<PAGE> 1
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:
[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 14a-12
Information Architects 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
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
<PAGE> 2
INFORMATION ARCHITECTS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Information Architects Corporation (the
"Company") Annual Meeting of Stockholders will be held at The Park Hotel, 2200
Rexford Road, Charlotte, North Carolina 28211 on May 26, 2000 at 2:00 P.M. for
the following purposes as set forth in the accompanying Proxy Statement:
1. To elect four directors to serve for a term of one year;
2. To approve the issuance of 1,000,000 shares of the Company's
common stock, par value $.001 per share ("Common Stock") that
the Company is required to issue by Agreement to retire the
outstanding principal and interest of the July 30, 1999 6%
convertible debenture issued by the Company;
3. 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, 2000; and
4. 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 April 21, 2000, will be entitled to vote at the meeting. A list of
such stockholders will be available for examination by a stockholder for any
purpose germane to the meeting during ordinary business hours at the offices of
the Company at 4064 Colony Road, Charlotte, North Carolina 28211, during the ten
business days prior to the meeting.
By Order of the Board of Directors
Robert F. Gruder, Chairman
Dated: April 28, 2000
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 stockholders, their proxies and invited guests of the Company.
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INFORMATION ARCHITECTS CORPORATION
4064 Colony Road
Charlotte, North Carolina 28211
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 2000
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 Information
Architects Corporation Annual Stockholder's Meeting (the "Meeting") to be held
at The Park Hotel, 2200 Rexford Road, Charlotte, North Carolina 28211 at 2:00
P.M. on May 26, 2000 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 Stockholders. The Board of Directors knows of no other
business that will come before the Meeting.
Stockholders of record at the close of business on April 21, 2000 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 stockholders on or about
April 28, 2000 together with a copy of the Company's Annual Report on Form 10-K.
The Company's only class of voting securities outstanding at the present time is
its Common Stock, of which 29,136,827 shares were outstanding as of March 30,
2000. The present officers and directors of the Company, holding approximately
25% of the outstanding Common Stock, intend to vote "For" all the proposals set
forth herein.
HOW YOU CAN VOTE
If you return your signed proxy before the Annual Meeting of
Stockholders is held, the proxy holders will vote your shares as you direct. You
can specify on your proxy, whether your shares should be voted for all, some or
none of the nominees for directors. IF YOU DO NOT SPECIFY ON YOUR PROXY CARD HOW
YOU WANT TO VOTE YOUR SHARES, THE PROXY HOLDERS WILL VOTE THEM "FOR" THE
ELECTION FOR ALL NOMINEES FOR DIRECTORS UNDER "ELECTION OF DIRECTORS" AND "FOR "
THE OTHER 2 PROPOSALS DESCRIBED IN THIS PROXY STATEMENT.
Under rules followed by the National Association of Securities Dealers,
Inc. ("NASDAQ"), 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.
REQUIRED VOTES
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.
REVOCATION OF PROXIES
Any person giving a proxy in the form accompanying this Proxy Statement
has the power to revoke it any time before it is exercised. It may be revoked:
- By filing with the Company's Secretary an instrument of revocation;
- Presenting at the Meeting a duly executed proxy bearing a later date;
or
- By attending the Meeting and electing to vote in person.
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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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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of four (4)
directors. A vacancy or vacancies that 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 stockholders. The nominees for directors, to be
voted on by stockholders, are Messrs. Gruder, Dudchik, Blumberg and McLaughlin.
The Company's present directors have nominated all of the Company's
current directors for election. All nominees have consented to be named and have
indicated their intent to serve, if elected. The Company has 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, Dudchik, Blumberg and
McLaughlin.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE FOLLOWING FOUR 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:
Director
Director(1) Age Since Position
- -------------------- --- ----- ----------------------------------
Robert F. Gruder 41 1989 Chief Executive Officer, President and
Chairman of the Board
Thomas J. Dudchik 40 1996 Senior Vice President and Director
Richard J. Blumberg 64 1999 Director
James H. McLaughlin 46 1999 Director
(1) On August 17, 1999 Mr. Jay P. Gilbertson joined the Board of Directors. Mr.
Gilbertson has indicated that he will not seek election and has resigned
from the Board of Directors. On February 18, 2000, Mr. Frank G. Milligan
retired and resigned from all positions with the Company, including as a
Director of the Company. At this time, there are no plans to fill the
Director's positions vacated by Mr. Milligan or Mr. Gilbertson.
DIRECTOR NOMINEES
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
(See "Certain Relationships and Related Transactions"). 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.
THOMAS J. DUDCHIK joined the Company as Senior Vice President in
February 1996. He is responsible for all 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 is a practicing attorney in New York, New York and
for the last six years has been a member of the firm of McLaughlin & Stern, LLP.
The McLaughlin & Stern law firm has acted as a counsel to the Company for the
last three
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years. For nine years, Mr. Blumberg served with the Securities and Exchange
Commission both in New York, New York, and Miami, Florida. Mr. Blumberg received
a bachelor of law degree from New York University School of Law.
JAMES H. 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, Mr. McLaughlin was a Financial Advisor in the Private
Client Group at Sanford C. Bernstein & Co., Inc. in New York, New York from 1993
to 1995. From 1991 to 1993 he was a Vice President in institutional trust sales
at Society National Bank of Cleveland. Mr. McLaughlin received his BA's degree
from Lafayette College and his Master's degree in Public Administration from
Harvard University's Kennedy School of Government.
OTHER EXECUTIVE OFFICERS
Following are the persons who are the executive officers of the
Company, their age, their current title and their positions held during the last
five years:
LEON SHKLAR, 43, began as the Company's Vice President of Advanced
Technologies in February of 1999. Dr. Shklar is the developer of the patented
Metaphoria technology. Prior to beginning work with the Company, Dr. Shklar was
the Director of Research & Development with Pencom Web Works, a subsidiary of
Pencom Systems, Inc. from 1996. Dr. Shklar was awarded a Ph.D. in Computer
Science from Rutgers University, New Brunswick in 1996. Prior to his graduation,
he worked as a research scientist at Bell Communications Research, Morristown,
New Jersey. In parallel to his job at the Company, he is a part-time lecturer at
Rutgers University. He has presented tutorials and chaired workshops on Web
Access to Legacy Data, Data Modeling, and Web Engineering at international World
Wide Web Conferences. For the past three years, Dr. Shklar has been a
representative on the Advisory Committee of the World Wide Web Consortium (W3C)
and was actively involved in developing the RDF standard.
J. WAYNE THOMAS, 47, began as the Company's Chief Financial Officer in
May 1999. Prior to that time, 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.
THOMAS D. MORRIS, 58, joined the Company in August 1997 as Director of
Development and in May 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 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 in Nuclear
Physics from the University of Tennessee and a BS in Physics from Marshall
University.
J. DAIN DULANEY, JR., 37, joined the Company in July 1997 as the
Company's General Counsel and was appointed Secretary in April of 1999. Prior to
joining the Company, Mr. Dulaney was Assistant General Counsel with HBO &
Company from 1995 to July 1997. 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. He is a member of the American Corporate
Counsel Association and the North Carolina State Bar.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. The Board of
Directors held ten (10) meetings during the calendar year 1999, acted by
unanimous written consent five (5) times during the year and also met
informally. The Company has a standing Audit Committee and Compensation
Committee of its Board of Directors. The Company has no other standing
Committees. During 1999, except as set forth below, no member of the
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<PAGE> 7
Board attended fewer than seventy-five percent (75%) of the total number of
Board or Committee meetings convened by the Board of Directors after being
appointed. Mr. McLaughlin attended seventy one percent (71%) or 5 out of 7 of
the Board Meetings, all Audit Committee and Compensation Committee meetings
convened by the Board of Directors after being appointed and acted in all
unanimous written consents.
Audit Committee. Messrs. Blumberg and McLaughlin are independent
directors and currently serve on the Audit Committee. 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. The Audit Committee met two (2) times, and from time
to time had informal discussions during the fiscal year ended December 31, 1999.
Compensation Committee. Messrs. Blumberg and McLaughlin are independent
directors and currently serve on the Compensation Committee. The Compensation
Committee is charged with the review of officers' compensation, bonuses and the
granting of stock options. The Compensation Committee met once and from time to
time had informal discussions, during the fiscal year ended December 31, 1999.
The Company's outside directors are given the option to receive an
award of 15,000 warrants each. The warrants vest 5000 per year over a three-year
period from the date they commence serving on the Board, at the fair market
price of the Company's 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.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent stockholders are required by
regulation of the Securities and Exchange Commission to furnish the Company with
copies of all Section 16(a) forms which they file. Based solely on its review of
the copies of such forms furnished to the Company during the fiscal year ended
December 31, 1999, the Company is aware of the following untimely filings:
Mr. Richard J. Blumberg acquired warrants to purchase up to 15,000 shares of the
Company's common stock on December 1, 1999, which were reported on a Form 4
filed on April 7, 2000.
Mr. Gruder had shares of the Company's common stock sold pursuant to margin
calls in June of 1999, which had the corrected prices reported on a Form 4 filed
on September 10, 1999. Mr. Gruder also acquired options to purchase up to
700,000 shares of the Company's common stock on November 1, 1999 which have not
yet been reported on a filed Form 4.
The Company believes that all other transactions required to be reported under
Section 16(a) of the Securities Exchange Act were reported in a timely manner on
reports filed by the affected individuals.
EXECUTIVE COMPENSATION
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 stock
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.
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<PAGE> 8
Executive Compensation Program. The Company's compensation program
consists of base salary and long-term incentives, generally in the form of
options to 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. 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. As the Company has grown it
has sought to retain and attract key executives through the grant of stock
options. Under the 1994 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 the Company's Common
Stock. 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 F. Gruder served as
Chief Executive Officer in 1999. Mr. Gruder's base salary, although raised for
the calendar year 1999, remains 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 1999, Mr. Gruder
received an additional award of options. The Compensation Committee considered
the time and efforts Mr. Gruder had expended in raising capital for the Company
and promoting the Company's new strategic direction and believed that a grant of
these options to Mr. Gruder to reward him for his extraordinary efforts and to
induce him to remain with the Company were appropriate. As the Company emerges
from a growth company, 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.
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.
COMPENSATION
The following tables set forth information with respect to compensation
paid by the Company for the services during the three years ended December 31,
1999 of the Company's Chief Executive Officer, Chief Financial Officer and Vice
President of Advanced Technologies. No other officer receives compensation in
excess of $100,000.
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Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Securities All
Annual Stock Underlying LTIP Other
Compen- Awarded Options/ Payouts Compen-
Name and Principal Position Year Salary($) Bonus($) sation($) ($) SARs(#) ($) sation($)
- --------------------------- ---- --------- -------- --------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROBERT F. GRUDER 1999 125,000 -0- -0- -0- 700,000(1) -0- -0-
Chief Executive Officer
1998 70,000 -0- -0- -0- 2,000(1) -0- -0-
1997 60,000 -0- -0- -0- -0- -0- -0-
J. WAYNE THOMAS 1999 84,145 58,000 -0- -0- 100,225 -0- -0-
Chief Financial Officer
LEON SHKLAR 1999 111,000 58,000 -0- -0- 150,275 -0- -0-
Director of Research and Dev.
</TABLE>
(1) Mr. Gruder was granted 2,000 incentive stock options under the 1994
Omnibus Stock Plan on April 24, 1997 and these options were repriced on October
28, 1998 and vested on October 8, 1999. On November 1, 1999 Mr. Gruder was
granted 700,000 options to purchase shares of the Company's common stock at an
exercise price of $1.31, vesting on May 1, 2000.
The senior executive officers do not currently receive any other
personal benefits. The Company offers health insurance to all of its employees.
The Company also has a 401(k) program, but during the year 1999, made no
contributions.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- ----------------- -----------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ------------ --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Gruder 700,000(1) 42.0 1.31 11/1/09 576,696 1,461,462
J. Wayne Thomas(2) 32,000 1.9 4.13 05/3/99 83,115 210,629
68,000 4.1 1.19 11/1/09 50,890 128,966
Leon Shklar(3) 40,000 2.4 2.03 8/03/09 51,066 129,412
20,000 1.4 2.31 8/20/09 29,055 73,631
90,000 5.4 1.19 11/1/09 67,355 170,690
</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 vest on May 1, 2000
and expire on November 1, 2004.
(2) Mr. Thomas also received 225 options pursuant to an award plan under which
all employees of the Company, except Mr. Gruder, were granted 25 shares per
month, at an exercise price established at fair market value as of the 15th of
each month, vesting one year from the date of grant and terminating 10 years
from the date of grant. The exercise prices ranges from $1.5625 to $7.0625. The
Board of Directors terminated this award plan effective as of the end of January
2000.
(3) Dr. Shklar also received 275 options pursuant to an award plan under which
all employees of the Company, except Mr. Gruder, were granted 25 shares per
month, at an exercise price established at fair market value as of the 15th of
each month, vesting one year from the date of grant and terminating 10 years
from the date of grant. The exercise prices ranges from $1.5625 to $8.25. The
Board of Directors terminated this award plan effective as of the end of January
2000.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of March 30, 2000 by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's officers and directors and
(iii) all of the aforementioned as a group:
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------------------------------------------------------------------
Robert F. Gruder 6,706,515 23%
Thomas J. Dudchik 223,776 *
Richard J. Blumberg (Director) 15,000 *
James H. McLaughlin (Director) 15,000 *
Leon Shklar 150,275 *
J. Wayne Thomas 100,225 *
Thomas Morris 37,715 *
J. Dain Dulaney, Jr. 66,625 *
Archery Capital LLC(1) 1,639,344 5.6%
TOTALS 8,954,475 30.7%
------------------------------
(1) The following funds are also beneficial owners of the Company's common stock
with Archery Capital, LLC, Pharos Fund Limited, Lighthouse Partners USA, LP and
Lighthouse Investment Fund, LP as listed in the Schedule 13-G filed with the
Securities and Exchange Commission on January 7, 2000. The address of these
funds is listed as c/o Archery Capital, LLC, 237 Park Avenue, Suite 900, New
York, New York 10017.
*Represents less than 1% of the Company's outstanding shares of Common Stock.
EMPLOYMENT CONTRACTS
Officers serve at the discretion of the Board of Directors subject to
any contracts of employment. At the present time there are no contracts of
employment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is a lawsuit pending against the Company, the Company's Chief
Executive Officer, Robert F. Gruder ("Mr. Gruder") and Thomas J. Dudchik, the
Company's Senior Vice President and Director in Connecticut Superior Court,
Judicial District of Fairfield at Bridgeport, Docket No. CV96-0334308-S entitled
Kaplan, et al v. Gruder, et al. (the "Civil Action") and a related bankruptcy
proceeding described below. Mr. Gruder and Mr. Dudchik were the incorporators of
a Connecticut corporation named GEM Technologies, Inc. ("GEM"). The Civil Action
involves claims by plaintiffs who had notes (the "Notes"), convertible into an
8.72% undiluted interest in GEM. GEM filed a Chapter 7 bankruptcy petition. The
plaintiffs claimed that (a) they were fraudulently induced to invest in GEM, (b)
GEM wrongfully transferred assets to a predecessor corporation of the Company
and (c) they were entitled to damages equal to an 8.72% interest in GEM, and as
such, in the Company. The case has been tried, and the Court issued a Memorandum
of Decision, dated May 19, 1999, ruling that the Company was unrelated to GEM,
and ruling against Mr. Gruder on two counts. Plaintiffs in the Civil Action were
awarded a judgement of $175,000, plus interest and attorney's fees against Mr.
Gruder on these claims. A hearing has been held on the issue of attorneys' fees,
but no decision has been issued. The same persons comprising the plaintiffs in
the Civil Action and the Chapter 7 trustee filed a motion to open GEM's Chapter
7 bankruptcy case. The plaintiffs are claiming that the bankruptcy trustee has
the right to recover from Mr. Gruder shares of the Company's common stock to
satisfy claims in the GEM bankruptcy case. The Company is not a party to the GEM
bankruptcy case. The plaintiff group has expressed its intention to attempt to
recover, through the bankruptcy proceeding, the 8.72% interest in the Company
that the court declined to award in the Civil Action. If the bankruptcy court
reopens the GEM bankruptcy case, it is expected that litigation will ensue
concerning the validity of this claim. Mr. Gruder has agreed to indemnify and
hold the Company harmless in the event of a judgement against the Company. In
exchange, the Company has agreed to bear all costs of the Civil Action and the
GEM bankruptcy case for Mr. Gruder and the Company. As of December 31, 1999, the
Company paid defense costs of $41,679 on Mr. Gruder's behalf.
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<PAGE> 11
Mr. Gruder is a limited partner in the partnership group Two Morrocroft
Centre, LLC, which owns the Company's headquarters building located at Two
Morrocroft Centre, 4064 Colony Road, Charlotte, North Carolina. In June 1998,
the Company entered into a lease with the partnership and began paying annual
rent in May 1999. At this time the annual rent is approximately $1,500,000. 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.
Mr. Robert F. Gruder, Chairman and Chief Executive Officer had made
advances to the Company from time to time to assist the Company in the Company's
working capital requirements with annual interest at 10.5% per year. The loan
was evidenced by a promissory note payable on demand and as of December 1, 1999
the outstanding balance of the loan was $2,045,482.16. On December 31, 1999 Mr.
Gruder forgave all outstanding principle and interest on the loan.
On December 31, 1998, Mr. Hollis Scott, a former Director and the
former Chief Financial Officer of the Company, owed the Company $320,750,
representing the unpaid exercise price of certain stock options exercised by Mr.
Scott during 1998. Mr. Scott and the Company agreed to a settlement on the
outstanding balance and principal of the loan, which Mr. Scott repaid on June
21, 1999.
COMPANY PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Common Stock of the Company from January 1, 1999 to December 31, 1999, 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 on June 2, 1997 (when the Company first started
trading) in the Company's Common Stock and in each of the indices 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 GRAPH]
11
<PAGE> 12
<TABLE>
<CAPTION>
INDEXED RETURNS
BASE YEARS ENDING
PERIOD
COMPANY / INDEX 2JUN97 DEC97 DEC98 DEC99
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INFORMATION ARCHITECTS CORP./ALYDAAR SOFTWARE CORP. 100 143.18 75.00 93.18
NASDAQ 100 112.50 158.53 286.41
NASDAQ COMPUTER & DATA PROCESS 100 104.62 186.78 394.78
</TABLE>
An IPO price of $11.00 was used to calculate the return for Information
Architects Corporation/Alydaar Software Corporation. The price was supplied by
the Company. A price of $15.75 was used for the Dec 31, 1997 calculation and was
provided by the Company.
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings made by the Company under those statutes, the
Compensation Committee Report and Stock Performance Graph shall not be deemed
filed with the Securities and Exchange Commission and shall not be deemed
incorporated by reference into any of those prior filings or into any future
filings made by the Company under those statutes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 1
----------------------------
PROPOSAL NO. 2
APPROVAL OF THE ISSUANCE OF 1,000,000 SHARES OF THE COMPANY'S COMMON STOCK
THAT THE COMPANY IS REQUIRED TO ISSUE BY AGREEMENT
TO RETIRE THE OUTSTANDING PRINCIPAL AND INTEREST OF THE
JULY 30, 1999 6% CONVERTIBLE DEBENTURE ISSUED BY THE COMPANY
INTRODUCTION
On July 30, 1999, the Company issued $5 million in original principal
amount of its 6% convertible debentures (the "Convertible Debentures") to King
LLC ("King"). The Convertible Debentures are convertible into shares of the
Company's Common Stock at a conversion rate that fluctuates based on the current
price of the Company's Common Stock. In addition to the Convertible Debentures,
the Company also issued to King a common stock purchase warrant entitling King
to purchase 287,843 shares of Common Stock at an exercise price of $2.7035 per
share. The Company filed a registration statement covering the shares underlying
the warrants that became effective on February 11, 2000.
NASDAQ NATIONAL MARKET STOCKHOLDER APPROVAL REQUIREMENT
The Company's Common Stock is quoted on the NASDAQ National Market.
Because of that listing, the Company is contractually obligated to comply with
applicable rules of the NASDAQ Stock Market. NASDAQ Stock Market Rule 4460(i)(1)
requires the Company to obtain stockholder approval, prior to the issuance of
securities in connection with a transaction other than a public offering,
involving the sale or issuance by the issuer of common stock (or securities
convertible into or exercisable for common stock) at a price less than the
greater of book or market value of the stock, which together with sales by
officers, directors or substantial
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<PAGE> 13
stockholders of the company equals 20% or more of Common Stock or 20% or more of
the voting power outstanding before the issuance.
Given the structure of the conversion formula applicable to the
Convertible Debentures, there effectively is no limitation on the number of
shares of Common Stock into which the Convertible Debentures could be converted.
As the market price of the Common Stock decreases, the number of shares of
Common Stock convertible under the Convertible Debentures continues to increase.
In order to eliminate the requirement to obtain stockholder approval for the
issuance of the Convertible Debentures at the time the Convertible Debentures
were issued, the terms of the Convertible Debentures placed a cap on the number
of shares that can be issued upon conversion, such that the holders of the
Convertible Debentures cannot, without prior stockholder approval, convert the
security into more than 19.999% of the Company's Common Stock outstanding as of
July 30, 1999.
As of July 30, 1999, the Company had 19,393,809 shares of common stock
outstanding, and under the terms of the Convertible Debentures, the number of
shares issuable under the cap equals 3,878,567 shares. As of December 1, 1999,
the Company had issued 3,878,567 shares to King upon conversion of the
Convertible Debentures. The Company has received conversion requests, which
would result in issuances of Common Stock in excess of the 19.99% limitation.
Thus, under the terms of the Convertible Debentures, the Company is unable to
issue additional shares upon conversion unless stockholder approval is obtained.
Pursuant to a letter agreement, the Company and King have agreed that,
upon the Company receiving approval from its stockholders to issue additional
shares of Common Stock to King, the Company shall issue 1,000,000 shares of its
Common Stock in full satisfaction of all outstanding principal and interest due
to King from the Company under the Convertible Debenture and that, upon the
Company issuing such shares, the Convertible Debenture shall automatically
terminate. In addition, the Company is subject to a Registration Rights
Agreement signed between King and the Company on July 30, 1999, which will
require the Company to file a registration statement covering such 1,000,000
shares and the Company will be required to seek effectiveness of the
registration statement if the matter is approved by stockholders. In addition,
the conversion of the Convertible Debentures issued by the Company will result
in dilution to the equity interests of other holders of the Common Stock.
Specifically, the issuance of the additional Common Stock will result in a
decrease of the relative voting control of the Common Stock issued and
outstanding prior to the conversion of the Convertible Debentures and public
resales of Common Stock following the conversion of the Convertible Debentures
may depress the prevailing market price of the Common Stock. Even prior to the
time of actual conversions and public resales, the market "overhang" resulting
from the mere existence of the Company's obligation to honor such conversions
and exercises could depress the market price of the Common Stock.
Robert F. Gruder, the Chief Executive Officer, President and Chairman
of the Board of Directors of the Company, and the beneficial owner of Common
Stock constituting approximately 23% of the total issued and outstanding Common
Stock as of the date of this Proxy Statement, has covenanted with the holders of
the Convertible Debentures that he would vote all of the shares of Common Stock
he owns to approve the issuance of shares over the 20% threshold. Approval by a
majority of the votes present and entitled to vote at this Meeting will be
required to approve the proposal. If such stockholder approval is not obtained,
the Convertible Debentures, and the documents executed by the Company in
connection with the Convertible Debentures, will not be voided or voidable, but
will remain legal obligations of the Company. Consequently, if the Company's
stockholders do not, by the requisite vote, approve this Proposal No. 2, the
Company will face the choice of either defaulting on its contractual covenants
with King, giving rise to claims for money damages for breach of contract, or
violating the applicable NASDAQ Stock Market rule, which could result in a
delisting of the Common Stock from the NASDAQ National Market.
The Company's Board of Directors has determined that the additional
shares to be issued to King to retire all principle and interest under the
Convertible Debentures furthers the best interests of the Company because the
capital raised by the Convertible Debenture provided necessary operating capital
during the third and fourth quarters of 1999 and because it will lead to the
retirement of a substantial amount of the debt remaining on the Company's
financial statements. The Board of Directors therefore approved such
transaction. The Company's Board of Directors now solicits your proxy to be
voted to approve the issuance of 1,000,000 shares of the Company's Common Stock
to retire the outstanding principal and interest of the Convertible Debentures
by approving this Proposal No. 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL NO. 2
----------------------------
PROPOSAL NO. 3
13
<PAGE> 14
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to approval by the stockholders, the Board of Directors, upon
recommendation of the Audit Committee 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, 2000.
Holtz Rubenstein & Co. LLP also served as the Company's auditors for the fiscal
years ended December 31, 1997, 1998, and 1999. 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 A VOTE "FOR" PROPOSAL NO. 3
----------------------------
PROPOSALS OF STOCKHOLDERS
Stockholders of the Company who intend to present a proposal for action
at the 2001 Annual Meeting of Stockholders 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, 2000, for such proposal to
be included in the Company's proxy statement and form of proxy relating to such
meeting. Any shareholder proposal submitted after October 1, 2000 will be
considered untimely.
ANNUAL REPORT TO STOCKHOLDERS AND INCORPORATION BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December
31, 1999, as filed with the Securities and Exchange Commission, is being
delivered with this Proxy Statement to the Company's stockholders and is
incorporated by reference into this Proxy Statement.
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
14
<PAGE> 15
EXHIBIT A
LETTER AGREEMENT REGARDING SHARES ISSUABLE TO KING LLC
April 11, 2000
King, LLC
c/o Krieger & Krieger
319 Fifth Avenue
New York, New York 10016
Re: SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT") DATED AS OF
JULY 30, 1999 BY AND BETWEEN INFORMATION ARCHITECTS CORPORATION (THE
"COMPANY") AND KING, LLC ("KING")
Gentlemen:
Pursuant to the terms of the Purchase Agreement, on July 30, 1999, King
purchased $5 million of the Company's 6% convertible debentures under the terms
of the Debenture (the "DEBENTURE"). The terms of the Debenture placed a cap on
the number of shares of the Company's Common Stock, par value $.001 per share
("Shares") that can be issued upon conversion, such that King cannot, without
prior stockholder approval, convert the security into more than 19.999% of the
Company's Common Stock outstanding as of July 30, 1999. As of July 30, 1999, the
Company had 19,393,809 Shares of common stock outstanding, and under the terms
of the Debenture, the number of Shares issuable under the cap equals 3,878,567
Shares. As of December 1, 1999, the Company had issued 3,878,567 Shares to King
upon conversion of the Debenture, which number of Shares failed to retire the
outstanding principal amount of the Debenture. Thus, under the terms of the
Debenture, the Company was unable to issue additional Shares to King to retire
the outstanding principal and interest under the Debenture unless stockholder
approval is obtained. The Company and King are in dispute as to the conversion
prices for and the number of Shares that would be issuable by the Company to
retire the outstanding principal and interest under the Debenture ("DISPUTE").
For and in consideration of the undertakings of the parties and the mutual
covenants and agreement set forth in this letter, and for other good and
valuable consideration, receipt and sufficiency of which are hereby
acknowledged:
1. The Company and King agree that, upon the Company receiving approval from its
stockholders to issue additional shares to King, the Company shall issue
1,000,000 Shares in full satisfaction of all outstanding principal and interest
due to King from the Company under the Debenture and that upon the Company
issuing such Shares the Debenture shall automatically terminate.
15
<PAGE> 16
King LLC
April 11, 2000
Page 2
2. Each party hereby releases, forever discharges and acquits the Releasees (as
defined below) and all other persons, partnerships, firms, or corporations
charged or chargeable with the responsibility or liability from the Dispute and
any obligations under the Debenture, including but not limited to any and all
claims which have been asserted or could have been asserted with respect to the
Dispute and any obligations under the Debenture forever from any and all past,
present and future manner of actions, losses, expenses, judgements, causes of
action, claims, debts, accounts, damages and demands of every kind and nature,
past, present and future, known, unknown, asserted or unasserted, relating to or
which might hereafter result from the Dispute. Each party agrees that this
release applies to the other party, its predecessors, successors, assigns,
parent entities (direct or indirect), subsidiaries, affiliates, stockholders,
accountants, legal representatives, financial advisors, officers, directors,
agents and employees, past, present and future and their legal heirs and
representatives (individually and collectively referred to as "Releasee(s)").
Each party also agrees not to institute administrative proceedings or a lawsuit
against the other party's Releasees in regard to any actions, claims, debts,
accounts, demands, causes of action, damages, losses, expenses or judgments
arising from the Dispute and any obligations under the Debenture, provided
however nothing contained herein shall vitiate the Company's obligations under
its Registration Rights Agreement with King.
3. It is expressly understood, acknowledged and agreed that by reason of
entering into this Letter Agreement, the parties do not admit any fact or
liability of any type or nature with respect to any matter, whether or not
referred to herein regarding the Agreements. This Letter Agreement is entered
into by way of compromise and settlement to avoid the expense of litigation or
arbitration.
4. This Letter Agreement contains the entire agreement and understanding
concerning the Dispute between the parties and supersedes and replaces all prior
negotiations, proposed agreements, written or oral. The parties acknowledge that
neither they nor any agent or attorney has made any promise, representation, or
warranty whatever, express, implied, or statutory, not contained herein
concerning the subject matter hereof. In addition, this Letter Agreement may not
be modified unless agreed to in writing by authorized representatives of each
party.
Please evidence your agreement to the terms set forth above by signing
this letter in the space provided below, and returning one executed copy to the
Company for the Company's files.
Very truly yours,
INFORMATION ARCHITECTS CORPORATION
By: \s\ Robert F. Gruder
--------------------
Accepted and Agreed to this
17th day of April, 2000
KING, LLC
By: \s\ Elton Wheeler
Navigator Management LTD
Director
16
<PAGE> 17
INFORMATION ARCHITECTS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
May 26, 2000 2:00 p.m.
The undersigned hereby appoints Robert F. Gruder and Thomas G. Dudchik,
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 Information Architects Corporation which the undersigned is entitled to vote
at the Annual Meeting of Stockholders to be held on May 26, 2000 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 [ ] Thomas J. Dudchik [ ]
Richard J. Blumberg [ ] James H. McLaughlin [ ]
2. PROPOSAL TO APPROVE THE ISSUANCE OF 1,000,000 SHARES OF THE
COMPANY'S COMMON STOCK THAT THE COMPANY IS REQUIRED TO ISSUE
BY AGREEMENT TO RETIRE THE OUTSTANDING PRINCIPAL AND INTEREST
OF THE JULY 30, 1999 6% CONVERTIBLE DEBENTURE ISSUED BY THE
COMPANY.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO RATIFY APPOINTMENT OF HOLTZ RUBENSTEIN & CO., LLP,
AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE
YEAR ENDING DECEMBER 31, 2000.
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.)
17
<PAGE> 18
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED TO ELECT MESSRS. GRUDER, DUDCHIK, MCLAUGHLIN AND BLUMBERG AS
DIRECTORS (PROPOSAL NO. 1); TO APPROVE THE ISSUANCE OF 1,000,000 SHARES OF THE
COMPANY'S COMMON STOCK THAT THE COMPANY IS REQUIRED TO ISSUE BY AGREEMENT TO
RETIRE THE OUTSTANDING PRINCIPAL AND INTEREST OF THE JULY 30, 1999 6%
CONVERTIBLE DEBENTURE ISSUED BY THE COMPANY (PROPOSAL NO. 2); AND TO RATIFY THE
APPOINTMENT OF COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31,
2000 (PROPOSAL NO. 3).
-------------------------------------------------
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.
18
