SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidentail, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
THE NATIONAL REGISTRY INC.
(Name of Registrant as Specified in Its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 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:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
THE NATIONAL REGISTRY INC.
2502 ROCKY POINT DRIVE
SUITE 100
TAMPA, FLORIDA 33607
APRIL 6, 1999
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 11, 1999, at the Tampa Bay Convention Center, 333 South
Franklin Street, Meeting Room 9, 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 increase the
number of authorized shares of the Company's common stock, $.01 par value per
share (the "Common Stock"), from the present amount of 25,000,000 shares to
50,000,000 shares and (c) the ratification of the appointment of Ernst & Young
LLP as independent auditors for the Company for its fiscal year ending December
31, 1999.
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 amendment of the Certificate to increase the number of authorized shares of
Common Stock from the present amount of 25,000,000 shares to 50,000,000 shares
and "FOR" ratification of the appointment of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December 31, 1999.
Additional information concerning these matters is included in the
accompanying Notice of Annual Meeting of Stockholders and Proxy Statement. Also
enclosed is the Company's 1998 Annual Report to Stockholders, including its
Annual Report on Form 10-K, which contains information concerning the Company's
1998 fiscal year.
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,
/s/ JEFFREY P. ANTHONY
-------------------------------------------------
Jeffrey P. Anthony
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
<PAGE>
THE NATIONAL REGISTRY INC.
2502 ROCKY POINT DRIVE
SUITE 100
TAMPA, FLORIDA 33607
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 11, 1999
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 11, 1999,
at the Tampa Bay Convention Center, 333 South Franklin Street, Meeting Room 9,
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 to increase the number of authorized shares of common stock,
$.01 par value per share (the "Common Stock"), from the present amount of
25,000,000 shares to 50,000,000 shares;
3. 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, 1999; and
4. To transact such other business as may properly come before the Annual
Meeting and any and all adjournments thereof.
Pursuant to the Company's Bylaws, the Board of Directors has fixed the
close of business on March 26, 1999 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
/s/ JAMES W. SHEPPERD
---------------------------------------
James W. Shepperd
CHIEF FINANCIAL OFFICER AND SECRETARY
TAMPA, FLORIDA
APRIL 6, 1999
<PAGE>
THE NATIONAL REGISTRY INC.
2502 ROCKY POINT DRIVE
SUITE 100
TAMPA, FLORIDA 33607
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
TUESDAY, MAY 11, 1999
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 11, 1999, at the Tampa Bay Convention Center, 333
South Franklin Street, Meeting Room 9, 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 March 26, 1999 (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, 16,771,480 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 the Annual Meeting. Shares
represented by proxies that are marked "abstain" will be counted as shares
present for 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 additional proxies.
The Company's Annual Report to Stockholders, including its Annual Report
on Form 10-K for the fiscal year ended December 31, 1998 with 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 6, 1999.
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
<PAGE>
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 (the amendment to the Company's Certificate of Incorporation (the
"Certificate") to increase the number of authorized shares of Common Stock (the
"Authorized Shares Increase") from the present amount of 25,000,000 shares to
50,000,000 shares) shall be a majority of all of the issued and outstanding
shares of Common Stock. On Proposal 2, abstentions and broker non-votes will
have the same effect as a negative vote. The vote required for approval of
Proposal 3 (the ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for its fiscal year ending December 31, 1999)
shall be a majority of shares present in person or represented by proxy at the
Annual Meeting. On Proposal 3, 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 a matter 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, and/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 nominees for director
named in this Proxy Statement, "FOR" the Authorized Shares Increase, and "FOR"
the ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for its fiscal year ending December 31, 1999. As to any
other business which may properly come before the Annual Meeting, the persons
named on the proxy card will vote according to its or 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 solicitation
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 solicitation material to the
beneficial owners of such shares, and will be reimbursed by the Company for
their reasonable expenses.
2
<PAGE>
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:
<TABLE>
<CAPTION>
AMOUNTS AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------ ------------------ -------------------
<S> <C> <C>
RMS Limited Partnership. ........... 8,021,305(1) 47.8
50 West Liberty Street
Suite 650
Reno, NV 89501
Francis R. Santangelo. ............. 1,391,710(2) 8.3
10926 Tamarisk Trail
Boynton Beach, FL 33436
Clearwater Fund III, L.P ........... 1,100,000(3) 6.5
611 Druid Road E. #200
Clearwater, FL 34616
Home Shopping Network, Inc ......... 1,056,026(4) 5.9
P. O. Box 9090
Clearwater, FL 34618
J. Anthony Forstmann ............... 776,250(5) 4.6
Jeffrey P. Anthony ................. 216,667(2) 1.3
Frank M. Devine. ................... 97,249(2) *
Donald C. Klosterman ............... 33,333(2) *
Hector J. Alcalde .................. 0(2) *
O. G. Greene ....................... 0(2) *
Robert J. Rosenblatt ............... 0 *
Clinton C. Fuller. ................. 108,333(2) *
James W. Shepperd. ................. 45,000(2) *
Executive officers and directors
as a group (10 persons) ........... 2,668,542 15.3(2)(5)
</TABLE>
- ----------------
(1) Excludes 59,500 shares of Common Stock owned by certain trusts of which Roy
Speer's children and grandchildren are beneficiaries. Mr. Speer is the
sole stockholder and a director of Crystal Diamond, Inc., the managing
general partner of RMS, and is a non-managing partner of RMS. RMS and Mr.
Speer disclaim beneficial ownership of such shares of Common Stock.
3
<PAGE>
(2) Includes shares of Common Stock that can be acquired by exercise of vested
and exercisable stock options within 60 days of March 26, 1999, as
follows: Mr. Anthony-216,667 shares; Mr. Devine-81,666 shares; Mr.
Klosterman-33,333 shares; Mr. Santangelo-83,333 shares; Mr. Fuller-108,333
shares; Mr. Shepperd-45,000 shares. Excludes 60,000, 150,000, 250,000,
60,000, 26,667, 90,000 and 30,000 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
March 26, 1999 in favor of Messrs. Alcalde, Anthony, Devine, Greene,
Klosterman, Fuller and Shepperd, respectively.
(3) Includes 100,000 shares of Common Stock issuable upon exercise of warrants.
(4) Includes 1,056,026 shares of Common Stock issuable upon conversion of
100,000 currently convertible shares of Series A Preferred Stock.
(5) Of such amount, 583,333 shares of Common Stock are pledged in favor of
Theodore J. Forstmann, Mr. Forstmann's brother, to secure a demand note.
Includes 92,917 shares of Common Stock subject to outstanding options
which are vested and exercisable. Includes 100,000 shares of Common Stock
directly held by Mr. Forstmann's spouse, Catherine S. Forstmann. Excludes
25,000 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 March 26, 1999.
* Less than 1%.
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.
4
<PAGE>
The Board has nominated the persons named below for election as directors
at the Annual Meeting. The name of each nominee, the nominee's age as of March
26, 1999, the nominee's current position with the Company, when the nominee's
current term expires and when the nominee became a member of the Board is set
forth in the following table.
<TABLE>
<CAPTION>
TERM DIRECTOR
NAME AGE POSITION EXPIRES SINCE
- ----------------------------------- ----- ------------------------------------- --------- ---------
<S> <C> <C> <C> <C>
Jeffrey P. Anthony ................ 40 President, Chief Executive Officer, 1999 1998
Chairman and Director
Hector J. Alcalde (2) ............. 65 Director 1999 1999
Frank M. Devine (1) (2) ........... 56 Director 1999 1997
J. Anthony Forstmann .............. 61 Director 1999 1991
O.G. Greene ....................... 57 Director 1999 1999
Donald C. Klosterman (1) .......... 69 Director 1999 1997
Robert J. Rosenblatt (2). ......... 41 Director 1999 1998
Francis R. Santangelo (1) ......... 66 Director 1999 1997
</TABLE>
- ----------------
(1) Compensation Committee member.
(2) Audit Committee member.
INFORMATION REGARDING NOMINEES
JEFFREY P. ANTHONY has served as President and Chief Executive Officer of
the Company since May 1998, Chairman of the Board since March 1998 and as a
director of the Company since February 1998. Mr. Anthony served as the Director
of Business Development for the Company from March 1995 to March 1998 and as a
Senior Vice President from February 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.
HECTOR J. ALCALDE has served as a director of the Company and as a member
of the Board's Audit Committee (the "Audit Committee") since February 1999.
Since its creation in 1973, Mr. Alcalde has served as President and Chief
Executive Officer of Alcalde & Fay, a government and public affairs consulting
firm in Washington, D.C., which he helped found. Mr. Alcalde is a director of
Precision Systems, Inc., a publicly owned company that delivers
telecommunications solutions to service providers and corporations. Mr. Alcalde
received a BA in Government from the University of Tampa, and an MA in
Education and Administration from Peabody College.
FRANK M. DEVINE has served as a director of the Company and as a member of
the Board's Compensation Committee (the "Compensation Committee") 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,
5
<PAGE>
Incorporated, a venture capital firm, American Home, Inc., an importer of
hand-loomed rugs and decorative accessories, World Wide Digital Vaulting, Inc.,
an on-line digital data storage company, and Shapiro, Devine & Craparo, Inc., a
manufacturers agency serving the retail industry. Mr. Devine also serves on the
Board of Directors of these companies. Since December 1994, Mr. Devine has
served as a member of the Board of Directors of Salton Inc., a publicly owned
company that markets and sells electrical appliances 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.
O.G. GREENE has served as a director of the Company since February 1999.
Mr. Greene has served as Chief Executive Officer of Speer Communications
Limited Partnership, a telecommunications and digital storage provider, since
April 1998. Mr. Greene served as President and CEO of GridNet International
LLC, an enhanced services provider in the telecommunications industry, from
June 1995 to March 1998. From May 1992 to June 1995, Mr. Greene was the Senior
Executive Vice President and Chief Operating Officer of First Financial
Management Corporation, a firm providing payment systems services to the credit
card, check and health care industries in Atlanta. From February 1991 to May
1992, Mr. Greene was the President and CEO of National Data Corporation, a firm
providing payment systems services to the credit card, check and health care
industries. Mr. Greene also has served as a director of PowerCerv Corporation,
an enterprise application software company, since October 1996. Mr. Greene
received a BS from Auburn University and a MBA from the University of Southern
California.
DONALD C. KLOSTERMAN has served as a director of the Company and as a
member of the 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
6
<PAGE>
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.
ROBERT J. 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
Bloomingdale'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 American Stock Exchange.
Pursuant to that certain Stock Purchase Agreement, dated as of April 28,
1992, by and between the Company and HSN (the "Stock Purchase Agreement"), HSN
has the right to nominate up to three directors for the Board. HSN has
nominated as directors of the Company Jed B. Trosper, who resigned effective
March 10, 1998 and Robert Rosenblatt, who has served on the Board since March
11, 1998.
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.
7
<PAGE>
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 1998, J.
Anthony Forstmann, a director of the Company, failed to file on a timely basis
six reports covering 11 transactions. James W. Shepperd failed to file on a
timely basis one report covering his election as an executive officer and no
transactions.
THE BOARD AND ITS COMMITTEES
The Board held 15 meetings during fiscal year 1998.
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 separate nominating committee for recommending to Stockholders candidates for
positions on the Board.
The Audit Committee, which held no meetings separate from full Board
meetings during fiscal 1998, consisted of Frank M. Devine, Don M. Lyle, a
director of the Company who resigned from the Board effective November 30,
1998, and Jed B. Trosper, a director of the Company who resigned from the Board
effective March 10, 1998. Effective March 11, 1998, Robert Rosenblatt replaced
Mr. Trosper on the Audit Committee. Effective February 1, 1999, Hector Alcalde
replaced Mr. Lyle 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 two meetings during fiscal year
1998, consisted of Frank M. Devine, Donald C. Klosterman and Francis R.
Santangelo. 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 1992 Stock Incentive Plan (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.
8
<PAGE>
Other than Robert Rosenblatt, who attended approximately 61 percent of the
applicable meetings, 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 1998 as to which such director
was a member of the Board or applicable committee.
COMPENSATION OF DIRECTORS
During 1998, except as set forth below for Mr. Anthony, 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 33,333 shares of Common Stock to each new director
of the Company upon such persons' election and qualification to the Board. Such
stock options were scheduled to become exercisable 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 was 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 (a
director who resigned effective November 30, 1998), and Santangelo received
such grants on such date at an exercise price of $4.68 (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 made
such options exercisable two-thirds on the date of the grant and an additional
one-third on the first anniversary of such grant. In addition, in recognition
of their past efforts and services to and on behalf of the Company without any
other compensation, the Board granted to each of Messrs. Anthony and Devine
options to acquire 15,000 shares of Common Stock at an exercise price of $4.68
exercisable two-thirds on the date of grant and an additional one-third on the
first anniversary of the date of grant. All 33,333 options granted to Mr. Lyle
prior to his resignation as a director of the Company have expired unexercised.
The Board elected Jeffrey P. Anthony as the new Chairman of the Board
("Chairman") on March 11, 1998. The responsibilities of Chairman were expanded
to 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. The
Compensation Committee set Mr. Anthony's compensation for serving as Chairman
at $150,000 per year and Mr. Anthony resigned as Director of Business
Development upon acceptance of the position of Chairman. J. Anthony Forstmann,
the prior Chairman, did not receive compensation for serving as Chairman.
On May 19, 1998, the Board requested that Mr. Anthony accept the
additional responsibilities of Chief Executive Officer and President of the
Company. In light of the
9
<PAGE>
Company's then financial condition and need for additional financing, Mr.
Anthony agreed to accept such additional responsibilities with no increase in
compensation during 1998.
All option amounts and exercise prices related to grants made prior to May
27, 1998 have been adjusted to reflect the Company's May 27, 1998 6 for 1
reverse stock split.
All options granted prior to June 16, 1998 became immediately exercisable
on the later of June 16, 1998 or the date six months after the date of grant as
the result of the occurrence on June 16, 1998 of a "change in control" as
defined in the Plan. See "Option Acceleration" below.
On July 1, 1998, the Board, on the recommendation of the Compensation
Committee, granted options to purchase shares of Common Stock to officers and
employees of the Company in order to provide long-term incentives in light of
the June 16, 1998 acceleration of exercisability of previously outstanding
options. Such options were scheduled to become exercisable pro rata on each of
the next three anniversaries of the grant date and the exercise price of such
options was set at $1.38 (the average of the closing bid and ask price of the
Common Stock on the SmallCap Market on the date of such grant). With the
exception of Mr. Anthony, who was granted options to purchase 150,000 shares of
Common Stock at $1.38 per share, no options were granted to directors.
On December 4, 1998, the Board, on the recommendation of the Compensation
Committee, granted options to purchase shares of Common Stock to officers and
employees of the Company in order to provide retention incentives in light of
the then existing cash flow concerns of the Company. Such options were
scheduled to become exercisable pro rata on each of the next three
anniversaries of the grant date and the exercise price of such options was set
at $0.64 (the average of the closing bid and ask price of the Common Stock on
the SmallCap Market on the date of such grant). With the exception of Mr.
Anthony, who was granted options to purchase 150,000 shares of Common Stock at
$0.64 per share, and Frank Devine, who was granted options to purchase 250,000
shares of Common Stock at $0.64 per share in consideration of certain marketing
efforts undertaken by Mr. Devine on behalf of the Company, no options were
granted to directors.
On December 17, 1998, as a result of another "change in control" as
defined in the Plan, all of the options granted on July 1, 1998 and December 4,
1998 became immediately exercisable, or will become immediately exercisable,
beginning six months after the applicable grant date. See "Option Acceleration"
below.
On February 1, 1999, the Board, on the recommendation of the Compensation
Committee, determined to increase the number of options to be granted to each
new non-employee director of the Company to 60,000 shares of Common Stock. Such
options shall become exercisable pro rata on each of the first three
anniversaries of the grant date. The Board determined to increase the amount of
the grant under its non-employee director option policy to provide the
directors with a more meaningful interest in the Company. On
10
<PAGE>
such date, the Board granted options to acquire 60,000 shares of Common Stock
to each of Hector J. Alcalde and O.G. Greene for agreeing to join the Board and
options to acquire 26,667 shares of Common Stock to Donald Klosterman to
increase the aggregate number of options granted to Mr. Klosterman to 60,000.
The exercise price of such options is $2.82 per share. (the average of the
closing bid and ask price of the Common Stock on the SmallCap Market on the
date of the grant).
EXECUTIVE OFFICERS
The names, ages, current positions held and date from which the current
postion was held of all executive officers of the Company (the "Named Executive
Officers") as of March 26, 1999 are set forth below.
<TABLE>
<CAPTION>
POSITION
NAME AGE OFFICER SINCE
- ---------------------------- ----- ------------------------------- ---------
<S> <C> <C> <C>
Jeffrey P. Anthony ......... 40 President and Chief Executive 1998
Officer
Clinton C. Fuller. ......... 54 Chief Operating Officer 1998
James W. Shepperd. ......... 50 Chief Financial Officer, 1998
Secretary and Treasurer
</TABLE>
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. Anthony):
CLINTON C. FULLER has been Chief Operating Officer of the Company since
March 1998 and 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 system division. Mr. Fuller
received a BS in Computer Science from Lackawanna College.
JAMES W. SHEPPERD has been Chief Financial Officer of the Company since
May 1998, and Secretary and Treasurer of the Company since June 1998. Since May
1997, Mr. Shepperd has been a principal in James Shepperd & Associates
providing accounting and financial consulting, strategic planning and corporate
finance services. From January 1994 to April 1997, Mr. Shepperd held various
positions at Key Bank, including Senior Vice President/Senior Administrative
Officer of the bank's Northwest Region. From 1983 to 1993, Mr. Shepperd served
as Chief Financial Officer for various financial institutions. Mr. Shepperd
received a B.S. in Business Administration from California State University,
Long Beach.
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation with respect to the Named
Executive Officers receiving more than $100,000 in aggregate compensation in
1998, including the Chief Executive Officer of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL
COMPENSATION SECURITIES
---------------- UNDERLYING
NAME AND PRINCIPAL POSITION (1) YEAR SALARY ($) OPTIONS
- ----------------------------------------------- ------ ---------------- -------------
<S> <C> <C> <C>
Jeffrey P. Anthony 1998 $ 146,544 366,667
President and Chief Executive Officer 1997 N/A N/A
1996 N/A N/A
John L. Gustafson 1998 $ 101,020 42,778
Former President and Chief Executive Officer 1997 170,000 --
1996 248,922(1) 50,000
Clinton C. Fuller 1998 $ 142,108 213,333
Chief Operating Officer 1997 128,465 --
1996 130,000 20,000
</TABLE>
- ----------------
(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.
CONSULTING AGREEMENT
On May 20, 1998, the Company and James W. Shepperd entered into a
Consultant Agreement (the "Consultant Agreement") pursuant to which Mr.
Shepperd agreed to provide (on a part-time basis for up to six months) certain
services typically performed by a chief financial officer. Mr. Shepperd agreed
to provide such services to the Company for up to 80 hours per month at a rate
of $50 per hour and the Company granted Mr. Shepperd a three year, fully vested
option to purchase 15,000 shares of Common Stock at an exercise price of $2.64
per share, the closing bid price on the SmallCap Market on May 19, 1998 (each
adjusted to reflect the Company's May 27, 1998 6 for 1 reverse stock split).
Such option became exercisable six months after the date of grant. On October
8, 1998, the Consultant Agreement was extended to December 31, 1998, the number
of hours Mr. Shepperd agreed to provide services was increased to 100 per month
and Mr. Shepperd's hourly rate was increased to $75. On January 27, 1999, the
term of the Consultant Agreement was extended to June 30, 1999 and the Company
agreed that Mr. Shepperd may exercise through September 30, 1999 any options
exercisable as of June 30, 1999 if the Company terminates the Consultant
Agreement before June 30, 1999 other than for cause.
12
<PAGE>
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 who are
also employees. Matching employer contributions are set at the discretion of
the Board. There were no employer contributions made for 1998, 1997 or 1996.
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 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 May 12, 1998,
the Stockholders approved an amendment to the Plan increasing the number of
shares of Common Stock authorized for issuance upon exercise of options granted
pursuant to the Plan to 2,500,000 (adjusted to reflect the Company's May 27,
1998 6 for 1 reverse stock split). The Stockholders previously approved
amendments to the Plan increasing the authorized number of shares of Common
Stock under the Plan at the Annual Meetings of Stockholders in 1993, 1996 and
1997.
There were no awards of SARs made during fiscal year 1998 to any of the
Named Executive Officers. The following table sets forth all options granted to
any of the Named Executive Officers during fiscal year 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OF
OPTIONS EMPLOYEES IN BASE PRICE GRANT DATE
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) EXPIRATION DATE PRESENT VALUE ($)
- -------------------------- ---------------- -------------- ------------ --------------- -----------------
<S> <C> <C> <C> <C> <C>
Jeffrey P. Anthony, 48,333 3.3% $ 4.68 3/11/08 $170,132
Chief Executive Officer 150,000 10.2% 1.38 7/01/08 157,500
and President 150,000 10.2% 0.64 12/4/08 70,500
John L. Gustafson, 41,667 2.8% $ 4.68 3/11/08 $146,668
Chief Executive
Officer and President
Clinton C. Fuller, 20,000 1.4% $ 4.68 3/11/08 $70,400
Chief Operating Officer 90,000 6.1% 1.38 7/01/08 94,500
90,000 6.1% 0.64 12/4/08 42,300
James W. Shepperd, 15,000 1.0% $ 2.64 5/19/01 $29,550
Chief Financial Officer 30,000 2.0% 1.38 7/01/08 31,500
and Secretary 30,000 2.0% 0.64 12/4/08 14,100
</TABLE>
- ----------------
(1) The options are adjusted to reflect the Company's May 27, 1998 6 for 1
reverse stock split.
(2) The exercise prices are adjusted to reflect the Company's May 27, 1998 6
for 1 reverse stock split.
13
<PAGE>
All options other than the May 19, 1998 option grant to Mr. Shepperd, were
scheduled to become exercisable pro rata on each of the first three
anniversaries of the grant date. The option granted to Mr. Shepperd vested upon
the issuance thereof and became exercisable six months after the grant date.
The exercisability of all options accelerated based upon the occurrence of the
change in control events discussed in "Option Acceleration" below.
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 $4.68 (the closing bid price of the
Common Stock on the SmallCap Market on the date of repricing, as adjusted for
the Company's May 27, 1998 6 for 1 reverse stock split). See "Option Repricing"
below.
During fiscal year 1998, no stock options were exercised by any director
or Named Executive Officer of the Company. The following table sets forth the
number and value of stock options outstanding as of December 31, 1998 for the
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END (#) FISCAL YEAR END ($)(1)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ --------------------------- --------------------------
<S> <C> <C>
Jeffrey P. Anthony.. ......... 216,667/150,000 0/63,375
John L. Gustafson... ......... 42,778/0 0/0
Clinton C. Fuller... ......... 123,333/90,000(2) 0/38,025
James W. Shepperd... ......... 45,000/30,000 0/12,675
</TABLE>
- ----------------
(1) Assumes a market price equal to $1.0625 per share, the average of the
closing bid and asked price on the SmallCap Market on December 31, 1998.
(2) On January 19, 1999, Mr. Fuller exercised options to purchase 15,000 shares
of Common Stock which options had previously become exercisable.
COMPENSATION COMMITTEE REPORT ON 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 $4.68,
the closing bid price of the Common Stock on the SmallCap Market on such date
(adjusted for the Company's May 27, 1998 6 for 1 reverse stock split). 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 then 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
14
<PAGE>
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 then current cash flow
concerns limiting the amounts available to pay individuals as compensation, the
Board determined that it was 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, 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 had continued to work hard
for the Company and its Stockholders through what at times had been difficult
circumstances and (iii) to ensure that the directors, officers and other key
employees had 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 $4.68 per share, the
closing bid price of the Common Stock on the SmallCap Market on the date of the
repricing (adjusted for the Company's May 27, 1998 6 for 1 reverse stock split.)
Except for the new exercise prices, the terms of the repriced stock options
remain the same.
Compensation Committee
Frank M. Devine
Donald C. Klosterman
Francis R. Santangelo
15
<PAGE>
10-YEAR OPTION REPRICINGS
The following table sets forth information regarding options held by the
Named Executive Officers that were repriced by the Company in fiscal year 1998.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET ORIGINAL
SECURITIES PRICE OF OPTION TERM
UNDERLYING STOCK AT EXERCISE NEW REMAINING
OPTIONS TIME OF PRICE AT EXERCISE AT DATE OF
NAME DATE REPRICED REPRICING(1) REPRICING TIME (1) PRICE REPRICING (2)
- ---------------------------- --------- ------------ -------------- -------------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey P. Anthony ......... 3/11/98 12,500 $ 4.68 $ 9.00 $4.68 87
4,167 4.68 6.75 4.68 91
1,667 4.68 13.50 4.68 104
John L. Gustafson .......... 3/11/98 40,000 $ 4.68 $ 6.75 $4.68 90
2,778 4.68 9.00 4.68 104
Clinton C. Fuller .......... 3/11/98 10,000 $ 4.68 $ 10.68 $4.68 88
3,333 4.68 6.75 4.68 104
</TABLE>
- ----------------
(1) The market price and new exercise price set forth above have been adjusted
to reflect the Company's May 27, 1998 6 for 1 reverse stock split.
(2) Length provided in months.
OPTION ACCELERATION
Effective June 16, 1998, due to a "change in control" as defined in the
Plan, all outstanding options granted and outstanding under the Plan became
immediately exercisable to the extent that they were granted at least six
months prior to June 16, 1998. Otherwise the options became exercisable six
months after the grant date. A "change in control" is deemed to have occurred
under the Plan if, among other things, any person is or becomes the beneficial
owner, directly or indirectly, of the Company's securities representing 35% or
more of the combined voting power of the Company's then outstanding securities.
On June 16, 1998, Clearwater Fund III, L.P. ("Clearwater") owned 230,000 shares
of the Company's Series C Preferred Stock, $.01 par value per share (the
"Series C Preferred Stock"), which was convertible into approximately 3,795,400
shares of Common Stock, or approximately 35.4% of the Company's then
outstanding shares based on the average closing price of the Common Stock on
the SmallCap Market for the five trading days ending on June 15, 1998. Such
ownership interest constituted a change in control under the Plan.
On December 17, 1998, due to the occurrence of another "change in
control," any options granted and outstanding under the Plan became immediately
exercisable to the extent that they were granted at least six months prior to
December 17, 1998. Otherwise the options became exercisable six months after
the applicable grant date. On December 17, 1998, RMS Limited Partnership, a
Nevada limited partnership ("RMS"), Francis R. Santangelo and Clearwater
entered into a stock purchase agreement. Under the terms of such stock purchase
agreement, RMS and Mr. Santangelo purchased 195,500 and 34,500 shares,
respectively, of the Series C Preferred Stock from Clearwater. RMS and
16
<PAGE>
Mr. Santangelo converted all of their respective shares of Series C Preferred
Stock into 8,264,138 shares and 1,458,377 shares, respectively, of Common Stock
(representing approximately 49.6% and 8.7% of the then issued and outstanding
shares of Common Stock). The transfer of such securities constituted a change
in control under the Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee presently consists of Messrs. Devine,
Klosterman and Santangelo. During the most recently completed fiscal year, the
Board did not have an option committee. The full Board, based upon
recommendations of the Compensation Committee, 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 Board, based upon recommendations by the Compensation Committee,
may grant stock options, SARs, performance share awards and restricted share
awards based upon competitive industrial practice. To date, the Board has only
granted stock options. The Board 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 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
at the rate of $170,000 per year and granted to him stock options to purchase
66,662 shares of Common Stock at an exercise price of $9.00 per share (each
adjusted to reflect the Company's May 27, 1998 6 for 1 reverse stock split). No
specific formula was used in determining or
17
<PAGE>
agreeing to Mr. Gustafson's compensation. However, the cash portion of his
compensation was determined by the Board as the most the Company could pay Mr.
Gustafson based upon its then cash constraints, and the lowest amount Mr.
Gustafson would accept. The option grant portion of his compensation was
determined with a view of giving him significant upside potential through such
grant, with the vesting thereof 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. On May 19, 1998, Mr. Gustafson resigned from
all of his positions with the Company.
On March 11, 1998, Mr. Anthony was elected Chairman of the Board of the
Company. The Compensation Committee reviewed and considered Mr. Anthony's past
experiences with the Company, his contacts and expertise in the Company's
industry and with its potential customers and suppliers and the increase in
responsibilities he was being asked to undertake. The Compensation Committee
considered the Company's then current cash flow position and its prospects for
raising additional cash. The Compensation Committee, after extensive
negotiations, agreed to pay Mr. Anthony an annual salary of $150,000 when he
became Chairman of the Board. On May 19, 1998, Mr. Anthony was elected Chief
Executive Officer and President of the Company in addition to Chairman of the
Board. At such time, Mr. Anthony, in light of the Company's then current cash
position and need for additional funding, agreed to accept the additional
responsibilities with no increase in cash compensation for 1998. In addition,
on each of July 1, 1998 and December 4, 1998, the Board, on the recommendation
of the Compensation Committee and as a means to create further incentives for
Mr. Anthony, granted Mr. Anthony options to purchase 150,000 shares of Common
Stock at an exercise price of $1.38 and 150,000 shares of Common Stock at an
exercise price of $0.64 (the average of the closing bid and ask of the Common
Stock on the SmallCap Market on the respective date of grant), of which such
options to purchase 50,000 shares were scheduled to become exercisable on each
of the first three anniversaries of the date of each grant.
Compensation Committee
Frank M. Devine
Donald C. Klosterman
Francis R. Santangelo
18
<PAGE>
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, 1993 and ending December 31, 1998.
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.
[PERFORMANCE GRAPH OMITTED]
Notes:
A. Assumes $100 invested on December 31, 1993 in the CRSP Index for the
SmallCap Market, the CRSP Index for Nasdaq Computer and Data Processing Stocks
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.
19
<PAGE>
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), THAT MIGHT
INCORPORATE PAST OF FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR
IN PART, THE REPORT OF THE COMPENSATION COMMITTEE REGARDING EXECUTIVE
COMPENSATION (ENTITLED "COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION") BEGINNING ON PAGE 17 AND THE PERFORMANCE GRAPH ON PAGE 19 SHALL
NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jeffrey P. Anthony, the current Chairman of the Board, Chief Executive
Officer and President of the Company, is the son-in-law of J. Anthony
Forstmann, a director of the Company and former Chairman of the Board.
Jed B. Trosper, a director of the Company who resigned from the Board
effective March 11, 1998, 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 HSN Stock Purchase Agreement. Following Mr. Trosper's resignation from
the Board, HSN nominated Robert Rosenblatt to serve as a member of the Board.
On June 3, 1996, the Company hired Ms. Donna Gustafson, wife of John
Gustafson (the then Chief Executive Officer, 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 4,167 shares of Common Stock at an exercise price
of $13.50 per share. On November 18, 1996, the Company granted Ms. Gustafson
options to purchase 2,500 shares of Common Stock at an exercise price of $6.75
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. Such options have now expired unexercised.
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. APPROVAL OF CHANGE IN
AUTHORIZED COMMON STOCK
The Board has authorized, subject to Stockholder approval which it is
hereby soliciting, an amendment to the Certificate to increase the number of
authorized shares of Common Stock from the present amount of 25,000,000 shares
to 50,000,000 shares. The text of such amendment to the Certificate (the
"Certificate Amendment") is substantially set forth in Exhibit "A" attached to
this Proxy Statement and incorporated herein by this reference. The text of the
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 Certificate Amendment is approved by the necessary vote of the
Stockholders, upon filing of the Certificate Amendment with the Secretary of
State, the number of shares
20
<PAGE>
of Common Stock authorized by the Certificate will be 50,000,000 shares of
Common Stock (increased from 25,000,000 shares). The Board may make any and all
changes to the Certificate Amendment that it deems necessary in order to give
effect to the increase in the authorized shares of Common Stock of the Company.
At the close of business on March 26, 1999, 16,771,480 shares of Common
Stock were issued and outstanding, and an aggregate of 4,021,576 shares of
Common Stock were reserved for various purposes, including 2,188,030 shares for
issuance under the Plan, 465,833 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, 311,687 shares for issuance
upon the exercise of outstanding warrants of the Company and 1,056,026 shares
for issuance upon conversion of the Company's Series A Convertible Preferred
Stock.
Current Stockholders hold approximately 67% of the currently authorized
Common Stock. Assuming the approval of the Certificate Amendment, current
Stockholders will hold approximately 33.5% of the amended authorized Common
Stock after giving effect to such amendment.
PURPOSE AND REASONS FOR THE CERTIFICATE AMENDMENT
If the Certificate Amendment is approved by the Stockholders at the Annual
Meeting, 25,000,000 more shares of authorized Common Stock will be available
for future issuance. As of March 26, 1999, the Company has 16,771,480 shares of
Common Stock issued and outstanding, and 4,021,576 shares of unissued Common
Stock reserved for future issuance for various purposes. If the Certificate
Amendment is not approved by the Stockholders at the Annual Meeting,
approximately 4,206,944 shares of new Common Stock will be unreserved and
otherwise available for issuance. Such amount of shares is more than necessary
to issue old share currently required to be issued by the Company upon exercise
or revision of old currently outstanding securities. However, such amount of
shares is less than the Board believes is prudent to have available to maintain
flexibility for possible future issuances. Accordingly, if the Stockholders
approve the Certificate Amendment, the proportion of unreserved authorized
shares of Common Stock to issued and reserved shares of Common Stock will be
increased.
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 future issuances. The timing of any actual
future issuances 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
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commitments for the issuance of Common Stock other than the 4,021,576 shares of
unissued shares of Common Stock reserved for issuances upon exercise, if any,
of presently issued or authorized options and warrants and upon the conversion,
if any, of presently outstanding Series A 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 approval of the Certificate Amendment 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 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 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 Stockholders
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 Certificate Amendment will not
affect the terms, or the rights of the holders, of such shares issued and
outstanding. Any additional issuance of 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 Certificate
Amendment.
PROPOSAL 3. 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, 1999.
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 &
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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 2000 Annual Meeting of Stockholders, Stockholder proposals must be received
by the Secretary of the Company at its executive offices by December 7, 1999.
Any stockholder proposals received after such date will be considered untimely
and may be excluded from the proxy statement and form of proxy. Proxies
received in respect of Common Stock to be voted at the 2000 Annual Meeting will
be voted in accordance with the best judgment of the persons appointed by such
proxies with respect to any matters properly before such meeting submitted by
Stockholders after February 21, 2000.
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 of Directors
/s/ JAMES W. SHEPPERD
---------------------------------------
James W. Shepperd
CHIEF FINANCIAL OFFICER AND SECRETARY
TAMPA, FLORIDA
APRIL 6, 1999
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EXHIBIT A
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 "26,000,000 shares" with "51,000,000 shares" and the reference
to "25,000,000 shares of Common Stock" with "50,000,000 shares of Common
Stock."
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PROXY Attachment A
THE NATIONAL REGISTRY INC.
ANNUAL MEETING OF STOCKHOLDERS--MAY 11, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE NATIONAL REGISTRY INC.
The undersigned hereby appoints Jeffrey P. Anthony and James W. Shepperd,
each of them with full power of substitution, as proxies and with all powers the
undersigned would possess if personally present, to vote all of the shares of
common stock, $.01 par value per share (the "Common Stock"), of The National
Registry Inc. (the "Company") that the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Company to be held at 10:00 a.m., local
time on Tuesday, May 11, 1999, and any adjournments or postponements thereof, at
the Tampa Bay Convention Center, 333 South Franklin Street, Meeting Room 9,
Tampa, Florida 33602, as directed herein upon the matters set forth below and on
the reverse side hereof and described in the accompanying Notice of Annual
Meeting of Stockholders and Proxy Statement and upon such other matters as may
properly be brought before such meeting according to their sole discretion.
Receipt of the Notice of Annual Meeting, the Proxy Statement and the
Company's 1998 Annual Report to Stockholders, including its Annual Report on
Form 10-K, is hereby acknowledged.
THE BOARD OF DIRECTORS OF THE NATIONAL REGISTRY INC. RECOMMENDS A VOTE FOR
PROPOSALS 1, 2 AND 3, EACH OF WHICH WAS PROPOSED BY THE BOARD OF DIRECTORS OF
THE NATIONAL REGISTRY INC.
(1) Election of Eight Directors for a one-year term:
VOTE FOR WITHHOLD (TO WITHHOLD AUTHORITY TO
all listed Nominees AUTHORITY VOTE FOR ANY INDIVIDUAL NOMINEE,
except as indicated to vote for all WRITE THAT NOMINEE'S NAME
below nominees ON THE LINE BELOW.)
[ ] [ ]
Nominees: Hector J. Alcalde, Jeffrey P. Anthony, Frank M. Devine, J. Anthony
Forstmann, O. G. Greene, Donald C. Klosterman, Robert Rosenblatt and Francis R.
Santangelo
- --------------------------------------------------------------------------------
(2) Amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of the Common Stock from 25,000,000 shares to
50,000,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(PLEASE MARK, DATE AND SIGN ON THE REVERSE SIDE)
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(3) To ratify appointment of Ernst & Young LLP as independent auditors for the
fiscal year ending December 31, 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREBY BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF ALL OF THE DIRECTORS LISTED IN PROPOSAL
1 AND FOR PROPOSALS 2 AND 3. AS TO ANY OTHER MATTER COMING BEFORE THE
MEETING, EACH OF THE PERSONS AUTHORIZED AS PROXIES HEREWITH IS AUTHORIZED TO
VOTE IN HIS DISCRETION ON SUCH MATTER.
------------------------------------------
Signature
------------------------------------------
Date
------------------------------------------
Signature
------------------------------------------
Date
Please date this card and sign your name exactly as it appears on this Proxy. If
the Common Stock represented by this Proxy is registered in the names of two or
more persons, each should sign this proxy. Persons signing in a representative
or fiduciary capacity and corporate officers should add their full titles as
such.
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY.
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