, 2006, respectively, were considered late filings. While the filing of the Form 3 for each was within the normal 10-day requirement for such filing and included the initial equity grant of 30,000 shares for each, the grants for each required a filing within two business days. This requirement was not met. We also discovered that the filing for Mr. Adelson inadvertently omitted 500 shares of common stock and the filing for Mr. OMalia inadvertently omitted 3,000 shares of common stock. Amended Form 3 reports were promptly filed for Mr. Adelson in May 2007 and for Mr. OMalia in September 2006 after each oversight was discovered.
The SEC has approved a rule concerning the delivery of annual reports and proxy statements. It allows us, with your permission, to send a single set of these reports to any household at which two or more stockholders reside if we believe they are members of the same family. Each stockholder will continue to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information you receive and our expenses.
A number of brokerage firms have instituted householding. If your family has multiple QAD accounts, you may have received a householding notification from your broker. Please contact your broker directly if you have questions, require additional copies of the proxy statement or annual report, or wish to revoke your decision to household. These options are available to you at any time. To request additional copies of the proxy statement or annual report, please contact QAD as described above under Annual Report.
PROPOSAL NO. 1
At our Annual Meeting, stockholders will elect directors to hold office until our next Annual Meeting of Stockholders. The directors shall serve until their successors have been duly elected and qualified or until any such directors earlier resignation or removal. Proxies cannot be voted for a greater number of persons than the number of nominees named. If you sign and return the accompanying proxy, your shares will be voted for the election of the nominees recommended by the Board of Directors, unless you mark the proxy in such a manner as to withhold authority to vote or as to vote for an alternate candidate(s). If the nominees for any reason are unable to serve or will not serve, the proxies may be voted for such substitute nominee(s) as the proxy holder may determine. We are not aware that any of the nominees will be unable to or will not serve as director.
The following incumbent directors are being nominated for re-election to the Board: Karl F. Lopker, Pamela M. Lopker, Peter van Cuylenburg, Scott J. Adelson and Thomas J. OMalia. Please see Information Concerning the Nominees for Election beginning on page 5 of this proxy statement for information concerning each of our incumbent directors standing for re-election.
Directors are elected by a plurality of votes cast. Votes withheld and broker non-votes are not counted toward a nominees total. If you do not vote for a particular nominee or indicate that you WITHHOLD AUTHORITY to vote for a particular nominee on your proxy card, your abstention will have no effect on the election of directors.
The Board of Directors recommends a vote
FOR the election of the nominated directors.
Requirements for Stockholder Proposals to be Considered for Inclusion in QADs Proxy Materials. If you wish to submit a proposal to be included in our 2008 proxy statement, we must receive it, in a form which complies with the applicable securities laws, on or before January 14, 2008. Please address your proposals to: QAD Inc., 6450 Via Real, Carpinteria, California 93013, Attention: Corporate Secretary. As the rules of the SEC make clear, simply submitting a proposal does not guarantee that it will be included.
Requirements for Stockholder Proposals to be Brought Before the Annual Meeting. In accordance with our Bylaws, for any other matter to be properly considered before our 2008 Annual Meeting, such matter must be submitted to us prior to March 8, 2008. In the event next years Annual Meeting is more than 30 days before or more than 60 days after the anniversary date, to be timely, stockholder notices must be delivered not earlier than the 120th day prior to such Annual Meeting and not later than the close of business on the later of the 60th day prior to such Annual Meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by QAD. In addition, in the event a stockholder proposal is not submitted to us prior to March 8, 2008, the proxy to be solicited by the Board of Directors for the 2008 Annual Meeting will confer authority on the holders of the proxy to vote the shares in accordance with their best judgment and discretion if the proposal is presented at the 2008 Annual Meeting without any discussion of the proposal in the proxy statement for such meeting. Notices of intention to present proposals at the 2008 Annual Meeting should be addressed to QAD Inc., 6450 Via Real, Carpinteria, California 93013, Attention: Corporate Secretary. QAD reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. On request, the Secretary will provide detailed instructions for submitting proposals.
The Board of Directors does not presently intend to bring any other business before the meeting, and, so far as is known to the Board of Directors, no matters are to be brought before the meeting except as specified in the Notice of Annual Meeting of Stockholders. As to any business that may properly come before the meeting, however, it is intended that proxies, in the form enclosed, will be voted in respect thereof in accordance with the judgment of the persons voting such proxies.
To Ortega Hill Location in Summerland:
From Los Angeles International Airport (LAX): (87 miles)
Follow airport signs to Century Blvd. Take Century Blvd.
about 1/2 mile to 405 Freeway North
Take 405 North to the 101 Freeway North
Take 101 North past Ventura; past Carpinteria;
continue towards Summerland
Exit at Evans Ave. Turn left at the end of ramp
Continue on Ortega Hill Rd. up the hill 1/4 mile to
QAD entrance on left (2111 Ortega Hill Rd).
Enter lobby on mountain side of building
From Santa Barbara Municipal Airport (14 miles)
Take 217 to the 101 Freeway South
Take 101 southbound to the Summerland exit
Turn left under freeway and proceed to first stop sign
Turn left on Ortega Hill Road
Continue 1/4 mile to QAD entrance on left (2111 Ortega Hill Rd)
Enter lobby on mountain side of building
2007 ANNUAL MEETING
You are cordially invited to attend the annual meeting of stockholders of QAD Inc. on June 6, 2007, at 2111 Ortega Hill Road, Summerland, California. The meeting will begin at 10:00 a.m. Pacific Daylight Time. Admission is limited to stockholders and guests of QAD. This ticket will admit you and should be presented at the meeting to expedite registration. To avoid delays, please arrive early and present this ticket.
PROXY VOTING INSTRUCTIONS
QAD Inc. encourages all stockholders to vote their proxies. Please complete, sign, date and return the proxy card attached below in the enclosed postage-paid envelope.
ANNUAL MEETING OF STOCKHOLDERS, JUNE 6, 2007
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE 2007 ANNUAL MEETING OF STOCKHOLDERS OF QAD INC. The undersigned hereby appoints Pamela M. Lopker and Karl F. Lopker as proxies, each with the power to appoint his or her substitutes, and hereby authorizes them to represent and to vote, as designated on the reverse side and in accordance with their judgment upon any other matter properly presented, all the shares of common stock of QAD Inc. held of record by the undersigned at the close of business on April 16, 2007, at the annual meeting of stockholders or any adjournment or postponement thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES NAMED HEREIN AS DIRECTORS OF QAD INC.
Should any nominee decline or be unable to accept his nomination to serve as a director, an event that we do not currently anticipate, the persons named in the enclosed proxy reserve the right, in their discretion, to vote for a substitute nominee or nominees designated by the Board of Directors.
PLEASE MARK, SIGN, DATE AND RETURN THIS FORM PROMPTLY IN THE ENCLOSED ENVELOPE.
SEE REVERSE SIDE
This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no
direction is made, this proxy will be voted FOR the election of the nominees named herein .
INSTRUCTION: To withhold authority to vote for any nominees(s), mark FOR ALL EXCEPT and write the nominees number on the line below.
PLEASE SIGN YOUR NAME ABOVE. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE THE FULL TITLE OR CAPACITY. IF A CORPORATION, PLEASE SIGN IN CORPORATE NAME BY AN AUTHORIZED OFFICER AND GIVE TITLE. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AN AUTHORIZED PERSON.