SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[X] Filed by the Registrant
[_] 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 (S)(S) 240.14a-11(c) or (S)(S) 240.14a-12
Worldwide Xceed Group, Inc.
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(Name of Registrant as Specified In Its Charter)
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: Not
Applicable
(2) Aggregate number of securities to which transaction applies: Not
Applicable
(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): Not
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(5) Total fee paid: Not Applicable
[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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WORLDWIDE XCEED GROUP, INC.
To Our Stockholders:
Enclosed is a proxy statement for our Annual Meeting scheduled for
Tuesday, March 20, 2001, which describes and solicits your approval for
several proposals that are extremely important for the Company. These
proposals include: a ten-for-one reverse stock split of the Company's common
stock and an amendment to our certificate of incorporation to increase our
authorized shares of common stock.
The Company needs each and every stockholder to take the time now to
participate in the voting and approval process, regardless of whether or not
you plan to attend the Annual Meeting in person. It is crucially important to
the Company's future that we obtain the necessary number of stockholder votes
in favor of these critical proposals to assure their adoption.
Management does not believe that these critical proposals are or
should be controversial in any respect. They are simply necessary procedural
steps which seek to address changes in circumstances that were unforeseen by
the Company's prior management. While each of these proposals is described in
great detail in the enclosed materials, I wanted to take a moment to
summarize two of them in particular for you as follows:
TO APPROVE AN AMENDMENT TO ARTICLE FOURTH OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO EFFECT A TEN-FOR-ONE REVERSE STOCK SPLIT OF
THE ISSUED AND OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK.
This proposal is critical to the Company's continued listing on The
Nasdaq National Market ("Nasdaq") and, for all intents and purposes, the
Company's continued existence. As you know, the Company's common stock is
currently listed on Nasdaq. As a result, the Company must meet the
requirements for continued listing on Nasdaq under Nasdaq's maintenance
criteria. The Nasdaq maintenance criteria include, among other things, the
requirement that each company's common stock maintain a minimum bid price of
at least $1.00 per share. Today, the Company does not satisfy the minimum bid
price criteria. A reverse stock split, which should result in a higher
trading price per share for the Company's common stock, may result in an
increase in our common stock's trading price sufficient to meet the Nasdaq
listing requirements.
In addition, we believe that a higher per share trading price per
share for the Company's common stock will enable the Company to attract
additional interest in its common stock from the investment community, and
particularly from market-makers. Numerous broker-dealers and investment
bankers require that a company's common stock have a minimum public trading
price before those broker-dealers or investment bankers will agree to make a
market in that security. As a result, we believe that the reverse stock split
could improve the liquidity of the public market for our common stock.
It is almost certain that, in the absence of the approval and
implementation of the reverse stock split, delisting from Nasdaq will occur
on or about April 12, 2001. Even if
this proposal is approved, there is no assurance that the stock market (given
the current environment) will react properly and promptly to our changes and
that the trading price of our common stock will increase so that the Company
avoids delisting.
TO APPROVE AN AMENDMENT TO ARTICLE FOURTH OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 100,000,000 TO 200,000,000 AND TO STATE THE TERMS OF THE
AUTHORIZED BLANK CHECK PREFERRED SHARES.
This proposal is also critical because its approval will give the
Company the flexibility it needs to enter into new transactions or seek
additional financing. An increase in the number of authorized shares of
common stock will make available to the Company enough shares for issuance
for corporate purposes such as future acquisitions, investment opportunities,
stock splits, stock dividends or other distributions, conversion of
convertible securities and/or future financings.
The Company needs to authorize additional shares primarily as a
result of the necessary but unexpected issuance of approximately 50 million
new shares of common stock to the Company's Series A Preferred stockholders.
In a deal entered into in January 2000 by the Company's prior management, the
Series A Preferred stockholders received shares that were convertible into
shares of the Company's common stock. As the price of the Company's stock
fell, each share of Preferred Stock could be converted into more and more
shares of common stock. As a result, over a very short period of time, the
Preferred Stock was converted into millions of shares of common stock. This
very unfortunate situation not only severely depressed the Company's stock
price (and we believe continues to do so to a certain extent), but also
essentially exhausted all of the remaining shares of common stock that the
Company had been previously authorized to issue in order to raise new capital
or for other proper corporate purposes.
Fortunately, as the Company announced earlier this month, we have
finally resolved the situation with the Series A Preferred stockholders by
entering into an agreement whereby a cap has been placed on the number of
shares of common stock that will be issued upon conversion of the Series A
Preferred Stock. The Company's management believes that the positive effects
of resolving the Company's obligation to the Series A Preferred stockholders
could put the Company in a better position to maintain an increased price per
share following the reverse stock split.
It is now essential for the Company to move forward quickly and
aggressively and, to do so, we need your approval of the reverse stock split
and the increase in the number of authorized shares of common stock. Please
help us take these necessary steps by dating and signing the enclosed proxy
card and returning it promptly. Thank you for your continued support.
Very Truly Yours,
Howard A. Tullman
Chief Executive Officer
WORLDWIDE XCEED GROUP, INC.
233 Broadway
New York, New York 10279
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 20, 2001
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To the Stockholders of Worldwide Xceed Group, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Worldwide Xceed Group, Inc., a Delaware corporation (the
"Company") will be held at the Millenium Hilton, 55 Church Street, New York, New
York on March 20, 2001 at 8:00 a.m. local time to consider and take action on
the following matters:
1. To elect five directors to serve until the next annual meeting of
stockholders.
2. To approve an amendment to Article Fourth of the Company's Certificate
of Incorporation to effect a ten-for-one reverse stock split of the
issued and outstanding shares of the Company's Common Stock.
3. To approve an amendment to the Amended and Restated Millennium Stock
Option Plan to increase the number of shares reserved for issuance
thereunder to 2,000,000 shares after giving effect to a ten-for-one
reverse stock split and increase the maximum number of shares issuable
to any one individual per year.
4. To approve an amendment to Article Fourth of the Company's Certificate
of Incorporation to increase the number of authorized shares of Common
Stock from 100,000,000 to 200,000,000 and to state the terms of the
authorized blank check preferred shares.
5. To ratify the appointment of Deloitte & Touche LLP, as the
Company's independent certified public accountants.
6. To transact such other business as may properly come before the meeting.
Holders of record of the Company's common stock at the close of business on
February 8, 2001, are entitled to notice of and to vote at the Annual Meeting or
any adjournments thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED. ANY PERSON GIVING A PROXY
HAS THE POWER TO REVOKE IT AT ANY TIME PRIOR TO ITS EXERCISE AND IF PRESENT AT
THE MEETING MAY WITHDRAW IT AND VOTE IN PERSON.
By Order of the Board of Directors,
Richard R. Dennerline, Secretary
New York, New York
February 26, 2001
WORLDWIDE XCEED GROUP, INC.
233 Broadway
New York, New York 10022
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ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 20, 2001
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PROXY STATEMENT
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This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of Worldwide Xceed Group, Inc. (the
"Company") of proxies to be voted at the Annual Meeting of Stockholders of the
Company to be held at the Millenium Hilton, 55 Church Street, New York, New York
at 8:00 a.m. local time on March 20, 2001 or at any adjournments thereof.
This proxy statement and the accompanying Notice of Annual Meeting and
proxy are first being sent to stockholders on or about February 26, 2001. The
shares represented by proxies that are received in the enclosed form and
properly filled out will be voted in accordance with the specifications made
thereon. In the absence of specific instructions, proxies will be voted in
accordance with the recommendations made herein with respect to the proposals
described in this Proxy Statement. A proxy may be revoked by a stockholder at
any time before it is exercised by filing an instrument revoking it with the
Secretary of the Company, filing a duly executed proxy bearing a later date or
by attending the meeting and electing to vote in person.
Holders of record of the Company's common stock, par value $.01 per
share (the "Common Stock"), at the close of business on February 8, 2001, are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof. At the close of business on February 8, 2001, there were 49,440,665
shares of Common Stock outstanding and entitled to vote at the meeting. There
were 872 record holders as of February 8, 2001. Each share will be entitled to
one vote.
PROPOSAL 1--ELECTION OF DIRECTORS
General
All directors of the Company are elected to serve until the next annual
meeting of stockholders or until their successors are elected and qualified. The
Company's Amended and Restated Bylaws provide that the Board of Directors shall
consist of five members. However, pursuant to a Subscription Agreement between
the Company and Spherion Corporation (formerly known as Interim Services, Inc.),
Spherion Corporation has the right to designate two nominees to the Company's
Board of Directors. Spherion has currently designated only one nominee. If
Spherion elects to designate a second nominee for director, the Company's
Amended and Restated Bylaws will be amended to increase the size of its Board of
Directors. There are currently five members serving on the Board of Directors.
All five of the Company's current directors are standing for re-election.
Information is provided below with respect to the nominees for
director. The proxy holders intend to vote all proxies received by them in the
accompanying form for the nominees listed below unless otherwise instructed.
Each nominee for director has consented to serve as such if elected by the
stockholders. However, if any nominee fails to stand for election or is unable
to accept election, the persons named in the proxy may vote for such other
person (or persons) as may be designated by the Board of Directors.
The nominees and their biographies are as follows:
Howard A. Tullman
Director since 2000
Age 55
Howard A. Tullman has served as a director and as Chief Executive
Officer of the Company since September 2000. Since March 2000, Mr. Tullman has
been the General Manager of Chicago High Tech Investors I, LLC, an
Internet-oriented investment fund. From September 1996 until February 2000, Mr.
Tullman served as the chief executive officer of Tunes.com, Inc. and its
predecessors, an Internet music site he co-founded and which was sold to
EMusic.com, Inc. From October 1993 until October 1996, Mr. Tullman was the
president and chief executive officer of Imagination Pilots, Inc., a multimedia
software developer he founded in 1993. Mr. Tullman serves as a director of
Emusic.com Inc. and the Princeton Review and is the chairman of the board of The
Cobalt Group, Inc.
Terry A. Anderson
Director since 1999
Age 53
Terry A. Anderson has served as a director since March 1999. He is a
journalist, teacher, writer and nationally known speaker. Mr. Anderson is
currently a visiting professor at Ohio University's Scripps School of
Journalism, where he has taught since 1993. Mr. Anderson also currently writes a
weekly opinion column on political, social and international affairs for King
Feature Syndicate.
Edward A. Bennett
Director since 2000
Age 54
Edward A. Bennett has served as a director since May 2000. Mr. Bennett
has been a partner in (212) Ventures, a venture capital firm, since March 2000.
Since November 1999, Mr. Bennett has served as the chairman of MOBILELOGIC, a
wireless solutions company he co-founded. From 1995 until 1999, Mr. Bennett was
president of Bennett Media Collaborative. Mr. Bennett is a director of SoftNet
Systems, Inc., Key3Media Group, Inc. and Engage, Inc.
John A. Bermingham
Director since 1997
Age 56
John A. Bermingham has served as a director since November 1997. Since
August 2000, he has served as a managing partner and the chief operating officer
of Capital Key Advisors, an investment banking firm. From 1998 until May 2000,
Mr. Bermingham was the president and chief executive officer of Smith Corona
Corporation. From 1996 until November 1998, he served as a principal with The
Promar Group, a consulting company. From 1993 until 1996, Mr. Bermingham held
the position of president and chief executive officer of AT&T Smart Cards
Systems and Solutions, a division of AT&T.
Stuart N. Emanuel
Director since 2000
Age 57
Stuart N. Emanuel has served as a director since November 2000. Mr.
Emanuel has been the president of worldwide operations for the Business
Solutions Group of Spherion Corporation, a human capital management company,
since 1997. From 1989 until 1997 he acted as vice president of various divisions
within Spherion. Mr. Emanuel is Chairman of the Board of Interim Technology
(Asia), Pte. Ltd., and a director of the Information Technology Association of
America (ITAA), Amerihost Properties and Zanathon Inc., a Salt Lake City hi-tech
company. Mr. Emanuel serves pursuant to Spherion Corporation's right to
designate two nominees to the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR EACH OF
THE NOMINEES FOR DIRECTOR SET FORTH ABOVE.
Board Committees
The Company has standing Audit and Compensation Committees. The Board
of Directors as a whole acts as a Nominating Committee. All directors attended
at least 75% of the Board meetings and assigned committee meetings during the
fiscal year ended August 31, 2000. The Board of Directors held ten meetings
during the fiscal year, the Audit Committee held four meetings and the
Compensation Committee held three meetings.
Audit Committee. The Audit Committee is comprised of three independent
directors, as defined by the National Association of Securities Dealers, Inc.
("NASD"). The committee
2
operates in accordance with its written charter adopted by the Board of
Directors (set forth in Appendix A to this proxy statement). The Audit
Committee reviews the preparations for and the scope of the audit of the
Company's annual financial statements, reviews the Company's quarterly
financial statements, reviews drafts of such statements, makes
recommendations as to the engagement and fees of the Company's independent
auditors, considers the effects that the provision of any non-audit services
may have on auditor independence and monitors the functioning of the
Company's accounting and internal control systems by meeting with
representatives of management and the independent auditors. The Audit
Committee has direct access to the Company's independent auditors and counsel
and performs such other duties relating to the maintenance of the proper
books of account and records and other matters as the Board of Directors may
assign from time to time. Terry Anderson, Edward Bennett and John Bermingham
comprise the Audit Committee. Mr. Bennett succeeded Norman Docteroff on the
Audit Committee in January 2001, following Mr. Docteroff's resignation from
the Board of Directors and its committees in December 2000.
Compensation Committee. The Compensation Committee operates in
accordance with its written charter adopted by the Board of Directors. The
committee supervises and makes recommendations with respect to compensation
arrangements for the Company's executive officers. The Compensation Committee
reviews the performance of the Company's executive officers, provides input
regarding long-range planning for executive development and succession and
administers the Company's option plans, including establishing the terms and
amounts of option grants. Edward Bennett and John Bermingham currently comprise
the Compensation Committee. Mr. Bennett succeeded Norman Docteroff on the
Compensation Committee in December 2000, following Mr. Docteroff's resignation
from the Board of Directors and its committees in December 2000.
Compensation of Directors
Directors who are Company employees receive no additional compensation
for their services as directors. Other than as discussed in the paragraph below,
directors who are not employees do not receive a fee for attendance in person at
meetings of the Board of Directors or committees of the Board of Directors, but
are reimbursed for travel expenses and other out-of-pocket costs incurred in
connection with their attendance at the meetings.
Terry Anderson received a fee of $10,000 during fiscal 2000 for
rendering consulting services to us. Mr. Bennett and Mr. Bermingham are entitled
to receive an option to purchase 100,000 and 50,000 shares of Common Stock,
respectively, as of February 8, 2000. The exercise price for such options would
be $40.25.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 as amended (the
"Exchange Act") requires that the Company's directors and executive officers and
beneficial owners of more than 10% of the Company's Common Stock file reports of
holdings and transactions in the Company's Common Stock with the Securities and
Exchange Commission and the Nasdaq National Market. Based solely upon a review
of Forms 3, 4 and 5 furnished to the Company, the Company is not aware of any
person that has failed to file a required report. However, the Company did not
receive written representations from Werner Haase, William Zabit, Edward
3
Bennett, John Bermingham, Norman Docteroff or John Gandolfo that no Form 5 was
required to be filed for the fiscal year ended August 31, 2000. The Company has
recently instituted a compliance program to assist its directors and executive
officers with Section 16 filings.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded, earned or paid
for services rendered in all capacities by the Company's Chief Executive Officer
and each of the four other most highly compensated executive officers of the
Company (the "Named Executive Officers") for each of the last three fiscal
years.
Summary Compensation Table
Long Term
Annual Compensation Compensation
Securities
Name and Underlying All Other
Principal Position Fiscal Year Salary Bonus ($) Options (#) Compensation ($)
- -------------------- ----------- ------ --------- ------------- -----------------
Scott A. Mednick(1) 2000 $350,000 $ 200,000 600,000 $ 0
Co-Chairman 1999 $350,000 $1,080,000 300,000 $ 0
1998 $ 43,750 $ 80,000 1,000,000 $ 0
Werner G. Haase (2) 2000 $500,000 $ 102,550 0 $ 52,000(3)
Chief Executive Officer, 1999 $500,000 $ 150,000 0 $ 84,299
President and Co-Chairman 1998 $500,000 $ 300,000 500,000 $ 80,859
William N. Zabit(4) 2000 $405,000 $ 0 0 $ 0
President 1999 $405,000 $ 0 0 $ 7,066
1998 $ 0 $ 0 0 $ 0
John P. Gandolfo(5) 2000 $213,000 $ 75,000 250,000 $ 0
Senior Vice President and 1999 $ 0 $ 0 0 $ 0
Chief Financial Officer 1998 $ 0 $ 0 0 $ 0
Kevin Labick(6) 2000 $275,000 $ 168,000 125,000 $121,875(7)
Executive Vice President 1999 $ 0 $ 0 150,000 $ 0
1998 $ 0 $ 0 0 $ 0
- ----------------------
(1) Mr. Mednick resigned as Chairman of the Company in December 2000.
(2) Mr. Haase resigned as Chief Executive Officer and Co-Chairman in August
2000. Mr. Haase resigned as President in November 2000.
(3) Includes premiums for life insurance policies paid by the Company on
behalf of Mrs. Haase.
(4) Mr. Zabit resigned as President of the Company in March 2000.
(5) On September 29, 2000, Mr. Gandolfo resigned from his position. In
connection with his resignation, 83,337 options granted to Mr. Gandolfo
on November 1, 1999 were cancelled and 125,000 options granted on April
17, 2000 were cancelled.
(6) On September 12, 2000, Mr. Labick's employment was terminated. In
connection with his termination, all of the options granted to Mr.
Labick in fiscal years 1999 and 2000 were cancelled.
(7) Includes payment made in connection with termination of employment.
4
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information regarding stock options granted
during fiscal year 2000 to each of the Named Executive Officers.
Option Grants in Last Fiscal Year
Potential
Realizable Value
at Assumed Annual
Individual Grants Rates of Stock
----------------- Price Appreciation
for Option Term (1)
-------------------
Percent of Total
Number of Securities Options Granted
Underlying Options to Employees in Exercise Expiration
Name Granted (#) Fiscal Year Price ($/SH) Date 5%($) 10%($)
---- ----------- ----------- ------------ ---- ----- ------
250,000 2.9% $13.63 4/05/03 $349,629 $715,175
Scott A. Mednick (2)(3) 250,000 2.9% $7.50 4/17/03 $192,188 $393,750
Co-Chairman 100,000 2.9% $7.50 4/17/03 $76,875 $157,500
Werner Haase 0
Co-Chairman, Chief
Executive Officer and
President
William Zabit (4) 0
President
John P. Gandolfo (5) 125,000 1.4% $22.00 11/01/03 $433,469 $910,250
Senior Vice President and 125,000 1.4% $7.50 4/17/04 $147,773 $310,313
Chief Financial Officer
Kevin Labick (6) 125,000 1.4% $7.50 4/17/04 $147,773 $310,313
Executive Vice President
- ---------------------
(1) Potential realizable value is reported net of the option exercise price
but before taxes associated with exercise. These amounts assume annual
compounding results in total appreciation of approximately 63% (5% per
year) and approximately 159% (10% per year). Actual gains, if any, on
stock option exercises and Common Stock are dependent on the future
performance of the Common Stock, overall market conditions and the
continued employment of the officer. There can be no assurance that the
amounts reflected in this table will be achieved.
(2) Mr. Mednick resigned as Chairman of the Company in December 2000.
(3) 250,000 options vested on day of grant, while the additional grants
vested on December 31, 2000.
(4) Mr. Zabit resigned as President of the Company in March 2000.
(5) In connection with his resignation on September 29, 2000, 83,337
options granted to Mr. Gandolfo on November 1, 1999 were cancelled and
125,000 options granted on April 17, 2000 were cancelled.
(6) In connection with his termination on September 12, 2000, all of the
options granted to Mr. Labick in fiscal year 2000 were cancelled.
5
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR; FISCAL YEAR END OPTION VALUES
The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of
August 31, 2000. The last reported sale price of the Common Stock on August 31,
2000 was $7.625 per share. Accordingly, the values set forth below have been
calculated based on that price less the applicable exercise price per share,
multiplied by the number of shares underlying the options.
Aggregated Option Exercises in Last Fiscal Year; Fiscal Year End Option Values
Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year End (#) at Fiscal Year End ($)
---------------- --------------------
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($)(1) Unexercisable Unexercisable
- ---- --------------- --------------------- ------------- -------------
Scott A. Mednick (2) 0 0 1,349,990 $1,625,000
Co-Chairman (Exercisable) (Exercisable)
550,010 $43,750
(Unexercisable) (Unexercisable)
Werner G. Haase (3) 0 0 743,750 $3,033,594
Chief Executive Officer, (Exercisable) (Exercisable)
President and Co-Chairman
William Zabit (4) 0 0 0 $0
President
John P. Gandolfo (5) 0 0 41,663 $0
Senior Vice President and (Exercisable) (Exercisable)
Chief Financial Officer 208,337 $15,625
(Unexercisable) (Unexercisable)
Kevin Labick (6) 25,000 $175,000 62,500 $0
Executive Vice President (Exercisable) (Exercisable)
187,500 $15,625
(Unexercisable) (Unexercisable)
(1) Represents the difference between the average of the high and low
prices of the Common Stock on the Nasdaq National Market on the date of
exercise and the option exercise price multiplied by the number of
shares acquired on exercise.
(2) Mr. Mednick resigned as Chairman of the Company in December 2000.
(3) Mr. Haase resigned as Chief Executive officer and Co-Chairman of the
Company in August 2000. Mr. Haase resigned as President in November
2000.
(4) Mr. Zabit resigned as President of the Company in March 2000.
(5) Mr. Gandolfo resigned as Senior Vice President and Chief Financial
Officer of the Company in September 2000.
(6) Mr. Labick's employment with the Company was terminated in September
2000.
6
Performance Graph
The graph set forth below compares the "cumulative stockholder return" to
stockholders of the Company as compared with the return of the Nasdaq National
Market and a group of eleven companies that the Company deems comparable
consisting of AnswerThink Consulting Group, Inc., Sapient Corporation, Organic
Inc., Cysive, Inc., iXL Enterprises, Inc., RareMedium Group Inc., Proxicom,
Inc., Lante Corporation, Scient Corporation, Razorfish, Inc. and marchFIRST,
Inc. (the "Peer Group Index"). "Cumulative stockholder return" has been computed
assuming an investment of $100 on August 31, 1995 and assumes a reinvestment of
all dividends. These indices are included for comparative purposes only and do
not necessarily reflect management's opinion that such indices are an
appropriate measure of the relative performance of the stock involved, and are
not intended to forecast or be indicative of future performance.
[GRAPH OF INDEXED RETURNS]
Indexed Returns
YEARS ENDING
------------
COMPANY INDEX AUG. 95 AUG. 96 AUG. 97 AUG. 98 AUG. 99 AUG. 00
- ------------- ------- ------- ------- ------- ------- -------
WORLDWIDE XCEED GROUP, INC. 100.0 148.1 192.6 355.6 1055.6 451.9
NASDAQ (US) 100.0 112.8 157.3 148.7 276.3 422.1
PEER Group 100.0 79.6 99.7 134.2 272.9 282.5
7
Employment Agreements
During fiscal 2000, the Company had employment agreements with Howard
A. Tullman, Scott A. Mednick, Werner G. Haase, William N. Zabit, John P.
Gandolfo and Kevin D. Labick. As stated below, the Company's employment
agreements with Werner G. Haase, William N. Zabit, John P. Gandolfo and Kevin D.
Labick have been terminated.
Howard A. Tullman. In August 2000, the Company entered into a three
year employment agreement with Howard A. Tullman, the Company's current Chief
Executive Officer. Mr. Tullman was selected by the Board of Directors to succeed
Mr. Haase upon his resignation of the position of Chief Executive Officer in
August 2000. Pursuant to his employment agreement, Mr. Tullman receives an
annual base salary of $400,000 and has received options to purchase up to 1
million shares of Common Stock. Mr. Tullman is also eligible to receive bonuses
at the discretion of the Board of Directors. If Mr. Tullman is terminated by the
Company without cause during the first year of his employment, he is entitled to
receive the balance of his annual salary up to and through the 18th month of his
employment term; during the second or third year of his employment, he is
entitled to receive the balance of his annual salary up to and through the 36th
month of his employment term; or after his initial three year term, he is
entitled to six months severance. In the event of a change in control of the
Company during the initial three-year term of Mr. Tullman's employment
agreement, where the controlling entity does not assume the employment agreement
or breaches its provisions, Mr. Tullman is entitled to the severance
arrangements and acceleration of his options as set forth above. Mr. Tullman's
employment agreement contains a non-compete covenant that is in effect during
the term of his employment and for 12 months after his termination. Although
this employment agreement is dated August 4, 2000, Mr. Tullman did not assume
executive responsibilities until the beginning of fiscal year 2001.
Scott A. Mednick. In December 2000, Scott A. Mednick resigned his
position as Chairman of the Company pursuant to a separation agreement. In July
1998, the Company had entered into an employment agreement with Mr. Mednick,
which was amended in September 1999 and April 2000. Pursuant to the separation
agreement, Mr. Mednick will continue to receive his base salary at the time of
his resignation of $385,000 through July 17, 2001 and will maintain his right to
vested and unvested stock options, in accordance with the terms of the stock
option plans they were issued under. The Company will also continue to provide
Mr. Mednick with medical, disability and life insurance benefits through July
17, 2001. Pursuant to the separation agreement, Mr. Mednick has released the
Company from all other compensation obligations under his employment agreement.
In addition, Mr. Mednick has agreed that the noncompetition covenant contained
in his employment agreement will remain in effect for so long as the Company
pays his severance benefits under the separation agreement, but not later than
July 17, 2001 and that he will continue to be bound by a confidentiality
agreement with the Company. Prior to the termination of Mr. Mednick's employment
agreement, the agreement provided for an initial term of two years and a renewal
term of two years if not terminated at the end of the initial two year term. Mr.
Mednick's terminated employment agreement also provided that if there was a
change in control, he would be entitled to receive a one-time payment equal to
three times his then-current annual compensation (including bonuses).
Werner G. Haase. In connection with the Company's sale of its
Performance Enhancement Business in November 2000, Werner G. Haase resigned his
position as President
8
of the Company pursuant to a separation agreement. Mr. Haase also was the
former Co-Chairman and Chief Executive Officer of the Company, positions he
resigned in August 2000. In December 1996, the Company had entered into a five
year employment agreement with Mr. Haase. Pursuant to the separation agreement,
Mr. Haase relinquished all rights to vested and unvested stock options upon
closing of the sale of the Company's Performance Enhancement Business, other
than certain options to purchase an aggregate of 43,750 shares of Common Stock.
Mr. Haase released the Company from all other obligations for compensation
under his employment agreement. Prior to the termination of Mr. Haase's
employment agreement, Mr. Haase was paid a base salary of $500,000 per year and
the Company paid premiums, interest and other payments on a number of policies
insuring his life with an aggregate face value of at least $2,300,000. Mr.
Haase's terminated employment agreement also entitled him to receive bonuses,
stock options and other incentives at the discretion of the Company's Board of
Directors, and if there was a change in control, Mr. Haase would have been
entitled to receive a one-time payment equal to three times his then-current
annual compensation (including bonuses). Finally, his terminated employment
agreement provided that upon his termination without cause, Mr. Haase would
have been entitled to cancellation of all debts owed by him to the Company or
to Journeycraft (a former wholly-owned subsidiary of the Company which was sold
to 488 Performance Group) and the Company would have been obligated to pay him
an amount in cash equal to 100% of the amount of indebtedness cancelled. As of
August 31, 2000, the amount of Mr. Haase's indebtedness to the Company was
$1,222,000. Mr. Haase's indebtedness, represented by a promissory note, was
sold to a third party for $100,000 in connection with the closing of the
Company's sale of its Performance Enhancement Business.
William N. Zabit. In March 2000, William N. Zabit resigned as
President of the Company. In September 1998, the Company had entered into a
four year employment agreement with Mr. Zabit, which was terminated effective
September 15, 2000. Prior to the termination of Mr. Zabit's employment
agreement, Mr. Zabit was paid an annual base salary of $400,000 and the Company
paid premiums, interest and other payments on a policy insuring his life with a
face value of at least $2,000,000. Mr. Zabit's terminated employment agreement
also entitled him to receive bonuses, stock options and other incentives at the
discretion of the Board of Directors and if there was a change in control, Mr.
Zabit would have been entitled to receive a one-time payment equal to three
times his then-current annual compensation (including bonuses). Finally, his
terminated employment agreement provided that upon his termination without
cause, all debts owed to the Company by Mr. Zabit would have been cancelled in
full. As of the effective date of his termination, Mr. Zabit was not indebted
to the Company. Pursuant to certain promissory notes executed in connection
with the Company's acquisition of Zabit & Associates, the Company was indebted
to Mr. Zabit and another former shareholder of Zabit & Associates; however, as
of August 9, 2000, the Company had paid off the promissory notes in full and
was not indebted to those individuals.
James P. Gandolfo. In September 2000, James P. Gandolfo resigned from
his positions as Senior Vice President and Chief Financial Officer of the
Company. In May 2000, the Company had entered into a two year employment
agreement with Mr. Gandolfo. In connection with his resignation, Mr. Gandolfo
relinquished all rights to vested and unvested stock options, other than certain
options to purchase an aggregate of 41,663 shares of Common Stock. Prior to the
termination of Mr. Gandolfo's employment agreement, Mr. Gandolfo was paid a base
salary of $325,000 per year and was eligible to receive discretionary bonuses.
Finally, his terminated
9
employment agreement provided that upon his termination without cause, he would
have been entitled to receive severance in an amount equal to three months of
his annual salary.
Kevin Labick. In September 2000, Kevin Labick was terminated from his
position as an Executive Vice President of the Company pursuant to a separation
agreement. In May 2000, the Company had entered into a two year employment
agreement with Mr. Labick, which was amended in June 2000. Pursuant to the
separation agreement, Mr. Labick relinquished all rights to unvested,
non-exercisable stock options. Prior to the termination of Mr. Labick's
employment, Mr. Labick was paid a base salary of $275,000 per year. His
terminated employment agreement provided that upon his termination without
cause, he would have been entitled to receive severance in an amount equal to
twelve months of his annual salary. In connection with his termination, the
Company paid Mr. Labick separation pay in the amount of $121,875.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
reviewing the Company's overall compensation policies and, with the input of the
Company's Chief Executive Officer, setting the compensation of the Company's
executive officers. The Compensation Committee is comprised solely of two
non-employee directors, Edward Bennett and John Bermingham. Mr. Bennett
succeeded Norman Docteroff on the Compensation Committee in December 2000,
following Mr. Docteroff's resignation from the Board of Directors and its
committees in December 2000.
Compensation Philosophies and Goals
The Company's executive compensation program for fiscal 2000, which
consisted of a combination of base salary, cash bonuses and stock options, is
designed in large part to align executive incentives with the Company's
strategic goals. Accordingly, a portion of the total cash compensation of the
Company's senior executives was directly linked to the Company's and the
executive's satisfaction of specified goals. By tying compensation to the
achievement of the Company's core objectives and fundamental values, the Company
believes that a performance-oriented environment is created for its executives
and other employees.
The Company's executive compensation program for fiscal 2000 was also
intended to align executive and stockholder interests by providing executives
with an equity interest in the Company through the granting of stock options.
The size of option grants was recommended by the Chief Executive Officer to the
Compensation Committee for approval. The Compensation Committee based its review
of such recommended grants on various factors, including the executive's
responsibilities, the executive's past, present and expected contributions to
the Company and the executive's current stock and option holdings.
In addition to structuring its executive compensation program in a
manner which will reward executives for the achievement of the Company's
business objectives as well as for individual performance, the Company also
seeks to attract and retain key executives through its compensation program.
10
Compensation in Fiscal 2000
Cash Compensation
Base salaries of the executive officers for fiscal 2000 were determined
by the Compensation Committee. In keeping with the Company's desire to create a
performance-oriented environment through its compensation programs, the bonus
component is a significant percentage of the overall cash compensation payable
to the Company's executive officers.
The Company adopted an executive bonus plan for 2000 which covered the
executive officers and other senior management of the Company. Under the bonus
plan, the Chief Executive Officer recommended to the Compensation Committee for
approval the target amount of bonus compensation payable to each participant
(other than himself) for the year. Each participant's actual bonus compensation
was determined based on the Company's and the participant's, as the case may be,
achievement of specified goals in four key measurement areas: client
satisfaction, financial performance, organizational goals and personal goals.
The weighting of each of the four measurements varied for each participant,
depending on his or her role in the Company. Also, depending on a participant's
role in the Company, the achievement of certain goals was measured on a
Company-wide, industry-specific or individual office basis.
In November 2000, the Compensation Committee reviewed the Company's and
each executive officer's performance against the objective criteria described
above. Based on this review, and in accordance with the criteria described
above, bonus payments were approved to each executive officer as indicated in
the Summary Compensation Table.
Incentive Compensation
During fiscal 2000, the Named Executive Officers received options to
purchase an aggregate of 975,000 shares of Common Stock at a weighted average
exercise price of $10.93 per share, as indicated in the table in "Option Grants
in Last Fiscal Year."
2000 Compensation of Chief Executive Officer
Werner Haase served as the Company's Chief Executive Officer until his
resignation from that position in August 2000. Mr. Haase's base salary, bonus
and grants of options were determined in accordance with the same procedures and
standards as for other executive officers of the Company.
Howard Tullman has served as the Company's Chief Executive Officer
since September 2000, following Mr. Haase's resignation. Pursuant to his
employment agreement with us, Mr. Tullman currently receives an annual base
salary of $400,000 and has received options to purchase up to 1 million shares
of Common Stock. Mr. Tullman's bonus will be determined in accordance with the
same procedures and standards as for other executive officers of the Company.
11
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended,
generally disallows a federal income tax deduction to public companies for
certain compensation in excess of $1 million paid to a corporation's chief
executive officer or any of its four other most highly compensated executive
officers. Qualifying performance-based compensation will not be subject to the
deduction limit if certain requirements are met. The Company has structured its
option plans to qualify income received upon the exercise of stock options
granted under the plans as performance-based compensation. The Compensation
Committee intends to review the potential effects of Section 162(m) periodically
and in the future may decide to structure additional portions of the Company's
compensation program in a manner designed to permit unlimited deductibility for
federal income tax purposes.
CURRENT MEMBERS OF THE COMPENSATION COMMITTEE:
Edward A. Bennett
John A. Bermingham
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationships currently exist between the Company's
officers and members of the Compensation Committee.
REPORT OF THE AUDIT COMMITTEE
The Board of Directors maintains an Audit Committee comprised of three
of the Company's outside directors. The Board of Directors and the Audit
Committee believe that the Audit Committee's current member composition
satisfies the rule of the NASD that governs audit committee composition, Rule
4310(c)(26)(B)(i), including the requirement that audit committee members all be
"independent directors" as that term is defined by NASD Rule 4200(a)(15).
In accordance with its written charter adopted by the Board of
Directors (set forth in Appendix A to this proxy statement), the Audit Committee
assists the Board of Directors with fulfilling its oversight responsibility
regarding the quality and integrity of the accounting, auditing and financial
reporting practices of the Company. In discharging its oversight
responsibilities regarding the audit process, the Audit Committee:
(1) reviewed and discussed the audited financial statements with
management;
(2) discussed with the independent auditors the material required
to be discussed by Statement on Auditing Standards No. 61; and
(3) reviewed the written disclosures and the letter from the
independent auditors required by the Independence Standards
Board's Standard No. 1, and discussed with the independent
auditors any relationships that may impact the auditors'
objectivity and independence. In addition, in accordance with
the Securities and Exchange Commission's new auditor
independence requirements, the Audit
12
Committee has considered the effects that the provision of
non-audit services may have on the auditors' independence.
Based upon the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 2001, as filed with the Securities and Exchange
Commission.
CURRENT MEMBERS OF THE AUDIT COMMITTEE:
Terry A. Anderson
Edward A. Bennett, Chairman
John A. Bermingham
Audit Fees
The Company has been billed a total of approximately $524,000 by
Deloitte & Touche LLP, the Company's independent auditors, for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended August 31, 2000, the reviews of interim financial
statements included in the Company's Forms 10-Q filed during the last fiscal
year and accounting consultations regarding generally accepted accounting
principles (GAAP).
Financial Information Systems Design and Implementation Fees
There were no fees billed by Deloitte & Touche LLP for professional
services rendered in connection with financial information systems design and
implementation during the fiscal year ended August 31, 2000.
All Other Fees
The Company has been billed a total of approximately $126,000 for all
other services rendered by Deloitte & Touche LLP that are not set forth above.
RELATED PARTY TRANSACTIONS
Prior to July 1996, Werner Haase had borrowed funds from Journeycraft
which at the time of the acquisition of Journeycraft by us amounted to
$1,000,000. As a result of the acquisition, the loan was transferred to the
Company. The loan bears interest at 7% and is payable in annual installments of
$100,000 which amount is first applied to interest and the balance to reduce
principal. The remaining balance and any accrued interest is due in full in
December, 2016. As of August 31, 2000, $1,222,000 was due from Mr. Haase. Mr.
Haase's indebtedness, represented by a promissory note, was sold to a third
party for $100,000 in connection with the closing of the Company's sale of its
Performance Enhancement Business to 488 Performance Group, Inc., a company
formed and privately-owned by Mr. Haase.
In connection with the Company's acquisition of Zabit & Associates, the
Company agreed to pay off certain promissory notes which were due to two former
shareholders of Zabit & Associates in March 1999. The Company paid William
Zabit, the former President of the
13
Company, $3,974,000, consisting of $3,840,000 of principal and $134,000 of
interest and paid the other shareholder, who is now a Company employee,
$993,600, consisting of $960,000 of principal and $33,600 of interest. In
addition, in connection with this acquisition, in May 2000 the Company paid off
promissory notes to Mr. Zabit and to another former stockholder of Zabit &
Associates in the aggregate amount of $2,161,000.
On July 31, 2000, the Company sold all the assets and liabilities
associated with the JourneyCorp travel division to Journey Corp. .Com, a company
formed and privately-owned by Nurit Kahane Haase, the Company's former Senior
Vice President and Secretary and the wife of Werner Haase, the Company's former
President, Co-Chairman and Chief Executive Officer. In connection with the
transaction, the Company received a promissory note in the amount of $704,000,
which bears interest at a rate of 6% per annum and is payable to the Company in
equal quarterly installments of $58,667 over three years. In addition, the
Company entered into an exclusivity agreement whereby its U.S. offices will use
their best efforts to make their corporate travel arrangements through Journey
Corp. .Com until July 31, 2003. Upon consummation of the sale of JourneyCorp,
Mrs. Haase resigned from her positions as Senior Vice President and Secretary of
the Company.
In April 2000, the Company entered into a two-year Joint Marketing
Agreement with Spherion Corporation, then a 5% stockholder, which renews
automatically for one-year periods unless terminated by either party 60 days
prior to the end of the relevant term. In addition, the agreement may be
terminated by either party upon 120 days written notice. Under the agreement,
the Company and Spherion agreed to cross-sell one another's products and
offerings, using their respective promotional materials and customer service
representatives, with a finder's fee being paid to the generating party based on
the first twelve months' revenue generated. Each also agreed to assign a senior
executive to monitor and grow the relationship.
In October 2000, the Company sold the operations previously acquired by
the acquisitions of Enterprise Solutions Group, Inc., Catalyst Consulting
Services, Inc. and a portion of the operations of Sterling Carteret, Inc. to
Xceed Retail Solutions Group, Inc., a company formed and privately-owned by Gary
S. Kahl, the Company's former Executive Vice President of National Practices,
and other former employees of the Company, in a negotiated transaction in
exchange for the assumption by Xceed Retail Solutions Group of the liabilities
related to these operations. In connection with that sale, the Company granted a
temporary nonexclusive license to Xceed Retail Solutions Group to use the XCEED
service mark. The license expired in January 2001. Upon consummation of the sale
of these operations to Xceed Retail Solutions Group, Mr. Kahl resigned his
positions with the Company and Mr. Kahl and the other former employees joining
Xceed Retail Solutions Group agreed to relinquish their stock options and all
claims for severance compensation from the Company.
In November 2000, the Company sold the Performance Enhancement Business
to 488 Performance Group, Inc., a company formed and privately-owned by Werner
G. Haase, the Company's former President, Chief Executive Officer, Co-chairman
and director, in a negotiated transaction in exchange for a purchase price
comprised of a promissory note from 488 Performance Group in the principal
amount of $3,600,000, the assumption by 488 Performance Group of all liabilities
related to the Performance Enhancement Business and the retention by the Company
of $2,000,000 in cash collected from receivables associated with the Performance
Enhancement Business. The purchase price is subject to adjustment under certain
circumstances.
14
Upon consummation of the sale of the Performance Enhancement Business to 488
Performance Group, a third party purchased from the Company for $100,000 in
cash a promissory note to Journeycraft, payable by Mr. Haase, maturing in 2016
and having a balance of $1,247,483.15 as of the date of the sale.
CURRENT EXECUTIVE OFFICERS
Because all of the Named Executive Officers are no longer employed by
the Company, the information below is being provided regarding the Company's
current executive officers.
NAME AGE POSITION
---- --- --------
Howard A. Tullman 55 Chief Executive Officer
Douglas C. Laux 48 Chief Financial Officer and Treasurer
Richard R. Dennerline 36 Chief Legal Officer and Secretary
Paul P. Schmidman 47 Executive Vice President
Douglas C. Laux has been employed by the Company since October 2000 and
was designated as Chief Financial Officer and Treasurer in November 2000. From
February 2000 until October 2000, Mr. Laux was the chief financial officer for
Drinks.com, Inc., an on-line marketing company and retailer of wine, beer and
spirits. From September 1995 until January 2000, Mr. Laux served as the chief
financial officer at Platinum Entertainment, Inc., a music entertainment company
and was its chief operating officer from mid-1998 until January 2000. Platinum
Entertainment filed for Chapter 11 bankruptcy protection in July 2000 in U.S.
Bankruptcy Court in Chicago, Illinois.
Richard R. Dennerline has been employed by the Company since September
2000 and was designated as Chief Legal Officer in November 2000 and as Secretary
in October 2000. From June 1997 until September 2000, Mr. Dennerline was a
partner in the law firm of Freeborn & Peters in Chicago, Illinois, with which he
was also an associate from April 1995 until May 1997. Mr. Dennerline currently
acts as an independent consultant to Freeborn & Peters. From May 1989 through
March 1995, Mr. Dennerline was an associate with the law firm of Sidley & Austin
in Chicago, Illinois.
Paul P. Schmidman has served as the Company's Executive Vice President
since March 1999. From May 1998 until March 1999, Mr. Schmidman was senior vice
president and general manager of interactive media at THINK New Ideas, Inc., a
provider of marketing technology and interactive business solutions. From
December 1996 until December 1998, Mr. Schmidman served as executive vice
president and general manager of BoxTop Interactive. From January 1996 until
December 1996, Mr. Schmidman was a consultant with ElectroGig, Software
Ventures, RT-Set and 7th Level.
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth information regarding beneficial ownership of
the Company's Common Stock as of February 19, 2001 by:
Each person known to the Company who beneficially owns more than 5% of
the outstanding shares of Common Stock, each of the Company's directors (and
nominees for director) and Named Executive Officers and all of the Company's
directors (and nominees for director) and executive officers as a group.
Unless otherwise indicated, the address of each person below is c/o
Worldwide Xceed Group, Inc., 233 Broadway, New York, New York 10279.
AMOUNT AND NATURE OF PERCENTAGE OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP STOCK OUTSTANDING(1)
------------------------------------ -------------------- --------------------
Werner G. Haase(2)...................................... 589,450(3) 1.0%
Scott A. Mednick(4)..................................... 1,699,990(5) 2.8%
Howard A. Tullman....................................... 1,002,200(6) 1.6%
William N. Zabit(7)..................................... 1,179,828 2.0%
Douglas C. Laux......................................... 175,000(8) *
Richard R. Dennerline................................... 245,000(9) *
Paul P. Schmidman....................................... 493,140(10) *
Terry A. Anderson....................................... 150,000(11) *
19197 River Road
Athens, OH 45701
Edward A. Bennett....................................... 412,411(12) *
725 Washington Street
New York, NY 10014
John A. Bermingham...................................... 250,000(13) *
9 Raintree Court
Kinnelon, NJ 07405
Norman Docteroff(14).................................... -- *
81 Two Bridges Road
Fairfield, NJ 07004
Stuart Emanuel.......................................... 250,000(15) *
832 Commerce Drive
Oak Brook, IL 60523
Raymond Marcy (16)...................................... -- *
2050 Spectrum Boulevard
Ft. Lauderdale, FL 33309
Directors and Executive Officers as a Group (8 persons) 2,877,751 4.6%
- --------------------
(1) Percentage of class as set forth below is calculated based on the number
of shares outstanding on February 19, 2001.
(2) Mr. Haase resigned as Chief Executive Officer and Co-Chairman of the
Company in August 2000. Mr. Haase resigned as President in November 2000.
16
(3) Excludes 876,950 shares of Common Stock held by Mr. Haase's wife, Nurit
Kahane Haase. Werner Haase disclaims any beneficial interest in the
shares held by his wife.
(4) Mr. Mednick resigned as Chairman of the Company in December 2000.
(5) Represents 1,699,990 currently exercisable options to acquire Common
Stock.
(6) Includes 1,000,000 currently exercisable options to acquire Common Stock.
(7) Mr. Zabit resigned as President of the Company in March 2000.
(8) Includes 175,000 currently exercisable options to acquire Common Stock.
(9) Includes 245,000 currently exercisable options to acquire Common Stock.
(10) Includes 493,140 currently exercisable options to acquire Common Stock.
(11) Represents 150,000 currently exercisable options to acquire Common Stock.
(12) Includes 150,000 currently exercisable options to acquire Common Stock.
(13) Includes 250,000 currently exercisable options to acquire Common Stock.
(14) Mr. Docteroff resigned as a director of the Company in December 2000.
(15) Includes 150,000 currently exercisable options to acquire Common Stock.
(16) Mr. Marcy resigned as a director of the Company in November 2000.
* Represents less than one percent (1%) ownership.
PROPOSAL 2--REVERSE STOCK SPLIT
The Board of Directors has approved and hereby is soliciting
stockholder approval of an amendment to Article FOURTH of the Company's
Certificate of Incorporation (the "Amendment") pursuant to which each ten (10)
shares of the issued and outstanding shares of Common Stock shall be converted
into one (1) issued and outstanding share of Common Stock. If the Company's
stockholders approve the proposed Amendment, the following new Sections 3, 4, 5
and 6 would be added to Article FOURTH, which would read as follows:
SECTION 3. CONVERSION OF COMMON STOCK.
At the time of the filing of this Certificate of Incorporation
with the Secretary of State of the State of Delaware, (a) each ten (10)
shares of issued and outstanding common stock shall automatically,
without the necessity of any further action on the part of the holder
thereof, be changed and reclassified into one (1) share of common
stock. Upon the occurrence of the reclassification effected by this
Article Fourth, Section 3 (the "Conversion"), each certificate for
outstanding shares of common stock dated prior to the effective date of
the Conversion ("Old Common Stock") shall evidence, and be deemed to
evidence, the number of shares of common stock into which the shares
previously evidenced by such certificate shall have been reclassified
in accordance with this Article Fourth, Section 3, and the Conversion
shall become effective in accordance with the terms hereof, whether or
not any or all of the certificates evidencing Old Common Stock shall
have been surrendered or new certificates evidencing the number of
shares of common stock into which such shares have been reclassified
have been issued in accordance with Article Fourth, Section 4 hereof.
SECTION 4. SUBSEQUENT REISSUANCE OF CERTIFICATES.
Following the occurrence of the Conversion, each holder of
shares of Old Common Stock shall receive a letter of transmittal from
the Corporation's transfer
17
agent and shall either (a) surrender each certificate evidencing any
such shares pursuant to the instructions in such letter of transmittal
or (b) notify the Corporation that such certificate has been lost,
stolen or destroyed and execute an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it
in connection with the reissuance of such lost, stolen or destroyed
certificate. The Corporation shall thereupon issue and deliver or
cause to be issued and delivered to such holder a certificate or
certificates, in the name shown on such certificate evidencing Old
Common Stock, for the number of whole shares of common stock into
which the shares of Old Common Stock evidenced by the surrendered
(or lost, stolen or destroyed) certificate have been reclassified,
dated as of the date on which the Conversion become effective. The
Corporation shall not be obligated to issue any certificate
evidencing shares of common stock in connection with the Conversion
except in accordance with this Article Fourth, Section 4.
SECTION 5. FRACTIONAL SHARES.
Notwithstanding the foregoing, no fraction of a share of
common stock shall be issued by virtue of the Conversion, but in lieu
thereof, each holder of shares of Old Common Stock who would otherwise
be entitled to a fraction of a share of common stock (after aggregating
all fractional shares of Common Stock to be received by such holder)
shall receive from the Corporation the number of shares of common stock
the holder would otherwise be entitled to, rounded up to the next
number of whole shares of common stock.
SECTION 6. PAR VALUE OF COMMON STOCK.
The par value of the Common Stock as set forth in Article
Fourth, Section 1 hereof shall remain unchanged by the Conversion.
If approved, this ten-for-one reverse stock split (the "Reverse
Split") will become effective upon filing an amendment to the Company's
Certificate of Incorporation with the Secretary of the State of Delaware.
Once implemented, the Reverse Split would result in each holder of the
Company's Common Stock on the Record Date owning fewer shares of Common Stock
than they owned immediately before the Reverse Split, and outstanding
options, warrants, and other convertible rights will become exercisable to
purchase a fewer number of shares of Common Stock at an exercise price per
share increased by the factor of the Reverse Split. Fractional shares,
options and warrants will be rounded up to the nearest whole number.
In order to effect the Reverse Split as currently described, the
stockholders are being asked to approve the Amendment to the Company's
Certificate of Incorporation. The Board of Directors, however, reserves the
right, notwithstanding stockholder approval and without further action by the
stockholders, to decide not to proceed with the Reverse Split if at any time
prior to the Amendment's effectiveness, the Board of Directors determines in
its sole discretion, that the Reverse Split is no longer in the best
interests of the Company or its stockholders. The Board of Directors may at
any time make any and all changes to the Amendment that it deems necessary in
order to file the Amendment with the Secretary of State of the State of
Delaware and give effect to the Reverse Split.
18
EFFECTS OF THE REVERSE SPLIT
The Reverse Split will not affect in any manner the rights and
preferences of the Company's stockholders. There will be no change in the
voting rights, right to participate in stock or cash dividends, or rights
upon the liquidation or dissolution of the Company of holders of Common
Stock; nor will the Reverse Split affect in any manner the ability of the
Company's stockholders to sell under Rule 144 or otherwise engage in market
transactions in accordance with federal and state securities laws. Any and
all outstanding options, warrants and other rights exercisable or convertible
into shares of Common Stock will be adjusted as a result of the Reverse
Split. The adjustment will consist of an increase in the exercise price or
conversion value per share by the factor of the Reverse Split and the number
of shares issuable upon exercise or conversion will be reduced by the same
factor. For example, if a ten-for-one (10-for-1) Reverse Split is
implemented, an option, warrant or other right exercisable or convertible
into 1,000 shares of Common Stock at an exercise price or conversion value of
$1.00 per share immediately before implementation of the Reverse Split would
be exercisable or convertible into 100 shares of Common Stock at an exercise
price or conversion value of $10.00 per share immediately after
implementation of the Reverse Split. All other relative rights and
preferences of holders of outstanding options, warrants and other rights
convertible or exercisable into shares of the Company's Common Stock shall
remain unchanged The Company currently has no intention of going private, and
this proposed reverse stock split is not intended to be a first step in a
going private transaction.
REASONS FOR REVERSE SPLIT
The Board of Directors believes that approval of the Reverse Split
is in the best interest of the Company and its shareholders for several
reasons. First, as the Company's Common Stock is listed on The Nasdaq
National Market ("Nasdaq"), the Company must qualify for continued listing on
NASDAQ under the NASDAQ maintenance criteria. The NASDAQ maintenance criteria
include, among other things, the requirement that its Common Stock maintain a
minimum bid price of at least $1.00 per share, and the requirement that the
market value of the Company's public float be at least $5,000,000. As of the
date of this Proxy Statement, the Company does not satisfy the minimum bid
price criteria. As a result, it may be necessary to implement a reverse split
of the Company's Common Stock in order to meet the Nasdaq maintenance
criteria and to ensure that the Company's Common Stock will continue to
qualify for listing on NASDAQ. Additionally, the Board of Directors believes
that a Reverse Split, which will result in a higher per share trading price
of the Company's Common Stock, will enable the Company to attract additional
interest in its Common Stock from the investment community, and particularly
market-makers. Numerous broker-dealers and investment bankers require that a
company's common stock have a minimum public trading price before those
broker-dealers or investment bankers will agree to make a market in that
security. As a result, we believe that the Reverse Split has the potential of
improving the liquidity of the public market for the Company's Common Stock.
There can be no assurance that the reverse stock split will have the
desired effects or that the price of the Common Stock will increase at all.
The market price of the Common Stock may decrease to pre-split levels, and
the market capitalization following the reverse stock split may be equal to
the Common Stock's current market capitalization.
19
MECHANICS OF THE REVERSE SPLIT
If the Reverse Split is approved by the requisite vote of the Company's
stockholders and the Board of Directors does not thereafter elect to abandon the
Reverse Split as described above, the Amendment will be filed with the Secretary
of State of the State of Delaware. The Reverse Split will be effective on the
date of such filing. Upon filing the Amendment, every ten (10) issued and
outstanding shares of Common Stock will, immediately following filing of the
Amendment, be automatically and without any action on the part of the
stockholders, converted into and reconstituted as one (1) share of Common Stock.
As soon as practicable after the effective date, the Company will mail
or cause to be mailed, a letter of transmittal to each stockholder of record of
shares of Common Stock outstanding as of the effective date. The letter of
transmittal will set forth instructions for surrender to the Company's transfer
agent of the certificates representing the Common Stock prior to the Reverse
Split in exchange for the certificates representing the appropriate number of
shares of Common Stock following the Reverse Split. CERTIFICATES SHOULD NOT BE
SENT TO THE COMPANY OR THE TRANSFER AGENT PRIOR TO THE RECEIPT OF SUCH LETTER OF
TRANSMITTAL FROM THE COMPANY. Until this exchange is completed, the
stockholders' Common Stock shall be deemed equal to the new number of whole
shares of Common Stock to which each shareholder is entitled as a result of the
Reverse Split.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE REVERSE SPLIT.
PROPOSAL 3--AMENDMENT TO THE AMENDED AND RESTATED MILLENNIUM STOCK OPTION PLAN
Description of Proposed Amendment
Stockholders are being asked to approve an amendment to the Amended
and Restated Millennium Stock Option Plan (the "Millennium Plan") to increase
the number of shares of Common Stock reserved for issuance thereunder by
11,000,000 shares, from 9,000,000 to 20,000,000 and to increase the maximum
number of shares which may be issued to an employee from 1,000,000 shares to
5,000,000 shares. If the proposed 10-for-1 reverse stock split described in
the preceding Proposal 2 is approved and becomes effective, the number of
shares of Common Stock reserved for issuance under the Millennium Plan as
amended by this Proposal 3 would be 2,000,000 shares and the maximum number
of shares which may be issued to an employee would be 500,000 shares.
Except as specifically noted, all numbers in the description of this
Proposal 3 and in the summary below do not give effect to the proposed
10-for-1 reverse stock split described in the preceding Proposal 2.
The Board of Directors believes that the increase in the number of
shares reserved for issuance under the Millennium Plan is in the best
interests of the Company because of the continuing need to provide stock
options to attract and retain quality employees. The Board believes that the
additional reserve of shares with respect to which equity incentives may be
granted will provide the Company with additional flexibility to facilitate
the expansion and
20
retention of its workforce. The Board of Directors has authorized amendment
of the Millennium Plan subject to stockholder approval.
Below is a summary of the principal provisions of the Millennium Plan,
assuming stockholder approval of the amendment.
Description of the Millennium Plan
The Millennium Plan provides for the grant of options that qualify as
incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as
amended (the "Code") and options that do not so qualify ("NQSOs") with respect
to, in the aggregate, up to 20,000,000 shares of Common Stock (which number is
subject to adjustment in the event of stock dividends, stock splits and other
similar events). No employee may be issued more than 5,000,000 shares pursuant
to options granted under the Millennium Plan during the term of the plan. To the
extent that an ISO or NQSO is not exercised within the period of exercisability
specified therein, it will expire as to the then unexercised portion. If any ISO
or NQSO terminates prior to exercise thereof and during the duration of the
Millennium Plan, the shares of Common Stock as to which such option or right was
not exercised will again become available under the Millennium Plan for the
grant of additional options or rights to any eligible individual. The shares of
Common Stock subject to the Millennium Plan may be made available from
authorized but unissued shares, treasury shares, or both.
Administration
Pursuant to its terms, the Millennium Plan may be administered by: (a)
the Board of Directors; or (b) in the discretion of the Board of Directors, a
committee (the "Committee") consisting of two or more members of the Board of
Directors, each of whom must be (i) a "Non-Employee" director as such term is
defined by Rule 16b-3 (as amended from time to time, "Rule 16b-3") under the
Exchange Act and (ii) and "Outside Director" as such term is defined in Section
162(m) of the Code and the regulations thereunder. The Board of Directors or the
Committee (by a majority vote or, in the case of two members, by unanimous vote)
generally has the authority to determine the individuals to whom and the date on
which options are to be granted, the number of shares of stock to be subject to
each option, the exercise price of such options, the terms of any vesting or
forfeiture schedule and the other terms and provisions of each option. Only the
Committee may grant options to employees covered under Section 162(m) of the
Code. Currently, each of the Company's stock option plans is administered by the
Compensation Committee. All options granted under the Millennium Plan will be
evidenced by option agreements which shall contain the applicable terms and
conditions.
Section 16(b) Compliance
It is intended that transactions pursuant to the Millennium Plan will
satisfy the conditions of Rule 16b-3, as amended, promulgated under Section 16
of the Exchange Act. Section 16(b) of the Exchange Act provides that any
so-called "short-swing profits," that is, a profit realized by an officer,
director or owner of ten percent (10%) or more of the outstanding securities on
a purchase and a sale of stock within a six-month period, are recoverable by the
issuer of the securities. Although the application of Section 16(b) (and the
rules promulgated thereunder) is
21
complex, Rule 16b-3 generally mitigates the impact of Section 16(b) by
providing an exemption from the liability provisions for transactions that
satisfy the conditions of Rule 16b-3.
Eligibility and Extent of Participation
ISOs may be granted pursuant to the Millennium Plan only to employees
(including officers and directors) of the Company (and its subsidiaries). NQSOs
may be granted pursuant to the Millennium Plan to officers, directors, employees
or consultants of the Company (and its subsidiaries). As of February 15, 2001,
an aggregate of approximately 400 persons were eligible to participate in the
Millennium Plan, including 5 directors, 4 executive officers and all other
employees.
There is no minimum number of shares of Common Stock with respect to
which an option may be granted. However, if the aggregate fair market value (as
of the time of grant) of shares of Common Stock with respect to which ISOs are
exercisable for the first time by any individual during any calendar year (under
all stock option plans of the Company) exceeds $100,000, such excess options
shall be treated as NQSOs.
Purchase Price and Exercise of Options
The price at which shares of Common Stock subject to an option may be
purchased is determined by the Board of Directors (or the Committee); however,
the exercise price of shares of Common Stock issuable upon exercise of an ISO
may not be less than one hundred percent (100%) of the fair market value of the
Common Stock on the date of grant. However, if an ISO is granted to an optionee
who owns more than ten percent (10%) of the voting power of the capital stock of
the Company, the minimum exercise price may not be less than one hundred ten
percent (110%) of the fair market value of the Common Stock on the date of
grant. Any cash proceeds received by the Company from the exercise of the
options will be used for general corporate purposes.
Expiration and Transfer of Options
The Board of Directors (or the Committee) has the sole discretion to
fix the period within which any ISO or NQSO may be exercised. Any ISO granted
under the Millennium Plan to a ten percent (10%) or less stockholder and any
NQSO shall be exercised during a period of not more than ten years from the date
of grant and any ISO granted to a greater than ten percent (10%) stockholder
shall be exercised within five years from the date of grant. No ISO may be
granted under the Millennium Plan more than ten years after the date of adoption
of the Millennium Plan.
Options granted under the Millennium Plan are not transferable except
upon death. Options generally may be exercised only while the option holder is
employed by the Company, or in some cases, within three months of termination of
employment. In the event of disability of an option holder, options may
generally be exercised to the extent of the accrued right to exercise the option
within one year of termination of employment due to disability. In the event of
the death of an option holder, options may be exercised subject to expiration of
the option within three years after the date of death, to the extent of the
accrued right to exercise the option at the date of death. In the event the
employment of an option holder is terminated for cause, an option holder's
rights under all options are generally immediately forfeited.
22
Upon a reorganization, merger or consolidation of the Company as a
result of which the outstanding Common Stock is changed into or exchanged for
cash or property or securities not of the Company's issue, or upon a sale of
substantially all the property of the Company, the Millennium Plan will
terminate and all outstanding options previously granted thereunder shall
terminate, unless provision is made in connection with such transaction for
the continuance of the Millennium Plan or for the assumption of options
theretofore granted. If the Millennium Plan and unexercised options are to
terminate pursuant to such transaction, persons owning any unexercised
portions of options then outstanding will have the right, prior to the
consummation of the transaction, to exercise the unexercised portions of
their options, including the portions thereof which would, but for such
transaction, not yet be exercisable.
Federal Income Tax Considerations
In general, an option holder will not recognize taxable income upon
grant or exercise of an ISO and the Company will not be entitled to any business
expense deduction with respect to the grant or exercise of an ISO. However, upon
the exercise of an ISO, the excess of the fair market value on the date of the
exercise of the shares received over the exercise price of shares will generally
be treated as an adjustment to the option holder's alternative minimum taxable
income. In order for the exercise of an ISO to qualify for the foregoing
corporation tax treatment, the option holder generally must be an employee of
the Company or a subsidiary from the date the ISO is granted through the date
three months before the date of exercise, except in the case of death or
disability, where special rules apply.
If the option holder has held the ISO (or the shares acquired upon
exercise thereof) for at least two years after the date of grant and the
shares acquired upon exercise of the options for at least one year after the
date of exercise, upon disposition of the shares by the option holder, the
difference, if any, between the sale price of the shares and the exercise
price of the option will be treated as capital gain or loss. If the option
holder does not satisfy these holding period requirements, the option holder
will recognize ordinary income at the time of the disposition of the shares,
generally in an amount equal to the excess of the fair market value of the
shares at the time the option was exercised over the exercise price of the
option. The balance of gain realized, if any, will be a capital gain with the
holding period generally determined from the date the option was exercised.
If the option holder sells the shares prior to the satisfaction of the
holding period requirements but at a price below the fair market value of the
shares at the time the option was exercised, the amount of ordinary income
will be limited to the excess of the amount realized on the sale over the
exercise price of the option. If the option holder includes the ordinary
income in income or the Company complies with the applicable reporting
requirements, it will be entitled to a business expense deduction in the same
amount and at the same time as the option holder recognizes ordinary income,
subject to any deduction limitation under Section 162(m).
In general, an option holder to whom a NQSO is granted will
recognize no income and the Company will not be entitled to any business
expense deduction at the time of the grant of the option. Upon exercise of a
NQSO, an option holder will recognize ordinary income in an amount equal to
the amount by which the fair market value of the shares on the date of
exercise exceeds the exercise price of the option. If the option holder
includes such amount in income or the Company complies with applicable
reporting requirements, it will be entitled to a business
23
expense deduction in the same amount and at the same time as the option
holder recognizes ordinary income, subject to any deduction limitation under
Section 162(m).
Section 162(m) of the Code and the regulations proposed thereunder
generally would disallow the Company a federal income tax deduction for
compensation paid to the chief executive officer and the four other most
highly compensated executive officers to the extent such compensation paid to
any of such individuals exceeds one million dollars in any year. Section
162(m) generally does not disallow a deduction for payments of qualified
"performance-based compensation" the material terms of which have been
disclosed to and approved by stockholders. The Company intends that
compensation attributable to options and subject to performance objectives
granted under the Millennium Plan will be qualified "performance-based
compensation."
Under certain circumstances, the accelerated vesting or the cashout
or exercise of options in connection with a change in control of the Company
might be deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Code. To the extent it is so
considered, the option holder may be subject to a 20% excise tax and the
Company may be denied a tax deduction.
Exercise of Options
Generally, an option will be exercised by the tender of written
notice of the option holder's intention to exercise, and payment in cash of
the aggregate exercise price for the shares of Common Stock for which the
option is being exercised. The Board of Directors (or the Committee) may,
however, permit an optionee to pay all or a portion of the exercise price by
delivering to the Company shares of Common Stock having an aggregate fair
market value at least equal to such aggregate exercise price. An option may
also be exercised by tender to the Company of a written notice of exercise
together with advice of the delivery of an order to a broker to sell part or
all of the shares of Common Stock subject to such exercise notice and an
irrevocable order to such broker to deliver to the Company sufficient
proceeds from the sale of such shares to pay the exercise price and any
withholding taxes (a "cashless exercise") provided all documentation and
procedures are approved in advance by the Board of Directors (or the
Committee). The Company has the authority under the Millennium Plan to assist
any employee of the Company with the payment of the purchase price of the
Common Stock by lending the amount of the purchase price to the employee, on
terms, including rate of interest and security for the loan, as the Board of
Directors (or the Committee) shall authorize.
Amendments to the Millennium Plan and Termination
The Board of Directors may at any time terminate the Millennium Plan
or make such amendments thereto as its deems advisable and in the best
interests of the Company, without action on the part of the Company's
stockholders, unless such approval is required pursuant to Section 422 of the
Code or other federal or state law, rule or regulation and, provided that, no
such action may be taken if it affects or impairs the rights of an individual
holding options previously granted (absent such holder's consent). No ISO may
be granted ten years after the adoption of the Millennium Plan.
24
New Plan Benefits
Because the Board of Directors has discretion in determining the
persons who will receive grants of options under the Millennium Plan and the
number of shares covered by any such options, the persons to whom options
will be granted in the future and the number of options that will be granted
in the future are not determinable. However, the following table presents
information on options that are currently expected to be granted under the
Millennium Plan during fiscal year 2001, subject to stockholder approval of
this Proposal 3.
New Plan Benefits Table
Because all of the Named Executive Officers are no longer employed by
the Company, information regarding the benefits to be received by executives and
all officers of the Company is provided with respect to the current executives
and officers of the Company.
NAME AND PRINCIPAL POSITION DOLLAR VALUE ($)(1) NUMBER OF SHARES UNDERLYING OPTIONS
--------------------------- ------------ -----------------------------------
Howard A. Tullman - Chief Executive Officer 1,750,000
Douglas A. Laux - Chief Financial Officer and Treasurer 350,000
Richard R. Dennerline - Chief Legal Officer 490,000
Paul P. Schmidman - Executive Vice President 392,500
Executive Officer Group (4 persons) 2,982,500
Non-Executive Officer Director Group (4 persons) 600,000
Non-Executive Officer Employee Group (approximately 400
persons) 4,000,000
- --------------------
(1) The value of the listed shares is not determinable at this time. Unless
otherwise noted, the exercise price of each of these options is (or will
be, as applicable) the closing price of a share of Common Stock on the
Nasdaq National Market on the date of the relevant option grant.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS
TO THE AMENDED AND RESTATED MILLENNIUM STOCK OPTION PLAN.
PROPOSAL 4--AMENDMENT OF ARTICLE FOURTH OF
CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously approved, and recommends that
the stockholders adopt, an amendment to Article FOURTH of the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 100,000,000 to 200,000,000. If the Company's stockholders
adopt the proposed amendment, existing Article FOURTH would be amended to read
as follows:
FOURTH:
SECTION 1. The total number of shares of capital stock which
the Corporation shall have authority to issue is Two Hundred Million
shares of common stock, par value $.01 per share, and One Million
shares of Blank Check Preferred Stock, par value $.05 per share.
25
The Company currently is authorized to issue 100,000,000 shares of
Common Stock, of which 60,022,928 shares were outstanding as of February 19,
2001. In addition, as of February 19, 2001, there were 4,100,000 shares of
Common Stock reserved for issuance under the Company's stock option plans,
12,494,184 shares reserved for issuance upon conversion of Series A Cumulative
Convertible Preferred Stock, 20,000 shares held in the Company's treasury and
4,726,562 shares reserved for issuance upon exercise of outstanding warrants,
leaving 18,636,326 shares of Common Stock available for issuance. If adopted,
the proposed amendment would increase the number of authorized shares of Common
Stock to 200,000,000, of which 118,636,326 would be available for issuance.
The additional shares of Common Stock for which authorization is sought
would be part of the existing class of Common Stock, if and when issued. These
shares would have the same rights and privileges as the shares of Common Stock
currently outstanding. Holders of the Company's Common Stock do not have
preemptive rights to subscribe for and purchase any new or additional issue of
Common Stock or securities convertible into Common Stock.
The Board of Directors believes that the increase in the number of
authorized shares of Common Stock is in the best interests of the Company and
its stockholders. The purpose of increasing the number of authorized shares of
Common Stock is to have shares available for issuance for such corporate
purposes as the Board of Directors may determine in its discretion, including,
without limitation:
o future acquisitions
o investment opportunities
o stock splits
o stock dividends or other distributions
o conversion of convertible securities
o future financings and other corporate purposes
The Company currently has no binding agreements or understandings regarding the
issuance of additional shares of Common Stock. However, the Company is actively
pursuing financings which may result in the issuance of additional shares of
Common Stock.
Under the provisions of the Delaware General Corporation Law, a board
of directors generally may issue authorized but unissued shares of common stock
without stockholder approval. A substantial number of authorized but unissued
shares of Common Stock not reserved for specific purposes will allow the Company
to take prompt action with respect to corporate opportunities that develop,
without the delay and expense of convening a special meeting of stockholders.
The issuance of additional shares of Common Stock may reduce stockholders'
equity per share and may reduce the percentage of ownership of Common Stock of
existing stockholders. It is not the present intention of the Board of Directors
to seek stockholder approval prior to any issuance of additional shares of
Common Stock unless required by law or the rules of the Nasdaq National Market
or any other stock exchanges on which the Common Stock may be listed. The Nasdaq
National Market currently requires stockholder approval as a prerequisite to
listing shares in several instances, including acquisition transactions where
the present or potential issuance of shares could result in an increase in the
number of shares of common stock outstanding by 20% or more.
26
Although the Company currently has no reason to believe that a
takeover attempt is likely to occur, increasing the number of authorized
shares of Common Stock may provide the Company with the means of discouraging
a possible attempt. These additional shares of Common Stock could be used in
the future, through private sales to purchasers allied with management or
otherwise, to dilute the stock ownership of persons seeking to obtain control
of the Company, thus making less likely a change in control of the Company,
whether or not favored by a majority of the unaffiliated stockholders, with
the possible effect of deterring an offer for the Company at a substantial
premium over the current market price of the Common Stock. The Company has no
present intention to issue securities for this purpose.
The Company's Certificate of Incorporation currently reflects that
the Company is authorized to issue 1,000,000 shares of Blank Check Preferred
Stock. The Board of Directors is proposing a further amendment to Article
FOURTH which includes a description of the authority previously granted to
the Board of Directors to authorize the issuance of up to 1,000,000 shares of
preferred stock with rights, preferences and limitations as determined by the
Board of Directors. These shares of Blank Check Preferred Stock could be
issued by the Board of Directors in one or more transactions with terms which
might make the acquisition of a controlling interest in the Company more
difficult or costly. If the Company's stockholders approve the proposed
amendment, a new Section 2 would be added to Article FOURTH, which would read
as follows:
SECTION 2. BLANK CHECK PREFERRED STOCK.
The Blank Check Preferred Stock may be issued from
time to time in one or more series. Subject to the other
provisions of this Certificate of Incorporation and any
limitations prescribed by law, the Board of Directors is
authorized to provide for the issuance of and issue shares of
Blank Check Preferred Stock in series and, by filing a
certificate pursuant to the laws of the State of Delaware, to
establish from time to time the number of shares to be
included in each such series and to fix the designation,
powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions
thereof. The number of authorized shares of Blank Check
Preferred Stock may be increased or decreased (but not below
the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the total
voting power of the Common Stock, without a vote of the
holders of any of the preferred stock, or of any series
thereof, unless a vote of any such holders is required
pursuant to the certificate or certificates establishing such
series of preferred stock.
This change is intended to accurately reflect the Company's current
authority to issue shares with the rights and preferences as may be
determined by the Board of Directors of the Company. The amendment would not
change the Board of Directors' current authority to issue preferred stock or
modify or expand the Board of Directors' powers to define the rights or terms
27
of any series or class of preferred stock. The adoption of the change will
not effect the rights and preferences of the Company's common stockholders.
The Company has no agreements or understandings regarding the
issuance of additional shares of Blank Check Preferred Stock. Although the
Company currently has no reason to believe that a takeover attempt is likely
to occur, the authorized shares of Blank Check Preferred Stock may provide
the Company with the means of discouraging a possible attempt. These shares
of Preferred Stock could be used in the future, through private sales to
purchasers allied with management or otherwise, to dilute the stock ownership
of persons seeking to obtain control of the Company, thus making less likely
a change in control of the Company, whether or not favored by a majority of
the unaffiliated stockholders, with the possible effect of deterring an offer
for the Company at a substantial premium over the current market price of the
Common Stock. The Company has no present intention to issue securities for
this purpose.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AMENDMENT OF ARTICLE
FOURTH OF THE CERTIFICATE OF INCORPORATION.
PROPOSAL 5--RATIFICATION OF APPOINTMENT
OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Company's financial statements for the fiscal year ended August
31, 2000, were audited by Deloitte & Touche LLP ("Deloitte & Touche").
The Company's financial statements for the fiscal year ended August
31, 1999, were audited by Holtz Rubenstein & Co., LLP ("Holtz Rubenstein").
Pursuant to the decision of the Board of Directors, effective January 21,
2000, the Company dismissed Holtz Rubenstein as the Company's independent
certified public accountants. The reports of Holtz Rubenstein on the
financial statements of the Company for the fiscal years ended August 31,
1998 and 1999 did not contain an adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles.
The foregoing was reported by the Company on Form 8-K filed with the
Securities and Exchange Commission as required by the Securities Exchange Act
of 1934, as amended. As previously disclosed therein, there were no
disagreements at the decision making level (i.e., between personnel of the
Company responsible for the presentation of its financial statements and
personnel of Holtz Rubenstein responsible for rendering its report) with
Holtz Rubenstein on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
At the time of the filing of the applicable Form 8-K, the Company
provided Holtz Rubenstein with a copy of this disclosure and requested that
Holtz Rubenstein furnish the Company with a letter addressed to the
Securities and Exchange Commission stating whether Holtz Rubenstein agreed
with the statements made by the Company hereinabove and, if not, stating the
respects in which it did not agree. A copy of the letter of Holtz Rubenstein
was previously filed with the Securities and Exchange Commission.
The Board of Directors appointed Deloitte & Touche LLP, as the
Company's independent certified public accountants to examine and report on
the Company's consolidated
28
financial statements for the 2001 fiscal year and recommends that the
stockholders ratify the appointment. If the stockholders do not ratify the
appointment of Deloitte & Touche, the Audit Committee and the Board of
Directors will consider the appointment of other independent certified public
accountants. One or more representatives of Deloitte & Touche will be present
at the Annual Meeting. They will have the opportunity to make a statement if
they wish to do so and are expected to be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND
RATIFICATION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for
stockholder action at the Annual Meeting. However, if other matters do
properly come before the Meeting or any adjournments or postponements
thereof, the Board of Directors intends that the persons named in the proxies
will vote upon such matters in accordance with their best judgment.
VOTING PROCEDURES
Howard A. Tullman and Richard R. Dennerline, the persons named as
proxies on the proxy card accompanying this proxy statement, were selected by
the Board of Directors of the Company to serve in such capacity. Each of Mr.
Tullman and Mr. Dennerline serve as an executive officer of the Company and
Mr. Tullman serves as a director of the Company. The shares represented by
each executed and returned proxy will be voted in accordance with the
directions indicated thereon or, if no direction is indicated, in accordance
with the recommendations of the Board of Directors contained in this proxy
statement. The Board of Directors does not presently intend to bring any
business before the Annual Meeting other than the specific proposals referred
to in this proxy statement and specified in the notice of Annual Meeting, and
so far as is known to the Board of Directors, no other matters are to be
brought before the Annual Meeting. As to any other business that may properly
come before the Annual Meeting, however, it is intended that proxies, in the
form enclosed, will be voted in respect thereof in accordance with the
judgment of the persons voting such proxies.
You can revoke your proxy at any time before it is exercised. To do
so, you must give written notice of revocation to the Company's Secretary,
submit another properly executed proxy with a more recent date, or vote in
person at the Annual Meeting.
QUORUM
The required quorum for the transaction of business at the Annual
Meeting will be a majority of the outstanding shares of Common Stock entitled
to vote on the record date, represented in person or by proxy. Directions to
withhold authority, abstentions and broker non-votes will be treated as
present and entitled to vote for purposes of determining whether a quorum is
present at the Annual Meeting. A broker non-vote occurs when a nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received instructions from the beneficial owner.
29
REQUIRED VOTE
A plurality of the votes of the shares present in person or represented
by proxy at the Annual Meeting is required to elect the nominees for director.
Stockholders will not be allowed to cumulate their votes in the election of
directors. Broker non-votes will have no effect in the election of directors.
Approval and adoption of the Reverse Split, amendment of the Millennium Plan and
amendment to Article FOURTH of the Certificate of Incorporation will require the
affirmative vote of a majority of the shares entitled to vote at the Meeting.
Directions to withhold authority to vote will have no effect on the
election of directors, because directors are elected by a plurality of the votes
cast. Any proxy marked "abstain" with respect to the approval and adoption of
the Reverse Split, amendment of the Millennium Plan and the amendment to Article
FOURTH of the Certificate of Incorporation will have the effect of a vote
against the proposal. Shares represented by proxy as to which there is a broker
non-vote or a proxy in which authority to vote for any matter considered is
withheld will have no effect on the vote for any matter.
STOCKHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy statement for the
2002 annual meeting, director nominations and other proposals of stockholders
must be submitted in writing to the Company's Secretary and received at the
Company's principal executive offices not less than one hundred twenty (120)
calendar days in advance to February 26, 2002; provided, however, that if the
date of the Company's 2002 Annual Meeting is different from the date of this
year's annual meeting by more than sixty (60) days, then notice must be received
a reasonable time before the Company begins to print and mail its proxy
materials for the 2002 annual meeting.
All director nominations and other proposals of stockholders with
regard to the 2002 annual meeting should be submitted by certified mail, return
receipt requested, to Worldwide Xceed Group, Inc., 233 Broadway, New York, New
York 10279, Attention: Secretary.
ANNUAL REPORT TO STOCKHOLDERS
The Company's annual report on Form 10-K for the fiscal year ended
August 31, 2000 and the Company's Quarterly Report on Form 10-Q for the first
fiscal quarter ended November 30, 2000, as filed with the Securities and
Exchange Commission, are being delivered to you with this Proxy Statement. All
requests should be directed to Carol Weber, Stockholder Relations, at (212)
553-2000. In addition, the Annual Report and the Quarterly Report as well as
additional filings with the Securities and Exchange Commission are available
through the Company's web site at www.xceed.com.
EXPENSE OF SOLICITATION
The cost of soliciting proxies, which also includes the preparation,
printing and mailing of this Proxy Statement, will be borne by the Company. The
Company has engaged the firm of Georgeson Shareholder Communications Inc. to
assist in the distribution and solicitation of proxies. Georgeson Shareholder
Communications Inc. will receive a fee of $7,500 plus out-of-
30
pocket expenses for these services. Directors, officers and regular employees
of the Company may solicit proxies personally, by telephone or telegram. The
Company will request brokers and nominees to obtain voting instructions of
beneficial owners of stock registered in their names and will reimburse them
for any expenses incurred in connection therewith.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED AS IT WILL SAVE THE
EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors,
Richard R. Dennerline, Secretary
New York, New York
February 26, 2001
31
APPENDIX A
AMENDED AND RESTATED CHARTER
THE AUDIT COMMITTEE
OF
THE BOARD OF DIRECTORS
OF
WORLDWIDE XCEED GROUP, INC.
December 14, 2000
I. PURPOSE. The Audit Committee (the "COMMITTEE") of the Board of
Directors (the "BOARD") of Worldwide Xceed Group, Inc., a Delaware corporation
(the "COMPANY"), shall provide assistance to the members of the Board in
fulfilling their oversight functions with regard to the Company's financial
matters. In so doing, it shall be the responsibility of the Committee to
maintain free and open means of communication between the members of the Board,
the Company's independent public accountants who audit the Company's financial
statements (the "AUDITORS"), and the Company's financial management. The Board
shall have the ultimate authority and responsibility, based upon recommendations
from the Committee, to select, and where appropriate, replace the Auditors, who
are ultimately accountable to the Board of Directors and the Committee.
While the Audit Committee has the functions set forth in this Charter,
it is not the duty of the Audit Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate or
are in accordance with generally accepted accounting principles. The
responsibility to plan and conduct audits is that of the Auditors. The Company's
management has the responsibility to determine that the Company's financial
statements are complete and accurate and in accordance with generally accepted
accounting principles. It is also not the duty of the Audit Committee to assure
the Company's compliance with laws and regulations or compliance with the
Company's code of ethical conduct. The primary responsibility for these matters
rests with the Company's management.
In its oversight capacity, the Audit Committee is neither intended nor
equipped to guarantee with certainty to the full Board and stockholders the
accuracy and quality of the Company's financial statements and accounting
practices. The Audit Committee can do no more than rely upon information it
receives, questions and assesses in fulfilling its functions.
II. COMPOSITION. The Committee shall consist of at least three (3)
independent directors, who shall satisfy the requirements of the National
Association of Securities Dealers for companies listed on the Nasdaq National
Market. Each Committee member shall be financially literate or shall become
financially literate within a reasonable period after his or her appointment to
the Committee, and further, at least one member of the Committee shall have
accounting or related financial management expertise. Committee members and the
Committee Chairman shall be designated by the full Board of Directors upon the
recommendation of the
A-1
Chairman of the Board.
III. FUNCTIONS. The Committee's functions may be divided into the
following general categories: (1) assessing processes related to risks and
control environment, (2) overseeing financial reporting, and (3) evaluating the
independent audit processes. The Committee shall:
A. RISK AND CONTROL ENVIRONMENT PROCESSES.
(i) Assist the Board of Directors of the Company
in fulfilling its oversight functions with respect to the
quality, integrity and annual independent audit of the
Company's financial statements.
(ii) Review this Charter at least annually or as
conditions dictate.
(iii) Perform such other functions as assigned by
law, the Company's certificate of incorporation or bylaws, or
the Board of Directors.
B. Reporting Process.
(i) Review with senior management and the
Auditors the Company's annual financial statements to be
included in the Company's annual report on Form 10-K.
(ii) Review the interim financial statements with
management and the Auditors the Company's financial statements
relating to the Company's reports on Form 10-Q. The Chairman
of the Committee may represent the entire Committee for the
purposes of this review.
(iii) Based upon discussions with, and reliance
upon, management and the Auditors, cause to be prepared a
report for inclusion in the Company's proxy statement, which
report will satisfy the requirements of Item 7(e)(3) of
Schedule 14A under the Securities Exchange Act of 1934 (the
"ACT"). In addition, the Committee will provide the disclosure
required by Item 9(e) of Schedule 14A of the Act and
provide any other audit committee-related disclosure, in
filings with the Securities and Exchange Commission or
otherwise required by applicable securities laws, rules and
regulations or by the rules of any securities exchange or
market on which securities of the Company are listed.
(iv) Discuss with the Auditors their judgments
about the quality, not just the acceptability, of the
Company's accounting principles
A-2
and financial disclosure practices used or proposed and the
appropriateness of significant management judgments.
C. AUDIT PROCESS.
(i) Recommend to the Board of Directors the
selection of the Auditors, considering, among other things,
independence and effectiveness. The Committee shall review and
discuss with the Auditors all significant relationships the
Auditors have with the Company to determine the Auditors'
independence. The Committee shall also be responsible for
approving the fees and other compensation to be paid to the
Auditors. The Committee shall receive from the Auditors a
formal written statement delineating all relationships
affecting objectivity and independence between the Auditors
and the Company.
(ii) Review the performance of the Auditors and
recommend to the Board any proposed discharge of the Auditors
when circumstances warrant.
(iii) Review any significant disagreements between
management and the Auditors in connection with the preparation
of the Company's financial statements.
(iv) Review with the Auditors and management the
extent to which changes or improvements in financial or
accounting practices, as approved by the Committee, have been
implemented.
(v) Provide an open avenue of communication
among the Auditors, management and the Board of Directors.
IV. MEETINGS. The Committee may have such meetings as the Chairman of
the Committee may deem necessary. The Committee also shall meet at the request
of the Chairman of the Committee or at the request of the Auditors or the Chief
Executive Officer or the Chief Financial Officer. Members of senior management,
the Auditors or others may attend meetings of the Committee at the invitation of
the Committee and shall provide pertinent information as necessary. The
Committee shall meet with the Auditors and management in separate executive
sessions to discuss any matters that the Committee or these groups believe
should be discussed privately with the Committee.
The Chairman of the Committee shall set the agenda of each meeting and
arrange for the distribution of the agenda, together with supporting material,
to the Committee members prior to each meeting. Two members of the Committee
will constitute a quorum.
A-3
V. COMMUNICATION WITH THE BOARD OF DIRECTORS. The Committee shall,
after each meeting, report its activities, findings and conclusions to the full
Board of Directors and provide the Board with copies of minutes of the Audit
Committee meetings.
VI. MINUTES. At each meeting, the Chairman shall select one Committee
member to act as secretary and prepare minutes of the Committee's meetings.
After approval by the Committee Chairman, such minutes shall be distributed to
all directors.
A-4
WORLDWIDE XCEED GROUP, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD ON MARCH 20, 2001
The undersigned stockholder of Worldwide Xceed Group, Inc. (the
"Company") hereby appoints Howard A. Tullman and Richard R. Dennerline, and each
of them acting singly, the attorneys and proxies of the undersigned, with full
power of substitution, to vote on behalf of the undersigned all shares of Common
Stock, par value $0.01 per share, of the Company standing of record in the name
of the undersigned at the close of business on February 8, 2001, at the Annual
Meeting of Stockholders of the Company to be held on Tuesday, March 20, 2001, at
8:00 a.m. local time at the Millenium Hilton, 55 Church Street, New York New
York, and at all adjournments thereof, with all powers the undersigned would
have if personally present, hereby revoking any proxy heretofore given, and the
undersigned authorizes and instructs such proxies to vote as follows:
- --------------------------------------------------------------------------------
IF NO DIRECTION IS INDICATED WITH RESPECT TO ANY ITEM, THIS PROXY WILL BE
VOTED FOR THE ADOPTION OF SUCH ITEM.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
WORLDWIDE XCEED GROUP, INC.
MARCH 20, 2001
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
1. ELECTION [_] [_] 2. AMEND ARTICLE FOR AGAINST ABSTAIN
OF FOURTH TO EFFECT A
DIRECTORS TEN-FOR-ONE REVERSE [_] [_] [_]
STOCK SPLIT OF THE
ISSUED AND
OUTSTANDING COMMON
STOCK
Nominees: 3. AMENDMENT TO THE FOR AGAINST ABSTAIN
Howard A. Tullman AMENDED AND RESTATED
Terry A. Anderson MILLENNIUM STOCK [_] [_] [_]
Edward A. Bennett OPTION PLAN
John A. Bermingham
Stuart N. Emanuel
FOR all nominees WITHHOLD AUTHORITY to 4. AMEND ARTICLE FOR AGAINST ABSTAIN
listed at right vote for all nominees FOURTH OF
(except as marked to listed at right CERTIFICATE OF [_] [_] [_]
the contrary) INCORPORATION
TO INCREASE THE
NUMBER OF
AUTHORIZED SHARES
OF COMMON STOCK
FROM 100,000,000 TO
200,000,000 AND
STATE THE TERMS OF
AUTHORIZED BLANK
CHECK PREFERRED
STOCK
5. RATIFICATION OF FOR AGAINST ABSTAIN
DELOITTE & TOUCHE
LLP [_] [_] [_]
INSTRUCTIONS: To withhold PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE
authority to vote for a given ENCLOSED ENVELOPE PROMPTLY, SO AS TO ENSURE A
nominee, strike through nominee's QUORUM AT THE MEETING, REGARDLESS OF WHETHER
name: YOU INTEND TO ATTEND THE MEETING IN PERSON.
Receipt of the notice of annual meeting and the
accompanying proxy statement is acknowledged.
SIGNATURE____________________________________SIGNATURE_________________________________DATE______________
IF HELD JOINTLY
NOTE: Please sign exactly as the name appears on the proxy. If shares are held
by jointly, each owner should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer.