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 Section 240.14a-11(c) or
Section 240.14a-12
COMTEX SCIENTIFIC 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] $125 per Exchange Act Rule 0-11(c) (1) (ii), 14a-6(i)
(1), 14-a-6(i) (2) or Item 22 (a) (2) of Schedule 14A
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i) (3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i) (4) and 0-11
1) Title of each class of securities to which
transaction applies:
___________________________________________________________
2) Aggregate number of securities to which transaction
apples:
___________________________________________________________
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
___________________________________________________________
4) Proposed maximum aggregate value of transaction:
___________________________________________________________
5) Total fee paid:
___________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11 (a) (2) and identify the filing
for which the offsetting fee was paid previously.
Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its
filing.
1) Amount Previously Paid:
____________________________________________________________
2) Form, Schedule or Registration Statement No. :
____________________________________________________________
3) Filing Party:
____________________________________________________________
4) Date Filed:
____________________________________________________________
[COMTEX LOGO]
4900 Seminary Road
Alexandria, Virginia 22311
November 7, 1996
Dear Stockholder:
You are cordially invited to attend Comtex Scientific
Corporation's Annual Meeting of Stockholders to be held on
December 12, 1996 at 11:00 a.m. local time at the Ramada Inn
Alexandria, 4641 Kenmore Avenue, Alexandria, Virginia 22304.
You are being asked to elect the Company's Board of
Directors and to ratify the appointment of Ernst & Young L.L.P
as accountants. In addition, we will be pleased to report on
the business of the Company and a discussion period will be
provided for questions and comments of general interest to
stockholders.
Whether or not you are able to attend, it is important
that your shares be represented and voted at this meeting.
Accordingly, please complete, sign and date the enclosed proxy
and mail it in the envelope provided at your earliest
convenience. Your prompt response is very important and would
be greatly appreciated.
Sincerely,
C.W. Gilluly, Ed.D.
Chairman and
Chief Executive Officer
Charles W. Terry
President
YOUR VOTE IS IMPORTANT
Even if you plan to attend the meeting, please complete,
sign, and return promptly the enclosed proxy in the envelope
provided to ensure that your vote will be counted. You may
vote in person if you so desire even if you have previously
sent in your proxy.
If your shares are held in the name of a bank, brokerage
firm or other nominee, please contact the party responsible
for your account and direct him or her to vote your shares on
the enclosed card.
COMTEX SCIENTIFIC CORPORATION
Notice of Annual Meeting of Stockholders
December 12, 1996
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders of Comtex Scientific Corporation, a New York
corporation (the "Company"), is scheduled to be held on
December 12, 1996 at 11:00 a.m., local time, at the Ramada Inn
Alexandria located at 4641 Kenmore Avenue, Alexandria,
Virginia 22304 for the following purposes:
1. To elect four directors to serve for the terms of
office specified in the accompanying proxy statement
and until their successors are duly elected and
qualified.
2. To consider and vote on the ratification of Ernst &
Young L.L.P. as independent accountants for the
Company for fiscal year 1997.
3. To transact such other business as may properly come
before the meeting and any adjournment thereof.
Only stockholders of record at the close of business on
October 29, 1996 are entitled to notice of and to vote at the
Annual Meeting and any adjournment thereof. All stockholders
are cordially invited to attend the Annual Meeting in person.
However, to assure your representation at the meeting, you are
urged to complete, sign and date the enclosed form of proxy
and return it promptly in the envelope provided. Stockholders
attending the meeting may revoke their proxy and vote in
person.
FOR THE BOARD OF DIRECTORS
S. Amber Gordon
Secretary
Alexandria, Virginia
November 7, 1996
COMTEX SCIENTIFIC CORPORATION
PROXY STATEMENT
GENERAL INFORMATION
Proxy Solicitation
This Proxy Statement is furnished to the holders of
common stock, par value $.01 per share of Comtex Scientific
Corporation (the "Company") in connection with the
solicitation by the Board of Directors of the Company of
proxies for the Annual Meeting of Stockholders to be held on
December 12, 1996 at 11:00 a.m. local time at the Ramada Inn
Alexandria, 4641 Kenmore Avenue, Alexandria, Virginia, or at
any adjournment thereof, pursuant to the accompanying Notice
of Annual Meeting of Stockholders. The purposes of the Annual
Meeting and the matters to be acted upon are set forth in the
accompanying Notice of Annual Meeting of Stockholders. The
Board of Directors is not currently aware of any other matters
that will come before the meeting.
Proxies for use at the Annual Meeting are being solicited
by the Board of Directors of the Company. These proxy
solicitation materials are first being mailed on or about
November 7, 1996 to all stockholders entitled to vote at the
Annual Meeting. Proxies will be solicited chiefly by mail.
The Company will make arrangements with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and
proxy material to the beneficial owners of shares and will
reimburse them for their expenses in so doing. Should it
appear desirable to do so in order to ensure adequate
representation of shares at the Annual Meeting, officers,
agents and employees of the Company may communicate with
stockholders, banks, brokerage houses and others by telephone,
facsimile or in person to request that proxies be furnished.
All expenses incurred in connection with this solicitation
will be borne by the Company.
Revocability and Voting of Proxy
A form of proxy for use at the Annual Meeting and a
return envelope for the proxy are enclosed. Stockholders may
revoke the authority granted by their execution of proxies at
any time before their effective exercise by filing with the
Secretary of the Company a written notice of revocation or a
duly executed proxy bearing a later date, or by voting in
person at the Annual Meeting. Shares of the Company's common
stock represented by executed and unrevoked proxies will be
voted in accordance with the choice or instructions specified
thereon. If no specifications are given, the proxies intend
1
to vote the shares represented thereby for the election of all
nominees for the office of director and to approve Proposal
No. 2 as set forth in the accompanying Notice of Annual
Meeting of Stockholders and in accordance with their best
judgment on any other matters which may properly come before
the meeting.
Record Date and Voting Rights
Only stockholders of record at the close of business on
October 29, 1996 are entitled to notice of and to vote at the
Annual Meeting. As of October 24, 1996, 7,857,667 shares of
common stock were issued and outstanding. Each share of
common stock is entitled to one vote on all matters that may
properly come before the Annual Meeting. The holders of a
majority of the outstanding shares of common stock, present in
person or by proxy, will constitute a quorum at the Annual
Meeting. Abstentions and broker non-votes will be counted for
purposes of determining the presence or absence of a quorum.
"Broker non-votes" are shares held by brokers or nominees
which are present in person or represented by proxy, but which
are not voted on a particular matter because instructions have
not been received from the beneficial owner.
Directors will be elected by a plurality of the votes
cast at the Annual Meeting. Accordingly, abstentions or non-
votes will not affect the election of candidates receiving the
plurality of votes.
2
Proposal Number 2, consideration of ratification of Ernst
& Young L.L.P. as independent accountants, requires the
approval of the holders of a majority of the votes cast at the
Annual Meeting. For this purpose, abstentions and non-votes
will be deemed shares not voted on such matters, will not
count as votes for or against the proposals, and will not be
included in calculating the number of votes necessary for the
approval of such matters.
Votes at the Annual Meeting will be tabulated by
Inspectors of Election appointed by the Company.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of October
24, 1996 regarding the beneficial ownership of the Company's
common stock of (i) each person known to the Company to be the
beneficial owner, within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended, (the "Exchange
Act"), of more than 5% of the outstanding shares of common
stock, (ii) each director of the Company, (iii) each executive
officer or former executive officer of the Company named in
the Summary Compensation Table (see "Executive Compensation")
and (iv) all executive officers and directors of the Company
as a group. Unless otherwise indicated, the address of each
named beneficial owner is c/o Comtex Scientific Corporation,
4900 Seminary Road, Suite 800, Alexandria, Virginia 22311.
Except to the extent indicated in the footnotes, each of the
beneficial owners named below has sole voting and investment
power with respect to the shares listed. The shares shown as
beneficially owned by Dr. Gilluly include certain options, the
exercise of which could result in a change in control of the
Company. See "Executive Compensation - Board of Directors
Interlocks and Insider Participation."
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership <F1> of Class
AMASYS Corporation 4,693,940 <F2><F3> 59.7%
4900 Seminary Road,
St. 800
Alexandria, VA
22311
3
C.W. Gilluly, 5,281,006 <F3><F4> 49.8%
Chairman of the
Board and Chief
Executive Officer
Erik Hendricks, 4,167 <F5> *
Director
Robert A. Nigro, 68,409 <F6> *
Director
Charles W. Terry, 261,822 <F7> 3.2%
Director and
President
All Directors and 5,615,404 <F8> 51.7%
Executive Officers
as a group
( 4 Persons)
________________________
* Less than 1%.
<F1> Beneficial ownership is direct unless otherwise
indicated.
<F2> Pursuant to the Third Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code for Infotechnology,
Inc. ("Infotech") and its affiliated Debtor, Questech
Capital Corporation, effective as of June 21, 1996,
AMASYS Corporation has succeeded to the assets and
liabilities of Infotech, including 4,693,940 shares of
the Company's common stock.
4
<F3> Includes 2,540,503 shares of the Company's common stock
which may be acquired by Dr. Gilluly and his wife, Marny
(the "Gillulys"), pursuant to a Stock Option Agreement
among Infotech, Pacific Telecommunications Systems, Inc.,
a wholly owned subsidiary of AMASYS Corporation ("PTSI"),
and the Gillulys. See "Executive Compensation - Board of
Directors Interlocks and Insider Participation."
<F4> Includes 2,540,503 shares which may be acquired pursuant
to a Stock Option Agreement between the Company and the
Gillulys. Also includes 200,000 shares which may be
acquired by Dr. Gilluly upon the exercise of vested
options granted under the Comtex Scientific Corporation
1995 Stock Option Plan. Dr. Gilluly also owns less than
5% of the outstanding common stock of AMASYS.
<F5> Includes 4,167 shares which may be acquired upon the
exercise of vested options granted under the Comtex
Scientific Corporation 1995 Stock Option Plan.
<F6> Includes 4,167 shares which may be acquired upon the
exercise of vested options granted under the Comtex
Scientific Corporation 1995 Stock Option Plan.
<F7> Includes 261,822 shares which may be acquired upon the
exercise of vested options granted under the Comtex
Scientific Corporation 1995 Stock Option Plan.
<F8> Includes shares referred to in Notes (3) through (7),
above.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Four directors, constituting the entire Board of
Directors, are to be elected at the Annual Meeting. Unless
otherwise specified, the enclosed proxy will be voted in favor
of the persons named below to serve until the next Annual
Meeting and until their successors are elected and qualified.
Each person named below is now a director of the Company. In
the event any of these nominees shall be unable to serve as a
director, the shares represented by the proxy will be voted
for the person, if any, who is designated by the Board of
Directors to replace the nominee. All nominees have consented
to be named and have indicated their intent to serve if
elected. The Board of Directors has no reason to believe that
any of the nominees will be unable to serve or that any
vacancy on the Board of Directors will occur.
5
The names of the nominees and certain other information
about them are set forth below:
Director
Nominee Age Since Office Held with
Company
C.W. Gilluly, Ed.D. 50 1992 Chairman of
the Board and
Chief Executive
Officer
Erik Hendricks 52 1991 Director
Robert Nigro 47 1991 Director
Charles W. Terry 45 1994 President
C.W. GILLULY, Ed.D., has served as Chairman of the Board
and Chief Executive Officer of the Company since June 1992.
Dr. Gilluly served as President of the Company from June 1992
to May 1993. Dr. Gilluly has been President of
Telecommunications Industries, Inc. ("TII") since 1989. TII
is an 82% owned subsidiary of AMASYS, the Company's majority
stockholder. The Company acquired and subsequently divested
certain assets of TII, including its Micro Research Industries
("MRI") division, pursuant to an Asset Purchase and Put
Agreement entered into on May 16, 1995. See "Executive
Compensation - Board of Directors Interlocks and Insider
Participation." Dr. Gilluly has served as President of
Infotech since June 1992, and now serves as President of
AMASYS, the successor corporation to Infotech. Dr. Gilluly
also is Chief Executive Officer and Chairman of the Board of
Hadron, Inc., a high technology information management
concern. AMASYS owns approximately 13.5% of the outstanding
stock of Hadron, Inc.
ERIK HENDRICKS has served as a director of the Company
since 1991. Since 1979 he has served as the Executive
Director and Chief Operating Officer of the Pennsylvania
Society for the Prevention of Cruelty to Animals, a non-profit
humane society.
ROBERT A. NIGRO has served as a director of the Company
since 1991. Mr. Nigro joined SEI Corporation, a diversified
financial services, asset management and technology company,
6
as Senior Vice President in November 1993. From 1991 to 1993,
Mr. Nigro was Chairman and Chief Executive Officer of the
National Abandoned Property Processing Corporation ("NAPPCO").
NAPPCO is a privately held company that provides specialized
services in the field of unclaimed financial property and
escheat. Mr. Nigro was associated with the First Boston
Corporation in various capacities from 1976 to 1990 including
serving as Managing Director in the New York and Atlanta
offices.
CHARLES W. TERRY was appointed President of the Company
in August 1994 and director in December 1994. From August
1992 until he joined the Company, Mr. Terry was President of
Corporate Cost Management, Inc., an organization specializing
in cost management and decisions support software for the
healthcare industry. From March 1992 to August 1992, Mr.
Terry served as Vice President of Sales and Marketing for
Health Payment Review, Inc., a corporation specializing in
containment software for health insurance and managed care
companies. From 1977 to 1991, Mr. Terry held various key
leadership posts in the fields of development, sales,
marketing and general management at CompuServe, a leading
provider of computer-based information and communication
services.
There are no family relationships among the directors or
executive officers of the Company.
Meetings of the Board of Directors
The Board of Directors held a total of 4 meetings during
the Company's fiscal year ended June 30, 1996. Each director
attended in person or telephonically at least 75% of the
meetings held by the Board of Directors.
During fiscal year 1996, the directors were reimbursed
for travel expenses in connection with attendance at Board of
Directors' meetings. Additionally, non-employee directors of
the Company received a fee of $400 in cash for each Board of
Directors' meeting attended. Employee directors did not
receive additional compensation for Board of Directors'
meeting attendance. The Company's directors did not receive
any amounts for special assignments during fiscal year 1996.
The Board of Directors did not have any committees during
fiscal year 1996.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF THE DIRECTORS NAMED ON THE ENCLOSED PROXY.
7
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors has appointed the firm of Ernst &
Young L.L.P. ("Ernst & Young") as the Company's independent
accountants for fiscal year 1996. Although action by the
stockholders in this matter is not required, the Board of
Directors believes it is appropriate to seek stockholder
ratification of this appointment in light of the critical role
played by independent accountants in maintaining the integrity
of Company financial controls and reporting.
A representative of Ernst & Young will be in attendance
at the Annual Meeting on December 12, 1996. The
representative will have the opportunity to make a statement,
if desired, and will be available to respond to appropriate
questions from stockholders.
On July 18, 1996, Coopers & Lybrand L.L.P. ("Coopers &
Lybrand") resigned as the Registrant's principal accountant.
During the two fiscal years ended June 30, 1995 and 1994
and the subsequent interim period, there were no disagreements
with Coopers & Lybrand on any matter of accounting principles
or practices, financial statement disclosure, or auditing
scope or procedure or any reportable events.
Coopers & Lybrand Report of Independent Accountants on
the consolidated financial statements for the two most recent
fiscal years ended June 30, 1995 and 1994 contained no adverse
opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting
principles, except that such report contained an uncertainty
paragraph that stated that such financial statements "have
been prepared assuming that the [Registrant] will continue as
a going concern." The report further stated that "the
[Registrant] has suffered recurring losses from operations and
has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern," and that
such financial statements "do not include any adjustment that
might result from the outcome of this uncertainty."
On August 16, 1996, the Company engaged Ernst & Young as
the Company's independent accountants to audit the Company's
financial statements for its fiscal year ended June 30, 1996.
The determination to engage Ernst & Young was approved by the
Board of Directors. The Company did not contact Ernst & Young
during the Company's two most recent fiscal years, or any
subsequent interim period, regarding (i) any disagreement with
Coopers & Lybrand or (ii) the application of accounting
principles to a specified transaction or the type of audit
8
opinion that might be rendered on the Company's financial
statements. Prior to its engagement, Ernst & Young was
neither asked for, nor has it expressed any opinion of any
accounting issues concerning the Company.
In the event the stockholders do not ratify the
appointment of Ernst & Young as the Company's independent
accountants for fiscal year 1996, the Board of Directors will
reconsider its appointment of such firm and may determine to
confirm or reverse such appointment, in its discretion.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF ERNST & YOUNG L.L.P. AS INDEPENDENT ACCOUNTANTS FOR FISCAL
YEAR 1997.
9
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning all
compensation paid by the Company to its Chief Executive
Officer and President for the three fiscal years ended June
30, 1996:
Long-Term Compensation
Annual Compensation Awards
Name and Fiscal Stock OptionsAll Other
Principal Position Year Salary($) Bonus($) Granted Compensation
C.W. Gilluly, <F1> 1996 - - 200,000<F3> -
Chairman and Chief 1995 - - - -
Executive Officer 1994 - - - -
Charles W. Terry <F2> 1996 $125,060 $40,335<F4> 392,733<F3> -
President 1995 $108,923 - - -
__________________________________
<F1> Dr. Gilluly served as President of the Company until May
1993 and continues to serve the Company as its Chairman
and Chief Executive Officer. Dr. Gilluly received no
compensation from the Company for his past services as
President. Dr. Gilluly has not received compensation for
his services as Chief Executive Officer. See "Executive
Compensation - Board of Directors Interlocks and Insider
Participation."
<F2> Mr. Terry was appointed President of the Company in
August, 1994, after the end of fiscal year 1994.
<F3> Options granted pursuant to the Company's 1995 Stock
Option Plan. See "Executive Compensation - Stock Option
Grants."
<F4> The Company paid, in fiscal year 1996, a $30,000 bonus
awarded in fiscal 1995 and $10,335 of an $18,325 bonus
awarded in fiscal year 1996. The balance of $7,990 was
paid in fiscal 1997.
10
Stock Option Grants
The following table provides details regarding all stock
options granted to the named executive officers during the
fiscal year ended June 30, 1996.
Option Grants in Fiscal Year 1996
% of Total
Options
Number of Granted to
Shares Underlying Employees Exercise Expiration
Name Options Granted (#) in Fiscal Year Price Date
C.W. Gilluly 200,000<F2> 30.0% $.10 10/12/2005
Charles W. Terry 392,733<F3> 58.9% $.10 10/12/2005
Option Grants in Fiscal Year 1996
Potential
Realizable Value at Assumed
Annual Rates of Stock Price
Appreciation for Option Term <F1>
Name 5% 10%
C.W. Gilluly N/C N/C
Charles W. Terry N/C N/C
________________________________
<F1> Not calculable. Trading of the Company's common stock
since it was delisted from the NASDAQ Stock Market in
October 1990, has been limited and sporadic. To the
Company's knowledge, during calendar year 1996 only a
small number of trades have been completed. The Company
believes the low trading volume of the Company's common
stock, and the lack of reliable information regarding
such trading, make a valuation of the Company's common
stock based on the information available to the Company
potentially misleading.
11
<F2> Options vest two-thirds upon the date of grant and one-
third on the first anniversary of the date of the grant,
and expire 10 years after the grant date. The option
exercise price is 100% of the fair market value on the
date of grant. Options are exercisable for a period of
90 days after a voluntary termination of employment to
the extent vested at that time.
<F3> Options vest one-third upon the date of grant, and one-
third each on the first and second anniversaries of the
date of grant, and expire 10 years after the grant date.
The option exercise price is 100% of the fair market
value on the date of grant. Options are exercisable for
a period of 90 days after a voluntary termination of
employment to the extent vested at that time.
Year-End Option Values
The following table sets forth certain information
regarding the value of unexercised options held by the
Chairman and Chief Executive Officer and the President of the
Company as of June 30, 1996.
Fiscal Year-End Option Values
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at June 30, 1995 at June 30, 1995 <F1>
Name Exercisable Unexercisable Exercisable Unexercisable
C.W. Gilluly 5,281,006 0 N/C <F1> N/C <F1>
Charles W. Terry 261,822 130,911 N/C <F1> N/C <F1>
__________________________
<F1> Not calculable. Trading of the Company's common stock
since it was delisted from the NASDAQ Stock Market in October
1990, has been limited and sporadic. To the Company's
knowledge, during calendar year 1996 only a small number of
trades have been completed. The Company believes the low
trading volume of the Company's common stock, and the lack of
12
reliable information regarding such trading, make a valuation
of the Company's common stock based on the information
available to the Company potentially misleading.
13
Executive Officers
The executive officers of the Company are Dr. Gilluly,
the Chairman and Chief Executive Officer of the Company, Mr.
Terry, the President of the Company and S. Amber Gordon, the
Secretary and Treasurer of the Company. Ms. Gordon is not an
employee of, nor received during fiscal year 1996 any
compensation from, the Company. Biographical information
concerning Dr. Gilluly and Mr. Terry is provided in "Proposal
No. 1 - Election of Directors," above. Ms. Gordon, who is 42
years old, was appointed Secretary and Treasurer of the
Company in May, 1996. Ms. Gordon has been Executive Vice
President of Hadron, Inc. since July 1995, Treasurer since
April 1994 and Corporate Secretary since December 1993. Ms.
Gordon served as Vice President responsible for Corporate
Relations and Strategic Planning of Hadron, Inc. since May
1991. She served as Chairman of the Quest Business Agency,
Inc., a Houston-based marketing communications firm and
advertising agency, from 1985 to 1991. Ms. Gordon has served
as President of S.A. Gordon Enterprises, Inc., a consulting
firm specializing in financial and corporate relations, since
1985. Ms. Gordon receives no compensation from the Company
but receives compensation from Hadron, Inc., who invoices the
Company for time devoted by Ms. Gordon to the Company's
affairs.
Stock Option Plan
In October 1995, the Board of Directors approved the
Comtex Scientific Corporation 1995 Stock Option Plan, which
was approved by shareholders in December 1995. The new Plan
provides for the issuance of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code and
non-qualified stock options in order to recruit and retain key
employees.
Compensation of Directors
During fiscal year 1996, the Company's directors were
reimbursed for travel expenses in connection with attendance
at Board of Directors' meetings. Non-employee directors of
the Company also received a fee of $400 in cash for each Board
of Directors' meeting attended. Employee directors did not
receive additional compensation for Board of Directors'
meeting attendance. The Company's directors did not receive
any compensation for special assignments during fiscal year
1996.
14
Employment Agreements
The Company has an employment contract with Mr. Terry,
who was appointed President of the Company in August, 1994.
Under the terms of a letter agreement dated July 19, 1994, Mr.
Terry was employed for a one-year period, subject to renewal,
at the Company's discretion, for two additional one-year
terms. The agreement provides that Mr. Terry is to be paid an
annual salary of $120,000, subject to annual increases in
salary commensurate with annual increases awarded to other
executive officers of the Company. Mr. Terry is entitled to
receive six months severance pay in the event the Company
terminates his employment or determines not to renew his
employment agreement, unless his termination is for reasons of
gross negligence, wilful misconduct or the commission of a
felony or crime of moral turpitude. The agreement also
provides for the issuance to Mr. Terry of non-qualified
options to acquire 392,733 shares of the Company's common
stock; the option is to vest in equal amounts over a three-
year period, and the exercise price is to be determined in
accordance with the terms of the Company stock plan pursuant
to which the options are granted. Mr. Terry is eligible to
receive a bonus based upon the achievement of specified annual
gross revenue and net income goals.
15
Board of Directors Report on Executive Compensation
General. The Company believes its compensation policies
are designed to provide competitive levels of compensation
that integrate salary with the Company's annual and long-term
quantitative and qualitative performance factors, reward
above-average corporate performance, recognize individual
initiative and achievements and assist the Company in
attracting and retaining qualified executives.
The Company establishes compensation based on both
objective and subjective criteria. Objective criteria include
actual versus target annual operating budget performance and
actual versus target revenue growth, either as to the Company
as a whole, or as to the officer's particular operating unit.
Subjective performance criteria encompass evaluation of each
officer's initiative and contribution to overall corporate
performance, the officer's managerial ability, and the
officer's performance in any special projects that the officer
may have undertaken.
The Company also endorses the position that stock
ownership by management and stock-based performance
compensation arrangements are beneficial in aligning
managements' and stockholders' interests in the enhancement of
stockholder value and therefore uses its 1995 Stock Option
Plan to recruit and retain senior management.
1996 Compensation for the Chairman and Chief Executive Officer
Dr. Gilluly has not received any salary for his work as
Chairman and Chief Executive Officer. Dr. Gilluly does not
have an employment agreement or severance agreement with the
Company.
Under the Company's executive compensation philosophy and
program, the total compensation mix for senior executives
emphasizes longer-term rewards in the form of stock options.
The Committee has granted Dr. Gilluly options under the 1995
Stock Option Plan to purchase a total of 200,000 shares of
the Company s common stock at the market price on the date of
grant. These options become fully exercisable over a period
of two years, with two-thirds being immediately exercisable
upon the date of grant, and one-third becoming exercisable on
the first anniversary of the date of grant.
1996 Compensation for the President
Mr. Terry was appointed President of the Company in
August 1994. In July, 1994, the Company and Mr. Terry entered
into a letter agreement regarding the terms of Mr. Terry's
16
employment. Mr. Terry's employment agreement is described in
"Executive Compensation - Employment Agreements," above. Mr.
Terry's compensation during fiscal year 1996 was determined by
the terms of his employment agreement. The Company believes
that Mr. Terry's employment agreement bases his compensation
upon objective quantitative performance factors (a bonus based
upon his meeting annual gross revenue and net income goals)
and other non-performance based elements (a base annual
salary).
SUBMITTED BY THE BOARD OF DIRECTORS
C.W. Gilluly
Charles W. Terry
Erik Hendricks
Robert A. Nigro
17
Board of Directors Interlocks and Insider Participation
General. During fiscal year 1996 compensation decisions
were made by the Company's Board of Directors, the members of
which were Dr. Gilluly, the Company's Chairman and Chief
Executive Officer, Mr. Terry, the Company's President, Erik
Hendricks and Robert Nigro. All Board members participated in
discussions of executive officer compensation. Dr. Gilluly
formerly served as President of the Company. Dr. Gilluly also
serves as Chairman and Chief Executive Officer of AMASYS, the
Company's majority (approximately 60%) stockholder, as well as
Chairman and Chief Executive Officer of TII. The majority
stockholder (approximately 82%) of TII is AMASYS. During
fiscal year 1996, AMASYS, TII and the Company engaged in the
transactions described below.
Acquisition and Divestiture of Micro Research Industries
During fiscal 1995 the Company acquired certain assets
and assumed certain liabilities of Telecommunications
Industries, Inc. ("TII") representing substantially all the
assets of TII's sole operating division, Micro Research
Industries ("MRI") (the "Acquisition"). MRI provided sales,
leasing and maintenance support of computer hardware and
software primarily to the U.S. House of Representatives. At
the time of the Acquisition, Infotech owned 60% and 82% of the
Company and TII, respectively, and Dr. Gilluly, Chairman of
the Board and Chief Executive Officer of the Company and of
Infotech also served as Chairman of the Board and Chief
Executive Officer of TII. In return for closing the
Acquisition prior to satisfaction of all conditions to
closing, the Asset Purchase Agreement and related Put
Agreement permitted the Company, upon the failure of certain
conditions, to require TII to repurchase all or any portion of
the assets acquired by the Company and to assume the
liabilities related to MRI (the "Put").
The Acquisition resulted in the restructuring of the
Company's previously matured $1,040,000 promissory notes to
Infotech, whereby Infotech waived then existing defaults
thereunder, and subsequent to year end forgave $150,565 of the
principal thereof and rolled the remaining $889,435 principal
into a 10% Senior Subordinated and Secured Note due July 1, 2002
(the "New Note"). Principal amounts due under the New Note were
subject to reduction or increase under certain circumstances.
The New Note was collateralized by a continuing interest in
all receivables, products and proceeds thereof, all purchase
orders and all patents and technology then or in the future
received or held by the Company. The New Note was
subordinated in right of payment to all Senior Indebtedness of
the Company, including indebtedness arising from the PrinCap
Financing Agreement.
18
In connection with the Acquisition, the Company entered
into a $1 million secured credit facility with Princeton
Capital Finance Company, LLP ("PrinCap") in February 1995. In
order to obtain the PrinCap financing, PrinCap required a
corporate guarantee from the Company and cross-guarantees from
TII, Infotech and AMASYS Corporation (the successor
corporation to Infotech upon Infotech's reorganization under
Chapter 11 of the U.S. Bankruptcy Code; Dr. Gilluly is
Chairman of the Board of Directors and President of AMASYS
Corporation). The corporate and cross-guarantees pledged
essentially all of the assets of the Company, Infotech, AMASYS
and TII as further security for loans made under the PrinCap
Financing Agreement. PrinCap also required a $1,000,000
limited personal guarantee from Dr. and Mrs. Gilluly.
As partial consideration for the agreement by the
Gillulys to personally guarantee the PrinCap financing, and to
make certain loans to TII prior to the PrinCap financing,
Infotech and Pacific Telecommunications Systems, Inc.
("PTSI"), Infotech's wholly-owned subsidiary, granted to the
Gillulys options to purchase 2,540,503 shares of common stock
of the Company owned by Infotech and PTSI at an exercise price
of $0.10 per share.
The Acquisition required the Company to assume
approximately $2.2 million in liabilities, grant to TII an
option to acquire the Company's common stock (future events
reduced to zero the number of shares TII could receive upon
exercise thereof), and grant to the Gillulys an option (the
"Gilluly Option") to acquire 2,540,503 shares of the Company's
common stock upon payment of an exercise price of $.10 per
share. Included in the indebtedness of TII assumed by the
Company was $50,000 owed to Dr. Gilluly. The Company did not
assume amounts owed by TII to Infotech of approximately
$4,114,000, other TII liabilities not directly related to the
MRI business, and certain amounts owed by TII to the Federal
Deposit Insurance Corporation.
The Company exercised the Put on March 25, 1996. As a
result, as of March 25, 1996, TII reacquired the assets
previously transferred to the Company and assumed liabilities
related thereto. In conjunction therewith, TII and Infotech
agreed with the Company that in the event the Company incurs
any damage, loss, judgment, fine, penalty, assessment,
settlement, cost or expense resulting in a liability to the
Company, in whole or in any part arising out of or relating to
the MRI business, the Company may either seek indemnification
for such liability from TII or reduce the principal amount of
its indebtedness under the Infotech Note by the amount of such
liability. The principal amount of the Infotech Note was
subsequently reduced by $31,000 in this connection. TII sold
the assets related to the MRI business to an unrelated third
19
party on March 31, 1996, net of accounts receivable and sales
orders and related liabilities through that date which were
retained by TII.
PrinCap, on April 30, 1996, claimed that TII's sale of
the assets of MRI subsequent to exercise of the Put Agreement
constituted an event of default under the terms of the PrinCap
Financing Agreement. On July 24, 1996, subsequent to the
Company's fiscal year end, the Company and PrinCap agreed to
consolidate all indebtedness of the Company under the PrinCap
Financing Agreement ($244,449 at July 24, 1996) into a single
Note collateralized by MRI receivables from the U.S. House of
Representives retained by TII. The Note was due October 22,
1996, demand has been made, and the Note is in default. The
Company is currently in discussions regarding payment of the
Note. Management of the Company believes the Company's
indemnification under the terms of the Infotech Note will
apply to any amounts due PrinCap (or separately to the
Company) not ultimately recovered through the MRI receivables
held by TII, and that any such amounts will reduce the
principal of the Infotech Note.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and related transactions involving
directors of the Company and certain other entities are
described in "Executive Compensation - Board of Directors
Interlocks and Insider Participation."
PERFORMANCE GRAPH
Applicable federal securities laws require the Company to
present in this Proxy Statement a performance graph comparing
the yearly percentage change in the Company's cumulative total
stockholder return with the cumulative total return of peer
issuers or certain other benchmarks. Trading of the Company's
common stock, since it was delisted from the Nasdaq Stock
Market in October 1990, has been limited and sporadic. To the
Company's knowledge, during calendar year 1996 only a small
number of trades have been completed. The Company believes
the low trading volume of the Company's common stock, and lack
of reliable information regarding such trading, make any
performance graph based on information available to the
Company potentially misleading. The Company therefore has
omitted the performance graph from this Proxy Statement.
20
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's
officers, directors and persons who own more than 10% of a
registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and
greater than 10% stockholders are required by the regulation
to furnish the Company with copies of the Section 16(a) forms
which they file.
To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company, and
written representations that no other reports were required
during the fiscal year beginning July 1, 1995 and ended June
30, 1996, all Section 16(a) filing requirements applicable to
the Company's officers, directors and greater than ten percent
beneficial owners were complied with.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are
intended to be presented at the Company's 1997 Annual Meeting
of Stockholders must be received by the Company no later than
July 11, 1997 in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1996, including the
financial statements and notes thereto is being mailed to the
shareholders of record along with this Proxy Statement. The
Annual Report on Form 10-K is not incorporated by reference in
this Proxy Statement and is not considered to be part of the
proxy material.
The Company will furnish any exhibit described in the
list accompanying the 1996 Form 10-K upon the payment, in
advance, of the specified reasonable fees related to the
Company's furnishing of such exhibit(s). Requests for copies
of such report and/or exhibit(s) should be directed to the
Company at its principal executive offices, 4900 Seminary
Road, Suite 800, Alexandria, Virginia 22311, Attention:
Corporate Secretary.
21
OTHER MATTERS
The Board of Directors knows of no other business to be
acted upon at the Annual Meeting other than the matters
referred to in this Proxy Statement. If any other matters
properly come before the Annual Meeting, it is the intention
of the persons named in the enclosed proxy to vote the shares
they represent as the Board of Directors may recommend.
By Order of the Board of Directors
S. Amber Gordon
Secretary
22
APPENDIX A
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
COMTEX SCIENTIFIC CORPORATION
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
DECEMBER 12, 1996
The undersigned appoints Charles W. Terry and S.
Amber Gordon, or either of them, with full power of
substitution, to attend the Annual Meeting of Shareholders of
Comtex Scientific Corporation on December 12, 1996, and any
adjournments thereof, and to vote all shares which the
undersigned would be entitled to vote if personally present
upon the following matters set forth in the Notice of Annual
Meeting and Proxy Statement:
1. ELECTION OF DIRECTORS
[ ] FOR the FOUR nominees listed below
(except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for the FOUR nominees
listed below
C.W. Gilluly, Erik Hendricks, Robert A. Nigro
and Charles W. Terry
INSTRUCTION: To withhold authority for any individual
nominee, write that nominee's name in the space provided
below:
_____________________________________________________________
2. Proposal to ratify the selection of Ernst & Young, L.L.P.
as independent accountants for the Company for fiscal
year 1997.
[ ] FOR this proposal
[ ] AGAINST this proposal
[ ] ABSTAIN
3. In their discretion, upon such other business as may
properly come before the meeting and any adjournments
thereof.
23
PLEASE DATE, SIGN AND RETURN
PROXY PROMPTLY
Receipt of Notice of Annual
Meeting and Proxy Statement
is hereby acknowledged
Shareholder's Signature
Joint Holder's Signature (If applicable)
Date:
When properly executed, this proxy will be voted in the
manner directed herein. If no direction is made, this proxy
will be voted FOR proposal 2 and FOR the election of the
nominees of the Board of Directors in the election of
directors and in accordance with the judgment of the person(s)
voting the proxy upon such other matters properly coming
before the meeting and any adjournments thereof. Please sign
exactly as name(s) appear above.
24