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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION (REVISED)
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 (Revised)
_ 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 No fee due.
_ $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 JUNE 18, 1997
The 1997 Annual Meeting of the Stockholders of Teknowledge Corporation
(the "Company") will be held on Wednesday, June 18, 1997 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 Class III 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, 1997; and
3. To transact such other business as may properly come before
the 1997 Annual Meeting and any and all adjournments and
postponements thereof.
The Board of Directors has fixed the close of business on April 18,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the 1997 Annual Meeting and any adjournments thereof. A list
of stockholders entitled to vote at the 1997 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.
The Board of Directors
By: Dennis A. Bugbee, Secretary
Palo Alto, California
May 22, 1997
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TEKNOWLEDGE CORPORATION
1810 Embarcadero Road
Palo Alto, California 94303
ANNUAL MEETING OF STOCKHOLDERS
June 18, 1997
PROXY STATEMENT
This Proxy Statement and the accompanying proxy card are being mailed
on or about May 22, 1997 in connection with the solicitation of proxies by the
Board of Directors of Teknowledge Corporation (the "Company") for use at the
1997 Annual Meeting of Stockholders of the Company to be held on Wednesday, June
18, 1997, 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 18, 1997 will be
entitled to vote at the 1997 Annual Meeting. On that date, there were
outstanding 26,205,643 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
1997 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 1997 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 General Marsh (Ret.) and Dr.
Hayes-Roth each to serve as a Class III 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, 1997. The
Board of Directors knows of no other matters which are to be brought before the
1997 Annual Meeting. If any other matter properly comes before the 1997 Annual
Meeting, the persons named in the enclosed proxy, or their duly appointed
substitutes acting at the 1997 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 1996 Annual Meeting, Mr.
Jacobstein and Mr. Roth were elected as Class II directors to serve a three-year
term. At the 1997 Annual Meeting, General Marsh (Ret.) and Dr. Hayes-Roth, as
Class III directors, are proposed to be elected to hold office for a three-year
term until their successors are duly elected and qualified.
Class III Nominees for a Term Expiring in 2000
The nominees for election have indicated a willingness to serve, but if
either should decline or be unable to serve as a Class III director, the proxy
holders will vote for the election of another substitute nominee as the Board of
Directors recommends.
Dr. Frederick Hayes-Roth. Dr. Hayes-Roth, 49, 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), 72, 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 in 1991. Since 1995
he has served as Executive Director of the Air Force Aid Society, a non-profit
charitable organization serving the Air Force community, and he is Chairman of
the President's Commission on Critical Infrastructure Protection located in
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Washington D.C. General Marsh is Director and Chairman of the Board of CAE
Electronics, Inc. and Comverse Government Systems, Inc. He is also a member of
the Board of Trustees of MITRE Corporation. General Marsh is Chairman of the
Company's Finance and Audit Committee.
Continuing Class I Director for a Term Expiring in 1998
James C. Workman. Mr. Workman, 54, 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 has served as a self-employed attorney/consultant since leaving American
Standard Inc. in 1989 where he was Senior Vice President, Air Conditioning
Products.
Continuing Class II Directors for a Term Expiring in 1999
Neil A. Jacobstein. Mr. Jacobstein, 42, is President and Chief Operating
Officer of the Company. Mr. Jacobstein was elected to these positions and became
a director of the Company 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.
William G. Roth. Mr. Roth, 58, 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 1994 after holding that position since 1989. Since his retirement
in 1994, Mr. Roth continues to serve as a member of the Board of Dravo
Corporation and the Company. Mr. Roth is also a director of Amcast Industrial
Corporation and Service Experts Incorporated, and Chairman of the Company's
Human Resources 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 nominees identified above, unless
otherwise directed.
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Board Recommendation
The Board of Directors recommends that the Company's stockholders vote
"FOR" the election of the nominees as directors 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.
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 1996.
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 held one
meeting in 1996.
The Company's Board of Directors held six meetings during 1996. All
members of the Board of Directors attended more than 75% of the meetings held in
1996 of the Board of Directors and the committees on which they served.
Directors Compensation
Directors Fees. During 1996, each non-employee member of the Board of
Directors received cash compensation of $8,000 which was paid in equal quarterly
installments. On January 14, 1997 the Board approved a resolution increasing the
compensation ceiling to $10,000 in 1997. 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 1996 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
<PAGE>
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.
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, 50, 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 since 1990.
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,
1997, and has directed that this selection be submitted to the stockholders for
ratification at the 1997 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,
1996.
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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<TABLE>
SECURITY OWNERSHIP
The following table sets forth certain information concerning the
ownership of Common Stock as of April 15, 1997 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.
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name and Address of Common Stock Owned Beneficially
Beneficial Owner Percent of Class
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trilogy Development Group, Inc. 3,248,453(2) 12.4%
6034 West Courtyard, Suite 130
Austin, Texas 78730
Frederick Hayes-Roth(1) 3,446,381(3) 12.1%
Neil A. Jacobstein(1) 3,352,516(4) 11.9%
Robert T. Marsh(1) 56,000(5) *
William G. Roth(1) 95,000(6) *
James C. Workman(1) 50,000(7) *
All Directors and Executive Officers of the 7,212,059(8) 23.6%
Company as a Group (6 Persons)
- --------------------------------------------------------------------------------------------------------------------
*constitutes less than 1%
</TABLE>
(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 various sources,
which include Schedule 13D/A and Forms 4 Filings, the most recent having
been filed with the Securities and Exchange Commission on April 9, 1997.
(3) Includes 2,164,999 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 18, 1997. Dr. Hayes-Roth owns 1,281,382
shares directly.
(4) Includes 2,071,072 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 18, 1997. Mr. Jacobstein owns 1,281,444
shares directly.
(5) Includes 56,000 shares which may be purchased upon the exercise of stock
options that are currently exercisable or will become exercisable within 60
days of April 18, 1997.
(6) Includes 50,000 shares which may be purchased upon the exercise of stock
options that are currently exercisable or will become exercisable within 60
days of April 18, 1997. Mr. Roth owns 45,000 shares directly.
(7) Includes 30,000 shares which may be purchased upon the exercise of stock
options that are currently exercisable or will become exercisable within 60
days of April 18, 1997. Mr. Workman's spouse owns 20,000 shares
beneficially.
(8) Includes options for 4,384,571 shares which are currently exercisable or
will become exercisable within 60 days of April 18, 1997.
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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 1996 for all services
to the Company in the years ended December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long Term
Compensation
Compensation
Awards
- --------------------------------------------------------------------------------------------------------------------
Securities Underlying
Name and Principal Position Year Salary Bonus Options(3)
$(1) $(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frederick Hayes-Roth, Chair, CEO 1996 196,388 128,639 -
Frederick Hayes-Roth, Chair, CEO 1995 181,352 68,403 -
Frederick Hayes-Roth, Chair, CEO 1994 181,752 113,689 2,252,880
Neil Jacobstein, Pres, COO 1996 128,468 84,330 -
Neil Jacobstein, Pres, COO 1995 118,000 44,842 -
Neil Jacobstein, Pres, COO 1994 118,399 72,696 2,252,880
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 401(k) deferred compensation and Company matching provision.
(2) Except for the sign-on bonuses which were paid in 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 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 vested 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 granted in 1994 were issued under the
existing provisions of the 1989 Plan.
Stock Option Grants and Exercises
The following tables set forth information regarding the value of
options held by the Chief Executive Officer and the other highly paid executive
officers named in the Summary Compensation Table at December 31, 1996. Neither
Dr. Hayes-Roth nor Mr. Jacobstein were granted options in 1996, and neither
exercised any options during 1996. 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,
1996, which was $.40 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.
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<TABLE>
<CAPTION>
FY-END OPTION VALUE
- ----------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at FYE at FYE
(Exercisable/ Unexercisable) (Exercisable/
Unexercisable)(1)
Name
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Frederick Hayes-Roth, Chair, CEO 2,164,999/- $748,899/-
- ----------------------------------------------------------------------------------------------------------------
Neil Jacobstein, Pres, COO 2,071,072/- $745,566/-
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 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, 1996 "bid" price of $.40 and the grant price.
Of the options granted to executives since the inception of the Plan,
only the options granted in 1989 and 1994 were in the money for a total
of 4,085,760 shares. Of this amount, 2,052,880 shares for Dr.
Hayes-Roth and 2,032,880 shares for Mr. Jacobstein were exercisable at
December 31, 1996, respectively. Dr. Hayes-Roth has 112,119 shares and
Mr. Jacobstein has 38,192 shares that are exercisable but
not-in-the-money at exercise prices from $2.45 to $3.53 per share.
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 vested 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 1996, the Company recorded
compensation expense of approximately $120,000 related to the above options.
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 $205,200 and $135,000, respectively. Each executive is also eligible
for severance benefits for a one-year period. The 1997 Agreement, dated October
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31, 1996, includes an incentive compensation plan with target objectives
established in the five strategic categories of cash flow, profitability,
bookings, new business products and services, 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, and (v) a lump sum severance payment equal to two times of their most
recent respective annual salary.
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
On December 8, 1994, a lawsuit was filed in the United States District
Court for the Northern District of California by Trilogy Development Group,
Inc. ("Trilogy") against the Company. The subject matter of the case involves
a configuration systems patent owned by the Company (Bennett et al. U.S.
Patent 4,591,983) and a sales configuration product of Trilogy. Trilogy is
seeking a judgment against Teknowledge that it does not infringe any claim of
the Bennett et al. patent, and for actual and punitive damages and attorney
fees for alleged unfair competition under the Lanham Act and common law for
misrepresenting Teknowledge and Trilogy's products. The Company has filed
counterclaims against Trilogy for patent infringement and for unfair
competition under the Lanham Act and common law for alleged false and
misleading statements disparaging the Bennett et al. patent.
On August 27, 1996, Teknowledge and Trilogy Development Group, Inc.
agreed to a settlement of their disputes. On August 29, 1996, Trilogy's
attorneys provided written notification to the Federal District Court that the
companies had reached a settlement. Under the agreement, Trilogy would provide
consideration to Teknowledge and Teknowledge would grant a license to Trilogy
to use the technology covered by the patent-in-suit. The agreement also
provided that all lawsuits between the parties would be dismissed and that all
previously existing debt between the parties would be canceled. The other
details of the agreement are to be kept confidential by both parties.
Nevertheless, on August 30, 1996, before formal documentation of the
settlement agreement was finalized, but after Trilogy's lawyers confirmed to the
Court in writing that the case had been settled, the U.S. District Court entered
an order granting Trilogy's motion for summary judgment invalidating the patent.
In view of the Court's order, Trilogy has taken the position that no settlement
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yet exists and that it need not abide by the terms to which the parties agreed
and represented to the Court. The Company has informed Trilogy that the Company
intends to enforce the settlement agreement and believes that Trilogy has
breached the settlement agreement. Accordingly, on September 20, 1996, the
Company filed a motion to vacate the judgment in light of the prior settlement.
The Company and Trilogy engaged in discussions regarding the settlement
agreement in light of the Court's judgment; however, there is no assurance that
the parties will be able to resolve the issues without further litigation, that
the Company's motion to vacate and dismiss will be successful, or that the
Company will be able to enforce the settlement agreement.
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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 1998 Annual Meeting of Stockholders must submit the proposal in writing to
the Secretary of the Company no later than December 26, 1997. Any such
submission must conform to the regulations of the Securities and Exchange
Commission concerning stockholder proposals.
Annual Report
Accompanying this Proxy Statement is a copy of the Company's Annual
Report for the year ended December 31, 1996. A complete copy of the 10-KSB
(without exhibits) as filed with the Securities and Exchange Commission,
including the financial statements and the financial statement schedules, can be
obtained without charge from the Company upon receipt of a written request from
the security holder addressed to the Secretary. The Company will also furnish a
copy of any exhibit included in the 10-KSB 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
By: Dennis A. Bugbee, Secretary
Palo Alto, California
May 22, 1997
