<PAGE>
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
Dunn Computer Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1).
1) Title of each class of securities to which transaction applies:
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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):
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[ ] Check box if any part of the fee is offset as provided by Exchange
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paid previously. Identify the previous filing by registration statement number,
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4) Date Filed:
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<PAGE>
DUNN COMPUTER CORPORATION
1306 SQUIRE COURT
STERLING, VIRGINIA 20166
Dear Shareholder:
You are cordially invited to attend the annual meeting of the
shareholders of Dunn Computer Corporation, a Virginia corporation (the
"Company") to be held at 10:00 a.m. on May 15, 2000, at its offices at 1306
Squire Court, Sterling, Virginia. A Notice of Annual Meeting of Shareholders,
Proxy Statement and proxy card are enclosed for your review. All holders of
shares of common stock of the Company as of the close of business on March 15,
2000 (the record date), are entitled to notice of, and to vote at, the meeting.
The business of the meeting is to (i) elect the persons to serve as
Class II directors of the Company to serve a term of three years; (ii) approve
the appointment of Ernst & Young LLP as independent accountants of the Company
for the fiscal year ending October 31, 2000; (iii) approve the 5% Series A
Convertible Preferred Stock transaction; (iv) amend the Certificate of
Incorporation to increase the authorized number of shares of Common Stock;
and (v) approve the Board of Directors to authorize a Stock Split.
While shareholders may exercise their right to vote their shares in
person, we recognize that many shareholders may not be able to attend the Annual
Meeting. Accordingly, we have enclosed a proxy which will enable you to vote
your shares on the issues to be considered at the Annual Meeting even if you are
unable to attend. All you need to do is mark the proxy to indicate your vote,
date and sign the proxy, and return it in the enclosed postage-paid envelope as
soon as conveniently possible. If you desire to vote in accordance with
management's recommendations, you need not mark your votes on the proxy but need
only sign, date and return the proxy in the enclosed postage-paid envelope in
order to record your vote.
If you would like to attend the meeting and your shares are held by a
broker, bank or other nominee, you must bring to the meeting a recent brokerage
statement or a letter from the nominee confirming your beneficial ownership of
the shares. You must also bring a form of personal identification. In order to
vote your shares at the meeting, you must obtain from the nominee a proxy in
your name.
Sincerely,
/S/ Thomas P. Dunne
April 6, 2000 Chairman, Chief Executive Officer, and President
Dulles,Virginia
<PAGE>
DUNN COMPUTER CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 2000
TO THE SHAREHOLDERS OF DUNN COMPUTER CORPORATION:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders (the
"Annual Meeting") of Dunn Computer Corporation (the "Company"), will be held at
10:00 a.m. on May 15, 2000, at the offices of the Company at 1306 Squire
Court, Sterling Virginia 20166, for the following purposes:
1. To elect two Class II directors to serve for the following
three years and one Class III Director for the following year
and until their successors are duly elected;
2. To approve the appointment of Ernst & Young LLP as independent
accountants of the Company for the fiscal year ending October
31, 2000;
3. To approve the 5% Series A Convertible Preferred Stock
transaction;
4. To amend the Certificate of Incorporation to increase the
authorized number of shares of Common Stock;
5. To approve the Board of Directors to authorize a Stock Split;
and
6. To consider and transact such other business as may properly
and lawfully come before the Annual Meeting or any adjournment
thereof.
All of the foregoing is more fully set forth in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on March 15,
2000, as the record date for the determination of the shareholders entitled to
notice of and to vote at the annual meeting and any adjournments or
postponements thereof. Only holders of record of the Company's common stock on
the record date are entitled to vote at the meeting. A list of such shareholders
will be available at the time and place of the meeting and, during the ten days
prior to the meeting, at the office of the Secretary of the Company at the above
address.
If you would like to attend the meeting and your shares are held by a
broker, bank or other nominee, you must bring to the meeting a recent brokerage
statement or a letter from the nominee confirming your beneficial ownership of
the shares. You must also bring a form of personal identification. In order to
vote your shares at the meeting, you must obtain from the nominee a proxy in
your name.
You can ensure that your shares are voted at the meeting by signing and
dating the enclosed proxy and returning it in the envelope provided. Sending in
a signed proxy will not affect your right to attend the meeting and to vote in
person. You may revoke your proxy at any time before it is voted by notifying
Continental Stock Transfer & Trust Company in writing before the meeting, or by
executing a subsequent proxy, which revokes your previously executed proxy. The
address for the Continental Stock Transfer & Trust Company is 2 Broadway, New
York, New York 10004.
<PAGE>
WHETHER OR NOT YOU EXPECT TO ATTEND, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors
/S/ Thomas P. Dunne
April 6, 2000 Chairman, Chief Executive Officer and President
Dulles, Virginia
<PAGE>
[DUNN LOGO]
ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 2000
--------------------------------------------------
PROXY STATEMENT
--------------------------------------------------
The enclosed proxy is solicited on behalf of the Board of Directors of
Dunn Computer Corporation (the "Company") for the annual meeting of shareholders
(the "Annual Meeting") to be held at 10:00 a.m. on May 15, 2000 at the
Company's headquarters, located at 1306 Squire Court, Sterling, Virginia 20166,
or any adjournment or adjournments thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting. These proxy solicitation
materials were mailed on or about March 15, 2000 to all shareholders entitled to
vote at the meeting.
GENERAL INFORMATION
RECORD DATE; OUTSTANDING SHARES
Only shareholders of record at the close of business on March 15, 2000
(the "Record Date"), are entitled to receive notice of and to vote at the Annual
Meeting. The outstanding voting securities of the Company as of such date
consisted of 9,424,680 shares of common stock, $.001 par value. For information
regarding stock ownership by management and holders of more than 5% of the
outstanding common stock, see "Securities Ownership of Certain Beneficial Owners
and Management."
VOTING OF PROXIES AND REVOCABILITY
All shares presented by properly executed proxies will be voted in
accordance with the specifications on the proxy. IF NO SUCH SPECIFICATIONS ARE
MADE ON AN EXECUTED PROXY, THE PROXY WILL BE VOTED FOR THE ELECTION OF THE
NOMINESS FOR DIRECTORS LISTED UNDER THE CAPTION "ELECTION OF DIRECTORS"; FOR THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY FOR
THE FISCAL YEAR ENDED OCTOBER 31, 2000; FOR THE APPROVAL OF THE 5% SERIES A
CONVERTIBLE PREFERRED STOCK TRANASACTION; FOR THE APPROVAL TO AMEND THE
CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF
COMMON STOCK; AND FOR THE APPROVAL OF
<PAGE>
THE BOARD OF DIRECTORS TO AUTHORIZE A STOCK SPLIT. A stockholder who has given a
proxy pursuant to this proxy solicitation may revoke it at any time before it is
exercised by giving written notice thereof prior to the meeting to the Company's
transfer agent, Continental Stock Transfer & Trust Company, or by signing and
returning a later dated proxy, or by voting in person at the meeting. Sending in
a signed proxy will not affect a stockholder's right to attend the meeting and
vote in person. However, mere attendance at the meeting will not, in and of
itself, have the effect of revoking the proxy.
The Company has not received any shareholder proposals for inclusion in
this proxy statement. If any other matter or matters are properly presented for
action at the meeting, the persons named in the enclosed proxy card and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment, unless such authorization is withheld.
If you would like to attend the meeting and your shares are held by a
broker, bank or other nominee, you must bring to the meeting a recent brokerage
statement or a letter from the nominee confirming your beneficial ownership of
the shares. You must also bring a form of personal identification. In order to
vote your shares at the meeting, you must obtain from the nominee a proxy in
your name.
REQUIRED VOTE
The holder of each outstanding share of common stock as of the
record date is entitled to one vote on each matter to be voted on at the
Annual Meeting. With respect to the election of directors, the holder of each
outstanding share of common stock as of the record date is entitled to one
vote for as many persons as there are directors to be elected, however
shareholders do not have a right to cumulate their votes for directors. The
candidates for election as directors will be elected by the affirmative vote
of a plurality of the shares of common stock present in person or by proxy
and actually voting at the meeting. The affirmative vote of a majority of
shares of common stock of the Company voted at the meeting in person or by
proxy is required for the approval of proposal numbers 2, 3, 4 and 5, and for
any other matter that may properly come before the meeting.
THE MATTERS TO BE CONSIDERED AT THE MEETING ARE OF GREAT IMPORTANCE AND
THE SHAREHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION
PRESENTED IN THIS PROXY AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation material to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers and regular employees, without
additional compensation personally or by telephone, telecopy, or electronic
mail. We have hired Continental Stock Transfer & Trust Company to assist in the
solicitation process. The Company estimates the cost of solicitation to be
$1,800.00.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
<PAGE>
Votes cast by proxy or in person at the meeting will be tabulated by
the election inspectors appointed for the meeting, who will determine whether or
not a quorum is present. The presence in person or by proxy of shareholders
entitled to vote a majority of the outstanding shares of common stock will
constitute a quorum. Shares represented by a proxy or in person at the meeting,
including shares represented by proxies that reflect abstentions, will be
counted as present in the determination of a quorum. An abstention as to any
particular matter, however, does not constitute a vote "for" or "against" such
matter. "Broker non-votes" (i.e. where a broker or nominee submits a proxy
specifically indicating the lack of discretionary authority to vote on a matter)
will be treated in the same manner as abstentions.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Company's 2001 annual meeting must be
received by the Company no later than January 28, 2001 in order to be included
in the proxy statement and form of proxy relating to that meeting. Any such
proposal should be addressed to the Company's Chief Financial Officer and
delivered to the Company's principal executive offices at 1306 Squire Court,
Sterling, Virginia 20166.
ANNUAL REPORT
The Company's Annual Report to Shareholders, which includes its Annual
Report on Form 10-K for the fiscal year ended October 31, 1999, is enclosed with
this Proxy Statement. The Annual Report contains financial and other information
about the activities of the Company, but is not incorporated into this Proxy
Statement and should not be considered part of this proxy soliciting materials.
ELECTION OF DIRECTORS
(PROPOSAL 1)
GENERAL
The Directors of the Company are divided into three classes with
staggered terms. Two Directors, the Class I Directors, were elected at the 1999
Annual Meeting serve for three-year terms and until their successors are elected
and duly qualified. Three Directors, two Class II Directors and one Class III
Director, are to be elected at the 2000 Annual Meeting. VADM E. A. Burkhalter
and Daniel Sinnott, have been nominated by the Board of Directors for
re-election to the Board of Directors as Class II Directors at the Annual
Meeting. Benjamin Krieger has been nominated by the Board of Directors for
re-election to the Board of Directors as a Class III Directors at the Annual
Meeting. Unless authorization is withheld, the persons named, as proxies will
vote FOR the election of the nominees of the Board of Directors named above.
Each nominee has agreed to serve if elected. In the event that any nominee shall
unexpectedly be unable to serve, the proxies will be voted for such other person
as the Board of Directors may designate.
In fiscal year 1999, the Board of Directors met 5 times. All directors
attended at least 75% of the meetings.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF
THE NOMINEES.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information regarding the directors,
including the nominees, and executive officers of the Company:
<TABLE>
<CAPTION>
- --------------------------------------- -------- ------------------------------------------------------------
NAME AGE POSITION
- --------------------------------------- -------- ------------------------------------------------------------
<S> <C> <C>
Thomas P. Dunne 58 Chairman of the Board, Chief Executive Officer, and
President
- --------------------------------------- -------- ------------------------------------------------------------
John D. Vazzana 56 Executive Vice President, Chief Financial Officer, Director
- --------------------------------------- -------- ------------------------------------------------------------
Claudia N. Dunne 40 Vice President, Director
- --------------------------------------- -------- ------------------------------------------------------------
VADM E. A. Burkhalter, Jr. USN 70 Director
- --------------------------------------- -------- ------------------------------------------------------------
Daniel Sinnott 65 Director
- --------------------------------------- -------- ------------------------------------------------------------
Benjamin Krieger 64 Director
- --------------------------------------- -------- ------------------------------------------------------------
</TABLE>
All Directors are elected to staggered three-year terms. Each Director
holds office until a successor is elected and qualified unless the Director
dies, resigns, or is removed from office. Executive officers hold office until
their successors are chosen and qualified, subject to earlier removal by the
Board of Directors. There are currently six Directors on the Company's Board of
Directors. Set forth below is a biographical description of each executive
officer and Director of the Company:
THOMAS P. DUNNE has been Chairman, Chief Executive Officer and President of Dunn
since he founded the company in 1987. As a Class III director, the current term
of Mr. Dunne on the Board of Directors is until the first annual meeting after
fiscal year 2000. From 1982 to 1987, Mr. Dunne was the Director of Sales of
Syntrex, Inc., a corporation that supplies computer hardware and software to the
legal profession. Prior thereto, Mr. Dunne spent 12 years with the computer
division of Perkin Elmer Corporation, where he held several positions, including
Director of North American Sales. Mr. Dunne also served in the United States
Army for two years where he was a Senior Instructor with the Army Electronics
Command. Mr. Dunne is married to Claudia N. Dunne, the Vice President of the
Company.
JOHN D. VAZZANA has been a Class I Director of Dunn since 1994 and was Executive
Vice President and Chief Financial Officer until his resignation effective
August 31, 1999. From 1992 to 1994, Mr. Vazzana was the Chief Executive Officer
of Hitchler Industry; a manufacturer of plastic lumber made from recycled
plastic. From 1986 to 1992, Mr. Vazzana was founder and Chief Executive Officer
of NRM Steelastic, a company engaged in the manufacture of capital equipment for
the tire industry. Prior thereto, Mr. Vazzana was Executive Vice President of
C3, Inc., a federal computer systems integrating company, which he joined in
1974.
CLAUDIA N. DUNNE, a co-founder of Dunn, has been Vice President and a Class I
Director of Dunn since its inception. From 1985 to 1987, Ms. Dunne was a Federal
Proposal Manger for Syntrex, Inc. From 1983 to 1985, Ms. Dunne was Proposal
Manager for Harris and Paulson, which also sold minicomputers and proprietary
time and accounting software for law firms. Ms. Dunne is married to Thomas P.
Dunne, the President of the Company.
<PAGE>
VICE ADMIRAL E. A. BURKHALTER, JR., USN (RET.) has been a Class II Director of
Dunn since January 1997. Mr. Burkhalter is currently the President of Burkhalter
Associates, Inc.; a consulting firm providing services in the areas of
international and domestic strategy, management policy and technology
applications, for both government and industry. Mr. Burkhalter spent 40 years as
a member of the United Stated Navy, during which time he held several positions,
including Director of Strategic Operations for the Chairman of the Joint Chiefs
of Staff. He is currently the Chairman of the Attorney General's Policy Advisory
Panel for Law Enforcement Technology, a member of the Director of Central
Intelligence (DCI) Military Advisory Panel and an advisor to the Defense
Intelligence Agency. He is also an Officer and Director of the Navy Submarine
League.
DANIEL SINNOTT has been a Director of Dunn since January, 1997. As a Class II
director, Mr. Sinnott's term is until the first annual meeting after fiscal year
1999. Mr. Sinnott is currently a consultant with Worldwide Internet Solutions,
Inc. ("WIZnet"). WIZnet provides electronic catalogs and adaptive recognition
search technology and facilitates electronic commerce linking buyers and sellers
via secure mail. From 1995 until March 1998, Mr. Sinnott was Chief Executive
Officer of WIZnet. In 1991 Mr. Sinnott was a founder of Sinnott Bruno & Company
("SB&C"). SB&C is a management consulting firm providing advisory services to
executive and management organizations that are in the emerging transition
stages of development. Mr. Sinnott worked full time with SB&C from 1991 until
joining WIZnet in 1995.
BENJAMIN KRIEGER was appointed by the Board of Directors as a Class III Director
of Dunn to fill a vacancy created by the resignations of Jorge and Oscar Fuster
in November 1998. Mr. Kreiger is currently a Partner with Corporate Development
International (CDI). CDI specializes in the Pulp & Paper, Packaging, Graphic
Arts and Distribution Industries. Prior to his current employment, Mr. Krieger
was President, CEO and a Director of Ris Paper Company. Mr. Krieger began his
career with Mead Corporation which he was promoted through the Company during
his 25 year tenure.
COMMITTEES OF THE BOARD
The Company's Board of Directors has an Audit Committee, comprised of
three outside Directors. In fiscal year 1999, the Audit Committee met 2 times.
The Audit Committee reviews and approves the scope of the annual audit
undertaken by the Company's independent certified public accountants and meets
with them on a regular basis to review the progress and results of their work as
well as any recommendations they may make. The Company's Board of Directors also
has a Compensation Committee, comprised of two outside Directors and Thomas
P. Dunne. In fiscal year 1999, the Compensation Committee met 2 times. All of
the members of each committee attended at least 75% of the meeting held by each
committee on which he served.
<PAGE>
COMPENSATION OF DIRECTORS
Dunn has not paid, and the Company does not presently propose to pay,
compensation to any Director for acting in such capacity, except for nominal
sums for attending Board of Directors meetings and reimbursement for reasonable
expenses in attending those meetings. In January 1997, Dunn granted each of its
two outside Directors a stock option to purchase 20,000 shares of Dunn's common
stock at an exercise price of $4.15 per share. The Company believes the exercise
price of $4.15 per share was the fair market value at the time of the grants. In
January 1999, Dunn granted each two of its outside Directors, Daniel Sinnott and
VADM Burkhalter stock options to purchase an additional 10,000 shares of Dunn's
common stock at an exercise price of $5.375 per share. The Company believes the
exercise price of $5.375 per share was the fair market value at the time of the
grants. In June 1999, Dunn granted two of its outside Directors, Daniel Sinnott
and VADM Burkhalter stock options to purchase an additional 10,000 shares of
Dunn's common stock at an exercise price of $2.03 per share. The Company
believes the exercise price of $2.03 per share was the fair market value at the
time of the grants. All of the options granted to the outside directors were
pursuant to the Company's 1997 Stock Option Plan described below.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by the Company during each of the last three fiscal years to
the Company's Chief Executive Officer and to each of the Company's executive
officers who were paid in excess of $100,000 ("Named Officers").
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) NUMBER OF OPTIONS
- --------------------------- ---- ---------- --------- GRANTED
-------
ANNUAL COMPENSATION LONG-TERM
------------------- COMPENSATION
------------
<S> <C> <C> <C> <C>
Thomas P. Dunne......................... 1997 $240,000 -0- -0-
Chairman, Chief Executive 1998 $240,000 -0- -0-
Officer and President 1999 $240,000 -0- -0-
John D. Vazzana......................... 1997 $240,000 -0- -0-
Executive Vice President, Chief 1998 $240,000 -0- -0-
Financial Officer, and Director 1999 * $160,000 -0- -0-
</TABLE>
* Resigned as Executive Vice President and Chief Financial Officer
effective August 31, 1999.
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Thomas P. Dunne. The
agreement for Mr. Dunne has a term of three years commencing April 1997 and
automatically renew for additional one year terms unless terminated by either
the Company or the employee. The agreement provides for a $240,000 salary and a
bonus at the discretion of the Company's Board of Directors. The bonus may not
exceed the lesser of 5% of the Company's pre-tax income for the preceding fiscal
year or $250,000.
INCENTIVE STOCK OPTION PLAN
Under Dunn's 1997 Stock Option Plan (the "Option Plan"), options to
purchase a maximum of 2,500,000 shares of common stock of Dunn (subject to
adjustments in the event of stock splits, stock dividends, recapitalizations and
other capital adjustments) may be granted to employees, officers and directors
of Dunn and certain other persons who provide services to Dunn. A description of
the Option Plan is set forth below under the heading "Proposal to Amend the 1997
Stock Option Plan."
EMPLOYEE STOCK PURCHASE PLAN
In August, 1998, the Board adopted an Employee Stock Purchase Plan (the
"Purchase Plan") whereby employees may purchase Company stock through a payroll
deduction plan. The purchase price of the stock is 85% of the market price. All
employees, including officers but not directors, are eligible to participate in
this plan. None of the Named Officers participated in this plan during fiscal
1999. The current executive officers are presently ineligible to participate in
the plan because their stock ownership exceeds five percent of the outstanding
common stock.
<PAGE>
RETIREMENT PLANS
Dunn established a discretionary contribution plan effective May 1,
1999 (the "401(k) Plan") for its employees who have completed one month of
service with Dunn. The 401(k) Plan is administered by Merrill Lynch and permits
pre-tax contributions by participants pursuant to Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"), up to the maximum allowable
contributions as determined by the Code. Dunn may match participants'
contributions on a discretionary basis. In fiscal 1995 and 1996, Dunn
contributed $0.25 for each $1.00 contributed by the employee. The Company
contributed $1,800 in fiscal 1998 with respect to each of Mr. Dunne and Mr.
Vazzana in connection with their participation in the 401(k) Plan. No
contributions were made to any officers or employees during fiscal 1999.
Effective November 1, 1995, Dunn established a defined benefit plan
covering substantially all salaried employees who have completed twelve months
of service with Dunn (the "Pension Plan"). The Pension Plan benefits are based
on the years of service and the employee's compensation. Dunn contributes, on an
annual basis, amounts sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974 ("ERISA").
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future. The
assets of the Pension Plan are invested in money markets and investment-grade
corporate debt and equity instruments. Dunn contributed an aggregate of
approximately $250,000 for the Pension Plan years ending October 31, 1995, 1996,
1997, 1998, which amount met the minimum funding requirements under ERISA. On
October 31, 1999, Dunn terminated the defined benefit plan which resulted in the
immediate vesting of all participants at that time. Benefits of the plan will be
distributed during fiscal year 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has a Compensation Committee comprised
of VADM Burkhalter, Mr. Sinnott and Mr. Dunne. Mr. Dunne is the Chief Executive
Officer and Chairman of the Board of the Company.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's officer compensation policy is to offer a package that
includes a competitive salary, an incentive bonus based upon achievement of the
Company's financial objectives and of individual performance goals, and
competitive benefits. The Company also encourages broad-based employee ownership
of Company stock through a stock option program in which key employees, who own
less than 5% of the outstanding stock, are eligible to participate. The
Company's compensation policy for officers is similar to that for other
employees, and is designed to promote continued performance and attainment of
corporate and personal goals. None of the executive officers are eligible for
employee stock options.
The Compensation Committee of the Board of Directors (comprised of two
non-employee directors and the CEO) reviews and approves individual officer
salaries, bonus plan financial performance goals and bonus plan allocations. The
Committee also reviews guidelines for compensation, bonus, and stock option
grants for all employees. Officers of the Company are paid salaries in line with
their responsibilities and experience. These salaries are structured to be
within the range of salaries paid by competitors in the computer and other
relevant industries.
<PAGE>
Executive officers also participate in a cash bonus plan. Each
executive officer is eligible for financial performance bonuses of up to 5% of
pre-tax income of the Company, not to exceed $250,000, or 104% of base salary.
The Compensation Committee annually reviews and approves the
compensation of Thomas Dunne. Mr. Dunne participates in the bonus plan, with his
bonus tied to pre-tax income goals. His maximum possible bonus for fiscal 1999
was 104% of his base salary. Based on the Company's performance for fiscal 1999,
Mr. Dunne was awarded no cash bonus for fiscal 1999.
COMPENSATION COMMITTEE
Thomas P. Dunne
Daniel E. Sinnott
VADM E.A. Burkhalter, Jr., USN (Ret.)
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Company's common stock since its public offering with the Russell 3000 Index and
the Nasdaq Computer and Data Index during the same period. The graph shows the
value, at the end of each fiscal quarter, or $100 invested in the Company's
common stock or the indices on April 28, 1997, the date of the Company's initial
public offering, and assumes reinvestment of all dividends. The graph depicts
the change in the value of the Company's common stock relative to the noted
indices as of the end of each fiscal quarter and not for any interim period.
Historical stock price performance is not necessarily indicative of future stock
performance.
[GRAPHIC]
<PAGE>
DUNN COMPUTER CORPORATION STOCK PERFORMANCE CHART
<TABLE>
<CAPTION>
MEASUREMENT DUNN CLOSING DNCC R3000 CP RUSSELL 3000 NICP NASDAQ
----------- ------------ ---- -------- ------------ ---- ------
PERIOD PRICE* INDEX INDEX
------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
............May-97 8.50 100.00 470.600 100.00 594.750 100.00
............Aug-97 6.88 80.88 504.740 107.24 687.550 115.60
............Nov-97 8.25 97.06 533.080 113.26 664.950 111.80
............Feb-98 8.31 97.80 583.580 123.99 761.300 128.00
............May-98 8.06 94.86 601.060 127.71 742.880 124.91
............Aug-98 3.50 41.88 514.670 109.35 713.800 120.02
............Oct-98 2.88 33.82 590.080 125.37 857.760 144.22
Amount invested..... 100.00
IPO Price......... 8.50 470.66 594.75
</TABLE>
*for May 97, price is IPO price; all other figures are closing price.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of the date
hereof, with respect to the beneficial ownership of the common stock by each
beneficial owner of more than 5% of the outstanding shares thereof, by each
director, each nominee to become a director and each executive named in the
Summary Compensation Table and by all executive officers, directors and nominees
to become directors of the Company.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER COMMON STOCK OUTSTANDING
---------------- BENEFICIALLY OWNED COMMON STOCK
------------------ BENEFICIALLY OWNED
------------------
<S> <C> <C>
Thomas P. Dunne (1).......................... 2,399,375(2) 25.7%
John D. Vazzana (1).......................... 581,875 6.2%
Claudia N. Dunne (1)......................... 2,399,375(3) 25.7%
VADM E.A. Burkhalter (1)..................... 40,000(4) *
Daniel Sinnott (1)........................... 40,000(4) *
All Executive Officers and Directors as a
Group...................................... 2,981,250(5) 31.6%
</TABLE>
- -----------------
- - persons less than 1%
(1) The address of each of such individuals is c/o Dunn Computer
Corporation, 1306 Squire Court, Sterling Virginia 21066.
(2) Includes 560,000 shares of Common Stock held by Claudia Dunne, the
Company's Vice President, and Mr. Dunne's wife, of which Mr. Dunne
disclaims beneficial ownership.
(3) Includes 1,839,375 shares of Common Stock held by Thomas Dunne, the
Company's President and CEO, and Ms. Dunne's husband, of which Ms.
Dunne disclaims beneficial ownership.
(4) Represents shares of the Company's Common Stock underlying stock
options granted pursuant to the 1997 Stock Option Plan.
<PAGE>
(5) Does not include 80,000 shares of Common Stock underlying options which
are held by the Company's two outside directors.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Thomas Dunne, the Company's President, and his wife, Claudia Dunne, the
Company's Vice President, acquired a building for the purpose of leasing office
space to the Company. In connection with the acquisition of the building, the
Company guaranteed the building's $1 million mortgage. The term of the mortgage
is 25 years. The Company subsequently executed a noncancelable operating lease
with Mr. and Mrs. Dunne. The Company believes that the lease agreement is on
terms no less favorable to the Company than could be obtained from an
unaffiliated third party. In June 1999, the building was sold by Mr. and Mrs.
Dunne and the lease was assigned to the new owner, an unaffiliated third party.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's officers and directors, and persons who
own more than 10% of the Company's common stock to file reports of ownership and
changes in ownership of the Company's common stock with the Securities and
Exchange Commission and Nasdaq. Based solely on a review of the copies of such
reports and written representations from the reporting persons that no other
reports were required, the Company believes that during the fiscal year ended
October 31, 1998, its executive officers, directors and greater than ten percent
shareholders filed on a timely basis all reports due under Section 16(a) of the
Exchange Act, with the following exception: George D. Fuster who served as
President of IDP and a Director of Dunn until November 23, 1998 and D. Oscar
Fuster who served as Executive Vice President of IDP and a Director of Dunn
until November 23, 1998 should both have filed Forms 4 and 5 and, to the
Company's knowledge, are presently delinquent in doing so.
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
ACCOUNTANTS
(PROPOSAL 2)
Management has selected Ernst & Young LLP as the independent
accountants to audit the books, record and accounts of the Company for the
current fiscal year ending October 31, 2000. Ernst & Young LLP has audited the
Company's financial statements since 1996.
The affirmative vote of the holders of a majority of the Company's
common stock represented and voting at the meeting will be required to ratify
the Board of Director's selection of Ernst & Young LLP.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting and will have the opportunity to make a statement, and will be
available to answer questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 2.
<PAGE>
RATIFICATION OF THE PREFERRED STOCK TRANSACTION
(PROPOSAL 3)
TO APPROVE THE ISSUANCE, IF NECESSARY, UPON CONVERSION OF THE COMPANY'S 5%
SERIES A CONVERTIBLE PREFERRED STOCK, OF MORE THAN 1,875,511 SHARES OF COMMON
STOCK, REPRESENTING 19.9% OF THE OUTSTANDING SHARES OF COMMON STOCK ON THE DATE
OF SALE OF THE 5% SERIES A CONVERTIBLE PREFERRED STOCK, AS REQUIRED BY NASDAQ
RULES.
Nasdaq rules require the Company to obtain shareholder approval for the
issuance of securities involving the sale of twenty percent (20%) or more of its
common stock at less than fair market value. Nasdaq may delist the securities of
any issuer that fails to obtain such shareholder approval before the issuance of
such securities.
On March 17, 2000, the Company sold $3,000,000 of its 5% Series A
Convertible Preferred Stock ("Preferred Stock) and issued: (i) 3,000 shares of
its preferred stock; and (ii) warrants to purchase 247,525 shares of its common
stock at $3.64 per share through March 17, 2005. The preferred stock is
convertible into shares (the "Shares") of the Company's common stock (the
"Common Stock") at the option of the Holder at any time after issuance until
March 17, 2002.
The number of Shares of Common Stock into which the Preferred Stock
shall be convertible will be determined as follows. The conversion price (the
"Conversion Price") shall be the lesser of (a) 85% of the market price defined
as the average of the three lowest closing bid prices for DNCC Common Stock
during the 25 trading days immediately preceding the Conversion date, or (b) at
$3.64.
The Preferred Stock is convertible at any time at the Holder's option,
PROVIDED THAT: the number of shares the Holder wishes to convert, not exceed a
number of Shares of Common Stock that would: (a) constitute more than five
percent (5%) of the Common Stock then outstanding, or (b) be more than
1,875,511, such figure representing 19.9% of the Shares outstanding on the date
the agreement was executed, unless such issuance is approved by shareholders.
The conversion, or the potential conversion of the Preferred Stock may
have the effect of causing a significant dilution in the value of the
outstanding shares of common stock, depending on the prevailing Conversion Price
at the time of conversion. Immediate sale of such Shares may, if sold in
sufficient quantity, depress the value of the Company's common stock.
If this proposal is not approved by shareholders, upon any conversion
that together with prior conversions, would result in the issuance of more than
1,875,511 shares of Common Stock at a price below the market price, the Company
will be required to redeem in cash the principal amount that may not be
converted at a twenty five percent (25%) premium to the outstanding principal
amount plus accrued interest and penalty interest. The Company's ability to make
such cash payments will depend on its available cash resources at the time of a
request for conversion and there can be no assurance that the Company will have
the cash necessary to make such payment. In addition, the payment of such
amounts instead of the issuance of shares of Common Stock upon conversion of the
Notes may adversely affect the liquidity and financial condition of the Company.
The affirmative vote of the holders of a majority of the Company's
common stock represented and voting at the meeting will be required to
approve Proposal 3.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 3.
<PAGE>
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
(PROPOSAL 4)
The Board of Directors of the Company has adopted a resolution
proposing an amendment to the Company's Certificate of Incorporation which would
amend the first paragraph of Article 3 of the Company's Certificate of
Incorporation to increase the authorized number of shares of Common Stock, $.01
par value, to 50,000,000 shares from the 20,000,000 shares currently authorized.
There are currently 9,424,680 shares of Common Stock and 3,000 shares of
Preferred Stock outstanding.
The Board of Directors has determined that it would be in the best
interests of the Company's stockholders to effect a stock split in the future,
as discussed in proposal 5 below. However, without an increase in the authorized
number of shares of Common Stock, the Company would not have a sufficient number
of shares authorized under its Certificate of Incorporation to effect the stock
split. The Board of Directors has adopted the Amendment primarily to provide for
a sufficient authorized number of shares of Common Stock to effect the stock
split and have shares available to provide additional flexibility to use its
capital stock for business and financial purposes in the future. In addition to
the proposed stock split, the additional shares may be used, without further
stockholder approval, for various purposes including, without limitation, future
splits of the Common Stock, raising capital, providing equity incentives to
employees, officers or directors, establishing strategic relationships with
other companies and expanding the company's business or product lines through
the acquisition of other businesses or products. The shares would be available
for issuance by the Board without further stockholder authorization, except as
may be required by law or by the rules of Nasdaq (or any other national
quotation system or stock exchange on which the shares of Common Stock may then
be listed). The issuance of any additional shares of Common Stock may result in
a dilution of the voting power of the holders of outstanding shares of Common
Stock and their equity interest in the Company.
Although not intended as an anti-takeover device, issuing additional
shares the Common Stock could impede a non-negotiated acquisition of the Company
by diluting the ownership interests of a substantial stockholder, increasing the
total amount of consideration necessary for a person to obtain control of the
Company, or increasing the voting power of friendly third-parties.
The affirmative vote of the holders of a majority of the Company's
common stock represented and voting at the meeting will be required to
approve Proposal 4.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 4.
<PAGE>
APPROVAL OF STOCK SPLIT
(PROPOSAL 5)
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Certificate of Incorporation that would give the
Board of Directors authority to effect one or more stock split(s) at any future
date.
The objectives of a Stock Split are to shift the trading range of the Common
Stock which may be expected to increase the liquidity and broaden the
marketability of the Common Stock. The Stock Split will not affect the
stockholders' proportionate equity interests in the Company or the rights of
stockholders with respect to each share of Common Stock as to voting, dividends
and other matters. Since there is no consideration received by the Company in
connection with the Stock Split, the overall capital of the Company will not
change as a result of the Stock Split.
Tax Consequences. The following discussion is included for general information
only. Stockholders should consult their personal tax advisors to determine the
particular consequences of the Stock Split, including the applicability and
effect of federal, state, local and foreign income and other taxes. No gain or
loss will be recognized for federal income tax purposes on the receipt of
additional shares of Common Stock in the Stock Split. A holder's basis in the
shares of Common Stock held immediately prior to the Stock Split is allocated
proportionately among the original shares and the additional shares issued as a
result of the Stock Split. The holding period of the shares of Common Stock
received by a holder will include the period during which the shares of Common
Stock owned immediately prior to the Stock Split were held. The affirmative vote
of the holders of a majority of the shares of the Common Stock outstanding on
the Record Date will be required to approve this amendment to the Company's
Restated Certificate of Incorporation. As a result, abstentions and broker
non-votes will have the same effect as negative votes.
The affirmative vote of the holders of a majority of the Company's
common stock represented and voting at the meeting will be required to
approve Proposal 5.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 5.
OTHER MATTERS
There is no reason to believe that any other business will be presented
at the Annual Meeting; however, if any other business should properly and
lawfully come before the Annual Meeting, the proxies will vote in accordance
with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS
April 6, 2000
/S/ Thomas P. Dunne
Chairman, Chief Executive Officer and
Sterling, Virginia President
<PAGE>
DUNN COMPUTER CORPORATION
ANNUAL MEETING OF STOCKHOLDERS--MAY 15, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Claudia N. Dunne, with full power of
substitutuon, proxy to vote all the shares of common stock of Dunn Computer
Corporation, a Virginia corporation, that the undersigned may be entitled to
vote at the Annual Meeting of Stockholders to be held on May 15, 2000 and at
any adjournment thereof, as designated for the items set forth on the reverse
side hereof and in the Notice of Annual Meeting of Stockholders and the Proxy
Statement dated April 6, 2000.
IF PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS SPECIFIED HEREIN
OR, IF NOT SPECIFIED, WILL BE VOTED FOR THE PROPOSALS IN ITEM 2, ITEM 3,
ITEM 4 AND ITEM 5 WHICH IS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AND
FOR THE ELECTION AS DIRECTOR OF THE NOMINEES NAMED IN ITEM 1. IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. AT THIS
TIME, MANAGEMENT KNOWS OF NO SUCH OTHER BUSINESS.
The Board of Directors recommends a vote FOR the election of the
Directors set forth below and FOR the proposal in Item 2, Item 3, Item 4 and
Item 5.
-------------------------
1. Election of Directors
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to vote
for all nominees listed below
Nominees: Daniel Sinnott, VADM Burkhalter and Benjamin Krieger
Instruction: To withhold authority to vote for any individual nominee,
write the nominee's name in the space provided below:
- --------------------------------------------------------------------------------
2. Proposal to approve the appointment of Ernst & Young LLP as independent
accountants of the Company for the fiscal year ended October 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to approve the 5% Series A Convertible Preferred Stock
transaction.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE>
4. Proposal to approve the amendment to the Certificate of Incorporation
to increase the authorized number of shares of Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
5. Proposal to approve the Board of Directors to authorize a Stock Split.
/ / FOR / / AGAINST / / ABSTAIN
Dated: , 2000
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Signature
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Signature (if held jointly)
IMPORTANT: Please date and sign exactly as
the name appears herein and return this
proxy in the enclosed envelope. Persons
signing as executors, administrators,
trustees, etc. should so indicate. If shares
are held jointly, each joint owner should
sign. In the case of a corporation or
partnership, the full name of the
organization should be used and the
signature should be that of a duly
authorized officer or partner.
PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
