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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ELXSI CORPORATION
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box): [X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: NA (2)
Aggregate number of securities to which transaction applies: NA (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): NA
(4) Proposed maximum aggregate value of transaction: NA
(5) Total fee paid: NA
[ ] 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: NA
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(3) Filing Party: NA
(4) Date Filed: NA
<PAGE>
ELXSI CORPORATION
3600 RIO VISTA AVENUE, SUITE A
ORLANDO, FLORIDA 32805
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of ELXSI
Corporation, a Delaware corporation (the "Company"), will be held at the
Company's headquarters, located at 3600 Rio Vista Avenue, Suite A, Orlando,
Florida 32805, on Thursday, May 25, 2000, at 9:00 a.m. (local time), for the
following purposes:
1. To elect a Board of Directors.
2. To approve the ELXSI Corporation 2000 Incentive Stock Option
Plan.
3. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the current fiscal year.
4. 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,
2000 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 3600 Rio Vista Avenue, Suite A, Orlando, Florida 32805.
Stockholders can vote their shares by using the Internet or the telephone.
Instructions for using these convenient services are set forth on the enclosed
form of Proxy. Of course, you may also vote your shares by marking your vote on
the enclosed form of Proxy, signing it and dating it, and mailing it in the
enclosed envelope.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 is enclosed herewith.
By Order of the Board of Directors,
David M. Doolittle, Secretary
Dated: April 21, 2000
YOU ARE URGED TO VOTE YOUR SHARES BY USING THE INTERNET; BY TELEPHONE;
OR BY FILLING IN, SIGNING, DATING AND MAILING THE ENCLOSED FORM OF PROXY. IF YOU
ATTEND THE MEETING AND VOTE IN PERSON, YOUR PROXY WILL NOT BE USED. IF YOUR
PROXY IS MAILED IN THE UNITED STATES IN THE ENCLOSED ENVELOPE, NO POSTAGE IS
REQUIRED. THE PROMPT VOTING OF YOUR PROXY WILL SAVE THE COMPANY THE EXPENSE
INVOLVED IN FURTHER COMMUNICATION.
<PAGE>
ELXSI CORPORATION
3600 RIO VISTA AVENUE, SUITE A
ORLANDO, FLORIDA 32805
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000
April 21, 2000
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 Company's headquarters,
located at 3600 Rio Vista Avenue, Suite A, Orlando, Florida 32805, on Thursday,
May 25, 2000, at 9:00 a.m. (local time), and at any subsequent time which may be
made necessary by the adjournment thereof.
If you were a holder of record of Common Stock, par value $.001 per
share, of the Company (the "Common Stock") at the close of business on March 31,
2000, 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 (Proxy card) is
enclosed, which the Board of Directors of the Company requests that you execute
and return (or otherwise vote) 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 to the Secretary of the Company of a duly executed
written statement to that effect or of a later-dated Proxy.
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 (the "Commission"), in sending Proxies and
proxy materials to the beneficial owners of the Common Stock. Officers or
employees of the Company may also solicit Proxies in person, or by mail, E-mail,
facsimile 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, 2000, 4,290,438 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 form of Proxy are first being mailed to the stockholders of the
Company on or about April 21, 2000.
<PAGE>
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 to serve, for good cause is
unwilling to serve or is otherwise unavailable for election (which contingency
is not now contemplated or foreseen), and in consequence thereof another
individual shall be nominated, the persons named in the accompanying form of
Proxy shall have the discretion and authority to vote or to refrain from voting
in accordance with their judgment on the substitute(s) for such nominee. The
persons named in the accompanying form of Proxy also intend to vote Proxies FOR
the approval of the ELXSI Corporation 2000 Incentive Stock Option Plan (Proposal
No. 2 herein) and FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants (Proposal
No. 3 herein), unless (in each case) contrary voting instructions are indicated
on such Proxies.
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 Proposal Nos. 2 and 3, if a quorum is
present the affirmative vote of a majority of the shares voted is required for
approval. As a result, abstention votes with respect to Proposal No. 2 or 3 will
have the effect of a vote against such Proposal.
Shares of Common Stock held by brokers and other stockholder nominees
are sometimes voted on certain matters but not others. This can occur, for
example, when a broker is instructed by the beneficial owner, or has
discretionary authority, to vote on a particular matter or matters (such as the
election of directors and appointment of accountants) but is not instructed, and
does not have such authority, to vote on 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 will have no effect upon the outcome of
the vote on any matter as to which they are "non-voted."
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 their resignation, removal or death or otherwise as provided
in the Bylaws of the Company. The names of the five directors of the Company,
and certain information regarding the Common Stock holdings of each such
individual, of the two non-director executive officers of the Company who are
named in the "Executive Compensation" section hereinbelow and of the executive
officers and directors of the Company as a group, based on information which
such persons have furnished to the Company, are set forth below.
2
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK OF THE
COMPANY BENEFICIALLY OWNED
AS OF MARCH 31, 2000(1)
----------------------------------
DIRECTOR NUMBER OF PERCENT
NAME SINCE SHARES OF CLASS
- ---- -------- --------- --------
<S> <C> <C> <C>
Farrokh K. Kavarana................. 1989 64,100(2) 1.5%
Kevin P. Lynch...................... 1989 130,197 2.9%
Alexander M. Milley................. 1989 2,294,014(3) 49.7%
Robert C. Shaw...................... 1989 83,978 1.9%
Denis M. O'Donnell.................. 1996 44,900 1.0%
Daniel E. Bloodwell................. N/A 2,565 0.1%
David M. Doolittle.................. N/A 93,650 2.1%
All executive officers and
directors as a group (7 persons) 2,713,404(2)(3) 54.2%
</TABLE>
- ---------------
(1) Numbers and percents in the table and footnotes 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, except
as otherwise indicated. Includes shares issuable upon exercise of stock
options granted by the Company that are exercisable currently or within
60 days, as follows: Farrokh K. Kavarana: 62,500 shares; Kevin P.
Lynch: 127,000 shares; Alexander M. Milley: 210,000 shares; Robert C.
Shaw: 80,000 shares; Denis M. O'Donnell: 30,000 shares; Daniel E.
Bloodwell: 1,425 shares; David M. Doolittle: 90,250 shares; and all
executive officers and directors as a group: 508,675 shares. Excludes
shares issuable upon exercise of stock options granted by the Company
that become exercisable in more than 60 days, as follows: Kevin P.
Lynch: 15,500 shares; Alexander M. Milley: 2,500 shares; Daniel E.
Bloodwell: 4,050 shares; David M. Doolittle: 37,250 shares; and all
executive officers and directors as a group: 59,300 shares.
(2) Excludes an aggregate of 325,940 shares of Common Stock held by Aggel
Enterprises, Ltd. and certain affiliated entities. Mr. Kavarana is
affiliated with the controlling shareholders of Aggel Enterprises, Ltd.
and its affiliates. See "Security Ownership of Certain Beneficial
Owners." Also excludes 3,334 shares of Common Stock issuable upon
exercise of stock options held by Tata International AG, with which Mr.
Kavarana is affiliated. Mr. Kavarana disclaims beneficial ownership of
all of the foregoing shares.
(3) 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) 221,505 shares held by Cadmus Corporation,
of which Mr. Milley is the Chairman, President and an indirect
controlling shareholder; (iii) 590,200 shares held by ELX Limited
Partnership, of which Mr. Milley is the sole general partner; (iv)
228,200 shares held by Azimuth Corporation, of which Mr. Milley is the
Chairman, President and (through Cadmus Corporation) the sole holder of
voting stock; and (v) 788,000 shares held by Peter R. Kellogg or other
"Kellogg Persons" party to the Kellogg Standstill Agreement (see
"Certain Transactions - Rights Agreement Amendment; Kellogg Standstill
Agreement"), over which Mr. Milley has sole voting power but no
dispositive power. 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 deemed not to be beneficially owned by Mr. Milley. Also
includes and excludes shares issuable upon exercise of stock options
granted by the Company to Mr. Milley as indicated in footnote 1 above.
3
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain biographical 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"). Each individual's biographical information was furnished by him to the
Company.
NAME AGE POSITION
- ---- --- --------
Alexander M. Milley(1)(2) 47 Chairman, President and Chief Executive
Officer of the Company and ELXSI,
President and Chief Executive Officer
of Cues
Farrokh K. Kavarana(2)(3) 55 Director
Kevin P. Lynch(1)(3) 41 Director, Vice President of the Company
and ELXSI
Denis M. O'Donnell(2)(3) 46 Director
Robert C. Shaw(1) 47 Director, Vice President of the Company
David M. Doolittle 38 Chief Financial Officer of the Company,
Vice President, Treasurer and Secretary
of the Company and ELXSI
Daniel E. Bloodwell 49 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. He serves in the same positions for ELXSI and is
also President and Chief Executive Officer of Cues. 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 President-Acquisitions from December 1983 until July
1986 of The Dyson-Kissner-Moran Corporation, a private investment company. Mr.
Milley is also a director of Ampersand Medical Corporation ("Ampersand"),
formerly a distributor of high quality fabrics used in draperies and furniture
and now a development-stage entity primarily engaged in the design, development
and marketing of a series of instruments, disposables, and tests to provide
"Point of Care" enhanced cervical cancer screening, and Chairman of the Board of
Azimuth Corporation ("Azimuth"). Cadmus and Azimuth are significant stockholders
of the Company. See "Security Ownership of Certain Beneficial Owners."
Farrokh K. Kavarana became a director of the Company on September 25,
1989. Since 1994 he has been an Executive Director of the Tata Engineering and
Locomotive Company, Limited (TELCO), a member of the Tata Group of India. Prior
to that he had been Vice-Chairman and Managing Director of Tata International
AG, an international holding company, which owns the Tata Group's overseas
holdings and investments. Mr. Kavarana is a director of
4
<PAGE>
numerous non-U.S. companies, including Tata Industries Ltd., Tata Sons Ltd. of
India, Tata International AG, Switzerland, and Tata Technologies, Ptc. Ltd.,
Singapore (formerly 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 a Corporate Development executive at Macmillan, Inc., a publishing
company.
Denis M. O'Donnell became a director of the Company on May 23, 1996.
Since 1997, he has been Managing Director of Seaside Advisors, L.L.P., an
investment fund specializing in small capitalization private placements. Since
1998, Mr. O'Donnell has been a director of Novavax, Inc., a company engaged in
the development of pharmaceutical products. Prior thereto, he was a Senior
Advisor to Novavax from 1997 and its President from 1995 to 1997. Since 1998,
Mr. O'Donnell has been a director of Ampersand, and since 1999, Mr. O'Donnell
has been a director of Columbia Laboratories, Inc., a pharmaceutical company.
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 subsidiaries thereof since November 1990, a director of
Cadmus since January 1992 and a director of Ampersand since November 1989. See
"Certain Transactions - 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.
David M. Doolittle has served as Vice President and Controller of the
Company and ELXSI since June 1991. Mr. Doolittle was elected Chief Financial
Officer, Treasurer and Secretary of the Company and ELXSI in September 1999. He
has been Director and Vice President of Cadmus Corporation since December 1992,
Vice President of MMI since July 1995 and Vice President, Treasurer and
Assistant Secretary of Azimuth since September 1999. Since February 1996, Mr.
Doolittle has served as Vice President of Finance for Cues. From November 1987
to May 1991, Mr. Doolittle worked for Grant Thornton, a certified public
accounting firm.
Daniel E. Bloodwell became a Vice President of ELXSI on September 24,
1991, and has served as President of Bickford's since July 1, 1991. 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, 1999 the
Executive Committee did not meet. The members of the Committee are Messrs.
Milley, Lynch, and Shaw.
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, 1999, the Compensation Committee met one time.
5
<PAGE>
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, 1999, 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, 1999 the Board of Directors of the
Company met six times. All directors attended all of the 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.
OTHER COMPENSATION. During 1999 each director of the Company received
as compensation for his services as such options to purchase 7,500 shares
granted under the Company's 1999 Incentive Stock Option Plan. Each such option
is exercisable at a price of $10.188 per share, the market price of the Common
Stock on the date of the grant, and expires on June 15, 2009.
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.
During 1997, ELXSI and each of Messrs. Milley and Doolittle, with the
approval of the full Board of Directors, entered into employment agreements that
increased their annual salary to $150,000 and $95,000 (respectively) plus an
additional 5% per year and secures their services through at least June 2005
(since extended to June 2007). In 1999, Mr. Milley's cash compensation was
$150,000 and Mr. Doolittle's was $110,000. See "Executive Compensation -
Employment Agreements" below. The Compensation Committee feels that this
increased salary level and long-term commitment are justified. Mr. Milley's
devotion of substantial time and efforts to the Cues operations has led to a
significant, continued improvement in that division's operations and that the
Company overall has experienced continued and steady growth since 1989 under Mr.
Milley's leadership. The Compensation Committee feels that Mr. Doolittle has
also been instrumental in the success of Cues. Mr. Doolittle's compensation is
allocated $70,000 to Cues and $40,000 to ELXSI corporate headquarters. 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" below.
6
<PAGE>
Messrs. Milley's and Doolittle's employment agreements allow for ELXSI
to pay compensation over and above the amounts committed to thereunder. It is
the present intention of the Compensation Committee to evaluate the compensation
of these executive officers for their services as officers of the Company on an
annual basis. Additional compensation may be awarded 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 1999 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. 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 granted under the Phantom Stock Option
Plan, 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
Phantom Stock Option 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 his phantom stock options.
THE COMPENSATION COMMITTEE
Alexander M. Milley
Farrokh K. Kavarana
Denis M. O'Donnell
7
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the total compensation of the Chief
Executive Officer of the Company and of the other executive officers of the
Company who earned in excess of $100,000 for the year ended December 31, 1999.
<TABLE>
<CAPTION>
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
- ------------------ ------- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C>
Alexander M. Milley 1999 $150,000 -- 7,500 --
Chairman, President 1998 150,000 -- 7,500 --
& Chief Executive Officer 1997 120,000 -- 72,500 --
Daniel E. Bloodwell 1999 $130,769 $ 17,500 1,400 $ 77,554(1)
Vice President of ELXSI, 1998 135,000 15,000 1,400 317,266(1)
President of Bickford's 1997 122,692 0 2,150 264,388(1)
Division
David M. Doolittle 1999 $110,000 -- -- --
Chief Financial Officer,
Treasurer & Secretary(2)
</TABLE>
- -----------------------
(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 "Phantom Stock Option Plan" below.
(2) Mr. Doolittle became an executive officer in 1999. Accordingly, his
compensation for earlier years is not presented here.
8
<PAGE>
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
---------------------------------------------------
NUMBER OF ESTIMATED FUTURE PAYOUT UNDER
PHANTOM STOCK PHANTOM STOCK OPTION PLAN
OPTION RIGHTS PAYOUT -------------------------------
NAME ("PSOR'S") DATE THRESHOLD TARGET MAXIMUM
---- ---------- ---- --------- ------ -------
Alexander M.
Milley -- -- -- -- --
David M.
Doolittle -- -- -- -- --
Daniel E.
Bloodwell -- -- 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 employees. At
the inception of this Plan, ELXSI granted to these 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, including any debt incurred to acquire Bickford's, debt
incurred for Bickford's-related acquisitions and debt used for the working
capital needs of Bickford's, 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 PSOR 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, 1999, 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 during 1999 to each executive officer
named in the table above, and certain other relevant information.
9
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN THE LAST FISCAL YEAR
-------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NO. OF TOTAL VALUE AT ASSUMED
SHARES OF OPTIONS ANNUAL RATES OF STOCK
COMMON STOCK GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OPTION TERM
OPTIONS EXERCISE EXPIRATION ----------------------
NAME GRANTED IN 1999 PRICE DATE 5% 10%
- ---- ------------ ---------- --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Alexander M. Milley 7,500(1) 10.0% $10.188(2) 6/15/99 $48,054 $121,778
David M. Doolittle -- -- -- -- -- --
Daniel E. Bloodwell 1,400(1) 1.9% $10.188(2) 6/15/99 $8,970 $22,732
</TABLE>
(1) Options were granted on June 15,1999. Mr. Milley's options
became 100% exercisable on December 15, 1999. Mr. Bloodwell's
options become 25% exercisable on June 15, 2000 and become
exercisable as to an additional 25% on each June 15 from 2001
through 2003.
(2) The market value of the Common Stock on the date of grant.
The following table presents information as to the value of unexercised
in-the-money options granted under the Company's incentive stock option plans
and held at year-end by the executive officers named in the above table.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL
------------------------------------------
YEAR AND FISCAL YEAR-END OPTION VALUES
--------------------------------------
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT FISCAL
SHARES AT FISCAL YEAR-END YEAR-END (1)
ACQUIRED VALUE -------------------------------- ---------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alexander M. Milley -- -- 210,000 2,500 $1,349,840 $ 17,188
David M. Doolittle -- -- 90,250 37,250 604,094 158,719
Daniel E. Bloodwell -- -- 1,425 4,050 5,828 16,262
</TABLE>
(1) Assumes a fair market value per share of Common Stock of
$12.875, the December 31, 1999 closing price.
10
<PAGE>
Employment Agreements
In mid-1997, ELXSI and Mr. Milley entered into an Employment Agreement,
dated as of June 30, 1997 (the "Milley Employment Agreement"), which, in the
main: (i) provides for the employment of Mr. Milley as the Chairman of the
Board, President and Chief Executive Officer of both the Company and ELXSI and
as President and Chief Executive Officer of Cues, (ii) requires Mr. Milley to
devote substantially his entire professional time, attention and energies
(reasonable vacation, periods of illness and the like excepted) to the
performance of all the duties, responsibilities and functions incident to those
offices, and (iii) accordingly, places on Mr. Milley primary executive
responsibility for each of the Company, ELXSI and Cues. Also in mid-1997, ELXSI
and Mr. Doolittle entered into an Employment Agreement, dated as of June 30,
1997 (collectively with the Milley Employment Agreement, the "Employment
Agreements"), pursuant to which he serves in various capacities with the
Company, ELXSI and Cues, including Chief Financial Officer of the Company. Prior
to the time that the Employment Agreements became effective, there was no formal
employment or similar agreement between the Company or any of its subsidiaries
and either Messrs. Milley or Doolittle (hereinafter, the "Executives"). The term
of the Employment Agreements commenced on June 30, 1997, originally extended
until June 30, 2005 (the "Initial Term") and can renewed or extended with the
approval of the Board of Directors of the Company and the consent of the
executive parties, on such terms and conditions as they may agree. During 1998,
ELXSI, with the approval of the Board of Directors of the Company, agreed to
extend the Initial Term of the Employment Agreements by two years, until June
30, 2007.
Pursuant to the Employment Agreements, the Executives' respective base
salary compensation was increased to (i) $150,000 per annum in the case of Mr.
Milley and $95,000 per annum in the case of Mr. Doolittle plus (ii) an
additional, cumulative 5% increase that becomes effective on each subsequent
June 30 during its term. The Employment Agreements also entitle the Executives:
(a) to participate in such stock option, profit sharing and bonus plans as are
made available to other senior executives of ELXSI, (b) to be covered (together
with their spouses and minor children) by any and all group health, dental, life
insurance and disability plans made available to senior executives of ELXSI, the
Company or any of its subsidiaries or divisions generally, (c) to the use of a
suitable executive company car, (d) to take four weeks of paid vacation during
each year, and (e) to reimbursement for reasonable travel, lodging,
entertainment, professional promotion and other appropriate business expenses
incurred in the course of their duties on behalf of ELXSI, the Company or any of
its subsidiaries or divisions. The Employment Agreements do not limit or
restrict the right or ability of ELXSI (acting with the authorization of the
Board of Directors of the Company or the Compensation Committee thereof) to
grant or award other or additional compensation to the Executives, in whatever
form at any time, or to limit or restrict the right or ability of ELXSI to
prospectively or conditionally grant or award any such other or additional
compensation.
The Employment Agreements also provide that if an Executive's
employment is terminated at any time for any reason (including by reason of a
failure to renew or extend prior to the expiration of the Initial Term), then
prior to (and as a condition to) such termination, ELXSI must pay to the
Executive a lump-sum amount equal to: (i) the amount of base salary compensation
that would have been (but for such termination) paid over the one-year period
commencing with the effective date of such termination, plus (ii) if such
termination is to take effect prior to the expiration of the Initial Term, the
amount of base salary compensation that would have been (but for such
termination) paid over the remaining Initial Term, less (iii) a present value
discount calculated at an annual rate of 6% and taking into account the timing
of the base salary payments that would have been made to the Executive during
the remaining term of the Employment Agreement (and, in the case of the
foregoing clause (i), during the one-year period commencing with the effective
date of the termination) assuming (for this purpose) that the employment of the
Executive under the applicable Employment Agreement had not been terminated.
Also in the event that either Executive's employment under his
Employment Agreement is terminated at any time for any reason, he (if he is
alive) and his spouse and minor children shall continue, for the period of time
from and after the effective date of such termination until the date specified
hereinbelow, to be covered, at ELXSI's expense, by any and all insurance plans
made available to senior executives of the ELXSI, the Company or any of its
subsidiaries or divisions generally. Such period of time shall end: (i) in the
case of a termination on or after the expiration of the Initial Term, on the
earlier to occur of (x) the first anniversary of such termination and (y) the
date that the Executive shall have
11
<PAGE>
obtained other employment with insurance benefits equivalent to (or in excess
of) those provided for under this Employment Agreement; and (ii) in the case of
a termination prior to the expiration of the Initial Term, on the earlier to
occur of (x) the June 30, 2008 and (y) the date that the Executive shall have
obtained other employment with such equivalent (or excess) insurance benefits.
Under the Employment Agreements, the Executives agreed that during the
term thereof and for a period of one year thereafter he will not engage in, or
be employed or retained by or have certain other proscribed connections with,
any business or enterprise that competes with any business or enterprise being
pursued by the Company or any subsidiary or division thereof; provided that the
foregoing will not apply to an Executive whose employment is terminated by him
with good legal reason, by ELXSI without good legal cause or due to the
expiration of his Employment Agreement term. The Employment Agreements also
contain provisions prohibiting the disclosure or use by the Executives of
non-public information confidential and/or proprietary to the Company or any of
its subsidiaries or divisions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 31, 2000, the Company had outstanding 4,290,438 shares of
Common Stock. The following table sets forth certain information regarding the
ownership of the Company's Common Stock by all those persons and entities known
by the Company to be beneficial owners of more than five percent (5%) of the
Common Stock, based upon information furnished by the respective beneficial
owners.
COMMON STOCK OF THE
COMPANY BENEFICIALLY OWNED
AS OF MARCH 31, 2000(1)
-------------------------------
NUMBER OF PERCENT
NAME SHARES OF CLASS
---- --------- --------
Alexander M. Milley
3600 Rio Vista Avenue, Suite A
Orlando, Florida 32805 2,294,014(2) 49.7%
Peter R. Kellogg
Spear, Leeds & Kellogg
120 Broadway
New York, New York 10271 788,000(3) 18.4%
Aggel Enterprises, Ltd.
11 Duddell Street
12th Floor
Hong Kong 325,940(4) 7.6%
Fidelity Management & Research
Company/FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 267,500(5) 6.2%
- --------------------
(1) Except as otherwise indicated the persons and entities named
in this 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.
12
<PAGE>
(2) 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. ("EKLLC"),
of which Mr. Milley is the sole manager, the President and a
member; (ii) 221,505 shares held by Cadmus, of which Mr.
Milley is the Chairman, President and an indirect controlling
shareholder; (iii) 590,200 shares held by ELX Limited
Partnership ("ELXLP"), of which Mr. Milley is the sole general
partner; (iv) 228,200 shares held by Azimuth, of which Mr.
Milley is the Chairman, President and (through Cadmus) the
sole holder of voting stock; and (v) 788,000 shares held by
Peter R. Kellogg or other "Kellogg Persons" party to the
Kellogg Standstill Agreement (see "Certain Transactions -
Rights Agreement Amendment; Kellogg Standstill Agreement"
below), over which Mr. Milley has sole voting power but no
dispositive power. Also includes 208,500 shares issuable upon
exercise of stock options granted by the Company that are
exercisable currently or within 60 days and excludes 4,000
shares issuable upon exercise of stock options granted by the
Company that become exercisable in more than 60 days. 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 deemed not to be
beneficially owned by Mr. Milley. EKLLC's and Azimuth's shares
each constitute approximately 5.3% of the outstanding Common
Stock, and ELXLP's shares constitute approximately 13.8% of
the outstanding Common Stock. Cadmus is the sole holder of
voting stock of Azimuth and so may be deemed to share the
voting and dispositive power with respect to shares of Common
Stock held by Azimuth; consequently, Cadmus may be deemed to
beneficially own 449,705 shares, or approximately 10.5%, of
the outstanding Common Stock. MMI, of which Mr. Milley is
President, sole director and majority stockholder, is a
controlling stockholder of Cadmus and so may be deemed to
share the voting and dispositive power with respect to shares
of Common Stock held by Cadmus and/or Azimuth; consequently,
MMI may be deemed to beneficially own 449,705 shares, or
approximately 10.5%, of the outstanding Common Stock. The
address of each of EKLLC, Cadmus, ELXLP, Azimuth and MMI is
the same as that indicated above for Mr. Milley.
(3) Includes: (i) 125,000 shares held by Cynthia Kellogg, Mr.
Kellogg's wife; (ii) 310,500 shares held by I.A.T. Reinsurance
Syndicate Ltd. ("IAT"), of which Mr. Kellogg is the sole
holder of voting stock, and subsidiaries of IAT; (iii) 200,000
shares held by the Peter R. Kellogg & Cynthia Kellogg
Foundation (the "Kellogg Foundation"), of which Mr. Kellogg is
a trustee; and (iv) 50,000 shares held by the NOM Trust U/W/O
James C. Kellogg III (the "Kellogg Trust"), of which Mr.
Kellogg is a trustee. Mr. Kellogg: (a) has sole dispositive
power with respect to the shares held by IAT and shared
dispositive power with respect to the shares held by Mrs.
Kellogg, the Kellogg Foundation and the Kellogg Trust, and (b)
disclaims beneficial ownership of all of the foregoing shares.
Mr. Kellogg, Mrs. Kellogg, IAT and its subsidiaries holding
Common Stock, the Kellogg Foundation and the Kellogg Trust are
the current "Kellogg Persons" party to the Kellogg Standstill
Agreement and, pursuant thereto, have granted to Mr. Milley an
irrevocable right to vote the shares of Common Stock held by
them. See "Certain Transactions - Rights Agreement Amendment;
Kellogg Standstill Agreement."
(4) Includes 69,784 shares owned of record or beneficially by
other entities under common control with Aggel Enterprises,
Ltd. Mr. Kavarana, a director of the Company, is affiliated
with the controlling shareholders of Aggel Enterprises, Ltd.
and its affiliates. Mr. Kavarana
13
<PAGE>
disclaims beneficial ownership of all shares beneficially
owned by Aggel Enterprises, Inc.
(5) 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.
FMR Corp., through its control of FMRC, and the Fund have sole
dispositive power with respect to these shares; the Fund,
acting under the guidelines established by its Board of
Trustees, has sole voting power with respect to these 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 on September 30 1992; in that year MMI and
ELXSI agreed to an extension of its term (i) through September 30, 1995 (the
"Initial Term") and (ii) 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. Effective January 1, 1994, MMI transferred
its rights and obligations under the Management Agreement to Cadmus. Under an
amendment entered into by ELXSI and Cadmus in 1997 (the "1997 Amendment") the
date for the earliest expiration of the Initial Term was extended from September
30, 1995 to June 30, 2005, and under another amendment agreed to by ELXSI and
Cadmus in 1998 the date for the earliest expiration of the Initial Term was
further extended to June 30, 2007.
The terms of the Management Agreement provide for ELXSI to be provided
with advice and services with respect to ELXSI's business and financial
management and long-range planning, including: (i) furnishing the services of
certain executive officers and other employees of Cadmus; (ii) advising and
assisting in connection with financing arrangements; (iii) assisting management
in preparing and submitting to the Board of Directors analyses of the business
and operations of ELXSI; (iv) assisting management in the preparation of
financial and operating records; and (v) assisting in the retention of other
persons, firms and corporations to render professional and technical services to
ELXSI. Specific examples of services historically rendered to under the
Management Agreement include: (a) ongoing evaluation of division management; (b)
preparing and reviewing division operating budgets and plans; (c) evaluating new
restaurant locations and menu changes; (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) cash management services; (l) preparing
market research; (m) developing and improving management reporting systems; and
(n) identifying and evaluating acquisition candidates and investment
opportunities. In addition, Cadmus provides the Company with general
administrative services, for which it did not charge the Company for 1999.
Under the Management Agreement, the management services provider became
entitled to receive, in addition to reimbursement for reasonable expenses, fee
compensation commencing upon ELXSI's having first achieved operating income (as
defined) of $1,250,000 for a fiscal quarter. Those fees may be discontinued
following any fiscal year in which such operating income is less than
$4,000,000, but shall be reinstated following the first fiscal quarter
thereafter in which ELXSI 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.
14
<PAGE>
Prior to the 1997 Amendment, the fee compensation payable by ELXSI
under the Management Agreement was $500,000 per annum. Pursuant to the 1997
Amendment, this compensation was increased, effective April 1, 1997, to (i)
$600,000 per annum plus (ii) an additional, cumulative 5% increase that becomes
effective on each April 1 during its term. Cadmus may request an increase in
such fee or escalator, but any such increase must be approved by a majority of
the independent directors of the Company.
The Management Agreement provides that if Cadmus's services under the
Management Agreement are terminated at any time for any reason (including by
reason of a failure to renew or extend prior to the expiration of the Initial
Term), then prior to (and as a condition to) such termination, ELXSI must pay to
Cadmus a lump-sum amount equal to: (i) the amount of fees that would have been
(but for such termination) paid over the one-year period commencing with the
effective date of such termination, plus (ii) if such termination is to take
effect prior to the expiration of the Initial Term, the amount of fees that
would have been (but for such termination) paid over the remaining Initial Term,
less (iii) a present value discount calculated at an annual rate of 6% and
taking into account the timing of the fee payments that would have been made to
Cadmus during the remaining Initial Term (and, in the case of the foregoing
clause (i), during the one-year period commencing with the effective date of the
termination) assuming (for this purpose) that the services of Cadmus under the
Management Agreement had not been terminated. For purposes of the foregoing,
ELXSI's operating income for all relevant periods will be deemed to be in excess
of $4,000,000 if operating income for the full fiscal year most recently
completed prior to the relevant termination was equal to or in excess of such
amount.
It is through the Management Agreement that the Company is provided the
non-director services of Kevin P. Lynch, a Vice President and director of the
Company. Each of Messrs. Milley, Shaw and Doolittle is an officer and/or
director of Cadmus;. Messrs. Shaw and Lynch are shareholders of Cadmus; and
through MMI (a direct Cadmus stockholder) Mr. Milley is the controlling
shareholder of Cadmus. See "Directors and Executive Officers of the Company."
Loans to Cadmus, ELX and Azimuth
On June 30, 1997, ELXSI loaned to Cadmus $2,000,000 to finance its
purchase from Bank of America National Trust and Savings Association (then named
Bank of America Illinois) ("BofA"), ELXSI's lending bank, 6,517 shares of Series
AAA preferred stock of Azimuth that it had issued in December 1996 under a
Recapitalization Agreement to which Azimuth, its subsidiaries, BofA and ELXSI
were parties. This loan originally matured on the second anniversary of its
origination (i.e., June 30, 1999), was extended in 1999 by two years, requires
quarterly payments of interest at a rate of 15% per annum and is secured by a
pledge of the shares of Azimuth Series AAA preferred stock financed thereby. The
funds for ELXSI's loan to Cadmus were provided by BofA, under ELXSI's credit
agreement. Each of Messrs. Milley, Shaw and Doolittle is an officer and/or
director of Azimuth, and Mr. Milley controls Cadmus and Azimuth.
In December 1994, the Company made a three-year loan of $1,155,625 to
ELX Limited Partnership ("ELXLP"), of which Mr. Milley is the sole general
partner and Messrs. Lynch, Shaw and Doolittle are limited partners, to finance
ELXLP's exercise of an option to purchase 369,800 shares of Common Stock from
The Airlie Group, L.P. In December 1996, the Company made another three-year
loan to ELXLP, of $909,150, utilized by it to exercise an option to purchase
110,200 shares of Common Stock held by BankAmerica Capital Corporation ("BACC"),
an affiliate of BofA, and to purchase from BACC an additional 110,200 shares of
Common Stock. Funding for these loans were obtained by the Company through
ELXSI's credit agreement with BofA. Both Company loans to ELX require no
principal or interest payments until their respective maturity dates and bear
interest at a rate equal to the Company's cost of funds (under ELXSI's BofA
credit agreement) plus 0.5%. In December 1997, the Company agreed to a
three-year extension of its 1994 loan to ELXLLP, and ELXLLP paid in full all
interest accrued on such loan through the original maturity date, totaling
approximately $330,000. In December 1999, the Company agreed to a three-year
extension of its 1996 loan to ELXLLP and to the capitalization of the interest
then accrued thereon. Consequently, this loan now has a $1,150,959 principal
balance and matures in December 2002.
15
<PAGE>
In March 1998, an individual stockholder of the Company sold to the
Company and Azimuth 90,000 and 10,000 shares, respectively, of Common Stock at a
price of $13.50 per share. The funds for these purchases were obtained by the
Company through ELXSI's credit agreement with BofA. The Company loaned to
Azimuth the amount required to complete its 10,000-share purchase, or $135,000.
This loan will mature on the third anniversary of its origination (i.e., in
March 2001), 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 BofA credit agreement) plus 0.5%.
At various times during 1999 ELXSI made loan advances to Cadmus of
which $7,487,000 and $3,661,000 were outstanding as of December 31, 1999 and
March 31, 2000, respectively. The funds for these advances were provided by
BofA, under ELXSI's credit agreement. These advances to Cadmus bear interest at
a rate of prime plus 2% and are secured by a portfolio of equity securities
owned by Cadmus and purchased with the proceeds thereof. Repayment is also
guaranteed by Mr. Milley.
Rights Agreement Amendment; Kellogg Standstill Agreement
In 1997, the Company entered into a Rights Agreement, dated as of June
4, 1997 (as amended, the "Rights Agreement"), with Continental Stock Transfer &
Trust Company, as Rights Agent (the "Rights Agent"), pursuant to which (among
other things) the Board of Directors of the Company declared a dividend of one
Common Stock Purchase Right (each, a "Right") for each share of Common Stock
outstanding at the opening of business on June 16, 1997. All shares of Common
Stock issued on or after such date also have or will have one attached Right.
Generally speaking, each Right will detach from the Common Stock, and become
exercisable at $25.00 for shares of Common Stock having twice that value, ten
business days after (a) the public announcement that any person, entity or
"group", together with the respective affiliates and associates thereof, has
become the beneficial owner of 15% or more of the outstanding Common Stock (such
a person, entity or group, an "Acquiring Person"), or (b) the commencement of a
tender or exchange offer that would result in any person, entity or "group"
beneficially owning 15% or more of the outstanding Common Stock (as such terms
are defined, and determinations made, under applicable Commission rules);
provided that the percentage applicable to Mr. Milley and other "Milley Group
Members" (as defined in the Rights Agreement, and which includes Azimuth,
Cadmus, Eliot Kirkland L.L.C., ELXLP and MMI) is 35%.
In January 1999, after Peter R. Kellogg disclosed to the Company that
he and certain related persons and entities, in the aggregate, owned in excess
of 650,000 shares of Common Stock, they commenced negotiations that culminated
in the entering into by: (a) the Company and the Rights Agent of a Rights
Agreement Amendment, dated as of March 16, 1999 (the "Rights Agreement
Amendment"), and (b) the Company, Alexander M. Milley, Mr. Kellogg and such
related persons and entities (who are identified in footnote 3 to the "Security
Ownership of Certain Beneficial Owners" table hereinabove) (collectively with
Mr. Kellogg, the "Kellogg Persons"), of a Standstill Agreement, dated as of
March 16, 1999 (the "Kellogg Standstill Agreement").
The most significant amendments to the Rights Agreement effected under
the Rights Agreement Amendment were certain modifications to the definition of
"Acquiring Person" that, in essence: (a) permit "Kellogg Group Members" (as
defined in the Rights Agreement Amendment, and which includes all the present
Kellogg Persons), under certain circumstances and subject to certain
limitations, to beneficially own in excess of 15% of the outstanding Common
Stock without becoming "Acquiring Persons" under the Rights Agreement (the
"Kellogg Rights Agreement Amendments"), and (b) exclude from the determination
of the Milley Group Members' beneficial ownership of Common Stock shares
beneficially owned by Kellogg Group Members or by other Peter R. Kellogg-related
persons and entities that are within the definition therein of "Kellogg Related
Persons" that may, under applicable Commission rules, be deemed to be
beneficially owned by Mr. Milley by virtue of the Kellogg-to-Milley Proxy
granted pursuant to the Kellogg Standstill Agreement and described hereinbelow.
The limited in-excess-of-15% permission granted to Kellogg Group Members under
the Rights Agreement Amendment is embodied in the definition therein of "Kellogg
Group Member Limit", which is the greater of: (i) 1,000,000 shares of Common
Stock (subject to adjustment for stock splits, stock dividends, etc.) less the
number of shares of Common Stock beneficially owned by all Kellogg Related
Persons and all of their respective affiliates and associates, and (ii) 15% of
the outstanding Common Stock; provided that if at any time it is established
that any Kellogg Group Member or any affiliate or associate of any Kellogg Group
Member
16
<PAGE>
who is a beneficial owner of Common Stock acquired those securities with the
purpose or effect of changing or influencing the control of the Company, or in
connection with or as a participant in any transaction having that purpose or
effect, then the foregoing clause (i) will no longer be effective and the
"Kellogg Group Member Limit" will be 15% of the outstanding Common Stock. Under
the Kellogg Standstill Agreement, the Kellogg Persons have represented and
warranted that their shares of Common Stock were not acquired and are not held
for the purpose of or with the effect of changing or influencing the control of
the Company, or in connection with or as a participant in any transaction having
that purpose or effect.
The determination by the Board of Directors of the Company to implement
the Kellogg Rights Agreement Amendments was based upon, in part, the
representations, warranties, covenants and agreements of the Kellogg Persons
under the Kellogg Standstill Agreement. Consistent therewith, the Rights
Agreement Amendment provides that in the event that at any time any Kellogg
Person is in breach of or default under the Kellogg Standstill Agreement, the
effectiveness of the Kellogg Rights Agreement Amendments may, at the election of
the Company, be suspended or terminated. Under the Kellogg Standstill Agreement,
the Company has agreed that, for so long as there is not any breach of or
default under the Kellogg Standstill Agreement on the part of any Kellogg
Person, it will not suspend or terminate any of the Kellogg Rights Agreement
Amendments, terminate the Rights Agreement Amendment or take any other action
having the purpose or effect of modifying or altering the Kellogg Rights
Agreement Amendments.
Under the Kellogg Standstill Agreement, the Kellogg Persons have agreed
that if after the date thereof any Kellogg Group Member or any affiliate or
associate thereof who (in each case) is not already a "Kellogg Person" party
thereto purchases or otherwise acquires any shares of Common Stock or other
voting securities of the Company ("Other Voting Securities"), that person or
entity will promptly thereafter take the actions specified therein to become a
"Kellogg Person" party to the Kellogg Standstill Agreement.
Pursuant to the Kellogg Standstill Agreement, each Kellogg Person has
irrevocably constituted and appointed Mr. Milley the attorney-in-fact and proxy
of such Kellogg Person, with full power of substitution, to vote all shares of
Common Stock and Other Voting Securities which such Kellogg Person is entitled
to vote at any annual or special meeting of the stockholders of the Company, and
to express consent or dissent to any corporate action in writing without a
meeting of the stockholders of the Company, in such manner as Mr. Milley or his
substitute may determine (the "Kellogg-to-Milley Proxy"). The Kellogg-to-Milley
Proxy: (a) is stated to be coupled with an interest and irrevocable; (b) covers
any and all shares of Common Stock and Other Voting Securities owned by any
Kellogg Person, whenever acquired; and (c) will remain in effect for so long any
Rights are outstanding under the Rights Agreement. No Kellogg Person may grant
any proxy or power of attorney to any person or entity which conflicts with the
Kellogg-to-Milley Proxy.
Under the Kellogg Standstill Agreement, the Kellogg Persons have
granted to Mr. Milley certain rights of first refusal over any shares of Common
Stock or Other Voting Securities owned by them that they may determine to sell
or otherwise dispose of, subject to certain exceptions. Mr. Milley has the right
to designate a different person or entity to effect the purchase of any such
shares or Other Voting Securities as to which such rights may be exercised.
Under the Kellogg Standstill Agreement, each Kellogg Person has agreed
that, unless and to the extent otherwise consented to in writing by the Company,
such Kellogg Person will not: (a) solicit proxies with respect to any Common
Stock or Other Voting Securities, actively oppose any action approved by a
majority of the Continuing Directors (as defined in the Rights Agreement) of the
Company, or become a "participant" in any "election contest" relating to the
election of directors of the Company; (b) propose, make or initiate, or solicit
stockholders of the Company for the approval of, one or more stockholder
proposals; (c) propose, or make, initiate or solicit any proposals from, or
provide any information or participate in any discussions or negotiations with,
or otherwise cooperate in any way with or assist, any person or entity
concerning any merger, consolidation, other business combination, tender or
exchange offer, recapitalization, liquidation or dissolution or any purchase or
other acquisition or sale or other disposition of assets (other than in the
ordinary course of business) or shares of capital stock of the Company or any of
its subsidiaries or divisions or any similar transaction involving the Company
or any subsidiary or division of the Company or any subsidiary; (d) take any
other action for the purpose of or with the effect of changing or influencing
the control of the
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Company, or in connection with or as a participant in any transaction having
that purpose or effect; (e) form, join or in any way participate in any "group"
with respect to any securities of the Company (except a group consisting
entirely of Kellogg Group Members, Kellogg Related Persons, Milley Group Members
and/or their respective affiliates or associates); or (f) induce, attempt to
induce, encourage or solicit, or cooperate with, any other person or entity to
do any of the foregoing.
Under the Kellogg Standstill Agreement, if after the date thereof any
Kellogg Related Person or any affiliate or associate thereof acquires any
additional shares of Common Stock or Other Voting Securities, that person or
entity must promptly thereafter take the actions specified therein in order to
make applicable to such shares the Kellogg-to-Milley Proxy, the above-described
rights of first refusal and the covenants and agreements described in the
immediately preceding paragraph hereof.
Under the Kellogg Standstill Agreement, Peter R. Kellogg indemnifies
the Company, Mr. Milley, the other Milley Group Members and their respective
officers, directors, employees, agents, professional advisors and controlling
persons, for the period of time specified therein, from and against any and all
Losses (as defined therein) incurred or suffered by any of them as a result of
or arising out of or in connection with the Rights Agreement Amendment and/or
Kellogg Standstill Agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Throughout 1999, the Company's Compensation Committee was comprised of
Messrs. Milley, Kavarana and O'Donnell. Throughout 1999, Mr. Milley also served
as Chairman, President and Chief Executive Officer of the Company and ELXSI and
as President and Chief Executive Officer of its Cues division. Throughout 1999,
Messrs. Doolittle, Milley and Shaw all served as directors and/or executive
officers of Azimuth. Messrs. Milley and Shaw were directors and/or executive
officers of Ampersand throughout 1999. Messrs. Milley, Shaw and Doolittle were
directors and/or executive officers of Cadmus throughout 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In March 2000, Mr. Milley filed with the Commission a Statement of
Changes in Beneficial Ownership on Form 4 ("Form 4"), as required under rules
promulgated under Section 16(a) ("Section 16(a)") of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), in order to report certain purchases
of Common Stock by Cadmus. This filing disclosed, for the first time for
purposes of Section 16(a), seven open market or private purchases by Cadmus of
Common Stock covering 6,217 shares in the aggregate consummated as early as July
1997 and as recently as December 1998. The foregoing transactions should have
been reported on a Form 4 filed with the Commission by the tenth day of the
month following their respective consummation dates.
STOCK PERFORMANCE GRAPH
Presented below is a stock performance graph which shows a comparison
of the performance of the Company's Common Stock over the five-year period from
December 31, 1994 through December 31, 1999 versus The Nasdaq Stock Market
("Nasdaq") Index and the Nasdaq Non-Financial Stocks Index. The Nasdaq
Non-Financial Stocks Index was chosen as an appropriate industry index because
the Company operates in two distinct business segments: restaurants and
equipment manufacturing and servicing. Thus, a broad definition of industry such
as "Non-Financial" was deemed appropriate by the Company and has been used for
this Proxy Statement section since 1993. The closing price of the Common Stock
on December 31, 1999 was $12.875.
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THE FOLLOWING TABLE REPRESENTS A GRAPHIC CHART WHICH HAS BEEN OMITTED.
CUMULATIVE RETURN OVER 5 YEARS (12/94 = 100)
- --------------------------------------------------------------------------------
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- --------------------------------------------------------------------------------
Nasdaq Index 100 141 174 213 300 566
- --------------------------------------------------------------------------------
ELXSI Corporation 100 117 126 219 240 245
- --------------------------------------------------------------------------------
Nasdaq Non-Financial 100 139 169 198 291 574
- --------------------------------------------------------------------------------
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PROPOSAL NO. 2 -- APPROVAL OF THE
ELXSI CORPORATION 2000 INCENTIVE STOCK OPTION PLAN
(ITEM 2 ON THE PROXY CARD)
The Board of Directors adopted the ELXSI Corporation 2000 Incentive
Stock Option Plan (the "2000 Option Plan") on March 6, 2000. The purpose and
terms of the 2000 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 2000 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 2000 Option
Plan. The 2000 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, three of whom are non-executive directors, two 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 2000 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 2000 Option Plan. The market value of the Common Stock at the
close of business on March 31, 2000 was $13.50 per share.
The maximum number of shares of Common Stock that may be made subject
to Options is 35,000 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. An Option may contain terms making it exercisable in
increments over a specified interval of time or in whole after the lapse of a
specified period 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
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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
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 2000 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 2000 Option Plan at any time, except that no such change in the
2000 Option 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 applicable provisions of the Code,
applicable federal or state securities laws or Nasdaq or exchange listing
requirements will not be effective if stockholder approval is not obtained as
required. Unless sooner terminated, the 2000 Option Plan will terminate on March
6, 2010.
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 2000 Option Plan is being submitted to the stockholders of the
Company for approval in order to comply
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with certain Nasdaq rules applicable to the Company and in order to satisfy one
of the Code's conditions to qualifying certain Options granted thereunder as
incentive stock options. In the event that the 2000 Option Plan is not approved
by stockholders, it will not be effective; however, the Board of Directors may
consider readoption of the 2000 Option Plan or another similar plan.
The Board of Directors recommends that stockholders vote FOR the
approval of the 2000 Option Plan.
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PROPOSAL NO. 3 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
(ITEM 3 ON PROXY CARD)
The Board of Directors of the Company has appointed the firm of
PricewaterhouseCoopers LLP as its independent accountants for the fiscal year
ending December 31, 2000. PricewaterhouseCoopers LLP served in such capacity for
the Company's preceding fiscal year. The Company has been advised by
PricewaterhouseCoopers LLP that neither it nor any member thereof has any
financial interest, direct or indirect, in the Company in any capacity. A
representative of PricewaterhouseCoopers 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 PricewaterhouseCoopers LLP as the Company's
independent accountants for the current fiscal year.
OTHER MATTERS; PROPOSALS OF STOCKHOLDERS
The Company's Bylaws require that any business or proposals to be
considered or voted upon at any meeting of stockholders, if not offered by the
Board of Directors, on behalf of the Board of Directors by an authorized
committee thereof or by the Chairman of the meeting, be offered by a stockholder
of the Company entitled to vote thereon at such meeting, but only if written
notice thereof, containing specified information, is delivered to the Secretary
of the Company so as to be received not less than 30 nor more than 60 days prior
to the meeting; provided, however, that: (a) if less than 35 days notice of the
meeting is given to stockholders, such notice must be so delivered not later
than the seventh day following the date on which such notice of the meeting was
mailed; and (b) such notice is not be required with respect to any stockholder
proposal that is included in the Company's proxy materials in accordance with
Rule 14a-8 under the Exchange Act ("Rule 14a-8"). There is no stockholder
proposal included in these proxy materials and the Secretary of the Company has
not received notice in accordance with the foregoing of any other business or
proposal (not disclosed in this Proxy Statement) to be considered or voted upon
at the 2000 Annual Meeting of Stockholders. If any business, proposal or other
matter not described in these proxy materials should be brought before such
meeting for a vote, it is the intention of the persons named in the enclosed
form of Proxy to vote in accordance with their discretion.
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting of Stockholders and included in the Company's proxy materials therefor
in accordance with Rule 14a-8 must be received at the Company's executive
offices on or before December 23, 2000. Other stockholder business and proposals
intended to be presented at such meeting must be received by the Secretary of
the Company within the time-frames described in the immediately preceding
paragraph.
ELXSI Corporation
By Alexander M. Milley
Chairman of the Board,
President & Chief Executive Officer
IT IS IMPORTANT THAT PROXIES BE RETURNED OR OTHERWISE VOTED PROMPTLY.
THEREFORE, STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE
URGED TO FILL IN, SIGN, DATE AND RETURN THE ENCLOSED FORM OF PROXY OR VOTE VIA
THE INTERNET OR BY TELEPHONE.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, filed with the Securities and Exchange Commission, may
be obtained without charge by any stockholder of the Company of
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record as of March 31, 2000 by writing to: ELXSI Corporation, 3600 Rio Vista
Avenue, Suite A, Orlando, Florida 32805, Attention: David M. Doolittle.
The Company's stock transfer agent is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004; telephone: (212) 509-4000.
24
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Annex A
ELXSI CORPORATION
2000 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.
(13) Plan means this ELXSI Corporation 2000 Incentive Stock
Option Plan as set forth herein, and as amended from time
to time.
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(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 6, 2000. The effective date of this Plan shall be May 25, 2000, 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 35,000
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 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.
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(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 exercise of an Option to
the extent necessary or advisable to comply with the
applicable requirements of The Nasdaq Stock Market
("Nasdaq") or any exchange on which the Common Stock is
listed, or any federal or state securities laws.
(5) Withholding Taxes. The Company's obligation to deliver
shares of Common Stock upon
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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 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:
A-4
<PAGE>
(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 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 6, 2010. 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
A-5
<PAGE>
(2) any such amendment, suspension or termination that
requires approval by the stockholders of the Company in
order 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.
A-6
<PAGE>
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ELXSI CORPORATION
3600 Rio Vista Avenue, Suite A
Orlando, Florida 32805
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
May 25, 2000
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 Company's headquarters
offices, located at 3600 Rio Vista Avenue, Suite A, Orlando, Florida 32805, on T
h u r s d a y, May 25, 2000, 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 matters described herein in
the manner herein specified.
(PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ^
<PAGE>
- --------------------------------------------------------------------------------
PROXY BY MAIL
Please mark
your votes [X]
like this
IF THIS PROXY IS PROPERLY EXECUTED, THE SHARES OF COMMON STOCK COVERED HEREBY
WILL BE VOTED AS SPECI-FIED HEREIN. IF NO SPECIFICATION IS MADE, SUCH SHARES
WILL BE VOTED "FOR" PROPOSALS 1, 2, AND 3, AND AS THE PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
<TABLE>
<CAPTION>
FOR WITHHOLD
AUTHORITY FOR AGAINST ABSTAIN
<S> <C>
1. Election of the following five 2. Approval of the ELXSI Corporation 2000 [ ] [ ] [ ]
nominees as directors of the Company: [ ] [ ] Incentive Stock Option Plan
Nominees: 01 Farrokh K. Kavarana; 3. Ratification of Appointment of
02 Kevin P. Lynch; 03 Alexander M. Milley; PricewaterhouseCoopers LLP as the [ ] [ ] [ ]
04 Denis M. O'Donnell; and 05 Robert C. Shaw Company's independent accountants for the
fiscal year ending December 31, 2000
FOR all nominees listed above except withhold authority 4. In their discretion, the proxies are
to vote for the following nominee(s): authorized to vote upon such other matters
as may properly come before the Meeting.
_____________________________________________ The undersigned hereby revoke(s) all previous Proxies and
acknowledge(s) receipt of the Notice of Meeting dated
- --------------------------------------------- April 21, 2000, the Proxy
Statement attached thereto and the IF YOU WISH TO VOTE ELECTRONICALLY PLEASE
Annual Report of Form 10-K of the Company for the fiscal year
READ THE INSTRUCTIONS BELOW ended December 31, 1999 forwarded therewith.
- ---------------------------------------------
</TABLE>
- -------------------------------- ==========================================
COMPANY NUMBER:
PROXY NUMBER:
ACCOUNT NUMBER:
- -------------------------------- ==========================================
Signature _________________ Signature ________________ Date ___________________
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.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ^
<PAGE>
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] VOTE BY TELEPHONE OR INTERNET [GRAPHIC OMITTED]
QUICK * * * EASY * * * IMMEDIATE
- --------------------------------------------------------------------------------
ELXSI CORPORATION
[ ] You can now vote your shares electronically through the Internet or the
telephone.
[ ] This eliminates the need to return the proxy card.
[ ] Your electronic vote authorizes the named proxies to vote your shares in
the same manner as if you marked, signed, dated and returned the proxy card.
TO VOTE YOUR PROXY BY INTERNET
WWW.CONTINENTALSTOCK.COM
Have your proxy card in hand when you access the above web site. You will be
prompted to enter the company number, proxy number and account number to create
an electronic ballot. Follow the prompts to vote your shares.
TO VOTE YOUR PROXY BY MAIL
Mark, sign and date your proxy card above, detach it and return it in the
postage-paid envelope provided.
TO VOTE YOUR PROXY BY PHONE
1-800-293-8533
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter the company number, proxy number
and account number. Follow the voting instructions to vote your shares.
PLEASE DO NOT RETURN THE ABOVE CARD IF VOTED ELECTRONICALLY
- --------------------------------------------------------------------------------
<PAGE>
A MESSAGE FROM THE PRESIDENT:
I'm pleased to announce another record-setting year for both operating
divisions of ELXSI Corporation. Bickford's operating earnings grew to the $8.0
million level for the first time while Cues continued to reach new heights
registering earnings of $2.9 million. With an ongoing passion by our employees
to exceed customer demands, we believe that prospects are bright in both
businesses for years to come.
BICKFORD'S
Overall, Bickford's sales were up 3.4% in 1999 as new and existing
restaurants continued to contribute to sales increases. These increases were
partially offset by lost sales from the closing of our last Howard Johnson's
restaurant (whose lease expired) and comparable store customer count declines of
0.9%. While increasing labor costs (the result of an extremely tight labor
market) hurt profits, Bickford's managed to increase operating income
performance from $7.8 million to $8.0 million.
In 1999, we also continued our expansion in the New England market with
the opening of restaurants in Somerville, MA and Warwick, RI. Both restaurants
opened very successfully and we expect them to be major contributors to earnings
in the future. In 2000, we're looking to add five more new restaurants.
Also in 1999, we completed our second expansion of existing restaurant
facilities by adding a 60-seat function room to our Seekonk, MA restaurant.
Sales are up significantly here as a result of this expansion and we expect to
roll out four more building additions in 2000. These expansions allow for faster
seating of customers during busy periods as well as for providing private
meeting space for businesses, sports, or other groups.
We fully expect to remain focused on providing a great value to New
England patrons and were pleased to be recognized as the "Best Family Restaurant
Chain in New England" by listeners of a syndicated Boston radio restaurant talk
show called "The Pat Whitley Show".
CUES
During 1999, Cues registered another outstanding performance as new
sales and profit records were achieved. Sales increased 11.7% to $30.2 million,
while operating profit increased 9.2% to $2.9 million.
Nineteen ninety-nine was the first full year of operation in the new
Orlando facility, which allowed Cues to expand and improve production and
operating efficiency. By increasing the space dedicated to production, Cues was
able to establish an internal cabinet shop thereby cutting the cost of acquiring
and installing truck interiors. The facility also allowed for more efficient
scheduling and installation of the mechanical and electrical components in the
trucks thereby increasing the amount of trucks manufactured and shipped during
the year.
The continued R&D efforts produced the introduction of a revolutionary
22:1 optical zoom camera in the first quarter of 2000. In conjunction with new
and improved versions of our large pipe robotic transporters such as the
steerable remote lift mudmaster and the steerable articulating mudmaster, the
optical zoom camera further strengthens our product offering and provides Cues
with the strongest lineup of large pipe inspection equipment in the industry.
During June of 1999, Cues acquired the inventory and other assets
associated with a competitor's product line for $778,000; thereby increasing our
product offering of chemical grout sealing systems. Cues will continue its
efforts to grow its business through industry acquisitions and through the
organic expansion of existing lines. In addition, during July 1999, Cues entered
into a mutually exclusive agreement with Hansen Information Technologies, Inc.,
a leading provider of software to municipalities. The agreement provides for the
interchange of data between the Cues DataCap 3.0 Pipeline Data Collection
Software and the Hansen Infrastructure Management Solution Software. This
agreement will assure both present and future users of Hansen and Cues software
the ability to easily import and export files between the two database programs.
We anticipate that this will lead to additional truck and computer software
sales.
<PAGE>
Our strategic decision several years ago to become the only closed
circuit television manufacturer with a captive software department has proven
very rewarding. The benefits resulting from designing the entire collection
software system are being widely recognized by our customer base. Competitors
are furnishing software written by independent software writers and customers'
ability to gain desired after market support, customization and flexibility is
potentially diminished. Cues enhanced the DataCap 3.0 software in 1999 with the
addition of modules for capturing information related to chemical sealing and
manhole data. As technology continues as a growing factor in the collection and
manipulation of pipeline data, Cues is positioned with an already vibrant
software business.
Domestically, Cues is focusing on upgrading and adding additional sales
personnel to better serve our customers in areas where we have not had focused
sales coverage in the past. In the international business arena, Cues has been
unable to achieve its desired sales volume. Appropriate marketing channels have
not been fully established in many regions, but a number of new dealers have
shown early promise. We still believe this is an area of significant growth
opportunity and we expect to report improved performance in the future.
Cues continues to face challenges in the coming year from a spirited
group of competitors who have also introduced new and improved products.
However, by focusing on the needs and desires of our customers and introducing
innovative, productive and enhanced products, customers will continue to
recognize Cues as the leading manufacturer in the pipeline inspection and
rehabilitation industry.
COMMON STOCK
During 1999, the Company continued to repurchase and retire its Common
Stock. Effective June 28, 1999, the Company completed the 1-for-100 reverse
split voted on and approved by the Company's stockholders during its annual
meeting on May 27, 1999. As a result, those stockholders who held less than one
share immediately after the reverse split were effectively cashed-out at the
average trading price of the Company's stock during the immediately preceding 20
trading days. This resulted in the repurchase of approximately 157,000 shares at
$10.83 per share or a total of approximately $1,704,000. Immediately after the
reverse split the shareholders approved a 100-for-1 forward stock split
resulting in the stock ownership of all non-cashed out stockholders being
restored to pre-existing levels. The combination of the reverse split and
opportunistic purchases allowed the Company to reduce its outstanding shares by
a total of 4% at an average price of $10.80 per share.
SFAS 109
Once again in 1999, ELXSI's results were "clouded" by the confusing
nature of accounting for tax loss carryforwards. Based on revised estimates of
future profitability and the significantly reduced possibility of an ownership
change, ELXSI recorded a deferred income tax benefit of $12.1 million (or $2.54
per share) related to the expected future utilization of (and tax savings from)
tax loss carryforwards. While the future benefit of the carryforwards is real
and will be represented by future tax savings, the $12.1 million represents a
non-cash item in 1999 that reflects the amount of future tax savings that was
not previously recognized by the company. If these SFAS 109 effects were removed
from the income statement, ELXSI would have earned $1.71 per share in 1999
compared to $1.39 in 1998, reflecting a strong performance overall.
CONCLUSION
As we enter 2000, ELXSI continues to improve both businesses and is
looking to sustain the steady growth that our track record has shown over the
years.
Sincerely,
Alexander M. Milley
Chairman of the Board,
President & CEO
