<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14A-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Alydaar Software 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: N/A
2) Aggregate number of securities to which transaction applies: N/A
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): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] 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: N/A
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4) Date Filed: N/A
<PAGE> 2
ALYDAAR SOFTWARE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Alydaar Software Corporation (the
"Company") Annual Meeting of shareholders will be held at The Park Hotel, 2200
Rexford Road, Charlotte, North Carolina 28211 on June 4, 1999 at 2:00 P.M. for
the following purposes as set forth in the accompanying Proxy Statement:
1. To elect five directors to serve for a term of one year;
2. To amend the Company's Articles of Incorporation to change
the Company's name to Information Architects Corporation;
3. To authorize an amendment to the Articles of Incorporation to
provide for the issuance of 1,000,000 shares of Preferred
Stock and to authorize the Board of Directors to fix the
preferred limitations and relative rights of any series of
preferred stock without shareholder approval;
4. To amend the Company's Omnibus Stock Plan and 1997 Employee
Stock Purchase Plan to include officers and employees of the
Company's subsidiaries;
5. To ratify the selection and appointment by the Company's
Board of Directors of Holtz Rubenstein & Co. LLP, independent
certified public accountants, as auditors for the Company for
the year ending December 31, 1999; and
6. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Holders of record of the Company's Common Stock at the close of
business on May 11, 1999, will be entitled to vote at the meeting.
By Order of the Board of Directors
Robert F. Gruder, Chairman
Dated: __________, 1999
Whether or not you plan to attend the meeting, please date and sign
the enclosed proxy and return it in the envelope provided. Any person giving a
proxy has the power to revoke it at any time prior to its exercise and, if
present at the meeting, may withdraw it and vote in person. Attendance at the
meeting is limited to shareholders, their proxies and invited guests of the
Company.
<PAGE> 3
ALYDAAR SOFTWARE CORPORATION
2101 Rexford Road, Suite 250 West
Charlotte, North Carolina 28211
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 4, 1999
PROXY STATEMENT
This Proxy Statement is furnished to you in connection with the
solicitation by the Board of Directors of proxies to be voted at the Alydaar
Software Corporation ("the Company" or "Alydaar") Annual Shareholder's Meeting
(the "Meeting") to be held at The Park Hotel, 2200 Rexford Road, Charlotte,
North Carolina 28211 at 2:00 P.M. on June 4, 1999 and at any adjournments
thereof. The purpose of the Meeting and the matters to be acted upon are set
forth in the accompanying Notice of Annual Meeting of Shareholders. The Board
of Directors knows of no other business that will come before the Meeting.
The shares represented by proxies that are received from you in the enclosed
form and properly filled out will be voted in accordance with your
specifications. In the absence of specific instructions, all proxies will be
voted in accordance with the recommendations made herein with respect to the
proposals described in this Proxy Statement. Proxies may be revoked by
shareholders by written notice received by the Secretary of the Company at the
address set forth above, at any time prior to the exercise thereof or by
attendance at the Meeting. Shareholders of record at the close of business on
May 11, 1999 are entitled to notice of and to vote at the Meeting or any
adjournments thereof. Proxies for use at the Meeting are being mailed to
shareholders on or about May 13, 1999. The Company's only class of voting
securities is its Common Stock, par value $.001 per share, of which 17,610,885
shares were outstanding as of February 24, 1999. The present officers and
directors of the Company, holding approximately 41% of the outstanding Common
Stock, intend to vote "For" all the proposals set forth herein.
Under rules followed by the National Association of Securities Dealers, Inc.,
brokers who hold shares in street name for customers have the authority to vote
on certain items when they have not received instructions from beneficial
owners. Brokers that do not receive instructions are entitled to vote on the
election of directors. With respect to the other proposals presented to
stockholders, no broker may vote shares held for customers without specific
instruction from such customers. A majority of the total outstanding shares
will constitute a quorum at the meeting. Abstentions and broker non-votes are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business.
1
<PAGE> 4
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of five (5)
directors. A vacancy or vacancies which occur during the year may be filled by
the Board of Directors, and any directors so approved must stand for reelection
at the next annual meeting of shareholders. The nominees for directors, to be
voted on by shareholders, are Messrs. Gruder, Milligan, Dudchik, Blumberg and
McLaughlin.
All of our current directors have been nominated for election by the
Company's present directors. All nominees have consented to be named and have
indicated their intent to serve, if elected. We have no reason to believe that
any of these nominees are unavailable for election. However, if any of the
nominees become unavailable for any reason, the persons named as proxies may
vote for the election of such other person or persons for such office as the
Board of Directors of the Company may recommend in the place of such nominee or
nominees. It is intended that proxies, unless marked to the contrary, will be
voted in favor of the election of Messrs. Gruder, Milligan, Dudchik, Blumberg
and McLaughlin.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE FOLLOWING FIVE NOMINEES.
Certain information regarding each nominee is set forth in the table
and text below. The following table sets forth the name, age and term of office
as director for each nominee for election as director and his present
position(s) with the Company:
<TABLE>
<CAPTION>
Director
Nominee for Election Age Since Position
- --------------------------- --- -------- -------------------------------------------------
<S> <C> <C> <C>
Robert F. Gruder 40 1989 Chief Executive Officer and Chairman of the Board
Frank G. Milligan 59 1999 President and Director
Thomas J. Dudchik(1) 39 1996 Senior Vice President and Director
Richard J. Blumberg(1) 63 1999 Director
James McLaughlin(1) 45 1999 Director
</TABLE>
2
<PAGE> 5
(1) Mr. Blumberg and Mr. McLaughlin were appointed to fill the Director
positions vacated by Mr. Alex McMillan and Mr. John McCarthy, who both resigned
for personal reasons. Mr. Milligan was appointed to fill the Director position
vacated upon the resignation of Mr. Hollis Scott, the Company's Chief Financial
Officer.
ROBERT F. GRUDER has served as Chief Executive Officer and Chairman of
the Board of Directors since 1989. Prior to his association with the Company
and for three years, Mr. Gruder served as president of GEM Technologies, Inc.
("GEM"), a company which was engaged in developing a computer language
compiler. Prior to Mr. Gruder's association with GEM, he was employed at three
different banks. Mr. Gruder is a graduate of American University and holds a BS
degree in finance.
FRANK G. MILLIGAN joined the Company as Chief Operating Officer in
December 1996 and on May 19, 1998 was appointed President. In March 1999, Mr.
Milligan was appointed as a Director. Between 1963 and December 1996, Mr.
Milligan was employed by IBM. He served as a senior manager with various
management responsibilities in development and systems integration and general
business management. Mr. Milligan attended the University of Tennessee, where
he received BS and MS degrees in electrical engineering.
THOMAS J. DUDCHIK joined the Company as Senior Vice President in
February 1996. He is responsible for all national and international marketing
and investor relations. Prior to joining the Company, Mr. Dudchik served as
Deputy Chief of Staff for Connecticut Governor Lowell P. Weicker, Jr. from
January 1993 through January 1995. As part of his responsibilities, Mr. Dudchik
administered the State of Connecticut's $10 billion annual budget for the 26
major state agencies, covering 50,000 state employees. From February 1991
through December 1992, Mr. Dudchik served as Deputy Commissioner of the
Connecticut Department of Environmental Protection. From February 1995 through
January 1996 he operated an advertising and sales promotion business. Mr.
Dudchik received a BA degree from Trinity College.
RICHARD J. BLUMBERG was appointed to serve as an interim director in
place of Mr. John McCarthy, who resigned as a director because of other
personal commitments. Mr. Blumberg is a practicing attorney in New York and for
the last five years has been a member of the firm of McLaughlin & Stern, LLP.
The McLaughlin & Stern law firm has acted as corporate counsel to Alydaar for
the last two years. For nine years, Mr. Blumberg served with the Securities and
Exchange Commission both in New York and Miami, Florida. Mr. Blumberg received
a bachelor of law degree from New York University School of Law.
JAMES H. MCLAUGHLIN was appointed to serve as an interim director in
place of Mr. Alex McMillan, who resigned as a director because of other
personal commitments.
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<PAGE> 6
Mr. McLaughlin has been with Mellon Private Asset Management in New York, New
York from 1995 to the present and is currently the Regional Manager for New
York, New Jersey, and Connecticut. Prior to joining Mellon Private Asset
Management in 1995, Mr. McLaughlin spent three years as a Financial Advisor in
the Private Client Group at Sanford C. Bernstein & Co., Inc. in New York. From
1990 to 1993 he was a Vice President in institutional trust sales at Society
National Bank of Cleveland. Mr. McLaughlin received his Bachelor's degree from
Lafayette College and his Master's degree in Public Administration from Harvard
University's Kennedy School of Government.
Our outside directors, upon their appointment to the Board, were given
the option to receive an award of 15,000 warrants each. The warrants vest after
one year from the date of the grant at the fair market price of our Common
Stock on the date of grant and expire after 10 years. The outside directors do
not receive any compensation for their attendance at meetings, but are
reimbursed for travel expenses.
Meetings and Committees of the Board of Directors
Directors are elected to serve until the next annual meeting of
shareholders or until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors subject to any contracts of
employment. At the present time there are no contracts.
Messrs. Gruder, Blumberg and McLaughlin currently serve on the Audit
Committee and replaced Messrs. McMillan, Scott and McCarthy. The Audit
Committee, comprised of its previous members, met once during the year. The
Audit Committee is charged with, among other things, the review with the
Company's auditors of the general scope of the Company's annual audit; review
of the annual audit, the auditor's report on the adequacy of internal controls
and other findings; review of the auditor's management letter; and the
implementation of any corrective measures, if so required.
Messrs. Blumberg and McLaughlin currently serve on the Compensation
Committee and replaced Messrs. McMillan, Gruder and McCarthy. The Compensation
Committee, comprised of its previous members, met once during the year. The
Compensation Committee is charged with the review of officers' compensation,
bonuses and the granting of stock options. The Company has no other standing
Committee.
The Board of Directors held three meetings during the calendar year
1998 and also met informally and acted by written consent during the year.
During 1998, except for Mr. McCarthy who only attended one of the meetings of
the Board before resigning, no member of the Board attended fewer than
seventy-five percent (75%) of the total number of full Board or Committee
meetings convened by the Board of Directors.
4
<PAGE> 7
Other Executive Officers
Following are the persons who are the executive officers of Company,
their age, their current title and their positions held during the last five
years:
JAMES F. HELM, 57, joined the Company in April 1996. Mr. Helm serves
as Chief Information Officer for Information Technology. Prior to joining the
Company, Mr. Helm acted as an independent consultant to various companies
between 1994 and 1996. Prior to that, he was employed by Formula Consultants,
Inc. from June 1992 to May 1994 in various management positions and acted as
consultant to that company from February through May of 1992. From 1969 to
October 1991, Mr. Helm held various management positions with Unisys
Corporation ("Unisys"). His last position with Unisys was Vice President of
Customer Services.
J. WAYNE THOMAS, 46, began as the Company's Chief Financial Officer on
May 3, 1999. In his most recent position as Director of Global Compliance for
Electronic Data Systems Corporation (EDS), Mr. Thomas was charged with the
review of worldwide financial processes for controls and compliance. As
Controller for the Client Server Sales and Marketing division from 1995 to
1998, Mr. Thomas created a successful sales incentive program. As a Controller
in EDS' Transportation Strategic Business Unit from 1993 to 1995, Mr. Thomas
provided due diligence and transition assistance for acquisitions. From October
of 1990 to 1993, Mr. Thomas was Controller for EDS' Air Transportation
division. Mr. Thomas holds a BSBA in Accounting from Indiana University in
Pennsylvania. He is a Certified Public Accountant, a Certified Management
Accountant and a member of the American Institute of Certified Public
Accountants.
J. DAIN DULANEY, JR. , 36, joined the Company in July 1997 as
Company's Vice President and General Counsel. He was also appointed Secretary
on April 2, 1999. Prior to joining the Company, Mr. Dulaney was Assistant
General Counsel with HBO & Company from 1995. In that position, Mr. Dulaney had
legal responsibilities for general corporate, contract, acquisition,
international, regulatory, litigation management and intellectual property
areas. Mr. Dulaney was Associate Counsel for a division of First Data
Corporation from 1991 to 1995. Mr. Dulaney holds a JD from Wake Forest
University's School of Law and a BA from Washington and Lee University.
THOMAS D. MORRIS, 57, joined the Company in August of 1997 as Director
of Development and in May of 1998 became Chief Operating Officer with
responsibility for all Year 2000 business operations. From 1995 until the time
he joined the Company, he was a partner in New Solutions, Consulting Services,
a company engaged in providing strategic development and process improvement
for information technology. During 1994 and 1995, Mr. Morris was
Vice-President, Operations and Finance for Childers Food Products and from 1992
through 1994 he was the Chief Information Officer for the
5
<PAGE> 8
Charlotte-Mecklenburg School System. Prior to 1992, Mr. Morris was employed by
IBM Corporation for 25 years with various management responsibilities in
development and systems integration and general business management. Mr. Morris
holds a Master of Sciences, Nuclear Physics from the University of Tennessee
and a BS in Physics from Marshall University.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The number of shares beneficially owned by each nominee and the
Executive Officers is listed below under "Security Ownership of Certain
Beneficial Owners and Management." The following table sets forth information
regarding the beneficial ownership of our Common Stock as of March 30, 1999 by
(i) each person who is known by us to own beneficially more than 5% of our
outstanding Common Stock; (ii) each of our officers and directors and (iii) all
of our officers and directors as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature* Percent of Class
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Robert F. Gruder 7,035,815 40.3%
c/o Alydaar Software Corporation
2101 Rexford Road, Suite 250 West
Charlotte, NC 28211
Thomas J. Dudchik 118,666 *
c/o Alydaar Software Corporation
2101 Rexford Road, Suite 250 West
Charlotte, NC 28211
Frank G. Milligan 1,545 *
c/o Alydaar Software Corporation
2101 Rexford Road, Suite 250 West
Charlotte, NC 28211
James F. Helm 250 *
c/o Alydaar Software Corporation
2101 Rexford Road, Suite 250 West
Charlotte, NC 28211
Richard J. Blumberg (Director) 0 *
260 Madison Avenue
New York, NY 10016
James McLaughlin 0 *
New York, New York
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C> <C>
All officers and directors 7,156,276 41.0%
as a group (9 persons)
</TABLE>
* Less than 1% of our outstanding shares of common stock.
Executive Compensation
The following tables set forth information with respect to
compensation paid by us for the services during the three years ended December
31, 1998 of our Chief Executive Officer and President. No other officer
receives compensation in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Securities
Annual Stock Underlying LTIP All Other
Compen- Awarded Options/ Payouts Compen-
Name and Principal Position Year Salary($) Bonus($) sation($) ($) SARs(#) ($) sation($)
- --------------------------- ---- --------- -------- --------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROBERT F. GRUDER 1998 68,730 -0- -0- -0- 2,000(1) -0- -0-
Chief Executive Officer
1997 60,000 -0- -0- -0- 2,000 -0- -0-
1996 60,000 -0- -0- -0- -0- -0- -0-
FRANK G. MILLIGAN 1998 103,519 -0- -0- -0- 102,000(2) -0- -0-
President
1997 94,231 -0- -0- -0- 73,000 -0- -0-
1996 5,846 -0- -0- -0- -0- -0- -0-
</TABLE>
(1) Mr. Gruder was granted 2,000 incentive stock options under the
1994 Plan on April 24, 1997. These options were cancelled and replaced by 2000
options as described under the heading "Stock Options - Option Repricing"
below.
(2) Mr. Milligan was granted incentive and non-qualified stock options
during 1997 and 1998. These options were cancelled and replaced by 102,000
Options as described under the heading "Stock Options - Option Repricing"
below.
The senior executive officers do not currently receive any other
personal benefits. The Company offers health insurance to all of its employees.
The Company also has a 401(k) program, but during the year 1998, the Company
made no contributions.
7
<PAGE> 10
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- ----------------- -----------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date 5% ($) 10% ($)
- ---- ----------- ----------- ------------ --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Gruder 2,000(1) * 6.33 10/08/03 8,800 18,700
Frank G. Milligan 102,000 8.8 5.75 10/08/08 346,800 371,280
</TABLE>
- -------------------
(1) The exercise price for the options granted to Mr. Gruder were established at
110% of fair market value on date of grant. These options replace 2,000 options
granted on April 24, 1997, which were later cancelled. These options vest on
October 8, 1999 and expire on October 8, 2003.
Based solely on review of the copies of such forms furnished to us or written
representations that no forms 5 were required, we believe that during the year
ended December 31, 1998 all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten-percent beneficial owners were
complied with.
REPORT OF THE COMPENSATION COMMITTEES ON EXECUTIVE COMPENSATION
The Company's Board of Directors approves all compensation decisions
with regard to executive officers, including the Chief Executive Officer, based
on recommendations from the Compensation Committee. The Compensation Committee
is responsible for the establishment of all compensation and benefit programs,
as well as the overall monitoring of those programs. The Company's compensation
philosophy and executive compensation programs are discussed in this report.
Executive Compensation Philosophy. In general, executive officers who
are in a position to make a substantial contribution to the success and growth
of the Company should have interests similar to those of the stockholders.
Executive officers should be motivated by and benefit from increased
stockholder value. Therefore, the Company believes that executive officers
should hold a meaningful equity position in the Company through the purchase of
Common Stock and/or the award of options to purchase Common Stock. The
Company's Board of Directors believes that the executive compensation program
must be competitive with those of other companies of comparable size and
complexity in order to attract, retain and motivate talented individuals.
Executive Compensation Program. The Company's compensation program
consists of base salary and long-term incentives, generally in the form of
options to
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<PAGE> 11
purchase Common Stock.
Base Salary. The Compensation Committee generally reviews and
determines the relative levels of base salary for executive officers on an
annual basis. In determining the levels of base salary for an executive
officer, except with respect to the Chief Executive Officer, the Compensation
Committee considers relative levels of responsibility and individual and Company
performance. The Committee believes that base salaries of the Company's
executive officers are below average relative to its national and regional peer
companies as the Company continues its transition from a start up company to a
more mature status. As the Company continues its growth, the Committee will
continue to review the base salary levels of executive management to bring them
more in line with national and regional peer companies.
Stock Options. An additional important aspect of the Company's
compensation program is its use of stock options. In general the Company has
not granted such options to the Chief Executive Officer because of his stock
ownership position in the Company. As the Company has grown it has sought to
retain and attract key executives through the grant of stock options. Under the
Omnibus Stock Plan, the Committee may grant options to purchase Common Stock to
Company employees, including executive officers. Option grants become
exercisable over a period of time and generally have an exercise price equal to
the fair market value of the Common Stock on the grant date, creating long term
incentives to enhance the value of Company's Common Stock. Except for the Chief
Executive Officer, the Committee considers the grant of options to executive
officers and key managers on an annual basis. The number of options awarded and
the related vesting periods are determined based upon management's contribution
to Company's future growth and profitability. The options are also intended (a)
as additional possible compensation that does not require the Company to pay
additional cash expenses as it grows in revenues and (b) to provide flexibility
to the Company in its ability to motivate, attract and retain the services of
participants upon whose judgment, interest and special effort the successful
conduct of its operation is largely dependent. The Committee believes that the
use of stock-based incentives ensures that the executive's interests are
aligned with the long-term interests of the Company's stockholders.
Chief Executive Officer Compensation. Mr. Robert Gruder served as
Chief Executive Officer in 1998. Mr. Gruder's base salary has remained well
below that of other chief executive officers for similar national and regional
companies so that as much cash as possible could be used for the growth of the
business. In addition, Mr. Gruder does not receive any grant of options, except
for grants made to all employees generally, because of his stock ownership
position in the Company. As the Company emerges from a growth company to a more
viable entity, the Compensation Committee will continue to review the Chief
Executive Officer's compensation to bring it in line with comparable salaries of
other Chief Executive Officers at similar national and regional companies.
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<PAGE> 12
This report is submitted by the Compensation Committee, which
currently consists of the Messrs. McLaughlin and Blumberg.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Blumberg and McLaughlin currently serve on the Compensation
Committee and none of such persons has ever been an officer or employee of the
Company.
STOCK OPTIONS -- OPTION REPRICINGS.
Long-term incentives are provided through the Company's Omnibus Stock
Plan ("Plan"). The Plan is administered by the Compensation Committee, and is
authorized to award stock options to officers and employees of the Company.
While the Committee has broad discretion to select the optionees and to
establish the terms and conditions for the grant, vesting and exercise of each
option, the Committee's historical practice has been to grant stock options to
employees vesting over 18 months in order to attract individuals to the Company
and to strengthen the employee's ties to the Company.
Effective October 8, 1998, the Committee approved a plan to allow all
officers and employees to cancel their current stock options in exchange for a
new grant of replacement stock options. The exercise price for these
replacement options is $5.75 per share, the fair market value of the Company's
Common Stock on the date of repricing, October 8, 1998. The Committee's action
was in response to the decline in the market price of the Company's stock
during the preceding months, which had effectively eliminated the incentive
value of options with significantly higher exercise prices. The Committee's
decision was based on a number of factors, including the concern for low morale
of Company employees and the fear of losing skilled, mobile officers and
technical personnel. The Committee determined that replacement options were
necessary to provide reward and incentive for valued officers and employees of
the Company to remain with the Company over an extended period of time.
As detailed in the Ten-Year Option Repricing table below, the
repricing on October 8, 1998 resulted in the issuance of replacement options
with an exercise price of $5.75 per share. All replacement options will vest on
October 8, 1999. A total of 725,500 options, with exercise prices ranging from
$6.88 to $22.63 per share, were repriced, including 104,000 options held by
current executive officers.
All options previously granted to Messrs. Milligan and Gruder were
included in the repricing of options for all then current employees. Mr. Gruder
was previously granted 2,000 incentive stock options at an exercise price of
$8.80 under the Plan on April 24, 1997. These options were cancelled and
replaced by 2000 options granted on October 8, 1998 that vest on October 8,
1999 with an exercise price of $6.33. The options expire
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<PAGE> 13
on October 8, 2003. Mr. Milligan was granted 102,000 incentive and
non-qualified stock options during 1997 and 1998 at various exercise prices as
set forth in the table below. These options were cancelled and replaced by
102,000 incentive and non-qualified stock options granted on October 8, 1998
and that vest on October 8, 1999. Mr. Milligan's options expire on October 8,
2008.
The following table sets forth information concerning all of the repricings of
options held by officers of the Company who were officers at the time of there
pricing over the last ten years, including (i) the date of the repricing, (ii)
the number of shares subject to the repriced options, (iii) the market price at
the time of the repricing, (iv) the exercise price prior to repricing, (v) the
new exercise price and (vi) the original option term remaining at the date of
repricing:
TEN YEAR OPTION REPRICING
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
Number Market Length of
of Price of Exercise Original
Options Stock at Price at New Option Term
Re- Time of Time of Exercise Remaining
Name and Principal Position Date Priced Repricing Repricing Price at Repricing
- --------------------------- --------------- ------ --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
ROBERT F. GRUDER October 8, 1998 2,000 $5.75 $ 8.80 $6.33 36 mos.
Chief Executive Officer
FRANK G. MILLIGAN October 8, 1998 10,000 $5.75 $ 9.50 $5.75 99 mos.
President October 8, 1998 22,000 $5.75 $ 8.00 $5.75 103 mos.
October 8, 1998 35,000 $5.75 $11.75 $5.75 108 mos.
October 8, 1998 25,000 $5.75 $ 6.94 $5.75 118 mos.
October 8, 1998 10,000 $5.75 $ 5.75 $5.75 120 mos.
</TABLE>
Certain Relationships and Related Transactions
In connection with the litigation regarding GEM Technologies, Inc.,
Mr. Robert Gruder, our Chairman and Chief Executive Officer, entered into an
agreement with us to indemnify us against any liability resulting from a final
unappealable judgment in connection with this lawsuit. In consideration of the
agreement to indemnify us, we agreed to pay Mr. Gruder's legal fees and
expenses in defending this lawsuit. During 1998, the Company paid defense costs
of $317,848 on Mr. Gruder's behalf in connection with this lawsuit.
Mr. Robert F. Gruder, Chairman and Chief Executive Officer, has made
advances to the Company from time to time to assist us in our working capital
requirements. The loan is evidenced by a promissory note payable on demand with
an interest rate of 10.5% per year. As of December 31, 1998, the balance of the
loan due to Mr. Gruder was $3,005,534 and accrued interest of $236,494.
During, 1997 and 1998, V. Hollis Scott, our Chief Financial Officer,
advanced $366,700 to the Company. The loan was evidenced by a promissory note
payable on demand with interest at 10.5% per annum. During 1998 we repaid Mr.
Scott the balance and interest of the loan.
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<PAGE> 14
On December 31, 1998, Mr. Scott owed us $320,750, representing the unpaid
exercise price of certain stock options exercised by Mr. Scott during 1998.
Mr. Gruder is a limited partner in the partnership group Two
Morrocroft Centre, LLC, which owns our new headquarter's building located at
Two Morrocroft Centre, 4064 Colony Road, Charlotte, North Carolina. In June
1998, we entered into a lease with the partnership and expect to begin paying
annual lease payments of $2,000,000 in May 1999. The lease was negotiated as an
arms length transaction, approved by the Board of Directors and the rent is
comparable to similar rents in the area.
Company Performance Graph
The following graph compares the cumulative total shareholder return
on the Common Stock of the Company from January 1, 1998 to December 31, 1998
with the cumulative total return on the Nasdaq Stock Market for United States
Companies ("Nasdaq Stock Market Index") and the Nasdaq Computer and Data
Processing Stocks ("Nasdaq Computer Index") over the same period. This graph
assumes a $100 investment at June 2, 1997 (when the Company first started
trading) in the Company's Common Stock and in each of the indexes and
reinvestment of all dividends, if any.
The graph displayed below is presented in accordance with the
Securities and Exchange Commission requirements. You are cautioned against
drawing any conclusions from the data contained therein, as past results are
not necessarily indicative of future performance. This graph is not intended to
reflect the Company's forecast of future financial performance. The graph was
prepared by Standard & Poor's Compustat, a division of the McGraw Hill
Companies.
TOTAL SHAREHOLDER RETURNS
(Dividends Reinvested)
Return Percentage
Period Year Ending
Company/Index 6/2/97-12/31/97 12/31/98
- ------------- --------------- -----------
Alydaar Software Corp. 43.18 -47.62
NASDAQ 13.00 40.33
NASDAQ Computer & Data Process 5.47 79.06
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<PAGE> 15
Indexed Returns
Base Period Period Ending Year Ending
Company/Index 6/2/97 12/31/97 12/31/98
- ------------- ----------- ------------- -----------
Alydaar Software Corp. 100 143.18 75.00
NASDAQ 100 113.00 158.57
NASDAQ Computer & Data Process 100 105.47 188.85
[Stock Performance Graph]
- -----------------------
Prepared by Standard & Poor's Compustat, a division of the McGraw-Hill
Companies.
An IPO price of $11.00 was used to calculate the return for Alydaar. The price
was supplied by Alydaar. A price of $15.75 was used for the Dec. 31, 1998
calculation and was provided by Alydaar.
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<PAGE> 16
PROPOSAL NO. 2
APPROVAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION
TO CHANGE THE COMPANY'S NAME FROM
ALYDAAR SOFTWARE CORPORATION TO
INFORMATION ARCHITECTS CORPORATION
In October 1988, the Company announced a new business strategy to
expand its business beyond offering year 2000 ("Y2K") remediation, validation
and conversion services. To this end, the Company acquired next generation web
server technology known as Metaphoria software. Additionally, the Company
signed a definitive merger agreement to acquire Data Systems Network
Corporation ("Data Systems"), a network integration company. The Company also
signed a letter of intent to acquire all of the stock of Tumble Interactive
Media, Inc., a company engaged in providing various Internet services,
including multimedia design and website development.
In order to better define the new image and business direction, the
Company is seeking to change its name to "Information Architects Corporation."
The Company is presently doing business in North Carolina under the assumed
name "Information Architects Corporation." Accordingly, shareholders are being
asked to approve an amendment to the Company's Articles of Incorporation
changing the name "Alydaar Software Corporation" to "Information Architects
Corporation" ("IAC").
You are advised that it will not be necessary for you to exchange or
surrender your existing certificates representing shares of the Company's
Common Stock for new stock certificates of IAC. However, should you desire new
certificates in the name of IAC, you may submit your existing shares in the
Company's Common Stock to First Union National Bank, IAC's transfer agent, to
obtain new certificates.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT OF
THE COMPANY'S ARTICLES OF INCORPORATION TO CHANGE THE COMPANY'S NAME TO
INFORMATION ARCHITECTS CORPORATION.
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<PAGE> 17
PROPOSAL NO. 3
APPROVAL OF AN AMENDMENT TO ALYDAAR'S ARTICLES OF INCORPORATION
AUTHORIZING THE ISSUANCE OF 1,000,000 SHARES OF PREFERRED STOCK AND
AUTHORIZING THE BOARD OF DIRECTORS TO FIX THE PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF ANY SERIES OF PREFERRED STOCK WITHOUT SHAREHOLDER APPROVAL
The North Carolina Business Corporation Act (G.S. ss.55-6-02) (the
"Act") permits a North Carolina corporation to include in its Articles of
Incorporation varying classes or series of shares, including the creation of a
class of preferred shares. The Act also allows a North Carolina corporation to
include "blank stock" provisions in its Articles of Incorporation, which give a
board of directors the discretion to define preferences and limitations and
establish rights for a series of shares without shareholder approval. At the
present time, the Company's Articles of Incorporation do not contain such a
provision and only authorizes the issuance of 50,000,000 shares of Common
Stock, $.001 par value per share.
You are being asked to approve an amendment to the Company's Articles
of Incorporation authorizing the issuance of a series of Preferred Stock. The
Board of Directors believes that it would be in the Company's best interest if
the Company, through its Board of Directors, had the authority in its Articles
of Incorporation to issue up to 1,000,000 shares of Preferred Stock, $.001 par
value per share. This would give the Company Preferred Stock in the event the
Company elected in the future to issue Preferred Stock to raise additional
equity capital or to use the issuance of Preferred Stock in connection with
future acquisitions. The Board of Directors believes that having the authority
to create different series of Preferred Stock gives the Company flexibility in
negotiations for additional financing or acquisitions without having to seek
your approval for an amendment to the Articles of Incorporation.
If you approve this Proposal No. 3, the Board of Directors shall have
the sole discretion and authority without your approval to establish different
series of Preferred Stock and may attach any preferences or limitations or
rights for each series as the Board of Directors may deem advisable. Thus, the
Board of Directors could establish terms for a specific series of Preferred
Stock that ordinarily would require your approval for the proposed amendment
and in some circumstances, might (a) confer upon you dissenters' rights if the
proposed amendment were submitted for your approval or (b) may also make a
proposed hostile acquisition of the Company more difficult.
At the present time, the Company has no intention of establishing any
series of Preferred Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO
THE ARTICLES OF INCORPORATION AUTHORIZING THE
15
<PAGE> 18
ISSUANCE OF 1,000,000 SHARES OF PREFERRED STOCKS AND AUTHORIZING THE BOARD OF
DIRECTORS TO FIX THE PREFERRED LIMITATIONS AND RELATIVE RIGHTS OF ANY SERIES OF
PREFERRED STOCK WITHOUT SHAREHOLDER APPROVAL.
PROPOSAL NO. 4
APPROVAL OF AMENDMENTS TO ALYDAAR SOFTWARE CORPORATION'S OMNIBUS STOCK PLAN
AND 1997 EMPLOYEE STOCK PURCHASE PLAN TO INCLUDE OFFICERS AND EMPLOYEES OF
ALYDAAR'S SUBSIDIARIES
In 1994, the Company adopted the Alydaar Software Omnibus Stock Plan
(the "Option Plan"). The Option Plan was adopted to enable the Company to
attract and retain skilled and dedicated officers and employees and to offer, as
an incentive to employees and officers of the Company, an opportunity to share
in the future growth of the Company. When the Plan was originally adopted,
375,000 shares of the Company's Common Stock were originally reserved for
issuance under the Option Plan. This amount of shares was subsequently increased
to 3,000,000 shares by shareholder vote at the Company's annual meeting on May
22, 1998.
In 1998, the shareholders of the Company ratified the 1997 Employee
Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan was adopted to
provide officers and employees with an opportunity to become stockholders in
Alydaar and to share in its potential growth and profitability. Under the
Purchase Plan, 200,000 shares of the Company's Common Stock are reserved for
issuance.
Company's counsel has concluded that both the Option Plan and Purchase
Plan do not specifically authorize the extension of those Plans to employees of
subsidiaries that the Company might establish. This issue is now critical in
light of the fact that the Company has contracted to acquire Data Systems
Network Corporation and has entered into a letter of intent to acquire Tumble
Interactive Media, Inc.
The Board of Directors believes that, in light of the prospective
acquisitions and possible future acquisitions, it is important that the Company
have the ability to offer options and the right to purchase shares to both
senior management and employees of any acquired company as an inducement to
those individuals to continue their employment. This ability to issue options
and the right to purchase shares under these circumstances should facilitate a
smooth transition and preserve the business continuity of the acquired company.
Shareholders are now being asked to approve an amendment to the Option Plan and
Purchase Plan to specifically extend the issuance of stock options to officers
and employees of the Company's subsidiaries. The proposed Amendments to the
Option Plan and Purchase Plan are set forth as Exhibit A and B of this Proxy.
16
<PAGE> 19
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS APPROVE AN
AMENDMENT TO THE OMNIBUS STOCK PLAN AND 1997 EMPLOYEE STOCK PURCHASE PLAN TO
INCLUDE OFFICERS AND EMPLOYEES OF THE COMPANY'S SUBSIDIARIES.
PROPOSAL NO. 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to approval by the shareholders, the Board of Directors has
appointed Holtz Rubenstein & Co. LLP as the independent public accountants to
audit the financial statements of the Company for the year ending December 31,
1999. Holtz Rubenstein & Co. LLP also served as the Company's auditors for the
fiscal years ended August 31, 1997 and 1998. It is expected that a
representative of Holtz Rubenstein & Co. LLP will be present at the Meeting,
have an opportunity to make a statement if they desire to do so and be available
to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF HOLTZ RUBENSTEIN & CO., LLP AS INDEPENDENT ACCOUNTANTS.
VOTE REQUIRED
Under the laws of the State of North Carolina, assuming a quorum of
the Company's outstanding shares exists, the affirmative vote of the holders of
a majority of the votes cast at the Meeting in favor of an action must exceed
the votes cast against the action to approve each of the Proposals.
EXPENSE OF SOLICITATION
The cost of soliciting proxies, which also includes the preparation,
printing and mailing of this Proxy Statement, will be borne by the Company.
Solicitation will be made by the Company primarily through the mail. The
Company may also retain the services of a proxy solicitation firm. The Company
has not made any arrangements to do so as of the date of this Proxy Statement,
and does not presently have estimates as to the cost of such services.
Directors, officers and regular employees of the Company may solicit proxies
personally, by telephone or telegram. The Company will request brokers and
nominees to obtain voting instructions of beneficial owners of stock registered
in their names and will reimburse them for any expenses incurred in connection
therewith.
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<PAGE> 20
PROPOSALS OF SHAREHOLDERS
Shareholders of the Company who intend to present a proposal for
action at the 2000 Annual Meeting of Shareholders of the Company must notify
the Company's management of such intention by notice received at the Company's
principal executive offices not later than October 1, 1999, for such proposal
to be included in the Company's proxy statement and form of proxy relating to
such meeting.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
The Company believes all stock transaction reports required to be
filed with the Securities and Exchange Commission were timely filed by its
officers and directors.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report on Form 10-K for the year ended December
31,1998 as filed with the Securities and Exchange Commission is being delivered
with this Proxy Statement to the Company's shareholders.
OTHER MATTERS
The Board of Directors knows of no other matters that are expected to
be presented for consideration at the Meeting which are not described herein.
However, if other matters properly come before the Meeting, it is intended that
the persons named in the accompanying proxy will vote thereon in accordance
with their best judgment.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES. A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED, AS IT WILL SAVE
THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
Robert F. Gruder, Chairman
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<PAGE> 21
ALYDAAR SOFTWARE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
__________, 1999 2:00 p.m.
The undersigned hereby appoints Robert F. Gruder and Frank G.
Milligan, and each of them jointly and severally, proxies with full power of
substitution and revocation, to vote on behalf of the undersigned all shares of
Common Stock of Alydaar Software Corporation which the undersigned is entitled
to vote at the Annual Meeting of Shareholders to be held on June 4, 1999 or any
adjournments thereof.
1. ELECTION OF DIRECTORS.
FOR all the nominees listed below [ ]
WITHHOLD AUTHORITY to vote for all nominees listed below [ ]
(INSTRUCTION: To withhold authority to vote for any individual nominee, mark
the box next to the nominee's name below.)
Robert F. Gruder [ ] Frank G. Milligan [ ] Thomas J. Dudchik [ ]
Richard J. Blumberg [ ] James McLaughlin [ ]
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<PAGE> 22
2. PROPOSAL TO AMEND OF THE COMPANY'S ARTICLES OF INCORPORATION
TO THE CHANGE THE COMPANY'S NAME TO INFORMATION ARCHITECTS
CORPORATION.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS TO AMEND THE
ARTICLES OF INCORPORATION TO PROVIDE FOR THE ISSUANCE OF
1,000,000 SHARES OF PREFERRED STOCKS AND TO FIX THE PREFERRED
LIMITATIONS AND RELATIVE RIGHTS OF ANY SERIES OF PREFERRED
STOCK.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO AMEND ALYDAAR SOFTWARE CORPORATION'S OMNIBUS
STOCK PLAN AND EMPLOYEE STOCK PURCHASE PLAN TO INCLUDE
OFFICERS AND EMPLOYEES OF ALYDAAR'S SUBSIDIARIES
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. PROPOSAL TO RATIFY APPOINTMENT OF HOLTZ RUBENSTEIN & CO.,
LLP, AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR
THE YEAR 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournment(s) thereof.
(Continued and to be signed on reverse side.)
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<PAGE> 23
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED TO ELECT MESSRS. GRUDER, MILLIGAN, DUDCHIK, MCLAUGHLIN AND
BLUMBERG AS DIRECTORS, TO AMEND THE ARTICLES OF INCORPORATION TO CHANGE THE
COMPANY'S NAME (PROPOSAL NO. 2); TO AMEND THE ARTICLES OF INCORPORATION TO
AUTHORIZE PREFERRED STOCK (PROPOSAL NO. 3); TO AMEND THE OMNIBUS STOCK PLAN AND
1997 EMPLOYEE STOCK PURCHASE PLAN TO INCLUDE COMPANY SUBSIDIARIES (PROPOSAL NO.
4); AND THE RATIFICATION OF THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 1999 (PROPOSAL NO. 5).
Dated:
--------------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature if held jointly
(Please sign exactly as ownership appears
on this proxy. Where stock is held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as
such. If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.)
Please mark, date, sign and
return Proxy in the enclosed envelope.
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<PAGE> 24
EXHIBIT A
ADDENDUM
TO
ALYDAAR SOFTWARE CORPORATION
OMNIBUS STOCK PLAN
THIS ADDENDUM is effective as of the 4th day of June, 1999 to the
ALYDAAR SOFTWARE CORPORATION OMNIBUS STOCK PLAN ("Plan") pursuant to approval
by the shareholders of Alydaar Software Corporation, as recorded in the minutes
of the 1999 Alydaar Software Corporation Annual Shareholder Meeting, dated June
4, 1999. The provisions of this Addendum are hereby made a part of the Plan.
Should a conflict exist among the provisions of the Plan, the Exhibits thereto
and this Addendum, the provision of this Addendum shall control. Any terms in
capital letters not defined in this Addendum shall have the meaning set forth
in the Plan.
1. Article I, Section 1.3(g) (Definitions) is hereby deleted in its entirety
and replaced with the following:
"(g) "Company" means Alydaar Software Corporation, a North Carolina
corporation, any Subsidiary and any successor corporation."
By:____________________________
Print Name: J. Dain Dulaney, Jr.
Title: Secretary, Alydaar Software Corporation
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<PAGE> 25
EXHIBIT B
ADDENDUM
TO
ALYDAAR SOFTWARE CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
THIS ADDENDUM is effective as of the 4th day of June, 1999 to the
ALYDAAR SOFTWARE CORPORATION 1997 EMPLOYEE STOCK PURCHASE PLAN ("Plan")
pursuant to approval by the shareholders of Alydaar Software Corporation, as
recorded in the minutes of the 1999 Alydaar Software Corporation Annual
Shareholder Meeting, dated June 4, 1999. The provisions of this Addendum are
hereby made a part of the Plan. Should a conflict exist among the provisions of
the Plan, the Exhibits thereto and this Addendum, the provision of this
Addendum shall control. Any terms in capital letters not defined in this
Addendum shall have the meaning set forth in the Plan.
1. In Section 1.0 (Purpose of Plan) delete "(the"Company")".
2. Section 2.0 (Definitions), subsection 2.7 and 2.8 are hereby added as
follows:
"2.7 Company: Alydaar Software Corporation, a North Carolina
corporation, any Subsidiary and any successor corporation.
2.8 Subsidiary: any corporation (other than Company), in an unbroken
chain of corporations, beginning with Company, in which each of the
corporations other than the last corporation in the unbroken chain
owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in that
chain."
By:____________________________
Print Name: J. Dain Dulaney, Jr.
Title: Secretary, Alydaar Software Corporation
23
