================================================================================
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:
[ X ] Preliminary Proxy Statement [ ] Confidential, For use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
OAO TECHNOLOGY SOLUTIONS, INC.
(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
[ ] 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>
[OAOT LOGO]
7500 Greenway Center Drive
16th Floor
Greenbelt, MD 20770
Phone: (301) 486-0400
Fax: (301) 486-0415
Internet: www.oaot.com
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
You are invited to attend the OAO Technology Solutions, Inc. 1999 Annual
Meeting of Stockholders.
DATE: Friday, May 14, 1999
TIME: 9:00 a.m. Eastern time
PLACE: Renaissance Mayflower Hotel
1127 Connecticut Avenue, N.W.
Washington, DC 20036
(202) 347-3000
DIRECTIONS: Included on the last page
Only stockholders who owned stock at the close of business on March 31, 1999,
can vote at this meeting or any adjournments that may take place.
At the meeting, we will be voting on the following matters:
o the election of seven directors,
o amendments to the 1996 Equity Compensation Plan,
o an amendment to our Certificate of Incorporation to increase the number of
shares of common stock authorized for issuance,
o an amendment to our Certificate of Incorporation to increase the number of
shares of preferred stock authorized for issuance,
o ratification of our selection of auditors for the year ending December 31,
1999, and
o any other business properly presented at the meeting.
We also will report on our 1998 business results and other matters of interest
to our stockholders. You will have an opportunity at the meeting to ask
questions, make comments, and meet our management team.
Our board of directors is a vital resource. We consider your vote important, no
matter how many shares you hold, and we encourage you to vote as soon as
possible.
We have rewritten and reformatted our proxy statement to make it easier to read.
We encourage you to read this document, and we welcome your comments on the new
format.
<PAGE>
The proxy statement, accompanying proxy card, and Annual Report on Form 10-K are
being mailed to stockholders beginning April 23, 1999, in connection with the
solicitation of proxies by the board of directors.
Please contact Chris Ducanes at 301-486-2323 with any questions or concerns.
Sincerely,
/s/ Gregory A. Pratt /s/ James A. Ounsworth
- ------------------------------------ ----------------------------
Gregory A. Pratt James A. Ounsworth
President and Chief Executive Officer Secretary
April 23, 1999
<PAGE>
- ------------------------------------------------------------------------------
QUESTIONS AND ANSWERS
- ------------------------------------------------------------------------------
Q: Who is entitled to vote?
A: Stockholders of record as of the close of business on March 31, 1999, may
vote at the annual meeting.
Q: How many shares can vote?
A: On March 31, 1999, there were 16,698,490 shares issued and outstanding.
Every stockholder may cast one vote for each share owned.
Q: What may I vote on?
A: You may vote on the following items:
o the election of seven directors who have been nominated to serve on our
board of directors,
o amendments to our 1996 Equity Compensation Plan,
o an amendment to our Certificate of Incorporation to increase the number of
shares of common stock authorized for issuance,
o an amendment to our Certificate of Incorporation to increase the number of
shares of preferred stock authorized for issuance,
o ratification of our selection of auditors, and
o any other business that is properly presented at the meeting.
Q: How does the board recommend I vote on the proposals?
A: The board recommends a vote FOR each board nominee and FOR each of the
other proposals.
Q: How do I vote?
A: Sign and date each proxy card you receive, mark the boxes indicating how you
wish to vote, and return the proxy card in the prepaid envelope provided.
If you sign your proxy card but do not mark any boxes showing how you wish to
vote, Gregory Pratt and Christopher Ducanes will vote your shares as
recommended by the board of directors.
Q: What if I hold my OAO Technology shares in a brokerage account?
A: If you hold your shares through a broker, bank or other nominee, you will
receive a voting instruction form directly from them describing how to vote
your shares. This form will, in most cases, offer you three ways to vote:
1. by telephone,
2. via the Internet, or
3. by returning the form to your broker.
Q: What if I want to change my vote?
A: You may change your vote at any time before the meeting in any of the
following three ways:
1. notify our corporate secretary, in writing,
2. vote in person at the meeting, or
3. submit a proxy card with a later date.
If you hold your shares through a broker, bank or other nominee and wish to
vote at the meeting, you must obtain a legal proxy from that nominee
authorizing you to vote at the meeting. We will be unable to accept a vote
from you at the meeting without that form. If you hold your shares directly
and wish to vote at the meeting, no additional forms will be required.
Q: How will directors be elected?
A: The seven nominees who receive the highest number of affirmative votes at
a meeting at which a quorum is present will be elected as directors.
Q: What vote is required to adopt the other items that are on the meeting
agenda?
A: The following votes will be required for each item:
o On the amendments to the 1996 Equity Compensation Plan, a quorum must be
present and voting on the plan, and a majority of the votes cast must be
in favor of the amendments to the plan.
[OAOT LOGO] 1
<PAGE>
- ------------------------------------------------------------------------------
QUESTIONS AND ANSWERS
- ------------------------------------------------------------------------------
o On the amendments to our Certificate of Incorporation, a majority of the
votes cast by all stockholders entitled to vote on each separate proposal
must be in favor of the proposal.
o On the ratification of our selection of auditors, we are not required
under the laws of the State of Delaware to submit this to a vote. However,
our board of directors will consider your vote in selecting auditors for
future years.
Q: Who will count the votes?
A: A representative of ChaseMellon Shareholder Services, L.L.C., our
registrar and transfer agent, will count the votes and act as the
inspector of elections.
Q: What does it mean if I get more than one proxy card?
A: Your shares may be registered differently or may be in more than one
account. We encourage you to have all accounts registered in the exact same
name and address (whenever possible). You may obtain information about how to
do this by contacting our transfer agent:
ChaseMellon Shareholder Services
85 Challenger Road
Ridgefield Park, NJ 07660
Toll-free telephone 800-526-0801.
If you provide ChaseMellon with photocopies of the proxy cards that you
receive or with the account numbers that appear on each proxy card, it will
be easier to accomplish this.
You also can find information on transferring shares and other useful
stockholder information on their web site at www.chasemellon.com.
Q: What is a quorum?
A: A quorum is a majority of the outstanding shares. The shares may be
represented at the meeting either in person or by proxy. To hold the
meeting, there must be a quorum present.
If you submit a properly executed proxy, your shares will be counted as part
of the quorum even if you abstain from voting or withhold your vote for a
particular director.
Q: What is the effect if I abstain or fail to give instructions to my broker?
A: If you submit a properly executed proxy, your shares will be counted as
part of the quorum even if you abstain from voting or withhold your vote for
a particular director.
Broker non-votes also are counted as part of the quorum. A broker non-vote
occurs when banks, brokers or other nominees holding shares on behalf of a
stockholder do not receive voting instructions from the stockholder by a
specified date before the meeting. In this event, banks, brokers and other
nominees may vote those shares on matters deemed routine. The election of
directors, the amendment to our Certificate of Incorporation to increase
authorized shares of common stock, and ratification of the selection of
auditors are considered routine matters. The amendments to the 1996 Equity
Compensation Plan and the amendment to the Certificate of Incorporation to
increase the authorized shares of preferred stock are considered non-routine
matters. Therefore, brokers, banks or other nominees will not be able to vote
on those two proposals without instructions from the stockholder. This will
result in a "broker non-vote" on each matter equal to the number of shares
for which they do not receive specific voting instructions.
[OAOT LOGO] 2
<PAGE>
- ------------------------------------------------------------------------------
QUESTIONS AND ANSWERS
- ------------------------------------------------------------------------------
Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders and have the effect of negative votes. A "withheld"
vote is treated the same as an abstention. Broker non-votes are not counted
for purposes of determining whether a proposal has been approved.
Q: Who can attend the meeting?
A: All stockholders are encouraged to attend the meeting. Admission tickets
are not required.
Q: Are there any expenses associated with collecting the stockholder votes?
A: We will reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy
and other materials to our stockholders. We do not anticipate hiring an
agency to solicit votes at this time.
Q: What is a stockholder proposal?
A: A stockholder proposal is your recommendation or requirement that OAOT or our
board of directors take action on a matter that you intend to present at a
meeting of stockholders. However, under applicable rules we have the ability
to exclude certain matters proposed, including those that deal with matters
relating to our ordinary business operations.
Q: Can anyone submit a stockholder proposal?
A: To be eligible to submit a proposal, you must have continuously held at least
$2,000 in market value, or 1% of our common stock, for at least one year by
the date you submit your proposal. You also must continue to hold those
securities through the date of the meeting.
Q: If I wish to submit a stockholder proposal for the annual meeting in 2000,
what action must I take?
A: If you wish us to consider including a stockholder proposal in the proxy
statement for the annual meeting in 2000, you must submit the proposal, in
writing, so that our corporate secretary receives it no later than
December 24, 1999. The proposal must meet the requirements established by
the SEC. Send your proposal to:
Chris Ducanes, Corporate Counsel
OAO Technology Solutions, Inc.
7500 Greenway Center Drive
16th Floor
Greenbelt, MD 20770
If you wish to present a proposal at the annual meeting in 2000 that has not
been included in the proxy statement, the management proxies will be allowed
to use their discretionary voting authority unless notice of your proposal
has been received by our corporate secretary no later than March 9, 2000.
Q: Who are OAO Technology's largest stockholders?
A: Safeguard Scientifics, Inc., our largest stockholder, beneficially owns
33.1% of our outstanding shares of common stock. Mr. Barker, our vice
chairman, beneficially owns 18.9% of our common stock. Other directors
and executive officers beneficially own a total of approximately 4.2%. At
December 31, 1998, no other stockholder owned more than 5% of our stock.
[OAOT LOGO] 3
<PAGE>
- ------------------------------------------------------------------------------
ELECTION OF DIRECTORS
Item 1 on Proxy Card
- ------------------------------------------------------------------------------
Directors are elected annually and serve a one-year term. There are seven
nominees for election this year. Each nominee, with the exception of Richard B.
Lieb, is currently serving as a director. Each nominee has consented to serve
until the next annual meeting if elected. You will find detailed information on
each nominee below. If any director is unable to stand for re-election after
distribution of this proxy statement, the board may reduce its size or designate
a substitute. If the Board designates a substitute, proxies voting on the
original director candidate will be cast for the substituted candidate.
The board recommends a vote FOR each nominee. The seven nominees who receive the
highest number of affirmative votes will be elected as directors.
- ------------------------------------------------------------------------------
JERRY L. JOHNSON Director since 1996
Age 51
Mr. Johnson has served as chairman of the board of directors of OAO Technology
since April 1996. Mr. Johnson is executive vice president of Safeguard
Scientifics, Inc., a company that develops and operates emerging growth
information technology companies. Mr. Johnson initially joined Safeguard in
September 1995 as senior vice president of operations and was promoted to his
current position in March 1999. From 1985 to 1995, Mr. Johnson held various
senior executive positions with US West, including group director, vice
president of network and technology services and vice president of residence
planning. From 1983 to 1985, he was president and chief executive officer of
Northwestern Bell Information Technologies, a subsidiary of Northwestern Bell
Telephone Company. Mr. Johnson is a member of the International Society of Sloan
Fellows.
- ------------------------------------------------------------------------------
CECILE D. BARKER Director since 1996
Age 55
Mr. Barker has served as vice chairman of the board of directors of OAO
Technology since April 1996. Mr. Barker is chairman of the board, chief
executive officer and a majority owner of OAO Corporation, a company he
founded in 1973 to provide total solutions for aerospace and information
systems industries. Mr. Barker regularly serves as an advisor to other
corporations, and he is a member of the Advisory Committee for Scientific
Policy for the National Science Foundation and the Science and Technology
Advisory Committee for the Executive Office of the President of the United
States. Mr. Barker has over 28 years of experience in the management of
major scientific, technological and commercial programs.
[OAOT LOGO] 4
<PAGE>
- ------------------------------------------------------------------------------
ELECTION OF DIRECTORS
Item 1 on Proxy Card
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
GREGORY A. PRATT Director since 1998
Age 50
Mr. Pratt joined OAO Technology as president and chief executive officer in July
1998. Prior to joining OAO Technology, Mr. Pratt was chief executive officer of
Enterprise Technology Group, a company he founded in 1997 to provide
integration, implementation and training services for SAP(TM) and Microsoft(R)
applications. From 1992 to 1996, Mr. Pratt was president and chief operating
officer for Intelligent Electronics, a provider or information technology
products, services and solutions to corporate customers, educational
institutions and governmental agencies in the United States. Mr. Pratt has 20
years of information technology industry experience.
- ------------------------------------------------------------------------------
YVONNE BRATHWAITE BURKE Director since 1997
Age 66
Ms. Burke has served as supervisor of the Second District of the County of
Los Angeles since 1992. Ms. Burke also serves on the board of L.A. Care and
NAACP Legal Defense and Education Fund. Ms. Burke is a member of the board
of trustees of the Amateur Athletic Foundation and the National Academy of
Public Trusteeship and serves on the advisory committee of NESTLE, USA. Ms.
Burke is a former US. Congresswoman, who served on the Appropriations
Committee, Departments of State, Justice and Commerce, and on the Select
Committee on Assassinations.
- ------------------------------------------------------------------------------
FRANK B. FOSTER, III Director since 1997
Age 66
Mr. Foster retired as president and chief executive officer of Diamond Bathurst
(formerly Diamond Glass) in 1987 after almost 30 years of service and is
currently a business consultant. Since 1987, Mr. Foster has served on the boards
of numerous companies and is currently a director of 1838 Investment Advisors,
Airgas, Inc., and Contour Packaging, Inc.
- ------------------------------------------------------------------------------
JOHN F. LEHMAN Director since 1997
Age 56
Mr. Lehman is chairman of the board of directors of J.F. Lehman & Co., a
private equity firm. He also serves on the board of directors of Ball
Corporation, ISO Corporation, Burke Industries, Igor Corporation and SDI
Inc. Mr. Lehman was an investment banker at Paine Webber Inc. and served as
Secretary of the Navy for six years. He served as staff member to Dr. Henry
Kissinger on the National Security Council.
- ------------------------------------------------------------------------------
RICHARD B. LIEB Director Nominee
Age 51
Mr. Lieb is president of SEI's Investment Systems and Services Division, and
is responsible for the overall business of SEI's Trust Technology,
Proprietary and Back Office Services. Mr. Lieb has held numerous positions
since joining SEI in 1976, including senior vice president of operating
services, senior vice president of business development, and president of
insurance asset services. Mr. Lieb is a director of SEI.
- ------------------------------------------------------------------------------
[OAOT LOGO] 5
<PAGE>
- ------------------------------------------------------------------------------
BOARD OF DIRECTORS -- ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
Board Meetings: The board of directors held 8 meetings in 1998. Each
director attended at least 75% of the total number of meetings of the board
and committees of which he or she was a member.
Board Compensation: Directors who are not officers, employees or consultants
of OAOT or Safeguard Scientifics receive the following compensation:
o $6,000 annually
o $1,000 annually for chairing the audit
committee
o $1,000 for each board meeting
attended
o $1,000 for each committee meeting
attended
o reimbursement of out-of-pocket
expenses
Additionally, each director who is not an officer, employee or consultant of
OAOT or Safeguard receives a stock option to purchase 20,000 shares of our
common stock upon initial election to the board. Each eligible director also
receives a grant of a stock option to purchase 4,000 shares of our common stock
on the second anniversary of his or her election as a board member.
Directors' options have a ten-year term and vest 25% each year starting on the
grant date. The exercise price is equal to the fair market value of a share of
our common stock on the grant date.
No options were granted to directors during 1998.
- ------------------------------------------------------------------------------
BOARD COMMITTEE MEMBERSHIP ROSTER
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Audit Compensation
- --------------------------------------------------------------------------------
Meetings held in 1998 4 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Yvonne Brathwaite Burke X X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Frank B. Foster, III X* X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
John F. Lehman X X*
- --------------------------------------------------------------------------------
* Chairperson
Compensation Committee
o reviews and recommends the compensation arrangements for senior management,
including salaries, bonuses, and options
o administers our equity compensation plan
Audit Committee
o recommends the hiring and retention of our independent certified public
accountants
o discusses the scope and results of our audit with the independent certified
public accountants
o reviews with management and the independent certified public accountants the
interim and year-end operating results
o considers the adequacy of our internal accounting controls and audit
procedures
o reviews the non-audit services to be performed by the independent certified
public accountants
[OAOT LOGO] 6
<PAGE>
- ------------------------------------------------------------------------------
ADOPTION OF AMENDMENTS TO THE
1996 EQUITY COMPENSATION PLAN
Item 2 on Proxy Card
- ------------------------------------------------------------------------------
Background
Our 1996 Equity Compensation Plan was initially adopted in 1996. Since only
96,299 shares remained available for issuance under that plan, in February 1999,
our board adopted, subject to stockholder approval, an amendment to the plan
authorizing the issuance of an additional 3,400,000 shares under the plan. The
board also approved other amendments to the plan, including, among other things,
a change in the definition of fair market value and the addition of individuals
to whom an offer of employment has been extended as eligible participants under
the plan.
Our board believes that the additional shares should be made available under our
1996 Plan to enable us to continue to attract and retain outstanding executives
and employees. OAOT believes that the 1996 Plan will encourage the participants
to contribute materially to our growth, thereby benefiting our stockholders, and
will align the economic interests of the participants with those of the
stockholders. OAOT is located in a geographical area where demand for skilled
individuals in our industry is extremely high and very competitive. We use
grants under our 1996 Plan as a significant portion of our broad-based incentive
compensation, awarding grants to many layers of the organization far below the
senior executive ranks. We have historically granted incentive stock options and
non-qualified stock options with an exercise price that has been at least equal
to the fair market value at the time of grant. We most likely will continue to
do so in the future except in those limited circumstances where the compensation
committee believes a different type of grant is warranted.
The board recommends a vote FOR approval of the amendments to the 1996 Plan.
Approval of the amendments to the 1996 Plan requires a majority of the votes
cast at a meeting at which a quorum representing a majority of all outstanding
voting stock is present, either in person or by proxy, and voting on the
amendments. If the stockholders do not approve the amendments, then the number
of shares that may be issued under the 1996 Plan will not exceed 3,200,000
shares.
Purpose of the 1996 Plan
The 1996 Plan provides participants with an opportunity to receive grants of
stock options, stock appreciation rights, restricted stock, and performance
units.
We believe the 1996 Plan will encourage the participants to contribute to our
growth, thus benefiting our stockholders, and will align the economic interests
of the participants with those of our stockholders.
The 1996 Plan is not qualified under section 401(a) of the Internal Revenue Code
and is not subject to the provisions of the Employee Retirement Income Security
Act.
Shares Subject to the 1996 Plan
The 1996 Plan, as amended, authorizes the issuance of up to a total of 6,600,000
shares of our common stock, subject to adjustment as discussed below. The
maximum number of shares that may be granted to any individual during any
calendar year is 1,600,000. If options or stock appreciation rights granted
under the plan terminate, expire or are canceled, forfeited, exchanged or
surrendered without being exercised, or if a restricted stock award or
performance unit is forfeited, those shares will again be available for purposes
of the 1996 Plan.
Of the additional shares authorized for issuance, options for 650,951 of such
shares already have been awarded to certain executives and other employees and
[OAOT LOGO] 7
<PAGE>
750,000 additional shares have been committed for issuance pursuant to the terms
of Mr. Pratt's employment agreement. The balance of the newly authorized shares
will be available for grants to existing and future employees from time to time.
At March 31, 1999, of the 6,600,000 shares authorized for issuance, 248,769
shares have been issued upon exercise of options, 3,602,182 shares are subject
to options outstanding under the plan, and 2,749,049 shares remain available for
future issuance. The closing price of a share of our common stock on March 31,
1999, was $3.25 per share.
Administration of the 1996 Plan
The 1996 Plan is administered by the compensation committee, which is currently
composed of Frank Foster, John Lehman and Yvonne Brathwaite Burke. The committee
currently satisfies the requirement of section 162(m) of the Internal Revenue
Code of 1986 that grants made under the 1996 Plan be approved by a committee
appointed by the board consisting of not less than two persons who are "outside
directors."
The committee has the authority to administer and interpret the 1996 Plan.
Specifically, the committee is authorized to
o determine the individuals to whom grants will be made,
o determine the type, size and terms of the grants,
o determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability,
o make factual determinations and adopt or amend appropriate rules,
regulations, agreements and instruments for implementing the 1996 Plan, and
o deal with any other matters arising under the plan.
Eligibility for Participation and Grants
Those eligible to receive grants are employees (including officers or members of
the board), individuals to whom we have offered employment, and non-employee
directors of OAOT or any subsidiary, as well as advisors who perform services
for OAOT or any subsidiary. There are approximately 2,000 employees, 5
non-employee directors, and 4 advisors currently eligible to receive grants.
Grants may consist of incentive stock options, non-qualified stock options,
restricted stock awards, stock appreciation rights, or performance units. All
grants are subject to the terms and conditions of the 1996 Plan.
Grants will continue to vest and remain exercisable as long as a participant
remains in our service and for a period of time after termination. In
determining whether a participant will be considered to have terminated service
for purposes of exercising options and stock appreciation rights and satisfying
conditions with respect to restricted stock and performance units awarded under
the 1996 Plan, a participant will not be considered to have terminated service
until the participant ceases to serve as an employee of OAOT or any subsidiary,
advisor, and member of the board. The committee has the authority to waive or
modify these termination provisions.
Stock Options
Grant of Stock Options. The committee may grant options qualifying as incentive
stock options to participants who are employees. The committee may grant
non-qualified stock options to any participant. Grants to employees may be made
in any combination of incentive stock options and non-qualified stock options.
Option Price. The option exercise price is determined by the committee at the
time of grant. To qualify as an incentive stock option, the exercise price may
not be less than the fair market value of the common stock at the time of grant,
which is determined by averaging the high and low traded prices on the grant
date. Also, the value, determined as of the grant date, of any incentive stock
options
[OAOT LOGO] 8
<PAGE>
held by a participant that become exercisable for the first time during any
calendar year cannot exceed $100,000. If a participant owns stock having more
than 10% of the voting power of OAOT, the exercise price of an incentive stock
option may not be less than 110% of the fair market value of the common stock on
the date of grant.
Term and Exercisability of Stock Options. The committee determines the term of
stock options granted under the 1996 Plan although the term may not exceed ten
years. If a participant owns stock having more than 10% of the voting power of
OAOT, the term of an incentive stock option may not exceed five years. The
committee determines how stock options will become exercisable and may
accelerate vesting at any time for any reason.
Manner of Exercise of Stock Options. To exercise a stock option, a
participant must deliver a written exercise notice specifying the number of
shares to be purchased together with payment of the option exercise price.
The exercise price may be paid in any of the following ways:
o in cash,
o by delivering shares of OAOT common stock already owned by the participant
having a fair market value equal to the exercise price,
o in a combination of cash and shares, or
o any other method of payment the committee may approve, including a "cashless
exercise" of a stock option effected by delivering a notice of exercise to
OAOT and a securities broker, with instructions to the broker to deliver to
OAOT out of the sale proceeds the amount necessary to pay the exercise price.
In the case of a non-qualified stock option, we are also required to withhold
the applicable taxes. If approved by the committee, the income tax withholding
obligation may be satisfied by withholding shares of an equivalent market value.
Shares of common stock tendered in payment of the exercise price must have been
held by the participant long enough to avoid adverse accounting consequences to
OAOT.
Termination of Stock Options as a Result of Termination of Employment,
Disability or Death. Generally, vested stock options will remain exercisable
as follows:
o for one year following termination of service if an individual dies or is
disabled or
o for 90 days following termination of service for any other reason.
The committee, either at or after grant, may provide for different termination
provisions. Options which are not exercisable at termination of service are
terminated as of that date.
If service is terminated for cause, the committee may terminate all stock
options held by a participant at the date of termination. The committee also
may, upon refund of the exercise price, require the participant to forfeit all
shares underlying any exercised portion of an option for which we have not yet
delivered the share certificates and any option gain realized by the participant
from exercising all or any portion of an option within the two-year period prior
to the termination.
Transferability of Stock Options. Generally, only a participant may exercise
rights under a stock option during his or her lifetime, and those rights may not
be transferred except by will or by the laws of descent and distribution. When a
participant dies, the personal representative or other person entitled to
succeed to his or her rights may exercise those rights upon furnishing
satisfactory proof of that person's right to receive the stock option. The
committee may nevertheless choose to provide with respect to non-qualified stock
options that a participant may transfer those options to family members or other
persons or entities.
Restricted Stock Grants
The committee may provide an employee or advisor with an opportunity to acquire
[OAOT LOGO] 9
<PAGE>
shares of our common stock contingent upon his or her continued service or the
satisfaction of other criteria. Restricted stock differs from a stock option in
that a participant must make an immediate decision whether to make an investment
in the stock. The committee determines the amount to be paid for the stock or
may decide to grant the stock for no consideration. The committee may specify
that the restrictions will lapse over a period of time or according to any other
factors or criteria. If a participant's service terminates during the period of
any restrictions, the restricted stock grant will terminate with respect to all
shares as to which the restrictions on transfer have not lapsed, unless the
committee provides for an exception to this requirement. Until the restrictions
on transfer have lapsed, a participant may not in any way dispose of the shares
of common stock to which the restriction applies. All restrictions lapse upon
the expiration of the applicable restriction period. Unless the committee
determines otherwise, however, during the restriction period the participant has
the right to vote restricted shares and to receive any dividends or other
distributions paid on them, subject to any restrictions specified by the
committee.
Stock Appreciation Rights
The committee may provide an employee or advisor with the right to receive a
benefit measured by the appreciation in a specified number of shares of our
common stock over a period of time. The amount of this benefit is equal to the
difference between the fair market value of the stock on the exercise date and
the base amount of the stock appreciation right (SAR). Generally, the base
amount of a SAR is equal to the per share exercise price of the related stock
option or, if there is no related option, the fair market value of a share of
common stock on the date the SAR is granted. The committee may pay this benefit
in cash, in stock, or any combination of the two.
The committee may grant a SAR either separately or in tandem with all or a
portion of a stock option. SARs may be granted when the stock option is granted
or later while it remains outstanding. In the case of an incentive stock
option, SARs may be granted only at the time the option is granted. Tandem
SARs may not exceed the number of shares of common stock that the participant
may purchase upon the exercise of the related stock option during the period.
Upon the exercise of a stock option, the SARs relating to the common stock
covered by the stock option terminate. Upon the exercise of SARs, the related
stock option terminates to the extent of an equal number of shares of common
stock.
SARs are subject to the same termination provisions on death, disability or
termination of service as stock options. The committee may accelerate the
exercisability of any or all outstanding SARs.
Performance Units
The committee may grant performance units to employees or advisors representing
a right to receive an amount based on the value of the performance unit if the
performance goals established by the committee are met. A performance unit may
be based on the fair market value of a share of common stock or on any other
measurement base that the committee deems appropriate. The committee will
determine the number of performance units to be granted, the requirements
applicable to the performance units, the period during which the performance
will be measured, the performance goals applicable to the performance units, and
any other conditions that the committee deems appropriate. At the end of each
performance period, the committee will determine to what extent the performance
goals and other conditions of the performance unit have been met and the amount,
if any, to be paid with respect to the performance units. Payments may be made
in cash, in common stock, or in a combination of the two, as determined by the
committee. Unless the committee provides for a complete or partial exception,
performance units are forfeited if the conditions of the grant are not met and
are subject to the same termination provisions on death, disability or
termination of service as stock options.
[OAOT LOGO] 10
<PAGE>
Qualified Performance-Based Compensation
The committee may designate performance units and restricted stock granted to an
employee as qualified performance-based compensation under section 162(m) of the
Code upon the establishment of appropriate performance goals and performance
periods as provided in section 162(m) of the Code. If restricted stock or
performance units measured with respect to the fair market value of our common
stock are granted, not more than 1,600,000 shares of the common stock may be
granted to an employee under the performance units or restricted stock for any
performance period. If performance units are measured with respect to other
criteria, the maximum amount that may be paid to an employee with respect to a
performance period is $1,000,000. The committee will certify and announce the
results for each performance period to all participants immediately following
the announcement of our financial results for the performance period. If and to
the extent the committee does not certify that the performance goals have been
met, the grants of restricted stock or performance units for the performance
period will be forfeited.
Termination of the 1996 Plan; Amendment of Options
The board may amend or terminate the 1996 Plan at any time. The 1996 Plan will
terminate, in any event, on May 2, 2006.
Grants made prior to termination will remain in effect after termination of the
1996 Plan unless the participant consents or unless the committee revokes or
amends a grant in accordance with the terms of the 1996 Plan. The termination of
the 1996 Plan will not impair the power and authority of the committee with
respect to outstanding grants.
Adjustment Provisions
The committee will adjust the number and exercise price of outstanding grants,
as well as the number and kind of shares available for grants and individual
limits for any single participant under the 1996 Plan, to appropriately reflect
any of the following events:
o a stock dividend, spinoff, recapitalization, stock split, or combination or
exchange of shares;
o a merger, reorganization or consolidation in which OAOT is the surviving
corporation;
o a reclassification or change in par value;
o any other extraordinary or unusual event affecting the outstanding common
stock as a class without OAOT's receipt of consideration; or
o a substantial reduction in the value of outstanding shares of common stock as
a result of a spinoff or OAOT's payment of an extraordinary dividend or
distribution.
Reorganization; Change in Control
Upon a reorganization where OAOT is not the surviving corporation, or survives
only as a subsidiary of another corporation, unless the committee determines
otherwise, all outstanding stock options and SARs that are not exercised shall
be assumed by, or replaced with comparable options or rights by, the surviving
corporation.
Nevertheless, the committee may take the following actions:
o require that participants surrender their outstanding options and SARs in
exchange for a payment, in cash or common stock, in an amount equal to the
amount by which the then fair market value subject to the grants exceeds the
exercise price of the options or the base amount of the SARs or
o terminate any or all unexercised options or SARs as of the date of the
reorganization or such other date as the committee specifies after giving
participants an opportunity to exercise their outstanding options or SARs.
[OAOT LOGO] 11
<PAGE>
Federal Income Tax Consequences
The current federal income tax treatment of grants under the 1996 Plan is
described below. Local and state tax authorities also may tax incentive
compensation awarded under the 1996 Plan. Because of the complexities involved
in the application of tax laws to specific circumstances and the uncertainties
as to possible future changes in those laws, we urge participants to consult
their own tax advisors concerning the application of the general principles
discussed below to their own situations and the application of state and local
tax laws.
Incentive Stock Options. A participant will not recognize taxable income for the
purpose of the regular income tax upon either the grant or exercise of an
incentive stock option. However, for purposes of the alternative minimum tax
imposed under the Code, in the year in which an incentive stock option is
exercised, the amount by which the fair market value of the shares acquired upon
exercise exceeds the exercise price will be treated as an item of adjustment.
If a participant disposes of the shares acquired under an incentive stock option
after at least two years following the date of grant and at least one year
following the date of exercise, the participant will recognize a long-term
capital gain or loss equal to the difference between the amount realized upon
the disposition and the exercise price. We will not be entitled to any tax
deduction by reason of the grant or exercise of the incentive stock option.
If a participant disposes of shares acquired upon exercise of an incentive stock
option before satisfying both holding period requirements (known as a
disqualifying disposition), the gain recognized on the disposition will be taxed
as ordinary income to the extent of the difference between the lesser of the
sale price or the fair market value of the shares on the date of exercise and
the exercise price. We will be entitled to a federal income tax deduction in the
same amount. The gain, if any, in excess of the amount recognized as ordinary
income on a disqualifying disposition will be long-term or short-term capital
gain, depending upon the length of time the participant held the shares before
the disposition.
If a participant tenders shares of common stock received upon the exercise of an
incentive stock option to pay the exercise price within either the two-year or
one-year holding periods described above, the disqualifying disposition of the
shares used to pay the exercise cost will result in income (or loss) to the
participant and, to the extent of a recognized gain, a tax deduction to OAOT.
If, however, the holding period requirements are met and the number of shares
received on the exercise does not exceed the number of shares surrendered, the
participant will recognize no gain or loss with respect to the surrendered
shares and will have the same basis and holding period with respect to the newly
acquired shares as with respect to the surrendered shares. To the extent that
the number of shares received exceeds the number surrendered, the participant's
basis in the excess shares will equal the amount of cash paid by the participant
upon the original exercise of the stock option, and the participant's holding
period with respect to the excess shares will begin on the date the shares are
transferred to the participant. The tax treatment described above for shares
newly received upon exercise is not affected by using shares to pay the exercise
price.
Non-qualified Stock Options. There are no federal income tax consequences to a
participant or OAOT upon the grant of a non-qualified stock option. Upon the
exercise of a non-qualified stock option, a participant generally will recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares at the time of exercise over the exercise price, and we will be entitled
to a corresponding federal income tax deduction.
If a participant surrenders shares to pay the exercise price, and the number of
shares received on the exercise does not exceed the number of shares
surrendered, the participant will recognize no gain or loss
[OAOT LOGO] 12
<PAGE>
on the surrendered shares, and will have the same basis and holding period for
the newly acquired shares as for the surrendered shares. To the extent that the
number of shares received exceeds the number surrendered, the fair market value
of the excess shares on the date of exercise, reduced by any cash paid by the
participant upon exercise, will be includible in the gross income of the
participant. The participant's basis in the excess shares will equal the sum of
the cash paid by the participant upon the exercise of the stock option plus any
amount included in the participant's gross income as a result of the exercise of
the stock option.
The committee may permit a participant to surrender or deliver shares otherwise
issuable upon exercise, or previously acquired shares, to satisfy the federal
income tax withholding, subject to the restrictions set forth in the 1996 Plan.
Such an election will result in a disposition of the shares surrendered or
delivered, and an amount will be included in the participant's income equal to
the excess of the fair market value of the shares over the participant's basis
in the shares.
Upon the sale of the shares acquired by the exercise of a non-qualified stock
option, a participant will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the exercise price plus the amount of ordinary
income recognized by the participant at the time of exercise of the
non-qualified stock options).
Restricted Stock. A participant normally will not recognize taxable income upon
the award of a restricted stock grant, and we will not be entitled to a
deduction, until the stock is transferable by the participant or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the common stock is either transferable or no longer
subject to a substantial risk of forfeiture, the participant will recognize
ordinary compensation income in an amount equal to the fair market value of the
common stock at that time, less any consideration paid by the participant for
the shares, and we will be entitled to a federal income tax deduction in the
same amount. A participant may, however, elect to recognize ordinary
compensation income in the year the restricted stock grant is awarded in an
amount equal to the fair market value of the common stock at that time less any
consideration paid by the participant for the shares, determined without regard
to the restrictions. In such event, we generally will be entitled to a
corresponding federal income tax deduction in the same year. Any gain or loss
recognized by the participant upon a subsequent disposition of the shares will
be capital gain or loss. If, after making the election, any shares subject to a
restricted stock grant are forfeited, or if the market value declines during the
restriction period, the participant is not entitled to any tax deduction or tax
refund if the participant does not recover any consideration paid by the
participant for the restricted stock.
Stock Appreciation Rights. There are no federal income tax consequences to a
participant or to OAOT upon the grant of a SAR. Upon the exercise of a SAR, a
participant will recognize ordinary compensation income in an amount equal to
the cash and the fair market value of the shares of common stock received upon
exercise. We generally will be entitled to a corresponding federal income tax
deduction at the time of exercise. Upon the sale of any shares acquired by the
exercise of a SAR, a participant will have a capital gain or loss (long-term or
short-term depending upon the length of time the shares were held) in an amount
equal to the difference between the amount realized upon the sale and the
participant's adjusted tax basis in the shares (the amount of ordinary income
recognized by the participant at the time of exercise of the SAR).
Performance Units. A participant will not recognize any income upon the grant of
a performance unit. At the time the committee determines an amount, if any, to
[OAOT LOGO] 13
<PAGE>
be paid with respect to performance units, the participant will recognize
ordinary compensation income in an amount equal to the cash and the fair market
value of the shares of common stock authorized for payment by the committee. We
generally will be entitled to a corresponding federal income tax deduction. Upon
the sale of any shares acquired, a participant will have a capital gain or loss
(long-term or short-term depending upon the length of time the shares were held)
in an amount equal to the difference between the amount realized upon the sale
and the participant's adjusted tax basis in the shares (the amount of ordinary
income recognized by the participant upon payment of the shares).
Tax Withholding. All grants under the 1996 Plan are subject to applicable tax
withholding requirements. We have the right to deduct from all grants paid in
cash, or from other wages paid to a participant, any taxes required by law to be
withheld with respect to the grant. If grants are paid in shares of common
stock, we may require a participant to pay the amount of any taxes that we are
required to withhold or may deduct the amount of withholding taxes from other
wages paid to the participant. If approved by the committee, the income tax
withholding obligation with respect to grants paid in common stock may be
satisfied by having shares withheld up to an amount that does not exceed the
participant's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. Our obligations under the 1996 Plan are conditional upon
the payment or arrangement for payment of any required withholding.
Section 162(m). Under section 162(m) of the Code, we may be precluded from
claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated employees in any one year. Total remuneration may include
amounts received upon the exercise of stock options and SARs granted under the
1996 Plan, the value of shares subject to restricted stock grants when the
shares become nonforfeitable (or such other time when income is recognized) and
the amounts received pursuant to other grants under the 1996 Plan. An exception
does exist, however, for "performance-based compensation." Grants of stock
options and SARs generally will meet the requirements of "performance-based
compensation." Restricted stock grants generally will not qualify as, and
performance units may not qualify as, "performance-based compensation."
[OAOT LOGO] 14
<PAGE>
NEW PLAN BENEFITS
The following table shows the number of options that were granted under the 1996
Equity Compensation Plan subject to stockholder approval at the annual meeting
of the proposal contained in Item 2 above and the number of shares that have
been committed for issuance pursuant to the terms of Mr. Pratt's employment
agreement.
- --------------------------------------------------------------------------------
1996 EQUITY COMPENSATION PLAN
- --------------------------------------------------------------------------------
Name and Position Dollar Value ($)(1) Number of Units
- --------------------------------------------------------------------------------
Gregory A. Pratt, Chief $ 0 950,000
Executive Officer and
President (2)
- --------------------------------------------------------------------------------
William R. Hill, former $ 0 0
Chief Executive Officer
and President
- --------------------------------------------------------------------------------
Edgar M. Fields, former $ 0 0
Chief Operating Officer
- --------------------------------------------------------------------------------
Samuel D. Horgan, former $ 0 0
Chief Financial Officer
- --------------------------------------------------------------------------------
Executive Group(3) $ 0 1,050,000
- --------------------------------------------------------------------------------
Non-executive Director $ 0 0
Group
- --------------------------------------------------------------------------------
Non-executive Officer $ 0 350,951
Employee Group
- --------------------------------------------------------------------------------
(1) All options have an exercise price at least equal to the fair market value
of our shares of common stock as of the grant date. As optionees must pay
the exercise price to us to acquire the shares upon exercise of the option,
the dollar value of benefits received by or allocated to the optionees on
the grant date was zero.
(2) Includes 750,000 shares that have been committed for issuance pursuant to
the terms of Mr. Pratt's employment agreement. The purchase price for the
shares will be equal to the fair market value of the shares.
(3) Includes 200,000 options granted to Mr. Pratt, 750,000 shares committed for
issuance to Mr. Pratt, and 100,000 options granted to Mr. Fox.
[OAOT LOGO] 15
<PAGE>
- ------------------------------------------------------------------------------
RESOLUTION TO AMEND
THE CERTIFICATE OF INCORPORATI0N
Items 3 and 4 on Proxy Card
- --------------------------------------------------------------------------------
Proposed Amendments
Our board of directors is recommending that the stockholders approve the
following two amendments to our Certificate of Incorporation:
Item 3--to increase the number of authorized shares of common stock from
25,000,000 to 50,000,000.
Item 4--to increase the number of authorized shares of preferred stock from
5,000,000 to 10,000,000.
The board recommends a vote FOR approval of both of these amendments to the
Certificate of Incorporation.
Background
As of March 31, 1999:
o 16,698,490 shares of common stock were issued and outstanding,
o 6,351,231 shares of common stock were reserved for issuance under our equity
compensation plan (which includes the 3,400,000 shares of common stock to be
reserved for issuance under the proposed amendment to the 1996 Equity
Compensation Plan described in the second proposal),
o 1,000,000 shares of common stock were reserved for issuance under our
employee stock purchase plan, and
o no shares of preferred stock were issued, outstanding, or reserved for
issuance.
The additional shares of common stock for which authorization is sought will be
identical to the shares of common stock now authorized. Holders of common stock
do not have preemptive rights to subscribe to additional securities that may be
issued by OAOT.
The board of directors may issue the additional shares of preferred stock for
which authorization is sought in one or more classes or series. Prior to the
issuance of the shares, the board also may establish the number of preferred
shares in each class or series and the attributes of each class or series,
including dividend rates, liquidation preferences, conversion rights, voting
rights, redemption prices, and similar matters relating to preferences or
relative, participating, optional, or other special rights of the shares, or the
qualifications, limitations or restrictions of those rights.
Purpose and Effect of Amendment
The additional shares of common stock and preferred stock being authorized could
be issued publicly or privately for a variety of corporate purposes, including
in connection with financings, acquisitions, stock splits, stock dividends,
employment agreements, warrants, stock options, employee benefit plans, or for
purposes of augmenting the capital of OAOT. We currently have no plans,
understandings or arrangements to issue any of the additional shares of common
stock or preferred stock authorized by the amendments, nor are the additional
shares of common stock necessary to provide sufficient shares for the proposed
amendment to the 1996 Equity Compensation Plan described in the second proposal.
However, because the need to issue shares can arise when it would be
inconvenient or impossible to hold a stockholders' meeting, our board believes
that it is prudent business planning to authorize the issuance of the additional
shares of common stock and preferred stock.
[OAOT LOGO] 16
<PAGE>
No further vote of our stockholders will be required prior to the issuance,
except as may otherwise be required by the laws of the State of Delaware or the
Nasdaq rules. The Nasdaq rules require us to obtain stockholder approval in the
following instances:
o the issuance of stock to officers and directors under certain types of stock
plans or arrangements,
o certain stock issuances to related parties,
o the issuance of new shares representing 20% or more of the outstanding or
voting shares of OAOT, and
o when the issuance will result in a change of control.
The proposed amendments are not intended to have an anti-takeover effect.
However, the availability of additional shares of common stock and preferred
stock could make any attempt to gain control of OAOT or our board of directors
more difficult, costly, or time-consuming. Under certain circumstances, if the
shares were issued to a holder or holders who oppose a takeover bid, the
additional shares could be used by our board to frustrate persons seeking to
takeover OAOT.
The issuance of additional shares of common stock or preferred stock, whether or
not in connection with a contest for control, will, in most instances, dilute
the voting power of each stockholder, and may dilute earnings and book value on
a per share basis.
Approval Required
Approval of each of Item 3 and Item 4 requires the separate affirmative vote of
a majority of the votes cast by the holders of outstanding shares of common
stock entitled to vote on each matter.
If the stockholders approve both Item 3 and Item 4, then we will amend our
Certificate of Incorporation to increase the number of authorized shares of
common stock from 25,000,000 to 50,000,000 and increase the number of authorized
shares of preferred stock from 5,000,000 to 10,000,000.
If the stockholders approve only Item 3, then the amendment to our Certificate
of Incorporation will be filed to increase only the number of authorized shares
of common stock. If the stockholders approve only Item 4, then the amendment to
our Certificate of Incorporation will be filed to increase only the number of
authorized shares of preferred stock. Approval of Item 3 and Item 4 are not
conditioned on each other. If neither Item 3 nor Item 4 is approved, the number
of shares authorized for issuance will not exceed 25,000,000 shares of common
stock and 5,000,000 shares of preferred stock.
- ------------------------------------------------------------------------------
RATIFICATION OF SELECTION OF AUDITORS
Item 5 on Proxy Card
- ------------------------------------------------------------------------------
The board of directors has selected the firm of Deloitte & Touche, LLP,
independent accountants, to serve as auditors for the year ending December 31,
1999. Deloitte & Touche has served as our auditors since 1996. We expect that a
member of the firm will be present at the annual meeting, will have an
opportunity to make a statement at the meeting, if so desired, and will be
available to respond to appropriate questions. Ratification of the selection of
auditors is not required under the laws of the State of Delaware but will be
considered by our board of directors in selecting auditors for future years.
[OAOT LOGO] 17
<PAGE>
- ------------------------------------------------------------------------------
STOCK OWNERSHIP OF DIRECTORS, OFFICERS AND
BENEFICIAL OWNERS OF MORE THAN 5%
AS OF MARCH 31, 1999
- --------------------------------------------------------------------------------
Shares
Beneficially
Outstanding Owned
Shares Options Assuming
Beneficially Exercisable Exercise of Percent of
Name Owned Within 60 Days Options Shares
- --------------------------------------------------------------------------------
Safeguard Scientifics, Inc. 5,529,356 0 5,529,356 33.1%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
- --------------------------------------------------------------------------------
Cecile D. Barker 3,160,000 0 3,160,000 18.9%
10816 Barnwood Lane
Potomac, MD 20854
- --------------------------------------------------------------------------------
Jerry L. Johnson 39,496 0 39,496 *
- --------------------------------------------------------------------------------
Gregory A. Pratt 111,111 0 111,111 *
- --------------------------------------------------------------------------------
Yvonne Brathwaite Burke 0 10,000 10,000 *
- --------------------------------------------------------------------------------
Frank B. Foster, III 100 18,501 18,601 *
- --------------------------------------------------------------------------------
John F. Lehman 0 10,000 10,000 *
- --------------------------------------------------------------------------------
Richard B. Lieb 2,000 0 2,000 *
- --------------------------------------------------------------------------------
William R. Hill 326,909 0 326,909 2.0%
- --------------------------------------------------------------------------------
Edgar M. Fields 3,300 124,625 127,925 *
- --------------------------------------------------------------------------------
Samuel D. Horgan 2,000 84,626 86,626 *
- --------------------------------------------------------------------------------
Executive officers and 3,659,916 250,252 3,910,168 23.1%
directors as a group
(12 persons)
- --------------------------------------------------------------------------------
* Less than 1% of our outstanding shares of common stock
Each individual has the sole power to vote and to dispose of the shares (other
than shares held jointly with spouse) except as follows:
Safeguard Safeguard Scientifics (Delaware), Inc. is the record owner of
3,813,100, and Safeguard Delaware, Inc. is the record owner of
716, 256 of the shares in the above table. Both of these entities
are wholly owned subsidiaries of Safeguard Scientifics. The
remaining 1,000,000 shares are owned of record by Safeguard 97
Capital, L.P., a limited partnership of which Safeguard Delaware,
Inc. is the sole general partner. Consequently, all of these
shares are beneficially owned by Safeguard Scientifics and have
been pledged by Safeguard as collateral under its bank line of
credit.
Jerry Johnson Includes 4,800 shares held by two trusts of which Mr. Johnson
serves as a co-trustee.
Samuel Horgan Includes 500 shares held by his spouse and 500 shares held by
his son.
Section 16(a) Beneficial Ownership Reporting Compliance: The rules of the SEC
require that we disclose late filings of reports of stock ownership by our
directors and executive officers. To the best of our knowledge, there were no
late filings that have not previously been reported.
[OAOT LOGO] 18
<PAGE>
- ------------------------------------------------------------------------------
STOCK PERFORMANCE GRAPH
- ------------------------------------------------------------------------------
The following chart compares the cumulative total stockholder return on the our
common stock for the period beginning with the commencement of our initial
public offering on October 21, 1997, through December 31, 1998, with the
cumulative total return on the Nasdaq Index and the cumulative total return for
a peer group index for the same period. The peer group consists of SIC Code
737--Computer Programming and Data Processing Services. The comparison assumes
that $100 was invested in our common stock on October 21, 1997, at the initial
public offering price of $5.00 per share, and in each of the comparison indices,
and assumes reinvestment of dividends. We have historically reinvested earnings
in the growth of our business and have not paid cash dividends on our common
stock.
[GRAPHIC OMITTED]
21-Oct-97 Dec-97 Dec-98
---------------------
OAOT 100 185 60
Nasdaq 100 99 139
Peer Group 100 100 168
[OAOT LOGO] 19
<PAGE>
- ------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
- ------------------------------------------------------------------------------
COMPENSATION PHILOSOPHY
We are in a highly competitive industry. To succeed, we must be able to
o attract and retain outstanding employees,
o promote among them the economic benefits of stock ownership in our company,
and
o motivate and reward employees who, by their hard work, loyalty, and
exceptional service, make contributions of special importance to the success
of our business.
We have structured our executive compensation program to support our strategic
goals and objectives.
COMPENSATION STRUCTURE
The compensation of our executives consists of
o base pay,
o annual cash incentives, and
o stock options.
Base Pay
Base pay is established initially for new executives at the median for companies
of a comparable size in the information technology industry. To establish these
levels, we review the findings and recommendations made through the William M.
Mercer's Executive Compensation Competitive Review. A range of salary increases
generally is determined at the time the budget is established each year based on
a review of the level of achievement of financial and strategic objectives
defined in OAOT's annual strategic plan. At the time of an individual's review,
which generally is performed near the anniversary of an individual's hire date,
salary increases may be awarded based upon the individual's performance and
contributions to the achievement of OAOT's objectives.
1998 base pay for Mr. Pratt and Mr. Hill. Mr. Pratt's 1998 base salary was fixed
in his employment agreement when he joined OAOT in July 1998. Mr. Hill, who
served as CEO until June 1998, received an increase in 1998 base pay of 66% from
his 1997 salary. This increase was based on a review of executive compensation
for publicly traded companies in the information technology sector.
Other highly compensated executives' 1998 base pay.
Base pay for 1998 was determined by considering the same factors discussed above
and individual performance for each executive.
Cash Incentives
Annual cash incentives are intended to motivate executives who significantly
contribute to and influence OAOT's strategic plans and are responsible for the
company's performance. The aim is to
o focus executives' attention on areas such as profitability and asset
management,
o encourage teamwork, and
o tie executive pay to corporate performance goals which are consistent with
the long-term goals of stockholders and other investors.
Cash incentives are awarded based on the achievement of the annual financial and
strategic goals we approve at the beginning of each year. These goals may
include a target range of pretax earnings, earnings per share, return on equity,
or other objective measurement consistent with long-term stockholder goals. We
approve a target range for specific financial and/or strategic goals and a range
[OAOT LOGO] 20
<PAGE>
of potential bonus amounts for each executive, stated as a percentage of base
salary. Ranges of potential bonuses are determined based upon the executive's
ability to affect OAOT's performance. Actual bonuses are awarded following the
year end based on the actual achievement level of the specified corporate goals
compared to the target range of achievement.
1998 cash incentive for Mr. Pratt and Mr. Hill.
Neither Mr. Pratt nor Mr. Hill received a cash incentive payment for 1998.
Other highly compensated executives' 1998 cash incentive.
In 1998, the committee approved a cash incentive for one executive officer equal
to 20% of the target amount based on the successful completion of the rights
offering and the initial public offering activities of OAOT.
Stock Options
Our equity compensation plan is designed to attract, retain and reward employees
who make significant contributions toward achievement of our financial and
operational objectives. Grants under the plan align the interests of our
executives and employees with the long-term interests of our stockholders and
motivate executives and employees to remain in our employ. Generally, grants are
not made every year but are awarded subjectively based on a number of factors,
including the achievement of our financial and strategic objectives, the
individual's contributions toward the achievement of our financial and
operational objectives, and the amount and term of options already held by each
individual.
1998 Stock Option Awards. The committee granted stock options during 1998 to
certain of its new executives and employees and also granted options to certain
executives and employees for exceptional performance during 1998. The relative
number of options granted to new executives and employees was based on each
person's responsibilities.
IRS Limits on Deductibility of Compensation.
We are aware that Internal Revenue Code section 162(m) provides that publicly
held companies may not deduct in any taxable year compensation in excess of one
million dollars paid to any of the individuals named in the compensation tables
that is not "performance based" as defined in section 162(m). Our policy is to
qualify future compensation arrangements to ensure deductibility, except in
those limited cases where stockholder value is maximized by an alternative
approach.
By the Compensation Committee:
Yvonne Brathwaite Burke
Frank B. Foster, III
John C. Lehman
[OAOT LOGO] 21
<PAGE>
- ------------------------------------------------------------------------------
EXECUTIVE COMPENSATION & OTHER ARRANGEMENTS
- ------------------------------------------------------------------------------
1998 Annual Compensation for the Top Officers
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Long-Term
Annual Compensation(1) Compensation
- ---------------------------------------------------------------------------------
Awards
- ---------------------------------------------------------------------------------
Securities
Other Underlying All Other
Name and Annual Options/SARS Compensation
Principal Year Salary Bonus Compensation (#) ($)(2)
Position ($) ($) ($)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Pratt, 1998 $114,538 $ 0 -- 0 $ 2.000
Chief Executive
Officer and
President(3)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
William R. Hill, 1998 $192,167 $ 0 -- 100,000 $ 2,000
former Chief
Executive Officer 1997 150,037 0 -- 0 1,375
and President(3) 1996 152,042 138,129 -- 28,333 875
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Edgar M. Fields, 1998 $186,313 $ 0 -- 100,000 $ 2,000
former Chief
Operating Officer(3) 1997 150,040 0 -- 19,625 2,250
1996 154,027 74,075 -- 100,000 900
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Samuel D. Horgan, 1998 $199,932 $50,000 -- 100,000 $ 2,000
former Chief
Financial Officer(3) 1997 91,673 50,000 -- 86,292 0
- -----------------------------------------------------------------------------------
</TABLE>
Notes to Annual Compensation Table:
(1) Includes compensation that has been deferred by the top five officers under
defined contribution plans.
(2) Represents the company matching contribution under a voluntary savings plan.
(3) Mr. Pratt joined OAOT in July 1998. Mr. Hill and Mr. Fields served in the
positions noted until June 1998, and Mr. Horgan served in the position noted
until January 1999.
[OAOT LOGO] 22
<PAGE>
1998 Stock Option Grants
- -------------------------------------------------------------------------------
Potential
Realizable Value
Individual Grants(1) at Assumed Annual
Rates of Stock
Price Appreciation
for Option Term(2)
- -------------------------------------------------------------------------------
% of
Number of Total
Securities Options/
Underlying SARS
Options/ Granted Exercise
SARs to or Expiration 5% 10%
Name Granted Employees Base Price Date ($) ($)
(#)(3) in ($/Sh)
Fiscal
Year
- -------------------------------------------------------------------------------
Gregory A. Pratt 0 -- -- -- -- --
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
William R. Hill 100,000 3.4% $8.50 2/11/04 $289,081 $655,827
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Edgar M. Fields 100,000 3.4% $8.50 2/11/04 $289,081 $655,827
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Samuel D. Horgan 100,000 3.4% $8.50 2/11/04 $289,081 $655,827
- -------------------------------------------------------------------------------
(1) All options have an exercise price equal to or greater than the fair market
value of the shares subject to each option at the time of grant. The option
exercise price may be paid in cash, by delivery of previously acquired
shares, subject to certain conditions, or same-day sales (that is, a
cashless exercise through a broker). The committee may modify the terms of
outstanding options, including acceleration of the exercise date.
(2) These values assume that the shares appreciate at the compounded annual rate
shown from the grant date until the end of the option term. These values are
not estimates of our future stock price growth. Executives will not benefit
unless the common stock price increases above the stock option exercise
price.
(3) Each option vests 25% each year commencing on the first anniversary of the
grant date and has a six-year term.
[OAOT LOGO] 23
<PAGE>
1998 Stock Option Exercises and Year-End Stock Option Values
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying In-The-Money
Shares Unexercised Options/SARs
Acquired Options/SARs at Fiscal Year-End
on Value at Fiscal Year-End ($)(1)
Name Exercise Realized($) (#)
(#) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Pratt 0 -- 0 0 $ 0 $ 0
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
William R. Hill 0 -- 7,084 0 $ 7,084 $ 0
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Edgar M. Fields 0 -- 79,625 140,000 $ 80,000 $ 40,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Samuel D. Horgan 0 -- 46,293 139,999 $ 0 $ 0
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Value is calculated using the difference between the option exercise price
and the year-end stock price of $3.00, multiplied by the number of shares
subject to an option.
Employment Contracts; Severance and Change-in-Control Arrangements
Mr. Pratt's employment agreement provides for his employment on an "at will"
basis. Under this agreement, his initial salary in 1998 was paid at the annual
rate of $250,000 and is subject to annual review. In January 1999, Mr. Pratt's
salary was raised to $275,000. Mr. Pratt will be entitled to a bonus of up to
100% of his base salary upon the achievement of certain company and individual
milestones. As a condition of his employment agreement, OAOT agreed to issue to
Mr. Pratt, at fair market value, 750,000 restricted shares of OAOT common stock.
If his employment is terminated without cause, Mr. Pratt will be entitled to
payment of his salary and certain benefits for a period of 12 months. Mr. Pratt
has agreed not to compete with OAOT during the term of his employment and for
one year after his termination of employment, or for a lesser term of not less
than six months if approved by the board of directors.
Mr. Branch's employment agreement provides for his employment on an "at will"
basis. Under this agreement, his initial salary will be paid at the annual rate
of $250,000, and he will be entitled to a bonus of up to 100% of his base salary
upon the achievement of certain company and individual milestones. Mr. Branch
also received an option to purchase 500,000 shares of our common stock. If his
employment is terminated without cause, Mr. Branch will be entitled to payment
of his salary and health insurance coverage for a period of 12 months. Mr.
Branch has agreed not to compete with OAOT during the term of his employment and
for one year after his termination of employment.
Mr. Hill's employment agreement provided for his employment at an annual base
salary of $150,000 and incentive bonuses upon the achievement of certain
objectives. No bonus was paid to Mr. Hill for services rendered in 1998.
Mr. Hill's employment was terminated in June 1998 and OAOT will continue
paying his base salary through December 1998. Mr. Hill is restricted from
competing with OAOT under the terms of this agreement until December 1998.
Mr. Field's employment was terminated in September 1998, and OAOT will continue
to make severance payments equal to his basic salary through September 1999. Mr.
Fields is restricted from competing with OAOT under the terms of his non-compete
agreement until September 1999.
Mr. Horgan's employment was terminated in January 1999, and OAOT will continue
to make severance payments equal to his basic salary through December 1999. Mr.
Horgan is restricted from competing with OAOT until December 31, 1999, under the
terms of his agreement.
Relationships and Related Transactions with Management and Others
In July 1998, we acquired all of the outstanding capital stock of OAO Services,
Inc. pursuant to an agreement among OAOT, OAO Services, OAO Corporation and
[OAOT LOGO] 24
<PAGE>
William Hill. Prior to the acquisition, OAO Services was a majority-owned
subsidiary of OAO Corporation, and Mr. Hill was a stockholder of OAO Services.
In addition, Mr. Hill is our former chief executive officer and a member of our
board of directors. Mr. Cecile Barker, the chairman of the board of directors
and chief executive officer of OAO Corporation and the holder of 95% of OAO
Corporation's outstanding shares of capital stock, is vice chairman of our board
of directors, owns approximately 19% of our outstanding shares of common stock,
and is our second largest stockholder.
The purchase price payable by OAOT to OAO Corporation and Mr. Hill includes the
following amounts:
o cash in the amount of $2,305,000 subject to downward adjustment based on a
post-closing audit of and certain adjustments to be made to OAO Services'
balance sheet relating to the repayment of intercompany receivables by OAO
Corporation to OAO Services and a cash contribution by OAO Corporation to OAO
Services with respect to OAO Services' net equity;
o payment by us to Sanwa Business Credit Corporation of $4,561,000 to retire
the portion of outstanding debt under a financing agreement among Sanwa, OAO
Corporation, OAO Services and a wholly-owned subsidiary of OAO Corporation
which was secured by the outstanding accounts receivable of OAO Services and
assumed by us in the acquisition; and
o earn-out payments up to a maximum aggregate amount of $5,000,000, as more
fully described below.
A portion of OAO Corporation's share of the cash payment outlined above in the
amount of $1,100,000 was paid by us at the closing directly to Sanwa in partial
repayment of outstanding borrowings of OAO Corporation under its financing
agreement with Sanwa. The balance of the cash payment has been retained by us
until the completion of the audit and the determination of the purchase price
adjustments described above, at which time the remaining balance of the cash
payment, if any, will be paid to the stockholders or credited against amounts
owed by them to OAOT. With respect to the earn-out payments, we will make
additional cash payments to Mr. Hill and OAO Corporation in amounts equal to 10%
of our pre-tax profit in excess, if any, of $2,000,000 (which amount is subject
to annual increases based on increases in our outstanding shares of common
stock), for the three years ending December 31, 1999, 2000 and 2001. The
aggregate of all earn-out payments will not exceed $5,000,000, and each earn-out
payment will be payable by us on the 90th business day after receipt of our
audited financial statements for the year for which the payment is to be made.
Mr. Hill also paid OAOT the sum of $318,684 from his proceeds of the cash
purchase price ($345,750) of the OAO Services acquisition by OAOT. This amount
represented repayment of a promissory note delivered by Mr. Hill to OAOT in May
1998 in the principal amount of $267,000, interest in the amount of $6,260, and
reimbursement for amounts advanced to Mr. Hill by OAOT for personal expenses.
The consideration for the acquisition was negotiated at arms' length among the
parties to the stock purchase agreement. In deriving the consideration, we
considered, among other things, the financial condition of OAO Services and its
business, operations and earnings prospects.
Pursuant to the terms of an Option Cancellation Agreement dated July 11, 1997,
among OAOT, Safeguard, OAO Corporation, OAO Services, Mr. Barker and Mr. Hill,
OAOT and Safeguard were each to receive from OAO Corporation one-half of the
following amounts:
o the greater of $1.0 million or an amount equal to the lesser of $3.0 million
or three percent of the total sales price from the sale of both OAO
Corporation and OAO Services which occurs prior to April 8, 2000,
o the greater of $1.0 million or an amount equal to the lesser of $2.0 million
or three percent of the total sales price from any sale of OAO Corporation
which occurs prior to April 8, 2000 and at such time that OAO Services is not
an affiliate of OAO Corporation,
o the greater of $1.0 million or an amount equal to the lesser of $3.0 million
or three percent of the market capitalization of OAO Corporation if OAO
Corporation consummates an initial public offering of its equity securities
prior to April 8, 2000, or
o the greater of $1.0 million or an amount equal to the lesser of $2.0 million
or two percent of the market capitalization of OAO Corporation if OAO
Services is no longer affiliated with OAO Corporation at the time of the OAO
Corporation IPO.
[OAOT LOGO] 25
<PAGE>
As a condition to and contemporaneously with the acquisition of OAO Services,
the parties to the Option Cancellation Agreement entered into an Amendment to
Option Cancellation Agreement terminating the rights of OAOT and Safeguard to
payment upon the events described above.
Also in July 1998, in connection with the acquisition of OAO Services, OAOT
entered into an administrative services agreement with OAO Corporation under
which OAO Corporation provided OAO Services with administrative support
services through the earlier of the date that OAOT determined, in its sole
discretion, that it no longer required such services, or December 31, 1998. In
consideration for providing those services, OAOT paid OAO Corporation $100,000
per month. During the twelve-month period ended December 31, 1998, OAOT incurred
$364,000 of costs under this agreement.
Also in connection with its purchase of OAO Services from OAO Corporation, OAOT
loaned OAO Corporation approximately $2.5 million. OAOT entered into a
promissory note from OAO Corporation for this amount bearing interest at prime
plus 2.0%, due December 1, 1999. The note is guaranteed by a pledge of
approximately 1.3 million shares of OAOT common stock, valued at approximately
$3.9 million, owned by Mr. Barker, who is chairman and CEO of OAO Corporation,
holder of 95% of OAO Corporation's outstanding shares, and vice chairman of
OAOT's board.
Effective November 1, 1998, OAOT entered into an agreement and plan of merger
with ETG Acquisition Corporation, a wholly owned subsidiary of OAOT, Enterprise
Technology Group, Inc., a Delaware corporation ("ETG"), and ETG's three
stockholders. In accordance with the agreement, ETG was merged with ETG
Acquisition Corporation, with ETG Acquisition Corporation continuing on as the
surviving corporation. By virtue of this merger, the name of the surviving
corporation was changed to Enterprise Technology Group, Inc.
Pursuant to the agreement and plan of merger, the ETG stockholders exchanged all
of the issued and outstanding stock of ETG, consisting of 1,000 shares of common
stock, for 222,222 shares of OAOT common stock. The ETG stockholders were
granted certain "piggyback" registration rights whereby under certain
circumstances, and subject to certain conditions, they may include shares of
common stock in any registration of shares of common stock. Mr. Pratt, our chief
executive officer, was one of the ETG selling stockholders, and exchanged 500
shares of ETG common stock he owned for 111,111 shares of OAOT common stock.
Prior to the merger, OAOT provided ETG interest free advances totaling
approximately $216,000. Additionally at closing, OAOT repaid ETG's stockholder
loans of approximately $109,000.
The acquisition has been accounted for under the purchase method of accounting;
thus, the results of operations of the acquired company have been included in
the consolidated financial statements from the date of acquisition. The purchase
price was allocated based on the fair value of the assets acquired, including
approximately $28,000 of cash, and the liabilities assumed at the date of
acquisition. The purchase resulted in an excess of purchase price over net
assets acquired of approximately $1.0 million, which is being amortized on a
straight-line basis over 7 years.
We have an administrative services agreement with Safeguard for certain
services, including consultation regarding our general management, investor
relations, certain legal services, and tax research and planning. The annual
administrative services fee is equal to a maximum of 1% of gross revenues each
year, not to exceed $500,000. This fee does not cover extraordinary services
provided by Safeguard or services that are contracted out. We expensed $500,000
during 1998 for these services.
[OAOT LOGO] 26
<PAGE>
[OAOT LOGO]
7500 Greenway Center Drive
16th Floor
Greenbelt, MD 20770
(301) 486-0400
- -------------------------------------------------------------------------------
DIRECTIONS TO THE RENAISSANCE MAYFLOWER HOTEL
1127 Connecticut Avenue, NW, Washington, DC 20036
(202) 347-3000
- -------------------------------------------------------------------------------
From the North (New York, Philadelphia, Baltimore)
Take I-95 South to 495 (the National Capital
Beltway). Take 495 West Bound (Rockville/Silver
Spring) to Exit 33 (Connecticut Avenue South).
Follow Connecticut Avenue south approximately
7 miles to the Hotel. The Hotel will be on the left
(between "M" and "L" Streets).
From the North via New York Avenue/Route 50
295 South runs into 50 West. Take New York Avenue
exit. Take New York Avenue (approximately 7 miles)
to "L" Street. Make a right on "L" Street. Take
"L" Street to Massachusetts Avenue. Make a left at
15th Street. Take 15th Street to "K" Street. Make
a right on "K" Street and get into the service
lane. Make a right on Connecticut Avenue. The
Hotel is 1 1/2blocks on the right between "L"
Street and "M" Street.
From Washington National Airport
By Car: from the airport take Washington, DC exit.
Follow George Washington Parkway over the 14th
Street Bridge to 14th Street (Route 1). Stay on
14th Street to "K" Street. Turn left onto "K"
Street. At 17th Street move into service lane of
"K" Street and make a right onto Connecticut
Avenue. Go two blocks, the Hotel is on the right.
By Metro (subway): from National Airport Metro Station:
o By Yellow Line: from National Airport take
Metro six stops to Gallery Place/Chinatown.
Transfer to the Red Line towards Shady Grove.
Go two stops to Farragut North Metro Station
and exit to "L" Street. The Hotel is one Block
from the exit.
o By Blue or Orange Line: from National Airport
take Metro to Metro Center. Transfer to the Red
Line towards Shady Grove. Go one stop to
Farragut North Metro Station and exit to "L"
Street. The Hotel is one block from the exit.
o By Red Line: the Hotel is located at Farragut
North metro stop. 1/2 block from the "L" Street
exit.
- ------------------------------------------------------------------------------
From the South (Richmond)
Take I-95 North towards Washington. Take 395 North
Washington. Stay in left lane and follow signs
to Washington/Route 1 to the 14th Street Bridge. Cross
the bridge and a take 14th Street to "K" Street, NW. Go left on
"K" Street. Follow "K" Street to Connecticut Avenue. The
Hotel is 1 1/2 blocks on the right. (To make right turn onto
Connecticut Avenue you must be in the far right
service lane).
From the West via I-66 (Falls Church, McLean/Tysons,
Vienna, Centreville)
Take I-66 Eastbound toward Washington.
I-66 runs into Constitution Avenue. Take Constitution
Avenue to 17th Street. Make a left onto 17th Street. 17th
Street runs into Connecticut Avenue at "K" Street. The
Hotel is 1 1/2 blocks on the right.
- -------------------------------------------------------------------------------
Coming from I-270 (Frederick, Germantown)
Take I-270 South to 495 South towards Virginia. Take George Washington Parkway
exit to Theodore Roosevelt Bridge exit to Washington. Go over bridge staying in
the center left lane. Follow signs for "E" Street. Take "E" Street to 17th
Street, NW. Take a left onto 17th Street. 17th Street runs into Connecticut
Avenue at "K" Street. The Hotel is 1 1/2 blocks on the right.
- -------------------------------------------------------------------------------
<PAGE>
P R O X Y
OAO TECHNOLOGY SOLUTIONS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please sign and date this proxy, and indicate how you wish to vote, on the back
of this card. Please return this card promptly in the enclosed envelope. Your
vote is important.
When you sign and return this proxy card, you
o appoint Gregory A. Pratt and A. Christopher Ducanes, and each of them (or any
substitutes they may appoint), as proxies to vote your shares, as you have
instructed, at the annual meeting on May 14, 1999, and at any adjournments of
that meeting;
o authorize the proxies to vote, in their discretion, upon any other business
properly presented at the meeting; and
o revoke any previous proxies you may have signed.
IF YOU DO NOT INDICATE HOW YOU WISH TO VOTE, THE PROXIES WILL VOTE FOR ALL
NOMINEES TO THE BOARD OF DIRECTORS, FOR ADOPTION OF THE AMENDMENTS TO THE 1996
EQUITY COMPENSATION PLAN, FOR ADOPTION OF BOTH AMENDMENTS TO OUR CERTIFICATE OF
INCORPORATION, FOR RATIFICATION OF THE SELECTION OF AUDITORS, AND AS THEY MAY
DETERMINE, IN THEIR DISCRETION, WITH REGARD TO ANY OTHER MATTER PROPERLY
PRESENTED AT THE MEETING.
| | FOLD AND DETACH HERE | |
<PAGE>
Please mark
your votes as
indicated in |X|
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3,4 AND 5.
1. ELECTION OF DIRECTORS FOR | | WITHHELD | |
Nominees: FOR ALL
Jerry L. Johnson TO WITHHOLD AUTHORITY TO VOTE FOR ANY
Cecile D. Barker INDIVIDUAL NOMINEE WHILE VOTING FOR THE
Gregory A. Pratt REMAINDER, STRIKE A LINE THROUGH THE
Yvonne Brathwaite Burke NOMINEE'S NAME IN THE LIST.
Frank B. Foster, III
John F. Lehman
Richard B. Lieb
2. ADOPTION OF THE AMENDMENTS TO THE 3. AMENDMENT TO THE CERTIFICATE
1996 EQUITY COMPENSATION PLAN OF INCORPORATION TO INCREASE
AUTHORIZED COMMON SHARES
FOR | | AGAINST | | ABSTAIN | | FOR | | AGAINST | | ABSTAIN | |
4. AMENDMENT TO THE CERTIFICATE
OF INCORPORATION TO INCREASE
AUTHORIZED PREFERRED SHARES
FOR | | AGAINST | | ABSTAIN | |
5. RATIFICATION OF AUDITORS
FOR | | AGAINST | | ABSTAIN | |
SIGNATURE(S) DATE:
YOU MUST SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY CARD. If shares are
jointly owned, you must both sign. Include your full title if you are signing as
an attorney, executor, administrator, trustee or guardian, or on behalf of a
corporation or partnership.
| | FOLD AND DETACH HERE | |
[GRAPHIC OMITTED]
7500 Greenway Center Drive
16th Floor
Greenbelt, MD 20770
Phone: (301) 486-0400
Fax: (301) 486-0415
For more information, please visit our website at www.oaot.com
EXHIBIT 99.1
AMENDED AND RESTATED OAO TECHNOLOGY SOLUTIONS, INC.
1996 EQUITY COMPENSATION PLAN
The purpose of the Amended and Restated OAO Technology Solutions, Inc.
1996 Equity Compensation Plan (the "Plan") is to provide (i) designated
employees of OAO Technology solutions, Inc. (the "Company") and its
subsidiaries, (ii) individuals to whom an offer of employment has been extended,
(iii) certain Key Advisors and advisors who perform services for the Company or
its subsidiaries and (iv) non-employee members of the Board of Directors of the
Company (the "Board") with the opportunity to receive grants of incentive stock
options, nonqualified stock options, stock appreciation rights, restricted stock
and performance units. The Company believes that the Plan will encourage the
participants to contribute materially to the growth of the Company, thereby
benefiting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted by a
committee appointed by the Board (the "Committee"). The Committee shall consist
of two or more persons appointed by the Board, all of whom may be "outside
directors" as defined under section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code") and related Treasury regulations and may be
"non-employee directors" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Except to the extent
prohibited by applicable law or the applicable rules of a stock exchange, the
Committee may allocate all or any portion of its responsibilities and powers to
any one or more of its members or may delegate all or any part of its
responsibilities and powers to any person or persons selected by it. Any such
allocation or delegation may be revoked by the Committee at any time. If the
Committee does not exist, or for any other reason determined by the Board, the
Board may take any action under the Plan that would otherwise be the
responsibility of the Committee.
(b) Committee Authority. The Committee shall have the sole authority
to (i) determine the individuals to whom grants shall be made under the Plan,
(ii) determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv) deal
with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power
and authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements and
instruments for implementing the Plan and for the conduct of its business as it
deems necessary or advisable, in its sole discretion. The Committee's
interpretations of the Plan and all determinations made by the Committee
pursuant to the powers vested in it hereunder shall be conclusive and binding on
all persons having any interest in the Plan or in any awards granted hereunder.
All powers of the Committee shall be
-1-
<PAGE>
executed in its sole discretion, in the best interest of the Company, not as a
fiduciary, and in keeping with the objectives of the Plan and need not be
uniform as to similarly situated individuals.
2. Grants
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options")(Incentive Stock Options
and Nonqualified Stock Options are collectively referred to as "Options"),
restricted stock as described in Section 6 (Restricted Stock"), stock
appreciation rights as described in Section 7 ("SARs"), and performance units as
described in Section 8 ("Performance Units") (hereinafter collectively referred
to as "Grants"). All Grants shall be subject to the terms and conditions set
forth herein and to such other terms and conditions consistent with this Plan as
the Committee deems appropriate and as are specified in writing by the Committee
to the individual in a grant instrument (the "Grant Instrument") or an amendment
to the Grant Instrument. The Committee shall approve the basic form and
provisions of each Grant Instrument. Grants under a particular Section of the
Plan need not be uniform as among the grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. Subject to the adjustment specified below,
the aggregate number of shares of common stock of the Company ("Company Stock")
that may be issued or transferred under the Plan is 6,600,000 shares. After a
Public Offering, the maximum aggregate number of shares of Company Stock that
shall be subject to Grants made under the Plan to any individual during any
calendar year shall be 1,600,000 shares. The shares may be authorized but
unissued shares of Company Stock or reacquired shares of Company Stock,
including shares purchased by the Company on the open market for purposes of the
Plan. If and to the extent Options or SARs granted under the Plan terminate,
expire, or are canceled, forfeited, exchanged or surrendered without having been
exercised, or if any shares of Restricted Stock or Performance Units are
forfeited, the shares subject to such Grants shall again be available for
purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants
shall be appropriately
-2-
<PAGE>
adjusted by the Committee to reflect any increase or decrease in the number of,
or change in the kind or value of, issued shares of Company Stock to preclude,
to the extent practicable, the enlargement or dilution of rights and benefits
under such Grants; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.
4. Eligibility for Participation
(a) Eligible Persons. All employees of the Company and its
subsidiaries ("Employees"), including Employees who are officers or members of
the Board, individuals to whom an offer of employment has been extended ("New
Hires"), and members of the Board who are not Employees ("Non-Employee
Directors") shall be eligible to participate in the Plan. Advisors who provide
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees,
New Hires, Non-Employee Directors and Key Advisors to receive Grants and shall
determine the number of shares of Company Stock subject to a particular Grant in
such manner as the Committee determines. Employees, New Hires, Key Advisors and
Non-Employee Directors who receive Grants under this Plan shall hereinafter be
referred to as "Grantees."
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options to
Employees, New Hires, Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of section
422 of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, New Hires, Non-Employee Directors and Key
Advisors.
(ii) The purchase price (the "Exercise Price") of Company
Stock subject to an Option shall be determined by the Committee and may be equal
to, greater than, or less than the Fair Market Value (as defined below) of a
share of Company Stock on the date the Option is granted; provided, however,
that (x) the Exercise Price of an Incentive Stock Option shall be equal to, or
greater than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total
-3-
<PAGE>
combined voting power of all classes of stock of the Company or any parent or
subsidiary of the Company, unless the Exercise Price per share is not less than
110% of the Fair Market Value of Company Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then, except as
otherwise determined by the Committee, the following rules regarding the
determination of Fair Market Value per share shall apply:
(x) if the principal trading market for the Company
Stock is a national securities exchange or the Nasdaq National
Market, the mean between the highest and lowest quoted selling
prices on the relevant date, or, if there were no trades on
that date, the latest preceding date upon which a sale was
reported, or
(y) if the Company Stock is not principally traded on
such exchange or market, the mean between the last reported
"bid" and "asked" prices of Company Stock on the latest
preceding date, as reported on Nasdaq or, if not so reported,
as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as
applicable and as the Committee determines. If the Company
Stock is not publicly traded or, if publicly traded, is not
subject to reported transactions or "bid" or "asked"
quotations as set forth above, the Fair Market Value per share
shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee who, at
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company, or any parent or
subsidiary of the Company, may not have a term that exceeds five years from the
date of grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument or an
amendment to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by the Company as an Employee, Key Advisor or
member of the Board. In the event that a Grantee ceases to be employed by the
Company for any reason other than "disability," death or "termination for
cause," any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
-4-
<PAGE>
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the Company on
account of a "termination for cause" by the Company, any Option held by the
Grantee shall terminate as of the date the Grantee ceases to be employed by the
Company. In addition to the immediate termination of all Grants, the Grantee
shall automatically forfeit all shares underlying any exercised portion of an
Option, upon refund by the Company of the Exercise Price paid by the Grantee for
such shares, and any option gain realized by the Grantee from exercising all or
a portion of an Option within the two-year period prior to the event shall be
paid by the Grantee to the Company.
(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled," any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within one year
after the date on which the Grantee ceases to be employed by the Company (or
within such other period of time as may be specified by the Committee), but in
any event no later than the date of expiration of the Option term. Any of the
Grantee's Options which are not otherwise exercisable as of the date on which
the Grantee ceases to be employed by the Company shall terminate as of such
date.
(iv) If the Grantee dies while employed by the Company or
within 90 days after the date on which the Grantee ceases to be employed on
account of a termination of employment specified in Section 5(e)(i) above (or
within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(v) For purposes of Sections 5(e), 6, 7, 8 and 13:
(A) "Company," when used in the phrase "employed by the
Company," shall mean the Company and its parent and subsidiary
corporations.
(B) "Employed by the Company" shall mean employment or service
as an Employee, Key Advisor or member of the Board (so that, for purposes
of exercising Options and SARs and satisfying conditions with respect to
Restricted Stock and Performance Units, a Grantee shall not be considered
to have terminated employment or service until the Grantee ceases to be an
Employee, Key Advisor and member of the Board), unless the Committee
determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled
within the meaning of section 22(e)(3) of the Code.
-5-
<PAGE>
(D) "Termination for cause" shall mean the determination of
the Committee that any one or more of the following events has occurred:
(1) the Grantee's conviction of any act which
constitutes a felony under applicable federal or state law, either
in connection with the performance of the Grantee's obligations on
behalf of the Company or which affects the Grantee's ability to
perform his or her obligations as an employee, board member or
advisor of the Company or under any employment agreement,
non-competition agreement, confidentiality agreement or like
agreement or covenant between the Grantee and the Company (any such
agreement or covenant being herein referred to as an "Employment
Agreement");
(2) the Grantee's willful misconduct in connection with
the performance of his or her duties and responsibilities as an
employee, board member or advisor of the Company or under any
Employment Agreement, which willful misconduct is not cured by the
Grantee within 10 days of his or her receipt of written notice
thereof from the Committee;
(3) the Grantee's commission of an act of embezzlement,
fraud or dishonesty which results in a loss, damage or injury to the
Company;
(4) the Grantee's substantial and continuing neglect,
gross negligence or inattention in the performance of his or her
duties as an employee, board member or advisor of the Company or
under any Employment Agreement which is not cured by the Grantee
within 10 days of his or her receipt of written notice thereof from
the Committee;
(5) the Grantee's unauthorized use or disclosure or any
trade secret or confidential information of the Company which
adversely affects the business of the Company, provided that any
disclosure of any trade secret or confidential information of the
Company to a third party in the ordinary course of business who
signs a confidentiality agreement shall not be deemed a breach of
this subparagraph;
(6) the Grantee's material breach of any of the
provisions of any Employment Agreement, which material breach is not
cured by the Grantee within 10 days of his or her receipt of a
written notice from the Company specifying such material breach; or
(7) the Grantee has voluntarily terminated his or her
employment or service with the Company and breaches his or her
non-competition agreement with the Company.
-6-
<PAGE>
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee (x) in cash, (y) with
the approval of the Committee, by delivering shares of Company Stock owned by
the Grantee for the period necessary to avoid a charge to the Company's earnings
for financial reporting purposes (including Company Stock acquired in connection
with the exercise of an Option, subject to such restrictions as the Committee
deems appropriate) and having a Fair Market Value on the date of exercise equal
to the Exercise Price or (z) by such other method as the Committee may approve,
including after a Public Offering payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board. Shares of
Company Stock used to exercise an Option shall have been held by the Grantee for
the requisite period of time to avoid adverse accounting consequences to the
Company with respect to the Option. The Grantee shall pay the Exercise Price and
the amount of any withholding tax due (pursuant to Section 9) at the time of
exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code).
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to an Employee
or Key Advisor under a Grant of Restricted Stock, upon such terms as the
Committee deems appropriate. The following provisions are applicable to
Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such other
criteria as the Committee deems appropriate. The period of time during which the
Restricted Stock will remain subject to restrictions will be designated in the
Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a Restricted
Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be employed
by the Company (as defined in Section 5(e)) during a period designated in the
Grant Instrument as the Restriction Period, or if other specified conditions are
not met, the Restricted Stock Grant shall
-7-
<PAGE>
terminate as to all shares covered by the Grant as to which the restrictions
have not lapsed, and those shares of Company Stock must be immediately returned
to the Company. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 10(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Restricted
Stock shall lapse upon the expiration of the applicable Restriction Period and
the satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to an Employee or Key Advisor separately or in tandem with any
Option (for all or a portion of the applicable Option). Tandem SARs may be
granted either at the time the Option is granted or at any time thereafter while
the Option remains outstanding; provided, however, that, in the case of an
Incentive Stock Option, SARs may be granted only at the time of the Grant of the
Incentive Stock Option. The Committee shall establish the base amount of the SAR
at the time the SAR is granted. Unless the Committee determines otherwise, the
base amount of each SAR shall be equal to the per share Exercise Price of the
related Option or, if there is no related Option, the Fair Market Value of a
share of Company Stock as of the date of Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs
granted to a Grantee that shall be exercisable during a specified period shall
not exceed the number of shares of Company Stock that the Grantee may purchase
upon the exercise of the related Option during such period. Upon the exercise of
an Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
-8-
<PAGE>
(c) Exercisability. An SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding SARs at
any time for any reason. SARs may only be exercised while the Grantee is
employed by the Company or during the applicable period after termination of
employment as described in Section 5(e). A tandem SAR shall be exercisable only
during the period when the Option to which it is related is also exercisable. No
SAR may be exercised for cash by an officer or director of the Company or any of
its subsidiaries who is subject to Section 16 of the Exchange Act, except in
accordance with Rule 16b-3 under the Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
8. Performance Units
(a) General Requirements. The Committee may grant performance units
("Performance Units") to an Employee or Key Advisor. Each Performance Unit shall
represent the right of the Grantee to receive an amount based on the value of
the Performance Unit, if performance goals established by the Committee are met.
A Performance Unit shall be based on the Fair Market Value of a share of Company
Stock or on such other measurement base as the Committee deems appropriate. The
Committee shall determine the number of Performance Units to be granted and the
requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units
are granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the Performance
Goals and
-9-
<PAGE>
other conditions of the Performance Units are met and the amount, if any, to be
paid with respect to the Performance Units. Payments with respect to Performance
Units shall be made in cash, in Company Stock, or in a combination of the two,
as determined by the Committee.
(d) Requirement of Employment. If the Grantee ceases to be employed
by the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide for
complete or partial exceptions to this requirement as it deems appropriate.
9. Qualified Performance-Based Compensation.
(a) Designation as Qualified Performance-Based Compensation. The
Committee may determine that Performance Units or Restricted Stock granted to an
Employee shall be considered "qualified performance-based compensation" under
Section 162(m) of the Code. The provisions of this Section 9 shall apply to
Grants of Performance Units and Restricted Stock that are to be considered
"qualified performance-based compensation" under Section 162(m) of the Code.
(b) Performance Goals. When Performance Units or Restricted Stock
that are to be considered "qualified performance-based compensation" are
granted, the Committee shall establish in writing (i) the objective performance
goals that must be met in order for restrictions on the Restricted Stock to
lapse or amounts to be paid under the Performance Units, (ii) the Performance
Period during which the performance goals must be met, (iii) the threshold,
target and maximum amounts that may be paid if the performance goals are met,
and (iv) any other conditions, including without limitation provisions relating
to death, disability, other termination of employment or Reorganization, that
the Committee deems appropriate and consistent with the Plan and Section 162(m)
of the Code. The performance goals may relate to the Employee's business unit or
the performance of the Company and its subsidiaries as a whole, or any
combination of the foregoing. The Committee shall use objectively determinable
performance goals based on one or more of the following criteria: stock price,
earnings per share, net earnings, operating earnings, return on assets,
shareholder return, return on equity, growth in assets, unit volume, sales,
market share, or strategic business criteria consisting of one or more
objectives based on meeting specific revenue goals, market penetration goals,
geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures.
(c) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (i) 90 days after
the beginning of the Performance Period or (ii) the date on which 25% of the
Performance Period has been completed , or such other date as may be required or
permitted under applicable regulations under Section 162(m) of the Code. The
performance goals shall satisfy the requirements for "qualified
performance-based compensation," including the requirement that the achievement
of the goals be substantially uncertain at the time they are established and
that the goals be established in such a way that a third party with knowledge of
the relevant facts could determine whether and to what extent the
-10-
<PAGE>
performance goals have been met. The Committee shall not have discretion to
increase the amount of compensation that is payable upon achievement of the
designated performance goals.
(d) Maximum Payment. If Restricted Stock, or Performance Units
measured with respect to the fair market value of the Company Stock, are
granted, not more than 1,600,000 shares of the Company Stock may be granted to
an Employee under the Performance Units or Restricted Stock for any Performance
Period. If Performance Units are measured with respect to other criteria, the
maximum amount that may be paid to an Employee with respect to a Performance
Period is $1,000,000.
(e) Announcement of Grants. The Committee shall certify and announce
the results for each Performance Period to all Grantees immediately following
the announcement of the Company's financial results for the Performance Period.
If and to the extent that the Committee does not certify that the performance
goals have been met, the grants of Restricted Stock or Performance Units for the
Performance Period shall be forfeited.
10. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option, SAR, Restricted Stock or Performance Units paid in
Company Stock by having shares withheld up to an amount that does not exceed the
Grantee's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
11. Transferability of Grants
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order (as defined under the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the regulations thereunder). When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof
-11-
<PAGE>
satisfactory to the Company of his or her right to receive the Grant under the
Grantee's will or under the applicable laws of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee may
transfer Nonqualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine, provided that
the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
12. Right of First Refusal
Prior to a Public Offering, if at any time an individual desires to sell,
encumber, or otherwise dispose of shares of Company Stock distributed to him
under this Plan, the individual shall first offer the shares to the Company by
giving the Company written notice disclosing: (a) the name of the proposed
transferee of the Company Stock; (b) the certificate number and number of shares
of Company Stock proposed to be transferred or encumbered; (c) the proposed
price; (d) all other terms of the proposed transfer; and (e) a written copy of
the proposed offer. Within 30 days after receipt of such notice, the Company
shall have the option to purchase all or part of such Company Stock at the same
price and on the same terms as contained in such notice.
In the event the Company (or a shareholder, as described below) does not
exercise the option to purchase Company Stock, as provided above, the individual
shall have the right to sell, encumber or otherwise dispose of his shares of
Company Stock on the terms of the transfer set forth in the written notice to
the Company, provided such transfer is effected within 30 days after the
expiration of the option period. If the transfer is not effected within such
period, the Company must again be given an option to purchase, as provided
above.
The Board, in its sole discretion, may waive the Company's right of first
refusal pursuant to this Section 12 and the Company's repurchase right pursuant
to Section 13 below. If the Company's right of first refusal or repurchase right
is so waived, the Board may, in its sole discretion, pass through such right to
the remaining shareholders of the Company in the same proportion that each
shareholder's stock ownership bears to the stock ownership of all the
shareholders of the Company, as determined by the Board. To the extent that a
shareholder has been given such right and does not purchase his or her
allotment, the other shareholders shall have the right to purchase such
allotment on the same basis.
On and after a Public Offering, the Company shall have no further right to
purchase shares of Company Stock under this Section 12 and Section 13 below, and
its limitations shall be null and void.
Notwithstanding the foregoing, the Committee may require that a Grantee
execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan. Such agreement may provide that the provisions of this Section 12 and
Section 13 below shall not apply to such Company Stock.
-12-
<PAGE>
13. Purchase by the Company
Prior to a Public Offering, if a Grantee ceases to be employed by the
Company, the Company shall have the right to purchase all or part of any Company
Stock distributed to him under this Plan at its then current Fair Market Value
(as defined in Section 5(b)); provided, however, that such repurchase shall be
made in accordance with applicable accounting rules to avoid adverse accounting
treatment.
14. Reorganization of the company.
(a) Reorganization. As used herein, a "Reorganization" shall be
deemed to have occurred if the shareholders of the Company approve (or, if
shareholder approval is not required, the Board approves) an agreement providing
for (i) the merger or consolidation of the Company with another corporation
where the shareholders of the Company, immediately prior to the merger or
consolidation, will not beneficially own, immediately after the merger or
consolidation, shares entitling such shareholders to more than 50% of all votes
to which all shareholders of the surviving corporation would be entitled in the
election of directors (without consideration of the rights of any class of stock
to elect directors by a separate class vote), (ii) the sale or other disposition
of all or substantially all of the assets of the Company, or (iii) a liquidation
or dissolution of the Company.
(b) Assumption of Grants. Upon a Reorganization where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, in the event
of a Reorganization, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their outstanding
Options and SARs in exchange for a payment by the Company, in cash or Company
Stock as determined by the Committee, in an amount equal to the amount by which
the then Fair Market Value of the shares of Company Stock subject to the
Grantee's unexercised Options and SARs exceeds the Exercise Price of the Options
or the base amount of the SARs, as applicable, or (ii) after giving Grantees an
opportunity to exercise their outstanding Options and SARs, terminate any or all
unexercised Options and SARs at such time as the Committee deems appropriate.
Such surrender or termination shall take place as of the date of the
Reorganization or such other date as the Committee may specify.
(d) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Reorganization, the Committee shall not have the
right to take any actions described in the Plan (including without limitation
actions described in Subsection (b) above) that would make the Reorganization
ineligible for pooling of interests accounting treatment or that would make the
Reorganization ineligible for desired tax treatment if, in the absence of such
right, the Reorganization would qualify for such treatment and the Company
intends to use such treatment
-13-
<PAGE>
with respect to the Reorganization.
15. Requirements for Issuance or Transfer of Shares
(a) Shareholder's Agreement. The Committee may require that a
Grantee execute a shareholder's agreement, with such terms as the Committee
deems appropriate, with respect to any Company Stock distributed pursuant to
this Plan.
(b) Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
16. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any
time.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination
or amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents. The termination of
the Plan shall not impair the power and authority of the Committee with respect
to an outstanding Grant. Whether or not the Plan has terminated, an outstanding
Grant may be terminated or amended in accordance with the Plan or, may be
amended by agreement of the Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document.
No other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
17. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants
-14-
<PAGE>
under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
18. Rights of Grantees
Nothing in this Plan shall entitle any Employee, New Hire, Key Advisor or
other person to any claim or right to be granted a Grant under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any individual any rights to be retained by or in the employ of the Company or
any other employment rights.
19. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan or any Grant. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
20. Headings
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
21. Effective Date of the Plan.
(a) Effective Date. Subject to the approval of the Company's
shareholders, the Plan shall be effective as of May 3, 1996.
(b) Public Offering. The provisions of the Plan that refer to a
Public Offering, or that refer to, or are applicable to persons subject to,
section 16 of the Exchange Act or section 162(m) of the Code, shall be
effective, if at all, upon the initial registration of the Company Stock under
section 12(g) of the Exchange Act, and shall remain effective thereafter for so
long as such stock is so registered.
22. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant
-15-
<PAGE>
made by such corporation. The terms and conditions of the substitute grants may
vary from the terms and conditions required by the Plan and from those of the
substituted stock incentives. The Committee shall prescribe the provisions of
the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs
and the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall exclusively
be governed by and determined in accordance with the laws of the State of
Delaware.
-16-
