4/1/98
THE NATIONAL REGISTRY INC.
2502 ROCKY POINT DRIVE
TAMPA, FLORIDA 33607
April [10], 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of The
National Registry Inc. (the "Company"), to be held at 10:00 a.m., local time, on
Tuesday, May 12, 1998, at the Tampa Bay Convention Center, 333 South Franklin
Street, Meeting Room 4, Tampa, Florida 33602.
Business scheduled to be considered at the meeting includes (a) the election
of eight directors, (b) the consideration of a proposed amendment to the
Company's Certificate of Incorporation (the "Certificate") to effect a reverse
stock split of the Company's common stock, $.01 par value per share (the "Common
Stock"), such that every six (6) shares of Common Stock outstanding on the
effective date of such reverse stock split would be converted into one (1) share
of Common Stock (the "Reverse Split"), (c) the consideration of a proposed
amendment to the Certificate to decrease, subject to the approval of the Reverse
Split, the number of authorized shares of Common Stock from the present amount
of 75,000,000 shares to 25,000,000 shares, (d) the consideration of a proposed
amendment to the Company's 1992 Stock Incentive Plan (the "Plan") to increase
the number of shares of Common Stock authorized for issuance under the Plan from
4,700,000 shares to 15,000,000 shares (2,500,000 shares if the Reverse Split is
implemented) and (e) the ratification of the appointment of Ernst & Young LLP as
independent auditors for the Company for its fiscal year ending December 31,
1988. Additional information concerning these matters is included in the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement.
The Board of Directors of the Company recommends that you vote "FOR" the
election of the eight nominees of the Board of Directors as directors, "FOR" the
Reverse Stock Split, "FOR" the amendment of the Certificate to decrease the
number of authorized shares of Common Stock from the present amount of
75,000,000 shares to 25,000,000 shares, "FOR" the amendment to the Plan to
increase the number of shares of the Common Stock authorized for issuance under
the Plan and "FOR" ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for its fiscal year ending December 31,
1998. The accompanying Proxy Statement provides further information concerning
the matters to be voted on at the Annual Meeting. Also enclosed is the Company's
1997 Annual Report on Form 10-K which contains information concerning the
Company's 1997 fiscal year.
<PAGE>
Please complete, sign and return the enclosed proxy card as soon as possible.
The Company's Board of Directors urges that all stockholders exercise their
right to vote at the meeting personally or by proxy
Sincerely,
Jeffrey P. Anthony
Chairman of the Board
<PAGE>
THE NATIONAL REGISTRY INC.
2502 ROCKY POINT DRIVE
TAMPA, FLORIDA 33607
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1998
Notice is hereby given that the Annual Meeting of Stockholders (the "Annual
Meeting") of The National Registry Inc., a Delaware corporation (the "Company"),
will be held at 10:00 a.m., local time, on Tuesday, May 12, 1998, at the Tampa
Bay Convention Center, 333 South Franklin Street, Meeting Room 4, Tampa, Florida
33602 for the following purposes:
1. To elect eight directors to serve for a term of one-year or until
their successors have been duly elected and qualified;
2. To approve the proposed amendment to the Company's Certificate of
Incorporation (the "Certificate") to effect a reverse stock split of the
common stock, $.01 par value per share (the "Common Stock"), such that every
six (6) shares of Common Stock outstanding on the effective date of such
reverse stock split would be converted into one (1) share of Common Stock
(the "Reverse Split");
3. To approve the proposed amendment to the Certificate to decrease,
subject to the approval of the Reverse Split, the number of authorized shares
of the Common Stock from the present amount of 75,000,000 shares to
25,000,000 shares;
4. To approve the proposed amendment to the Company's 1992 Stock
Incentive Plan (the "Plan") to increase the number of shares of Common Stock
authorized for issuance under the Plan from 4,700,000 to 15,000,000
(2,500,000 if the Reverse Split is implemented); and
5. To ratify the appointment by the Board of Directors of Ernst &
Young LLP as the Company's independent auditors for its fiscal year ending
December 31, 1998.
6. To transact such other business as may properly come before the
Annual
<PAGE>
Meeting and any and all adjournments thereof.
Pursuant to the Company's Bylaws, the Board of Directors has fixed the close
of business on April 9, 1998 as the record date for the determination of
stockholders entitled to notice of and to vote at the Annual Meeting. Only
holders of record of the Common Stock at the close of business on that date will
be entitled to notice of, and to vote at, the Annual Meeting or any adjournments
thereof.
Stockholders are urged to attend the meeting in person. If you are not able
to do so, please sign, date and return the accompanying proxy in the enclosed
envelope. No postage is required if mailed in the United States.
By Order of the Board of Directors
David E. Brogan
Chief Financial Officer and Secretary
Tampa, Florida
April [10], 1998
<PAGE>
THE NATIONAL REGISTRY INC.
2502 ROCKY POINT DRIVE
TAMPA, FLORIDA 33607
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 12, 1998
SOLICITATION AND VOTING
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of The National Registry Inc., a
Delaware corporation (the "Company"), for use at the Annual Meeting of
Stockholders of the Company (the "Stockholders") to be held at 10:00 a.m., local
time, on Tuesday, May 12, 1998, at the Tampa Bay Convention Center, 333 South
Franklin Street, Meeting Room 4, Tampa, Florida 33602 and at any adjournments
thereof (the "Annual Meeting"). Only holders of record of the Company's common
stock, $.01 par value per share (the "Common Stock"), at the close of business
on April 9, 1998 (the "Record Date") are entitled to receive notice of, and to
vote at, the Annual Meeting. At the close of business on the Record Date,
38,924,124 shares of Common Stock were issued and outstanding. The presence in
person or by proxy of the holders of a majority of the votes entitled to be cast
by the outstanding shares of Common Stock shall constitute a quorum for matters
to be voted on at such Annual Meeting. Shares represented by proxies that are
marked "abstain" will be counted as shares present for
<PAGE>
purposes of determining the presence of a quorum on all matters. Proxies
relating to "street name" shares that are voted by brokers on some but not all
of the matters will be treated as shares present for purposes of determining the
presence of a quorum on all matters, but will not be treated as shares entitled
to vote at the Annual Meeting on those matters as to which authority to vote is
withheld by such broker ("broker non-votes"). In the event that there are not
sufficient votes present either in person or by proxy to constitute a quorum at
the time of the Annual Meeting, the Annual Meeting may be adjourned in order to
permit the solicitation of proxies.
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, including certified financial statements, has either preceded or is
now enclosed with, this Proxy Statement. This Proxy Statement and the
accompanying proxy card are being mailed to the Stockholders on or about April
10, 1998.
The Common Stock was the only voting security of the Company outstanding and
entitled to vote at the Annual Meeting on the Record Date. Holders of Common
Stock are entitled to one vote per share on each matter to be voted upon at the
Annual Meeting. The Company's Bylaws provide that a plurality of the votes
present in person or represented by proxy at the Annual Meeting entitled to vote
on the election of directors shall be sufficient to elect directors (Proposal
1). Accordingly, abstentions and broker non-votes will not affect the outcome on
Proposal 1 provided that a quorum is present. The vote required for approval of
Proposal 2 (an amendment to the Company's Certificate of Incorporation (the
"Certificate") to effect a reverse stock split of the Common Stock (the "Reverse
Split") such that every six (6) shares of Common Stock outstanding on the
effective date of such reverse stock split would be converted into one (1) share
of Common Stock) and Proposal 3 (an amendment to the Certificate to decrease,
subject to the approval of the Reverse Split, the number of authorized shares of
Common Stock (the "Authorized Shares Decrease") from the present amount of
75,000,000 shares to 25,000,000 shares) shall be a majority of all of the issued
and outstanding shares of Common Stock. On Proposals 2 and 3, abstentions and
broker non-votes will have the same effect as a negative vote. The vote required
for approval of Proposal 4 (an amendment the "Plan Amendment" to the Company's
1992 Stock Incentive Plan (the "Plan") to increase the number of shares of
Common Stock authorized for issuance thereunder from 4,700,000 shares to
15,000,000 shares (2,500,000 shares if the Reverse Split is implemented) (the
"Plan Amendment")) and Proposal 5 (ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors for its fiscal year ending
December 31, 1998) shall be a majority of shares present in person or
represented by proxy at the Annual Meeting. On such matters, an abstention will
have the same effect as a negative vote but, because shares held by brokers will
not be considered entitled to vote on matters as to which the brokers withhold
authority, a broker non-vote will have no effect on the vote. The vote of
shares of Common Stock will be counted by representatives of the Company's stock
transfer agent, U.S. Stock Transfer Corporation, or another inspector of
elections appointed by the Company.
Shares of Common Stock represented by properly executed proxy cards received
by the Company at or prior to the Annual Meeting will be voted according to the
instructions indicated on such proxy cards. Unless contrary instructions are
given, the persons named on the proxy card intend to vote the shares so
represented, "FOR" the election of the eight
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nominees for director named in this Proxy Statement, "FOR" the Reverse Split,
"FOR" the Authorized Shares Decrease, "FOR" the Plan Amendment and "FOR" the
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for its fiscal year ending December 31, 1998. As to any
other business which may properly come before the Annual Meeting, the persons
named on the proxy card will vote according to their sole discretion.
Any Stockholder has the power to revoke his, her or its proxy at any time
before it is voted at the Annual Meeting by delivering a written notice of
revocation to the Secretary of the Company, by a duly executed proxy bearing a
later date or by voting by ballot at the Annual Meeting.
The cost of preparing, assembling and mailing this proxy soliciting material
and Notice of Annual Meeting will be paid by the Company. Additional
solicitation by mail, telephone, telegraph or by personal solicitation may be
done by directors, officers and regular employees of the Company, for which they
will receive no additional compensation. Brokerage houses and other nominees,
fiduciaries and custodians nominally holding shares of Common Stock as of the
Record Date will be requested to forward proxy soliciting material to the
beneficial owners of such shares, and will be reimbursed by the Company for
their reasonable expenses.
Dissenters' rights of appraisal will not be available under Delaware law with
respect to any of the proposals being submitted by the Board to the Stockholders
at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of the Record Date by (i) each person who is known
by the Company to own beneficially more than 5% of the outstanding Common Stock;
(ii) each of the Company's directors; (iii) each person nominated to serve as a
director of the Company; (iv) each of the Named Executive Officers (as
hereinafter defined); and (v) all executive officers and directors of the
Company as a group:
NAME AND ADDRESS OF AMOUNTS AND NATURE
BENEFICIAL OWNER OF BENEFICIAL PERCENT OF CLASS
OWNERSHIP
- ----------------------------------------------------------------------
Home Shopping Network, Inc 6,336,154(1) 13.2
P.O. Box 9090
Clearwater, FL 34618
J.Anthony Forstmann 6,307,500(2)(3) 13.1
7 Beverly Park
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<PAGE>
Beverly Hills, CA 90210
RMS Limited Partnership 4,000,000 8.3
201 West Liberty Street
P.O. Box 281
Reno, NV 89504
Francis R. Santangelo 866,667(3) 1.8
Frank M. Devine 393,333(3) (4)
John L. Gustafson 340,000(3) (4)
Jeffrey P. Anthony 221,666(3) (4)
Donald C. Klosterman 133,333(3) (4)
Don M. Lyle 133,333(3) (4)
Clinton C. Fuller 86,667(3) (4)
David E. Brogan 51,667(3) (4)
Robert Rosenblatt 0 (4)
Executive officers and directors
as a group (10 persons) 9,147,499 (2)(3) 19.1(2)(3)(4)
(1) Includes 6,336,154 shares of Common Stock issuable upon conversion of
100,000 currently convertible shares of Series A Preferred Stock.
(2) Of such amount, 3,500,000 shares of Common Stock are pledged in favor of
Theodore J. Forstmann, Mr. Forstmann's brother, to secure a demand note,
and 1,500,000 shares of Common Stock are pledged in favor of a financial
institution to secure a non-recourse credit facility, which demand note is
past due. Includes 557,500 shares of Common Stock subject to outstanding
options which are vested and exercisable. Includes 750,000 shares of
Common Stock directly held by Mr. Forstmann's spouse, Catherine S.
Forstmann.
(3) Includes shares of Common Stock that can be acquired by exercise of vested
and exercisable stock options within 60 days of April 9, 1998, as follows:
Mr. Forstmann - 557,500 shares; Mr. Santangelo - 866,667 shares; Mr.
Devine - 393,333 shares; Mr. Gustafson - 340,000 shares; Mr. Anthony -
221,666 shares; Mr. Klosterman - 133,333 shares; Mr. Lyle - 133,333
shares; Mr. Fuller - 86,667 shares; Mr. Brogan - 51,667 shares. Excludes
633,333, 96,667, 360,000, 178,334, 66,667, 66,667, 113,333, and 103,333
shares issuable upon exercise of outstanding options which either have not
vested or are not exercisable and which will not vest or which may not be
exercisable within 60 days of April 9, 1998 in favor of Messrs.
Santangelo, Devine, Gustafson, Anthony, Klosterman, Lyle, Fuller, and
Brogan, respectively.
(4) Less than 1%
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PROPOSAL 1. ELECTION OF DIRECTORS
Eight directors are to be elected at the Annual Meeting to hold office for a
term of one year or until their successors have been duly elected and qualified.
Proxies will be voted for election of each of the eight directors named below,
unless otherwise directed.
Election of directors will require the affirmative vote of the holders of a
plurality of the votes of shares of Common Stock present in person or
represented by Proxy and entitled to vote on the election of directors at the
Annual Meeting. Although the Board anticipates that all of the nominees will be
available to serve as directors of the Company, should any one or more of them
not accept the nomination, or otherwise be unwilling or unable to serve, it is
intended that the proxies will be voted for the election of a substitute nominee
or nominees designated by the Board.
The Board has nominated the persons named below for election as directors at
the Annual Meeting. All nominees are currently directors of the Company.
<TABLE>
<CAPTION>
TERM DIRECTOR
NAME AGE POSITION EXPIRES SINCE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jeffrey P. Anthony............... 39 Chairman and Director 1998 1998
John L. Gustafson ............... 54 President, 1998 1995
Chief Executive
Officer and Director
Frank M. Devine (1)(2)........... 55 Director 1998 1997
J. Anthony Forstmann ............ 60 Director 1998 1991
Donald C. Klosterman (1)......... 66 Director 1998 1997
Don M. Lyle (2).................. 58 Director 1998 1997
Robert Rosenblatt (2)............ 40 Director 1998 1998
Francis R. Santangelo (1)........ 65 Director 1998 1997
<FN>
- ------------------
(1) Compensation Committee
(2) Audit Committee member.
</FN>
</TABLE>
INFORMATION REGARDING NOMINEES
JEFFREY P. ANTHONY has been Chairman of the Board since March 1998 and
a director of the Company since February 1998. Mr. Anthony had been the
Director of Business Development for the Company since March 1995 and a
Senior Vice President from February
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1992 to March 1995. From April 1987 to February 1992, Mr. Anthony was Managing
Director of Shinnecock Capital Corporation, a venture capital firm he
co-founded. From October 1983 to April 1987, Mr. Anthony was Assistant to the
Chairman and a director of Spear Financial Services Inc., a publicly owned
brokerage firm that provided computer accessible financial services including
online trading and specialist operations on the floor of the Pacific Coast Stock
Exchange. Mr. Anthony received his BA in Anthropology from Vassar College.
JOHN L. GUSTAFSON has served as President, Chief Operating Officer and a
director of the Company since March 1995, Chief Executive Officer since December
1995 and a member of each of the Board's Compensation Committee (the
"Compensation Committee") and a member of the Board's Audit Committee (the
"Audit Committee") from December 1995 to June 1997. From November 1993 to March
1995, Mr. Gustafson served as Vice President for Business Development of Allied
Technical Services, a wholly-owned subsidiary of Allied Signal Inc. From 1968 to
November 1993, Mr. Gustafson held a variety of senior executive positions at
Unisys Corp. ("Unisys") and at Burroughs Corporation, its predecessor company.
Mr. Gustafson received his BS in Math from St. Louis University and his MS in
Computer Science from the University of Missouri-Rolla.
FRANK M. DEVINE has served as a director of the Company and as a member of
each of the Compensation Committees since June 1997 and the Audit Committee
since September 1997. Mr. Devine also serves as a business consultant for
various entities. He has founded or co-founded Bachmann-Devine, Inc., a venture
capital firm, and Shapiro, Devine & Craparo, Inc., a hard goods manufacturers
agency serving the retail industry, where he has also served as President since
1978. Since December 1994, Mr. Devine has served as a member of the Board of
Directors of Salton Maxim Housewares Inc., a publicly owned company that markets
and sells electrical appliances and decorative accessories to the retail trade
under various brand names. Mr. Devine received a BS in Mathematics from Iowa
State University.
J. ANTHONY FORSTMANN served as a director of the Company since October
1991. Mr. Forstmann was the Chairman of the Board from June 1995 to March 1998,
Co-Chairman from August 1993 to June 1995, Chairman from the Company's inception
in October 1991 to August 1993, a member of the Compensation Committee from
February 1993 to June 1997 and a member of the Audit Committee from December
1995 to June 1997. Mr. Forstmann was President of the Company from October 1991
to August 1993 and from September 1994 to March 1995 and Chief Executive Officer
of the Company from October 1991 to August 1993 and from September 1994 to
December 1995. Mr. Forstmann has been a Managing Director of J.A. Forstmann &
Co., a merchant banking firm since October 1987. He co-founded Forstmann-Leff
Associates, an institutional money management firm, in 1968 and was a Managing
Director thereof from its inception until October 1987. Mr. Forstmann has been a
Limited Partner of Forstmann Little & Co. since its inception in 1978. Mr.
Forstmann has been a director of Community Health Services, a private entity
engaged in the operations of hospitals, since 1996. Mr. Forstmann received a BA
in Economics from Yale University and an MBA from the Graduate School of
Business Administration, Columbia University.
8
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DONALD C. KLOSTERMAN has served as a director of the Company and as a
member of Compensation Committee since June 1997. Mr. Klosterman also serves as
a business consultant for various entities. From July 1994 to November 1995, Mr.
Klosterman was co-founder and President of Pacific Casino Management Inc., a
casino operator. Mr. Klosterman was a co-founder and the Chairman of the Board
of Directors of NTN Communications, Inc. ("NTN"), a satellite broadcasting
company that provides interactive entertainment programming, from April 1983 to
September 1994, and a consultant to NTN from 1991 to 1992. From 1989 to 1991,
Mr. Klosterman was a consultant to Comcheck, a credit verifying company. Mr.
Klosterman is currently a director of NTN, and has been a director of Aldila
Shaft Manufacturer, Inc., a manufacturer of graphite golf shafts, since March
1994. Mr. Klosterman served as Vice President/General Manager of the Los Angeles
Rams from 1971 until 1982, General Manager of the Baltimore Colts from 1970
until 1971 and General Manger of the Houston Oilers from 1966 until 1970. Mr.
Klosterman played professional football for Cleveland, Dallas, Los Angeles and
Calgary.
DON M. LYLE has served as a director of the Company and a member of the
Audit Committee since June 1997. Mr. Lyle has also been an independent
consultant to various computer and venture capital companies in the United
States, Europe and Japan since 1983. Mr. Lyle has also been a principal of
Technology Management Company, a management firm specializing in high technology
companies, since 1983. Mr. Lyle has served as a director of Emulex Network
Systems, Inc., a designer and manufacturer of network access products, supplying
high performance communications solutions for managing the flow of time-critical
data between computers and peripheral equipment, since February 1994, DH
Technology, Inc., a print head and specialty printing company, since April 1992,
Systech Corp., a data communications company, since February 1990 and Insync
Systems, Inc., a supplier of ultra-clean gas delivery systems to semiconductor
equipment manufacturers, since April 1995. From 1984 to 1987, Mr. Lyle was
President and Chief Executive Officer of Data Electronics, Inc., a tape drive
and cartridge media business.
ROBERT ROSENBLATT has served as a director of the Company and as a member
of the Audit Committee since March 1998. Mr. Rosenblatt, has been Executive Vice
President and Chief Financial Officer of Home Shopping Network ("HSN") since
December 1997. Mr. Rosenblatt is responsible for Accounting, Budget and
Planning, and Human Resources at HSN. From 1984 until December 1997, Mr.
Rosenblatt held several positions of increasing responsibility at Bloomindale's,
a division of Federated Department Stores, including Assistant Controller, Vice
President of Finance and Vice President of Stores Operations and Purchasing. Mr.
Rosenblatt was most recently Senior Vice President and Chief Financial Officer
of Bloomingdale's. Mr. Rosenblatt received his BS in Accounting from Brooklyn
College.
FRANCIS R. SANTANGELO has served as a director of the Company and as a
member of the Compensation Committee since September 1997. Mr. Santangelo, also
serves as an independent legal and financial consultant with over 30 years
experience in the financial community. In addition, from 1959 to 1988, Mr.
Santangelo was a principal in Francis R. Santangelo & Co., a specialist firm on
the American Stock Exchange, and is also a former member of the Board of
Directors of the
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American Stock Exchange.
Pursuant to that certain Stock Purchase Agreement, dated as of April 28,
1992, by and between the Company and HSN, HSN has the right to nominate up to
three directors for the Board. HSN had nominated as directors of the Company
Kevin J. McKeon and Jed B. Trosper, who resigned effective February 12, 1997 and
March 11, 1998, respectively. Robert Rosenblatt has been nominated by HSN to
serve on the Board.
Pursuant to a stockholders' voting agreement, dated as of March 14, 1995,
J. Anthony Forstmann, RMS Limited Partnership, a Nevada limited partnership
("RMS"), and Francis R. Santangelo (the "Stockholders' Voting Agreement"), each
agreed to vote certain shares of the Common Stock, beneficially owned by such
party, and each of their respective affiliates, for a director nominated by each
of Mr. Forstmann and RMS and not to vote certain shares of Common Stock
beneficially owned by such party, and each of their respective affiliates, in
favor of certain specified stockholder actions unless such actions are agreed
upon by Mr. Forstmann and RMS. To date, RMS has not exercised its right to
nominate a director pursuant to the Stockholders' Voting Agreement.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC") and the Nasdaq SmallCap Market
(the "SmallCap Market") Officers, directors and greater than ten-percent
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during fiscal 1997, each
of Frank M. Devine, Donald C. Klosterman, Don M. Lyle, Francis R. Santangelo and
Jed B. Trosper, each a director or former director of the Company, failed to
file on a timely basis one report, covering his election as a director and no
transactions.
THE BOARD AND ITS COMMITTEES
The Board held five (5) meetings during fiscal year 1997.
The Board has two standing committees, the Audit Committee and the
Compensation Committee. In addition, from time to time the Board establishes
committees of limited duration for special purposes. The Company does not have a
nominating committee for recommending to Stockholders candidates for positions
on the Board.
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The Audit Committee, which held one (1) meeting during fiscal year 1997,
consisted of J. Anthony Forstmann, John L. Gustafson and W. Lee Shevel, a
director of the Company who resigned from the Board effective September 8, 1997,
until June 1997. Effective June 1997, Don M. Lyle and Jed B. Trosper replaced
Messrs. Forstmann and Gustafson on the Audit Committee. Effective September
1997, Frank M. Devine replaced Mr. Shevel on the Audit Committee. Effective
March 1998, Robert Rosenblatt replaced Mr. Trosper on the Audit Committee. The
Committee's responsibilities include reviewing (i) the scope and findings of the
annual audit, (ii) accounting policies and procedures and the Company's
financial reporting and (iii) the internal controls employed by the Company.
The Compensation Committee, which held one (1) meeting during fiscal year
1997, consisted of Messrs. Forstmann, Gustafson and Shevel, a director of the
Company who resigned from the Board effective September 8, 1997, until June
1997. Effective June 1997, Messrs. Devine and Klosterman replaced Messrs.
Forstmann and Gustafson on the Compensation Committee. Effective September 1997,
Francis R. Santangelo replaced Mr. Shevel on the Compensation Committee. The
Committee's responsibilities include (i) making recommendations to the Board on
salaries, bonuses and other forms of compensation for the Company's officers and
other key management and executive employees, (ii) administering the Plan and
(iii) reviewing management recommendations for grants of stock options and any
proposed plans or practices of the Company relating to compensation of its
employees and directors.
Each incumbent director attended at least 75 percent of all meetings of
the Board and committees of the Board to which he was assigned that were held
during the portion of fiscal year 1997 as to which such director was a member of
the Board or applicable committee.
COMPENSATION OF DIRECTORS
During 1997, no cash compensation was paid to any of the directors of the
Company for being a director of the Company, except that such persons are
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board or committees of the Board.
In lieu of cash compensation for serving on the Board, on March 11, 1998,
the Board, on the recommendation of the Compensation Committee, adopted a plan
to grant options to acquire 200,000 shares of Common Stock to each new director
of the Company, upon such persons election and qualification to the Board. Such
stock options shall vest one-third on the date of grant and an additional
one-third on each of the first two anniversaries of the grant date, if such
person is still serving as a director of the Company, with an exercise price of
the closing bid price of the Common Stock on the SmallCap Market on the date of
such grant. Messrs. Anthony, Devine, Klosterman, Lyle, and Santangelo received
such grants on such date at an exercise price of $.78 (the closing bid price of
the Common Stock on the SmallCap Market on the date of such grant). Mr.
Rosenblatt, because he was nominated to serve on the Board by HSN, declined the
options granted to him. As additional compensation for Messrs. Devine,
Klosterman and Lyle agreeing to join the Board in June 1997, the Board vested
two-thirds of such options on the date of the grant and an additional
On March 11, 1998, the Board, in recognition of services provided by Mr.
Santangelo since approximately March 1996, without any other compensation,
extended the expiration date for one year to acquire 1,000,000 shares of the
Company's Common Stock previously granted and repriced those options to the
market value on the date of such grant, or $.78. 500,000 of such options are
immediately exerciseable. 500,000 of such options will be exerciseable only if
certain performance goals as established by the Board and which the Board
believes provides significant benefit to the Company, are attained by March 10,
1999.
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one-third will vest on the first anniversary of such grant. In addition, in
recognition of their past effort and services to and on behalf of the Company
without any other compensation, the Board granted Messrs. Anthony and Devine
options to acquire 90,000 shares of Common Stock at an exercise price of $.78
vesting two-thirds on the date of grant and an additional one-third on the first
anniversary of the date of such grant.
On March 11, 1998, the Board of Directors elected Jeffrey P. Anthony as
the new Chairman of the Board. Mr. Anthony's responsibilities as Chairman of the
Board will include, among other duties, assisting the executive officers of the
Company in connection with the operations of the Company as a means to
facilitate the efficient operation of the Company and communication with the
Board. Mr. Anthony, upon acceptance of the position of Chairman of the Board,
resigned as Director of Business Development. In such capacity, Mr. Anthony
received compensation of $105,000 for 1997. The Compensation Committee set Mr.
Anthony's compensation at $150,000, for serving as Chairman of the Board and
increasing his responsibilities with regard to the Company. J. Anthony
Forstmann, the prior Chairman of the Board did not receive compensation for
serving as Chairman of the Board.
EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company (the "Named
Executive Officers") as of April 9, 1998 are set forth below.
POSITION
NAME AGE OFFICER SINCE
- ---- --- ------- --------
John L. Gustafson 54 President and Chief 1995
Executive Officer
Clinton C. Fuller 53 Chief Operating Officer 1998
David E. Brogan 43 Chief Financial Officer and 1998
Secretary
The following sets forth the business experience, principal occupations
and employment of each of the Named Executive Officers who do not serve on the
Board (See "Election of Directors - Information Regarding Nominees" above for
such information with respect to Mr. Gustafson):
CLINTON C. FULLER, has been Chief Operating Officer of the Company since
March 1998 and the Vice President - Product Marketing and Financial Services of
the Company from July 1995 to March 1998, overseeing the development of the
Company's products and services. From September 1967 to June 1995, Mr. Fuller
held a variety of managerial positions at Unisys, including worldwide general
manager of Unisys' financial retail delivery
12
<PAGE>
system division. Mr. Fuller received a BS in Computer Science from Lackawanna
College.
DAVID E. BROGAN has been Chief Financial Officer of the Company since
March 1998, Vice President - Finance, Treasurer and Controller of the Company
from August 1996 to March 1998 and Secretary of the Company since December 1996.
From March 1995 to March 1996, Mr. Brogan was a consultant for Tunstall
Consulting, a consulting firm specializing in business plan development and
assisting in raising capital. From December 1990 to March 1995, Mr. Brogan was a
Vice President of Finance for Mercury Medical, Inc., a medical distribution
company. From November 1988 to October 1990, Mr. Brogan was Chief Financial
Officer for Electronic Data Technologies, a publicly traded computer systems
manufacturer. Mr. Brogan received his MBA from the University of Colorado and a
BS in Accounting from Metropolitan State College in Denver, Colorado.
EXECUTIVE COMPENSATION
The following table sets forth all compensation with respect to the Named
Executive Officers, including the Chief Executive Officer of the Company:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
AWARDS
----------------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING OPTIONS
NAME AND SALARY
PRINCIPAL POSITION (1) YEAR ($) (#)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
John L. Gustafson 1997 $170,000 --
President and Chief Executive Officer 1996 248,922(1) 50,000
1995 136,133 400,000
Clinton C. Fuller 1997 $128,465 --
Chief Operating Officer 1996 130,000 20,000
1995 78,210 60,000
David E. Brogan 1997 $115,000 --
Chief Financial Officer and 1996 27,969 55,000
Secretary 1995 N/A N/A
<FN>
- -----------
(1) Mr. Gustafson's salary in 1996 included $78,922 paid by the Company in
connection with Mr. Gustafson's relocation and a related "gross-up" for the tax
applicable to such reimbursement.
</FN>
</TABLE>
The Company offers a plan (the "401(k) Plan") pursuant to Section 401(k)
of the Internal Revenue Code of 1986, as amended (the "Code"), covering
substantially all employees, including the Named Executive Officers. Matching
employer contributions are set at the discretion of the Board. There were
13
<PAGE>
no employer contributions made for 1997, 1996 or 1995.
THE 1992 STOCK INCENTIVE PLAN
The Plan, adopted by the Board and approved by the Stockholders in January
1992, authorizes the granting of stock incentive awards ("Awards") to qualified
officers, employees, directors and third parties providing valuable services to
the Company (e.g., independent contractors, consultants and advisors to the
Company). At the Company's Annual Meeting of Stockholders held on August 12,
1993, the Stockholders approved an amendment to the Plan increasing from
1,500,000 to 2,700,000 the number of shares of Common Stock authorized for
issuance upon exercise of options granted pursuant to the Plan. At the Company's
Annual Meeting of Stockholders held on June 25, 1996, the Stockholders approved
a further amendment to the Plan increasing from 2,700,000 to 3,700,000 the
number of shares of Common Stock authorized for issuance upon exercise of
options granted pursuant to the Plan. At the Company's Annual Meeting of
Stockholders held on June 29, 1997, the Stockholders approved a further
amendment to the Plan increasing from 3,700,000 to 4,700,000 the number of
shares of Common Stock authorized for issuance upon exercise of options granted
under the Plan. The Board has proposed increasing the number of shares under the
Plan to 15,000,000 (2,500,000 if the Reverse Split is implemented). See
"Proposal 4. Approval of Amendment to the Plan." There were no individual grants
of stock options nor awards of stock appreciation rights ("SARs") made during
fiscal year 1997 to any of the Named Executive Officers. However, on March 11,
1998, the Board, upon the recommendation of the Compensation Committee, granted
options to acquire 250,000, 120,000 and 100,000 shares of Common Stock to
Messrs. Gustafson, Fuller and Brogan, respectively, at an exercise price of $.78
(the closing bid price of the Common Stock on the SmallCap Market on the date of
grant), vesting one-third on the date of grant and an additional one-third on
each of the first two anniversaries of the grant date. The Compensation
Committee also granted options to acquire an aggregate of 385,000 shares of
Common Stock to other employees of the Company. In addition, on March 11, 1998,
the Board determined to decrease the exercise price on all outstanding stock
options to purchase Common Stock held by employees or directors of the Company
to $.78 (the closing bid price of the Common Stock on the SmallCap Market on the
date of grant). See "Option Repricing" below.
During fiscal year 1997, no stock options were exercised by any director
or Named Executive Officer of the Company. The following table sets forth the
number and value of stock options outstanding as of December 31, 1997 for the
Named Executive Officers.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-
UNEXERCISED OPTIONS AT THE-MONEY OPTIONS
FISCAL YEAR END (#) AT FISCAL YEAR END ($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------------------------------------------------------------
John L. Gustafson 176,667/273,333 0/0
Clinton C. Fuller 40,000/60,000 0/0
David E. Brogan 18,333/36,667 0/0
- ---------------
(1) Assumes a market price equal to $.3125 per share, the average of the
closing bid and asked price on the SmallCap Market on December 31,
1997.
OPTION REPRICING
On March 11, 1998, the Board, upon the recommendation of the Compensation
Committee, repriced the exercise price of all outstanding stock
options to purchase Common Stock held by employees and directors of the Company
to $.78, the closing bid price of the Common Stock on the SmallCap Market on
such date. The Board and the Compensation Committee undertook such option
repricing in order to restore the utility of the stock options as effective
incentives. As a result of a decline in the price of the Common Stock,
outstanding stock options granted to employees and directors had exercise prices
above the recent historical trading prices for the Common Stock. The Board
believed the disparity between the exercise price of the stock options and the
then current market price no longer provided a meaningful long-term incentive to
the option holders. The Board believes that the issuance of stock options
increases the incentive of, and attracts and encourages the continued employment
and service of qualified directors, officers and other key employees by
facilitating their purchase of a stock interest in the Company. In addition, the
granting of stock options helps align the financial interests of directors,
officers and other key employees receiving such options with the Stockholders
because such directors', officers' and key employees' compensation increases as
the price of the Common Stock increases. In light of the Company's historical
and current cash flow concerns which have limited and continue to limit the
amounts available to pay individuals as compensation, the Board has determined
that it is advisable that the Company and its Stockholders continue to have the
incentive of stock options available as a means of attracting and retaining
directors, officers and key employees.
In its deliberations over whether to authorize the repricing of all stock
options, the Compensation Committee considered at length the potential
disadvantages of such repricing,
15
<PAGE>
including the dilutive affect on, and possible negative reactions among, the
existing Stockholders. While fully cognizant of the potential disadvantages of
the repricing of all stock options, the Board and the Compensation Committee
concluded that such repricing was necessary as a means (i) to retain and attract
directors, officers and other key employees, (ii) to reward directors, officers
and other employees who have continued to work hard for the Company and its
Stockholders through what at times have been difficult circumstances and (iii)
to ensure that the directors, officers and other key employees have an
opportunity to acquire a meaningful equity interest in the Company helping align
their financial interests with those of the Stockholders.
The repriced stock options have exercise prices of $.78 per share, the
closing bid price of the Common Stock on the SmallCap Market on the date of the
repricing. Except for the new exercise prices, the terms of the repriced stock
options remain the same.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of Messrs. Devine,
Klosterman and Santangelo. On September 8, 1997, W. Lee Shovel resigned as a
member of the Compensation Committee. In June 1997 Messrs. Forstmann and
Gustafson resigned as members of the Compensation Committee. During the most
recently completed fiscal year, the Board did not have an option committee.
Rather the Compensation Committee and the full Board determined whether to make
option grants.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report on executive
compensation:
Under the supervision of the Compensation Committee, the Company has
developed and implemented compensation policies which seek to enhance the
profitability of the Company, and thus Stockholder value, by aligning the
financial interests of the Company's executive officers with those of its
Stockholders. In furtherance of these goals, the Company relies to a large
degree on long-term incentive compensation provided through the Plan to attract
and retain corporate officers and other key employees of outstanding abilities
and to motivate them to perform to the full extent of their abilities.
Total compensation for executive officers of the Company presently
consists of both cash and equity based compensation. The Compensation Committee
determines the salary of executive officers based upon competitive norms. Under
the Plan, the Compensation Committee grants stock options, SARs, performance
share awards and restricted share awards based upon competitive industrial
practice. To date, the Compensation Committee has only granted stock options.
The Compensation Committee has the authority to determine the individuals to
whom such options are awarded, the terms at which option grants shall be made
and the terms of the options and the number of shares subject to each option.
The size of option grants are based
16
<PAGE>
upon competitive practice and position level. Through the award of stock option
grants, the objective of aligning executive officers' long-range interests with
those of the Stockholders are met by providing executive officers with the
opportunity to build a meaningful stake in the Company. Salary levels and stock
option awards may be adjusted up or down for an executive's achievement of
specified objectives and individual job performance.
On March 14, 1995, John L. Gustafson was named President and Chief
Operating Officer of the Company. The Board agreed to compensate Mr. Gustafson,
after extensive negotiations, at the rate of $170,000 per year and granted to
him, on such date, stock options to purchase 400,000 shares of Common Stock at
an exercise price of $1.50 per share, of which options to purchase 80,000 shares
of Common Stock will vest on each anniversary of the date of the grant through
March 14, 2000. No specific formula was used in determining or agreeing to Mr.
Gustafson's compensation; however, the cash portion of his compensation was
determined based on the lowest amount Mr. Gustafson could be paid within the
Company's cash constraints to meet its ordinary course expenses, while giving
him significant upside potential in an option grant, the vesting of which was
tied to continuity of service. In December 1995, Mr. Gustafson became Chief
Executive Officer of the Company. Based upon Mr. Gustafson's performance of his
duties in fiscal 1997, the Board determined to continue to compensate Mr.
Gustafson at the previously negotiated rate of $170,000 per year for fiscal
1998.
Compensation Committee
Frank M. Devine
Donald C. Klosterman
Francis R. Santangelo
PERFORMANCE GRAPH
Set forth below is a line graph comparing total Stockholder return on the
Common Stock against the cumulative total return of the Center for Research in
Securities Prices ("CRSP") Index for the SmallCap Market and the CRSP Index for
Nasdaq Computer and Data Processing Stocks for the period commencing December
31, 1992 and ending December 31, 1997.
COMPARISON OF CUMULATIVE TOTAL RETURNS AMONG THE CRSP INDEX FOR THE
SMALLCAP MARKET, CRSP INDEX FOR NASDAQ COMPUTER AND DATA PROCESSING STOCKS
AND THE NATIONAL REGISTRY INC.
1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------
THE NATIONAL 100.00 45.46 15.91 33.33 31.06 3.79
REGISTRY, INC.
- --------------------------------------------------------------------------------
NASDAQ 100.00 114.79 112.21 158.69 195.18 239.57
- --------------------------------------------------------------------------------
PEER GROUP 100.00 105.84 128.53 195.74 241.54 296.77
- --------------------------------------------------------------------------------
Notes:
17
<PAGE>
A. Assumes $100 invested on December 31, 1992 in the CRSP Index for the SmallCap
Market, the CRSP Index for Nasdaq Computer and Data Processing Stock and the
Common Stock.
B. The Common Stock began trading on the SmallCap Market on April 27, 1993.
Prior to that date, the Common Stock traded sporadically in the
over-the-counter market since February 1992.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jeffrey P. Anthony, the new Chairman of the Board, is the son-in-law of J.
Anthony Forstmann, a greater than ten percent Stockholder of the Company,
director of the Company and former Chairman of the Board.
Kevin J. McKeon, a director of the Company who resigned from the Board
effective February 11, 1997, was nominated by and served as a representative of
HSN in accordance with HSN's right to nominate up to three directors pursuant to
the Stock Purchase Agreement. Following Mr. McKeon's resignation from the Board,
HSN nominated Jed B. Trosper to serve as a member of the Board. Mr. Trosper
resigned from the Board effective March 11, 1998 and, on such date, Robert
Rosenblatt was elected to the Board. Mr. Rosenblatt has been nominated by HSN to
serve on the Board.
On June 3, 1996, the Company hired Ms. Donna Gustafson, wife of John
Gustafson (CEO, President and Director of the Company), as Director of Marketing
for health care services. On October 13, 1995, the Company, as part of a prior
consulting arrangement, granted Ms. Gustafson options to purchase 25,000 shares
of Common Stock at an exercise price of $2.25 per share, vesting pro rata on
each of the next three anniversaries of the date of grant. On November 18, 1996,
the Company granted Ms. Gustafson options to purchase 15,000 shares of Common
Stock at an exercise price of $1.125 per share. On February 10, 1998, Ms.
Gustafson's employment with the Company terminated. As part of her termination
agreement, the Board extended for one year from the date of her termination the
expiration date of the options previously granted.
The Company believes that each of the related party transactions described
herein were on terms as fair to the Company as could have been obtained from
unaffiliated third parties.
PROPOSAL 2. AMENDMENT OF CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT OF THE COMMON STOCK
GENERAL
The Board has unanimously approved (subject to Stockholder approval), and
is hereby soliciting Stockholder approval of, an amendment to the
Certificate,
18
<PAGE>
substantially in the form of Exhibit "A" attached to this Proxy Statement (the
"Reverse Split Certificate Amendment") and incorporated herein by this
reference, effecting the Reverse Split with respect to all issued and
outstanding shares of Common Stock. The text of the Reverse Split Certificate
Amendment is, however, subject to change as may be required by the Secretary of
State of the State of Delaware (the "Secretary of State"). If the Reverse Split
Certificate Amendment is approved by the actions of the Stockholders, as a
result of the Reverse Split, every six (6) shares of existing Common Stock
outstanding (the "Old Common Stock") as of the time of filing of the Reverse
Split Certificate Amendment with the Secretary of State (the "Effective Date")
would be automatically converted into one (1) new share of Common Stock (the
"New Common Stock").
The Certificate currently provides for 75,000,000 authorized shares of
Common Stock, 38,924,124 of which were issued and outstanding as of the Record
Date.
ln order to effect the Reverse Split, the Stockholders are being asked to
approve the Reverse Spit and the Reverse Split Certificate Amendment. The Board
believes that the Reverse Split is in the best interests of both the Company and
the Stockholders and has approved, subject to Stockholder approval, the Reverse
Split. The Board reserves the right, notwithstanding Stockholder approval and
without further action by the Stockholders, to decide not to proceed with the
Reverse Split if at any time prior to its effectiveness it determines, in its
sole discretion, that the Reverse Split is no longer in the best interests of
the Company and its Stockholders.
PURPOSES AND REASONS FOR THE REVERSE SPLIT
The Board believes that the Reverse Split is beneficial to the Company and
the Stockholders. The principal reasons for the Reverse Split are to aid the
Company in remaining eligible for listing on the SmallCap Market, to attempt to
enhance investor interest in the Common Stock and to attempt to help the
investment community realize the underlying value of the Common Stock.
The Common Stock is currently quoted on the SmallCap Market. The Company
believes the Reverse Split is necessary to maintain its listing on the SmallCap
Market pursuant to the listing criteria recently adopted by the Board of
Directors of the Nasdaq Stock Market, Inc. ("Nasdaq") and approved by the SEC
(the "Listing Criteria"). For continued inclusion on the SmallCap Market, the
minimum bid price per share is now required by the Listing Criteria to be at
least $1.00. Failure to maintain a bid price in excess of $1.00 per share in
accordance with such maintenance criteria of the SmallCap Market could result in
the future delisting of the Common Stock from the SmallCap Market. The closing
bid price per share of the Common Stock as reported on the SmallCap Market on
April 9, 1998 was approximately $.___. Prior to the final adoption of the
Listing Criteria, there were available alternative criteria for maintaining
listing, which the Company satisfied. However, the Listing Criteria eliminated
such alternative listing criteria. If the Reverse Split is not approved and/or
the minimum bid price goes and stays below $1.00 the Common Stock would be
subject to being delisted. On February 27, 1998, the Company received a letter
from Nasdaq stating that the Company was not in compliance with this standard
and, if not in compliance prior to May 28, 1998 the Common Stock would be
delisted from trading on the SmallCap Market. Such delisting would likely
adversely affect the trading in and
19
<PAGE>
liquidity of the Common Stock. The Company expects that, as a result of the
Reverse Split, the market price of the Common Stock would increase
significantly, thereby enabling the Company to maintain its listing on the
SmallCap Market.
If the Common Stock is delisted from the Small CapMarket, trading, if any,
of the Common Stock would thereafter have to be conducted in the over-the
counter market or otherwise. In such event, an investor could find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Common Stock. In addition, if the Common Stock were to become delisted
from trading on the SmallCap Market and not listed on a national exchange or on
the Nasdaq system and the trading price of the Common Stock were to remain below
$5.00 per share, trading in the Common Stock would also be subject to the
requirements of certain rules promulgated under the Exchange Act, which require
additional disclosure by brokers or dealers in connection with any trades
involving a stock defined as a penny stock (generally, any non-Nasdaq equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions). Further, if the Common Stock was a penny stock, prior to
effectuating any trade in the Common Stock, a broker or dealer would be required
under such Exchange Act rules to make a suitability determination as to such
proposed purchaser of the Common Stock and to receive a written agreement,
meeting certain requirements, prior to effectuating any transaction in the
Common Stock. The additional burdens imposed upon brokers or dealers by such
requirements could discourage brokers or dealers from effecting transactions in
the Common Stock, which could severely limit the market liquidity of the Common
Stock and the ability of investors to trade the Common Stock.
The Board also believes that the current low per share price of the Common
Stock as reported on the SmallCap Market has had a negative effect on the price
and marketability of existing shares, the amount and percentage (relative to
share price) of transaction costs paid by individual Stockholders and the
potential ability of the Company to raise capital by issuing additional shares
of Common Stock or other securities convertible into Common Stock or to
undertake merger or acquisition transactions. Reasons for these effects include
internal policies and practices of certain institutional investors which prevent
or tend to discourage the purchase of low-priced stocks, the fact that many
brokerage houses do not permit low-priced stocks to be used as collateral for
margin accounts or to be purchased on margin and a variety of brokerage house
policies and practices which tend to discourage individual brokers within those
firms from dealing in low-priced stocks.
In addition, since broker's commissions on low-priced stocks generally
represent a higher percentage of the stock price than commissions on higher
priced stocks, the current share price of the Common Stock can result in
individual Stockholders paying transaction costs which are a higher percentage
of the share price than would be the case if the share price were substantially
higher. The Board believes that the Reverse Split, and the expected resulting
increased price level, may enhance investor interest in the Common Stock and may
help the investment community realize the underlying value of the Common Stock.
There is however, no assurance that any of the foregoing effects will occur.
WHILE THE BOARD BELIEVES THAT THE SHARES OF COMMON STOCK WILL TRADE AT
HIGHER PRICES THAN THOSE WHICH HAVE PREVAILED IN RECENT MONTHS, THERE IS NO
ASSURANCE THAT SUCH INCREASE IN THE TRADING PRICE WILL OCCUR OR, IF IT DOES
OCCUR, THAT IT WILL EQUAL OR EXCEED THE DIRECT ARITHMETICAL RESULT OF THE
REVERSE SPLIT SINCE THERE ARE NUMEROUS FACTORS AND CONTINGENCIES WHICH COULD
AFFECT SUCH PRICE. THERE IS NO ASSURANCE THAT THE COMPANY WILL CONTINUE TO MEET
THE LISTING REQUIREMENTS FOR THE SMALLCAP MARKET FOLLOWING THE REVERSE SPLIT.
EFFECTS OF THE REVERSE SPLIT
If effected, the Reverse Split would reduce the number of issued and
outstanding shares of Old Common Stock from 38,924,124 as of the Record Date to
approximately 6,487,354 shares of New Common Stock as of the Effective Date.
(The foregoing assumes no issuances of Common Stock between the Record Date and
the Effective Date.) The Reverse Split itself would have no effect on the number
of authorized shares of Common Stock or the par value of the Common Stock.
However, because the number of shares of New Common Stock that the Company is
authorized to issue will not be decreased by the Reverse Split, the number of
shares which are authorized but unissued effectively will be increased six-fold.
In addition, if such shares are issued after the Reverse Split, the ownership
interests of the current Stockholders would be significantly diluted. See
"Proposal 3. Approval of Change in Authorized Common Stock" for a discussion as
to the proposed decrease in the number of authorized shares of Common Stock.
20
<PAGE>
The consummation of the Reverse Split without a corresponding decrease in
the authorized Common Stock may be viewed as having the effect of discouraging
or impeding hostile takeovers of the Company or of making it more difficult to
replace management because the issuance of additional shares of Common Stock
could be made at the discretion of the Board. While the Board is not aware of
any proposals to acquire the Company and this proposal is not being made as a
means to deter or prohibit hostile takeovers or to make it more difficult to
remove current management, the Board would be able to issue additional shares of
Common Stock thereby, among other things, diluting Stockholders ownership
interests, increasing the costs of a hostile takeover bid offer or placing
shares of Common Stock with individuals and/or entities who would support
management positions. By potentially discouraging initiation of an unsolicited
takeover attempt, the effective increase of the authorized shares of Common
Stock may limit the opportunity for the Stockholders to dispose of their shares
at the higher price generally available in takeover attempts or that may be
available under a merger proposal. The effective increase of the authorized
shares of Common Stock may also have the effect of permitting the Company's
current management, including the current Board, to retain its position, and
place it in a better position to resist changes that Stockholers may wish to
make if they are dissatisfied with the conduct of the Company's business. See
the discussion below in connection with "Proposal and Approval of Change in
Authorized Common Stock" proposing to reduce the authorized shares of Common
Stock.
All issued and outstanding options, warrants, and convertible securities
would be appropriately adjusted for the Reverse Split automatically on the
Effective Date. The Reverse Split would not affect any Stockholders
proportionate equity interest in the Company except for those Stockholders who
would receive an additional share of Common Stock in lieu of fractional shares.
None of the rights currently accruing to holders of the Common Stock, or options
or warrants to purchase Common Stock, or securities convertible into Common
Stock, will be affected by the Reverse Split.
The Reverse Split will result in some Stockholders holding odd lots of the
Common Stock (blocks of less than 100 shares). Because broker/dealers typically
charge a higher commission to complete trades in odd lots of securities, the
transaction costs may increase for those Stockholders who will hold odd lots
after the Reverse Split.
Although the Board believes as of the date of this Proxy Statement that
the Reverse Split is advisable, the Reverse Split may be abandoned by the Board
at any time before, during or after the Annual Meeting and prior to the
Effective Date.
Dissenting Stockholders have no appraisal rights under Delaware law or
under the Certificate or Bylaws of the Company in connection with the Reverse
Split.
The Board may make any and all changes to the Reverse Split Certificate
Amendment that it deems necessary in order to file the Reverse Split Certificate
Amendment with the Secretary of State and give effect to the Reverse Split.
MECHANICS OF REVERSE SPLIT
If the Reverse Split is approved by the requisite vote of the
Stockholders, the Company will file the Reverse Split Certificate Amendment as
soon as practicable thereafter, and the Reverse Split will be effective on the
date of such filing, unless abandoned by the Board as described above. Upon
filing of the Reverse Split Certificate Amendment, every six (6) issued and
outstanding shares of Old Common Stock will, effective upon such filing, be
automatically and without any action on the part of the Stockholders converted
into and reconstituted as one (1) share of New Common Stock.
As soon as practical after the Effective Date, the Company will forward,
or cause to be forwarded, a letter of transmittal to each holder of record of
shares of Old Common Stock outstanding as of the Effective Date. The letter of
transmittal will set forth instructions for the surrender of certificates
representing shares of Old Common Stock to the Company's transfer agent in
exchange for certificates representing the number of whole shares of New Common
21
<PAGE>
Stock into which the shares of Old Common Stock have been converted as a result
of the Reverse Split. CERTIFICATES SHOULD NOT BE SENT TO THE COMPANY OR THE
TRANSFER AGENT PRIOR TO RECEIPT OF SUCH LETTER OF TRANSMITTAL FROM THE COMPANY.
Until a Stockholder forwards a completed letter of transmittal together
with certificates representing his, her or its shares of Old Common Stock to the
transfer agent and receives a certificate representing shares of New Common
Stock, such Stockholder's Old Common Stock shall be deemed equal to the number
of whole shares of New Common Stock to which each Stockholder is entitled as a
result of the Reverse Split.
No scrip or fractional certificates will be issued in the Reverse Split.
Instead, the Company will issue one additional share of New Common Stock to each
affected Stockholder at no cost to such Stockholder. The ownership of a
fractional interest will not give the holder thereof any voting, dividend or
other rights except the right to receive an additional share therefor as
described herein. The number of shares of New Common Stock to be issued in
connection with settling such fractional interests is not expected to be
material.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following is a summary of the material anticipated federal income tax
consequences of the Reverse Split to Stockholders. This summary is based on the
provisions of the Code, the Treasury Department Regulations (the "Regulations")
issued pursuant thereto, and published rulings and court decisions in effect as
of the date hereof, all of which are subject to change. This summary does not
take into account possible changes in such laws or interpretations, including
amendments to the Code, applicable statutes, Regulations and proposed
Regulations or changes in judicial or administrative rulings; some of which may
have retroactive effect. No assurance can be given that any such changes will
not adversely affect the discussion of this summary.
This summary is provided for general information only and does not purport
to address all aspects of the possible federal income tax-consequences of the
Reverse Split and IS NOT INTENDED AS TAX ADVICE TO ANY PERSON OR ENTITY. In
particular, and without limiting the foregoing, this summary does not consider
federal income tax consequences to Stockholders of the Company in light of their
individual investment circumstances or to holders subject to special treatment
under the federal income tax laws (for example, tax exempt entities, life
insurance companies, regulated investment companies and foreign taxpayers). In
addition, this summary does not address any consequences of the Reverse Split
under any state, local or foreign tax laws. As a result, it is the
responsibility of each Stockholder to obtain and rely on advice from his, her or
its personal tax advisor as to: (i) the effect on his, her or its personal tax
situation of the Reverse Split, including the application and effect of state,
local and foreign income and other tax laws; (ii) the effect of possible future
legislation and Regulations; and (iii) the reporting of information required in
connection with the Reverse Split on his, her or its own tax returns. It will be
the responsibility of each Stockholder to prepare and file all appropriate
federal, state and local tax returns.
22
<PAGE>
No ruling from the Internal Revenue Service (the "Service") or opinion of
counsel will be obtained regarding the federal income tax consequences to the
Stockholders as a result of the Reverse Split. ACCORDINGLY, EACH STOCKHOLDER IS
ENCOURAGED TO CONSULT HIS, HER OR ITS TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH STOCKHOLDER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
The Company believes that the Reverse Split will qualify as a
"recapitalization" under Section 368(a)(1)(E) of the Code. As a result, no gain
or loss will be recognized by the Company or its Stockholders in connection with
the Reverse Split. A Stockholder who exchanges his, her or its Old Common Stock
solely for New Common Stock will recognize no gain or loss for federal income
tax purposes. A Stockholder's aggregate tax basis in his, her or its shares of
New Common Stock received from the Company will be the same as his, her or its
aggregate tax basis in the Old Common Stock exchanged therefor. The holding
period of the New Common Stock received by such Stockholder will include the
period during which the Old Common Stock surrendered in exchange therefor was
held, provided all such Common Stock was held as a capital asset on the date of
the exchange.
VOTE REQUIRED
The approval of the Reverse Split Certificate Amendment to the Certificate
effecting the Reverse Split requires the affirmative vote of a majority of the
issued and outstanding shares of the Common Stock.
The Board recommends a vote "FOR" approval of the proposed Reverse Split
Certificate Amendment.
PROPOSAL 3. APPROVAL OF CHANGE IN
AUTHORIZED COMMON STOCK
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COMMON STOCK CERTIFICATE AMENDMENT - GENERAL
In the event that the Reverse Split Certificate Amendment is approved by
the Stockholders, the Board has authorized, subject to Stockholder approval
which it is hereby soliciting, an amendment to the Certificate to decrease the
number of authorized shares of Common Stock from the present amount of
75,000,000 shares to 25,000,000 shares. The text of such amendment to the
Certificate of Incorporation (the "Common Stock Certificate Amendment") is
substantially set forth in Exhibit "B" to this Proxy Statement and incorporated
herein by this reference. The text of the Common Stock Certificate Amendment is,
however, subject to change as may be required by the Secretary of State. If the
Reverse Split Certificate Amendment and the Common Stock Certificate Amendment
are approved by the necessary vote of the Stockholders, the Board may combine
such amendments and file one Certificate of Amendment to the Certificate with
the Secretary of State covering both amendments.
If the Common Stock Certificate Amendment is approved by the necessary
vote of the Stockholders, upon filing of the Common Stock Certificate Amendment
with the Secretary of State, the number of shares of Common Stock authorized by
the Certificate of Incorporation will be 25,000,000 shares of Common Stock
(decreased from 75,000,000 shares). The Board may make any and all changes to
the Common Stock Certificate Amendment that it deems necessary in order to give
effect to the decrease in the authorized shares of Common Stock of the Company.
In the event that the Reverse Split Certificate Amendment is not approved by the
Stockholders, the number of authorized shares of Common Stock will remain at
75,000,000 shares.
At the close of business on April 9, 1998, 38,924,124 shares of Common
Stock were issued and outstanding, and an aggregate of ______________ shares of
Common Stock were reserved for various purposes, including 3,247,500 shares for
issuance under the Plan, 2,495,000 shares for issuance upon the exercise of
outstanding options to purchase the Common Stock granted outside the Plan to
various directors and employees of the Company, 824,585 shares for issuance upon
the exercise of outstanding warrants of the Company and _____________ shares for
issuance upon conversion of the Company's Series A Convertible Preferred Stock
and Series C Convertible Preferred Stock (assuming the conversion price is $.__,
the closing price of the Common Stock on the SmallCap Market for April 9, 1998).
Current Stockholders hold approximately 52% of the currently authorized
Common Stock. Assuming the approval of the Reverse Split Certificate Amendment
and the Common Stock Certificate Amendment, current Stockholders will hold
approximately 40% of the amended authorized Common Stock after giving effect to
such amendments. Assuming the approval of the Reverse Split Certificate
Amendment and the failure to approve the Common Stock Certificate Amendment,
current Stockholders will hold approximately 13% of the currently authorized
Common Stock after giving effect to the Reverse Split Certificate Amendment.
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PURPOSE AND REASONS FOR THE COMMON STOCK CERTIFICATE AMENDMENT
If the Common Stock Certificate Amendment is approved by the Stockholders
at the Annual Meeting, ______________ fewer shares of authorized Common Stock
will be available for future issuance. As of April 9, 1998, the Company has
38,924,124 shares of Common Stock issued and outstanding, and _____________
shares of unissued Common Stock reserved for future issuance for various
purposes, leaving ___________ shares of Common Stock presently unreserved and
otherwise available for issuance. If the Reverse Split Certificate Amendment and
the Common Stock Certificate Amendment are approved by the Stockholders at the
Annual Meeting, approximately ___________ shares of New Common Stock will be
unreserved and otherwise available for issuance. If the authorized Common Stock
was to be reduced in the same proportion as the Reverse Split, only
approximately _____________ shares of New Common Stock would be unreserved and
otherwise available for issuance. Such amount is less than the Board believes is
prudent to have available to maintain flexibility for possible future issuances.
Accordingly, if the Stockholders approve the Reverse Split Certificate Amendment
and the Common Stock Certificate Amendment, the proportion of unreserved
authorized shares of Common Stock to issued and reserved shares of Common Stock
will be effectively increased, but to a much lesser extent than would be the
case if the Reverse Split Certificate Amendment is approved and this Common
Stock Certificate Amendment is not approved; in the latter case, the authorized
Common Stock would remain at the present 75,000,000 share level. Authorized but
unissued shares of Common Stock will be available for issuance from time to time
upon the exercise of options which may in the future be granted to, among
others, employees, consultants and members of the Board, to take advantage of
opportunities in which the issuance of shares of Common Stock may be deemed
advisable such as in equity financings or in acquisition transactions, and for
such other purposes and consideration, and on such terms, as the Board may
approve.
No further vote of the Stockholders will be required with respect to any
such issuance. The timing of the actual issuance of additional shares of Common
Stock will depend upon market conditions, the specific purpose for which the
stock is to be issued and other similar factors. The Company currently has no
plans, agreements, arrangements, understandings or commitments for the issuance
of Common Stock other than for issuances upon exercise, if any, of presently
issued or authorized options (including any increased authorized shares of
Common Stock if the Plan Amendment is approved) and warrants, upon the
conversion, if any, of presently outstanding Series A Convertible Preferred
Stock and Series C Convertible Preferred Stock. The Board believes it is in the
Company's best interest to have such additional shares authorized as such shares
will provide the Company added flexibility in the future to issue Common Stock
for working capital purposes, acquisitions, employee benefit compensation or
otherwise.
The consummation of the Reverse Split without a corresponding decrease in
the authorized Common Stock may be viewed as having the effect of discouraging
or impeding hostile takeovers of the Company or of making it more difficult to
replace management because the issuance of additional shares of Common Stock
could be made at the discretion of the Board. While the Board is not aware of
any proposals to acquire the Company and this proposal is not being made as a
means to deter or prohibit hostile takeovers or to make it more difficult to
remove current management, the Board would be able to issue additional shares of
Common Stock thereby, among other things, diluting Stockholders ownership
interests, increasing the costs of a hostile takeover bid offer or placing
shares of Common Stock with individuals and/or entities who would support
management positions. By potentially discouraging initiation of an unsolicited
takeover attempt, the effective increase of the authorized shares of Common
Stock may limit the opportunity for the Stockholders to dispose of their shares
at the higher price generally available in takeover attempts or that may be
availabel under a merger proposal. The effective increase of the authorized
shares of Common Stock may also have the effect of permitting the Company's
current management, including the current Board, to retain its position, and
place it in a better position to resist changes that Stockholers may wish to
make if they are dissatisfied with the conduct of the Company's business.
The Common Stock has no conversion, preemptive or subscription rights and
is not redeemable. The terms of the additional shares of Common Stock for which
authorization is sought will be identical with the shares of Common Stock
currently authorized and outstanding, and the Common Stock Certificate Amendment
will not affect the terms, or the rights of the holders, of such shares issued
and outstanding. Any additional issuance of
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Common Stock could, however, have a dilutive effect on the existing holders of
Common Stock.
The Board recommends a vote "FOR" approval of the proposed Common Stock
Certificate Amendment.
PROPOSAL 4. APPROVAL OF AMENDMENT
TO THE PLAN
INTRODUCTION
The Board has authorized, subject to approval by the Stockholders, to
increase from 4,700,000 to 15,000,000 (2,500,000 if the Reverse Split is
implemented) the number of shares of Common Stock authorized for issuance under
the Plan. Except as amended, the provisions of the Plan will remain unchanged.
At the Company's Annual Meeting of Stockholders held on August 12, 1993, the
Stockholders approved a proposal amending the Plan to increase from 1,500,000 to
2,700,000 the number of shares of Common Stock authorized for issuance under the
Plan. At the Company's Annual Meeting of Stockholders held on June 25, 1996, the
Stockholders approved a proposal amending the Plan to increase from 2,700,000 to
3,700,000 the number of shares of Common Stock authorized for issuance upon
exercise of options granted pursuant to the Plan. At the Company's Annual
Meeting of Stockholders held on June 27, 1997, the Stockholders approved a
proposal amending the Plan to increase from 3,700,000 to 4,700,000 the number of
shares of Common Stock authorized for issuance upon exercise of options granted
pursuant to the Plan.
REASONS FOR THE PLAN AMENDMENT
The Board believes that the issuance of stock options increases the
incentive of, and attracts and encourages the continued employment and service
of qualified directors, officers and other key employees by facilitating their
purchase of a stock interest in the Company. In addition, the granting of stock
options helps align the financial interests of directors, officers and other key
employees receiving such options with the stockholders because such directors',
officers' and key employees' compensation increases as the price of the Common
Stock increases. As of the Record Date, only _______ shares remain available for
future option grants under the Plan. The proposed amendment, if approved by the
Stockholders, will increase to 15,000,000 (2,500,000 if the Reverse
Split is implemented) the number of shares of Common Stock authorized for
issuance under the Plan (equal to approximately ____% of the outstanding Common
Stock, __% if the Reverse Split is implemented), including _________ shares
reserved for future options. The Board believes that more shares than those
remaining available under the Plan are needed to help the Company meet its goals
using stock options.
The Board has determined that it is advisable that the Company and its
Stockholders continue to have the incentive of stock options available as a
means of attracting and retaining
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directors, officers and key employees. As the Company progresses, the Company
needs the ability to attract and retain such directors, officers and key
employees, including moving them into positions in the Company where, in the
judgment of the Board, such individuals can continue to help the Company develop
and market products and services. The Board believes that an initial or
increased stock option grant will be a valuable tool in attracting and retaining
such individuals and providing added incentives for their continued
contributions to the Company each which will serve to the ultimate benefit of
the Stockholders.
The following summary of the Plan is qualified in its entirety by express
reference to the text of the Plan.
DESCRIPTION OF THE PLAN
The Plan, adopted by the Board and approved by the Stockholders in January
1992, as amended by the Board and approved by the Stockholders at the Company's
Annual Meetings of Stockholders held on August 12, 1993, June 25, 1996 and June
27, 1997, authorizes the granting of Awards of up to 4,700,000 shares of Common
Stock to qualified officers, employees, directors, and third parties providing
valuable services to the Company, e.g., independent contractors, consultants and
advisors to the Company. The Plan provides for the granting of options that are
intended to qualify as "incentive options" ("ISOs") under Section 422 of the
Code, as well as non-incentive options. The Plan also provides that Awards can
be Stock Options ("Options"), SARs, Performance Share Awards ("PSAs") and
Restricted Share Awards ("RSAs"). The number and kind of shares available under
the Plan are subject to adjustment in certain events. Shares relating to Options
and SARs which are not exercised in full, shares relating to RSAs which do not
vest and shares relating to PSAs which are not issued will again be available
for issuance under the Plan. No SARs, RSAs or PSAs have been granted under the
Plan.
The Plan may be administered by the Board or by a committee appointed by
the Board and consisting of two or more members, each of whom must be a director
and disinterested. The Plan is currently administered by the Compensation
Committee pursuant to an appointment by the Board. The Compensation Committee
currently consists of Messrs. Devine, Klosterman, and Santangelo. The
Compensation Committee determines the number of shares to be covered by an
Award, the term and exercise price, if any, of the Award and other terms and
provisions of Awards.
The exercise price for Options is to be determined by the Compensation
Committee, but in the case of an ISO is not to be less than fair market value on
the date the Option is granted (110% of fair market value in the case of an ISO
granted to any person who owns more than 10% of the Common Stock). The purchase
price is payable in any combination of cash, shares of Common Stock already
owned by the participant for at least six months or, if authorized by the
Compensation Committee, a promissory note secured by the Common Stock issuable
upon exercise of the Option. In addition, the Award agreement may provide for
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"cashless" exercise and payment. Subject to certain early termination or
acceleration provisions, an Option is exercisable, in whole or in part, from the
date specified in the related Award agreement (which may be six months after the
date of grant) until the expiration date determined by the Compensation
Committee, but not to exceed ten years (five years for any person who owns more
than 10% of the outstanding Common Stock).
Persons to whom Options are granted prior to the expiration of a resale
restriction period must execute a letter agreement agreeing to certain
restrictions on the sale of the shares issuable upon exercise of such Options.
The Company intends to register under the Securities Act of 1933, as amended,
the shares issuable pursuant to the Plan, which shares will be freely tradable
subject to certain limitations on shares held by affiliates.
As of the Record Date, the Compensation Committee had granted, and as of
the Record Date there is still outstanding, non-qualified stock options with
respect to 2,495,000 shares at various exercise prices. The vesting of Options
varies with respect to each grant of Options. As discussed above, on March 11,
1998, the exercise price of all outstanding options under the Plan was changed
to $.78. See "Proposal 1. Election of Directors - Option Repricing."
An SAR is the right to receive payment based on the appreciation in the
fair market value of Common Stock from the date of grant to the date of
exercise. In its discretion, the Compensation Committee may grant an SAR
concurrently with the grant of an Option. An SAR is only exercisable at such
time, and to the extent, that the related Option is exercisable. Upon exercise
of an SAR, the holder receives for each share with respect to which the SAR is
exercised an amount equal to the difference between the exercise price under the
related Option and the fair market value of a share of Common Stock on the date
of exercise of the SAR. The Compensation Committee, in its discretion, may pay
the amount in cash, shares of Common Stock or a combination thereof.
A RSA is an Award of a fixed number of shares of Common stock subject to
restrictions. The Compensation Committee specifies the price, if any, the
recipient must pay for such shares. Shares included in a RSA may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered until they
have vested. These restrictions may not terminate earlier than six months after
the Award date. The recipient is entitled to dividend and voting rights
pertaining to such RSA shares even though they have not vested, so long as such
shares have not been forfeited.
A PSA is an Award of a fixed number of shares of Common Stock the issuance
of which is contingent upon the attainment of certain performance objectives,
and the payment of certain consideration, if any, as is specified by the
Compensation Committee. Issuance shall, in any case, not be earlier than six
months after the Award date.
The Plan also provides for certain stock depreciation protection,
tax-offset bonuses and tax withholding using shares of Common Stock instead of
cash.
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Upon the date a participant is no longer employed by the Company for any
reason, shares subject to the participant's RSAs which have not become vested by
such date or shares subject to the participant's PSAs which have not been issued
by such date shall be forfeited in accordance with the terms of the related
Award agreements. Options which have become exercisable by the date of
termination of employment must be exercised within certain specified periods of
time from the date of such termination, the period of time depending on the
reason of termination. Options which have not yet become exercisable on the date
the participant terminates employment for a reason other than retirement, death
or total disability shall terminate on such date.
The Board may, at any time, terminate, amend or suspend the Plan. However,
the Board may not amend the Plan, except subject to the approval of the
Company's stockholders, if such amendment would (i) materially increase the
benefits accruing to eligible individuals under the Plan, (ii) increase the
aggregate number of shares which may be issued under the Plan or (iii) modify
the requirements of eligibility for participation in the Plan. Accordingly, and
in order to seek to continue to take advantage of the exemption from the
short-swing profit rules under Section 16(b) (which may be applicable to certain
participants in the Plan) under the Exchange Act pursuant to Rule 16b-3
promulgated thereunder, Stockholders' approval is being sought for the amendment
to the Plan. No amendment, suspension or termination of the Plan may, without
the consent of the optionee to whom an Award has been granted, in any way
modify, amend, alter or impair any rights or obligations under any Award
previously granted under the Plan.
MARKET VALUE
On April 9, 1998, the closing bid price for the Common Stock on the
SmallCap Market was $_____.
RECOMMENDATION AND VOTE
Approval of the ? to the Plan Amendment requires the affirmative vote of
the holders of a majority of the shares of Common Stock present in person or by
proxy at the Annual Meeting.
The Board recommends a vote "FOR" approval of the proposed Plan Amendment.
PROPOSAL 5. APPOINTMENT OF
INDEPENDENT AUDITORS
Subject to Stockholder ratification, the Board, on the recommendation of
the Audit Committee, has appointed Ernst & Young LLP to continue as its
independent auditors for the fiscal year ending December 31, 1998.
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Ernst & Young LLP has been the Company's independent auditors since
October 1992. The Board recommends that the Stockholders vote "FOR" such
ratification. If the Stockholders do not ratify this appointment, other
independent auditors will be considered by the Board upon recommendation of the
Audit Committee. Representatives of Ernst & Young LLP are expected to be present
at the Annual Meeting, and will have the opportunity to make a statement if they
so desire and are expected to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's Proxy Statement for
the 1999 Annual Meeting of Stockholders, Stockholder proposals must be received
by the Secretary of the Company at its executive offices by December 7, 1998.
OTHER BUSINESS
It is not intended that any business other than that set forth in the
Notice of Annual Meeting and more specifically described in this Proxy Statement
will be brought before the Annual Meeting. However, if any other business should
properly come before the Annual Meeting, it is the intention of the persons
named on the enclosed proxy card to vote the signed proxies received by them in
accordance with their sole discretion on such business and any matters dealing
with the conduct of the Annual Meeting.
By Order of the Board
David E. Brogan
Chief Financial Officer and
Secretary
Dated: April [10], 1998
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EXHIBIT A
PROPOSED REVERSE SPLIT CERTIFICATE AMENDMENT TO THE CERTIFICATE OF
INCORPORATION OF THE NATIONAL REGISTRY INC.
ARTICLE FOUR of the Certificate of Incorporation is amended by deleting it
in its entirety and replacing it with the foregoing:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 76,000,000 shares [26,000,000
shares if the Common Stock Certificate Amendment is approved], consisting
of (i) 1,000,000 shares of Preferred Stock, $.01 par value per share (the
"Preferred Stock"), and (ii) 75,000,000 shares [25,000,000 shares if the
Common Stock Certificate Amendment is approved], of Common Stock, $.01 par
value per share (the "Common Stock"). Upon amendment to this Articles to
read as herein set forth, each six (6) shares of outstanding Common Stock
is converted into and reconstituted as one (1) share of Common Stock."
<PAGE>
EXHIBIT B
PROPOSED COMMON STOCK AMENDMENT TO THE CERTIFICATE OF
INCORPORATION OF THE NATIONAL REGISTRY INC.
ARTICLE FOUR of the Certificate of Incorporation is amended by replacing
the reference to "76,000,000 shares " with "26,000,000 shares and the reference
to "75,000,000 shares of Common Stock" with "25,000,000 shares of Common Stock"
