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
/X/ Definitive Proxy Statement
/_/ Definitive Additional Materials
/_/ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COMPUTONE CORPORATION
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(1) 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:
_____________________________________________________________________________
/_/ 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 No. ______________________________________
3) Filing party: ___________________________________________________________
4) Date filed: _____________________________________________________________
<PAGE>
COMPUTONE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 12, 1999
------------
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 Thursday, August 12, 1999, at
the Sheraton Gateway Hotel, 1900 Sullivan Road, College Park, Georgia, for the
following purposes:
1. To elect four directors to serve until the 2000 Annual Meeting of
Stockholders and until their successors are elected;
2. To consider and vote upon a proposal to adopt the Company's 1998 Equity
Incentive Plan for officers and key employees; and
3. 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 July 26, 1999 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 2,
1999 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,
Perry J. Pickerign,
President and Chief Executive Officer
July 27, 1999
Alpharetta, Georgia
<PAGE>
COMPUTONE CORPORATION
------------
This Proxy Statement and the form of proxy enclosed herewith, which are
first being mailed to stockholders on or about July 27, 1999, 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 August 12, 1999, and at any adjournment, postponement or continuation
thereof, at the Sheraton Gateway Hotel, 1900 Sullivan Road, College Park,
Georgia.
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 proposal 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 July 26, 1999 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 July 26, 1999, the Company had outstanding
8,471,674 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 July 26, 1999 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
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and 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.
<TABLE>
<CAPTION>
Shares Percent of
Name of Individual Beneficially Outstanding
or Identity of Group Owned(1)(2) Common Stock(2)
- -------------------- ------------ ---------------
5% Holders (Exclusive of Directors):
- ------------------------------------
<S> <C> <C>
Thomas J. Anderson............................ 720,000 8.5%
Roswell, Georgia
Directors:
Richard A. Hansen............................. 1,934,142(3) 22.51%
Four Falls Corporate Center
West Conshohocken, PA 19428-2961
John D. Freitag............................... 551,901(4) 6.33%
9304 Belle Terre Way
Potomac, MD 20854-4642
Perry J. Pickerign............................ 100,000(5) 1.17%
Suite 100
1060 Windward Ridge Parkway
Alpharetta, GA 30005-3992
Erik Monninkhof............................... 2,500 *
Koningin Jullanaweg 20
3791 VB Achterveld
The Netherlands
Executive Officers(6):
- ----------------------
Keith H. Daniel .............................. 37,000(7) *
Suite 100
1060 Windward Ridge Parkway
Alpharetta, GA 30005-3992
All directors and executive officers
as a group (5 persons)...................... 2,625,543(3)(4)(5)(7) 29.3%
</TABLE>
- ----------
*Less than 1%.
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<PAGE>
(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.
(3) Excludes 275,598 shares owned by Pennsylvania Merchant Group ("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 owned by PMG
and PMGI. Includes 120,000 shares Mr. Hansen has the right to purchase at a
price of $2.10 per share pursuant to a warrant exercisable until January
14, 2004.
(4) Includes 100,000 shares which Mr. Freitag may purchase pursuant to a
currently exercisable stock option at a price of $2.00 per share and
140,000 shares that Mr. Freitag has the right to purchase at a price of
$2.10 per share pursuant to a warrant exercisable until January 14, 2004.
(5) Includes 50,000 shares which Mr. Pickerign may purchase at a price of $1.50
per share pursuant to a currently exercisable stock option, and 50,000
shares which Mr. Pickerign may purchase at a price of $1.50 per share
pursuant to a stock option which will become exercisable within 60 days of
the date of this Proxy Statement.
(6) Excludes Executive Officers listed under "Directors."
(7) Includes 25,000 shares which Mr. Daniel may purchase at a price of $2.00
per share pursuant to a currently exercisable stock option.
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, directors and greater than 10% stockholders and
the Company's review of the monthly statements of ownership changes filed with
the Company by its officers, directors and greater than 10% stockholders during
the Company's fiscal year ended April 2, 1999, the Company believes
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<PAGE>
that all such filings required during the Company's fiscal year ended April 2,
1999 were made on a timely basis, except for Keith H. Daniel who filed one late
report on Form 3.
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of four members. Each
director elected will serve until the Company's 2000 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 substitute 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
---- --- --------------
Richard A. Hansen 58 1992
John D. Freitag 70 1992
Perry J. Pickerign 35 1998
Erik Monninkhof 37 1999
Mr. Freitag, a private investor, who has been Chairman of the Board since
February 1999, served as the Acting President and Chief Executive Officer from
April 30, 1998 through July 31, 1998. He was Chairman of the Board and Chief
Executive Officer of the Company from November 1992 until April 25, 1996. He is
Chairman of the Board of Leopard Industries, Inc., a private investment
management corporation.
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<PAGE>
Mr. Hansen served as Chairman of the Board from April 25, 1996 until
February 1999 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. Pickerign was appointed President, Chief Executive Officer and a
director of the Company effective as of August 1, 1998. Mr. Pickerign was
self-employed as a high technology consultant from September 1997 to July 1998,
was Director of Marketing for Comtrol Corporation from June 1993 to September
1997, was a strategic planning and marketing consultant from March 1991 to June
1993 and previously held management positions with ITT Financial Services and 3M
Company.
Mr. Monninkhof, a private investor and a director since May 13, 1999,
previously served as Managing Director of Dupaco B.V., a distributor of high-end
computer products, from 1985 to 1996. Since 1996, Mr. Monninkhof has been
principally engaged as a director of Monninkhof Holding B.V., a corporation
engaged in private investing.
Keith H. Daniel, age 46, has served as the Company's Chief Financial
Officer since February 1, 1999. Prior thereto, Mr. Daniel served as a financial
consultant to the Company and others. From September 1996 until August 1998, Mr.
Daniel was Chief Financial Officer of Space Master International, Inc. and prior
thereto held financial management positions with Sivaco Wire Group and Keystone
Consolidated Industries, Inc.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met seven times in the Company's fiscal year ended
April 2, 1999. The Board of Directors currently does not have an Executive
Committee, a Nominating Committee or a Compensation Committee. Since August 1,
1998, the Audit Committee of the Company's Board of Directors has consisted of
Richard A. Hansen and John D. Freitag. The Audit Committee, which met two times
during the Company's fiscal year ended April 2, 1999, reviews audit reports and
management recommendations made by the Company's independent auditing firm.
Compensation of Directors
The Company's directors currently serve without compensation. Pursuant to
the Company's 1997 Equity Incentive Plan, each director of the Company is
eligible to receive non-qualified stock options to purchase shares of the
Company's Common Stock in an amount determined by the Company's Board of
Directors from time to time.
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<PAGE>
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 2, 1999, April 3, 1998 and April 4,
1997 for services rendered in all capacities by the chief executive officer of
the Company and the other most highly compensated executive officers of the
Company whose compensation exceeded $100,000 in the fiscal year ended April 2,
1999.
<TABLE>
<CAPTION>
Long-Term Compensation
Awards
-----------------------
Annual Compensation(1) Restricted Securities
Name and Fiscal ---------------------- Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Awards($) Options(#) Compensation($)
------------------ ------ --------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. Anderson 1999 $ 75,833 $ -- -- -- --
President and Chief 1998 130,000 30,102 -- -- --
Executive Officer (1) 1997 130,000 36,157 -- -- --
John D. Freitag 1999 $ -- -- -- -- --
President and Chief 1998 -- -- -- -- --
Executive Officer (2) 1997 -- -- -- -- --
Perry J. Pickerign 1999 $100,000 -- -- 300,000 --
President and Chief 1998 -- -- -- -- --
Executive Officer (3) 1997 -- -- -- -- --
</TABLE>
- ----------
(1) Mr. Anderson resigned as the Company's President and Chief Executive
Officer effective April 30, 1998.
(2) Mr. Freitag served without compensation as the Company's Acting President
and Chief Executive Officer from April 30, 1998 through July 31, 1998. In
January 1999, in consideration of such service, the Company granted Mr.
Freitag a warrant to purchase 20,000 shares of the Company's Common Stock
exercisable at a price of $2.10 per share until January 14, 2004.
(3) Mr. Pickerign became the Company's President and Chief Executive Officer on
August 1, 1998.
Report of the Compensation Committee of Computone Corporation
During the Company's fiscal year ended April 2, 1999, 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. The Company's Board of Directors formalized
compensation policies for its executive officers intended to enhance the
Company's earnings and facilitate securing, retaining and motivating management
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<PAGE>
employees of high caliber and potential. The Company's executive compensation
consists of three components: base salary, cash bonuses based on the Company's
performance and long-term incentive awards in the form of stock options. The
persons eligible to receive awards under these policies are 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 establishes base salaries for its officers that are within the
range paid by technology companies in the Company's peer group. The Company pays
incentive bonuses on a formula basis to its Chief Executive Officer and Chief
Financial Officer depending upon the Company's achievement of specified
performance goals. The Company also grants 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.
See "Employment Agreements" for further information regarding the
compensation of Mr. Pickerign as the Company's Chief Executive Officer.
Employment Agreements
The Company entered into an employment agreement with Mr. Pickerign dated
as of August 2, 1998. The employment agreement provides for the employment of
Mr. Pickerign as President and Chief Executive Officer of the Company for a
period of three years and for the automatic renewal of Mr. Pickerign's
employment for successive periods of one year, subject to prior written notice
of termination by Mr. Pickerign or the Company, in each case not later than 180
days prior to the expiration of the then current term. Under the employment
agreement, Mr. Pickerign receives an annual salary of $150,000, and is entitled
to a quarterly bonus in an amount equal to 10% of the Company's earnings before
interest and taxes in the preceding quarter. On the date of the employment
agreement, the Company granted Mr. Pickerign non-qualified stock options to
purchase 300,000 shares of the Company's Common Stock, of which 50,000 shares
vested on the date of commencement of Mr. Pickerign's employment with the
Company, 50,000 shares vest on the first anniversary of the date of the
employment agreement, 100,000 shares vest on the second anniversary of the date
of the employment agreement and 100,000 shares vest on the third anniversary of
the date of the employment agreement. Pursuant to the employment agreement, the
Company provides Mr. Pickerign with an automobile at the Company's sole cost and
expense. The Company also reimbursed Mr. Pickerign for $32,183 in expenses in
connection with the relocation of his personal residence to the Atlanta, Georgia
area.
The Company entered into an employment agreement with Mr. Daniel dated
February 1, 1999. The employment agreement provides for the employment of Mr.
Daniel as Chief Financial Officer of the Company for a period of two years and
for the automatic renewal of Mr. Daniel's employment for successive periods of
one year, subject to prior written notice of
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<PAGE>
termination by Mr. Daniel or the Company, in each case not later than 180 days
prior to the expiration of the then current term. Under the employment
agreement, Mr. Daniel receives an annual salary of $110,000, and is entitled to
a quarterly bonus of $5,000 for each quarter ending during the term of the
employment agreement if the Company's earnings before income and taxes for such
quarter exceeds $100,000 and an annual bonus of $10,000 for each fiscal year
ending during the term of the employment agreement if the Company's earnings
before income and taxes for such calendar year exceeds $1,000,000. On the date
of the employment agreement, the Company granted Mr. Daniel non-qualified stock
options to purchase 75,000 shares of the Company's Common Stock, of which 25,000
shares vested on the date of commencement of Mr. Daniel's employment with the
Company, 25,000 shares vest on the first anniversary of the date of the
employment agreement and 25,000 shares vest on the second anniversary of the
date of the employment agreement. If the Company terminates Mr. Daniel's
employment for any reason other than for Cause (as defined in the employment
agreement) or on account of Mr. Daniel's death or Permanent Disability (as
defined in the employment agreement) and such termination occurs as of a date
that is within 180 days preceding or within 180 days after the consummation of a
Change in Control (as defined in the employment agreement), the Company shall
pay to Mr. Daniel within 30 days after the event giving rise to such payment
occurs an amount equal to the sum of (x) (1) Mr. Daniel's base salary accrued
through the date of termination of Mr. Daniel's employment and (2) any bonus
required to be paid to Mr. Daniel and (y) a severance payment equal to one-half
of Mr. Daniel's annual base salary as of the effective date of termination of
Mr. Daniel's employment.
The following table sets forth information with respect to options granted
during the fiscal year ended April 2, 1999 to Mr. Pickerign and Mr. Daniel.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date
---- ---------- ----------- ------ ----
<S> <C> <C> <C> <C>
Perry J. Pickerign......... 300,000 72.29% $1.50 8/3/03
Keith H. Daniel............ 85,000 20.48 2.00/ 10/28/03/
1.88 1/31/09
</TABLE>
The following table sets forth information with respect to options
exercised during the fiscal year ended April 2, 1999 and held on April 2, 1999
by Mr. Pickerign and Mr. Daniel.
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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>
Perry J. Pickerign -- -- 50,000 250,000 12,500 62,500
Keith H. Daniel -- -- 25,000 60,000 -- --
</TABLE>
Certain Transactions
Duane, Morris & Heckscher LLP, a law firm of which Frederick W. Dreher is a
partner, serves as the Company's general counsel and charges customary fees to
the Company for legal services rendered. Mr. Dreher has been Secretary of the
Company since March 1994. At June 30, 1999, the Company owed Duane, Morris &
Heckscher LLP approximately $600,000 for legal fees and disbursements incurred
between April 1997 and June 30, 1999. The Company intends to initiate
discussions with Duane, Morris & Heckscher LLP regarding a long-term payout
arrangement of these unpaid fees. Such announcement may include the issuance of
common stock of the Company to discharge a certain portion of the fees.
In January 1999, John D. Freitag, a director of the Company, purchased
119,048 unregistered shares of the Company's Common Stock for $250,000 in cash.
In connection with this purchase and Mr. Freitag's service as Chief Executive
Officer of the Company from April 1998 through July 1998 without compensation,
the Company issued a warrant to Mr. Freitag that entitles Mr. Freitag to
purchase 140,000 shares of the Company's Common Stock at a price of $2.10 per
share exercisable until January 14, 2004.
In March 1999, Richard A. Hansen, a director of the Company, purchased
119,048 unregistered shares of the Company's Common Stock for $250,000 in cash.
In connection with this purchase, the Company issued a warrant to Mr. Hansen
that entitles Mr. Hansen to purchase 120,000 shares of the Company's Common
Stock at a price of $2.10 per share exercisable until January 14, 2004.
On June 5, 1998, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with certain newly formed subsidiaries of the
Company, Ladia, L.L.C., a Massachusetts limited liability company ("Ladia") and
the members of Ladia that contemplated a business combination transaction
between the Company and Ladia. On December 3, 1998, the Company and Ladia agreed
in principle on changes to certain provisions of the Agreement. On May 26, 1999,
the Company terminated the Agreement. The Company advanced $700,000 to Ladia for
working capital purposes during the Company's 1999 fiscal year. On June 23,
1999, effective as of March 31, 1999, PMG, an affiliate of Mr. Hansen, purchased
$450,000 of the Company's advances to Ladia in exchange for PMG's cancellation
of $450,000 of notes payable by the Company to PMG and, in consideration
thereof, the Company issued PMG a warrant to
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<PAGE>
purchase 100,000 shares of the Company's Common Stock at a price of $2.10 per
share exercisable for a period of five years. In addition, Mr. Hansen purchased
$250,000 of the Company's advances to Ladia in exchange for a $250,000
promissory note of Mr. Hansen due on demand after October 1, 1999. At Mr.
Hansen's option, he can pay this promissory note in cash or by the surrender of
119,048 shares of the Company's Common Stock.
ADOPTION OF THE
1998 EQUITY INCENTIVE PLAN
General
The Board of Directors of the Company adopted the 1998 Equity Incentive
Plan (the "Plan") on December 15, 1998, 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
providing additional incentives to officers and key employees of the Company,
which will enable them to participate directly in any appreciation of the value
of the Company's Common Stock, and to facilitate securing, retaining and
motivating officers and key employees of high caliber and potential.
The Plan provides for the grant of both options to purchase Common Stock of
the Company ("Options") that are intended to qualify as incentive stock options
(the "Incentive Options") under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and options that are not intended to so qualify
("Non-Qualified Options") (hereinafter collectively referred to as "Options"),
to officers and key employees of the Company. The total number of shares of the
Company's Common Stock that may be the subject of Options granted under the Plan
may not exceed in the aggregate 500,000 shares. 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."
The Plan will remain in effect until all Options granted under the Plan
have been satisfied by the issuance of shares, but no Option may be granted
after December 14, 2008.
Each Option granted under the Plan will be evidenced by a written
agreement, which will state the number of shares that may be purchased upon
exercise of the Option, the exercise price of the shares of Common Stock
purchasable upon exercise of the Option, the exercise term of the Option and
other terms and provisions of the Option as determined by the Board of Directors
of the Company (the "Board").
Administration
The Plan currently is administered by the Board, which has full and final
authority to interpret the provisions of the Plan, to decide all questions of
fact arising in its application, to determine to whom Options shall be granted
and the timing, type, amount and terms of each
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grant and to make other determinations necessary or advisable for the
administration of the Plan.
Price and Exercise of Options
The exercise price of the Options granted under the Plan is determined by
the Board at the time the Option is granted. However, the exercise price of the
Common Stock subject to an Incentive Option may not be less than 100% of the
fair market value of the Common Stock on the date the Incentive Option is
granted, but in no event less than the par value of such stock, and the exercise
price of the Common Stock subject to a Non-Qualified Option may not be less than
85% of the fair market value of the Common Stock on the date the Non-Qualified
Option is granted. Moreover, in the case of Incentive Options granted to an
Optionee who owns more than 10% of the total combined voting power of all
classes of stock of the Company, the exercise price may not be less than 110% of
the fair market value of the Common Stock subject to the Incentive Option on the
date the Incentive Option is granted.
The Board determines on the date of grant when Options become exercisable.
Each Option may not be exercisable after ten years from the date the Option is
granted, provided that an Incentive Option granted to an Optionee who owns more
than 10% of the total combined voting power of all classes of stock of the
Company may not be exercisable after five years from the date the Option is
granted. An Option granted under the Plan may be exercised only by written
notice from the holder thereof to the Company's Secretary, which notice must
specify the number of shares to be purchased and must be accompanied by full
payment for the shares with respect to which the Option is being exercised. The
exercise price is payable in cash, Common Stock of the Company at fair market
value or a combination thereof, as the Board may determine from time to time and
subject to such terms and conditions as may be prescribed by the Board for such
purpose. The Board may also, in its discretion and subject to prior notification
to the Company by an Optionee, permit 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 through the Company's transfer agent or such a brokerage firm
and either the Company's transfer agent or the brokerage firm executing the sale
will remit to the Company from the proceeds of the sale the exercise price of
the shares as to which the Option has been exercised.
Modification or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board, subject
to any required stockholder approval or any stockholder approval that the Board
may deem 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 or automated quotation system
listing requirements. The Board may not, without the consent of the holder of an
Option, alter or impair any Option previously granted under the Plan, except as
specifically authorized in the Plan.
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Federal Income Tax Consequences
Based on the advice of counsel, the Company believes that the normal
operation of the Plan should generally have, under the Code and the regulations
thereunder, all as in effect on the date of this Proxy Statement, the principal
federal income tax consequences described below. The tax treatment described
below does not take into account any changes in the Code or the regulations
thereunder which may occur after the date of this Proxy Statement. The following
discussion is only a summary; it is not intended to be all inclusive or to
constitute tax advice, and, among other things, does not cover possible state or
local tax consequences.
An Optionee will not recognize taxable income and the Company will not be
entitled to a deduction upon the grant of an Option.
In the case of Non-Qualified Options, an Optionee will generally recognize
ordinary income upon exercise of a Non-Qualified Option in an amount equal to
the excess of the fair market value of the stock acquired on the date of
exercise over the aggregate price paid pursuant to the Non-Qualified Option for
such stock (the "exercise price"), and the Company will generally be entitled to
a deduction to the extent of the ordinary income recognized by the Optionee in
accordance with the rules of Section 83 of the Code (and Section 162(m) of the
Code to the extent applicable). An Optionee exercising a Non-Qualified Option is
subject to federal income tax withholding on the income recognized as a result
of the exercise of the Non-Qualified Option. Such income will include any income
attributable to any shares issuable upon exercise that are surrendered, if
permitted under the applicable stock option agreement, in order to satisfy the
federal income tax withholding requirements.
Except as provided below, the basis of the shares received by the Optionee
upon the exercise of a Non-Qualified Option will be the fair market value of the
shares on the date of exercise. The Optionee's holding period will begin on the
day after the date on which the Optionee recognizes income with respect to the
transfer of such shares, i.e., generally the day after the exercise date. When
the Optionee disposes of such shares, the Optionee will recognize capital gain
or loss equal to the difference between (i) the selling price of the shares and
(ii) the Optionee's basis in such shares under the Code rules which govern stock
dispositions, assuming the shares are held by the Optionee as a capital asset.
Any net capital gain (i.e., the excess of the net long-term capital gains for
the taxable year over net short-term capital losses for such taxable year) will
be taxed at a capital gains rate that depends on how long the shares were held,
and the Optionee's tax bracket. Any net capital loss can only be used to offset
up to $3,000 per year of ordinary income (reduced to $1,500 in the case of a
married individual filing separately) or carried forward to a subsequent year.
The use of shares to pay the exercise price of a Non-Qualified Option, if
permitted under the applicable stock option agreement, will be treated as a
like-kind exchange under Section 1036 of the Code to the extent that the number
of shares received on the exercise does not exceed the number of shares
surrendered. The Optionee will therefore recognize no gain or loss with respect
to the surrendered shares, and will have the same basis and holding period with
respect to the newly acquired shares (up to the number of shares surrendered) as
with respect to the surrendered shares. To the extent the number of shares
received exceeds the number surrendered, the fair market value of such excess
shares on
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the date of exercise, reduced by any cash paid by the Optionee upon such
exercise, will be includible in the gross income of the Optionee. The Optionee's
basis in such excess shares will equal the fair market value of such shares on
the date of exercise, and the Optionee's holding period with respect to such
excess shares will begin on the day following the date of exercise.
The Optionee will not recognize taxable income and the Company will not be
entitled to a deduction upon the exercise of an Incentive Option, provided the
Optionee was an employee of the Company or of certain related corporations as
described in Section 422(a)(2) of the Code during the entire period from the
date of grant of the Incentive Option until three months before the date of
exercise (increased to 12 months if employment ceased due to total and permanent
disability). The employment requirement is waived in the event of the Optionee's
death. In all of these situations, the Incentive Option itself may provide a
shorter exercise period after employment ceases than the allowable period under
the Code. However, the excess of the fair market value of the shares purchased
over the exercise price will constitute an item of tax preference in the taxable
year of exercise. This preference will be included in the Optionee's computation
of his or her "alternative minimum tax." However, if the Optionee makes a
disqualifying disposition of the shares (as described below) in the taxable year
in which the Optionee exercises the Incentive Option, the amount includible in
the Optionee's alternative minimum taxable income generally will not exceed the
amount realized on the disposition minus the exercise price. The basis of the
shares received by the Optionee upon exercise of an Incentive Option is the
exercise price. The Optionee's holding period for such shares begins on the date
of exercise.
If the Optionee does not dispose of the shares issued upon the exercise of
an Incentive Option within one year of such issuance or within two years from
the date of the grant of such Incentive Option, whichever is later, any gain or
loss realized by the Optionee on a later sale or exchange of such shares
generally will be a long-term capital gain or long-term capital loss equal to
the difference between the amount realized upon the disposition and the exercise
price, if such shares are otherwise a capital asset in the hands of the
Optionee. Any net capital gain (i.e., the excess of the net long-term capital
gains for the taxable year over net short-term capital losses for such taxable
year) will be taxed at a capital gains rate that depends on how long the shares
were held, and the Optionee's tax bracket. Any net capital loss can only be used
to offset up to $3,000 per year of ordinary income (reduced to $1,500 in the
case of a married individual filing separately) or carried forward to a
subsequent year. If the Optionee sells the shares during such period (that is,
within two years from the date of grant of the Incentive Option or within one
year after the transfer of the shares to the Optionee), the sale will be deemed
to be a disqualifying disposition. In that event, the Optionee will recognize
ordinary income and the Company will be entitled to a corresponding deduction
for the year in which the disqualifying disposition occurs equal to the amount,
if any, by which the lesser of (i) the amount realized for such sale or (ii) the
fair market value of such shares on the date of exercise of such option exceeded
the amount the Optionee paid for such shares. In the case of disqualifying
dispositions resulting from certain transactions, such as gift or related party
transactions, the determination of the ordinary income the Optionee realizes
will be the fair market value of the shares on the date of exercise, minus the
exercise price. The basis of the shares with respect to which a disqualifying
disposition occurs will be increased by the amount included in the Optionee's
ordinary income.
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Disqualifying dispositions of shares may also, depending upon the sales price,
result in capital gain or loss under the Code rules which govern other stock
dispositions, assuming that the shares are held as a capital asset. The tax
treatment of such capital gain or loss is summarized above.
Except as provided below, the use of shares already owned by the Optionee
to pay the exercise price of an Incentive Option will be treated as a like-kind
exchange under Section 1036 of the Code to the extent that the number of shares
received on the exercise does not exceed the number of shares surrendered. The
Optionee will therefore recognize no gain or loss with respect to the
surrendered shares, and will have the same basis and holding period with respect
to the newly acquired shares (up to the number of shares surrendered) as with
respect to the surrendered shares. To the extent that the number of shares
received exceeds the number surrendered, the Optionee's basis in such excess
shares will equal the amount of cash paid by the Optionee upon the exercise of
the Incentive Option, if any, and the Optionee's holding period with respect to
such excess shares will begin on the date such shares are transferred to the
Optionee. However, if payment of the exercise price of an Incentive Option is
made with shares acquired upon exercise of an Incentive Option before the shares
used for payment have been held for the two-year or one-year period described
herein, use of such shares as payment will be treated as a disqualifying
disposition of the shares used for payment subject to the rules described
herein.
Under current law, any gain realized by an Optionee, other than long-term
gain, is taxable at a maximum federal income tax rate of 39.6%. Under current
law, long-term capital gain is taxed at a maximum federal income tax rate of
20%.
The comments set forth above are only a summary of certain of the federal
income tax consequences relating to the Plan as in effect on the date of this
Proxy Statement. No consideration has been given to the effects of state, local,
and other laws (tax or other) upon the Plan or upon the Optionee or the Company,
which laws will vary depending upon the particular jurisdiction or jurisdictions
involved.
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.
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Recommendation of the Board of Directors
The Board of Directors recommends that the holders of Common Stock vote FOR
the adoption of the Plan.
ANNUAL REPORT
A copy of the Company's Annual Report for its 1999 fiscal year is being
mailed to the Company's stockholders with this Proxy Statement.
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 2000 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 March 29, 2000.
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,
Perry J. Pickerign,
President and Chief Executive Officer
July 27, 1999
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PROXY COMPUTONE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST 12, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Richard A. Hansen and Perry
J. Pickerign 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 Sheraton Gateway
Hotel, 1900 Sullivan Road, College Park, Georgia, on August 12, 1999 at 11:00
a.m., and at any adjournment, postponement or continuation thereof, as follows:
1. ELECTION OF DIRECTORS
/_/ FOR all the nominees /_/ WITHOUT AUTHORITY to vote
listed below for the nominees listed below
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.
John D. Freitag Perry J. Pickerign
Richard A. Hansen Erik Monninkhof
2. ADOPTION OF THE 1998 EQUITY INCENTIVE PLAN. The Board of Directors
recommends a vote FOR this proposal.
/_/ FOR /_/ AGAINST /_/ ABSTAIN
3. 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.
<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 Proposal 2.
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: ______________________________, 1999
