<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] 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 Rule 14a-11(c) or Rule 14a-12
VCampus Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(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):
N/A
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
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[ ] 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:
N/A
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
VCAMPUS CORPORATION
1850 Centennial Park Drive, Suite 200
Reston, Virginia 20191
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 22, 2000
------------------
TO THE STOCKHOLDERS OF
VCAMPUS CORPORATION:
You are invited to attend the Annual Meeting of Stockholders of VCampus
Corporation, a Delaware corporation (the "Company"), to be held at the Company's
offices at 1850 Centennial Park Drive, Suite 200, Reston, Virginia on Thursday,
June 22, 2000 at 10:00 a.m., for the following purposes:
1. To elect a board of seven directors;
2. To reserve an additional 500,000 shares for issuance under our 1996
Stock Plan;
3. To ratify the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2000; and
4. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
The foregoing items are more fully described in the attached Proxy Statement.
The Board of Directors has fixed the close of business on April 28, 2000 as
the record date for the determination of stockholders entitled to notice of and
to vote at the meeting or any adjournment or adjournments thereof. You are
cordially invited to attend the meeting in person. However, to assure your
representation at the meeting, you are urged to mark, sign, date and return the
enclosed proxy card as promptly as possible in the postage-prepaid envelope
enclosed for that purpose. You may vote in person at the meeting, even if you
returned a proxy.
The Company's Proxy Statement and proxy is submitted herewith along with
the Company's Annual Report to Stockholders for the fiscal year ended December
31, 1999.
IMPORTANT -- YOUR PROXY IS ENCLOSED
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO EXECUTE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED FOR MAILING IN THE UNITED STATES.
By Order of the Board of Directors
Narasimhan P. Kannan,
Chairman of the Board and
Chief Executive Officer
Reston, Virginia
May 18, 2000
<PAGE> 3
VCAMPUS CORPORATION
1850 Centennial Park Drive, Suite 200
Reston, Virginia 20191
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 22, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by the Board of Directors of VCampus
Corporation, a Delaware corporation (the "Company"), for use at our Annual
Meeting of Stockholders to be held at our executive offices at 1850 Centennial
Park Drive, Suite 200, Reston, Virginia at 10:00 a.m. on Thursday, June 22,
2000, and any adjournments thereof (the "Meeting").
We will bear the cost of soliciting proxies. In addition to solicitation of
proxies by mail, our employees, without extra remuneration, may solicit proxies
personally or by telephone. We will reimburse brokerage firms and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
for forwarding proxy materials to beneficial owners and seeking instruction with
respect thereto.
Copies of this Proxy Statement and accompanying proxy card were mailed to
stockholders on or about May 18, 2000.
REVOCABILITY OF PROXIES
You have the power to revoke your proxy at any time before it is voted by
giving a later proxy or written notice to us (Attention: Corporate Secretary),
or by attending the Meeting and voting in person.
VOTING
When the enclosed proxy is properly executed and returned (and not
subsequently properly revoked), the shares it represents will be voted in
accordance with the directions indicated thereon, or, if no direction is
indicated thereon, it will be voted:
(1) FOR the election of the seven nominees for director identified below;
(2) FOR the reservation of an additional 500,000 shares for issuance under
our 1996 Stock Plan;
(3) FOR ratification of the appointment of Ernst & Young LLP, Vienna,
Virginia, as independent auditors of the Company for the fiscal year
ending December 31, 2000; and
(4) in the discretion of the proxies with respect to any other matters
properly brought before the stockholders at the Meeting.
RECORD DATE
Only the holders of record of the our common stock, Series C preferred
stock, Series D preferred stock and Series E preferred stock at the close of
business on the record date, April 28, 2000 (the "Record Date"), are entitled to
notice of and to vote at the Meeting. On the Record Date, 8,055,143 shares of
common stock, 623,339 shares of Series C preferred stock, 1,073,370 shares of
Series D preferred stock and 118,913 shares of Series E preferred stock were
outstanding. Stockholders will be entitled to one vote for each share of common
stock and preferred stock held on the Record Date.
<PAGE> 4
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
NOMINEES
Our Bylaws provide that the number of directors constituting the Board of
Directors shall be no less than five nor greater than nine. Although the number
of directors is currently eight, the number authorized to be elected at the
Meeting is seven. Therefore, seven directors are to be elected to serve for one
year, until the election and qualification of their successors, and it is
intended that proxies, not limited to the contrary, will be voted FOR all of the
management nominees named below. If any such nominee is unable or declines to
serve as a director at the time of the Meeting, the individuals named in the
enclosed proxy may exercise their discretion to vote for any substitute proposed
by the Board of Directors. We do not anticipate that any nominee listed below
will be unable or will decline to serve as a director. None of the directors or
nominees is related by blood, marriage or adoption to any other nominee or any
of our executive officers.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
---- --- --------------
<S> <C> <C>
Narasimhan P. Kannan...................................... 51 1984
Edson D. deCastro......................................... 61 1994
Barry K. Fingerhut........................................ 54 1996
Kamyar Kaviani............................................ 38 1997
William E. Kimberly....................................... 67 1995
John D. Sears............................................. 45 1998
Ashok Trivedi............................................. 51 2000
Director not standing for re-election
Steven M. H. Wallman...................................... 46 1997
</TABLE>
Narasimhan P. "Nat" Kannan has served as our Chief Executive Officer and
Chairman of the Board of Directors since he founded the Company in 1984. Prior
to founding the Company, he co-founded Ganesa Group, Inc., a developer of
interactive graphics and modeling software, in 1981. Prior thereto, he served as
a consultant to Booz Allen and Hamilton, Inc., the MITRE Corporation, The
Ministry of Industry of the French Government, the Brookhaven and Lawrence
Livermore National Laboratories, the White House Domestic Policy Committee on
Energy, and Control Data Corporation. He serves on the board of directors of TV
on the Web, Inc. He holds a B.S. in Engineering from the Indian Institute of
Technology in Madras, India, and he performed advanced graduate work in business
and engineering at Dartmouth College.
Edson D. deCastro has been a director since 1994. From June 1995 to January
1997 Mr. deCastro served as Chief Executive Officer of Xenometrix, Inc. and
served as its Chairman from 1992 until November 1997. Mr. deCastro was the
founder of Data General Corporation and served as its Chief Executive Officer
from 1968 to 1990. From January 1990 to June 1995, Mr. deCastro was an
independent contractor. Mr. deCastro now works as a consultant. Mr. deCastro
also serves on the boards of directors of Boston Life Sciences, Inc., Avax
Technologies, Inc., Eprise Corp. and Healthgate Data Corp., all public
companies. He holds a B.S. in Electrical Engineering from the University of
Lowell.
Barry K. Fingerhut has been a director since August 1996. Since 1981 he has
been employed by GeoCapital, a registered investment advisor, and has served as
its President since 1991. Mr. Fingerhut is an officer and co-founder of the
Wheatley Partnerships, investment partnerships. In addition, he is an officer of
a General Partner of 21st Century Communications Partners, L.P., also an
investment partnership. Mr. Fingerhut serves as a director of several private
companies. Mr. Fingerhut holds a B.S. from the University of Maryland and an
M.B.A. with a concentration in Finance/Investments from New York University.
Kamyar Kaviani has been a director since November 1997. Mr. Kaviani joined
us as Executive Vice President upon our acquisition of HTR, Inc. in October
1997. Prior to such acquisition, Mr. Kaviani co-founded HTR in 1987 and has
served as its Chairman and Chief Executive Officer since that time. Mr. Kaviani
holds a B.A. in Economics from the University of Maryland.
2
<PAGE> 5
William E. Kimberly has been a director since October 1995. Mr. Kimberly
served as the President of the Manchester Group, Ltd., an investment banking
firm, from 1990 to 1994, and as Chairman of NAZTEC International Group, Inc.,
its successor, since 1994. Prior thereto, Mr. Kimberly served in various senior
executive capacities for 23 years for Kimberly Clark Corporation. Mr. Kimberly
also serves as a director of Sytel Corporation. He is a member of the Board of
Trustees of The Asheville School and the Pan American Development Foundation.
John D. Sears has been a director since 1998 and has been employed in
various executive capacities by the University of Phoenix since 1987, currently
serving as Vice President of the Office of Institutional Development, and prior
thereto as the Vice President of the Center for Distance Education. Mr. Sears
holds a B.A. from the University of Notre Dame and a Masters in Business
Administration from the University of Denver.
Ashok Trivedi has been a director since March 2000. Mr. Trivedi is the
Co-Chairman, President and Co-Founder of iGate Capital Corporation (f/k/a
Mastech Corporation), a corporation founded in 1986. Prior thereto, Mr. Trivedi
served as Product Manager for Unisys Corporation, where he was employed for 12
years. Mr. Trivedi holds a Masters in Business Administration from Ohio
University as well as Masters and Bachelors degrees in Physics from Delhi
University in India.
DIRECTOR NOT STANDING FOR RE-ELECTION
Steven M. H. Wallman has been a director since November 1997. From July
1994 to October 1997, Mr. Wallman served as a Commissioner of the U.S.
Securities and Exchange Commission. From 1986 to 1994, he was a partner with the
law firm of Covington & Burling. Mr. Wallman now serves as a Non-Resident Senior
Fellow at The Brookings Institution, Washington, D.C., as a consultant, and
since July 1998 has served as the Chief Executive Officer and a director of
FOLIO[fn] Inc., a private internet financial services company. He holds an S.B.
from the Massachusetts Institute of Technology, an S.M. from the Massachusetts
Institute of Technology, Sloan School of Management, and a J.D. from Columbia
University School of Law.
RIGHTS TO NOMINATE DIRECTORS
So long as iGate Capital Corporation (f/k/a Mastech Corporation) holds more
than 5% of our outstanding common stock, we have agreed to nominate one
representative selected by iGate and acceptable to our Nominating Committee for
election to our Board of Directors. Any executive officer of iGate is presumed
to be acceptable to us. Mr. Trivedi is this year's iGate nominee.
So long as US West Internet Ventures, Inc., a subsidiary of US West, Inc.,
or its affiliates holds at least 200,000 shares of our common stock, a designee
of US West reasonably acceptable to us has the right to be included as a
management nominee for election to the Board. This Board nomination right
terminates upon the earliest of (a) April 20, 2003, or (b) the closing of a
merger or sale of the Company or a change of control transaction involving the
Company. US West has not yet submitted its designee for election to our Board.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business of the Company is under the general management of the Board of
Directors as provided by the laws of Delaware and the Bylaws of the Company.
During the fiscal year ended December 31, 1999, the Board of Directors held four
formal meetings, excluding actions by unanimous written consent. Each Member of
the Board attended at least 75% of the fiscal 1999 meetings of Board of
Directors and Board committees of which he was a member.
The Board of Directors has an Audit Committee, a Compensation Committee and
a Nominating Committee. The Audit Committee currently consists of Messrs.
Wallman, Kimberly and Sears, although Mr. Wallman will be leaving the Board
effective on the date of the Meeting. During 1999, the Audit Committee held
three formal meetings, excluding actions by unanimous written consent. The Audit
Committee reviews the results and scope of the audit and other services provided
by the Company's independent auditors. The Compensation Committee currently
consists of Messrs. deCastro and Fingerhut.
3
<PAGE> 6
During 1999, the Compensation Committee held no formal meetings, instead taking
action exclusively by unanimous written consent. The Compensation Committee
makes recommendations to the Board of Directors regarding salaries and incentive
compensation for our officers, and determines the amount and type of equity
incentives granted to participants in our 1996 Stock Plan. The Nominating
Committee currently consists of Messrs. Kannan and Fingerhut. The Nominating
Committee makes recommendations to the Board regarding the slate of directors to
be nominated for election at our annual meetings of stockholders.
VOTE REQUIRED
The seven nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted at the Meeting shall be
elected as our directors. Votes withheld from any director will be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business, but have no other effect under Delaware law. However, because
directors are elected by a plurality vote, abstentions in the election of
directors have no effect once a quorum exists. Furthermore, shares represented
by proxies returned by a broker holding such shares in nominee or "street" name
will be counted as present or represented for purposes of determining the
presence or absence of a quorum for the transaction of business, even if such
shares are not voted in matters where discretionary voting by the broker is not
allowed ("broker non-votes"). Withheld votes and broker non-votes, if any, are
not treated as votes cast and therefore, will have no effect on the proposal to
elect directors.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE ELECTION OF THE MANAGEMENT NOMINEES LISTED ABOVE.
PROPOSAL NO. 2 -- APPROVAL OF AMENDMENT TO THE 1996 STOCK PLAN
Our 1996 Stock Plan (the "1996 Plan") was adopted and approved by the Board
of Directors in August 1996 and by our stockholders in September 1996. A total
of 3,024,893 shares of common stock have been reserved for issuance under the
1996 Plan, 500,000 of which are subject to stockholder approval at the Meeting.
As of April 30, 2000, 33,984 shares of common stock had been issued upon
exercise of options granted under the 1996 Plan, and options for 1,572,239
shares were outstanding thereunder at a weighted average exercise price of
$10.49 per share. The 1996 Plan also allows for the grant of purchase rights,
under which 27,619 shares have been purchased to date. Absent stockholder
approval, only 891,051 shares remain available for issuance under the 1996 Plan
as incentive stock options and all future grants from the 500,000 shares subject
to this proposal will not qualify as incentive stock options.
The 1996 Plan provides for the grant of "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), solely to employees (including officers and employee directors), and
nonstatutory stock options to employees, directors and consultants.
In order to tie director compensation more directly to the individual
director's contributions to the Company, the 1996 Plan includes an automatic
grant program for non-employee directors. This program provides for automatic
grants on January 1 of each year to directors who are not employees of the
Company of an option to purchase 10,000 shares. In addition, in the case of a
new director, automatic grants shall be effective upon such director's initial
election or appointment to the Board with the number of underlying shares equal
to the product of 2,500 multiplied by the number of regularly scheduled meetings
remaining in that year. Subject to continued status as a director, options
granted pursuant to the automatic grant program vest 25% per year on each of the
fifth, sixth, seventh and eighth anniversaries of the date of grant; provided,
however, that 2,500 shares vest on each date the director attends a Board
meeting in person during that year. In addition, each such director will
automatically be granted a fully-vested option to purchase an additional 2,500
shares on each date the director attends a meeting of a committee of the Board
other than on the same day or within one day of a Board meeting.
As of April 30, 2000, approximately 100 persons were eligible to receive
grants under the 1996 Plan. The 1996 Plan is administered by the Compensation
Committee of the Board of Directors. Subject to the restrictions of the 1996
Plan, the Compensation Committee determines who is granted options, the terms of
options granted, including exercise price, the number of shares subject to the
option and the option's exercisability. The current members of the Compensation
Committee are Messrs. deCastro and Fingerhut.
4
<PAGE> 7
The exercise price of options granted under the 1996 Plan is determined on
the date of grant, and in the case of incentive stock options must be at least
100% of the fair market value per share at the time of grant. The exercise price
of any option granted to an optionee who owns stock possessing more than 10% of
the voting power of our outstanding capital stock must equal at least 110% of
the fair market value of the common stock on the date of grant. The aggregate
fair market value of common stock (determined as of the date of the option
grant) for which incentive stock options may for the first time become
exercisable by any individual in any calendar year may not exceed $100,000.
Payment of the exercise price may be made by delivery of cash or a check to the
order of the Company, or by any other means determined by the Board of
Directors.
Options granted to employees under the 1996 Plan generally become
exercisable in increments, based on the optionee's continued employment with us,
over a period of up to five years. The term of an incentive stock option may not
exceed 10 years. The form of option agreement generally provides that options
granted under the 1996 Plan, whether incentive stock options or nonstatutory
options, expire 10 years from the date of grant. Incentive stock options granted
pursuant to the 1996 Plan are not transferable by the optionee, other than by
will or the laws of descent and distribution, and are exercisable during the
optionee's lifetime only by the optionee. Generally, in the event of a merger of
the Company with or into another corporation or a sale of all or substantially
all of our assets, all outstanding options under the 1996 Plan shall accelerate
and become fully exercisable upon consummation of such merger or sale of assets.
The Board may amend the 1996 Plan at any time or from time to time or may
terminate the 1996 Plan without the approval of the stockholders, provided that
stockholder approval is required for any amendment to the 1996 Plan requiring
stockholder approval under applicable law as in effect at the time. However, no
action by the Board of Directors or stockholders may alter or impair any option
previously granted under the 1996 Plan. The Board may accelerate the
exercisability of any option or waive any condition or restriction pertaining to
such option at any time. The 1996 Plan will terminate in August 2006, unless
terminated sooner by the Board.
TAX CONSEQUENCES OF OPTIONS
An optionee who is granted an incentive stock option will generally not
recognize taxable income either at the time the option is granted or upon its
exercise, although the exercise will increase the optionee's alternative minimum
taxable income by an amount equal to the difference, if any, between the fair
market value of the shares at the time of exercise and the option's exercise
price, and therefore may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and more than one year after exercising the option, any gain or loss will
be treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option's exercise or (ii)
the sale price of the shares. We will be entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized as long-term or short-term
capital gain or loss, depending on the optionee's holding period with respect to
such shares.
All other options that do not qualify as incentive stock options are
referred to as nonstatutory options. Generally, an optionee will not recognize
any taxable income at the time he or she is granted a nonstatutory option. Upon
its exercise, however, the optionee will generally recognize taxable ordinary
income measured as the excess of the then fair market value of the shares
acquired over the exercise price of the option. Any taxable income recognized in
connection with an option exercise by an optionee who is also one of our
employees will be subject to tax withholding by us. We will be entitled to a tax
deduction in the same amount as the ordinary income recognized by the optionee
with respect to shares acquired upon exercise of a nonstatutory option. Upon
resale of such shares by the optionee, any difference between the sales price
received and the fair market value for the shares on the date of exercise of the
option will be treated as long-term or short-term capital gain or loss,
depending on the optionee's holding period with respect to such shares.
The foregoing is only a summary, based on the current Code and Treasury
Regulations thereunder, of the federal income tax consequences to the optionee
and the Company with respect to the grant and exercise of
5
<PAGE> 8
options under the 1996 Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
PROPOSED AMENDMENT
In April 2000, the Board of Directors adopted an amendment to the 1996 Plan
to increase the number of shares reserved for issuance thereunder by 500,000
shares, from 2,524,893 shares to 3,024,893 shares (the "Share Amount
Amendment"). Without giving effect to the Share Amount Amendment, as of April
30, 2000, only 891,051 shares remained available for future grant as incentive
stock options under the 1996 Plan, which will not allow us to meet our
anticipated needs with respect to the issuance of such additional options to our
employees and consultants. Absent stockholder approval, all future grants from
the 500,000 additional shares subject to this proposal will fail to qualify for
favorable tax treatment as incentive stock options.
At the Meeting, we are asking the stockholders to approve the Share Amount
Amendment.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of our
common stock and preferred stock present or represented and voting together as
one class on this proposal at the Meeting will be required to approve the Share
Amount Amendment. Failure to obtain stockholder approval of the Share Amount
Amendment will prevent us from granting incentive stock options out of the
additional 500,000 shares, but will not necessarily prevent us from otherwise
granting other awards under the 1996 Plan.
Votes withheld on this proposal will be counted for purposes of determining
the presence or absence of a quorum for the transaction of business and will be
treated as shares represented and voting on this proposal at the Meeting. In
accordance with Delaware law, abstentions will be counted for purposes of
determining both whether a quorum is present at the Meeting and the total number
of shares represented and voting on this proposal. While broker non-votes will
be counted for purposes of determining the presence or absence of a quorum,
broker non-votes will not be counted for purposes of determining the number of
shares represented and voting with respect to the particular proposal on which
the broker has expressly not voted and, accordingly, will not affect the
approval of this proposal.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
THE PROPOSED AMENDMENT TO THE 1996 PLAN.
PROPOSAL NO. 3 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Our Board of Directors has appointed the firm of Ernst & Young LLP, Vienna,
Virginia, to serve as our independent auditors for the fiscal year ending
December 31, 2000, and recommends that the stockholders ratify such action.
Ernst & Young LLP has audited our accounts since 1994 and has advised us that it
does not have, and has not had, any direct or indirect financial interest in the
Company or its subsidiaries in any capacity other than that of serving as
independent auditors. Representatives of Ernst & Young LLP are expected to
attend the Meeting. They will have an opportunity to make a statement, if they
desire to do so, and will also be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares of our
common stock and preferred stock present or represented and voting together as
one class on this proposal at the Meeting shall constitute ratification of the
appointment of Ernst & Young LLP. If the appointment of Ernst & Young LLP is not
ratified by the stockholders, the Board of Directors will reconsider its
selection.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
6
<PAGE> 9
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of shares of our common stock and preferred stock as of the Record Date by (1)
each person known by us to beneficially own more than 5% of the outstanding
shares of any class of our capital stock, (2) each of our directors and director
nominees, (3) each of the Named Officers, as listed under "-- Executive
Compensation -- Summary Compensation" below, and (4) all of our directors and
executive officers as a group. As of the Record Date we had outstanding (a)
8,055,143 shares of common stock, (b) 623,339 shares of Series C preferred stock
(convertible into 755,549 shares of common stock based on a conversion ratio of
1.2121-for-1), (c) 1,073,370 shares of Series D preferred stock convertible into
common stock on a one-for-one basis, and (d) 118,913 shares of Series E
preferred stock convertible into common stock on a one-for-one basis. Share
ownership in the case of common stock includes shares issuable upon conversion
of preferred stock into common stock, and exercise of warrants and options that
may be exercised in each case within 60 days after the Record Date for purposes
of computing the percentage of common stock owned by such person but not for
purposes of computing the percentage owned by any other person. Percentage
voting power is calculated assuming the common stock and all series of preferred
stock vote together as one class with each share of common stock and preferred
stock entitled to one vote. Except as indicated in the footnotes to this table,
the persons named in this table have sole voting and investment power with
respect to all shares of common stock and preferred stock indicated below.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------
SERIES C
COMMON STOCK PREFERRED STOCK
--------------------- ---------------------
NUMBER PERCENT NUMBER PERCENT
NAME OF SHARES OF SHARES OF SHARES OF CLASS
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Barry K. Fingerhut (1)(10).............. 1,485,857 16.5% 229,839 36.9%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
iGate Capital Corporation (2)........... 1,436,253 17.2% -- --
1004 McKee Road
Oakdale, PA 15071
Barry Rubenstein(3)(10)................. 1,201,332 13.5% 218,612 35.1%
68 Wheatley Road
Brookville, NY 11545
Irwin Lieber(4)(10)..................... 1,176,502 13.2% 207,387 33.3%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
Seth Lieber(5)(10)...................... 1,109,012 12.6% 192,025 30.8%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
Jonathan Lieber(6)(10).................. 1,106,200 13.1% 192,025 30.8%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
Wheatley Partners, L. P.(7)(10)......... 1,099,666 12.5% 189,071 30.3%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
Wheatley Foreign Partners, L. P.
(8)(10)............................... 1,099,666 12.5% 189,071 30.3%
Third Floor, One Capital Place
George Town, Grand Cayman
Cayman Islands, B. W. I.
Wheatley Partners, LLC(9)(10)........... 1,099,666 12.5% 189,071 30.3%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
US West Internet Ventures, Inc(11)...... 714,284 8.5% -- --
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------
SERIES D SERIES E
PREFERRED STOCK PREFERRED STOCK PERCENTAGE
--------------------- --------------------- TOTAL
NUMBER PERCENT NUMBER PERCENT VOTING
NAME OF SHARES OF CLASS OF SHARES OF CLASS POWER
---- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Barry K. Fingerhut (1)(10).............. 409,090 38.1% -- -- 12.0%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
iGate Capital Corporation (2)........... -- -- -- -- 11.5%
1004 McKee Road
Oakdale, PA 15071
Barry Rubenstein(3)(10)................. 381,817 35.6% -- -- 9.5%
68 Wheatley Road
Brookville, NY 11545
Irwin Lieber(4)(10)..................... 381,817 35.6% -- -- 9.4%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
Seth Lieber(5)(10)...................... 363,636 33.9% -- -- 8.9%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
Jonathan Lieber(6)(10).................. 363,636 33.9% -- -- 8.8%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
Wheatley Partners, L. P.(7)(10)......... 363,636 33.9% -- -- 8.8%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
Wheatley Foreign Partners, L. P.
(8)(10)............................... 363,636 33.9% -- -- 8.8%
Third Floor, One Capital Place
George Town, Grand Cayman
Cayman Islands, B. W. I.
Wheatley Partners, LLC(9)(10)........... 363,636 33.9% -- -- 8.8%
80 Cuttermill Road, Suite 311
Great Neck, NY 11021
US West Internet Ventures, Inc(11)...... -- -- -- -- 3.6%
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------
SERIES C
COMMON STOCK PREFERRED STOCK
--------------------- ---------------------
NUMBER PERCENT NUMBER PERCENT
NAME OF SHARES OF SHARES OF SHARES OF CLASS
---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Hambrecht & Quist Guaranty Finance,
LLC................................... 118,913 1.6% -- --
One Bush Street
San Francisco, CA 94101
Kamyar Kaviani(12)...................... 318,061 3.9% -- --
Farzin Arsanjani(13).................... 228,315 2.8% -- --
Narasimhan P. Kannan(14)................ 218,020 2.7% -- --
William E. Kimberly(15)................. 95,915 1.2% -- --
Steven M. H. Wallman(16)................ 71,923 * -- --
Michael W. Anderson(17)................. 39,112 * -- --
Michael A. Schwien(18).................. 35,750 * -- --
Edson D. deCastro(18)................... 24,298 * -- --
John D. Sears(18)....................... 17,500 * -- --
Ashok Trivedi(18)....................... 2,500 -- -- --
All directors and executive officers as
a group (8 directors and 5 executive
officers)(19)......................... 2,539,751 27.1% 229,839 36.7%
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------
SERIES D SERIES E
PREFERRED STOCK PREFERRED STOCK PERCENTAGE
--------------------- --------------------- TOTAL
NUMBER PERCENT NUMBER PERCENT VOTING
NAME OF SHARES OF CLASS OF SHARES OF CLASS POWER
---- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Hambrecht & Quist Guaranty Finance,
LLC................................... -- -- 118,913 100% 1.3%
One Bush Street
San Francisco, CA 94101
Kamyar Kaviani(12)...................... 68,358 6.4% -- -- 3.1%
Farzin Arsanjani(13).................... 56,834 5.3% -- -- 2.2%
Narasimhan P. Kannan(14)................ -- -- -- 1.9%
William E. Kimberly(15)................. -- -- -- -- *
Steven M. H. Wallman(16)................ -- -- -- -- *
Michael W. Anderson(17)................. -- -- -- -- *
Michael A. Schwien(18).................. -- -- -- -- *
Edson D. deCastro(18)................... -- -- -- -- *
John D. Sears(18)....................... -- -- -- -- *
Ashok Trivedi(18)....................... -- -- -- -- *
All directors and executive officers as
a group (8 directors and 5 executive
officers)(19)......................... 534,282 49.4% -- -- 20.0%
</TABLE>
- ---------------
* Less than one percent.
(1) Consists of: (i) 228,054 shares of common stock, 45,835 shares of common
stock issuable upon conversion of Series C preferred stock, 45,454 shares
of common stock issuable upon conversion of Series D preferred stock,
37,814 shares of common stock issuable upon exercise of warrants which are
currently exercisable and 22,500 shares of common stock issuable upon
exercise of options which are currently exercisable, all held by Mr.
Fingerhut; (ii) 298,242 and 19,541 shares of common stock, 211,231 and
17,945 shares of common stock issuable upon conversion of Series C
preferred stock, 335,162 and 28,474 shares of common stock issuable upon
conversion of Series D preferred stock and 174,266 and 14,805 shares of
common stock issuable upon exercise of warrants which are currently
exercisable, all held by Wheatley Partners, L.P. and Wheatley Foreign
Partners, L.P., respectively, two investment partnerships of which Mr.
Fingerhut serves as an officer of the General Partner; and (iii) 3,580
shares of common stock issuable upon conversion of Series C preferred stock
and 2,954 shares of common stock issuable upon exercise of warrants which
are currently exercisable held in a joint account with respect to which Mr.
Fingerhut has investment and voting power. Mr. Fingerhut disclaims
beneficial ownership of the shares held by Wheatley Partners, L.P. and
Wheatley Foreign Partners, L.P., except to the extent of his pecuniary
interest therein.
(2) Includes 300,000 shares issuable upon exercise of a warrant.
(3) Consists of 1,099,666 shares beneficially owned by Wheatley Partners, L.P.
and Wheatley Foreign Partners, L.P., with respect to each of which Mr.
Rubenstein is the CEO of the general partner, and 35,806 shares of common
stock issuable upon conversion of Series C preferred stock, 18,181 shares
of common stock issuable upon conversion of Series D preferred stock,
29,541 shares of common stock issuable upon exercise of warrants and 18,138
shares of common stock, held by three investment partnerships with respect
to which Mr. Rubenstein is a general partner.
(4) Consists of: (i) 1,099,666 shares beneficially owned by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P. , with respect to each of which
Mr. Leiber may be deemed to share voting and dispositive power; (ii) 4,297
shares of common stock issuable upon conversion of Series C preferred stock
and 3,545 shares of common stock issuable upon exercise of a warrant, both
held by Mr. Leiber's child; and (iii) 14,771 shares of common stock
issuable upon exercise of a warrant, 17,904 shares of common stock issuable
upon exercise of Series C preferred stock, 18,181 shares of common stock
issuable upon exercise of Series D preferred stock and 18,138 shares of
common stock, all held by Mr. Leiber.
(5) Consists of: (i) 1,099,666 shares beneficially owed by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P., with respect to which Mr. Leiber
may be deemed to share voting and dispositive power; and (ii) 2,954 shares
of common stock issuable upon exercise of a warrant, 3,580 shares of common
stock issuable upon conversion of Series C preferred stock and 2,812 shares
of common stock, all held by Mr. Leiber.
(6) Consists of: (i) 1,099,666 shares beneficially owned by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P., with respect to which Mr. Leiber
may be deemed to share voting and dispositive power; and (ii) 3,580 shares
of common stock issuable upon conversion of Series C preferred stock and
2,954 shares of common stock issuable upon exercise of a warrant, all held
by Mr. Leiber.
(7) Includes: (i) 211,231 shares of common stock issuable upon conversion of
Series C preferred stock; (ii) 174,266 shares of common stock issuable upon
exercise of warrants which are currently exercisable; (iii) 335,162 shares
of common stock issuable upon conversion of Series D preferred stock; and
(iv) 19,541 shares of common stock, 14,805 shares of common stock issuable
upon exercise of a warrant, 17,945 shares of common stock issuable upon
conversion of Series C preferred stock and 28,474 shares of common stock
issuable upon conversion of Series D preferred stock, all held by Wheatley
Foreign Partners, L.P. Wheatley Partners, L.P. disclaims beneficial
ownership of the shares held by Wheatley Foreign Partners, L.P., except to
the extent of its pecuniary interest therein.
8
<PAGE> 11
(8) Includes 1,018,901 shares beneficially held by Wheatley Partners, L.P.
Wheatley Foreign Partners, L.P. disclaims beneficial ownership of such
securities, except to the extent of its pecuniary interest therein.
(9) Consists of 1,099,666 shares beneficially owned by Wheatley Partners, L.P.
and Wheatley Foreign Partners, L.P., with respect to each of which Wheatley
Partners, LLC is a general partner.
(10) Based on the Schedule 13D amendment filed as of August 11, 1999 with the
SEC by this stockholder and a group of affiliated investors. These share
numbers also include the annual 5% dividend on the Series D preferred stock
paid in shares of common stock in June and December 1999.
(11) Includes 357,142 shares of common stock issuable upon exercise of a warrant
that is currently exercisable. Excludes 357,142 shares of common stock
issuable upon exercise of a warrant that is not exercisable within 60 days
from the Record Date.
(12) Includes 15,500 shares of common stock issuable upon exercise of options
which are currently exercisable and 68,358 shares of common stock issuable
upon conversion of Series D preferred stock.
(13) Includes 56,834 shares of common stock issuable upon conversion of Series D
preferred stock and 15,500 shares of common stock issuable upon exercise of
options which are currently exercisable.
(14) Includes 169,092 shares of common stock held by two trusts of which Mr.
Kannan and his wife are co-trustees; 8,513 shares of common stock held by a
limited partnership as to which Mr. Kannan and his wife are the general
partners, and 28,513 shares of common stock issuable upon exercise of
options which are currently exercisable.
(15) Includes 44,298 shares of common stock issuable upon exercise of options
which are currently exercisable, as well as 8,344 outstanding shares of
common stock held by Elena Kimberly, Mr. Kimberly's wife.
(16) Includes 37,500 shares of common stock issuable upon exercise of options
which are currently exercisable.
(17) Includes 38,812 shares of common stock issuable upon exercise of options
which are currently exercisable.
(18) Consists of shares of common stock issuable upon exercise of options which
are currently exercisable.
(19) Includes the shares (including shares underlying options and warrants)
discussed in footnotes (12)-(18).
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth all compensation paid by us for services
rendered to us in all capacities for the fiscal years ended December 31, 1997,
1998 and 1999 to our Chief Executive Officer and our four other highest-paid
executive officers who earned at least $100,000 in the respective fiscal year
(collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------- ------------
STOCK
FISCAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION
--------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Narasimhan P. Kannan.................... 1999 $180,000 $ 3,900 102,000 $ 1,242(3)
Chairman and Chief Executive Officer 1998 $195,000(1) $ -- 189,013 $46,077(2)
1997 $164,123 $ 32,500 -- $ 1,080(3)
Kamyar Kaviani.......................... 1999 $149,903 $ 73,250 2,000 $ 9,600(4)
Executive Vice President 1998 $154,583 $310,500 -- $ 9,600(4)
1997 $113,595 $ -- 70,900 $--
Farzin Arsanjani........................ 1999 $150,000 $ 73,250 2,000 $ 9,600(4)
Executive Vice President 1998 $154,583 $310,500 20,000 $ 9,600(4)
1997 $112,732 $ -- 70,900 $--
Michael W. Anderson..................... 1999 $159,996 $ 3,467 12,000 $--
Chief Operating Officer 1998 $144,848 $ -- 70,300 $--
1997 $138,337 $ 25,833 -- $12,155(5)
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------- ------------
STOCK
FISCAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION
--------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael A. Schwien...................... 1999 $101,457 $ 2,492 32,000 $--
Acting Chief Financial Officer
</TABLE>
- ---------------
(1) Includes $15,000 of salary for Mr. Kannan from December 1997 that was paid
in 1998.
(2) Consists of $1,566 of taxable premiums paid for life insurance and $44,511
of accrued vacation paid in the form of common stock.
(3) Consists of taxable premiums paid for life insurance.
(4) Consists of expenses for automobile allowance.
(5) Consists of moving expenses.
Option Grants, Exercises and Holdings and Fiscal Year-End Option Values.
The following table summarizes all option grants during the year ended
December 31, 1999 to the Named Officers:
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SHARES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ------------------------------
NAME GRANTED IN 1999 PER SHARE DATE 5% 10%
---- ---------- ---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Narasimhan P. Kannan........... 100,000 28.9% $3.75 9/09/09 $235,835 $597,653
2,000 0.6% $3.75 9/09/09 $ 4,717 $ 11,953
Kamyar Kaviani................. 2,000 0.6% $3.75 9/09/09 $ 4,717 $ 11,953
Farzin Arsanjani............... 2,000 0.6% $3.75 9/09/09 $ 4,717 $ 11,953
Michael Anderson............... 10,000 2.9% $3.75 9/09/09 $ 23,584 $ 59,765
2,000 0.6% $3.75 9/09/09 $ 4,717 $ 11,953
Michael A. Schwien............. 30,000 8.7% $3.75 9/09/09 $ 70,751 $179,296
2,000 0.6% $3.75 9/09/09 $ 4,717 $ 11,953
</TABLE>
- ---------------
(1) The compounding assumes a 10-year exercise period for all option grants.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the common stock and overall stock market conditions. The
amounts reflected in this table may not be necessarily achieved.
10
<PAGE> 13
No stock options were exercised by the Named Officers during 1999. The
following table sets forth certain information concerning the number and value
of unexercised options held by the Named Officers as of December 31, 1999:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999 AT DECEMBER 31, 1999 (1)
--------------------------------- ---------------------------------
NAME EXERCISABLE(2) UNEXERCISABLE(2) EXERCISABLE(2) UNEXERCISABLE(2)
---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Narasimhan P. Kannan.................. 28,513 262,500 $0 $0
Kamyar Kaviani........................ 15,500 57,400 $0 $0
Farzin Arsanjani...................... 15,500 77,400 $0 $0
Michael W. Anderson................... 38,812 95,000 $0 $0
Michael A. Schwien.................... 4,500 50,000 $0 $0
</TABLE>
- ---------------
(1) Options are considered in-the-money if the market value of the shares
covered thereby is greater than the option exercise price. None of the
listed options had any value at December 31, 1999 because all of their
exercise prices were higher than the fair market value of the shares on that
date ($3.125), as quoted on the Nasdaq Stock Market.
(2) The first number represents the number or value (as called for by the
appropriate column) of exercisable options; the second number represents the
number or value (as appropriate) of unexercisable options.
EMPLOYMENT AGREEMENTS
Under the terms of our form of employment agreement for executive officers,
such officers are entitled to annual incentive-based bonus compensation of up to
50% of their base salary. The exact amount of such compensation is determined by
the Board of Directors, generally based upon the achievement of specified
performance goals established by the Board. Under such agreements, executive
officers are also eligible to participate in all employee benefit plans and
programs that we offer to our executive employees and are entitled to
reimbursement for all documented reasonable business expenses they incur.
Generally, consistent with Company policies, in the event that an executive
officer is terminated without cause or resigns for good cause, we are required
under our form of employment agreement to continue paying salary to such officer
for six to nine months as severance.
Mr. Kannan's employment agreement with the Company provides for an annual
base salary of $180,000. The term of the agreement expired in June 1999, but the
agreement is subject to and continues under automatic one-year renewal terms. In
the event of a material change in Mr. Kannan's duties, titles, authority or
position with the Company, he may elect, in lieu of receiving his severance pay,
to enter into a consulting arrangement with the Company, whereby Mr. Kannan
would provide consulting services to the Company for a period of one year and be
paid $750 per day for providing such services.
COMPENSATION OF DIRECTORS
All directors are reimbursed for expenses incurred in connection with each
board committee meeting attended.
The 1996 Plan provides for the grant of nonstatutory options to our
non-employee directors. The 1996 Plan provides automatic grants on January 1 of
each year to directors who are not employees of the Company of an option to
purchase 10,000 shares. In addition, in the case of a new director, automatic
grants shall be effective upon such director's initial election or appointment
to the Board with the number of underlying shares equal to the product of 2,500
multiplied by the number of regularly scheduled meetings remaining in that year.
Subject to continued status as a director, options vest 25% per year on each of
the fifth, sixth, seventh and eighth anniversaries of the date of grant;
provided, however, that 2,500 shares vest on each date the director attends a
Board meeting in person during that year. In addition, such director will
automatically be granted a fully-vested option to purchase an additional 2,500
shares on each date the director attends a meeting of a committee of the Board
other than on the same day or within one day of a Board meeting.
11
<PAGE> 14
Under the 1996 Plan, during 1999 the non-employee directors received
options as follows: Mr. Fingerhut -- 10,000; Mr. Wallman -- 17,500; Mr.
Kimberly -- 17,500; Mr. Sears -- 10,000; and Mr. deCastro -- 10,000.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors is
responsible for establishing compensation policy and administering the
compensation programs of our executive officers. The purpose of this report is
to inform stockholders of our compensation policies for executive officers and
the rationale for the compensation paid to executive officers in 1999.
The Compensation Committee of the Board of Directors, consisting entirely
of non-employee directors, approves all policies under which compensation is
paid or awarded to the Company's executive officers. The Compensation Committee
is currently composed of Messrs. Fingerhut and deCastro. The members of the
Compensation Committee also administer our stock plans.
For compensation paid to the Chief Executive Officer and other Named
Officers in 1999, no reference was made to the data for comparable companies
included in the performance graph included in this proxy statement under the
heading "-- Performance Graph" (the "Performance Graph").
Compensation Philosophy. Our executive compensation program has three
objectives: (1) to align the interests of the executive officers with the
interest of our stockholders by basing a significant portion of an executive's
compensation on our performance; (2) to attract and retain highly talented and
productive executives; and (3) to provide incentives for superior performance by
our executives. To achieve these objectives, the Compensation Committee has
crafted a program that consists of base salary, short-term incentive
compensation in the form of cash bonuses and long-term incentive compensation in
the form of stock options. These compensation elements are in addition to the
general benefits programs which we offer to all of our employees.
Each year, the Compensation Committee reviews our executive compensation
program. In its review, the Compensation Committee studies the compensation
packages for executives of companies at a comparable stage of development and in
our geographical area, assesses the competitiveness of our executive
compensation program and reviews our financial and operational performance for
the previous fiscal year. The Compensation Committee also gauges the success of
the compensation program in achieving its objectives in the previous year, and
considers our overall performance objectives.
Each element of our executive compensation program is discussed below.
Base Salaries. The Compensation Committee annually reviews the base
salaries of our executive officers. The base salaries for our executive officers
for 1999 were established at the beginning of that fiscal year, or when the
executive joined us, as the case may be. In addition to considering the factors
listed in the foregoing section that support our executive compensation program
generally, the Compensation Committee reviews the responsibilities of the
specific executive position and the experience and knowledge of the individual
in that position. The Compensation Committee also measures individual
performance based upon a number of factors, including measurement of our
historic and recent financial and operational performance and the individual's
contribution to that performance, the individual performance on non-financial
goals and other contributions of the individual to our success, and gives each
of these factors relatively equal weight without confining its analysis to a
rigorous formula. As is typical of most corporations, the actual payment of base
salary is not conditioned upon the achievement of any predetermined performance
targets.
Incentive Compensation. Cash bonuses established for executive officers
are intended to motivate the individual to work hard to achieve our financial
and operational performance goals or to otherwise incent the individual to aim
for a high level of achievement on our behalf in the coming year. Because we
have been in the early stages of development, we have not historically paid cash
bonuses. However, in 1999, we paid bonuses to the HTR executives pursuant to the
terms of the HTR acquisition effected in October 1997. The Compensation
Committee does not have an exact formula for determining bonus payments, but has
established general target bonus levels (up to a maximum of 50% of base salary)
for executive officers based in
12
<PAGE> 15
relatively equal measures upon the Compensation Committee's subjective
assessment of our projected revenues and net income, and other operational and
individual performance factors. The Committee may adjust these targets during
the year.
Long-Term Incentive Compensation. Our long-term incentive compensation
plan for our executive officers is based upon our stock plans. We believe that
placing a portion of our executives' total compensation in the form of stock
options achieves three objectives. It aligns the interest of our executives
directly with those of our stockholders, gives executives a significant
long-term interest in our success and helps us retain key executives. Options
generally vest over a three to five-year period based upon continued employment.
In December 1996, and again in May and December 1998, we granted
performance-based options to the Chief Executive Officer and various other
executive officers. These grants vest ratably over four years beginning five
years from the date of grant, subject to accelerated vesting in full during the
first four years after the grant date if the fair market value of our common
stock over consecutive 20 trading days is greater than a target price
representing a four-year compounded return of 22.5% per year on the stock's fair
market value at the date of grant. In September 1999, we granted an option to
the Chief Executive Officer to purchase 100,000 shares, one-fourth fully vested
upon grant and the balance vesting equally over three years based upon continued
employment. These options were intended to provide a substitute incentive for
warrants held by the Chief Executive Officer that expired in 1999.
In determining the number of options to grant an executive, the Board
primarily considered the executive's past performance and the degree to which an
incentive for long-term performance would benefit us, as well as the number of
shares and options already held by the executive officer. It is the Compensation
Committee's policy to grant options at fair market value unless particular
circumstances warrant otherwise.
Benefits. We believe that we must offer a competitive benefit program to
attract and retain key executives. During fiscal 1999, we provided the same
medical and other benefits to our executive officers that are generally
available to our other employees.
Compensation of the Chief Executive Officer. The Chief Executive Officer's
compensation is based upon the same elements and measures of performance as is
the compensation for our other executive officers. The Compensation Committee
approved a base salary for Mr. Kannan for 1999 of $180,000. In structuring the
compensation of Mr. Kannan, the Compensation Committee considered the alignment
of his compensation package with the financial performance of the Company to be
essential. A bonus of $3,900 was paid to Mr. Kannan for 1999.
Section 162(m) of the Code. It is the responsibility of the Compensation
Committee to address the issues raised by Section 162(m) of the Code. Revisions
to this Section made certain non-performance based compensation in excess of
$1,000,000 to executives of public companies non-deductible to such companies
beginning in 1994. The Compensation Committee has reviewed these issues and has
determined that it is not necessary for the Company to take any action at this
time with regard to these issues.
Neither the material in this report, nor the Performance Graph, is
soliciting material, is or will be deemed filed with the Securities and Exchange
Commission or is or will be incorporated by reference in any filing of the
Company under the Securities Act of 1933 or the Exchange Act, whether made
before or after the date of this proxy statement and irrespective of any general
incorporation language in such filing.
Submitted by: THE COMPENSATION COMMITTEE
Edson D. deCastro
Barry K. Fingerhut
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
deCastro and Fingerhut, none of whom was at any time during the fiscal year
ended December 31, 1999 or at any other time an officer or employee of the
Company. No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Board of Directors or the
Compensation Committee of the Company.
13
<PAGE> 16
PERFORMANCE GRAPH
The following graph shows an approximately two-year(1) comparison of
cumulative total stockholder returns(2) for the Company, the CRSP Total Market
Return Index of the Nasdaq Stock Market and CRSP Nasdaq Non-Financial Stocks
Total Return Index. (The "CRSP" is the Center for Research in Securities Prices
at the University of Chicago.) The graph assumes that $100 was invested on
November 26, 1996 (the effective date of the Company's initial public offering)
in each of the Company's common stock, the stocks in the CRSP Total Market
Return Index of the Nasdaq Stock Market and the stocks in the CRSP Nasdaq Non-
Financial Stocks Index.
[Performance Graph]
<TABLE>
<CAPTION>
VCMP NASDAQ CRSP TOTAL NASDAQ NON-FINANCIAL
---- ----------------- --------------------
<S> <C> <C> <C>
11/26/96 100.00 100.00 100.00
12/31/96 101.92 100.81 100.69
12/31/97 126.92 123.35 118.19
12/31/98 45.69 170.35 173.11
12/31/99 24.03 312.01 332.95
</TABLE>
- ---------------
(1) Indicates comparison of total return for all of 1997, 1998 and 1999 and
solely for that period of 1996 (November 26, 1996 -- December 31, 1996)
during which the Company's common stock was registered under Section 12 of
the Exchange Act.
(2) Total return assumes reinvestment of dividends. Total returns for the Nasdaq
Stock Market and the Nasdaq Non-Financial Stocks indices are weighted based
on market capitalization.
CERTAIN TRANSACTIONS
In December 1996, we loaned Nat Kannan, our founder, Chief Executive
Officer and Chairman, $100,000 to help satisfy Mr. Kannan's income tax
withholding obligations relating to back wages paid to Mr. Kannan by us in 1996.
The largest outstanding principal amount under the loan, together with interest
accrued thereon, during 1999 was approximately $124,182. The loan bears interest
at the prime rate, as announced from time to time by First Union National Bank,
minus one percent with principal and accrued interest payable in full upon
demand.
In May 1999, we raised approximately $1.3 million through a private
placement of 448,297 shares of common stock at a price of $2.9375 per share.
Barry K. Fingerhut, a director and one of our largest beneficial stockholders,
purchased an aggregate of 102,127 of such shares for an aggregate consideration
of $300,000. The holders of shares issued in this financing are entitled to
certain registration rights.
In January 2000, we raised approximately $4.0 million through a strategic
private placement to Mastech Corporation (now iGate Capital Corporation) of
1,136,253 shares of common stock, representing approximately 19.9% of our
outstanding common stock, at $3.62 per share. This price represented a 20%
premium above the average closing price of our common stock for a 15-day
trailing period. In addition, we granted iGate a warrant to purchase an
additional 450,000 shares of common stock for a period of one year at a 20%
14
<PAGE> 17
premium to market at the date of exercise, subject to a floor of $4.34 pre share
and a ceiling of $6.125 per share. The holders of shares issued in this
financing are entitled to certain registration rights. As part of this strategic
investment, Ashok Trivedi, iGate's Chairman, President and 29.6% shareholder,
was subsequently appointed to our Board and is included in management's slate of
nominees for election to our Board by the shareholders at the Meeting.
In April 2000, we raised $2.5 million through a strategic private placement
to US West Internet Ventures, Inc., a subsidiary of US West, Inc., of 357,142
shares of common stock, representing approximately 4.4% of our outstanding
common stock, at $7.00 per share (the closing price of our common stock on the
date of issuance). In addition, we granted US West a five-year warrant to
purchase an additional 714,284 shares of common stock at $7.00 per share.
One-half of the warrant shares are immediately exercisable and the remaining
shares become exercisable on April 20, 2001. The holders of shares issued in
this financing are entitled to certain registration rights. As part of this
strategic investment, US West was granted the right to designate one
representative for election to the Board.
We have adopted a policy that all future transactions between us and our
executive officers, directors and other affiliates must be approved by a
majority of the members of our Board of Directors and by a majority of the
disinterested members of our Board of Directors, and must be on terms no less
favorable to us than could be obtained from unaffiliated third parties. Any new
loans or advances with insiders and any forgiveness of loans to insiders must be
for a bona fide business purpose and be approved by a majority of the
independent members of our Board of Directors who do not have an interest in the
transactions.
All past transactions involving insiders were approved by at least a
majority of our independent and disinterested directors at the time of the
transactions. All ongoing transactions involving insiders have been approved by
a majority of our independent and disinterested directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Exchange Act, our directors and executive
officers are required to file reports with the Securities and Exchange
Commission indicating their holdings of and transactions in our equity
securities. To our knowledge, based solely on a review of the copies of such
reports furnished to us and written representations that no other reports were
required, there were no reports required under Section 16(a) of the Exchange Act
which were not timely filed during the fiscal year ended December 31, 1999.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholders having proposals that they desire to present at next year's
annual meeting of stockholders of the Company should, if they desire that such
proposals be included in our Proxy Statement relating to such meeting, submit
such proposals in time to be received by us not later than January 19, 2001. To
be so included, all such submissions must comply with the requirements of Rule
14a-8 promulgated under the Exchange Act and the Board of Directors directs your
close attention to that Rule. In addition, management's proxy holders will have
discretion to vote proxies given to them on any stockholder proposal of which we
do not have notice prior to April 4, 2001. Proposals may be mailed to the
Corporate Secretary, VCampus Corporation, 1850 Centennial Park Drive, Suite 200,
Reston, Virginia 20191.
OTHER MATTERS
The Board of Directors knows of no other business to be brought before the
Meeting, but it is intended that, as to any such other business, the shares will
be voted pursuant to the proxy in accordance with the best judgment of the
person or persons acting thereunder.
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<PAGE> 18
PROXY
VCAMPUS CORPORATION
1850 CENTENNIAL PARK DRIVE
SUITE 200
RESTON, VIRGINIA 20191
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Narasimhan P. Kannan and Michael A.
Schwien, as proxies, each with full power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side, all
shares of Common Stock and/or Preferred Stock of VCampus Corporation (the
"Company") held of record by the undersigned on April 28, 2000 at the Annual
Meeting of Stockholders of the Company to be held on June 22, 2000 and any
adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING. IF
YOU ATTEND THE MEETING, YOU CAN VOTE EITHER IN PERSON OR BY PROXY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
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SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
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<PAGE> 19
VCAMPUS CORPORATION
c/o EquiServe
P.O. Box 9398
Boston, MA 02205-9398
Dear Stockholder:
Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the operation of the Company that require your
immediate attention.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
VCampus Corporation
DETACH HERE
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<S> <C>
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PLEASE MARK 2. To reserve an additional 500,000 shares
VOTES AS IN for issuance under the Company's 1996 Stock
X THIS EXAMPLE. Plan. FOR AGAINST ABSTAIN
- ------- [ ] [ ] [ ]
1. Election of Directors.
Nominees: Narasimhan P. Kannan, Edson D. deCastro, 3. To ratify the appointment of Ernst & Young
John D. Sears, Kamyar Kaviani, William E. Kimberly, LLP as independent auditors of the Company
Barry K. Fingerhut,, Ashok Trivedi for 2000. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
FOR WITHHELD 4. In their discretion proxies are authorized to vote upon
ALL FROM ALL such other business as may properly come before the
NOMINESS [ ] [ ] NOMINESS meeting or any adjournments thereof.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
NOMINEES
Please sign exactly as your sname(s) appear(s)ahere
on Joint owners should each sign. Executors, administrators,
MARK HERE trustees, guardians or other fiduciaries should give
FOR ADDRESS full title as such. If signing for a corporation,
[ ] BELOW [ ] please sign in full corporate name by a duly authorized
--------------------------------------- person.
For all nominess AS noted above
Signature: Date: Signature: Date:
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