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)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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 JULY 19, 2000
The 2000 Annual Meeting of the Stockholders of Teknowledge Corporation
(the "Company") will be held on Wednesday, July 19, 2000 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 a Class III Director 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, 2000;
3. To approve and adopt an amendment to the Company's 1998
Employee Stock Option Plan to increase the number of
authorized shares from 1,595,101 to 2,345,101; and
4. To transact such other business as may properly come before
the 2000 Annual Meeting and any and all adjournments and
postponements thereof.
The Board of Directors has fixed the close of business on May 15, 2000
as the record date for the determination of stockholders entitled to notice of
and to vote at the 2000 Annual Meeting and any adjournments thereof. A complete
list of stockholders entitled to vote at the 2000 Annual Meeting is 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 for any purpose
relating to 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
Dennis A. Bugbee, Secretary
Palo Alto, California
June 16, 2000
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TEKNOWLEDGE CORPORATION
1810 Embarcadero Road
Palo Alto, California 94303
ANNUAL MEETING OF STOCKHOLDERS
July 19, 2000
PROXY STATEMENT
This Proxy Statement and the accompanying proxy card are being mailed
on or about June 30, 2000 in connection with the solicitation of proxies by the
Board of Directors of Teknowledge Corporation (the "Company") for use at the
2000 Annual Meeting of Stockholders of the Company to be held on Wednesday, July
19, 2000 or any adjournment thereof, for purposes set forth in the accompanying
Notice of Annual Meeting.
The cost of soliciting proxies will be borne by the Company, in
addition to soliciting stockholders by mail through its regular employees. The
Company will request banks, brokers, custodians, nominees and other fiduciaries
to solicit customers who have stock in the Company registered in the names of
such persons and will reimburse them for their recoverable out-of-pocket costs.
The Company may use the services of its officers, directors, and others to
solicit proxies, personally or by telephone, without additional compensation.
Only holders of the Company's Common Stock, par value $.01 per share
("Common Stock"), of record at the close of business on May 15, 2000 will be
entitled to vote at the 2000 Annual Meeting. On that date, there were
outstanding 5,486,144 shares of Common Stock, each of which is entitled to one
vote.
Shares of Common Stock may be voted by stockholders in person or by
proxy. Each holder of shares of Common Stock is entitled to one vote for each
share of stock held on the proposals presented in this Proxy Statement. The
Company's By-Laws provide that a majority of all of the shares of the stock
entitled to vote, whether present in person, or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting. 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 2000 Annual Meeting
of a stockholder who has signed a proxy will not in itself revoke that proxy.
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All shares of Common Stock represented by a properly completed proxy
received prior to the taking of any vote at the 2000 Annual Meeting will be
voted as directed therein. If no direction is made on the proxy, shares
represented by the proxy will be voted "FOR"(i) the election of Robert T. Marsh
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, 2000; and (iii) to approve an
amendment to the Company's 1998 Stock Option Plan to increase the number of
authorized shares from 1,595,101 to 2,345,101. The Board of Directors knows of
no other matters, which are to be brought before the 2000 Annual Meeting. If any
other matter properly comes before the 2000 Annual Meeting, the persons named in
the enclosed proxy, or their duly appointed substitutes acting at the 2000
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.
PROPOSAL 1: ELECTION OF DIRECTORS
General
The Board of Directors currently consists of five members: Neil A.
Jacobstein, Dr.Larry E. Druffel, General Robert T. Marsh (Ret.), Benedict
O'Mahoney, and James C. Workman. Dr. Frederick Hayes-Roth and William G. Roth
resigned their positions on the Board effective November 22, 1999, and joined
the Board of GlobalStake.com, an Internet start-up company spun off by
Teknowledge on that date. Benedict O'Mahoney, Corporate Counsel and Vice
President of Teknowledge, was elected by the Board in November 1999 to fill the
vacancy created by the departure of William G. Roth, and the Board reduced the
size of the Board from six to five to eliminate the vacancy created by the
resignation of Mr.Hayes-Roth in November 1999. 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
each annual meeting thereafter, nominees for directors in the class whose term
is expiring are voted upon, and upon election, such director would serve a
three-year term. At the 1999 Annual Meeting, Neil A. Jacobstein, and William G.
Roth were elected as Class II directors to serve a three-year term. At the 1998
Annual Meeting, Dr. Larry E. Druffel and James C. Workman were elected as Class
I directors to serve a three-year term. At the 2000 Annual Meeting, Robert T.
Marsh, as the nominee for Class III director, is to be elected for a three-year
term and until their successors are duly elected and qualified.
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Positions Director
Name Age With the Company Since
Class III Director nominated for election at the 2000 Annual Meeting
Gen. Robert T. Marsh 75 Director 1987
Class I Directors whose terms expire at the 2001 Annual Meeting
Dr. Larry E. Druffel 59 Director 1997
James C. Workman 57 Director 1993
Class II Directors whose term expires at the 2002 Annual Meeting
Neil A. Jacobstein 45 Chairman of the Board, 1993
President and CEO
Benedict O'Mahoney 40 VP of Administration and 1999
Legal Affairs
--------------------------------------------------------------------------------
Class III Nominee for a Term Expiring in 2003
The nominee for election has indicated a willingness to serve, but if
the nominee 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.
General Robert T. Marsh. General Marsh (Retired), 75, was elected a
director of American Cimflex Corporation(a predecessor to the Company) in 1987.
He served as Chairman of the Board of Thiokol Corporation until his retirement
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.
He served as Chairman of the President's Commission on Critical Infrastructure
Protection. General Marsh joined the Board of SI International in December 1998
and continues to serve on the Board. General Marsh also serves on the Board of
Comverse Infosys Technologies, Inc.and he is a trustee emeritus of MITRE
Corporation. General Marsh is Chairman of the Company's Finance and Audit
Committee.
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Continuing Class I Directors for a Term Expiring in 2001
Dr. Larry E. Druffel. Dr. Druffel, 59, was appointed to the Board of
Directors in April 1997. Since 1996, he has served as President and a Director
of the South Carolina Research Authority (SCRA), a public non-profit
organization. He holds a doctorate degree in computer science from Vanderbilt
University and a master's degree in computer science from the University of
London, and was a director of the Software Engineering Institute at Carnegie-
Mellon University from 1986 to 1996. He also served on the Board of Rational
Software Corp.from 1986 to 1993. He is Chairman of the Board of the Advanced
Technology Institute, and a member of the Board of the South Carolina Technology
Alliance, both private non-profit corporations. He served as Director of
Computer Software and Systems, Office of Deputy Undersecretary of Defense for
Research and Advanced Technology, Washington, DC.
James C. Workman. Mr. Workman, 57, 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 in 1993, Mr.Workman resigned from his interim
executive officer position but retained a seat on the Board. Mr. Workman is
active in several community organizations in Wisconsin. He is a member of the
Executive Council and Board of Trustees of the Diocese of Fond Du Lac. He is
also a Director of the United Way of Door County. His primary employment is as a
self-employed attorney/consultant. Mr.Workman is Chairman of the Human Resources
Committee.
Continuing Class II Directors for a Term Expiring in 2002
Neil A. Jacobstein. Mr. Jacobstein, 45, is Chairman of the Board, Chief
Executive Officer, and President of Teknowledge. He served as President and
Chief Operating Officer and a Director of the Company from January 1993 to
November 22, 1999, when he was elected to the position of Chairman and CEO.
After joining Teknowledge in 1984, Mr. Jacobstein was promoted over a nine year
period to: Senior Knowledge Engineer, Manager of the Research and Advanced
Development Group, Vice President and General Manager of Research and Advanced
Systems Development, and Vice President and General Manager of the Knowledge
Systems Division. Mr.Jacobstein initiated Teknowledge's eCommerce business unit
in 1996. In 1998, he was appointed to the Technology Advisory Board of the U.S.
Army's Simulation, Training, and Instrumentation Command (STRICOM). Prior to
joining Teknowledge, Mr. Jacobstein was a Graduate Research Intern and
consultant at Xerox PARC, and a Research Associate at CBNS. Since 1992; he has
served as the Chairman of the Board of Directors of the Institute for Molecular
Manufacturing, a nonprofit organization. He co-founded and serves as a Director
of GlobalStake.com. In 1999, Mr. Jacobstein was elected a Henry Crown Fellow in
the Aspen Institute's executive leadership program.
Benedict O'Mahoney. Mr. O'Mahoney, 40, is Vice President,
Administration and Legal Affairs of the Company. Mr.O'Mahoney was elected a
Director of Teknowledge in November 1999. Mr. O'Mahoney joined the Company in
1996 as Corporate Counsel. From 1991 to 1996, Mr. O'Mahoney practiced
intellectual property law and he also served as General Counsel for Slatt
Mortgage Company from 1988 to 1995. Mr. O'Mahoney serves on the Board of
Directors of the Virtual Reality Education Foundation, a nonprofit organization.
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Vote Required
If a quorum is present and voting, the nominee for Class III Director
receiving the highest number of votes will be elected as director. Abstentions
will have no effect on the vote. 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 Mr. Marsh.
Committees and Meetings
The Board of Directors of Teknowledge 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, including their audited financial statements. The current members of the
Finance and Audit Committee are Messrs. Druffel, Marsh, and Workman. The Finance
and Audit Committee held one meeting in 1999.
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. Druffel, Marsh, and Workman. The Human Resources Committee held one
meeting in 1999.
The Company's Board of Directors held six meetings during 1999. In
1999, all members of the Board of Directors attended more than 75% of the
meetings of the Board of Directors and the committees on which they served.
Directors' Compensation
Directors' Fees. Each non-employee member of the Board of Directors
receives cash compensation totaling $10,000, which is paid in quarterly
increments of $2,500. In addition to their regular compensation, directors are
entitled to be reimbursed for related travel, lodging, and other expenses in
attending board and committee meetings.
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6
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 3,000 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 3,000 shares of Common Stock. Options to purchase 62,000
shares of Common Stock have been granted since the inception of the Directors'
Option Plan and 38,000 shares remain to be granted.
For information regarding the compensation of executives see "Summary
Compensation."
Executive Officers
The following is certain information regarding the Company's other
executive officer who is not a member of the Board of Directors.
Dennis A. Bugbee, 53, is Vice President of Finance, CFO, 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 in March 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.
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,
2000, and has directed that this selection be submitted to the stockholders for
ratification at the 2000 Annual Meeting. Arthur Andersen LLP has acted in such
capacity since its appointment during fiscal year ending December 31, 1994.
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.
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. The affirmative vote of a majority of the votes
cast at the annual meeting of stockholders at which a quorum representing a
majority of all the attending shares of Common Stock of the Company is present
and voting, either in person or by proxy, is required for approval of this
proposal.
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Board Recommendation
The Board of Directors recommends that the Company's stockholders vote
"FOR" the ratification of the selection of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31, 2000.
PROPOSAL 3: AMENDMENT TO TEKNOWLEDGE CORPORATION 1998 STOCK OPTION PLAN
General
Teknowledge is the surviving corporation of the merger (the "Merger")
of American Cimflex Corporation ("Cimflex") with and into Teknowledge, Inc.
("Teknowledge") that was consummated on February 27, 1989. In conjunction with
the Merger, the stockholders of the Company approved the Cimflex Teknowledge
Corporation 1989 Stock Option Plan (the "1989 Plan"). The 1989 Plan was
effective for a ten-year period expiring on December 31, 1998. On April 21, 1998
(the "Effective Date"), the Board of Directors of the Company adopted the
Teknowledge Corporation 1998 Stock Option Plan (The "1998 Plan"), which was
approved by stockholders on June 25, 1998.
The Board of Directors believes that the adoption of an amendment
increasing the number of authorized shares from 1,595,101 to 2,345,101 is in the
best interests of the Company and its stockholders because it is necessary to
continue to provide employees of the Company with incentive compensation in the
form of stock options.
The purpose of the 1998 Incentive Stock Option ("ISO") Plan is to
provide executive officers and other key employees with an incentive to achieve
long-term corporate objectives, to attract and retain key employees and to
provide such persons with an opportunity to acquire an equity interest in the
Company. Teknowledge competes for technical talent in the Silicon Valley in a
very crowded commercial marketplace. The ability to grant stock options to
potential employees makes it possible to hire and retain the best technical
talent in this competitive environment. Stock options may be granted under the
1998 Plan to any employee of the Company.
Summary of the 1998 Plan
As amended, the 1998 Plan provides that the maximum number of
authorized but unissued or reacquired shares of the Company's Common Stock
available for issuance under the 1998 Plan be 2,345,101, an increase of 750,000
over the previous authorized limit of 1,595,101 that was approved by
stockholders at the 1998 Annual Meeting.
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The 1998 Plan is administered by the Human Resources Committee of the
Board of Directors of the Company (the "Committee"). Each member of the
Committee is appointed by and serves at the pleasure of the Board of Directors.
The Committee consists currently of Messrs. Druffel, Marsh and Workman. The
Committee determines which employees of the Company are eligible to participate
in the 1998 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 1998 Plan. The
Committee has the authority to determine the number of options to be granted to
a participant under the 1998 Plan, and the number of shares purchasable upon
exercise of each option. However, no employee may be granted in any fiscal year
options to purchase in excess of 100,000 shares (the "Grant Limit").
Options under the 1998 Plan may, at the discretion of the Committee, be
designated as incentive stock options which are qualified under Section 422 of
the Internal Revenue Code of 1986, as amended, or as nonstatutory stock options
which do not so qualify.
Incentive stock options granted under the 1998 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
more than 10% of the voting power of all classes of stock of the Company or any
subsidiary (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 nonstatutory 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 1998 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 five 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 in a
single calendar year. As of May 15, 2000, the last sales price of the Common
Stock as reported in the Nasdaq SmallCap market was $5.81 a share.
Unless otherwise determined by the Committee, options granted to a
participant under the 1998 Plan will terminate 30 days following the termination
of such participant's employment, if such termination is for a reason other than
death, disability, or retirement. In the event of retirement, a participant may
exercise vested options for a period of three months following retirement in the
case of incentive stock options, and for a period of one year following
retirement in the case of nonstatutory options, provided that the terms of such
options have not previously expired. In the event of disability or death, a
participant or his executors, as the case may be, may exercise vested options
for a period of one year, provided that the terms of such options have not
previously expired. No options may be transferred other than by will or by the
laws of descent and distribution.
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The 1998 Plan contains anti-dilution provisions that are applicable
upon the occurrence of certain events. In the event of any stock dividend,
recapitalization, reclassification of shares, sale, lease or transfer of all or
a material portion of the assets of the Company, or other similar corporate
transactions that would result in substantial dilution or enlargement of the
rights or benefits of the participants under the 1998 Plan, the Committee will
make such adjustments to the 1998 Plan, the Grant Limit, and any outstanding
options thereunder as it deems appropriate. In the event of a dissolution or
liquidation of the Company, a merger or consolidation in which the Company is
not the surviving corporation, or a reverse merger in which the Common Stock is
converted into other property, the 1998 Plan provides that (i) any surviving
corporation shall assume the outstanding options under the 1998 Plan or
substitute similar options therefore to the extent permitted by applicable law,
or (ii) such outstanding options shall continue in full force and effect.
Any option granted under the 1998 Plan must be granted within ten years
from April 21, 1998. The Board of Directors may terminate or amend the 1998 Plan
at any time. However, subject to changes in the law that would permit otherwise,
without stockholder approval, the Board may not adopt an amendment to the Plan
which would increase the total number of shares of Common Stock issuable
thereunder, change the class of persons eligible to receive incentive stock
options, or otherwise require approval of the Company's stockholders under any
applicable law, regulation or rule.
Certain Tax Consequences
The following is a brief summary of the principal federal income tax
consequences of stock option awards granted under the 1998 Plan based upon
current federal income tax laws. The summary is not intended to be exhaustive
and, among other things, does not describe state, local or foreign tax
consequences, or alternate minimum tax consequences.
Participants who do not dispose of their shares for two years following
the date an incentive stock option was granted nor within one year following the
exercise of the incentive stock option will normally recognize a long-term
capital gain or loss equal to the difference, if any, between the sale price and
the purchase price of the shares. If the participant disposes of shares within
two years after the date of grant or within one year from the date of exercise
(a "disqualifying disposition"), the lesser of the difference between the fair
market value of the shares on the exercise date and the option exercise price or
the actual gain realized will generally be taxed as ordinary income at the time
of disposition. Any gain in excess of that amount will be a capital gain. If a
loss is recognized, there will be no ordinary income, and such loss will be a
capital loss. A capital gain or loss will be long-term if the optionee's holding
period is more than 12 months. Any ordinary income recognized by the participant
upon a disqualifying disposition of the shares generally should be deductible by
the Company for federal income tax purposes.
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If nonstatutory stock options are granted to a participant, there are
no federal income tax consequences at the time of grant. Upon exercise of the
option, the participant will generally recognize 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 generally receive a
commensurate tax deduction at the time of exercise. Upon the sale of stock
acquired by the exercise of a nonstatutory stock option, any gain or loss, based
on the difference between the sale price and the fair market value on the date
of exercise, generally will be taxed as a capital gain or loss.
Plan Benefits
No options have been granted to any person following the amendment and
conditioned upon stockholder approval of the Amendment to the 1998 Plan. 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 1998 Plan to (i) the individuals named in the Summary Compensation Table set
forth herein; (ii) all current executive officers as a group; and (iii) all
employees including all current officers who are not executive officers, as a
group:
PLAN BENEFITS
1998 PLAN
Name and Position Dollar Value ($) Number of Units
In-the Money Options Exercisable/Unexercisable
Exercisable/Unexercisable
Neil Jacobstein1, 1,407,074/- 390,854/-
Pres, CEO(1)
Dennis Bugbee 10,000/22,000 6,250/33,750
VP and CFO, Treas,
Sec.(1)
Benedict O'Mahoney 22,500/22,000 11,250/40,750
VP. Adm. & Legal
Affairs(1)
All Current Executive1 1,439,574/44,000 408,354/74,500
Officers, As a Group
All Employees Who 224,776/1,887,169 149,645/466,513
Are Not Executive
Officers, As a Group(2)
1) The value of unexercised in-the-money options is determined by
multiplying the numberof shares under the option times the difference
between the December 31, 1999 "bid" price of $3.75 and the grant price.
Of the options granted to executives since the inception of the Plan,
only the options granted in 1990 or later at exercise prices from $.15
to $2.15 were in the money for a total of 397,104 shares. Shares and
dollars values were determined as of December 31, 1999. Of this amount,
390,854 shares for Mr. Jacobstein were exercisable at April 21, 2000.
Mr. Bugbee has 20,000 shares and Mr. O'Mahoney has 27,000 shares that
are not currently exercisable at an exercise price of $3.81 per share.
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(2) Employees, other than executive officers, received stock option grants
totaling 337,600 shares in 1999. These options were granted at exercise
prices from $3.50 to $5.38 a share, with one-fourth vesting at the end
of the first year and then one-twelfth every quarter thereafter over
the next three years. The in-the-money dollar value of both exercisable
and unexercisable shares was based on the December 31, 1999 "bid" price
of the stock of $3.75 per share. A total of 616,158 options are
outstanding to non-executive employees at prices from $.05 to $5.38 a
share.
Vote Required
Approval of the Amendment to the 1998 Plan 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 recommends that the Company's stockholders vote
"FOR" adoption of an amendment increasing the number of authorized shares in the
1998 Employee Stock Option Plan.
SECURITY OWNERSHIP
The following table sets forth certain information concerning the
beneficial ownership of Common Stock as of April 26, 2000 by persons known to
the Company to own beneficially more than 5% of the Common Stock, by each of the
irectors 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.
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Name and Address of Common Stock Owned
Beneficial Owner Beneficially(i) Percent of Class
-----------------------------------------------------------------------------
Mark J. Hanna 267,607(2) 5.0%
327 Plaza Real, Suite 319
Boca Raton, FL 33432
Dennis A. Bugbee(1) 53,682(3) 1.0%
Larry E. Druffel(1) 9,000(4) *
Frederick Hayes-Roth 542,552(5) 10.2%
1810 Embarcadero Road
Palo Alto, CA 94303
Neil A. Jacobstein(1) 680,864(6) 12.4%
Robert T. Marsh(1) 19,000(7) *
Benedict O'Mahoney(1) 14,500(8) *
James C. Workman(1) 19,000(9) *
All Directors and Executive
Officers of the
Company as a Group (6 Persons) 796,046(10) 14.3%
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(i) All share numbers have been adjusted to give effect to a one-for-five
reverse stock split on December 22, 1998
* 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
Mark J.Hanna was obtained from a Schedule 13D filed with the Securities
and Exchange Commission on August 29, 1997.
(3) Includes 7,500 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 26, 2000.
(4) Includes 9,000 shares, which may be purchased upon the exercise of
director stock options that are currently exercisable or will become
exercisable within 60 days of April 26, 2000.
(5) Dr. Hayes-Roth resigned his positions as Chairman and CEO of
Teknowledge on November 22, 1999. The information concerning the Common
Stock owned beneficially by Dr. Hayes-Roth was obtained from a Form 4
filed with the Securities and Exchange Commission on March 28, 2000.
(6) Includes 190,854 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 26, 2000. Includes 18,000 shares
owned by Mr.Jacobstein's spouse; however, Mr. Jacobstein disclaims
beneficial ownership.
(7) Includes 19,000 shares, which may be purchased upon the exercise of
director stock options that are currently exercisable or will become
exercisable within 60 days of April 26, 2000.
(8) Includes 13,750 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 26, 2000.
(9) Includes 15,000 shares, which may be purchased upon the exercise of
director stock options that are currently exercisable or will become
exercisable within 60 days of April 26, 2000. Mr. Workman's spouse owns
4,000 shares beneficially.
(10) Includes options for 253,854 shares, which are currently exercisable or
will become exercisable within 60 days of April 26, 2000.
Summary Compensation
The following table sets forth the cash compensation paid to the Chief
Executive Officer and the four most highly compensated executive officers of the
Company whose salary and bonus exceeded $100,000 for all services to the Company
in the years ended December 31, 1999, 1998, and 1997.
<PAGE>
13
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Principal Position Year Salary Bonus
$(1) (2)
Frederick Hayes-Roth, Chair, CEO(3) 1999 247,297 89,547
Frederick Hayes-Roth, Chair, CEO 1998 230,123 148,329
Frederick Hayes-Roth, Chair, CEO 1997 208,084 96,769
Neil Jacobstein, Chair, CEO(4) 1999 162,770 64,891
Neil Jacobstein, Pres, COO 1998 152,784 97,585
Neil Jacobstein, Pres, COO 1997 134,692 63,664
Benedict O'Mahoney, VP Adm&Legal 1999 107,086 36,710
Benedict O'Mahoney, Corp Counsel 1998 93,608 16,700
Benedict O'Mahoney, Corp Counsel 1997 77,745 19,547
Dennis Bugbee, VP and CFO 1999 116,383 12,843
Dennis Bugbee, Director of Finance 1998 109,172 9,000
Dennis Bugbee, Director of Finance 1997 98,635 7,500
(1) Includes 401(k)deferred compensation and 5% Company matching provision.
(2) The bonuses set forth in this column are generally paid after the
conclusion of the annual audit following the year to which they relate.
(3) Dr.Hayes-Roth resigned his positions as Chairman and CEO of Teknowledge
on November 22, 1999, but retained his position as Chief Scientist in a
part-time capacity.
(4) Mr. Jacobstein was elected Chairman of the Board and Chief Executive
Officer on November 22, 1999.
Stock Option Grants and Exercises
The following tables set forth information regarding the value of
options held by the executive officers named in the Summary Compensation Table
at December 31, 1999. A total of 337,600 options were granted to employees in
1999.
OPTION GRANTS IN LAST FISCAL YEAR(1)
Number of % of Total Options
Securities Granted to Employees
Underlying in Fiscal Year Exercise or
Options (%) Base Price Expiration
Granted ($/Sh) Date
Name (#)
Frederick Hayes-Roth
Chair, CEO - - - -
Neil Jacobstein
Chair, CEO - - - -
Benedict O'Mahoney
VP Adm&Legal 27,000 8% 3.81 11/23/09
Dennis Bugbee
VP and CFO 20,000 5.9% 3.81 11/23/09
<PAGE>
14
(1) Generally, the right to exercise an option under the Company's 1998
Stock Option Plan (the "Option Plan") vests in quarterly increments
over a four-year period commencing on the date of grant. The Option
Plan permits the grant of both incentive stock options within the
meaning of Section 422 of the Internal Revenue Code, as amended, and
nonstatutory stock options. The exercise price of incentive stock
options must at least equal the fair value of the Common Stock of the
Company on the date of grant. The exercise price of nonstatutory stock
options must equal at least 85% of the fair market value of the Common
Stock of the Company on the date of grant. The exercise price of
options granted to any person who at the time of grant owns stock
representing more than 10% of the voting power of all classes of stock
of the Company or any parent or subsidiary corporations must be at
least 110% of the fair market value of the Common Stock on the date of
grant and term of such options cannot exceed ten years.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUE
Number of Value of
Securities Unexercised
Underlying In-the-Money
Shares Unexercised at FYE
Acquired Value Options at (Exercisable/
Name on Exercise Realized Options at FYE Unexercisable)
(#) (1) (Exercisable/ (2)
Unexercisable)
Frederick Hayes-Roth
Chair, CEO(3) 306,296 $1,149,249 -/- -/-
Neil Jacobstein
Chair, CEO (4) 15,722 $52,896 390,854/- $1,407,074/-
Benedict O'Mahoney
VP Adm&Legal - - 11,250/40,750 $22,500/$22,000
Dennis Bugbee
VP and CFO(5) - - 6250/33,750 $10,000/$22,000
(1) The value realized upon exercise is the difference between the exercise
price and the closing bid price at the close of business on the date
the stock is exercised.
(2) The value of unexercised in-the-money options is determined by
multiplying the number of shares under the option by the difference
between the December 31, 1999 bid price of $3.75 and the grant price.
Of the options granted to executives since the inception of the ISO
Plan, only the options granted in 1990 or later were in the money for a
total of 408,354 shares.
(3) Dr.Hayes-Roth resigned his positions as Chairman and CEO of Teknowledge
on November 22, 1999, but retained his position as Chief Scientist in a
part-time capacity.
(4) Mr. Jacobstein was elected Chairman of the Board and Chief Executive
Officer on November 22, 1999.
(5) Mr. Bugbee was appointed Vice President and CFO on April 14, 2000
<PAGE>
15
Employment Arrangements
Neil Jacobstein, Chairman of the Board, Chief Executive Officer, and
President, has an employment agreement with the Company that provides for an
annual base salary of $195,000. The resolutions approved by the Compensation
Committee on November 22, 1999, include an incentive compensation plan with
target objectives established in the six strategic categories of cash flow,
profitability, bookings, e-Commerce products and services, special licensing
fees, and GlobalStake.com, which will be determined and assessed by the Board of
Directors to a maximum of 120% of his annual base salary. Mr. Jacobstein is also
eligible for a possible one-time bonus up to $120,000 as a consequence of his
consolidating the roles of President and Chief Executive Officer of the Company,
to be earned in monthly increments from December 1999 through May 22, 2000. Mr.
Jacobstein has a severance package that entitles him to severance benefits equal
to his most recent twelve-month salary and bonus; except in the event of a
change of control, defined as any consolidation or merger of the Company, in
which the Company is not the continuing or surviving corporation, Mr. Jacobstein
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 and (v) a lump sum severance payment equal to two times total cash
compensation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors, and persons who beneficially own more
than 10% of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms filed by such persons.
Based solely on the Company's review of such forms, furnished to the
Company and written representations from certain reporting persons, the Company
believes that all filing requirements applicable to the Company's executive
officers, directors, and more than 10% stockholders were complied with; except
that, due to administrative error, the Form 3 initial reporting statement of
beneficial ownership for Benedict O'Mahoney was not filed within the 10 day
filing period.
<PAGE>
16
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
The Company must receive proposals for action at the 2001 Annual
Meeting of Stockholders at its offices at 1810 Embarcadero Road, Palo Alto,
California 94303, no later than March 22, 2001. 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, 1999. 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 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
June 16, 2000
<PAGE>
17
TEKNOWLEDGE CORPORATION
1810 Embarcadero Road
Palo Alto, California 94303
Proxy for Annual Meeting of
Stockholders on July 19, 2000
This Proxy is Solicited on Behalf of
the Board of Directors
The Undersigned hereby appoints Neil Jacobstein 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 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 July 19, 2000, 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 (1) as hereafter
specified upon the proposals listed below and as particularly described in
the Company's Proxy Statement and (2) in their discretion upon such other
matters as may properly come before the meeting.
The undersign hereby acknowledges receipt of (1) Notice of Annual
Meeting of Stockholders of the Company, (2) accompanying Proxy Statement,
and (3) Annual Report for the fiscal year ended December 31, 1999.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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Please mark votes as in this example.
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 through 3.
1. Election of Directors:
The Board has nominated Robert T. Marsh as a Class III director to
serve a term of three years or until his successors are duly elected and
qualified.
For Withhold
Nominee: Robert T. Marsh
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, 2000.
3. To approve and adopt and amendment to the 1998
Employee Stock Option Plan to increase the
number of authorized shares from 1,595,101 to
2,345,101.
For Against Abstain
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 the name(s) appear on your stock certificate. If
shares of stock stand on record in the names of two or more persons or in
the name of husband and wife, whether as joint tenants or otherwise, both
or all such persons should sign the Proxy. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title.
If a corporation holds shares of stock, the president or other authorized
officer, on behalf of the corporation, should execute the Proxy. If a
partnership, the Proxy should be executed in the partnership name by an
authorized individual.
Signature: Date
Signature: Date
Mark Here For Address Change and Note Below. [ ]
Please complete, date, sign and mail this proxy in the enclosed postage
prepaid envelope.
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