[INSERT SARNIA CORPORATION LOGO HERE]
Dear Stockholder:
You are cordially invited to attend Sarnia Corporation's Annual Meeting of
Stockholders to be held at our offices, 6850 Versar Center, Springfield,
Virginia, 22151 on Wednesday, November 12, 1997, at 9:00 a.m. eastern standard
time.
The matters scheduled for consideration at the meeting are the election of
two directors, a proposal to approve an amendment to Sarnia's 1994 Stock Option
Plan and the ratification of the appointment of Sarnia's independent
accountants. We will also report to you on Sarnia's condition and performance,
and you will have the opportunity to question management on matters that affect
the interests of all stockholders.
You can reach Versar Center by car, from either I-395 or I-495. From I-395:
exit Edsall Road West to Backlick Road; left (south) on Backlick to Hechinger
Drive; left on Hechinger Drive to Versar Center. From I-495: exit Braddock Road
East to Backlick Road; right (south) on Backlick to Hechinger Drive; left on
Hechinger Drive to Versar Center.
The stockholders' interest in the affairs of Sarnia Corporation is
encouraged and it is important that your shares be represented at the meeting.
We hope you will be with us. Whether you plan to attend or not, please complete,
sign, date, and return the enclosed proxy card as soon as possible in the
postpaid envelope provided. Giving your proxy will not limit your right to vote
in person or to attend the meeting, but it will assure your representation if
you cannot attend. Your vote is important.
Sincerely yours,
/s/ Charles I. Judkins, Jr.
---------------------------
Charles I. Judkins, Jr.
President
October 10, 1997
<PAGE>
[INSERT SARNIA CORPORATION LOGO HERE]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Sarnia Corporation
The Annual Meeting of Stockholders of Sarnia Corporation (the "Company")
will be held at the Company's offices, 6850 Versar Center, Springfield, Virginia
22151, on Wednesday, November 12, 1997, at 9:00 a.m. eastern standard time for
the following purposes:
1. To elect two directors for a three-year term expiring at the 2000
annual meeting of stockholders;
2. To approve an amendment to the Sarnia Corporation 1994 Stock Option
Plan to increase from 300,000 to 600,000 the number of shares of
Sarnia common stock authorized for issuance upon the exercise of stock
options issued pursuant to the plan;
3. To ratify the appointment of Arthur Andersen LLP as independent
accountants for fiscal year 1998; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on September 30, 1997,
will be entitled to notice of and to vote at the meeting and any adjournments
thereof.
Your attention is directed to the Proxy Statement accompanying this Notice
for a more complete statement regarding the matters to be acted upon at the
meeting.
By Order of the Board of Directors,
/s/ Pamela J. John
------------------------------------
Pamela J. John
Secretary
October 10, 1997
IMPORTANT NOTICE
YOUR PROXY IS IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE IN THE POST-PAID ENVELOPE
PROVIDED.
<PAGE>
SARNIA CORPORATION
----------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 12, 1997
-----------------
GENERAL
This Proxy Statement and the enclosed proxy card are being mailed on or
about October 10, 1997, to stockholders ("Stockholders") of Sarnia Corporation
("Sarnia" or the "Company") in connection with the solicitation by the Board of
Directors of the Company of proxies for use at the 1997 Annual Meeting of
Stockholders (the "Annual Meeting") to be held at the Company's offices at 6850
Versar Center, Springfield, Virginia 22151, on November 12, 1997, and any
adjournment thereof. Any person giving a proxy pursuant to this Proxy Statement
may revoke it at any time before it is exercised at the meeting by filing with
the Secretary of the Company an instrument revoking it or by delivering to the
Company a duly executed proxy bearing a later date. In addition, if the person
executing the proxy is present at the Annual Meeting, he or she may vote their
shares in person. Proxies in the form enclosed, if duly signed and received in
time for voting, and not so revoked, will be voted at the Annual Meeting in
accordance with the directions specified therein.
Outstanding Shares, Record Date and Solicitation
Only holders of record of Sarnia's common stock, no par value ("Common
Stock"), at the close of business on September 30, 1997 (the "Record Date") are
entitled to notice of and to vote at the Annual Meeting and any adjournment(s)
thereof. The number of shares of Common Stock outstanding and entitled to vote
as of the Record Date was 4,572,545. Each share of Common Stock is entitled to
one vote on all matters of business at the Annual Meeting.
The By-laws of the Company require that the holders of a majority of
outstanding shares of the Company's Common Stock entitled to vote at the Annual
Meeting be present in person or represented by proxy in order for a quorum to
exist for the transaction of business at that meeting. Abstentions and "broker
non-votes" (which occur if a broker or other nominee does not have discretionary
authority and has not received voting instructions from the beneficial owner
with respect to the particular item) are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Assuming that
such a quorum is present for the Annual Meeting, in all matters other than
election of directors, the affirmative vote of the majority of shares present in
person or by proxy at the Annual Meeting and entitled to vote thereon is
required to approve the proposals set forth herein. For such purpose,
abstentions are counted for the purpose of calculating shares entitled to vote
but are not counted as shares voting and therefore have the effect of a vote
against each such proposal. Also, for these purposes, broker non-votes are not
counted as shares eligible to vote and therefore have no effect. Directors will
be elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote. Accordingly, abstentions and broker
non-votes will have no effect on the outcome of the election of directors.
Any proxy which is returned by a Stockholder properly completed and which
is not revoked will be voted at the Annual Meeting in the manner specified
therein. Unless contrary instructions are given, the persons designated
as proxy holders in the accompanying proxy card (or their substitutes)
will vote FOR the election of the Board of Directors' nominees, FOR
proposals 2 and 3 and in the proxy holders' discretion with regard to all
other matters. Any unmarked proxies, including those submitted by brokers
1
<PAGE>
(other than broker non-votes) or nominees, will be voted in favor of the
proposals and the nominees for the Board of Directors, as indicated in the
accompanying proxy card.
The cost of preparing, assembling and mailing all proxy material will be
borne by Sarnia. In addition to solicitation by mail, solicitations may be made
by personal interview, telephone, and telegram by officers and regular employees
of the Company or its subsidiaries, acting without additional compensation. It
is anticipated that banks, brokerage houses, and other custodians, nominees, and
fiduciaries will forward proxy materials to beneficial owners of shares entitled
to vote at the Annual Meeting, and such persons will be reimbursed for the
out-of-pocket expenses incurred by them in this regard.
The Annual Report of the Company for fiscal year 1997 on Form 10-K, the
Notice of Annual Meeting, this Proxy Statement, and the enclosed proxy card were
initially mailed in a single envelope to Stockholders on or about October 10,
1997.
Principal Shareholders
The table below sets forth, as of September 30, 1997, the only persons
known by the Company to be the beneficial owners of more than 5% of the
outstanding shares of Common Stock.
Name and Address Amount and Nature Percent
of of Beneficial of
Beneficial Owner Ownership(1) Class of Stock
- ---------------- ------------ --------------
Dr. Michael Markels, Jr.(2) 773,232 11.6%
6850 Versar Center
Springfield, VA 22151
Dr. Robert L. Durfee(3) 859,374 12.8%
6850 Versar Center
Springfield, VA 22151
Versar, Inc. Employee Savings
and Stock Ownership Plan(4) 377,139 5.6%
Gerald T. Halpin(2) 648,250 9.7%
6850 Versar Center
Springfield, VA 22151
- ----------
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 under the Securities and
Exchange Act of 1934, as amended, under which, in general a person is
deemed to be beneficial owner of a security if he or she has or shares the
power to vote or direct the voting of the security or the power to dispose
or to direct the disposition of the security, or if he or she has the right
to acquire beneficial ownership of the security within 60 days of September
30,1997. Beneficial ownership includes all common shares a person has the
right to acquire upon the conversion of shares of the Company's Series A
Cumulative Convertible Preferred Stock ("Preferred Stock") held by that
person. With respect to ownership of shares which are held in the Versar
ESSOP (as defined below in footnote 4) but allocated to individuals'
accounts, the information is current as of September 30, 1997.
(2) For a description of the nature of the beneficial ownership of Dr. Markels
and Mr. Halpin, see "SECURITY HOLDINGS OF MANAGEMENT." The information with
respect to shares of Common Stock held by Dr. Markels and Mr. Halpin are
based upon filings with the Securities and Exchange Commission.
(3) Dr. Durfee's beneficial ownership of shares includes 34,000 shares owned by
adult children of Dr. Durfee as to which he shares voting and investment
power, 25,000 shares Dr. Durfee has the right to acquire upon the exercise
of options and 187,500 shares Dr. Durfee has the right to acquire upon
2
<PAGE>
conversion of shares of the Preferred Stock ("Preferred Stock") held by
him. The information with respect to shares of Common Stock held by Dr.
Durfee is based upon filings with the Securities and Exchange Commission.
(4) Of the 377,139 shares of Common Stock held by the Versar, Inc., Employee
Savings and Stock Ownership Plan (the "ESSOP"), 377,139 shares are
allocated to individual ESSOP participants' accounts and are voted by the
Trustees. The ESSOP Trustees have investment power over all shares of
Common Stock held by the ESSOP. The ESSOP Trustees are Michael Markels,
Jr., Benjamin M. Rawls and James C. Dobbs. Each disclaims beneficial
ownership of the Common Stock held by the ESSOP. The information with
respect to shares of Common Stock held by the ESSOP is based upon filings
with the Securities and Exchange Commission and a report by the Company's
stock transfer agent.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon copies of reports furnished to Sarnia, the Company believes that
all reports required to be filed by persons subject to Section 16 of the
Securities Exchange Act of 1934, and the rules and regulations thereunder, have
been timely filed.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Articles of Incorporation were amended in May 1994 to
increase the Board of Directors to five members and "classify" the directors
into three classes (I, II and III), with directors in each class serving
three-year terms and with one or two directors standing for election in any one
year. Two directors are to be elected at the Annual Meeting for a three-year
term expiring at the 2000 Annual Meeting of Stockholders.
Nominees for Election
The Board of Directors of the Company recommends the election of Michael
Markels, Jr. and Thomas Hotz who were nominated to serve as directors of Sarnia
for three-year terms until the 2000 Annual Meeting and until their successors
have been duly elected and qualified. The persons named in the proxy will vote
for the election of the nominees named below unless authority is withheld. Dr.
Markels and Mr. Hotz are presently directors of the Company and have served as
such for the time indicated opposite their names. If for any reason a nominee
should become unavailable to serve, an event that management does not
anticipate, proxies will be voted for such other person as may be designated by
the Board of Directors.
Business Experience
Name Age & Class And Other Information
- ---- ----------- ---------------------
Michael Markels, Jr. 71 I Chairman of the Board, President and
Term Expires in 1997 Chief Executive Officer of Ocean
Farming, Inc. since 1995;
Co-founder, Director and Chairman
Emeritus of Versar, Inc. A director
of Sarnia since 1982.
Thomas Hotz 37 I Partner of Magnum Capital Partners,
Term Expires in 1997 L.L.C. since 1996; Managing Director
of Julien J. Studley, Inc., a
national real estate firm, from 1989
to 1995. A director of Sarnia since
June 1994.
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE
The following information is provided regarding the other directors, whose
terms will continue after the Annual Meeting.
Business Experience
Name Age & Class And Other Information
- ---- ----------- ---------------------
Benjamin M. Rawls 57 III Chairman of the Board of Sarnia
Term Expires in 1999 since 1994; Chairman of the Board of
Versar, Inc. since November 1993 and
President and Chief Executive
Officer of Versar since April 1991;
President and Chief Executive
officer of Rawls Associates, Inc., a
management consulting firm, from
April 1988 to March 1991; President
and Chief Executive Officer of R-C
Holding, Inc., (currently known as
Air & Water Technologies Corporation)
from July 1987 to April 1988;
Chairman of Metcalf & Eddy, Inc., a
subsidiary of Research-Cottrell, Inc.
from 1984 to April 1988; a director
of Versar since 1991 and a director
of Sarnia since 1991.
James N. Schwarz 52 III Partner, Ginsburg, Feldman and Bress
Term Expires in 1999 since 1996; Sr. Vice President,
General Counsel and Corporate
Secretary of Steuart Petroleum
Company from 1991 to 1995; Executive
Vice President, General Counsel and
Corporate Secretary of Dart Stores,
Inc. from 1988 to 1991; a director of
Sarnia since May 1996.
Gerald T. Halpin 74 II President of WEST*GROUP MANAGEMENT,
Term Expires in 1998 LLC., a real estate development and
construction firm, and its
predecessor since 1970. A director of
Sarnia since June 1994.
Committees of the Board of Directors
The Board of Directors of Sarnia has standing Executive, Audit, and
Compensation Committees.
The Executive Committee is composed of Messrs. Rawls (Chairman) and Hotz.
The Committee has all powers and authority of the Board of Directors, except as
otherwise limited by law, to act in the Board's stead when the Board is not in
session.
The Audit Committee, composed exclusively of directors who are not
employees of the Company, consists of Messrs. Schwarz (Chairman), Markels and
Rawls. This Committee's primary responsibilities are to provide oversight of
Sarnia's accounting and financial controls, review the scope of and procedures
to be used in the annual audit, review the financial statements and results of
the annual audit, and evaluate the performance of the independent accountants
and Sarnia's financial and accounting personnel.
The Compensation Committee, the members of which are Messrs. Markels
(Chairman) and Halpin, is responsible for reviewing and adjusting compensation
paid to the President of Sarnia and all executive officers and administering any
stock or other compensation plans of Sarnia.
Directors' Compensation
Directors who are not employees of Sarnia are normally paid an annual fee
of $1,000 plus an attendance fee of $500 for each meeting of the Board of
Directors and its committees. In addition, under the Sarnia 1994 Stock Option
Plan on each anniversary date of the plan (December 1), each director who is not
an employee of the Company and who on such anniversary date is a member of the
Board, is to be granted a non-qualified stock option with an exercise price
4
<PAGE>
equal to the then current fair market value to purchase either (1) 25,000 shares
of common stock if such director has served at least one year on the Board and
has not yet been awarded an option under the Plan provisions providing for
option grants to non-employee directors, or (2) an option to purchase 500 shares
of common stock if such director has already received an award under the Plan
provisions providing for option grants to non-employee directors. All such
options shall be fully vested and exercisable as of the date of grant.
Board and Committee Meetings
During fiscal year 1997, the Board of Directors met four times. The Audit
committee met four times. The Compensation Committee and the Executive Committee
did not meet. All directors attended at least 75% of all meetings of the Board
and committees on which they served.
Compensation Committee Interlocks and Insider Participation
Mr. Judkins, the Company's President and Chief Executive Officer, serves as
a director of Versar. Dr. Markels, a director and former officer of Versar,
serves as Chairman of Sarnia's Compensation Committee.
SECURITY HOLDINGS OF MANAGEMENT
The following table sets forth certain information regarding the ownership
of Sarnia's Common Stock and Preferred Stock by the Company's directors, the
Company's Chief Executive Officer and one other executive officer and the
Company's directors and executive officers as a group, as of September 30, 1997.
Shares of Common Stock Beneficially
Owned as of
Individual or Group September 30, 1997 (1)
------------------- -----------------------------------
Class and Number Percent
---------------- -------
Michael Markels, Jr.(2) Common 773,232 11.6%
Preferred 0 0%
Gerald T. Halpin(3) Common 648,250 9.7%
Preferred 10,000 33.3%
Thomas Hotz(4) Common 25,000 *
Preferred 0 0
Benjamin M. Rawls(5) Common 288,437 4.3%
Preferred 3,000 10.0%
Charles I. Judkins, Jr.(6) Common 325,514 4.9%
Preferred 3,000 10.0%
William G. Denbo(7) Common 13,487 *
Preferred 0 0
James N. Schwarz Common 0 0%
Preferred 0 0%
All directors and executive officers Common 2,099,857 31.4%
as a group (8 persons) Preferred 16,000 53.3%
- ---------
* Less than 1%
(1) For the purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule l3d-3 under the Securities Exchange
5
<PAGE>
Act of 1934, as amended, under which, in general, a person is deemed to be
the beneficial owner of a security if he or she has or shares the power to
vote or to direct the voting of the security or the power to dispose or to
direct the disposition of the security, or if he or she has the right to
acquire beneficial ownership of the security within 60 days of September
30,1997. With respect to ownership of shares which are held in the Versar
ESSOP but allocated to individuals' accounts, the unaudited information is
current as of September 30, 1997.
(2) Includes 331,500 shares owned by adult children of Dr. Markels as to which
he shares voting and investment power and 25,000 shares which Dr. Markels
has the right to acquire upon the exercise of options. Dr. Markels is a
Trustee of the Versar ESSOP and as such he has shared investment power over
377,139 shares, none of which are included in the above table. Dr. Markels
disclaims beneficial ownership of the shares held by the Versar ESSOP.
(3) Includes 625,000 shares Mr. Halpin has the right to acquire upon conversion
of shares of the Company's Preferred stock.
(4) Includes 25,000 shares which Mr. Hotz has the right to acquire upon the
exercise of options.
(5) Includes 50,000 shares Mr. Rawls has the right to acquire upon the exercise
of options and 187,000 shares Mr. Rawls has the right to acquire upon the
conversion of shares of the Company's Preferred Stock. Mr. Rawls is a
Trustee of the Versar ESSOP and as such he has shared investment power over
377,139 shares, none of which are included in the above table. Mr. Rawls
disclaims beneficial ownership of the shares held by the Versar ESSOP.
(6) Includes 50,000 shares Mr. Judkins has the right to acquire upon the
exercise of options and 187,500 shares Mr. Judkins has the right to acquire
upon the conversion of shares of the Company's Preferred Stock.
(7) Includes 10,000 shares Mr. Denbo has the right to acquire upon the exercise
of options.
6
<PAGE>
EXECUTIVE COMPENSATION
Cash Compensation
The following table sets forth information on compensation paid by Sarnia
for services rendered in all capacities during the three fiscal years ended June
30, 1997, to the Company's Chief Executive Officer, and the one other executive
officer who received compensation. Two other executive officers, Lawrence W.
Sinnott and Pamela J. John, received no compensation from the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------
Other Annual All Other
Name, Principal Position Salary Bonus Compensation Compensation
and Fiscal Year $(1) $ $ $
- --------------- ---- ----- ------------ ------------
<S> <C> <C> <C> <C>
Charles I. Judkins, Jr.
President and Chief Executive
Officer
1997 $35,096 0 0 $ 0
1996 35,888 0 0 0
1995 38,561 0 0 0
William G. Denbo
Vice President and General
Manager
1997 $71,265(2) $ 6,000 0 603(3)
1996 67,319 15,000 0 483(3)
1995 64,893 0 0 455(3)
</TABLE>
- ----------
(1) Mr. Judkins is presently being compensated by Sarnia at the rate of $528
per day worked and plans to work between 5 and 6 days a month.
(2) The salary for fiscal year 1997 reflects payments for 27 pay periods
instead of 26 due to the change in financial reporting by the Company. This
will not have any effect on the total salary received by Mr. Denbo for the
calendar year 1997.
(3) The amounts shown in this column for Mr. Denbo consist of payments for
insurance premiums on term life insurance.
No options or SAR's were granted to executive officers of Sarnia during the
fiscal year ended June 30, 1997.
7
<PAGE>
The following table sets forth certain information with respect to stock
options exercised and fiscal year end values of options held under the Company's
1994 Stock Option Plan during the fiscal year ended June 30, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Unexercised
In-the-Money
Options/SARs
Number of Securities Underlying at 6/30/97
Shares Unexercised Options/SARs
Acquired on Value at 6/30/97 Exercisable/
Exercise Realized (#) Unexercisable
Name (#) ($) Exercisable/Unexercisable (1)
---- ----------- -------- ------------------------------ -------------
<S> <C> <C> <C> <C>
Charles I. Judkins, Jr. 0 0 50,000/0 $7,813/0(2)
William G. Denbo 0 0 10,000/15,000 $3,125/$4,687
</TABLE>
- -----------
(1) On June 30, 1997, the closing price of the Company's Common Stock was
$0.3125.
(2) 25,000 options granted Mr. Judkins were out-of-the-money which means the
option exercise price for those options exceeds the closing price of the
Company's Common Stock on June 30, 1997.
8
<PAGE>
[Stock Performance Graph goes here]
CUMULATIVE SHAREHOLDER'S RETURN TABLE
Cumulative Shareholder's Return
Last trading date in fiscal years
------------------------------------------
1994 1995 1996 1997
---- ---- ---- ----
Sarnia Corporation $100 $100 $100 $100
Peer Group $100 $104 $126 $167
S&P 500 $100 $125 $158 $213
9
<PAGE>
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee ("Committee") of the Board of Directors has
furnished the following report on executive compensation for fiscal year 1997.
The Committee provides oversight of all policies under which compensation is
paid to the Company's executive officers and stock options are granted. The
Committee consists entirely of non-employee directors.
Compensation Policies
The Company's executive compensation policy is designed to establish
compensation levels to provide appropriate incentive and rewards to achieve or
exceed the financial goals set for each fiscal year. The purpose of such policy
is to enhance the Company's financial performance, maintain the existing assets,
and meet or exceed tenant service expectations, thus resulting in increased
shareholder value.
The Compensation Committee also believes it is in the Company's and its
stockholders' interest that stock ownership by management and stock-based
performance compensation arrangements be encouraged, thereby aligning
management's and shareholders' interest in the enhancement of shareholder value.
Thus, the Committee has also increasingly utilized these elements in the
Company's compensation packages for its executive officers.
In addition to base salaries, the compensation program includes an
incentive compensation plan consisting of employee cash bonuses and stock
options granted under the Company's 1994 Stock Option Plan. The overall
objective of the executive compensation policies is to connect compensation with
performance and attract and retain qualified individuals resulting in long term
growth of the Company.
Compensation
In determining compensation for fiscal year 1997, the Committee took into
account the strong financial performance of the Company for its third year
operation as an independent, publicly-owned entity. In fiscal year 1996, gross
revenue increased approximately 4% to $2,911,000 and net losses were
approximately the same as prior years. Further, the continued refinancing of the
Company's debt and renewal of key tenants position the Company for future
growth. In addition, the buildings were over 95% leased and major renovations
took place on the first and second floors of the 6850 Building.
Chief Executive Compensation
Charles I. Judkins, Jr., the Chief Executive Officer of the Company, was
paid $35,888 in fiscal year 1997; that was on the basis of $528 per day. It is
expected that compensation in fiscal year 1998 will remain at that level.
Other Executive Officers
In fiscal year 1997, William Denbo, Vice President and General Manager, was
paid $71,262 which reflected no salary increase in October 1997. In
consideration of Mr. Denbo's efforts in generating Sarnia's financial
performance and creating good tenant satisfaction, he was awarded a $6,000
bonus.
Michael Markels, Jr.
Gerald T. Halpin
10
<PAGE>
PROPOSAL NO. 2
AMENDMENT TO 1994 STOCK OPTION PLAN
On September 11, 1997, the Board of Directors adopted, subject to the
approval of the stockholders, an amendment to the Sarnia 1994 Stock Option Plan
("Plan") to increase the number of shares that may be issued upon exercise of
options issued under the Plan from 300,000 to 600,000.
Description of Proposal
Section 4 of the Plan currently provides that 300,000 shares of common
stock, no par value are subject to the Plan. If the Amendment is approved by the
Stockholders, the number of shares subject to the Plan would increase to 600,000
and Section 4 would read, in part:
The shares subject to the Plan shall be, in the aggregate, 600,000 shares
of the common stock of Sarnia Corporation, no par value....
Reasons of the Amendment
The purposes of the Plan are to provide an incentive to key employees of
the Company to be creative and diligent in the performance of their duties, to
encourage a sense of a proprietary interest in the Company by such key
employees, to encourage key employees, directors and selected service providers
to remain in the employ of the Company or to continue to provide needed
services, to attract new employees with outstanding qualifications and to
provide compensation to members of the Board of Directors. As of this date,
options for 262,500 shares have been granted to directors, key employees and
service providers. It is the Company's management belief that it have additional
options available to incentivize key employees and service providers to move to
the next level of business success and financial accomplishment. Also,
additional options are necessary to attract new directors to the Company if
there is a requirement to replace an existing director or to expand the
membership of the Board.
The Board believes it is in the Company's Stockholders' best interest for
the Committee to have the flexibility to issue these additional shares to
enhance employee performance.
Summary of the Plan
Set forth below is a description of the material terms of the Plan, as
amended, which is qualified by reference to the complete Plan, a copy of which
will be furnished to any Stockholder upon request to the Company in care of its
Secretary at 6850 Versar Center, Springfield, Virginia 22151.
The Plan was approved by the Board of Directors and the Stockholders on
September 12, 1994, and November 17, 1994, respectively and amendments to the
Plan were approved by the stockholders on November 16, 1995. Under the Plan,
options to purchase the Company's Common Stock may be granted to such employees
(the "Selected Employees") of the Company and to certain non-employees (the
"Service Providers") as are selected from time to time by the Committee.
Further, the Plan provides that on each anniversary of the effective date of the
Plan, that each non-employee director who on such anniversary date is a member
of the Board will be granted a Non-Qualified Stock Option with an exercise price
equal to the fair market value for either (1) 25,000 shares of Stock, if such
director shall have served at least one year on the Board as of such anniversary
date and has not yet been awarded an Option under the applicable Plan provision,
or (2) 500 shares of Stock if such director has already received an award of an
Option under the provision.
Other than the awards to non-employee directors described immediately
above, the number of options to be granted under the Plan is determined from
time to time by the Committee, which administers the Plan. The aggregate number
of shares of the Company's Common Stock that may be issued upon exercise of
options issued under the Plan is 300,000, which will be increased to 600,000 by
11
<PAGE>
the proposed Amendment, subject to adjustment in the case of stock splits, stock
dividends or recapitalization as provided for in the Plan. All officers and
employees of the Company are eligible to participate in the Plan.
Options issued under the Plan are designated as either Incentive Stock
Options or Non-Qualified Stock Options. Incentive Stock Options are options
meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and Non-Qualified Stock Options are options not intended
to so qualify. Service Providers are only eligible for Non-Qualified Stock
Options. The exercise price for any option granted under the Plan is determined
by the Committee. In the case of any Incentive Stock Option the exercise price
shall not be less than the Fair Market Value of the Company's Common Stock on
the date the option is granted, while Non-Qualified Options may have an exercise
price as low as 50 percent of Fair Market Value. For purposes of the Plan "Fair
Market Value" means the mean of the high and low price of the Company's Common
Stock as reported on the Over-the-Counter Market on the date of valuation. The
exercise price may be paid in cash or by delivery of shares of the Company's
Common Stock.
Currently, the Plan requires that each option granted be exercisable as to
20 percent of the shares covered thereby immediately upon, and during the first
year following, the date of grant and for an additional 20 percent of such
shares during each succeeding year as set forth above. The Plan provides that
the Committee, except for options granted the directors under Section 5(b), has
the discretion to alter this vesting schedule to provide that options granted
are fully exercisable upon the date of grant or to extend such vesting period
for up to 10 years on such schedule as the Committee deems appropriate. The
Committee also has the discretion to accelerate the vesting of all options that
have been granted.
Vote Required
The affirmative vote of the holders of a majority of the outstanding Common
Stock of the Company present, or represented and entitled to vote at the Annual
Meeting is required for approval of the Amendment to the Plan described above.
The Board of Directors recommends a vote "FOR" the Amendment and the enclosed
proxy will be voted for the Amendment unless a vote against the proposal or an
abstention is specifically indicated.
PROPOSAL NO. 3
APPOINTMENT OF ACCOUNTANTS
The Board of Directors considers it desirable that its appointment of the
firm of Arthur Andersen LLP ("Arthur Andersen") independent accountants of the
Company for fiscal year 1998 be ratified by the Stockholders. Arthur Andersen
served as the Company's independent accountants for fiscal years 1996 and 1997.
Representatives of Arthur Andersen will be present at the Annual Meeting, will
be given an opportunity to make a statement if they so desire, and will be
available to respond to appropriate questions from the Stockholders.
The Board of Directors recommends a vote "FOR" this proposal and the
enclosed proxy will be so voted unless the proxy specifically indicates
otherwise.
Change in Certifying Accountants
Price Waterhouse LLP ("PW") served as the Company's principal accountant
for the thirteen fiscal years ended June 30, 1995. Because Arthur Andersen
offered a more favorable pricing structure, the Audit Committee of the Company's
Board of Directors recommended that the Company not renew, and the Board of
Directors determined not to renew, the engagement of PW on October 2, 1995 and
selected Arthur Andersen as the Company's principal accountant. As stated above,
the Company has engaged Arthur Andersen, independent accountant, as the
principal accountant to audit the consolidated financial statements of the
Company for the three fiscal years 1994, 1995 and 1996.
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PW's report on the Company's financial statements for fiscal years 1994 and
1995 did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope, or accounting principles.
During the Company's two fiscal years and the subsequent interim period
preceding the replacement of PW, there were no disagreements with PW on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement(s), if not resolved to the
satisfaction of PW, would have caused it to make a reference to the subject
matter of the disagreement(s) in connection with its report. Further, PW did not
advise the Company during the Company's fiscal years 1994 and 1995 or during the
subsequent interim period preceding the Company's decision not to extend PW's
engagement of any "reportable events" as defined in subparagraph (a)(i)(v) of
Item 304 of Regulation S-K. PW was authorized by the Company to respond fully to
inquiries of Arthur Andersen. The Company had not consulted with Arthur Andersen
regarding application of accounting principles prior to their engagement.
Following the Board's decision on October 2, 1995, the Company provided
notice to PW and Arthur Andersen of its decision to replace PW with Arthur
Andersen and received a response from PW to the statements of the Company in
accordance with the requirements of Item 304(a) of Regulation S-K.
1998 ANNUAL MEETING
It is presently contemplated that the 1998 Annual Meeting of Stockholders
will be held on or about November 11, 1998. In order for any appropriate
Stockholder proposal to be included in the proxy materials for the 1998 Annual
Meeting of Stockholders, it must be received by the Secretary of the Company no
later than June 12, 1998, by certified mail, return receipt requested.
OTHER MATTERS
As of the date of this Proxy Statement, management of the Company has no
knowledge of any matters to be presented for consideration at the Annual Meeting
other than those referred to above. If any other matters properly come before
the Annual Meeting, the persons named in the accompanying proxy intend to vote
such proxy, to the extent entitled, in accordance with their best judgment.
By Order of the Board of Directors,
/s/ Pamela J. John
-----------------------------------
Pamela J. John
Secretary
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