SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary proxy statement | | Confidential, For Use
of the Commission Only
(as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ELXSI Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions 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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| 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:
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(2) Form, Schedule or Registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
[PRELIMINARY COPIES]
ELXSI CORPORATION
4209 Vineland Road, Suite J-1
Orlando, Florida 32811
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 22, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of ELXSI
Corporation, a Delaware corporation (the "Company"), will be held at the
Radisson Twin Towers Hotel and Convention Center, 5780 Major Boulevard, Orlando,
Florida 32819, on Thursday, May 22, 1997 at 9:00 a.m. (local time), for the
following purposes:
1. To elect a Board of Directors.
2. To approve the ELXSI Corporation 1997 Incentive Stock Option Plan.
3. To adopt amendments to the Company's Bylaws to impose certain
tax-related transfer restrictions on Common Stock and other equity
securities of the Company.
4. To ratify the appointment of Price Waterhouse LLP as the Company's
independent accountants for the current fiscal year.
5. To transact such other and further business as may properly come
before the meeting or any adjournment or adjournments thereof.
Common stockholders of record at the close of business on March 31,
1997, are entitled to notice of and to vote at the meeting. A complete list of
such stockholders is open to the examination of any stockholder for any purpose
germane to the meeting, during ordinary business hours, at the offices of the
Company, located at 4209 Vineland Road, Suite J-1, Orlando, Florida 32811.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 is enclosed herewith.
By Order of the Board of Directors,
Thomas R. Druggish, Secretary
Dated: April ___, 1997
You are urged to fill in, sign, date and mail the enclosed Proxy. If you
attend the meeting and vote in person, the Proxy will not be used. If the Proxy
is mailed in the United States in the enclosed envelope, no postage is required.
The prompt return of your Proxy will save the expense involved in further
communication.
<PAGE>
ELXSI CORPORATION
4209 Vineland Road, Suite J-1
Orlando, Florida 32811
PROXY STATEMENT
for Annual Meeting of Stockholders
to be held on May 22, 1997
April ___, 1997
To the Stockholders:
This Proxy Statement is furnished to you in connection with the
solicitation by the Board of Directors of ELXSI Corporation, a Delaware
corporation (the "Company"), of Proxies in the accompanying form to be used at
the Annual Meeting of Stockholders to be held at the Radisson Twin Towers Hotel
and Convention Center, 5780 Major Boulevard, Orlando, Florida 32819, on
Thursday, May 22, 1997, at 9:00 a.m. (local time) and at any subsequent time
which may be necessary by the adjournment thereof.
If you were a holder of record of Common Stock of the Company (the
"Common Stock") at the close of business on March 31, 1997, you are entitled to
vote at the meeting and your presence is desired. If, however, you cannot be
present in person, a form of Proxy is enclosed which the Board of Directors of
the Company requests that you execute and return as soon as possible. You can,
of course, revoke your Proxy at any time before it is voted if you so desire,
either in person at the meeting or by delivery of a duly executed written
statement to that effect to the Secretary of the Company.
The Company is paying all costs of the solicitation of Proxies,
including the expenses of printing and mailing to its stockholders this Proxy
Statement, the accompanying Notice of Annual Meeting of Stockholders, the form
of Proxy, and the Annual Report on Form 10-K. The Company has engaged
Continental Stock Transfer & Trust Company to assist the Company in the
distribution and solicitation of Proxies and has agreed to pay Continental Stock
Transfer & Trust Company a fee of $3,000 plus expenses for its services. The
Company will also reimburse brokerage houses and other custodians, nominees and
fiduciaries for their expenses, in accordance with the regulations of the
Securities and Exchange Commission, in sending Proxies and proxy materials to
the beneficial owners of the Company's Common Stock. Officers or employees of
the Company may also solicit Proxies in person, or by mail, telegram or
telephone, but such persons will receive no compensation for such work, other
than their normal compensation as such officers or employees.
At the close of business on March 31, 1997, 4,660,866 shares of Common
Stock were outstanding and are entitled to vote at the Annual Meeting. Each
outstanding share of Common Stock is entitled to one vote. This Proxy Statement
and the enclosed Proxy are first being mailed to the stockholders of the Company
on or about April ___, 1997.
PROXIES AND VOTE REQUIRED
The persons named in the accompanying form of Proxy intend to vote
Proxies FOR the election of the nominees for director named herein, except to
the extent authority to vote for any such nominee is withheld. In the event that
any nominee at the time of election shall be unable or unwilling to serve or is
otherwise unavailable for election (which contingency is not now contemplated or
foreseen), and in consequence another individual shall be nominated, the persons
named in the form of Proxy shall have the discretion and authority to vote or to
refrain from voting in accordance with their judgment on such other nominations.
The persons named in the accompanying form of Proxy also intend to vote Proxies
FOR the approval of the ELXSI Corporation 1997 Incentive Stock Option Plan as
described in Proposal No. 2 herein, FOR the adoption of the Bylaw amendments as
described in Proposal 3 herein, and FOR therein ratification of the appointment
of Price Waterhouse LLP as the Company's independent accountants as described in
Proposal No. 4 herein, unless (in each case) contrary voting instructions are
indicated on such Proxies.
<PAGE>
The presence in person or by proxy of a majority of the shares of Common
Stock outstanding and entitled to vote at the meeting is required for a quorum.
If a quorum is present those nominees receiving a plurality of the votes cast
will be elected. Accordingly, shares not voted in the election of directors
(including shares covered by a Proxy as to which authority is withheld to vote
for all nominees) and shares not voted for any particular nominee (including
shares covered by a Proxy as to which authority is withheld to vote for only one
or less than all of the nominees) will not prevent the election of any of the
nominees for director. For all other matters submitted to stockholders at the
meeting, including Proposals 2, 3 and 4, if a quorum is present the affirmative
vote of a majority of the shares voted is required for approval. As a result,
abstention votes have the effect of a vote against such matters.
Shares held by brokers and other stockholder nominees sometimes are
voted on certain matters but not others. This can occur, for example, when a
broker is instructed by the beneficial owner of shares of Common Stock, or
otherwise has the authority, to vote on a particular matter but is not
instructed on one or more others. These are known as "non-voted" shares.
Non-voted shares will be counted for purposes of determining whether there is a
quorum at the meeting, but with respect to the matters as to which they are
"non-voted" they will have no effect upon the outcome of the vote thereon.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
(Item 1 on Proxy Card)
The Board of Directors of the Company currently consists of five
individuals, each of whom has been nominated for election at the meeting.
Directors are to be elected to hold office until the next Annual Meeting of
Stockholders and until their respective successors shall have been elected and
qualified, or until resignation, removal or death as provided in the Bylaws of
the Company. The names of the five nominees for director together with certain
information furnished to the Company by each such individual and the executive
officers of the Company are set forth below.
Common Stock of the
Company Beneficially Owned
as of March 31, 1997(1)
--------------------------------
Director Number of Percent
Name Since Shares of Class
- ---- ------ ------------- --------
Farrokh K. Kavarana.......... 1989 41,600(2) 0.9%
Kevin P. Lynch............... 1989 104,697 2.2%
Alexander M. Milley.......... 1989 1,144,456(3) 23.3%
Robert C. Shaw............... 1989 68,978 1.5%
Denis M. O'Donnell........... 1996 22,400 0.5%
All executive officers and
directors as a group (7 persons) 1,444,893(2)(3) 28.0%
- ---------------
(1) Numbers and percents are calculated in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended ("Rule 13d-3"). Each of the
named persons and group has sole voting and dispositive power with respect
to the shares shown. Includes presently-exercisable stock options granted
by the Company, as follows: Farrokh K. Kavarana: 40,000 shares, Kevin P.
Lynch: 96,500 shares, Alexander M. Milley: 125,000 shares, Robert C. Shaw:
57,500 shares, Denis M. O'Donnell: 7,500 shares, all executive officers and
directors as a group: 377,440 shares.
(2) Excludes an aggregate of 325,940 shares of Common Stock held by Aggel
Enterprises, Ltd. and certain affiliated entities, as to which shares Mr.
Kavarana disclaims beneficial ownership. Mr. Kavarana is affiliated with
the controlling shareholders of Aggel Enterprises, Ltd. and its affiliates.
See "Security Ownership of
2
<PAGE>
Certain Beneficial Owners." Also excludes 3,334 shares of Common Stock
issuable upon exercise of stock options held by Tata International A.G.,
with which Mr. Kavarana is affiliated. Mr. Kavarana disclaims beneficial
ownership of such shares.
(3) Includes 125,000 shares issuable upon exercise of currently exercisable
options granted by the Company to Mr. Milley. Also includes: (i) 112,347
outstanding shares and 118,762 shares of Common Stock issuable upon the
exercise of currently exercisable warrants held by Eliot Kirkland L.L.C.,
of which Mr. Milley is the sole manager, the President and a member; (ii)
173,147 shares held by Cadmus Corporation, of which Mr. Milley is the
Chairman, President and a controlling shareholder; and (iii) 590,200 shares
held by ELX Limited Partnership, of which Mr. Milley is the sole general
partner. Excludes 60,004 shares of Common Stock held by The Alexander M.
Milley Irrevocable Trust I (the "Milley Trust"), a trust for the benefit of
certain members of Mr. Milley's immediate family, and 150,500 shares of
Common Stock issuable upon the exercise of currently exercisable warrants
held by the Milley Trust. Under Rule 13d-3, shares beneficially owned by
the Milley Trust as determined thereunder are not beneficially owned by Mr.
Milley.
Directors and Executive Officers of the Company
Set forth below is information regarding the directors and executive
officers of the Company, some of whom hold positions with the Company's
wholly-owned subsidiary, ELXSI ("ELXSI"), ELXSI's Bickford's Family Restaurants
Division ("Bickford's") and/or ELXSI's Cues Division ("Cues").
Name Age Position
Alexander M. Milley(1)(2) 44 Chairman, President and Chief Executive
Officer of the Company and ELXSI,
President of Cues
Farrokh K. Kavarana(2)(3) 52 Director
Kevin P. Lynch(1)(3) 38 Director, Vice President of the Company
and ELXSI
Denis M. O'Donnell(2)(3) 43 Director
Robert C. Shaw(1) 44 Director, Vice President of the Company
and ELXSI
Thomas R. Druggish 41 Vice President of the Company,
Treasurer and Secretary of the Company
and ELXSI
Daniel E. Bloodwell 46 Vice President of ELXSI, President of
Bickford's
(1) Member of the Executive Committee of the Board.
(2) Member of the Compensation Committee of the Board.
(3) Member of the Audit Committee of the Board.
Alexander M. Milley became Chairman of the Board of Directors and Chief
Executive Officer of the Company on September 25, 1989 and was elected President
of the Company in August 1990. Mr. Milley is the founder, President, sole
director and majority shareholder of Milley Management, Incorporated ("MMI"), a
private investment and management consulting firm. Mr. Milley is also the
President of Cadmus Corporation ("Cadmus"), another private investment and
management consulting firm that is the former owner of Cues and with which ELXSI
has a management agreement. See "Certain Transactions--Management Agreement".
From August 1985 to May 1986, Mr. Milley was Chairman of Neoax, Inc., now an
environmental services company known as EnviroSource, Inc. and then a
diversified custom vehicle and precision metal manufacturing company. Mr. Milley
was Senior Vice
3
<PAGE>
President-Acquisitions from December 1983 until July 1986 of The
Dyson-Kissner-Moran Corporation ("DKM"), a private investment company. Mr.
Milley is also Chairman of the Board of Bell National Corporation ("Bell
National"), a distributor of high quality fabrics used in draperies and
furniture, and Chairman of the Board of Azimuth Corporation ("Azimuth"). See
"Certain Transactions--Azimuth Transactions".
Farrokh K. Kavarana became a director of the Company on September 25,
1989. Since April 1975 he has been a Managing Director of Tata International
A.G., an international holding company for the Tata Group of companies (the
"Tata Group"), which owns the Tata Group's overseas holdings and investments.
Mr. Kavarana is a director of numerous non-U.S. companies, including Tata
Industries Ltd., Tata Sons Ltd. of India and Tata-ELXSI. Mr. Kavarana is
affiliated with the Tata Group, whose overseas affiliates are controlling
shareholders of Aggel Enterprises, Ltd., an investment holding company. See
"Security Ownership of Certain Beneficial Owners".
Kevin P. Lynch became a director of the Company on September 25, 1989
and has served as Vice President of the Company since September 24, 1991 and
Vice President of ELXSI since June 25, 1991. He has served as a Vice President
of MMI since September 1988 and of Cadmus since January 1994. See "Certain
Transactions--Management Agreement". From October 1986 until September 1988, Mr.
Lynch was an executive on the Corporate Development staff at Macmillan, Inc., a
publishing company.
Denis M. O'Donnell became a director of the Company on May 23, 1996. He
has been President of Novavax, Inc., a company engaged in the development of
pharmaceuticals, since 1995. Prior to that he had been Corporate Vice President
of Medical Affairs of IGI Inc., a company engaged in the development of human
and animal pharmaceuticals, since 1991. Mr. O'Donnell has been a director of
Biocybernetics, Inc., a bioengineering research and development firm, since
1992.
Robert C. Shaw became Vice President and a director of the Company on
September 25, 1989 and Executive Vice President on December 19, 1989. He also
served as Treasurer of the Company from September 1989 to January 1990. Mr. Shaw
has been a Vice President of MMI since March 1989, an officer and/or director of
Azimuth and/or certain for subsidiaries thereof since November 1990, and a
director of Cadmus since January 1992. See "Certain Transactions--Azimuth
Transactions" and "--Management Agreement". Prior to March 1989, he was Vice
President of Berkeley Softworks Incorporated ("Berkeley") from September 1987
until March 1989. From January 1987 until September 1987 he was Vice President,
and from July 1985 until January 1987 he was Director of Finance and Operations,
of Ansa Software Incorporated ("Ansa"). Berkeley and Ansa developed and produced
personal computer software. Mr. Shaw has served as a director and President of
Bell National since November 1989.
Thomas R. Druggish became Vice President of the Company on January 2,
1990 and was elected Secretary of the Company on September 11, 1990. He
currently serves as Chief Financial Officer of Bell National and has been
Secretary and Treasurer of MMI since September 1990. He also has served as Vice
President and Secretary of Cadmus since November 1992 and an officer and/or
director of Azimuth Corporation and/or certain subsidiaries thereof since
November 1990. See "Certain Transactions--Management Agreement", and "--Azimuth
Transactions". Mr. Druggish was Assistant Controller at Borland International
from April 1987 to December 1989.
Daniel E. Bloodwell became a Vice President of ELXSI on September 24,
1991. Since July 1, 1991 Mr. Bloodwell has served as President of Bickford's.
From July 1987 to June 1991 Mr. Bloodwell was Vice President of Operations for
Marriott Family Restaurants Inc., which then owned the Bickford's operations.
From July 1985 to June 1987, Mr. Bloodwell was Vice President of Operations of
Sizzler Restaurants, Inc.
Committees; Board and Committee Meetings
The Board of Directors has an Executive Committee, a Compensation
Committee and an Audit Committee, whose members are elected each year by the
entire Board.
The Executive Committee's function is to act in place of the Board
between meetings of the full Board. During the year ended December 31, 1996 the
Executive Committee did not meet. The members of the Committee are Messrs.
Milley, Lynch, and Shaw.
4
<PAGE>
The Compensation Committee's function is to administer the Company's
stock option and other compensation plans and to act upon such other
compensation matters as may be referred to it by the Board. The current members
of the Committee are Messrs. Milley, Kavarana, and O'Donnell. During the year
ended December 31, 1996, the Compensation Committee met one time.
The Audit Committee oversees the Company's internal accounting
procedures and consults with, and reviews the reports of, the Company's
independent accountants. The current members of the Committee are Messrs.
Kavarana, Lynch, and O'Donnell. During the year ended December 31, 1996, the
Audit Committee met one time. At such meeting, the Company's auditors presented
a report to the Audit Committee indicating (among other things) there were no
irregularities involving the Company's accounting.
During the year ended December 31, 1996 the Board of Directors of the
Company met three times. All directors with the exception of Mr. Kavarana
attended all meetings. Mr. Kavarana attended two meetings.
From time to time the Board of Directors is asked to consider and vote
upon matters which may present a conflict of interest for certain members. It is
the Company's practice to not disqualify any Board member from voting with
respect to such matters. In bringing conflict-of-interest (as well as other)
matters before the Board, management generally seeks to secure the unanimous
approval of directors; such unanimous approval has been obtained on virtually
all matters heretofore voted upon by present Board members.
Compensation of Directors
Cash Compensation. Since 1989 the directors of the Company have received
no cash compensation for their services as such, except for reimbursement of
reasonable expenses of attending meetings. There are currently no plans to begin
paying cash compensation to directors.
Other Compensation. During 1996 each director of the Company received as
compensation for his services as such options to purchase 7,500 shares granted
under the Company's 1996 Incentive Stock Option Plan. Each option is exercisable
at a price of $6.50 per share, the market price of the Common Stock on the date
of the grant, and expires on May 23, 2006.
Report of the Compensation Committee
The Compensation Committee believes that offering its executive officers
a compensation package consisting of a balanced combination of fixed,
formula-based, long-term and discretionary components is the best way of
ensuring that (a) executive compensation is appropriately linked to the creation
of shareholder value, and (b) the Company will be able to attract, motivate and
retain executives of outstanding abilities. Fixed compensation is paid through
base salaries, which the Committee believes should be and are maintained at
levels comparable to those generally paid to executives with similar
responsibilities at similarly-sized companies. The other parts of total
compensation are realized through the Company's bonus arrangements, its stock
option plans and its Bickford's Division Phantom Stock Option Plan (the "Phantom
Stock Option Plan"). The Committee also is of the view that its executives'
compensation should be tied both directly and materially to the actual operating
performance. This was reflected in the fact that 1996 executive compensation was
heavily weighted toward incentives whose value is directly related to the
achievement of operating results demonstrably achieved.
Since the acquisition of Cues in October 1992, Mr. Milley has received
salary compensation from the Company for his services as President of Cues.
Under this arrangement Mr. Milley has received a base salary of $120,000 per
year. The Compensation Committee feels that this salary level is justified given
that Mr. Milley's devotion of substantial time and efforts to the Cues
operations has led to a significant, continued improvement in the division's
operations. The Company pays management fees to Cadmus, a company controlled by
Mr. Milley, pursuant to a written agreement approved by the Board of Directors
of the Company. These fees are based on the achievement of certain minimum
levels of operating income, which have been achieved, and the fees will be
discontinued if operating targets cease to be met. (See "Certain
Transactions--Management Agreement" for a discussion of such management
agreement and fees.)
5
<PAGE>
It is the present intention of the Compensation Committee to evaluate
the compensation of Mr. Milley for his services as an officer of the Company on
an annual basis. Mr. Milley has received no increase in cash compensation since
1992. Additional compensation may be awarded to Mr. Milley in the form of stock
options, cash bonuses or other incentives. Any such payments would be at the
discretion of the Board rather than through a formula-based plan.
The 1996 compensation of Daniel E. Bloodwell, President of the
Bickford's Division of ELXSI, consisted primarily of base salary and
compensation related to the Phantom Stock Option Plan. Mr. Bloodwell's 1996
bonus payment was $15,000. This was a discretionary award, based on the
Committee's evaluation of certain performance measures relating to Bickford's,
including its profitability, cost controls, unit growth and other non-financial
goals. The Committee believes that Mr. Bloodwell's compensation should be
heavily weighted toward increasing shareholder value and, accordingly, a
significant portion of his compensation is in the form of Phantom Stock Options,
as described below.
Through his participation in the Phantom Stock Option Plan, which was
put into effect in connection with the Company's 1991 acquisition of Bickford's,
Mr. Bloodwell has the opportunity to earn compensation equal to a specified
maximum percentage of a certain measure of the value of this division (less an
exercise price). The maximum percentage, 4.9%, was earned by Mr. Bloodwell
because Bickford's achieved targeted levels of earnings before interest, taxes
and depreciation during the two-year period from July 1, 1991 through June 30,
1993 and because Mr. Bloodwell remained with the Company through June 30, 1996.
Mr. Bloodwell received 1.0% of the 4.9% maximum amount at the inception of the
Plan in 1991 in consideration of his payment of $40,833 (which is non-refundable
and will be credited against any future exercise price payment), and he earned
an additional 1.0% in each of 1992 and 1993 due to the achievement of the
targeted results for applicable periods. The remaining 1.9% was earned by Mr.
Bloodwell upon his remaining with the Company through June 30, 1996. The
percentage earned by Mr. Bloodwell will be multiplied by the fair market value
of Bickford's assets on the measure date less certain liabilities of or related
to that division. The result of this calculation, less an exercise price, will
represent the payment to be received by Mr. Bloodwell on or after July 1, 2001.
During and after the measurement period, Mr. Bloodwell will benefit from
increases in the value of the Bickford's division, as this is the fundamental
component used to determine the value of Phantom Stock Options.
THE COMPENSATION COMMITTEE
Alexander M. Milley
Farrokh K. Kavarana
Denis M. O'Donnell
Executive Compensation
The following table summarizes the total compensation of the executive
officers of the Company for the year ended December 31, 1996.
6
<PAGE>
Summary Compensation Table
--------------------------
Long-Term
Annual Compensation Compensation
--------------------------- ----------------------
No. of
Shares of
Fiscal Common
Year Stock All Other
Name and Ended Underlying Compen-
Principal Position Dec. 31 Salary Bonus Options sation
- ------------------ ------- -------- ------- ---------- ---------
Alexander M. Milley 1996 $120,000 - 25,000 -
President & Chief 1995 120,000 - 22,500 -
Executive Officer 1994 120,000 - 25,000 -
Daniel E. Bloodwell 1996 $120,000 $15,000 2,100 $ 193,885(1)
Vice President of ELXSI, 1995 115,000 15,000 2,100 211,511(1)
President of Bickford's 1994 115,000 15,000 2,080 105,755(1)
Division
- --------------
(1) Represents an estimate by the Company of the increase during the
applicable year in the value of the Phantom Stock Options held at the
end of such year. See the following "Phantom Stock Option Plan" section.
Phantom Stock Option Plan
The following table sets forth information with respect to the Phantom
Stock Option Plan (the Company's only long-term incentive plan) and the
executive officers named in the table above.
Long-Term Incentive Plan Awards in Last Fiscal Year
---------------------------------------------------
Estimated Future Payout Under
Number of Phantom Stock Option Plan
Phantom Stock ------------------------------------
Option Rights Payout
Name ("PSOR's") Date Threshold Target Maximum
---- ---------- ---- --------- ------ -------
Alexander M.
Milley - - - - -
Daniel E.
Bloodwell 0.9 7/1/2001 4.9 4.9 4.9
The Phantom Stock Option Plan was implemented by the Company in 1991.
Its only participants are Mr. Bloodwell and three other Bickford's division
employees. At the inception of the Plan, ELXSI granted to these
7
<PAGE>
individuals PSOR's (each representing one percentage point) for an initial
investment ranging from $25,000 to $40,833 (in the case of Mr. Bloodwell). Each
holder of a Phantom Stock Option is entitled to receive, upon exercise, a cash
payment equal to (a) the product of (i) the sum of the appraised value of
Bickford's assets at the time of exercise less (x) all then existing liabilities
of the Company or ELXSI related to Bickford's and less any then existing debt of
the Company including debt incurred to acquire Bickford's, debt incurred for
Bickford's-related acquisitions, or debt used for working capital needs, and
(ii) a percentage equal to the PSOR's then held by the holder, minus (b) an
exercise price of approximately $74,000 per PSOR less such holder's initial
investment. No Phantom Stock Option may be exercised until the earliest to occur
of (1) July 1, 2001, (2) the termination of the holder's employment, or (3) the
sale (if any) of the Bickford's division. All increases in value of the Phantom
Stock Options are treated as compensation expense by the Company in the year in
which the increase occurs.
At December 31, 1996, Mr. Bloodwell held 4.9 PSOR's. He earned his final
0.9 PSOR's on June 30, 1996.
Common Stock Options
The following table sets forth the number of shares of Common Stock
subject to options granted by the Company in 1996 to each executive officer
named in the table above, and certain other relevant information.
Option Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
No. of Potential Realizable
Shares of Percent of Value at Assumed
Common Total Annual Rates of Stock
Stock Options Price Appreciation for
Underlying Granted to Option Term
Options Employees Exercise Expiration --------------------------
Name Granted in 1995 Price Date 5% 10%
------- ------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Alexander M. Milley 25,000 (1) 19.7% $6.50(2) 5/23/06 $102,195 $258,983
Daniel E. Bloodwell 2,100 (1) 1.7% $6.50(2) 5/23/06 $8,584 $21,755
<FN>
- ---------------
(1) All options were granted on May 23, 1996. Mr. Milley's are all
immediately exercisable; Mr. Bloodwell's become exercisable as to 25% on
May 23 of each of 1997, 1998, 1999 and 2000.
(2) The market value of the Company's Common Stock on the date of grant.
</FN>
</TABLE>
The following table presents information as to the value of unexercised
in-the-money options granted under the Company's 1996 Incentive Stock Option
Plan and held at year-end by the executive officers named in the above table.
8
<PAGE>
Aggregated Option Exercises in Last Fiscal
------------------------------------------
Year and Fiscal Year-End Option Values
--------------------------------------
<TABLE>
<CAPTION>
Value of Unexercised In-
Number of Unexercised the-Money Options at
Shares Options at Fiscal Year-End Fiscal Year-End (1)
Acquired Value -------------------------------- --------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alexander M. Milley - - 125,000 - $121,563 $ -
Daniel E. Bloodwell - - 2,840 5,140 2,963 3,082
<FN>
- ----------------
(1) Assumes a fair market value per share of Common Stock of $6.625, the
December 31, 1996 closing price.
</FN>
</TABLE>
Security Ownership of Certain Beneficial Owners
As of March 31, 1997, the Company had outstanding 4,660,866 shares of
Common Stock. The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of that date by all those known by
the Company to be beneficial owners of more than five percent (5%) of the Common
Stock . Ownership information is based upon information furnished by the
respective beneficial owners.
Common Stock of the
Company Beneficially Owned
as of March 31, 1997(1)
-----------------------------
Number of Percent
Name Shares of Class
---- ------ --------
Alexander M. Milley
4209 Vineland Road, Suite J-1
Orlando, FL 32811 1,144,456(2)(3) 23.3%
ELX Limited Partnership
4209 Vineland Road, Suite J-1
Orlando, FL 32811 590,200(3) 12.7%
Grandview Partners, L.P./Svenvest
Partners, L.P.
One Financial Center, Suite 1600
Boston, MA 02111 454,500 9.8%
Peter R. Kellogg(4)
Spear, Leeds & Kellogg
120 Broadway
New York, NY 10271 430,500 9.2%
Aggel Enterprises, Ltd.
11 Duddell Street
12th Floor
Hong Kong 325,940(5) 7.0%
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Fidelity Management & Research
Company/FMR Corp.(6)
82 Devonshire Street
Boston, MA 02109 286,000 6.1%
------- ----
Total owners of more than 5%
of Common Stock 2,641,396(2)(3)(5) 53.9%
- ---------------
(1) To the best of the Company's knowledge and except as otherwise
indicated, the entities named in the table have sole voting and
dispositive power with respect to all shares of the Company's Common
Stock shown as beneficially owned by them. Numbers and percents are
calculated in accordance with Rule 13d-3.
(2) Includes 125,000 shares issuable upon exercise of currently exercisable
options granted by the Company to Mr. Milley. Also includes: (i) 112,347
outstanding shares and 118,762 shares of Common Stock issuable upon the
exercise of currently exercisable warrants held by Eliot Kirkland
L.L.C., of which Mr. Milley is the sole manager, the President and a
member; (ii) 173,147 shares held by Cadmus Corporation, of which Mr.
Milley is the Chairman, President and a controlling shareholder; and
(iii) 590,200 shares held by ELX Limited Partnership, of which Mr.
Milley is the sole general partner. Excludes 60,004 shares of Common
Stock held by The Alexander M. Milley Irrevocable Trust I (the "Milley
Trust"), a trust for the benefit of certain members of Mr. Milley's
immediate family, and 150,500 shares of Common Stock issuable upon the
exercise of currently exercisable warrants held by the Milley Trust.
Under Rule 13d-3, shares beneficially owned by the Milley Trust as
determined thereunder are not beneficially owned by Mr. Milley.
(3) Shares shown above as being beneficially owned by ELX Limited
Partnership are also included herein under the beneficial ownership of
Alexander M. Milley, shown separately. These shares are counted only
once in the "Total owners of more than 5% of Common Stock" line.
(4) Shares reported herein as held by Peter R. Kellogg are shares owned by:
Cynthia Kellogg, Mr. Kellogg's wife; I.A.T. Reinsurance Syndicate Ltd.
("IAT"), of which Mr. Kellogg is the sole holder of voting stock; the
Peter R. Kellogg & Cynthia Kellogg Foundation (the "Kellogg
Foundation"), of which Mr. Kellogg is a trustee; and NOM Trust U/W/O
James C. Kellogg III (the "Kellogg Trust"), of which Mr. Kellogg is a
trustee. Mr. Kellogg has sole voting and dispositive power with respect
to shares owned by IAT and has shared voting and dispositive power with
respect to shares owned by Mrs. Kellogg, the Kellogg Foundation and the
Kellogg Trust.
(5) Includes 69,784 shares owned of record or beneficially by other entities
under common control with Aggel Enterprises, Ltd.
(6) Shares reported herein as held by Fidelity Management & Research Company
("FMRC")/FMR Corp. are owned by the Fidelity Low-Priced Stock Fund (the
"Fund"), of which FMRC, a wholly-owned subsidiary of FMR Corp., is
investment advisor. FMRC/FMR Corp. have sole dispositive power with
respect to the shares reported; the Board of Trustees of the Fund has
sole voting power with respect to such shares.
Certain Transactions
Management Agreement
In connection with its 1989 restructuring, the Company entered into a
Management Agreement, dated September 25, 1989 (as amended, the "Management
Agreement"), with Winchester National, Inc. ("Winchester"), a private investment
and management consulting firm owned by Mr. Milley. In July 1991 the Company
transferred its rights and duties under the Management Agreement to ELXSI, its
wholly-owned subsidiary, and Winchester transferred its rights and duties under
the Management Agreement to MMI, of which Mr. Milley is the President and the
sole director and of which Mr. Milley and The Alexander M. Milley Irrevocable
Trust I (the "Milley Trust"), a trust for the benefit of certain members of Mr.
Milley's immediate family, are the only stockholders. The Management Agreement
initially was scheduled to expire in on September 30 1992; in that year MMI and
the
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Company agreed to an extension of its term through September 30, 1995 and,
thereafter, until terminated by either party with the approval of a majority of
its Board of Directors on not less than 90 days prior written notice to the
other party. On January 1, 1994, MMI assigned its rights under the Management
Agreement to Cadmus.
The Management Agreement provides for Cadmus to receive, in addition to
reimbursement for reasonable expenses, compensation for management services
rendered of $500,000 per year that commenced upon the Company's having first
achieved operating income (as defined) of $1,250,000 for a fiscal quarter. These
fees may be discontinued following any fiscal year in which such operating
income is less than $4,000,000, but will be reinstated following the first
fiscal quarter thereafter in which the Company again attains quarterly operating
income of at least $1,250,000. Under these terms, the Management Agreement
counterparty (Winchester, MMI or Cadmus) has been receiving Management Agreement
fees continuously since October 1991.
The terms of the Management Agreement provide for the Company to be
provided with advice and services with respect to the Company's business and
financial management and long-range planning, including: (i) furnishing to the
Company the services of certain executive officers and other employees of Cadmus
(see below); (ii) advising and assisting the Company in connection with
financing arrangements; (iii) assisting the Company's management in preparing
and submitting to the Board of Directors of the Company analyses of the business
and operations of the Company; (iv) assisting the Company's management in the
preparation of financial and operating records; and (v) assisting the Company in
the retention of other persons, firms and corporations to render professional
and technical services to the Company. Specific examples of services
historically rendered to the Company under the Management Agreement include: (a)
ongoing evaluation of Company and division management; (b) preparing and
reviewing division operating budgets and plans; (c) evaluating new restaurant
locations; (d) identifying, and assisting in the divestiture of,
under-performing assets; (e) evaluating financing options and negotiating with
lenders; (f) assisting in the compliance with securities laws and other public
reporting requirements; (g) communicating with stockholders; (h) negotiating and
arranging insurance programs; (i) monitoring tax compliance; (j) evaluating
capital spending; (k) preparing market research; (l) developing and improving
management reporting systems; and (m) identifying and evaluating acquisition
candidates. In addition, Cadmus provides the Company with general administrative
services, at an annual charge of approximately $42,000.
It is through the Management Agreement that the Company is provided the
non-director services of: Mr. Milley (except in his capacity as President of
Cues, for which he is directly compensated by ELXSI (see "Executive
Compensation--Summary Compensation Table")), the Company's Chairman of the
Board, President and Chief Executive Officer; Thomas R. Druggish, the Company's
Vice President, Treasurer and Secretary; and Kevin P. Lynch, a Vice President of
the Company and a director. See "Directors and Executive Officers of the
Company".
Azimuth Transactions
On December 30, 1996, ELXSI entered into and consummated the
transactions contemplated by a Recapitalization Agreement, dated as of December
30, 1996 (the "Azimuth Recapitalization Agreement"), among Azimuth Corporation
("Azimuth"), three subsidiaries thereof (the "Azimuth Subsidiaries"), ELXSI and
the Bank of America Illinois ("BAI"). Azimuth is a holding company of the
Azimuth Subsidiaries, two of which produce trade show exhibits and one of which
is a distributor of fuses and aerospace fasteners. Each of Messrs. Milley, Shaw
and Druggish is an officer and/or director of Azimuth and/or one or more of the
Azimuth Subsidiaries; Messrs. Shaw and Druggish are stockholders of Azimuth; and
Mr. Milley is a significant stockholder of Azimuth. BAI is ELXSI's senior bank
lender.
Under the Azimuth Recapitalization Agreement (among other things):
(1)(A) BAI sold to ELXSI all of BAI's rights, title and interest in, to and
under the $6,650,000 outstanding principal amount of the revolving credit loans
previously made by BAI to the Azimuth Subsidiaries (the "Azimuth Subsidiary
Loans"), and all related collateral security interests, loan documentation,
claims and proceeds, and, in consideration thereof: (B) ELXSI assumed the
obligations of BAI under such loan documentation, and (C) ELXSI paid to BAI an
amount equal to (i) $5,850,000 plus (ii) the accrued but unpaid interest on the
Azimuth Subsidiary Loans to such time; (2) the terms and conditions of the
Azimuth Subsidiary Loans were amended as follows: (A) the interest rate
applicable to the
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<PAGE>
Azimuth Subsidiary Loans was increased to 15% per annum, (B) the maturity date
of the Azimuth Subsidiary Loans was extended from December 31, 1996 to June 30,
1998, (C) the Azimuth Subsidiaries were granted the collective right and option
to purchase from ELXSI for cash all (but not less than all) of the Azimuth
Subsidiary Loans, or otherwise pay-off in full the Azimuth Subsidiary Loans, at
a price (or for a payment) equal to (i) the combined principal amount thereof
outstanding on the date of purchase plus (ii) all accrued but unpaid interest
thereon to the date of purchase less (iii) if purchased during any of the
following calendar months, the following amounts: (a) January 1997: $575,000;
(b) February 1997: $475,000; (c) March 1997: $375,000; (d) April 1997: $275,000;
(e) May 1997: $175,000, and (f) and June 1997: $75,000, and plus (iv) if not
previously paid, the $225,000 closing fee to ELXSI hereinafter described, (D)
the maximum amount of Azimuth Subsidiary Loans that may be outstanding at any
one time was increased from its then-current $6,650,000 to $9,650,000, (E) the
"lock-box" provisions of the relevant loan documentation were waived, and (F)
the capital expenditure and restricted payments covenants of the relevant loan
documentation were modified so as to put Azimuth and the Azimuth Subsidiaries in
compliance therewith; and (3) Azimuth and the Azimuth Subsidiaries agreed to pay
ELXSI a $225,000 closing fee on the demand of ELXSI (or such earlier date that
the Azimuth Subsidiary Loans are repurchased or paid-off in full).
As a result of the Azimuth Recapitalization Agreement transactions
hereinabove described, ELXSI has become the senior revolving credit lender to
the Azimuth Subsidiaries. Funding for ELXSI's purchase of the Azimuth Subsidiary
Loans, as well as for any further revolving credit loans made by ELXSI to the
Azimuth Subsidiaries, was provided by BAI, under an amendment and restatement of
their existing credit agreement.
The purpose of the above transactions was to provide an up-to-18-month
revolving credit line to the Azimuth Subsidiaries on terms that are intended to
earn the Company a return on its investment not generally available in the
marketplace. The Company's return on investment is in the form of net interest
(i.e., the difference between the Azimuth Subsidiaries' 15% interest rate and
ELXSI's cost of borrowing) and the discount and closing fee earned by ELXSI as
above described.
BACC Transactions; ELX Loans
On December 30, 1996, the Company entered into and consummated the
transactions contemplated by a Warrant Purchase and Senior Subordinated Note
Termination Agreement, dated as of December 30, 1996 (the "BACC Agreement"),
between BankAmerica Capital Corporation ("BACC") and the Company. BACC is a
subsidiary of BAI, ELXSI's senior bank lender, and was formerly named
Continental Illinois Equity Corporation. Under the BACC Agreement (among other
things): (1) the Company purchased from BACC, its Series B Warrant (the "Series
B Warrant") to Purchase 604,656 shares of Series A Non-Voting Convertible
Preferred Stock of the Company (the "Series A Shares") for $477,678.24, or $.79
per warrant; and (2) the Company prepaid in full its 15% and 14.5% senior
subordinated notes issued to BACC in 1989 and 1991, at par plus accrued but
unpaid interest, or $757,190.83 in the aggregate. The exercise price of the
Series B Warrant was $1.26 per Series A Share, and each Series A Share (when and
if issued) was convertible into 4/10 of a shares of Common Stock of the Company.
In connection with the foregoing transactions, ELX Limited Partnership
("ELX"), of which Mr. Milley is the sole general partner and Messrs. Lynch, Shaw
and Druggish are limited partners, entered into and consummated the transactions
contemplated by an agreement whereby (among other things): (1) ELX exercised an
existing option to purchase 110,200 shares of Common Stock held by BACC for
$3.125 per share, or $344,375 in the aggregate; and (2) ELX purchase from BACC
an additional 110,200 shares of Common Stock for $5.125 per share, or $564,775
in the aggregate. By these transactions and those described in the foregoing
paragraph, BAI/BACC divested themselves of all of their equity and debt security
interests in the Company, consisting of shares of Common Stock, Series B
Warrants and senior subordinated notes (but excluding BAI's revolving credit
loans to ELXSI).
The $909,150 utilized by ELX to effect the transactions described in the
foregoing paragraph was loaned to ELX by the Company. This loan matures on the
third anniversary of its origination (i.e., December 30, 1999), with no
principal or interest payments being required to be earlier made, and bears
interest at a rate equal to the Company's cost of funds (under ELXSI's BAI
credit agreement) plus .5%. In connection with an exercise by ELX of an option
to purchase 369,800 shares of Common Stock for $3.125 per share from The Airlie
Group, L.P. in December 1994, the Company made a $1,155,625 loan to ELX, on
identical terms.
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<PAGE>
Funding for the Company's purchase from BACC of the Series B Warrants,
the Company's prepayment of 15% and 14.5% senior subordinated note held by BACC,
and the Company's $909,150 loan to ELX was provided by BAI, under an amendment
and restatement of its existing credit agreement with ELXSI.
Warrants Extensions
The Company has outstanding 200,500 Series A Warrants to Purchase Common
Stock at $3.125 per share ("Series A Warrants") and 68,762 Series C Warrants to
Purchase Common Stock at $4.36 per share (the "Series C Warrants"). Fifty
Thousand (50,000) Series A Warrants and all of the Series C Warrants are held by
Eliot Kirkland L.L.C., of which Mr. Milley is the sole manager, the President
and a member. The remaining 150,500 Series A Warrants are held by the Milley
Trust. See "--Management Agreement" above. By their original terms, the Series A
Warrants were scheduled to expire on September 30, 1996, and the Series C
Warrants were scheduled to expire on January 31, 1997. In 1996 the Company and
the holders of the Series A Warrants and Series C Warrants agreed to, and in
March 1997 the Company's Board of Directors approved, a two-year extension of
the expiration dates of the Series A Warrants and Series C Warrants, in
consideration of which the holders thereof agreed to an increase in their
exercise prices to $3.75 and $5.23, respectively.
Compensation Committee Interlocks and Insider Participation
Throughout 1996 the Company's Compensation Committee was comprised of
Messrs. Milley, Kavarana and O'Donnell. Throughout 1996, Mr. Milley also served
as Chairman, President and Chief Executive Officer of the Company and ELXSI and
he served as President of the Cues division. Throughout 1996 Messrs. Druggish,
Milley and Shaw all served as directors and/or executive officers of Azimuth, a
producer of trade show exhibits and a distributor of fuses and aerospace
fasteners. Messrs. Druggish, Milley and Shaw were directors and/or executive
officers of Bell National, a distributor of high quality fabrics used in
draperies and furniture, throughout 1996. Messrs. Milley and Shaw were directors
and executive officers of Cadmus throughout 1996.
Section 16(a) Beneficial Ownership Reporting Compliance
In January 1997, ELX filed with the Securities and Exchange Commission a
Form 3 "Initial Statement of Beneficial Ownership of Securities" (the "ELX Form
3"), as required under rules promulgated under Section 16(a) of the Securities
Exchange Act of 1934, as amended ("Section 16(a)"), in order to report that it
is a "beneficial owner" of in excess of 10% of the outstanding Common Stock of
the Company. At that time, ELX had recently consummated the exercise of options
and purchase of shares transactions described in "Certain Transactions--BACC
Transactions; ELX Loans" above. Prior thereto, ELX had been the "beneficial
owner" of 480,000 shares of Common Stock. Since January 1995, when the Company
completed a privately-negotiated repurchase of a substantial block of
outstanding Common Stock, this was in excess of 10% of the outstanding Common
Stock. ELX's Common Stock ownership had been continually and timely reported in
forms filed under Section 16(a) by Mr. Milley; however, the failure by ELX to
separately report under Section 16(a) its Common Stock ownership since that time
may be deemed to be a failure to file a required form under Section 16(a). The
ELX Form 3 reported all shares of Common Stock held by ELX; however, inasmuch as
such form does not contemplate transaction reporting, it did not separately
disclose the exercise of options and purchase of shares transactions described
in "Certain Transactions--BACC Transactions; ELX Loans" above.
Stock Performance Graph
Presented below is a stock performance graph which shows a comparison of
the performance of the Company's stock over the five year period from December
31, 1991 through December 31, 1996 versus the NASDAQ Stock Market Index and the
NASDAQ Non-Financial Stocks Index. The NASDAQ Non-Financial Stocks Index was
chosen as an appropriate industry index, as the Company has undergone
significant changes in its "industry" over the time period covered by the graph.
In the five-year period covered by the graph, the Company has been a corporation
solely in the restaurant industry, and a corporation in both the restaurant
industry and the sewer inspection industry. Thus, a broad definition of industry
such as "Non-Financial" was deemed appropriate by the Company.
The closing price of the Common Stock on December 31, 1996 was $6.625.
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EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CUMULATIVE RETURN - 5 YEAR (12/31/91 = 100)
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
----------------------------------------------------------
NASDAQ Index 100 116 134 131 185 227
ELXSI Corporation 100 128 208 134 157 170
NASDAQ Non-Financial 100 109 126 121 169 206
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
NASDAQ Index 100 116 134 131 185 227
ELXSI Corporation 100 128 208 134 157 170
NASDAQ Non-Financial 100 109 126 121 169 206
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PROPOSAL NO. 2 -- APPROVAL OF THE
ELXSI CORPORATION 1997 INCENTIVE STOCK OPTION PLAN
(Item 2 on the Proxy Card)
The Board of Directors adopted the ELXSI Corporation 1997 Incentive
Stock Option Plan (the "1997 Option Plan") on March 18, 1997. The purpose and
terms of the 1997 Option Plan, which is reprinted in full in Annex A hereto, are
described generally below, but that description is qualified in its entirety by
reference to such Annex A hereto.
The 1997 Option Plan, which if approved by the stockholders of the
Company at the Annual Meeting of Stockholders will become effective on the date
thereof, provides for the grant to selected directors, officers and executive,
managerial and administrative employees of the Company or any of its
subsidiaries ("Eligible Persons") of either incentive stock options (within the
meaning of ss.422 of the Internal Revenue Code (the "Code")) or nonqualified
options (intended not to qualify as incentive stock options) to purchase Common
Stock of the Company. However, only employees within the meaning of Code
ss.3401(c) are entitled to receive incentive stock options under the 1997 Option
Plan. The 1997 Option Plan is to be administered by a committee appointed by the
Board of Directors consisting of at least two directors of the Company (the
"Committee"). In the absence of such appointment the Compensation Committee of
the Board of Directors will serve as the Committee; it is currently intended
that the Compensation Committee will serve that function.
As of the date of this Proxy Statement, there are approximately 28
Eligible Persons, two of whom are non- executive directors, three of whom are
executive directors and two of whom are non-director executive officers of the
Company or ELXSI. Because the number of shares that may be made subject to
options under the 1997 Option Plan ("Options"), as well as the option price per
share of Common Stock, depend on contingent and variable factors, it is not
possible to estimate or otherwise determine the Options likely to be granted
pursuant to the 1997 Option Plan. The market value of the Common Stock as of
March 31, 1997 was $6.75 per share.
The maximum number of shares of Common Stock that may be made subject to
Options is 130,000 shares. Each Eligible Person who is selected by the Committee
will be offered an Option to purchase a specified maximum number of shares of
Common Stock of the Company at a specified price. The exercise price per share
of an incentive stock Option may not be less than the fair market value per
share of Common Stock as of the date of grant, and the exercise price per share
of a nonqualified Option may not be less that 75% of such fair market value; in
either case, however, the per share exercise price may not be less than the per
share book value of the Common Stock. An Eligible Person to whom an Option is
granted must execute an option agreement evidencing that Option in the form
prescribed by the Committee no later than 30 days from the date the Option is
granted or, if later, 10 days after the Eligible Person receives an option
agreement evidencing the Option. All Options will be nontransferable except by
will or the laws of descent and distribution.
Except in the event of a nonqualified stock Option holder's death or
disability (as described below), no Option may be exercised more than 10 years
after its date of grant. Although not required by the terms of the 1997 Option
Plan, an Option may contain terms making it exercisable in increments over a
specified interval of time.
An optionee may exercise an Option on any date that is more than six
months after the date of grant to the extent the Option is exercisable on that
date (but for not fewer than 25 shares, or the total number of shares
exercisable, if less). The option price payable on exercise of an Option may be
paid in cash, in shares or other securities of the Company, partly in each, or
by a broker-assisted "cashless" exercise involving an immediate sale of a
sufficient number of the shares being acquired to pay the Option exercise price.
An outstanding Option that is wholly or partially unexercisable at a
given time shall become immediately exercisable in full upon a change in control
of the Company. A change in control is defined generally as (i) the sale of all
or substantially all of the Company's assets, (ii) an election of new directors
if a majority of the directors immediately thereafter consists of persons who
were not nominated by management to stand for election, (iii) the sale in a
single transaction of at least 50% of the outstanding Common Stock, consummation
of a tender offer for more than 50% of the outstanding Common Stock, or the
consummation of a merger or consolidation of the Company, if immediately after
any such event a majority of directors consists of persons who were not
directors immediately prior to the event. However, in the event of a merger or
consolidation in which the Company does not
15
<PAGE>
survive, the Committee may negate the accelerated exercisability of Options, but
only if the agreement of merger or consolidation requires that each optionee on
that date receives the same merger consideration as he or she would have
received as a stockholder of the Company had the exercisability of the Option
been accelerated and had the optionee, immediately prior to the merger or
consolidation, exercised the Option for the full number of shares subject
thereto, paid the option price in full, and satisfied all other conditions for
the exercise of the Option.
The 1997 Option Plan provides for adjustment in the maximum number of
shares of Common Stock that may be granted thereunder and in the number of
shares of Common Stock subject to outstanding Options in the event of any stock
dividend, stock split, stock combination, merger, consolidation, reorganization,
recapitalization or other change in the capital structure of the Company
affecting the Common Stock. The Board of Directors may amend, suspend or
terminate the 1997 Option Plan at any time, except that no such change in the
plan can adversely affect any Options outstanding on the date of such change
without the optionee's consent. Furthermore, any such change that requires
stockholder approval to comply with the Code, applicable state law or National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or
exchange listing requirements will not be effective if stockholder approval is
not obtained as required. Unless sooner terminated, the 1997 Option Plan will
terminate on March 18, 2007.
For federal income tax purposes, the grant to an optionee of a
nonqualified stock option will not constitute a taxable event to the optionee or
to the Company. Upon exercise of a nonqualified stock option (or, in certain
cases, a later tax recognition date), the optionee will recognize compensation
income taxable as ordinary income, measured by the excess of the fair market
value of the Common Stock purchased on the exercise date (or later tax
recognition date) over the amount paid by the optionee for such Common Stock,
and will be subject to tax withholding. The Company may claim a deduction for
the amount of such compensation. The optionee will have a tax basis in the
Common Stock purchased equal to the amount paid plus the amount of ordinary
income recognized upon exercise of the nonqualified stock option. Upon the
subsequent sale of the Common Stock received upon exercise of the nonqualified
Option, an optionee will recognize capital gain or loss equal to the difference
between the amount realized on such sale and his or her tax basis in the Common
Stock, which may be long-term capital gain or loss if the optionee holds the
Common Stock for more than one year from the exercise date.
For federal income tax purposes, neither the grant nor the exercise of
an incentive stock Option will constitute a taxable event to the optionee or to
the Company, assuming the Option qualifies as an incentive stock Option under
Code ss.422. If an optionee does not dispose of the Common Stock acquired upon
exercise of an incentive stock option during the statutory holding period, any
gain or loss upon subsequent sale of the Common Stock will be long-term capital
gain or loss, assuming the shares represent a capital asset in the optionee's
hands. The statutory holding period is the later of two years from the date the
incentive stock Option is granted or one year from the date the Common Stock is
transferred to the optionee pursuant to the exercise of the Option. If the
statutory holding period requirements are satisfied, the Company may not claim
any federal income tax deduction upon either the exercise of the incentive stock
Option or the subsequent sale of the Common Stock received upon exercise
thereof. If the statutory holding period requirement is not satisfied, the
optionee will recognize compensation income taxable as ordinary income on the
date the Common Stock is sold (or later tax recognition date) in an amount equal
to the lesser of (i) the fair market value of the Common Stock on that date less
the amount paid by the optionee for such Common Stock, or (ii) the amount
realized on the disposition of the Common Stock less the amount paid by the
optionee for such Common Stock; the Company may then claim a deduction for the
amount of such compensation income.
The federal income tax consequences summarized hereinabove are based
upon current law and are subject to change.
The 1997 Option Plan is being submitted to the stockholders of the
Company for approval in order to comply with certain NASDAQ Rules applicable to
the Company. In the event that the 1997 Plan is not approved by stockholders, it
will not be effective; however, the Board of Directors may consider readoption
of the 1997 Option Plan or another similar plan.
The Board of Directors recommends that stockholders vote FOR the
approval of the 1997 Option Plan.
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PROPOSAL NO. 3 -- BYLAW AMENDMENTS IMPOSING
CERTAIN TAX-RELATED TRANSFER RESTRICTIONS
ON COMMON STOCK AND OTHER EQUITY SECURITIES
(Item 3 on Proxy Card)
General
The Board of Directors of the Company, by unanimous vote, has approved,
and recommends that the stockholders of the Company approve, proposed amendments
to the Company's Bylaws (the "Proposed Amendments") that would impose certain
restrictions (the "Transfer Restrictions") on the transferability of shares of
Common Stock, as well as certain other stock and warrants, options and other
rights to purchase stock of the Company (hereinafter, "other equity
securities"). The Proposed Amendments are reprinted in full in Annex B hereto.
It is currently possible that certain transfers of Common Stock could
result in the imposition of limitations on the ability of the Company and its
ELXSI subsidiary to utilize the net operating loss ("NOL") and other credit or
loss carryforwards currently available, for federal income tax purposes, to
them. The Board of Directors believes that it is in the best interest of the
Company and its stockholders to attempt to prevent the imposition of such
limitations and that the Transfer Restrictions will provide significant
protection from the imposition of such limitations by including in the Company's
Bylaws provisions restricting the transfer of Common Stock and other equity
securities.
Stockholders should note that the Transfer Restrictions do not apply to
issuances of shares of capital stock by the Company. As a result, the Transfer
Restrictions do not prevent the acquisition of shares upon exercise of either
currently outstanding employee stock options (or employee stock options that may
be granted in the future under the Company's stock option plans) or warrants.
Such acquisitions have been excluded from the operation of the Transfer
Restrictions because the Board of Directors has determined that it is highly
unlikely that the issuance of shares of Common Stock of the Company under such
circumstances would adversely affect its NOLs or other tax attributes. In
addition, since the Company's Board of Directors will be able to consider the
effect on the Company's NOLs and other tax attributes of future issuances of
shares of capital stock (and options, warrants and other rights to purchase or
subscribe for shares of capital stock) of the Company at the time of the
issuance (whether as a result of transactions with third parties, such as an
acquisition for stock (and/or rights to purchase or subscribe for stock), or the
issuance of stock (and/or rights to purchase or subscribe for stock) in a
private placement or public offering, or as compensation to employees, officers
or directors or otherwise) in advance of agreeing to issue such shares (and/or
rights), future issuances of stock (and/or rights to purchase stock) by the
Company also have been excluded from the Transfer Restrictions. Consequently,
persons or entities who are able to acquire Common Stock or other equity
securities directly from the Company, including employees, officers and
directors of the Company and their affiliates, may do so without application of
the Transfer Restrictions, irrespective of the number of shares (or other units)
being acquired. As a result, such persons or entities may be seen to receive an
advantage over other persons or entities who are not so able to acquire Common
Stock or other equity securities directly from the Company and, therefore, are
restricted by the terms of the Transfer Restrictions; however, as in the case of
direct acquisitions of Common Stock or other equity securities from the Company,
where Board approval is necessary to effect such acquisition, an acquisition of
Common Stock or other equity securities from other than the Company, even if
otherwise restricted by the Transfer Restrictions, will be permitted under the
Transfer Restrictions if the approval of the Company's Board is obtained.
The Company has been advised by its counsel that, absent a court
determination: (i) there can be no assurance that the Transfer Restrictions will
be enforceable against all of the stockholders of the Company, and (ii) the
Transfer Restrictions may not be enforceable against holders of Common Stock
which are voted against, or abstain from voting on, the Transfer Restrictions.
However, the Company believes that the Transfer Restrictions are in the best
interests of the Company and its stockholders and are reasonable; the Company
therefore intends to act vigorously to enforce the Transfer Restrictions against
all current and future holders of Common Stock and other equity securities
regardless of how (or whether) they are voted on the Transfer Restrictions. The
Company believes that each stockholder who votes in favor of the Transfer
Restrictions or who surrenders his share certificates in exchange for a new
certificate bearing the legend reflecting the Transfer Restrictions will in
effect have consented to such Transfer Restrictions and therefore will be bound
thereby. In such circumstances, the Company intends to assert that any such
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stockholder would be estopped from challenging the Transfer Restrictions. All
stockholders should carefully consider the foregoing in determining whether and
how to vote with respect to the Transfer Restrictions, as well as whether to
surrender Common Stock certificates. The Company does not believe that the
adoption of the Transfer Restrictions will adversely affect the continued
trading of Common Stock in The NASDAQ Stock Market.
Reasons for Adoption of the Proposed Amendments
The Transfer Restrictions are designed to restrict transfers of Common
Stock and other equity securities that could result in the imposition of
limitations on the use by the Company and ELXSI, for federal income tax
purposes, of the NOLs and other carryforwards currently available to the Company
and ELXSI. The Company estimates that, as of December 31, 1996: (i) NOLs were
available to offset approximately $216 million of taxable income recognized by
the Company and its subsidiaries (the "ELXSI Group") for periods after December
31, 1996, and (ii) approximately $6.7 million in tax credits were available to
offset federal income taxes payable by the ELXSI Group for periods after
December 31, 1996. For federal income tax purposes, these carryforwards will
expire through the year 2005 and these credits will expire through the year
2003. See Note 5 of Notes to the Company's Consolidated Financial Statements for
the year ended December 31, 1996 contained in the Company Annual Report on Form
10- K.
The benefit of a company's existing loss and credit carryforwards can be
reduced or eliminated under Sections 382 and 383 of the Code. Sections 382 and
383 limit other tax benefits by a company that has undergone an "ownership
change", as defined in Section 382 of the Code. Generally, an "ownership change"
occurs if one or more stockholders, each of whom owns 5% or more in value of a
company's capital stock, increase their aggregate percentage ownership by more
than 50 percentage points over the lowest percentage of stock owned by such
stockholders over the preceding three-year period. For this purpose, all holders
who each own less than 5% of a company's capital stock are generally treated
together as one 5% stockholder. In addition, certain attribution rules, which
generally attribute ownership of stock to the ultimate beneficial owner thereof
without regard to ownership by nominees, trusts, corporations, partnerships or
other entities, are applied in determining the level of stock ownership of a
particular stockholder. In certain cases, options (including warrants) to
acquire capital stock may be treated as if they had been exercised, on an
option-by-option basis, if such treatment would result in an ownership change.
All percentage determinations are based on the fair market value of a company's
capital stock, including any preferred stock which is voting or convertible (or
otherwise participates in growth).
If an "ownership change" were to occur in respect of the ELXSI Group,
the amount of taxable income in any year (or portion of a year) subsequent to
the ownership change that could be offset by its NOLs or other carryforwards
existing (or "built-in") prior to such "ownership change" could not exceed an
amount equal to the product obtained by multiplying (i) the aggregate value of
the outstanding stock of the ELXSI Group (with certain adjustments) by (ii) the
federal long-term tax exempt rate. Because the aggregate value of the
outstanding stock of the ELXSI Group, as well as the federal long-term
tax-exempt rate, fluctuates, it is impossible to predict with any accuracy the
annual limitation upon the amount of taxable income of the ELXSI Group that
could be offset by such loss credit carryforwards (and "built-in" losses) were
an "ownership change" to occur in the future. However, if such limitation were
to exceed the taxable income against which it otherwise would be applied for any
year following an "ownership change", the limitation for the ensuing year would
be increased by the amount of such excess.
By way of illustration, if an ownership change had occurred on January
1, 1997 in respect of the ELXSI Group, assuming the value of the ELXSI Group
measured on that date at $ and the applicable federal long-term tax-exempt rate
was 5.6%, utilization of NOLs (and certain other tax attributes) currently
available to the ELXSI Group could be limited to approximately $ in any future
taxable year. The Company believes that such a limitation would reduce the value
of its loss carryforwards.
Description and Effects of Proposed Amendments
The following is a brief summary of the Proposed Amendments, which are
reprinted in their entirety in Annex B to this Proxy Statement and are
incorporated herein by reference. This summary is qualified in its entirety by
reference to the full text of the Proposed Amendments appearing therein.
If approved, the Proposed Amendments would add a new Article XV to the
Company's Bylaws, which will read as set forth in Annex B to this Proxy
Statement and which will establish the Transfer Restrictions. The Transfer
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Restrictions generally will restrict until December 31, 2005 (or earlier, in
certain events) any attempted transfer of Common Stock or any other securities
of the Company that would be treated as "stock" of the Company under the
applicable tax regulations (hereinafter, "Company Stock") to a person or group
of persons who own, or who would own as a result of such transfer, 5% or more of
the Company Stock. The Transfer Restrictions also would restrict any other
attempted transfer of Company Stock that would result in the identification of a
new "5-percent shareholder" of the Company (as determined under applicable tax
regulations); this would include, among other things, an attempted acquisition
of Company Stock from an existing 5-percent stockholder. For these purposes,
numerous rules of attribution, aggregation and calculation prescribed under the
Code (and related regulations) will be applied in determining whether the 5%
threshold has been met and whether a group exists. The restriction may also
apply to proscribe the creation or transfer of certain "options" (which are
broadly defined) in respect of Company Stock to the extent, generally, that
exercise of the option would result in a proscribed level of Company Stock
ownership. As previously stated, acquisitions of Company Stock directly from the
Company, whether by way of option exercise or otherwise, will not be subject to
the Transfer Restrictions.
Generally speaking, restrictions will be imposed only with respect to
the number of shares of Company Stock (or options with respect to Company Stock)
purportedly transferred in excess of the threshold established in the Transfer
Restrictions. In any event, these restrictions will not prevent a valid transfer
if either the transferor or the purported transferee obtains the approval of the
Board of Directors of the Company (or an authorized thereof authorized by such
Board). In deciding whether to approve any proposed transfer, the Board of
Directors (or such committee) may require an opinion of counsel that it selects,
in form and substance reasonably satisfactory to it, that the transfer will not
result in the application of any Section 382 or Section 383 limitations on the
use of the tax benefits.
If approved by stockholders, the Transfer Restrictions generally would
remain in effect until December 31, 2005, unless Article XV (comprising the
Proposed Amendments) is earlier repealed or its effectiveness is otherwise
discontinued by a resolution adopted by the Board of Directors of the Company
(or an authorized committee thereof). The restriction period is based on Section
172 of the Code, which permits an NOL to be carried forward for a maximum of 15
taxable years following the taxable year in which the loss arose and,
accordingly, is designed to afford full carryforward periods for NOLs arising
through 1990.
The Company believes that as of March 31, 1997 the only stockholders
that may beneficially own at least 5% of Company Stock are as set forth in the
"Security Ownership of Certain Beneficial Owners" section hereinabove (the
"Significant Company Stockholders"). The Transfer Restrictions imposed by the
Proposed Amendments would restrict any other person or entity (or group thereof)
from acquiring sufficient Company Stock to cause such person or entity to become
the owner of 5% of Company Stock and would prohibit the Significant Company
Stockholders who are 5-percent stockholders (as determined under applicable tax
regulations) from increasing their ownership of Company Stock without obtaining
the approval of the Company's Board of Directors (or an authorized committee
thereof). The Transfer Restrictions would also, however, restrict the ability of
Mr. Milley, ELX and other affiliates of Mr. Milley to acquire additional Company
Stock from persons other than the Company.
Assuming approval of the Proposed Amendments and (as a result) the
Transfer Restrictions, Article XV of the Company's Bylaws will provide for all
certificates representing Company Stock issued after its effective date
(including upon transfer of outstanding Company Stock) to bear the following
legend:
"THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS
SUBJECT TO RESTRICTIONS PURSUANT TO ARTICLE XV OF THE
BYLAWS OF ELXSI CORPORATION, WHICH ARTICLE XV IS REPRINTED
IN ITS ENTIRETY ON THIS CERTIFICATE."
The Company has been advised by its counsel that, absent a court determination:
(i) there can be no assurance that the Transfer Restrictions will be enforceable
against all of the stockholders of the Company, and (ii) the Transfer
Restrictions may not be enforceable against holders of Common Stock which are
voted against, or abstain from voting on, the Transfer Restrictions. However,
the Company believes that the Transfer Restrictions are in the best interests of
the Company and its stockholders and are reasonable; the Company therefore
intends to act vigorously to enforce the Transfer Restrictions against all
current and future holders of Common Stock and other equity securities
regardless of how (or whether) they are voted on the Transfer Restrictions. The
Company believes that each stockholder who votes in favor of the Transfer
Restrictions or who surrenders his share certificates in exchange for
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a new certificate bearing the above legend will in effect have consented to such
Transfer Restrictions and therefore will be bound thereby. (In that regard, the
Company may decide to request all holders of Company Stock to surrender their
certificates therefore to the Company's transfer agent (the "Transfer Agent") so
that new certificates bearing the foregoing legend may be issued to them.) In
such circumstances, the Company intends to assert that any such stockholder
would be estopped from challenging the Transfer Restrictions. All stockholders
should carefully consider the foregoing in determining whether and how to vote
with respect to the Transfer Restrictions, as well as whether to surrender
Common Stock certificates.
Upon the issuance of any new certificates for Company Stock, whether in
connection with a transfer or otherwise, the Company intends to place the above
legend thereon. The Company also intends to issue instructions to or make
arrangements with the Transfer Agent to implement the Transfer Restrictions. The
Transfer Restrictions provide that the Company will not permit any employee or
agent of the Company (which includes the Transfer Agent) to record any transfer
of Company Stock purportedly transferred in excess of the threshold established
in the Transfer Restrictions. These instructions or arrangements may result in
the delay or refusal of certain requested transfers of Company Stock.
Upon adoption and filing of the Transfer Restrictions, the Company's
Bylaws will provide that any transfer attempted in violation of the Transfer
Restrictions would be void ab initio, even if such transfer has been recorded by
the Transfer Agent and new certificates issued. The purported transferee of such
Company Stock would not be entitled to any rights of stockholders, including the
right to vote such Company Stock, or to receive dividends or distributions in
liquidation in respect thereof, if any.
If the Board of Directors of the Company determines that a purported
transfer has violated the Transfer Restrictions, the Company will require the
purported transferee to surrender the relevant Company Stock and any dividends
such purported transferee has received on them to an agent to be designated by
the Board of Directors of the Company (or an authorized committee thereof) (the
"Agent"). The Agent will thereupon sell the Company Stock in one or more
arm's-length transactions (executed in The NASDAQ Stock Market, if possible) to
a buyer or buyers, which may include the Company; however, nothing shall require
the Agent to sell the Company Stock within any specific time frame if, in the
Agent's discretion, such sale would disrupt the market for Company Stock or have
an adverse effect on the value of Company Stock. If the purported transferee has
resold the Company Stock before receiving the Company's demand to surrender such
Company Stock, the purported transferee generally will be required to transfer
to the Agent the proceeds of the sale and any distributions such purported
transferee has received on the Company Stock. After repaying its own expenses
and reimbursing the purported transferee for the price paid for the Company
Stock (or, if the purported transfer to the purported transferee was by gift,
inheritance or similar transfer, the fair market value of the Company Stock),
the Agent will pay any remaining amounts to one or more charities to be selected
by the Board of Directors of the Company (or an authorized committee thereof).
The Company currently is unaware of any stockholder owning (or treated
as owning for this purpose) 5% or more of Company Stock other than the
Significant Company Stockholders. It is possible that additional accumulations
of Company Stock (or any rights to acquire Company Stock) by the Significant
Company Stockholders or by stockholders who become holders of at least 5% of
Company Stock would result in the application of Section 382 and Section 383
limitations to the NOL and other carryforwards available to the ELXSI Group,
with the consequent loss or deferral of the potential benefits therefrom. The
Transfer Restrictions recommended by the Board of Directors of the Company is
intended to reduce the risk of such additional accumulations by prohibiting
certain transfers of Company Stock.
Anti-Takeover Effects. The Transfer Restrictions may have certain
"anti-takeover" effects, inasmuch as they may operate to discourage or prohibit:
(i) persons, entities or "groups" from accumulating in the aggregate 5% or more
of the Company Stock; (ii) persons, entities or "groups" now owning 5% or more
of the Company Stock from acquiring additional Company Stock; and (iii)
consequently, persons, entities or "groups" from accumulating blocks of shares
in excess of the number beneficially owned by Mr. Milley, the Company's
Chairman, President and Chief Executive Officer. See "Security Ownership of
Certain Beneficial Owners." The Transfer Restrictions may thus lessen the
likelihood that a takeover attempt will be made with respect to the Company.
However, in the opinion of the Company's management, the fundamental importance
to the Company's stockholders of maintaining the availability of the tax
benefits of the ELXSI Group outweighs these indirect effects that the Transfer
Restrictions may have.
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The indirect potential "anti-takeover" effects of the Transfer
Restrictions are not the reason for the Transfer Restrictions. The Company's
Board of Directors considers the Transfer Restrictions to be reasonable and in
the best interests of the Company and its stockholders, because they will reduce
certain of the risks that the Company and its subsidiaries will be unable to
utilize the tax benefits described above. Notwithstanding such restrictions,
however, there remains a risk that certain changes in relationships among
stockholders or other events will cause a change of ownership to occur under
Section 382 and Section 383. Further, there can be no assurance, in the event
transfers in violation of the Transfer Restrictions are attempted, that the
Internal Revenue Service will not assert that such transfers have federal income
tax significance notwithstanding the existence of the Transfer Restrictions.
Such transfers can occur, for example, if transfers of Company Stock take place
through "street name" facilities and not the Transfer Agent. As a result, the
Transfer Restrictions will serve to reduce, but not necessarily eliminate, the
risk that Section 382 or Section 383 will cause the limitations described above
on the use of tax attributes of the ELXSI Group.
The Board of Directors (and any authorized committee thereof) of the
Company has the discretion to approve a transfer of Company Stock that would
otherwise violate the Transfer Restrictions. The Board of Directors is not aware
of any person or entity (or "group" thereof) that owns or intends to own at
least 5% of Company Stock, other than the Significant Company Stockholders.
Nonetheless, if the Board of Directors decides to permit a transfer that would
otherwise violate the Transfer Restrictions, that transfer or later transfers
may result in an "ownership change" that would limit the use of the tax
attributes of the ELXSI Group. The Board of Directors intends to consider any
such attempted transfer individually and determine at the time whether it is in
the best interests of the Company and its stockholders, after consideration of
any factors that the Board deems relevant, to permit such transfer
notwithstanding that an "ownership change" may occur.
Each stockholder should be aware that a vote in favor of the Proposed
Amendments may result in a waiver of the right and ability of such stockholder
(and of all subsequent holders of the Common Stock voted) to contest the
enforceability of the Transfer Restrictions; concomitantly, a Company
stockholder who votes against, or who abstains from voting with respect to, the
Proposed Amendments may not be so adversely affected in contesting the
enforceability of the Transfer Restrictions. Consequently, all stockholders
should carefully consider this in determining whether to vote in favor of the
Proposed Amendments.
The Board of Directors recommends that stockholders vote FOR the
adoption of the Proposed Amendments.
PROPOSAL NO. 4 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
(Item 4 on Proxy Card)
The Board of Directors of the Company has appointed the firm of Price
Waterhouse LLP as its independent accountants for the fiscal year ending
December 31, 1997. Price Waterhouse LLP served in such capacity for the
Company's preceding fiscal year. The Company has been advised by Price
Waterhouse LLP that neither it nor any member thereof has any financial
interest, direct or indirect, in the Company in any capacity. A representative
of Price Waterhouse LLP is expected to be present at the Annual Meeting of
Stockholders, will be given an opportunity to make a statement if he or she
desires to do so and is expected to be available to respond to appropriate
questions.
The Board of Directors recommends that stockholders vote FOR the
ratification of the appointment of Price Waterhouse LLP as the Company's
independent accountants for the current fiscal year.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which
are to be brought before the meeting. If any other matters should be presented
for proper action, it is the intention of the persons named in the Proxy to vote
in accordance with their discretion pursuant to the terms of the Proxy.
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PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received at the Company's executive offices on
or before December , 1997, for inclusion in the Company's Proxy Statement with
respect to such meeting.
ELXSI CORPORATION
By Alexander M. Milley,
President
It is important the Proxies be returned promptly. Therefore,
stockholders who do not expect to attend the meeting in person are urged to fill
in, sign, date and return the enclosed Proxy.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, filed with the Securities and Exchange Commission, may
be obtained without charge by any stockholder of the Company of record as of
March 31, 1997 by writing to ELXSI Corporation, 4209 Vineland Road, Suite J-1,
Orlando, Florida 32811, Attention: Thomas R. Druggish.
In connection with Proposal No. 3 herein, the Company hereby
incorporates herein by reference the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section and the Consolidated
Financial Statements (including the notes thereto) included in its Annual Report
on Form 10-K for the fiscal year ended December 31, 1997.
The Company's stock transfer agent is Continental Stock Transfer & Trust
Company, 2 Broadway, New York, New York 10004. Telephone: (212) 509-4000.
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Annex A
ELXSI CORPORATION
1997 INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of this Plan is to advance the interests of
ELXSI Corporation by providing an opportunity to selected directors, officers
and key employees of the Company and its Subsidiaries to purchase shares of
Common Stock through the exercise of options granted pursuant to this Plan,
which may be either Incentive Options or Nonqualified Options. By encouraging
such stock ownership, the Company seeks to establish as close an identity as
feasible between the interests of the Company and its Subsidiaries and those of
such directors, officers and key employees and also seeks to attract, retain,
motivate and reward persons of superior ability, training and experience.
2. Definitions
(1) Board means the Board of Directors of the Company.
(2) Code means the Internal Revenue Code of 1986 and
regulations thereunder, as amended from time to time.
(3) Committee means the committee appointed by the Board
responsible for administering the Plan or, in the absence
of the such an appointment, the Compensation Committee of
the Board.
(4) Common Stock means the common stock of the Company, par
value $.001 per share.
(5) Company means ELXSI Corporation, a Delaware corporation.
(6) Director means each individual who is serving as a member
of the Board as of the time of reference.
(7) Eligible Person means an individual who is serving in any
one or more of the following capacities: Director,
director of a Subsidiary, officer of the Company, officer
of any Subsidiary, or Key Employee.
(8) Employee means an employee of the Company or any
Subsidiary within the meaning of Code Section 3401(c).
(9) Incentive Option means a stock option granted to an
Employee and intended to qualify as an "incentive stock
option" within the meaning of Code Section 422 and
designated as such.
(10) Key Employee means an executive, managerial or
administrative Employee.
(11) Nonqualified Option means a stock option not intended to
be an Incentive Option and designated as nonqualified, the
federal income tax treatment of which is determined
generally under Code Section 83.
(12) Option means either an Incentive Option or a Nonqualified
Option granted pursuant to this Plan.
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(13) Plan means this ELXSI Corporation 1997 Incentive Stock
Option Plan as set forth herein, and as amended from time
to time.
(14) Securities Act means the Securities Act of 1933, as
amended, and rules and regulations promulgated pursuant
thereto, as amended from time to time.
(15) Subsidiary means a "subsidiary" of the Company within the
meaning of Code Section 424(f), which generally is defined
as any corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if, at
the relevant time, each of the corporations other than the
last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations
in the chain.
3. Effective Date. This Plan was approved and adopted by the Board on
March 14, 1997. The effective date of this Plan shall be May 22, 1997, the date
of the annual meeting of stockholders of the Company, so long as this Plan is
approved by the stockholders of the Company on said date.
4. Stock Subject to Plan. The maximum aggregate number of shares of
Common Stock that may be made subject to Options granted hereunder is 130,000
shares, which number shall be adjusted in accordance with Section 9 in the event
of any change in the Company's capital structure. Shares of Common Stock issued
pursuant to this Plan may consist, in whole or in part, of either authorized and
unissued shares or issued shares held in the Company's treasury. Any shares
subject to an Option that for any reason expires or is terminated unexercised as
to such shares may again be the subject of an Option under this Plan.
5. Administration. The Plan shall be administered by a Committee
appointed by the Board consisting of not fewer than two individuals who are
Directors. The Board shall have the discretion to remove and appoint members of
the Committee from time to time. The Committee shall have full power and
discretion, subject to the express provisions of this Plan, (i) to determine the
Eligible Persons to whom Options are to be granted, the time or times at which
Options are to be granted, the number of shares of Common Stock to be made
subject to each Option, whether each Option is to be an Incentive Option or a
Nonqualified Option, the exercise price per share under each Option, and the
maximum term of each Option; (ii) to interpret and construe the Plan and to
prescribe, amend and rescind rules and regulations for its administration; (iii)
to determine the terms and provisions of each option agreement evidencing an
Option; and (iv) to make all other determinations the Committee deems necessary
or advisable for administering this Plan. All decisions of the Committee shall
be made by a majority of its members, which shall constitute a quorum, and shall
be reflected in minutes of its meetings.
6. Eligibility. Options may be granted to such Eligible Persons as the
Committee selects.
7. Terms and Conditions of Options. Options granted pursuant to this
Plan shall be evidenced by stock option agreements in such form and containing
such terms and conditions as the Committee shall determine. If an Eligible
Person to whom an Option is granted does not execute an option agreement
evidencing that Option in the form prescribed by the Committee within the later
of (i) thirty days from the date of grant of the Option or (ii) ten days after
the Eligible Person's receipt of an option agreement from the Company, the
Option shall be void and of no further force or effect. Each option agreement
evidencing an Option shall contain among its terms and conditions the following:
(1) Price. Subject to the conditions on Incentive Options
contained in Section 8(2), if applicable, the purchase price
per share of Common Stock payable upon the exercise of each
Option granted hereunder shall be as determined by the
Committee in its discretion but shall not be less than the
fair market value (or, in the case of Nonqualified Options,
75% of the fair market value) of the Common Stock on the day
the Option is granted or, if greater, the book value of the
Common Stock on
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that date. The fair market value of Common Stock shall be as
determined by the Committee in its discretion in accordance
with any applicable laws or rules.
(2) Number of Shares and Kind of Option. Each option agreement
shall specify the number of shares to which it pertains and
shall specify whether the Option is a Nonqualified Option or
an Incentive Option.
(3) Terms of Exercise. Subject to the conditions on Incentive
Options contained in Section 8(2), if applicable, and to
Section 10, each Option shall be exercisable for the full
amount or for any part thereof and at such intervals or in
such installments as the Committee may determine at the time
it grants such Option; provided, however, that (i) no Option
shall be exercised as to fewer than 25 shares of Common Stock
or, if less, the total number of shares of Common Stock
remaining unexercised under the Option, and (ii) no Option
shall be exercisable with respect to any shares earlier than
six months from the date the Option is granted or later than
ten years after the date the Option is granted, except to the
extent permitted in the event of the death of the holder of a
Nonqualified Option under Section 7(7).
(4) Notice of Exercise and Payment. An Option shall be
exercisable only by delivery of a written notice to the
Company's Treasurer, or any other officer of the Company that
the Committee designates to receive such notices, specifying
the number of shares of Common Stock for which the Option is
being exercised. If the shares of Common Stock acquired upon
exercise of an Option are not at the time of exercise
effectively registered under the Securities Act, the optionee
shall provide to the Company or Committee, as a condition to
the optionee's exercise of the Option, a letter, in form and
substance satisfactory to the Company, to the effect that the
shares are being purchased for the optionee's own account for
investment and not with a view to distribution or resale, and
to such other effects as the Company deems necessary or
appropriate to comply with federal and applicable state
securities laws. Payment shall be made in full at the time
the Option is exercised. Payment shall be made by:
(i) cash;
(ii) delivery and assignment to the Company of shares of
Common Stock owned by the optionee;
(iii) delivery and assignment to the Company of other
securities of the Company owned by the optionee;
(iv) delivery of a written exercise notice, including
irrevocable instructions to the Company to deliver
the stock certificates issuable upon exercise of the
Option directly to a broker named in the notice that
has agreed to participate in a "cashless" exercise
on behalf of the optionee.
(v) a combination of (i), (ii) and (iii).
Upon the optionee's satisfaction of all conditions required
for the exercise of the Option and payment in full of the
purchase price for the shares being acquired as aforesaid,
the Company shall, within a reasonable period of time
following such exercise, deliver a certificate representing
the shares of Common Stock so acquired; provided, that the
Company may postpone issuance and delivery of shares upon any
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exercise of an Option to the extent necessary or advisable to
comply with applicable exchange listing requirements,
National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") requirements, or federal or state
securities laws.
(5) Withholding Taxes. The Company's obligation to deliver shares
of Common Stock upon exercise of an Option, in whole or in
part, shall be subject to the optionee's satisfaction of all
applicable federal, state and local tax withholding
obligations, if any.
(6) Nontransferability of Option. No Option shall be transferable
by the optionee otherwise than by will or the laws of descent
and distribution and shall be exercisable during the
optionee's lifetime only by the optionee (or the optionee's
guardian or legal representative).
(7) Legends. Any restriction on transfer of shares of Common
Stock provided in this Plan or in the option agreement
evidencing any Option shall be noted or referred to
conspicuously on each certificate evidencing such shares.
8. Restrictions on Incentive Options. Incentive Options (but not
Nonqualified Options) granted under this Plan shall be subject to the following
restrictions:
(1) Limitation on Number of Shares. The aggregate fair market
value, determined as of the date an Incentive Option is
granted, of the shares with respect to which Incentive
Options are exercisable for the first time by an Employee
during any calendar year shall not exceed $100,000. If an
Incentive Option is granted pursuant to which the aggregate
fair market value of shares with respect to which it first
becomes exercisable in any calendar year by an Employee
exceeds the aforementioned $100,000 limitation, the portion
of such Option which is in excess of the $100,000 limitation
shall be treated as a Nonqualified Option pursuant to Code
Section 422(d)(1). In the event that an Employee is eligible
to participate in any other stock option plan of the Company
or a Subsidiary which is also intended to comply with the
provisions of Code Section 422, the $100,000 limitation shall
apply to the aggregate number of shares for which Incentive
Options may be granted under all such plans.
(2) 10% Stockholder. If any Employee to whom an Incentive Option
is granted pursuant to the provisions of this Plan is on the
date of grant the owner of stock (as determined under Code
Section 424(d)) possessing more than 10% of the total
combined voting power of all classes of stock of the Company
or a Subsidiary, then the following special provisions shall
be applicable to the Incentive Option granted to such
individual:
(i) The Option price per share subject to such Incentive
Option shall not be less than 110% of the fair
market value of one share on the date of grant; and
(ii) The Incentive Option shall not have a term in excess
of five (5) years from its date of grant.
9. Adjustment for Changes in Capitalization. Appropriate and equitable
adjustment shall be made in the maximum number of shares of Common Stock subject
to this Plan under Section 4 and, subject to Section 10, in the number, kind and
option price of shares of Common Stock subject to then outstanding
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Options to give effect to any changes in the outstanding Common Stock by reason
of any stock dividend, stock split, stock combination, merger, consolidation,
reorganization, recapitalization or any other change in the capital structure of
the Company affecting the Common Stock after the effective date of this Plan.
10. Change in Control, Merger, Etc.
(1) Change in Control. Upon the occurrence of any of the events
listed below, all outstanding Incentive Options and
Nonqualified Options held by all optionees pursuant to this
Plan which are not otherwise exercisable in whole or in part
shall become immediately exercisable in full, unless and to
the extent otherwise determined by the Committee. The events
are as follows:
(i) The sale by the Company of all or substantially all
of its assets;
(ii) Any of the following events if, immediately
following such event, a majority of the Directors
consists of persons who were not Directors
immediately prior to the date of such event:
(a) the sale of 50% or more of the outstanding
shares of Common Stock of the Company in a
single transaction;
(b) the consummation of a tender offer (by a
party other than the Company) for more
than 50% of the outstanding shares of
Common Stock of the Company; or
(c) subject to Section 10(2) below, the
consummation of a merger or consolidation
involving the Company; or
(iii) An election of new Directors if immediately
following such election a majority of the Directors
consists of persons who were not nominated by
management to stand for election as Directors in
such election.
(2) Where Company Does Not Survive. In the event of a merger or
consolidation to which the Company is a party but is not the
surviving company, the Committee in its discretion may vote
to negate and give no effect to the acceleration of Options
pursuant to Section 10(1)(ii)(c), but only if and to the
extent that an executed agreement of merger or consolidation
provides that the optionee holding such an Option shall
receive the same merger consideration as the optionee would
have received as a stockholder of the Company had the
exercisability of the Option been accelerated in accordance
with Section 10(1)(ii)(c) and had the optionee, immediately
prior to the merger or consolidation, exercised the Option
for the full number of shares subject thereto, paid the
exercise price in full, and satisfied all other conditions
for the exercise of the Option.
(3) Liquidation or Dissolution. The provisions of Section 9 and
Subsections 10(1) and (2) shall not cause any Option to
terminate other than in accordance with other applicable
provisions of this Plan. However, in the event of the
liquidation or dissolution of the Company, each outstanding
Option shall terminate, except to the extent otherwise
specifically provided in the option agreement evidencing the
Option.
11. Rights of Optionee. No Eligible Person shall have a right to be
granted an Option or, having received an Option, a right again to be granted an
Option. An optionee shall have no rights as a stockholder with respect to any
shares of Common Stock covered by his or her Option until the date the Option
has been exercised and the full purchase price for such shares has been received
by the Company. Nothing in this Plan
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or in any Option granted pursuant to the Plan shall confer on any individual any
right to continue in the employ of or to continue as an officer or director of,
this Company or any Subsidiary or to interfere in any way with the right of the
Company or any Subsidiary to terminate or modify the terms or conditions of the
Option holder's employment or other relationship with the Company or any
Subsidiary. 12. Amendment and Termination of the Plan. Unless sooner terminated
by the Board, this Plan shall terminate, so that no Options may be granted
pursuant to it thereafter, on March 19, 2007. The Board may at any time amend,
suspend or terminate this Plan in its discretion without further action on the
part of the stockholders of the Company, except that:
(1) no such amendment, suspension or termination of the Plan
shall adversely affect or impair any then outstanding Option
without the consent of the optionee holding the Option; and
(2) any such amendment, suspension or termination that requires
approval by the stockholders of the Company to comply with
applicable provisions of the Code, applicable federal or
state securities laws or NASDAQ or exchange listing
requirements shall be subject to approval by the stockholders
of the Company within the applicable time period prescribed
thereunder, and shall be null and void if such approval is
not obtained.
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Annex B
ELXSI CORPORATION
BYLAW AMENDMENTS IMPOSING
CERTAIN TAX-RELATED TRANSFER RESTRICTIONS
ON COMMON STOCK AND OTHER EQUITY SECURITIES
"ARTICLE XV
TRANSFER RESTRICTIONS
SECTION 45. Certain Definitions.
As used in this Article XV, the following terms have the following
respective meanings.
"Corporation Securities" means: (i) shares of common stock of the
corporation, (ii) shares of preferred stock of the Corporation, (iii) warrants,
rights or options (within the meaning of Treasury Regulation
ss.1.382-2T(h)(4)(v)) to purchase stock of the corporation, and (iv) any other
interests that would be treated as "stock" of the corporation pursuant to
Treasury Regulations ss.1.382-2T(f)(18).
"Percentage Stock Ownership" means percentage stock ownership as
determined in accordance with Treasury Regulations ss.1.382-2T(g), (h), (j), and
(k).
"Five-Percent Stockholder" means a Person or group of Persons
that is identified as a "5- percent shareholder" of the corporation pursuant to
Treasury Regulations ss.1.382-2T(g)(1).
"Person" means an individual, corporation, estate, trust,
association, company, limited liability company, partnership, limited liability
partnership, joint venture or other organization.
"Prohibited Transfer" means any purported Transfer of Corporation
Securities to the extent that such Transfer is prohibited and void under this
Article XV.
"Restriction Release Date" means the earliest of: (i) December
31, 2005, (ii) the effective date of repeal of Section 382 and Section 383 of
the Internal Revenue Code of 1986, as amended (the "Code") (and any comparable
successor provision) ("Section 382" and "Section 383"); (iii) the beginning of a
taxable year of the corporation (or any successor thereof) to which no Tax
Benefits may be carried forward; and (iv) the effective date of any express
general repeal or other general discontinuance of the effectiveness of this
Article XV by the Board of Directors of the Corporation (or an authorized
committee thereof), as conclusively evidenced by a resolution adopted thereby.
"Tax Benefits" means the net operating loss carryforwards,
capital loss carryforwards, general business credit carryforwards, alternative
minimum tax credit carryforwards and foreign tax credit carryforwards, as well
as any "net unrealized built-in loss" within the meaning of Section 382 and
Section 383, of the corporation or any direct or indirect subsidiary thereof.
"Transfer" means any direct or indirect sale, transfer,
assignment, conveyance, pledge, or other disposition. A Transfer also shall
include the creation or grant of an option (within the meaning of Treasury
Regulation ss.1.382-2T(h)(4)(v)). A Transfer shall not include an issuance or
grant of Corporation Securities by the corporation.
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"Treasury Regulation ss.1.382" means the applicable income tax
regulation promulgated under Section 382, and any successor regulations.
References to any subsection of such regulations include references to any
successor subsection thereof.
SECTION 46. Restrictions.
Any attempted Transfer of Corporation Securities prior to the
Restriction Release Date, and any attempted Transfer of Corporation Securities
pursuant to an agreement entered into prior to the Restriction Release Date,
shall be prohibited and void ab initio to the extent that, as a result of such
Transfer (or any series of Transfers of which such Transfer is a part), either:
(1) any Person or group of Persons shall become a Five-Percent Stockholder, or
(2) the Percentage Stock Ownership interest in the corporation of any Five-
Percent Stockholder shall be increased.
SECTION 47. Certain Exceptions.
The restrictions set forth in Section 46 of these Bylaws shall not apply
to an attempted Transfer if the transferor or the transferee obtains the
approval of the Board of Directors of the corporation (or an authorized
committee thereof). As a condition to granting its approval, the Board of
Directions (or such committee) may, in its discretion, require an opinion of
counsel selected by the Board of Directors (or such committee) that the Transfer
shall not result in the application of any limitation under Section 382 or
Section 383 on the use of the Tax Benefits.
SECTION 48. Treatment of Excess Securities.
(a) No employee or agent of the corporation shall record any
Prohibited Transfer, and the purported transferee of such a Prohibited
Transfer (the "Purported Transferee") shall not be recognized as a
stockholder of the corporation for any purpose whatsoever in respect of
the Corporation Securities which are the subject of the Prohibited
Transfer (the "Excess Securities"). Until the Excess Securities are
acquired by another Person in a Transfer that is not a Prohibited
Transfer, the Purported Transferee shall not be entitled with respect to
such Excess Securities to any rights of stockholders of the corporation,
including without limitation, the right to vote such Excess Securities
and to receive dividends or distributions, whether liquidating or
otherwise, in respect thereof, if any. Once the Excess Securities have
been acquired in a Transfer that is not a Prohibited Transfer, the
Corporation Securities shall cease to be Excess Securities.
(b) If the Board of Directors of the Corporation (or an
authorized committee thereof) determines that a Transfer of Corporation
Securities constitutes a Prohibited Transfer then, upon written demand
by the corporation, the Purported Transferee shall transfer or cause to
be transferred any certificate or other evidence of ownership of the
Excess Securities within the Purported Transferee's possession or
control, together with any dividends or other distributions that were
received by the Purported Transferee from the corporation with respect
to the Excess Securities ("Prohibited Distributions"), to an agent
designated by the Board of Directors (or an authorized committee
thereof) (the "Agent"). The Agent shall thereupon sell to a buyer or
buyers, which may include the corporation, the Excess Securities
transferred to it in or more arm's-length transactions (in The NASDAQ
Stock Market, if possible); provided, however, that the Agent shall
effect such sale or sales in an orderly fashion and shall not be
required to effect any such sale within any specific time frame if, in
the Agent's discretion, such sale or sales would disrupt the market for
the Corporation Securities or otherwise would adversely affect the value
of the Corporation Securities. If the Purported Transferee has resold
the Excess Securities before receiving the corporation's demand to
surrender the Excess Securities to the Agent, the Purported Transferee
shall be deemed to have sold the Excess Securities for the Agent, and
shall be required to transfer to the Agent any Prohibited
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Distributions and the proceeds of such sale, except to the extent that
the Agent grants written permission to the purported Transferee to
retain a portion of such sales proceeds not exceeding the amount that
the Purported Transferee would have received from the Agent pursuant to
Section 48(c) of these Bylaws if the Agent (rather than the Purported
Transferee) had resold the Excess Securities.
(c) The Agent shall apply any proceeds of a sale by it of Excess
Securities and, if the Purported Transferee had previously resold the
Excess Securities, any amounts received by it from a Purported
Transferee, as follows: (1) first, such amount shall be paid to the
Agent to the extent necessary to cover its costs and expenses incurred
in connection with its duties hereunder; (2) second, any remaining
amounts shall be paid to the Purported Transferee, up to the amount paid
by the Purported Transferee for the Excess Securities (or, if the
attempted Transfer to the Purported Transferee was by gift, inheritance
or similar Transfer, the fair market value of the Excess Securities,
calculated on the basis of the closing market price for the applicable
Corporation Securities on the day before such attempted Transfer, of the
Excess Securities), which amount (or fair market value), if uncertain or
in dispute, shall be determined in good faith by the Board of Directors
of the Corporation (or an authorized committee thereof); and (3) third,
any remaining amounts shall be paid to one or more organizations
qualifying under Section 501(c)(3) of the Code (and any comparable
successor provision) ("Section 501(c)(3)") selected by the Board of
Directors (or an authorized committee thereof). The recourse of any
Purported Transferee in respect of any Prohibited Transfer shall be
limited to the amount payable to the Purported Transferee pursuant to
clause (2) of the preceding sentence. In no event shall the proceeds of
any sale of Excess Securities pursuant to this Article XV inure to the
benefit of the corporation.
(d) If the Purported Transferee fails to surrender the Excess
Securities or the proceeds of a sale thereof to the Agent within thirty
business days from the date on which the corporation makes a demand
pursuant to paragraph Section 48(b) of these Bylaws, then the
corporation may institute legal proceedings to compel the surrender.
(e) The corporation shall make the demand described in Section
48(b) of these Bylaws within thirty days of the date on which the Board
of Directors (or an authorized committee thereof) determines that the
attempted Transfer would result in Excess Securities; provided, however,
that if the corporation makes such demand at a later date, the
provisions of this Article IV shall apply nonetheless.
SECTION 49. Legends; Board Determinations.
(a) All certificates representing Corporation Securities issued
after the effectiveness of this Article XV (including issued upon
transfer of outstanding Corporation Securities) shall bear a conspicuous
legend as follows:
"THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS
SUBJECT TO RESTRICTIONS PURSUANT TO ARTICLE XV OF THE
BYLAWS OF ELXSI CORPORATION, WHICH ARTICLE XV IS
REPRINTED IN ITS ENTIRETY ON THIS CERTIFICATE."
(b) The Board of Directions of the corporation (or an authorized
committee thereof) shall have the full power and authority to determine
all matters necessary to determine compliance with Article XV of these
Bylaws, including without limitation: (1) whether to generally repeal or
otherwise generally discontinue of the effectiveness of this Article XV,
and thereby to adopt a Restriction Release Date, as contemplated by
clause (iv) of the definition thereof in Section 45 of these Bylaws; (2)
whether a new Five-Percent Stockholder would be required to be
identified in
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<PAGE>
certain circumstances, (3) whether a Transfer is a Prohibited Transfer,
(4) the Percentage Stock Ownership in the corporation of any
Five-Percent Stockholder, (5) whether a particular right or instrument
constitutes or represents a Corporation Security, (6) the amount (or
fair market value) due to a Purported Transferee pursuant to clause (2)
of Section 48(c) of these Bylaws, and (7) any other matters which the
Board of Directors (or an authorized committee thereof) determines to be
relevant; and the good faith determination of the Board of Directors (or
an authorized committee thereof) on such matters shall be conclusive and
binding for all the purposes of this Article XV and these Bylaws.
SECTION 50. Supremacy.
In the event of any conflict between the provisions of this Article XV
and any other provision of these Bylaws, the provisions of this Article XV shall
control."
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[PRELIMINARY COPIES]
ELXSI Corporation
4209 Vineland Road, Suite J-1
Orlando, Florida 32811
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
May 22, 1997
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitute(s) and appoint(s) Alexander M. Milley
and Robert C. Shaw, and each of them, as proxies of the undersigned, with full
power of substitution, to vote all shares of Common Stock of ELXSI Corporation
(the "Company") which the undersigned is (are) entitled to vote at the Annual
Meeting of the Stockholders of the Company to be held at the Radisson Twin
Towers Hotel and Convention Center, 5780 Major Boulevard, Orlando, Florida
32819, on Thursday, May 22, 1997, at 9:00 a.m. (local time), and at any
adjournment(s), thereof (the "Meeting"), on all matters that may come before
such Meeting. Said proxies are instructed to vote on the following matters in
the manner herein specified.
1. Election of the following Five Nominees as Directors of the Company:
Farrokh K. Kavarana; Kevin P. Lynch; Alexander M. Milley;
Denis M. O'Donnell; and Robert C. Shaw
[ ] FOR all nominees listed above [ ] WITHHOLD AUTHORITY to vote for
(except as indicated below) all nominees listed above
FOR all nominees listed above except withhold authority to vote for the
following nominee(s):
__________________________________________________________
2. Approval of the ELXSI Corporation 1997 Incentive Stock Option Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Adoption of amendments to the Company's Bylaws to impose certain
tax-related transfer restrictions on Common Stock and other equity
securities of the Company
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification of Appointment of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending December 31, 1997
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the Meeting.
(Please date and sign this Proxy on the reverse side)
<PAGE>
================================================================================
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED
HEREBY WILL BE VOTED AS SPECIFIED HEREIN. IF NO SPECIFICATION IS MADE, SUCH
SHARES WILL BE VOTED "FOR" PROPOSALS 1, 2, 3 AND 4, AND AS THE PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
The undesigned hereby revoke(s) all previous Proxies and acknowledge(s)
receipt of the Notice of the Meeting dated April __, 1997, the Proxy Statement
attached thereto and the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 1996 forwarded therewith.
Dated:________________________, 1997
____________________________________
Signature
____________________________________
Signature
Please mark, sign and return this
Proxy promptly using the enclosed
envelope. This Proxy should be
signed exactly as the name appears
hereon. If stock is held in the
names of joint owners, each should
sign. Persons signing as an
attorney, executor, administrator,
guardian, trustee, corporate officer
or in any other fiduciary or
representative capacity should give
full title.
<PAGE>
