<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.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[ZMAX CORPORATION LOGO]
ZMAX CORPORATION
20251 Century Boulevard
Germantown, Maryland 20874
April 22, 1999
Dear Stockholder:
We are pleased to invite you to attend our Annual Meeting of Stockholders.
This year it will be held on Friday, May 21, 1999, 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, approve the
proposed amendment to the Company's 1997 Stock Incentive Plan to increase the
number of shares of Common Stock issuable thereunder 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
Friday, May 21, 1999, at 10:00 a.m., local time, for the following purposes:
1. To elect two persons as Class II directors of the Company to serve
for a three-year period until the Annual Meeting of Stockholders in the
year 2002;
2. To approve a proposed amendment to the Company's 1997 Stock
Incentive Plan to increase by 1,300,000 shares the number of shares of the
Company's Common Stock authorized for possible issuance under such plan;
3. To ratify the selection of Arthur Anderson LLP as the independent
accountants for the Company for the current fiscal year; and
4. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 15, 1999 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 22, 1999
<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 Friday, May 21, 1999,
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 22, 1999.
VOTING SECURITIES
As of April 15, 1999, a total of 13,117,214 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 April 15, 1999, 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 two
nominees for director listed herein (or their substitutes in the event any of
the nominees is unavailable for election); (2) FOR the approval of the proposed
amendment to the Company's 1997 Stock Incentive Plan to increase the number of
shares of Common Stock issuable thereunder; (3) FOR the ratification of the
selection of Arthur Anderson LLP as the independent accountants for the Company
for the current fiscal year; and (4) 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 II -- TERM EXPIRES AT THE 1999 ANNUAL MEETING OF STOCKHOLDERS
Steve L. Komar
James T. McCubbin
CLASS III -- TERM EXPIRES AT THE 2000 ANNUAL MEETING OF STOCKHOLDERS
Francis T. Schultz
CLASS I -- TERM EXPIRES AT THE 2001 ANNUAL MEETING OF STOCKHOLDERS
Michael C. Higgins
Melvin A. ("Mac") McCubbin
G.W. Norman Wareham
The Bylaws of the Company provide that the Board of Directors will
determine the number of directors to serve on the Board. The Company's Board of
Directors increased its size from six to seven members as a result of the
nomination and election of Melvin A. ("Mac") McCubbin to the Board at the 1998
Annual Meeting of Stockholders of the Company held in May 1998. Six of the seven
members of the Company's Board of Directors are identified above. The Board is
currently seeking an additional candidate to replace a vacancy of a Class III
directorship on the Board created by the retirement of Edward Yourdan in
November 1998. James T. McCubbin, the Vice President, Treasurer and Assistant
Secretary of the Company, was appointed in November 1998 by the Board of
Directors to fill the vacancy of a Class II directorship on the Board which was
created by the retirement of Michel Berty in November 1998. Francis T. Schultz,
the President of Eclipse Information Systems, Inc. ("Eclipse"), a wholly-owned
subsidiary of the Company, was appointed in February 1999 by the Board of
Directors to fill the vacancy of a Class III directorship on the Board which was
created by the retirement of Ted Fine in November 1998.
Proxies will be voted at the Annual Meeting, unless authority is withheld,
FOR the election of the two persons named below, each of whom currently is a
director of the Company. 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
---- ------------- --- --------
<S> <C> <C> <C>
Steve L. Komar...... Director 58 1996(1)
James T. McCubbin... Vice President, Treasurer, 35 1998
Assistant Secretary and
Director
</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.
Steve L. Komar has served as a Director of the Company since its merger
with Old ZMAX in December 1997. Prior to that time, Mr. Komar served as a
Director of Old ZMAX from November 1996 to December 1997. Mr. Komar is a Group
Executive Vice President of Fiserv, Inc., a company listed on NASDAQ which
provides advanced data processing services and related products to the financial
industry. Mr. Komar was formerly Executive Vice President and Chief Financial
Officer of Citicorp Information
2
<PAGE> 7
Resources, Inc. ("CIR"), a wholly owned subsidiary of Citicorp which provided
software and transaction processing services to financial institutions, that was
acquired by Fiserv in 1991. Mr. Komar was with CIR from 1985 through its
acquisition in 1991 by Fiserv. Prior to that time, Mr. Komar was Chief Financial
Officer of Diners Club International, a Citicorp subsidiary. From 1970 through
1980, Mr. Komar was associated with Gulf & Western Industries in several
positions, including being Director of International Special Projects, and
President of Gulf & Western International Holding Company. Mr. Komar is a
graduate of the City University of New York with a Bachelor of Science degree in
Accounting and holds a Masters degree in Finance from Pace University.
James T. McCubbin has served as a Director of the Company since November
1998 when he was appointed by the Board of Directors of the Company to serve the
remaining portion of the term of office of Michel Berty, who retired from the
Board at that time. Mr. McCubbin has served as the Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary of the Company since August
1998. Prior to that time, Mr. McCubbin served as the Vice President, Controller,
Assistant Treasurer and Assistant Secretary of the Company since its merger with
Old ZMAX in December 1997. From 1991 to November 1997, he served as a management
and financial consultant with Marmac Associates. Mr. McCubbin is a graduate of
the University of Maryland with a Bachelor of Science degree in Finance and
holds a Masters degree in International Management from the University of
Maryland.
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, the Chairman of the Board of Directors, is the father of
James T. McCubbin, a Vice President, Treasurer and Assistant Secretary of the
Company.
The Board of Directors has an Audit and Finance Committee, which conducted
four meetings during 1998 and presently consists of G.W. Norman Wareham, Steve
L. Komar, Melvin A. McCubbin and James T. McCubbin. The Audit and Finance
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 1998, 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
1998. 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 1998.
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 1998 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.............. 1998 $177,885 $-0- $ -0- -0- -0- -0-
President & 1997 $147,115 $-0- -0- -0- 337,500(4) -0-
Chief Executive
Officer(3)................ 1996 $ 62,000 $-0- -0- -0- -0- -0-
Joseph Yeh...................... 1998 $136,875 $-0- $ -0- -0- -0- -0-
Senior Vice President -- 1997 $ 86,770 $-0- 38,230 -0- 225,000(6) -0-
Technology of CSI(5) 1996 $ -0- $-0- 40,000 -0- -0- -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
1998.
(2) Reports the number of shares underlying options granted during each of the
respective years.
(3) Mr. Higgins was employed as President of Century Services, Inc. ("CSI")
throughout 1996, and also 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 $5.75 per share, being the fair market
value of the Common Stock on that date. This amendment to Mr. Yeh's option
further provided that the portion of such option which was previously
exercisable as to 100,000 shares would no longer be exercisable until from
and after January 1, 1999.
No Option Grants Table is set forth herein because no options were granted
to the above-named executive officers in 1998. The following Option Exercises
and Year-End Value Table sets forth, for each of the named executive officers,
information regarding the number and value of unexercised options at December
31, 1998. No options were exercised by such persons during 1998.
4
<PAGE> 9
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FY-END IN-THE-MONEY OPTIONS
NUMBER OF (#)(1) AT FY-END ($)
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 /$0
Joseph Yeh.............. -0- -0- 100,000/125,000(4) $0 /$0
</TABLE>
- ---------------
(1) The reported options were granted by the Company to the named executive
officer.
(2) Market value of underlying shares at December 31, 1998, 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 granted on April 17, 1997. The option exercisable in the event Mr.
Higgins achieves certain performance criteria set by the committee which
administers the Company's 1997 Stock Incentive 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 granted on April 17, 1997. The option became 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 Stock Incentive 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 1998.
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 $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 ending on
November 6, 1999, 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 replaced Mr. Yeh's
prior consulting agreement with the Company. The employment agreement is for a
three year term ending January 1, 2000, and is terminable by the Company only
for cause (as defined). The agreement provided that Mr. Yeh's base salary was to
be $140,500 for 1998 with an increase of 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 Company 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
5
<PAGE> 10
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) are also
considered in establishing base salary.
Stock Options. In 1997, the Company adopted the 1997 Stock Incentive 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 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 approximately
$178,000 in 1998, a base salary of $200,000 for 1999, and annual increases plus
a bonus of up to 100% of the base salary, and for its Senior Vice
President -- Technology, Mr. Yeh, that
6
<PAGE> 11
included a base salary of approximately $137,000 in 1998, a base salary of
approximately $151,000 for 1999, 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 1998, a base salary of $135,000
for 1999, and bonus of up to 100% of base salary, subject to the achievement of
certain performance criteria.
In determining the 1998 compensation packages for these executive officers,
the Compensation Committee considered that Mr. Higgins was a founder of the
Company, 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.
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
Stock Incentive 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 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 that 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
7
<PAGE> 12
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").
The following 10-Year Option/SAR Repricing Table sets forth, for each of
the named executive officers, information regarding stock options which have
been repriced within the last ten years.
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............... 3/11/98 337,500 $5.75 $14.31 $5.75
President and Chief
Executive Officer
Joseph Yeh(2).................... 3/11/98 225,000 $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 former Chairman of the Board of Directors, since he was not an
executive officer of the Company, nor Jack Effrain, the Senior Vice
President -- Sales and Marketing of CSI, a subsidiary of the Company. On
March 13, 1998, the option previously granted to Mr. Berty and Mr. Effrain
on April 17, 1997 under the Company's 1997 Stock Incentive 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. Upon Mr. Berty's retirement
from the Company's Board of Directors in November 1998, these options were
cancelled. 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 Stock Incentive Plan. In May 1997, the Board of Directors adopted,
and in December 1997 the stockholders of the Company approved, the Company's
1997 Stock Incentive 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 to
officers, key employees and consultants of the Company to purchase up to an
aggregate of 1,700,000 shares of 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 April 15, 1999, options to purchase a
total of 1,537,500 shares of Common Stock under the Incentive Plan, at prices
ranging from $2.69 to $6.125 per share, were outstanding, of which options to
purchase 222,000 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
8
<PAGE> 13
options under the Director Plan. The Director Plan is administered by a
committee which presently consists of Michael C. Higgins and Melvin A. McCubbin.
Options to purchase 12,000 shares of Common Stock are automatically granted to
non-employee directors upon their first election or appointment to the Board of
Directors, with such options vesting immediately as to 8,000 shares of Common
Stock and vesting 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.
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 5, 1998, a stock option to purchase 12,000 shares of Common Stock
was granted under the terms of the Director Plan to Melvin A. McCubbin. The
exercise price of that options was $5.28 per share. The option vested
immediately as to 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.
On December 10, 1998, the Board of Directors amended the Director Plan to
allow for grants of stock options to non-employee directors in amounts and with
vesting schedules as may be determined by the committee which administers the
Director Plan. On December 10, 1998, options for 10,000 shares of Common Stock
were granted by the Board of Directors under the Director Plan to each of
Messrs. Komar and Wareham in recognition of their exemplary service to the
Company. These options vested immediately with respect to all the shares
underlying the options and expire ten years after the date of grant.
As of April 15, 1999, options to purchase a total of 104,000 shares of
Common Stock had been granted under the Director Plan, at prices ranging from
$3.97 to $14.06 per share, of which options to purchase 68,000 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 Ted Fine, Steve L. Komar, G.W.
Norman Wareham and Ed 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. As a result of the retirement from the
Company's Board of Directors of each of Messrs. Fine and Yourdan in November
1998, they have until November 1999 to exercise these options to purchase 4,000
shares each at the exercise price of $7.66 per share.
On November 2, 1998, Melvin A. McCubbin was granted an option under the
Incentive Plan as a consultant to the Company to purchase 100,000 shares of
Common Stock at an exercise price of $2.94 per share, being the market price of
the Common Stock on the date of grant, with 25% of the shares underlying that
option vesting immediately upon grant and the balance of the shares vesting and
becoming exercisable one year from the date of grant.
DIRECTORS' FEES
Directors who are not officers or employees of the Company receive an
annual fee of $12,000.
OTHER INFORMATION
On November 1, 1998, the Company terminated its consulting agreement with
Michel Berty, a director of the Company, and MBY, Inc., a company wholly-owned
by Michel Berty, for management consulting services. Under the terms of that
consulting agreement, the Company is paying to Mr. Berty and MBY, Inc. a
termination fee of $20,000 per month for the twelve-month period ending October
30, 1999.
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
9
<PAGE> 14
was for a term of one year, with successive automatic renewals for additional
one-year periods. The monthly consulting fee payable to Wareham Management Ltd.
during 1998 was $3,500 plus Canadian goods and services tax and reimbursement of
out-of-pocket expenses. This consulting agreement was not renewed for 1999.
On February 1, 1998, the Company entered into a consulting agreement with
Melvin A. McCubbin for financial and managerial consulting services on a
month-to-month basis for a consulting fee of $3,000 per month plus reimbursement
of out-of-pocket expenses. His consulting fee was increased to $4,000 per month
in November 1998 when Mr. McCubbin became the Chairman of the Company's Board of
Directors. This consulting agreement may be terminated at any time upon 30 days
notice.
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 April 15, 1999 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) each executive
officer of the Company whose 1998 compensation exceeded $100,000 and (iv)all
directors, nominees and officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DIRECTORS, EXECUTIVE OFFICERS, NOMINEES SHARES OF OUTSTANDING
AND 5% STOCKHOLDERS COMMON STOCK(1) COMMON STOCK(1)
--------------------------------------- --------------- ---------------
<S> <C> <C>
Michael C. Higgins (2)...................................... 1,520,000 11.6%
Michael S. Cannon (3)....................................... 1,300,000 9.9%
Steve L. Komar (4).......................................... 26,000 0.2%
G.W. Norman Wareham (5)..................................... 26,000 0.2%
Melvin A. McCubbin (6)...................................... 33,000 0.3%
James T. McCubbin (7)....................................... 25,000 0.2%
Francis T. Schultz (8)...................................... 1,008,150 7.7%
Joseph Yeh (9).............................................. 100,000 0.8%
All directors, nominees and executive officers as a group
(7 persons) (10).......................................... 2,738,150 20.5%
</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.
(3) The address of Mr. Cannon is 142 Brightmoor Court, Henderson, Nevada 89014.
(4) Includes (i) 12,000 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, (ii) 4,000 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, and (iii) 10,000 shares of Common Stock that may be
purchased by Mr. Komar from the Company at a price of $3.97 per share until
December 10, 2008,
10
<PAGE> 15
pursuant to a stock option granted to him on December 10, 1998 under the
Director Plan. Does not include (i) 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 (ii) 2,000 shares of Common Stock
that may purchased by Mr. Komar 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 such shares vesting on March 24, 2000.
(5) Includes (i) 12,000 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, (ii) 4,000 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, and (iii) 10,000 shares of Common Stock that may be
purchased by Mr. Wareham from the Company at a price of $3.97 per share
until December 10, 2008, pursuant to a stock option granted to him on
December 10, 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) 2,000 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
such shares vesting on March 24, 2000.
(6) Includes (i) 25,000 shares of Common Stock that may be purchased by Melvin
A. McCubbin from the Company at a price of $2.94 per share until November
2, 2008, pursuant to a stock option granted to him on November 2, 1998
under the Incentive Plan and (ii) 8,000 shares of Common Stock that may be
purchased by him from the Company at a price of $5.28 per share until May
5, 2008, pursuant to a stock option granted to him on May 5, 1998 under the
Director Plan. Does not include (i) 75,000 shares of Common Stock that may
be purchased by Melvin A. McCubbin from the Company at a price of $2.94 per
share until November 2, 2008, pursuant to a stock option granted to him on
November 2, 1998 under the Incentive Plan, with such shares becoming vested
and exercisable on November 2, 1999, and (ii) 4,000 shares of Common Stock
that may purchased by him from the Company at a price of $5.28 per share
until May 5, 2008, pursuant to the stock option granted to him on May 5,
1998, with 2,000 of such shares vesting on May 5, 1999, and with 2,000 of
such shares vesting on May 5, 2000.
(7) Includes 25,000 shares of Common Stock that may be purchased by James T.
McCubbin from the Company at a price of $6.00 per share until March 12,
2008, pursuant to a stock option granted to him on March 12, 1998 under the
Incentive Plan. Does not include (i) 100,000 shares of Common Stock that
may be purchased by James T. McCubbin from the Company at a price of $6.00
per share until March 12, 2008, pursuant to a stock option granted to him
on March 12, 1998, with such shares becoming vested and exercisable in an
amount and to the extent that the Company achieves certain performance
criteria as set annually by the committee that administers the Incentive
Plan, and (ii) 25,000 shares of Common Stock which may be purchased by
James T. McCubbin from the Company at a price of $2.69 per share until
October 1, 2008, pursuant to a stock option granted to him on October 1,
1998, with such shares becoming vested and exercisable in an amount and to
the extent that the Company achieves certain performance criteria as set
annually by the committee that administers the Incentive Plan.
(8) Does not include 250,000 shares of Common Stock that may be purchased by
Mr. Schultz from the Company at a price of $3.69 per share until December
14, 2008, pursuant to a stock option granted to him on December 14, 1998
under the Incentive Plan, with such shares becoming vested and exercisable
on December 14, 2003, or such earlier date as Eclipse Information Systems,
Inc., a wholly-owned subsidiary of the Company which was acquired from Mr.
Schultz and others on December 14, 1998, achieves certain financial
performance criteria.
11
<PAGE> 16
(9) Includes 100,000 shares of Common Stock that may be purchased by Mr. Yeh
from the Company at a price of $5.75 per share until April 17, 2007,
pursuant to a stock option granted to him on April 17, 1997. Does not
include 125,000 shares of Common Stock that may be purchased by Mr. Yeh
from the Company at a price of $5.75 per share until April 17, 2007,
pursuant to a stock option granted to him on April 17, 1997, which shares
will become vested and exercisable in an amount and to the extent that the
Company achieves certain performance criteria as set annually by the
committee that administers the Incentive Plan.
(10) Includes the shares referred to as included in notes (2), (4), (5), (6),
(7), (8) and (9) above. Does not include the shares referred to as not
included in notes (2), (4), (5), (6), (7), (8) and (9) above.
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**
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ZMAX NASDAQ NASDAQ
(FISCAL YEAR COVERED) CORPORATION (U.S.) INDEX C&DP INDEX
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 100.00 98.00 121.00
1995 6.00 138.00 185.00
1996 41.00 170.00 228.00
1997 17.00 209.00 280.00
1998 9.00 293.00 502.00
</TABLE>
Assumes $100 invested on December 31, 1993.
* Total return assumes reinvestment of dividends and based on market
capitalization.
** Fiscal year ending December 31.
The foregoing Stock Performance Chart shall not be deemed to be filed with
the Securities and Exchange Commission for purposes of the Securities Exchange
Act of 1934, nor shall such material be deemed to be
12
<PAGE> 17
incorporated by reference in any past or subsequent filing by the Company under
the Securities Exchange Act of 1934 or the Securities Act of 1933.
PROPOSAL TWO -- PROPOSED AMENDMENT TO 1997 STOCK INCENTIVE PLAN
On February 12, 1999, the Board of Directors of the Company approved an
amendment to Section 2.2 of the Company's 1997 Stock Incentive Plan (the "Plan")
providing for an increase of 1,300,000 shares in the total number of shares of
Common Stock authorized for issuance under the Plan from 1,700,000 shares to
3,000,000 shares. At April 15, 1999, there were only 162,500 shares available
for the granting of additional options in the future. Approval of the amendment
by the holders of a majority of the Company's outstanding shares of Common Stock
present or represented at the Annual Meeting is required for the amendment to be
duly adopted and become effective.
The following description of the material provisions of the Plan is
qualified by reference to the full provisions of the Plan, a copy of which is
set forth as Exhibit A to this Proxy Statement.
Administration. The Plan is administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Company consisting of
directors appointed by the Board. The members of the Committee are not eligible
to receive options under the Plan. The Committee has the authority to determine
the employees to whom options are granted and, subject to the provisions of the
Plan, the terms of the options granted and whether such options are incentive
stock options under Section 422A of the Code ("ISOs") or non-qualified stock
options ("NQSOs"). (ISOs and NQSOs granted under the Plan are collectively
referred to hereinafter as "Options.")
Purpose. The purpose of the Plan is to attract, retain and motivate
officers and key employees of the Company and its subsidiaries and to provide a
means by which such persons may be given an opportunity to acquire a proprietary
interest in the Company through the ownership of Common Stock.
Eligible Employees. The Plan provides for the granting of ISOs only to
executive officers and key employees of the Company and its subsidiaries that
are selected by the Committee. Approximately 25 persons currently are eligible
to participate under the Plan.
Number of Authorized Shares. Subject to possible adjustment in the event
of a recapitalization, stock split or similar transaction, a total of 1,700,000
shares of Common Stock currently are authorized for possible issuance under the
Plan. The proposed amendment to the Plan calls for the authorization of an
additional 1,300,000 shares of Common Stock over the amount previously
authorized for issuance under the Plan. As of April 15, 1999, Options to
purchase a total of 1,537,500 shares of Common Stock under the Plan, at prices
ranging from $2.69 to $6.125 per share, were outstanding. Therefore, only
162,500 shares are available for the granting of additional options in the
future. Shares of Common Stock subject to Options that lapse or are canceled in
the future will become available for issuance pursuant to other Options to be
granted under the Plan.
Option Exercise and Payment. The aggregate fair market value of the shares
of Common Stock with respect to which ISOs granted under the Plan are
exercisable for the first time by an optionee during any calendar year may not
exceed $100,000. Furthermore, no ISO may be granted under the Plan to any person
who, as the time of the grant, owns capital stock of the Company possessing more
than 10% of the total combined voting power of the Company, unless the exercise
price of the ISO is at least 110% of the fair market value on the date of grant
of the shares of Common Stock subject to the ISO, and the term of the ISO does
not exceed five years from the date of grant.
The exercise price of ISOs as well as NQSOs under the Plan may not be less
than the fair market value of the Common Stock on the date of the Option grant.
In some cases, as discussed above, the exercise price of ISOs may not be less
than 110% of the fair market value of the Common Stock on the date of grant.
"Fair market value" is defined under the Plan generally to mean the high and low
sales prices of the Common Stock on a particular date as reported by the NASDAQ
SmallCap Market (or such other national securities
13
<PAGE> 18
exchange or interdealer quotation system on or in which the shares of Common
Stock are listed or included in the future).
The Plan currently requires that the exercise price of an ISO granted
thereunder be paid for (i) in cash, (ii) in shares of Common Stock already owned
by the optionee and valued at their fair market value on the date of exercise of
the Option, (iii) by requesting the Company to withhold from the number of
shares of Common Stock otherwise issuable upon exercise of the Option that
number of shares of Common Stock having an aggregate fair market value on the
date of exercise equal to the Option price for all the shares of Common Stock
subject to such exercise or (iv) by a combination of (i), (ii) and/or (iii)
above, in the manner provided in the Option agreement entered into in connection
with each Option.
No Option granted under the Plan may be exercised after the expiration of
10 years from the date it was granted. No Option granted under the Plan will
become exercisable until at least six months following its date of grant.
Subject to the above limitations, provisions relating to the time or times
at which an Option may be exercisable will be included in the Option agreement
entered into by the Company and an optionee upon the granting of an Option.
Options granted under the Plan are non-transferable by the optionee otherwise
than by will or the laws of descent and distribution and are exercisable during
the optionee's lifetime only by him or her.
Adjustments Upon Changes in Capitalization. In the event a change in the
Company's capitalization results from a stock split or payment of a stock
dividend or any other increase or decrease in the number of shares of Common
Stock effected without the receipt of consideration, appropriate adjustments
will be made in the exercise price of and number of shares subject to all
outstanding Options. In the event of a proposed dissolution or liquidation of
the Company, each Option will terminate unless otherwise provided by the Board
of Directors. In the event of a proposed sale of substantially all of the assets
of the Company, or the merger of the Company with or into another corporation,
outstanding Options will be assumed or equivalent options will be substituted
unless the Board of Directors makes the Options fully exercisable prior to the
merger. If the Board makes an Option terminate upon a merger or sale of assets,
the Board will notify the optionee that the Option will be fully exercisable for
a period of 30 days from the date of such notice and the Option will terminate
upon the expiration of such period.
Amendment and Termination of the Plan. The Plan provides that the Board of
Directors may amend the Plan at any time or from time to time or may terminate
it without the approval of shareholders; provided, however, that the approval of
the holders of a majority of the outstanding shares of the Company entitled to
vote is required for any amendment which would (i) materially increase the
benefits accruing to participants under the Plan, (ii) materially increase the
number of shares of Common Stock which may be issued under the Plan, or (iii)
materially modify the requirements as to eligibility for participation in the
Plan. No such action by the Board of Directors or shareholders may unilaterally
alter or impair any Option previously granted under the Plan without the consent
of the optionee.
Federal Income Tax Consequences. The grant or exercise of an ISO generally
will not result in taxable income to the optionee. However, the amount by which
the fair market value of the shares of Common Stock at the time of the exercise
of an ISO exceeds the exercise price will be included in determining the
optionee's alternative minimum tax under the Code. Generally, if shares acquired
upon the exercise of an ISO are sold more than two years from the date of grant
of the ISO and more than one year from the date of exercise, the amount, if any,
by which the sale price of such shares exceeds the exercise price will qualify
as a long-term capital gain and will be subject or ordinary income tax rates. If
those holding periods are satisfied, no deduction will be available to the
Company upon the sale of shares acquired through the exercise of an ISO. If the
optionee disposes of the shares before expiration of those holding periods, the
optionee will realize at the time of such disposition taxable ordinary income
equal to the lesser of (i) the excess of the shares' fair market value on the
date of exercise over the exercise price or (ii) the optionee's actual gain, if
any, on the purchase and sale.
14
<PAGE> 19
The grant of a NQSO generally will not result in taxable income to the
optionee. However, upon exercise of a NQSO, the excess of the fair market value
of the shares of Common Stock on the exercise date over the exercise price
generally will constitute ordinary taxable income to the optionee. In the event
of a subsequent sale of shares acquired upon exercise of a NQSO, the amount, if
any, by which the sale price of such shares after the date of exercise of the
NQSO exceeds the exercise price of the NQSO will generally qualify as a capital
gain. The Company will be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the ordinary income
recognized by the optionee, provided any federal income tax withholding
requirements are satisfied.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE
AMENDMENT AUTHORIZING THE ADDITIONAL SHARES FOR POSSIBLE ISSUANCE UNDER THE
PLAN.
PROPOSAL THREE -- INDEPENDENT ACCOUNTANTS
The Company's Board of Directors has appointed the accounting firm of
Arthur Andersen LLP to serve as the Company's independent accountants for the
current fiscal year ending December 31, 1999. The firm has served in that
capacity for the Company's past three fiscal years. A resolution will be
presented at the Annual Meeting to ratify the appointment by the Company's Board
of Directors of Arthur Andersen 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 Andersen 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE
RATIFICATION OF AUDITORS.
2000 STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2000 Annual
Meeting, which presently is expected to be held in May 2000, must be received by
the Secretary of the Company, 20251 Century Boulevard, Germantown, Maryland
20874, no later than December 4, 1999, in order for them to be considered for
inclusion in the 2000 Proxy Statement. A shareholder desiring to submit a
proposal to be voted on at next year's Annual Meeting, but not desiring to have
such proposal included in next year's Proxy Statement relating to that meeting,
should submit such proposal to the Company by February 16, 2000 (i.e., at least
45 days prior to the expected date of the mailing of the Proxy Statement).
Failure to comply with that advance notice requirement will permit management to
use its discretionary voting authority if and when the proposal is raised at the
Annual Meeting without having had a discussion of the proposal in the 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 22, 1999
15
<PAGE> 20
ZMAX CORPORATION
1997 STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1 Definition. Whenever used herein, the masculine pronoun win be deemed
to include the feminine, and the singular to include the plural, unless the
context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Affiliate" means:
(a) an entity that directly or through one or more intermediaries
is controlled by the Company, and
(b) any entity in which the Company has a significant equity
interest, as determined by the Company.
(b) "Board of Directors" means the board of directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the committee appointed by the Board of
Directors to administer the Plan. The Board of Directors shall consider the
advisability of whether the members of the Committee shall consist solely
of at least two members of the Board of Directors who are both "outside
directors" as defined in Treas. Reg. sec. 1. 162-27(e) as promulgated by
the Internal Revenue Service and "non-employee directors" as defined in
Rule 16b-3(b)(3) as promulgated under the Exchange Act.
(e) "Company" means ZMAX Corporation, a Delaware corporation.
(f) "Disability" has the same meaning as provided in the long-term
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any Affiliate of the Company
for the Participant. If no long-term disability plan or policy was ever
maintained on behalf of the Participant or, if the determination of
Disability relates to an Incentive Stock Option, Disability means that
condition described in Code Section 22(e)(3), as amended from time to time.
In the event of a dispute, the determination of Disability will be made by
the Committee and will be supported by advice of a physician competent in
the area to which such Disability relates.
(g) "Dividend Equivalent Rights" means certain rights to receive cash
payments as described in Section 3.5.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(i) "Fair Market Value" with regard to a date means:
(1) the average of the high and low prices at which Stock shall
have been sold on that date or the last trading date prior to
that date as reported by the Nasdaq Stock Market (or, if
applicable, as reported by a national securities exchange
selected by the Committee on which the shares of Stock are then
actively traded) and published in The Wall Street Journal,
(2) if Stock is not traded on a securities exchange, but is
reported by the Nasdaq Stock Market and market information is
published on a regular basis in The Wall Street Journal, the
average of the published high and low sales prices for that
date or the last business day prior to that date as published
in The Wall Street Journal,
(3) if such market information is not published on a regular basis,
the average of the high bid and low asked prices of Stock in
the over-the-counter market on that date or the last business
day prior to that date, as reported by the Nasdaq Stock Market,
or, if not so reported, by a generally accepted reporting
service, or
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(4) if Stock is not publicly traded, as determined in good faith by
the Committee with due consideration being given to (i) the
most recent independent appraisal of the Company if such
appraisal is not more than twelve months old and (ii) the
valuation methodology used in any such appraisal provided that,
for purposes of granting awards other than Incentive Stock
Options, Fair Market Value of the shares of Stock may be
determined by the Committee by reference to the average market
value determined over a period certain or as of specified
dates, to a tender offer price for the shares of Stock (if
settlement of an award is triggered by such an event) or to any
other reasonable measure of fair market value.
(j) "Option" means a non-qualified stock option or an incentive stock
option.
(k) "Over 10% Own" means an individual who at the time an Incentive
Stock Option is granted owns Stock possessing more than 10% of the total
combined voting power of the Company or one of its Subsidiaries, determined
by applying the attribution rules of Code Section 424(d).
(l) "Participant" means an individual who receives a Stock Incentive
hereunder.
(m) "Performance Unit Award" refers to a performance unit award as
described in Section 3.6.
(n) "Phantom Shares" refers to the rights described in Section 3.7.
(o) "Plan" means the ZMAX Corporation 1997 Stock Incentive Plan.
(p) "Stock" means the Company's common stock.
(q) "Stock Appreciation Right" means a stock appreciation right
described in Section 3.4.
(r) "Stock Award" means a stock award described in Section 3.4.
(s) "Stock Incentive Agreement" means an agreement between the Company
and a Participant or other documentation evidencing an award of a Stock
Incentive.
(t) "Stock Incentive Program" means a written program established by
the Committee, pursuant to which Stock Incentives are awarded under the
Plan under uniform terms, conditions and restrictions set forth in such
written program.
(u) "Stock Incentives" means, collectively, Dividend Equivalent
Rights, Incentive Stock Options, Non-Qualified Stock Options, Phantom
Shares, Stock Appreciation Rights and Stock Awards.
(v) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, with respect
to Incentive Stock Options, at the time of the granting of the Option, each
of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(w) "Termination of Employment" means the termination of the
employee/employer relationship between a Participant and the Company and
its Affiliates, regardless of whether severance or similar payments are
made to the Participant for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability or
retirement. The Committee will, in its absolute discretion, determine the
effect of all matters and questions relating to a Termination of
Employment, including, but not by way of limitation, the question of
whether a leave of absence constitutes a Termination of Employment.
SECTION 2 THE STOCK INCENTIVE PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive to
officers and key employees of the Company and its Affiliates to stimulate their
efforts toward the continued success of the Company and to operate and manage
the business in a manner that will provide for the long-term growth and
profitability of the Company; (b) encourage stock. ownership by officers and key
employees by providing them with a means to acquire a proprietary interest in
the Company, acquire shares of Stock, or to receive compensation which is
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based upon appreciation in the value of Stock; and (c) provide a means of
obtaining, rewarding and retaining key personnel and consultants.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
Section 5.2, 1,700,000 shares [proposed to be increased to 3,000,000 shares] of
Stock (the "Maximum Plan Shares") are hereby reserved exclusively for issuance
pursuant to Stock Incentives. At no time may the Company have outstanding under
the Plan, Stock Incentives subject to Section 16 of the Exchange Act and shares
of Stock issued in respect of Stock Incentives under the Plan in excess of the
Maximum Plan Shares. The shares of Stock attributable to the nonvested, unpaid,
unexercised, unconverted or otherwise unsettled portion of any Stock Incentive
that is forfeited or cancelled or expires or terminates for any reason without
becoming vested, paid, exercised, converted or otherwise settled in full will
again be available for purposes of the Plan.
2.3 Administration of the Plan. The Plan is administered by the
Committee. The Committee has full authority in its discretion to determine the
officers and key employees of the Company or its Affiliates to whom Stock
Incentives will be granted and the terms and provisions of Stock Incentives,
subject to the Plan. Subject to the provisions of the Plan, the Committee has
full and conclusive authority to interpret the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms and
provisions of the respective Stock Incentive Agreements and to make all other
determinations necessary or advisable for the proper administration of the Plan.
The Committee's determinations under the Plan need not be uniform and may be
made by it selectively among persons who receive, or are eligible to receive,
awards under the Plan (whether or not such persons are similarly situated). The
Committee's decisions are final and binding on all Participants.
2.4 Eligibility and Limits. Stock Incentives may be granted only to
officers, and key employees and consultants of the Company, or any Affiliate of
the Company; provided, however, that an incentive stock option may only be
granted to an employee of the Company or any Subsidiary. In the case of
incentive stock options, the aggregate Fair Market Value (determined as at the
date an incentive stock option is granted) of stock with respect to which stock
options intended to meet the requirements of Code Section 422 become exercisable
for the first time by an individual during any calendar year under all plans of
the Company and its Subsidiaries may not exceed $100,000; provided further, that
if the limitation is exceeded, the incentive stock option(s) which cause the
limitation to be exceeded will be treated as nonqualified stock option(s).
SECTION 3 TERMS OF STOCK INCENTIVES
3.1 Terms and Conditions of All Stock Incentives.
(a) The number of shares of Stock as to which a Stock Incentive may be
granted will be determined by the Committee in its sole discretion, subject
to the provisions of Section 2.2 as to the total number of shares available
for grants under the Plan and subject to the limits on Options and Stock
Appreciation Rights in the following sentence. To the extent required under
Section 162(m) of the Code and the regulations thereunder for compensation
to be treated as qualified performance based compensation, the maximum
number of shares of Stock with respect to which Options or Stock
Appreciation Rights may be granted during any one year period to any
employee may not exceed 1,700,000. [proposed to be increased to 3,000,000].
(b) Each Stock Incentive will either be evidenced by a Stock Incentive
Agreement in such form and containing such terms, conditions and
restrictions as the Committee may determine to be appropriate, or be made
subject to the terms of a Stock Incentive Program, containing such terms,
conditions and restrictions as the Committee may determine to be
appropriate. Each Stock Incentive Agreement or Stock Incentive Program is
subject to the terms of the Plan and any provisions contained in the Stock
Incentive Agreement or Stock Incentive Program that are inconsistent with
the Plan are null and void.
(c) The date a Stock Incentive is granted will be the date on which
the Committee has approved the terms and conditions of the Stock Incentive
and has determined the recipient of the Stock Incentive
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and the number of shares covered by the Stock Incentive, and has taken all
such other actions necessary to complete the grant of the Stock Incentive.
(d) Any Stock Incentive may be granted in connection with all or any
portion of a previously or contemporaneously granted Stock Incentive.
Exercise or vesting of a Stock Incentive granted in connection with another
Stock Incentive may result in a pro rata surrender or cancellation of any
related Stock Incentive, as specified in the applicable Stock Incentive
Agreement or Stock Incentive Program.
3.2 Terms and Conditions of Options. Each Option granted under the Plan
must be evidenced by a Stock Incentive Agreement. At the time any Option is
granted, the Committee will determine whether the Option is to be an incentive
stock option described in Code Section 422 or a non-qualified stock option, and
the Option must be clearly identified as to its status as an incentive stock
option or a non-qualified stock option. Incentive stock options may only be
granted to employees of the Company or any Subsidiary. At the time any incentive
stock option granted under the Plan is exercised, the Company will be entitled
to legend the certificates representing the shares of Stock purchased pursuant
to the Option to clearly identify them as representing the shares purchased upon
the exercise of an incentive stock option. An incentive stock option may only be
granted within ten (10) years from the earlier of the date the Plan is adopted
or approved by the Company's stockholders.
(a) Option Price. Subject to adjustment in accordance with Section 5.2
and the other provisions of this Section 3.2, the exercise price (the
"Exercise Price") per share of Stock purchasable under any Option must be
as set forth in the applicable Stock Incentive Agreement, but in no event
may it be less than the Fair Market Value on the date the Option is granted
with respect to an incentive stock option. With respect to each grant of an
incentive stock option to a Participant who is an Over 10% Owner, the
Exercise Price may not be less than 110% of the Fair Market Value on the
date the Option is granted. The Exercise Price of an Option may be amended
or modified after the grant of the Option, and an Option may be surrendered
in consideration of or exchanged for a grant of a new Option having an
Exercise Price below that of the Option which was surrendered or exchanged.
(b) Option Term. Any incentive stock option granted to a Participant
who is not an Over 10% Owner is not exercisable after the expiration of ten
(10) years after the date the Option is granted. Any incentive stock option
granted to an Over 10% Owner is not exercisable after the expiration of
five (5) years after the date the Option is granted. The term of any
Non-Qualified Stock Option must be as specified in the applicable Stock
Incentive Agreement.
(c) Payment. Payment for all shares of Stock purchased pursuant to
exercise of an Option will be made in any form or manner authorized by the
Committee in the Stock Incentive Agreement or by amendment thereto,
including, but not limited to, cash or, if the Stock Incentive Agreement
provides:
(i) by delivery to the Company of a number of shares of Stock which
have been owned by the holder for at least six (6) months prior
to the date of exercise having an aggregate Fair Market Value of
not less than the product of the Exercise Price multiplied by
the number of shares the Participant intends to purchase upon
exercise of the Option on the date of delivery;
(ii) in a cashless exercise through a broker; or
(iii) by having a number of shares of Stock withheld, the Fair
Market Value of which as of the date of exercise is
sufficient to satisfy the Exercise Price.
In its discretion, the Committee also may authorize (at the time an Option is
granted or thereafter) Company financing to assist the Participant as to payment
of the Exercise Price on such terms as may be offered by the Committee in its
discretion. Payment must be made at the time that the Option or any part thereof
is exercised, and no shares may be issued or delivered upon exercise of an
option until full payment has been made by the Participant. The holder of an
Option, as such, has none of the rights of a stockholder.
(d) Conditions to the Exercise of an Option. Each Option granted under
the Plan is exercisable by whom, at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the
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Committee specifies in the Stock Incentive Agreement; provided, however,
that subsequent to the grant of an Option, the Committee, at any time
before complete termination of such Option, may accelerate the time or
times at which such Option may be exercised in whole or in part, including,
without limitation, upon a Change in Control and may permit the Participant
or any other designated person to exercise the Option, or any portion
thereof, for all or part of the remaining Option term, notwithstanding any
provision of the Stock Incentive Agreement to the contrary.
(e) Termination of Incentive Stock Option. With respect to an
incentive Stock option, in the event of termination of employment of a
Participant, the Option or portion thereof held by the Participant which is
unexercised will expire, terminate, and become unexercisable no later than
the expiration of three (3) months after the date of termination of
employment; provided, however, that in the case of a holder whose
termination of employment is due to death or Disability, one (1) year will
be substituted for such three (3) month period; provided, further that such
time limits may be exceeded by the Committee under the terms of the grant,
in which case, the incentive stock option will be a nonqualified option if
it is exercised after the time limits that would otherwise apply. For
purposes of this Subsection (e), termination of employment of the
Participant will not be deemed to have occurred if the Participant is
employed by another corporation (or a parent or subsidiary corporation of
such other corporation) which has assumed the incentive stock option of the
Participant in a transaction to which Code Section 424(a) is applicable.
(f) Serial Provisions for Certain Substitute Options. Notwithstanding
anything to the contrary in this Section 3.2, any Option issued in
substitution for an option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in
accordance with such Code Section and the regulations thereunder and may
contain such other terms and conditions as the Committee may prescribe to
cause such substitute Option to contain as nearly as possible the same
terms and conditions (including the applicable vesting and termination
provisions) as those contained in the previously issued option being
replaced thereby.
3.3 Terms and Conditions of Stock Appreciation Rights. Each Stock
Appreciation Right granted under the Plan must be evidenced by a Stock Incentive
Agreement. A Stock Appreciation Right entitles the Participant to receive the
excess of (1) the Fair Market Value of a specified or determinable number of
shares of the Stock at the time of payment or exercise over (2) a specified or
determinable price which, in the case of a Stock Appreciation Right granted in
connection with an Option, may not be less than the Exercise Price for that
number of shares subject to that Option. A Stock Appreciation Right granted in
connection with a Stock Incentive may only be exercised to the extent that the
related Stock Incentive has not been exercised, paid or otherwise settled.
(a) Settlement. Upon settlement of a Stock Appreciation Right, the
Company must pay to the Participant the appreciation in cash or shares of
Stock (valued at the aggregate Fair Market Value on the date of payment or
exercise) as provided in the Stock Incentive Agreement or, in the absence
of such provision, as the Committee may determine.
(b) Conditions to Exercise. Each Stock Appreciation Right granted
under the Plan is exercisable or payable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee
specifies in the Stock Incentive Agreement; provided, however, that
subsequent to the grant of a Stock Appreciation Right, the Committee, at
any time before complete termination of such Stock Appreciation Right, may
accelerate the time or times at which such Stock Appreciation Right may be
exercised or paid in whole or in part.
3.4 Terms and Conditions of Stock Awards. The number of shares of Stock
subject to a Stock Award and restrictions or conditions on such shares, if any,
will be as the Committee determines, and the certificate for such shares will
bear evidence of any restrictions or conditions. Subsequent to the date of the
grant of the Stock Award, the Committee has the power to permit, in its
discretion, an acceleration of the expiration of an applicable restriction
period with respect to any part or all of the shares awarded to a Participant.
The Committee may require a cash payment from the Participant in an amount no
greater than the aggregate Fair
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Market Value of the shares of Stock awarded determined at the date of grant in
exchange for the grant of a Stock Award or may grant a Stock Award without the
requirement of a cash payment.
3.5 Terms and Conditions of Dividend Equivalent Right. A Dividend
Equivalent Right entitles the Participant to receive payments from the Company
in an amount determined by reference to any cash dividends paid on a specified
number of shares of Stock to Company stockholders of record during the period
such rights are effective. The Committee may impose such restrictions and
conditions on any Dividend Equivalent Right as the Committee in its discretion
shall determine, including the date any such right shall terminate and may
reserve the right to terminate, amend or suspend any such right at any time.
(a) Payment. Payment in respect of a Dividend Equivalent Right may be
made by the Company in cash or shares of Stock (valued at Fair Market Value
on the date of payment) as provided in the Stock Incentive Agreement or
Stock Incentive Program, or, in the absence of such provision, as the
Committee may determine.
(b) Conditions to Payment. Each Dividend Equivalent Right granted
under the Plan is payable at such time or times, or upon the occurrence of
such event or events, and in such amounts, as the Committee specifies in
the applicable Stock Incentive Agreement or Stock Incentive Program;
provided, however, that subsequent to the grant of a Dividend Equivalent
Right, the Committee, at any time before complete termination of such
Dividend Equivalent Right, may accelerate the time or times at which such
Dividend Equivalent Right may be paid in whole or in part.
3.6 Terms and Conditions of Performance Unit Awards. A Performance Unit
Award shall entitle the Participant to receive, at a specified future date,
payment of an amount equal to all or a portion of the value of a specified or
determinable number of units (stated in terms of a designated or determinable
dollar amount per unit) granted by the Committee. At the time of the grant, the
Committee must determine the base value of each unit, the number of units
subject to a Performance Unit Award, the performance factors applicable to the
determination of the ultimate payment value of the Performance Unit Award and
the period over which Company performance shall be measured. The Committee may
provide for an alternate base value for each unit under certain specified
conditions.
(a) Payment. Payment in respect of Performance Unit Awards may be made
by the Company in cash or shares of Stock (valued at Fair Market Value on
the date of payment) as provided in the applicable Stock Incentive
Agreement or Stock Incentive Program or, in the absence of such provision,
as the Committee may determine.
(b) Conditions to Payment. Each Performance Unit Award granted under
the Plan shall be payable at such time or times, or upon the occurrence of
such event or events, and in such amounts, as the Committee shall specify
in the applicable Stock Incentive Agreement or Stock Incentive Program;
provided, however, that subsequent to the grant of a Performance Unit
Award, the Committee, at any time before complete termination of such
Performance Unit Award, may accelerate the time or times at which such
Performance Unit Award may be paid in whole or in part.
3.7 Terms and Conditions of Phantom Shares. Phantom Shares shall entitle
the Participant to receive, at a specified future date, payment of an amount
equal to all or a portion of the Fair Market Value of a specified number of
shares of Stock at the end of a specified period. At the time of the grant, the
Committee will determine the factors which will govern the portion of the rights
so payable, including, at the discretion of the Committee, any performance
criteria that must be satisfied as a condition to payment. Phantom Share awards
containing performance criteria may be designated as Performance Share Awards.
(a) Payment. Payment in respect of Phantom Shares may be made by the
Company in cash or shares of Stock (valued at Fair Market Value on the date
of payment) as provided in the applicable Stock Incentive Agreement or
Stock Incentive Program, or, in the absence of such provision, as the
Committee may determine.
(b) Conditions to Payment. Each Phantom Share granted under the Plan
is payable at such time or times, or upon the occurrence of such event or
events, and in such amounts, as the Committee specify in
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the applicable Stock Incentive Agreement or Stock Incentive Program;
provided, however, that subsequent to the grant of a Phantom Share, the
Committee, at any time before complete termination of such Phantom Share,
may accelerate the time or times at which such Phantom Share may be paid in
whole or in part.
3.8 Treatment of Awards Upon Termination of Employment. Except as
otherwise provided by Plan Section 3.2(e), any award under this Plan to a
Participant who has experienced a Termination of Employment may be cancelled,
accelerated, paid or continued, as provided in the applicable Stock Incentive
Agreement or Stock Incentive Program, or, in the absence of such provision, as
the Committee may determine. The portion of any award exercisable in the event
of continuation or the amount of any payment due under a continued award may be
adjusted by the Committee to reflect the Participant's period of service from
the date of grant through the date of the Participant's Termination of
Employment or such other factors as the Committee determines are relevant to its
decision to continue the award.
SECTION 4 RESTRICTIONS ON STOCK
4.1 Escrow of Shares. Any certificates representing the shares of Stock
issued under the Plan will be issued in the Participant's name, but, if the
applicable Stock Incentive Agreement or Stock Incentive Program so provides, the
shares of Stock will be held by a custodian designated by the Committee (the
Custodian"). Each applicable Stock Incentive Agreement or Stock Incentive
Program providing for transfer of shares of Stock to the Custodian must appoint
the Custodian as the attorney-in-fact for the Participant for the term specified
in the applicable Stock Incentive Agreement or Stock Incentive program, with
full power and authority in the Participant's name, place and stead to transfer,
assign and convey to the Company any shares of Stock held by the Custodian for
such Participant, if the Participant forfeits the shares under the terms of the
applicable Stock Incentive Agreement or Stock Incentive Program. During the
period that the Custodian holds the shares subject to this Section, the
Participant is entitled to all rights, except as provided in the applicable
Stock Incentive Agreement or Stock Incentive Program, applicable to shares of
Stock not so held. Any dividends declared on shares of Stock held by the
Custodian must provide in the applicable Stock Incentive Agreement or Stock
Incentive Program, be paid directly to the Participant or, in the alternative,
be retained by the Custodian or by the Company until the expiration of the term
specified in the applicable Stock Incentive Agreement or Stock Incentive Program
and shall then be delivered, together with any proceeds, with the shares of
Stock to the Participant or to the Company, as applicable.
4.2 Restrictions on Transfer. The Participant does not have the right to
make or permit to exist any disposition of the shares of Stock issued pursuant
to the Plan except as provided in the Plan or the applicable Stock Incentive
Agreement or Stock Incentive Program. Any disposition of the shares of Stock
issued under the Plan by the Participant not made in accordance with the Plan or
the applicable Stock Incentive Agreement or Stock Incentive Program will be
void. The Company will not recognize, or have the duty to recognize, any
disposition not made in accordance with the Plan and the applicable Stock
Incentive Agreement or Stock Incentive Program, and the shares so transferred
will continue to be bound by the Plan and the applicable Stock Incentive
Agreement or Stock Incentive Program.
SECTION 5 GENERAL PROVISIONS
5.1 Withholding. The Company must deduct from all cash distributions
under the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan or upon the vesting of any Stock Award, the
Company has the right to require the recipient to remit to the Company an amount
sufficient to satisfy any federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares or the
vesting of such Stock Award. A Participant may pay the withholding tax in cash,
or, if the applicable Stock Incentive Agreement or Stock Incentive Program
provides, a Participant may elect to have the number of shares of Stock he is to
receive reduced by, or with respect to a Stock Award, tender back to the
Company, the smallest number of whole shares of Stock which, when multiplied by
the Fair Market Value of the shares of Stock determined as of the Tax Date
(defined below), is sufficient to satisfy federal, state and local, if any,
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withholding taxes arising from exercise or payment of a Stock Incentive (a
"Withholding Election"). A Participant may make a Withholding Election only if
both of the following conditions are met:
(a) The Withholding Election must be made on or prior to the date on
which the amount of tax required to be withheld is determined (the "Tax
Date") by executing and delivering to the Company a properly completed
notice of Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable except on six
months advance written notice delivered to the Company; however, the
Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
5.2 Changes in Capitalization: Merger: Liquidation.
(a) The number of shares of Stock reserved for the grant of Options,
Dividend Equivalent Rights, Performance Unit Awards, Phantom Shares, Stock
Appreciation Rights and Stock Awards; the number of shares of Stock
reserved for issuance upon the exercise or payment, as applicable, of each
outstanding Option, Dividend Equivalent Right, Phantom Share and Stock
Appreciation Right and upon vesting or grant, as applicable, of each Stock
Award; the Exercise Price of each outstanding Option and the specified
number of shares of Stock to which each outstanding Dividend Equivalent
Right, Phantom Share and Stock Appreciation Right pertains must be
proportionately adjusted for any increase or decrease in the number of
issued shares of Stock resulting from a subdivision or combination of
shares or the payment of a stock dividend in shares of Stock to holders of
outstanding shares of Stock or any other increase or decrease in the number
of shares of Stock outstanding effected without receipt of consideration by
the Company.
(b) In the event of a merger, consolidation or other reorganization of
the Company or tender offer for shares of Stock, the Committee may make
such adjustments with respect to awards and take such other action as it
deems necessary or appropriate to reflect such merger, consolidation,
reorganization or tender offer, including, without limitation, the
substitution of new awards, or the adjustment of outstanding awards, the
acceleration of awards, the removal of restrictions on outstanding awards,
or the termination of outstanding awards in exchange for the cash value
determined in good faith by the Committee of the vested portion of the
award. Any adjustment pursuant to this Section 5.2 may provide, in the
Committee's discretion, for the elimination without payment therefor of any
fractional shares that might otherwise become subject to any Stock
Incentive, but except as set forth in this Section may not otherwise
diminish the then value of the Stock Incentive.
(c) The existence of the Plan and the Stock Incentives granted
pursuant to the Plan must not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification,
reorganization or other change in its capital or business structure, any
merger or consolidation of the Company, any issue of debt or equity
securities having preferences or priorities as to the Stock or the rights
thereof, the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any other
corporate act or proceeding.
5.3 Cash Awards. The Committee may, at any time and in its discretion,
grant to any holder of a Stock Incentive the right to receive, at such times and
in such amounts as determined by the Committee in its discretion, a cash amount
which is intended to reimburse such person for all or a portion of the federal,
state and local income taxes imposed upon such person as a consequence of the
receipt of the Stock Incentive or the exercise of rights thereunder.
5.4 Compliance with Code. All incentive stock options to be granted
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all incentive stock options granted hereunder must be construed in
such manner as to effectuate that intent.
5.5 Right to Terminate Employment. Nothing in the Plan or in any Stock
Incentive confers upon any Participant the right to continue as an employee or
officer of the Company or any of its Affiliates or affect the right of the
Company or any of its Affiliates to terminate the Participant's employment at
any time.
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5.6 Non-alienation of Benefits. Other than as specifically provided with
regard to the death of a Participant, no benefit under the Plan may be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge; and any attempt to do so shall be void. No such benefit
may, prior to receipt by the Participant, be in any manner liable for or subject
to the debts, contracts, liabilities, engagements or torts of the Participant.
5.7 Restrictions on Delivery and Sale of Shares: Legends. Each Stock
Incentive is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Stock Incentive upon any securities exchange or under
any state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Stock Incentive or the purchase or delivery
of shares thereunder, the delivery of any or all shares pursuant to such Stock
Incentive may be withheld unless and until such listing, registration or
qualification shall have been effected. If a registration statement is not in
effect under the Securities Act of 1933 or any applicable state securities laws
with respect to the shares of Stock purchasable or otherwise deliverable under
Stock Incentives then outstanding, the Committee may require, as a condition of
exercise of any Option or as a condition to any other delivery of Stock pursuant
to a Stock Incentive, that the Participant or other recipient of a Stock
Incentive represent, in writing, that the shares received pursuant to the Stock
Incentive are being acquired for investment and not with a view to distribution
and agree that the shares will not be disposed of except pursuant to an
effective registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such requirement under
the Securities Act of 1933 and any applicable state securities laws. The Company
may include on certificates representing shares delivered pursuant to a Stock
Incentive such legends referring to the foregoing representations or
restrictions or any other applicable restrictions on resale as the Company, in
its discretion, shall deem appropriate.
5.8 Listing and Legal Compliance. The Committee may suspend the exercise
or payment of any Stock Incentive so long as it determines that securities
exchange listing or registration or qualification under any securities laws is
required in connection therewith and has not been completed on terms acceptable
to the Committee.
5.9 Termination and Amendment of the Plan. The Board of Directors at any
time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No such termination or
amendment without the consent of the holder of a Stock Incentive may adversely
affect the rights of the Participant under such Stock Incentive.
5.10 Stockholder Approval. The Plan must be submitted to the stockholders
of the Company for their approval within twelve (12) months before or after the
adoption of the Plan by the Board of Directors of the Company. If such approval
is not obtained, any Stock Incentive granted hereunder will be void.
5.11 Choice of Law. The laws of the State of Maryland govern the Plan, to
the extent not preempted by federal law, without reference to the principles of
conflict of laws.
5.12 Effective Date of Plan. The Plan shall become effective April 17,
1997, subject, however, to the approval of the Plan by the Company's
shareholders. Stock Incentives granted hereunder prior to such approval shall be
conditioned Upon such approval. Unless Such approval is obtained within one year
after the effective date of this Plan and any Stock Incentives awarded hereunder
shall become void thereafter.
ZMAX CORPORATION
By: /s/ Michael C. Higgins
Michael C. Higgins
President
A-9
<PAGE> 29
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 21, 1999, 10:00 a.m., local time.
The undersigned appoints each of Michael C. Higgins and Melvin A. McCubbin
as a proxy of the undersigned, each 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 21, 1999, or at any adjournment thereof, with all powers the
undersigned would have if personally present.
(CONTINUED AND TO BE SIGNED AND DATED ON REVERSE SIDE.)
<PAGE> 30
------------------------------------------------
WHEN PROXY IS OKAYED PLEASE SIGN & DATE IT ABOVE
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
ZMAX CORPORATION
MAY 21, 1999
\/ PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED \/
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
<TABLE>
<S> <C> <C>
(1) To Elect Directors FOR all nominees / / WITHHOLD AUTHORITY / /
listed at right to vote for all nominees
(except as marked listed at right
to the contrary
below)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE FOLLOWING PROPOSALS:
NOMINEES: Steve L. Komar
James T. McCubbin
(INSTRUCTION: To withhold authority for any individual nominee, write that
nominee's name on the space provided below.)
- ----------------------------------------------------------------------------
(2) Proposal to amend the 1997 Stock Incentive Plan to increase by 1,300,000
shares the number of shares of the Company's Common Stock authorized for
possible issuance under such plan.
FOR / / AGAINST / / ABSTAIN / /
(3) Proposal to ratify the selection of Arthur Andersen LLP as the independent
accountants for the Company for the current fiscal year.
FOR / / AGAINST / / ABSTAIN / /
(4) In their discretion, the Proxies are authorized to vote upon such other
business as properly may come before the meeting.
FOR / / AGAINST / / ABSTAIN / /
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.
Signature(s)____________________________ Date______________, 1999
(NOTE: 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.)
