<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 Rule 14a-11(c) or Rule 14a-12
ZMAX CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
[ZMAX CORPORATION LOGO]
ZMAX CORPORATION
20251 Century Boulevard
Germantown, Maryland 20874
April 3, 1998
Dear Stockholder:
We are pleased to invite you to attend our Annual Meeting of Stockholders.
This year it will be held on Tuesday, May 5, 1998, at 10:00 a.m., local time, at
the Company's offices at 20251 Century Boulevard, Germantown, Maryland 20874.
The primary business of the meeting will be to elect directors and ratify the
selection of independent accountants.
A Notice of the Annual Meeting and the Proxy Statement follow. You will
also find enclosed a proxy card. We invite you to attend the meeting in person,
but if this is not feasible, we think it advisable for you to be represented by
proxy. Therefore, if you cannot attend the meeting, we urge you to sign the
enclosed proxy card and mail it promptly in the return-addressed,
postage-prepaid envelope provided for your convenience.
Sincerely,
/s/ Michael C. Higgins
Michael C. Higgins
President and Chief Executive Officer
<PAGE> 3
ZMAX CORPORATION
20251 Century Boulevard
Germantown, Maryland 20874
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
Notice is hereby given that the Annual Meeting of Stockholders of ZMAX
Corporation, a Delaware corporation ("ZMAX" or the "Company"), will be held at
the Company's offices at 20251 Century Boulevard, Germantown, Maryland 20874 on
Tuesday, May 5, 1998, at 10:00 a.m., local time, for the following purposes:
1. To elect three persons as Class I directors of the Company to serve
for a three-year period until the Annual Meeting of Stockholders in the
year 2001;
2. To ratify the selection of Arthur Anderson LLP as the independent
accountants for the Company for the current fiscal year; and
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 31, 1998 are
entitled to notice of, and to vote at, the Annual Meeting.
By order of the Board of Directors,
/s/ G.W. Norman Wareham
G.W. Norman Wareham
Secretary
April 3, 1998
<PAGE> 4
YOUR VOTE IS IMPORTANT
Please date, sign and promptly return the enclosed proxy so that your
shares may be voted in accordance with your wishes.
Mail the proxy to us in the enclosed envelope, which requires no postage if
mailed in the United States.
The giving of the proxy does not affect your right to vote in person should
you attend the meeting.
<PAGE> 5
ZMAX CORPORATION
20251 Century Boulevard
Germantown, Maryland 20874
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of ZMAX Corporation, a Delaware corporation ("ZMAX" or
the "Company"), of proxies of stockholders to be voted at the Annual Meeting of
Stockholders to be held at the Company's offices at 20251 Century Boulevard,
Germantown, Maryland 20874 at 10:00 a.m., local time, on Tuesday, May 5, 1998,
and any and all adjournments thereof.
Any stockholder executing a proxy retains the right to revoke it at any
time prior to its being exercised by giving notice to the Secretary of the
Company.
This Proxy Statement and the accompanying proxy are being mailed or given
to stockholders of the Company on or about April 3, 1998.
VOTING SECURITIES
As of March 31, 1998, a total of 11,729,714 shares of common stock of the
Company, par value $.001 per share ("Common Stock"), which is the only class of
voting securities of the Company, were issued and outstanding. All holders of
record of the Common Stock as of the close of business on March 31, 1998, are
entitled to one vote for each share held at the Annual Meeting, or any
adjournment thereof, upon the matters listed in the Notice of Annual Meeting.
Cumulative voting is not permitted.
Shares of Common Stock represented by proxy will be voted according to the
instructions, if any, given in the proxy. Unless otherwise instructed, the
person or persons named in the proxy will vote (1) FOR the election of the three
nominees for director listed herein (or their substitutes in the event any of
the nominees is unavailable for election); (2) FOR the ratification of the
selection of Arthur Anderson LLP as the independent accountants for the Company
for the current fiscal year; and (3) in their discretion, with respect to such
other business as may properly come before the meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed by the Company for the meeting. The number
of shares represented at the meeting in person or by proxy will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. If a broker
indicates on the Proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote by the inspectors of election with
respect to that matter.
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by directors, officers, regular employees or other agents of the
Company in person or by telephone.
<PAGE> 6
PROPOSAL ONE -- ELECTION OF DIRECTORS
The Company's Board of Directors is classified into the following three
classes of directors, with approximately one-third of the directors serving in
each such class of directors and with one class of directors being elected at
each annual meeting of stockholders of the Company to serve for a term of three
years or until their successors are elected and take office as provided below:
CLASS I -- TERM EXPIRES AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS
Michael C. Higgins
G.W. Norman Wareham
CLASS II -- TERM EXPIRES AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS
Michel Berty
Steve L. Komar
CLASS III -- TERM EXPIRES AT THE 2000 ANNUAL MEETING OF STOCKHOLDERS
Ted Fine
Edward Yourdan
The Bylaws of the Company provide that the Board of Directors will
determine the number of directors to serve on the Board. Although the Company's
Board of Directors currently consists of the six members identified above, the
Board has approved an increase in the number of its members from six to seven,
with Melvin A. McCubbin being the nominee proposed to serve as a Class I
director to be elected at this Annual Meeting of Stockholders to serve for a
period of three years until the Annual Meeting of Stockholders in the year 2001.
Proxies will be voted at the Annual Meeting, unless authority is withheld,
FOR the election of the three persons named below, each of whom currently is a
director of the Company except for Melvin A. McCubbin. The Company does not
contemplate that any of the persons named below will be unable or will decline
to serve; however, if any such nominee is unable or declines to serve, the
persons named in the accompanying proxy will vote for a substitute, or
substitutes, in their discretion. The following table sets forth information
regarding the nominees:
<TABLE>
<CAPTION>
POSITION WITH BECAME
NAME THE COMPANY AGE DIRECTOR(1)
---- ------------- --- -----------
<S> <C> <C> <C>
Michael C. Higgins.... President, Chief Executive 53 1996
Officer and Director
G.W. Norman Wareham... Vice President, Secretary, 44 1996
Chief Financial Officer
and Director
Melvin A. McCubbin.... Nominee 73 --
</TABLE>
- ---------------
(1) Includes service as a director of ZMAX Corporation, a Nevada corporation
("Old ZMAX"), prior to its merger with and into the Company in December
1997.
Michael C. Higgins has served as a Director and the President and Chief
Executive Officer of the Company since its merger with Old ZMAX in December
1997. Prior to that time, Mr. Higgins served as a Director and the President of
Old ZMAX from December 1996 to December 1997. Mr. Higgins also serves as a
director and the President of Century Services, Inc. ("CSI"), a subsidiary of
the Company. Mr. Higgins co-founded CSI in December 1995. Prior to founding CSI,
from 1993 to 1996, Mr. Higgins was a Vice President of Integrated Microcomputer
Systems Inc., a software reengineering company that developed the VISION 2000
(SM) proprietary software tools used by the Company. From 1991 to 1993, Mr.
Higgins was Vice President
2
<PAGE> 7
of Anstec Inc., an information technology technical services company in Fairfax,
Virginia. Mr. Higgins served, from 1986 to 1991, as a director of the
Information Services unit of Martin Marietta Corporation that specializes in
providing information systems services to the U.S. federal government. From 1970
to 1986, Mr. Higgins served in various executive positions at AT&T Corporation,
including Division Sales Manager and Division Engineering Manager. Mr. Higgins
earned an MBA from Xavier University and a B.S. Degree in Engineering from the
United States Military Academy at West Point.
G.W. Norman Wareham has served as a Director and the Vice President,
Secretary and Chief Financial Officer of the Company since its merger with Old
ZMAX in December 1997. Prior to that time, Mr. Wareham served as a director and
the Vice President, Secretary and Chief Financial Officer of Old ZMAX from
September 1996 to December 1997. Prior to joining Old ZMAX, from 1994 to April
1995, Mr. Wareham served as the President of Global Financial Corporation, a
Turks and Caicos investment company. Mr. Wareham currently serves as a director
and officer of Intercap Resources Management Corp., an oil and gas exploration
and development company traded on the Vancouver Stock Exchange, and Cybernet
Internet Services International Inc., a start up Internet services company. In
addition, Mr. Wareham is the President of Wareham Management Ltd. which provides
management consulting and accounting services to Canadian and American public
companies, including the Company. Mr. Wareham is a certified general accountant
and has been engaged in public practice accounting for over twenty years.
Melvin A. McCubbin presently serves as a financial and management
consultant to the Company. Mr. McCubbin formerly served as the Corporate Vice
President and Chief Financial Officer of Martin Marietta Corporation (now known
as Lockheed Martin), a position from which he retired in December 1989 after
being employed for over 30 years with that corporation in numerous financial,
operational and executive management positions. After retiring from Martin
Marietta Corporation, Mr. McCubbin served as a director of Integrated
Microcomputer Systems, Inc. from March 1990 through December 1995. Mr. McCubbin
also served as the General Counsel of Integrated Microcomputer Systems, Inc.
from June 1992 through December 1995. Since January 1996, Mr. McCubbin has been
a financial and management consultant. Mr. McCubbin earned a Juris Doctor Degree
from the University of Maryland and a B.S. Degree in Accounting and Finance from
the University of Maryland. Mr. McCubbin is also an attorney-member of the
Maryland Bar Association.
MANAGEMENT RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE ABOVE NOMINEES
AS DIRECTORS OF THE COMPANY.
Although there are no family relationships between any of the nominees,
Melvin A. McCubbin is the father of James T. McCubbin, a Vice President and
Assistant Secretary of the Company.
The Board of Directors appointed an Audit Committee in November 1997, which
committee did not meet during 1997 and presently consists of G.W. Norman
Wareham, Steve L. Komar and Ted Fine. The Audit Committee is responsible for
meeting with the Company's independent accountants to review the proposed scope
of the annual audit of the Company's books and records, reviewing the findings
of the independent accountants upon completion of the annual audit, and
reporting to the Board of Directors with respect thereto. The Board of Directors
also has a Compensation Committee, which conducted four meetings during 1997,
presently consists of G.W. Norman Wareham and Steve L. Komar, and is responsible
for advising the Board on matters relating to the compensation of officers and
key employees and certain of the Company's employee benefit plans. The Board of
Directors met eight times during 1997. Each incumbent director attended at least
75% of the aggregate number of meetings of the Board and committee(s) on which
he served while he was a director and committee member during 1997.
3
<PAGE> 8
COMPENSATION AND RELATED MATTERS
The following Summary Compensation Table sets forth the annual salary
(column c) and bonus (column d) paid and options granted (column g) during each
of the past three years to the Company's Chief Executive Officer and the other
executive officers of the Company whose annual salary and bonus in 1997 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------- --------------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h)
OTHER ANNUAL RESTRICTED STOCK LTIP
SALARY BONUS COMPENSATION(1) AWARD(S) OPTIONS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) $ (#)(2) ($)
--------------------------- ---- -------- ----- --------------- ---------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Higgins............. 1997 $147,115 $-0- $ -0- -0- 337,500(4) -0-
President & 1996 $ 62,000 $-0- -0- -0- -0- -0-
Chief Executive Officer(3) 1995 $ -0- $-0- -0- -0- -0- -0-
Joseph Yeh..................... 1997 $ 86,770 $-0- $38,230 -0- 225,000(6) -0-
Senior Vice President -- 1996 $ -0- $-0- 40,000 -0- -0- -0-
Technology of CSI(5) 1995 $ -0- $-0- -0- -0- -0- -0-
Michael S. Cannon.............. 1997 $ 98,076 $-0- $ -0- -0- -0- -0-
Executive Vice President --
Sales of CSI(7) 1996 $ 62,000 $-0- -0- -0- -0- -0-
1995 $ -0- $-0- -0- -0- -0- -0-
Edward Blessing................ 1997 $ -0- $-0- -0- -0- -0- -0-
President & 1996 $ 58,034(9) $-0- -0- -0- -0- -0-
Chairman of the Board(8) 1995 $ -0- $-0- -0- -0- 3,125(10) -0-
Lloyd Merrifield............... 1997 $ -0- $-0- -0- -0- -0- -0-
President & 1996 $ 10,000 $-0- -0- -0- -0- -0-
Chief Financial Officer(11) 1995 $ -0- $-0- -0- -0- 1,562(10) -0-
</TABLE>
- ---------------
(1) Does not report the approximate cost to the Company of an automobile
allowance furnished to Mr. Higgins, which amount does not exceed the lesser
of either $50,000 or 10% of the total of his annual salary and bonuses for
1997.
(2) Reports the number of shares underlying options granted during each of the
respective years.
(3) CSI was formed in December 1995, and Mr. Higgins received no compensation
from CSI in 1995. Mr. Higgins was employed as President of CSI throughout
1996 and became President of Old ZMAX in December 1996. Mr. Higgins further
became the President and Chief Executive Officer of the Company in December
1997 upon its merger with Old ZMAX.
(4) The above-reported option for 1997 reflects the amendment on March 13,
1998, of the stock option previously granted on April 17, 1997, to Mr.
Higgins to purchase 450,000 shares of Common Stock at an exercise price of
$14.31 per share, which amendment decreased the number of shares underlying
such option by 25% from 450,000 shares to 337,500 shares and reduced the
exercise price of such option to $5.75 per share, being the fair market
value of the Common Stock on that date.
(5) Mr. Yeh served as a consultant to the Company from September 1996 through
March 1997, at which time he became an employee of CSI.
(6) The above-reported option for 1997 reflects the amendment on March 13,
1998, of the stock option previously granted on April 17, 1997, to Mr. Yeh
to purchase 300,000 shares of Common Stock at an exercise price of $14.31
per share, which amendment decreased the number of shares underlying such
option by 25% from 300,000 shares to 225,000 shares and reduced the
exercise price of such option to $5.75 per share, being the fair market
value of the Common Stock on that date. This amendment to Mr. Yeh's option
further provided that the portion of such option which was previously
exercisable as to 100,000 shares would no longer be exercisable until from
and after January 1, 1999.
(7) CSI was formed in December 1995, and Mr. Cannon received no compensation
from CSI in 1995. Mr. Cannon was employed as the Executive Vice
President -- Sales of CSI throughout April 1997.
4
<PAGE> 9
Mr. Cannon resigned from the Company in April 1997. Pursuant to the terms
of his employment agreement with CSI and his separation agreement with CSI,
he is collecting severance from the Company in the amount of $100,000 per
year through November 1999. Mr. Cannon has agreed to provide consulting
services for sales and marketing events as requested by the Company at no
additional fee to the Company.
(8) Mr. Blessing served in these positions from June 13, 1995 to September 30,
1996.
(9) Inclusive of reimbursement for expenses.
(10) These options have been canceled.
(11) Mr. Merrifield served in these positions from September 27, 1994 to June
13, 1995. This amount was paid to Mr. Merrifield in 1996 for services
rendered by him in 1995 and 1994.
The following Option Grants Table sets forth, for each of the named
executive officers, information regarding individual grants of options granted
in 1997 and their potential realizable value. Information regarding individual
option grants includes the number of options granted, the percentage of total
grants to employees represented by each grant, the per-share exercise price and
the expiration date. The potential realizable value of the options are based on
assumed annual 0%, 5% and 10% rates of stock price appreciation over the term of
the option.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
OPTIONS % OF TOTAL OPTIONS GRANTED
GRANTED TO EMPLOYEES IN FISCAL EXERCISE EXPIRATION
NAME (#) YEAR(3) PRICE($/SH)(4) DATE
---- --------------- -------------------------- -------------- ----------
<S> <C> <C> <C> <C>
Michael C. Higgins... 337,500(1) 24.5% $5.75 4/17/07
Joseph Yeh........... 225,000(2) 16.4% $5.75 4/17/07
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM(5)
---------------------------------
NAME 0% 5%($) 10%($)
---- ---- ----------- ------------
<S> <C> <C> <C>
Michael C. Higgins... $0 $97,031.25 $194,062.50
Joseph Yeh........... $0 $64,687.50 $129,375.00
</TABLE>
- ---------------
(1) The option is a non-qualified stock option originally granted on April 17,
1997, to Mr. Higgins to purchase 450,000 shares of Common Stock at an
exercise price of $14.31 per share under the Company's 1997 Incentive Stock
Plan. On March 13, 1998, the option was amended to decrease the number of
shares underlying such option by 25% from 450,000 shares to 337,500 shares
and reduce the exercise price of such option to $5.75 per share, being the
fair market value of the Common Stock on that date. The option will become
exercisable in the event the optionee achieves certain performance criteria
set by the committee which administers the Company's 1997 Incentive Stock
Plan.
(2) The option is a non-qualified stock option originally granted on April 17,
1997, to Mr. Yeh to purchase 300,000 shares of Common Stock at an exercise
price of $14.31 per share under the Company's 1997 Incentive Stock Plan. On
March 13, 1998, the option was amended to decrease the number of shares
underlying such option by 25% from 300,000 shares to 225,000 shares and
reduce the exercise price of such option to $5.75 per share, being the fair
market value of the Common Stock on that date. This amendment to Mr. Yeh's
option further provided that the portion of such option which was previously
exercisable as to 100,000 shares would no longer be exercisable until from
and after January 1, 1999. The remaining 125,000 shares which underlie this
option will become exercisable in the event the optionee achieves certain
performance criteria set by the committee which administers the Company's
1997 Incentive Stock Plan.
(3) Based on options for a total of 1,375,000 shares granted to all employees.
(4) The exercise price is equal to the fair market value of the Common Stock on
March 13, 1998, the date of amendment of such options.
(5) The potential realizable values shown in the columns are net of the option
exercise price. These amounts assume annual compounded rates of stock price
appreciation of 0%, 5%, and 10% from the date of grant to the option
expiration date, a term of ten years. These rates have been set by the U.S.
Securities and Exchange Commission and are not intended to forecast future
appreciation, if any, of the Company's Common Stock. Actual gains, if any,
on stock option exercises are dependent on several factors including the
future performance of the Company's Common Stock, overall stock market
conditions, and the
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<PAGE> 10
optionee's continued employment through the vesting period. The amounts
reflected in this table may not actually be realized.
The following Option Exercises and Year-End Value Table sets forth, for
each of the named executive officers, information regarding the number and value
of unexercised options at December 31, 1997. No options were exercised by such
persons during 1997.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FY-END IN-THE-MONEY OPTIONS
NUMBER OF (#)(1) AT FY-END ($)
SHARES ACQUIRED ON ------------------------- ----------------------------
NAME EXERCISE VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
---- ------------------ ------------------ ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Michael C. Higgins... -0- -0- 0/337,500(3) $0 /$337,500
Joseph Yeh........... -0- -0- 0/225,000(4) $0 /$225,000
</TABLE>
- ---------------
(1) The reported options were granted by the Company to the named executive
officer.
(2) Market value of underlying shares at December 31, 1997, minus the exercise
price.
(3) The above-reported option entitles Mr. Higgins to purchase from the Company
337,500 shares at a price of $5.75 per share through April 17, 2007 under an
option originally granted on April 17, 1997 and amended on March 13, 1998.
The option will become exercisable in the event Mr. Higgins achieves certain
performance criteria set by the committee which administers the Company's
1997 Incentive Stock Plan.
(4) The above-reported option entitles Mr. Yeh to purchase from the Company
225,000 shares at a price of $5.75 per share through April 17, 2007 under an
option originally granted on April 17, 1997 and amended on March 13, 1998.
The option will become exercisable as to 100,000 shares on January 1, 1999.
The remaining 125,000 shares underlying this option will become exercisable
in the event Mr. Yeh achieves certain performance criteria set by the
committee which administers the Company's 1997 Incentive Stock Plan.
No Long-Term Incentive Plan Awards Table is set forth herein because no
long-term incentive plan awards were made to the above-named executive officers
during 1997.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
As part of the CSI transaction with the Company, on November 6, 1996, CSI
entered into an employment agreement with Michael C. Higgins to serve as
President of CSI. The agreement was amended effective January 1, 1997 to set
forth the compensation determined by the Company's Compensation Committee. The
agreement, as amended, provides that Mr. Higgins' base salary was to be $150,000
per year for 1997, $175,000 for 1998 and $200,000 for 1999. The agreement
provides for a bonus of up to 100% of base salary upon the achievement of
performance criteria including gross revenue and earnings targets, which
criteria will be adjusted each year by the Compensation Committee. If the
performance goals are not met or if Mr. Higgins is no longer employed by the
Company (unless for cause), the bonus may be paid at the discretion of the
Compensation Committee. The bonus is payable 25% in cash and 75% in Common Stock
based on the fair market value of the Common Stock at the end of the fiscal
year. The agreement is for a three-year term commencing on November 6, 1996, and
is terminable by the executive upon 60 days notice to the Company and by the
Company on notice to the executive. The agreement contains non-competition,
non-solicitation and non-disclosure provisions restricting the executive from
employment with any competing business, soliciting or diverting Company
employees and customers to a competing business or disclosing the Company's
proprietary information to third parties during the term of the agreement and
for up to two years thereafter. Under certain circumstances, the agreement
requires the Company to make severance payments to the executive for the
remaining term of the agreement.
On June 18, 1997, CSI entered into an employment agreement with Joseph Yeh
as CSI's Senior Vice President -- Technology. This agreement was retroactively
effective to January 1, 1997 and replaced Mr. Yeh's prior consulting agreement
with the Company. The employment agreement is for a three year term
6
<PAGE> 11
commencing January 1, 1997, and is terminable by the Company only for cause (as
defined). The agreement provides that Mr. Yeh's base salary was to be $125,000
for 1997, $137,500 for 1998 and will increase by 10% in each subsequent year.
The agreement provides for a bonus of up to 100% of base salary upon the
achievement of performance criteria including gross revenue and earnings
targets, which criteria will be adjusted each year by the Compensation
Committee. If the performance goals are not met or if Mr. Yeh is no longer
employed by the Company (unless for cause), the bonus may be paid at the
discretion of the Compensation Committee. The bonus is payable 50% in cash and
50% in Common Stock based on the fair market value of the Common Stock at the
end of the fiscal year. The agreement contains non-competition, non-solicitation
and non-disclosure provisions restricting the executive from employment with any
competing business, soliciting or diverting Company employees and customers to a
competing business or disclosing the Company's proprietary information to third
parties during the term of the agreement and for up to two years thereafter.
Under certain limited circumstances, the agreement requires the Company to make
severance payments to the executive for a nine month period. If the agreement is
terminated by the Company without cause (as defined) the Company must continue
to pay the executive's base salary for the remainder of the term of the
agreement.
Jack Effrain entered into an employment agreement with CSI as Senior Vice
President -- Sales and Marketing on August 14, 1997. The agreement is at-will
and may be terminated at any time by CSI, with or without cause (as defined in
the agreement). Termination without cause requires CSI to pay three months base
salary, any vested stock options and all bonus amounts due and owing as
severance. The agreement provides that Mr. Effrain's base salary is $110,000 per
year, and he is entitled to a year-end bonus of up to 100% of base salary. Mr.
Effrain's employment agreement requires that he sign an agreement preventing him
from competing with the Company in the Year 2000 business or from soliciting its
customers, and requires that he assign to the Company all patents and inventions
created while an employee.
Michael S. Cannon resigned from the Company in April 1997. Pursuant to the
terms of his employment agreement with CSI and his separation agreement with
CSI, he is collecting severance from the Company in the amount of $100,000 per
year through November 1999. Mr. Cannon has agreed to provide consulting services
for sales and marketing events as requested by the Company at no additional fee
to the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists entirely of non-employee directors and
determines the compensation paid to the Chief Executive Officer and the other
executive officers and consultants of the Company. The Compensation Committee
believes that for the Company to be successful long-term and for it to increase
stockholder value it must be able to hire, retain, adequately compensate and
financially motivate talented and ambitious executives. The Compensation
Committee attempts to reward executives for both individual achievement and
overall Company success.
Executive compensation is made up of three components:
Base Salary. An executive's base salary is initially determined by
considering the executive's level of responsibility, prior experience and
compensation history. Published salaries of executives in similar positions at
other companies of comparable size (sales and/or number of employees) is also
considered in establishing base salary.
Stock Options. In 1997, the Company adopted the 1997 Incentive Stock Plan
to provide stock option awards to certain executives of the Company and CSI. The
Compensation Committee believes that the granting of stock options is directly
linked to increased executive commitment and motivation and to the long-term
success of the Company. The Compensation Committee awards stock options to
certain executives of the Company and CSI. The Compensation Committee uses both
subjective appraisals of the executive's performance and the Company's
performance and financial success during the previous year to determine option
grants.
Bonus. The Company has also implemented an executive bonus program for
certain of its executives. Such bonuses are based, in part, on the Company's
financial performance during the previous fiscal year including achievement of
gross revenue and net income targets. In addition, objective individual measures
of
7
<PAGE> 12
performance compared to the individual's business unit profit performance may be
considered. A subjective rating of the executive's personal performance may also
be considered. Bonuses may be paid in cash or Company Common Stock or a
combination of cash and Company Common Stock. Bonuses are typically linked to a
percentage of base salary.
The Compensation Committee recommended to the Board of Directors and the
Board of Directors approved a compensation package for the Company's Chief
Executive Officer, Mr. Higgins, that included a base salary of $150,000 in 1997,
a base salary of $175,000 for 1998, and annual increases plus a bonus of up to
100% of the base salary, and for its Senior Vice President -- Technology, Mr.
Yeh, that included a base salary of $125,000 in 1997, a base salary of $137,500
for 1998, and annual increases and a bonus of up to 100% of the base salary.
Receipt of the bonus is subject to the Company's achievement of certain
performance criteria, including gross revenue and net income targets. If the
bonus targets are achieved, the bonus for Mr. Higgins would be paid 25% in cash
and 75% in Company Common Stock and the bonus for Mr. Yeh would be paid 50% in
cash and 50% in Company Common Stock. In each case, the number of shares of
bonus stock will be equal to the dollar amount of the bonus payable in stock
divided by the fair market value (as defined) of the Company Common Stock at the
end of the fiscal year. If the performance criteria are not achieved or the
executive is no longer employed by the Company (other than for cause
termination), a bonus may be awarded in the discretion of the Compensation
Committee. As of August 1997, the Compensation Committee approved a compensation
package for Mr. Effrain, CSI's Senior Vice President-Sales and Marketing. This
package includes a base salary of $110,000 in 1997, a base salary of $110,000
for 1998, and bonus of up to 100% of base salary, subject to the achievement of
certain performance criteria.
In determining the 1997 compensation packages for these executive officers,
the Compensation Committee considered that Mr. Higgins was a founder of CSI, the
experience and compensation history of each individual and compensation packages
awarded to similar executives of other similarly situated start-up companies, to
the extent such information could be learned. The Compensation Committee also
relied on competitive industry statistics and other industry comparison data.
The Compensation Committee ensured that the incentive bonus compensation is only
paid if the performance targets are met and the Company is in a sound financial
position.
Exceptions to the general principles stated above are made when the
Compensation Committee deems them appropriate to stockholder interest. The
Compensation Committee regularly considers other forms of compensation and
modifications of its present policies, and will make changes as it deems
appropriate. The competitive opportunities to which the Company's executives are
exposed frequently come from private companies or divisions of large companies,
for which published compensation data is often unavailable and, therefore, the
Compensation Committee's information about such opportunities is often
anecdotal.
Section 162(m) of the Internal Revenue Code of 1986, as amended,
establishes a limit on the deductibility of annual compensation for certain
executive officers that exceeds $1,000,000 per year unless certain requirements
are met. The Company does not anticipate that any employee will exceed such
$1,000,000 cap in the near future but will consider whether any necessary
adjustments are appropriate if it becomes likely that any executive officer's
compensation may exceed the $1,000,000 limit.
On February 4, 1998, the Board of Directors amended the Company's 1997
Incentive Stock Plan to allow for the amendment of outstanding options granted
under that Plan to provide for option exercise prices lower or higher than the
original option exercise price and/or the cancellation of existing options and
in substitution therefor new options covering the same or different number of
shares at option exercise prices which may be lower or higher than the option
exercise prices of the canceled options. In approving such amendment to the
Plan, the Board considered the competitive environment for obtaining and
retaining employees and the overall benefit to the Company's stockholders of a
highly motivated workforce, as well as the importance to the Company of its
employees and the importance to the employees of stock options. On March 13,
1998, the committee of directors which administers this Plan, being Messrs.
Komar and Wareham, entered into amendments with four optionees under this Plan
whereby the number of shares underlying the amended options was decreased to 75%
of the number of shares underlying the prior options and the exercise price for
each such option was reduced from $14.31 per share to $5.75 per share, being the
fair market value of the
8
<PAGE> 13
Company's Common Stock on that date. The committee authorized such amendments of
these options because the decline in the price of the Company's Common Stock
made it appear unlikely these outstanding options granted under this Plan would
be significantly in-the-money prior to their expiration, and, accordingly, the
value of the outstanding options as incentives to employee performance had been
lost. Information relating to these four amended options is set forth below in
the table entitled 10-Year Option/SAR Repricings.
Compensation Committee
Steve L. Komar
G.W. Norman Wareham
The foregoing Compensation Committee report shall not be deemed to be filed
with the Securities and Exchange Commission for purposes of the Securities
Exchange Act of 1934 (the "1934 Act"), nor shall such report be deemed to be
incorporated by reference in any past or subsequent filing by the Company under
the 1934 Act or the Securities Act of 1933, as amended (the "1933 Act").
10-YEAR OPTION/SAR REPRICINGS TABLE
<TABLE>
<CAPTION>
MARKET PRICE EXERCISE
NUMBER OF SHARES OF STOCK AT PRICE AT NEW
DATE OF UNDERLYING OPTIONS/SARS TIME OF TIME OF EXERCISE
NAME(1) REPRICING REPRICED OR AMENDED REPRICING REPRICING PRICE
------- --------- ----------------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Michael C. Higgins............... 3/13/98 337,500 $5.75 $14.31 $5.75
President and Chief
Executive Officer
Joseph Yeh(2).................... 3/13/98 225,000 $5.75 $14.31 $5.75
Senior Vice President --
Technology of CSI
</TABLE>
- ---------------
(1) The above table does not include options repriced for Michel Berty, the
Company's Chairman of the Board of Directors, nor Jack Effrain, the Senior
Vice President -- Sales and Marketing of CSI. On March 13, 1998, the option
previously granted to each of Mr. Berty and Mr. Effrain on April 17, 1997
under the Company's 1997 Incentive Stock Plan was amended in the same manner
as provided above for the other named executive officers. In the case of Mr.
Berty, the shares underlying his option were decreased by 25% from 450,000
shares to 337,500 shares and the exercise price of the option was reduced
from $14.31 per share to $5.75 per share, being the fair market value of the
Common Stock on that date. In the case of Mr. Effrain, the shares underlying
his option were decreased by 25% from 100,000 shares to 75,000 shares and
the exercise price of the option was reduced from $14.31 per share to $5.75
per share, being the fair market value of the Common Stock on that date. Mr.
Effrain further agreed that the previously exercisable portion of his option
would not be exercisable until January 1, 1999.
(2) Mr. Yeh agreed that the previously exercisable portion of his option would
not be exercisable until January 1, 1999.
STOCK OPTIONS
1997 Incentive Stock Plan. In May 1997, the Board of Directors adopted,
and in December 1997 the stockholders of the Company approved, the Company's
1997 Incentive Stock Plan (the "Incentive Plan"), which provides for the award
of a variety of equity-based incentives, including stock awards, stock options,
stock appreciation rights, phantom shares, performance unit appreciation rights
and dividend equivalents (collectively, "Stock Incentives"). The Incentive Plan
is administered by a committee, which is presently comprised of Steve L. Komar
and G.W. Norman Wareham, and provides for the grant of Stock Incentives
officers, key employees and consultants of the Company to purchase up to an
aggregate of 1,700,000 shares of
9
<PAGE> 14
Common Stock at not less than 100% of fair market value on the date granted. The
vesting and exercisability of any Stock Incentives granted under the Incentive
Plan is subject to the determination of and criteria set by the committee. As of
March 31, 1998, options to purchase a total of 1,375,000 shares of Common Stock
under the Incentive Plan, at prices ranging from $5.75 to $6.00 per share, were
outstanding, of which options to purchase 87,000 shares were presently
exercisable.
1997 Directors Formula Stock Option Plan. In May 1997, the Board of
Directors adopted, and in December 1997 the stockholders of the Company
approved, the Company's 1997 Directors Formula Stock Option Plan (the "Director
Plan"). Other than Mr. Komar and Mr. Wareham, directors of the Company who are
not employed by the Company and who do not perform services for the Company are
eligible to receive options under the Director Plan. The Director Plan is
administered by a committee which presently consists of Messrs. Higgins and
Berty. Options become exercisable when vested and expire ten years after the
date of grant, subject to such shorter period as may be provided in the
agreement. A total of 120,000 shares of Common Stock are reserved for possible
issuance upon the exercise of options under the Director Plan.
On May 20, 1997, stock options to purchase an aggregate of 36,000 shares of
Common Stock were granted under the terms of the Director Plan to three eligible
directors. The exercise price of these options was $14.06 per share. On December
8, 1997, an additional option to purchase 12,000 shares of Common Stock was
granted to another director with an exercise price of $12.00 per share. Each
such non-employee director optionee vested immediately in 8,000 shares of Common
Stock and vests in an additional 2,000 shares after the completion of the first
year of continued service to the Company and an additional 2,000 shares after
the completion of the second year of continued service to the Company.
As of March 31, 1998, options to purchase a total of 48,000 shares of
Common Stock under the Director Plan, at prices ranging from $12.00 to $14.06
per share, were outstanding, of which options to purchase 32,000 shares were
vested and presently exercisable.
OTHER DIRECTOR OPTIONS
On March 24, 1998, a non-qualified stock option to purchase 6,000 shares of
Company Common Stock was granted to each of Messrs. Fine, Komar, Wareham and
Yourdan. The exercise price of each of these options was $7.66 per share, being
the fair market value of the Common Stock on the date of grant, with 2,000
shares vesting immediately at that time and with the remaining 4,000 shares
vesting at the rate of 2,000 shares for each year of service thereafter by each
such director.
DIRECTORS' FEES
Directors who are not officers or employees of the Company receive an
annual fee of $12,000.
OTHER INFORMATION
On April 1, 1997, the Company entered into a consulting agreement with
Michel Berty, the Chairman of the Board of Directors of the Company, and MBY,
Inc., a company wholly-owned by Michel Berty, for management consulting
services. This agreement is for a term of three years, with successive automatic
renewals for additional one-year periods. The monthly consulting fee payable to
MBY, Inc. is $20,000 plus reimbursement of out-of-pocket expenses. If the
consulting agreement is terminated by the Company without cause prior to its
expiration, the Company is obligated to continue to pay the monthly $20,000 fee
for the remaining term of the Agreement or one year after such termination,
whichever occurs first.
On May 30, 1997, the Company entered into a consulting agreement with
Shafiq Nazerali for services associated with raising capital, business
development and strategic opportunities. This agreement documents a
long-standing consulting arrangement with Mr. Nazerali and was for a term of one
year. The monthly consulting fee payable to Mr. Nazerali during 1997 was $10,000
plus reimbursement of out-of-pocket expenses. This consulting arrangement was
terminated as of December 31, 1997.
On May 30, 1997, the Company entered into a consulting agreement with
Wareham Management Ltd., a company wholly-owned by G.W. Norman Wareham, for
accounting and financial services. This agreement
10
<PAGE> 15
documents the oral consulting arrangements with Mr. Wareham and is for a term of
one year, with successive automatic renewals for additional one-year periods.
The monthly consulting fee payable to Wareham Management Ltd. is $3,500 plus
Canadian goods and services tax and reimbursement of out-of-pocket expenses.
All of the Company's consulting agreements with its consultants are
terminable by the Company on notice and contain non-competition,
non-solicitation and non-disclosure provisions restricting the consultant from
engaging in any similar services for any competing business, soliciting or
diverting Company employees and clients to any competing business, or disclosing
the Company's intellectual property to third parties during the term of the
agreement and for two years thereafter.
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 31, 1998 by: (i) each person known by the Company
to be the beneficial owner of 5% or more of such class of securities, (ii) each
director and nominee for director of the Company and (iii) all directors,
nominees and officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DIRECTORS, NOMINEES SHARES OF OUTSTANDING
AND 5% STOCKHOLDERS COMMON STOCK(1) COMMON STOCK(1)
------------------- --------------- ---------------
<S> <C> <C>
Michael C. Higgins(2)....................................... 1,600,000 13.6%
Michael S. Cannon(3)........................................ 1,600,000 13.6%
Steve L. Komar(4)........................................... 12,000 *
Michel Berty(5)............................................. -- --
Ted Fine(6)................................................. 12,000 *
G.W. Norman Wareham(7)...................................... 12,000 *
Edward Yourdan(8)........................................... 10,000 *
Melvin A. McCubbin(9)....................................... -- --
Joseph Yeh(10).............................................. -- --
All directors, nominees and officers as a group (10
persons)(11).............................................. 1,673,400 14.2%
</TABLE>
- ---------------
* Holding constitutes less than 0.1% of the outstanding shares of the class.
(1) Assumes in the case of each stockholder listed in the above list that all
presently exercisable warrants or options held by such stockholder were
fully exercised by such stockholder, without the exercise of any warrants
or options held by any other stockholders.
(2) Does not include a stock option granted on March 13, 1998, to Mr. Higgins
under the Incentive Plan to purchase 337,500 shares of Common Stock at 5.75
per share, which option is not presently exercisable. This option will
become exercisable in an amount and to the extent that the Company achieves
certain performance criteria as set annually by the committee which
administers the Incentive Plan. The address of Mr. Higgins is 20251 Century
Boulevard, Germantown, Maryland 20874.
(3) The address of Mr. Cannon is 142 Brightmoor Court, Henderson, Nevada 89014.
(4) Includes (i) 10,000 shares of Common Stock that may be purchased by Mr.
Komar from the Company at a price of $14.06 per share until May 20, 2007,
pursuant to a stock option granted to him on May 20, 1997 under the
Director Plan, with 8,000 shares being presently exercisable and 2,000
shares becoming exercisable on May 20, 1998, and (ii) 2,000 shares of
Common Stock that may be purchased by Mr. Komar from the Company at a price
of $7.66 per share until March 24, 2008, pursuant to a stock option granted
to him on March 24, 1998 under the Director Plan. Does not include (i)
266,442 shares held in the name of Fiserv, Inc., of which Mr. Komar is an
Executive Vice President and as to which shares Mr. Komar disclaims
beneficial ownership, (ii) 2,000 shares of Common Stock that may be
purchased by Mr. Komar from the Company at a price of $14.06 per share
until May 20, 2007, pursuant to the stock option grant to him on May 20,
1997, with such shares vesting on May 20, 1999, or (iii) 4,000 shares of
Common Stock that may purchased by Mr. Komar from the Company at a price of
11
<PAGE> 16
$7.66 per share until March 24, 2008, pursuant to the stock option granted
to him on March 24, 1998, with 2,000 of such shares vesting on March 24,
1999 and the remaining 2,000 shares vesting on March 24, 2000.
(5) Does not include a stock option granted on March 13, 1998, to Mr. Berty
under the Incentive Plan to purchase 337,500 shares of Common Stock at 5.75
per share, which option is not presently exercisable. This option will
become exercisable in an amount and to the extent that the Company achieves
certain performance criteria as set annually by the committee which
administers the Incentive Plan.
(6) Includes (i) 10,000 shares of Common Stock that may be purchased by Mr.
Fine from the Company at a price of $14.06 per share until May 20, 2007,
pursuant to a stock option granted to him on May 20, 1997 under the
Director Plan, with 8,000 shares being presently exercisable and 2,000
shares becoming exercisable on May 20, 1998, and (ii) 2,000 shares of
Common Stock that may be purchased by Mr. Fine from the Company at a price
of $7.66 per share until March 24, 2008, pursuant to a stock option granted
to him on March 24, 1998 under the Director Plan. Does not include (i)
2,000 shares of Common Stock that may be purchased by Mr. Fine from the
Company at a price of $14.06 per share until May 20, 2007, pursuant to the
stock option grant to him on May 20, 1997, with such shares vesting on May
20, 1999, or (ii) 4,000 shares of Common Stock that may purchased by Mr.
Fine from the Company at a price of $7.66 per share until March 24, 2008,
pursuant to the stock option granted to him on March 24, 1998, with 2,000
of such shares vesting on March 24, 1999 and the remaining 2,000 shares
vesting on March 24, 2000.
(7) Includes (i) 10,000 shares of Common Stock that may be purchased by Mr.
Wareham from the Company at a price of $14.06 per share until May 20, 2007,
pursuant to a stock option granted to him on May 20, 1997 under the
Director Plan, with 8,000 shares being presently exercisable and 2,000
shares becoming exercisable on May 20, 1998, and (ii) 2,000 shares of
Common Stock that may be purchased by Mr. Wareham from the Company at a
price of $7.66 per share until March 24, 2008, pursuant to a stock option
granted to him on March 24, 1998 under the Director Plan. Does not include
(i) 2,000 shares of Common Stock that may be purchased by Mr. Wareham from
the Company at a price of $14.06 per share until May 20, 2007, pursuant to
the stock option grant to him on May 20, 1997, with such shares vesting on
May 20, 1999, or (ii) 4,000 shares of Common Stock that may purchased by
Mr. Wareham from the Company at a price of $7.66 per share until March 24,
2008, pursuant to the stock option granted to him on March 24, 1998, with
2,000 of such shares vesting on March 24, 1999 and the remaining 2,000
shares vesting on March 24, 2000.
(8) Includes (i) 8,000 shares of Common Stock that may be purchased by Mr.
Yourdan from the Company at a price of $12.00 per share until December 8,
2007, pursuant to a stock option granted to him on December 8, 1997 under
the Director Plan, and (ii) 2,000 shares of Common Stock that may be
purchased by Mr. Yourdan from the Company at a price of $7.66 per share
until March 24, 2008, pursuant to a stock option granted to him on March
24, 1998 under the Director Plan. Does not include (i) 4,000 shares of
Common Stock that may be purchased by Mr. Yourdan from the Company at a
price of $12.00 per share until December 8, 2007, pursuant to the stock
option grant to him on December 8, 1997, with 2,000 of such shares vesting
on December 8, 1998 and the remaining 2,000 shares vesting on December 8,
1999, or (ii) 4,000 shares of Common Stock that may purchased by Mr.
Yourdan from the Company at a price of $7.66 per share until March 24,
2008, pursuant to the stock option granted to him on March 24, 1998, with
2,000 of such shares vesting on March 24, 1999 and the remaining 2,000
shares vesting on March 24, 2000.
(9) Mr. McCubbin is a nominee to be elected to the Company's Board of
Directors.
(10) Does not include 225,000 shares of Common Stock which may be purchased from
the Company by Mr. Yeh at a price of $5.75 per share until March 13, 2008,
pursuant to the exercise of a stock option granted to him on March 13, 1998
under the Incentive Plan, of which 100,000 shares will become exercisable
on January 1, 1999, and with the remaining 125,000 shares becoming
exercisable at such time as the Company achieves certain performance
criteria as set annually by the committee which administers the Incentive
Plan.
12
<PAGE> 17
(11) Includes: (i) the shares referred to as included in notes (4), (6), (7) and
(8) above; (ii) 1,600,000 shares owned of record by Mr. Higgins; (iii) 400
shares of Common Stock owned of record by Jack Effrain; and (iv) 25,000
shares of Common Stock which may be purchased from the Company by James T.
McCubbin at a price of $6.00 per share until February 12, 2008, pursuant to
the exercise of a stock option granted to him on February 12, 1998 under
the Incentive Plan. Does not include (i) the shares referred to as not
included in notes (2), (4), (5), (6), (7), (8) and (10) above; (ii) 100,000
shares of Common Stock which may be purchased from the Company by James T.
McCubbin at a price of $6.00 per share until February 12, 2008, pursuant to
the exercise of the stock option granted to him on February 12, 1998; and
(iii) 75,000 shares of Common Stock which may be purchased from the Company
by Jack Effrain at a price of $5.75 per share until March 13, 2008,
pursuant to the exercise of a stock option granted to him on March 13, 1998
under the Incentive Plan, of which 10,000 shares will become exercisable on
January 1, 1999, and with the remaining 65,000 shares becoming exercisable
at such time as the Company achieves certain performance criteria as set
annually by the committee which administers the Incentive Plan.
STOCK PERFORMANCE CHART
The following chart compares the cumulative total stockholder return for
the Common Stock of the Company (and its predecessors) with the NASDAQ Stock
market (U.S.) Index and the NASDAQ Computer & Data Processing Industry Index
since December 31, 1992.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ZMAX CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX**
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ZMAX NASDAQ NASDAQ
(FISCAL YEAR COVERED) CORPORATION (U.S.) INDEX C&DP INDEX
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 178.00 115.00 106.00
1994 178.00 112.00 129.00
1995 11.00 159.00 196.00
1996 73.00 195.00 242.00
1997 30.00 240.00 297.00
</TABLE>
Assumes $100 invested on December 31, 1992.
* Total return assumes reinvestment of dividends and based on market
capitalization.
** Fiscal year ending December 31.
13
<PAGE> 18
The foregoing Stock Performance Chart shall not be deemed to be filed with
the Securities and Exchange Commission for purposes of the 1934 Act, nor shall
such material be deemed to be incorporated by reference in any past or
subsequent filing by the Company under the 1934 Act or the 1933 Act.
PROPOSAL TWO -- INDEPENDENT ACCOUNTANTS
The Company's Board of Directors has appointed the accounting firm of
Arthur Anderson LLP to serve as the Company's independent accountants for the
current fiscal year ending December 31, 1998. The firm has served in that
capacity for the Company's past two fiscal years. A resolution will be presented
at the Annual Meeting to ratify the appointment by the Company's Board of
Directors of Arthur Anderson LLP to serve as the Company's independent public
accountants for the current fiscal year. A majority vote is required for
ratification. A representative of Arthur Anderson LLP will be present at the
Annual Meeting to answer any questions concerning the Company's financial
statements and to make a statement if he desires to do so.
1999 STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting, which presently is expected to be held in May 1999, must be received by
the Secretary of the Company, 20251 Century Boulevard, Germantown, Maryland
20874, no later than December 4, 1998, in order for them to be considered for
inclusion in the 1999 Proxy Statement.
OTHER MATTERS
Management is not aware of any other matters to be considered at the Annual
Meeting. If any other matters properly come before the Meeting, the persons
named in the enclosed Proxy will vote said Proxy in accordance with their
discretion.
By Order of the Board of Directors
ZMAX CORPORATION
/s/ G.W. Norman Wareham
G. W. Norman Wareham
Secretary
April 3, 1998
14
<PAGE> 19
PROXY
ZMAX CORPORATION
20251 CENTURY BOULEVARD
GERMANTOWN, MARYLAND 20874
This proxy is solicited by the Board of Directors for the ANNUAL
MEETING OF STOCKHOLDERS of ZMAX Corporation (the "Company"), a Delaware
corporation, on May 5, 1998, 10:00 a.m., local time.
The undersigned appoints James T. McCubbin as a proxy of the
undersigned, with full power of substitution, to vote all shares of Common
Stock, par value $.001 per share, of the Company which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held May 5, 1998,
or at any adjournment thereof, with all powers the undersigned would have if
personally present.
The Board of Directors recommends voting FOR the following proposals:
1. To Elect Directors
[ ] FOR all nominees listed below (except as marked to the
contrary below)
MICHAEL C. HIGGINS, G.W. NORMAN WAREHAM and MELVIN A. MCCUBBIN.
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
above.
2. Proposal to ratify the selection of Arthur Anderson LLP as the
independent accountants for the Company for the current fiscal year.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, the Proxies are authorized to vote upon such other
business as properly may come before the meeting.
THE SHARES WILL BE VOTED AS DIRECTED ABOVE, AND WITH RESPECT TO OTHER
MATTERS OF BUSINESS PROPERLY BEFORE THE MEETING AS THE PROXIES SHALL DECIDE.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
<PAGE> 20
[Reverse side]
Sign exactly as your name appears hereon.
When signing in a representative or fiduciary
capacity, indicate title. If shares are held
jointly, each holder should sign.
Date , 1998
---------------------
Signature of Stockholder(s)
