SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VERSATILITY INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[Versatility Inc. Logo]
11781 Lee Jackson Memorial Highway
Fairfax, Virginia 22033
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------------------------------
To the Stockholders of Versatility Inc.:
The Annual Meeting of Stockholders of Versatility Inc. (the "Corporation"),
a Delaware corporation, will be held on Tuesday, August 26, 1997, at 10:00 a.m.,
local time, at the Holiday Inn Fair Oaks located at 11787 Lee Jackson Memorial
Highway, Fairfax, Virginia 22033, for the following purposes:
1. To elect two Class I directors to serve on the Board of Directors for a
three-year term or until their successors are elected and qualified.
2. To ratify the selection of the firm of Deloitte & Touche LLP as
independent auditors for the fiscal year ending April 30, 1998.
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on June 30, 1997, are
entitled to notice of and to vote at the Annual Meeting and at any adjournments
or postponements thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
stockholder attending the Annual Meeting may vote in person even if such
stockholder has returned a proxy.
By Order of the Board of Directors
/s/ Marcus W. Heth
---------------------------
Marcus W. Heth
SECRETARY
Fairfax, Virginia
July 28, 1997
<PAGE>
VERSATILITY INC.
11781 Lee Jackson Memorial Highway
Seventh Floor
Fairfax, Virginia 22033
---------------
PROXY STATEMENT
JULY 28, 1997
---------------
Proxies in the form enclosed with this proxy statement are solicited by the
Board of Directors (the "Board") of Versatility Inc., a Delaware corporation
(the "Corporation"), for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 10:00 a.m., local time, on Tuesday, August 26, 1997, and
any adjournments or postponements thereof, at the Holiday Inn Fair Oaks, 11787
Lee Jackson Memorial Highway, Fairfax, Virginia 22033.
Only stockholders of record at the close of business on June 30, 1997 (the
"Record Date") will be entitled to receive notice of and to vote at the Annual
Meeting and any adjournments or postponements thereof. As of that date,
7,324,321 shares of common stock, $.01 par value per share (the "Common Stock"),
of the Corporation were issued and outstanding. The holders of Common Stock are
entitled to one vote per share on any proposal presented at the Annual Meeting.
Stockholders may vote in person or by proxy. Execution of a proxy will not in
any way affect a stockholder's right to attend the Annual Meeting and vote in
person. Any proxy may be revoked by a stockholder at any time before its
exercise by: (i) notifying the Secretary of the Corporation in writing at the
above address; (ii) delivering a duly executed proxy bearing a later date; or
(iii) attending the Annual Meeting and voting in person.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum for the transaction of business. Votes withheld
from any nominee for director, abstentions and broker "non-votes" are counted as
present or represented for purposes of determining the presence or absence of a
quorum for the Annual Meeting. A "non-vote" occurs when a broker or other
nominee holding shares for a beneficial owner votes on one proposal, but does
not vote on another proposal because, in respect of such other proposal, the
broker does not have discretionary voting power and has not received
instructions from the beneficial owner.
Directors are elected by a plurality of the votes cast, in person or by
proxy, at the Annual Meeting. The two nominees for director receiving the
highest number of affirmative votes of the shares present or represented and
voting on the election of directors at the meeting shall be elected as Class I
Directors. On all other matters being submitted to stockholders, an affirmative
vote of a majority of the shares present or represented and voting on each such
matter is required for approval. An automated system administered by the
Corporation's transfer agent tabulates the votes. The vote on each matter
submitted to stockholders is tabulated separately. Abstentions are included in
the number of shares present or represented and voting on each matter. Broker
"non-votes" are not so included.
The persons named as attorneys-in-fact in the proxies are officers and/or
directors of the Corporation. All properly executed proxies returned in time to
be counted at the Annual Meeting will be voted. In addition to the election of
directors, the stockholders will consider and vote upon a proposal to ratify the
selection of auditors. Where a choice has been specified on the proxy with
respect to the foregoing matters, the shares represented by the proxy will be
voted in as specified. Where no choice is specified, the proxy will be voted FOR
the applicable proposal.
The Board knows of no other matter to be presented at the Annual Meeting.
If any other matter should be presented at the Annual Meeting upon which a vote
properly may be taken, shares represented by all proxies received by the Board
will be voted with respect thereto in accordance with the judgment of the
persons named as attorneys in the proxies.
The Corporation's Annual Report on Form 10-K is being mailed together with
this proxy statement to all stockholders entitled to vote. This proxy statement
and the form of proxy were first mailed to stockholders on or about July 28,
1997.
MANAGEMENT AND PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of the Record Date: (i) the name of each
person who, to the knowledge of the Corporation, owned beneficially more than 5%
of the Common Stock of the Corporation outstanding at such date; (ii) the name
of each director or nominee; (iii) the name of each executive officer identified
in the Summary Compensation Table set forth below under "Compensation and Other
Information Concerning Directors and Officers;" and (iv) the number of shares
1
<PAGE>
owned by each of such persons and all officers, directors and nominees as a
group and the percentage of the outstanding shares represented thereby.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
NATURE OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ------------------------------------ ------------ --------
<S> <C>
Edison Venture Fund III, L.P.......................................................................... 501,957 6.9%
997 Lenox Drive, #3
Lawrenceville, NJ 08648
Noro-Moseley Partners III, L.P........................................................................ 376,468 5.1%
4200 North Side Parkway, NW, Building 9
Atlanta, GA 30327
Keith D. Roberts...................................................................................... 1,000,000 13.7%
Ronald R. Charnock.................................................................................... 1,360,000 18.6%
Donald C. Yount(3).................................................................................... 14,439 *
Marcus W. Heth........................................................................................ 1,000,000 13.7%
Thomas A. Smith(4).................................................................................... 501,957 6.9%
Charles A. Johnson(5)................................................................................. 376,468 5.1%
Paul J. Palmer(6)..................................................................................... 8,750 *
Stephen P. Winings(7)................................................................................. 11,820 *
James R. Walker(8).................................................................................... 5,000 *
All officers, directors and nominees as a group (eight persons) (3)(4)(5)(6)(7)(8).................... 3,278,434 44.8%
</TABLE>
- ----------
* Less than 1%
(1) Except as otherwise noted, each person or entity named in the table has sole
voting and investment power with respect to the shares. The inclusion herein
of any shares of Common Stock deemed beneficially owned does not constitute
an admission of beneficial ownership of those shares.
(2) Applicable percentage of ownership as of the Record Date is based upon
7,324,321 shares of Common Stock outstanding on such date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the "Commission"), and includes voting and investment
power with respect to shares. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of the Record Date are
deemed outstanding for computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing the
percentage of any other person.
(3) Consists of 14,439 shares issuable pursuant to stock options which are
exercisable within 60 days of June 30, 1997.
(4) Consists of 501,957 shares of Common Stock held by Edison Venture Fund III,
L.P. of which Mr. Smith is a general partner. Mr. Smith may be deemed to
share voting and investment power with respect to these shares. Mr. Smith
disclaims beneficial ownership of such shares.
(5) Consists of 376,468 shares of Common Stock held by Noro-Moseley Partners
III, L.P. of which Mr. Johnson is a general partner. Mr. Johnson may be
deemed to share voting and investment power with respect to these shares.
Mr. Johnson disclaims beneficial ownership of such shares.
(6) Consists of 8,750 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days of June 30, 1997.
(7) Consists of 11,820 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of June 30, 1997.
(8) Consists of 5,000 shares of Common Stock issuable pursuant to outstanding
stock options exercisable within 60 days of June 30, 1997.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors (the "Board") consists of six members. The Board of
Directors is divided into three classes. Each director serves for a three-year
term. The Class I directors' term will expire at the Annual Meeting. All
directors will hold office until their successors have been duly elected and
qualified or until their earlier resignation or removal. Messrs. Marcus W. Heth
and Charles A. Johnson are the Class I directors; Messrs. Thomas A. Smith and
Paul J. Palmer are the Class II directors; and Messrs. Ronald R. Charnock and
James R. Walker are the Class III directors.
The Board has nominated and recommended that Messrs. Heth and Johnson, who
are currently members of the Board, be elected Class I directors, to hold office
until the 2000 Annual Meeting of Stockholders or until their successors have
been duly elected and qualified or until their earlier resignation or removal.
The Board knows of no reason why the nominees should be unable or unwilling to
serve, but if any nominee should for any reason be unable or unwilling to serve,
the proxies will be voted for the election of such other person for the office
of director as the Board may recommend in the place of such nominee. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for nominees named below.
2
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE NOMINEES LISTED BELOW.
The following table sets forth for the nominees to be elected at the Annual
Meeting and, for each director whose term of office will extend beyond the
Annual Meeting, the year such nominee or director was first elected a director,
the positions currently held by the nominees and each director with the
Corporation, the year the nominee's or director's term will expire and class of
director of each nominee and each director:
<TABLE>
<CAPTION>
NOMINEE'S OR DIRECTOR'S
NAME AND YEAR NOMINEE OR DIRECTOR POSITION(S) WITH YEAR TERM CLASS OF
FIRST BECAME A DIRECTOR THE CORPORATION WILL EXPIRE DIRECTOR
- ----------------------------------- ---------------- ----------- --------
<S> <C>
NOMINEES:
Charles A. Johnson Director 1997 I
1996
Marcus W. Heth Senior Vice President, 1997 I
1981 Technologies, Secretary
and Director
CONTINUING DIRECTORS:
Ronald R. Charnock President, Chief Executive 1999 III
1981 Officer and Chairman of
the Board of Directors
Thomas A. Smith Director 1998 II
1996
Paul J. Palmer Director 1998 II
1996
James R. Walker Director 1999 III
1997
</TABLE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the director nominees to be elected at the
Annual Meeting, the directors and the executive officers of the Corporation,
their ages, and the positions currently held by each such person with the
Corporation.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C>
Ronald R. Charnock 47 President, Chief Executive Officer and Chairman of the Board of
Directors
Marcus W. Heth 42 Senior Vice President, Technologies, Secretary and Director
Donald C. Yount 36 Senior Vice President, Finance and Chief Financial Officer
Stephen P. Winings 45 Senior Vice President, Sales
Thomas A. Smith(1)(2) 35 Director
Charles A. Johnson(1)(2) 48 Director
Paul J. Palmer(1) 65 Director
James R. Walker 52 Director
</TABLE>
- ----------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Except as set forth below, each nominee has been engaged in his principal
occupation described above during the past five years.
RONALD R. CHARNOCK has served as President, Chief Executive Officer and
Chairman of the Board of Directors since co-founding the Corporation in 1981.
From 1975 to the founding of the Corporation, Mr. Charnock was Director of the
Computer Services Division of the Republican National Committee. Mr. Charnock
was the founder in June 1990, and was the initial Chairman, serving until
October 1994, of the Alliance of Computer-Based Telephony Application Suppliers
of the
3
<PAGE>
North American Telecommunications Association. In October 1994, Mr. Charnock was
elected Vice Chairman of the Multimedia Telecommunications Association and
elected Chairman of that association in January 1996.
DONALD C. YOUNT, JR. has served as the Corporation's Chief Financial
Officer since July 1995. From March 1990 to July 1995, Mr. Yount held various
positions with K-III Communications Corporation ("K-III"), a diversified
communications company, most recently as Vice President and Chief Financial
Officer of one of K-III's operating companies, Films for the Humanities, Inc.
Prior to joining K-III, Mr. Yount was employed by the North America Corporate
Finance Group of the Chase Manhattan Bank, by Deloitte, Haskins and Sells as a
consultant and by Peat, Marwick and Co. as an auditor. Mr. Yount is a certified
public accountant.
MARCUS W. HETH co-founded the Corporation in 1981 and has served as a
director of the Corporation since that time and as Treasurer and Secretary since
January 1996. In May 1996, Mr. Heth became the Corporation's Senior Vice
President, Technologies. From October 1993 to May 1996, Mr. Heth was President
of NPRI Technologies, Inc., a wholly owned subsidiary of the Corporation. From
August 1991 to October 1993, Mr. Heth was the Corporation's Vice President of
Sales and Marketing. From May 1981 to August 1991, he was the Corporation's Vice
President, Business Operations. Prior to co-founding the Corporation in 1981,
Mr. Heth was employed by the Republican National Committee, as the Manager of
Software Development.
STEPHEN P. WININGS has served as the Corporation's Senior Vice President,
Sales since May 1997. Mr. Winings joined the Corporation in August 1996 as its
Senior Vice President, Marketing. From 1991 to August 1996, Mr. Winings held
various positons with Software AG of North America including Vice President,
Marketing. From 1989 to 1991, he was President and Chief Executive Officer,
Technology Division, for the Institute for International Research, an
information research company. From 1988 to 1989, Mr. Winings was Executive Vice
President, Corporate Development with CLC Corporation, a technology training
company. From 1987 to 1988, Mr. Winings was Division President of Prentice Hall
Information, a division of Paramount Communications. From 1986 to 1987, he was
Division President with Simon & Schuster, a division of Paramount
Communications.
THOMAS A. SMITH has been a director of the Corporation since January 1996.
Mr. Smith is a general partner of Edison Venture Fund III, L.P. ("Edison Venture
Fund"), and has been with Edison Venture Fund since 1990. Mr. Smith has directed
the Washington D.C. office of Edison Venture Fund since 1994. From 1986 to 1990,
Mr. Smith was a senior associate in the risk capital investment subsidiary of
The Chase Manhattan Corporation.
CHARLES A. JOHNSON has been a director of the Corporation since January
1996. Since 1993, Mr. Johnson has been a general partner of Noro-Moseley
Partners III, L.P., an Atlanta-based venture capital firm. From 1992 to 1993,
Mr. Johnson was an independent consultant. In 1983, Mr. Johnson co-founded Sales
Technologies, Inc., a startup software company, and served as its President and
Chief Executive Officer until Sales Technologies, Inc. was acquired by Dun and
Bradstreet in January 1989. Mr. Johnson continued in his role as Chief Executive
Officer of that division of Dun and Bradstreet until February 1992. Prior to
founding Sales Technologies, Inc., Mr. Johnson was a management consultant with
McKinsey & Company and held a number of sales and marketing positions with
Procter & Gamble.
PAUL J. PALMER has been a director of the Corporation since September 1996.
Since January 1994, Mr. Palmer has been an executive consultant specializing in
the software industry. From 1957 until his retirement in December 1993, Mr.
Palmer held various positions in marketing and development with IBM, most
recently as Vice President.
JAMES R. WALKER has been a director of the Corporation since May 1997.
Since April 1997, Mr. Walker has been the Chief Executive Officer of ACTEL, a
mobile satellite communications service provider in Africa. From 1993 until
1997, Mr. Walker was Corporate Officer of AT&T and Vice President-North America
Operations-Business Communications Systems (predecessor-in-interest to Lucent
Technologies, Inc.). Prior to 1993, Mr. Walker held the positions of Vice
President-Customer Service-AT&T General Business Systems and Vice
President-Sales and Customer Service of AT&T General Business Systems.
Executive officers of the Corporation are elected by the Board of Directors
on an annual basis and serve until their successors have been duly elected and
qualified.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met six times during the fiscal year ended April
30,1997. The Corporation established an Audit Committee and Compensation
Committee during fiscal 1997. The Audit Committee of the Board, of which Messrs.
Smith and Johnson are currently members, is responsible for reviewing the
results and scope of audits and other services provided
4
<PAGE>
by the Corporation's independent auditors. The Audit Committee met one time
during fiscal 1997. The Compensation Committee, whose members currently are
Messrs. Smith, Johnson and Palmer, makes recommendations concerning the salaries
and incentive compensation of executive officers, employees and consultants to
the Corporation and administers the Corporation's stock plans. The Compensation
Committee met one time during fiscal 1997. The Board currently has no standing
nominating committee, or committee performing a similar function.
No director attended fewer than 75% of the aggregate of (i) the total
number of meetings of the Board held during fiscal 1997 (during such period for
which such director was a director) and (ii) the total number of meetings held
by all committees of the Board during fiscal 1997 on which such director served.
COMPENSATION AND OTHER INFORMATION CONCERNING DIRECTORS AND OFFICERS
COMPENSATION OF DIRECTORS
During fiscal 1997, directors who are not employed by the Corporation
received a quarterly retainer of $1,500, a $750 stipend for each regular Board
meeting attended, a $250 stipend for any committee meetings attended, and the
reimbursement of certain expenses incurred in connection with attendance at
Board meetings. On September 30, 1996, in connection with his election to the
Board, Mr. Palmer was granted options to purchase 15,000 shares of Common Stock
at an exercise price of $10.50 per share. These options expire five years from
the date of grant with 5,000 shares vesting immediately and the remainder
vesting quarterly over two years. On May 22, 1997, in connection with his
election to the Board, Mr. Walker was granted options to purchase 15,000 shares
of Common Stock at an exercise price of $11.50 per share. The options expire
five years from the date of grant with 5,000 shares vesting immediately and the
remainder vesting quarterly over three years.
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth summary information concerning the
compensation paid or earned for services rendered to the Corporation in all
capacities during the fiscal year ended April 30, 1997 to (i) the Corporation's
Chief Executive Officer and (ii) each of the other most highly compensated
executive officers of the Corporation who received total annual salary and bonus
in excess of $100,000 in fiscal 1997 (the "Named Executive Officers"). The date
of the Corporation's initial public offering was December 12, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG-TERM
COMPENSATION(3)
---------------
SECURITIES ALL
ANNUAL COMPENSATION(4) UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION(2)
- --------------------------- ---- --------- ----------- --------------- ---------------
<S> <C>
Ronald R. Charnock................................ 1997 $150,804 $76,403 -- $750
Chairman, President, Chief Executive Officer and
Director
Marcus W. Heth.................................... 1997 $145,596 $76,602 -- --
Senior Vice President, Technologies and
Secretary
Donald C. Yount................................... 1997 $125,004 $28,428 26,400 --
Senior Vice President, Finance and Chief
Financial Officer
Stephen P. Winings................................ 1997 $105,770 $54,012 20,000 $500
Senior Vice President, Sales
</TABLE>
- ----------
(1) Includes bonuses earned with respect to services rendered in the fiscal year
indicated, whether or not such bonus was actually paid during such fiscal
year.
(2) Represents matching contributions made by the Corporation to the Named
Executive Officer under the Corporation's 401(k) plan.
(3) The Corporation did not make any restricted stock awards, grant any stock
appreciation rights or make any long-term incentive payments during fiscal
1997.
(4) Excludes certain perquisites and other personal benefits such as life
insurance premiums paid by the Corporation. These amounts, in the aggregate,
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus for such Named Executive Officer.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information concerning grants of
options to purchase the Corporation's Common Stock made during the fiscal year
ended April 30, 1997, to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF PERCENT OF GRANT DATE PRESENT
SECURITIES TOTAL OPTIONS VALUE(5)
UNDERLYING GRANTED TO EXERCISE OR ($)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR(4) ($/SHARE) DATE 5% 10%
- ---- ---------- -------------- ----------- ---------- -------- ---------
<S> <C>
Ronald R. Charnock....... -- -- -- -- -- --
Marcus W. Heth........... -- -- -- -- -- --
Donald C. Yount, Jr...... 4,040(1) .99% $ 0.80 1/16/01 $ 893 $ 1,973
1,964(2) .99% 0.80 4/30/01 434 959
20,000(3) 16.10% 10.50 9/30/06 58,019 128,207
Stephen P. Winings....... 20,000(3) 16.10% $10.50 9/30/06 $58,019 $128,207
</TABLE>
- ----------
(1) Options vested 100% on the date of grant. Options were granted at the fair
market value of the Corporation's Common Stock as determined by the
Corporation's Board on the date of grant.
(2) Options vest 20% on the date of grant with an additional 20% vesting
annually on the anniversary date of such grant. Options were granted at the
fair market value of the Corporation's Common Stock as determined by the
Corporation's Board of Directors on the date of grant.
(3) Each of these options was granted pursuant to the 1996 Stock Plan.
(4) Based on options to purchase an aggregate of 124,000 shares of Common Stock
granted to all employees of the Corporation in fiscal 1997, including the
Named Executive Officers.
(5) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the hypothetical gains or "option spreads" that
would exist for the respective options. These gains are based on assumed
rates of annual compounded stock price appreciation of 5% and 10% from the
date the option was granted over the full option term. The 5% and 10%
assumed rates of appreciation are mandated by the rules of the Commission
and do not represent the Corporation's estimate or projection of future
increases in the price of its Common Stock. There can be no assurance that
the actual stock price appreciation over the five-year option term will be
at the assumed 5% and 10% levels or at any other defined level.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table provides information as to options exercised in 1997 by
the Named Executive Officers, the value realized upon such exercises and the
value of options held by such officers at year-end based on the closing price of
the Corporation's Common Stock on April 30, 1997.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END AT YEAR-END
ACQUIRED ON VALUE ------------------------------ ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C>
Ronald R. Charnock...... -- -- -- -- -- --
Marcus W. Heth.......... -- -- -- -- -- --
Donald C. Yount, Jr. ... -- -- 8,826 17,178 99,292 193,253
Stephen P. Winings...... -- -- 4,000 16,000 45,000 180,000
</TABLE>
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
which is composed of three non-employee Directors, has primary responsibility
for all compensation actions, affecting the Corporation's executive officers,
including base salaries, incentive awards, stock option awards and the terms and
conditions of their employment. The Committee administers the 1996 Stock Plan.
COMPENSATION PHILOSOPHY
The Committee makes recommendations concerning appropriate executive
compensation and reports to the Board. Under the supervision, approval and
review of the Committee, the Corporation's compensation policies and programs
are designed to motivate, retain and attract management with incentives linked
to financial performance of the Corporation and
6
<PAGE>
the value that is delivered to its shareholders. Specifically, the Corporation's
policies and programs endeavor to: (i) link executive compensation to
sustainable increases in the financial performance of the Corporation and
preservation or realization of shareholder value; (ii) differentiate
compensation based upon individual contribution; (iv) promote teamwork among
executives and other Corporation employees; and (v) encourage the retention of a
sound management team. During each fiscal year, the Committee reviews and
recommends to the Board, with any modification it deems appropriate, base salary
levels for the Corporation's executive officers, including the Named Executive
Officers and certain other senior managers.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
CASH COMPENSATION (BASE SALARY AND INCENTIVE BONUS). The Corporation
manages the total cash compensation to provide median levels of cash
compensation at average levels of corporate, business unit, and individual
performance. Cash compensation consists of two components; (i) a base salary
that is competitive with that of other companies paying at the median level of
the market, and (ii) an incentive opportunity that is variable and is reflective
of the financial performance of the Corporation and the individual performance
of the executive officer. When high levels of performance are achieved, the
level of cash compensation may exceed the median of the market. Conversely, when
the Corporation, business unit, or the individual falls short of the
predetermined goals, the level of cash compensation may be substantially below
the market median. The objective of this mix is to deliver total cash
compensation competitive with compensation offered at other companies facing
similar challenges for similar positions, while simultaneously linking the
payment of the cash incentive to the achievement of specific objectives in the
Corporation's annual operating plan as approved by the Board. The performance
incentive, when awarded, is paid quarterly, semiannually and annually with
respect to the preceding fiscal period. The award and size of the performance
incentive are based upon; (i) the executive officer's performance against
individual goals; (ii) the performance of the executive officer's unit within
the Corporation against that unit's goals; and (iii) the performance of the
Corporation against Corporation goals. Goals vary from year to year and from
unit to unit and, with regard to individual goals of executive officers, usually
include both quantitative and qualitative factors.
STOCK OPTION GRANTS. The Committee believes that stock option grants serve
as a desirable long-term method of compensation because they closely ally the
interests of management with the preservation and enhancement and realization of
stockholder value and serve as an additional incentive to promote the success of
the Corporation. Stock options are generally granted when an executive joins the
Corporation, with additional stock options granted from time to time in
connection with promotions and performance. The initial options granted to an
executive vest over four years. The Committee believes that stock option
participation provides a method of retention and motivation for the senior level
executives of the Corporation and aligns senior management's objectives with
long-term stock price appreciation. Executives, together with other employees of
the Corporation, are also eligible to participate in the Corporation's 1996
Employee Stock Purchase Plan pursuant to which stock may be purchased at 85% of
the lower of the closing sale price for the Common Stock reported on the Nasdaq
National Market at the beginning or end of each six-month period (up to a
maximum stock value of $25,000 per calendar year or 10 percent of total
compensation, whichever is less). In fiscal 1997, the Committee approved the
grant of 40,000 stock options to the Corporation's executive officers and 84,000
stock options to other employees.
TOTAL COMPENSATION PROGRAM. The Committee believes that the total
compensation program for executives of the Corporation (cash compensation,
incentives and stock option grants) is on a level with the compensation programs
provided by other companies facing similar challenges. The Committee believes
that any amounts paid under the incentive plan will be appropriately related to
corporate and individual performance, yielding awards that are directly linked
to the annual financial and operational results of the Corporation within the
framework of the challenges faced. The Committee also believes that the 1996
Stock Plan provides opportunities to participants that are consistent with the
returns that are generated on behalf of the Corporation's shareholders.
COMPENSATION OF CEO
Ronald R. Charnock has served as the Chairman of the Board, President and
Chief Executive Officer since co-founding the Corporation in 1981. In fixing Mr.
Charnock's salary and target incentive levels, as well as determining the size
of stock options, if any, the Committee and the Board typically review the
strategic direction and financial performance of the Corporation, including
revenue and profit levels. In addition, the Committee reviews Mr. Charnock's
performance as the Chairman of the Board, President and Chief Executive Officer,
his importance to the Corporation and his success in implementing its goals both
through his leadership and strategic vision.
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Mr. Charnock's compensation package in fiscal 1997 consisted of the same
benefits program as other executive officers, as set forth above, including base
salary, cash incentive, stock options and other employee benefit programs. Mr.
Charnock received no material compensation or benefits in 1997 not provided to
all executive officers.
INTERNAL REVENUE CODE SECTION 162 (m)
The Committee has considered the potential impact of Section 162(m)
Internal Revenue Code of 1986, as amended, and the regulations thereunder (the
"Section"). The Section disallows a tax deduction for any publicly-traded
corporation for individual compensation which is in excess of $1,000,000 in any
taxable year for any of the executive officers, unless such compensation is
performance-based. Since the cash compensation of each executive officer is
below the $1,000,000 threshold and the Committee believes that any of the
options granted under the 1996 Stock Plan will meet the requirements of being
performance-based, the Committee believes that the Section will not reduce the
tax deduction available to the Corporation. The Corporation's policy is to
qualify, to the extent reasonable, its executive officers' compensation for
deductibility under applicable tax laws. However, the Committee believes that
its primary responsibility is to provide a compensation program that will
attract, retain and reward the executive talent necessary to the Corporation's
success. Consequently, the Committee recognizes that the loss of a tax deduction
could be necessary in some circumstances.
Other elements of executive compensation include participation in a
Corporation-wide life insurance program, including a long-term disability
insurance program. Executives are also eligible for Corporation-wide medical
benefits and participation in a 401(k) plan under which the Corporation
currently provides a percentage matching contribution.
Compensation Committee of the
Board of Directors
Thomas A. Smith
Charles A. Johnson
Paul J. Palmer
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to January 1996, the Corporation had no separate Compensation
Committee or other board committee performing equivalent functions, and these
functions were performed by the Corporation's Board. In January 1996, the
Corporation established a Compensation Committee which consisted of Messrs,
Smith and Johnson. In September 1996, the Board established a new Compensation
Committee which consists of Messrs, Smith, Johnson and Palmer, each of whom are
non-employee directors. See "Certain Relationships and Related Transactions" for
information regarding certain relationships and transactions between the
Corporation and certain members of the Board.
8
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STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
stockholder return on the Corporation's Common Stock since December 12, 1996
(the date the Corporation first became subject to reporting requirements and the
Securities and Exchange Act of 1934, as amended) through April 30, 1997, with
the cumulative total return for the Nasdaq Stock Market (U.S. Companies) Index
and the Nasdaq Computer and Data Processing Services Stock Index (the "Nasdaq
Computer Index"). The comparison assumes $100 was invested on December 12, 1996,
the date of the Corporation's initial public offering, in the Corporation's
Common Stock at the $15.00 initial offering price and in each of the foregoing
indices and assumes reinvestment of dividends, if any. To date, the Corporation
has paid no cash dividends on its Common Stock. Historical stock price
performance should not be relied upon as indicative of future stock price
performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
VERSATILITY INC., NASDAQ STOCK MARKET INDEX
AND NASDAQ COMPUTER INDEX(1)(2)
[Graph appears here--see plot points below]
NASDAQ COMPUTER
U.S. & DATA
VERSATILITY COMPANIES PROCESSING
----------- --------- -----------
Dec. 12, 1996 100 100 100
Jan. 31, 1997 88.333 106.263 106.272
Feb. 28, 1997 79.167 100.402 97.664
Mar. 31, 1997 65 93.865 90.456
Apr. 30, 1997 73.333 96.948 102.399
(1) Prior to December 12, 1996, the Corporation's Common Stock
was not publicly traded. Comparative data is provided only for
the period since that date. This chart is not "solicited
material", is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference in any
filings of the Corporation under the Securities Act of 1933, as
amended or the Securities Exchange Act of 1934, as amended,
whether made before or after the date hereof and irrespective of
any general incorporation language in any such filing.
(2) The stock price performance shown on the graph is not
necessarily indicative of future price performance. Information
used on this graph was obtained from the Nasdaq Stock Market and
the Nasdaq Stock Market and the Nasdaq Computer indices were
prepared for Nasdaq by the Center for Research in Security
Prices at the University of Chicago, a source believed to be
reliable, although the Corporation is not responsible for any
errors or omissions in such information.
9
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to October 31, 1996, the Corporation was the 1% general partner of
Serenity Real Properties Limited Partnership (the "Partnership") of which Mr.
Ronald R. Charnock, the Corporation's President and Chief Executive Officer, Mr.
Marcus W. Heth, the Corporation's Senior Vice President, Technologies, and Mr.
Keith D. Roberts, the Corporation's Director of Product Development, were the
limited partners holding the remaining 99% of the partnership interests (the
"Limited Partners"). The Partnership is the owner of an office building in
Alexandria, Virginia (the "Property"), which was the Corporation's headquarters
until October 1994 and which was leased by the Corporation under a lease
expiring in April 1997, and providing for monthly rental payments of $10,000. In
addition, the Corporation had guaranteed a mortgage loan made by a commercial
bank to the Partnership, which had an outstanding balance of $614,000 at
September 30, 1996. This loan was also guaranteed by each of the Limited
Partners and was secured by a mortgage on the Property.
On October 31, 1996, the Corporation sold its general partnership interest
in the Partnership, for consideration equal to its capital account of $3,131 to
Serenity L.L.C., whose members are the Limited Partners. In connection with the
sale of its general partnership interest in the Partnership, the Corporation
made to the Partnership a loan of $519,305 evidenced by a Deed of Trust Note
which bears interest at the prime rate and is payable upon the earliest of (i)
the sale of the Property, (ii) demand by the Corporation and each of its Limited
Partners and (iii) October 31, 1997. As of June 30, 1997, $519,305 remains
outstanding under this Deed of Trust Note. The Deed of Trust Note is secured by
a mortgage on the Property and is guaranteed by each of the Limited Partners.
The Partnership used the proceeds of this loan to repay its loan from the bank
and discharge its mortgage on the Property. In connection with these
transactions, the partnership agreed to the termination of its lease with
Corporation. The Corporation believes that these transactions were in the best
interest of the Corporation and its stockholders and that the consideration
received by it for its general partnership interest in the Partnership was not
less that the fair value of the interest.
The Corporation has extended loans to Mr. Charnock, with principal and
accrued interest totaling $113,045 at June 30, 1997. Such loans are evidenced by
a promissory note, are payable on the earliest of (i) demand and (ii) November
6, 1997, and bear interest at the prime rate.
Certain obligations under the Corporation's master equipment lease (the
"MEL") with its leasing agent, are personally guaranteed by Mr. Charnock. As of
June 30, 1997, $1,115,306 was outstanding under the MEL, of which $466,361 is
guaranteed by Mr. Charnock. Such payments are due monthly through March 2000.
The Corporation has adopted a policy whereby all future transactions
between the Corporation and its officers, directors and affiliates will be on
terms no less favorable to the Corporation than could be obtained from
unaffiliated third parties and will be approved by a majority of the
disinterested members of the Board.
PROPOSAL 2
APPOINTMENT OF AUDITORS
The Board of Directors proposes that the firm of Deloitte & Touche LLP
("Deloitte"), independent certified public accountants, be appointed to serve as
auditors for the fiscal year ending April 30, 1998. The ratification of this
selection is not required under the laws of the State of Delaware, where the
Corporation is incorporated, but the results of this vote will be considered by
the Board of Directors in selecting auditors for future fiscal years. Deloitte
has served as the Corporation's accountants since 1993. It is expected that a
member of Deloitte will be present at the Annual Meeting with the opportunity to
make a statement if so desired and will be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE RATIFICATION OF THIS SELECTION.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act of 1934, as amended, requires the
Corporation's directors, executive officers and holders of more than 10% of the
Corporation's Common Stock (collectively, "Reporting Persons") to file with the
Commission initial reports of ownership and reports of changes in ownership of
Common Stock of the Corporation. Such persons are required by regulations of the
Commission to furnish the Corporation with copies of all such filings. Based
solely on its review of the copies of such filings received by it with respect
to the fiscal year ended April 1997 and written representations from certain
Reporting Persons, the Corporation believes that all Reporting Persons complied
with all Section 16(a) filing
10
<PAGE>
requirements in the fiscal year ended April 30, 1997, except that Messrs.
Charnock, Heth, Smith, Johnson, Palmer, Roberts, Winings and Yount each did not
file a Form 3 until December 20, 1996.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended for inclusion in the proxy statement to
be furnished to all Stockholders entitled to vote at the next Annual Meeting of
Stockholders of the Corporation must be received at the Corporation's principal
executive offices not later than February 24, 1998. In order to curtail
controversy as to the date on which a proposal was received by the Corporation,
it is suggested that proponents submit their proposals by Certified Mail, Return
Receipt Requested to Versatility Inc., 11781 Lee Jackson Memorial Highway,
Fairfax, Virginia 22033, Attention: Secretary.
INCORPORATION BY REFERENCE
To the extent that this proxy statement has been or will be specifically
incorporated by reference into any filing by the Corporation under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, the sections of the proxy statement entitled "Report of Compensation
Committee of Board of Directors on Executive Compensation" and "Stock
Performance Graph" shall not be deemed to be so incorporated, unless
specifically otherwise provided in any such filing.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation, and
in addition to soliciting Stockholders by mail through its regular employees,
the Corporation may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Corporation
registered in the names of a nominee and, if so, will reimburse such banks,
brokers and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket costs. Solicitation by officers and employees of the Corporation
may also be made of some Stockholders in person or by mail, telephone or
telegraph following the original solicitation.
The contents and the sending of this proxy statement have been approved by
the Board of Directors of the Corporation.
11
<PAGE>
VERSATILITY INC.
Proxy for Annual Meeting of Stockholders, August 26, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ronald R. Charnock and Marcus W. Heth,
and each of them with full power of substitution to vote all shares of stock of
VERSATILITY INC. (the "Corporation") which the undersigned is entitled to vote
at the Annual Meeting of Stockholders of the Corporation to be held on Tuesday,
August 26, 1997, at 10:00 a.m. local time and at any adjournment or postponement
thereof, upon matters set forth in the Notice of Annual Meeting and Proxy
Statement dated July 28, 1997, a copy of which has been received by the
undersigned.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED. IF NO
CHOICE IS SPECIFIED, THEN THIS PROXY WILL BE VOTED IN FAVOR OF ELECTING THE
NOMINEES, OR ANY NOMINEE FOR WHICH APPROVAL HAS NOT BEEN WITHHELD AND IN FAVOR
OF SELECTION OF DELOITTE & TOUCHE LLP AS AUDITORS FOR THE FISCAL YEAR ENDING
APRIL 30, 1998. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
*********************
[X] Please mark
votes as in this
example
The Board of Directors recommends a vote for the following proposals:
1. To elect two (2) Class I directors to serve for a three-year term except as
marked to the contrary below:
Nominees: Marcus W. Heth, Charles A. Johnson
[ ] FOR [ ] WITHHELD [ ] ______________
ALL FROM ALL FOR ALL NOMINEES
NOMINEES NOMINEES EXCEPT AS NOTED ABOVE
2. To ratify the selection of the firm of Deloitte & Touche LLP as independent
auditors for the Corporation for the fiscal year ending April 30, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To vote or otherwise represent the shares on any and all other business which
may properly come before the meeting or any adjournment(s) thereof, according
and in the discretion of the proxy holder.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
Please mark, sign, date and return the proxy card promptly using the enclosed
envelope.
Please sign your name exactly as it appears on your stock certificate(s),
write in the date and return this proxy as soon as possible in the enclosed
envelope. If the stock is registered in more than one name, each joint owner
should sign. If signing as attorney, executor, trustee, administrator or
guardian, please give full title as such. Only authorized officers should
sign for corporations.
Signature ___________________________ Date ______________________
Signature ___________________________ Date ______________________
