<PAGE> 1
SCHEDULE 14A--INFORMATION REQUIRED IN PROXY STATEMENT
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
[ ] Confidential, 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 Section 240.14a-11(c) or Section
240.14a-12
INFORMATION RESOURCE ENGINEERING, INC.
(Name of Registrant as Specified in its Charter)
------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than 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> 2
INFORMATION RESOURCE ENGINEERING, INC.
8029 CORPORATE DRIVE
BALTIMORE, MARYLAND 21236
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 28, 1999 AT 10:30 A.M.
TO THE SHAREHOLDERS OF INFORMATION RESOURCE ENGINEERING, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
INFORMATION RESOURCE ENGINEERING, INC. (the "Company") will be held at the
Company's offices located at 8029 Corporate Drive, Baltimore, Maryland 21236 at
10:30 a.m. on July 28, 1999 for the following purposes:
1. To approve an amendment to the Restated Certificate of Incorporation
to create a staggered Board of Directors;
2. To approve an amendment to the Restated Certificate of Incorporation
to require that shareholder action to be taken at a meeting;
3. To approve an amendment to the Restated Certificate of Incorporation
to require a supermajority vote for amendment or repeal of the
Company's By-Laws or certain provisions of the Restated
Certificate of Incorporation;
4. To elect six (6) directors, each to hold office until their respective
successors shall have been duly elected or appointed;
5. To approve the Company's 1999 Employee Stock Option Plan;
6. To approve the Company's 1999 Stock Bonus Plan;
7. To approve the Company's Non-Employee Director Stock Option Pan; and
8. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Company's Common Stock, $.01 par value (the "Common Stock") is the
only issued and outstanding class of stock. Only shareholders of record at the
close of business on May 28, 1999 are entitled to notice and to vote at the
meeting or any adjournment thereof. All shareholders are cordially invited to
attend the meeting. Whether or not you expect to attend the meeting, please
fill in, date and sign the accompanying proxy and mail it promptly in the
enclosed envelope. If you decide to attend the meeting and vote in person, you
may then withdraw your proxy.
Enclosed is a copy of the Annual Report on Form 10-K for the year
ended December 31, 1998 along with a proxy statement and a proxy card.
By Order of the Board of Directors,
David A. Skalitzky
Secretary
April 30, 1999
Baltimore, Maryland
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INFORMATION RESOURCE ENGINEERING, INC.
8029 CORPORATE DRIVE
BALTIMORE, MARYLAND 21236
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 28, 1999
SOLICITATION AND REVOCATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies by the management of INFORMATION RESOURCE ENGINEERING, INC. (the
"Company"), a Delaware corporation, for use at the Annual Meeting of
Shareholders to be held on July 28, 1999 and at any postponements or
adjournments thereof. This material is first being mailed to shareholders on or
about June 4, 1999.
The Company's Common Stock, $.01 par value, is the only issued and
outstanding class of stock. Only shareholders of record at the close of
business on May 28, 1999 will be entitled to notice of and to vote at the
meeting. At the close of business on April 29, 1999, the Company had 5,367,058
shares of Common Stock outstanding.
The cost of such solicitation will be borne by the Company. The
Company may also agree to pay banks, brokers, nominees and other fiduciaries
their reasonable charges and expenses incurred in forwarding the proxy material
to beneficial owners of the Company's Common Stock.
Shareholders are entitled to one vote for each share held. Any proxy
given may be revoked by a shareholder at any time before it is voted by filing
a written revocation notice with the Secretary of the Company or by duly
executing a proxy bearing a latter date. A proxy may also be revoked by any
shareholder present at the meeting who desires to vote his or her shares in
person.
Subject to any revocations, all shares represented by properly
executed proxies will be voted in accordance with the directions on the proxy.
If no direction is made, the proxy will be voted "FOR" all proposals contained
herein. Proxies marked "abstain" will be treated as present and entitled to
vote for the purpose of determining a quorum, a majority of the shares entitled
to be voted, is present, but will not be voted with respect to any proposal
marked "abstain". If a proxy returned by a bank, broker, nominee or other
fiduciary indicates that they do not have discretionary authority to vote some
or all of the shares covered thereby with respect to a given proposal and do
not otherwise authorize the voting of such shares, such shares, or "non-votes",
will be considered to be present. Under applicable Delaware law, in determining
whether a proposal has received the requisite number of affirmative votes,
abstentions and non-votes will be counted and will have the same effect as a
vote against that proposal.
INTRODUCTION TO PROPOSALS 1,2 AND 3
The Board of Directors has observed that certain tactics, including
proxy fights, hostile tender offers and "greenmail" have become relatively
common in modern takeover practice, particularly with undervalued technology
companies. Such tactics frequently represent an attempt to acquire a
corporation in the marketplace at an unfairly low price. In connection with
last year's annual meeting, the Company was the subject of a proxy contest.
Although, present management prevailed in the contest, the process was both
expensive, time consuming, disruptive and contrary to the overall best
interests of the Company's shareholders. Proposals 1, 2 and 3 (the
"Amendments"), proposed amendments to the Company's Certificate of
Incorporation (the "Certificate of Incorporation"), are being submitted for
shareholder approval in light of these factors.
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The Amendments are intended to encourage persons seeking to acquire
control of the Company to initiate such efforts through good faith negotiations
with the Company's Board of Directors. The Board of Directors believes that the
Amendments will help provide the Board of Directors the time necessary to
evaluate unsolicited offers, as well as appropriate alternatives, in a manner
which assures fair treatment of the Company's shareholders. The Amendments are
also intended to increase the bargaining leverage of the Board of Directors, on
behalf of the Company's shareholders, in any negotiations concerning a
potential change in control of the Company. The Amendments will, however, make
more difficult or discourage a proxy contest or the assumption of control by a
substantial shareholder and thus could increase the likelihood that incumbent
directors will retain their positions. The Amendments, if they are adopted,
could also have the effect of discouraging a third party from making a tender
offer or otherwise attempting to obtain control of the Company even though such
attempt might be beneficial to the Company's shareholders.
Existing Defenses
The Company's current Certificate of Incorporation does not contain
provisions intended by the Company to have, or to the knowledge of the Board of
Directors having, an anti-takeover effect. However, the Certificate of
Incorporation currently authorizes the issuance of 15,000,000 shares of Common
Stock and 500,000 shares of Preferred Stock, not all of which have been issued
or reserved. This authorized and available Preferred Stock and Common Stock
could (within the limits imposed by applicable law and the rules of the Nasdaq
National Market System) be issued by the Company and used to discourage a
change in control of the Company. For example, the Company could privately
place shares with purchasers who might side with the Board of Directors in
opposing a hostile takeover bid. Shares of Common or Preferred Stock could also
be issued to a shareholder that would thereafter have sufficient voting power
to assure that any proposal to amend or repeal the By-Laws or certain
provisions of the Certificate of Incorporation would not receive the two-thirds
vote required by Proposal No. 3 (see "Proposal No. 3: Supermajority Vote
Required for Amendment or Repeal of the Company's By-Laws or Certain Provisions
of the Restated Certificate of Incorporation").
The Board of Directors recently adopted certain By-Law amendments,
which may have anti-takeover potential. Those amendments (i) allow amendments
to the By-Laws to be effectuated by the Board of Directors without any action
by the shareholders in accordance with the Company's current Certificate of
Incorporation; (ii) impose advance notice requirements for shareholder
nominations to the Board of Directors, and (iii) require that nominating
shareholders give information comparable to that which would be required of the
Company under applicable federal proxy regulations. These By-Law amendments
could allow the Company to delay undesirable shareholder action in order to
give the Company time and information with which to respond.
The Amendments described in Proposals 1, 2 and 3 are contained within
the Restated Certificate of Incorporation set forth in Exhibit A to this Proxy
Statement, in substantially the form in which they will take effect if the
Amendments are approved by the shareholders. The following description of the
Amendments is qualified in its entirety by reference to Exhibit "A". In
addition, if the Amendments are approved by the shareholders, certain
conforming amendments will be made to the By-Laws of the Company, in
substantially the form attached as Exhibit "B".
PROPOSAL NO. 1
TO APPROVE AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO CREATE A STAGGERED BOARD OF DIRECTORS
The Board of Directors has unanimously approved, and recommends that
the shareholders approve, the proposal to amend Article VI of the Restated
Certificate of Incorporation to provide for a Board of Directors of three
classes, each class as nearly equal as possible, serving staggered terms of
three years, after expiration of an initial term which for two classes will be
less than three years, with one class being elected each year. Assuming
shareholder approval of this proposal, the terms of the nominees for election
to the Board of Directors would be staggered as recommended in Proposal No.4,
and the shareholders would vote for the nominees for the terms set forth in
Proposal No.4.
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In order to establish three staggered classes after approval of this
proposal, certain of the directors elected at the annual meeting would serve
initial terms of less than three years: the term of two directors (Class I)
would terminate at the annual meeting of shareholders to be held during 2000,
the term of two directors (Class II) would terminate at the annual meeting of
shareholders to be held during 2001 and the term of two directors (Class III)
would terminate at the annual meeting of shareholders to be held during 2002.
See "Election of Directors" (Proposal No. 4) as to the composition of each
class of directors if this proposal is adopted.
There is no cumulative voting in the election of directors; therefore,
a plurality of the votes cast at a meeting for directors of a class would elect
all the directors of that class. The provision for staggered terms will apply
to every election of directors, whether or not a change in a majority of the
Board of Directors arguably might be beneficial to the Company and its
shareholders and whether or not shareholders holding a majority of the then
outstanding shares of Common Stock believe that such a change might be
desirable. In the event of a vacancy in any of the classes, the Board of
Directors may fill the vacancy until the next annual meeting of shareholders.
The staggered terms of the Board of Directors will have the effect of
making it more difficult to change the overall composition of the Board of
Directors. At least two shareholders' meeting will be required for shareholders
to effect a change in a majority of the Board of Directors. Currently, by
operation of the Delaware General Corporation Law and the Certificate of
Incorporation of the Company, as it is currently in effect, only one meeting of
shareholders would be required to effect a change in the majority of the Board
of Directors.
Under Delaware law, directors chosen to fill vacancies on a classified
board shall hold office until the next election of the class for which such
directors shall have been chosen, and until their successors are elected and
qualified. Delaware law also provides that, unless the certificate of
incorporation provides otherwise, directors on a classified board may be
removed only for cause. The Company's proposed Restated Certificate of
Incorporation does not provide otherwise. Accordingly, if the classified board
proposal is approved by the shareholders, conforming By-Law provisions,
substantially in the form attached as Exhibit B to this Proxy Statement, will
be implemented. Presently, all directors of the Company are elected annually
and all of the directors may be removed, with or without cause, by a majority
vote of the outstanding shares of Common Stock.
The Board of Directors believes that the longer time required to elect
a majority of a staggered Board of Directors will help assure continuity and
stability in the management of the business and affairs of the Company in the
future, because a majority of the Board of Directors at any given time will
have prior experience as directors of the Company. A staggered Board of
Directors may also provide additional time to review any proposal for a
business combination, corporate restructuring, or other significant
transactions and the alternatives to such transactions. Accordingly, there
would be a greater opportunity to assure that the interests of the shareholders
of the Company are protected to the maximum extent possible.
Because of the additional time required to change control of the Board
of Directors, the classified board proposal will tend to perpetuate present
management. Without the ability to obtain immediate control of the Board of
Directors, a takeover bidder will not be able to take action to remove other
impediments to its acquisition of the Company and this may tend to discourage
certain tender offers, perhaps including some tender offers that some
shareholders may feel would be in their best interests.
VOTE REQUIRED.
Assuming a quorum consisting of a majority of all of the outstanding
shares of Common Stock is present, in person or by proxy, at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares
outstanding and entitled to vote, in person or by proxy, at the Annual Meeting,
is required to approve the amendment to the Restated Certificate of
Incorporation. If you abstain or if you hold your shares in "street name" and
fail to sign, date and return the enclosed proxy card, it will have the same
effect as a vote against this proposal.
The proposed amendment will become effective upon the filing of a
Certificate of Amendment with the Secretary of State of the State of Delaware.
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If the shareholders of the Company fail to approve this proposal, the
current provisions of the Certificate of Incorporation and the Delaware General
Corporation Law will continue to govern.
THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO VOTE "FOR" THE APPROVAL
OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO CREATE A STAGGERED BOARD OF DIRECTORS.
PROPOSAL NO. 2
TO APPROVE AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO REQUIRE THAT SHAREHOLDER ACTION BE TAKEN AT A MEETING
The Company's Board of Directors has unanimously approved and
recommends that the shareholders approve an amendment to Article VI to the
Restated Certificate of Incorporation which would require that all shareholder
action be taken at a shareholders meeting.
Under Delaware law, unless the certificate of incorporation provides
otherwise, any action required or permitted to be taken by shareholders may be
taken without a meeting and without a shareholder vote if a written consent
setting forth the action to be taken is signed by shareholders having the
requisite voting power necessary to authorize such action at a shareholders
meeting. The Company's Certificate of Incorporation currently does not provide
otherwise. Proposed Article VI of the Restated Certificate of Incorporation
would require all shareholder action to be taken at an annual meeting or
special meeting of the shareholders, and would prohibit shareholder action by
written consent. Under the Company's By-Laws, a shareholders meeting may be
called only by the Chairman of the Board of Directors, the Chief Executive
Officer or a minority of the Company's directors. Thus, this amendment would
permit the Board of Directors to delay, until the next annual shareholders
meeting, action favored by the holders of a majority of the outstanding stock.
However, in the case of a publicly held corporation with numerous shareholders,
such as the Company, action without a shareholders meeting would, as a
practical matter, be available to only a limited number of shareholders acting
in concert, and not to the Company's shareholders in general. The Board of
Directors believes that a publicly owned corporation should afford all of its
shareholders an opportunity to participate in a meeting where shareholder
action is proposed to be taken.
The provisions eliminating shareholder action by written consent would
give all of the Company's shareholders the opportunity to participate in a
proposed shareholder action. The Board of Directors also believes that
eliminating the written consent procedure would prevent sudden shareholder
action to remove the entire Board of Directors and would thereby preserve the
Board of Directors ability to negotiate with a potential takeover bidder on
behalf of the Company's shareholders.
The provisions eliminating shareholder action by written consent would
preclude action by written consent of the shareholders even if a majority of
the shareholders believed such action to be in their best interests.
VOTE REQUIRED.
Assuming a quorum consisting of a majority of all of the outstanding
shares of Common Stock is present, in person or by proxy, at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares
outstanding and entitled to vote, in person or by proxy, at the Annual Meeting,
is required to approve the amendment to the Restated Certificate of
Incorporation to require that shareholder action be taken at a meeting. If you
abstain or if you hold your shares in "street name" and fail to sign, date and
return the enclosed proxy card, it will have the same effect as a vote against
this proposal.
The proposed amendment will become effective upon the filing of a
Certificate of Amendment with the Secretary of State of the State of Delaware.
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If the shareholders of the Company fail to approve this proposal, the
current provisions of the Certificate of Incorporation and the Delaware General
Corporation Law will continue to govern.
THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO VOTE "FOR" THE APPROVAL
OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO REQUIRE
THAT SHAREHOLDER ACTION BE TAKEN AT A MEETING.
PROPOSAL NO. 3
TO APPROVE AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
TO REQUIRE A SUPERMAJORITY VOTE FOR AMENDMENT OR REPEAL
OF THE COMPANY'S BY-LAWS OR CERTAIN PROVISIONS OF THE RESTATED
CERTIFICATE OF INCORPORATION (ARTICLES V, VI AND VIII)
The Company's Board of Directors has unanimously approved and
recommended that the shareholders approve an amendment to Article V and the
addition of a new Article VIII to the Restated Certificate of Incorporation
which would require a two-thirds vote of the Board of Directors to amend or
repeal the By-Laws of the Company and require a two-thirds shareholder vote to
amend or repeal the By-Laws or certain provisions of the Restated Certificate
of Incorporation, as described more fully below.
Currently, the Certificate of Incorporation may be amended or repealed
by the vote of shareholders holding a majority of the voting power of the
Company. As permitted by Delaware law, this proposal would require the
affirmative vote of the holders of at least two-thirds of the voting power of
all of the then-outstanding shares of stock entitled to vote generally for the
election of directors, voting together as a single class, for the amendment or
repeal of any of the provisions of the Certificate of Incorporation implemented
by Proposals 1, 2 and 3. The two-thirds supermajority vote requirement would
also apply to any amendment or repeal of Article VI of the Restated Certificate
of Incorporation. Article VI provides for mandatory indemnification by the
Company of certain parties, including the Company's directors and officers, to
the fullest extent permitted by law, and also provides that, with certain
exceptions, the directors of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for the breach of their
fiduciary duty as directors.
Currently, the Company's By-Laws may be amended or repealed and new
By-Laws adopted by the Board of Directors or by a majority of the Company's
shareholders entitled to vote on such matters. This proposal would require
amendments to the Company's By-Laws to be approved by either the affirmative
vote of the holders of two-thirds of the voting power of all of the
then-outstanding shares of stock entitled to vote generally for the election of
directors or, if such amendments are to be made by the Board of Directors, by
the vote of not less than two-thirds of the Board of Directors.
The requirements of this proposal will prevent a shareholder with a
majority of the voting power of the Company from avoiding the requirements of
the By-Laws or the protected provisions of the Restated Certificate of
Incorporation by simply repealing them or by causing a majority of the Board of
Directors to do so. The supermajority protection given to the indemnification
and director liability provisions of the Restated Certificate of Incorporation
will help insure that the Company's agents are adequately protected against
liability in the event of a proposed takeover, thereby allowing them to focus
on the best interests of the Company and its shareholders.
This requirement could give shareholders holding a significant
minority of the Company's stock a veto power over changes to the Company's
By-Laws and certain changes to the Restated Certificate of Incorporation even
if the Board of Directors (in the case of amendments to the Restated
Certificate of Incorporation) or a majority of the shareholders favor such
changes.
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VOTE REQUIRED.
Assuming a quorum consisting of a majority of all of the outstanding
shares of Common Stock is present, in person or by proxy, at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares
outstanding and entitled to vote, in person or by proxy, at the Annual Meeting,
is required to approve the amendment to the Restated Certificate of
Incorporation to require a supermajority vote for amendment or repeal of the
Company's By-Laws or certain provisions of the Restated Certificate of
Incorporation. If you abstain or if you hold your shares in "street name" and
fail to sign, date and return the enclosed proxy card, it will have the same
effect as a vote against this proposal.
The proposed amendment will become effective upon the filing of a
Certificate of Amendment with the Secretary of State of the State of Delaware.
If the shareholders of the Company fail to approve this proposal, the
current provisions of the Certificate of Incorporation and the Delaware General
Corporation Law will continue to govern. As described above, if this proposal
is approved, the affirmative vote of the holders of at least two-thirds of the
voting power of all of the then-outstanding shares of stock entitled to vote
generally for the election of directors, voting as a single class, will be
required to amend or repeal any of the provisions described above.
THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO VOTE
"FOR" THE APPROVAL OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION TO REQUIRE A SUPERMAJORITY VOTE FOR AMENDMENT OR REPEAL
OF THE COMPANY'S BY-LAWS OR CERTAIN PROVISIONS OF THE RESTATED
CERTIFICATE OF INCORPORATION
PROPOSAL NO. 4
ELECTION OF DIRECTORS
The Company's Board of Directors is comprised of six directors. If the
proposed amendment to the Company's Restated Certificate of Incorporation
providing for a staggered Board of Directors divided into three classes, as
described under Proposal No. 1 above, is adopted, two directors each will be
elected for a term expiring at the annual meeting of shareholders to be held
during 2000 (Class I), 2001 (Class II) and 2002 (Class III). Messrs. Kozlay and
Brooks, currently directors of the Company, have been nominated by the Board of
Directors to serve as directors in Class I; Mr. Thaw, currently a director of
the Company and Dr. Harrison, a new nominee to the Company's Board of
Directors, have been nominated by the Board of Directors to serve as a director
in Class II; and Messrs. Caputo and Hunt, currently directors of the Company,
have been nominated by the Board of Directors to serve as directors in Class
III. Upon the expiration of the initial terms of the directors in each class,
their successors will be elected for terms of three years.
Management has no reason to believe that any of the nominees will not
be a candidate or will be unable to serve. However, in the event that any of
the nominees should become unable or unwilling to serve as a director, the
proxy will be voted for the election of such person or persons as shall be
designated by the Board of Directors.
The following information is submitted concerning the nominees for
election as directors based upon information received by the Company from such
persons:
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<TABLE>
<CAPTION>
Nominee Age Office Director Since
------- --- ------ --------------
<S> <C> <C> <C>
Anthony A. Caputo 57 Chairman, Chief Executive Officer 1986
and President
Thomas A. Brooks 62 Director 1998
Shelley A.Harrison 56 Director --
Ira A. Hunt, Jr. 74 Director 1990
Douglas E. Kozlay 59 Director 1983
Bruce R. Thaw 46 Director 1990
</TABLE>
Anthony A. Caputo, the Chairman, Chief Executive Officer and President
of the Company, invested in the Company in 1986, and became a director in
November 1986. In 1982, Mr. Caputo founded another computer security firm, TACT
Technology, as a division of a public company, and after securing outside
funding through a $3.0 million limited partnership in 1984, managed TACT as a
separate company. Mr. Caputo resigned from TACT Technology in November 1986 to
join the Company. Mr. Caputo has over 20 years' experience in the computer
industry, in marketing and management capacities. In June 1993, Mr. Caputo was
named Maryland's High Tech Entrepreneur of the Year, an annual award sponsored
by organizations including Inc. Magazine, Ernst and Young LLP and Merrill
Lynch. He has served as an officer of several publicly traded companies
including International Mobile Machines, Inc., Comshare, Inc. and Value
Software, now part of Computer Associates, Inc.
Thomas A. Brooks has been a director of the Company since July 1998.
He held various executive positions with AT&T from 1991 through 1998. In 1992
he was appointed Director of the Special Accounts Business Unit of Federal
Systems Advanced Technologies ("FSAT"). In 1993 he became acting Vice
President, Information Systems within FSAT. In January 1994 he became Senior
Vice President, AT&T Paradyne, and General Manager of AT&T Secure Products
Business Unit. In January 1996 he was appointed Vice President of AT&T
Government Markets and President of AT&T Technical Services Company. He served
32 years as an U.S. Navy Intelligence officer, retiring from active military
service as a Rear Admiral and Director of Naval Intelligence in 1991. He is a
member of the Federal Government Joint Security Commission. In 1995, President
Clinton appointed him as one of three members of the Security Policy Advisory
Board. From 1995 to 1997 he was also a member of the Defense Policy Board. He
also serves on advisory boards for the Defense Intelligence Agency and the
Office of Naval Intelligence. Mr. Brooks is a graduate of Fordham University,
with a Master's degree from Fairleigh Dickenson University. He has done post
Master's studies at George Washington University and the University of
California and has published several articles in various publications. He
serves on the Board of Directors of Navy Mutual Aid Association and several
Intelligence professional associations.
Shelley A. Harrison has been a Director of SPACEHAB, Inc. (provider of
space-based support services) since 1987, Chairman since 1993 and Chief
Executive Officer since April 1996. He is also a founder and Managing General
Partner since 1987 of PolyVentures I & II, high-technology venture capital
funds. Prior to that he co-founed and served as Chairman and Chief Executive
Officer of Symbol Technologies, Inc. (provider of bar-code laser scanners and
portable terminals) from 1973 to 1982. He also was a member of the Technical
Staff at Bell Telephone Laboratories and a Professor of Electrical Sciences at
the State University of New York at Stony Brook. Dr. Harrison holds a Doctoral
degree and a Master of Science degree in Electrophysics from Polytechnic
University and a Bachelor's degree in electrical engineering from New York
University. He is a member of numerous honor societies, trade and industry
organizations, a technology advisor to governments, author of books and
technical publications and holder of numerous patents. Dr. Harrison is also a
director of Netmanage, Inc., Asymetrix Learning Systems, Inc., Globecomm
Systems, Inc. as well as several privately held high technology companies.
Ira A. Hunt, Jr. has been a director of the Company since December
1990. Mr. Hunt is a graduate of the U.S. Military Academy, West Point, New
York. He served 33 years in various command and staff positions in the U.S.
Army, retiring from active military service as a Major General in 1978.
Subsequently he was President of Pacific Architects and Engineers in Los
Angeles, California and a Vice President of Frank E. Basil, Inc. in Washington,
D.C. Mr. Hunt has a Master of Science degree in civil engineering from the
Massachusetts Institute of Technology; a Master of Business Administration
degree from the University of Detroit; a Doctor of the University degree from
the University of Grenoble, France; and a Doctor of Business Administration
degree from George Washington University.
Douglas E. Kozlay is the co-founder, and was President of the Company
from 1983 until March 1993. Mr. Kozlay's principal responsibilities include
providing guidance and advice on product architecture to the Chief Executive
Officer and performing engineering functions as required. Mr. Kozlay has been a
director of the Company since its inception. From 1979 to 1982 Mr. Kozlay
served as President of EMAX, Inc., a company which designed and marketed data
acquisition and control systems. Previously, Mr. Kozlay has served as a
manager of a research and development laboratory for the U.S. National Security
Agency and as a design engineer for IBM Corporation. In 1982 Mr. Kozlay was
Director of Industrial Automation for EMC Controls.
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<PAGE> 10
Bruce R. Thaw has been a director of the Company since December 1990.
From 1987 to the present, Mr. Thaw has served as general counsel to the
Company. Mr. Thaw was admitted to the bar of the State of New York in 1978 and
the California State Bar in 1983. Mr. Thaw is also a director of Amtech
Systems, Inc., a publicly traded company engaged in the semiconductor industry,
and Nastech Pharmaceutical Company, Inc., a publicly traded company engaged in
drug delivery technology.
The Company's Board of Directors has established an Audit Committee,
which is comprised of Ira A. Hunt, Jr. and Bruce R. Thaw. The purpose of this
Committee is to review with the Company's independent auditor KPMG LLP, and the
Chief Financial Officer of the Company, the financial controls and practices of
the Company and the plans for and results of the audit engagement.
The Company does not have a nomination or similar committee. The Board
of Directors held seven meetings in 1998. Each director attended at least 75%
of the aggregate number of meetings of the Board and any committee of which
they served during the year.
If Proposal No. 1 is not approved by the shareholders, all nominees
elected as directors will hold office until the next annual meeting of
shareholders or until their successors are duly elected and qualified.
UNLESS AUTHORITY IS WITHHELD, THE PROXIES WILL BE VOTED "FOR" THE ELECTION
OF THE SIX NOMINESS NAMED ABOVE AS DIRECTORS.
PROXIES CANNOT BE VOTED FOR A GREATER NUMBER OF PERSONS THAN THE NUMBER
OF NOMINEES NAMED IN THE PROXY STATEMENT.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN OTHER BENEFICIAL OWNERS
The following table sets forth as of April 29, 1999 (unless otherwise
specified) certain information as to persons known to the Company to be
beneficial owners of more than five percent of the outstanding shares of the
Company's Common Stock, by each director, by the nominee for director, by each
of the executive officers named in the Summary Compensation Table and by all
executive officers and directors of the Company as a group.
9
<PAGE> 11
<TABLE>
<CAPTION>
Number of shares
Name (and Address of 5% owners) Beneficially owned (1) Percent
- ------------------------------- ---------------------- -------
<S> <C> <C>
Anthony A. Caputo (2) 614,600 11.5%
8029 Corporate Drive
Baltimore, MD 21236
William E. Simon (3) 282,933 5.3%
P.O. Box 1913
Morristown, NJ 07962
Bruce R. Thaw (2) 255,000 4.8%
Douglas E. Kozlay (2) 115,300 2.2%
Ira A. Hunt, Jr. (2) 47,000 (4)
Dubhe Beinhorn (2) 23,366 (4)
Michael M. Kaplan (2) 20,000 (4)
Thomas A. Brooks (2) 13,000 (4)
Sean R. Price (2) 11,666 (4)
Philip S. Saunders (2) 6,000 (4)
Shelley A. Harrison -- --
All Executive Officers and Directors 1,220,551 22.8%
as a Group (13 persons) (2)
</TABLE>
- -------------------------
(1) Unless otherwise noted, the Company believes that all persons named in
the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed
to be the beneficial owner of securities that can be acquired by such
person within 60 days from the date hereof upon the exercise of
warrants or options. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants held by such person
(but not those held by any other person) and which are execrable
within 60 days have been exercised.
(2) Includes shares issuable pursuant to outstanding stock options that
may be exercised within 60 days as follows: 20,000 shares for Mr.
Caputo; 35,000 shares for Mr. Thaw; 8,000 shares for Mr. Kozlay;
35,000 shares for Mr. Hunt; 23,366 shares for Ms Beinhorn; 20,000
shares for Mr. Kaplan; 10,000 shares for Mr. Brooks; 11,666 shares for
Mr. Price; 6,000 shares for Mr. Saunders; and 214,551 shares for all
officers and directors as a group.
(3) Based on information reported on a Schedule 13G dated November 12,
1998 filed with the Securities and Exchange Commission.
(4) Represents less than 1% of the outstanding shares of Common Stock.
Section 16 of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Based solely
on a review of the copies of such reports furnished to the Company and written
representations from the executive officers and directors, the Company is
unaware of any instances of noncompliance or late compliance with such filings
during the fiscal year ended December 31, 1998 by its executive officers and
directors except for a late filing by Jill Leukhardt, a Senior Vice President,
for the purchase of 500 shares of Common Stock.
10
<PAGE> 12
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three fiscal
years to (1) the Company's Chief Executive Officer and (2) the other four most
highly compensated executive officers of the Company whose aggregate cash
compensation in fiscal year 1998 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------------------------------------------
Other Annual
Name and Principal Salary Bonus Compensation Options
Position Year ($) ($) ($) (1) (Shares)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Anthony A. Caputo, 1998 275,000 110,000 0 0
Chairman, Chief 1997 250,000 82,500 0 50,000
Executive Officer 1996 225,000 0 0 0
And President
Michael M. Kaplan, 1998 154,750 49,500 0 10,000
Senior Vice President, 1997 150,000 42,500 0 0
Technology(2) 1996 131,827 138,291 0 50,000
Dubhe Beinhorn, 1998 170,846 0 0 0
Vice President, 1997 141,562 50,000 0 10,000
International Sales(3) 1996 17,187 0 0 35,000
Philip S. Saunders 1998 110,608 48,282 0 27,000
Vice President,
Marketing(4)
Sean R. Price 1998 147,513 0 0 10,000
Vice President, North 1997 91,326 0 0 35,000
American Sales (5)
</TABLE>
- ------------------------
(1) Perquisites and other personal benefits to the named executive
officers were less than either $50,000 or 10% of the total annual
Salary and Bonus reported for the named executive officers, and
therefore, information has not been included.
(2) Mr. Kaplan became an employee of the Company in January 1996. The 1996
bonus includes a one-time sign on bonus of $125,000.
(3) Ms. Beinhorn became an employee of the Company in November 1996. The
1997 bonus represents a one-time sign on bonus.
(4) Mr. Saunders was appointed Vice President, Marketing in June 1998.
(5) Mr. Price became an employee of the Company in April 1997.
1989 STOCK OPTION PLAN
Under the Company's 1989 Stock Option Plan (the "Plan") options to
purchase a maximum of 1,496,000 shares of Common Stock of the Company (subject
to adjustment in the event of stock splits, stock dividends, recapitalizations
and other capital adjustments) could be granted to employees, officers and
directors of the Company and other persons who provide services to the company.
The Plan terminated on February 24, 1999. As of April 29, 1999, there are
1,233,319 such options granted and outstanding, 125,031 options have been
exercised
11
<PAGE> 13
and 137,650 options have been cancelled. The options granted under the Plan are
designated as either incentive stock options or nonstatutory stock options by
the Board of Directors, which also has discretion as to the persons to be
granted options, the number of shares subject to the options and terms of the
option agreements. Only employees, including officers and part-time employees
of the Company were granted incentive stock options. These options are intended
to receive incentive stock option tax treatment pursuant to Section 422A of the
Internal Revenue Code of 1986, as amended.
The Plan provided that options granted thereunder shall be exercisable
during a period of no more than ten years (five years in the case of 10%
shareholders) from the date of grant, depending upon the specific stock option
agreement, and that, with respect to incentive stock options, the option
exercise price shall be at least equal to 100% of the fair market value of the
Common Stock at the time of grant (110% in the case of 10% shareholders).
Pursuant to the provisions of the Plan, the aggregate fair market value
(determined on the date of grant) of the Common Stock with respect to which
incentive stock options are exercisable for the first time by an employee
during any calendar year shall not exceed $100,000.
401(k) PENSION PLAN
The Company established a defined contribution pension plan effective
January 1, 1991 (the "Pension Plan") for employees who have completed three
months of service with the Company. The Pension Plan is administered by the
Company and permits pre-tax contributions to the Pension Plan by participants
pursuant to Section 401(k) of the Internal Revenue Code (the "Code") of 3% to
10% of base compensation up to the maximum allowable contribution as determined
by the Code. The Company matches participants' contributions on a discretionary
basis. The Company may also make additional discretionary contributions. To
date, the Company has made no matching contributions to the Pension Plan.
OPTION GRANTS IN LAST FISCAL YEAR (1)
During 1998, the Company granted stock options for 492,950 shares to
sixty-two persons. The following table provides information related to the
number of stock options granted to the named executive officers.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (2)
- -------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Michael M. Kaplan 10,000 2.0 8.563 12/18/05 34,860 81,240
Philip S. Saunders 20,000 4.1 7.000 6/22/05 57,000 132,820
7,000 1.4 8.563 12/18/05 24,402 56,868
Sean R. Price 10,000 2.0 8.563 12/18/05 34,860 81,240
</TABLE>
- -----------------------------
(1) The Company granted no Stock Appreciation Rights in 1998.
(2) The potential realizable value has been calculated in conformity with
Security and Exchange Commission proxy statement disclosure rules and
is not intended to forecast possible future appreciation of the Common
Stock. No gain to the options is possible without stock price
appreciation, which will benefit all shareholders. A zero percent gain
in stock price appreciation will result in zero dollars for the
optionee.
12
<PAGE> 14
On February 4, 1998, in order to stimulate employee efforts in
promoting the growth, efficiency and profitability of the Company, it offered
66 employees who had received stock options during 1996 and 1997, the
opportunity to exchange their options for a new option for the same number of
shares and option term, but with a new vesting schedule and a per share
exercise price of $6.50, the last reported sale price on that date. The offer
was accepted by 58 employees who held options aggregating 235,750 shares at per
share exercise prices ranging from $8.50 to $13.875. The directors and the
executive officers of the Company were not eligible to participate in this
offering.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES (1)
There were no stock options exercised during 1998 by any director or
executive officer of the Company. The following table provides information with
respect to the number and value of stock options held at fiscal year-end by the
named executive officers:
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options at Money Options at
December 31, 1998 (#) December 31, 1998 ($) (2)
------------------------------------ --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -------------------- ---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Anthony A. Caputo 10,000 40,000 10,630 42,520
Michael M. Kaplan 10,000 50,000 0 7,500
Dubhe Beinhorn 26,666 18,334 9,792 4,898
Philip S. Saunders 0 45,000 0 102,144
Sean R. Price 11,666 33,334 13,589 35,221
</TABLE>
- -----------------------------
(1) No Stock Appreciation Rights ("SARs") were exercised by any Company
employee, executive officer or director in 1998, and there are no
outstanding SARs held by any employee, executive officer or director
of the Company.
(2) The value of unexercised stock options at December 31, 1998 is based
on the last reported sale price of $9.313 for the Common Stock as
reported by the Nasdaq National Market on that date.
COMPENSATION OF DIRECTORS
The Company has not paid and does not presently propose to pay cash
compensation to any director for acting in such capacity, except for
reimbursement for reasonable expenses in attending those meetings. On December
23, 1997, the Board of Directors approved the grant of a stock option on
January 2, 1998 for 15,000 shares to each director who was not an employee of
the company (Messrs. Hunt and Thaw). The per share option price was $6.125,
the last reported sales price on the grant date. Mr. Brooks received a stock
option grant on July 29, 1998, the date of his election as a director, for
10,000 shares at a per share price of $7.344, the last reported price on that
date. The options have a three-year term and are fully vested.
On December 18, 1998, the Board of Directors approved the grant of a
stock option on January 4, 1999 for 10,000 shares to each director who was not
an employee of the Company (Messrs. Brooks, Hunt and Thaw). The per share
option price was $9.188, the last reported sale on the grant date. The options
have a three year term and are fully vested. In addition, a director who is not
an employee of the Company will receive an annual stock option grant for a
minimum of 5,000 shares which will be priced at the last reported sale price on
the date of the grant.
13
<PAGE> 15
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
In March 1997, the Company and Mr. Caputo entered into a five-year
employment agreement. Pursuant to the terms of the agreement, Mr. Caputo is to
receive an annual salary of $250,000 adjusted annually based on a review by the
Compensation Committee with a minimum annual increase of ten percent. Mr.
Caputo is also entitled to incentive compensation of up to one-half his base
salary upon attainment of the Company's business objectives as set forth in the
Company's annual business plan. As further compensation, Mr. Caputo was issued
on March 27, 1997, a five year stock option to purchase 50,000 shares of the
Company's Common Stock at a per share price of $8.25 which was 110% of the last
reported sales price on that date. The option vests at 20% per full year of
service.
In November 1986, the Company and Mr. Kozlay entered into a five-year
employment agreement, which was renewable and has been renewed for successive
one-year periods. Mr. Kozlay's current annual compensation pursuant to the
agreement is $115,000.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed of
only directors who are not employees of the Company. The Committee for fiscal
year 1998 consisted of Thomas A. Brooks and Ira A. Hunt, Jr.
The Committee establishes the general compensation policies of the
Company, specific compensation for each executive officer of the Company and
administers the Company's Stock Option Plan. The Company's intent as
administered through the Committee is to make the compensation packages of the
executive officers of the Company sufficient to attract and retain persons of
exceptional quality, and to provide effective incentives to motivate and reward
such executives for achieving the scientific, financial and strategic goals of
the Company essential to the Company's long-term success and to growth in
shareholder value. The Company's typical executive compensation package
consists of three components: (1) base salary; (2) incentive cash bonuses; and
(3) stock options.
Base Compensation
The Committee's approach is to offer executive salaries competitive
with those of other executives in the industry in which the Company operates.
To that end, the Committee evaluates the competitiveness of its base salaries
based upon information drawn from various sources, including published and
proprietary survey data, consultants' reports and the Company's own experience
recruiting and training executives and professionals. The Company's base salary
levels are intended to be consistent with competitive practice and level of
responsibility, with salary increases reflecting competitive trends, the
overall financial performance of the Company and the performance of the
individual executive.
Bonuses
In addition to base salary, executives are eligible to receive
discretionary bonuses, from time to time, upon the achievement of certain
scientific, financial and marketing milestones. In addition, at the beginning
of each year, the Committee and the Company's Chairman and Chief Executive
Officer review each executive's job responsibilities and goals for the upcoming
year. The amount of the bonus and any performance criteria vary with the
position and role of the executive within the Company. In addition, for all
executives, the Committee with the assistance of the Company's Chief Financial
Officer, reviews the Company's actual financial performance against its
internally budgeted performance in determining year-end bonuses, if any.
However, the Committee does not set objective performance targets for employees
other than executive officers.
Stock Option Grants
The Company, from time to time, grants stock options in order to
provide certain executives with a competitive total compensation package and to
reward them for their contribution to the long-term price performance of the
Company's Common Stock. Grants of stock options are designed to align the
executive's
14
<PAGE> 16
interest with that of the shareholders of the Company. In awarding option
grants, the Committee will consider, among other things, the amount of stock
and options presently held by the executive, the executive's past performance
and contributions, and the executive's anticipated future contributions and
responsibilities.
Compensation for the Chief Executive Officer in 1998
The Committee based its compensation recommendations for 1998
primarily upon the operating results for 1997. The Committee approved an annual
salary for Mr. Caputo of $275,000 for 1998 and a bonus plan that could pay up
to a maximum of 50% of that annual salary at the discretion of the Committee.
In determining the total bonus to be paid to Mr. Caputo, quantitative criteria
included business strategy, growth of the Company, development of new products,
productivity improvement, customer satisfaction, financial performance and
change in shareholder value. In making compensation decisions based on the
quantitative criteria set forth above, the Committee believes that the
compensation paid to Mr. Caputo is closely tied to the performance of the
Company. Since the Company made significant progress in achieving its financial
and new product development plans and increased shareholder value, the Company
paid a bonus of $110,000 to Mr. Caputo in 1998.
Summary
The Committee believes that the executive compensation aligns the
interests of Management with that of shareholders and focuses Management's
attention on the long-term successful operation of the Company. Each executive
officer and the directors have received stock options to purchase shares of
Common Stock. In addition, Mr. Caputo is a significant shareholder of the
Company. Consequently, a significant portion of their compensation is at risk
based on the Common Stock price performance and maintenance of value in the
marketplace.
Thomas A. Brooks and Ira A. Hunt, Jr.
ADVISORY BOARD
In January 1997, the Company announced the formation of an advisory
board aimed at assisting the Company in building shareholder value by
facilitating growth. Established as part of an overall strategy to manage and
maintain Company expansion, the advisory board will work as an integral part of
the Company's planning team in conjunction with the Company's executive
officers and directors. The advisory board is chaired by former United States
Treasury Secretary William E. Simon. Other members are Dr. Vinton G. Cerf, MCI
WorldCom, Inc.'s Senior Vice President of Internet Architecture and Daniel L.
Mosley, a partner in the law firm of Cravath, Swaine & Moore. While no member
receives cash compensation for acting in such capacity, the members are
eligible to receive stock options, which are usually priced at the last
reported sale price on date of issue and vest in three equal annual
installments. In 1998, Mr. Simon received an option for 100,000 shares at a
share price of $7.125.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bruce R. Thaw, a director of the Company, serves as general counsel to
the Company and billed the Company $87,150 for legal fees for representing the
Company in connection with legal and regulatory matters in 1998. Mr. Thaw
continues to represent the Company for which he will be paid customary legal
fees.
STOCK PERFORMANCE GRAPH
The graph below compares the total return (change in year-end stock
price plus reinvested dividends) of the Company's Common Stock, the Total
Return Index for the Nasdaq Stock Market (U.S.) and the Nasdaq Computer and
Data Processing Services Stock Index. The graph assumes that $100 was invested
in the Company's Common Stock and in each of the foregoing indices. The graph
also assumes that all dividends were reinvested.
There can be no assurance as to the future trends in the total return
of the Company's Common Stock or of the foregoing indices. The Company does not
make nor does it endorse any predictions as to future stock price performance.
15
<PAGE> 17
<TABLE>
<CAPTION>
Measurement Information Resource Total Return Index for Nasdaq Nasdaq Computer and Data
Period Engineering, Inc. Stock Market (U.S.) Processing Services Stock Index
Year Covered ($) ($) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1993 100.00 100.00 100.00
1994 110.24 97.75 121.44
1995 450.00 138.26 184.92
1996 163.63 170.03 228.24
1997 109.65 208.53 280.39
1998 169.33 293.83 500.58
</TABLE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company's Board of Directors has selected KPMG LLP as independent
public accountants for the Company for the year ending December 31, 1999. KPMG
LLP has served the Company in the capacity of independent public accountants
since the Company's initial public offering in 1989. A representative of KPMG
LLP is expected to be present at the Annual Meeting to respond to appropriate
questions, and will be afforded the opportunity to make a statement if
requested.
PROPOSAL NO. 5
APPROVAL OF THE 1999 EMPLOYEE STOCK OPTION PLAN
The Company's 1999 Employee Stock Option Plan (the "1999 Plan) was
adopted by the Board of Directors on February 12, 1999, subject to shareholder
approval. In adopting the 1999 Plan, the Board recognized that there were no
additional shares available for issuance under the Company's Amended 1989 Stock
Option Plan and that, with the Company's continued growth, the Company required
the ability to grant additional options to new and existing employees. The
1999 Plan is designed to induce persons of outstanding ability and potential to
join and remain with the Company, by encouraging, motivating and enabling
employees to acquire stock ownership in the Company, and by providing the
participating employees with an additional incentive to promote the success of
the Company through the grant of options to purchase shares of the Company's
Common Stock. The maximum aggregate number of shares that may be optioned and
sold under the Plan is 500,000 shares of Common Stock less the number of Shares
issued or issuable under stock bonus awards under the Company's 1999 Stock
Bonus Plan (see Proposal No. 6). As of the date of this Proxy Statement, four
options for an aggregate of 68,000 shares of Common Stock have been granted
under the 1999 Plan. THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO
VOTE "FOR" THE APPROVAL OF THE 1999 PLAN.
Reasons for Approval
Shareholder approval of the 1999 Plan is necessary in order that
incentive stock options granted under the 1999 Plan will qualify for treatment
as such under the Internal Revenue Code of 1986, as amended (the "Code").
Unless shareholder approval is obtained, any options granted under the 1999
Plan will have less value and, consequently, will not provide the incentive to
the recipient intended by the Board. In addition, the grant of stock options
pursuant to a plan which has been approved by shareholders and meets certain
conditions are exempt from the "short-swing profits" liability provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). Section 16(b) provides that upon the purchase and sale (or sale and
purchase) of the Company's Common Stock within any six month period by a
principal officer, director or beneficial owner of more than 10% of the
Company's Common Stock, any "profit" realized by such person is recoverable by
the Company. As a result of the complexities of this rule, optionees may
unwittingly fall within its scope and be forced to disgorge gains to the
Company, thereby frustrating the Company's intent to provide incentive to
officers and employees under the 1999 Plan. Thus, shareholder approval of the
1999 Plan is sought in order to exempt from the liability provisions of Section
16(b) the grant of options to officers and employees who are eligible to
participate in the 1999 Plan. The failure to obtain approval will not effect
the effectiveness of the 1999 Plan. In this case, any shares issued pursuant to
the exercise of an option granted under the 1999 Plan will be unregistered and
the holders of such shares will be required to comply with Rule 144 under the
Securities Act of 1933, as amended.
16
<PAGE> 18
Summary of the 1999 Plan
The following summary of the 1999 Plan does not purport to be
complete, and is subject to and qualified in its entirety by reference to the
text of the 1999 Plan, which is attached hereto as Exhibit "C."
Administration.
The Board of Directors of the Company or a Committee appointed by the
Board of Directors (hereinafter referred to as the "Board") will administer the
1999 Plan. The Board has full authority, subject to the provisions of the 1999
Plan, to award incentive stock options and nonstatutory stock options
("Options").
Subject to the provisions of the 1999 Plan, the Board will determine
in its sole discretion, among other things, the persons to whom from time to
time Options may be granted ("Participants"), the number of shares of Common
Stock (the "Shares") and exercise price under the Options, any restrictions or
limitations on the Options including vesting, exchange, deferral, surrender,
cancellation, acceleration, termination, or forfeiture provisions related to
such Options. The interpretation and construction by the Board of any
provisions of, or the determination of any questions arising under, the 1999
Plan or any rule or regulation established by the Board pursuant to the 1999
Plan, will be final, conclusive and binding on all persons interested in the
1999 Plan.
Shares Subject to the 1999 Plan.
The 1999 Plan authorizes the granting of Options, the exercise of
which would allow up to a maximum of 500,000 Shares to be acquired by the
Participants of the 1999 Plan less the number of Shares issued or issuable
under stock bonus awards under the Company's 1999 Stock Bonus Plan (see
Proposal No. 6). Accordingly, the 1999 Plan and the 1999 Stock Bonus plan
effectively share the same pool of reserved Common Stock. The maximum number of
Shares that may be issued under both plans is 500,000 Shares. In order to
prevent the dilution or enlargement of the rights of the Participants under the
1999 Plan, the number of Shares authorized by the 1999 Plan and the number of
Shares subject to outstanding options are subject to adjustment in the event of
any increase or decrease in the number of shares of outstanding Common Stock
resulting from a stock dividend, stock split, combination of shares, merger,
reorganization, consolidation, recapitalization or other change in the
corporate structure affecting the Company's capital stock. If any Option
granted under the 1999 Plan is forfeited or terminated, the Shares that were
underlying such Option shall again be available for distribution in connection
with Options subsequently granted under the 1999 Plan.
Eligibility.
Subject to the provisions of the 1999 Plan, Options may be granted to
full-time employees of the Company or its subsidiaries and consultants employed
by the Company.
Effective Date and Term of 1999 Plan.
If approved by the Company's shareholders, the 1999 Plan will be
deemed effective on February 12, 1999, the date on which it was adopted by the
Board. The 1999 Plan will terminate ten (10) years after the effective date
subject to earlier termination by the Board. No option may be granted after
February 12, 2009, but Options previously granted may extend beyond such date.
Nature of Options.
The 1999 Plan provides for the grant of options, which may be
nonstatutory options, incentive stock options, or any combination of the
foregoing. In general, options granted under the 1999 Plan are not
transferable and have a term not to exceed ten (10) years from the date of
grant. The per share exercise price of an incentive stock option granted under
the 1999 Plan may not be less than the fair market value of the Common Stock on
the date of grant. Incentive stock options granted to persons who have voting
control over 10% or more of the Company's capital stock are granted at 110% of
the fair market value of the underlying shares on the date of grant and expire
five years after the date of grant.
17
<PAGE> 19
Exercise of Options.
The 1999 Plan provides the Board with the sole discretion to determine
when options granted thereunder will become exercisable. Generally, such
options may be exercised after a period of time specified by the Board at any
time prior to expiration, so long as the optionee remains employed by the
Company, except in the case of death or disability, where special rules apply.
No option granted under the 1999 Plan is transferable by the Participant other
than by will or the laws of descent and distribution, and each option is
exercisable during the lifetime of the optionee only by the optionee.
Agreements.
Options granted under the 1999 Plan will be evidenced by agreements
consistent with the 1999 Plan in such form as the Board may prescribe. Neither
the 1999 Plan nor agreements thereunder confer any right to continued
employment upon any Participant.
Amendments to the 1999 Plan.
The Board may at any time, and from time to time, amend, modify or
terminate any of the provisions of the 1999 Plan, but no amendment,
modification or termination shall be made which would impair the rights of a
Participant under any agreement theretofore entered into pursuant to an Option
grant, without the Participant's consent.
Federal Income Tax Considerations.
The discussion that follows is a summary, based upon current law, of
some of the significant federal income tax considerations relating to awards
under the 1999 Plan. The discussion does not address state, local or foreign
tax consequences.
If the 1999 Plan is approved by the shareholders, a Participant will
not recognize taxable income upon the grant or exercise of an incentive stock
option except under certain circumstances when the exercise price is paid with
already-owned shares of Common Stock that were acquired through the previous
exercise of an incentive stock option. However, upon the exercise of an
incentive stock option, the excess of the fair market value of the Shares
received on the date of exercise over the exercise price of the Shares will be
treated as a tax preference item for purposes of the alternative minimum tax.
In order for the exercise of an incentive stock option to qualify for the
foregoing tax treatment, the Participant generally must be an employee of the
Company from the date the incentive stock option is granted through the date
three months before the date of exercise, except in the case of death or
disability, where special rules apply. Pursuant to the provisions of the 1999
Plan, the aggregate fair market value (determined on the date of grant) of the
Shares with respect to which incentive options are exercisable for the first
time by a Participant during any calendar year can not exceed $100,000. The
Company will not be entitled to any tax deduction with respect to the grant or
exercise of an incentive stock option.
If Shares acquired upon exercise of an incentive stock option are not
disposed of by the Participant within two years from the date of grant or
within one year after the transfer of such Shares to the Participant (the "ISO
Holding Period"), then (i) no amount will be reportable as ordinary income with
respect to such Shares by the Participant or recipient and (ii) the Company
will not be allowed a tax deduction in connection with the Shares acquired
pursuant to the exercise of the incentive stock option. If a sale of such
Shares occurs after the ISO Holding Period has expired, then any amount
recognized in excess of the exercise price will be reportable as a long-term
capital gain, and any amount recognized below the exercise price will be
reportable as a long-term capital loss. The exact amount of income tax payable
on a long-term capital gain will depend upon the income tax rates in effect at
the time of the sale. The ability of a Participant to utilize a long-term
capital loss will depend upon the Participant's other income tax attributes and
the statutory limitations on capital loss deductions. To the extent that
alternative minimum taxable income was recognized on exercise of the incentive
stock option,
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<PAGE> 20
the basis in the Shares acquired may be higher for determining a long-term
capital gain or loss for alternative minimum tax purposes.
A "disqualifying disposition" will result if the Shares acquired upon
the exercise of an incentive stock option (except in the circumstances of a
decedent's incentive stock option as described below) are sold before the ISO
Holding Period has expired. In such case, at the time of a disqualifying
disposition, the Participant will recognize ordinary income in the amount of
the difference between the exercise price and the lesser of (i) the fair market
value on the date of exercise or (ii) the amount realized on disposition. The
Company will be allowed a deduction on its federal income tax return in the
year of the disqualifying disposition equal to the ordinary income recognized
by the Participant. The Participant will report as a short-term capital gain,
as applicable, any amount realized in excess of the fair market value on the
date of exercise. To the extent that alternative minimum taxable income was
recognized on exercise of the incentive stock option, the basis in the Shares
acquired may be higher for determining a short-term capital gain or loss for
alternative minimum tax purposes.
The general rules discussed above are different if the Participant
disposes of the Shares in a disqualifying disposition in which a loss, if
actually sustained, would not be recognized by the Participant. Examples of
these dispositions include gifts or sales to related parties such as members of
the Participant's family and corporations or entities in which the Participant
owns a majority equity interest. In such circumstances, the Participant would
recognize ordinary income equal to the difference between the exercise price of
the Shares and the fair market value of the Shares on the date of exercise. The
amount of ordinary income would not be limited by the price at which the Shares
were actually sold by the Participant to the related party.
If the Participant retires or otherwise terminates employment with the
Company, other than by reason of death or permanent and total disability, an
incentive stock option must be exercised within three months of such
termination in order to be eligible for the tax treatment of the incentive
stock options described above, provided the ISO Holding Period requirements are
met. If a Participant terminates employment because of a permanent and total
disability, the incentive stock option will be eligible for such treatment if
it is exercised within one year of the date of termination of employment,
provided the ISO Holding Period requirements are met. In the event of a
Participant's death, the incentive stock option will be eligible for such
treatment if exercised by the Participant's legatees, personal representatives
or distributees within one year from the date of death, provided that the death
occurred while the Participant was employed, within three months of the date of
termination of employment or within one year following the date of termination
of employment because of permanent and total disability.
In general, a Participant to whom a nonstatutory option ("NSO") is
granted will recognize no taxable income at the time of the grant. Upon
exercise of a NSO, the Participant will recognize ordinary income in an amount
equal to the amount by which the fair market value of the Shares on the date of
exercise exceeds the exercise price of the NSO, and the Company will generally
be entitled to a tax deduction equal to the ordinary income recognized by the
Participant in the year the participant recognizes ordinary income, subject to
the limitations of Section 162(m) of the Code. The Company is required to
withhold certain income taxes from certain Participants upon exercises of a
NSO.
Pursuant to applicable rules under Section 16(b) of the 1934 Act, the
grant of an option (and not its exercise) to an individual who is subject to
the reporting and short-swing provisions under Section 16 of the 1934 Act
begins the six-month period of potential liability. The taxable event for the
exercise of a NSO that has been outstanding at least six months would be date
of exercise. If an option is exercise within six months after the date of
grant, however, taxation ordinarily would be deferred until the date which is
six months after the date of grant, unless that individual has filed an
election pursuant to Section 83(b) of the Code to be taxed on the date of
exercise.
Any disposition thereafter will result in a capital gain or loss equal
to the difference between the selling price of the Shares and the fair market
value of the Shares on the date of exercise of the NSO. Such capital gain or
loss will be a long-term or short-term capital gain or loss depending upon the
period the Shares are held. The
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<PAGE> 21
required holding period for long-term capital gains is presently one year. The
excess of the net long-term capital gain over net short-term capital loss is
taxable at a maximum tax rate of 20%. Capital losses are currently deductible
for individuals to the extent of capital gains plus an amount not to exceed
$3,000 ($1,500 for married individuals filing separately). There is no tax
impact to the Company upon the sale of the Shares.
For purposes of the "alternative minimum tax" applicable to
individuals, a Participant must, in the year the incentive stock option is
exercised, include the difference between the exercise price and the fair
market value of the Shares on the date of exercise in alternative minimum
taxable income. The alternative minimum tax is imposed upon an individual's
alternative minimum taxable income, but only to the extent that such tax
exceeds the individual's regular income tax liability for the taxable year.
In addition to the foregoing federal tax consequences, the exercise,
ultimate sale or other disposition of Shares by Participants will in most cases
be subject to state income taxation.
VOTE REQUIRED.
Assuming a quorum consisting of a majority of all of the outstanding
shares of Common Stock is present, in person or by proxy, at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares
present, in person or by proxy, at the Annual Meeting, is required to approve
the 1999 Plan. If you abstain or if you hold your shares in "street name" and
fail to sign, date and return the enclosed proxy card, it will have the same
effect as a vote against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO VOTE "FOR"
THE APPROVAL OF THE 1999 EMPLOYEE STOCK OPTION PLAN.
PROPOSAL NO. 6
APPROVAL OF THE 1999 STOCK BONUS PLAN
The Board adopted the Company's 1999 Stock Bonus Plan (the "Bonus
Plan") on February 12, 1999. The Board believes that in order to attract and
retain persons of outstanding ability as employees of the Company, provide
increased incentive for such persons to strive to attain the Company's
long-term goal of increasing shareholder value, and to continue to promote the
well being of the Company, it is in the best interests of the Company and its
shareholders to provide such employees of the Company with additional
compensation for services which they have rendered or will render in the
future, through the granting of bonuses in the form of the Company's Shares. As
of the date of this Proxy Statement, no stock bonuses have been granted under
the Bonus Plan. THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO VOTE
"FOR" THE APPROVAL OF THE 1999 STOCK BONUS PLAN.
Reason for Approval
The grant of stock pursuant to a plan that has been approved by
shareholders and meets certain conditions is exempt from the "short-swing
profits" liability provisions of Section 16(b) of the 1934 Act. Section 16(b)
provides that upon the purchase and sale (or sale and purchase) of the
Company's Common Stock within any six-month period by a principal officer,
director or beneficial owner of more than 10% of the Company's Common Stock,
any "profit" realized by such person is recoverable by the Company. As a
result of the complexities of this rule, Bonus Plan participants may
unwittingly fall within its scope and be forced to disgorge gains to the
Company; thereby frustrating the Company's intent to provide incentive to
officers and employees under the Bonus Plan. Thus, shareholder approval of the
Bonus Plan is sought in order to exempt from the liability provisions of
Section 16(b) the grant of a stock bonus ("Bonuses") to officers and employees
who are eligible to participate in the Bonus Plan. Unless shareholder approval
is obtained, Bonuses granted under the Bonus Plan will have less value and,
consequently, will not provide the incentive to the recipient intended by the
Board. The failure to obtain approval will not effect the effectiveness of the
1999 Plan. In this
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<PAGE> 22
case, any Shares issued pursuant to the grant of Bonuses under the 1999 Plan
will be unregistered and the holders of such shares will be required to comply
with Rule 144 under the Securities Act of 1933, as amended.
Summary of the Bonus Plan
The following summary of the Bonus Plan does not purport to be
complete, and is subject to and qualified in its entirety by reference to the
text of the Bonus Plan, which is attached hereto as Exhibit "D."
Administration.
The Bonus Plan will be administered by a Committee of the Company's
Board. The Committee has full authority, subject to the provisions of the
Bonus Plan to award Bonuses.
Subject to the provisions of the Bonus Plan, the Committee will
determine in its sole discretion, among other things, the persons to whom from
time to time Bonuses may be granted ("Bonus Recipients"), the number of Shares
subject to each Bonus, any restrictions or limitations on such Shares,
including vesting, exchange, deferral, surrender, cancellation, acceleration,
termination, or forfeiture provisions related to such Shares. The
interpretation and construction by the Committee of any provisions of, or the
determination of any questions arising under, the Bonus Plan or any rule or
regulation established by the Committee pursuant to the Bonus Plan, will be
final, conclusive and binding on all persons interested in the Bonus Plan.
Shares Subject to the Bonus Plan.
The Bonus Plan authorizes the granting of up to 500,000 Shares, less
that number of Shares issued or issuable pursuant to stock options granted
under the 1999 Plan (see Proposal No. 5). Accordingly, the Bonus Plan and the
1999 Plan effectively share the same pool of reserved Common Stock. The maximum
number of Shares that may be issued under both plans is 500,000 shares. In
order to prevent the dilution or enlargement of the rights of the Bonus
Recipients under the Bonus Plan, the number of shares of Common Stock
authorized by the Bonus Plan is subject to adjustment in the event of any
increase or decrease in the number of shares of outstanding Common Stock
resulting from a stock dividend, stock split, combination of shares, merger,
reorganization, consolidation, recapitalization or other change in the
corporate structure affecting the Company's capital stock.
Eligibility.
Subject to the provisions of the Bonus Plan, Bonuses may be granted
to full-time employees of the Company or its subsidiaries. Members of the
Committee are not eligible to be granted Bonuses.
Effective Date and Term of Bonus Plan.
If approved by the Company's shareholders, the Bonus Plan will be
deemed effective on February 12, 1999, the date that it was adopted by the
Board. The Bonus Plan will terminate ten (10) years after the effective date of
the Bonus Plan, subject to earlier termination by the Board. No Bonus may be
granted under the Bonus Plan after February 12, 2009, but Bonuses previously
granted may extend beyond such date.
Amendments to the Bonus Plan.
The Board may at any time, and from time to time, amend, modify or
terminate any of the provisions of the Bonus Plan, but no amendment,
modification or termination shall be made which would impair the rights of a
Bonus Recipient without the Recipient's consent.
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<PAGE> 23
Federal Income Tax Consequences
A Bonus Recipient may be granted a specified number of Shares.
However, vested rights to such Shares may be subject to certain restrictions or
may be conditioned on the attainment of certain performance goals. The Shares
may be forfeited if any of the restrictions are violated or the performance
goals are not satisfied.
A Bonus Recipient will recognize ordinary income equal to the fair
market value of the Shares at the time the Bonus is granted, if there are no
restrictions or conditions or at the time the restrictions or conditions lapse
unless the individual has filed an election pursuant to Section 83(b) of the
Code to be taxed on the date of grant. The Company is entitled to an income tax
deduction at the same time and in the same amount the recipient reports as
compensation income.
Pursuant to applicable rules under Section 16(b) of the 1934 Act, the
grant of a Bonus to an individual who is subject to the reporting and
short-swing provisions under Section 16 of the 1934 Act begins the six-month
period of potential liability. The taxable event for the grant of a Bonus would
be date of grant, however, taxation ordinarily would be deferred until the date
which is six months after the date of grant or the date that any restrictions
or conditions lapse, unless that individual has filed an election pursuant to
Section 83(b) of the Code to be taxed on the date of exercise.
Any disposition thereafter will result in a capital gain or loss equal
to the difference between the selling price of the Shares and the fair market
value of the Shares on the date that ordinary income is recognized. Such
capital gain or loss will be a long-term or short-term capital gain or loss
depending upon the period the Shares are held. The required holding period for
long-term capital gains is presently one year. The excess of the net long-term
capital gain over net short-term capital loss is taxable at a maximum tax rate
of 20%. Capital losses are currently deductible for individuals to the extent
of capital gains plus an amount not to exceed $3,000 ($1,500 for married
individuals filing separately). There is no tax impact to the Company upon the
sale of the Bonus shares.
In addition to the foregoing federal tax consequences, the grant of a
Bonus and the subsequent sale or other disposition of the Shares by the Bonus
Recipient will in most cases be subject to state income taxation.
The Committee may afford limited or full income tax protection to the
Bonus Recipient by granting a cash bonus in connection with the Bonus.
VOTE REQUIRED
Assuming a quorum consisting of a majority of all of the outstanding
shares of Common Stock is present, in person or by proxy, at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares
present, in person or by proxy, at the Annual Meeting, is required to approve
the Bonus Plan. If you abstain or if you hold your shares in "street name"
and fail to sign, date and return the enclosed proxy card, it will have the
same effect as a vote against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO VOTE "FOR" THE
APPROVAL OF THE 1999 STOCK BONUS PLAN.
PROPOSAL NO. 7
APPROVAL OF THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Company's Non-Employee Directors Stock Option Plan (the "Directors
Plan") was adopted by the Board on February 12, 1999. The Directors Plan is
intended to provide non-employee directors with an incentive to actively direct
and contribute to the Company's growth by enabling them to acquire a
proprietary interest in the Company. The maximum aggregate number of Shares
that may be optioned and sold under the Directors Plan is 100,000 shares. As of
the date of this Proxy Statement, one option for 20,000 shares has been granted
under the Directors
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<PAGE> 24
Plan. THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO VOTE "FOR" THE
APPROVAL OF THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
Reason for Approval
The grant of stock options pursuant to a plan that has been approved
by shareholders and meets certain conditions is exempt from the "short-swing
profits" liability provisions of Section 16(b) of the 1934 Act. Section 16(b)
provides that upon the purchase and sale (or sale and purchase) of the
Company's Common Stock within any six month period by a principal officer,
director or beneficial owner of more than 10% of the Company's Common Stock,
any "profit" realized by such person is recoverable by the Company. As a
result of the complexities of this rule, directors may unwittingly fall within
its scope and be forced to disgorge gains to the Company, thereby frustrating
the Company's intent to provide incentive to directors under the Directors
Plan. Thus, shareholder approval of the Directors Plan is sought in order to
exempt from the liability provisions of Section 16(b) the grant of options to
directors who are eligible to participate in the Directors Plan. Unless
shareholder approval is obtained, options granted under the Directors Plan will
have less value and, consequently, will not provide the incentive to the
recipient intended by the Board. The failure to obtain approval will not effect
the effectiveness of the Directors Plan. In this case, any shares of Common
Stock issue pursuant to the exercise of an option granted the Directors Plan
will be unregistered and the holders of such shares will be required to comply
with Rule 144 under the Securities Act of 1933, as amended.
Summary of the Directors Plan
The following summary of the Directors Plan does not purport to be
complete, and is subject to and qualified in its entirety by reference to the
text of the Directors Plan, which is attached hereto as Exhibit "E."
Administration.
The Directors Plan will be administered by the Board. The
interpretation and construction by the Committee of any provisions of, or the
determination of any questions arising under, the Directors Plan or any rule or
regulation established by the Board pursuant to the Directors Plan, will be
final, conclusive and binding on all persons interested in the Directors Plan.
Shares Subject to the Directors Plan.
The Directors Plan authorizes the granting of stock options
("Options"), the exercise of which would allow up to a maximum of 100,000
shares of the Common Stock to be acquired by non-employee directors eligible to
participate in the Directors Plan. In order to prevent the dilution or
enlargement of the rights of non-employee directors under the Directors Plan,
the number of shares of Common Stock authorized by the Directors Plan and the
number of shares subject to outstanding options are subject to adjustment in
the event of any increase or decrease in the number of shares of outstanding
Common Stock resulting from a stock dividend, stock split, combination of
shares, merger, reorganization, consolidation, recapitalization or other change
in the corporate structure affecting the Company's capital stock. If any
Option granted under the Directors Plan is forfeited or terminated, the shares
of Common Stock that were underlying such Option shall again be available for
distribution in connection with Options subsequently granted under the
Directors Plan.
Effective Date and Term of Directors Plan.
If approved by the Company's shareholders, the Directors Plan will be
deemed effective on February 12, 1999, the date on which it was adopted by the
Board. The Directors Plan will terminate ten (10) years after the effective
date Directors Plan, subject to earlier termination by the Board. No option may
be granted after February 12, 2009, but Options previously granted may extend
beyond such date.
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Nature of Options.
The Directors Plan provides for the non-discretionary grant of
non-qualified stock options to the Company's non-employee directors. Each
non-employee director, who joins the Board after February 12, 1999, will
receive an option to acquire 10,000 Shares. In addition to the foregoing
option grant, a grant of options to purchase 10,000 Shares will be made
annually to each non-employee director on the first business day of each fiscal
year, beginning with January 2000, provided that such director has attended at
least 75% of the meetings of the Board and of the Board's Committees of which
such non-employee director was a member in the preceding fiscal year.
Exercise of Options.
Pursuant to the terms of the Directors Plan, each option granted will
vest one-third on the first anniversary of the option grant, an additional
one-third on the second anniversary of the option grant and the remaining
one-third on the third anniversary of the option grant, provided the
non-employee director remains an Eligible Director (as defined in the Directors
Plan) at such vesting dates. Accordingly, each option grant will be vested and
exercisable with respect to the 33-1/3% of the underlying shares on the first
anniversary of the date of grant, 66-2/3% of the underlying shares on the
second anniversary, and 100% of the underlying shares on the third anniversary.
The exercise price of all options granted under the Directors Plan will be the
Fair Market Value of the Company's Common Stock on the grant date. All options
granted under the Directors Plan will expire five (5) years from the date of
grant. Options are not transferable other than by will, under the laws of
descent and distribution and each option is exercisable during the lifetime of
the non-employee director only by the optionee. Unvested option grants
terminate when the non-employee director ceases to be a director for any
reason. Vested option grants will terminate ninety days after the non-employee
director ceases to be a director by virtue of a voluntary resignation. If the
non-employee director is unable to continue to be a member of the Board due to
permanent and total disability or death, the vested portion of the option grant
will remain exercisable for one year from the date of such event. If the
non-employee director ceases to be a director as a result of failure to be
reappointed as a director in any election of Shareholders, the vested portion
of the option grant will remain exercisable for the remainder of the option's
term.
Agreements.
Options granted under the Directors Plan will be evidenced by
agreements consistent with the Directors Plan in such form as the Board may
prescribe.
Amendments to the Directors Plan.
The Board may at any time, and from time to time, amend, modify or
terminate any of the provisions of the Directors Plan, but no amendment,
modification or termination shall be made which would impair the rights of a
Participant under any agreement theretofore entered into pursuant to an Option
grant, without the Participant's consent.
Outstanding Options.
Presently, one option for 20,000 shares has been granteed under the
Directors Plan.
Federal Income Tax Considerations.
The Directors Plan will not be a "qualified plan" as defined in
Section 401(a) of the Code. Therefore, only nonstatutory stock options ("NSO")
can be issued under the Directors Plan.
A non-employee director does not realize any compensation income upon
the grant of a NSO. Additionally, the Company may not take an income tax
deduction at the time of the grant. Upon exercise of a NSO, a non-employee
director realizes and must report as compensation income an amount equal to the
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<PAGE> 26
difference between the fair market value of the Shares on the date of exercise
and the exercise price. The Company is then entitled to take an income tax
deduction at the same time and in the same amount as the non-employee director
reports as compensation income.
Pursuant to applicable rules under Section 16(b) of the 1934 Act, the
grant of an option (and not its exercise) to an individual who is subject to
the reporting and short-swing provisions under Section 16 of the 1934 Act
begins the six-month period of potential liability. The taxable event for the
exercise of a NSO that has been outstanding at least six months would be date
of exercise. If an option is exercise within six months after the date of
grant, however, taxation ordinarily would be deferred until the date which is
six months after the date of grant, unless that individual has filed an
election pursuant to Section 83(b) of the Code to be taxed on the date of
exercise.
The non-employee director cost basis in the Shares is equal to the
exercise price plus the compensation income realized upon exercise of the
option. When a non-employee director disposes of the Shares received upon
exercise of an NSO, he will realize capital gain income if the amount realized
on the sale exceeds the basis in the Shares. If the basis in the Shares
exceeds the amount realized on the sale, the non-employee director will realize
a capital loss. The required holding period for long-term capital gains is
presently one year. The excess of the net long-term capital gain over net
short-term capital loss is taxable at a maximum tax rate of 20%. Capital losses
are currently deductible for individuals to the extent of capital gains plus an
amount not to exceed $3,000 ($1,500 for married individuals filing separately).
There is no tax impact to the Company upon the sale of the shares by a
non-employee director.
In addition to the foregoing federal tax considerations, the exercise
of a NSO and the ultimate sale or other disposition of the Shares acquired
thereby will in most cases be subject to state income taxation.
VOTE REQUIRED
Assuming a quorum consisting of a majority of all of the outstanding
shares of Common Stock is present, in person or by proxy, at the Annual
Meeting, the affirmative vote of the holders of a majority of the shares
present, in person or by proxy, at the Annual Meeting, is required to approve
the Directors Plan. If you abstain or if you hold your shares in "street name"
and fail to sign, date and return the enclosed proxy card, it will have the
same effect as a vote against this proposal.
THE BOARD OF DIRECTORS RECOMMENDS AND ENCOURAGES YOU TO VOTE "FOR" THE
APPROVAL OF THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
SHAREHOLDER PROPOSALS
Shareholders who wish to present proposals for action at the next
Annual Meeting of Shareholders should submit their proposals in writing to the
Secretary of the Company at the address of the Company set forth on the first
page of this Proxy Statement. Proposals must be received by the Secretary on or
before February 4, 2000 in order to be considered for inclusion in next year's
proxy materials.
ANNUAL REPORT TO SHAREHOLDERS
The Annual Report of the Company for the year ended December 31, 1998,
including audited financial statements, has been mailed to the shareholders
concurrently herewith, but such report is not incorporated in this Proxy
Statement and is not deemed to be part of the proxy solicitation material.
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OTHER MATTERS
The Board of Directors of the Company does not know of any other
matters that are to be presented for action at the Annual Meeting of
Shareholders. If any other matters are properly brought before the meeting or
any adjournments thereof, the persons named in the enclosed proxy will have the
discretionary authority to vote all proxies received with respect to such
matters in accordance with their best judgment.
By order of the Board of Directors,
David A. Skalitzky
Secretary
April 30, 1999
Baltimore, Maryland
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EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
INFORMATION RESOURCE ENGINEERING, INC.
Information Resource Engineering, Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is Information Resource
Engineering, Inc.
SECOND The date of filing of its original Certificate of Incorporation
with the Secretary of State of Delaware was November 1, 1988.
THIRD: Pursuant to sections 103 and 245 of the General Corporation
Law of the State of Delaware, this Restated Certificate of
Incorporation restates and further amends the provisions of
the Certificate of Incorporation of this corporation.
FOURTH: The Restated Certificate of Incorporation of said corporation
shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Information Resource Engineering, Inc.
ARTICLE II
The registered office of the corporation within the State of Delaware
is located at 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of its registered agent at that address is The Corporation
Trust Company.
ARTICLE III
The nature of the business and the purposes for which the corporation
is formed are to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
(a) The Corporation shall be authorized to issue the following
shares:
<TABLE>
<CAPTION>
Class Number of Shares Par Value
----- ---------------- ---------
<S> <C> <C>
Common 15,000,000 $.01
Preferred 500,000 $.01
</TABLE>
(b) The designations and the powers, preferences and rights, and
the qualifications or restrictions thereof are as follows:
The Preferred shares shall be issued from time to time
in one or more series, with such distinctive serial
designations as shall be stated and expressed in the
resolution or resolutions providing for the issue of such
shares from time to time adopted by the Board of Directors,
without additional authority from the Corporation's
shareholders; and in such resolution or resolutions providing
for the issue of shares of each particular series, the Board
of Directors is expressly authorized to fix the number of
shares constituting such series; the
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<PAGE> 29
annual rate or rates of dividends for the particular series;
the dividend payment dates for the particular series; the
rights, if any, of holders of the shares of the particular
series to convert same into shares of any other series or
class or other securities of the Corporation, with any
provisions for the subsequent adjustment of such conversion
rights; to fix and alter the voting rights, if any; to
classify or reclassify any unissued preferred shares by fixing
or altering from time to time any of the foregoing rights,
privileges and qualifications and to fix the rights upon
dissolution or liquidation, and any other special rights,
qualifications, limitations, or restrictions of the shares of
Preferred Stock of any such series thereof to the full extent
now or hereafter permitted by the laws of the State of
Delaware.
ARTICLE V
The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
1. The number of directors of the Corporation shall be such as
from time to time shall be fixed by, or in the manner provided in the By-Laws.
Election of directors need not be by ballot unless the By-Laws so provide.
2. The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III, as nearly equal in number as
possible, and the term of office of directors of one class shall expire at each
annual meeting of stockholders, and in all cases as to each director until his
successor shall be elected and shall qualify or until his earlier resignation,
removal from office, death or incapacity. Additional directorships resulting
from an increase in number of directors shall be apportioned among the classes
as equally as possible. The initial term of directors of Class I shall expire
at the annual meeting of stockholders in 2000; that of Class II shall expire at
the annual meeting in 2001; and that of Class III shall expire at the annual
meeting in 2002; and in all cases as to each director until his successor shall
be elected and shall qualify or until his earliest resignation, removal from
office, death or incapacity. At each annual meeting of stockholders the number
of directors equal to the number of directors of the class whose term expires
at the time of such meeting (or, if less, the number of directors properly
nominated and qualified for election) shall be elected to hold office until the
third succeeding annual meeting of stockholders after their election.
3. The Board of Directors shall have power without the assent or
vote of the stockholders:
(a) To make, alter, amend, change, add to, or repeal the By-Laws of
the Corporation, provided, however, that any adoption, amendment
or repeal of By-Laws of the Corporation by the Board of Directors
shall require the approval of at least sixty-six and two-thirds
(66 2/3%) percent of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption,
amendment or repeal is presented to the Board).
(b) To fix and vary the amount to be reserved for any proper purpose;
to authorize and cause to be executed mortgages and liens upon all
or any part of the property of the Corporation; to determine the
use and disposition of any surplus or net profits; and to fix the
tine for the declaration of payment of dividends.
(c) To determine from time to time whether, and to what time and
places, and under what conditions the accounts and books of the
Corporation (other than the stock ledger) or any of them, shall be
open to the inspection of the stockholders.
4. The directors in their discretion may submit any contract or
act for approval or ratification at any annual meeting of the stockholders or
at any meeting of the stockholders called for the purpose of considering any
such act or contract and any contract or act that shall be approved or be
ratified by the vote of the holders of a majority of the stock of the
Corporation which is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be
there represented in person or by proxy) shall be as valid and as binding upon
the Corporation and upon all the stockholders as though it had been
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approved by every stockholder of the Corporation, whether or not the contract
or act would otherwise be open to legal attack because of directors' interest,
or for any other reason.
5. In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any By-Laws from time to time
made by the stockholders; provided, however, that no By-Laws so made shall
invalidate any prior act of the directors which would have been valid if such
By-Law had not been made. Further provided, that in addition to any vote of the
holders of any class or series of stock of this Corporation required by law or
by this Restated Certificate of Incorporation, the affirmative vote of all of
the holders of at least sixty-six and two-thirds (66 2/3%) percent of the voting
power of all of the then outstanding shares of the stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required for such adoption, amendment or repeal by the
stockholders of any provisions of the By-Laws of the corporation.
6. No action required or permitted to be taken at any annual or
special meeting of the stockholders may be taken without a meeting and the
power of stockholders to consent in writing, without a meeting, to the taking
of any action is specifically denied. Special meetings of the stockholders of
the Corporation may be called only by the Chairman of the Board or the
President of the Corporation or by a resolution adopted by the affirmative vote
of a majority of the Board of Directors.
ARTICLE VI
No director shall be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (i) a breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
liability under Section 174 of the Delaware General Corporation Law, or (iv) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of
the Corporation's directors to the Corporation or its stockholders to the
fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law, as amended from time to time. The Corporation shall indemnify
to the fullest extent permitted by Sections 102(b)(7) and 145 of the Delaware
General Corporation Law, as amended from time to time, each person that such
Sections grant the Corporation the power to indemnify.
ARTICLE VII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this Corporation, as the case may be, agree to any compromise or arrangement
and the said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
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ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power. However, notwithstanding any other provisions of this Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
sixty-six and two-thirds (66 2/3%) percent of the voting power of all of the
then outstanding shares of the stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend in any respect or repeal this Article VIII or Articles V
and VI.
FIFTH: This Restated Certificate of Incorporation and the amendments effected
herein were adopted by the Corporation's Board of Directors and
authorized by a majority of the holders of the outstanding shares
entitled to vote thereon at an annual meeting of shareholders
pursuant to Sections 222 and 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this ____ day
of July 1999.
INFORMATION RESOURCE ENGINEERING, INC.
---------------------------------------
Anthony A. Caputo, Chairman and Chief
Executive Officer
ATTEST:
- ------------------------------
David A. Skalitzky, Secretary
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EXHIBIT B
In the event that the shareholders of the Company approve Proposal No.
1: Approval of an Amendment to the Restated Certificate of Incorporation to
create a staggered Board of Directors, the following By-Laws provisions will be
implemented. In that event, Article II, Section 2 and Article III Section 11
will be as follows:
Section 2 Annual Meetings.
Annual meetings of shareholders shall be held at such date and time as
shall be designated from time to time by the Board of Directors and
stated in the notice of meeting. At the annual meeting, the
shareholders shall elect by a plurality vote the number of Directors
equal to the number of Directors of the class whose term expires at
such meetings (or, if fewer, the number of Directors properly
nominated and qualified for election) to hold office until the third
succeeding annual meeting of shareholders after their election.
Section 11 Vacancies and Additional Directorships.
If any vacancy shall occur among the directors by reason of death,
resignation, or removal, or as the result of an increase in the number
of directorships, the directors then in office shall continue to act
and may fill any such vacancy by a vote of the majority of directors
then in office, though less than a quorum, and each director so chosen
shall hold office until the next annual election at which the term of
the class to which he or she has been elected expires and until his or
her successor shall be duly elected and shall qualify, or until his or
her earlier death, resignation or removal.
In the event that the shareholders of the Company approve Proposal
No. 2: Approval of an amendment to the Restated Certificate of Incorporation to
require that shareholder action be taken at a meeting, the following By-Laws
provisions will be implemented. In that event, Article II, Section 8(d) will be
as follows:
Section 8(d) Written Consent
No action required or permitted to be taken at any annual or special
meeting of the shareholders of the Corporation may be taken without a
meeting and the power of the shareholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
In the event that the shareholders of the Company approve Proposal No.
3: Approval of an amendment to the Restated Certificate of Incorporation to
require a supermajority vote for amendment or repeal of the Company's By-Laws
or certain provisions of the Restated Certificate of Incorporation, the
following By-Laws provisions will be implemented. In that event, Article IX
will be as follows:
The Board of Directors is expressly empowered to adopt, amend or
repeal By-Laws of the Corporation, provided, however, that any
adoption, amendment or repeal of By-Laws of the Corporation by the
Board of Directors shall require the approval of at least sixty-six
and two-thirds (66 2/3%) percent of the total number of authorized
directors (whether or not there exist any vacancies in previously
authorized directorships at the time any resolution providing for
adoption, amendment or repeal is presented to the Board). The
shareholders shall also have the power to adopt, amend or repeal
By-Laws of the Corporation, provided, however, that in addition to any
vote of the holders of any class or series of stock of the Corporation
required by law of by the Restated Certificate of Incorporation of the
Corporation, the affirmative vote of the holders of at least sixty-six
and two-thirds (66 2/3%) percent of the voting power of all the then
outstanding shares of stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class, shall be required for such adoption, amendment or repeal by the
shareholders of any provisions of the By-Laws of the Corporation.
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EXHIBIT C
INFORMATION RESOURCE ENGINEERING, INC.
1999 EMPLOYEE STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of the 1999 Employee Stock
Option Plan (the "Plan") are to advance the interests of the Company and its
Stockholders by inducing employees of outstanding ability and potential to
remain with the Company and its subsidiaries, by encouraging, motivating and
enabling employees to acquire options or increase stock ownership in the
Company and its subsidiaries, and by providing the employees with an additional
incentive to promote the success of the Company under the Plan. Options
granted under the Plan may be options which are intended to qualify as
"incentive stock options," as under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") or any successor provision (hereinafter referred
to as "Incentive Stock Options).
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
(c) "Common Stock" shall mean the common stock of the Company
described in the Company's Certificate of Incorporation, as amended.
(d) "Company" shall mean Information Resource Engineering, Inc., a
Delaware corporation, and shall include any parent or subsidiary corporation of
the Company as defined in Sections 424(e) and (f), respectively, of the Code.
(e) "Committee" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan.
(f) "Employee" shall mean any person, including officers and
consultants employed by the Company.
(g) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
(h) "Fair Market Value" on a particular date shall mean (1) if
there is a public market for the Common Stock, the Fair Market Value per Share
shall be the average of the bid and asked prices of the Common Stock for such
day if the Common Stock is then included for quotation on the Nasdaq Small-Cap
Market or, the Fair Market Value per Share shall be the closing price of the
Common Stock for such day if the Common Stock is then included on the Nasdaq
National Market or listed on the New York, American or Pacific Stock Exchange,
or (2) if there is no public market for the Common Stock, the Fair Market Value
of the Common Stock determined in good faith by the Board or Committee in such
manner as it may deem equitable for Plan purposes. The Board or the Committee
may rely upon published quotations in The Wall Street Journal or a comparable
publication for purposes of the calculation of the Fair Market Value per Share
as set forth above.
(i) "Incentive Stock Option" shall mean an Option that is intended
to qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(j) "Option" shall mean a stock option granted under the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean a person who has been granted one or more
Options.
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(m) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1999 Employee Stock Option Plan.
(o) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(p) "Stock Option Agreement" shall mean the written agreement
evidencing the grant of an Option.
(q) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Common Stock Subject to the Plan. The shares of stock subject to
any Option granted under this Plan shall be Shares of Common Stock. The maximum
aggregate number of Shares, which may be subject to, and issued under, Options
granted pursuant to the Plan, shall not exceed 500,000 Shares, subject to
adjustment as provided in Section 11 of the Plan less the numbers of stock
bonus share awards granted or issued under the Company's 1999 Stock Bonus
Plan. Any Shares issued upon the exercise of Options granted under the Plan may
be authorized, but unissued, or previously issued Shares acquired or to be
acquired by the Company and held in its treasury. In the event that an
outstanding Option under the Plan expires, is terminated or (with the consent
of the Optionee) is cancelled, those Shares allocable to the unused portion of
such option may thereafter be subject to new options granted pursuant to the
Plan.
4. Administration of the Plan.
(a) Procedure:
(1) The Plan shall be administered by the Board in accordance with
Securities and Exchange Commission Rule 16b-3 ("Rule 16b-3"); provided, however,
that the Board may appoint a Committee to administer the Plan at any time or
from time to time and, provided further, that if members of the Board are not
"disinterested" within the meaning of Securities and Exchange Commission Rule
16b-3, then any participation by directors in the Plan must be administered by a
Committee appointed by the Board.
(2) The Committee shall consist of at least two (2) members of the
Board, each of whom is "disinterested" within the meaning of Securities and
Exchange Commission Rule 16b-3 to administer the Plan on behalf of the Board,
subject to such terms and conditions as the Board may prescribe. Once appointed,
the Committee shall continue to serve until otherwise directed by the Board.
From time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause), and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan;
provided, however, that at no time may any director who is not "disinterested"
within the meaning of Securities and Exchange Commission Rule 16b-3 serve on the
Committee nor shall a Committee of less than two (2) members administer the
Plan.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board or the Committee shall have the authority, in its discretion: (i) to grant
options which are intended to be Incentive Stock Options and to grant
"nonstatutory stock options;" (ii) to determine, upon review of relevant
information and in accordance with Section 2(h) of the Plan, the Fair Market
Value of the Common Stock; (iii) to determine the exercise price per share of
Shares for each Option to be granted, which exercise price shall be determined
in accordance with Section 8(a) of the Plan; (iv) to determine the Employees to
whom, and the time or times at which Options shall be granted and the number of
Shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the Optionee thereof, modify or amend each
Option; (viii) to accelerate or defer (with the consent of the Optionee) the
exercise date of any Option; (ix) to authorize any person to execute on behalf
of the Company any instrument required to effectuate the grant of an Option
previously granted by the Board or the Committee; (x) to accept or reject the
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election made by an Optionee pursuant to Section 18 of the Plan; and (xi) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board or the Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.
5. Eligibility.
(a) Consistent with the Plan's purposes, Options may be granted
only to Employees of the Company as determined by the Board or the Committee. An
Employee, who has been granted an Option may, if he is otherwise eligible, be
granted an additional Option or Options.
(b) With respect to Incentive Stock Options granted under the Plan,
the aggregate fair market value (determined at the time the Incentive Stock
Option is granted) of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by any individual during any calendar year
(under this Plan and any other plan of the Company and its parent and subsidiary
corporations) shall not exceed One Hundred Thousand Dollars ($100,000).
6. Effective Date and Term of Plan. The Plan shall become effective
as of February 12, 1999, the date on which the Board approved the Plan (the
Effective Date"), subject to approval hereto by the Shareholders of the Company
no later than February 12, 2000. Options may be granted under the Plan on or
after the Effective Date. If such approval is not obtained, then any Shares
issued under the Plan, whether Incentive Stock Options or nonstatutory stock
options will be unregistered shares. Except as just provided, the failure to
obtain such approval shall not effect the effectiveness of the Plan. No Option
may be granted after February 12, 2009 (ten years from the effective date of the
Plan); provided, however, that the Plan and all outstanding Options shall remain
in effect until such Options have expired or until such Options are canceled.
7. Term of Option. Unless otherwise provided in the Stock Option
Agreement, the term of each Incentive Stock Option shall be for a term not to
exceed ten (10) years from the date of grant thereof. Unless otherwise provided
in the Stock Option Agreement, the term of each Option that is not an Incentive
Stock Option shall be for a term not to exceed ten (10) years from the date of
grant. Notwithstanding the above, in the case of an Incentive Stock Option
granted to an Employee who, at the time the Incentive Stock Option is granted,
is deemed for purposes of Section 422 of the Code to own Stock of the Company
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company ("Ten Percent Shareholder"), the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter time as may be provided in the Stock Option Agreement.
8. Exercise Price and Payment.
(a) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the Board or
the Committee, but in the case of an Incentive Stock Option shall be no less
than one hundred percent (100%) of the Fair Market Value per Share on the date
of grant; provided, further, that in the case of an Incentive Stock Option
granted to an Employee who, at the time of the grant of such Incentive Stock
Option, is a Ten Percent Shareholder, the per Share exercise price shall be no
less than one hundred ten percent (110%) of the Fair Market Value per Share on
the date of grant. In no event may the exercise price in the case of a
nonstatutory stock option be less than eighty-five (85%) of the Fair Market
Value per share on the date of grant.
The Company will pay any documentary stamp taxes, handling or
certificate issuance fees attributable to the initial issuance of shares of
Common Stock upon the exercise of any Option under the Plan; provided, however,
that the Company shall not be required to pay any fees or taxes which may be
payable with respect to any transfer involved in the issuance or delivery of any
certificates for shares in a name other than that of the holder of an Option.
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(b) Payment. Upon exercise of an Option, the full exercise price
of the Shares being purchased, and any taxes attributable to the delivery of
Common Stock under the Plan, or portion thereof, shall be paid:
(1) In United States dollars in cash or by certified check, bank
draft or money order payable to the order of the Company; or
(2) At the discretion of the Board or the Committee, through the
delivery of shares of Common Stock, with an aggregate Fair Market Value, equal
to the full exercise price; or
(3) By a combination of (1) and (2) above.
The Board or the Committee shall determine acceptable methods for
tendering Common Stock as payment upon exercise of an Option and may impose
such limitations and prohibitions on the use of Common Stock to exercise an
Option as it deems appropriate.
9. Exercise of Option.
(a) Procedure for Exercise and Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board or the Committee, including performance criteria with
respect to the Company and/or the Optionee and as shall be permissible under the
terms of the Plan. Unless otherwise determined by the Board or the Committee at
the time of grant, an Option may be exercised in whole or in part, but in no
case may any option be exercised as to less than One Hundred (100) Shares at any
one time (or the remaining Shares covered by the option if less than One Hundred
(100) Shares)). An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company at its principal office to the
attention of the Secretary of the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board or the Committee, consist
of any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for exercise under the Option by the number of Shares as to which the
Option is exercised.
Notwithstanding anything contained in this Plan to the contrary,
the Board or the Committee may establish certain restrictions on the times at
which an Option may be exercised after a number of elapsed years together with
cumulative exercise rights and may retain certain rights with respect to a fixed
repurchase price for the Optioned Stock if the Employee voluntarily terminates
his employment with the Company within a certain period of time after exercising
the Option or whose employment is involuntarily terminated for gross misconduct,
fraud, embezzlement, theft, breach of any fiduciary duty owed to the Company or
for nonperformance of duties.
(b) Termination of Status as an Employee. (1) Termination. If an
Employee terminates his relationship with the Company for any reason other than
by reason of retirement, disability or death, then the Employee may, but only
within ninety (90) days after date of termination, exercise his Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate. For
purposes of this Section 9(b), an Employee, who leaves the employ of the Company
to become an employee of a subsidiary or parent corporation of the Company or a
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corporation which has assumed the option of the Company as a result of a
corporate reorganization, etc., shall not be considered to have terminated his
employment. For purposes of this Section 9(b), the employment relationship of
an Employee of the Company will be treated as continuing intact while he is on
military or sick leave or other bona fide leave of absence (such as temporary
employment by the government) if such leave does not exceed ninety (90) days,
or, if longer, so long as his right to reemployment is guaranteed either by
statute or by contract.
(2) Retirement. If an Employee retirees pursuant to a pension or
retirement plan adopted by the Company or at the normal retirement date
prescribed from time to time by the Company, then the Employee may, but only
within ninety (90) days after the date he ceases to be an Employee of the
Company, exercise his Option to the extent that he was entitled to exercise it
at the date of such termination. To the extent that he was not entitled to
exercise the Option at the date of such termination, or if he does not exercise
such Option (which he was entitled to exercise) within the time specified
herein, the Option shall terminate.
(3) Disability. If an Employee is unable to continue his employment
with the Company as a result of his permanent and total disability (as defined
in Section 22(e)(3) of the Code), then the Employee may, but only within one (1)
year from the date of termination, exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the date of termination, or if he
does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
(4) Death. If an Employee dies during the term of the Option or
within 90 days after termination of employment for any reason other than
disability or within one year from termination of employment for reason of
disability, the Option may be exercised at any time within one (1) year
following the date of death (or such other period of time as is determined by
the Board or the Committee), by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that Optionee was entitled to exercise the Option on the date of
death. To the extent that decedent was not entitled to exercise the Option on
the date of death, or if the Optionee's estate, or person who acquired the right
to exercise the Option by bequest or inheritance, does not exercise such Option
(which he was entitled to exercise) within the time specified herein, the Option
shall terminate.
10. Non-Transferability of Option. An Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. Adjustments upon Changes in Capitalization or Reorganization or
Merger.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellations or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the common stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board or
the Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class shall affect, and no adjustment by reason thereof, shall be made with
respect to the number or price of shares of Common Stock subject to an Option.
(b) Reorganization or Merger. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board or the Committee. The Board or the Committee may, in the exercise of
its sole discretion
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in such instances, declare that any Option shall terminate as of a date fixed by
the Board or the Committee and give each Optionee the right to exercise his
Option as to all or any part of the Optioned Stock, including Shares as to which
the Option would not otherwise be exercisable. In the event that outstanding
Shares of Common Stock are hereafter changed into or exchanged for a different
number or kind of shares of stock or securities of another corporation, whether
as a result of a reorganization, recapitalization, reclassification, merger
consolidation or otherwise, as in the event of a proposed sale of all or
substantially all of the assets of the Company, the Option shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board or the
Committee determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which the
Option would not otherwise be exercisable. If the Board or the Committee makes
an Option fully exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Board or the Committee shall notify the
Optionee that the Option shall be fully exercisable for a period of thirty (30)
days from the date of such notice (but not later than the expiration of the term
of the Option under the Option Agreement), and the Option will terminate upon
the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Board or the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Employee to whom an Option is so granted within a reasonable time after
the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate
the Plan from time to time in such respect as the Board may deem advisable;
provided, however, that the following revisions or amendments shall require
approval of the holders of a majority of the outstanding Shares of the Company
entitled to vote:
(1) Any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
(2) Any change in the designation of the class of employees
eligible to be granted Options; or
(3) If the Company has a class of equity security registered
under Section 12 of the Exchange Act at the time of such revision or amendment,
any material increase in the benefits accruing to participants under the Plan.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
In the case of an Incentive Stock Option, any Optionee who
disposes of Shares of Common Stock acquired on the exercise of an Option by
sale or exchange (a) either within two (2) years after the date of the grant of
the Option under which the Common Stock was acquired or (b) within one (1) year
after the acquisition
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<PAGE> 39
of such Shares of Common Stock shall notify the Company of such disposition and
of the amount realized upon such disposition.
Stock certificates evidencing unregistered shares acquired upon
the exercise of Options shall bear restrictive securities legend substantially
as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
15. Change in Control. Each Option that is outstanding on a Control
Change Date, as hereinafter defined, shall be exercisable in whole or in part on
that date and thereafter during the remainder of the Option period stated in the
Stock Option Agreement. A "Change in Control" occurs if, after the date of the
initial Stock Option Agreement, (1) any person, including a "group" as defined
in Section 13(d)(3) of the Exchange Act, becomes the owner or beneficial owner
of the Company's securities having 20% or more of the combined voting power of
the then outstanding Company's securities that may be cast for the election of
the Company's directors (other than as a result of an issuance of securities
initiated by the Company, or open market purchases approved by the Board as long
as a majority of the Board approving the purchases is in the majority at the
time the purchases are made); or (2) as the direct or indirect result of, or in
connection with, a cash tender or exchange offer, a merger or other business
combination, a sale of assets, a contested election, or any combination of these
transactions, the persons who were directors of the Company before such
transactions ceased to constitute a majority of the Board or any successor's
board, within two years of the last of such transactions. For purposes of this
Section, the "Control Change Date" is the date on which an event described in
(1) or (2) occurs. If a Change of Control occurs on account of a series of
transactions, the Control Change Date is the date of the last of such
transactions.
16. Reservation, Issuance and Sale of Shares. The Company, during the
term of this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan. Inability
of the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. Stock Option Agreement. Options shall be evidenced by written
option agreements in such form as the Board or the Committee shall approve.
18. Miscellaneous Provisions.
(a) Not a Contract of Employment. Nothing contained in the Plan or
in any Stock Option Agreement executed pursuant to the Plan shall be deemed to
confer upon any individual to whom an Option may be granted hereunder any right
to remain in the employ or service of the Company.
(b) Plan Expenses. Any expenses of administering this Plan shall be
borne by the Company.
(c) Use of Exercise Proceeds. The payment received from Optionees
from the exercise of Options shall be used for the general corporate purposes of
the Company.
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<PAGE> 40
(d) Unfunded Plan. This Plan shall be unfunded and the Company
shall be under no obligation to segregate or reserve any Shares, funds or other
assets for purposes relative to this Plan and no Optionee shall have any rights
whatsoever in or with respect to any Stock, funds or assets of the Company.
(e) Construction of Plan. The place of administration of the Plan
shall be in the State of Delaware, and the validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined in accordance
with the laws of the State of Delaware and where applicable, in accordance with
the Code.
(f) Taxes. The Company shall be entitled if necessary or desirable
to pay or withhold the amount of any tax attributable to the delivery of Common
Stock under the Plan from other amounts payable to the Employee after giving the
person entitled to receive such Common Stock notice as far in advance as
practical, and the Company may defer making delivery of such Common Stock if any
such tax may be pending unless and until indemnified to its satisfaction.
(g) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board or the Committee, the
members of the Board or the Committee shall be indemnified by the Company
against all costs and expenses reasonably incurred by them in connection with
any action, suit or proceeding to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection with the
Plan or any Option, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected
by the Company) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except a judgment based upon a finding of bad
faith; provided that upon the institution of any such action, suit or
proceeding a Board or Committee member shall, in writing give the Company
notice thereof and an opportunity, at its own expense, to handle and defend
the same before such Board or Committee member undertakes to handle and defend
it on his own behalf.
(h) Gender. For purposes of this Plan, words used in the masculine
gender shall include the feminine and neuter, and the singular shall include the
plural and vice versa, as appropriate.
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<PAGE> 41
EXHIBIT D
INFORMATION RESOURCE ENGINEERING, INC.
1999 STOCK BONUS PLAN
1. Purpose. The purpose of the 1999 Stock Bonus Plan (the "Plan") is
to advance the interest of Information Resource Engineering, Inc. (the
"Company") by inducing persons of outstanding ability to remain as employees of
the Company by granting additional compensation for services which they have
rendered or will hereafter render. This is accomplished by providing for the
issuance of the Company's common stock as described in the Company's
Certificate of Incorporation, as amended, (the "Common Stock") to qualified
employees.
2. Administration. The Plan shall be administered by a Committee of
the Company's Board of Directors (the "Committee") which will issue Common
Stock bonuses ("Stock Bonus"). Except as specifically provided, the
interpretation and construction by the Committee of any provision of the Plan
or of any Common Stock issued under the Plan shall be final, conclusive and
binding upon all persons.
3. Shares Subject to the Plan. The shares of stock subject to issuance
under the Plan shall be shares of the Company's Common Stock (the "Shares"),
whether authorized but unissued or previously issued Shares acquired or to be
acquired by the Company and held in the treasury. The maximum aggregate number
of Shares which may be subject to and issued pursuant to the Plan shall not
exceed 500,000 shares, subject to adjustment as provided in Section 7 of the
Plan, less the number of stock options outstanding or exercised under the
Company's 1999 Employee Stock Option Plan.
4. Eligibility. The class of persons that shall be eligible to receive
a Stock Bonus under the Plan shall be salaried full-time employees of the
Company or any subsidiary corporation of the Company.
5. Grant of Stock Bonuses. A Stock Bonus may be granted under the Plan
at any time and from time to time before termination of the Plan. The Committee
will determine in its sole discretion, among other things, the persons to whom
a Stock Bonus may be granted, the number of Shares subject to each Stock Bonus,
any restrictions or limitations on such Shares, including vesting, exchange,
deferral, surrender, cancellation, acceleration, termination, or forfeiture
provisions related to such Shares. Each Stock Bonus granted under the Plan
shall be authorized by the Committee and shall be evidenced by a duly adopted
resolution of either the Committee or the Company's Board of Directors (the
"Board").
6. Conditions of Grant. The Company shall not be obligated to issue
any Shares upon the grant of a Stock Bonus unless the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Securities and Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the grant of a Stock Bonus, the Company may require
the person receiving the grant to represent and warrant at the time of grant
that the Shares are being acquired only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
Stock certificates evidencing unregistered Shares issued upon the
grant of a Stock Bonus hereunder shall bear restrictive securities legend
substantially as follows:
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<PAGE> 42
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION,
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
7. Adjustments upon Changes in Capitalization or Reorganization or
Merger.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Stock Bonus have
yet been granted shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
common stock, or any other increase or decrease in the number of issued shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board or the Committee, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class shall
affect, and no adjustment by reason thereof, shall be made with respect to the
number of shares of Common Stock subject to a Stock Bonus.
(b) Reorganization or Merger. In the event of the proposed dissolution
or liquidation of the Company, the Plan will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board or
the Committee.
8. Effective Date, Termination, Modification and Amendment.
(a) The Plan shall become effective as of February 12, 1999, the
date on which the Board approved the Plan, subject to approval hereto by the
Shareholders of the Company no later than February 12, 2000. If such approval
is not obtained, than any Shares issued under a Stock Bonus will be
unregistered Shares. Except as just provided, the failure to obtain such
approval shall not effect the effectiveness of the Plan. No Stock Bonus may be
granted after February 12, 2009 (ten years from the effective date of the
Plan).
(b) The Plan shall terminate on February 12, 2009 (ten years from
the effective date of the Plan); or sooner as provided in subparagraph (c) of
this Section 8 (the "Termination Date"). No Stock Bonus shall be granted
after the Termination Date.
(c) The Board may at any time, on or before the Termination Date,
terminate the Plan or from time to time make such modifications or amendments
to the Plan as it may deem advisable.
(d) No termination, modification or amendment of the Plan shall
adversely affect any previously issued Shares granted as a Stock Bonus under
the Plan.
9. Not a Contract of Employment. Nothing contained in the Plan shall
be deemed to confer upon any individual to whom a Stock Bonus may be granted
hereunder any right to remain in the employ or service of the Company.
10. Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Board or the Committee shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be a party by reason of any action
taken or failure to act upon or in connection
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<PAGE> 43
with the Plan or any Stock Bonus, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
council selected by the Company) or paid by them in satisfaction of a judgment
of any such action, suit or proceeding, except a judgment based on a finding
of bad faith; provided that upon the institution of any such action, suit or
proceeding, a Board or Committee member shall, in writing give the Company
notice thereof and an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to defend it on her or
his own behalf.
11. Definition. For purposes of the Plan, the term "Company" shall
mean Information Resource Engineering, Inc., a Delaware corporation, and shall
include any parent or subsidiary corporation as defined in Sections 424(e) and
(f), respectively, of the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder (the "Code").
12. Governing Law. The place of administration of the Plan shall be in
the State of Delaware, and the validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights to the Plan, shall be determined in accordance with the laws of the
State of Delaware and where applicable, in accordance with the Code.
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<PAGE> 44
EXHIBIT E
INFORMATION RESOURCE ENGINEEERING, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Purposes of the Plan. The purposes of the Non-Employee Directors
Stock Option Plan (the "Plan") are to attract and retain the best available
individuals to serve as non-employee members of the Board of Directors of
Information Resource Engineering, Inc. (The "Company"), to reward such
directors for their contributions to the profitable growth of the Company, and
to maximize the identity of interest between such directors and shareholders
generally.
1. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulation promulgated thereunder.
(c) "Common Stock" shall mean the common stock of the Company
described in the Company's Certificate of Incorporation, as amended.
(d) "Company" shall mean Information Resource Engineering, Inc., a
Delaware corporation.
(e) "Effective Date" shall be February 12, 1999, the date that the
Board adopted the Plan.
(f) "Eligible Director" shall mean (i) those individuals who are
serving as non-employee members of the Board on the Effective Date, or (ii)
those individuals who are elected or appointed as non-employee members of the
Board after the Effective Date, whether through appointment by the Board or
election of the Company's shareholders.
(g) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
(h) "Exercise Price" shall mean, with respect to Shares of
Optioned Stock, the Fair Market Value of such Shares on the date of grant of
the Option.
(i) "Fair Market Value" on a particular date shall mean (I) if
there is a public market for the Common Stock, the Fair Market Value per Share
shall be the average of the bid and asked prices of the Common Stock for such
day if the Common Stock is then included for quotation on the Nasdaq Small-Cap
Market or, the Fair Market Value per Share shall be the closing price of the
Common Stock for such day if the Common Stock is then included on the Nasdaq
National Market or listed on the New York, American or Pacific Stock Exchange,
or (2) if there is no public market for the Common Stock, the Fair Market Value
of the Common Stock determined in good faith by the Board in such manner as it
may deem equitable for Plan purposes. The Board may rely upon published
quotations in The Wall Street Journal or a comparable publication for purposes
of the calculation of the Fair Market Value per Share as set forth above.
(j) "Option" shall mean a stock option granted under the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean a Non-Employee Director of the Company
who has been granted one or more Options.
(m) "Plan" shall mean this Non-Employee Directors Stock Option
Plan.
(n) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 8 of the Plan.
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<PAGE> 45
(o) "Stock Option Agreement" shall mean the written agreement
evidencing the grant of an Option.
2. Common Stock Subject to the Plan. The shares of stock subject to
any Option granted under this Plan shall be Shares of Common Stock. The maximum
aggregate number of Shares, which may be subject to, and issued under, Options
granted pursuant to the Plan, shall not exceed 100,000 Shares, subject to
adjustment as provided in Section 8 of the Plan. Any Shares issued upon the
exercise of Options granted under the Plan may be authorized, but unissued, or
previously issued Shares acquired or to be acquired by the Company and held in
its treasury. In the event that an outstanding Option under the Plan expires,
is terminated or (with the consent of the Optionee) is cancelled, those Shares
allocable to the unused portion of such option may thereafter be subject to new
options granted pursuant to the Plan.
3. Option Grants.
(a) Each individual, who first becomes an Eligible Director after
the Effective Date, whether through election by the shareholders or appointment
of the Board, shall automatically be granted at the time of such initial
election or appointment, an Option to purchase 10,000 Shares.
(b) On the first business day of each fiscal year (the "Annual
Grant Date"), beginning with January 2000, each individual who is at that time
an Eligible Director shall automatically be granted an Option under the Plan to
purchase an additional 10,000 Shares; provided such individual (i) has attended
75% of the meetings of the Board held during the 12-month period immediately
preceding the Annual Grant Date, or (ii) if such individual was appointed or
elected as a director during such 12-month period, he has attended 75% of the
meetings of the Board held during his term as a director, and (iii) has
attended 75% of the meetings of any Committee of the Board to which such
individual has been appointed as a member during such 12-month period.
(c) The per share exercise price of Shares to be issued pursuant
to the exercise of an Option shall be the Fair Market Value on the date of
grant.
(d) Each Option granted pursuant to this Plan shall vest and
become exercisable according to the following schedule, provided that the
Optionee remains an Eligible Director at such vesting date:
<TABLE>
<CAPTION>
Vesting Date Percentage of Shares Vesting
------------- ----------------------------
<S> <C>
First Anniversary of Grant 33-1/3%
Second Anniversary of Grant 66-2/3%
Third Anniversary of Grant 100%
</TABLE>
4. Effective Date and Term of Plan. The Plan shall become effective as
of February 12, 1999, the date on which the Board approved the Plan (the
Effective Date"), subject to approval hereto by the Shareholders of the Company
no later than February 12, 2000. Options may be granted under the Plan on or
after the Effective Date. If such approval is not obtained, then any Shares
issued upon exercise of an Option will be unregistered shares. Except as just
provided, the failure to obtain such approval shall not effect the
effectiveness of the Plan. No Option may be granted after February 12, 2009
(ten years from the effective date of the Plan); provided, however, that the
Plan and all outstanding Options shall remain in effect until such Options have
expired or until such Options are canceled.
5. Term, Exercise and Rights as a Stockholder.
(a) The term of each Option shall be five (5) years from the date
of grant thereof. A vested Option may be exercised in whole or in part at any
time during the term of the Option. An Option may not be exercised for a
fraction of a Share.
(b) An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company at its principal office to the
attention of the Secretary of the Company in accordance with the terms
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<PAGE> 46
of the Option by the person entitled to exercise the Option and full payment
for the Shares with respect to which the option is exercised has been received
by the Company.
(c) Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the Company)
of the stock certificates evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Option Stock, notwithstanding the exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued.
6. Payment. Upon exercise of an Option, the full exercise price of
the Shares being purchased, and any taxes attributable to the delivery of
Common Stock under the Plan, or portion thereof, shall be paid:
(a) In United States dollars in cash or by certified check, bank
draft or money order payable to the order of the Company; or
(b) At the discretion of the Board, through the delivery of Shares
of Common Stock, with an aggregate Fair Market Value, equal to the Exercise
Price; or
(c) By any combination of (a) and (b) above.
The Board shall determine acceptable methods for tendering Common
Stock as payment upon exercise of an Option and may impose such limitations and
prohibitions on the use of Common Stock to exercise an Option, as it deems
appropriate.
7. Non-Transferability of Option. An Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent and distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
8. Adjustments upon Changes in Capitalization or Reorganization or
Merger.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellations or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the common stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class shall affect, and no adjustment by reason thereof, shall be made with
respect to the number or price of shares of Common Stock subject to an Option.
(b) Reorganization or Merger. In the event of the proposed
dissolution or liquidation of the Company, the Option will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. The Board may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his Option as to all or any
part of the Optioned Stock, including Shares as to which the Option would not
otherwise be exercisable. In the event that outstanding Shares of Common Stock
are hereafter changed into or exchanged for a different number or kind of
shares of stock or securities of another corporation, whether as a result of a
reorganization, recapitalization, reclassification, merger consolidation or
otherwise, as in the event of a proposed sale of all or substantially all of
the assets of the Company, the Option shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation,
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<PAGE> 47
unless the Board determines, in the exercise of its sole discretion and in
lieu of such assumption or substitution, that the Optionee shall have the
right to exercise the Option as to all of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. If the
Board or makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
the Optionee that the Option shall be fully exercisable for a period of thirty
(30) days from the date of such notice (but not later than the expiration of
the term of the Option under the Option Agreement), and the Option will
terminate upon the expiration of such period.
9. Termination of an Option.
(a) Termination as a Director. If an Optionee ceases to be a
director, (i) by virtue of a voluntary resignation, then the Option shall
terminate on the date ninety days after the date the Optionee ceases to be a
director: or (ii) as a result of a failure to be reappointed as a Director in
any election of Shareholders, then the vested portion of the Option shall
remain exercisable for its term and the balance of the Option shall terminate.
(b) Disability. If an Optionee is unable to continue to be a
member of the Board as a result of his permanent and total disability (as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended),
he may exercise the Option at any time within one (1) year following the
date he ceased to be a director, but only to the extent he was entitled to
exercise it on the date he ceased to be a director. To the extent that he was
not entitled to exercise the Option on the date he ceased to be a director, or
if he does not exercise such Option (which he was entitled to exercise) within
the time specified herein, the Option shall terminate.
(c) Death. If an Optionee dies during the term of the Option or
within 90 days after voluntarily resigning as a Director or within one year
after termination of service as a Director for reason of disability, the Option
may be exercised at any time within one (1) year following the date of
death (or such other period of time as is determined by the Board), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent that an Optionee was entitled
to exercise the Option on the date of death. To the extent that decedent was
not entitled to exercise the Option on the date of death, or if the Optionee's
estate, or person who acquired the right to exercise the Option by bequest or
inheritance, does not exercise such Option (which he was entitled to exercise)
within the time specified herein, the Option shall terminate
10. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Board makes the determination
granting such Option. Notice of the determination shall be given to each
Non-Employee Director to whom an Option is so granted within a reasonable time
after the date of such grant.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate
the Plan from time to time in such respect as the Board may deem advisable;
provided, however, that the following revisions or amendments shall require
approval of the holders of a majority of the outstanding Shares of the Company
entitled to vote:
(1) Any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 8 of the Plan;
(2) Any change in the designation of the class of Directors
eligible to be granted Options; or
(3) If the Company has a class of equity security registered under
Section 12 of the Exchange Act at the time of such revision or amendment, any
material increase in the benefits accruing to participants under the Plan.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee
and the Board, which agreement must be in writing and signed by the Optionee
and the Company.
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<PAGE> 48
12. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Stock certificates evidencing unregistered shares acquired upon the
exercise of Options shall bear restrictive securities legend substantially as
follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION. THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
13. Change in Control. Each Option that is outstanding on a Control
Change Date, as hereinafter defined, shall be exercisable in whole or in part
on that date and thereafter during the remainder of the Option period stated in
the Stock Option Agreement. A "Change in Control" occurs if, after the date of
the initial Stock Option Agreement, (1) any person, including a "group" as
defined in Section 13(d)(3) of the Exchange Act, becomes the owner or
beneficial owner of the Company's securities having 20% or more of the combined
voting power of the then outstanding Company's securities that may be cast for
the election of the Company's directors (other than as a result of an issuance
of securities initiated by the Company, or open market purchases approved by
the Board as long as a majority of the Board approving the purchases is in the
majority at the time the purchases are made); or (2) as the direct or indirect
result of, or in connection with, a cash tender or exchange offer, a merger or
other business combination, a sale of assets, a contested election, or any
combination of these transactions, the persons who were directors of the
Company before such transactions ceased to constitute a majority of the Board
or any successor's board, within two years of the last of such transactions.
For purposes of this Section, the "Control Change Date" is the date on which an
event described in (1) or (2) occurs. If a Change of Control occurs on account
of a series of transactions, the Control Change Date is the date of the last of
such transactions.
14. Reservation, Issuance and Sale of Shares. The Company, during the
term of this Plan, will at all times reserve and keep available such number of
Shares as shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
15. Stock Option Agreement. Options shall be evidenced by written
option agreements in such form as the Board shall approve.
47
<PAGE> 49
16. Miscellaneous Provisions.
(a) Not a Contract of Service. Nothing contained in the Plan or in
any Stock Option Agreement executed pursuant to the Plan shall be deemed to
confer upon any Non-Employee Director to whom an Option may be granted
hereunder any right to remain as a Director of the Company.
(b) Plan Expenses. Any expenses of administering this Plan shall
be borne by the Company.
(c) Use of Exercise Proceeds. The payment received from Optionees
from the exercise of Options shall be used for the general corporate purposes
of the Company.
(d) Unfunded Plan. This Plan shall be unfunded and the Company
shall be under no obligation to segregate or reserve any Shares, funds or other
assets for purposes relative to this Plan and no Optionee shall have any rights
whatsoever in or with respect to any Stock, funds or assets of the Company.
(e) Construction of Plan. The place of administration of the Plan
shall be in the State of Delaware, and the validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined in accordance
with the laws of the State of Delaware and where applicable, in accordance with
the Code.
(f) Taxes. The Company shall be entitled if necessary or desirable
to pay or withhold the amount of any tax attributable to the delivery of Common
Stock under the Plan from other amounts payable to the Non-Employee Director
after giving the person entitled to receive such Common Stock notice as far in
advance as practical, and the Company may defer making delivery of such Common
Stock if any such tax may be pending unless and until indemnified to its
satisfaction.
(g) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members of the
Board shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding
to which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Option, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except a judgment based upon a finding of bad faith; provided that upon the
institution of any such action, suit or proceeding a Board member shall, in
writing give the Company notice thereof and an opportunity, at its own
expense, to handle and defend the same before such Board member undertakes to
handle and defend it on his own behalf.
(h) Gender. For purposes of this Plan, words used in the masculine
gender shall include the feminine and neuter, and the singular shall include
the plural and vice versa, as appropriate.
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<PAGE> 50
INFORMATION RESOURCE ENGINEERING, INC.
8029 CORPORATE DRIVE
BALTIMORE, MD 21236
PROXY CARD, SOLICITED BY MANAGEMENT OF THE COMPANY
The undersigned hereby constitutes and appoints Anthony A. Caputo or
Bruce R. Thaw, or either one of them acting in the absence of the other, with
full power of substitution, to be the true and lawful attorneys and proxies for
the undersigned to vote at the Annual Meeting of Shareholders of Information
Resource Engineering, Inc. (the "Company") to be held at the Company's offices
located at 8029 Corporate Drive, Baltimore, Maryland 21236 on July 28, 1999 at
10:30 A.M. or at any adjournment thereof. Notice of which meeting together with
a Proxy Statement has been received. Said proxies are directed to vote the
shares the undersigned would be entitled to vote if personally present upon the
following matters, all more fully described in the Proxy Statement.
The Board of Directors favor a vote FOR the following proposals:
1. Approval of an amendment to the Restated Certificate of Incorporation
to create a staggered Board of Directors [ ] For [ ] Against
[ ] Abstain
2. Approval of an amendment to the Restated Certificate of Incorporation
to require that shareholder action be taken at a meeting [ ] For
[ ] Against [ ] Abstain
3. Approval of an amendment to the Restated Certificate of Incorporation
to require a supermajority vote for amendment or repeal of the
Company's By-Laws or certain provisions of the Restated Certificate
of Incorporation [ ] For [ ] Against [ ] Abstain
4 The election of Directors Nominees: Anthony A. Caputo, Thomas A. Brooks,
Shelley A. Harrison, Ira A. Hunt, Jr., Douglas E. Kozlay and Bruce R.
Thaw
[ ] FOR all nominees, except as noted [ ] WITHHOLD AUTHORITY to vote for
all nominees
Instructions: To withhold your vote from an individual nominee, write that
nominee's name on the space provided below.
- -----------------------------------------------------
IF YOU DO NOT WITHHOLD AUTHORITY TO VOTE FOR THE ELECTION OF ANY NOMINEE AS
PROVIDED HEREIN, YOU SHALL BE DEEMED TO HAVE GRANTED SUCH AUTHORITY.
<TABLE>
<S> <C> <C> <C>
5. Approval of the 1999 Employee Stock Option Plan [ ] For [ ] Against [ ] Abstain
6. Approval of the 1999 Stock Bonus Plan [ ] For [ ] Against [ ] Abstain
7. Approval of the Non-Employee Director Stock Option Plan [ ] For [ ] Against [ ] Abstain
8. In accordance with their best judgment with respect to any other
business that may properly come before the meeting.
</TABLE>
The shares represented by this Proxy will be voted and in the event
instructions are given in the space provided, they will be voted in accordance
therewith; if instructions are not given, they will be voted as recommended by
the Board of Directors with regard to the proposals.
The undersigned hereby acknowledges receipt of a copy of the accompanying
Notice of Meeting and Proxy Statement.
DATED:
-------------------------
------------------------------
SIGNATURE (must correspond with name as printed in the space beside)
49
