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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
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 Commission Only (as permitted by Rule
14a-6(e)(2))
X Definitive Proxy Statement
_ Definitive Additional Materials
_ Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
TEKNOWLEDGE CORPORATION
(Name of Registrant as Specified in Its Charter)
TEKNOWLEDGE CORPORATION
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2), or Item 22(a)(2) of Schedule 14a.
_ $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
_ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
_ Fee paid previously with Preliminary Materials:
_ Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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TEKNOWLEDGE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 1995
The 1995 Annual Meeting of the Stockholders of Teknowledge Corporation
(the "Company") will be held on Wednesday, May 24, 1995 at 10:00 a.m., local
time, at the executive offices of the Company, located at 1810 Embarcadero Road,
Palo Alto, California 94303 for the following purposes:
1. To elect one director of the Company to serve for a three-year
term;
2. To approve, as amended, the Company's Stock Option Plan for
Non-Employee Directors as described in the accompanying Proxy
Statement;
3. To ratify the selection of Arthur Andersen LLP as independent
public accountants for the Company for the fiscal year ending
December 31, 1995; and
4. To transact such other business as may properly come before
the 1995 Annual Meeting and any and all adjournments and
postponements thereof.
The Board of Directors has fixed the close of business on April 21,
1995 as the record date for the determination of stockholders entitled to notice
of and to vote at the 1995 Annual Meeting and any adjournments thereof. A list
of stockholders entitled to vote at the 1995 Annual Meeting will be available
for inspection at the Company's executive offices. Stockholders may examine the
list during ordinary business hours in the 10-day period prior to the meeting.
The list will also be available for inspection at the meeting.
YOU ARE URGED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND
THE MEETING.
By Order of the Board of Directors,
Dennis A. Bugbee
Secretary
April 25, 1995
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TEKNOWLEDGE CORPORATION
1810 EMBARCADERO ROAD
PALO ALTO, CALIFORNIA 94303
ANNUAL MEETING OF STOCKHOLDERS
MAY 24, 1995
---------------
PROXY STATEMENT
---------------
This Proxy Statement and the accompanying proxy card are being mailed
on or about April 25, 1995 in connection with the solicitation of proxies by the
Board of Directors of Teknowledge Corporation (the "Company") for use at the
1995 Annual Meeting of Stockholders of the Company to be held on Wednesday, May
24, 1995, at 10:00 a.m., local time, at the executive offices of the Company
located at 1810 Embarcadero Road, Palo Alto, California 94303.
Holders of the Company's Common Stock, par value $.01 per share
("Common Stock"), of record at the close of business on April 21, 1995 will be
entitled to vote at the 1995 Annual Meeting. On that date, there were
outstanding 25,731,131 shares of Common Stock, each of which is entitled to one
vote. The stockholders of the Company do not vote cumulatively in the election
of directors.
Shares of Common Stock may be voted by stockholders in person or by
proxy. Any person giving a proxy may revoke it, at any time before it is voted,
by giving written notice to the Secretary of the Company. The presence at the
1995 Annual Meeting of a stockholder who has signed a proxy will not in itself
revoke that proxy.
All shares of Common Stock represented by a properly completed proxy
received prior to the taking of any vote at the 1995 Annual Meeting will be
voted as directed therein. If no direction is made, shares represented by the
proxy will be voted "FOR" (i) the election of Mr. Workman to serve as a director
for a three-year term; (ii) the proposal to approve the Company's Stock Option
Plan for Non-Employee Directors, as amended; and (iii) the ratification of the
selection of Arthur Andersen LLP as independent public accountants for the
Company for the fiscal year ended December 31, 1995. The Board of Directors
knows of no other matters which are to be brought before the 1995 Annual
Meeting. If any other matter properly comes before the 1995 Annual Meeting, the
persons named in the enclosed proxy, or their duly appointed substitutes acting
at the 1995 Annual Meeting, will be authorized to vote or otherwise act thereon
in accordance with their best judgment.
YOUR VOTE IS IMPORTANT. WE URGE YOU TO SIGN, DATE AND MAIL YOUR PROXY
CARD PROMPTLY TO MAKE CERTAIN THAT YOUR SHARES WILL BE VOTED AT THE MEETING.
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PROPOSAL 1: ELECTION OF DIRECTORS
GENERAL
The Board of Directors of the Company currently consists of five
members: Dr. Frederick Hayes-Roth, Neil A. Jacobstein, General Robert T. Marsh
(Ret.), William G. Roth, and James C. Workman. The Board of Directors is
comprised of three classes of directors, each class consisting as nearly as
possible of one-third of the Board, with one class of the Board being elected
each year. At the 1994 Annual Meeting, stockholders approved an amendment to the
Company's Restated Certificate of Incorporation which provided for the election
of Board members to staggered terms as follows: one director as a Class I
director was elected for a term expiring at the 1995 Annual Meeting; two
directors as Class II directors were elected for a term expiring at the 1996
Annual Meeting; and two directors as Class III directors were elected for a term
expiring at the 1997 Annual Meeting. At each Annual Meeting following
thereafter, any director of the class whose term is expiring would be voted
upon, and upon election, such director would serve a three-year term. At the
1995 Annual Meeting, Mr. Workman as a Class I director is proposed to be elected
to hold office until his successor is duly elected and qualified.
NOMINEE FOR A TERM EXPIRING IN 1998
The nominee for election has indicated a willingness to serve, but if
he should decline or be unable to serve as a director, the proxy holders will
vote for the election of another person or persons as the Board of Directors
recommends.
James C. Workman. Mr. Workman, 52, was appointed Chairman of the Board,
Chief Executive Officer, President, and a Director of the Company on an interim
basis effective October 20, 1992. With the appointment of Dr. Hayes-Roth and Mr.
Jacobstein to executive positions on January 26, 1993, Mr. Workman resigned from
his interim executive officer position but retained a seat on the Board. Mr.
Workman is an attorney/consultant and was Senior Vice President, Air
Conditioning Products, of American Standard Inc. from 1986 to 1989.
CONTINUING DIRECTORS FOR A TERM EXPIRING IN 1996
Frederick Hayes-Roth. Dr. Hayes-Roth, 47, is Chairman of the Board and
Chief Executive Officer of the Company. Dr. Hayes-Roth was elected Chairman and
Chief Executive Officer in January 1993. Dr. Hayes-Roth joined Teknowledge, Inc.
(a predecessor to the Company) in November 1981 as Executive Vice President and
served as Chief Scientist and Vice President of the Research and Advanced
Development Group from April 1985 to June 1986; as Vice President, Research and
New Product Development, from June 1986 to January 1987; as Executive Vice
President, Research and Advanced Systems Development from January 1987 to May
1988; and as Executive Vice President and Chief Scientist from May 1988 to
January 1993.
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Neil A. Jacobstein. Mr. Jacobstein, 40, is President and Chief
Operating Officer of the Company. Mr. Jacobstein was elected to this position in
January 1993. After joining Teknowledge, Inc. in 1984 as a Knowledge Engineer,
Mr. Jacobstein was promoted to Senior Knowledge Engineer and later to the
position of Manager of the Research and Advanced Development Group in 1985. He
was promoted to Vice-President and General Manager of the Research and Advanced
Systems Development Group in 1987, and became Vice President and General Manager
of the Knowledge Systems Division in 1989. Mr. Jacobstein also serves as the
Chairman of the Board of Directors of the Institute for Molecular Manufacturing,
a nonprofit organization.
CONTINUING DIRECTORS FOR A TERM EXPIRING IN 1997
General Robert T. Marsh. General Marsh (Retired), 70, was elected as a
director of American Cimflex Corporation (a predecessor to the Company) in 1987.
He retired as Chairman of the Board of Thiokol Corporation July 1, 1991, but
remains as a director. He also serves as Director and Chairman of the Boards for
CAE Electronics, Inc. and Comverse Government Systems, Inc. General Marsh is
also a director for Ithaco, Inc., and he is a member of the Board of Trustees of
MITRE Corporation.
William G. Roth. Mr. Roth, 56, was elected as a Director of the Company
in January 1991. Mr. Roth retired as Chairman of the Board of Directors of Dravo
Corporation on April 30, 1994 but remains a member of the Board. Mr. Roth is
also a director of Amcast Industrial Corporation and Chairman of the
Compensation Committee.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast by the holders
of shares present or represented by proxy and entitled to vote in the election
of the directors. It is intended that shares represented by the enclosed form of
proxy will be voted "FOR" the election of the nominee identified above, unless
otherwise directed.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE NOMINEE AS DIRECTOR OF THE COMPANY.
COMMITTEES AND MEETINGS
The Board of Directors of the Company has two standing committees: the
Finance and Audit Committee and the Human Resources Committee. The Board of
Directors has no standing nominating committee.
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The primary responsibility of the Finance and Audit Committee is to
oversee the annual audit of the Company and to monitor the Company's internal
accounting controls and procedures. The Finance and Audit Committee also reviews
with the independent public accountants the scope and results of their annual
audit. The current members of the Finance and Audit Committee are Messrs. Marsh,
Roth and Workman. The Finance and Audit Committee met once in 1994.
The Human Resources Committee serves as the Compensation Committee and
is responsible for assuring that executive officers and other key personnel of
the Company are effectively compensated in terms of salary, incentive
compensation and benefits. The current members of the Human Resources Committee
are Messrs. Marsh, Roth and Workman. The Human Resources Committee conducted its
activities in 1994 by telephonic meetings and written consent.
The Company's Board of Directors held six meetings during 1994. All
members of the Company's Board of Directors attended more than 75% of the
meetings held in 1994 of the Board of Directors and the committees on which they
served.
DIRECTORS' COMPENSATION
Directors Fees. During 1994, each non-employee member of the Board of
Directors received cash compensation of $7,500 which is paid in equal quarterly
installments. In addition, such directors are entitled to be reimbursed for
related travel, lodging and other expenses in attending board and committee
meetings.
Directors Option Plan. The Company maintains a stock option plan for
non-employee directors. The plan is proposed to be amended and the amendments
require the approval of the stockholders of the Company. For a description of
the director option plan and the proposed amendments to the plan see Proposal 2:
Approval of the Teknowledge Corporation Stock Option Plan for Non-Employee
Directors, as amended.
EXECUTIVE OFFICERS
Following is certain information regarding the Company's other
executive officer who is not a member of the Board of Directors.
Dennis A. Bugbee, 48, is Director of Finance, Treasurer, and Secretary
for the Company. Mr. Bugbee joined the Company in 1990 as the Division
Controller for the Knowledge Systems Division in Palo Alto, California. He was
promoted to Director of Finance March 1, 1993 and shortly thereafter to the
positions of Treasurer and Corporate Secretary. Prior to joining the Company,
Mr. Bugbee held the position of Accounting Manager with TRW Space and Defense.
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Securities Filings. Under the federal securities laws, the Company's
directors, executive officers and any persons holding more than ten percent of
the Common Stock are required to report their initial ownership of the Common
Stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. These reports have specific due dates and the Company is
required to disclose any failure to file these reports during or for 1994. All
of the filing requirements were satisfied in 1994. In making the foregoing
disclosure, the Company has relied solely on representations of its directors
and executive officers and copies of the reports they have filed with the
Securities and Exchange Commission.
PROPOSAL 2: APPROVAL OF THE TEKNOWLEDGE CORPORATION STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS, AS AMENDED
GENERAL
The stockholders of the Company approved the Cimflex Teknowledge
Corporation Stock Option Plan for Non-Employee Directors (the "Director Option
Plan") at the 1993 Annual Meeting of Stockholders, and such plan was previously
approved by the Board of Directors. The purpose of the Director Option Plan is
to promote the interests of the Company and its stockholders by attracting and
retaining highly qualified independent directors by giving them an investment
interest in the Company.
The Director Option Plan authorizes the granting of stock options to
purchase shares of Common Stock to each non-employee director of the Company as
of April 22, 1992, the effective date of the Plan, and to each person who
becomes a non-employee director in the future. There are presently three
non-employee directors of the Company.
The Human Resources Committee of the Board of Directors and the full
Board of Directors approved, subject to the approval of the stockholders of the
Company, an Amendment No. 1 to the Director Option Plan to, among other things,
increase the number of shares of Common Stock granted as options to each
non-employee director on an annual basis from 10,000 shares to 15,000 shares of
Common Stock, and to change the name of the plan from "Cimflex Teknowledge
Corporation Stock Option Plan for Non-Employee Directors" to the "Teknowledge
Corporation Stock Option Plan for Non-Employee Directors." In 1994, the
stockholders of the Company approved the creation of a classified Board of
Directors, with directors serving staggered three-year terms. Amendment No. 1 is
proposed to permit annual option grants to directors under the Director Option
Plan on the date of each annual stockholders' meeting because the plan as
presently written provides for grants only on the date of a director's election.
As a result, without the adoption of Amendment No. 1, and due to the
establishment of the classified Board of Directors, directors would receive a
grant once every three years rather than on an annual basis.
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SUMMARY OF DIRECTOR OPTION PLAN, AS AMENDED
The following is a summary of the material provisions of the Director
Option Plan as amended by Amendment No. 1 to the plan. A copy of the Director
Option Plan as amended by Amendment No. 1 is attached to this Proxy Statement as
Annex A.
The Director Option Plan is administered by the Human Resources
Committee of the Board of Directors, which has the power to construe the
Director Option Plan, and adopt and amend such rules and regulations for the
administration of the Director Option Plan as it may deem desirable. The Human
Resources Committee has no authority or discretion to determine the persons
eligible to participate in the Director Option Plan or the number of shares of
Common Stock eligible to be granted as options under the Director Option Plan.
The Director Option Plan, as amended, provides that, effective with the
1995 Annual Meeting of Stockholders, each Eligible Director shall be granted, on
the date such director becomes an Eligible Director, an initial option to
purchase 15,000 shares of Common Stock, and on the date of each annual meeting
thereafter, each continuing Eligible Director shall be granted an additional
option to purchase 15,000 shares of Common Stock. Each non-employee director who
is appointed to fill a vacancy on the Board of Directors shall be granted an
option to purchase 15,000 shares of Common Stock on the date such director's
board service commences, with an additional option to purchase 15,000 shares of
Common Stock granted thereafter on the anniversary of such commencement of
service until the director's first election to the Board and thereafter, on the
date of each subsequent annual meeting.
The aggregate number of shares which may be issued under the Director
Option Plan may not exceed 250,000 shares of Common Stock, subject to adjustment
in connection with certain significant corporate events as set forth in the
Director Option Plan. Amendment No. 1 will have no effect on the number of
shares available for grant under the Director Option Plan.
Each option granted under the Director Option Plan is, and will be,
evidenced by an option agreement between the Company and the Eligible Director.
Each option agreement states the exercise price per share of the options
granted, which price must equal 100% of the fair market value of a share of
Common Stock on the date the option is granted. The exercise price for options
granted to an Eligible Director is payable upon the exercise of an option in
cash or by surrender of shares of Common Stock held by the Eligible Director for
at least six months prior to the date of exercise and which have an aggregate
fair market value on the date of exercise equal to the exercise price to be
paid.
The options granted to an eligible director under the Director Option
Plan will become exercisable one year from the date of grant of such options. No
option
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granted under the Director Option Plan will be exercisable after ten years from
date of the grant. In the event an optionee ceases to be a director of the
Company, an option granted will be exercisable only to the extent it was
exercisable on the date the optionee ceased to be a director and only until the
earlier of (i) 90 days after such date, and (ii) the scheduled termination of
such option.
On June 30, 1994, options to purchase 5,000 shares of Common Stock were
granted under the Director Option Plan to Messrs. Marsh and Roth at an exercise
price of $.15 per share. As of the date hereof, 210,000 shares of Common Stock
remain available for grant under the director option plan.
CERTAIN TAX CONSEQUENCES
All options granted under the Director Option Plan are, and will be,
non-statutory options not entitled to special tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended. There are no federal income tax
consequences at the time of grant of a non-qualified stock option to an Eligible
Director. Upon exercise of the option, the Eligible Director must pay tax on
ordinary income equal to the difference between the exercise price and the fair
market value of the Common Stock on the date of exercise. The Company will
receive a commensurate tax deduction at the time of exercise. Any appreciation
in value after the date of exercise will be taxed as capital gain at the time
the Eligible Director sells the shares. This capital gain will be long-term or
short-term, depending on whether the Eligible Director meets the one-year
long-term capital gain holding period.
DIRECTOR OPTION PLAN BENEFITS
The following table sets forth the number of shares of Common Stock
that would be issued upon the exercise of all the options granted to date by the
Company under the Plan to (i) all current executive officers as a group; (ii)
all current directors of the Company who are not executive officers as a group,
and (iii) all current officers who are not executive officers as a group:
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Name and Position Dollar Value ($) (1) Number of Units (3)
Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
All Current Executive -/-(2) -/-
Officers As A Group
- ------------------------------------------------------------------------------------------------------------
All Current Directors Who Are Not 100/800 30,000/55,000
Executive Officers, As A Group
- ------------------------------------------------------------------------------------------------------------
All Current Officers -/-(2) -/-
Who Are Not Executive Officers, As A
Group
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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(1) The last sales price of Common Stock as reported by the National
Quotation Bureau "pink sheets" on April 17, 1995 was $.23. Because this
sales prices is below some of the option exercise prices for the
options granted, only the in-the-money options granted for 20,000
shares are reflected in this column. The in-the-money option prices
range from $.15 to $.22 per share. The dollar value of in-the-money
options is based on the difference between the exercise price of the
options and the closing price of $.23 for the Common Stock on April 17,
1995. The exercisable out-of-the-money option price is $.66 per share.
Options to be granted at the 1995 Annual Meeting of Stockholders,
assuming that Amendment No. 1 is approved and adopted, are excluded
because the exercise price has not been determined.
(2) Dr. Hayes-Roth and Mr. Jacobstein and all other current executives and
other officers are not included in the table because they are not
eligible for options under the Director Option Plan.
(3) The number of units represents the number of shares of Common Stock
underlying the options granted previously under the plan and to be
granted at the 1995 Annual Meeting of Stockholders, assuming that
Amendment No. 1 is approved and adopted. The total number of shares of
Common Stock which are subject to options that are currently
exercisable or will become exercisable within 60 days of April 21, 1995
is 30,000 shares. These options were granted at prices ranging from
$.22 to $.66 a share.
VOTE REQUIRED
Approval of the Director Option Plan as amended by Amendment No. 1 will
require the affirmative vote of the holders of at least a majority of the shares
of Common Stock present or represented by proxy and entitled to vote.
Accordingly, abstentions will effectively constitute a vote against the
proposal. Broker non-votes will have no effect on the outcome of the proposal as
those shares will not be considered as shares present and entitled to vote.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS HAS APPROVED THE AMENDMENT NO. 1 TO THE
DIRECTORS OPTION PLAN AND RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE DIRECTOR OPTION PLAN, AS AMENDED BY AMENDMENT NO. 1.
PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the accounting firm of Arthur
Andersen LLP as independent public accountants to examine and report upon the
Company's consolidated financial statements for the year ended December 31,
1995, and has directed that this selection be submitted to the stockholders for
ratification at the 1995 Annual Meeting. Stockholder ratification of the
selection of Arthur Andersen LLP as the Company's independent public accountants
is not required by the By-Laws or otherwise. If the stockholders do not ratify
the selection of Arthur Andersen LLP, the Board of Directors will reconsider the
selection of independent public accountants for the Company. Arthur Andersen
audited the financial statements of the Company for the year ended December 31,
1994. The Company
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dismissed the accounting firm of Ernst & Young LLP on November 28, 1994 and
engaged the firm of Arthur Andersen LLP as independent public accountants. This
change was duly reported to the SEC on Form 8-K.
Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting, and will have the opportunity to make a statement if they
desire. The representatives will also be available to respond to appropriate
questions from the stockholders.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE
"FOR" THE RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP.
SECURITY OWNERSHIP
The following table sets forth certain information concerning the
ownership of Common Stock as of April 17, 1995 by persons known to the Company
to own beneficially more than 5% of the Common Stock, by each of the directors
of the Company, by each of the executive officers named in the Summary
Compensation Table, and by all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
NAME AND ADDRESS OF COMMON STOCK OWNED
BENEFICIAL OWNER BENEFICIALLY PERCENT OF CLASS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trilogy Development Group 2,124,851(2) 7.7%
6034 West Courtyard, Suite 130
Austin, Texas 78730
Frederick Hayes-Roth(1) 2,210,121(3) 8.0%
Neil A. Jacobstein(1) 2,103,505(4) 7.6%
Robert T. Marsh(1) 26,000(5) *
William G. Roth(1) 65,000(6) *
James C. Workman(1) 20,000(7) *
All Directors and Executive Officers of 4,424,626(8) 16.1%
the Company as a Group (5 Persons)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Constitutes less than 1%
(1) The address of all directors and executive officers is the Company's
executive offices located at 1810 Embarcadero Road, Palo Alto,
California 94303.
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(2) The information concerning the Common Stock owned beneficially by
Trilogy Development Corporation ("Trilogy") was obtained from a
Schedule 13D filed by Trilogy with the Securities and Exchange
Commission on November 17, 1994.
(3) Includes 928,739 shares which may be purchased upon the exercise of
employee stock options that are currently exercisable or will become
exercisable within 60 days of April 21, 1995. Dr. Hayes-Roth owns
1,281,382 shares directly.
(4) Includes 822,061 shares which may be purchased upon the exercise of
employee stock options that are currently exercisable or will become
exercisable within 60 days of April 21, 1995. Mr. Jacobstein owns
1,281,444 shares directly.
(5) Includes 26,000 shares which may be purchased upon the exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of April 21, 1995.
(6) Includes 20,000 shares which may be purchased upon the exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of April 21, 1995. Mr. Roth owns 45,000 shares directly.
(7) Includes 20,000 shares owned by Mr. Workman's spouse.
(8) Includes options for 1,796,800 shares which are currently exercisable
or will become exercisable within 60 days of April 21, 1995.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the cash compensation paid to the Chief
Executive Officer and to each of the most highly compensated executive officers
of the Company whose salary and bonus exceeded $100,000 in 1994 for all services
to the Company in the year ended December 31,
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
Awards
- ---------------------------------------------------------------------------------------------------------------
Securities
Name and Principal Position Year Salary Bonus Underlying
$(1) $(2) Options(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frederick Hayes-Roth, Chair, CEO 1994 181,752 113,689 2,252,880
Frederick Hayes-Roth, Chair, CEO 1993 178,654 55,690 1,031,317
Frederick Hayes-Roth, EVP 1992 171,577 46,400 -
Neil Jacobstein, Pres, COO 1994 118,399 72,696 2,252,880
Neil Jacobstein, Pres, COO 1993 117,135 23,945 1,031,317
Neil Jacobstein, VP, GM 1992 112,654 15,225 -
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 401K deferred compensation.
(2) Except for the sign-on bonuses which were paid in April 1993 and
January 1994, the bonuses set forth in this column are generally paid
in April following the year to which they relate. Dr. Hayes-Roth and
Mr. Jacobstein were paid sign-on bonuses, as a provision of their
taking over
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the management of the Company in 1993 of $20,000 and $12,500, and in
1994 of $60,000 and $37,500, respectively.
(3) In 1994, Dr. Hayes-Roth and Mr. Jacobstein each were granted options
for 2,002,880 shares of Common Stock which were approved by
stockholders at the 1994 Annual Meeting. These options vest in
substantially equal quarterly increments over a two-year period
commencing for the quarter ended September 30, 1994 and ending June 30,
1996. The balance of the options of 250,000 shares for each of Dr.
Hayes-Roth and Mr. Jacobstein were granted under the existing
provisions of the 1989 Plan.
STOCK OPTION GRANTS AND EXERCISES
Employee Stock Option Plans. The Company is the surviving corporation
of the merger (the "Merger") of American Cimflex Corporation ("Cimflex") with
and into Teknowledge, Inc. ("Teknowledge"), which was consummated as of February
27, 1989. In conjunction with the Merger, the stockholders of Teknowledge
approved the Cimflex Teknowledge Corporation 1989 Stock Option Plan (the "1989
Plan"), which was designed to replace the stock option plans of Cimflex (the
"Cimflex Plan") and Teknowledge (the "Teknowledge Plans") which existed prior to
the Merger. No additional stock options will be granted under the Cimflex Plan
or the Teknowledge Plans. As of April 21, 1995 options to purchase an aggregate
of 679,609 shares of Common Stock granted prior to the Merger under the Cimflex
Plan and the Teknowledge Plans were outstanding at an average price of $1.62 per
share. The number of such outstanding options held by current directors and
executive officers of the Company are as follows: General Marsh - 6,000 shares,
Mr. Hayes-Roth - 66,826 shares, and Mr. Jacobstein - 25,731 shares.
The 1989 Plan is administered by the Human Resources Committee of the
Board of Directors of the Company (the "Committee"). The Committee determines
which employees of the Company are eligible to participate in the 1989 Plan, and
may delegate to the Chief Executive Officer of the Company the right to allocate
a specified number of options among employees who are not officers or directors
of the Company. Directors of the Company who are not employees of the Company
are not eligible to participate in the 1989 Plan. The Committee has the
authority to determine the number of options to be granted to a participant
under the 1989 Plan, and the number of shares purchasable upon exercise of each
option.
The 1989 Plan provides for the grant of options to purchase up to
10,250,000 shares of Common Stock of the Company. As of December 31, 1994 there
were 1,429,228 shares remaining available for grant pursuant to options issued
under the 1989 Plan. Under the 1989 Plan, 5,739,872 shares of Common Stock have
been granted pursuant to options, which options remain outstanding at an average
exercise price of $.29 per share as of April 21, 1995.
Options under the 1989 Plan may, in the discretion of the Committee, be
designated as incentive options which are qualified under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or as non-statutory
options which do not so qualify.
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<PAGE> 14
Incentive stock options granted under the 1989 Plan may not have an
exercise price of less than 100% of the fair market value of the Common Stock of
the Company on the date of the grant. Options granted to a participant who owns
10% or more of the voting power of all classes of stock of the Company (a "10%
Holder") may not have an exercise price of less than 110% of the fair market
value of the Common Stock of the Company on the date of the grant. The Committee
determines the exercise price of nonqualified stock options; provided, however,
that such price may not be less than 85% of the fair market value of the Common
Stock of the Company on the date of the option grant. The Committee, subject to
certain restrictions, determines the term of any options granted under the 1989
Plan. No option may have a term in excess of 10 years from the date of grant,
and no option granted to a 10% Holder may have a term in excess of 5 years from
the date of grant. In addition, no participant may be granted incentive stock
options with an aggregate fair market value in excess of $100,000 (on the date
of grant) which will become exercisable for the first time in a single calendar
year.
The following tables set forth information regarding stock option
grants and exercises by the Chief Executive Officer and the other highly paid
executive officers named in the Summary Compensation Table in 1994. Dr.
Hayes-Roth and Mr. Jacobstein were each granted options to purchase 2,252,880
shares of Common Stock in 1994, 2,002,880 of which will vest in substantially
equal quarterly increments of 250,360 shares over a two-year period commencing
September 30, 1994 and ending June 30, 1996. The options to purchase 2,002,880
shares were subject to the receipt of stockholder approval of an amendment to
the 1989 Plan at the 1994 Annual Meeting. No Stock Appreciation Rights (SARs)
have been granted to, or are currently held by, the named executive officers.
The value of in-the-money options (i.e., options in which the market value of
Common Stock exceeds the exercise price of the options) is based on the
difference between the exercise price of such options and the closing price of
Common Stock on December 31, 1994, which was $.17 per share. The value realized
on exercised options is based on the difference between the exercise price of
the options and the closing price of the Common Stock on the date of the
exercise.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Securities % of Total Options Exercise or
Underlying Options Granted to Employees Base Price Expiration Date
Name Granted (#) in Fiscal Year ($/Sh)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frederick Hayes-Roth, Chair, CEO 2,252,880 46 .03 3/31/04
- ----------------------------------------------------------------------------------------------------------------------
Neil Jacobstein, Pres, COO 2,252,880 46 .03 3/31/04
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 15
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Number of Options at FYE at FYE
Shares (Exercisable/ (Exercisable/
Acquired on Net Value Unexercisable) Unexercisable) (2)
Name Exercise Realized(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frederick Hayes-Roth, Chair, CEO 1,281,317 $189,698 678,379/1,502,160 $70,100/$210,302
- -----------------------------------------------------------------------------------------------------------------------
Neil Jacobstein, Pres, COO 1,281,317 $189,698 571,701/1,502,160 $70,100/$210,302
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The net value realized from exercised in-the-money options is
determined by multiplying the number of shares exercised times the
difference between the December 31, 1994 "bid" price of $.17 and the
grant price of the shares. Of the shares exercised for each executive,
1,031,317 were granted at $.02 a share and 250,000 at $.03 a share.
(2) The value of unexercised in-the-money options is determined by
multiplying the number of shares under the option times the difference
between the December 31, 1994 "bid" price of $.17 and the grant price
of $.03. Of the options granted to executives since the inception of
the Plan, only the options granted in 1994 to each executive for
2,002,880 shares were in-the-money. Of this amount, 500,720 shares were
exercisable for each executive at December 31, 1994. Dr. Hayes-Roth has
177,659 shares and Mr. Jacobstein has 70,981 shares that are
exercisable but not-in-the-money at exercise prices from $.94 to $3.53.
On April 1, 1994 options were granted to the Chief Executive Officer
and the President of the Company for an aggregate of 4,005,760 shares of Common
Stock at $.03 per share. These options will vest in approximately equal
quarterly increments of 250,360 shares for each executive over a two year period
starting the quarter ended September 30, 1994. The fair market value of the
Common Stock on June 30, 1994, the date the stockholders of the Company ratified
an amendment to the plan to permit the grants, or the measurement date for
accounting purposes, was $.15 per share. In 1994, the Company recorded
compensation expense of approximately $120,000 related to the above options and
anticipates recording compensation expense of approximately $240,000 and
$120,000 in 1995 and 1996, respectively.
SAVINGS PLAN
Under the Company's Salary Savings Profit Sharing and Trust Plan (the
"401(k) Plan"), all employees, including executive officers of the Company, may
elect to reduce their current compensation by up to 15% (but in no event more
than $9,240 annually, subject to adjustment under the Code) and have the amount
of such reduction contributed to the 401(k) Plan. The Company is not required to
make additional profit-sharing contributions on behalf of the participants in
the 401(k) Plan. The 401(k) Plan is intended to qualify under Section 401 of the
Code so that contributions by employees or by the Company to the 401(k) Plan are
not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by the Company,
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<PAGE> 16
if any, would be deductible by the Company when made. The Trustee under the
401(k) Plan invests the assets of the Plan as directed by the Company, subject
to certain restrictions set forth in the 401(k) Plan and Trust Agreement. The
Company identifies certain investment options that participants in the 401(k)
Plan may select.
EMPLOYMENT ARRANGEMENTS
Frederick Hayes-Roth, Chief Scientist, Chairman of the Board, and Chief
Executive Officer, and Neil Jacobstein, President and Chief Operating Officer,
have an employment agreement with the Company that provides for annual base
salaries of $180,000 and $118,000 respectively. The base salaries of the
executives have not changed since 1993. The 1995 Agreement, dated January 17,
1995, includes an incentive compensation plan with target objectives established
in the five strategic categories of cash flow, profitability, bookings, working
capital, and hiring objectives, which were determined and assessed by the Board
of Directors to a maximum of 100% of base salary.
The Company entered into a change of control agreement with Dr.
Hayes-Roth and Mr. Jacobstein on November 21, 1994 . The agreement provides that
in the event of a change of control, which is defined in the agreement as any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation, the Chief Executive Officer and President
of the Company will be entitled to severance benefits to include: (i) full
accrued salaries and vacation pay, (ii) accrued incentive compensation awarded
or determined to be awarded by the Board of Directors, (iii) insurance coverage,
(iv) retirement benefits, (v) a lump sum severance payment equal to two times of
their most recent respective annual salary, and (vi) accelerated vesting of
their stock options to purchase a total of 4,005,760 shares of Common Stock at
$.03 per share.
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
As of December 31, 1994, Ford Motor Company ("Ford") no longer owns
shares of Common Stock in the Company. The 1,854,851 shares owned beneficially
by Ford were sold to Trilogy Development Group of Austin, Texas in a private
arrangement on or about November 17, 1994. Under a prior Stock Purchase
Agreement entered into by Ford and American Cimflex Corporation in April 1985,
as long as Ford owned as least 1,558,571 shares of Common Stock of the Company,
Ford was entitled to designate one or more nominees for election to the Board of
Directors of the Company. Since Ford no longer owns the shares, the agreement no
longer remains in effect. No revenues were recorded from Ford in the last two
years.
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<PAGE> 17
ADDITIONAL INFORMATION
METHODS AND EXPENSES OF SOLICITATION
The cost of solicitation of the enclosed form of proxy will be borne by
the Company. Solicitation will be made primarily through the use of the mail,
although directors, officers and employees of the Company may, for no additional
compensation, solicit proxies personally, by mail, by telephone, or by
facsimile. Upon request, the Company will reimburse banks, brokers, and other
custodians, nominees and fiduciaries for their reasonable expenses incurred in
sending proxy materials to beneficial owners and obtaining their proxies.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any eligible stockholder who intends to submit a proposal for action at
the 1996 Annual Meeting of Stockholders must submit the proposal in writing to
the Secretary of the Company no later than December 27, 1995. Any such
submission must conform to the regulations of the Securities and Exchange
Commission concerning stockholder proposals.
ANNUAL REPORT ON FORM 10-KSB
Accompanying this Proxy Statement is a copy of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994 (without exhibits),
as filed with the Securities and Exchange Commission. The Company will furnish a
copy of any exhibit included in the Annual Report upon payment of a $5.00 fee
and receipt of a written request for such exhibit. The written request should be
directed to Dennis A. Bugbee, Secretary, Teknowledge Corporation, 1810
Embarcadero Road, Palo Alto, California 94303.
OTHER MATTERS
The Board of Directors knows of no other business that will be
presented in the meeting. If matters other than those described herein should
properly come before the meeting, it is the intention of those named in the
accompanying proxy to vote such proxy in accordance with their judgment on such
matters.
By Order of the Board of Directors,
Dennis A. Bugbee
Secretary
Palo Alto, California
April 25, 1995
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<PAGE> 18
ANNEX A
TEKNOWLEDGE CORPORATION
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
AMENDED MAY 24, 1995
I. Purpose
The purpose of this Stock Option Plan for Non-Employee Directors (the
"Plan") is to promote the interests of Teknowledge Corporation (the "Company")
and its stockholders by attracting and retaining highly qualified independent
directors through an investment interest in the Corporation's future success.
II. Administration
The Plan shall be administered by a Committee of one or more persons
appointed by the Board of Directors of the Company (the "Committee"), which
shall have the power to construe the Plan, to determine all questions arising
thereunder, to adopt and amend such rules and regulations for the administration
of the Plan as it may deem desirable, and to otherwise carry out the terms of
the Plan. The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final.
Notwithstanding the foregoing, the Committee shall have no authority or
discretion as to the persons eligible to receive options under the Plan, or the
number of shares covered by options under the Plan, which matters are
specifically governed by provisions of the Plan.
III. Eligibility
Each person who is a director of the Company as of the effective date
of the Plan (or, if first elected or appointed as a director thereafter, as of
the effective date of such election or appointment), and who is not, as of such
date, otherwise a full-time employee of the Company (or any subsidiary of the
Company) and has not been a full-time employee of the Company (or any subsidiary
of the Company) for all or any part of the preceding fiscal year (an "Eligible
Director") shall be granted, as of the date such director becomes an Eligible
Director, an initial option to purchase shares of the Common Stock of the
Company ("Common Stock"), par value $.01 per share, under the Plan, as described
in Article V.
Subsequent to the grant of the initial option, an Eligible Director
shall be eligible to receive any future grants of options under the Plan as
described in Section 1 of Article V, whether or not such director exercises such
initial options.
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<PAGE> 19
IV. Shares of Common Stock Subject to the Plan
The shares that may be issued under the Plan shall be authorized and
unissued shares or treasury shares of Common Stock. The aggregate number of
shares which may be issued under the Plan shall not exceed 250,000 shares of
Common Stock, subject to adjustments as set forth in Article VI.
V. Stock Options
1. Grant of Stock Options. Grants of stock options shall be made
under the Plan in accordance with all the items and conditions contained herein.
Each option granted under the Plan shall be evidenced by an option agreement
duly executed on behalf of the Company and by the Eligible Director to whom the
option is granted, which option agreements may but need not be identical, and
shall comply with and be subject to the terms and conditions of the Plan.
Each Eligible Director shall automatically, as of the date
such director becomes an Eligible Director, be granted an option under this Plan
to acquire 10,000 shares of Common Stock. Each subsequent year an Eligible
Director is re-elected as a director of the Company, the Eligible Director, as
of the date of the effective date of such re-election, shall be granted an
additional option under this Plan to acquire 5,000 shares of Common Stock.
Effective beginning with the 1995 Annual Meeting, the
immediately preceding paragraph shall be null and void, and this paragraph shall
apply. Each Eligible Director (including both new directors and directors who
were previously appointed to fill a vacancy on the Board), shall automatically,
as of the Annual Meeting date on which such director is first elected as an
Eligible Director (referred to herein as the director's "Initial Election
Meeting"), be granted an option under this Plan to acquire 15,000 shares of
Common Stock. On the date of each Annual Meeting after an Eligible Director's
Initial Election Meeting, each continuing Eligible Director (including Eligible
Directors elected prior to the 1995 Annual Meeting) shall be granted an
additional option under this Plan to acquire 15,000 shares of Common Stock. Each
director who is appointed to fill a vacancy on the Board (an "Appointed
Director") shall automatically, as of the date on which such Appointed
Director's Board service commences, be granted an option under this Plan to
acquire 15,000 shares of Common Stock. On each anniversary of such commencement
date that occurs before the Appointed Director's Initial Election Meeting, such
Appointed Director shall be granted an additional option under this Plan to
acquire 15,000 shares of Common Stock.
2. Term of Options and Effect of Termination. Notwithstanding
any other provisions of the Plan, no option granted under the Plan shall be
exercisable after the expiration of ten years from the date of grant of such
option. In the event that any outstanding option under the Plan expires by
reason of lapse of time or is otherwise terminated without exercise for any
reason, then the shares of Common
18
<PAGE> 20
Stock subject to any such option which have not been issued pursuant to the
exercise of the option shall again become available in the pool of shares of
Common Stock for which options under the Plan may be granted.
3. Terms and Conditions of Options. Options granted pursuant to
the Plan shall be subject to the terms and conditions set forth in the
applicable option agreements, which terms and conditions shall not be
inconsistent with the following:
(a) Each option agreement shall state the number of
shares to which the Option evidenced thereby pertains.
(b) Each option agreement shall state the option
price per share of the Options evidenced thereby, which shall
be equal to 100% of the fair market value (as determined under
Section 6 of Article VIII of the Plan) of a share of the
Common Stock on the date the option is granted.
(c) The exercise price shall be payable upon the
exercise of an option in the legal tender of the United
States, or, at the election of the optionee, by surrender to
the Company of previously owned shares of Common Stock with an
aggregate fair market value (on the date of the exercise)
equal to the option price to be paid. Only shares which the
optionee has held for at least six months prior to the date of
the exercise may be surrendered to the Company in payment of
the exercise price. Upon receipt of payment, the Company shall
deliver to the optionee a certificate or certificates for the
shares of Common Stock to which the option pertains.
To the extent that an option has become exercisable,
it may, subject to the restrictions and limitations set forth
in this Plan and in the option agreement, be exercised in
whole or in part. If exercised in part, the unexercised
portion of an option shall continue to be held by the optionee
and may thereafter be exercised as herein provided.
(d) The options granted to an Eligible Director under
the Plan shall become exercisable one year from the date of
grant of such options.
(e) In the event that an optionee shall cease to be a
director of the company for any reason, his or her option
shall be exercisable only to the extent it was exercisable at
the date he or she ceased to be a director and only until the
earlier of (i) 90 days after such date, or (ii) the scheduled
expiration date of such option, and shall then terminate.
(f) In the event of the death of an optionee while
such optionee is a director of the Company or within the 90
days period after
19
<PAGE> 21
termination of such status during which the director is
permitted to exercise an option, such option may be
exercised, to the extent the option was exercisable at the
date of the death and within the period set forth in Clause
(e) above, by any person or persons designated by the
optionee as the executors or administrators of the optionee's
estate or by any person or persons who shall have acquired
the option directly from the optionee by his or her will or
the applicable law of descent and distribution.
4. Non-statutory Stock Options. All options granted under the
Plan shall be non-statutory options not entitled to special
tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended.
5. Nonassignability. No option shall be assignable or
transferable by the optionee except by will or by the laws of
descent and distribution. During the lifetime of the
optionee, the option shall be exercisable only by the
optionee, and no other person shall acquire any rights
therein.
VI. Recapitalizations and Reorganizations
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, rights offering, or any
other change in the corporate structure of shares of the Company, appropriate
and equitable adjustments shall be made in the number and kind of shares
authorized by this Plan, and in the number and kind of shares covered by, and in
the exercise price of, outstanding options under this Plan.
If the Company shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain to and apply to the
securities to which a holder of the number of shares of Common Stock issuable
upon exercise of that option would have been entitled to receive in such merger
or consolidation. A dissolution or liquidation of the Company, or a merger or
consolidation in which the Company is not the surviving corporation, shall cause
each outstanding option to terminate, unless the agreement of merger or
consolidation shall otherwise provide; provided that, in the event such
dissolution, liquidation, merger or consolidation will cause outstanding options
to terminate, each optionee shall have the right immediately prior to such
dissolution, liquidation, merger or consolidation to exercise his or her option
in whole or in part without regard to any limitations of the exercisability of
such option other than (i) the expiration date of the option and (ii) the
limitation set forth in Section 3(d) of Article V.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
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<PAGE> 22
The grant of an option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
VII. Tax Withholding
The Company shall have the right to require an optionee to remit to the
Company an amount sufficient to satisfy any applicable federal, state and local
withholding tax requirements prior to the delivery of any shares of Common Stock
acquired by the exercise of options granted under the Plan. Such amount shall be
payable in the legal tender of the United States, or, at the election of the
optionee, by surrender to the Company of previously owned shares of Common Stock
with an aggregate fair market value (on the date of the surrender) equal to the
amount to be withheld. Only the shares of Common Stock which the optionee has
held for at least six months prior to the date of surrender may be surrendered
in satisfaction of the Corporation's tax withholding obligations.
VIII. Miscellaneous Provisions
1. Amendment. The Board of Directors may by resolution suspend,
discontinue, amend or revise the Plan, except that any such amendment or
revision shall not be adopted until the stockholders shall have approved such
amendment (i) if such amendment or revision would increase the number of shares
which may be awarded under the Plan, materially increase the benefits accruing
to participants in the Plan, or modify the requirements for eligibility for
participation in the Plan, or (ii) if such approval is required for continued
applicability of Rule 16b-3 of the Securities and Exchange Commission. The Board
may not alter or impair any options previously granted under the Plan without
the consent of the holders thereof, except in accordance with the provisions of
Article VI. Amendments revising the price, date of the exercisability, option
period or amount of shares subject to an option shall not be made more
frequently than once in any six month period unless necessary to comply with the
Internal Revenue Code of 1986, as amended, or the Employee Retirement Income
Security Act of 1974, as amended.
2. Term of the Plan. No options may be granted under the Plan on or
after April 22, 2002, the tenth anniversary of the effective date of the Plan,
and the Plan shall terminate on such date. Notwithstanding the foregoing, each
option granted under the Plan shall remain in effect until such option has been
exercised or terminated in accordance with its terms and the terms of the Plan.
3. Rights As A Stockholder. An optionee or a transferee of an option
shall not have any rights as a stockholder with respect to any shares issuable
upon exercise of an option until the date of the receipt of payment (including
any payment which may be required by the Company pursuant to Article VII) by the
Company. No adjustments shall be made as to any option for dividends (ordinary
21
<PAGE> 23
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to such date,
except as provided in Article VI.
4. Purchase for Investment. Unless the shares of Common Stock to be
issued upon exercise of any option granted under this Plan have been effectively
registered under the Securities Act of 1933 as now in force or hereafter
amended, the Company shall be under no obligation to issue any shares of Common
Stock covered by any such option unless the person who exercises such option
shall give a written representation and undertaking to the Company which is
satisfactory in form and scope to counsel the Company and upon which, in the
opinion of such counsel, the Company may reasonably rely, that the optionee is
acquiring the shares of Common Stock to be issued to him pursuant to such
exercise of the option for his own account as an investment and not with a view
to, or for sale in connection with, the distribution of any such shares of
Common Stock, and that he will make no transfer of the same except in compliance
with any rules and regulations in force at the time of such transfer under the
Securities Act of 1933, or any other applicable law, and that if shares of
Common Stock are issued without such registration, a legend to this effect may
be endorsed upon the securities so issued.
5. Other Provisions in Option Agreement. The option agreements
authorized under the Plan shall contain such other provisions, including without
limitation, restrictions upon the exercise of the option or restrictions
required by any applicable securities laws, as the Committee shall deem
advisable.
6. Definition of "Fair Market Value". For purposes of this Plan, the
term "fair market value," when used in reference to the purchase of shares of
Common Stock pursuant to the exercise of an option shall mean the fair market
value of Common Stock as determined by the Committee, provided that such fair
market value shall be determined by reference to the most recent closing price
quotations, or, if none, the average of the bid and asked prices, as reported as
of the most recent available date with respect to the sale of Common Stock on
any stock exchange on which the Common Stock is then listed or any quotation
system approved by the National Association of Securities Dealers then reporting
sales of Common Stock.
7. Restrictions. If the Company shall determine, in its discretion,
that the shares subject to any option granted under the Plan must be registered
or qualified under any applicable state or federal securities law before they
may be offered or sold to the optionee, or that the consent or approval of any
government regulatory body is necessary or desirable in connection with the
issuance of such shares, such option may not be exercised by the optionee unless
the shares have been so registered, qualified, or listed, or until such consent
or approval shall have been obtained, free of any conditions not acceptable to
the Company. The Company shall use reasonable efforts to qualify the shares,
obtain the benefit of any applicable exemption from such qualification, or to
obtain any such consent or approval,
22
<PAGE> 24
provided that no participant shall have any right to require the Company to
undertake any registration or other action which the Company determines, in its
sole discretion, to be unduly burdensome.
8. Effective Date of the Plan. The effective date of this Plan shall be
April 22, 1992, the date on which the Plan was adopted by the Board of
Directors. The adoption of the Plan shall be subject to subsequent approval by
the stockholders of the Company at the 1993 Annual Meeting of the Company's
stockholders unless such approval is not as of the time of such Annual Meeting
required by either (i) any rules or regulations promulgated by the Securities
and Exchange Commission under Section 16(b) of the Securities and Exchange Act
of 1934, as amended, or (ii) any requirements imposed by NASDAQ on issuers whose
securities are quoted on the National Market System. Notwithstanding the
foregoing, if the Plan shall have been approved by the Board of Directors prior
to such annual meeting, options shall be granted to persons becoming Eligible
Directors prior to the date of such Annual Meeting in accordance with Article V,
subject to such subsequent stockholder approval but such options shall not
become exercisable until such approval is obtained or it is determined that such
approval is not required.
23
