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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
HADRON, 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)(4) 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:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[LOGO]
HADRON, INC.
5904 Richmond Highway
Suite 300
Alexandria, Virginia 22303
October 30, 2000
Dear Fellow Shareholders:
You are cordially invited to attend Hadron, Inc.'s Annual Meeting of
Shareholders to be held on December 5, 2000, at 11:00 a.m. local time at the
Hadron, Inc. Corporate Headquarters located at 5904 Richmond Highway, Suite 300,
Alexandria, Virginia 22303.
At this meeting, you will be asked to vote, in person or by proxy, on the
following matters: (i) election of the Company's Board of Directors; (ii)
approval of an amendment to the Company's 1997 Employee Stock Purchase Plan;
(iii) approval of the Company's 2000 Stock Option Plan; and (iv) any other
business as may properly come before the meeting. We also will be pleased to
report on the business of the Company and a discussion period will be provided
for questions and comments of general interest to shareholders.
Whether or not you are able to attend, it is important that your shares be
represented and voted at this meeting. Accordingly, please complete, sign and
date the enclosed proxy and mail it in the envelope provided at your earliest
convenience. Your prompt response is important and would be appreciated.
Sincerely,
/s/ Jon M. Stout
Jon M. Stout
President and
Chief Executive Officer
/s/ C.W. Gilluly
C.W. Gilluly, Ed.D.
Chairman
--------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
Even if you plan to attend the meeting, please complete, sign, and return
promptly the enclosed proxy in the envelope provided to ensure that your vote
will be counted. You may vote in person if you so desire even if you have
previously sent in your proxy.
If your shares are held in the name of a bank, brokerage firm or other
nominee, please contact the party responsible for your account and direct him or
her to vote your shares on the enclosed card.
--------------------------------------------------------------------------------
<PAGE>
HADRON, INC.
______________
Notice of Annual Meeting of Shareholders
December 5, 2000
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Hadron,
Inc., a New York corporation (the "Company"), is scheduled to be held on
December 5, 2000 at 11:00 a.m., local time, at the Hadron, Inc. Corporate
Headquarters, 5904 Richmond Highway, Suite 300, Alexandria, Virginia for the
following purposes:
1. To elect five directors to serve for the terms of office specified in
the accompanying proxy statement and until their successors are duly
elected and qualified;
2. To approve an amendment to the Company's 1997 Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved for
issuance by an additional 150,000 shares of Common Stock, as adopted
by the Company's Board of Directors (the "Board") on September 12,
2000;
3. To approve the Company's 2000 Stock Option Plan, as adopted by the
Board on September 12, 2000; and
4. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Shareholders of record at the close of business on October 25, 2000 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the meeting, you are urged to
complete, sign and date the enclosed form of proxy and return it promptly in the
envelope provided. Shareholders attending the meeting may revoke their proxy and
vote in person.
FOR THE BOARD
/s/ Karen L. Dickey
Karen L. Dickey
Vice President and
Corporate Secretary
Alexandria, Virginia
October 30, 2000
<PAGE>
HADRON, INC.
PROXY STATEMENT
GENERAL INFORMATION
Proxy Solicitation
This Proxy Statement is furnished to the holders of Common Stock, par value
$.02 per share (the "Common Stock"), of Hadron, Inc., a New York corporation
(the "Company"), in connection with the solicitation by the Board of proxies for
use at the Annual Meeting of Shareholders to be held on Tuesday, December 5,
2000, at 11:00 a.m., local time, or at any adjournment thereof, pursuant to the
accompanying Notice of Annual Meeting of Shareholders. The purposes of the
meeting and the matters to be acted upon are set forth in the accompanying
Notice of Annual Meeting of Shareholders. The Board is not currently aware of
any other matters that will come before the Annual Meeting.
Proxies for use at the Annual Meeting are being solicited by the Board. These
proxy solicitation materials are first being mailed on or about November 7, 2000
to all shareholders entitled to vote at the Annual Meeting. Proxies will be
solicited chiefly by mail. The Company will make arrangements with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to the beneficial owners of the shares and will reimburse them for
their expenses in so doing. Should it appear desirable to do so in order to
ensure adequate representation of shares at the Annual Meeting, officers, agents
and employees of the Company may communicate with shareholders, banks, brokerage
houses and others by telephone, facsimile or in person to request that proxies
be furnished. All expenses incurred in connection with this solicitation will
be borne by the Company.
Revocability and Voting of Proxy
A form of proxy for use at the Annual Meeting and a return envelope for the
proxy are enclosed. Shareholders may revoke the authority granted by their
execution of proxies at any time before their effective exercise by filing with
the Secretary of the Company a written notice of revocation or a duly executed
proxy bearing a later date, or by voting in person at the Annual Meeting.
Shares of the Company's Common Stock represented by executed and unrevoked
proxies will be voted in accordance with the choice or instructions specified
thereon. If no specifications are given, the proxies intend to vote the shares
represented thereby in favor of each of the nominees for director listed under
Election of Directors below, to approve Proposals No. 2 and 3 as set forth in
the accompanying Notice of Annual Meeting of Shareholders and, in accordance
with their best judgment, on any other matters which may properly come before
the Annual Meeting.
Record Date and Voting Rights
Shareholders of record at the close of business on October 25, 2000 are
entitled to notice of and to vote at the Annual Meeting. As of the record date,
6,371,432 shares of Common Stock were issued and outstanding, and there are no
shares of any other class. Each share of Common Stock is entitled to one vote
on all matters that may properly come before the Annual Meeting. The holders
of a majority of the outstanding shares of Common Stock, present in person or by
proxy, will constitute a quorum at the Annual Meeting. Abstentions and broker
non-votes will be counted for purposes of determining the presence or absence of
a quorum. "Broker non-votes" are shares held by brokers or nominees which are
present in person or represented by proxy, but which are not voted on a
particular matter because instructions have not been received from the
beneficial owner.
Directors will be elected by a plurality of the votes cast at the Annual
Meeting. Accordingly, abstentions or non-votes will not affect the election of
candidates receiving the plurality of votes.
<PAGE>
Proposal Number 2, proposed amendment of the Company's 1997 Employee Stock
Purchase Plan, proposal Number 3, proposed 2000 Stock Option Plan, and all other
matters to come before the Annual Meeting require the approval of the holders of
a majority of the votes cast at the Annual Meeting. For this purpose,
abstentions and non-votes will be deemed shares not voted on such matters, will
not count as votes for or against the proposals, and will not be included in
calculating the number of votes necessary for the approval of such matters.
Votes at the Annual Meeting will be tabulated by Inspectors of Election
appointed by the Company.
CHANGE OF CONTROL
On March 30, 2000, a group of investors led by Jon M. Stout, Patricia W.
Stout, the Stout Dynastic Trust (collectively the "Stouts"), J. Richard Knop
("Knop") (the Stouts and Knop, being collectively the "Investors" ) and John D.
Sanders purchased certain of the Company's securities pursuant to a Securities
Purchase Agreement among the Company and the Investors (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, the Investors acquired
2,250,000 units, each consisting of one share of Common Stock and a warrant to
purchase 0.9 share of Common Stock for a total of $877,500 in cash.
Pursuant to the Purchase Agreement, on the Closing Date, C.W. Gilluly resigned
from his position as the Company's Chief Executive Officer, and Jon M. Stout was
appointed as the Company's President and Chief Executive Officer. Dr. Gilluly
continues to serve as Chairman of the Company's Board of Directors. Further
pursuant to the Purchase Agreement, two members of the Board resigned, Jon M.
Stout was appointed a director and subsequently, Gerald R. McNichols, Sc.D and
Gerald R. Young were appointed to the Board.
As further required by the Purchase Agreement, the Investors and others
designated therein also entered into a Voting Agreement dated March 30, 2000
(the "Voting Agreement"). The Voting Agreement was entered into by and among
certain affiliates of Boles Knop & Company, L.L.C. (the "Affiliates"), Dr.
Sanders, C.W. Gilluly and the Investors (collectively, the "Voting Group"). The
Voting Group agreed, for a period of five (5) years from March 30, 2000, to vote
all of the voting shares over which they have voting control and to take all
other actions within such Voting Group's control (whether in his or its capacity
as a stockholder, director, member of a board committee or officer of the
Company or otherwise), including, without limitation, attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of written
consents in lieu of meetings so that: (1) The authorized number of members of
the Board will continue to be five unless and until such greater number is
directed or approved by the Investors; (2) During the term of the Voting
Agreement, the Investors shall be entitled to nominate a majority of the members
of the Board (the "Nominees") and the Stockholders shall vote their shares to
elect such Nominees; (3) Any Nominee elected or appointed as a director will be
removed from the Board (and thereupon from all committees of the Board), with or
without cause, only upon the written request or consent of the Investors; (4) In
the event that any Nominee designated hereunder for any reason ceases to serve
as a member of the Board or any committee thereof during such representative's
term of office, the resulting vacancy on the Board or committee will be filled
by a newly designated Nominee; and (5) Upon the written direction or consent of
the Investors, the Company will take such actions as may be necessary and
convenient to change the corporate domicile of the Company to the state of
Delaware.
In addition, the Voting Agreement provides that with the exception of
transfers made: (i) pursuant to open market sales in brokers' transactions; or
(ii) sales made after the Investors declined a right of first refusal to
purchase such shares at the same price and terms, any attempt to transfer the
Voting Group's voting shares will be of no effect unless the person(s) to whom
such shares are being transferred agrees in writing to be bound by the terms of
the Voting Agreement.
2
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of October 25, 2000 regarding
the beneficial ownership of the Company's Common Stock of (i) each person known
to the Company to be the beneficial owner, within the meaning of Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of more
than 5% of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) each executive officer or former executive officer of the Company
named in the Summary Compensation Table (see "Executive Compensation") and (iv)
all executive officers and directors of the Company as a group. Unless otherwise
indicated, the address of each named beneficial owner is c/o Hadron, Inc., 5904
Richmond Highway, Suite 300, Alexandria, Virginia 22303. Except to the extent
indicated in the footnotes, each of the beneficial owners named below has sole
voting and investment power with respect to the shares listed.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Percent
Name and Address Number of Shares of Class
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jon M. Stout 5,838,877 (1)(2) 65.7%
--------------------------------------------------------------------------------------------------------------------
Stout Dynastic Trust 5,838,877 (1)(3) 65.7%
13380 W. Polo Road
Wellington, FL 33414
--------------------------------------------------------------------------------------------------------------------
Patricia W. Stout 5,838,877 (1)(4) 65.7%
13380 W. Polo Road
Wellington, FL 33414
--------------------------------------------------------------------------------------------------------------------
J. Richard Knop 5,838,877 (1)(5) 65.7%
Boles Knop & Company, LLC
2 West Washington St
Middleburg, VA 20118
--------------------------------------------------------------------------------------------------------------------
C.W. Gilluly, Ed.D. 1,418,875 (1)(6) 19.5%
--------------------------------------------------------------------------------------------------------------------
Six Nations, Inc. 382,947 (7) 6.0%
5521 Newhall Court
Centreville, VA 22020
--------------------------------------------------------------------------------------------------------------------
Howard C. Whetzel, Ph.D. 382,947 (8) 6.0%
5521 Newhall Court
Centreville, VA 22020
--------------------------------------------------------------------------------------------------------------------
John D. Sanders, Ph.D. 219,336 (1)(9) 3.4%
--------------------------------------------------------------------------------------------------------------------
Gerald R. McNichols, Sc.D. 87,506 (10) 1.4%
--------------------------------------------------------------------------------------------------------------------
Gerald R. Young 22,506 (11) *
--------------------------------------------------------------------------------------------------------------------
Donald J. Kellmel 108,433 (12) 1.7%
--------------------------------------------------------------------------------------------------------------------
Shawn K. McCoy 12,876 (13) *
--------------------------------------------------------------------------------------------------------------------
C. Scott Reuther 21,296 (14) *
--------------------------------------------------------------------------------------------------------------------
George E. Fowler 185,855 2.9%
--------------------------------------------------------------------------------------------------------------------
All directors and executive
Officers as a group
(13 persons) 6,271,364 (1)(15) 69.2%
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
(1) Includes certain shares as to which voting power is shared in certain
respects as a result of the Voting Agreement more fully described in the
preceding section entitled "Change of Control."
(2) Includes 205,190 shares held by spouse, 102,440 shares held by children,
and 1,475,422 shares held by the Stout Dynastic Trust (the "Trust");
includes 21,666 shares which may be acquired upon the exercise of
3
<PAGE>
vested options granted under the Company's 1994 and 2000 Stock Option
Plans; and includes 235,161, 230,769, and 668,158 shares which may be
acquired respectively by self, spouse, and Stout Dynastic Trust pursuant to
warrants which are immediately exercisable. Includes shares, warrants and
options immediately exercisable by others representing 2,690,001 shares of
the Company's Common Stock as to which Mr. Stout has shared voting power.
(3) Includes 210,070 shares held by Mr. Stout, who is the Trustee of the Trust,
205,190 shares held by Mrs. Stout, 102,440 shares held by the children of
Mr. Stout; includes 21,666 shares which may be acquired by Mr. Stout upon
the exercise of vested options granted under the Company's 1994 and 2000
Stock Option Plans; and includes 668,158, 235,161, and 230,769 shares which
may be acquired respectively by the Trust, Mr. Stout, and Mrs. Stout
pursuant to warrants which are immediately exercisable. Includes shares,
warrants and options immediately exercisable by others representing
2,690,001 shares of the Company's Common Stock as to which Mr. Stout has
shared voting power.
(4) Includes 210,070 shares held by spouse, 102,440 shares held by children,
and 1,475,422 shares held by the Trust; includes 21,666 shares which may be
acquired by Mr. Stout upon the exercise of vested options granted under the
Company's 1994 and 2000 Stock Option Plans; and includes 230,769, 235,161
and 668,158 shares which may be acquired respectively by self, spouse and
the Trust, pursuant to warrants which are immediately exercisable. Includes
shares, warrants and options immediately exercisable by others representing
2,690,001 shares of the Company's Common Stock as to which Mrs. Stout has
shared voting power.
(5) Includes warrants immediately exercisable to purchase 347,018 shares of the
Company's Common Stock. Includes shares, warrants and options immediately
exercisable by others representing 4,838,612 shares of the Company's Common
Stock as to which Mr. Knop has shared voting power.
(6) Includes warrants immediately exercisable to purchase 830,000 shares of the
Company's Common Stock. Also includes 87,000 shares, which may be acquired
upon the exercise of vested options granted under the Company's 1994 Stock
Option Plan.
(7) Includes 11,244 shares, which are held by Howard C. Whetzel, Ph.D, who
controls Six Nations.
(8) Includes 371,703 shares owned by Six Nations, Inc., a company controlled by
Dr. Whetzel.
(9) Includes 8,336 shares, which may be acquired upon the exercise of vested
options granted under the Company's 1994 and 2000 Stock Option Plans and
81,000 shares which may be acquired pursuant to warrants.
(10) Includes 2,506 shares, which may be acquired upon the exercise of vested
options granted under the Company's 1994 and 2000 Stock Option Plans and
32,500 shares, which may be acquired pursuant to warrants.
(11) Includes 2,506 shares, which may be acquired upon the exercise of vested
options granted under the Company's 1994 and 2000 Stock Option Plans and
10,000 shares which may be acquired pursuant to warrants.
(12) Includes 13,366 shares, which may be acquired upon the exercise of vested
options granted under the Company's 1994 and 2000 Stock Option Plans.
(13) Includes 11,700 shares, which may be acquired upon the exercise of vested
options granted under the Company's 1994 and 2000 Stock Option Plans.
(14) Includes 8,400 shares, which may be acquired upon the exercise of vested
options granted under the Company's 1994 and 2000 Stock Option Plans.
4
<PAGE>
(15) Includes 253,318 shares, which may be acquired upon the exercise of vested
options granted under the Company's 1994 and 2000 Stock Option Plans and
2,392,106 shares which may be acquired pursuant to warrants.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Five directors, constituting the entire Board, are to be elected at the Annual
Meeting. Unless otherwise specified, the enclosed proxy will be voted in favor
of the persons named below to serve until the next Annual Meeting and until
their successors are elected and qualified. Each person named below is now a
director of the Company. In the event any of these nominees shall be unable to
serve as a director, the shares represented by the proxy will be voted for the
person, if any, who is designated by the Board to replace the nominee. All
nominees have consented to be named and have indicated their intent to serve if
elected. The Board has no reason to believe that any of the nominees will be
unable to serve or that any vacancy on the Board will occur.
The names of the nominees and certain other information about them are set
forth below:
<TABLE>
<CAPTION>
Nominee Age Director Since Office Held with Company
------- --- ------------- ------------------------
<S> <C> <C> <C>
Jon M. Stout * 54 2000 Director, President and Chief
Executive Officer
C.W. Gilluly, Ed.D. 54 1992 Chairman of the Board
Gerald R. McNichols, Sc.D. * 56 2000 Director
John D. Sanders, Ph.D. 62 1997 Director
Gerald R. Young * 70 2000 Director
</TABLE>
* This individual is a Nominee under the Voting Agreement described above in
"Change of Control" and will be elected pursuant to the Voting Agreement.
JON M. STOUT was appointed the Company's President and Chief Executive
Officer and to the Board on March 31, 2000. Mr. Stout, along with his wife,
founded DPC Technologies, Inc., a military intelligence information technology
company, which was sold to Northrop Grumman in 1999. Prior to that endeavor, Mr.
Stout served in senior management and marketing positions with various firms,
including the Harris Corporation and Perkin Elmer Corporation.
C.W. GILLULY, Ed.D. has served as Chairman of the Company since October
1994. He also served as Chief Executive Officer of the Company from May 1993 to
March 2000. Since June 1992, Dr. Gilluly has served as Chairman of COMTEX News
Network, Inc., a provider of electronic news and business information, for which
he also served as Chief Executive Officer from June 1992 through September 1997.
Dr. Gilluly has served as Chairman of the Board and President of AMASYS
Corporation and its predecessor, Infotechnology, Inc. since June 1992.
GERALD R. MCNICHOLS, Sc.D., who was appointed to the Board on June 12,
2000, has more than 35 years of experience in management and consulting. He has
founded several companies and serves on the boards of various private companies.
In 1977, Dr. McNichols founded Management Consulting & Research, Inc., which he
sold to GRC International, Inc. in 1999. Dr. McNichols was commissioned by the
Air Force in 1965 and spent four years in the Air Force before joining the
Office of the Secretary of Defense.
JOHN D. SANDERS, Ph.D., who was been a member of the Board since September
1997, serves as a business consultant to emerging technology companies. He was
Chairman and Chief Executive Officer of TechNews, Inc.,
5
<PAGE>
publisher of Washington Technology newspaper, from 1988 to 1996, prior to its
sale to The Washington Post Company. In addition, Dr. Sanders has been a
Registered Representative of Wachtel & Co., Inc., a Washington D.C.-based stock
brokerage firm, since 1968. Dr. Sanders serves on the boards of ITC Learning
Corporation, SenSyTech, Inc. and COMTEX News Network, Inc.
GERALD R. YOUNG, who was appointed to the Board on June 12, 2000, serves as a
management consultant to emerging companies. Mr. Young served on the Board of
Directors and as a management consultant with DPC Technologies, Inc. until 1999
when DPC was acquired by Northrop Grumman Logicon. Mr. Young continues to
provide services to Logicon/DPC Technologies as a member of its Board of
Advisors.
Executive Officers
The following table contains information as of October 25, 2000 as to the
executive officers of the Company, who are not also directors of the Company:
<TABLE>
<CAPTION>
Officer Office Held
Name Since With Company
---- ----- ------------
<S> <C> <C>
Kenneth Alibek 2000 Vice President
Karen L. Dickey 2000 Vice President and Secretary
Deborah J. Hickox 2000 Vice President and Treasurer
Ellen J. Hyslope 2000 Vice President
Donald E. Jewell 1996 Vice President
Donald J. Kellmel 1999 Chief Technical Officer
Shawn K. McCoy 1999 Vice President
C. Scott Reuther 2000 Vice President
</TABLE>
KENNETH ALIBEK (50) was appointed Vice President in September 2000, and also
serves as President of the Company's Advanced Biosystems, Inc. (ABS) subsidiary,
a position he has held since December 1999. Dr. Alibek joined the Company in
April 1999 as Chief Scientist and leads the Company's medical research and
biowarfare defense initiatives. From 1992 until 1999, Dr. Alibek devoted his
time to researching defenses against potential biological weapons, exploring new
products to prevent or treat infectious disease, analyzing biological threats
and educating the U.S. Government and public about such potential threats.
Prior to coming to the U.S. in 1992, Dr. Alibek served as the First Deputy Chief
of Biopreparat, the principal government agency for biological weapons research
and development in the former Soviet Union.
KAREN L. DICKEY (41) was appointed Vice President and Corporate Secretary in
September 2000. Ms. Dickey is a C.P.A. who has held numerous financial and
management positions with the Company for fifteen years. Since 1996, she has
held the position of Corporate Controller. Ms. Dickey's previous experience
includes accounting and management positions with Presidential Airways, Inc.
DEBORAH J. HICKOX (36) was appointed Vice President of Finance and Corporate
Treasurer in September 2000. Ms. Hickox is a C.P.A. who joined the Company in
June 1999 as Controller of the Company's Avenue Technologies, Inc. (ATI)
subsidiary. From 1996 to 1999, Ms. Hickox served as Controller of EDO
Technology Services and Analysis, Inc. Ms. Hickox's previous experience
includes finance positions with The Consortium of Universities of the Washington
Metropolitan Area and The Concert Society at Maryland.
ELLEN J. HYSLOPE (37) was appointed Vice President of Administration in
September 2000. Ms. Hyslope
6
<PAGE>
joined the Company in May 2000 as Director of Human Resources. From 1996 to
2000, Ms. Hyslope served as the Human Resources Director of Logicon DPC
Technologies, a unit of Northrop Grumman. Ms. Hyslope's previous experience
includes administrative positions with the Republican National Committee, the
Community Associations Institute, Abacus Technology Corporation, and MCI
Telecommunications Corporation.
DONALD E. JEWELL (49) was appointed Vice President of the Company in May 1996,
and also serves as President of the Company's Engineering & Information
Services, Inc. (EISI) and Sycom Services, Inc. (SyCom) subsidiaries, positions
he has held since 1993 and 2000, respectively. Mr. Jewell has held senior
management positions in the government contracting business for nearly twenty
years. He was Technical Director for Kendrick & Company in 1988 and 1989, and
served as Director of Information Systems at British Aerospace from 1985 until
1988. From 1977 until 1985, he served in various computer services management
roles for Planning Research Corporation.
DONALD J. KELLMEL, Ph.D. (51) was appointed Chief Technical Officer of the
Company in June 1999. Dr. Kellmel joined the Company in May 1999 when the
Company acquired ATI. Dr. Kellmel has more than twenty-three years of
professional experience in the management of corporate and systems engineering,
computer applications and signal processing. Dr. Kellmel, who has held senior
management positions with ATI since 1995, previously held senior management
positions with Kaman Sciences Corporation and Locus, Inc.
SHAWN K. McCOY (45) was appointed Vice President of the Company in June 1999,
and also serves as Vice President of ABS. Mr. McCoy joined the Company in June
1999 as President of SyCom. Most recently, Mr. McCoy served as General Manager
of EDO Corporation's Technology Services and Analysis subsidiary, which had been
acquired in 1998 from Global Associates Ltd., where he served as Chief Operating
Officer. Mr. McCoy's previous experience includes positions with Betac
Corporation, Lockheed Martin and Martin Marietta Corporation, and service as an
intelligence officer in the U.S. Navy.
C. SCOTT REUTHER (63) was appointed Vice President in September 2000 and also
serves as President of ATI. Mr. Reuther joined the Company in May 1999 when the
Company acquired ATI. Mr. Reuther, who has held executive positions with ATI
since 1997, previously held positions with Software Productivity Consortium,
BTG, Inc., and TRW, Inc., and served as an intelligence officer with the U.S.
Navy.
There are no family relationships among the directors or executive officers of
the Company.
Meetings of the Board and Committees
The Board held a total of seven meetings during the Company's fiscal year
ended June 30, 2000. Each director attended in person or telephonically all of
the meetings held by the Board and all committees thereof on which he served.
The Audit Committee, comprised of Messrs. McNichols, Sanders, and Young,
recommends engagement of the Company's independent auditors, is primarily
responsible for approving the services performed by the Company's independent
auditors and for reviewing and evaluating the Company's accounting principles
and its system of internal accounting controls and has general responsibility in
connection with related matters (See "Audit Committee Report" below). The Audit
Committee met one time during fiscal 2000. The Company adopted a new Audit
Committee Charter in May 2000 (See "Audit Committee Charter" attached as
Appendix 1).
Audit Committee Report
The audit committee oversees the Company's financial reporting process on behalf
of the Board. The Company's management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the committee reviewed
the audited financial statements in the Annual Report with management including
a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial
7
<PAGE>
statements.
The committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the
quality, not just the acceptability, of the Company's accounting principles and
such other matters as are required to be discussed with the committee under
generally accepted auditing standards. In addition, the committee has discussed
with the independent auditors the auditors' independence from the management and
the Company including the matters in the written disclosures required by the
Independence Standards Board.
The committee discussed with the Company's independent auditors the overall
scope and plans for their audits. The committee meets with the independent
auditors, with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting. The committee held one
meeting during fiscal year 2000.
In reliance on the reviews and discussions referred to above, the committee
recommended to the Board (and the Board has approved) that the audited financial
statements be included in the Annual Report on Form 10-K for the year ended June
30, 2000 for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee
John D. Sanders, Ph.D., Audit Committee Chair
Gerald R. McNichols, Sc.D., Audit Committee Member
Gerald R. Young, Audit Committee Member
September 12, 2000
The Compensation Committee of the Board (the "Compensation Committee"), which
held two meetings in fiscal 2000, is comprised of Messrs. McNichols, Sanders,
and Young. The Compensation Committee evaluates management's recommendations and
makes its own recommendations to the Board concerning the compensation of the
Company's executive officers. It is also responsible for the formulation of the
Company's executive compensation policy and the research, analysis and
subsequent recommendation regarding the establishment and administration of the
Company's Stock Option and Stock Purchase Plans.
The Board does not have a Nominating Committee or an Executive Committee.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF
---
THE DIRECTORS NAMED ON THE ENCLOSED PROXY.
8
<PAGE>
PROPOSAL NO. 2
AMENDMENT TO THE 1997 EMPLOYEE STOCK PURCHASE PLAN
On September 12, 2000, the Board adopted, subject to shareholder approval, an
amendment to the Hadron, Inc. 1997 Employee Stock Purchase Plan to increase the
number of shares reserved for issuance thereunder from 350,000 to 500,000. At
the Annual Meeting, the shareholders are being asked to approve this amendment
to the 1997 Employee Stock Purchase Plan.
Description of the 1997 Employee Stock Purchase Plan
Purpose
The purpose of the Stock Purchase Plan is to provide a means by which
employees of the Company and its subsidiaries can be given an opportunity to
purchase the Company's Common Stock through payroll deductions. The Stock
Purchase Plan is an employee stock purchase plan under Internal Revenue Code
(the "Code") Section 423. That section provides certain tax benefits to
employees, as explained below. The Stock Purchase Plan (as proposed to be
amended) authorizes the reservation of 500,000 shares of Common Stock for
issuance under the Stock Purchase Plan.
Administration
The Stock Purchase Plan is administered by the Compensation Committee. The
Compensation Committee has the full power, discretion and authority to interpret
and administer the Stock Purchase Plan and the rights granted under it. The
Compensation Committee may delegate administrative functions to employees of the
Company.
Eligibility
Once the Stock Purchase Plan becomes effective, any person who is employed by
the Company or its subsidiaries is eligible to participate in the Stock Purchase
Plan on the first day of any January or July following the employee's
commencement of employment with the Company. An employee is not eligible for
the grant of any rights under the Stock Purchase Plan if, immediately after such
grant, the employee would own, directly or indirectly, stock possessing 5% or
more of the total combined voting power or value of all classes of stock of the
Company or of any parent or subsidiary of the Company, including any stock that
the employee may purchase under all outstanding options.
Participation in the Plan
Eligible employees become participants in the Stock Purchase Plan by electing
payroll deductions in increments of not less than $10 per pay period.
Periods of Plan Operations
The Plan will be operated over two semi-annual purchase periods each year. One
period will begin on the first trading day of January and end on the last
trading day of June. The second period will begin on the first trading day of
July and end on the last trading day of December. The first trading days of
January and July are each a "Grant Date" and the last trading days of June and
December are each an "Investment Date".
Purchase Price
The purchase price per share for the semi-annual period at which shares are
sold under the Stock Purchase Plan equals the lower of (a) 85% of the fair
market value of a share of Common Stock on the Grant Date for the semi-annual
period, or (b) 85% of the fair market value of a share of Common Stock on the
Investment Date for that semi-annual period. The Compensation Committee, at its
discretion, may increase the percentage above 85%.
9
<PAGE>
Payroll Deductions
Payroll deductions are accumulated during each semi-annual period and applied
towards the purchase of Common Stock of the Company on the Investment Date for
that semi-annual period. An employee may terminate his participation in the
Stock Purchase Plan at any time, but may not participate again until the next
Grant Date. An participant may decrease his payroll deduction one time in each
semi-annual period. However, an election to decrease may not be revoked for the
remainder of the semi-annual period.
Purchase of Stock
By executing an election to participate in the Stock Purchase Plan, the
employee is entitled to purchase shares under such plan. On each Investment
Date, the Company will apply the funds in the participant's account to the
purchase of shares of its Common Stock in full and fractional shares. If the
aggregate number of shares to be purchased on any Investment Date would exceed
the maximum aggregate number available under the Stock Purchase Plan, the shares
available will be allocated among such participants in proportion to their
contributions during the semi-annual period. The shares may be purchased from
the Company or on the open market, at the discretion of the Company. If shares
are purchased on the open market, the Company pays any brokerage and other costs
and discount below the market price.
Termination of Employment
An employee's participation in the Stock Purchase Plan will be terminated when
the employee retires, terminates active employment, or dies. The employee will
receive a certificate for the shares in his Investment Account and a cash refund
of his Payroll Deduction Account.
Restrictions on Transfer
Rights granted under the Stock Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted, except: (a) to the
extent that an employee is permitted to designate a beneficiary as provided in
the Stock Purchase Plan, (b) to the extent permitted by will or the laws of
descent and distribution if no such beneficiary has been designated, and (c)
pursuant to a qualified domestic relations order.
Duration, Amendment and Termination
The Compensation Committee or the Board may suspend or terminate the Stock
Purchase Plan at any time. Unless earlier terminated by action of the Board or
the Compensation Committee, the Stock Purchase Plan will remain in effect until
such time as no shares of Common Stock remain available for issuance under the
Stock Purchase Plan and the Company and employees have no further rights or
obligations under the Stock Purchase Plan.
The Compensation Committee or the Board may amend the Stock Purchase Plan at
any time. Any amendment of the Stock Purchase Plan must be approved by the
shareholders within twelve (12) months of its adoption by the Board if the
amendment would: (a) increase the number of shares of Common Stock reserved for
issuance under the Stock Purchase Plan (other than for appropriate adjustments
for stock dividend, stock split, reverse stock split, recapitalization,
reorganization, merger, consolidation, acquisition, separation or like change in
the capital structure of the Company), (b) modify the requirements relating to
eligibility for participation in the Stock Purchase Plan, or (c) modify any
other provision of the Stock Purchase Plan in a manner that would materially
increase the benefits accruing to participants under the Stock Purchase Plan, if
such approval is required in order to comply with the requirements of Code
Section 423.
Federal Income Tax Information
Rights granted under the Stock Purchase Plan are intended to qualify under the
provisions of Code Sections 421 and 423. Under these provisions, a participant
will be taxed on amounts withheld for the purchase of shares as if
10
<PAGE>
such amounts were actually received. Other than this tax, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchased shares.
If the stock is disposed of at least two years after the Grant Date and more
than one year after the stock is acquired by the participant on an Investment
Date, then the lesser of (a) the excess of the fair market value of the stock at
the time of such disposition over the purchase price, or (b) the excess of the
fair market value of the stock as of the Grant Date over the purchase price
(determined as of the Grant Date) will be treated as ordinary income. Any
further gain or any loss will be taxed as a long-term capital gain or loss.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the Investment Date over the purchase price will be treated as ordinary
income at the time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. Even if the stock is later disposed of for less than its fair
market value on the date of purchase, the same amount of ordinary income is
attributed to the participant, and a capital loss will be recognized equal to
the difference between the sales price and the fair market value of the stock on
such purchase date. Any capital gain or loss will be long-term if the stock is
held for more than 12 months or short-term if held one year or less.
There are no federal income tax consequences to the Company by reason of the
grant or exercise of rights under the Stock Purchase Plan. The Company
generally is entitled to a deduction to the extent amounts are taxed as ordinary
income to a participant.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF
---
THE AMENDMENT TO THE HADRON, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN.
11
<PAGE>
PROPOSAL NO. 3
APPROVAL OF THE HADRON, INC. 2000 STOCK OPTION PLAN
On September 12, 2000, the Board adopted, subject to shareholder approval, the
Hadron, Inc. 2000 Stock Option Plan ("2000 Stock Option Plan").
Description of the 2000 Stock Option Plan
The 2000 Stock Option Plan provides for the issuance of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986
and non-qualified stock options to purchase an aggregate of up to 600,000 shares
of Common Stock. The 2000 Stock Option Plan permits the grant of options to key
employees, consultants and directors of the Company.
The 2000 Stock Option Plan is administered by the Compensation Committee
consisting of directors McNichols, Sanders, and Young. Each of the members of
the Committee is a "disinterested" person for purposes of Rule 16b-3. Subject
to the provisions of the 2000 Stock Option Plan, the Compensation Committee has
full and final authority to select the participates to whom awards are to be
granted thereunder, to grant such awards and to determine the terms and
conditions of such awards, including vesting and exercise price.
Each option is evidenced by a written agreement in a form approved by the
Compensation Committee. Options granted under the 2000 Stock Option Plan
generally are not transferable by the optionee other than by will or by the laws
of descent and distribution and each option is exercisable, during the lifetime
of the optionee, only be the optionee. Key employees, including employee
directors, and consultants of the Company or any of its subsidiaries are
eligible to be considered for the grant of awards under the 2000 Stock Option
Plan.
Under the 2000 Stock Option Plan, the exercise price of an incentive stock
option must be at least equal to 100% of the fair market value of the Common
Stock on the grant date (110% of the fair market value in the case of options
granted to employees who are 10% shareholders). The exercise price of a non-
qualified stock option must be not less than the par value of a share of the
Common Stock on the date of grant. The term of an incentive or non-qualified
stock option may not exceed ten years (five years in the case of an incentive
stock option granted to a 10% shareholder).
Each non-employee director elected or appointed to the Board automatically
receives on the date of his or her first initial appointment to the Board, an
option to purchase 5,000 shares of the Company's Common Stock (the "Initial
Option") at a per share exercise price equal to the fair market value of the
Common Stock on the initial grant date. Furthermore, each non-employee director
automatically receives on each anniversary of his initial election or
appointment to the Board or, in the case of current directors, each anniversary
of the date the 2000 Stock Option Plan was adopted by the Board, an option to
purchase 5,000 shares of the company's Common Stock exercisable at a per share
value equal to the fair market value for the Common Stock on the applicable
additional grant date to the extent that options remain available under the 2000
Stock Option Plan. The vesting for each option holder will be set forth in the
individual option agreements. Each option terminates, to the extent not
exercised prior thereto, upon the earlier to occur of (i) the tenth anniversary
of grant and (ii) ninety days after the cessation of the optionee's service as a
member of the Board (to the extent vested upon the date of such cessation).
The Board may alter, amend, suspend or terminate the 2000 Stock Option Plan,
provided that no such action shall deprive an optionee, without his consent, of
any option granted to the optionee pursuant to the 2000 Stock Option Plan or of
any of his rights under such option. Provisions related to automatic grants of
options to non-employee directors may not (with limited exceptions) be amended
more frequently than once every six months and no amendment to such provisions,
unless approved by the shareholders of the Company, shall become effective
earlier than six months after Board approval. Except as provided in the 2000
Stock Option Plan, no amendment by the Board, unless taken with the approval of
the shareholders, may (i) materially increase the benefits accruing to
participants under the 2000 Stock Option Plan, (ii) materially increase the
number of securities which may be issued under the 2000 Stock Option Plan or
(iii) materially modify the requirements as to eligibility for participation in
the
12
<PAGE>
2000 Stock Option Plan.
As all of the directors and executive officers of the Company are eligible for
grants of options under the 2000 Stock Option Plan, each such person has a
personal interest in the approval of the proposed amendment. On September 29,
2000, the Compensation Committee approved the grant, to thirteen employees and
to three non-employee directors of the Company, of options to acquire up to
189,500 and 15,000 shares of Common Stock, respectively, at an exercise price of
$1.02 per share. All of such grants were made subject to shareholder approval
of the 2000 Stock Option Plan proposed hereby; in the event the shareholders do
not approve the proposed 2000 Stock Option Plan, all such grants will be void.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF
---
THE HADRON, INC. 2000 STOCK OPTION PLAN.
13
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning all compensation paid by
the Company during the fiscal year ended June 30, 2000 to its Chief Executive
Officer, each of the four other most highly paid executive officers, and one
former executive officer:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
Annual Compensation Awards
------------------- ------
Name and Fiscal Stock Options All Other
Principal Position Year Salary ($) Bonus($) (1)(2) Granted (3) Compensation (4)
------------------ ---- ---------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Jon M. Stout, Director, President 2000 $ - $ - 15,000 $ -
And Chief Executive Officer (5) 1999 - - - -
1998 - - - -
C. W. Gilluly, Ed.D., Chairman (6) 2000 $ 140,010 $ - - $ 1,000
1999 140,796 34,408 15,000 1,000
1998 131,690 8,000 12,000 1,000
George E. Fowler, former 2000 $ 149,765 $ - - $ 1,000
President and Chief Operating 1999 147,440 20,155 15,000 1,000
Officer (7) 1998 136,834 26,749 12,000 1,000
Donald J. Kellmel, Ph.D., Chief 2000 $ 143,932 $ - 10,000 $ 5,038
Technical Officer 1999 18,500 - - 648
1998 - - - -
Shawn K. McCoy, 2000 $ 122,708 $ - 10,000 $ 196
Vice President 1999 - - - -
1998 - - - -
C. Scott Reuther, 2000 $ 124,506 $ - 5,000 $ 2,927
Vice President 1999 16,125 - - 403
1998 - - - -
</TABLE>
________________________
(1) The only bonus awarded in fiscal year 2000, $25,000 for Mr. Stout, was paid
in fiscal year 2001.
(2) The bonuses paid in fiscal year represent the bonuses awarded for the prior
fiscal year.
(3) Options granted pursuant to the Company's 1994 Stock Option Plan. See
"Executive Compensation - Stock Option Grants."
(4) Contributions made by the Company under its 401(k) plan.
(5) Mr. Stout was appointed as the Company's President and Chief Executive
Officer on March 30, 2000.
(6) Dr. Gilluly entered into an Amendment to Employment Agreement and assumed
the sole position of Chairman of the Company on March 30, 2000.
(7) Mr. Fowler resigned from the Company on February 25, 2000.
14
<PAGE>
Stock Option Grants
The following table provides details regarding all stock options granted to
the named executive officers during the fiscal year ended June 30, 2000:
<TABLE>
<CAPTION>
Option Grants in Fiscal Year 2000
Potential
Realizable Value at Assumed
Number of % of Total Options Annual Rates of Stock Price
Shares Underlying Granted to Employees Exercise Expiration Appreciation for Option Term (1)
--------------------------------
Name Options Granted (2) In Fiscal Year Price Date 5% 10%
----- ------------------ -------------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Jon M. Stout 15,000 12% $1.64 3/31/2005 $6,797 $15,018
C. W. Gilluly - - - - - -
George E. Fowler - - - - - -
Donald J. Kellmel 10,000 8% 0.81 9/30/2009 5,094 12,909
Shawn K. McCoy 10,000 8% 1.28 6/21/2009 8,050 20,399
C. Scott Reuther 5,000 4% 0.81 9/30/2009 2,547 6,455
</TABLE>
________________________________
(1) Amounts represent hypothetical gains that could be achieved if exercised
at end of the option term. The dollar amounts under these columns assume
5% and 10% compounded annual appreciation in the Common Stock from the
date the respective options were granted. These calculations and assumed
realizable values are required to be disclosed under Securities and
Exchange Commission rules and, therefore, are not intended to forecast
possible future appreciation of Common Stock or amounts that may be
ultimately realized upon exercise. The Company does not believe this
method accurately illustrates the potential value of a stock option.
(2) Options vest one-third upon the date of grant, and one-third each on the
first and second anniversaries of the date of grant, and expire 10 years
(5 years for 10% shareholders) after the grant date. The option exercise
price is 100% of the fair market value on the date of grant. Options are
exercisable for a period of 90 days after termination of employment to the
extent vested at that time.
15
<PAGE>
Options Exercised and Fiscal Year End Option Values
The following table sets forth certain information regarding options exercised
during the fiscal year ended June 30, 2000 and the value of unexercised options
held as of June 30, 2000 by the named executive officers:
Options Exercised and Fiscal Year End Option Value
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired upon Value Options at June 30, 2000 at June 30, 2000 (1)
------------------------------ ------------------------------
Name Exercise Realized (2) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jon M. Stout - $ - - - $ - $ -
C. W. Gilluly - - 60,000 - 27,450 -
George E. Fowler 45,000 49,800 - - - -
Donald J. Kellmel - - 3,333 6,667 233 467
Shawn K. McCoy - - - - - -
C. Scott Reuther - - 1,666 3,334 117 233
</TABLE>
___________________
(1) Represents the difference between the exercise price of the outstanding
options and the closing bid price of the Common Stock on June 30, 2000,
which was $0.88 per share. Options that have an exercise price greater
than the fiscal year-end market value are not included in the value
calculation.
(2) Represents the difference between the exercise price and the market value
on the date of exercise.
Employment Agreements, Termination of Employment and Change of Control
Arrangements
On March 30, 2000, pursuant to the Purchase Agreement, the Company entered
into a rolling two-year employment agreement with Jon M. Stout. Under the
agreement, Mr. Stout will serve as the Company's President and Chief Executive
Officer. Mr. Stout was entitled to receive an initial annual base salary of
$50,000 for the first six months of his employment and thereafter to receive an
annual base salary of $140,000. For the fiscal year ended June 30, 2000, Mr.
Stout opted to forego his salary and defer any bonus. On September 12, 2000,
the Board approved a $25,000 bonus based upon the Company's financial
performance in the fourth quarter of the fiscal year ended June 30, 2000. Mr.
Stout's employment agreement further provides for Mr. Stout to participate in
the Company's Stock Option and Bonus Plans. Under the Bonus Plan, Mr. Stout may
receive additional compensation based upon the Company's financial performance.
If Mr. Stout is terminated by the Company other than for cause, the Company must
pay Mr. Stout a lump sum payment that is the sum of (1) Mr. Stout's base salary
and bonus through the date of termination; (2) any compensation previously
deferred by Mr. Stout; (3) any accrued vacation pay; and (4) the base salary
that would have been payable to Mr. Stout through the remainder of the term of
the agreement. In connection with his service as the Company's President and
Chief Executive Officer, Mr. Stout was awarded a five-year option to purchase
15,000 shares of the Company's common stock at a purchase price of $1.64 per
share, vesting in one-third increments on March 31, 2000, March 31, 2001 and
March 31, 2002.
16
<PAGE>
The Company entered into a rolling two-year employment agreement with Dr.
Gilluly, to serve as Chief Executive Officer, commencing in fiscal year 1998 at
an initial base annual salary of $140,000. On March 30, 2000, Dr. Gilluly
entered into an Amendment to Employment Agreement and assumed the sole position
of Chairman of the Company. He was paid his base salary through June 30, 2000.
Dr. Gilluly will continue to provide management and strategic services to the
Company on a part-time basis pursuant to his agreement dated July 1, 2000.
Pursuant to this agreement, Dr. Gilluly will work up to 90 hours per quarter and
will receive $11,868 per month for a period of two years.
The Company received the resignation of Mr. Fowler, as President and Chief
Operating Officer, on February 25, 2000. Mr. Fowler was paid his base salary
through June 30, 2000. Of his 82,000 of vested stock options, he exercised
45,000 on May 8, 2000 and the 37,000 remaining vested options expired on May 25,
2000.
On June 1, 2000, the Company renewed its annual agreement with Dr. Kellmel, to
serve as the Chief Technical Officer of the Company, at a base salary of
$154,000. If Dr. Kellmel is terminated other than for cause as defined in his
agreement, he will receive three months severance.
On September 4, 2000, the Company renewed its annual agreement with Mr. McCoy,
to serve as Vice President of the Company and ABS, at a base salary of $140,000.
If Mr. McCoy is terminated other than for cause as defined in his agreement, he
will receive six months severance.
On May 1, 1999, the Company entered into an employment agreement with Mr.
Reuther, to serve as Chief Operating Officer of ATI, at a base salary of
$129,000. If Mr. Reuther is terminated other than for cause as defined in his
agreement, he will receive three months severance.
Compensation of Directors
Directors receive a quarterly cash fee of $1,250 for their services. In
addition, directors receive $500 per Board meeting attended, and $250 per
committee meeting attended (unless such meeting is combined with a full Board
meeting). Directors who are employees do not receive any additional
compensation for their service as directors. Directors are reimbursed for out-
of-pocket expenses associated with their attendance at Board meetings.
Compensation Committee Report on Executive Compensation
The responsibility of the Compensation Committee is to administer the
Company's executive compensation programs, to monitor corporate performance and
its relationship to compensation of executive officers and to make appropriate
recommendations concerning matters of executive compensation. The Compensation
Committee is comprised of three independent non-employee directors. This report
sets forth the major components of executive compensation and the basis by which
fiscal year 2000 compensation determinations were made with respect to the
executive officers of the Company.
Compensation Policy and Guidelines
----------------------------------
The main objective of the Company is to maintain and increase the
profitability of its operations and to maximize value for shareholders,
employees and clients. The goals of the Company's compensation policy are to
align executive compensation with the Company's long-term business objectives
and performance, to enable the Company to attract and retain high-quality
executive officers and employees who will contribute to the long-term success of
the Company and to reward such executive officers and employees for their
successful efforts in attaining objectives beneficial to the growth and
profitability of the Company.
In order to achieve the Company's goals, the Compensation Committee has
developed the following principles that serve as guidance for compensation
decisions for all employees: (i) to attract and retain the most highly qualified
management and employee team, (ii) to pay competitively with prevailing industry
standards, (iii) to emphasize sustained performance by aligning monetary rewards
with shareholder interests, (iv) to emphasize performance-related contributions
as the basis of pay decisions, and (v) to provide incentive bonus awards for
17
<PAGE>
management based upon attaining revenue and profitability goals. To implement
these policies, the Compensation Committee has designed a compensation program
consisting of base salary, an annual incentive bonus plan, stock options and
other employment benefits.
Compensation Program Elements
-----------------------------
The Company's compensation levels and benefits are reviewed on an annual basis
to determine whether they are competitive and reasonable in light of the overall
performance of the Company and the Company's ability to attract and retain
talented executives. The Company's focus is on growth.
Base Salary. Salary levels are primarily determined by the Compensation
-----------
Committee in consideration of the performance of the individual executive, the
financial performance of the Company and the prevailing industry standards for
similar executives of similar companies. The Company's philosophy regarding
base salaries is conservative, using published industry reports and surveys on
executive compensation. The Company compares itself for this purpose with
other technology service providers and/or government contracting firms who
face similar challenges in their markets. Periodic increases in base salary
relate to individual contribution evaluated against established objectives.
Stock Options. The Company believes the compensation program should provide
-------------
employees with an opportunity to increase their ownership and potentially gain
financially from Company stock price increases. By this approach, the
interests of shareholders, executives and employees are closely aligned.
Through the Company's Stock Option Plan, executives and employees are eligible
to receive stock options, giving them the right to purchase shares of Common
Stock of the Company at a specified price in the future. The Compensation
Committee believes the use of stock options as the basis for long-term
incentive compensation meets the Compensation Committee's defined compensation
strategy and the team-based operations approach that the Company has adopted.
Incentive Program. The Company's executive officers and operating managers
-----------------
participate in an incentive compensation program which awards cash bonuses
based on attaining or exceeding specific revenue and profitability goals. For
2000, no incentive awards were paid to executive officers and operating
managers.
Severance Compensation. To retain highly qualified executive officers, the
----------------------
Company from time to time enters into severance agreements with certain of its
officers. The determination of whether the Company would benefit from a
severance agreement with a particular officer is subjective, based upon such
officer's experience and value to the Company.
Other Benefits. The Company's philosophy is to provide adequate health and
--------------
welfare oriented benefits to executives and employees, but to maintain a
highly conservative posture relative to executive benefits.
2000 Compensation for the Chairman and former Chief Executive Officer
---------------------------------------------------------------------
The Committee entered into an employment agreement with Dr. Gilluly,
commencing in fiscal year 1998 at an initial base annual salary of $140,000, to
serve as Chief Executive Officer. On March 30, 2000, Dr. Gilluly entered into
an Amendment to Employment Agreement and assumed the sole position of Chairman
of the Company. He was paid his base salary through June 30, 2000. He will
continue to provide management and strategic services to the Company on a part-
time basis pursuant to his agreement dated July 1, 2000. Pursuant to this
agreement, Dr. Gilluly will work up to 90 hours per quarter and will receive
$11,868 per month for a period of two years.
The Committee has, at various times, granted Dr. Gilluly options under the
1994 Stock Option Plan to purchase a total of 87,000 shares of the Company's
Common Stock at the market price on the date of grant. Under the Plan, one-
third of options granted are immediately exercisable upon the date of grant,
with one-third becoming exercisable on each of the first and second
anniversaries of the date of grant.
18
<PAGE>
2000 Compensation for the President and Chief Executive Officer
---------------------------------------------------------------
On March 30, 2000, pursuant to the Purchase Agreement, the Company entered
into a rolling two-year employment agreement with Mr. Stout. Under the
agreement, Mr. Stout will serve as the Company's President and Chief Executive
Officer. Mr. Stout was entitled to receive an initial annual base salary of
$50,000 for the first six months of his employment and thereafter to receive an
annual base salary of $140,000. For the fiscal year ended June 30, 2000, Mr.
Stout opted to forego his salary and defer any bonus. On September 12, 2000, the
Board approved a $25,000 bonus based upon the Company's financial performance in
the fourth quarter of the fiscal year ended June 30, 2000. Mr. Stout's
employment agreement further provides for Mr. Stout to participate in the
Company's Stock Option and Bonus Plans. Under the Bonus Plan, Mr. Stout may
receive additional compensation based upon the Company's financial performance.
If Mr. Stout is terminated by the Company other than for cause, the Company must
pay Mr. Stout a lump sum payment that is the sum of (1) Mr. Stout's base salary
and bonus through the date of termination; (2) any compensation previously
deferred by Mr. Stout; (3) any accrued vacation pay; and (4) the base salary
that would have been payable to Mr. Stout through the remainder of the term of
the agreement. In connection with his service as the Company's President and
Chief Executive Officer, Mr. Stout was awarded a five-year option to purchase
15,000 shares of the Company's common stock at a purchase price of $1.64 per
share, exercisable in one-third increments on March 31, 2000, March 31, 2001 and
March 31, 2002.
Summary
-------
The Compensation Committee believes the total compensation program for
executives of the Company is appropriate and competitive with the total
compensation programs provided by similar companies in the industry with which
the Company competes. The Compensation Committee believes its compensation
practices are directly tied to shareholder returns and linked to the achievement
of annual and longer-term financial and operating results of the Company on
behalf of the Company's shareholders.
Submitted by the Compensation Committee
Gerald R. McNichols, Sc.D
John D. Sanders, Ph.D.
Gerald R. Young
19
<PAGE>
Performance Graph
The following graph compares the cumulative, five-year shareholder returns on
the Company's Common Stock with the cumulative returns of the NASDAQ Market
Index and Media General's Other Business Services Index, comprised of the Common
Stock of approximately 200 companies in diversified business service industries,
excluding the Company. The graph assumes the value of the investment in the
Company's Common Stock and each index was $100 on June 30, 1995.
FISCAL YEAR ENDING
COMPANY 1995 1996 1997 1998 1999 2000
Hadron, Inc. 100.00 218.93 235.14 540.55 345.94 201.80
MG - Bus Serv Index 100.00 127.41 142.90 160.97 161.08 171.74
NASDAQ Market Index 100.00 125.88 151.64 201.01 281.68 423.84
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers, directors
and persons who own more than 10% of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than 10%
shareholders are required by the regulation to furnish the Company with copies
of the Section 16(a) forms which they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company, and written representations that no other
reports were required during the fiscal year beginning July 1, 1999 and ended
June 30, 2000, all Section 16(a) filing requirements applicable to the Company's
officers, directors and greater than ten percent beneficial owners were complied
with in a timely manner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 30, 2000, the Company received a private investment of equity led by
Mr. Stout (see "Change of Control).
The Company entered into a Loan and Security Agreement dated June 29, 1999
(the "Loan Agreement") among the Company, United Bank and each of the Company's
wholly owned subsidiaries, ATI, Vail, SyCom, and EISI. The Loan Agreement
provides the Company with a $1.5 million line of credit facility (the "Credit
Facility") through October 31, 2000 and a three-year $1.5 million term loan (the
"Term Loan"). Interest on each of the facilities is at the prime rate plus 150
basic points. The Term Loan and the Credit Facility are secured by accounts
receivable and other assets of the Company. In addition, the convertible notes
issued by the Company in connection with the Company's acquisition of ATI are
subordinated to the Company's obligations under the Term Note and the Credit
Facility.
Dr. Gilluly and his wife personally guaranteed the Term Loan from its
inception until April 12, 2000. On April 12, 2000, the Company entered into an
Amended and Restated Guaranty of Payment with Dr. Gilluly and his wife to modify
their personal guarantee on the Notes to cover 50% of the aggregate principal
outstanding in an amount not to exceed $750,000, through October 31, 2000. In
addition, Mr. Stout, pursuant to the April 12, 2000 Guaranty of Payment,
guaranteed the remaining 50% of the principal outstanding in an amount not to
exceed $750,000, through October 31, 2000. On August 23, 2000, the Company
entered into a Second Modification and Extension Agreement (this "Agreement")
with United Bank. This Agreement released Dr. Gilluly and his wife from all
liability as guarantors of the payment of the Notes and the other obligations of
the Borrower under the Loan Agreement, and cancels their Amended and Restated
Guaranty of Payment. In addition, the obligation of Mr. Stout, the Remaining
Guarantor under his Guaranty of Payment dated April 12, 2000, was increased from
50% to 100% of the aggregate unpaid principal balance of the Notes.
In September 1999, Dr. Gilluly transferred warrants representing 200,000
commons shares to certain key senior management. Dr. Gilluly transferred
100,000 warrants, which expire on October 21, 2003, to George E. Fowler, former
President and Chief Operating Officer of the Company, to acquire the Company's
common stock at $.25 per share. On September 20, 1999, Mr. Fowler exercised
the warrants to acquire the 100,000 shares of the Company's common stock. Dr.
Gilluly transferred 100,000 warrants, which expire on October 21, 2003, to S.
Amber Gordon, former Executive Vice President of the Company, to acquire the
Company's common stock at $.25 per share. On September 20, 1999, Ms. Gordon
exercised the warrants to acquire the 100,000 shares of the Company's common
stock. Also, on September 20, 1999, Dr. Gilluly exercised warrants to acquire
20,000 shares of the Company's common stock at the purchase price of $.25 per
share.
In January 2000, the Company borrowed $430,000 from Dr. Gilluly to meet its
operating needs. On February 15, 2000, these borrowings were converted into a
$430,000 note payable, due on demand, to Dr. Gilluly with interest of 12% per
annum. In connection with the issuance of the Note, the Company issued to Dr.
Gilluly a warrant, which entitles him to purchase 430,000 shares of Common
Stock, par value $0.02 per share, at the exercise price of seventy-two cents
($0.72) ("Warrant"). The term of the Warrant is for a period of five years,
commencing on February 15, 2000 and ending February 15, 2005. The Warrant was
deemed to have a nominal value at the time
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of issuance. As of September 30, 2000, the Company made principal and interest
payments of $430,000 and $24,200, respectively, satisfying the note payment in
full.
As part of the May 1999 purchase of ATI, the Company issued $1,478,000 in
short term promissory notes, interest payable at prime, and $998,000 in three-
year convertible notes, interest payable at 6%, to the former shareholders of
ATI. The notes were convertible into 444,000 shares of the Company's Common
Stock at $2.25 per share. Six Nations, Inc., controlled by Dr. Whetzel, was a
majority shareholder of ATI. In May 2000, the Board adopted resolutions
providing for the conversion of the convertible notes on the basis of one share
of Common Stock for $1.25 per share if tendered to the Company for conversion
before the close of business on June 30, 2000. At June 30, 2000, $846,000 of
the convertible notes had been converted into 677,000 restricted shares of the
Company's Common Stock at $1.25 per share. As a result of the Company's debt
conversion inducement, an expense of approximately $10,000 was recorded.
On August 15, 2000, Directors McNichols and Young purchased 32,500 and 10,000,
respectively, of the Company's restricted Common Stock at $0.75 per share. In
addition, Mr. McNichols and Mr. Young received warrants of 32,500 and 10,000,
respectively, to purchase the Company's Common Stock at $0.75 per share.
On September 20, 2000, the Stout Dynastic Trust exercised warrants, pursuant
to the March 30, 2000 transaction, to purchase 347,222 shares of the Company's
Common Stock at $0.72 per share.
On September 29, 2000, J. Richard Knop exercised warrants, pursuant to the
March 30, 2000 transaction, to purchase 115,672 shares of the Company's Common
Stock at $0.72 per share.
In June 2000, the Company agreed to transfer a contract with DynCorp
Information & Engineering Technology, Inc., under which support services are
provided for the Defense Advanced Research Projects Agency (DARPA), to Nighthawk
Technologies, Inc. ("Nighthawk") for consideration of approximately $55,000. As
consideration for the transfer, the Company was released from $50,000 of the
convertible note principal of Howard Whetzel, President of Nighthawk and former
member of the Company's Board of Directors. In addition, the Company
transferred its obligations of accrued vacation totaling approximately $5,000 to
Nighthawk.
On February 1, 2000, the Company entered into a consulting agreement with Dr.
Whetzel to provide professional and consulting services to the Company through
February 1, 2001. Pursuant to the agreement, Dr. Whetzel will be paid $145.00
per hour. In fiscal year 2000, $33,047 was paid to Dr. Whetzel for consulting
services.
On June 20, 2000, the Company entered into a consulting agreement with Shawna
Stout, the daughter of Mr. Stout, to provide professional services to the
Company on an as needed basis. Pursuant to the agreement, Ms. Stout will be
paid $75 per hour and will receive travel reimbursment and health benefits.
During the fiscal year ended June 30, 2000, AMASYS, owner of approximately
3.2% of the outstanding Common Stock of the Company, was charged $8,450 for
corporate relations and administrative services provided by the Company to
AMASYS. At June 30, 2000, the Company had a net receivable balance to AMASYS of
approximately $2,800. Dr. Gilluly, Chairman of the Board and former Chief
Executive Officer of the Company, is Chairman of the Board of AMASYS.
As of September 1, 2000, the Company entered into a letter agreement with Dr.
Sanders to provide strategic financial consulting services. Pursuant to the
agreement, Dr. Sanders will be paid a monthly retainer of $2,500, plus
reimbursment of direct expenses authorized by the Company. This agreement may
be terminated by either party by giving the other party thirty days notice in
writing. In addition, should Dr. Sanders initiate and be involved with a merger
or acquisition that results in a formal agreement and transaction, the Company
will pay Dr. Sanders a financial advisory or finders fee of one and one-half
percent of the total value of the transaction. Should a broker or other
intermediary be involved, Dr. Sanders fee would be reduced to one percent. This
portion of the agreement survives termination if a merger situation or
acquisition company has been introduced and discussions or negotiations are
continuing.
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On June 29, 2000, the Company entered into a letter agreement with Mr. Young
to provide business development services to the Company, on an as needed basis,
at the rate of $1,500 per day.
SHAREHOLDER PROPOSALS
Proposals of Shareholders of the Company that are intended to be presented at
the Company's 2001 Annual Meeting of Shareholders must be received by the
Company no later than July 10, 2001 in order that they may be included in the
proxy statement and form of proxy relating to that meeting.
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ANNUAL REPORT
A copy of the Company's Annual Report for the fiscal year ended June 30, 2000,
including the financial statements and notes thereto is being mailed to the
shareholders of record along with this Proxy Statement. The Annual Report is
not incorporated by reference in this Proxy Statement and is not considered to
be part of the proxy material.
The Company will provide without charge a copy of its 2000 Annual Report on
Form 10-K, including the financial statements and the financial statement
schedules required to be filed with the SEC. The Company will furnish any
exhibit described in the list accompanying the 2000 Form 10-K upon the payment,
in advance, of the specified reasonable fees related to the Company's furnishing
of such exhibit(s). Requests for copies of such report and/or exhibit(s) should
be directed to the Company at its principal executive office, 5904 Richmond
Highway, Suite 300, Alexandria, Virginia 22303, Attention: Corporate Secretary.
OTHER MATTERS
The Board knows of no other business matters to be acted upon at the Annual
Meeting other than those referred to in this Proxy Statement. If any other
matters properly come before the Annual Meeting, it is the intention of the
persons named in the enclosed proxy to vote the shares they represent as the
Board may recommend.
By Order of the Board
/s/ Karen L. Dickey
Karen L. Dickey
Vice President and
Corporate Secretary
Date: October 30, 2000
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APPENDIX 1
Hadron, Inc.
Audit Committee of the Board of Directors
AUDIT COMMITTEE CHARTER
Organization
This charter governs the operations of the Audit Committee (the "committee") of
the Board of Directors ("Board") for Hadron, Inc. ("HADRON"). The committee
shall:
. review and reassess this charter at least annually and obtain the approval
of the Board.
. be appointed by the Board,
. comprise at least three directors, each of whom are independent of
management and HADRON,
. include a chair of the committee to be chosen by a majority vote by the
members of the committee.
Members of the committee shall be considered independent if they have no
relationship that may interfere with the exercise of their independence from
management and HADRON. In addition, all committee members shall be financially
literate, or become so within a reasonable period of time after appointment to
the committee, and at least one member shall have accounting or related
financial management expertise.
Statement of Policy
The committee shall provide assistance to the Board in fulfilling their
oversight responsibility to the shareholders, potential shareholders, the
investment community, and others relating to HADRON's financial statements and
the financial reporting process, the systems of internal accounting and
financial controls, the annual independent audit of HADRON's financial
statements and the legal compliance and ethics programs as established, or as
may be established, by management and the Board.
In so doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors and management of
HADRON. In discharging its oversight role, the committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities, and personnel of HADRON and the power to retain outside
counsel or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the committee is to oversee HADRON's financial
reporting processes on behalf of the Board and report the results of their
activities to the Board. Management is responsible for preparing HADRON's
financial statements and the independent auditors are responsible for auditing
those financial statements. The committee in carrying out its responsibilities
believes its policies and procedures should remain flexible, in order to best
react to changing conditions and circumstances. The committee should take the
appropriate actions to set the overall corporate culture and tone for quality
financial reporting, sound business risk practices, and ethical behavior.
The following shall be the principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate:
. The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board and the committee, as representatives of
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HADRON's shareholders. The committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, replace the independent
auditors. The committee shall discuss with the auditors their independence
from management and HADRON and the matters included in the written
disclosures required by the Independence Standards Board. Annually, the
committee shall review and recommend to the Board the selection of HADRON's
independent auditors, subject to shareholders' approval.
. The committee shall discuss with the independent auditors the overall scope
and plans for their audit including the adequacy of staffing and
compensation. Also, the committee shall discuss with management and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including HADRON's system to monitor and manage
business risk, and legal and ethical compliance programs. Further, the
committee shall meet with the independent auditors, with and without
management present, to discuss the results of their examinations.
. The committee shall review the interim financial statements with management
and the independent auditors prior to the filing of HADRON's Quarterly
Report on Form 10-Q. Also, the committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the committee may represent the entire committee
for the purposes of this review.
. The committee shall review with management and the independent auditors the
financial statements to be included in HADRON's Annual Report on Form 10-K,
including their judgment about the quality, not just acceptability, of
accounting principles, the reasonableness of significant judgements, and
the clarity of the disclosures in the financial statements. Also, the
committee shall discuss the results of the annual audit and any other
matters required to be communicated to the committee by the independent
auditors under generally accepted auditing standards.
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Date: October 30, 2000
APPENDIX A
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HADRON, INC.
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
DECEMBER 5, 2000
The undersigned appoints Jon M. Stout and Karen L. Dickey,
or either of them, with full power of substitution, to
attend the Annual Meeting of Shareholders of Hadron, Inc. on
December 5, 2000, and any adjournments thereof, and to vote
all shares which the undersigned would be entitled to vote if
personally present upon the following matters set forth in the
Notice of Annual Meeting and Proxy Statement:
1. ELECTION OF DIRECTORS
[_] FOR the FIVE nominees listed below
(except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to vote for the FIVE nominees
listed below
Jon M. Stout, C.W. Gilluly,
Gerald R. McNichols, John D. Sanders
and Gerald R. Young
INSTRUCTION: To withhold authority for any individual
nominee, write that nominee's name in the space provided
below:
_____________________________________________________________
2. Proposal to amend the Hadron, Inc. 1997 EmployeeStock
Purchase Plan to increase the number of shares reserved
for issuance thereunder.
[_] FOR this proposal
[_] AGAINST this proposal
[_] ABSTAIN
3. Proposal to approve the Hadron, Inc. 2000 Stock Option
Plan.
[_] FOR this proposal
[_] AGAINST this proposal
[_] ABSTAIN
4. In their discretion, upon such other business as may
properly come before the meeting and any adjournments
thereof.
<PAGE>
PLEASE DATE, SIGN AND RETURN
PROXY PROMPTLY
Receipt of Notice of Annual
Meeting and Proxy Statement
is hereby acknowledged
-----------------------------
Shareholder's Signature
-----------------------------
Joint Holder's Signature (If applicable)
Date:------------------------
When properly executed, this proxy will be voted in the
manner directed herein. If no direction is made, this proxy
will be voted FOR proposal 2 and FOR the election of
the nominees of the Board of Directors in the election of
directors and in accordance with the judgment of the person(s)
voting the proxy upon such other matters properly coming
before the meeting and any adjournments thereof. Please sign
exactly as name(s) appear(s) above.
