COMPUTONE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 25, 1997
To the Stockholders of COMPUTONE CORPORATION:
The Annual Meeting of Stockholders of Computone Corporation (the "Company")
will be held at 11:00 a.m., prevailing time, on November 25, 1997, at the
Company's principal offices located at Suite 100, 1060 Windward Ridge Parkway,
Alpharetta, Georgia, for the following purposes:
1. To elect four directors to serve until the 1998 Annual Meeting of
Stockholders and until their successors are elected;
2. To consider and vote upon a proposal to adopt the Company's 1997 Equity
Incentive Plan for officers, directors, employees and consultants;
3. To consider and vote upon a proposal to amend the Company's Certificate
of Incorporation to reduce the number of shares of Common Stock the Company is
authorized to issue from 50,000,000 shares to 25,000,000 shares;
4. To act upon the election of BDO Seidman, LLP as independent public
accountants for the Company for its 1998 fiscal year; and
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment, postponement or continuation thereof.
The Board of Directors has fixed the close of business on October 28, 1997
as the record date for the determination of the stockholders entitled to notice
of and to vote at the Annual Meeting.
A copy of the Company's Annual Report for its fiscal year ended April 4,
1997 is being mailed to stockholders together with this Notice.
Holders of Common Stock are requested to complete, sign and return the
enclosed form of proxy in the envelope provided whether or not they expect to
attend the Annual Meeting in person.
By Order of the Board of Directors,
Thomas J. Anderson,
President and Chief Executive Officer
November 10, 1997
Alpharetta, Georgia
<PAGE>
COMPUTONE CORPORATION
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This Proxy Statement and the form of proxy enclosed herewith, which are
first being mailed to stockholders on or about November 10, 1997, are furnished
in connection with the solicitation by the Board of Directors of Computone
Corporation (the "Company") of proxies to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 11:00 a.m., prevailing time,
on November 25, 1997, and at any adjournment, postponement or continuation
thereof, at the Company's principal executive offices, Suite 100, 1060 Windward
Ridge Parkway, Alpharetta, Georgia 30005-3992.
Shares represented by proxies in the accompanying form, if properly signed
and returned, will be voted in accordance with the specifications made thereon
by the stockholders. Any proxy not specifying to the contrary will be voted in
favor of the adoption of the proposals referred to in the Notice of Annual
Meeting and for the election of the nominees for director named below. A
stockholder who signs and returns a proxy in the accompanying form may revoke it
at any time before it is voted by giving written notice of revocation or a duly
executed proxy bearing a later date to the Secretary of the Company or by
attending the Annual Meeting and voting in person.
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing this
Proxy Statement. Such solicitation will be made by mail and may also be made on
behalf of the Company in person or by telephone or telegram by the Company's
regular officers and employees, none of whom will receive special compensation
for such services. The Company, upon request therefor, will also reimburse
brokers, nominees, fiduciaries and custodians and persons holding shares in
their names or in the names of nominees for their reasonable expenses in sending
proxies and proxy material to beneficial owners.
Only holders of the Company's Common Stock (the "Common Stock") of record
at the close of business on October 28, 1997 will be entitled to notice of and
to vote at the Annual Meeting. Each share of Common Stock is entitled to one
vote on all matters to come before the Annual Meeting. Cumulative voting rights
do not exist with respect to the election of directors.
As of the close of business on October 28, 1997, the Company had
outstanding 7,403,606 shares of Common Stock, $.01 par value. A majority of the
outstanding shares will constitute a quorum at the Annual Meeting.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth as of October 28, 1997 the amount and
percentage of the Company's outstanding Common Stock beneficially owned by (i)
each person who is known by the Company to own beneficially more than 5% of its
outstanding Common Stock, (ii) each director and
<PAGE>
nominee for director, (iii) each executive officer named in the Summary
Compensation Table and (iv) all executive officers and directors of the Company
as a group.
Shares Percent of
Name of Individual Beneficially Outstanding
or Identity of Group Owned(1)(2) Common Stock
-------------------- ------------ ------------
Thomas J. Anderson......................... 946,000(3) 12.5%
Suite 100
1060 Windward Ridge Parkway
Alpharetta, GA 30005-3992
Richard A. Hansen.......................... 1,742,929(4) 23.5%
Four Falls Corporate Center
West Conshohocken, PA 19428-2961
John D. Freitag............................ 250,922(5) 3.3%
9304 Belle Terre Way
Potomac, MD 20854-4642
William C. Lovely.......................... 235,000(6) 3.2%
47583 Cold Spring Place
Sterling, VA 20165
Duncan E. Hume............................. 32,500(7) *
Suite 100
1060 Windward Ridge Parkway
Alpharetta, GA 30005-3992
All directors and executive officers
as a group (7 persons)................... 3,229,368(8) 41.6%
- ----------
*Less than 1%.
(1) Information furnished by each individual named. This table includes shares
that are owned jointly, in whole or in part, with the person's spouse, or
individually by his spouse.
(2) Under the rules of the Securities and Exchange Commission (the
"Commission"), a person is deemed to be the beneficial owner of securities
if the person has, or shares, "voting power" which includes the power to
vote, or to direct the voting of, such securities or "investment power"
which includes the power to dispose, or to direct the disposition, of such
securities. Under these rules, more than one person may be deemed the
beneficial owner of the same securities.
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(3) Includes 150,000 shares which Mr. Anderson may purchase pursuant to a
currently exercisable stock option.
(4) Excludes 275,598 shares owned by Pennsylvania Merchant Group Ltd ("PMG"),
of which Mr. Hansen is an executive officer, a director and a principal
stockholder, and PMG's wholly owned subsidiary PMG Investors, Inc.
("PMGI"), of which Mr. Hansen is an executive officer and a director. Mr.
Hansen disclaims beneficial ownership of the 275,598 shares of the
Company's Common Stock owned by PMG and PMGI.
(5) Includes 100,000 shares which Mr. Freitag may purchase pursuant to a
currently exercisable stock option and 25,000 shares that Mr. Freitag may
purchase pursuant to a currently exercisable warrant.
(6) Includes 25,000 shares that Mr. Lovely may purchase pursuant to a currently
exercisable warrant.
(7) Consists of 32,500 shares which Mr. Hume may purchase pursuant to a
currently exercisable option.
(8) Includes an aggregate of 304,517 shares that persons included in the group
may purchase pursuant to currently exercisable stock options and an
aggregate of 50,000 shares that persons included in the group may purchase
pursuant to currently exercisable warrants.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the officers and directors of a corporation, such as the Company,
which has a class of equity securities registered under Section 12 of the
Exchange Act, as well as persons who own more than 10% of a class of equity
securities of such a corporation, file reports of their ownership of such
securities, as well as monthly statements of changes in such ownership, with the
corporation and the Commission. Based upon written representations received by
the Company from its officers and directors, and the Company's review of the
monthly statements of ownership changes filed with the Company by its officers
and directors during the Company's 1997 fiscal year, the Company believes that
all such filings required during the Company's 1997 fiscal year were made on a
timely basis.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of four members. Each
director elected will serve until the Company's 1998 Annual Meeting of
Stockholders, and until his successor has been duly elected.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them for the election of the nominees named below, all of whom are
currently directors of the Company. If a nominee becomes unavailable for any
reason, it is intended that the proxies will be voted for a substi-
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<PAGE>
tute nominee designated by the Board of Directors. The Board of Directors has no
reason to believe the nominees named will be unable to serve if elected. Any
vacancy occurring on the Board of Directors for any reason may be filled by a
majority of the directors then in office until the Company's next Annual Meeting
of Stockholders. The nominees for director receiving a plurality of the votes
cast at the Annual Meeting will be elected as directors. Shares held by brokers
or nominees as to which voting instructions have not been received from the
beneficial owner or person otherwise entitled to vote and as to which the broker
or nominee does not have discretionary voting power, i.e., broker non-votes,
will be treated as not present and not entitled to vote for nominees for
election as directors. Abstentions from voting and broker non-votes will have no
effect on the election of directors because they will not represent votes cast
at the Annual Meeting for the purpose of electing directors.
The names of the nominees for director, together with certain information
regarding them, are as follows:
Nominees for Director
Name Age Director Since
---- --- --------------
Thomas J. Anderson 51 1993
Richard A. Hansen 56 1992
John D. Freitag 68 1992
William C. Lovely 42 1993
Mr. Anderson has been Chief Executive Officer of the Company since April
25, 1996 and President of the Company since November 3, 1992. In addition to
serving as President of the Company, Mr. Anderson also served as the Company's
Chief Operating Officer from November 3, 1996 to April 25, 1996.
Mr. Hansen was elected Chairman of the Board on April 25, 1996 and has been
an executive officer, director and principal stockholder of PMG, an investment
banking firm, since November 1986 and is a director and executive officer of
PMGI, a wholly owned subsidiary of PMG. Mr. Hansen is also a director of
Ultra-Life Batteries, Inc., a manufacturer of lithium batteries, and of a number
of private companies.
Mr. Freitag, a private investor, was Chairman of the Board and Chief
Executive Officer of the Company from November 1992 until April 25, 1996.
Mr. Lovely, a private investor, was Chief Financial Officer of Leopard
Industries, Inc., a private investment management corporation, from September
1993 until April 1996. From December 1990 to December 1993, Mr. Lovely was
principally occupied as Chief Financial Officer of Gyrofalcon Group, Inc., a
private investment management corporation.
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<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met four times in the Company's 1997 fiscal year.
The Board of Directors currently does not have an Executive Committee, an Audit
Committee, a Nominating Committee or a Compensation Committee but intends to
create such committees and appoint the members thereof following the Annual
Meeting of Stockholders on November 25, 1997.
Compensation of Directors
The Company's directors currently serve without compensation.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid by the Company during
each of the three fiscal years ended April 4, 1997, April 5, 1996 and April 7,
1995 for services rendered in all capacities by the chief executive officer of
the Company and the two other most highly compensated executive officers of the
Company whose compensation exceeded $100,000 in the fiscal year ended April 4,
1997.
<TABLE>
<CAPTION>
Long-Term Compensation
Awards
--------------------------
Annual Compensation(1) Restricted Securities
Name and Fiscal ---------------------- Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Awards($) Options(#) Compensation($)
- ------------------ ------ --------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Anderson 1997 $130,000 $ 36,157 -- -- --
President and Chief 1996 122,500 $ 13,350 -- 100,000 --
Executive Officer (1) 1995 140,887 $ 50,000 -- 50,000 --
John D. Freitag 1997 $ -- -- -- -- --
Chairman of the Board 1996 -- -- -- -- --
and Chief Executive 1995 -- -- -- -- --
Officer(2)
Duncan E. Hume 1997 $106,082 -- -- -- --
Vice President - 1996 101,750 -- -- -- --
International Sales 1995 101,817 -- -- -- --
</TABLE>
- ----------
(1) Mr. Anderson became the Company's Chief Executive Officer on April 25,
1996.
(2) Mr. Freitag served as the Company's Chief Executive Officer from November
1992 until April 25, 1996.
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<PAGE>
Report of the Compensation Committee of Computone Corporation
Fiscal Year Ended April 4, 1997
During the Company's fiscal year ended April 4, 1997, the Company's Board
of Directors as a whole established the compensation of the executive officers
of the Company, and there was not a separate Compensation Committee of the
Company's Board of Directors. Because of the Company's need to conserve its
working capital, the base compensation of the Company's executive officers
during the Company's 1997 fiscal year was maintained at only a slightly higher
level than the compensation paid to such persons during the Company's prior
fiscal year. John D. Freitag, who served as the Company's Chief Executive
Officer from November 1992 until April 25, 1996, served without compensation.
Thomas J. Anderson, who became Chief Executive Officer of the Company on April
25, 1996, was compensated during the Company's 1997 fiscal year at the annual
rate of $130,000 in accordance with the terms of an employment agreement dated
November 26, 1996 between the Company and Mr. Anderson. Mr. Anderson also
received a discretionary bonus of $36,157 during the Company's 1997 fiscal year
in recognition of the Company's resumption of profitable operations. See
"Employment Agreements."
Fiscal Year Ending April 3, 1998
Following the Annual Meeting, the Company's Board of Directors intends to
formalize compensation policies for its executive officers intended to enhance
the Company's earnings and facilitate securing, retaining and motivating
management employees of high caliber and potential. The Company intends that its
executive compensation will consist of three components: base salary, annual
incentive awards based on the Company's performance and long-term incentive
awards. The persons eligible to receive awards under these policies will be the
officers and other employees of the Company who are in positions in which their
decisions, actions and counsel significantly impact upon the short- and
long-term goals and strategies of the Company.
The Company intends to establish base salaries for its officers that are
within the range paid by technology companies in the Company's peer group. The
Company anticipates that it will pay an annual incentive bonus on a
discretionary basis to its Chief Executive Officer and other officers depending
upon the achievement of a mix of corporate and individual performance goals. The
Company also intends to grant stock options to its officers, including its Chief
Executive Officer, based on their level of responsibility and support for the
Company's long-term strategic objectives. By providing its officers with an
opportunity to benefit from a long-term increase in the value of the Company's
Common Stock, the Company believes it will align the interests of its officers
and employees with the interests of the Company's stockholders and tie a
significant portion of the Company's executive compensation to stockholder
returns.
Employment Agreements
The November 26, 1996 employment agreement between the Company and Mr.
Anderson reflects terms and conditions that were agreed upon when Mr. Anderson
joined the Company as President and Chief Operating Officer on November 3, 1993.
The employment agreement provides for the employment of Mr. Anderson as
President and Chief Executive Officer of the Company for
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<PAGE>
a period of 24 months and for the automatic renewal of Mr. Anderson's employment
for successive periods of 24 months, subject to prior written notice of
termination by Mr. Anderson or the Company, in each case not later than 90 days
prior to the expiration of the then current term. Under the employment
agreement, Mr. Anderson receives an annual salary of $130,000, and is entitled
to a bonus in an amount determined in the discretion of the Company's Board of
Directors, based on the Company's attainment of quarterly revenue and
profitability goals. In the event the Company terminates the employment
agreement without Cause (as defined in the employment agreement), Mr. Anderson
is entitled to the continuation of his salary and employee benefits for a period
of 25 months. In the event Mr. Anderson terminates the employment agreement for
any reason or the Company terminates the employment agreement because of Mr.
Anderson's continuous and willful failure to observe the terms and conditions of
the employment agreement, Mr. Anderson is entitled to the continuation of his
salary and employee benefits for six months.
The following table sets forth information with respect to options held on
April 4, 1997 by the persons named in the Summary Compensation Table.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying In-the-Money
Acquired Options at Fiscal Year End Options at Fiscal Year End
on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Anderson -- -- 150,000 -- $168,000 --
John D. Freitag -- -- 125,000 -- 140,000 --
Duncan E. Hume 5,000 $ 25,850 32,500 -- 36,563 --
</TABLE>
Certain Transactions
On December 27, 1995, Jaguar, Inc. ("Jaguar"), pursuant to an Agreement to
Release Pledged Collateral dated as of December 20, 1995 among Primary Holdings
Limited, a Bermuda corporation ("PHL"), which had become the holder of a
promissory note (the "Jaguar Note") issued by Jaguar on September 10, 1993
secured by all of the common stock of Brisco Investments Limited ("Brisco"), an
Isle of Man corporation, and 2,619,266 shares of the Company's Common Stock,
Jaguar and Richard A. Hansen, acting on behalf of himself, Thomas J. Anderson,
William C. Lovely and certain other investors pursuant to an agreement dated
December 20, 1995 (the "Letter Agreement") among the Company, Jaguar, Richard A.
Hansen, William C. Lovely, Thomas J. Anderson and John D. Freitag, sold
2,619,266 shares of Common Stock of the Company and two shares of common stock
of Brisco in consideration of a prepayment of $750,000 in cash on the Jaguar
Note.
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<PAGE>
In addition to the purchase of 2,619,266 shares of the Company's Common
Stock, the Letter Agreement among the Company, Jaguar, Richard A. Hansen,
William C. Lovely, Thomas J. Anderson and John D. Freitag, as amended in July
1996, set forth certain other agreements among the Company, Richard A. Hansen,
William C. Lovely, Thomas J. Anderson and John D. Freitag with respect to the
election of directors of the Company and other matters as follows:
(a) an acknowledgment that Jaguar would continue to be the owner of 66,932
shares of the Company's Common Stock;
(b) the filing of a registration statement by the Company for the purpose
of registering under the Securities Act of 1933, as amended, the shares of the
Company's Common Stock purchased from Jaguar as well as shares of the Company's
Common Stock acquired by Messrs. Lovely and Freitag upon conversion of their
Series D Convertible Preferred Stock of the Company;
(c) the conversion by John D. Freitag and William C. Lovely of all of their
shares of the Company's Series D Convertible Preferred Stock into Common Stock
of the Company and the Company's agreement to pay all of the accrued but unpaid
dividends on the Series D Convertible Preferred Stock from the date of issuance
thereof through the date of conversion in six equal monthly installments
commencing on June 30, 1996;
(d) the holding of an annual meeting of the stockholders of the Company not
later than July 1, 1996 for the purpose of electing directors of the Company of
whom three shall be designated by Thomas J. Anderson, of whom three shall be
designated by Richard A. Hansen and of whom one shall be a person mutually
acceptable to the three Anderson designees and the three Hansen designees;
(e) the grant to John D. Freitag of an option to purchase 100,000 shares of
the Company's Common Stock at a price of $1.18 per share of which options to
purchase 20,000 shares will become exercisable on each of December 20, 1996,
1997, 1998, 1999 and 2000; and
(f) the Company's agreement to cause the release of John D. Freitag as
guarantor of any loan or credit arrangements between the Company and
NationsBank, N.A., including the termination of any pledges by Mr. Freitag
securing such guarantee.
The names of the purchasers of the 2,619,266 shares of Common Stock of the
Company, the number of shares purchased by each and the amount paid by each is
as follows:
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<PAGE>
Number of
Name of Purchaser Shares Purchased Amount Paid
- ----------------- ---------------- -----------
David S. Allsopp 200,000 $ 57,200
Frank J. Campbell, III
and Richard A. Hansen,
Trustees Under Trust
U/W of Jane D. Campbell 150,000 42,900
Judith W. Campbell 150,000 42,900
Richard A. Hansen 653,266 186,834
Thomas J. Anderson 866,000 247,646
William C. Lovely 200,000 57,200
Peter S. Rawlings 100,000 28,600
Sarah P. Rawlings 100,000 28,600
Joseph T. Simon and
Linda D. Simon JTWROS 100,000 28,600
William M. Simon 100,000 28,600
Each of the purchasers paid cash, the source of which was his or her
personal funds, with the exception of Thomas J. Anderson and William C. Lovely.
Mr. Anderson and Mr. Lovely each borrowed the full amount used to purchase the
shares he purchased from Richard A. Hansen and delivered a promissory note to
Mr. Hansen payable on demand after June 30, 1996 as well as a pledge agreement
pledging the shares purchased by each as security for payment of his promissory
note.
On December 29, 1995, PMGI sold 1,041,829 shares of Common Stock of the
Company to Richard A. Hansen for $302,130 pursuant to a Stock Purchase Agreement
dated as of December 21, 1995 between PMGI and Richard A. Hansen. Mr. Hansen
paid for the shares by delivery of an unsecured promissory note to PMGI. The
note, which was due on June 30, 1996, provided for the payment of interest on
the unpaid principal balance at the prime rate.
As a result of the foregoing transactions, the aggregate number of shares
of Common Stock of the Company and the percentage of the outstanding Common
Stock of the Company as of December 31, 1995 beneficially owned by each of the
persons who acquired control of the Company, by the other members of the
Company's Board of Directors and by any person who, together with either Mr.
Hansen or Mr. Anderson, might be deemed to comprise a group within the meaning
of Section 13(d)(3) of the Exchange Act, was as follows:
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<PAGE>
Percentage of
Number of Shares Outstanding
Name Beneficially Owned Common Stock
- -------------------------------- ------------------- -------------
Jaguar Inc. 66,932 1.1%
John D. Freitag 383,854 6.1
William C. Lovely 300,000 4.8
Richard A. Hansen 1,721,263 27.7
Thomas J. Anderson 1,016,000 16.0
Pennsylvania Merchant Group Ltd 112,095 1.8
David S. Allsopp 200,000 3.2
Frank J. Campbell, III
and Richard A. Hansen,
Trustees of Trust U/W
of Jane D. Campbell 150,000 2.4
Judith W. Campbell 150,000 2.4
Peter S. Rawlings 100,000 1.6
Sarah P. Rawlings 100,000 1.6
Joseph T. Simon and
Linda D. Simon JTWROS 100,000 1.6
William M. Simon 100,000 1.6
Duane, Morris & Heckscher LLP, of which Frederick W. Dreher is a partner,
serves as the Company's general counsel and is paid customary fees by the
Company for legal services rendered. Mr. Dreher has been an officer of the
Company since March 1994.
The Company utilizes the series of Alexis Travel, a full service travel
agency, for its corporate travel needs. Alexis is 40% owned by Messrs. Freitag
and Lovely, directors of the Company. During the Company's 1997, 1996 and 1995
fiscal years, the Company made purchases of $110,000, $67,000 and $19,000
respectively, at rates not in excess of those charged to other persons in arms'
length transactions.
Stockholder Action by Written Consent
On June 17, 1997, pursuant to Section 228 of the Delaware General
Corporation Law (the "DGCL"), in connection with the revival of the Company's
Certificate of Incorporation pursuant to Section 312 of the DGCL, the holders of
in excess of 55% of the Company's outstanding Common Stock elected by majority
written consent Richard A. Hansen and Thomas J. Anderson as directors of the
Company, who then appointed John D. Freitag and William C. Lovely as directors
of the Company, in each case, to serve until the next annual meeting of
stockholders and until their successors are duly elected. Under Section 228(a)
of the DGCL, any action required to be or that may be taken at any annual or
special meeting of stockholders may be taken without a meeting, without notice
and without a vote, if written consents setting forth the action so taken are
executed by holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize such action. The persons who
executed the majority written consent constituted a sufficient majority to elect
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<PAGE>
directors, without the need to obtain consents from any of the Company's other
stockholders. Accordingly, no written consents have been or will be solicited or
required from any stockholders of the Company other than those who executed the
majority written consent on June 17, 1997. Section 228(d) of the DGCL provides
that prompt written notice must be given of such action to those stockholders
who did not consent in writing and who would have been eligible to vote in the
election of directors if the election had occurred at a meeting of stockholders.
Therefore, the Company is providing this notice to its stockholders in order to
comply with the DGCL.
ADOPTION OF THE
1997 EQUITY INCENTIVE PLAN
Description of the 1997 Equity Incentive Plan
The Board of Directors of the Company adopted the 1997 Equity Incentive
Plan (the "Plan") on July 30, 1997, subject to approval by the holders of the
Company's Common Stock at the Annual Meeting. The purpose of the Plan is to
further the growth, development and financial success of the Company by
enhancing the ability of the Company to attract and retain highly qualified
directors, officers, employees and consultants, to compensate them for their
services to the Company and, in so doing, to strengthen the alignment of the
interests of such individuals with the interests of the Company's stockholders
through ongoing ownership of the Company's Common Stock.
The Plan provides for the grant of non-qualified stock options (the
"Options") to purchase an aggregate of up to 250,000 shares of the Company's
Common Stock to directors, officers, employees and consultants of the Company.
The number of persons who are eligible to participate in the Plan is currently
15. Persons who receive Options under the Plan are referred to herein as
"Optionees."
Appropriate adjustments to Options to be outstanding in the future and to
the number or kind of shares subject to the Plan are provided for in the event
of a stock split, reverse stock split, stock dividend, share combination or
reclassification and certain other types of corporate transactions involving the
Company, including a merger or a sale of all or substantially all of the assets
of the Company.
The Plan is currently administered by the Company's Board of Directors. The
Board of Directors of the Company may, from time to time, appoint a committee to
administer the Plan. The Board of Directors or such committee (collectively, the
"Board") has the power to determine the persons to whom Options will be granted,
the number of Options to be granted, the timing of such grant and the terms of
exercise of such Options, interpret the Plan, decide all questions of fact
arising in its application and make all other determinations necessary or
advisable for the administration of the Plan.
Options
The exercise price of Options granted under the Plan will be set by the
Board and may not be less than 100% of the fair market value per share of the
Company's Common Stock on the date that
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<PAGE>
the Option is granted, but in no event less than the par value of the Common
Stock. The closing price of the Company's Common Stock on the Nasdaq Small-Cap
Market on October 28, 1997 was $5.50.
Options will be evidenced by written agreements in such form not
inconsistent with the Plan as the Board shall approve from time to time. Each
agreement will state the period or periods of time within which the Option may
be exercised. The Board may accelerate the exercisability of any Options upon
such circumstances and subject to such terms and conditions as the Board deems
appropriate. Unless the Board accelerates exercisability or as otherwise
provided in a written option agreement, no Option that is unexercisable at the
time of the Optionee's termination of service as a director, officer, employee
or consultant of the Company may thereafter become exercisable. No Option may be
exercised after ten years from the date of grant. If an Option expires or is
canceled for any reason without having been fully exercised or vested, the
number of shares subject to such Option that had not been purchased or become
vested may again be made subject to an Option under the Plan.
The option price must be paid in full at the time of exercise unless
otherwise determined by the Board. Payment must be made in cash, in shares of
the Company's Common Stock valued at their then fair market value, or a
combination thereof, as determined in the discretion of the Board. It is the
policy of the Board that any taxes required to be paid must also be withheld at
the time of exercise. The Board may, in its discretion, allow an Optionee to
enter into an agreement with the Company's transfer agent or a brokerage firm of
national standing whereby the Optionee will simultaneously exercise the Option
and sell the shares acquired thereby and either the Company's transfer agent or
the brokerage firm executing the sale will remit to the Company from the
proceeds of sale the exercise price of the shares as to which the Option has
been exercised as well as the required amount of withholding.
Amendment or Termination
The Plan will remain in effect until all Options granted under the Plan
have been satisfied by the issuance of shares, except that no Options may be
granted under the Plan after July 29, 2007. The Board may terminate, modify,
suspend or amend the Plan at any time, subject to any required stockholder
approval or any stockholder approval that the Board may deem to be advisable for
any reason, such as for the purpose of obtaining or retaining any statutory or
regulatory benefits under tax, securities or other laws or satisfying any
applicable stock exchange listing requirements. No modification, amendment or
termination of the Plan will alter or impair any rights or obligations under
any outstanding Option without the consent of the Optionee. No Option may be
granted during any period of suspension nor after termination of the Plan.
Federal Income Tax Consequences
The Plan is not a qualified plan under Section 401(a) of the Internal
Revenue Code of 1996, as amended (the "Code") and the Options are not intended
to qualify as incentive stock options within the meaning of Section 422 of the
Code. The following description, which is based on existing laws, sets forth
generally certain of the federal income tax consequences of Options granted
under the Plan. This description may differ from the actual tax consequences of
participation in the Plan.
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An Optionee will not recognize income for federal income tax purposes upon
the receipt of a Option, nor will the Company be entitled to any deduction on
account of such grant. An Optionee will recognize ordinary income for federal
income tax purposes at the time of exercise of the Option in an amount equal to
the difference between the option price paid and the fair market value of the
shares on the date of exercise. When the Optionee disposes of the shares
acquired upon exercise of the Option, the Optionee will generally recognize
capital gain or loss equal to the difference between (i) the amount received
upon disposition of the shares and (ii) the sum of the option price and any
amount included in the Optionee's income when the Option was exercised. Such
gain will be long-term, mid-term or short-term depending upon the period the
shares were held after the date of exercise. Under current law, the applicable
holding periods and maximum rates of tax applicable to any gain realized by an
Optionee on the sale of option shares are as follows:
Holding Period Maximum Tax Rate
-------------- ----------------
Short-Term One year or less 39.6%
Mid-Term More than one year but 28
less than 18 months
Long-Term More than 18 months 20
The Company generally will be entitled to a tax deduction, subject to the
provisions of Section 162(m) of the Code, in an amount equal to any ordinary
income realized by the Optionee by reason of exercise of the Option at the time
of such exercise. The federal, state and local income tax consequences to any
particular Optionee will depend upon the Optionee's circumstances.
Vote Required
Adoption of the Plan will require the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock present in person or
represented by proxy at the Annual Meeting. Abstentions are considered shares of
stock present in person or represented by proxy at the Annual Meeting and
entitled to vote and are counted in determining the number of votes necessary
for a majority. An abstention will therefore have the practical effect of voting
against adoption of the Plan because it represents one fewer vote for adoption
of the Plan. Broker non-votes are not considered shares present in person or
represented by proxy at the Annual Meeting and entitled to vote on the Plan and
will have no effect on the vote to adopt the Plan.
Recommendation of the Board of Directors
The Board of Directors recommends that the holders of Common Stock vote FOR
the adoption of the Plan.
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AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation currently authorizes the
issuance of 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock. As of October 28, 1997, the Company had outstanding 7,250,870 shares of
Common Stock and no shares of Preferred Stock.
On July 30, 1997, the Company's Board of Directors approved an amendment to
the Company's Certificate of Incorporation that would reduce the number of
shares of Common Stock the Company is authorized to issue from 50,000,000 shares
to 25,000,000 shares, and directed that the proposed amendment be submitted to
the Company's stockholders for approval at the Annual Meeting. The principal
purpose for the amendment is to reduce the Company's annual franchise tax
liability to the State of Delaware (the Company's jurisdiction of
incorporation), which is based on the amount of authorized capital stock of the
Company.
If approved by the stockholders, the proposal would only change section (A)
of paragraph Fourth of its Company's Certificate of Incorporation as follows:
from: "FOURTH (A) Capital Stock. The total number of shares of all classes
of stock which the Corporation shall have authority to issue is Sixty
Million (60,000,000) shares consisting of Fifty Million (50,000,000)
shares of Common Stock, One Cent ($.01) par value per share, and Ten
Million (10,000,000) shares of Preferred Stock ($.01) par value per
share."
to: "FOURTH (A) Capital Stock. The total number of shares of all classes
of stock which the Corporation shall have authority to issue is
Thirty-Five Million (35,000,000) shares consisting of Twenty-Five
Million (25,000,000) shares of Common Stock, One Cent ($.01) par value
per share, and Ten Million (10,000,000) shares of Preferred Stock
($.01) par value per share."
The reduction in the authorized shares of Common Stock will not reduce or
otherwise affect the Company's presently outstanding shares or the shares
reserved for the issuance upon exercise of outstanding warrants, options,
convertible securities or other contractual rights. The Company's Board of
Directors believes that having 25 million shares of Common Stock authorized
should be adequate to meet the Company's needs for unauthorized but unissued
capital stock for the foreseeable future.
Vote Required
Approval of the amendment to the Company's Certificate of Incorporation
will require the affirmative vote at the Annual Meeting of a majority of the
Company's outstanding shares of Common Stock. Abstentions and broker non-votes
are considered shares of stock present in person or represented by proxy at the
Annual Meeting and entitled to vote and are counted in determining the number of
votes necessary for a majority. An abstention will therefore have the practical
effect of voting against approval of the amendment to the Company's Certificate
of Incorporation because it represents one fewer vote for approval of the
amendment.
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Recommendation of the Board of Directors
The Board of Directors recommends that the holders of Common Stock vote FOR
the amendment to the Company's Certificate of Incorporation.
ELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
On December 15, 1994, the Company received a letter dated December 15, 1994
from Ernst & Young LLP ("Ernst & Young"), the Company's independent public
accountants, confirming that the client-auditor relationship between the
Company and Ernst & Young had ceased. Ernst & Young's reports on the Company's
consolidated financial statements for the fiscal years ended April 1, 1994 and
April 2, 1993 did not contain any adverse opinion or any disclaimer of opinion,
and were not qualified or modified as to uncertainty, audit scope or accounting
principles. During the two most recent fiscal years and the subsequent interim
period preceding Ernst & Young's resignation, there were no disagreements
between the Company and Ernst & Young on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of Ernst & Young, would have caused Ernst &
Young to make a reference to the subject matter of such disagreement in
connection with its reports.
On February 24, 1995, the Company engaged BDO Seidman as the independent
public accountants to audit the Company's financial statements.
Unless instructed to the contrary, it is intended that votes will be cast
pursuant to the proxies for the election of BDO Seidman, LLP as the Company's
independent public accountants for its 1998 fiscal year. The Company has been
advised by BDO Seidman, LLP that none of its members has any financial interest
in the Company. Election of BDO Seidman, LLP will require the affirmative vote
of a majority of the shares of Common Stock represented in person or by proxy at
the Annual Meeting.
A representative of BDO Seidman, LLP will attend the Annual Meeting, will
have the opportunity to make a statement, if he desires to do so, and will be
available to respond to any appropriate questions presented by stockholders at
the Annual Meeting.
ANNUAL REPORT
A copy of the Company's Annual Report for its 1997 fiscal year is being
mailed to the Company's stockholders with this Proxy Statement.
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STOCKHOLDER PROPOSALS
Any stockholder who, in accordance with and subject to the provisions of
the proxy rules of the Commission, wishes to submit a proposal for inclusion in
the Company's proxy statement for its 1998 Annual Meeting of Stockholders must
deliver such proposal in writing to the Company's Secretary at the Company's
principal executive offices at Suite 100, 1060 Windward Ridge Parkway,
Alpharetta, Georgia 30005-3992, not later than July 13, 1998.
OTHER PROPOSALS
The Board of Directors does not know of any matters to be presented for
consideration at the Annual Meeting other than the matters described in the
Notice of Annual Meeting, but if any matters are properly presented, it is the
intention of the persons named in the accompanying proxy to vote on such matters
in accordance with their judgment.
By Order of the Board of Directors,
Thomas J. Anderson,
President and Chief Executive Officer
November 10, 1997
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PROXY COMPUTONE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD NOVEMBER 25, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Richard A. Hansen and Thomas
J. Anderson, and each or any of them, proxies of the undersigned, with full
power of substitution, to vote all of the shares of Common Stock of Computone
Corporation (the "Company") which the undersigned may be entitled to vote at the
Annual Meeting of Stockholders of the Company to be held at the Company's
principal offices located at Suite 100, 1060 Windward Ridge Parkway, Alpharetta,
Georgia, on November 25, 1997 at 11:00 a.m., and at any adjournment,
postponement or continuation thereof, as follows:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS / / FOR all the nominees listed below / / WITHOUT AUTHORITY to vote for the
nominees listed below
</TABLE>
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
THOMAS J. ANDERSON JOHN D. FREITAG
RICHARD A. HANSEN WILLIAM C. LOVELY
2. ADOPTION OF THE 1997 EQUITY INCENTIVE PLAN. The Board of Directors recommends
a vote FOR this proposal.
/ / FOR / / AGAINST / / ABSTAIN
3. AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION to reduce the number
of shares of Common Stock the Company is authorized to issue. The Board of
Directors recommends a vote FOR this proposal.
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO ELECT BDO SEIDMAN, LLP as the independent public accountants for
the Company for its 1998 fiscal year. The Board of Directors recommends a
vote FOR this proposal.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the annual meeting and any adjournment,
postponement or continuation thereof.
(Continued and to be SIGNED on Reverse side.)
<PAGE>
This proxy will be voted as specified. If a choice is not specified, the
proxy will be voted FOR the nominees for Director and FOR Proposals 2, 3 and 4.
This proxy should be dated, signed
by the stockholder exactly as his
name appears below and returned
promptly to American Stock Transfer
and Trust Company in the enclosed
envelope. Persons signing in a
fiduciary capacity should so
indicate.
____________________________ (SEAL)
____________________________ (SEAL)
Date: ______________________ , 1997
