<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TEKGRAF, 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:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
TEKGRAF, INC.
645 HEMBREE PARKWAY
SUITE J
ROSWELL, GEORGIA 30076
(770) 442-6060
April 30, 1999
Dear Shareholder:
We cordially invite you to attend the Annual Meeting of Shareholders of
Tekgraf, Inc. to be held on Wednesday, May 26, 1999 at 10:00 a.m. local time at
the Crowne Plaza Atlanta Airport Hotel located at 1325 Virginia Avenue, Atlanta,
Georgia 30344. At the Annual Meeting the Board of Directors will ask you:
1) to elect four directors to serve on Tekgraf's Board of
Directors, each for a one-year term;
2) to ratify the appointment of PricewaterhouseCoopers LLP as
Tekgraf's independent public accountants for the year ending
December 31, 1999;
3) to approve an amendment to the Company's 1997 Stock Option
Plan to increase the number of shares of Class A Common Stock
reserved for issuance thereunder from 300,000 to 600,000; and
4) to transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
We have enclosed a copy of Tekgraf's Annual Report on Form 10-K. We
encourage you to read the Annual Report. It includes Tekgraf's audited financial
statements for the year ended December 31, 1998 as well as information about
Tekgraf's operations, markets, products and services.
We urge you to carefully review the enclosed materials. Regardless of
whether you plan to attend the Annual Meeting, we ask that you read the
information on the following pages and promptly submit your proxy card in the
enclosed postage paid envelope. If you attend the meeting, you may vote in
person if you wish, even though you have previously returned your proxy.
Your vote is very important, and we appreciate your cooperation in
considering and acting on the matters presented.
Sincerely,
/s/ William M. Rychel
----------------------------------
William M. Rychel
Interim Chief Executive Officer
<PAGE> 3
TEKGRAF, INC.
645 HEMBREE PARKWAY
SUITE J
ROSWELL, GEORGIA 30076
(770) 442-6060
----------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 26, 1999
----------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Tekgraf, Inc.
will be held on Wednesday, May 26, 1999 at 10:00 a.m. local time at the Crowne
Plaza Atlanta Airport Hotel located at 1325 Virginia Avenue, Atlanta, Georgia
30344, for the following purposes:
1. to elect four directors to serve on Tekgraf's Board of
Directors, each for a one-year term (Proposal 1);
2. to ratify the appointment of PricewaterhouseCoopers LLP as
Tekgraf's independent public accountants for the year ending
December 31, 1999 (Proposal 2);
3. to approve an amendment to Tekgraf's 1997 Stock Option Plan to
increase the number of shares of Class A Common Stock reserved
for issuance thereunder from 300,000 to 600,000 (Proposal 3);
and
4. to transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on Friday, April 16, 1999
as the record date for determining the shareholders entitled to notice of and to
vote at the Annual Meeting. Only record holders of Tekgraf's Class A Common
Stock and Class B Common Stock at the close of business on that date are
entitled to notice of, and to vote at, the Annual Meeting or any adjournments
thereof.
By Order of the Board of Directors
/s/ William M. Rychel
--------------------------------------
William M. Rychel
Interim Chief Executive Officer
April 30, 1999
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY, IF YOU WISH,
REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY...........................................................................................................2
INTRODUCTION......................................................................................................4
ANNUAL MEETING....................................................................................................4
Outstanding Shares and Voting Rights........................................................................4
Proxies.....................................................................................................5
ELECTION OF DIRECTORS.............................................................................................6
Required Vote and Related Matters...........................................................................6
Information as to Director Nominees and Executive Officers..................................................6
Director Nominees...........................................................................................7
Other Executive Officers....................................................................................7
Key Personnel...............................................................................................7
Committees of the Board of Directors and Related Matters....................................................8
Certain Relationships and Related Transactions..............................................................8
Compliance with Section 16(a) of the Exchange Act..........................................................10
Executive Compensation ....................................................................................11
Employment and Severance Agreements and Related Matters....................................................12
Option Grants..............................................................................................13
Option Exercises and Holdings..............................................................................13
Compensation of the Company's Directors....................................................................14
Compensation Committee Interlocks and Insider Participation................................................14
Compensation Committee Report on Executive Compensation....................................................14
Comparative Company Performance............................................................................16
Beneficial Ownership of Capital Stock......................................................................17
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS....................................................19
Required Vote and Related Matters..........................................................................19
APPROVAL OF THE PROPOSED AMENDMENT TO THE 1997 STOCK OPTION PLAN.................................................20
Description of the Plan....................................................................................20
Federal Income Tax Consequences of the Plan................................................................21
Required Vote and Related Matters..........................................................................22
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS.....................................................................23
VOTING PROCEDURES................................................................................................23
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................................................................23
AVAILABLE INFORMATION............................................................................................23
OTHER MATTERS....................................................................................................24
APPENDIX A......................................................................................................A-1
</TABLE>
<PAGE> 5
TEKGRAF, INC.
645 HEMBREE PARKWAY
SUITE J
ROSWELL, GEORGIA 30076
(770) 442-6060
-------------------------------
PROXY STATEMENT FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 26, 1999
-------------------------------
The Board of Directors of Tekgraf, Inc. ("Tekgraf," the "Company," or
"we") is soliciting your proxy for use at the Annual Meeting of Shareholders of
Tekgraf to be held at 10:00 a.m. local time on Wednesday, May 26, 1999 at the
Crowne Plaza Atlanta Airport Hotel located at 1325 Virginia Avenue, Atlanta,
Georgia 30344, and at any adjournments thereof. This Proxy Statement and the
accompanying proxy card are first being mailed to the shareholders of Tekgraf on
or about May 4, 1999.
At the Annual Meeting, shareholders will be asked:
1) to elect four directors to serve on the Company's Board of
Directors, each for a one-year term;
2) to ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the year ending
December 31, 1999;
3) to approve an amendment to the Company's 1997 Stock Option
Plan to increase the number of shares of Class A Common Stock
reserved for issuance thereunder from 300,000 to 600,000; and
4) to transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
-------------------------
YOU SHOULD CAREFULLY CONSIDER ALL OF THE INFORMATION INCLUDED IN THIS PROXY
STATEMENT BEFORE RETURNING YOUR PROXY CARD.
-------------------------
THE DATE OF THIS PROXY STATEMENT IS APRIL 30, 1999.
<PAGE> 6
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement. Reference is made to, and this Summary is qualified in its entirety
by, the more detailed information contained in this Proxy Statement.
Shareholders are urged to review carefully the entire Proxy Statement, including
the documents incorporated by reference herein and Appendix A attached hereto.
<TABLE>
<S> <C>
Date, Time, Place of
Meeting and Matters to be
Presented for Action.......... The Annual Meeting of Shareholders of
Tekgraf will be held on Wednesday, May 26,
1999 at 10:00 a.m. local time at the Crowne
Plaza Atlanta Airport Hotel located at 1325
Virginia Avenue, Atlanta, Georgia 30344.
At the Annual Meeting, and at any
adjournments thereof, shareholders will be
asked: (i) to elect four directors to serve
on the Company's Board of Directors, each
for a one-year term (Proposal 1, see page
6); (ii) to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's
independent public accountants for the year
ending December 31, 1999 (Proposal 2, see
page 19); (iii) to approve an amendment to
the Company's 1997 Stock Option Plan to
increase the number of shares of Class A
Common Stock reserved for issuance
thereunder from 300,000 to 600,000 (Proposal
3, see page 20); and (iv) to transact such
other business as may properly come before
the Annual Meeting or any adjournments
thereof. See "Introduction" and "Annual
Meeting."
Record Date...................... Only shareholders of record at the close of
business on Friday, April 16, 1999 are
entitled to notice of and to vote at the
Annual Meeting or any adjournment thereof.
See "Annual Meeting -- Outstanding Shares
and Voting Rights -- Record Date."
Quorum........................... The holders of a majority of the votes of
the shares of common stock, including both
the Class A Common Stock and the Class B
Common Stock, issued and outstanding and
entitled to vote, present in person or
represented by proxy, shall constitute a
quorum. See "Annual Meeting -- Outstanding
Shares and Voting Rights -- Quorum."
Voting Rights and Related
Matters....................... Each holder of Class A Common Stock is
entitled to one vote per share with respect
to all matters, including the election of
directors. Each holder of Class B Common
Stock is entitled to five votes per share
with respect to all matters, including the
election of directors. Shares of Class A
Common Stock and Class B Common Stock
(sometimes referred to collectively herein
as the "Common Stock") will vote as a single
group with respect to all matters set forth
in the Notice of Annual Meeting of
Shareholders. Directors will be elected by a
plurality of the votes cast by the shares
entitled to vote. The affirmative vote of a
majority of the total votes cast is required
both to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's
independent public accountants for the year
ending December 31, 1999 and to approve the
proposed amendment to the Company's 1997
Stock Option Plan. See
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
"Annual Meeting -- Outstanding Shares and
Voting Rights -- Voting Rights and Related
Matters."
Dissenters' Rights............... Shareholders have no dissenters' rights in
connection with the approval of any of the
matters to be presented at the Annual
Meeting. See "Annual Meeting -- Outstanding
Shares and Voting Rights -- Dissenters'
Rights."
Revocability of Proxies.......... A shareholder giving a proxy in the form
accompanying this Proxy Statement has the
power to revoke the proxy prior to its
exercise. A proxy may be revoked by: (i)
delivering a written notice of revocation to
the Chief Financial Officer of the Company
prior to the Annual Meeting; (ii) delivering
to the Chief Financial Officer of the
Company a duly executed proxy bearing a
later date; or (iii) attending the Annual
Meeting and voting in person. See "Annual
Meeting -- Proxies."
Board Recommendations............ The Board has approved and recommends the
approval by the shareholders of: (i) the
election of four directors to serve on the
Company's Board of Directors, each for a one
year term; (ii) the ratification of the
appointment of PricewaterhouseCoopers LLP as
the Company's independent public accountants
for the year ending December 31, 1999; and
(iii) the approval of an amendment to the
Company's 1997 Stock Option Plan to increase
the number of shares of Class A Common Stock
reserved for issuance thereunder from
300,000 to 600,000.
</TABLE>
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<PAGE> 8
INTRODUCTION
This Proxy Statement is being furnished to the shareholders of the Company in
connection with the solicitation of proxies for use at the Annual Meeting of
Shareholders to be held on Wednesday, May 26, 1999 at 10:00 a.m. local time at
the Crowne Plaza Atlanta Airport Hotel located at 1325 Virginia Avenue, Atlanta,
Georgia 30344.
At the Annual Meeting, shareholders will be asked: (i) to elect four directors
to serve on the Company's Board of Directors, each for a one-year term (Proposal
1); (ii) to ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the year ending December 31, 1999
(Proposal 2); (iii) to approve an amendment to the Company's 1997 Stock Option
Plan to increase the number of shares of Class A Common Stock reserved for
issuance thereunder from 300,000 to 600,000 (Proposal 3); and (iv) to transact
such other business as may properly come before the Annual Meeting or any
adjournments thereof.
Except for procedural matters incident to the conduct of the Annual Meeting, the
Company does not know of any matters other than those described in the Notice of
Annual Meeting that are to come before the Annual Meeting. If any other matters
are properly brought before the Annual Meeting, the persons named in the
accompanying proxy card will vote the shares represented by such proxies on such
matters as determined by a majority of the Board of Directors.
ANNUAL MEETING
OUTSTANDING SHARES AND VOTING RIGHTS
Record Date. Only holders of Class A Common Stock and Class B Common Stock of
record at the close of business on Friday, April 16, 1999 are entitled to notice
of and to vote at the Annual Meeting or any adjournment thereof. At the close of
business on that date, the Company had outstanding 3,169,165 shares of Class A
Common Stock, consisting of 2,100,000 publicly-traded shares and 1,069,165
unregistered shares, held of record by approximately 41 persons and held in
street name by approximately 1,757 additional persons, and 3,159,166 shares of
Class B Common Stock held of record by approximately 19 persons.
Quorum. The Company's by-laws provide that the holders of a majority of the
votes of the shares of common stock, including both Class A Common Stock and
Class B Common Stock, issued and outstanding and entitled to vote, present in
person or represented by proxy, shall constitute a quorum. Abstentions will be
treated as shares that are present, or represented, and entitled to vote for
purposes of determining the presence of a quorum at the Annual Meeting. An
abstention, however, will not be counted as a vote "for" or "against" a proposal
and will have no legal effect on the vote on a proposal. Broker non-votes will
be deemed not entitled to vote on any proposals and, therefore, will have no
legal effect on the vote on such proposals.
Voting Rights and Related Matters. Each holder of Class A Common Stock is
entitled to one vote per share with respect to all matters, including the
election of directors. Each holder of Class B Common Stock is entitled to five
votes per share with respect to all matters, including the election of
directors. Accordingly, the outstanding shares of Class A Common Stock are
entitled to vote a total of 3,169,165 votes and the outstanding shares of Class
B Common Stock are entitled to vote a total of 15,795,830 votes. Class A Common
Stock and Class B Common Stock will vote as a single group with respect to all
matters set forth in the Notice of the Annual Meeting. There is no cumulative
voting of shares. Shareholders' votes will be tabulated by the persons appointed
by the Chairman of the Annual Meeting to act as inspectors of election for the
Annual Meeting. Directors will be elected by a plurality of the votes cast by
the shares entitled to vote. The affirmative vote of a majority of the total
votes cast is required both to ratify the appointment of PricewaterhouseCoopers
LLP as the Company's independent public accountants for the year ending December
31, 1999 and to approve the proposed amendment to the Company's 1997 Stock
Option Plan.
Dissenters' Rights. Under the Georgia Business Corporation Code, shareholders
are not entitled to appraisal rights with respect to any of the matters to be
presented at the Annual Meeting.
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<PAGE> 9
PROXIES
A shareholder giving a proxy in the form accompanying this Proxy Statement has
the power to revoke the proxy prior to its exercise by: (i) delivering, prior to
the Annual Meeting, a written notice of revocation, bearing a date later than
the date of the proxy, to W. Jeffrey Camp, Chief Financial Officer, Tekgraf,
Inc., 645 Hembree Parkway, Suite J, Roswell, Georgia 30076; (ii) delivering to
the Chief Financial Officer of the Company a duly executed proxy bearing a later
date; or (iii) attending the Annual Meeting and voting in person. The shares
represented by each properly executed proxy not subsequently revoked will be
voted at the Annual Meeting in accordance with the instructions contained
therein. If no specification is made, the proxy will be voted: (1) FOR Proposal
1 to elect the four nominees to the Board of Directors, each for a one-year
term; (2) FOR Proposal 2 to ratify the appointment of PricewaterhouseCoopers LLP
as independent public accountants of the Company for the year ending December
31, 1999; and (3) FOR Proposal 3 to amend the Company's 1997 Stock Option Plan
to increase the number of shares of Class A Common Stock reserved for issuance
thereunder from 300,000 to 600,000.
The cost of soliciting proxies will be borne by the Company. In addition to the
use of the mails, proxies may be solicited personally or by telephone or
facsimile transmission by officers, directors and employees of the Company, who
will not be compensated specifically for such solicitation activities.
Arrangements also will be made with brokerage houses and other custodians,
nominees and fiduciaries for forwarding solicitation materials to the beneficial
owners of shares held of record by such persons, and the Company will reimburse
such persons for their reasonable expenses incurred in that connection.
HOLDERS OF SHARES OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT PROMPTLY TO THE COMPANY IN THE POSTAGE
PAID ENVELOPE THAT HAS BEEN PROVIDED.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL
OF EACH OF THE PROPOSALS SET FORTH IN THIS PROXY STATEMENT.
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<PAGE> 10
ELECTION OF DIRECTORS
(PROPOSAL 1)
Pursuant to the Articles of Incorporation, the Board of Directors shall consist
of not fewer than three directors with the precise number of directors
determined by resolution of the Board of Directors. Currently, four individuals
serve on the Board of Directors. The four directors elected at the Annual
Meeting will hold office for a term of one year and until their successors are
elected and qualified.
REQUIRED VOTE AND RELATED MATTERS
Unless otherwise specified on the proxy card, it is the intention of the persons
named on the proxy card to vote the shares represented by each properly executed
proxy for the election to the Board of Directors of the director nominees listed
below. All nominees are now directors of the Company. The Board of Directors
believes that the nominees will stand for election and will serve if elected as
directors. If, however, any person nominated by the Board of Directors fails to
stand for election or is unable to accept election, the proxies will be voted
for the election of such other person as the Board of Directors may recommend.
Directors will be elected by a plurality of the votes cast by the shares of
Common Stock entitled to vote in the election at the Annual Meeting. There are
no cumulative voting rights in the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE BOARD'S NOMINEES FOR ELECTION AS DIRECTORS OF THE COMPANY.
INFORMATION AS TO DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The director nominees and executive officers of the Company and their ages as of
April 30, 1999 are as follows:
<TABLE>
<CAPTION>
DIRECTOR NOMINEES AGE POSITION
----------------- --- --------
<S> <C> <C>
William M. Rychel 48 Interim Chief Executive Officer
and Director
W. Jeffrey Camp 37 Chief Financial Officer, Secretary
and Director
Albert E. Sisto(1)(2) 49 Director
Frank X. Dalton, Jr.(1)(2) 42 Director
</TABLE>
-------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
<TABLE>
<CAPTION>
OTHER EXECUTIVE OFFICERS AGE POSITION
------------------------ --- ---------
<S> <C> <C>
Martyn L. Cooper 50 Chief Operating Officer
J. Thomas Woolsey 50 Chief Information Officer
</TABLE>
Directors serve until the next annual meeting or until their successors are
elected and qualified. Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment. See
"Executive Compensation -- Employment and Severance Agreements and Related
Matters."
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<PAGE> 11
DIRECTOR NOMINEES
WILLIAM M. RYCHEL became Interim Chief Executive Officer of the Company in
October 1998. He became President of the Graphics Division and a director of the
Company upon completion of the Company's acquisition of G&R Marketing, Inc.
("G&R Marketing") in June 1997. Prior thereto, he served as the President of G&R
Marketing, a company he co-founded and for which he served as President
beginning in 1986.
W. JEFFREY CAMP, a Certified Public Accountant, joined the Company on March 1,
1998. He was appointed to serve as a director of the Company in October 1998.
From 1985 until February 1998, Mr. Camp was employed by one of
PricewaterhouseCoopers' predecessors, Coopers & Lybrand L.L.P., a public
accounting firm. Mr. Camp earned a Bachelor of Science in accounting from Auburn
University.
ALBERT E. SISTO, a director of the Company since November 1997, was most
recently the Chief Operating Officer of RSA Data Security, Inc., a Security
Dynamics Company. Prior to this employment, he served as President, Chairman and
Chief Executive Officer of DocuMagix, Inc., a computer software company
specializing in personal content management, beginning in October 1994. From
September 1989 to October 1994, Mr. Sisto was the President and Chief Executive
Officer of PixelCraft, Inc. (formerly BarneyScan Corporation), a manufacturer
and marketer of prepress scanners, image management software and color
separation software for open systems. Mr. Sisto earned a Bachelor of Science in
engineering from the Stevens Institute of Technology. Mr. Sisto also serves on
the Boards of Directors of Insignia Solutions, plc., a computer software
company, and efax.com, a system technology company.
FRANK X. DALTON, JR., a director of the Company since November 1997, has served
as a Principal of Cordova Ventures, a venture capital firm, since November 1996.
From January 1996 to November 1996, Mr. Dalton was an Executive Vice President
of Ambassador Capital Corporation, an investment banking firm. From November
1989 to January 1996, Mr. Dalton was employed by BDO Seidman, LLP, a public
accounting firm, with his last position being Partner. Mr. Dalton earned a
Bachelor of Science in accounting from the University of South Carolina and is a
Certified Public Accountant.
OTHER EXECUTIVE OFFICERS
MARTYN L. COOPER became Chief Operating Officer in October 1997. Upon completion
of the Company's acquisition of tekgraf, Inc., a Texas corporation ("tekgraf"),
in June 1997, Mr. Cooper became a director of the Company and a Regional Sales
Director. In October 1998, Mr. Cooper resigned from the Company's Board of
Directors in connection with the execution of the Severance Agreement and
General Release by and among the Company and Phillip C. Aginsky. Prior to his
employment with the Company, Mr. Cooper served as the President of tekgraf, a
company he founded in 1986. Mr. Cooper earned a Bachelor of Science in
mathematics from the University of Surrey in England. For more information on
Mr. Aginsky's Severance Agreement, see "--Employment and Severance Agreements
and Related Matters."
J. THOMAS WOOLSEY became Chief Information Officer in January 1998. Upon
completion of the Company's acquisition of Microsouth, Inc. ("Microsouth") in
June 1997, Mr. Woolsey became a director of the Company and a Regional Sales
Director. In October 1998, Mr. Woolsey resigned from the Company's Board of
Directors in connection with the execution of Mr. Aginsky's Severance Agreement.
From 1989 to June 1997, Mr. Woolsey served as the President and General Manager
of Microsouth. Mr. Woolsey earned a Bachelor of Science in industrial
engineering and a Masters in finance and marketing from the University of
Tennessee, Knoxville. For more information on Mr. Aginsky's Severance Agreement,
see "--Employment and Severance Agreements and Related Matters."
KEY PERSONNEL
SCOTT BARKER became Vice President of Sales of the Company in May 1998, after
Computer Graphics Technology, Inc. ("CGT") was acquired by the Company in April
1998. Prior thereto, he served as President of CGT, a company he founded in
April of 1988.
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<PAGE> 12
A. LOWELL NERENBERG became Vice President of Marketing during 1998. During the
period between the Company's acquisition of Computer Graphics Distributing
Company ("CGD") in June 1997 and his appointment as the Vice President of
Marketing, Mr. Nerenberg served as a Regional Sales Director of the Company.
Prior thereto, he served as President of CGD, a company he founded in 1986.
COMMITTEES OF THE BOARD OF DIRECTORS AND RELATED MATTERS
Both the Compensation and the Audit Committee are composed of Albert E. Sisto
and Frank X. Dalton, Jr., the Company's independent directors. The Compensation
Committee makes recommendations to the Board concerning salaries and incentive
compensation for officers and employees of the Company and has authority to
administer the Company's 1997 Stock Option Plan. See "Proposal 3 -- Description
of the Plan." The Audit Committee recommends the appointment of the Company's
independent public accountants and reviews the scope of audit and non-audit
assignments and related facts. During 1998, the Compensation Committee held two
meetings and the Audit Committee held one meeting.
The Company does not have a standing nominating committee. The Board of
Directors nominates candidates to stand for election as directors.
During the year ended December 31, 1998, the Board of Directors of the Company
held five meetings. Messrs. Rychel, Dalton and Sisto attended 75% or more of
these board meetings. Mr. Camp attended 75% or more of all board meetings held
during his tenure as a director, which began in October 1998. Prior to their
resignations, Messrs. Aginsky, Woolsey and Cooper attended 75% or more of the
board meetings held during their tenure. Dan I. Bailey, a former director of the
Company and the former President of the Company's Technology Division, attended
two of the five board meetings held in 1998. Other than Mr. Dalton, who did not
attend one of the meetings of the Compensation Committee, all committee members
attended 75% or more of the committee meetings held during their tenure.
The Company has agreed, if requested by D.H. Blair Investment Banking Corp.
("Blair Investment Banking"), to nominate a designee of Blair Investment Banking
to the Company's Board of Directors for a period of five years, which period
began on November 10, 1997. Blair Investment Banking has not exercised this
right.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Alongal, Anita and Mr. Aginsky
Alongal Extrusions, Inc. is a Georgia corporation that is wholly-owned by Anita,
Ltd., a principal shareholder of the Company. Anita is wholly-owned by the New
Freedom Trust, a trust for the benefit of the father of Phillip C. Aginsky,
former Chairman of the Board and Chief Executive Officer of the Company. Mr.
Aginsky serves as Chief Executive Officer of Alongal. From time to time since
the Company's inception, Alongal made advances to the Company for working
capital purposes. Such advances bore interest at a rate of 8% per annum and were
payable on demand. The Company repaid all outstanding advances, in an aggregate
amount of $195,000, to Alongal in the first quarter of 1998.
On October 23, 1998, Phillip C. Aginsky entered into a Severance Agreement and
General Release with the Company whereby Mr. Aginsky resigned from his positions
as an officer and director of the Company and its subsidiaries. Pursuant to the
terms of the Severance Agreement, Mr. Aginsky will continue to serve the Company
as a consultant through December 31, 1999 and is being paid a monthly payment in
an amount equal to his previous monthly salary through that date. Pursuant to
the terms of the Severance Agreement, the Company is also paying Mr. Aginsky
amounts sufficient to maintain his current health, life and disability benefits.
See "--Employment and Severance Agreements and Related Matters."
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<PAGE> 13
The Company's Acquisitions during 1998
In March 1998, the Company entered into three Agreements and Plans of Merger
pursuant to which the Company issued an aggregate of 894,998 unregistered shares
of the Company's Class A Common Stock and delivered an aggregate of $1,415,000
in cash to the shareholders of Computer Graphics Technology, Inc., a South
Carolina corporation ("CGT"), Martec, Inc., a California corporation doing
business as Media Graphics Distribution ("MGD"), and New England Computer
Graphics, Inc., a Massachusetts corporation ("NECG") (collectively, the "1998
Subsidiaries," the acquisitions of the 1998 Subsidiaries are sometimes
collectively referred to herein as the "1998 Acquisitions") as consideration for
the merger of each of those companies into separate wholly-owned subsidiaries of
the Company. Scott Barker, who was the president and the primary shareholder of
CGT and is now a significant shareholder and key employee of the Company,
received 257,400 unregistered shares of Class A Common Stock and $390,000 in
cash (including shares and cash placed into escrow) as consideration for the
acquisition of CGT in April 1998. Mark Lewis, who was the sole shareholder of
MGD and is now a significant shareholder of the Company, received 300,000
unregistered shares of Class A Common Stock and $500,000 (including shares and
cash placed into escrow) as consideration for the acquisition of MGD in May
1998. Several officers, directors and significant shareholders of the Company
were also shareholders in NECG. Accordingly, in connection with the acquisition
of NECG in May 1998, Messrs. Rychel, Barker and Nerenberg, together with Thomas
A. Gust, who is a significant shareholder of the Company, received approximately
36,216, 57,945, 72,432 and 36,216 shares, respectively, of unregistered Class A
Common Stock (including shares placed into escrow) and approximately $56,716,
$90,745, $113,431 and $56,716 in cash (including cash placed into escrow),
respectively.
During 1999, the Company made purchase price adjustments for the 1998
Acquisitions for net asset values that were less than originally guaranteed by
the shareholders of the 1998 Subsidiaries. The sum of the adjustment amounts
received by the Company in March 1999 and the adjustment amounts still owed to
the Company is approximately $477,000. Included in this amount, as detailed
below, are the estimated dollar amounts received by the Company from executive
officers, directors and principal shareholders of the Company:
<TABLE>
<CAPTION>
AMOUNT
NAME RECEIVED(1)
---- -----------
<S> <C>
William M. Rychel................. $ 29,000
Scott C. Barker................... 164,000
A. Lowell Nerenberg............... 59,000
Mark C. Lewis..................... 137,000
Thomas A. Gust.................... 29,000
</TABLE>
--------------
(1) Of the amounts listed, approximately $18,000 remains
to be paid to the Company.
Purchase Price Adjustments related to the 1997 Acquisitions
During 1998, the Company made purchase price adjustments related to the
acquisitions it completed in June 1997. These adjustments consisted of both
payments to the former shareholders of the acquired companies, for amounts by
which the actual net asset values of those companies exceeded the net asset
values guaranteed by the shareholders, and receipt of payments from the former
shareholders of the acquired companies, for amounts by which the actual net
asset values of those companies were less than the guaranteed net asset values.
The total amounts received by the Company were $177,000 and the total amounts
paid by the Company were $250,000. Additionally, a $90,000 note payable to two
current shareholders of the Company, A. Lowell Nerenberg and Beverly Nerenberg,
representing working capital advances made by them to Computer Graphics
Distributing Company, one of the acquired companies, was offset against amounts
owed to the Company for a deficient net asset value. Set forth below are the
estimated adjustment amounts, in dollars, paid to or received from executive
officers, directors and principal shareholders of the Company:
-9-
<PAGE> 14
<TABLE>
<CAPTION>
AMOUNT RECEIVED
NAME FROM OR (PAID TO)
---- -----------------
<S> <C>
William M. Rychel.......................... $ 54,000
Martyn L. Cooper........................... 14,000
A. Lowell and Beverly Nerenberg............ 55,000
Thomas A. Gust............................. 54,000
J. Thomas Woolsey.......................... (250,000)
</TABLE>
Transactions Between the Company's Subsidiaries and Their Respective Affiliates
William M. Rychel, Interim Chief Executive Officer and a director of the Company
and Thomas Gust, a significant shareholder of the Company, are the co-owners,
together with Mr. Gust's brother, of G/B Marketing, Inc. ("G/B"), a
manufacturers' representative in the computer business which shares office space
with G&R Marketing, Inc., one of the Company's subsidiaries. G&R Marketing makes
payments on behalf of G/B for such firm's portion of certain overhead expenses,
including rent, telephone and facilities maintenance. G/B reimburses G&R
Marketing for such costs on a regular basis. During the year ended December 31,
1998, the total amount of such payments made by G&R Marketing on behalf of G/B
was approximately $55,000.
From time to time, G&R Marketing has sold inventory at cost to NECG. During the
year ended December 31, 1998, prior to the acquisition of NECG by Tekgraf, G&R
Marketing sold inventory to NECG approximating $510,000, of which approximately
$460,000 was sold after the definitive acquisition agreement had been signed.
Messrs. Rychel, Gust, Nerenberg and Barker were shareholders of NECG prior to
its acquisition by the Company.
Other Transactions
Certain shareholders of the Company, including Dan I. Bailey, a former officer
and director of the Company, have made non interest-bearing working capital
advances to the Company over the past several years. In February 1998, the
Company repaid its indebtedness of approximately $50,000 to Mr. Bailey. See "--
Employment and Severance Agreements and Related Matters."
J. Thomas Woolsey, who is the Chief Information Officer and a significant
shareholder of the Company, owns 50% of CAD Temps, Inc., a temporary employment
agency that manages the Company's Advanced Software Learning Center. In 1998,
the Company paid management fees of $95,310 to CAD Temps, Inc. for management of
the Company's Advanced Software Learning Center.
The Company believes that all of the transactions set forth above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. The Company has adopted a policy that all future
transactions, including loans, between the Company and its officers, directors,
principal shareholders and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will continue to
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors and persons who beneficially own more than 10% of a registered class
of the Company's equity securities to file reports of securities ownership and
changes in such ownership with the Securities and Exchange Commission (the "SEC"
or the "Commission") and the NASDAQ National Market. Officers, directors and
greater than 10% beneficial owners also are required by rules promulgated by the
SEC to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of such reports furnished to the Company
and written representations that no other reports were required, the Company
believes that, during fiscal 1998, its executive officers, directors and greater
than 10% beneficial owners complied with all applicable Section 16(a) filing
requirements, except that Mr. Gust filed a Report on Form 5 rather than on Form
4 to report his receipt of shares in the NECG acquisition.
-10-
<PAGE> 15
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation awarded
to, earned by, or paid for services rendered to the Company and its subsidiaries
in all capacities during the fiscal years ended December 31, 1998, 1997 and
1996, by (i) the Company's Interim Chief Executive Officer and former Chief
Executive Officer and (ii) the Company's and its subsidiaries' four other most
highly compensated executive officers whose salary and bonus for 1998 exceeded
$100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(5) COMPENSATION($) OPTIONS/SARS(8)
- --------------------------- ---- ---------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
William M. Rychel...................... 1998 $ 125,000 $ 25,000 -- --
Interim Chief Executive Officer 1997 146,900 (4) -- -- --
1996 120,000 50,000 $ 67,889(7) --
Phillip C. Aginsky (1)................. 1998 104,167 -- --
Former Chairman and Chief 1997 192,916 (4) 39,000 (6) -- --
Executive Officer 1996 -- 369,137 (6) 3,338 --
Martyn L. Cooper....................... 1998 125,000 12,500 -- --
Chief Operating Officer 1997 137,500 (4) -- -- --
1996 73,708 -- -- --
Thomas J. Woolsey...................... 1998 125,000 12,500 -- --
Chief Information Officer 1997 114,840 (4) -- -- --
1996 58,858 -- -- --
W. Jeffrey Camp(2)..................... 1998 104,167 12,500 -- 45,000
Chief Financial Officer and Secretary
Dan I. Bailey (3)...................... 1998 125,000 -- -- --
Former President of the 1997 106,666 (4) -- -- --
Technology Division 1996 60,000 131,000 1,820 --
</TABLE>
- ------------
(1) On October 23, 1998, Mr. Aginsky entered into a Severance Agreement and
General Release with the Company pursuant to which he resigned from all
positions that he held with the Company and its subsidiaries. Pursuant
to the terms of the Severance Agreement, Mr. Aginsky will continue to
serve the Company as a consultant through December 31, 1999 and will be
paid a monthly amount equal to his previous monthly salary through that
time. The sum of these monthly payments totaled $20,833 between Mr.
Aginsky's resignation and December 31, 1998. Prior to his resignation,
Mr. Aginsky earned an aggregate salary during 1998 of $104,167.
(2) Mr. Camp began his employment with the Company on March 1, 1998 at a
base annual compensation of $125,000.
(3) See "Employment and Severance Agreements and Related Matters."
(4) The employment agreements of Messrs. Rychel, Aginsky, Cooper, Woolsey
and Bailey each provide for a base salary of $125,000, beginning June
2, 1997. $72,900 of the amount of the 1997 salary shown for each of
these individuals in the table above represents the approximate amount
paid by the Company to each individual from June 2, 1997 through
December 31, 1997. The remainder of each 1997 salary amount represents
the compensation paid to the individual during the first five months of
1997 by the entity by whom that individual was employed during that
time, which was prior to the acquisition of the 1997 Subsidiaries by
the Company.
-11-
<PAGE> 16
(5) Bonus amounts for the year ended December 31, 1998, approved by the
Compensation Committee on January 26, 1999, were paid in March 1999.
(6) In 1997, $39,000 was paid to Alongal as a management fee for providing
Mr. Aginsky's services to the Company. In 1996, $135,000 was paid for
the same purposes. Mr. Aginsky serves as Chief Executive Officer of
Alongal. See "Certain Relationships and Related Transactions."
(7) Includes $16,182 of life and health insurance premiums paid by G&R
Marketing and $51,707 of other perquisites, automobile allowances and
personal travel.
(8) All figures in this column reflect options to purchase shares of Class
A Common Stock.
EMPLOYMENT AND SEVERANCE AGREEMENTS AND RELATED MATTERS
In June 1997, the Company entered into two-year employment agreements with each
of Messrs. Aginsky, Bailey, Rychel, Cooper and Woolsey, as well as with Patrick
J. McLaughlin and A. Lowell Nerenberg, each of which provides for a base annual
compensation of $125,000. In April 1998, the Company and the subsidiaries that
survived the mergers with CGT, MGD and NECG entered into employment agreements
with Scott Barker, Mark Lewis and David Boston, each being the respective
principal executive officer of these companies, on terms similar to those set
forth above.
On October 23, 1998, Phillip C. Aginsky entered into a Severance Agreement and
General Release with the Company whereby Mr. Aginsky resigned from his positions
as an officer and director of the Company and its subsidiaries. Pursuant to the
terms of the Severance Agreement, Mr. Aginsky will continue to serve the Company
as a consultant through December 31, 1999 and is being paid a monthly payment in
an amount equal to his previous monthly salary through that date. Pursuant to
the terms of the Severance Agreement, Mr. Aginsky will have the right,
exercisable once during the three year period beginning on October 23, 1998, to
nominate a person other than himself to the Board. Pursuant to the terms of the
Severance Agreement, the Company is also paying Mr. Aginsky monthly amounts
sufficient to maintain his current health, life and disability benefits. The
Severance Agreement also provides for various releases from liability by the
parties.
In January 1999, the Company determined that Dan I. Bailey, a former director of
the Company who was also the President of the Company's Technology Division and
the Company's Secretary, had resigned from all of his positions as an officer
and director of the Company and its subsidiaries, due to the fact that he had
ceased providing services to the Company. It is possible that Mr. Bailey will
pursue a claim against the Company for severance benefits.
On March 1, 1998, the Company entered into an employment agreement with W.
Jeffrey Camp to serve as Chief Financial Officer of the Company for a base
annual compensation of $125,000. Also on March 1, 1998, Mr. Camp was granted
options to purchase 45,000 shares of Class A Common Stock at an exercise price
of $3.00 per share. 15,000 of these options vested on March 1, 1998, 15,000
vested on March 1, 1999, and 15,000 will vest on March 1, 2000. This employment
agreement is terminable by the Company at any time, upon six months' written
notice. See "--Option Grants."
Except for Mr. Camp's employment agreement, all of the agreements also contain
two-year post-termination confidentiality and non-competition provisions. Public
policy limitations and the difficulty of obtaining injunctive relief may impair
the Company's ability to enforce the non-competition and nondisclosure covenants
made by its employees.
In connection with the Company's initial public offering in November 1997, the
Company agreed with its underwriter, D.H. Blair Investment Banking Corp., that
the annual compensation of each of the Company's executive officers, division
managers and regional operating managers would not exceed $125,000 for a period
of 13 months from the closing of the Company's initial public offering, which
period expired in December 1998.
The Company has obtained key-person life insurance in the amount of $2,000,000
on the life of Mr. Rychel and $1,000,000 on the lives of each of Messrs. Woolsey
and McLaughlin.
-12-
<PAGE> 17
OPTION GRANTS
The following table sets forth information with respect to grants of stock
options to the Named Executive Officers during the year ended December 31, 1998.
Mr. Camp was the only Named Executive Officer to receive option grants during
1998.
OPTION GRANTS DURING 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(A)
------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR PRICE GRANT DATE DATE 5% 10%
- ---- ---------- ----------- -------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Jeffrey Camp (2) 45,000 17% $3.00 3/98 2008 $84,900 $215,155
</TABLE>
- --------------
(1) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Commission. There can be no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
term will be at the assumed 5% and 10% levels or at any other defined
level. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to
the Named Executive Officers.
(2) On March 1, 1998, the Company granted to W. Jeffrey Camp options to
purchase 45,000 shares of the Company's Class A Common Stock at an
exercise price of $3.00 per share. These options are exercisable as
follows: 15,000 on each of March 1, 1998, 1999 and 2000.
OPTION EXERCISES AND HOLDINGS
During the year ended December 31, 1998, no stock options were exercised by the
Named Executive Officers. The following table sets forth information with
respect to Mr. Camp concerning the value of all unexercised options held at
December 31, 1998. No other Named Executive Officer holds any stock options.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL AT
YEAR-END FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
--------------- ---------------------------- ----------------------------
<S> <C> <C>
W. Jeffrey Camp 15,000 / 30,000 $ 0 / $ 0
</TABLE>
- -----------
(1) The options, which were granted on March 1, 1998, are exercisable as
follows: 15,000 on each of March 1, 1998, 1999 and 2000.
(2) Represents the difference between the exercise price per share and the
market value of the Class A Common Stock at December 31, 1998. There
were no In-the-Money options outstanding on December 31, 1998.
-13-
<PAGE> 18
COMPENSATION OF THE COMPANY'S DIRECTORS
During 1998, non-employee directors received $500 for each Board and Committee
meeting attended and were reimbursed for their expenses in attending such
meetings. In March 1999, the Board voted to increase the compensation paid to
non-employee directors by adopting a resolution to pay such directors $4,000 per
year, paid quarterly, plus $1,000 for each Board meeting attended. Members of
the Audit Committee and the Compensation Committee will receive an additional
$500 per year. Directors are not precluded from serving the Company in any other
capacity and receiving compensation therefor. Directors are also entitled to
receive options under the 1997 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1998, Phillip C. Aginsky, Albert E. Sisto and
Frank X. Dalton, Jr. participated in deliberations of the Company's Board of
Directors concerning executive officer compensation. Until October 23, 1998, Mr.
Aginsky served as a director of the Company, Chairman of the Board, and Chief
Executive Officer. Contemporaneously with the execution of his Severance
Agreement, Mr. Aginsky resigned from, among other things, his positions as a
director of the Company and a member of the Compensation Committee. For a
description of transactions between the members of the Compensation Committee or
their affiliates and the Company, see "Certain Relationships and Related
Transactions."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate this Proxy
Statement or future filings with the Commission, in whole or in part, the
following report and the Stock Performance Chart which follows shall not be
deemed to be incorporated by reference into any such filing.
The following report of the Compensation Committee describes the philosophy,
objectives and components of the Company's executive compensation programs for
1999 and discusses the determination of the compensation for the Chief Executive
Officer for 1999.
The members of the Compensation Committee are Messrs. Albert E. Sisto and Frank
X. Dalton, Jr. Messrs. Sisto and Dalton are non-executive directors of the
Company.
The Company's primary objective in designing and implementing its compensation
program is to maximize shareholder value over time through alignment of employee
performance with business goals and strategies that serve shareholders'
interests. The overall goal of the Compensation Committee is to develop
executive compensation and equity-based programs which are consistent with and
linked to the Company's strategic and annual business objectives.
Compensation Philosophy. The Compensation Committee adheres to a compensation
policy that:
1. will attract and retain key executives crucial to the long-term success
of the Company;
2. relates to the achievement of operational and strategic objectives; and
3. is commensurate with each executive's performance, experience and
responsibilities.
Specifically, the Compensation Committee has adopted certain principles
which are applied in structuring the compensation opportunity for executive
officers. These are:
Long-Term and At-Risk Focus. A significant percentage of total compensation
for executive officers should be composed of long-term, at-risk rewards to
focus senior management on the long-term interests of shareholders.
Equity-based plans should comprise a major part of the long-term, at-risk
portion of the total compensation to
-14-
<PAGE> 19
encourage shareholder value-based management decisions, and to link
compensation to Company performance and shareholder interests.
Short-Term and At-Risk Focus. A significant portion of cash compensation for
executives is linked to the achievement of annual bonus plans or performance
objectives. This includes cash bonuses that may be approved by the
Compensation Committee relating to these objectives. There is a real risk in
bonuses paid under this plan, recognizing variability in individual, unit
and overall Company performance. Competitiveness. Base pay and total
compensation should be competitive with other similar companies based upon
size, products and markets. The particular qualifications of an individual
holding the position and his or her level of experience are considered in
establishing a salary level when a person is appointed to a position.
Salaries are generally reviewed annually. In many instances a primary factor
in setting salary levels is the Company's desire to provide compensation
sufficient to induce these individuals to join or remain in the employment
of the Company. A proxy survey of peer group companies is conducted
periodically.
Stock Option Awards and Restricted Stock Grants
Equity-based compensation will comprise a significant portion of the Company's
executive officer compensation programs. These plans are administered solely by
the Compensation Committee. These are the two plans utilized for this component
of the executive office long-term, equity-oriented compensation. These involve
stock options and restricted stock grants.
Stock options provide executive officers and certain other key employees with
the opportunity to achieve an equity interest in the Company. Stock options are
granted at 100% of the fair market price on the date of the grant and vest over
a period of five years, with 20% of such options vesting each year during the
five-year period. See Proposal 3 for a description of our stock option plan.
The object is to emphasize a long-term focus by key employees in the acquisition
and holding of common stock. The number of stock options granted is based on the
individual's potential to contribute to the future growth of the Company. The
frequency and size of individual grant amounts vary with changes in the
individual's potential to contribute to the future growth of the Company. The
number of options required to achieve target grant values based on the
prevailing fair market value of the common stock serves in part to determine the
number of options granted annually.
Restricted Stock
Restricted stock grants are designed to be granted on a selective basis to key
employees to further focus them on the long-term performance of the Company.
Grants of restricted stock are subject to forfeiture if a grantee, among other
conditions, fails to perform or leaves the Company prior to the expiration of
the restricted period. Restricted periods are generally from two to four years.
Target Stock Ownership
The Company's Board of Directors and management believe that significant stock
ownership is a major incentive in building shareholder value and aligning the
interests of executives and shareholders. The Board has adopted guidelines for
minimum target ownership by senior executives. Guidelines are based upon a
multiple of base salary and range from .75 to 3 times annual salary amounts.
Chief Executive Officer Compensation
The compensation arrangements for Mr. Aginsky, the Company's chief executive
officer until October 1998, and Mr. Rychel, the Company's Interim Chief
Executive Officer since the date of Mr. Aginsky's resignation, were based on the
provisions of their respective employment agreements with the Company, which
were originally entered into in June 1997. Pursuant to those employment
agreements, Mr. Aginsky and Mr. Rychel both received annual salaries of $125,000
in 1998. The Company has agreed with the underwriters from its 1997 initial
public offering that the compensation of the Company's executive officers,
division managers and regional operating managers will not
-15-
<PAGE> 20
exceed $125,000 for any of such individuals for a period of 13 months from the
closing of the initial public offering, which period expired in December 1998.
COMPENSATION COMMITTEE
Frank X. Dalton, Jr.
Albert E. Sisto
COMPARATIVE COMPANY PERFORMANCE
The graph shown below is a line-graph presentation comparing the Company's
cumulative shareholder return on an indexed basis based on an investment of $100
in the Company's Class A Common Stock (NASDAQ: TKGFA) on November 10, 1997 with
the cumulative shareholder return on an indexed basis for the Nasdaq National
Market (NASDAQ: *IXIC) and the cumulative shareholder return for the Nasdaq
Computer Index (NASDAQ:*IXCO).
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
<TABLE>
<CAPTION>
NASDAQ
NASDAQ COMPUTER AND DATA CLASS A
MEASUREMENT PERIOD STOCK MARKET PROCESSING COMMON STOCK OF
(FISCAL YEAR COVERED) (U.S. COMPANIES) SERVICES INDEX TEKGRAF, INC.
--------------------- ---------------- ----------------- ---------------
<S> <C> <C> <C>
11/10/97 100.00 100.00 100.00
12/31/97 98.72 95.89 42.44
12/31/98 137.84 175.79 29.07
</TABLE>
Notes:
a. If the fiscal year end is not a trading day, the preceding
trading day is used.
b. The index level for all series was set to 100.00 on November
10, 1997.
c. The Company's Class A Common Stock began trading on November
10, 1997.
-16-
<PAGE> 21
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
The following table provides information, as of April 16, 1999, concerning
beneficial ownership of Common Stock by: (i) each person or entity known by the
Company to beneficially own more than 5% of the outstanding Class A or Class B
Common Stock; (ii) each director of the Company; (iii) each Named Executive
Officer; and (iv) all directors and executive officers of the Company as a
group. The information in the table is based on information from the named
persons regarding ownership of Common Stock. Unless otherwise indicated, each of
the shareholders has sole voting and investment power with respect to the shares
shown as beneficially owned by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT OF CLASS
OWNED (2) OUTSTANDING
NAME AND ADDRESS (1) ---------------------------- ----------------------------- PERCENT OF
OF BENEFICIAL OWNER CLASS A (3) CLASS B CLASS A(3) CLASS B VOTES (2)(3)
- ------------------- --------------- ----------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Anita, Ltd..................... 75,000(5)(6) 1,191,333 2.37% 37.71% 31.80%
Dan I. Bailey.................. -- 257,000 -- 8.14% -- (4)
William M. Rychel.............. 117,983 284,942 3.72% 9.02% 8.13%
Martyn L. Cooper............... 41,955(5) 258,545 1.33% 8.18% 7.04%
W. Jeffrey Camp................ 30,000(8) -- * -- *
J. Thomas Woolsey.............. 75,445(5) 489,055 2.38% 15.48% 13.29%
Thomas A. Gust................. 40,216 376,625 1.27% 11.92% 10.14%
Peter Goletz................... -- 257,000 -- 8.14% -- (4)
Beverly Nerenberg(7)........... 72,432 213,333 2.29% 6.75% 6.01%
Scott C. Barker................ 315,344 -- 9.95% -- 1.66%
Mark C. Lewis.................. 300,000 -- 9.47% -- 1.58%
D.H. Blair & Co., Inc......... 220,000(9) -- 6.94% -- 1.16%
All executive officers and
directors as a group (five
persons)................... 265,383 1,289,542 8.30% 40.82% 35.34%
</TABLE>
- -------------
* Represents less than 1%.
(1) Unless otherwise noted, the address of each of the beneficial owners of
more than 5% of the Company's Common Stock is c/o Tekgraf, Inc., 645
Hembree Parkway, Suite J, Roswell, Georgia 30076. The address of Dan I.
Bailey is 5036 Sherifield Drive, Marietta, Georgia 30068.
(2) In accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to be the beneficial owner, for purposes of this table, of any
shares of Common Stock if such person has or shares voting power or
investment power with respect to such security, or has the right to
acquire beneficial ownership at any time within 60 days from April 16,
1999. As used herein, "voting power" is the power to vote or direct the
voting of shares and "investment power" is the power to dispose or
direct the disposition of shares. All figures presented in the table
include shares currently held in escrow pursuant to various escrow
agreements involving the parties.
(3) If shares of Class B Common Stock are owned by the same person or
group, excludes shares of Class B Common Stock that are convertible
into a corresponding number of shares of Class A Common Stock.
(4) In November 1997, certain of the pre-acquisition shareholders,
including Messrs. Bailey and Goletz, pledged all of their shares (an
aggregate of 559,333 shares) to Anita, Ltd. in connection with personal
loans and granted Anita voting proxies with respect to such shares. The
pledged shares have been included in the number and percent of shares
beneficially owned for both Anita and the respective pledgors. The
percent of voting power figures, however, attribute the voting power of
such shares solely to Anita.
(5) Includes shares of Class A Common Stock that were part of the 100,000
units that Anita, Mr. Cooper and Mr. Woolsey purchased in the Company's
initial public offering. This table does not reflect the 75,000
warrants purchased by Anita, the 10,000 warrants purchased by Mr.
Cooper, or the 15,000 warrants purchased by Mr. Woolsey as components
of the units purchased. Each warrant entitles its holder to purchase
one share of Class A Common Stock at an exercise price of $8.40 until
November 2002.
-17-
<PAGE> 22
(6) Anita, Ltd. is a company owned by the New Freedom Trust, a trust for
the benefit of the father of Mr. Phillip Aginsky. The trustee of the
New Freedom Trust, appointed by Mr. Aginsky's father-in-law, as
Protector, is Riverbank, Ltd. The address of Anita, Ltd. is PO Box 124,
Mignot Plateau, Cornet Street St. Peter Port, Guernsey, Channel
Islands, GYI 4EG.
(7) Includes shares held by her husband, A. Lowell Nerenberg.
(8) Represents options that are currently exercisable at an exercise price
of $3.00 per share.
(9) This information is based on a letter received from counsel to D.H.
Blair & Co., Inc. on April 29, 1999. The address of D.H. Blair & Co.,
Inc. ("Blair") is 84 Williams Street, New York, New York 10038. The
amounts shown do not include warrants held by Blair to purchase 15,000
shares of Class A Common Stock. Each warrant entitles the holder to
purchase one share of Class A Common Stock at an exercise price of
$8.40 through November 2002.
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<PAGE> 23
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL 2)
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP to
continue as independent public accountants for the Company for the year ending
December 31, 1999, subject to ratification of such appointment by the
shareholders. PricewaterhouseCoopers LLP has served as the Company's independent
public accountants since 1994. Unless otherwise indicated, properly executed
proxies will be voted in favor of ratifying the appointment of
PricewaterhouseCoopers LLP, independent public accountants, to audit the books
and accounts of the Company for the year ending December 31, 1999. No
determination has been made as to what action the Board of Directors would take
if the shareholders do not ratify the appointment.
Representatives of PricewaterhouseCoopers LLP will be present at the Annual
Meeting. They will be given an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions.
REQUIRED VOTE AND RELATED MATTERS
The approval by a majority of the total votes cast on the proposal is required
to approve the proposal to ratify the selection of PricewaterhouseCoopers LLP as
independent public accountants for the fiscal year ending December 31, 1999.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
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<PAGE> 24
APPROVAL OF THE PROPOSED AMENDMENT TO THE 1997 STOCK OPTION PLAN
(PROPOSAL 3)
The 1997 Stock Option Plan (the "Plan") was adopted by the Board of Directors
and approved by the Company's shareholders in August 1997. There are 300,000
shares of Class A Common Stock currently reserved for issuance under the Plan.
The Board of Directors has voted, subject to shareholder approval, to amend the
Plan to increase the number of shares of Class A Common Stock reserved for
issuance thereunder to 600,000 shares.
The Board of Directors believes that stock options are important to attract and
to encourage the continued employment and service of officers and other key
employees by facilitating their purchase of equity interests in the Company. The
purpose of the Plan is to further the growth and success of the Company by
enabling selected employees to acquire shares of common stock, thereby
increasing their personal interest in our growth and success, and to provide a
means of rewarding outstanding performance by such persons. The Board of
Directors believes that it is advisable that the Company and its shareholders
continue to have the incentive of stock options available as a means of
attracting and retaining officers and other key employees. As of December 31,
1998, options to purchase 42,500 shares remained available for grants under the
Plan, and approximately 144 employees of the Company and its subsidiaries were
eligible to participate in the Plan. Except for options to purchase 45,000
shares of Class A Common Stock that were issued to the Chief Financial Officer,
all options were granted to employees of the Company, none of whom are Named
Executive Officers. Approval of the proposed amendment will increase the number
of shares available for issuance under the Plan from 300,000 shares to 600,000
shares.
The principal provisions of the Plan are summarized below. This summary is not
complete and is qualified in its entirety by reference to the 1997 Stock Option
Plan (incorporating the proposed amendment), a copy of which is attached hereto
as Appendix A.
DESCRIPTION OF THE PLAN
In August 1997, the Board of Directors adopted and the Company's shareholders
approved the Plan, which reserved for issuance 300,000 shares of the Company's
Class A Common Stock and pursuant to which employees, officers and directors of,
and consultants or advisers to, the Company and any subsidiary corporations are
eligible to receive incentive stock options ("incentive options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and/or options that do not qualify as incentive options ("non-qualified
options"). The Plan, which expires in August 2007, will be administered by the
Board of Directors or a committee of the Board of Directors, provided, however,
that with respect to "officers" and "directors," as such terms are defined for
the purposes of Rule 16b-3 ("Rule 16b-3") promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act"), such committee shall consist of
"disinterested" directors as defined in Rule 16b-3, but only if at least two
directors meet the criteria of "disinterested" directors as defined in Rule
16b-3. The purposes of the Plan are to ensure the retention of existing and
future executive personnel, key employees, directors, consultants and advisors
who are expected to contribute to the Company's future growth and success and to
provide additional incentive by permitting such individuals to participate in
the ownership of the Company, and the criteria to be utilized by the Board of
Directors or the committee in granting options pursuant to the Plan will be
consistent with these purposes. The Plan provides for automatic grants of
options to certain directors in the manner set forth below.
Options granted under the Plan may be either incentive options or non-qualified
options. Incentive options granted under the Plan are exercisable for a period
of up to 10 years from the date of grant at an exercise price which is not less
than the fair market value of the Class A Common Stock on the date of the grant,
except that the term of an incentive option granted under the Plan to a
shareholder owning more than 10% of the outstanding voting power may not exceed
five years and its exercise price may not be less than 110% of the fair market
value of the Class A Common Stock on the date of the grant. To the extent that
the aggregate fair market value, as of the date of grant, of the shares for
which incentive options become exercisable for the first time by an optionee
during the calendar year exceeds $100,000, the portion of such option which is
in excess of the $100,000 limitation will be treated as a non-qualified option.
Options granted under the Plan to officers, directors or employees of the
Company may be exercised only while the optionee is employed or retained by the
Company or within 90 days of the date of termination of the employment
relationship or directorship. However, options which are exercisable at the time
of termination by reason of death or permanent disability of the optionee may be
exercised within 12 months of the date of termination of the employment
relationship or directorship. Upon the exercise of an option, payment may be
made by cash or by any other means that the Board of Directors or the
Compensation Committee determines. No option may be granted under the Plan after
August 2007.
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<PAGE> 25
Options may be granted only to such employees, officers and directors of, and
consultants and advisors to, the Company or any subsidiary of the Company as the
Board of Directors or the Compensation Committee shall select from time to time
in its sole discretion, provided that only employees of the Company or a
subsidiary of the Company shall be eligible to receive incentive options. An
optionee may be granted more than one option under the Plan. The Board of
Directors or the Compensation Committee will, in its discretion, determine
(subject to the terms of the Plan) who will be granted options, the time or
times at which options shall be granted, and the number of shares subject to
each option, whether the options are incentive options or non-qualified options,
and the manner in which options may be exercised. In making such determination,
consideration may be given to the value of the services rendered by the
respective individuals, their present and potential contributions to the success
of the Company and its subsidiaries and such other factors deemed relevant in
accomplishing the purpose of the Plan. As of December 31, 1998, options to
purchase 257,500 shares of Class A Common Stock were outstanding under the Plan.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The grant of an option is not a taxable event for the optionee or the Company.
With respect to incentive options, an optionee will not recognize taxable income
upon grant or exercise of an incentive option, and any gain realized upon a
disposition of shares received pursuant to the exercise of an incentive option
will be taxed as long-term capital gain if the optionee holds the shares for at
least two years after the date of grant and for one year after the date of
exercise. However, the excess of the fair market value of the shares subject to
an incentive option on the exercise date over the option exercise price will be
included in the optionee's alternative minimum taxable income in the year of
exercise (except that, if the optionee is subject to certain securities law
restrictions, the determination of the amount included in the alternative
minimum taxable income may be delayed, unless the optionee elects within 30 days
following exercise to have income determined without regard to such
restrictions) for purposes of the alternative minimum tax. This excess increases
the optionee's basis in the shares for purposes of the alternative minimum tax
but not for purposes of the regular income tax. An optionee may be entitled to a
credit against regular tax liability in future years for minimum taxes paid with
respect to the exercise of incentive options (e.g., for a year in which the
shares are sold at a gain). Generally, the Company and its subsidiaries will not
be entitled to any business expense deduction with respect to the grant or
exercise of an incentive option, except as discussed below.
For the exercise of an incentive option to qualify for the foregoing tax
treatment, the optionee generally must be an employee of the Company or a
subsidiary from the date the option is granted through a date within three
months before the date of exercise. In the case of an optionee who is disabled,
this three-month period is extended to one year. In the case of an employee who
dies, the three-month period and the holding period for shares received pursuant
to the exercise of the option are waived.
If all of the requirements for incentive option treatment are met except for the
special holding period rules set forth above, the optionee will recognize as
ordinary income upon the disposition of the shares an amount equal to the excess
of the fair market value of the shares at the time the option was exercised over
the option exercise price. However, if the optionee was subject to certain
restrictions under the securities laws at the time the option was exercised, the
measurement date may be delayed, unless the optionee has made a special tax
election within 30 days after the date of exercise to have taxable income
determined without regard to such restrictions. The balance of the realized
gain, if any, will be long- or short-term capital gain, depending upon whether
or not the shares were sold more than one year after the option was exercised.
If the optionee sells the shares prior to the satisfaction of the holding period
rules but at a price below the fair market value of the shares at the time the
option was exercised (or other applicable measurement date), the amount of
ordinary income (and the amount included in alternative minimum taxable income,
if the sale occurs during the same year as the option was exercised) will be
limited to the excess of the amount realized on the sale over the option
exercise price. If the Company complies with applicable reporting (if any) and
other requirements, it will be allowed a business expense deduction to the
extent the optionee recognizes ordinary income.
If, pursuant to an option agreement, an optionee exercises an incentive option
by tendering shares of common stock with a fair market value equal to part or
all of the option exercise price, the exchange of shares will be treated as a
non-taxable exchange (except that this treatment would not apply if the optionee
had acquired the shares being transferred pursuant to the exercise of an
incentive option and had not satisfied the special holding period requirements
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<PAGE> 26
summarized above). If the exercise is treated as a tax free exchange, the
optionee would have no taxable income from the exchange and exercise (other than
minimum taxable income as discussed above) and the tax basis of the shares
exchanged would be treated as the substituted basis for the shares received.
These rules would not apply if the optionee used shares received pursuant to the
exercise of an incentive option (or another statutory option) as to which the
optionee had not satisfied the applicable holding period requirement. In that
case, the exchange would be treated as a taxable disqualifying disposition of
the exchanged shares, with the result that the excess of the fair market value
of the shares tendered over the optionee's basis in the shares would be taxable.
Upon exercising a non-qualifying option, an optionee will recognize ordinary
income in an amount equal to the difference between the exercise price and the
fair market value of the common stock on the date of exercise (except that, if
the optionee is subject to certain restrictions imposed by the securities laws,
the measurement date may be delayed, unless the optionee makes a special tax
election within 30 days after exercise to have income determined without regard
to the restrictions). If the Company complies with applicable reporting
requirements, it will be entitled to a business expense deduction in the same
amount. Upon a subsequent sale or exchange of shares acquired pursuant to the
exercise of a non-incentive option, the optionee will have taxable gain or loss,
measured by the difference between the amount realized on the disposition and
the tax basis of the shares (generally, the amount paid for the shares plus the
amount treated as ordinary income at the time the option was exercised).
If, pursuant to an option agreement, the optionee surrenders shares of common
stock in payment of part or all of the exercise price for non-qualifying
options, no gain or loss will be recognized with respect to the shares
surrendered (regardless of whether the shares were acquired pursuant to the
exercise of an incentive option) and the optionee will be treated as receiving
an equivalent number of shares pursuant to the exercise of the option in a
non-taxable exchange. The basis of the shares surrendered will be treated as the
substitute tax basis for an equivalent number of option shares received and the
new shares will be treated as having been held for the same holding period as
had expired with respect to the transferred shares. However, the fair market
value of any shares received in excess of the number of shares surrendered
(i.e., the difference between the aggregate option exercise price and the
aggregate fair market value of the shares received pursuant to the exercise of
the option) will be taxed as ordinary income.
REQUIRED VOTE AND RELATED MATTERS
The approval by a majority of total votes cast is required to approve the
amendment to the Plan to increase the number of shares of Class A Common Stock
available for issuance thereunder from 300,000 to 600,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 3.
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<PAGE> 27
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
The Company provides all shareholders with the opportunity, under certain
circumstances, to participate in the governance of the Company by submitting
proposals that they believe merit consideration at the next Annual Meeting of
Shareholders, which currently is expected to be held in May 2000. To enable
management to analyze and respond adequately to proposals and to prepare
appropriate proposals for presentation in the Company's Proxy Statement for the
next annual meeting of shareholders, shareholders must submit any such proposal
to the Company no later than January 4, 2000, to the attention of its Secretary,
at the Company's principal place of business in Roswell, Georgia. Shareholders
may also submit the names of individuals who they wish to be considered by the
Board of Directors as nominees for directors.
VOTING PROCEDURES
Shareholders' votes will be tabulated by the persons appointed by the chairman
of the Annual Meeting to act as inspectors of election for the Annual Meeting.
All shares represented and entitled to vote on a proposal, whether voted for or
against the proposal, or abstaining from voting, will be counted as present and
entitled to vote on the proposal.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement the
following sections of the Company's Annual Report on Form 10-K for the year
ended December 31, 1998: (i) Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth at pages 15 through 21 thereof;
(ii) Consolidated Financial Statements set forth at pages F-3 through F-6
thereof; (iii) Notes to Consolidated Financial Statements set forth at pages F-7
through F-16 thereof; and (iv) Report of Independent Accountants set forth at
page F-2 thereof.
The Company will provide without charge to each person to whom a copy of this
Proxy Statement is delivered, on the written or oral request of such person and
by first class mail or other equally prompt means within one business day of
receipt of such request, a copy of any and all of the documents referred to
above which have been incorporated by reference in this Proxy Statement. Such
written or oral request should be directed to W. Jeffrey Camp, Chief Financial
Officer, Tekgraf, Inc., 645 Hembree Parkway, Suite J, Roswell, Georgia 30076;
(770) 442-6060.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, is required to file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of the reports, proxy statements and other
information can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxies, information statements, and registration statements and other
information filed with the Commission through the EDGAR system. The Class A
Common Stock of the Company and the Warrants are traded on the Nasdaq National
Market (Symbols: TKGFA and TKGFW, respectively), and such reports, proxy
statements and other information concerning the Company also can be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
A copy of the Annual Report on Form 10-K for the fiscal year ended December 31,
1998 accompanies this Proxy Statement. The Annual Report contains consolidated
financial statements of the Company and the report thereon of
PricewaterhouseCoopers LLP.
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<PAGE> 28
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented for
action by the shareholders at the Annual Meeting. If, however, any other matters
not now known are properly brought before the Annual Meeting, the persons named
in the accompanying proxy card will vote such proxy on such matters as
determined by a majority of the Board of Directors.
By Order of the Board of Directors
/s/ William M. Rychel
-------------------------------------
William M. Rychel
Interim Chief Executive Officer
Roswell, Georgia
Dated: April 30, 1999
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<PAGE> 29
APPENDIX
PROXY SOLICITED FOR ANNUAL MEETING
OF SHAREHOLDERS OF
TEKGRAF, INC.
TO BE HELD MAY 26, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints William M. Rychel and W. Jeffrey
Camp and each or either of them, the true and lawful agents and proxies of the
undersigned with full power of substitution in each, to represent and vote, as
indicated on the reverse, all of the shares of Class A Common Stock and Class B
Common Stock of Tekgraf, Inc. ("Tekgraf") that the undersigned would be entitled
to vote at the 1999 Annual Meeting of Shareholders of Tekgraf, to be held on May
26, 1999 at the Crowne Plaza Atlanta Airport Hotel located at 1325 Virginia
Avenue, Atlanta, Georgia 30344, at 10:00 a.m. local time, and at any adjournment
thereof, upon the matters described in the accompanying Notice of Annual Meeting
of Shareholders and Proxy Statement for the Annual Meeting of Shareholders,
receipt of which is acknowledged, and upon any other business that may properly
come before the meeting or any adjournment thereof. Said proxies are directed to
vote on the matters described in the Notice of Annual Meeting of Shareholders
and Proxy Statement for the Annual Meeting of Shareholders as follows, and
otherwise in their discretion upon such other business as may properly come
before the meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED: (I) FOR PROPOSAL 1 TO ELECT THE FOUR NOMINEES OF THE BOARD OF DIRECTORS
AS DIRECTORS, EACH FOR A ONE-YEAR TERM; (II) FOR PROPOSAL 2 TO RATIFY THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS TEKGRAF'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 1999; (III) FOR PROPOSAL 3 TO
APPROVE AN AMENDMENT TO TEKGRAF'S 1997 STOCK OPTION PLAN TO INCREASE THE NUMBER
OF SHARES OF CLASS A COMMON STOCK RESERVED FOR ISSUANCE THEREUNDER FROM 300,000
TO 600,000; AND (IV) AS THE PROXY HOLDER MAY DETERMINE IN HIS DISCRETION WITH
REGARD TO ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE ANNUAL MEETING.
PLEASE MARK, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE> 30
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C> <C> <C>
William M. Rychel Frank X. Dalton, Jr.
W. Jeffrey Camp Albert E. Sisto
( ) FOR all nominees ( ) WITHHOLD AUTHORITY to
listed (except as vote for all nominees
marked to the contrary)
(INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write that nominee's name(s) in the space provided below.)
</TABLE>
2. PROPOSAL to ratify the appointment of PricewaterhouseCoopers LLP as
Tekgraf's independent public accountants for the year ending December
31, 1999.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. PROPOSAL to approve an amendment to Tekgraf's 1997 Stock Option Plan to
increase the number of shares of Class A Common Stock reserved for
issuance thereunder from 300,000 to 600,000.
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. IN THEIR DISCRETION, to act upon such other business as may properly
come before the meeting or any adjournment thereof.
Dated:_________________,1999
--------------------------- -----------------------------------
Number of Shares Signature of Shareholder(s)
of Class A Common Stock
--------------------------- -----------------------------------
Number of Shares Signature of Shareholder(s)
of Class B Common Stock
Note: Please sign exactly as name or names
appear hereon. Where more than one owner is
shown on a stock certificate, each owner
should sign. Persons signing in a fiduciary
or representative capacity shall give full
title. If a corporation, please sign in full
corporate name by authorized officer. If a
partnership, please sign in partnership name
by authorized person.
Please Mark, Date and Return the Proxy Card
promptly using the enclosed envelope.
<PAGE> 31
APPENDIX A
TEKGRAF, INC.
1997 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for TEKGRAF, INC.
(the "Company") and its stockholders the benefits arising from capital stock
ownership by employees, officers and directors of, and consultants or advisors
to, the Company who are expected to contribute to the Company's future growth
and success. Except where the context otherwise requires, the term "Company"
shall include all present and future subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code"). Those provisions of the Plan which make
express reference to Section 422 shall apply only to Incentive Stock Options (as
that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall
be authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by a committee
(the "Committee") appointed by the Board of Directors of the Company, whose
construction and interpretation of the terms and provisions of the Plan shall be
final and conclusive. The delegation of powers to the Committee shall be
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")). The
Committee may in its sole discretion grant options to purchase shares of the
Company's Class A Common Stock, $.001 par value per share ("Common Stock") and
issue shares upon exercise of such options as provided in the Plan. The
Committee shall have authority, subject to the express provisions of the Plan,
to construe the respective option agreements and the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms
and provisions of the respective option agreements, which need not be identical,
and to make all other determinations in the judgment of the Committee necessary
or desirable for the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board of Directors shall be liable for any action or determination under the
Plan made in good faith.
A-1
<PAGE> 32
(c) Applicability of Rule 16b-3. Those provisions of the Plan
which make express reference to Rule 16b-3 shall apply to the Company only at
such time as the Company's Common Stock is registered under the Exchange Act,
subject to the last sentence of Section 3(b), and then only to such persons as
are required to file reports under Section 16(a) of the Exchange Act (a
"Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the
time of grant, employees, officers or directors of, or consultants or advisors
to, the Company provided, that Incentive Stock options may only be granted to
individuals who are employees of the Company (within the meaning of Section
3401(c) of the Code). A person who has been granted an option may, if he or she
is otherwise eligible, be granted additional options if the Board of Directors
shall so determine.
(b) Grant of Options to Reporting Persons. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer who is a Reporting Person (as the terms
"director" and "officer" are defined for purposes of Rule 16b-3) as a recipient
of an option, the timing of the option grant, the exercise price of the option
and the number of shares subject to the option shall be determined either (i) by
the Board of Directors, of which all members shall be "disinterested persons"
(as hereinafter defined), or (ii) by a committee consisting of two or more
directors having full authority to act in the matter, each of whom shall be a
"disinterested person." For the purposes of the Plan, a director shall be deemed
to be a "disinterested person, only if such person qualifies as a "disinterested
person" within the meaning of Rule 16b-3, as such term is interpreted from time
to time. If at least two of the members of the Board of Directors do not qualify
as a "disinterested person" within the meaning of Rule 16b-3, as such term is
interpreted from time to time, then the granting of options to officers and
directors who are Reporting Persons under the Plan shall not be determined in
accordance with this Section 3(b) but shall be determined in accordance with the
other provisions of the Plan.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 600,000 shares. If an
option granted under the Plan shall expire, terminate or is cancelled for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient
of an option shall execute an option agreement in such form not inconsistent
with the Plan as may be approved by the Board of Directors. Such option
agreements may differ among recipients.
A-2
<PAGE> 33
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable
upon the exercise of an option shall be determined by the Board of Directors at
the time of grant of such option; provided, however, that in the case of an
Incentive Stock Option, the exercise price shall not be less than 100% of the
Fair Market Value (as hereinafter defined) of such stock, at the time of grant
of such option, or less than 110% of such Fair Market Value in the case of
options described in Section 11(b). "Fair Market Value" of a share of Common
Stock of the Company as of a specified date for the purposes of the Plan shall
mean the closing price of a share of the Common Stock on the principal
securities exchange on which such shares are traded on the day immediately
preceding the date as of which Fair Market Value is being determined, or on the
next preceding date on which such shares are traded if no shares were traded on
such immediately preceding day, or if the shares are not traded on a securities
exchange, Fair Market Value shall be deemed to be the average of the high bid
and low asked prices of the shares in the over-the-counter market on the day
immediately preceding the date as of which Fair Market Value is being determined
or on the next preceding date on which such high bid and low asked prices were
recorded. If the shares are not publicly traded, Fair Market Value of a share of
Common Stock (including, in the case of any repurchase of shares, any
distributions with respect thereto which would be repurchased with the shares)
shall be determined in good faith by the Board of Directors. In no case shall
Fair Market Value be determined with regard to restrictions other than
restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Company of shares of Common Stock of the Company having a Fair
Market Value on the date of exercise equal in amount to the exercise price of
the options being exercised, (ii) by any other means which the Board of
Directors determines are consistent with the purpose of the Plan and with
applicable laws and regulations (including, without limitation, the provisions
of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board) or
(iii) by any combination of such methods of payment.
7. Option Period.
Subject to earlier termination as provided in the Plan, each option and
all rights thereunder shall expire on such date as determined by the Board of
Directors and set forth in the applicable option agreement, provided, that such
date shall not be later than (10) ten years after the date on which the option
is granted.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. No option granted to a Reporting
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Person for purposes of the Exchange Act, however, shall be exercisable during
the first six months after the date of grant. Subject to the requirements in the
immediately preceding sentence, if an option is not at the time of grant
immediately exercisable, the Board of Directors may (i) in the agreement
evidencing such option, provide for the acceleration of the exercise date or
dates of the subject option upon the occurrence of specified events, and/or (ii)
at any time prior to the complete termination of an option, accelerate the
exercise date or dates of such option.
9. Nontransferability of Options.
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. An option may be exercised during the lifetime of the optionee only
by the optionee. In the event an optionee dies during his employment by the
Company or any of its subsidiaries, or during the three-month period following
the date of termination of such employment, his option shall thereafter be
exercisable, during the period specified in the option agreement, by his
executors or administrators to the full extent to which such option was
exercisable by the optionee at the time of his death during the periods set
forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, an optionee may exercise an
option at any time within three (3) months following the termination of the
optionee's employment or other relationship with the Company or within one (1)
year if such termination was due to the death or disability of the optionee,
but, except in the case of the optionee's death, in no event later than the
expiration date of the Option. If the termination of the optionee's employment
is for cause or is otherwise attributable to a breach by the optionee of an
employment or confidentiality or non-disclosure agreement, the option shall
expire immediately upon such termination. The Board of Directors shall have the
power to determine what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether an optionee
has been terminated for cause or has breached such an agreement, and the date
upon which such termination for cause or breach occurs. Any such determinations
shall be final and conclusive and binding upon the optionee.
11. Incentive Stock options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under
the Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
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(b) 10% Stockholder. If any employee to whom an Incentive Stock
Option is to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than 110% of
the Fair Market Value of one share of Common Stock at the time of
grant; and
(ii) the option exercise period shall not exceed five
years from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value, as
of the respective date or dates of grant, of more than $100,000.
(d) Termination of Employees, Death or Disability. No Incentive
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided, that the
agreement with respect to such option may designate a longer exercise
period and that the exercise after such three-month period shall be
treated as the exercise of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the
Company, or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to
whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such
lesser period as may be specified in the applicable option agreement);
and
(iii) if the optionee becomes disabled (within the meaning
of Section 22(e) (3) of the Code or any successor provisions thereto)
while in the employ of the Company, the Incentive Stock Option may be
exercised within the period of one year after the date the optionee
ceases to be such an employee because of such disability (or within
such lesser period as may be specified in the applicable option
agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any
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successor regulations). Notwithstanding the foregoing provisions, no Incentive
Stock Option may be exercised after its expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in
its sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, rights of first refusal, commitments to pay cash
bonuses, to make, arrange for or guaranty loans or to transfer other property to
optionees upon exercise of options, or such other provisions as shall be
determined by the Board of Directors; provided, that such additional provisions
shall not be inconsistent with any other term or condition of the Plan and such
additional provisions shall not cause any Incentive Stock Option granted under
the Plan to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in
its sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised; provided, however, that no such extension shall
be permitted if it would cause the Plan to fail to comply with Section 422 of
the Code or with Rule 16b-3 (if applicable).
13. General Restrictions.
(a) Investment Representations. The Company may require any person
to whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Company in connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent, or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition.
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14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations and
Related Transactions.
(a) Recapitalizations and Related Transactions. If, through or as
a result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other non-cash assets are distributed with respect to
such shares of Common Stock or other securities, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares reserved for issuance under the Plan, (y) the number and kind of shares
or other securities subject to any then outstanding options under the Plan, and
(z) the price for each share subject to any then outstanding options under the
Plan, without changing the aggregate purchase price as to which such options
remain exercisable. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 15 if such adjustment (i) would cause the Plan to fail
to comply with Section 422 of the Code or with Rule 16b-3 or (ii) would be
considered as the adoption of a new plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. If the
Company shall be the surviving corporation in any reorganization, merger or
consolidation of the Company with one or more other corporations, any then
outstanding option granted pursuant to the Plan shall pertain to and apply to
the securities to which a holder of the number of shares of Common Stock subject
to such options would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the purchase price as to which such options may be exercised so
that the aggregate purchase price as to which such options may be exercised
shall be the same as the aggregate purchase price as to which such options may
be exercised for the shares remaining subject to the options immediately prior
to such reorganization, merger, or consolidation.
(c) Board Authority to Make Adjustments. Any adjustments under
this Section 15 will be made by the Board of Directors, whose determination as
to what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger in which
the Company is not the surviving corporation, or sale of all or substantially
all of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other
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property of any other corporation or business entity or in the event of a
liquidation of the Company (collectively, a "Corporate Transaction"), the Board
of Directors of the Company, or the board of directors of any corporation
assuming the obligations of the Company, may, in its discretion, take any one or
more of the following actions, as to outstanding options: (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof), provided that any
such options substituted for Incentive Stock Options shall meet the requirements
of Section 424(a) of the Code, (ii) upon written notice to the optionees,
provide that all unexercised options will terminate immediately prior to the
consummation of such transaction unless exercised by the optionee within a
specified period following the date of such notice, (iii) in the event of a
Corporate Transaction under the terms of which holders of the Common Stock of
the Company will receive upon consummation thereof a cash payment for each share
surrendered in the Corporate Transaction (the "Transaction Price"), make or
provide for a cash payment to the optionees equal to the difference between (A)
the Transaction Price times the number of shares of Common Stock subject to such
outstanding options (to the extent then exercisable at prices not in excess of
the Transaction Price) and (B) the aggregate exercise price of all such
outstanding options in exchange for the termination of such options, and (iv)
provide that all or any outstanding options shall become exercisable in full
immediately prior to such event.
(b) Substitute Options. The Company may grant options under the
Plan in substitution for options held by employees of another corporation who
become employees of the Company, or a subsidiary of the Company, as the result
of a merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
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19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the approval
of the stockholders of the Company is required under Section 422 of the Code or
any successor provision with respect to Incentive Stock Options, or under Rule
16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
(b) The modification or amendment of the Plan shall not, without
the consent of an optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive Stock
Options granted under the Plan to the extent necessary to qualify any or all
such options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock options under
Section 422 of the Code and (ii) the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of
any kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so delivered or
withheld shall have a Fair Market Value equal to such withholding obligation as
of the date that the amount of tax to be withheld is to be determined. An
optionee who has made an election pursuant to this Section 20(a) may only
satisfy his or her withholding obligation with shares of Common Stock which are
not subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.
(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any or all of such shares are disposed of by the optionee
within two years from the date the option was granted or within one year from
the date the shares were issued to the optionee pursuant to the exercise of the
option, and (ii) if required by law, to remit to the Company, at the time of and
in the case of any such disposition, an amount sufficient to satisfy the
Company's federal, state and local withholding tax obligations with respect to
such disposition, whether or not, as to both (i) and (ii), the optionee is in
the employ of the Company at the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting
Person whose options have been granted in accordance with the provisions of
Section 3(b) herein, no election to use
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shares for the payment of withholding taxes shall be effective unless made in
compliance with any applicable requirements of Rule 16b-3.
21. Cancellation and New Grant of options, Etc.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted
by the Board of Directors, but no Incentive Stock Option granted under the Plan
shall become exercisable unless and until the Plan shall have been approved by
the Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock options shall be granted thereafter. Amendments to the
Plan not requiring stockholder approval shall become effective when adopted by
the Board of Directors; amendments requiring stockholder approval (as provided
in Section 19) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with
Section 16, the Plan shall terminate upon the earlier of (i) the close of
business on the day next preceding the tenth anniversary of the date of its
adoption by the Board of Directors, or (ii) the date on which all shares
available for issuance under the Plan shall have been issued pursuant to the
exercise or cancellation of options granted under the Plan. If the date of
termination is determined under (i) above, then options outstanding on such date
shall continue to have force and effect in accordance with the provisions of the
instruments evidencing such options.
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23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
24. Governing Law.
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
Adopted by the Board of Directors on August 7, 1996, and amended on May
26, 1999.
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