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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 22, 1996
The 1996 Annual Meeting of the Stockholders of Teknowledge Corporation
(the "Company") will be held on Wednesday, May 22, 1996 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 two directors of the Company to serve for a three-year term;
2. To ratify the selection of Arthur Andersen LLP as independent public
accountants for the Company for the fiscal year ending December 31,
1996; and
3. To transact such other business as may properly come before the 1996
Annual Meeting and any and all adjournments and postponements
thereof.
The Board of Directors has fixed the close of business on April 5, 1996
as the record date for the determination of stockholders entitled to notice of
and to vote at the 1996 Annual Meeting and any adjournments thereof. A list of
stockholders entitled to vote at the 1996 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, 1996
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TEKNOWLEDGE CORPORATION
1810 Embarcadero Road
Palo Alto, California 94303
ANNUAL MEETING OF STOCKHOLDERS
May 22, 1996
PROXY STATEMENT
This Proxy Statement and the accompanying proxy card are being mailed
on or about April 25, 1996 in connection with the solicitation of proxies by the
Board of Directors of Teknowledge Corporation (the "Company") for use at the
1996 Annual Meeting of Stockholders of the Company to be held on Wednesday, May
22, 1996, 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 5, 1996 will be
entitled to vote at the 1996 Annual Meeting. On that date, there were
outstanding 26,040,145 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
1996 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 1996 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. Jacobstein and Mr. Roth each
to serve as a director for a three-year term; (ii) the ratification of the
selection of Arthur Andersen LLP as independent public accountants for the
Company for the fiscal year ended December 31, 1996. The Board of Directors
knows of no other matters which are to be brought before the 1996 Annual
Meeting. If any other matter properly comes before the 1996 Annual Meeting, the
persons named in the enclosed proxy, or their duly appointed substitutes acting
at the 1996 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 comprises
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 to be
elected for a term expiring at the 1995 Annual Meeting; two directors as Class
II directors to be elected for a term expiring at the 1996 Annual Meeting; and
two directors as Class III directors to be elected for a term expiring at the
1997 Annual Meeting. At each Annual Meeting 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 was elected to serve a three-year term. At the 1996 Annual
Meeting, Mr. Jacobstein and Mr. Roth as Class II directors are proposed to be
elected to hold office for a three-year term until their successors are duly
elected and qualified.
Nominees for a Term Expiring in 1999
The nominees for election have indicated a willingness to serve, but if
they 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.
Neil A. Jacobstein. Mr. Jacobstein, 41, is President and Chief
Operating Officer of the Company. Mr. Jacobstein was elected to this position in
January 1993. After joining Teknowledge, Inc. (a predecessor to the Company) 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 has made both technical and management contributions to Teknowledge,
and has been a major force in the turnaround of the Company. Mr. Jacobstein also
serves as the Chairman of the Board of Directors of the Institute for Molecular
Manufacturing, a nonprofit organization.
William G. Roth. Mr. Roth, 57, was elected as a Director of the Company
in January 1991. Mr. Roth retired as Chairman of the Board of Directors of Dravo
Corporation in 1995 but remains a member of the Board. Mr. Roth is also a
director of Amcast Industrial Corporation and Chairman of the Compensation
Committee.
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Continuing Directors for a Term Expiring in 1997
Frederick Hayes-Roth. Dr. Hayes-Roth, 48, 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.
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.
General Robert T. Marsh. General Marsh (Retired), 71, 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 Executive Director of the Air Force Aid
Society, a non-profit charitable organization serving primarily the active Air
Force community. General Marsh is Director and Chairman of the Boards for CAE
Electronics, Inc. and Comverse Government Systems, Inc. and he is a director for
Ithaco, Inc. He is also a member of the Board of Trustees of MITRE Corporation.
Continuing Directors for a Term Expiring in 1998
James C. Workman. Mr. Workman, 53, was appointed Chairman of the Board,
Chief Executive Officer, and President 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.
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 nominees identified above, unless
otherwise directed.
Board Recommendation
The Board of Directors recommends that the Company's stockholders vote
"FOR" the election of the nominees as directors of the Company.
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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.
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 1995.
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 1995 by telephonic meetings and written consent.
The Company's Board of Directors held five meetings during 1995. All
members of the Board of Directors attended more than 75% of the meetings held in
1995 of the Board of Directors and the committees on which they served.
Directors Compensation
Directors Fees. During 1995, each non-employee member of the Board of
Directors received cash compensation of $7,500 which is paid in equal quarterly
installments. On January 26, 1996 the Board approved a resolution increasing the
compensation ceiling to $8,000 in 1996. 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 Directors Option Plan, as amended at the 1995 Annual
Meeting of Stockholders, provides that 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.
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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, 49, 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's Space and Defense
sector.
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 1995. All
of the filing requirements were satisfied in 1995. 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: 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,
1996, and has directed that this selection be submitted to the stockholders for
ratification at the 1996 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 LLP
audited the financial statements of the Company for the year ended December 31,
1995.
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.
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SECURITY OWNERSHIP
The following table sets forth certain information concerning the
ownership of Common Stock as of April 15, 1996 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.
- --------------------------------------------------------------------------------
Name and Address of Common Stock Owned
Beneficial Owner Beneficially Percent of Class
- --------------------------------------------------------------------------------
Trilogy Development Group, Inc. 3,508,453(2) 13.5%
6034 West Courtyard, Suite 130
Austin, Texas 78730
Frederick Hayes-Roth(1) 3,196,021(3) 11.4%
Neil A. Jacobstein(1) 3,102,156(4) 11.1%
Robert T. Marsh(1) 41,000(5) *
William G. Roth(1) 80,000(6) *
James C. Workman(1) 35,000(7) *
All Directors and Executive Officers of the 6,454,177(8) 21.6%
Company as a Group (5 Persons)
- --------------------------------------------------------------------------------
*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.
(2) The information concerning the Common Stock owned beneficially by
Trilogy Development Corporation ("Trilogy") was obtained from a
Schedule 13D/A(No. 5) filed by Trilogy with the Securities and Exchange
Commission on April 1, 1996.
(3) Includes 1,914,639 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 15, 1996. Dr. Hayes-Roth owns
1,281,382 shares directly.
(4) Includes 1,820,712 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 15, 1996. Mr. Jacobstein owns
1,281,444 shares directly.
(5) Includes 41,000 shares which may be purchased upon the exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of April 15, 1996.
(6) Includes 35,000 shares which may be purchased upon the exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of April 15, 1996. Mr. Roth owns 45,000 shares directly.
(7) Includes 15,000 shares which may be purchased upon the exercise of
stock options that are currently exercisable or will become exercisable
within 60 days of April 15, 1996. Mr. Workman's spouse owns 20,000
shares beneficially.
(8) Includes options for 3,826,351 shares which are currently exercisable
or will become exercisable within 60 days of April 15, 1996.
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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 1995 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 1995 181,352 68,403 -
Frederick Hayes-Roth, Chair, CEO 1994 181,752 113,689 2,252,880
Frederick Hayes-Roth, EVP 1993 178,654 55,690 1,031,317
Neil Jacobstein, Pres, COO 1995 118,000 44,842 -
Neil Jacobstein, Pres, COO 1994 118,399 72,696 2,252,880
Neil Jacobstein, VP, GM 1993 117,135 23,945 1,031,317
- --------------------------------------------------------------------------------------------------------------------
</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
after the conclusion of the annual audit 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 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
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the Merger. No additional stock options will be granted under the Cimflex Plan
or the Teknowledge Plans. As of April 15, 1996 options to purchase an aggregate
of 656,396 shares of Common Stock granted prior to the Merger under the Cimflex
Plan and the Teknowledge Plans were outstanding at an average price of $1.48 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 - 51,286 shares, and Mr. Jacobstein - 22,942 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, 1995 there
were 1,061,395 shares remaining available for grant pursuant to options issued
under the 1989 Plan. Under the 1989 Plan, 5,224,506 shares of Common Stock have
been granted pursuant to options, which options remain outstanding at an average
exercise price of $.22 per share as of April 15, 1996.
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.
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. Incentive stock options granted to
employees are immediately exercisable but generally vest in quarterly increments
over a two year period from the date of the grant of such options. 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 option exercises
by the Chief Executive Officer and the other highly paid executive officers
named in the Summary Compensation Table at December 31, 1995. Neither Dr.
Hayes-Roth nor Mr. Jacobstein were granted options in 1995, and neither
exercised any options during 1995. Dr. Hayes-Roth and Mr. Jacobstein were each
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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,
1995, which was $.25 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.
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 - - 1,664,279/500,720 $330,475/$110,158
Neil Jacobstein, Pres, COO - - 1,570,352/500,720 $330,475/$110,158
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) If appropriate, 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, 1995 "bid" price of $.25
and the grant price of the shares.
(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, 1995 "bid" price of $.25 and the grant price.
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, 1,502,160 shares were exercisable
for each executive at December 31, 1995. Dr. Hayes-Roth has 162,119
shares and Mr. Jacobstein has 68,192 shares that are exercisable but
not-in-the-money at exercise prices from $.25 to $3.53.
On April 1, 1994, options were granted to Dr. Hayes-Roth and Mr.
Jacobstein for an aggregate of 4,005,760 shares of Common Stock at $.03 per
share. These options vest in substantially equal quarterly increments of 250,360
shares for each executive over a two-year period commencing for the quarter
ended September 30, 1994 and ending June 30, 1996. 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 1995, the Company recorded
compensation expense of approximately $240,000 related to the above options and
anticipates recording compensation expense of approximately $120,000 in 1996.
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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 [1995], subject to adjustment under the Code) and have the
amount of such reduction contributed to the 401(k) Plan. The Company was not
required to make additional profit-sharing contributions on behalf of the
participants in the 401(k) Plan in 1995; however, starting in January of 1996,
the Company began matching up to 3% of an employee's eligible contributions. 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, 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,
each has an employment agreement with the Company that provides for annual base
salaries of $190,000 and $125,000, respectively. The 1996 Agreement, dated
January 16, 1996, includes an incentive compensation plan with target objectives
established in the five strategic categories of cash flow, profitability,
bookings, new business lines, and recruiting, 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, Dr. Hayes-Roth and Mr. Jacobstein will be
entitled to receive severance benefits which 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, 1995, 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 Inc. ("Trilogy") in a private
arrangement on or about November 10, 1994. In a negotiated transaction on or
about July 18, 1995, Trilogy acquired 728,571 shares of Common Stock formerly
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owned by BMW of North America and the rights to a technology purchase agreement
with the Company for $550,000. In addition, on April 1, 1996, Trilogy reported
in a 13D filing that they had acquired 545,031 shares of stock formerly owned by
Framatome S.A. in a private purchase for $160,784. As of April 15, 1996,
including open market purchases and other transactions, Trilogy's owned
3,508,453 shares or 13.5% of the Company. Trilogy stated in a 13D filing with
the SEC that the shares were acquired for investment purposes, but they did not
rule out the possibility of future business transactions in which they might
seek to control or otherwise influence the management or policies of the
Company.
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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 1997 Annual Meeting of Stockholders must submit the proposal in writing to
the Secretary of the Company no later than December 26, 1996. 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, 1995 (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, 1996
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REVOCABLE PORXY
TEKNOWLEDGE CORPORATION
X PLEASE MARK VOTES
AS IN THIS EXAMPLE
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
ON MAY 22, 1996
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The Undersigned hereby appoints Dr. Frederick Hayes-Roth and Dennis
Bugbee, and each or either of them as proxies, each with the power to appoint
his substitute, and hereby authorizes any of them to represent and to vote, as
designated below, all the shares of the Common Stock, par value $.01 per share
(the "Common Stock"), of Teknowledge Corporation (the "Company"), which the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Company to be held on May 22, 1996, commencing at 10:00 a.m., local time, at the
Company's executive offices located at 1810 Embarcadero Road, Palo Alto,
California or any adjournment of postponement thereof as follows:
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no directions are specified, this Proxy will be
voted FOR Proposals 1 and 2.
1. The Board has nominated Neil A. Jacobstein and William G. Roth as a Class II
directors to serve a term of three years or until their successors are duly
elected and qualified.
Election of Directors:
With-
For hold
Nominee: Neil A. Jacobstein _____ _____
Nominee: William G. Roth _____ _____
For Against Abstain
2. To ratify the selection of Arthur
Andersen LLP as the Company's _____ _____ _____
independent public accountants
for the fiscal year ending
December 31, 1996.
In their discretion, the proxy holders are authorized to vote upon such other
business as may properly come before the meeting.
Please sign exactly as name or names appear hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Please be sure to sign and date this Proxy in the box below.
______________________ _____________________________ __________
Stockholder sign above Co-holder (if any) sign above Date
Detach above card, sign, date and mail in postage prepaid envelope provided.
TEKNOWLEDGE CORPORATION
1810 Embarcadero Road
Palo Alto, California 94303
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
