SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
XYBERNAUT CORPORATION
-----------------------
(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):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
XYBERNAUT CORPORATION
12701 Fair Lakes Circle
Fairfax, Virginia 22033
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held September 24, 1998
---------------
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders
(the "Meeting") of XYBERNAUT CORPORATION, a Delaware corporation (the
"Company"), will be held at the offices of the Company located at 12701 Fair
Lakes Circle, Fairfax, Virginia 22033, on Thursday, September 24, 1998, 8:30
a.m., to consider and act upon the following:
1. The election of three (3) persons named in the accompanying
Proxy Statement to serve as Class I directors of the Company
for a term of three years and until their successors are duly
elected and qualified;
2. Amending the Certificate of Incorporation and the Bylaws to
implement an advance notice procedure for the submission of
director nominations and other business to be considered at
annual meetings of stockholders;
3. Amending the Certificate of Incorporation and the Bylaws to
permit only the President, the Vice Chairmen of the Board, the
Secretary or the Board of Directors to call special meetings
of stockholders and to limit the business permitted to be
conducted at such meetings to be brought before the meetings
by or at the direction of the Board of Directors;
4. To amend the Certificate of Incorporation and the Bylaws to
provide that a member of the Board of Directors may only be
removed by the stockholders of the Company for cause by an
affirmative vote of holders of at least 66 2/3% of the voting
power of the then outstanding shares of any class or series of
capital stock of the Company entitled to vote generally in the
election of directors voting together as a single class (the
"Voting Stock");
5. To amend the Bylaws to (a) fix the size of the Board of
Directors at a maximum of twelve directors, with the
authorized number of directors set at ten, and the Board of
Directors having the sole power and authority to increase or
decrease the number of directors acting by an affirmative vote
of at least a majority of the total number of authorized
directors most recently fixed by the Board of Directors, and
(b) provide that any vacancy on the Board of Directors may be
filled for the unexpired term (or for a new term in the case
of an increase in the size of the board) only by an
affirmative vote of at least a majority of the remaining
directors then in office even if less than a quorum, or by the
sole remaining director;
6. To amend the Certificate of Incorporation and the Bylaws to
eliminate stockholder action by written consent;
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7. To amend the Certificate of Incorporation and the Bylaws to
require the approval of holders of 80% of the then outstanding
Voting Stock and/or the approval of 66 2/3% of the directors
of the Company for certain corporate transactions;
8. To amend the Certificate of Incorporation and the Bylaws to
require an affirmative vote of 66 2/3% of the Voting Stock in
order to amend or repeal any adopted amendments to the
Certificate of Incorporation and Bylaws proposed herein;
9. Ratifying the appointment of PricewaterhouseCoopers LLP as
independent auditors for the 1998 fiscal year; and
10. To consider and transact such other business as may properly
come before the Meeting or any adjournment thereof.
A Proxy Statement, form of proxy and the Annual Report to Stockholders
of the Company for the fiscal year ended December 31, 1997 are enclosed
herewith. Only holders of record of Common Stock, $.01 par value, of the Company
at the close of business on August 10, 1998 are entitled to receive notice of
and to attend the Meeting and any adjournments thereof. At least 10 days prior
to the Meeting, a complete list of the stockholders entitled to vote will be
available for inspection by any stockholder, for any purpose germane to the
Meeting, during ordinary business hours, at the offices of the Company. If you
do not expect to be present at the Meeting, you are requested to fill in, date
and sign the enclosed Proxy, which is solicited by the Board of Directors of the
Company, and to mail it promptly in the enclosed envelope. In the event you
attend the Meeting in person, you may, if you desire, revoke your Proxy and vote
your shares in person.
By Order of the Board of Directors
/s/ Martin Eric Weisberg
------------------------------
Martin Eric Weisberg
Secretary
Dated: August 25, 1998
IMPORTANT
The return of your signed Proxy as promptly as possible will greatly facilitate
arrangements for the Meeting. No postage is required if the Proxy is returned in
the envelope enclosed for your convenience and mailed in the United States.
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<PAGE>
XYBERNAUT CORPORATION
12701 Fair Lakes Circle
Fairfax, Virginia 22033
----------------------------------------
Proxy Statement
Annual Meeting of Stockholders
September 24, 1998
----------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Xybernaut Corporation, a Delaware
corporation (the "Company"), to be voted at the Annual Meeting of Stockholders
of the Company (the "Meeting") which will be held at the offices of the Company
located at 12701 Fair Lakes Circle, Fairfax, Virginia 22033 on Thursday,
September 24, 1998 at 8:30 a.m., local time, and any adjournment or adjournments
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders and in this Proxy Statement.
The principal executive offices of the Company are located at 12701
Fair Lakes Circle, Fairfax, Virginia 22033. The approximate date on which this
Proxy Statement and accompanying Proxy will first be sent or given to
stockholders is August 25, 1998.
A Proxy, in the enclosed form, which is properly executed, duly
returned to the Company and not revoked will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted in favor of the proposals and in accordance with the judgment of
the person or persons voting the Proxy on any other matter that may be brought
before the Meeting. Each such Proxy granted may be revoked at any time
thereafter by writing to the Secretary of the Company prior to the Meeting, by
execution and delivery of a subsequent proxy or by attendance and voting in
person at the Meeting, except as to any matter or matters upon which, prior to
such revocation, a vote shall have been cast pursuant to the authority conferred
by such Proxy. The cost of soliciting proxies will be borne by the Company.
Following the mailing of the proxy materials, solicitation of proxies may be
made by officers and employees of the Company, or anyone acting on their behalf,
by mail, telephone, telegram or personal interview.
VOTING SECURITIES
Stockholders of record as of the close of business on August 10, 1998
(the "Record Date") will be entitled to notice of, and to vote at, the Meeting
or any adjournments thereof. On the Record Date, there were 20,934,765
outstanding shares of Common Stock, $.01 par value ("Common Stock"). Each holder
of Common Stock is entitled to one vote for each share held by such holder. The
presence, in person or by proxy, of the holders of a majority of the outstanding
shares of Common Stock is necessary to constitute a quorum at the Meeting.
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Proxies submitted that are voted to abstain with respect to any matter
will be considered cast with respect to that matter. Proxies subject to broker
non-votes with respect to any matter will not be considered cast with respect to
that matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of August 10, 1998, certain
information regarding the ownership of voting securities of the Company by each
stockholder known to the management of the Company to be (i) the beneficial
owner of more than 5% of the Company's outstanding Common Stock, (ii) the
directors during the last fiscal year and nominees for director of the Company,
(iii) the executive officers named in the Summary Compensation Table herein
under "Executive Compensation" and (iv) all executive officers and directors as
a group. The Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
Amount of Shares
Beneficially
Name(1) Owned Percentage Owned
- ------- ---------------- ----------------
<S> <C> <C>
Edward G. Newman ................................ 3,771,721 (2) 18.0%
Dr. Steven A. Newman............................. 1,683,897 (3) 8.0%
George Allen..................................... ---- *
Eugene J. Amobi.................................. 360,000 (4) 1.7%
Keith P. Hicks, Esq.............................. 414,171 (4) 2.0%
John P. Moynahan................................. 128,333 (5) *
Phillip E. Pearce................................ 60,000 (4) *
James J. Ralabate, Esq........................... 108,121 (4) *
Jacques Rebibo................................... 197,500 (6) *
Lt. Gen. Harry E. Soyster (Ret.)................. 84,061 (4) *
Kaz Toyosato .................................... 50,000 (7) *
Martin Eric Weisberg, Esq........................ 60,000 (4) *
Officers and directors (14 persons).............. 7,135,556 (8) 32.2%
</TABLE>
- -----------------------
* Less than 1%
(1) The address for Mr. Edward G. Newman is 12701 Fair Lakes Circle, Suite
550, Fairfax, Virginia 22033; the address for Dr. Steven A. Newman is
303 Avenida Cerritos, Newport Beach, California 92660; the address for
Mr. Allen is 1 James Center, 901 East Cary Street, Richmond, Virginia
23219; the address for Mr. Amobi is 100 Jade Drive, Wilmington,
Delaware 19810; the address for Mr. Hicks is 4121 Roberts Road,
Fairfax, Virginia 22032; the address for Mr. John P. Moynahan is 12303
Blair Ridge Road, Fairfax, Virginia 22033; the address for Mr. Pearce
is 6624 Glenleaf Court, Charlotte, North Carolina 28270; the address
for Mr. Ralabate is 5792 Main Street, Williamsville, New York 14221;
the address
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<PAGE>
for Mr. Rebibo is 7216 Dulany Drive, McLean, Virginia 22101; the
address for Lt. Gen. Soyster (Ret.) is 1201 E. Abingdon Drive, Suite
425, Alexandria, Virginia 22314; the address for Mr. Toyosato is
Kita-Shinagawa 5-12-6, Wakabayashi Bldg. 2F, Shinagawa-Ku, Tokyo Japan
141-0001; and the address for Mr. Weisberg is 1211 Avenue of the
Americas, New York, New York 10036.
(2) Excludes 200,000 shares of Common Stock beneficially owned by an
irrevocable trust for Mr. Newman's children and 747,753 shares of
Common Stock beneficially owned by Mr. Newman's wife, Francis C.
Newman. Mr. Newman disclaims beneficial ownership of all such shares.
(3) Includes 110,000 shares of Common Stock issuable upon exercise of
currently exercisable options. Excludes 100,000 shares of Common Stock
beneficially owned by a trust for the benefit of Dr. Newman's children
and 57,800 shares of Common Stock owned by a trust for the benefit of
two relatives of Dr. Newman. Dr. Newman disclaims beneficial ownership
of such shares.
(4) Includes 60,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(5) Mr. Moynahan resigned as a director and officer of the Company
effective June 3, 1998.
(6) Mr. Rebibo served as a director of the Company through August 28, 1997.
His holdings include 10,000 shares of Common Stock issuable upon
exercise of currently exercisable options.
(7) Includes 50,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(8) Includes 580,250 shares of Common Stock issuable upon exercise of
currently exercisable options. Also includes the holdings of Frances C.
Newman and Jeffrey Pagano, two additional key executives of the
Company, who hold, respectively, 797,753 shares of Common Stock
(including 50,000 shares of Common Stock issuable upon currently
exercisable options) and 250 shares of Common Stock.
------------------------------------------------
ACTIONS TO BE TAKEN AT THE MEETING
-----------------------------------------
PROPOSAL 1
ELECTION OF DIRECTORS
------------------------------------------
Unless otherwise indicated, the shares represented by all proxies
received by the Board of Directors will be voted at the Meeting in accordance
with their terms and, in the absence of contrary
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<PAGE>
instructions, for the election of Keith P. Hicks, Esq. Kaz Toyosato and Martin
Eric Weisberg, Esq. as Class I directors to serve for a term of three years and
until their successors are elected and qualified.
Except for Mr. Toyosato, who was appointed to the Board of Directors in
May 1998 to fill the vacancy left by Mr. John P. Moynahan, all of the nominees
were elected directors at the 1997 Annual Meeting of Stockholders. The term of
the current Class I directors expires at the Meeting.
The Board of Directors has no reason to expect that any of the nominees
will be unable to stand for election at the date of the Meeting. In the event
that a vacancy among the original nominees occurs prior to the Meeting, the
Proxies will be voted for a substitute nominee or nominees named by the Board of
Directors and for the remaining nominees. Directors are elected by a plurality
of the votes cast.
The following table sets forth information about each executive
officer, director and nominee for director of the Company.
<TABLE>
<CAPTION>
Year First
Elected or Present Position
Name Age Class Appointed with the Company
- ---- --- ----- ---------- ----------------
<S> <C> <C> <C> <C>
Edward G. Newman 54 III 1990 President, Chief Executive
Officer and Chairman of the
Board of Directors
George Allen, Esq. 46 III 1998 Director
Eugene J. Amobi 52 II 1996 Director
Keith P. Hicks, Esq. (2) 75 I 1994 Director
Steven A. Newman, M.D. (1)(2)(3) 52 III 1995 Director and Vice Chairman of
the Board of Directors
Phillip E. Pearce (2)(3) 69 II 1995 Director
James J. Ralabate, Esq. 70 III 1995 Director
Lt. Gen. Harry E. Soyster (Ret.) (1)(3) 62 II 1995 Director
Kaz Toyosato (4) 54 I 1998 Executive Vice President and
Director
Martin Eric Weisberg, Esq. (1)(3) 47 I 1997 Secretary and Director
</TABLE>
- ----------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
(4) Appointed to the Board of Director on June 3, 1998, pursuant to a vacancy
created by an increase of the Class II directors from three to four.
Officers are appointed by and serve at the discretion of the Board of
Directors. The three directors nominated for Class I will serve for a three-year
term expiring in 2001, the four directors currently serving as Class II are
serving a two-year term expiring in 1999 and the three directors
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<PAGE>
currently serving as Class III are serving for a three-year term expiring in
2000, and in each case until their successors shall be duly elected and
qualified.
At each Annual Meeting of Stockholders subsequent to the Meeting, one
class of directors will be elected to succeed those directors in the class whose
terms then expire, for terms expiring at the third succeeding Annual Meeting of
Stockholders. All of the nominees are currently directors of the Company whose
term as directors expires at the Meeting.
Director Nominees
Keith P. Hicks, Esq. has been a director of the Company since July 1994
and currently is a principal in C&H Properties and the owner of Hicks Bonding
Co., Hicks Auctioneering Co. and Hicks Cattle Company. Mr. Hicks is a graduate
of the University of Denver (B.A. 1954) and LaSalle University School of Law
(L.L.B. 1969).
Kaz Toyosato joined the Company in October 1996 as Executive Vice
President of Asian Operations. Mr. Toyosato, who is based in the Company's
Tokyo, Japan office, is responsible for overseeing the Company's operations in
Asia. Prior to joining the Company, Mr. Toyosato spent 27 years with Sony
Corporation in Japan where his last position was the Vice President of Sony USA.
He previously served as product manager for the Sony Walkman product line, as
well as Sony's 8mm video camcorder and its battery line of products.
Martin Eric Weisberg, Esq., who currently serves as Secretary of the
Company, is a partner of the law firm, Parker Chapin Flattau & Klimpl, LLP,
which serves as general counsel to the Company. Mr. Weisberg specializes in the
areas of securities, mergers and acquisitions, financing and international
transactions and has been in the private practice of law for 23 years. Mr.
Weisberg is a summa cum laude graduate of Union College (B.A. 1972) and received
his law degree from The Northwestern University School of Law (1975), where he
graduated summa cum laude, was Articles Editor of the Law Review and was elected
to the Order of the Coif. Mr. Weisberg also attended The London School of
Economics and Political Science.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF KEITH P. HICKS, MARTIN
ERIC WEISBERG AND KAZ TOYOSATO FOR A ONE-YEAR TERM EXPIRING AT THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD IN 1999.
Current Class II Directors
Eugene J. Amobi has been a director of the Company since January 1996.
Since 1983, Mr. Amobi has been President, a director and a principal stockholder
of Tech International, Inc. ("Tech International"), which provides engineering,
technical support and consulting services to government and domestic and
international commercial clients. Mr. Amobi has been president and director of
Tech International of Virginia Inc. ("Tech Virginia"), the Company's
wholly-owned subsidiary, since its spin-off from Tech International. Prior to
1983, Mr. Amobi was a Senior Engineer with E.I.
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<PAGE>
DuPont de Nemours and a Managing Director of Stanley Consultants, an
international engineering consulting firm. Mr. Amobi is a graduate of The
Technion, Israel Institute of Technology (B.S. 1969), Princeton University (M.S.
1970) and Syracuse University (M.B.A. 1973).
Phillip E. Pearce has been a director of the Company since October
1995. Mr. Pearce has been an independent business consultant with Phil E. Pearce
& Associates, Chairman and Director of Financial Express Corporation since 1990
and since 1988 has been a principal of Pearce-Henry Capital Corp. Prior to 1988
Mr. Pearce was Senior Vice President and a director of E.F. Hutton, Chairman of
the Board of Governors of the National Association of Securities Dealers, a
Governor of the New York Stock Exchange and a member of the Advisory Council to
the United States Securities and Exchange Commission on the Institutional Study
of the Stock Markets. Mr. Pearce also is a director of RX Medical Services,
Inc., an operator of medical diagnostic facilities and clinical laboratories,
InfoPower International, Inc., a software development company and StarBase
Corporation, a software development company, and United Digital Networks, Inc.,
a provider of voice and data long distance services. Mr. Pearce is a graduate of
the University of South Carolina (B.A. 1953) and attended the Wharton School of
Investment Banking at the University of Pennsylvania.
Lt. Gen. Harry E. Soyster (Ret.) has been a director of the Company
since January 1995. He is currently Director of Washington Operations and Vice
President of International Operations of Military Professional Resources,
Incorporated. From 1988 until his retirement in 1991, Lieutenant General Soyster
(Ret.) was the Director of the United States Defense Intelligence Agency. Prior
to that time, he was Commander of the United States Army Intelligence and
Security Command and a Deputy Assistant Chief of Staff for Intelligence,
Department of the Army. Lieutenant General Soyster (Ret.) is a graduate of the
United States Military Academy at West Point (B.S. 1957), Penn State University
(M.S. 1963), the University of Southern California (M.S. 1973) and the National
War College (1977).
Current Class III Directors
George Allen, Esq. is a partner of the law firm of McGuire Woods Battle
& Boothe, LLP. Mr. Allen was Virginia's 67th governor from 1994-1998, during
which period state taxes were cut by $1 billion, $14 billion in new investments
were made in the state resulting in 300,000 net new private sector jobs. Mr.
Allen's term in office also was noted for comprehensive reforms in primary and
secondary education, the abolition of parole, reform of the juvenile justice
systems and the replacement of the welfare system with reforms which promote
work ethic and personal responsibility. Prior to serving as Governor of
Virginia, Mr. Allen was a member of the U.S. House of Representatives in 1991
and a member of the Virginia House of Delegates from 1983-1991. Mr. Allen is a
member of the Board of Directors of Commonwealth Biotechnology, Inc. Mr. Allen
is a graduate of the University of Virginia at Charlottesville (B.A. 1974), with
distinction, and received his law degree from the University of Virginia at
Charlottesville (J.D. 1977).
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<PAGE>
Edward G. Newman has been the Company's President since March 1993,
Chief Executive Officer and Chairman of the Board of Directors since December
1994, and a director since 1990. Mr. Newman served as Treasurer of the Company
from 1993 to 1994. From 1984 to 1992 Mr. Newman was President of ElectroTech
International Corporation, a software consulting firm. From 1973 to 1981 Mr.
Newman was employed by Xerox Corporation in several management positions in
office systems strategy, legal systems and international financial systems. Mr.
Newman served with the Central Intelligence Agency from 1966 to 1972. Mr. Newman
also has been an Executive Vice President of Tech International since 1990, and
a director and Chief Executive Officer of Tech Virginia since 1994. See "Certain
Transactions." Mr. Newman is a graduate of the University of Maryland (B.A.
1971) and the University of New Haven (M.B.A. 1984). Mr. Newman is the brother
of Steven A. Newman, M.D., a director of the Company.
Steven A. Newman, M.D. has been a director of the Company since January
1995, a consultant to the Company since January 1996 and Vice Chairman of the
Board of Directors since August 1997. See "Business - Employees and
Consultants." Dr. Newman was Executive Vice President and Secretary of the
Company from December 1994 through October 1995. Dr. Newman also provides
business, management and administrative consulting services to various medical
and business groups. Dr. Newman was President and Chief Executive Officer of Fed
American, Inc., a mortgage banking firm, from 1988 to 1991. Dr. Newman has been
a director of Tech Virginia since 1994. See "Certain Transactions." Dr. Newman
is a graduate of Brooklyn College (B.A. 1967) and the University of Rochester
(M.D. 1972). Dr. Newman is the brother of Edward G. Newman, the Company's
President, Chief Executive Officer and Chairman of the Board of Directors.
James J. Ralabate, Esq. has been a director of the Company since
January 1995 and served as the Company's Secretary until August 1997. Mr.
Ralabate has been in the private practice of patent law since 1982. Prior to
that time, Mr. Ralabate was General Patent Counsel for Xerox Corporation,
responsible for worldwide patent licensing and litigation, and an examiner for
the Patent Office. Mr. Ralabate is intellectual property counsel to the Company,
and is a graduate of Canisius College (B.S. 1950) and The American University
(J.D. 1959).
Advisory Board
The Advisory Board was established to provide council and support to
the Board of Directors. The Advisory Board is established annually by the Board
of Directors and the members are appointed by the Board of Directors. Its
members include:
Lawrence Berk is currently Senior Managing Director of Brill
Securities. He has been a money manager and has structured and advised companies
on financings and strategic planning, having held executive positions with
various investment banking firms, including Oppenheimer & Co. where he was a
partner. Mr. Berk has also held many leadership roles in the entertainment
business. He served as a member of the Board of the Actors Studio for 15 years
where he produced plays; he was a founding Chairman of the Veterans Ensemble
Theatre, a group of writers, actors and directors from the Vietnam war; he was
on the Board of the Association of American Dance Companies; and
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<PAGE>
he was a trustee of the Manhattan Theatre Club. Mr. Berk is a member of the
Financial Investment Analyst Association and the Regional Investment Bankers
Association.
Wayne Coleson is at present and since 1994 has been the President and a
Director of Avalon Capital, Inc., a Director of Settondown Capital
International, Ltd. and a Director of Manchester Asset Management, Ltd., each of
which is an investment company which invests in and structures private placement
transactions. Mr. Coleson is a founder of all three companies. During the last
three years Mr. Coleson completed over 75 transactions resulting in $500 million
of investments. Prior to these activities Mr. Coleson was affiliated with
Shoreline Pacific Institutional Finance, Laffer-Warren Investment Brokers and
Lehman Brothers, during which period Mr. Coleson had extensive roles in
structuring, evaluating, negotiating and raising capital for small to micro-cap
companies in the United States and Europe. Mr. Coleson graduated from the
University of Georgia in 1985 with a B.A. in Political Science.
Dr. Andrew Heller has been an advisor to the Board of Directors since
1995. Since 1989 Dr. Heller has been Chairman and Chief Executive Officer of
Heller Associates, a consulting firm to high technology companies. From 1990 to
1993 Dr. Heller was Chairman and Chief Executive Officer of Hal Computer
Systems, Inc., a software and hardware systems development company. From 1966 to
1989 Dr. Heller was employed by IBM (where he was the youngest person ever to be
selected as an IBM Fellow) in a variety of positions including Corporate
Director of Advanced Technology Systems, member of the Executive Committee on
Technology, member of the Technical Review Board, and General Manager, Advanced
Workstation Independent Business Unit. While at IBM, Dr. Heller created and ran
the business unit that created the AIX (UNIX) operating system for IBM and the
RISC RS/6000 family of workstations and servers, from which the current Power PC
was developed. Dr. Heller is a director of Rambus, Inc., Cross/Z, Inc., Network
Translation, Inc., EPR, Inc., Eco Instrumentation, Inc. and UDI Software, Inc.
Dr. Heller has a three-year consulting agreement with the Company whereby Dr.
Heller has agreed to provide strategic planning, business management, strategic
product development and market and financial introduction services to the
Company.
Maarten Heybroek has been an advisor to the Board of Directors since
1992. Since 1986, Mr. Heybroek has been employed by Citibank, as Chief of Staff
and Controller for consumer banking activities in Central Europe and, most
recently, as Director, Compliance and Risk Management for Citibank's United
States consumer banking operations. Prior to that time, Mr. Heybroek was
Director, Finance-European Operations and then Director, Corporate Finance for
Intergraph Corporation, a publicly-traded computer hardware and software firm,
and with Xerox Corporation in a variety of financial and management positions.
Mr. Heybroek is a graduate of Pace University.
Vice Admiral Stephan F. Loftus (ret.) retired from the United States
Navy in May of 1994. Prior to that he served as the Deputy Chief of Naval
Operations (Logistics). Vice Admiral Loftus held previous positions with the
U.S. Navy as Commander, Fleet Air Mediterranean; Director, Office of Budget and
Reports; and Director, Office of Program Appraisal. Vice Admiral Loftus
presently serves as Executive Vice President of Quarterdeck Investment Partners,
Inc. (specializing in
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merger/acquisitions) and The Spectrum Group (a strategic planning group). He
consults for Lockheed Martin Corporation, SAIC, Johns Hopkins University -
Applied Physics Lab, Systems Planning Corporation, and Global Planning
Corporation. He is on the Board of Directors of AMSEC, Inc. and LLD, Inc., and
serves as a member of the Logistics Panel for the Defense Science Board. Also,
Admiral Loftus serves as the Chairman of the Board of Trustees at NMCCG
Foundation.
General Richard H. Thompson (ret.) retired from the U.S. Army in 1987
after 43 years of service. His last assignment was as the Commander of the U.S.
Army Material Command, an organization of 132,000 personnel at 171 locations
worldwide with an annual budget in excess of $35 billion. Since his retirement,
General Thompson has served on the Board of Directors of several companies, has
consulted with many others, and has participated as a member of several Study
Groups for the National Academy of Sciences and the House of Representatives. He
is currently the Chairman and Chief Executive Officer and actively engaged in
the operations of three companies he has established: Thompson Delstar Inc., TMI
Asia, and TDIS.
Compensation of Directors
The Company currently does not pay or accrue salaries or consulting
fees to outside directors for each board or committee meeting attended. While it
is the Company's intention to establish such payments eventually, it does not
currently anticipate doing so. Any payments when implemented will be comparable
to those made by companies of similar size and stage. Directors receive a grant
of options for 50,000 shares of Common Stock upon election to the Board of
Directors and are entitled for each full year of service, commencing with those
directors who were elected at the 1997 Annual Meeting, to receive a grant of
options to purchase 10,000 shares of Common Stock which vests at the end of such
year of service. The Company also has adopted an Omnibus Stock Incentive Plan
and the 1997 Stock Incentive Plan in which directors are eligible to
participate. See "Executive Compensation - Omnibus Stock Incentive Plan; -- 1997
Stock Incentive Plan." Steven A. Newman has entered into a consulting agreement
with the Company. See "Executive Compensation -- Consulting Agreements."
Certain Information About the Board of Directors and Committees of the Board
The Board of Directors is responsible for the management of the
Company. During the fiscal year ended December 31, 1997, the Board of Directors
of the Company held six (6) meetings. All of the directors attended all meetings
of the Board except that Keith P. Hicks, Esq., Phillip E. Pearce and James J.
Ralabate, Esq., each missed one meeting. The Board has established Audit,
Compensation and Nominating Committees.
The functions of the Audit Committee include the nomination of
independent auditors for appointment by the Board; meeting with the independent
auditors to review and approve the scope of their audit engagement; meeting with
the Company's financial management and the independent auditors to review
matters relating to internal accounting controls, the Company's accounting
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<PAGE>
practices and procedures and other matters relating to the financial condition
of the Company; and to report to the Board periodically with respect to such
matters. The Audit Committee currently consists of Keith P. Hicks, Dr. Steven A.
Newman and Phillip E. Pearce. The Audit Committee met once, and from time to
tome had informal discussions, during the fiscal year ended December 31, 1997.
The function of the Compensation Committee is to review and recommend
to the Board of Directors the appropriate compensation of executive officers of
the Company and to administer the 1996 Omnibus Stock Incentive Plan and the 1997
Stock Incentive Plan. The Compensation Committee currently consists of Dr.
Steven A. Newman, Lt. Gen. Harry E. Soyster (Ret.) and Martin Eric Weisberg,
Esq. The Compensation Committee met three times during the fiscal year ended
December 31, 1997.
The function of the Nominating Committee is to select and recommend to
the Board of Directors appropriate candidates for election to the Company's
Board of Directors. The Nominating Committee currently consists of Dr. Steven A.
Newman, Lt. Gen. Harry E. Soyster (Ret.) and Martin Eric Weisberg, Esq.
SECTION 16(a) REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Company's Common Stock, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company during the one-year period ended December 31,
1997, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten-percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following sets forth the annual and
long-term compensation for services in all capacities to the Company (i) for the
fiscal year ended December 31, 1997, for the fiscal year ended December 31,
1996, for the nine month transitional year ended December 31, 1995 and the
fiscal year ended March 31, 1995 of Edward G. Newman, the Company's President,
Chief Executive Officer and Chairman of the Board of Directors, and (ii) for the
fiscal years ended December 31, 1997 and December 31, 1996, and for the
transitional year dated December 31, 1995 and the fiscal years ended March 31,
1995 of John P. Moynahan, the Company's former Senior Vice President, Chief
Financial Officer, Treasurer and director. Mr. Moynahan resigned from his
various positions with the Company effective June 3, 1998. No other officer of
the Company received annual salary and bonus exceeding $100,000 during the
relevant periods.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
compensation
awards(1)
Annual compensation (1) --------------
Name and ---------------------------- Options All other
principal position Year Salary Bonus (Shares) compensation
- ------------------ --------- -------------- ------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Edward G. Newman 1997 $211,211(1) $- 0 - - 0 - $43,600 (2)
President and Chief Executive Officer 1996 $149,635(1) $- 0 - - 0 - $- 0 -
and Chairman of the Board of 1995* $112,500 $- 0 - - 0 - $- 0 -
Directors 1995 $ 68,750 $- 0 - - 0 - $- 0 -
John F. Moynahan 1997 $142,083 $- 0 - - 0 - $15,465 (2)
Senior Vice President, Chief Financial 1996 $139,688 $- 0 - - 0 - $- 0 -
Officer and Treasurer
1995* $105,000 $- 0 - - 0 - $- 0 -
1995 $ 64,167 $- 0 - 200,000 $- 0 -
</TABLE>
- ------------
* Transitional year ended December 31, 1995.
(1) Compensation does not include (i) $50,000 and $50,084 paid to Frances
C. Newman, wife of Edward G. Newman in 1997 and 1996, respectively, and
(ii)$87,314 paid by Tech of Virginia in 1997 and 1996, as payment of
accrued salaries and expenses.
(2) Includes payment of non-accountable expense allowances and car
allowances.
Option Grants Table. The following table sets forth information on
grants of stock options during fiscal 1997 to executive officers and directors
of the Company. All such options are exercisable to purchase shares of Common
Stock.
<TABLE>
<CAPTION>
Percent of total
Options options granted to Exercise or
granted officers/directors base price
Name (shares) in year ($/Share) Expiration date
- ---- --------------- --------------------- -------------- -----------------
<S> <C> <C> <C> <C>
Steven A. Newman 50,000 18.5% $2.6125 January 2, 2007
60,000 22.2% $2.8125 August 28, 2007
Eugene J. Amobi 10,000 3.7% $2.8125 August 28, 2007
Keith P. Hicks, Esq. 10,000 3.7% $2.8125 August 28, 2007
Phillip E. Pearce 10,000 3.7% $2.8125 August 28, 2007
James J. Ralabate, Esq. 10,000 3.7% $2.8125 August 28, 2007
Lt. Gen. Harry E. Soyster 10,000 3.7% $2.8125 August 28, 2007
Kaz Toyosato 50,000 18.5% $2.8125 August 28, 2007
Martin Eric Weisberg, Esq. 50,000 18.5% $1.6875 August 28, 2007
10,000 3.7% $2.8125 August 28, 2007
</TABLE>
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<PAGE>
Fiscal Year-End Options/Option Values Table.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
underlying unexercised options in-the-money options
at fiscal year-end at fiscal year-end ($)
------------------------------------ -------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Steven A. Newman 110,000 0 0 0
Eugene J. Amobi 60,000 0 0 0
Keith P. Hicks, Esq. 60,000 0 0 0
Phillip E. Pearce 60,000 0 0 0
James J. Ralabate, Esq. 60,000 0 0 0
Lt. Gen. Harry E. Soyster 60,000 0 0 0
Kaz Toyosato 50,000 0 0 0
Martin Eric Weisberg, Esq. 60,000 0 0 0
</TABLE>
None of the foregoing options were exercisable within 60 days of
December 31, 1997.
The Company has no retirement, pension or profit sharing program for
the benefit of its directors, officers or other employees, but the Board of
Directors may recommend one or more such programs for adoption in the future.
Profit Sharing Program
The Company may establish a profit sharing program to be administered
by the Board of Directors. Under this program, which will remain in effect for
five years unless extended by the Board of Directors, executives, key employees
and consultants will be eligible to participate in a cash bonus pool. The amount
of the cash bonus pool will be determined annually and will be up to 10% of the
amount by which the Company's pretax income exceeds 10% of stockholders' equity.
Employment Agreements
The Company has entered into an employment agreement with Edward G.
Newman which provides for a three-year term through December 31, 1998; initial
annual base compensation of $150,000 subject to a minimum annual increase to
$198,000 on January 1, 1997 and of at least the annual increase in the United
States Consumer Price Index ("CPI") plus two percent annually thereafter, an
annual cash bonus in an amount to be determined by the Board of Directors; and a
$2,000,000 life insurance policy payable to his designated beneficiaries. Mr.
Newman received payments in 1997 for accrued salaries and expenses related to
his employment with Tech Virginia and continues to provide services to Tech
Virginia without contract at a fixed payment of $1,000 per month with a $650
automobile allowance per month. The employment agreement with Mr. Newman also
entitles him to participate in all benefits which the Company may offer to its
executive officers and employees, as a group. The Company anticipates that such
benefits will include an automobile, health insurance and expense reimbursement.
The employment agreement automatically renews for an additional three-year term
unless terminated in writing by either party on or before October 31,
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<PAGE>
1998. The employment agreement also provides for termination at the option of
Mr. Newman in the event of a change of control (which is defined as Mr. Edward
Newman ceasing to serve as either the Chairman of the Company's Board of
Directors or its President and Chief Executive Officer) and that upon any such
termination Mr. Newman is entitled to at least two years of annual compensation
under his employment agreement.
Mr. Toyosato is employed pursuant to a three-year Employment Agreement
with a term expiring on March 3, 2000. The Employment Agreement provides for an
annual salary of $153,575.23.
Omnibus Stock Incentive Plan
The 1996 Omnibus Stock Incentive Plan (the "1996 Incentive Plan") was
adopted by the Company's Board of Directors effective January 1, 1996. The 1996
Incentive Plan provides for the granting of incentive stock options ("Incentive
Stock Options") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), nonqualified stock options, stock appreciation
rights ("SARs") and grants of shares of Common Stock subject to certain
restrictions ("Restricted Stock") up to a maximum of 650,000 shares to officers,
directors, employees and others. Incentive Stock Options can be awarded only to
employees of the Company at the time of the grant. No options, SARs or
restricted stock ("Restricted Stock") may be granted under the 1996 Incentive
Plan subsequent to December 31, 2006. To date, options have been granted to
purchase all of the 650,000 shares of Common Stock reserved for issuance under
the 1996 Incentive Plan.
The 1996 Incentive Plan is administered by the Compensation Committee
of the Board of Directors (subject to the authority of the full Board of
Directors), which determines the terms and conditions of the options, SARs and
Restricted Stock granted under the 1996 Incentive Plan, including the exercise
price, number of shares subject to the option and the exercisability thereof.
Dr. Steven A. Newman, Lt. Gen. Harry E. Soyster (Ret.) and Martin Eric Weisberg,
Esq. currently are the members of the Compensation Committee.
The exercise price of all Incentive Stock Options granted under the
1996 Incentive Plan must equal at least the fair market value of the Common
Stock on the date of grant. In the case of an optionee who owns stock possessing
more than ten percent of the total combined voting power of all classes of stock
of the Company ("Substantial Stockholders"), the exercise price of Incentive
Stock Options must be at least 110% of the fair market value of the Common Stock
on the date of grant. The exercise price of all nonqualified stock options
granted under the 1996 Incentive Plan shall be determined by the Compensation
Committee. The term of any Incentive Stock Option granted under 1996 the
Incentive Plan may not exceed ten years, or, for Incentive Stock Options granted
to Substantial Stockholders, five years. The 1996 Incentive Plan may be amended
or terminated by the Board of Directors, but no such action may impair the
rights of a participant under a previously granted option.
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<PAGE>
The 1996 Incentive Plan provides the Board of Directors or the
Compensation Committee the discretion to determine when options granted
thereunder shall become exercisable and the vesting period of such options. Upon
termination of a participant's employment or relationship with the Company, all
options terminate and no longer are exercisable unless termination is due to
death or disability, in which case the options are exercisable within one year
of termination. The Compensation Committee has granted extensions of the period
before which options may be exercised for certain terminated employees.
The 1996 Incentive Plan provides that upon a change in control of the
Company, all previously granted options and SARs immediately shall become
exercisable in full and all Restricted Stock immediately shall vest and any
applicable restrictions shall lapse. The 1996 Incentive Plan defines a change of
control as the consummation of a tender offer for 25% or more of the outstanding
voting securities of the Company, a merger or consolidation of the Company into
another corporation less than 75% of the outstanding voting securities of which
are owned in aggregate by the stockholders of the Company immediately prior to
the merger or consolidation, the sale of substantially all of the Company's
assets other than to a wholly-owned subsidiary, or the acquisition by any
person, business or entity other than by reason of inheritance of over 25% of
the Company's outstanding voting securities. The change of control provisions of
the 1996 Incentive Plan may operate as a material disincentive or impediment to
the consummation of any transaction which could result in a change of control.
The 1996 Incentive Plan provides the Board of Directors or the
Compensation Committee discretion to grant SARs in connection with any grant of
options. Upon the exercise of a SAR, the holder shall be entitled to receive a
cash payment in an amount equal to the difference between the exercise price per
share of options then exercised by him and the fair market value of the Common
Stock as of the exercise date. The holder is required to exercise options
covering the number of shares, which are subject to the SAR so exercised. SARs
are not exercisable during the first six months after the date of grant, and may
be transferred only by will or the laws of descent and distribution.
The 1996 Incentive Plan also provides the Board of Directors or the
Compensation Committee discretion to grant to key persons shares of Restricted
Stock subject to certain limitations on transfer and substantial risks of
forfeiture.
1997 Stock Incentive Plan
The 1997 Stock Incentive Plan (the "1997 Incentive Plan") was adopted
by the Company's Board of Directors on April 10, 1997. The 1997 Incentive Plan
provides for the granting of Incentive Stock Options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonqualified stock options, SARs and grants of shares of Common stock subject to
certain restrictions (collectively, "Awards") up to a maximum of 1,650,000
shares to officers, directors, key employees and others. Incentive Stock Options
can be awarded only to employees of
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<PAGE>
the Company at the time of the grant. No ISO may be granted under the 1997
Incentive Plan after April 9, 2007.
The 1997 Incentive Plan is administered by the Board of Directors or a
Committee of the Board of Directors, which determines the terms and conditions
of the Awards granted under the 1997 Incentive Plan, including the exercise
price, number of shares subject to the option and the exercisability thereof.
Dr. Steven A. Newman, Lt. Gen. Harry E. Soyster (Ret.) and Martin Eric Weisberg,
Esq. currently are the members of the Committee.
The exercise price of all Incentive Stock Options granted under the
1997 Incentive Plan must equal at least the fair market value of the Common
Stock on the date of grant. In the case of Substantial Stockholders, the
exercise price of Incentive Stock Options must be at least 110% of the fair
market value of the Common Stock on the date of grant. The exercise price of all
nonqualified stock options granted under the 1997 Incentive Plan shall be
determined by the Compensation Committee. The term of any Incentive Stock Option
granted under the 1997 Incentive Plan may not exceed ten years, or, for
Incentive Stock Options granted to Substantial Stockholders, five years. The
1997 Incentive Plan may be amended or terminated by the Board of Directors, but
no such action may impair the rights of a participant under a previously granted
option.
The 1997 Incentive Plan provides the Committee the discretion to
determine when options granted thereunder shall become exercisable and the
vesting period of such options. Upon termination of a participant's employment
or relationship with the Company, options may be exercised only to the extent
exercisable on the date of such termination (within three months), but not
thereafter, unless termination is due to death or disability, in which case the
options are exercisable within one year of termination.
The 1997 Incentive Plan provides the Committee discretion to grant SARs
to key employees, consultants and directors. Promptly after exercise of a SAR
the holder shall be entitled to receive in chase, by check or in shares of
Common Stock, an amount equal to the excess of the fair market value on the
exercise date of the shares of Common Stock as to which the SAR is exercised
over the base price of such shares, which shall be determined by the Committee
The 1996 Incentive Plan also provides the Committee discretion to grant
to key persons shares of restricted stock subject to certain contingencies and
restrictions as the Committee may determine.
As of December 31, 1997 a total of 1,777,430 options were outstanding.
Each of the outstanding options has an exercise price at least equal to the fair
market value of the Common Stock on the date of grant with the exception of
200,000 shares which are subject to acquisition by an officer of the Company and
50,000 shares which are subject to acquisition by an employee of the Company at
$0.0l per share over the period 1995 through 1999. As of December 31, 1997,
there were no SARs outstanding and there has been one grant of Restricted Stock
of 10,000 shares of Common Stock to a former officer of the Company.
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<PAGE>
Escrowed Shares
As a condition to the Company's initial public offering (the "IPO"),
Royce Investment Group, the Representative of the several underwriters (the
"Representative"), required certain of the Company's stockholders to deposit a
total of 1,800,000 shares of Common Stock (the "Escrowed Shares"), in escrow
pursuant to an escrow agreement with Continental Stock Transfer & Trust Company,
the escrow agent and the Representative. Of such Escrowed Shares, 1,707,210
shares are owned by officers and directors of the Company. The Escrowed Shares
are subject to incremental release to the depositing stockholders based upon the
Company's total revenues and net earnings (loss) for the 12-month periods ending
September 30, 1997, 1998 and 1999. The Escrowed Shares will be released in the
amounts set forth below only upon the achievement by the Company of the
following Performance Targets:
- 300,000 shares if the Company achieves gross revenues of at
least $20,000,000 and a net loss, if any, not in excess of $500,000 for the 12
months ending September 30, 1997;
- 750,000 shares if the Company achieves gross revenues of at
least $45,000,000, and earnings per share of at least $1.00 for the 12 months
ending September 30, 1998; and
- 750,000 shares if the Company achieves gross revenues of at
least $90,000,000 and earnings per share of at least $1.25 for the 12 months
ending September 30, 1999.
Notwithstanding the foregoing, if at any time the closing bid price of
the Common Stock reported on The Nasdaq SmallCap Market equals or exceeds $11.00
per share for 25 consecutive trading days or for 30 out of 35 consecutive
trading days (the "Nasdaq Price Target") during the period ending September 30,
1999, all Escrowed Shares then remaining in escrow will be released from the
escrow and returned to the stockholders.
The Escrowed Shares will be subject to incremental release only in the
event the Company achieves the Performance Targets in the 12 months ending
September 30, 1997, 1998 and/or 1999. In addition, upon achieving the Nasdaq
Price Target at any time during the period ending on or prior to September 30,
1999 all then Escrowed Shares will be released. If the Performance Targets are
not met in any of the relevant 12-month periods (and the price of the Common
Stock has not met or exceeded the price described above prior to the expiration
of the applicable 12-month period), the Escrowed Shares in the amounts stated
above will be returned to the Company and canceled. Pursuant to such agreement,
300,000 shares of the Company's Common Stock have been returned to the Company
and canceled for failure to meet the required Performance Target for the 12
months ending September 30, 1997. The earnings per share calculation will be
based on the fully diluted earnings per share, but excluding shares issued
pursuant to the Unit Purchase Option granted to the Representative,
extraordinary items, or any compensation expense charged to the Company related
to the release of the Escrowed Shares. The determination of earnings per share
will be made in accordance with generally accepted accounting principles and
will be based on the financial
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<PAGE>
statements of the Company filed pursuant to the Securities Exchange Act of 1934,
as amended. Escrowed Shares are not transferable or assignable although they may
be voted by the holder.
The Performance Targets and the Nasdaq Price Target were determined by
negotiation between the Company and the Representative and do not imply or
predict any future performance by the Company. The market value of any Escrowed
Shares held by officers, employees or consultants at the time they are released
will be deemed to be additional compensation expense to the Company. Upon such
an occurrence the Company will recognize a potentially material charge to income
which could reduce or eliminate earnings, if any. The amount of compensation
expense recognized by the Company will not affect the Company's total
stockholders' equity or working capital.
Given the expected start of volume production in the current quarter,
the Company's management believes that it is likely that the Company's gross
revenues and allowable losses will not meet the Performance Targets for the
12-month period ending September 30, 1998. Accordingly, the release of the
Escrowed Shares for this period is only likely if the stock price equals or
exceeds $11.00 for 25 consecutive trading days or 30 out of 35 consecutive
trading days prior to September 30, 1997. If conditions are not met for release
from escrow, then 750,000 Escrowed Shares of stock will be returned to the
Company on September 30, 1998 and canceled, resulting in no earnings impact and
a commensurately lower number of outstanding shares.
Consulting Agreements
The Company and Dr. Steven A. Newman entered into a Consulting
Agreement dated as of January 1, 1996, as amended January 1, 1997. Pursuant to
the Consulting Agreement, Dr. Newman will provide consulting services which
includes, among other things, the review and assistance in the preparation of
the Company's business strategies, assisting with the recruitment and hiring of
key executives and provide advice regarding financing, contracting, management,
overseas operations, strategic alliances and ventures. The annual consulting fee
is $150,000 payable on a monthly basis. The Consulting Agreement also provides
for additional compensation, as determined by the Company's Compensation
Committee, for services by Dr. Newman in connection with the successful
completion of financings, mergers, acquisitions, dispositions, joint ventures
and other material transactions. The term of the Consulting Agreement is four
years terminating on December 31, 2000 unless renewed by the parties.
In 1996, the Company entered into a two-year consulting agreement with
Victor J. Lombardi whereby Mr. Lombardi agreed to provide business development
and marketing services to the Company in exchange for warrants which entitle Mr.
Lombardi to purchase 100,000 shares of Common Stock at $6.00 per share through
December 31, 1999.
In May 1995, the Company entered into a three-year consulting agreement
with Dr. Andrew Heller whereby Dr. Heller agreed to provide strategic planning,
business management, strategic product development and market and financial
introductions services to the Company. In
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<PAGE>
consideration of services rendered by Dr. Heller to the Company prior to that
time and as an inducement to enter into the consulting agreement, Dr. Heller was
granted 100,000 shares of Common Stock which were valued at $5.00 per share for
financial reporting purposes.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee participate in all
deliberations concerning executive compensation. The Compensation Committee
consists of Lt. Gen. Harry E. Soyster (Ret.), Dr. Steven A. Newman and Martin
Eric Weisberg, Esq. No executive officer of the Company serves as a member of
the board of directors or compensation committee of any entity which has one or
more executive officers serving as a member of the Company's Board of Directors.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
Overview and Philosophy
The Compensation Committee of the Board of Directors is composed
entirely of non-employee directors and is responsible for developing and making
recommendations to the Board of Directors with respect to the Company's
executive compensation policies. In addition, the Compensation Committee,
pursuant to authority delegated by the Board of Directors, determines the
compensation to be paid to the Chief Executive Officer and each of the other
executive officers of the Company.
The objectives of the Company's executive compensation program are to:
* Support the achievement of desired Company performance
* Provide compensation that will attract and retain superior
talent and reward performance
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the technology and software
industries, as well as with a broader group of companies of comparable size and
complexity.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of
base salary, long-term incentive compensation in the form of stock options,
specific performance-based bonuses and various benefits, including medical and
pension plans generally available to employees of the Company.
Base Salary
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<PAGE>
Base salary levels for the Company's executive officers are
competitively set relative to companies in the health care industry. In
determining salaries, the Committee also takes into account individual
experience and performance and specific issues particular to the Company.
Stock Option Program
The stock option program is the Company's long-term incentive plan for
providing an incentive to officers, directors, employees and others.
Both the 1996 Incentive Plan and the 1997 Incentive Plan authorize the
Compensation Committee to award officers, directors, employees and others stock
options. Options granted under such Plans may be granted containing terms
determined by the Committee, including exercise period and price; provided,
however, that each Plan requires that exercise price may not be less than the
fair market value of the Common Stock on the date of the grant and the exercise
period may not exceed ten years, subject to further limitations.
Benefits
The Company provides to executive officers, medical and pension
benefits that generally are available to Company employees.
Bonus
The Company provides to certain executive officers bonuses based on
performance and/or a change of control of the Company.
Chief Executive Officer Compensation
Mr. Edward G. Newman was appointed to the position of Chief Executive
Officer in March 1993. The Company has entered into an employment agreement with
Edward G. Newman which provides for a three-year term through December 31, 1998;
initial annual base compensation of $150,000 subject to a minimum annual
increase to $198,000 on January 1, 1997 and of at least the annual increase in
the CPI plus two percent annually thereafter, an annual cash bonus in an amount
to be determined by the Board of Directors; and a $2,000,000 life insurance
policy payable to his designated beneficiaries. The employment agreement with
Mr. Newman also entitles him to participate in all benefits which the Company
may offer to its executive officers and employees, as a group.
Dr. Steven A. Newman
Lt. Gen. Harry E. Soyster (Ret.)
Martin Eric Weisberg, Esq.
Members of the Compensation Committee
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with transactions described below, the Company did not
secure an independent determination of the fairness and reasonableness of such
transactions and arrangements with affiliates of the Company. In each instance
described below, the disinterested directors (either at or following the time of
the transaction) reviewed and approved the fairness and reasonableness of the
terms of the transaction. The Company believes that each transaction was fair
and reasonable to the Company and on terms at least as favorable as could have
been obtained from non-affiliates. Transactions between any corporation and its
officers and directors are subject to inherent conflicts of interest.
Tech International and Tech Virginia
Since December 1992, the Company has maintained various business
relationships with Tech International and since 1994, with Tech Virginia. Tech
International operates a computer software and consulting business. Until
December 30, 1994, Tech International's Virginia operations were conducted
through its Virginia business unit. In December 30, 1994, Tech International
spun-off the Virginia business unit (the "Spin-Off") as Tech Virginia. Edward G.
Newman, a principal stockholder, director and the Chairman, President and Chief
Executive Officer of the Company and Steven A. Newman and Eugene J. Amobi,
directors of the Company, were the stockholders, and continue as officers and
directors of Tech Virginia. Eugene J. Amobi is the sole director and stockholder
of Tech International.
Management Personnel Agreements with Tech Virginia
Messrs. Edward G. Newman, Steven A. Newman and Eugene Amobi each had
employment agreements with Tech Virginia under which each of them was entitled
to a salary and each was eligible to receive certain bonuses. The agreements
with Messrs. Edward G. Newman and Steven A. Newman required each of them to
devote only reasonable time and attention to Tech Virginia, provided their
activities for Tech Virginia did not interfere with their obligations to the
Company. Upon the acquisition of Tech Virginia by the Company, such employment
agreements were terminated by agreement with Messrs. Newman, Newman, and Amobi.
Messrs. Newman, Newman and Amobi have continued to provide services to Tech
Virginia since the acquisition without contract but under similar terms and
conditions as their terminated agreements.
Consulting Agreement
Steven A. Newman has entered into a consulting agreement with the
Company. See "Executive Compensation - Consulting Agreements."
Legal Services
James J. Ralabate, Esq. was paid $275,548 in fees and disbursements for
legal services rendered to the Company for the year ended December 31, 1997.
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<PAGE>
Parker Chapin Flattau & Klimpl, LLP, the law firm where Martin Eric
Weisberg, Esq. is a partner, was paid $137,346.15 in fees and disbursements for
legal services rendered to the Company for the year ended December 31, 1997.
THE ANTI-TAKEOVER PROPOSALS
Proposals 2 through 8 in this Proxy Statement are proposals to amend
the Company's Certificate of Incorporation, as amended to date (the "Certificate
of Incorporation"), and Bylaws, as amended to date (the "Bylaws"), which
amendments, as discussed below, may have certain anti-takeover effects. The
following section discusses the general consequences to stockholders of the
Company of these proposals and should be read in conjunction with the individual
discussions with respect to each proposal.
The Board of Directors has evaluated the potential vulnerability of the
Company's stockholders to the threat of unfair or coercive takeover tactics and,
although the Board of Directors is not currently aware of any such threat, has
considered the range of possible responses to any such threat. The Board has
unanimously approved, and recommends to the Company's stockholders for their
approval, the amendments to the Certificate of Incorporation and Bylaws
described in Proposals 2 through 8 set forth below. Proposals 2 through 8 are
referred to collectively as the "Anti-Takeover Amendments." Approval of the
Anti-Takeover Amendments requires the affirmative vote of holders of a majority
of the outstanding Common Stock.
THE ANTI-TAKEOVER AMENDMENTS
The Anti-Takeover Amendments involve related amendments to the
Certificate of Incorporation and Bylaws designed to assist the Company's
stockholders in obtaining fair and equitable treatment in the event of a
threatened takeover of the Company. The Anti-Takeover Amendments, if approved,
will: (i) provide for an advance notice procedure for the submission by
stockholders of director nominations and other business to be considered at any
annual meetings of stockholders; (ii) permit only the President, the Vice
Chairmen of the Board, the Secretary or the Board of Directors to call special
meetings of stockholders and to limit the business permitted to be conducted at
such meetings to that brought before the meetings by or at the discretion of the
Board of Directors; (iii) provide that a member of the Board of Directors may
only be removed by the stockholders of the Company for cause by an affirmative
vote of holders of at least 66 2/3% of the voting power of the then outstanding
Voting Stock; (iv) fix the size of the Board of Directors at a maximum of twelve
directors, with the authorized number of directors set at ten, and give the
Board of Directors the sole power and authority to increase or decrease the
number of directors acting by an affirmative vote of at least a majority of the
total number of authorized directors most recently fixed by the Board of
Directors; (v) provide that any vacancy on the Board of Directors may be filled
for the unexpired term (or for a new term in the case of an increase in the size
of the board) only by an affirmative vote of at least a majority of the
remaining directors then in office even if less than a quorum, or by the sole
remaining director; (vi) eliminate stockholder action by written consent; (vii)
require the approval of holders of 80% of the then outstanding Voting Stock
and/or the approval of 2/3 of the directors of the Company for certain corporate
transactions; and (viii) require an affirmative
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vote of 662/3% of the Voting Stock in order to amend or repeal any adopted
amendments to the Certificate of Incorporation and Bylaws proposed herein.
The Anti-Takeover Amendments are not in response to any effort, of
which the Company is aware, to accumulate Common Stock or to obtain control of
the Company. The Board has observed the relatively common use of certain
coercive takeover tactics in recent years, including the accumulation of
substantial common stock positions as a prelude to a threatened takeover or
corporate restructuring, proxy fights and partial tender offers and the related
use of "two-tiered" pricing. In addition, persons who do not intend to gain
control of companies use the threat of takeover bids to force the companies to
repurchase their shares at a premium or temporarily drive up the market price of
their stock. The Board believes that the use of these tactics can place undue
pressure on a corporation's board of directors and stockholders to act hastily
and on incomplete information and, therefore, can be highly disruptive to a
corporation as well as divert valuable corporate resources and result in unfair
differences in treatment of stockholders who act immediately in response to
announcements of takeover activity and those who choose to act later, if at all.
The Anti-Takeover Amendments are intended to encourage persons seeking to
acquire control of the Company to initiate such an acquisition through
arm's-length negotiations with the Board.
While the Anti-Takeover Amendments, individually and collectively, give
added protection to the Company's stockholders and may help the Company obtain
the best price in a potential transaction, they may also have the effect of
making more difficult and discouraging a merger, tender offer or proxy contest,
even if such transaction or event may be favorable to the interests of some or
all of the Company's stockholders. The Anti-Takeover Amendments also may delay
the assumption of control by a holder of a large block of Common Stock and the
removal of incumbent management, even if such removal might be beneficial to
some or all of the stockholders. Furthermore, the Anti-Takeover Amendments may
have the effect of deterring or frustrating certain types of future takeover
attempts that may not be approved by the incumbent Board, but that the holders
of a majority of the shares of Common Stock may deem to be in their best
interests or in which some or all of the stockholders may receive a substantial
premium over prevailing market prices for their stock. By discouraging takeover
attempts, the Anti-Takeover Amendments also could have the incidental effect of
inhibiting certain changes in management (some or all of the members of which
might be replaced in the course of a change of control) and also the temporary
fluctuations in the market price of Common Stock that often result from actual
or rumored takeover attempts.
The Board recognizes that a takeover might in some circumstances be
beneficial to some or all of the Company's stockholders but, nevertheless,
believes that the stockholders as a whole will benefit from the adoption of the
Anti-Takeover Amendments. The Board further believes that it is preferable to
act on the proposed Anti-Takeover Amendments when they can be considered
carefully rather than hastily during an unsolicited bid for control. Under
Delaware law, each of the proposed Anti-Takeover Amendments described in
Proposals 2 through 8 requires the affirmative vote of the holders of a majority
of the Company's outstanding shares of Common Stock. All of the proposals are
permitted under applicable Delaware law.
If stockholders approve any or all of the Anti-Takeover Amendments, the
Company will file with the Secretary of State of the State of Delaware an
amendment to the Certificate of Incorporation
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that reflects the amendments which have been approved containing the provisions
as set forth under each proposal. The approved amendments to the Certificate of
Incorporation will become effective upon the filing with the Secretary of State
of the State of Delaware of a certificate with respect to such amendment, and
the approved amendments to the Bylaws will become effective immediately upon
such approval. Each of the Anti-Takeover Amendments adopted by the Company's
stockholders at the Meeting will become effective regardless of whether any of
the other Anti-Takeover Amendments to be acted upon at the Meeting is adopted.
Stockholders are urged to read carefully the following descriptions and
discussions of each of the proposed Anti-Takeover Amendments before voting on
the Anti-Takeover Amendments.
OTHER ANTI-TAKEOVER DEVICES
Existing Anti-Takeover Provisions of the Certificate of Incorporation and Bylaws
In addition to the proposed Anti-Takeover Amendments, an existing
provision of the Certificate of Incorporation may be deemed to be an
anti-takeover device which could be utilized as a method of discouraging,
delaying or preventing a change in control of the Company or diluting the public
ownership of the Company, even if such transaction or occurrence may be
favorable to the interests of some or all of the Company's stockholders. The
Certificate of Incorporation currently authorizes the Board to issue 6,000,000
shares of preferred stock having such rights, preferences and privileges as
designated from time to time by the Board (the "Preferred Stock") without
stockholder approval. Accordingly, the Board is empowered to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of Common
Stock. As of the current date, the Board has authorized the issuance of 3,000
shares of Class A Preferred Stock, 4,180 shares of Class B Preferred Stock, and
375 shares of Class C Preferred Stock, each in connection with a private
placement of the Company's securities.
Under certain circumstances, the Company could use the Preferred Stock
or currently authorized but unissued shares of Common Stock to create voting
impediments or to frustrate persons seeking to effect a takeover or otherwise
gain control of the Company or to dilute the public ownership of the Company and
thereby to protect the continuity of the Company's management. The Company could
also privately place any such shares with purchasers who might favor the Board
or management in opposing a hostile takeover bid or adopt a stockholder rights
plan, commonly referred to as a "poison pill". The Company has no present
knowledge of any such takeover efforts.
At the last Annual Meeting of Shareholders held on August 28, 1997, the
shareholders of the Company approved an amendment to Section 2.1 of Article II
of the Bylaws of the Company to provide for the division of the Board of
Directors into three classes of directors serving staggered three-year terms
with each class being as nearly equal in number as possible. As a result,
approximately one-third of the Board of Directors will be elected each year.
With a classified Board of Directors, it will generally take a stockholder two
Annual Meetings of Stockholders (rather than one) to elect a majority of the
Board of Directors. As a result, a classified board may discourage proxy
contests for the election of directors or purchases of a substantial block of
stock by potential
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acquirors because its provisions could operate to prevent obtaining control of
the Board in a relatively short period of time.
Other than existence of (i) the authority to issue classes of Preferred
Stock, (ii) authorized but unissued Common Stock, and (iii) a classified Board
of Directors, the Certificate of Incorporation and Bylaws do not currently
contain any other anti-takeover provisions, and no such other provisions are
currently contemplated, other than the proposals contained herein.
While Delaware General Corporation Law ("Delaware GCL") Section 214
provides that a corporation's certificate of incorporation may provide for
cumulative voting, such voting is not provided for under the Certificate of
Incorporation. Therefore, the holders of a majority of the shares of Common
Stock can elect all of the directors being elected at any annual meeting of
stockholders.
Section 203 of the Delaware GCL, which is applicable to the Company,
may be deemed to have certain anti-takeover effects by prescribing certain
voting requirements in instances in which there is a transaction between a
publicly-held Delaware corporation and an "interested stockholder". See Proposal
7 for a summary description of Section 203 of the Delaware GCL.
----------------------------------
PROPOSAL 2
ADVANCE NOTICE OF
STOCKHOLDER
NOMINATIONS AND PROPOSALS
--------------------------------------
Advance Notice of Nominations and Proposals
The Board has adopted, subject to stockholder approval, an amendment to
the Certificate of Incorporation and a corresponding amendment to the Bylaws
requiring that stockholders submit director nominations and other business to be
considered at annual meetings of stockholders in accordance with a specific
advance notice procedure. No such procedure is currently provided for in either
the Certificate of Incorporation or the Bylaws. At the Meeting, stockholders
will be asked to consider and vote on these proposed amendments.
Analysis of Proposal 2
The proposed amendments will provide a detailed and circumscribed
notice procedure with regard to the nomination, other than by or at the
direction of the Board, of candidates for election as directors (the "Nomination
Procedure") and with regard to stockholder proposals to be brought before an
annual meeting of stockholders (the "Business Procedure"). The Nomination
Procedure provides that only persons who are nominated by or at the direction of
the Board, or by a stockholder who has given timely prior written notice to the
Corporate Secretary of the Company prior to the meeting at which directors are
to be elected, will be eligible for election as directors. The Business
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Procedure provides that stockholder proposals must be submitted in writing in a
timely manner in order to be considered at any annual meeting. To be timely,
notice for nominations or stockholder proposals must be received by the Company
not less than 60 days nor more than 90 days prior to the annual meeting;
provided, however, that in the event that less than 70 days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a stockholder, to be timely, must be received no later
than the close of business on the tenth day following the date on which such
notice of the date of the annual meeting was made or such public disclosure was
made, whichever first occurs.
Under the Nomination Procedure, notice to the Company from a
stockholder who proposes to nominate a person at a meeting for election as a
director must contain certain information about that person, including age,
business and residence addresses, principal occupation, the class and number of
shares of Common Stock or other capital stock beneficially owned, the consent of
such person to be nominated and such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee, and certain information about the stockholder proposing to
nominate that person.
Under the Business Procedure, notice relating to a stockholder proposal
must contain certain information about such proposal and about the stockholder
who proposes to bring the proposal before the meeting.
The purpose of the Nomination Procedure is, by requiring a specified
amount of advance notice of nominations by stockholders, to afford the Board a
meaningful opportunity to consider the qualifications of the proposed nominees
during the appropriate period when the Board is focused on nominations and, to
the extent deemed necessary or desirable by the Board, to inform stockholders
about the qualifications of the proposed nominee. The purpose of the Business
Procedure is, by requiring a specified amount of advance notice of stockholder
proposals, to provide a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the Board, to
provide the Board with a meaningful opportunity to analyze such proposals and to
decide whether it is appropriate to either (i) omit such proposal or (ii) inform
stockholders, prior to such meetings, of any proposal to be introduced at such
meetings, together with any recommendation or the Board's position or belief as
to action to be taken with respect to such proposal, so as to enable
stockholders better to determine whether they desire to attend such meeting or
grant a proxy to the Board as to the disposition of any such proposal.
Although the amendment does not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or any other
proposal submitted by stockholders, the amendment may have the effect of
precluding or making more difficult a stockholder nomination for the election of
directors or the submission by stockholders of proposals at a particular
stockholders meeting because of the difficulty of the procedures to be followed,
and may discourage a stockholder from conducting a solicitation of proxies to
elect such stockholder own slate of directors or otherwise attempting to obtain
control of the Company, even if the conduct of such solicitation or such attempt
might be beneficial to the Company and its stockholders. For these reasons, this
Proposal may have an anti-takeover effect, particularly when combined with
Proposal 3 below. The Board, however, is not aware of any efforts to obtain
control of the Company, and the
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proposal of this measure is not in response to any such efforts. For a general
discussion of certain anti-takeover effects of Proposal 2, see the section
entitled "Anti-Takeover Proposals" above.
Proposed Resolution
"RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by adding a new Article ELEVENTH, which shall be and read as follows:
ELEVENTH: Subject to the rights of holders of any class or series of
Preferred Stock,
(i) nominations for the election of directors, and (ii)
business proposed to be brought before an annual meeting of
stockholders
may be made by the Board of Directors or committee appointed by the
Board of Directors or by any stockholder entitled to vote in the
election of directors generally. However, any such stockholder may
nominate one or more persons for election as directors at an annual
meeting or propose business to be brought before an annual meeting, or
both, only if such stockholder has given timely notice in proper
written form of his or her intent to make such nomination or
nominations or to propose such business. To be timely, a stockholder's
notice must be delivered to or mailed and received by the Secretary of
the Corporation not less than 60 days nor more than 90 days prior to
the annual meeting; provided, however, that in the event that less than
70 days notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by a stockholder, to
be timely, must be received no later than the close of business on the
tenth day following the date on which such notice of the date of the
annual meeting was made or such public disclosure was made, whichever
first occurs. To be in proper written form, a stockholder's notice to
the Secretary shall set forth:
(a) the name and address of the stockholder who intends to
make the nominations or propose the business and, as the case may be,
of the person or persons to be nominated or of the business to be
proposed;
(b) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice;
(c) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
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<PAGE>
(d) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee
been nominated, or intended to be nominated, or the matter been
proposed, or intended to be proposed, by the Board of Directors, and
such other information about the nominee as the Board of Directors
deems appropriate, including, without limitation, the nominee's age,
business and residence addresses, principal occupation and the class
and number of shares of Common Stock or other capital stock of the
Company beneficially owned by the nominee, or such other information
about the business to be proposed and about the stockholder making such
business proposal before the annual meeting as the Board of Directors
deems appropriate, including, without limitation, the class and number
of shares of Common Stock or other capital stock beneficially owned by
such stockholder; and
(e) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected. The chairman of the meeting
may refuse to acknowledge the nomination of any person or the proposal
of any business not made in compliance with the foregoing procedure.
RESOLVED, that Article I of the Bylaws be amended by adding a new
Section 1.8 containing a provision substantially the same as the provision set
forth in the preceding resolution and other provisions, if any, as may be
necessary to make the Bylaws consistent with this amendment."
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 2.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 2
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--------------------------------------------
PROPOSAL 3
LIMITATIONS ON STOCKHOLDERS
WITH RESPECT TO SPECIAL
MEETINGS
---------------------------------------------
Ability to Call Special Meetings of the Stockholders
Article I, Section 1.2 of the Bylaws currently provides that special
meetings of stockholders may be called by the President, the Secretary or by a
majority of the Board of Directors. The Board has adopted, subject to
stockholder approval, an amendment to the Certificate of Incorporation to
include the foregoing provision and to expand such provision to provide that
stockholders of the Company are not permitted to call a special meeting or to
require that the Board call a special meeting of stockholders and that the
business permitted to be conducted at such meetings be limited to that brought
before the meetings by or at the direction of the Board. A corresponding
amendment to the Bylaws has also been adopted, subject to stockholder approval.
At the Meeting, stockholders will be asked to consider and vote on these
proposed amendments.
Analysis of Proposal 3
The proposed amendments will provide for the orderly conduct of all
Company affairs at special meetings of stockholders. Accordingly, a stockholder
could not force stockholder consideration of a proposal over the opposition of
the Board by calling a special meeting of stockholders prior to the next annual
meeting or prior to such time that the Board believed such consideration to be
appropriate. As a result, the Board would have the opportunity to inform other
stockholders adequately of the matters to be considered at any special meeting
of stockholders.
Persons attempting a takeover bid could be delayed or deterred by not
being able to propose a transaction at a time advantageous for them. For these
reasons, these proposed amendments may have an anti-takeover effect. The Board,
however, is not aware of any efforts to obtain control of the Company, and the
proposal of this measure is not in response to any such efforts. For a general
discussion of certain anti-takeover effects of Proposal 3, see the section
entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that the Certificate of Incorporation be amended by adding a
new Article TWELFTH, which shall be and read as follows:
Subject to the rights of holders of any class or series of Preferred
Stock, special meetings of stockholders may be called only by the
President, the Vice Chairmen of the Board, the Secretary or by the
Board of Directors pursuant to a resolution
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adopted by a majority vote of the total number of authorized directors
(whether or not there exists any vacancies in previously authorized
directorships) at the time any such resolutions are presented to the
Board for adoption. Such meetings to be held at such time and such
place either within or without the State of Delaware as may stated in
the notice. Stockholders of the Corporation are not permitted to call a
special meeting or to require that the Board call a special meeting of
stockholders. The business permitted at any special meeting of
stockholders shall be limited to the business brought before the
meeting by or at the direction of the Board.
RESOLVED, that Section 1.2 of Article I of the Bylaws be amended by
deleting the existing Section 1.2 and adding a new Section 1.2 which
incorporates substantially the provision set forth in the preceding resolution
and other provisions, if any, as may be necessary to make the Bylaws consistent
with this amendment.
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 3.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 3
----------------------------------------
PROPOSAL 4
AMENDING THE CERTIFICATE OF
INCORPORATION AND BYLAWS TO
PROVIDE THAT STOCKHOLDERS MAY
ONLY REMOVE DIRECTORS FOR CAUSE
-----------------------------------------
Removal of a Director for Cause
Once a classified board of directors is established, as the Company has
done, the Delaware GCL prohibits stockholders from removing members of a
classified board of directors without cause before the expiration of their
respective terms unless the Certificate of Incorporation specifies otherwise.
Article IV, Section 4.2(b) of the Bylaws currently provides that any director or
the entire Board of Directors may be removed, with or without cause, by the
holders of a majority of the shares entitled at the time to vote at an election
of directors. The Board of Directors has adopted, subject to stockholder
approval, an amendment to the Certificate of Incorporation and a corresponding
amendment to the Bylaws which provides that any director, or the entire Board of
Directors, may be removed by the stockholders for cause only by the affirmative
vote of the holders of at least 66 2/3%
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of the then Voting Stock. At the Meeting, stockholders will be asked to consider
and vote on these proposed amendments.
Analysis of Proposal 4
In conjunction with the Company's presently existing classified Board
of Directors, the proposed amendment should render more difficult an attempt to
acquire control of the Company without the approval of the Company's management.
The proposed amendment would make it impossible for someone who acquires voting
control of the Company to remove immediately the incumbent directors who may
oppose such person and to replace them with more friendly directors, and will
instead require such a person to replace incumbent directors as their terms
expire over a period of up to three years, unless cause exists for such removal.
This proposal would protect the continuity of the Board of Directors and thereby
enhance the ability of the Company to carry out long-range plans and goals for
its benefit and the benefit of its stockholders.
Stockholders should recognize, however, that the proposed amendment
will also make more difficult the removal of a director in circumstances which
do not constitute a takeover attempt and where, in the opinion of the holders of
66 2/3% of the Company's outstanding shares, such removal is appropriate but
where no cause exists. Moreover, the proposed amendment may have the effect of
delaying an ultimate change in existing management which might be desired by a
majority of the stockholders.
The proposed amendment is in accordance with the Delaware GCL, which
provides that when a corporation has a classified Board of Directors, directors
may be removed only for cause unless the Certificate of Incorporation provides
otherwise.
The inability to remove directors other than for cause may have the
effect of discouraging potential unfriendly bids for shares of the Company
because of the delay it could cause in replacing board members. However, the
Board of Directors is not aware of any efforts to obtain control of the Company,
and the proposal of this measure is not in response to any such efforts. For a
general discussion of certain anti-takeover effects of Proposal 4, see the
section entitled "Anti-Takeover Proposals" above.
Proposed Resolution
"RESOLVED, that the Certificate of Incorporation be amended by adding a
new Article THIRTEENTH which shall be and read as follows:
Any director, or the entire Board of Directors, may be removed, for
cause only, by the affirmative vote of the holders of at least 66 2/3%
of the voting power of the then outstanding shares of any class or
series of capital stock of the Corporation entitled to vote generally
in the election of directors, voting together as a single class.
RESOLVED, that Section 4.2(b) of Article IV of the Bylaws be amended by
deleting the existing Section 4.2(b) and adding a new Section 4.2(b) which
incorporates substantially the provision
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set forth in the preceding resolution and other provisions, if any, as may be
necessary to make the Bylaws consistent with this amendment.
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 4.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 4
---------------------------------------
PROPOSAL 5
AMENDING THE BYLAWS TO FIX
THE NUMBER OF DIRECTORS
AND
PROVIDE FOR FILLING VACANCIES
ON THE BOARD
-----------------------------------------
Fixing the Number of Directors
Article II, Section 2.1 of the Bylaws currently provides, in part, that
the Board of Directors shall consist of no less than one and no more than twelve
members; provided, however, that the Board, by resolution adopted by vote of a
majority of the then authorized number of directors, may increase or decrease
the number of directors. The Board has adopted, subject to stockholder approval,
an amendment to the Bylaws fixing the size of the Board of Directors at a
maximum of twelve directors, with the authorized number of directors set at ten,
and the Board of Directors having the sole power and authority to increase or
decrease the size of the Board acting by an affirmative vote of at least a
majority of the total number of authorized directors most recently fixed by the
Board of Directors. At the Meeting, stockholders will be asked to consider and
vote on this proposed amendment.
Filling Vacancies on the Board of Directors
Article IV, Section 4.3 of the Bylaws currently provides, in relevant
part, that "any vacancy in the office of any director or officer through death,
resignation, removal disqualification, or other cause, and any additional
directorship resulting from an increase in the number of directors, may be
filled at any time by a majority of the directors then in office (even though
less than a quorum remains) or, in the case of any vacancy in the office of any
director, by the stockholders..." The Board of Directors has adopted, subject to
stockholder approval, an amendment to Article IV, Section 4.3 of the Bylaws
providing that a vacancy on the Board of Directors, including a vacancy created
by an
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increase in the authorized number of directors, may be filled only by the an
affirmative vote of at least a majority of the remaining directors then in
office, even if less than a quorum, or by the sole remaining director. At the
Meeting, stockholder will be asked to consider and vote on this proposed
amendment.
Analysis of Proposal 5
Because, by increasing or decreasing the size of the Board of
Directors, vacancies may result which, if filled by a vote of the stockholders,
could circumvent the continuity to be provided for by the Company's classified
Board of Directors, the Board of Directors believes that this proposal fixing
the number of directors and governing the filling of vacancies on the Board of
Directors would promote such continuity of management and thereby enhance the
ability of the Company to carry out long-range plans and goals for its benefit
and the benefit of its stockholders. This proposal would prevent a third party
seeking majority representation on the Board of Directors from obtaining such
representation simply by enlarging the Board of Directors and then filling the
new directorships with its own nominees.
In addition, this proposal, coupled with the proposal set forth above
relating to the removal of directors, if adopted, would preclude stockholders
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with their own nominees. Although the Company has not experienced
difficulties in the past in maintaining continuity of the Board of Directors and
management, the Board of Directors believes that this proposal will assist the
Company in maintaining this continuity of management into the future.
The proposed amendment is in accordance with the Delaware GCL which
provides that the number of directors may be fixed in any manner as provided for
in a corporation's bylaws and that vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by the sole remaining director, unless the certificate of incorporation or
bylaws provide otherwise.
Persons attempting a takeover bid could be delayed or deterred by not
being able to procedurally obtain control of the Board of Directors as quickly
as they could in the absence of these provisions. For these reasons, this
Proposal may have an anti-takeover effect. The Board of Directors, however, is
not aware of any efforts to obtain control of the Company, and the proposal of
these measures is not in response to any such efforts. For a general discussion
of certain anti-takeover effects of Proposal 5, see the section entitled
"Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that Section 2.1 of Article II of the Bylaws be amended by
deleting the existing Section 2.1 and adding a new Section 2.1 which shall be
and read as follows:
The business, property, and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors. The Board of
Directors shall consist of not fewer than
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six (6) members and not more than twelve (12) members, with the number
of authorized directors being initially fixed at ten (10), which number
may be changed from time to time by a resolution of the Board of
Directors adopted by the affirmative vote of at least a majority of the
total number of authorized directors most recently fixed by the Board
of Directors, except in each case as may be provided pursuant to
resolutions of the Board of Directors, adopted pursuant to the
provisions of the Certificate of Incorporation, establishing any series
of Preferred Stock and granting to holders of shares of such series of
Preferred Stock rights to elect additional directors under specified
circumstances. If the number of directors is changed, then any increase
or decrease in such number shall be apportioned by the Board of
Directors among the classes of directors so as to maintain as nearly as
possible an equal number of directors in each class. The directors
shall be elected by the holders of shares entitled to vote thereon at
the annual meeting of stockholders, and each shall serve (subject to
the provisions of Article IV) until the next succeeding annual meeting
of stockholders and until his respective successor has been elected and
qualified.
"RESOLVED, that Section 4.3 of Article IV of the Bylaws be amended by
deleting the existing Section 4.3 and adding a new Section 4.3 which shall be
and read as follows:
(a) Officers. Any vacancy in the office of any officer through
death, resignation, removal, disqualification, or other cause, may be
filled at any time by a majority of the directors then in office (even
though less than a quorum remains).
(b) Directors. Any vacancy on the Board of Directors,
howsoever resulting, including through an increase in the number of
directors, shall only be filled by the affirmative vote of a majority
of the remaining directors then in office, even if less than a quorum,
or by the sole remaining director. Any director elected to fill a
vacancy shall hold office for the same remaining term as that of his or
her predecessor, or if such director was elected as a result of an
increase in the number of directors, then for the term specified in the
resolution providing for such increase.
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 5.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 5
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------------------------------------------
PROPOSAL 6
AMENDING THE CERTIFICATE OF
INCORPORATION AND BYLAWS TO
ELIMINATE STOCKHOLDER ACTION BY
WRITTEN CONSENT
----------------------------------------------
Ability of Stockholders to Act by Written Consent
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by stockholders of a
corporation may be taken without a meeting, without prior notice and without a
stockholder vote, if a written consent setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite number
of votes that would be necessary to authorize such an action at a meeting of
stockholders at which all shares entitled to vote thereon were present and
voted. Currently, the Certificate of Incorporation does not prohibit such action
by written consent. The Board of Directors has adopted, subject to stockholder
approval, an amendment to the Certificate of Incorporation and a corresponding
amendment to the Bylaws to provide that actions required or permitted to be
taken at any annual or special meeting of the stockholders may be taken only
upon the vote of the stockholders at a meeting duly called and may not be taken
by written consent of the stockholders. At the Meeting, stockholders will be
asked to consider and vote on these proposed amendments.
Analysis of Proposal 6
The adoption of this proposal would eliminate the ability of the
Company's stockholders to act by written consent in lieu of a meeting. It is
intended to prevent solicitation of consents by stockholders seeking to effect
changes without giving all of the Company's stockholders entitled to vote on a
proposed action an adequate opportunity to participate at a meeting where such
proposed action is considered. The proposed amendment would prevent a takeover
bidder holding or controlling a large block of the Company's voting stock from
using the written consent procedure to take stockholder action unilaterally.
This amendment, if adopted, would ensure that all stockholders would
have advance notice of any attempted major corporate action by stockholders, and
that all stockholders would have an equal opportunity to participate at the
meeting of stockholders where such action was being considered. It would enable
the Company to set a record date for any stockholder voting and would reduce the
possibility of disputes or confusion regarding the validity of purported
stockholder action. The amendment would encourage a potential acquiror to
negotiate directly with the Board of Directors.
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<PAGE>
In addition, the Board of Directors believes that this change to
eliminate stockholder action by written consent is desirable to avoid untimely
action in a context that might not permit stockholders to have the full benefit
of the knowledge, advice and participation of the Company's management and Board
of Directors. In the event of a proposed acquisition of the Company, the Board
of Directors believes that the interests of stockholders would best be served by
a transaction that resulted from negotiations based on careful consideration of
the proposed terms. Although there can be no certainty as to the result of any
particular negotiations, the Board of Directors believes that the intended
effect of Proposal 6 of promoting negotiations concerning any proposed
acquisition of the Company, with the bargaining power in the Board of Directors,
would be in the long-term interests of the Company and its stockholders.
However, any provision in the Certificate of Incorporation which effectively
requires a potential acquiror to negotiate with the Company's management and
Board of Directors could be characterized as increasing management's and the
Board of Directors's ability to retain their positions with the Company and to
resist a transaction which may be deemed advantageous by even a majority of the
stockholders.
These proposed amendments are in accordance with the Delaware GCL,
which provides that stockholders may act by written consent unless otherwise
provided by a corporation's certificate of incorporation.
Persons attempting a takeover bid could be delayed or deterred by not
being able to propose a transaction at a time advantageous for them. For these
reasons, this Proposal may have an anti-takeover effect. The Board of Directors,
however, is not aware of any efforts to obtain control of the Company, and the
proposal of this measure is not in response to any such efforts. For a general
discussion of certain anti-takeover effects of Proposal 6, see the section
entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that the Certificate of Incorporation be amended by adding a
new Article FOURTEENTH which shall be and read as follows:
Except as otherwise provided in the resolutions of the Board of
Directors designating any series of Preferred Stock, any action
required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting
of stockholders and may not be effected by a consent in writing by any
such stockholders.
RESOLVED, that the Bylaws be amended by adding a new Section 1.9 to
Article I which incorporates substantially the provision set forth in the
preceding resolution and other provisions, if any, as may be necessary to make
the Bylaws consistent with this amendment.
RESOLVED, that the Bylaws be further amended by amending Section 5.3
of Article V, which deals with fixing the record date for certain matters, to
delete therefrom any references to actions by stockholders pursuant to written
consent.
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<PAGE>
Required Vote
The affirmative vote of holders of a majority of the Shares outstanding
and entitled to vote at the Meeting is required to approve Proposal 6.
The Board of Directors Recommends
That You Vote "FOR"
The Approval of Proposal 6
---------------------------------------------
PROPOSAL 7
AMENDING THE COMPANY'S
CERTIFICATE OF INCORPORATION TO REQUIRE
AN 80% SUPERMAJORITY STOCKHOLDER VOTE
FOR CERTAIN TRANSACTIONS
--------------------------------------------------
Supermajority Stockholder Vote for Certain Transactions
The Board of Directors has approved, subject to stockholder approval,
an amendment to the Certificate of Incorporation and a corresponding amendment
to the Bylaws which provides that a Business Combination (as defined in the
amendment) transaction between the Company or a subsidiary of the Company and an
"Interested Stockholder" (as defined in the amendment) would be subject to
either (i) the approval of a majority of the Continuing Directors (as defined in
the amendment), or (ii) the approval by the affirmative vote of both (a) at
least 80% of the voting power of the then Voting Stock, including shares held by
an Interested Stockholder, and (b) two-thirds of the votes entitled to be cast
by holders of the Voting Stock, excluding Voting Stock beneficially owned by the
Interested Stockholder.
Analysis of Proposal 7
Generally, Delaware GCL Section 203 prohibits a publicly-held Delaware
corporation from engaging in a broad range of business combinations with an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) for three years following the time such
person became an interested stockholder unless: (i) before the person becomes an
interested stockholder, the transaction resulting in such person becoming an
interested stockholder or the business combination is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the outstanding voting stock of the corporation
(excluding shares owned by directors who are also officers of the corporation or
shares held by employee stock plans that do not provide employees with the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender offer or exchange offer); or (iii) at or subsequent to such
time the business combination is approved by the Board, and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least two-thirds of the outstanding voting stock
excluding shares owned by the interested stockholder.
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<PAGE>
Although Section 203 of the Delaware GCL applies to the Company as a
Delaware corporation, neither the Certificate of Incorporation nor the Bylaws
contain any provision specifically requiring a supermajority vote in the event
of certain business combinations. Proposal 7, if adopted, would supplement,
rather than replace, Section 203 as applicable to the Company, and would apply
in any case where a transaction which qualifies as a "Business Combination" is
proposed between the Company and a holder of 15% or more of the Voting Stock who
qualifies as an "Interested Stockholder". Proposal 7 would increase the vote
required for approval of such business combinations by stockholders from 66 2/3
to (a) at least 80% of the voting power of the then Voting Stock, including
shares held by an Interested Stockholder, and (b) 66 2/3% of the votes entitled
to be cast by holders of the Voting Stock, excluding Voting Stock beneficially
owned by the Interested Stockholder.
Proposal 7 is designed to permit the Board to evaluate proposed
Business Combinations free from substantial pressure on the Board that a
potentially hostile acquiror can exert. Furthermore, by providing the Board with
the means of imposing an 80% supermajority vote of the shareholders, the
amendment encourages corporations that seek to acquire control of the Company to
engage in good faith, non-hostile negotiations with the Board. The Company
believes that Proposal 7, if adopted, may encourage persons interested in
acquiring the Company to negotiate in advance with the Board of Directors since
the supermajority voting requirement would not be invoked if a majority of the
Continuing Directors were to approve a Business Combination. In the event of a
proposed acquisition of the Company, the management of the Company believes that
the interest of the Company's stockholders will best be served by a transaction
that results from negotiations based upon careful consideration of the proposed
terms, such as the price to be paid to minority stockholders, the form of
consideration to be paid and the tax effects of the transaction and by the
Board's being able to negotiate with all acquirors from the strongest possible
position.
The overall effect of Proposal 7 would be to render more difficult the
accomplishment of certain mergers or other acquisition of control of the Company
by a principal stockholder (other than a stockholder who, currently holds over
fifteen percent of the Company's Common Stock). At the same time, Proposal 7 may
discourage persons from making a tender offer for, or acquisitions of,
substantial amounts of the Common Stock, which could have the effect of
inhibiting changes in management and may also prevent temporary fluctuations in
the Common Stock that often result from takeover attempts. In addition, by
requiring a supermajority vote of stockholders to approve a Business
Combination, Proposal 7 may, absent approval by the Continuing Directors, enable
a minority of the stockholders to prevent consummation of a Business
Combination, notwithstanding the fact that a majority of the stockholders voted
in favor of it. Some stockholders may find the proposed supermajority vote
provisions of Proposal 7 disadvantageous to the extent that such provisions
discourage takeovers which are not approved by a majority of the Continuing
Directors but in which stockholders might receive, for at least some of their
shares, a substantial premium above the market price at the time a tender offer
or other acquisition transaction is made. Thus, stockholders who might desire to
participate in a tender offer may not be afforded the opportunity to do so. To
the extent that the proposed supermajority vote provisions discourage tender
offers or accumulations of the Company's Common Stock, stockholders may be
deprived of higher market prices for their stock which often prevail as a result
of such events.
-40-
<PAGE>
The Company believes that Proposal 7, if adopted, may encourage persons
interested in acquiring the Company to negotiate in advance with the Board of
Directors since the supermajority voting requirement would not be invoked if a
majority of the Continuing Directors were to approve a Business Combination. For
these reasons, this Proposal may have an anti-takeover effect. The Board of
Directors, however, is not aware of any efforts to obtain control of the
Company, and the proposal of this measure is not in response to any such
efforts. For a general discussion of certain anti-takeover effects of Proposal
7, see the section entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that the Certificate of Incorporation be amended by adding a
new Article FIFTEENTH which shall be and read as follows:
(a) In addition to the affirmative vote required by law or
this Certificate of Incorporation or the Bylaws of the Corporation, and
except as otherwise expressly provided in Section (b) of this Article,
the approval of a Business Combination (as hereinafter defined) shall
require the affirmative vote of both (1) at least eighty percent (80%)
of the votes entitled to be cast by the holders of all the then
outstanding shares of Voting Stock (as hereinafter defined), voting
together as a single class, and (2) at least 66 2/3% of the votes
entitled to be cast by holders of the Voting Stock, excluding shares
owned by an Interested Stockholder (as hereinafter defined). Such
affirmative vote shall be required notwithstanding the fact that no
vote may be required, or that a lesser percentage or separate class
vote may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(b) The provisions of Section (a) of this Article shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative vote, if any, as is
required by law or by any other provision of this Certificate of
Incorporation or the Bylaws of the Corporation, or any agreement with
any national securities exchange, if the Business Combination shall
have been approved by a majority (whether such approval is made prior
to or subsequent to the acquisition of beneficial ownership of the
Voting Stock that caused the Interested Stockholder (as hereinafter
defined) to become an Interested Stockholder) of the Continuing
Directors (as hereinafter defined).
(c) The following definitions shall apply with respect to this
Article:
1. "Business Combination" shall mean: (a) any merger
or consolidation of the Corporation or any Subsidiary (as hereinafter
defined) with (i) any Interested Stockholder or (ii) any other company
(whether or not itself an Interested Stockholder) which is or after
merger or consolidation would be an Affiliate or Associate of an
Interested Stockholder; (b) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition or security arrangement,
investment, loan, advance, guarantee, agreement to purchase, agreement
to pay, extension of credit, joint venture participation or other
arrangement (in one transaction or a series of transactions) with or
for the benefit of any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; (c) the adoption of the plan
proposal for the liquidation or dissolution of the Corporation which is
voted for or consented to by any
-41-
<PAGE>
Interested Stockholder; or (d) any reclassification of securities
(including any reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the Corporation with any
of its Subsidiaries or any other transaction (whether or not with or
otherwise involving an Interested Stockholder) that has the effect,
directly or indirectly, of increasing the proportionate share of any
class or series of Capital Stock, or any securities convertible into
Capital Stock or into equity securities of any Subsidiary, that is
beneficially owned by an Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder; or (e) any receipt by any
Interested Stockholder of the benefit, directly or indirectly (except
proportionally as a stockholder of the Corporation) of any loans,
advances, guarantees, pledges, or other financial benefits (other than
those expressly permitted in clauses (a) to (d) of this paragraph),
provided by the Corporation or any director or any direct or indirect
majority-owned Subsidiary; or (f) any agreement, contract or other
arrangement providing for any one or more of the actions specified in
the foregoing clauses (a) to (e).
2. "Capital Stock" shall mean all capital stock of
the Corporation authorized to be issued from time to time under the
Certificate of Incorporation, and the term "Voting Stock" shall mean
all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the Corporation generally.
3. "person" shall mean any individual, firm, company,
partnership, corporation, joint venture, association, limited liability
company or other entity and shall include any group comprised of any
person and any other person or entity with whom such person or any
Affiliate or Associate of such person has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding voting or disposing of Capital Stock.
4. "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary and other than any
profit-sharing employee stock ownership or other employee benefit plan
of the Corporation or any Subsidiary or any trustee of or fiduciary
with respect to any such plan when acting in such capacity) who (a) is
the beneficial owner of Voting Stock representing fifteen percent (15%)
or more of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock; or (b) is an Affiliate or Associate
of the Corporation and at any time within the three-year period
immediately prior to the date in question was the beneficial owner of
Voting Stock representing fifteen percent (15%) or more of the votes
entitled to be cast by the holders of all the then outstanding shares
of Voting Stock; provided, however, that the term "Interested
Stockholder" shall not include any person who would have qualified as
an Interested Stockholder under either preceding clause immediately
prior to the effective date of this Amendment to the Corporation's
Certificate of Incorporation.
5. A person shall be a "beneficial owner" of any
Capital Stock (a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (b) which such
person or any of its Affiliates or Associates has, directly or
indirectly, (i) the right to acquire (whether such right is exercisable
immediately or subject to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion
-42-
<PAGE>
rights, exchange rights, warrants or options, or otherwise, or (ii) the
right to vote pursuant to any agreement, arrangement or understanding;
or (c) which are beneficially owned, directly or indirectly, by any
other person with such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Capital Stock.
For the purposes of determining whether a person is an Interested
Stockholder hereunder, the number of shares of Capital Stock deemed to
be outstanding shall include shares deemed beneficially owned by such
person through application of this Paragraph 5 of Section (c), but
shall not include any other shares of Capital Stock that may be
issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
6. The terms "Affiliate" and "Associate" shall have
the respective meanings ascribed to such terms in the Securities
Exchange Act of 1934, as such may be amended from time to time.
7. "Subsidiary" means any company of which a majority
of any class of equity security is beneficially owned by the
Corporation; provided, however, that for the purposes of the definition
of Interested Stockholder, the term "Subsidiary" shall mean only a
company of which a majority of each class of equity security is
beneficially owned by the Corporation.
8. "Continuing Director" means any member of the
Board of Directors of the Corporation, while such person is a member of
the Board of Directors, who is not an Affiliate, Associate or
representative of the Interested Stockholder and was a member of the
Board of Directors prior to the time that the Interested Stockholder
became an Interested Stockholder, and any successor of a Continuing
Director while such successor is a member of the Board of Directors,
provided that such successor is not an Affiliate, Associate or
representative of the Interested Stockholder and is recommended or
elected to succeed the Continuing Director by a majority of Continuing
Directors.
(d) A majority of the Continuing Directors shall have the
power and duty to determine for the purposes of this Article, on the
basis of information known to them after reasonable inquiry, (i)
whether a person is an Interested Stockholder, (ii) the number of
shares of Capital Stock or other securities beneficially owned by any
person, and (iii) whether a person is an Affiliate or Associate of
another. Any such determination made in good faith shall be binding and
conclusive on all parties.
(e) Nothing contained in this Article shall be construed to
relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
(f) The fact that any Business Combination complies with the
provisions of Section (b) of this Article shall not be construed to
impose any fiduciary duty, obligation or responsibility on the Board of
Directors, or any member thereof to approve such Business Combination
or recommend its adoption or approval to the stockholders or the
Corporation, nor shall such compliance limit, prohibit or otherwise
restrict in any manner the Board of Directors, or any member thereof,
with respect to evaluations of or actions and responses
-43-
<PAGE>
taken with respect to such Business Combination. Notwithstanding any
other provisions of this Certificate of Incorporation or the Bylaws of
the Corporation (and notwithstanding the fact that a lesser percentage
or separate class vote may be specified by law, this Certificate of
Incorporation or the Bylaws of the Corporation), the affirmative vote
of the holders of not less than eighty percent (80%) of the votes to be
cast by the holders of all the then outstanding shares of Voting Stock,
voting together as a single class, shall be required to amend or
repeal, or adopt any provisions inconsistent with this Article.
RESOLVED, that Article I of the Bylaws be amended by adding a new
Section 1.10 containing a provision substantially the same as the provision set
forth in the preceding resolution and other provisions, if any, as may be
necessary to make the Bylaws consistent with this amendment."
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 7.
The Board of Directors Recommends
That You Vote "FOR"
the Approval of Proposal 7
-----------------------------------------
PROPOSAL 8
AMENDING THE CERTIFICATE OF
INCORPORATION AND BYLAWS TO
REQUIRE SUPERMAJORITY VOTE TO
AMEND OR REPEAL THE PROPOSED
AMENDMENTS WHICH ARE ADOPTED
------------------------------------------
Requirement for Supermajority Vote to Amend any Adopted Proposals
Delaware GCL provides that the Certificate of Incorporation may be
amended by the vote of a majority of the shares of common stock outstanding and
entitled to vote, unless the relevant provision of the Certificate of
Incorporation requires the vote of a greater number or proportion than a
majority, in which case such provision may not be amended, altered or repealed
except by such greater vote. Delaware GCL further confers sole authority to
adopt, amend or repeal bylaws in the stockholders unless the certificate of
incorporation also confers such a power upon the board of directors. Article
SEVENTH of the Certificate of Incorporation expressly confers such powers upon
the Board of Directors, provided, however, that the stockholders may change or
repeal any Bylaw adopted by the Board of Directors. The Board of Directors has
adopted, subject to stockholder approval, amendments to the Certificate of
Incorporation and Bylaws to require the affirmative vote of holders of 66 2/3%
of the Voting Stock to amend or repeal, or to adopt any provisions inconsistent
-44-
<PAGE>
with, any of the provisions added to the Certificate of Incorporation and Bylaws
by Proposals 2 through 7 above and this Proposal 8. At the Meeting, stockholders
will be asked to consider and vote on the proposed amendment.
Analysis of Proposal 8
Proposal 8, by limiting the manner in which the Anti-Takeover
Amendments may be amended or repealed, is intended not only to promote
continuity of operations and thereby enhance the Company's ability to attain its
long term goals, but also to allow the Board of Directors to more effectively
manage the affairs of and internal operating procedures of the Company. These
proposals are intended to have the effect of making it more difficult for
stockholders, following the Meeting, to eliminate the constituent elements
contained within Proposals 2 through 7 above and this Proposal 8.
Proposal 8 will have the effect of making it more difficult for
stockholders to change the AntiTakeover Amendments which have been adopted. This
may further discourage potentially unfriendly bids for shares of the Company.
For these reasons, Proposal 8 may have an anti-takeover effect. The Board of
Directors, however, is not aware of any efforts to obtain control of the
Company, and the proposal of this measure is not in response to any such
efforts. For a general discussion of certain anti-takeover effects of Proposal
8, see the section entitled "Anti-Takeover Proposals" above.
Proposed Resolutions
"RESOLVED, that the Certificate of Incorporation be amended by adding
a new Article SIXTEENTH which shall be and read as follows:
Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, Section 1.2 ("Special
Meetings"), Section 1.8 ("Advance Notice of Nominations and
Proposals"), Section 4.2(b) ("Removal of Directors"), Section 2.1
("Number of Directors and Term of Office"), Section 4.3(b) ("Vacancies;
Directors"), and Section 1.9 ("Consent of Stockholders") of the
Corporation's Bylaws and Articles ELEVENTH, TWELFTH, THIRTEENTH AND
FOURTEENTH of this Certificate of Incorporation shall not be amended or
repealed, and no provision inconsistent with any thereof shall be
adopted, without the affirmative vote of the holders of at least 66
2/3% of the voting power of the Voting Stock, voting together as a
single class. Section 1.10 ("Supermajority Shareholder Vote for Certain
Transactions") and Section 7.1(b) ("Anti-Takeover Amendments") of the
Corporation's Bylaws and Article FIFTEENTH of this Certificate of
Incorporation shall not be amended or repealed, and no provision
inconsistent with any thereof shall be adopted, without the affirmative
vote of the holders of at least 80% of the voting power of the Voting
Stock, voting together as a single class.
"RESOLVED, that the Certificate of Incorporation be amended by adding a
sub-section (b) to the new Article SIXTEENTH, which would read as follows:
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<PAGE>
(b) Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the Voting Stock, voting
together as a single class, shall be required to amend or repeal, or
adopt any provision inconsistent with, any provision of this Article
SIXTEENTH.
RESOLVED, that the existing text under Article VII of the Bylaws be
designated as Section 7.1(a) thereunder and that such Article VII be amended by
adding a new Section 7.1(b) containing a provision substantially the same as the
provision set forth in the preceding resolution and other provisions, if any, as
may be necessary to make the Bylaws consistent with this amendment."
Required Vote
The affirmative vote of a majority of the Common Stock outstanding and
entitled to vote at the Meeting is required to approve Proposal 8.
The Board of Directors Recommends
That You Vote "FOR"
The Approval of Proposal 8
------------------------------------
PROPOSAL 9
APPOINTMENT OF INDEPENDENT
AUDITORS
------------------------------------
PricewaterhouseCoopers LLP served as the Company's independent auditors
for the fiscal year ended December 31, 1997, and it is expected that
PricewaterhouseCoopers LLP will act in that capacity for the fiscal year ending
December 31, 1998. A representative of PricewaterhouseCoopers LLP is expected to
be present at the Meeting with the opportunity to make a statement if he desires
to do so and to be available to respond to appropriate questions from
shareholders.
It is proposed that the stockholders ratify the appointment by the
Board of Directors of PricewaterhouseCoopers LLP as independent auditors for the
Company for the 1998 fiscal year.
Approval by the stockholders of the appointment of independent auditors
is not required but the Board deems it desirable to submit this matter to the
stockholders. If a majority of the Common Stock present and entitled to vote at
the meeting should not approve the selection of PricewaterhouseCoopers LLP, the
selection of independent auditors will be reconsidered by the Board of
Directors.
The Board of Directors Recommends
That You Vote "FOR" the Ratification of the Appointment
of PricewaterhouseCoopers LLP as
Independent Auditors of the Company
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<PAGE>
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1999 Annual
Meeting must be received by the Company for inclusion in its proxy materials by
March 15, 1999.
OTHER MATTERS
Management does not intend to bring before the Meeting any matters
other than those specifically described above and knows of no matters other than
the foregoing to come before the Meeting. If any other matters or motions
properly come before the Meeting, it is the intention of the persons named in
the accompanying Proxy to vote such Proxy in accordance with their judgment on
such matters or motions, including any matters dealing with the conduct of the
Meeting.
By Order of the Board of Directors
/s/ Martin Eric Weisberg
----------------------------------
Martin Eric Weisberg
Secretary
August 25, 1998
<PAGE>
PROXY PROXY
- ----- -----
XYBERNAUT CORPORATION
(Solicited on behalf of the Board of Directors)
The undersigned holder of Common Stock of XYBERNAUT CORPORATION,
revoking all proxies heretofore given, hereby constitutes and appoints Edward G.
Newman, Steven A. Newman and Martin E. Weisberg and each of them, Proxies, with
full power of substitution, for the undersigned and in the name, place and stead
of the undersigned, to vote all of the undersigned's shares of said stock,
according to the number of votes and with all the powers the undersigned would
possess if personally present, at the Annual Meeting of Stockholders of
XYBERNAUT CORPORATION, to be held at the Company's offices at 12701 Fair Lakes
Circle, Fairfax, Virginia 22033 on Thursday, September 24, 1998, at 8:30 A.M.,
and at any adjournments or postponements thereof.
The undersigned hereby acknowledges receipt of the Notice of Meeting
and Proxy Statement relating to the meeting and hereby revokes any proxy or
proxies heretofore given.
Each properly executed Proxy will be voted in accordance with the
specifications made on the reverse side of this Proxy and in the discretion of
the Proxies on any other matter that may properly come before the meeting. Where
no choice is specified, this Proxy will be voted FOR all listed nominees to
serve as directors and FOR Proposals 2 through 10.
PLEASE MARK, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE
__________________ _______________ PLEASE MARK YOUR
ACCOUNT NUMBER COMMON CHOICE LIKE THIS IN [X]
BLUE OR BLACK INK:
Will attend the meeting [ ]
The Board of Directors Recommends a Vote FOR all
listed nominees and FOR Proposals 2 through 10
(1) Election of three directors
Class I
-------
Nominees: Keith P. Hicks
Martin Eric Weisberg
Kaz Toyosato
P-1
<PAGE>
FOR all nominees listed WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all listed nominees above
[ ] [ ]
(Instruction: To withhold authority to vote for any individual nominee, circle
that nominee's name in the list provided above.)
(2) Amending the Certificate of FOR AGAINST ABSTAIN
Incorporation and the Bylaws to [ ] [ ] [ ]
implement an advance notice
procedure for the submission of
director nominations and other
business to be considered at
annual meetings of stockholders.
(3) Amending the Certificate of [ ] [ ] [ ]
Incorporation and the Bylaws to
permit only the President, the
Vice Chairmen of the Board, the
Secretary or the Board of
Directors to call special
meetings of stockholders and to
limit the business permitted to
be conducted at such meetings to
be brought before the meetings by
or at the direction of the Board
of Directors.
(4) To amend the Certificate of [ ] [ ] [ ]
Incorporation and the Bylaws to
provide that a member of the
Board of Directors may only be
removed by the stockholders of
the Company for cause by an
affirmative vote of holders of at
least 66 2/3% of the voting power
of the then outstanding Voting
Stock.
(5) To amend the Bylaws to (a) fix [ ] [ ] [ ]
the size of the Board of
Directors at a maximum of twelve
directors, with the authorized
number of directors set at ten,
and the Board of Directors having
the sole power and authority to
increase or decrease the number
of directors acting by an
affirmative vote of at least a
majority of the total number of
authorized directors most
recently fixed by the Board of
Directors, and (b) provide that
any vacancy on the Board of
Directors may be filled for the
unexpired term (or for a new term
in the case of an increase in the
size of the board) only by an
affirmative vote of at least a
majority of the remaining
directors then in office even if
less than a quorum, or by the
sole remaining director.
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<PAGE>
(6) To amend the Certificate of [ ] [ ] [ ]
Incorporation and the Bylaws to
eliminate stockholder action by
written consent.
(7) To amend the Certificate of [ ] [ ] [ ]
Incorporation and the Bylaws to
require the approval of holders
of 80% of the then outstanding
Voting Stock and/or the approval
of 66 2/3% of the directors of
the Company for certain corporate
transactions.
(8) To amend the Certificate of [ ] [ ] [ ]
Incorporation and the Bylaws to
require an affirmative vote of 66
2/3% of the Voting Stock in order
to amend or repeal any adopted
amendments to the Certificate of
Incorporation and Bylaws proposed
herein.
(9) Ratifying the appointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as
independent auditors for the 1998
fiscal year.
(10) In their discretion, the Proxies [ ] [ ] [ ]
are authorized to vote upon such
other business as may properly
come before the Annual Meeting.
Dated _____________________, 1998
--------------------------------
--------------------------------
Signature(s)
(Signatures should conform to names
as registered. For jointly owned
shares, each owner should sign. When
signing as attorney, executor,
administrator, trustee, guardian or
officer of a corporation, please
give full title.)
PLEASE MARK AND SIGN ABOVE AND RETURN PROMPTLY
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