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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
HADRON, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
PRELIMINARY COPIES
[LOGO]
HADRON, INC.
5904 Richmond Highway
Suite 300
Alexandria, Virginia 22303
April __, 2002
Dear Fellow Shareholders:
You are cordially invited to attend Hadron, Inc.'s Annual Meeting of
Shareholders to be held on May 21, 2002, at 11:00 a.m. local time at the Tower
Club, located at 8000 Tower Crescent Drive, Vienna, Virginia 22182.
At this meeting, you will be asked to vote, in person or by proxy, on
the following matters: (i) election of the Company's Board of Directors; (ii)
approval of the Company's 2002 Stock Option Plan; (iii) to approve a proposed
name change of the Company to Analex Corporation; (iv) to approve a proposed
change in the state of incorporation of the Company from New York to Delaware;
(v) to approve an increase in the number of authorized Common Stock to
30,000,000 and to add a class of Preferred Stock; (vi) to ratify the appointment
of Ernst & Young LLP as the Company's independent auditors for the fiscal year
2002; and (vii) any other business as may properly come before the meeting. We
also will be pleased to report on the business of the Company and a discussion
period will be provided for questions and comments of general interest to
shareholders.
Whether or not you are able to attend, it is important that your shares
be represented and voted at this meeting. Accordingly, please complete, sign and
date the enclosed proxy and mail it in the envelope provided at your earliest
convenience. Your prompt response is important and would be appreciated.
Sincerely,
/s/ Sterling E. Phillips, Jr.
Sterling E. Phillips, Jr.
President and Chief Executive Officer
/s/ Jon M. Stout
Jon M. Stout
Chairman
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YOUR VOTE IS IMPORTANT
Even if you plan to attend the meeting, please complete, sign, and
return promptly the enclosed proxy in the envelope provided to ensure that your
vote will be counted. You may vote in person if you so desire even if you have
previously sent in your proxy.
If your shares are held in the name of a bank, brokerage firm or other
nominee, please contact the party responsible for your account and direct him or
her to vote your shares on the enclosed card.
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HADRON, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 21, 2002
TO THE SHAREHOLDERS OF HADRON, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Hadron, Inc., a New York corporation (the "Company"), is scheduled to be held on
May 21, 2002 at 11:00 a.m., local time, at the Tower Club, 8000 Tower Crescent
Drive, Vienna, Virginia 22182 for the following purposes:
1. To elect eight directors to serve for the terms of office specified
in the accompanying proxy statement and until their successors are
duly elected and qualified;
2. To approve the Company's 2002 Stock Option Plan;
3. To approve a proposed name change of the Company to Analex
Corporation;
4. To approve a proposed change in the state of incorporation of the
Company from New York to Delaware;
5. To approve an increase in the number of authorized Common Stock to
30,000,000 and to add a class of Preferred Stock;
6. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year 2002; and
7. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Shareholders of record at the close of business on April 1, 2002 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the meeting, you are urged to
complete, sign and date the enclosed form of proxy and return it promptly in the
envelope provided. Shareholders attending the meeting may revoke their proxy and
vote in person.
FOR THE BOARD
/s/ Karen L. Dickey
Karen L. Dickey
Vice President and Corporate Secretary
Alexandria, Virginia
April __, 2002
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HADRON, INC.
PROXY STATEMENT
GENERAL INFORMATION
Proxy Solicitation
This Proxy Statement is furnished to the holders of Common Stock, par
value $0.02 per share (the "Common Stock"), of Hadron, Inc., a New York
corporation (the "Company"), in connection with the solicitation by the Board of
proxies for use at the Annual Meeting of Shareholders to be held on Tuesday, May
21, 2002, at 11:00 a.m., local time, or at any adjournment thereof, pursuant to
the accompanying Notice of Annual Meeting of Shareholders. The purposes of the
meeting and the matters to be acted upon are set forth in the accompanying
Notice of Annual Meeting of Shareholders. The Board is not currently aware of
any other matters that will come before the Annual Meeting.
Proxies for use at the Annual Meeting are being solicited by the Board.
These proxy solicitation materials are first being mailed on or about April __,
2002 to all shareholders entitled to vote at the Annual Meeting. Proxies will be
solicited chiefly by mail. The Company will make arrangements with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to the beneficial owners of the shares and will reimburse them for
their expenses in so doing. Should it appear desirable to do so in order to
ensure adequate representation of shares at the Annual Meeting, officers, agents
and employees of the Company may communicate with shareholders, banks, brokerage
houses and others by telephone, facsimile or in person to request that proxies
be furnished. All expenses incurred in connection with this solicitation will be
borne by the Company.
Revocability and Voting of Proxy
A form of proxy for use at the Annual Meeting and a return envelope for
the proxy are enclosed. Shareholders may revoke the authority granted by their
execution of proxies at any time before their effective exercise by filing with
the Secretary of the Company a written notice of revocation or a duly executed
proxy bearing a later date, or by voting in person at the Annual Meeting. Shares
of the Company's Common Stock represented by executed and unrevoked proxies will
be voted in accordance with the choice or instructions specified thereon. If no
specifications are given, the proxies intend to vote the shares represented
thereby in favor of each of the nominees for director listed under Election of
Directors below, to approve Proposals 2, 3, 4 and 5 as set forth in the
accompanying Notice of Annual Meeting of Shareholders and, in accordance with
their best judgment, on any other matters which may properly come before the
Annual Meeting.
Record Date and Voting Rights
Shareholders of record at the close of business on April 1, 2002 are
entitled to notice of and to vote at the Annual Meeting. As of the record date,
______________ shares of Common Stock were issued and outstanding, and there are
no shares of any other class. Each share of Common Stock is entitled to one vote
on all matters that may properly come before the Annual Meeting. The holders of
a majority of the outstanding shares of Common Stock, present in person or by
proxy, will constitute a quorum at the Annual Meeting.
Under New York law, (i) a plurality of the votes cast at the Annual
Meeting is necessary to elect directors, (ii) the affirmative vote of a majority
of the votes cast is required to approve the adoption of the 2002 Stock Option
Plan (the "2002 Stock Option Plan"), (iii) the affirmative vote of a majority of
the votes cast is required to approve the name change from Hadron, Inc. to
Analex Corporation, (iv) the affirmative vote of the holders of at least
two-thirds of the shares of the Company Common Stock outstanding on the Record
Date is required for approval of the proposed reincorporation in Delaware
through the merger (the "Reincorporation"), (v) the affirmative vote of the
holders of at least a majority of the outstanding shares is required for the
change in the Common Stock and to add a class of Preferred Stock, and (vi) the
affirmative vote of a majority of the votes cast is required to ratify the
appointment of Ernst & Young LLP as the Company's independent auditors for the
fiscal year 2002. Broker "non-votes" and the shares as to which a shareholder
abstains from voting are included for the purposes of determining
whether a quorum of shares is present at the Annual Meeting. A broker "non-vote"
occurs when a nominee holding shares for a beneficial owner does not have
discretionary voting power with respect to that item and has not received voting
instructions from the beneficial owner. A broker "non-vote" will have the effect
of an AGAINST vote on the proposed Reincorporation and on the proposed change in
the Common Stock and Preferred Stock.
At the Annual Meeting ballots will be distributed with respect to each
proposed to be voted upon to each shareholder (or the shareholder's proxy if not
the management proxy holders) who is present and did not deliver a proxy to the
management proxy holders or another person. The ballots shall then be tallied,
one vote for each share owned of record, the votes being in three categories:
FOR, AGAINST or ABSTAIN, except in the case of the proposal to elect directors,
the three categories will be, with respect to each director to be elected, FOR
the director nominee, WITHHOLD AUTHORITY from voting for the director nominee or
FOR another person to be elected as a director.
Votes at the Annual Meeting will be tabulated by Inspectors of Election
appointed by the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Change of Control
On March 30, 2000, a group of investors led by Jon M. Stout, Patricia
W. Stout, the Stout Dynastic Trust (collectively the "Stouts"), J. Richard Knop
("Knop") (the Stouts and Knop, being collectively the "Investors") and John D.
Sanders purchased certain of the Company's securities pursuant to a Securities
Purchase Agreement among the Company and the Investors (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, the Investors acquired
2,250,000 units, each consisting of one share of Common Stock and a warrant to
purchase 0.9 shares of Common Stock for a total of $877,500 in cash.
Pursuant to the Purchase Agreement, on the Closing Date, C.W. Gilluly
resigned from his position as the Company's Chief Executive Officer, and Jon M.
Stout was appointed as the Company's President and Chief Executive Officer. Dr.
Gilluly continued to serve as Chairman of the Company's Board of Directors.
Further pursuant to the Purchase Agreement, two members of the Board resigned,
Jon M. Stout was appointed a director and subsequently, Gerald R. McNichols,
Sc.D and Gerald R. Young were appointed to the Board.
On January 16, 2001, Mr. Stout resigned as President and Chief
Executive Officer of the Company and was appointed to the position of Chairman.
Mr. Stout remains a member of the Company's Board of Directors. On this same
date, Dr. Gilluly resigned as Chairman but continues to provide consulting
services and serve as a member of the Company's Board of Directors.
As further required by the Purchase Agreement, the Investors and others
designated therein also entered into a Voting Agreement dated March 30, 2000
(the "Voting Agreement"). The Voting Agreement was entered into by and among
certain affiliates of Boles Knop & Company, L.L.C. (the "Affiliates"), Dr.
Sanders, C.W. Gilluly and the Investors (collectively, the "Voting Group"). The
Voting Group agreed, for a period of five (5) years from March 30, 2000, to vote
all of the voting shares over which they have voting control and to take all
other actions within such Voting Group's control (whether in his or its capacity
as a stockholder, director, member of a board committee or officer of the
Company or otherwise), including, without limitation, attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of written
consents in lieu of meetings so that: (1) The authorized number of members of
the Board will continue to be five unless and until such greater number is
directed or approved by the Investors; (2) During the term of the Voting
Agreement, the Investors shall be entitled to nominate a majority of the members
of the Board (the "Nominees") and the Stockholders shall vote their shares to
elect such Nominees; (3) Any Nominee elected or appointed as a director will be
removed from the Board (and thereupon from all committees of the Board), with or
without cause, only upon the written request or consent of the Investors; (4) In
the event that any Nominee designated hereunder for any reason ceases to serve
as a member of the Board or any committee thereof during such representative's
term of office, the resulting vacancy on the Board or committee will be filled
by a newly designated Nominee; and (5) Upon the written direction or consent of
the
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Investors, the Company will take such actions as may be necessary and convenient
to change the corporate domicile of the Company to the state of Delaware.
In addition, the Voting Agreement provides that with the exception of
transfers made: (i) pursuant to open market sales in brokers' transactions; or
(ii) sales made after the Investors declined a right of first refusal to
purchase such shares at the same price and terms, any attempt to transfer the
Voting Group's voting shares will be of no effect unless the person(s) to whom
such shares are being transferred agrees in writing to be bound by the terms of
the Voting Agreement.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 1, 2002
regarding the beneficial ownership of the Company's Common Stock of (i) each
person known to the Company to be the beneficial owner, within the meaning of
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), of more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) each executive officer or former executive
officer of the Company named in the Summary Compensation Table (see "Executive
Compensation") and (iv) all executive officers and directors of the Company as a
group. Unless otherwise indicated, the address of each named beneficial owner is
c/o Hadron, Inc., 5904 Richmond Highway, Suite 300, Alexandria, Virginia 22303.
Except to the extent indicated in the footnotes, each of the beneficial owners
named below has sole voting and investment power with respect to the shares
listed.
Name and Address Number of Shares Percent of Class
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Jon M. Stout 6,660,370(1)(2) 39.9%
Shawna L. Stout 6,660,370(1)(3) 39.9%
Stout Dynastic Trust 6,660,370(1)(4) 39.9%
13380 W. Polo Road
Wellington, FL 33414
Patricia W. Stout 6,660,370(1)(5) 39.9%
13380 W. Polo Road
Wellington, FL 33414
S Co., LLC 6,660,370(1)(6) 39.9%
13380 W. Polo Road
Wellington, FL 33414
J. Richard Knop 6,660,370(1)(7) 39.9%
Windsor Group
One Discovery Square, Suite 700
12919 Sunset Hills Road
Reston, VA 20190
C.W. Gilluly, Ed.D. 1,418,875(1)(8) 9.3%
RSSJ Associates 2,116,014 14.7%
3750 Centerview Drive
Chantilly, VA 20151
Lese Ann Kodger 1,596,459 11.1%
1501 Minutemen Cswy, Unit 202
Cocoa Beach, FL 32931
Peter C. Belford, Sr. 1,108,397 7.7%
John D. Sanders, Ph.D. 221,840(1)(9) 1.5%
Gerald R. McNichols, Sc.D. 634,569(10) 4.4%
Gerald R. Young 25,010(11) *
Donald J. Kellmel, Ph.D. 118,416(12) *
Sterling E. Phillips, Jr. 675,484(13) 4.5%
Dr. Kenneth Alibek 36,205(14) *
All directors and executive 12,673,090(1)(15) 72.0%
officers as a group (17 persons)
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* Less than 1%
(1) Includes certain shares as to which voting power is shared in certain
respects as a result of the Voting Agreement more fully described in
the preceding section entitled "Change of Control."
(2) Includes 189,806 shares held by spouse, 133,208 shares held by
children, 1,475,422 shares held by the Stout Dynastic Trust (the
"Trust"), and 740,605 shares held by S Co., LLC; includes 48,340
shares which may be acquired upon the exercise of vested options
granted under the Company's 1994 and 2000 Stock Option Plans; and
includes 235,161, 230,769, and 668,158 shares which may be acquired
respectively by self, spouse, and Stout Dynastic Trust pursuant to
warrants which are immediately exercisable. Includes shares, warrants
and options immediately exercisable by others representing 2,708,061
shares of the Company's Common Stock as to which Mr. Stout has shared
voting power.
(3) Includes 230,840 shares held by Mr. Stout, 189,806 shares held by Ms.
Stout, 66,604 shares held by Marcus Stout, 1,475,422 shares held by the
Trust and 740,605 shares held by S Co., LLC, includes 48,340 shares
which may be acquired upon the exercise of vested options granted under
the Company's 1994 and 2000 Stock Option Plans; and includes 235,161,
230,769, and 668,158 shares which may be acquired respectively by self,
spouse, and Stout Dynastic Trust pursuant to warrants which are
immediately exercisable. Includes shares, warrants and options
immediately exercisable by others representing 2,708,061 shares of the
Company's Common Stock as to which Mr. Stout has shared voting power.
(4) Includes 230,840 shares held by Mr. Stout, who is the Trustee of the
Trust, 189,806 shares held by Mrs. Stout, 133,208 shares held by the
children of Mr. Stout and 740,605 shares held by S Co., LLC; includes
48,340 shares which may be acquired by Mr. Stout upon the exercise of
vested options granted under the Company's 1994 and 2000 Stock Option
Plans; and includes 668,158, 235,161, and 230,769 shares which may be
acquired respectively by the Trust, Mr. Stout, and Mrs. Stout pursuant
to warrants which are immediately exercisable. Includes shares,
warrants and options immediately exercisable by others representing
2,708,061 shares of the Company's Common Stock as to which Mr. Stout
has shared voting power.
(5) Includes 230,840 shares held by spouse, 133,208 shares held by
children, 1,475,422 shares held by the Trust and 740,605 shares held by
S Co., LLC; includes 48,340 shares which may be acquired by Mr. Stout
upon the exercise of vested options granted under the Company's 1994
and 2000 Stock Option Plans; and includes 230,769, 235,161 and 668,158
shares which may be acquired respectively by self, spouse and the
Trust, pursuant to warrants which are immediately exercisable. Includes
shares, warrants and options immediately exercisable by others
representing 2,708,061 shares of the Company's Common Stock as to which
Mrs. Stout has shared voting power.
(6) Includes 230,840 shares held by Mr. Stout, 189,806 shares held by Mrs.
Stout, 133,208 shares held by the children of Mr. Stout, all of whom
are principals in S Co., LLC and 1,475,422 shares held by the Trust;
includes 48,340 shares which may be acquired by Mr. Stout upon the
exercise of vested options granted under the Company's 1994 and 2000
Stock Option Plans; and includes 668,158, 235,161, and 230,769 shares
which may be acquired respectively by the Trust, Mr. Stout, and Mrs.
Stout pursuant to warrants, which are immediately exercisable. Includes
shares, warrants and options immediately exercisable by others
representing 2,708,061 shares of the Company's Common Stock as to which
Mr. Stout has shared voting power.
(7) Includes warrants immediately exercisable to purchase 223,686 shares of
the Company's Common Stock. Includes shares, warrants and options
immediately exercisable by others representing 5,644,549 shares of the
Company's Common Stock as to which Mr. Knop has shared voting power.
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(8) Includes warrants immediately exercisable to purchase 748,000 shares of
the Company's Common Stock. Also includes 60,000 shares, which may be
acquired upon the exercise of vested options granted under the
Company's 1994 Stock Option Plan.
(9) Includes 10,840 shares, which may be acquired upon the exercise of
vested options granted under the Company's 1994 and 2000 Stock Option
Plans and 81,000 shares, which may be acquired pursuant to warrants.
(10) Includes 5,010 shares, which may be acquired upon the exercise of
vested options granted under the Company's 1994 and 2000 Stock Option
Plans and 48,056 shares, which may be acquired pursuant to warrants.
(11) Includes 5,010 shares, which may be acquired upon the exercise of
vested options granted under the Company's 1994 and 2000 Stock Option
Plans and 10,000 shares, which may be acquired pursuant to warrants.
(12) Includes 23,340 shares, which may be acquired upon the exercise of
vested options granted under the Company's 1994 and 2000 Stock Option
Plans.
(13) Includes 583,817 shares, which may be acquired upon the exercise of
vested options granted under the Company's 2000 Stock Option Plan.
(14) Includes 28,340 shares, which may be acquired upon the exercise of
vested options granted under the Company's 1994 and 2000 Stock Option
Plans.
(15) Includes 963,877 shares, which may be acquired upon the exercise of
vested options granted under the Company's 1994 and 2000 Stock Option
Plans and 2,240,830 shares, which may be acquired pursuant to warrants.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
Eight directors, constituting the entire Board, are to be elected at
the Annual Meeting. Unless otherwise specified, the enclosed proxy will be voted
in favor of the persons named below to serve until the next Annual Meeting and
until their successors are elected and qualified. Each person named below is now
a director of the Company. In the event any of these nominees shall be unable to
serve as a director, the shares represented by the proxy will be voted for the
person, if any, who is designated by the Board to replace the nominee. All
nominees have consented to be named and have indicated their intent to serve if
elected. The Board has no reason to believe that any of the nominees will be
unable to serve or that any vacancy on the Board will occur.
The names of the eight directors and certain other information about
them are set forth below as of April 1, 2002:
Directors Age Director Since Office Held with Company
--------- --- -------------- ------------------------
Jon M. Stout* 55 2000 Chairman of the Board and Director
Peter C. Belford, Sr. 55 2001 Director
C.W. Gilluly, Ed.D. 56 1992 Director
Gerald R. McNichols, Sc.D.* 58 2000 Director
Sterling E. Phillips, Jr. 55 2001 Director, President and Chief
Executive Officer
John D. Sanders, Ph.D. 63 1997 Director
Shawna L. Stout* 27 2001 Director
Gerald R. Young* 72 2000 Director
* This individual is elected pursuant to the Voting Agreement
described in "Change of Control" and is elected pursuant to the
Voting Agreement.
Jon M. Stout was appointed the Company's President and Chief Executive
Officer and to the Board on March 31, 2000. On January 16, 2001, Mr. Stout
resigned as President and Chief Executive Officer of the Company and was
appointed to the position of Chairman. Mr. Stout, along with his wife, founded
DPC Technologies, Inc., a military intelligence information technology company,
which was sold to Northrop Grumman in 1999. Prior to that endeavor, Mr. Stout
served in senior management and marketing positions with various firms,
including the Harris Corporation and Perkin Elmer Corporation.
Peter C. Belford, Sr., who was appointed to the Board on November 9,
2001, has more than 30 years experience in building and operating companies in
the Federal Government sector. Mr. Belford was president of Analex Corporation
from 2000 until it was acquired by the Company in November 2001. From 1997
through 2000, he held the position of Senior Vice President for Federal Data
Corporation, and from 1985 to 1997 served as President and Chief Operating
Officer of NYMA, Inc. Prior to these positions, Mr. Belford served thirteen
years as Vice President with Computer Sciences Corporation.
C.W. Gilluly, Ed.D. was Chairman of the Company from October 1994 until
January 16, 2001. He also served as Chief Executive Officer of the Company from
May 1993 to March 2000. Since June 1992, Dr. Gilluly has served as Chairman of
COMTEX News Network, Inc., a provider of electronic news and business
information, for which he also served as Chief Executive Officer from June 1992
through September 1997. Dr. Gilluly has served as Chairman of the Board and
President of AMASYS Corporation and its predecessor, Infotechnology, Inc. since
June 1992.
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Gerald R. McNichols, Sc.D., who was appointed to the Board on June 12,
2000, has more than 35 years of experience in management and consulting. He has
founded several companies and serves on the boards of various private companies.
In 1977, Dr. McNichols founded Management Consulting & Research, Inc., which he
sold to GRC International, Inc. in 1999. Dr. McNichols was commissioned by the
Air Force in 1965 and spent four years in the Air Force before joining the
Office of the Secretary of Defense.
Sterling E. Phillips, Jr., was appointed the Company's President and
Chief Executive Officer and to fill the vacancy on the Board on January 16,
2001. Prior to joining the Company, Mr. Phillips held senior management
positions with Federal Data Corporation, in the Science and Engineering and
Corporate Marketing Groups from 1996 to 2001. From 1993 to 1996, he was the
Chief Operating Officer of TRI-COR Industries, Inc., and from 1992 to 1993
served as President of Business Development for Computer Sciences Corporation.
Prior to these, he held senior national and international marketing positions
with International Business Machines Corporation for twenty-four years.
John D. Sanders, Ph.D., who has been a member of the Board since
September 1997, serves as a business consultant to emerging technology
companies. He was Chairman and Chief Executive Officer of TechNews, Inc.,
publisher of Washington Technology newspaper, from 1988 to 1996, prior to its
sale to The Washington Post Company. In addition, Dr. Sanders has been a
registered representative of Wachtel & Co., Inc., a Washington D.C.-based stock
brokerage firm, since 1968. Dr. Sanders serves on the boards of ITC Learning
Corporation, SenSyTech, Inc. and COMTEX News Network, Inc.
Shawna L. Stout, who was appointed to the Board on November 9, 2001,
has been Managing Partner for S Co., LLC since July 1999. From 1997 through
1999, Ms. Stout held the position of Director of Finance with DPC Technologies,
Inc. Prior to these, she worked as an Assistant Trader for the Union Bank of
Switzerland. She is the daughter of the Company's Chairman, Jon M. Stout.
Gerald R. Young, who was appointed to the Board on June 12, 2000,
serves as a management consultant to emerging companies. Mr. Young served on the
Board of Directors and as a management consultant with DPC Technologies, Inc.
until 1999 when DPC was sold to Northrop Grumman Logicon. Mr. Young continues to
provide services to Logicon/DPC Technologies as a member of its Board of
Advisors.
EXECUTIVE OFFICERS
The following table contains information as of April 1, 2002 as to the
executive officers of the Company, who are not also directors of the Company:
Officer
Name Since Office Held With Company
---- ----- ------------------------
Ronald B. Alexander 2001 Senior Vice President and Chief Financial Officer
Kenneth Alibek, M.D. 2000 Senior Vice President
Karen L. Dickey 2000 Vice President and Corporate Secretary
Deborah J. Hickox 2000 Vice President of Finance and Treasurer
Ellen J. Hyslope 2000 Vice President of Administration
Donald E. Jewell 1996 Vice President
Donald J. Kellmel, Ph.D. 1999 Chief Technical Officer
Christopher J. Pestak 2002 Senior Vice President
George W. Tonn 2001 Senior Vice President
Ronald B. Alexander (54) was appointed Senior Vice President and Chief
Financial Officer of the Company in November 2001. Prior to joining the Company,
Mr. Alexander was the managing director of
8
Alexander & Co., a financial and management consulting firm, and since 1998 has
served as the Chief Financial Officer of such technology, software development,
internet, telecommunications, and professional services firms as Commodore
International, Ltd., GRC International, AppNet Systems, Inc. and TTC Inc.
Dr. Kenneth Alibek (51) was appointed Senior Vice President in
September 2000, and also serves as President of the Company's Advanced
Biosystems, Inc. (ABS) subsidiary, a position he has held since December 1999.
Dr. Alibek joined the Company in April 1999 as Chief Scientist and leads the
Company's medical research and biowarfare defense initiatives. Prior to joining
the Company, Dr. Alibek served as Program Manager for Battelle Memorial
Institute from 1998 to 1999. From 1996 to 1998, he was Program Manager at SRS
Technologies. From 1992 to 1996, Dr. Alibek held various research and consulting
positions at the National Institutes of Health and BDM Federal, Inc. Prior to
coming to the United States in 1992, Dr. Alibek served as the First Deputy Chief
of Biopreparat, the principal government agency for biological weapons research
and development in the former Soviet Union.
Karen L. Dickey (42) was appointed Vice President and Corporate
Secretary in September 2000. Ms. Dickey is a C.P.A. who has held numerous
financial and management positions with the Company for sixteen years. From 1996
to 2000, she held the position of Corporate Controller. Ms. Dickey's previous
experience includes accounting and management positions with Presidential
Airways, Inc.
Deborah J. Hickox (38) was appointed Vice President of Finance and
Corporate Treasurer in September 2000. Ms. Hickox is a C.P.A. who joined the
Company in June 1999 as Controller of the Company's Avenue Technologies, Inc.
(ATI) subsidiary. From 1996 to 1999, Ms. Hickox served as Controller of EDO
Corporation's Technology Services and Analysis subsidiary. Ms. Hickox's previous
experience includes finance positions with The Consortium of Universities of the
Washington Metropolitan Area and The Concert Society at Maryland.
Ellen J. Hyslope (39) was appointed Vice President of Administration in
September 2000. Ms. Hyslope joined the Company in May 2000 as Director of Human
Resources. From 1996 to 2000, Ms. Hyslope served as the Human Resources Director
of Logicon DPC Technologies, a unit of Northrop Grumman. Ms. Hyslope's previous
experience includes administrative positions with the Republican National
Committee, the Community Associations Institute, Abacus Technology Corporation,
and MCI Telecommunications Corporation.
Donald E. Jewell (50) was appointed Vice President of the Company in
May 1996, and also serves as President of the Sycom Services, Inc. (SyCom)
subsidiary, a position he has held since 2000. Mr. Jewell was also President of
Engineering & Information Services, Inc. (EISI) from 1993 through 2000, when it
was merged with Analex. Mr. Jewell has held senior management positions in the
government contracting business for over twenty years. He was Technical Director
for Kendrick & Company in 1988 and 1989, and served as Director of Information
Systems at British Aerospace from 1985 until 1988. From 1977 until 1985, he
served in various computer services management roles for Planning Research
Corporation.
Donald J. Kellmel, Ph.D. (53) was appointed Chief Technical Officer of
the Company in June 1999. Dr. Kellmel joined the Company in May 1999 when the
Company acquired ATI. Dr. Kellmel has more than twenty-four years of
professional experience in the management of corporate and systems engineering,
computer applications and signal processing. Dr. Kellmel, who has held senior
management positions with ATI since 1995, previously held senior management
positions with Kaman Sciences Corporation and Locus, Inc.
Christopher J. Pestak (42) was appointed Senior Vice President of the
Company in 2002 and also serves as President of the Company's Aerospace Group.
Since 1983 he has held various positions including Senior Vice President of
Engineering & Quality and Vice President of NASA Programs with Analex.
George W. Tonn (59) was appointed Senior Vice President of the Company
in April 2001, and also serves as President of the Homeland Security Group.
Prior to joining the Company in April 2001, Mr. Tonn was with Raytheon, Inc.
where he served as the Director of the Advanced Battle Management Systems
organization in the Strategic Systems Division from 1998 to 2001. Mr. Tonn's
previous experience includes positions with Hughes Aircraft, Hughes Information
Technology Company, SAIC, IBM Federal Systems, and service as a lieutenant
colonel in the U.S. Army.
9
Meetings of the Board and Committees
The Board held a total of eleven meetings during the year ended
December 31, 2001. Each director attended in person or telephonically all of the
meetings held by the Board and all committees thereof on which he served during
the year ended December 31, 2001.
The Audit Committee, comprised of Messrs. McNichols, Sanders, and
Young, recommends engagement of the Company's independent auditors, is primarily
responsible for approving the services performed by the Company's independent
auditors and for reviewing and evaluating the Company's accounting principles
and its system of internal accounting controls and has general responsibility in
connection with related matters (See "Audit Committee Report" below). The Audit
Committee met one time during the year ended December 31, 2001.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee oversees the Company's financial reporting process
on behalf of the Board. The Company's management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the committee under generally accepted auditing standards. In addition, the
Committee has discussed with the independent auditors the auditors' independence
from the management and the Company including the matters in the written
disclosures required by the Independence Standards Board.
The Committee discussed with the Company's independent auditors the
overall scope and plan for their audits. The Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board (and the Board has approved) that the audited
financial statements be included in the Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the Securities and Exchange Commission.
The material in this report is not "soliciting material," is not deemed filed
with the SEC, and is not incorporated by reference into any filing of the
Company under the Securities Act of 1933, as amended, or the Exchange Act of
1934, as amended, except to the extent that the Company specifically
incorporates it by reference into such filing.
Submitted by the Audit Committee
John D. Sanders, Ph.D., Audit Committee Chair
Gerald R. McNichols, Sc.D., Audit Committee Member
Gerald R. Young, Audit Committee Member
The Compensation Committee of the Board (the "Compensation Committee"),
which held two meetings in the year ended December 31, 2001, is comprised of
Messrs. McNichols, Sanders, and Young. The Compensation Committee evaluates
management's recommendations and makes its own recommendations to the Board
concerning the compensation of the Company's executive officers. It is also
responsible for the formulation of the Company's executive compensation policy
and the research, analysis and subsequent recommendation regarding the
establishment and administration of the Company's Stock Option and Stock
Purchase Plans.
The Board does not have a Nominating Committee or an Executive
Committee.
10
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning all compensation
paid by the Company during the year ended December 31, 2001 to its Chief
Executive Officer, its former Chief Executive Officer and each of the three
other most highly paid executive officers:
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------------------ -------------
Securities
Underlying All Other
Bonus($) Options Compensation
Name and Principal Position Year (1) Salary ($) (2)(3) (#)(4) ($)(5)
--------------------------- ------------------ -------------- ------------ ------------- ------------
Jon M. Stout......................... FY 2001 $141,014 $ - - $7,000
Chairman, Director, and former 6 Mos 12/31/00 47,308 25,000 50,000 1,077
President and Chief Executive Officer 6 Mos 12/31/99 - - - -
FY 2000 - - 15,000 -
FY 1999 - - - -
C. W. Gilluly, Ed.D. ................ FY 2001 $142,400 $ - - $ -
Director and former Chairman 6 Mos 12/31/00 69,350 - - -
6 Mos 12/31/99 72,381 - - 100
FY 2000 140,010 - - 1,000
FY 1999 140,796 34,408 15,000 1,000
Dr. Kenneth Alibek, ................. FY 2001 $129,398 $ - - $4,519
Senior Vice President 6 Mos 12/31/00 62,115 - 20,000 -
6 Mos 12/31/99 48,124 - 15,000 -
FY 2000 97,234 - 15,000 -
FY 1999 17,998 - - -
Donald J. Kellmel, Ph.D. ............ FY 2001 $154,552 $ - - $4,146
Chief Technical Officer 6 Mos 12/31/00 77,000 - 20,000 1,866
6 Mos 12/31/99 69,131 - 10,000 2,188
FY 2000 143,932 - 10,000 5,038
FY 1999 18,500 - - 648
Sterling E. Phillips, Jr. ........... FY 2001 $158,414 $ - 875,725 $5,923
President, Chief Executive Officer 6 Mos 12/31/00 - - - -
and Director 6 Mos 12/31/99 - - - -
FY 2000 - - - -
FY 1999 - - - -
- -----------------------------
(1) The Company changed its fiscal year during 2001 from June 30th to
December 31st. Therefore, fiscal year 2001 represents compensation
during the period January 1, 2001 through December 31, 2001; fiscal
year 2000 represents compensation during the period July 1, 1999
through June 30, 2000; and fiscal year 1999 represents compensation
during the period July 1, 1998 through June 30, 1999. Mr. Stout was
Chief Executive Officer of the Company from March 31, 2000 through
January 16, 2001, when Mr. Phillips was appointed as Chief Executive
Officer.
(2) No bonuses were awarded in 2001.
11
(3) The bonuses paid in fiscal year or transition period represent the
bonuses awarded for the prior fiscal year.
(4) Options granted pursuant to the Company's 2000 and 1994 Stock Option
Plans. See "Executive Compensation - Stock Option
Grants."
(5) Contributions made by the Company under its 401(k) plan.
Stock Option Grants
The Company grants options to its executive officers under the Hadron,
Inc. 1994 and 2000 Stock Option Plans and, in some cases, pursuant to stock
option agreements outside any of its equity incentive plans. The following table
provides details regarding all stock options granted to the named executive
officers during the year ended December 31, 2001:
Option Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------------------------- Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options of Stock Price Appreciation
Underlying Granted to Exercise for Option Term (1)
Options Employees or Base Expiration ---------------------------
Name Granted (#)(2) in 2000 Price ($/sh) Date 5% 10%
---- -------------- ---------- ------------ ---------- --------- -----------
Jon M. Stout - - - - $ - $ -
C.W. Gilluly - - - - - -
Kenneth Alibek - - - - - -
Donald J. Kellmel - - - - - -
Sterling E. Phillips, Jr. 875,725 69% 1.375 1/16/06 332,663 735,705
- --------------------------------
(1) Amounts represent hypothetical gains that could be achieved if
exercised at end of the option term. The dollar amounts under these
columns assume 5% and 10% compounded annual appreciation in the Common
Stock from the date the respective options were granted. These
calculations and assumed realizable values are required to be disclosed
under Securities and Exchange Commission rules and, therefore, are not
intended to forecast possible future appreciation of Common Stock or
amounts that may be ultimately realized upon exercise. The Company does
not believe this method accurately illustrates the potential value of a
stock option.
(2) Options vest one-third upon the date of grant, and one-third each on
the first and second anniversaries of the date of grant. The option
exercise price is 100% of the fair market value on the date of grant
(110% for 10% shareholders). Options are exercisable for a period of 90
days after termination of employment to the extent vested at that time.
12
Options Exercised and Year End Option Values
The following table sets forth certain information regarding options
exercised during the year ended December 31, 2001 and the value of unexercised
options held as of December 31, 2001 by the named executive officers:
Aggregated Options Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at FY-End (#) Options at FY-End ($) (1)
Acquired on Value ------------------------------ ------------------------------
Name Exercise (#) Realized ($)(2) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ --------------- ----------- ------------- ----------- -------------
Jon M. Stout - $ - 48,340 16,660 $ 20,237 $ 9,663
C.W. Gilluly 27,000 56,070 60,000 - 76,650 -
Kenneth Alibek - - 28,340 6,660 22,421 4,529
Donald J. Kellmel - - 23,340 6,660 17,971 4,529
Sterling E. Phillips, Jr. - - 583,817 291,908 204,336 102,168
- --------------------------------
(1) Represents the difference between the exercise price of the options and
the closing bid price of the Common Stock on December 31, 2001, which
was $1.70 per share. Options that have an exercise price greater than
the fiscal year-end market value have not been included in the value
calculation.
(2) Represents the difference between the exercise price and the market
value on the date of exercise.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT
AND CHANGE OF CONTROL ARRANGEMENTS
On March 30, 2000, pursuant to the Purchase Agreement, the Company
entered into a rolling two-year employment agreement with Jon M. Stout. Under
the agreement, Mr. Stout would serve as the Company's President and Chief
Executive Officer. Mr. Stout was entitled to receive an initial annual base
salary of $50,000 for the first six months of his employment and thereafter to
receive an annual base salary of $140,000. For the fiscal year ended June 30,
2000, Mr. Stout opted to forego his salary and defer any bonus. Mr. Stout's
employment agreement further provides for Mr. Stout to participate in the
Company's Stock Option and Bonus Plans. Under the Bonus Plan, Mr. Stout may
receive additional compensation based upon the Company's financial performance.
On September 12, 2000, the Board approved a $25,000 bonus based upon the
Company's financial performance in the fourth quarter of the fiscal year ended
June 30, 2000. If Mr. Stout is terminated by the Company other than for cause,
the Company must pay Mr. Stout a lump sum payment that is the sum of (1) Mr.
Stout's base salary and bonus through the date of termination; (2) any
compensation previously deferred by Mr. Stout; (3) any accrued vacation pay; and
(4) the base salary that would have been payable to Mr. Stout through the
remainder of the term of the agreement.
The Committee has, at various times, granted Mr. Stout options under
the 1994 and 2000 Stock Option Plans to purchase a total of 65,000 shares of the
Company's Common Stock at 110% of the market price on the date of grant. Under
the Plan, one-third of options granted are immediately exercisable upon the date
of grant, with one-third becoming exercisable on each of the first and second
anniversaries of the date of grant.
13
On January 16, 2001, Mr. Stout resigned as President and Chief
Executive Officer of the Company and was appointed to the position of Chairman
and his employment agreement with the Company was amended to reflect those
changes in status. Mr. Stout remains a member of the Company's Board of
Directors.
On January 16, 2001, Mr. Phillips was appointed to the positions of
President and Chief Executive Officer of the Company. Mr. Phillips was also
elected to fill the vacancy and serve as a member of the Company's Board of
Directors. In connection with his appointments, Mr. Phillips purchased 66,667
shares of the Company's restricted common stock, par value $0.02, for $0.75 per
share. In addition, Mr. Phillips was awarded a five-year, non-qualified stock
option to purchase 875,725 shares of the Company's Common Stock, par value
$0.02, at the exercise price equal to 100% of the fair market value of the
common stock on the grant date, exercisable in one-third increments over a
two-year period. Pursuant to his employment agreement, Mr. Phillips has an
initial annual base salary of $175,000 and is eligible for an annual bonus of up
to $125,000 upon the successful completion of annual milestones as agreed upon
by Mr. Phillips and the Board of Directors.
The Company entered into a rolling two-year employment agreement with
Dr. Gilluly, to serve as Chief Executive Officer, commencing in fiscal year 1998
at an initial base annual salary of $140,000. On March 30, 2000, Dr. Gilluly
entered into an Amendment to Employment Agreement and assumed the sole position
of Chairman of the Company. Dr. Gilluly continues to provide management and
strategic services to the Company on a part-time basis pursuant to his agreement
dated July 1, 2000. Pursuant to this agreement, Dr. Gilluly works up to 90 hours
per quarter and receives $11,868 per month for a period of two years. On January
16, 2001, Dr. Gilluly resigned as Chairman and continues to provide consulting
services and serve as a member of the Company's Board of Directors.
On May 23, 2000, the Company entered into an agreement with Dr.
Kellmel, pursuant to which if Dr. Kellmel is terminated other than for cause as
defined in his agreement, he will receive three months severance at his current
base pay of $154,000.
Compensation of Directors
As of January 1, 2002, directors receive a quarterly cash fee of $3,000
for their services. In addition, directors receive $1,000 per Board meeting
attended, and $500 per committee meeting attended (unless such meeting is
combined with a full Board meeting). Directors who are employees do not receive
any additional compensation for their service as directors. Directors are
reimbursed for out-of-pocket expenses associated with their attendance at Board
meetings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The responsibility of the Compensation Committee is to administer the
Company's executive compensation programs, to monitor corporate performance and
its relationship to compensation of executive officers and to make appropriate
recommendations concerning matters of executive compensation. The Compensation
Committee is comprised of three independent non-employee directors. This report
sets forth the major components of executive compensation and the basis by which
2001 compensation determinations were made with respect to the executive
officers of the Company.
Compensation Policy and Guidelines
The main objective of the Company is to maintain and increase the
profitability of its operations and to maximize value for shareholders,
employees and clients. The goals of the Company's compensation policy are to
align executive compensation with the Company's long-term business objectives
and performance, to enable the Company to attract and retain high-quality
executive officers and employees who will contribute to the long-term success of
the Company and to reward such executive officers and employees for their
successful efforts in attaining objectives beneficial to the growth and
profitability of the Company.
In order to achieve the Company's goals, the Compensation Committee has
developed the following principles that serve as guidance for compensation
decisions for all employees: (i) to attract and retain the most
14
highly qualified management and employee team, (ii) to pay competitively with
prevailing industry standards, (iii) to emphasize sustained performance by
aligning monetary rewards with shareholder interests, (iv) to emphasize
performance-related contributions as the basis of pay decisions, and (v) to
provide incentive bonus awards for management based upon attaining revenue and
profitability goals. To implement these policies, the Compensation Committee has
pace designed a compensation program consisting of base salary, an annual
incentive bonus plan, stock options and other employment benefits.
Compensation Program Elements
The Company's compensation levels and benefits are reviewed on an
annual basis to determine whether they are competitive and reasonable in light
of the overall performance of the Company and the Company's ability to attract
and retain talented executives. The Company's focus is on growth and
profitability.
Base Salary. Salary levels are primarily determined by the Compensation
Committee in consideration of the performance of the individual executive, the
financial performance of the Company and the prevailing industry standards for
similar executives of similar companies. The Company's philosophy regarding base
salaries is conservative, using published industry reports and surveys on
executive compensation. The Company compares itself for this purpose with other
technology service providers and/or government contracting firms who face
similar challenges in their markets. Periodic increases in base salary relate to
individual contribution evaluated against established objectives.
Stock Options. The Company believes the compensation program should
provide employees with an opportunity to increase their ownership and
potentially gain financially from Company stock price increases. By this
approach, the interests of shareholders, executives and employees are closely
aligned. Through the Company's Stock Option Plan, executives and employees are
eligible to receive stock options, giving them the right to purchase shares of
Common Stock of the Company at a specified price in the future. The Compensation
Committee believes the use of stock options as the basis for long-term incentive
compensation meets the Compensation Committee's defined compensation strategy
and the team-based operations approach that the Company has adopted.
Incentive Program. The Company's executive officers and operating
managers participate in an incentive compensation program which awards cash
bonuses based on attaining or exceeding specific revenue and profitability
goals. For 2001, no incentive awards were paid to executive officers and
operating managers.
Severance Compensation. To retain highly qualified executive officers,
the Company from time to time enters into severance agreements with certain of
its officers. The determination of whether the Company would benefit from a
severance agreement with a particular officer is subjective, based upon such
officer's experience and value to the Company.
Other Benefits. The Company's philosophy is to provide adequate health
and welfare oriented benefits to executives and employees, but to maintain a
highly conservative posture relative to executive benefits.
2001 Compensation for the Chairman
On March 30, 2000, pursuant to the Purchase Agreement, the Company
entered into a rolling two-year employment agreement with Mr. Stout. Under the
agreement, Mr. Stout would serve as the Company's President and Chief Executive
Officer. Mr. Stout was entitled to receive an initial annual base salary of
$50,000 for the first six months of his employment and thereafter to receive an
annual base salary of $140,000. For the fiscal year ended June 30, 2000, Mr.
Stout opted to forego his salary and defer any bonus. On September 12, 2000, the
Board approved a $25,000 bonus based upon the Company's financial performance in
the fourth quarter of the fiscal year ended June 30, 2000. Mr. Stout's
employment agreement further provides for Mr. Stout to participate in the
Company's Stock Option and Bonus Plans. Under the Bonus Plan, Mr. Stout may
receive additional compensation based upon the Company's financial performance.
If Mr. Stout is terminated by the Company other than for cause, the Company must
pay Mr. Stout a lump sum payment that is the sum of (1) Mr. Stout's base salary
and bonus through the date of termination; (2) any compensation previously
deferred by Mr. Stout; (3) any accrued vacation
15
pay; and (4) the base salary that would have been payable to Mr. Stout through
the remainder of the term of the agreement.
The Committee has, at various times, granted Mr. Stout options under
the 1994 and 2000 Stock Option Plans to purchase a total of 65,000 shares of the
Company's Common Stock at 110% of the market price on the date of grant. Under
the Plan, one-third of options granted are immediately exercisable upon the date
of grant, with one-third becoming exercisable on each of the first and second
anniversaries of the date of grant.
On January 16, 2001, Mr. Stout resigned as President and Chief
Executive Officer of the Company and was appointed to the position of Chairman.
Mr. Stout remains a member of the Company's Board of Directors.
2001 Compensation for the President and Chief Executive Officer
On January 16, 2001, Mr. Phillips was appointed to the positions of
President and Chief Executive Officer of the Company. Mr. Phillips was also
elected to fill the vacancy and serve as a member of the Company's Board of
Directors. In connection with his appointments, Mr. Phillips purchased 66,667
shares of the Company's restricted common stock, par value $0.02, for $0.75 per
share. In addition, Mr. Phillips was awarded a five-year, non-qualified stock
option to purchase 875,725 shares of the Company's Common Stock, par value
$0.02, at the exercise price equal to 100% of the fair market value of the
common stock on the grant date, exercisable in one-third increments over a
two-year period. Pursuant to his employment agreement, Mr. Phillips has an
initial annual base salary of $175,000 and is eligible for an annual bonus of up
to $125,000 upon the successful completion of annual milestones as agreed upon
by Mr. Phillips and the Board of Directors.
Summary
The Compensation Committee believes the total compensation program for
executives of the Company is appropriate and competitive with the total
compensation programs provided by similar companies in the industry with which
the Company competes. The Compensation Committee believes its compensation
practices are directly tied to shareholder returns and linked to the achievement
of annual and longer-term financial and operating results of the Company on
behalf of the Company's shareholders. The material in this report is not
"soliciting material," is not deemed filed with the SEC, and is not incorporated
by reference into any filing of the Company under the Securities Act of 1933, as
amended, or the Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates it by reference into such filing.
Submitted by the Compensation Committee
Gerald R. McNichols, Sc.D, Compensation Committee Chair
John D. Sanders, Ph.D., Compensation Committee Member
Gerald R. Young, Compensation Committee Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 2001, members of the
Company's Compensation Committee were Messrs. McNichols, Sanders and Young in
August 2000. As of December 31, 2001, none of the members of the Compensation
Committee was then or had been, at any time since formation, one of the
Company's officers or employees.
As of September 1, 2000, the Company entered into a letter agreement
with Dr. Sanders to provide strategic financial consulting services. Pursuant to
the agreement, Dr. Sanders will be paid a monthly retainer of $2,500, plus
reimbursement of direct expenses authorized by the Company. This agreement may
be terminated by either party by giving the other party thirty days notice in
writing. In addition, should Dr. Sanders initiate and be involved with a merger
or acquisition that results in a formal agreement and transaction, the Company
will pay Dr. Sanders a financial advisory or finders fee of one and one-half
percent of the total value of the transaction. Should a broker or other
intermediary be involved, Dr. Sanders' fee would be reduced to one percent. This
portion
16
of the agreement survives termination if a merger situation or acquisition
company has been introduced and discussions or negotiations are continuing. In
2001, Dr. Sanders was paid $10,000 pursuant to this agreement, which represents
the monthly retainer for those months Dr. Sanders consulted on behalf of the
Company.
On June 29, 2000, the Company entered into a letter agreement with Mr.
Young to provide business development services to the Company, on an as needed
basis, at the rate of $1,500 per day. In 2001, $3,750 was paid to Mr. Young
pursuant to this agreement.
Performance Graph
The following graph compares the cumulative, five-year shareholder
returns on the Company's Common Stock with the cumulative returns of the NASDAQ
Market Index and Media General's Other Business Services Index, comprised of the
Common Stock of approximately 200 companies in diversified business service
industries, excluding the Company. The graph assumes the value of the investment
in the Company's Common Stock and each index was $100 on July 1, 1996.
Fiscal Year Ending
Company 1997 1998 1999 2000 2001 (1)
------- ------ ------ ------ ------ --------
Hadron, Inc. 100.00 229.90 147.12 85.83 171.65
MG - Bus Serv Index 100.00 112.64 112.72 120.18 100.82
NASDAQ Market Index 100.00 132.56 185.76 279.51 138.17
- -----------------------------
(1) The Company changed its fiscal year during 2001 from June 30th to
December 31st. Therefore, fiscal year 2001 represents the period
January 1, 2001 through December 31, 2001; fiscal year 2000 represents
the period July 1, 1999 through June 30, 2000; and fiscal year 1999
represents the period July 1, 1998 through June 30, 1999.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% shareholders are required by the regulation to furnish the
Company with copies of the Section 16(a) forms which they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company, and written representations that no other
reports were required during the year ended December 31, 2001, all Section 16(a)
filing requirements applicable to the Company's officers, directors and greater
than ten percent beneficial owners were complied with in a timely manner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 2, 2001, the Company consummated the transactions
contemplated by the Agreement and Plan of Merger dated as of October 31, 2001
(the "Plan") with Analex Corporation and its equity holders pursuant to which
Analex Corporation was merged with and into a wholly-owned subsidiary of the
Company.
Under the terms of the Plan, the shareholders representing all of the
outstanding equity of Analex Corporation (the "Sellers") exchanged their Analex
equity on a pro rata basis for approximately $6.5 million in a combination of
cash and the satisfaction of certain liabilities of Analex as well as
approximately 3.6 million shares of the Company's Common Stock. Of the
approximately 3.6 million of the Company's Common Stock issued to the holders of
Analex equity, 857,143 shares are subject to a provision by which the Company
guarantees for a five-year
17
period to reimburse the Sellers the difference between the price at which they
sell such shares and a guaranteed sales price ranging from $1.60 to $2.20 per
share ("Guaranteed Shares"), if such shares are sold within such period and if
certain other conditions are satisfied.
Pursuant to the Plan, the Company issued 1,108,397 and 1,596,459
shares, respectively, to beneficial owners Mr. Belford and Ms. Kodger. Mr.
Belford was elected to the Company's Board of Directors on November 9, 2001.
In addition, pursuant to the Plan, the Company issued promissory notes
to certain Sellers totaling $772,085 with a five-year term, interest of 6% per
annum, of which $643,850 and $57,950 were issued to Mr. Belford and Ms. Kodger,
respectively. The Company also entered into three-year non-competition
agreements with these Sellers for total payments of $540,000, of which the
Company issued $180,000 non-competition agreements to both Mr. Belford and Ms.
Kodger. The Company offered at-will part-time employment agreements to four
officers of Analex, three of which contain incentive bonus provisions relating
to the achievement of certain performance goals.
To finance the Merger, the Company negotiated a new senior credit
facility with Bank of America, N.A. in the amount of $7.5 million, comprised of
(i) a term loan note in the amount of $3.5 million and (ii) a revolving line of
credit at $4 million. Bank of America required the Company to obtain personal
guarantees in the amount of $2 million, which the Company procured from two
individuals, Dr. McNichols, member of the Board and Mr. Knop, the Company's
investment banker, in exchange for an annual fee of $60,000 and the issuance of
warrants to purchase Common Stock at an exercise price of $0.02 per share with
the number of warrants to be based on the duration of the guarantees and a
formula related to valuing the Company. Pursuant to the Guarantee, the Company
issued warrants to purchase 15,556 shares of the Company's Common Stock at $0.02
per share and payment of $9,833 to both Dr. McNichols and Mr. Knop,
respectively, in 2002 relating to the two-month period ended December 31, 2001.
In addition, the Company issued shares of common stock for aggregate
consideration of approximately $4 million through a private placement consisting
of (i) Common Stock at a price of $1.14 per share to purchasers who purchased
less than $500,000 worth thereof or (ii) units consisting of Common Stock and
warrants to purchase 0.2061 shares of Common Stock at an exercise price of $0.02
per share for each share purchased at a price of $1.14 per unit for purchasers
who purchased $500,000 or more of equity. Two of such purchasers are directors
or affiliates of a director. Dr. McNichols purchased 529,003 shares at the
aggregate price of $501,808, and S Co., LLC, a finance company owned and managed
by Board members Mr. and Mrs. Stout, purchased 740,605 shares, aggregating
$702,531. In addition, George Tonn, the Company's Senior Vice President
purchased 100,000 shares at the aggregate price of $114,000. RSSJ Associates
purchased 2,116,014 shares at the aggregate price of $2,007,233.
On November 1, 2002, Dr. Gilluly exercised warrants, pursuant to the
warrant agreement dated February 15, 2000, to purchase 82,000 shares of the
Company's Common Stock at $0.72 per share. On this same date, he exercised
12,000 and 15,000 stock options at exercise prices of $0.94 and $1.99,
respectively.
On November 1, 2002, Mr. Knop exercised warrants, pursuant to the March
30, 2000 equity capital investment by a group of investors led by Jon M. Stout,
to purchase 138,888 shares of the Company's Common Stock at $0.72 per share.
On February 23, 2001, Mr. Stout purchased 40,000 shares of the
Company's restricted Common Stock in a private transaction.
As of September 1, 2000, the Company entered into a letter agreement
with Dr. Sanders to provide strategic financial consulting services. Pursuant to
the agreement, Dr. Sanders will be paid a monthly retainer of $2,500, plus
reimbursement of direct expenses authorized by the Company. This agreement may
be terminated by either party by giving the other party thirty days notice in
writing. In addition, should Dr. Sanders initiate and be involved with a merger
or acquisition that results in a formal agreement and transaction, the Company
will pay Dr. Sanders a financial advisory or finders fee of one and one-half
percent of the total value of the transaction. Should a broker or other
intermediary be involved, Dr. Sanders' fee would be reduced to one percent. This
portion of the agreement survives termination if a merger situation or
acquisition company has been introduced and
18
discussions or negotiations are continuing. In 2001, Dr. Sanders was paid
$10,000 pursuant to this agreement, which represents the monthly retainer for
those months Dr. Sanders consulted on behalf of the Company.
On June 29, 2000, the Company entered into a letter agreement with Mr.
Young to provide business development services to the Company, on an as needed
basis, at the rate of $1,500 per day. In 2001, $3,750 was paid to Mr. Young
pursuant to this agreement.
PROPOSAL NO. 2
APPROVAL OF THE HADRON, INC. 2002 STOCK OPTION PLAN
On March 20, 2002, the Board adopted, subject to shareholder approval,
the Hadron, Inc. 2002 Stock Option Plan.
Description of the 2002 Stock Option Plan
The following summary of the principal features of the 2002 Stock
Option Plan is qualified in its entirety by reference to the text of the 2002
Stock Option Plan set forth in Appendix B attached hereto.
The 2002 Stock Option Plan provides for the issuance of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986
and non-qualified stock options to purchase an aggregate of up to 600,000 shares
of Common Stock. The 2002 Stock Option Plan permits the grant of options to key
employees, directors and other persons who contribute materially to the success
and profitability of the Company.
The 2002 Stock Option Plan is administered by the Compensation
Committee consisting of directors McNichols, Sanders and Young. Each of the
members of the Committee is a "non employee director" for purposes of Rule
16b-3. Subject to the provisions of the 2002 Stock Option Plan, the Compensation
Committee has full and final authority to select the participants to whom awards
are to be granted thereunder, to grant such awards and to determine the terms
and conditions of such awards, including vesting and exercise price.
Each option is evidenced by a written agreement in a form approved by
the Compensation Committee. Options granted under the 2002 Stock Option Plan
generally are not transferable by the optionee other than by will or by the laws
of descent and distribution and each option is exercisable, during the lifetime
of the optionee, only be the optionee. Key employees, including employee
directors, and consultants of the Company or any of its subsidiaries are
eligible to be considered for the grant of awards under the 2002 Stock Option
Plan.
Under the 2002 Stock Option Plan, the exercise price of an incentive
stock option generally must be at least equal to 100% of the fair market value
of the Common Stock on the grant date (110% of the fair market value in the case
of options granted to employees who are 10% shareholders). The exercise price of
a non-qualified stock option must be not less than the par value of a share of
the Common Stock on the date of grant. The term of an incentive or non-qualified
stock option may not exceed ten years (five years in the case of an incentive
stock option granted to a 10% shareholder).
Each non-employee director elected or appointed to the Board
automatically receives on the date of his or her first initial appointment to
the Board, an option to purchase 5,000 shares of the Company's Common Stock (the
"Initial Option") at a per share exercise price equal to the fair market value
of the Common Stock on the initial grant date. Furthermore, each non-employee
director automatically receives on each anniversary of his initial election or
appointment to the Board an option to purchase 5,000 shares of the Company's
Common Stock exercisable at a per share value equal to the fair market value for
the Common Stock on the applicable additional grant date to the extent that
options remain available under the 2002 Stock Option Plan.
The vesting for each option holder will be set forth in the individual
option agreements. Each option generally terminates, to the extent not exercised
prior thereto, upon the earlier to occur of (i) the tenth anniversary of
19
grant and (ii) ninety days after the cessation of the optionee's employment or
service as a member of the Board (to the extent vested upon the date of such
cessation).
In the event of a change of control of the Company, the unexercised and
unvested portion of each outstanding option shall become fully vested and
exercisable as of the date of the change of control.
The Board may alter, amend, suspend or terminate the 2002 Stock Option
Plan, provided that no such action shall deprive an optionee, without his
consent, of any option granted to the optionee pursuant to the 2002 Stock Option
Plan or of any of his rights under such option. Provisions related to automatic
grants of options to non-employee directors may not (with limited exceptions) be
amended more frequently than once every six months and no amendment to such
provisions, unless approved by the shareholders of the Company, shall become
effective earlier than six months after Board approval. Except as provided in
the 2002 Stock Option Plan, the Board shall obtain the approval of the
shareholders of any amendment to the extent the Board determines such approval
is desirable or necessary under applicable law.
Federal Tax Information
Pursuant to the 2002 Stock Option Plan, the Company may grant either
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended, or non-qualified options.
An optionee who receives an incentive stock option grant will not
recognize any taxable income either at the time of grant or exercise of the
option, although the exercise may subject the optionee to the alternative
minimum tax. Upon the sale or other disposition of the shares more than two
years after the grant of the option and one year after the exercise of the
option, any gain or loss will be treated as a long-term or short-term capital
gain or loss, depending upon the holding period. If these holding periods are
not satisfied, the optionee will recognize ordinary income at the time of sale
or disposition equal to the difference between the exercise price and the lower
of (a) the fair market of the shares at the date of the option exercise or (b)
the sale price of the shares. The Company will be entitled to a deduction in the
same amount as the ordinary income recognized by the optionee. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized as long-term or short-term
capital gain or loss, depending on the holding period.
All options that do not qualify as incentive stock options are referred
to as non-qualified options. An optionee will not recognize any taxable income
at the time he or she receives a non-statutory option grant. However, upon
exercise of the non-statutory option, the optionee will recognize ordinary
taxable income generally measured as the excess of the fair market value of the
shares purchased on the date of exercise over the purchase price. Any taxable
income recognized in connection with an option exercise by an optionee who is
also an employee of the Company will be subject to tax withholding by the
Company. Upon the sale of such shares by the optionee, any difference between
the sale price and the fair market value of the shares on the date of exercise
of the option will be treated as long-term or short-term capital gain or loss,
depending on the holding period. The Company will be entitled to a tax deduction
in the same amount as the ordinary income recognized by the optionee with
respect to shares acquired upon exercise of a non-statutory option.
The foregoing is only a summary of the effect of federal income
taxation upon the optionee and the Company with respect to the grant and
exercise of awards under the 2002 Stock Option Plan, does not purport to be
complete, and does not discuss the tax consequences of the optionee's death or
the income tax laws of any municipality, state or foreign country in which an
optionee may reside.
The Board of Directors Unanimously Recommends
that Shareholders Vote FOR the 2002 Stock Option Plan.
20
PROPOSAL NO. 3
APPROVAL OF NAME CHANGE OF HADRON TO ANALEX CORPORATION
Background to Name Change
The Board of Directors has approved, subject to shareholder approval,
an amendment to the Company's Certificate of Incorporation for the purpose of
changing the name of the Company from Hadron, Inc. to Analex Corporation. This
name change would reflect the revised strategic vision and marketing strategy of
the Company following the completion in November 2001 of its acquisition of
Analex Corporation, a Nevada corporation. The Company believes that there is a
certain degree of name recognition associated with Analex Corporation.
Accordingly, the Board of Directors believes it would be appropriate and in the
best interest of the Company and its shareholders to change the name of the
Company to "Analex Corporation."
Effects of the Name Change
If the name change is approved by the shareholders, the Company will
attempt to have the trading symbol for its common stock changed from "HDRN" to a
symbol more readily associated with the new name of the Company. The currently
outstanding stock certificates evidencing shares of the Company's Common Stock
bearing the name "Hadron, Inc." will continue to be valid and represent shares
of the Company following the name change. In the future, new shares will be
issued bearing the new name, but this in no way will affect the validity of your
current stock certificates.
The Board of Directors Unanimously Recommends
that Shareholders Vote FOR the Name Change.
PROPOSAL NO. 4
APPROVAL OF REINCORPORATION IN DELAWARE
General
The Board of Directors has approved a proposal to change the Company's
state of incorporation from New York to Delaware, subject to shareholder
approval. The Reincorporation will be effected by merging the Company with and
into Analex Corporation, a Delaware corporation ("Analex"), a corporation formed
by the Company for the purpose of the Reincorporation, in accordance with the
terms of an Agreement and Plan of Merger (the "Merger Agreement"). A copy of the
form of Merger Agreement is attached to this Proxy Statement as Appendix C, and
statements herein regarding such Agreement are qualified by reference to the
complete Merger Agreement.
Upon the effective date of the Reincorporation, each outstanding share
of the Company's Common Stock will be automatically exchanged for one share of
the common stock of Analex (the "Analex Common Stock"). The Company will cease
to exist as a New York corporation, and Analex will be the continuing or
surviving corporation of the Reincorporation. Thus, Analex will succeed to all
of the business and operations, own all of the assets and other properties and
will assume and become responsible for all of the liabilities and obligations of
the Company. The Reincorporation, therefore, will not involve any change in the
business, properties or management of the Company. The name of the surviving
company will be Analex Corporation. The persons serving as officers and
directors of the Company will serve as the officers and directors of Analex
after the Reincorporation, see Proposal 1, "Election of Directors."
Purpose of Merger and Reincorporation
The purpose of the Reincorporation is to change the state of
incorporation and legal domicile of the Company from New York to Delaware. The
Board of Directors believes that this change in the domicile would be in the
best interests of the Company and its shareholders.
21
The Company was incorporated in New York in 1964. Delaware has long
been a leading state in adopting, construing and implementing comprehensive and
flexible corporate laws that respond to the legal and business needs of
corporations. As a result, the Delaware General Corporation Law (the "DGCL") is
widely regarded to be one of the best-defined bodies of corporate law in the
United States. The Delaware legislature is particularly sensitive to corporate
law issues, and Delaware courts have developed considerable expertise in
construing Delaware's corporate law. Accordingly, the Board of Directors
believes that Delaware law would provide greater predictability in the Company's
legal affairs than is currently available under New York law.
The interests of the Company's Board of Directors, management and
affiliated shareholders in voting on the Reincorporation proposal may not be the
same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under New
York law. A discussion of the principal differences between New York and
Delaware law as they affect shareholders is set forth below in the section
entitled "Significant Changes Caused by the Reincorporation."
Authorized Shares of Stock
The Company's Certificate of Incorporation authorizes 20,000,000 shares
of Common Stock, par value $0.02 per share, of which ___________ shares of
Common Stock are issued and outstanding as of the Record Date. The Company's
Certificate of Incorporation does not authorize the issuance of Preferred Stock.
Analex's Certificate of Incorporation authorizes 30,000,000 shares of Common
Stock, par value $0.02 per share and 5,000,000 shares of Preferred Stock, par
value $0.02. No shares of any capital stock will be issued by Analex in
connection with the Reincorporation, other than the shares of Analex Common
Stock to be exchanged for the Company's outstanding Common Stock and the grant
of options in exchange for any options then outstanding for the purchase of the
Company's Common Stock.
Conversion of the Stock
Assuming shareholder approval of this proposal, as soon as the
Reincorporation becomes effective, each outstanding share of the Company's
Common Stock will automatically convert into and be exchanged for one share of
Analex Common Stock, and the Company shareholders will automatically become
stockholders of Analex.
In addition, each outstanding option, right or warrant to acquire
shares of the Company's Common Stock outstanding upon the Reincorporation will
be converted into an option, right or warrant to acquire the same number of
shares of Analex Common Stock. Any Company employee benefit plan in effect will
be continued by Analex following the Reincorporation.
Therefore, beginning on the effective date of the Reincorporation, each
Hadron, Inc. stock certificate which was outstanding immediately prior to the
Reincorporation will automatically represent the same number of Analex
Corporation shares. Stockholders of Hadron, Inc. need not exchange their stock
certificates for Analex Corporation stock certificates. Likewise, stockholders
should not destroy their old certificates and should not send their old
certificates to the Company, either before or after the effective date of the
Reincorporation.
Shareholders do not have any statutory appraisal rights on the
Reincorporation.
Transferability of Shares
Shareholders whose shares of the Company's Common Stock are freely
tradable before the Reincorporation will own shares of Analex that are freely
tradable after the Reincorporation. Similarly, any shareholders holding
securities with transfer restrictions before the Reincorporation will hold
shares of Analex that have the same transfer restrictions after the
Reincorporation. For purposes of computing the holding period under Rule 144 of
the Securities Act, those who hold Analex stock certificates will be deemed to
have acquired their shares on the date they originally acquired their Company
shares.
After the Reincorporation, Analex will continue to be a publicly held
company, and, like the Company's shares, shares of Analex will be quoted on the
OTC Bulletin Board, however under a different trading symbol and
22
CUSIP number. Analex will also file with the SEC and provide to its stockholders
the same types of information that the Company has previously filed and
provided.
Certain Federal Income Tax Consequences of the Reincorporation
The discussion of U.S. federal income tax consequences set forth below
is for general information only and does not purport to be a complete discussion
or analysis of all potential tax consequences that may apply to a shareholder.
Shareholders are urged to consult their tax advisors to determine the particular
tax consequences of the Reincorporation, including the applicability and effect
of federal, state, local, foreign and other tax laws.
The following discussion sets forth the principal U.S. federal income
tax consequences of the Reincorporation to the Company shareholders who hold
their shares as a capital asset. It does not address all of the federal income
tax consequences that may be relevant to a particular shareholder based upon
their individual circumstances or to shareholders who are subject to special
rules, such as financial institutions, tax-exempt organizations, insurance
companies, dealers in securities, foreign holders or holders who acquired their
shares pursuant to the exercise of employee stock options or otherwise as
compensation.
The following disclosure is based on the Code, law regulations, rulings
and decisions in effect as of the date of this Proxy Statement, all of which are
subject to change, possibly with retroactive effect, and to differing
interpretations. The following disclosure does not address the tax consequences
to our shareholders under state, local and foreign laws. The Company has neither
requested nor received a tax opinion from legal counsel with respect to the
consequences of reincorporation. No rulings have been or will be requested from
the Internal Revenue Service with to the consequences of reincorporation. There
can be no assurance that future legislation, regulations, administrative rulings
or court decisions would not alter the consequences set forth below.
The Reincorporation provided for in the Merger Agreement is intended to
be a tax-free reorganization under the Code. Assuming the Reincorporation
qualifies as a reorganization, no gain or loss will be recognized to the holders
of the Company's capital stock as a result of consummation of the
reincorporation, and no gain or loss will be recognized by the Company or
Analex. Each former holder of the Company's Common Stock will have the same
basis in the capital stock of Analex received by that holder pursuant to the
reincorporation as that holder has in the Company's Common Stock held by that
holder at the time the Reincorporation is consummated. Each shareholder's
holding period with respect to Analex's Common Stock will include the period
during which that holder held the corresponding Company Common Stock, provided
the latter was held by such holder as a capital asset at the time of
consummation of the Reincorporation was consummated.
Accounting Treatment
In accordance with accounting principles generally accepted in the
United States, the Company expects that the Reincorporation will be accounted
for as a reorganization of entities under common control and recorded at
historical cost.
Regulatory Approvals
The Reincorporation will not be consummated until after shareholder
approval. The Company will obtain all required consents of governmental
authorities, including the filing of a Certificate of Merger with the Secretary
of State of New York and the filing of a Certificate of Merger with the
Secretary of the State of Delaware.
Significant Changes Caused by the Reincorporation
Delaware law differs in certain respects from New York law. Although it
is not practical to compare all the differences between the laws of governing
corporations in New York and Delaware, the following discussion provides a
summary of the material differences which may affect the rights of shareholders.
The Company's corporate affairs are governed at present by the Business
Corporation Law of New York (the "New York Law") and by its Certificate of
Incorporation filed in New York (the "New York Certificate") and by the Bylaws
adopted pursuant to New York Law (the "New York Bylaws"). Following the
Reincorporation, the Company's corporate
23
affairs will be governed by the DGCL and by the certificate of incorporation of
Analex (the "Delaware Certificate") and by the bylaws of Analex. The discussion
below regarding Delaware Law and New York Law is current as of the date of this
Proxy Statement. There may be changes in either or both Delaware or New York Law
that could affect the analysis below. Both sets of Certificates of Incorporation
and Bylaws are available for inspection during business hours at the Company's
principal executive offices. In addition, copies may be obtained by writing to
the Company at Hadron, Inc., 5904 Richmond Highway, Alexandria, Virginia 22303,
Attention: Corporate Secretary.
Under New York Law, a person who owns stock of the Company is referred
to as a "shareholder;" while under Delaware Law, such person is known as a
"stockholder." Such terms have the same meaning and are used herein
interchangeably.
Action by Written Consent of Shareholders in lieu of a Shareholder
Vote. New York Law allows shareholders to act by written consent in lieu of a
meeting only by unanimous written consent of those shareholders who would have
been entitled to vote on a given action at a meeting, unless the certificate of
incorporation permits that action to be taken by the holders of outstanding
shares having at least the minimum number of votes required to authorize the
action at a meeting at which all shares entitled to vote thereon were present
and voted. The New York Certificate does not contain such a provision.
Conversely, Delaware Law states that unless the certificate of incorporation
provides otherwise, stockholders may act by written consent of at least the
minimum number of votes required to authorize that action at a meeting at which
all shares entitled to vote thereon were present and voted. The Delaware
Certificate does not contain any provision to the contrary so stockholders may
take action by written consent to the extent permitted by Delaware Law.
Amendment of Certificate of Incorporation. Delaware Law allows a Board
of Directors to recommend that stockholders amend the certificate of
incorporation, and a majority of the shares entitled to vote at a stockholders'
meeting are sufficient to approve that amendment. Under New York Law, except for
certain ministerial changes to the certificate of incorporation that the Board
of Directors may authorize and except as otherwise required by the certificate
of incorporation, the Board of Directors may recommend an amendment to the
certificate of incorporation, for approval by shareholders and a majority of the
shares entitled to vote at a shareholders' meeting is sufficient to approve that
amendment.
Who May Call a Special Meeting of Shareholders. Under both New York Law
and Delaware Law, the Board of Directors or anyone authorized in the certificate
of incorporation or bylaws may call a special meeting of shareholders.
Currently, the New York Bylaws provide that a special meeting can be called by
the President, the Board of Directors or shareholders holding at least 25% of
the shares entitled to vote at the meeting. The Delaware Bylaws provide that a
meeting of stockholders may be called by a majority of the Board of Directors,
the Chairman of the Board, the President or the Secretary of the Company.
Right of Shareholders to Inspect Shareholder List. Under New York Law,
a shareholder of record may inspect the list of shareholders of record at any
meeting of shareholders upon the request thereat or prior thereto. Under
Delaware Law, any stockholder may, upon making a demand under oath stating the
purpose thereof, inspect the stockholders' list for any purpose reasonably
related to that person's interest as a stockholder. In addition, for at least
ten days prior to each stockholder's meeting, as well as at the meeting, a
Delaware corporation must make available for examination a list of stockholders
entitled to vote at the meeting.
Vote Required for Certain Transactions. Until February 1998, New York
Law required the holders of at least two-thirds of the outstanding stock of a
New York corporation at a meeting of the stockholders to approve certain
mergers, consolidations or sales of all or substantially all the corporation's
assets that may occur outside the ordinary course of business. Since February
1998, a New York corporation then in existence, which would include the Company,
may provide in its certificate of incorporation that the holders of a majority
of the outstanding stock may approve such transactions. The Company has not,
however, adopted such a provision in its Certificate of Incorporation, and so
the holders of at least two-thirds of the Company's outstanding stock must
approve such transactions.
Under Delaware Law, unless the certificate of incorporation or bylaws
provide otherwise (but in no case shall a quorum consist of less than one-third
of the outstanding stock entitled to vote on such transactions), the holders of
a majority of the outstanding stock entitled to vote on such transactions have
the power to approve a
24
merger, consolidation, or sale of all or substantially all the assets. The
Delaware Certificate does not contain any provision otherwise, so the holders of
a majority of the outstanding stock entitled to vote thereon may approve a
merger, consolidation, or sale of all or substantially all of the Company's
assets. Notwithstanding the foregoing, under Delaware Law the vote of the
stockholders of the surviving corporation is not required to authorize a merger
unless the Certificate of Incorporation states otherwise, if these three
conditions are met: (1) the merger agreement does not amend the surviving
corporation's certificate of incorporation; (2) each share of stock of the
surviving corporation that is outstanding or in the treasury immediately prior
to the effective date of the merger is to be an identical outstanding or
treasury share of the surviving corporation after the effective date; and (3)
the merger results in no more than a 20% increase in its outstanding common
stock.
Special vote requirements may apply to certain business combinations
with interested shareholders. See the discussion of these requirements below
under the heading "Business Combinations with Interested Shareholders."
Limitations of Directors' Liability. Both New York Law and Delaware Law
permit a corporation to limit a director's personal liability for actions taken
in that director's official capacity. Under New York Law, a director is not
liable to the corporation for the benefit of its creditors or shareholders for
damages if the director has acted in good faith and with the same degree of care
that an ordinarily prudent person would exercise in similar circumstances. New
York Law also permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting the personal liability of a
director, with certain specific exceptions, to the corporation or its
shareholders for damages for any breach of duty in that capacity. The New York
Certificate does not contain such a provision. Under Delaware Law, limits on a
director's liability must be addressed in the certificate of incorporation. The
Delaware Certificate limits directors' monetary liability to the fullest extent
permitted by Delaware Law. However, in some cases directors may be liable
despite these limitations. Delaware Law forbids any limitation of liability
where (1) a director breached the duty of loyalty to the corporation or its
stockholders, (2) a director's acts or omissions were not in good faith or
involved intentional misconduct or a knowing violation of law, (3) a director
received an improper personal benefit from a transaction involving the
corporation, or (4) a director authorized an unlawful dividend or stock
repurchase or redemption.
Indemnification of Directors and Officers. With some variations, both
New York Law and Delaware Law allow a corporation to "indemnify," that is, to
make whole, any person who is or was a director or officer of the corporation if
that person is held liable or incurs costs for something that person did or
failed to do in an official capacity.
Additionally, each of the two laws permits a corporation to purchase
insurance for its directors and officers against some or all of the costs of
such indemnification or against liabilities arising from actions and omissions
of the insured person, even though the corporation may not have power to
indemnify the person against such liabilities. New York Law, however, restricts
the types of claims that may be made under insurance purchased by the
corporation against these liabilities as well as restricts what costs may be
covered by insurance. For example, there would be no insurance coverage if the
person to be indemnified was guilty of deliberate dishonesty and that dishonesty
was material to the event that produced the claim, or if the person gained some
financial profit or other advantage to which he or she was not legally entitled.
If the Reincorporation is approved by the Company's shareholders, the
New York Law indemnification provisions will continue to apply to acts and
omissions that occurred prior to the effective date of the Reincorporation.
Transactions with Interested Directors. Both Delaware Law and New York
Law provide several methods for establishing the validity of transactions
between a corporation and interested directors, including a vote by the
uninterested directors or the shareholders, if the material facts as to the
director's interest are disclosed in good faith to the board of directors or
shareholders, respectively. However, Delaware Law also provides that a contract
between a director and the corporation may be valid if it is fair to the
corporation as of the time it is authorized by the board or shareholders, even
if the interested director's votes are counted.
Appraisal Rights. Generally, "appraisal rights" entitle dissenting
shareholders to receive the fair value of their shares in a merger or
consolidation of a corporation or in a sale of all or substantially all its
assets. New York
25
Law also extends appraisal rights to an exchange of a corporation's shares. New
York Law provides that dissenting shareholders have no appraisal rights if their
shares are listed on a national securities exchange, such as the OTC Bulletin
Board. However, in the case of shares not listed on an exchange, appraisal
rights under New York Law allow a voting and dissenting shareholder of a New
York corporation, with various exceptions, to receive fair value for its shares
in such transactions. One exception is a merger between a parent corporation and
its subsidiary when the parent owns at least 90% of the subsidiary. In this
case, a shareholder of the parent corporation has no appraisal rights. When
appraisal rights are available, the shareholder may have to request the
appraisal and follow other required procedures.
Similarly, under Delaware Law, appraisal rights are not available to a
stockholder if, among other things, the corporation's shares are listed on a
national securities exchange, such as the OTC Bulletin Board or held by more
than 2,000 stockholders of record, or if the corporation will be the surviving
corporation in a merger that does not require the approval of the surviving
corporation's stockholders. However, under Delaware Law, regardless of the
foregoing, a dissenting shareholder in a merger or consolidation has appraisal
rights unless the transaction requires the exchange of shares for something
other than one or more of the following: (1) shares of stock of the surviving
corporation or of a new corporation that results from the merger or
consolidation; (2) shares of another corporation that will be listed on a
national securities exchange, designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held by more than 2,000 stockholders of record after the
merger or consolidation occurs; or (3) cash instead of fractional shares of the
surviving corporation or another corporation.
Business Combinations with Interested Shareholders. Under New York Law,
an interested shareholder is generally prohibited from entering into certain
types of business combinations with a New York corporation for a period of five
years after becoming an "interested shareholder," unless the Board of Directors
approved either the business combination or the acquisition of stock by the
interested shareholder before the interested shareholder acquired its shares. An
"interested shareholder" under New York Law is generally a beneficial owner of
at least 20% of the corporation's outstanding voting stock or is an affiliate or
associate of a corporation who owned at least 20% of the outstanding stock
within the preceding five years. "Business combinations" under New York Law
include the following: (1) mergers and consolidations with an interested
shareholder or between corporations where the interested shareholder is an
affiliate; (2) sales, leases, mortgages, pledges, transfers or other
dispositions to an interested shareholder of assets with an aggregate market
value which either equals 10% or more of the corporation's consolidated assets
or outstanding stock, or represents 10% or more of the consolidated earning
power or net income of the corporation; (3) issues and transfers to an
interested shareholder of stock with an aggregate market value of 5% or more of
the aggregate market value of the outstanding stock of the corporation; (4)
liquidation or dissolution of the corporation proposed by or in connection with
an interested shareholder; (5) reclassification or recapitalization of
securities, merger, consolidation or other transaction with an interested
shareholder that would increase the proportionate stock ownership of an
interested shareholder; and (6) the receipt by an interested shareholder of
benefit from loans, guarantees, pledges or other financial assistance or tax
benefits provided by the corporation.
Delaware Law generally prohibits an interested stockholder from
entering into certain types of business combinations with a Delaware corporation
for three years after becoming an interested stockholder unless: (1) before the
stockholder became an interested stockholder, the Board of Directors approved
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder; (2) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding, subject to technical calculation rules; or (3) on or after the time
the interested stockholder became an interested stockholder, the board of
directors approved the business combination, and at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder also
ratified the business combination at a stockholders' meeting.
An "interested stockholder" under Delaware Law is any person other than
the corporation and its majority-owned subsidiaries who owns at least 15% of the
outstanding voting stock or is an affiliate or associate of the corporation who
owned at least 15% of the outstanding stock within the preceding three years,
and this definition includes affiliates of the corporation. Business
Combinations under Delaware Law include: (1) mergers or consolidations; (2)
sales, leases, exchanges, mortgages, pledges, transfers or other dispositions of
10% or more of the aggregate market value of all assets of the corporation or
outstanding stock of the corporation; (3) any
26
transactions resulting in the issuance or transfer by the corporation of stock
in the corporation to the interested stockholder except in limited instances;
(4) receipt by the interested stockholder of the benefit of loans, advances,
guarantees, pledges or other financial benefits provided by the corporation; and
(5) any other transaction, with certain exceptions, that increases the
proportionate share of the stock owned by the interested stockholder.
Proxies. Under New York Law, a proxy cannot be voted or acted upon
after 11 months from its date unless the proxy provides for a longer period.
Under Delaware Law a proxy cannot be voted or acted upon after three years from
its date unless the proxy provides for a longer period.
Nomination of Directors. Neither the New York Certificate nor the New
York Bylaws contain provisions regarding the nomination of directors. The
Delaware Bylaws provide that nominations of directors may be made at annual
meetings of stockholders by or at the direction of the Board of Directors, or by
any stockholder entitled to vote for the election of directors at such annual
meeting who provides timely notice to the Secretary of the Corporation.
Preemptive Rights. Preemptive rights are the right to purchase shares
or other securities to be issued by the Company with the purpose of maintaining
percentage ownership in the corporation. Under New York Law, shareholders of
corporations incorporated prior to February 22, 1998 are entitled to preemptive
rights unless specifically provided otherwise in the certificate of
incorporation. The New York Certificate specifically provides otherwise. Under
Delaware Law, preemptive rights must be specifically granted to the stockholders
in the Certificate of Incorporation. The Delaware Certificate does not grant
such rights.
Other Changes to Reflect Technical Differences Between Delaware Law and
New York Law. In addition to the changes described above, certain technical
changes have been made in the Delaware Certificate and Delaware Bylaws from the
New York Certificate and New York Bylaws to reflect differences between Delaware
Law and New York Law. Such technical changes include designation of a registered
office and registered agent in the State of Delaware for jurisdiction in certain
claims against the Corporation.
Blank Check Preferred
New York Certificate does not authorize the Board of Directors to issue
Preferred Stock. The Delaware Certificate does authorize its Board of Directors
to issue shares of Preferred Stock in series with such preferences as designated
at the time of issuance, assuming shareholder approval of Proposal 5, "Proposal
to Approve an Increase in the number of Authorized Common Stock to 30,000,000
and to add a class of Preferred Stock." The Board of Directors of Analex does
not currently intend to seek stockholder approval prior to any issuance of
shares of its Preferred Stock if the Reincorporation proposal is approved,
except as required by law or regulation. Frequently, opportunities arise that
require prompt action, and the Board of Directors believes that the delay
necessary for stockholder approval of a specific issuance would be a detriment
to Analex and its stockholders. The Board of Directors does not intend to issue
any Preferred Stock except on terms which the Board of Directors deems to be in
the best interests of Analex and its then existing stockholders.
27
It should be noted that the voting rights and other rights to be
accorded to any unissued series of Preferred Stock of Analex remain to be fixed
by the Delaware Board. Accordingly, if the Delaware Board so authorizes, the
holders of Preferred Stock may be entitled to vote separately as a class in
connection with approval of certain extraordinary corporate transactions or
might be given a disproportionately large number of votes. Such Preferred Stock
could also be convertible into a large number of shares of common stock of
Analex under certain circumstances or have other terms that might make
acquisition of a controlling interest in Analex more difficult or more costly,
including the right to elect additional directors to the Board of Directors of
Analex.
The Board of Directors Unanimously Recommends
That Shareholders Vote FOR the Reincorporation.
A Vote FOR the Reincorporation will Constitute Approval of the Merger,
the Delaware Certificate, the Delaware Bylaws, and Adoption and Assumption
by Analex of any Company Stock Options, Employee Benefit Plans and Agreements.
PROPOSAL NO. 5
AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED COMMON STOCK
TO 30,000,000 AND TO ADD A CLASS OF PREFERRED STOCK
On March 20, 2002, the Board of Directors approved, subject to
stockholder approval, an Amendment to the Company's Certificate of Incorporation
to authorize an increase from 20,000,000 shares of Common Stock to 30,000,000
shares of Common Stock, par value $0.02 and to authorize up to 5,000,000 shares
of Preferred Stock, par value $0.02, the rights and preferences to be determined
by the Board of Directors. The Company proposes to amend Article 4 of the
Company's Certificate of Incorporation or adopt the Analex Corporation
Certificate of Incorporation if the Reincorporation is approved by the
shareholders to read as follows:
"4. The total number of shares of capital stock of the Corporation that
the Corporation shall have authority to issue is Thirty-Five Million
(35,000,000), of which Thirty Million (30,000,000) shares having a par value of
$0.02 per share shall be designated as Common Stock and Five Million (5,000,000)
shares having a par value of $0.02 shall be designated as Preferred Stock.
Common Stock
The shares of Common Stock shall be alike and equal in all respects and
shall have one vote for each share. After any requirements with respect
to preferential dividends, if any, on the Preferred Stock have been
met, then, and not otherwise, dividends payable in cash or in any other
medium may be declared by the Board of Directors and paid on the shares
of Common Stock. After distribution in full of the preferential amount,
if any, to be distributed to the holders of Preferred Stock in the
event of voluntary or involuntary liquidation, dissolution,
distribution of assets or winding-up of the Corporation, the holders of
the Common Stock shall be entitled to receive all of the remaining
assets of the Corporation of whatever kind available for distribution
to stockholders ratably in proportion to number of shares of Common
Stock held by them respectively.
Preferred Stock
The designations, powers, preferences, rights, qualifications,
limitations and restrictions of the Preferred Stock are as follows:
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of
Directors may determine pursuant to a resolution or resolutions
providing for such issuance duly adopted by the Board (authority to do
so being hereby expressly vested in the Board) and such resolution or
resolutions shall also set forth, with respect to each such series of
Preferred Stock, the following:
28
(1) The distinctive designation, stated value and number of shares
comprising such series, which number may (except where
otherwise provided by the Board of Directors in creating such
series) be increased or decreased (but not below the number of
shares then outstanding) from time to time by action of the
Board of Directors;
(2) The rate of dividend, if any, on the shares of that series,
whether dividends shall be cumulative and, if so, from which
date, and the relative rights of priority, if any, of payment
of dividends on shares of that series over shares of any other
series;
(3) Whether the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the
date upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount
may vary under different conditions and at different
redemption dates, or the property or rights, including
securities of any other corporation, payable in case of
redemption;
(4) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series and, if so,
the terms and amounts payable into such sinking fund;
(5) The rights to which the holders of the shares of that series
shall be entitled in the event of voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up
of the Corporation, and the relative rights of priority, if
any, of payment of shares of that series;
(6) Whether the shares of that series shall be convertible into or
exchangeable for shares of capital stock of any class or any
other series of Preferred Stock and, if so, the terms and
conditions of such conversion or exchange including the rate
of conversion or exchange, the date upon or after which they
shall be convertible or exchangeable, the duration for which
they shall be convertible or exchangeable, the event upon or
after which they shall be convertible or exchangeable at whose
option they shall be convertible or exchangeable, and the
method of adjusting the rate of conversion or exchange in the
event of a stock split, stock dividend, combination of shares
or similar event;
(7) Whether the shares of that series shall have voting rights in
addition to the voting rights provided by law and, if
so, the terms of such voting rights;
(8) Whether the issuance of any additional shares of such series,
or of any shares of any other series, shall be subject to
restrictions as to issuance, or as to the powers, preferences
or rights of any such other series; and
(9) Any other preferences, privileges and powers, and relative,
participating, optional or other special rights, and
qualification, limitation or restriction of such series, as
the Board of Directors may deem advisable and as shall not be
inconsistent with the provisions of this Certificate of
Incorporation and to the full extent now or hereafter
permitted by the laws of the State of Delaware."
The Board of Directors believes that it is advisable and in the best
interests of the Company to have available additional authorized but unissued
shares of Common Stock and Preferred Stock to provide for future needs.
Currently, the Company has authorized 20,000,000 shares of Common Stock with
__________ shares of Common Stock issued and outstanding and _________ shares of
Common Stock reserved for stock option grants, other benefit plans, warrants and
convertible debt. In addition, the Company is not authorized to issue Preferred
Stock. In the event shareholders do not approve the Reincorporation (see
Proposal 4), the Company will need additional authorized shares of Common Stock
and the authority to issue preferred stock. The additional but unissued shares
of Common and Preferred Stock will be available for issuance from time to time
by the Company in the discretion of the Board of Directors, normally without
further stockholder action (except as may be required for a particular
transaction by applicable law, requirements of regulatory agencies or by stock
exchange rules), for any proper corporate purpose including, among other things,
future acquisitions of property or securities of other
29
corporations, stock dividends, stock splits, stock options, convertible debt and
equity financing. The Company's Board of Directors believes that the additional
but unissued Common and Preferred Stock may be necessary for future financing
and to attract potential new equity capital to carry out the Company's business
objectives.
The Board of Directors Unanimously Recommends That Shareholders Vote
FOR the Amendment to the Certificate of Incorporation to Increase the Number
of Authorized Common Stock and to add a Class of Preferred Stock.
In the event the Reincorporation
Proposal and Amendment to Increase
the Number of Authorized Common Stock
and to Add a Class of Preferred Stock
are not approved by shareholders,
the Company will continue as a New York corporation
under its present Certificate of Incorporation but with only
20,000,000 shares of Common Stock authorized, of which
___________ is outstanding and ____________ reserved for issuance.
PROPOSAL NO. 6
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS OF THE COMPANY
Ernst & Young LLP, Certified Public Accountants, have been the
independent auditors for the Company since 1996 and, upon recommendation of the
Audit Committee of the Board of Directors, their reappointment as independent
auditors for the 2002 fiscal year has been approved by the Board of Directors,
subject to ratification by the shareholders.
The Company has been advised by Ernst & Young LLP that neither it nor
any of its members has had any relationship with the Company or any of its
affiliates during the past three years other than as independent auditors. The
Company has been advised that a representative of Ernst & Young LLP will be
present at the Annual Meeting, will be available to respond to appropriate
questions, and will be given an opportunity to make a statement if he or she so
desires.
The following table sets forth the aggregate fees billed or to be
billed by Ernst & Young LLP for the following services during fiscal 2001:
Description of Services Fees
----------------------- ----
Audit fees (1) $ 91,000
Other audit-related fees (2) $ 53,000
All other fees $ 0
--------
Total $144,000
- ---------------------
(1) Audit Fees: represents the aggregate fees billed or to be billed for
professional services rendered for the audit of our 2001 annual
financial statements and for the review of the financial statements
included in our quarterly reports during such period.
(2) Represents fees for professional services rendered in connection with
the acquisition of Analex Corporation.
The Audit Committee has determined that the rendering of the
professional services in connection with the acquisition of Analex Corporation
by Ernst & Young LLP is compatible with maintaining the auditor's independence.
30
Vote Required; Recommendation of the Board of Directors
Although not required to be submitted for shareholder approval, the
Board of Directors has conditioned its appointment of its independent auditors
upon receiving the affirmative vote of a majority of the shares represented, in
person or by proxy, and voting at the Annual Meeting. In the event the
shareholders do not approve the selection of Ernst & Young LLP, the appointment
of independent auditors will be reconsidered by the Board of Directors.
SHAREHOLDER PROPOSALS
Proposals of Shareholders of the Company that are intended to be
presented at the Company's 2003 Annual Meeting of Shareholders must be received
by the Company no later than __________________, 2002 in order that they may be
included in the proxy statement and form of proxy relating to that meeting.
ANNUAL REPORT
A copy of the Company's Annual Report for the fiscal year ended
December 31, 2001, including the financial statements and notes thereto is being
mailed to the shareholders of record along with this Proxy Statement. The Annual
Report is not incorporated by reference in this Proxy Statement and is not
considered to be part of the proxy material.
The Company will provide without charge a copy of its 2001 Annual
Report on Form 10-K, including the financial statements and the financial
statement schedules required to be filed with the SEC. The Company will furnish
any exhibit described in the list accompanying the 2001 Form 10-K upon the
payment, in advance, of the specified reasonable fees related to the Company's
furnishing of such exhibit(s). Requests for copies of such report and/or
exhibit(s) should be directed to the Company at its principal executive office,
5904 Richmond Highway, Suite 300, Alexandria, Virginia 22303, Attention:
Corporate Secretary.
OTHER MATTERS
The Board knows of no other business matters to be acted upon at the
Annual Meeting other than those referred to in this Proxy Statement. If any
other matters properly come before the Annual Meeting, it is the intention of
the persons named in the enclosed proxy to vote the shares they represent as the
Board may recommend.
By Order of the Board
/s/ Karen L. Dickey
Karen L. Dickey
Vice President and Corporate Secretary
Date: ________________ 2002
31
APPENDIX A
Hadron, Inc.
Audit Committee of the Board of Directors
Audit Committee Charter
Organization
This charter governs the operations of the Audit Committee (the
"committee") of the Board of Directors ("Board") for Hadron, Inc. ("HADRON").
The committee shall:
. review and reassess this charter at least annually and obtain the
approval of the Board.
. be appointed by the Board,
. comprise at least three directors, each of whom are independent of
management and HADRON,
. include a chair of the committee to be chosen by a majority vote by
the members of the committee.
Members of the committee shall be considered independent if they have
no relationship that may interfere with the exercise of their independence from
management and HADRON. In addition, all committee members shall be financially
literate, or become so within a reasonable period of time after appointment to
the committee, and at least one member shall have accounting or related
financial management expertise.
Statement of Policy
The committee shall provide assistance to the Board in fulfilling their
oversight responsibility to the shareholders, potential shareholders, the
investment community, and others relating to HADRON's financial statements and
the financial reporting process, the systems of internal accounting and
financial controls, the annual independent audit of HADRON's financial
statements and the legal compliance and ethics programs as established, or as
may be established, by management and the Board.
In so doing, it is the responsibility of the committee to maintain free
and open communication between the committee, independent auditors and
management of HADRON. In discharging its oversight role, the committee is
empowered to investigate any matter brought to its attention with full access to
all books, records, facilities, and personnel of HADRON and the power to retain
outside counsel or other experts for this purpose.
Responsibilities and Processes
The primary responsibility of the committee is to oversee HADRON's
financial reporting processes on behalf of the Board and report the results of
their activities to the Board. Management is responsible for preparing HADRON's
financial statements and the independent auditors are responsible for auditing
those financial statements. The committee in carrying out its responsibilities
believes its policies and procedures should remain flexible, in order to best
react to changing conditions and circumstances. The committee should take the
appropriate actions to set the overall corporate culture and tone for quality
financial reporting, sound business risk practices, and ethical behavior.
A-1
The following shall be the principal recurring processes of the audit
committee in carrying out its oversight responsibilities. The processes are set
forth as a guide with the understanding that the committee may supplement them
as appropriate:
. The committee shall have a clear understanding with management
and the independent auditors that the independent auditors are
ultimately accountable to the Board and the committee, as
representatives of HADRON's shareholders. The committee shall
have the ultimate authority and responsibility to evaluate
and, where appropriate, replace the independent auditors. The
committee shall discuss with the auditors their independence
from management and HADRON and the matters included in the
written disclosures required by the Independence Standards
Board. Annually, the committee shall review and recommend to
the Board the selection of HADRON's independent auditors,
subject to shareholders' approval.
. The committee shall discuss with the independent auditors the
overall scope and plans for their audit including the adequacy
of staffing and compensation. Also, the committee shall
discuss with management and the independent auditors the
adequacy and effectiveness of the accounting and financial
controls, including HADRON's system to monitor and manage
business risk, and legal and ethical compliance programs.
Further, the committee shall meet with the independent
auditors, with and without management present, to discuss the
results of their examinations.
. The committee shall review the interim financial statements
with management and the independent auditors prior to the
filing of HADRON's Quarterly Report on Form 10-Q. Also, the
committee shall discuss the results of the quarterly review
and any other matters required to be communicated to the
committee by the independent auditors under generally accepted
auditing standards. The chair of the committee may represent
the entire committee for the purposes of this review.
. The committee shall review with management and the independent
auditors the financial statements to be included in HADRON's
Annual Report on Form 10-K, including their judgment about the
quality, not just acceptability, of accounting principles, the
reasonableness of significant judgements, and the clarity of
the disclosures in the financial statements. Also, the
committee shall discuss the results of the annual audit and
any other matters required to be communicated to the committee
by the independent auditors under generally accepted auditing
standards.
Date: October 30, 2000
A-2
APPENDIX B
Hadron, Inc.
2002 Stock Option Plan
1. Purpose.
The purpose of this Hadron, Inc. 2002 Stock Option Plan (the "Plan") is
to further the interests of Hadron, Inc., a Delaware corporation (the
"Company"), and its shareholders by providing incentives in the form of grants
of stock options to key employees and other persons who contribute materially to
the success and profitability of the Company.
2. Definitions.
The following definitions shall apply to the Plan:
(a) "Board" means the board of directors of the Company.
(b) "Change of Control" means:
i. a determination or agreement by the Company to sell
substantially all of its assets, merge, dissolve,
liquidate or reorganize;
ii. a determination or agreement by the holders of a
majority of the Common Stock of the Company to sell a
majority of the outstanding Common Stock of the Company
to a third party; or
iii. the occurrence of any other change in control event, as
defined by the Board.
(c) "Code" means the Internal Revenue Code of 1986, as amended,
and includes applicable Treasury regulations.
(d) "Committee" means the Compensation Committee of the Board. The
Committee shall (i) consist of not less than three (3) members
of the Board who are not employees of the Company, (ii) be
constituted to satisfy the applicable requirements of Rule
16b-3 for qualification of the transactions contemplated under
the Plan for exemption under Rule 16b-3, and (iii) be
constituted to satisfy the applicable requirements of Code
section 162(m) for qualification of the transactions
contemplated under the Plan for exemption under Code Section
162(m). The Board may from time to time remove members from,
or add members to, the Committee. Vacancies on the Committee,
howsoever caused, shall be filled by the Board.
(e) "Common Stock" means the Common Stock, par value $0.02, of the
Company, or such other class of shares or securities to which
the Plan may apply pursuant to Section 8 of the Plan.
(f) "Company" means Hadron, Inc., a Delaware corporation.
(g) "Date of Grant" means the date on which an Option is granted.
(h) "Disability" means total and permanent inability, by reason of
illness or accident, to perform the duties of the Recipient's
occupation or position with the Company, as determined by the
Board based upon medical evidence acceptable to the Board.
(i) "Eligible Person" means any person who performs or has in the
past performed services for the Company, whether as a
director, officer, Employee, consultant or other independent
contractor,
B-1
and any person who performs services relating to the Company
as an employee or independent contractor of a corporation or
other entity that provides services for the Company.
(j) "Employee" means any person employed on an hourly or salaried
basis by the Company. In the case of a Recipient who is an
Employee of the Company, such person must be employed by the
Company at the time the Option is granted.
(k) "Fair Market Value" as of a particular date shall mean
the fair market value of the Common Stock. If the Common
Stock is admitted to trading on a national securities
exchange, fair market value of the Common Stock on any date
shall be the closing price reported for the Common Stock on
the last day preceding such date on which a sale was
reported. If the Common Stock is admitted to quotation on
the National Association of Securities Dealers Automated
Quotation ("Nasdaq") System or other comparable quotation
system and has been designated as a National Market System
("NMS") security, fair market value of the Common Stock on
any date shall be the closing sale price reported for the
Common Stock on such system on the last date preceding such
date on which a sale was reported. If the Common Stock is
admitted to quotation on the Nasdaq System but has not been
designated as an NMS security, the fair market value of the
Common Stock on any date shall be the average of the highest
bid and lowest asked prices of such share on such system on
the last date preceding such date on which both bid and ask
prices were reported. If the Committee determines that the
value of the Common Stock determined on the basis of selling
or bid and asked prices as provided above in this Section 2(k)
does not reflect the fair market value of the Common Stock
because no actual sale prices or bona fide bid and asked
prices are available for a date within a reasonable period
before the valuation date, then the fair market value of the
Common Stock shall be determined by the Committee in its
sole discretion and in good faith as required by Section 422
of the Code.
(l) "Incentive Stock Option" means a stock option, granted
pursuant to this Plan or any other Company plan that
satisfies the requirements of Section 422 of the Code and
that entitles the Recipient to purchase stock of the
Company. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a
subsidiary corporation within the meaning of Section 424(f)
of the Code. To the extent that any Option does not qualify
as an Incentive Stock Option, it shall be deemed a
Non-Qualified Stock Option.
(m) "Non-Qualified Stock Option" means a stock option, granted
pursuant to the Plan, that is not an Incentive Stock Option
and that entitles the Recipient to purchase stock of the
Company.
(n) "Option" means an Incentive Stock Option or a Non-Qualified
Stock Option.
(o) "Option Agreement" means a written agreement, between the
Company and a Recipient that sets out the terms and
restrictions of an Option.
(p) "Option Shareholder" means a Recipient who has acquired Shares
upon exercise of an Option.
(q) "Option Shares" means Shares that a Recipient receives upon
exercise of an Option.
(r) "Plan" means this Hadron, Inc. 2002 Stock Option Plan, as
amended from time to time.
(s) "Recipient" means an individual who receives an Option.
(t) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or any successor to Rule
16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(u) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 8 of the Plan.
B-2
3. Administration.
The Committee shall administer the Plan. The Committee has the
exclusive power to select the Recipients of Options pursuant to the Plan, to
establish the terms of the Options granted to each Recipient, and to make all
other determinations necessary or advisable. The Committee has the sole
discretion to determine whether the performance of an Eligible Person warrants
the grant of an Option, and to determine the size and type of the Option. The
Committee has full and exclusive power to construe and interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to the Plan, and to
take all actions necessary or advisable for the Plan's administration. The
Committee, in the exercise of its powers, may correct any defect or supply any
omission, or reconcile any inconsistency in the Plan, or in any Agreement, in
the manner and to the extent it deems necessary or expedient to make the Plan
fully effective. In exercising this power, the Committee may retain counsel at
the expense of the Company. The Committee also has the power to determine the
duration and purposes of leaves of absence, which may be granted to a Recipient
without constituting a termination of the Recipient's employment for purposes of
the Plan. Any of the Committee's determinations shall be final and binding on
all persons. A member of the Committee shall not be liable for performing any
act or making any determination in good faith.
4. Shares Subject to Plan; Substitution Awards.
(a) Subject to the provisions of Section 8 of the Plan and
the authority granted to the Committee pursuant to Section 3
above, the maximum aggregate number of Shares that may be
subject to Options is one million, five hundred thousand
(1,500,000). The Shares may be authorized but unissued
Shares, or may be treasury stock of the Company. If an
unexercised Option expires or becomes unexercisable, the
unpurchased Shares subject to such Option shall be available
for other Options. If any Shares (whether subject to or
received pursuant to an Option granted under the Plan,
purchased on the open market, or otherwise obtained, and
including Shares that are deemed (by attestation or
otherwise) to have been delivered to the Company as payment
for all or any portion of the exercise price of an Option)
are withheld or applied as payment by the Company in
connection with the exercise of an Option or the withholding
of taxes related thereto, such Shares, to the extent of any
such withholding or payment, shall again be available or
shall increase the number of Shares available, as
applicable, for future Options under the Plan. The Board may
from time to time determine the appropriate methodology for
calculating the number of Shares issued pursuant to the
Plan.
(b) The Committee may grant Options under the Plan in
substitution for stock and stock based awards held by
employees, directors or other key persons of another
corporation in connection with a merger or other
consolidation of the employing corporation with and into the
Company or a subsidiary of the Company or the acquisition by
the Company or a subsidiary of the Company of the property
or stock of the employing corporation. The Committee may
direct that the substitute awards be granted on such terms
and conditions as they deem appropriate under the
circumstances. Any substitute awards granted under this
provision shall not count against the share limitation set
forth in Section 4(a) above.
5. Eligibility; Non-Employee Director Grants.
(a) Any Eligible Person that the Committee in its sole discretion
designates is eligible to receive an Option. However, only an
Employee may receive an Incentive Stock Option. The
Committee's grant of an Option to a Recipient in any year does
not entitle the Recipient to an Option in any other year.
Furthermore, the Committee may grant Options on different
terms to different Recipients and/or to the same Recipient if
the Recipient is awarded more than one Option. The Committee
may consider such factors as it deems pertinent in selecting
Recipients and in determining the types and sizes of their
Options. Recipients may include persons who previously
received stock, stock options, stock appreciation rights, or
other benefits under the Plan or another plan of the Company,
whether or not the previously granted benefits have been fully
exercised or vested. Nothing in the Plan or any Option, or in
any agreement entered into pursuant to the Plan shall confer
upon any Employee, director or outside consultant the right
to continue in the employ or service of the Company or effect
any right which the Company may have to terminate the
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employment or service of such Employee, director, or outside
consultant regardless of the effect of such termination of
employment or service on the rights of the Employee, director
or outside consultant under the Plan or any Option. Any Option
granted by the Committee to a non-employee director elected or
appointed to the Board must be ratified by the Board.
(b) Each non-employee director elected or appointed to the Board
shall automatically receive, on the date of his or her first
initial appointment to the Board, an Option to purchase 5,000
shares of Common Stock (the "Initial Option") at a per share
exercise price equal to the Fair Market Value of the Common
Stock on the initial grant date. In addition, each
non-employee director shall automatically receive on each
anniversary of his initial election or appointment to the
Board an option to purchase 5,000 shares of the company's
Common Stock exercisable at a per share value equal to the
Fair Market Value for the Common Stock on the applicable
additional grant date to the extent that options remain
available under the Plan. Each Option granted under this
Section 5(b) shall terminate, to the extent not exercised
prior thereto, upon the earlier to occur of (i) the tenth
anniversary of grant and (ii) 90 days after the cessation of
the Recipient's service as a member of the Board (to the
extent vested upon the date of such cessation).
6. Options.
The Committee may grant Options to purchase Common Stock to Recipients
in such amounts as the Committee determines in its sole discretion. Except as
otherwise limited herein, an Option may be in the form of an Incentive Stock
Option or a Non-Qualified Stock Option. The Committee may grant an Option alone
or in addition to another Option. Each Option shall satisfy the following
requirements:
(a) Written Agreement. Each Option granted to a Recipient shall be
evidenced by an Option Agreement. The terms of the Option
Agreement need not be identical for different Recipients or
for the same Recipient if awarded more than one Option. The
Option Agreement shall contain such provisions as the
Committee deems appropriate and shall include a description of
the substance of each of the requirements in this Section 6.
(b) Designation of Type of Option. Each Option Agreement shall
state on its face whether the Option is intended to be a "tax
qualified," incentive stock option under Code Section 422, or
a "nonqualified," stock option subject to Code Section 83.
(c) Number of Shares. Each Option Agreement shall specify the
number of Shares that the Recipient may purchase upon exercise
of the Option. No Recipient shall be granted, in any calendar
year, Options to purchase more than 1,000,000 Shares. The
limitation described in this Section 6(c) shall be adjusted
proportionately in accordance with Section 8 of the Plan. If
an Option is canceled in the same fiscal year of the Company
in which it was granted (other than in connection with a
transaction described in Section 8 of the Plan), the canceled
Option will be counted against the limitation described in
this Section 6(c).
(d) Exercise Price.
(i) Incentive Stock Options. Except as otherwise provided
in subsection 6(d)(iii) or subsection 6(m) of the
Plan, the exercise price of each Share subject to an
Incentive Stock Option shall equal the exercise price
designated by the Committee, but shall not be less
than the Fair Market Value of the Share on the Date
of Grant.
(ii) Non-Qualified Stock Options. Except as otherwise
provided in subsection 6(d)(iii) of the Plan or in
this subsection 6(d)(ii), in the case of Options
intended to be "nonqualified" stock options issued to
Employees, the exercise price shall be at least one
hundred percent (100%) of the fair market value of a
Share of Common Stock on the Grant Date, such that
the amount of compensation such Recipient/Employee
shall realize on exercise shall be based solely on
the increase in the value of the Shares of Common
Stock
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subsequent to the Grant Date, as required by
Regulation Section 1.162-27. Notwithstanding the
foregoing, such exercise price may be less than one
hundred percent (100%) of the fair market value of a
Share of Common Stock on the Grant Date if the amount
below fair market value is attributable to the
attainment of a performance goal that satisfies the
requirements of Regulation Section 1.162-27 and Code
Section 162(m), or any successor statute or
Regulation regarding the same subject matter. The
exercise price of "Non-Qualified Stock Options"
issued to non-Employees shall equal the exercise
price designated by the Committee. Notwithstanding
the foregoing, in no event will the exercise price of
a Non-Qualified Stock Option be less than the par
value of the Common Stock on the Grant Date.
(iii) Exceptions. Any Option that is (1) granted to a
Recipient in connection with the acquisition
("Acquisition"), however effected, by the Company of
another corporation or entity ("Acquired Entity") or
the assets thereof, (2) associated with an option to
purchase shares of stock or other equity interest of
the Acquired Entity or an affiliate thereof
("Acquired Entity Option") held by such Recipient
immediately prior to such Acquisition, and (3)
intended to preserve for the Recipient the economic
value of all or a portion of such Acquired Entity
Option, may be granted with such exercise price as
the Committee determines to be necessary to achieve
such preservation of economic value. Any
Non-Qualified Option that is granted to a Recipient
not previously employed by the Company, or a parent
or subsidiary of the Company, as a material
inducement to the Recipient's commencing employment
with the Company may be granted with such exercise
price as the Committee determines to be necessary to
provide such material inducement.
(e) Duration of Option.
(i) Incentive Stock Option. Except as otherwise provided
in Section 6, an Incentive Stock Option shall expire
on the earlier of the tenth anniversary of the Date
of Grant or the date set by the Committee on the Date
of Grant.
(ii) Non-Qualified Stock Option. Except as otherwise
provided in this Section 6, a Non-Qualified Stock
Option shall expire on the tenth anniversary of its
Date of Grant or, at such earlier or later date set
by the Committee on the Date of Grant.
(f) Vesting of Option. Each Option Agreement shall specify the
vesting schedule applicable to the Option. The Committee, in
its sole discretion, may accelerate the vesting of any Option
at any time.
(g) Death. If a Recipient dies, an Option granted to the Recipient
shall expire on the earlier of the one-year anniversary of the
date of the Recipient's death or the date specified in Section
6(e) of the Plan. During the one-year period following the
Recipient's death, the Option may be exercised by the
beneficiary or the estate of the Recipient to the extent it
could have been exercised at the time the Recipient died,
subject to any adjustment under Section 8 of the Plan.
(h) Disability. If the Recipient terminates employment with the
Company because of his Disability, an Option granted to the
Recipient shall expire on the earlier of the one-year
anniversary of the Recipient's last day of employment with the
Company or the date specified in subsection 6(e) of the Plan.
During the one-year period following the Recipient's
termination of employment by reason of Disability, the Option
may be exercised as to the number of Shares for which it could
have been exercised at the time the Recipient became disabled,
subject to any adjustments under Section 8 of the Plan.
(i) Retirement. If the Recipient terminates employment with the
Company by reason of normal retirement under the Company's
retirement policies, an Option granted to the Recipient shall
expire on the earlier of 90 days after the Recipient's last
day of employment or the date specified
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in subsection 6(e) of the Plan. During the 90 day period
following the Recipient's normal retirement, the Option may be
exercised as to the number of Shares for which the Option
would have been exercisable on the retirement date, subject to
any adjustment under Section 8 of the Plan.
(j) Termination of Service. Subject to Section 6(e) of the Plan,
if the Recipient's employment with the Company terminates for
any reason other than death, Disability or retirement, an
Option granted to the Recipient shall expire 30 days after the
Recipient's last day of employment, unless the Committee sets
a later expiration date on the Date of Grant. The Committee
may not delay the expiration of an Incentive Stock Option more
than 90 days after termination of the Recipient's employment.
During any delay of the expiration date, the Option shall be
exercisable only to the extent it is exercisable on the date
the Recipient's employment terminates, subject to any
adjustment under Section 8 of the Plan.
(k) Cause. Notwithstanding any provisions set forth in the Plan,
if the Recipient (i) commits any act of malfeasance or
wrongdoing affecting the Company or any parent or subsidiary,
(ii) breaches any covenant not to compete or employment
agreement with the Company, or (iii) willfully and
continuously fails to perform substantially his duties with
the Company (other than any failure due to the Recipient's
death or Disability), any unexercised portion of the Option
shall expire immediately upon the earlier of the occurrence of
such event or the last day the Recipient is employed by the
Company. No act or failure to act shall be deemed willful
unless the Recipient acts or fails to act not in good faith
and without reasonable belief that his action or failure is in
the best interest of the Company.
(l) Conditions Required for Exercise. An Option is exercisable
only to the extent it is vested according to the terms of the
Option Agreement. Furthermore, an Option is exercisable only
if the issuance of Shares upon exercise would comply with
applicable securities laws. Each Option Agreement shall
specify any additional conditions required for the exercise of
the Option, such as the execution of a Stock Restriction
Agreement by the Recipient in a form specified by the Company.
(m) Ten Percent Shareholders. An Incentive Stock Option granted to
an individual who, on the Date of Grant, owns stock possessing
more than 10 percent of the total combined voting power of all
classes of stock of the Company, shall have an exercise price
of 110 percent of Fair Market Value on the Date of Grant and
shall be exercisable only during the five-year period
immediately following the Date of Grant. For purposes of
calculating stock ownership of any person, the attribution
rules of Code Section 424(d) shall apply, and any stock that
such person may purchase under outstanding options shall not
be considered.
(n) Maximum Option Grants. The aggregate Fair Market Value,
determined on the Date of Grant, of Shares with respect to
which any Incentive Stock Options under the Plan and all other
plans of the Company become exercisable by any individual for
the first time in any calendar year shall not exceed $100,000.
To the extent that any Stock Option exceeds this limit, it
shall be deemed a Non-Qualified Stock Option.
(o) Method of Exercise. An Option shall be deemed exercised when
the person entitled to exercise the Option (i) delivers
written notice to the Secretary of the Company (or his
delegate, in his absence) of the decision to exercise, (ii)
concurrently tenders to the Company full payment for the
Shares to be purchased pursuant to the exercise, and (iii)
complies with any other requirements in the Recipient's Option
Agreement and such other reasonable requirements as the
Committee establishes pursuant to Section 7 of the Plan. The
Committee shall determine the acceptable form of consideration
for exercising an Option, including the method of payment. The
acceptable form of consideration may consist of any
combination of cash, certified check in an amount equal to the
full exercise price, wire transfer or, subject to the approval
of the Committee: (i) pursuant to subsection 6(p) of
the Plan, promissory note; (ii) Shares for which the holder
thereof has good title, free and clear of all liens and
encumbrances, and that such holder either has held for at
least six
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months or has purchased on the open market; (iii) pursuant to
procedures approved by the Committee, through the sale of the
Shares acquired on exercise of the Option through a
broker-dealer to whom the Recipient has submitted an
irrevocable notice of exercise and irrevocable instructions to
deliver promptly to the Company the amount of sale or loan
proceeds sufficient to pay the exercise price, together with,
if requested by the Company, the amount of federal, state,
local or foreign withholding taxes payable by the Recipient by
reason of such exercise, or through simultaneous sale through
a broker of Shares acquired upon exercise. No person shall
have the rights of a shareholder with respect to Shares
subject to an Option until a certificate or certificates for
the Shares have been delivered to him. A partial exercise of
an Option shall not affect the holder's right to exercise the
remainder of the Option from time to time in accordance with
the Plan.
(p) Loan from Company to Exercise Option. The Committee may, in
its discretion and subject to the requirements of applicable
law, recommend to the Company that it lend the Recipient the
funds needed by the Recipient to exercise an Option. The
Recipient shall apply to the Company for the loan, completing
the forms and providing the information required by the
Company. The loan shall be secured by such collateral as the
Company may require, subject to its underwriting requirements
and the requirements of applicable law. The Recipient shall
execute a promissory note and any other documents deemed
necessary by the Company.
(q) Designation of Beneficiary. Each Recipient may file with the
Company a written designation of a beneficiary to receive the
Recipient's Options in the event of the Recipient's death
prior to full exercise of such Options. If the Recipient does
not designate a beneficiary, or if the designated beneficiary
does not survive the Recipient, the Recipient's estate shall
be his beneficiary. Recipients may, by written notice to the
Company, change a beneficiary designation.
(r) Nontransferability of Option.
(i) Except as provided in subsection 6(r)(iii) below,
each Option shall be exercisable only by the
Recipient during the Recipient's lifetime, or, if
permissible under applicable law, by the Recipient's
guardian or legal representative.
(ii) Except as provided in subsection 6(r)(iii) below, no
Option (prior to the time, if applicable, Shares are
issued in respect of such Option), and no right under
any Option, may be assigned, alienated, pledged,
attached, sold or otherwise transferred to encumbered
by a Recipient otherwise than by will or by the laws
of descent and distribution and any such purported
assignment, alienation, pledge, attachment, sale,
transfer or encumbrance shall be void and
unenforceable against the Company; provided, that the
designation of a beneficiary shall not constitute an
assignment, alienation, pledge, attachment, sale,
transfer or encumbrance.
(iii) To the extent and in the manner permitted by
applicable law, and to the extent and in the manner
permitted by the Committee, and subject to such terms
and conditions as may be prescribed by the Committee,
a Recipient may transfer a Non-Qualified Stock Option
to:
(A) a child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former
spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or
sister-in-law of the Recipient (including
adoptive relationships);
(B) any person sharing the Recipient's household
(other than a tenant or employee);
(C) a trust in which persons described in (A)
and (B) have more than 50 percent of the
beneficial interest;
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(D) a foundation in which persons described in
(A) or (B) or the Recipient control the
management of assets; or
(E) any other entity in which the persons
described in (A) or (B) or the Recipient own
more than 50 percent of the voting
interests;
provided such transfer is not for value. The
following shall not be considered transfers for
value: a transfer under a domestic relations order in
settlement of marital property rights, and a transfer
to an entity in which more than 50 percent of the
voting interests are owned by persons described in
(A) above or the Recipient, in exchange for an
interest in such entity.
(s) Change of Control. In the event of a Change of Control, the
portion of an outstanding Option that is not then vested
and/or exercisable shall become fully vested and exercisable
as of the date of such Change of Control. If a Change of
Control occurs, the Committee in its discretion may, at the
time an Option is awarded or at any time thereafter, take
one or more of the following actions: (i) provide for
payment to the Recipient of cash or other property with a
Fair Market Value equal to the amount that would have been
received upon the exercise of the Option had the Option been
exercised or paid upon the Change in Control, (ii) adjust
the terms of the Option in a manner determined by the
Committee to reflect the Change in Control, (iii) cause the
Option to be assumed, or new rights substituted therefor, by
another entity, (iv) make such other provision as the
Committee may consider equitable to Recipients and in the
best interests of the Company, or (v) designate a date when
each outstanding Option, if not exercised, shall terminate;
provided however, that such a date shall not be so
designated unless the Committee provides at least 30 days
advance written notice of the date of termination to each
Recipient. In any such event, all other provisions, terms
and conditions of this Plan shall remain in full force and
effect and the Committee is expressly authorized to take the
action described in the preceding sentence and to amend this
Plan or take such other actions as may be necessary,
appropriate or incidental to the actions described above.
7. Taxes; Compliance with Law; Approval of Regulatory Bodies; Legends.
The Company shall have the right to withhold from payments otherwise
due and owing to the Recipient or his beneficiary or to require the Recipient or
his beneficiary to remit to the Company in cash upon demand an amount sufficient
to satisfy any federal (including FICA and FUTA amounts), state, and/or local
withholding tax requirements at the time the Recipient or his beneficiary
recognizes income for federal, state, and/or local tax purposes with respect to
any Option.
The Board may grant Options and the Company may deliver Shares under
the Plan only in compliance with all applicable federal and state laws and
regulations and the rules of all stock exchanges on which the Company's stock is
listed at any time. An Option is exercisable only if either (i) a registration
statement pertaining to the Shares to be issued upon exercise of the Option has
been filed with and declared effective by the Securities and Exchange Commission
and remains effective on the date of exercise, or (ii) an exemption from the
registration requirements of applicable securities laws is available. The Plan
does not require the Company, however, to file such a registration statement or
to assure the availability of such exemptions. Any certificate issued to
evidence Shares issued under the Plan may bear such legends and statements, and
shall be subject to such transfer restrictions, as the Board deems advisable to
assure compliance with federal and state laws and regulations and with the
requirements of this Section 7. No Option may be exercised, and Shares may not
be issued under the Plan, until the Company has obtained the consent or approval
of every regulatory body, federal or state, having jurisdiction over such
matters as the Board deems advisable.
Each person who acquires the right to exercise an Option or to
ownership of Shares by bequest or inheritance may be required by the Board to
furnish reasonable evidence of ownership of the Option as a condition to his
exercise of the Option or receipt of Shares. In addition, the Board may require
such consents and releases of taxing authorities as the Board deems advisable.
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With respect to persons subject to Section 16 of the 1934 Act,
transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 under the 1934 Act, as such Rule may be amended from
time to time, or its successor under the 1934 Act. To the extent any provision
of the Plan or action by the Board or the Company fails to so comply, it shall
be deemed null and void, to the extent permitted by law and deemed advisable by
the Board.
8. Adjustments.
(a) If a stock dividend, stock split, share combination, exchange
of shares, recapitalization, consolidation, spin-off,
reorganization, or liquidation of or by the Company shall
occur, the Board shall adjust the number and class of Shares
for which Options are authorized to be granted, the number and
class of Shares then subject to Options previously granted,
and the price per Share payable upon exercise of each Option
to the extent the Board deems appropriate to reflect the
applicable transaction.
(b) The Board or the Committee may also adjust the number of
shares subject to outstanding Awards and the exercise price
and the terms of outstanding Awards to take into consideration
material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock
or property or any other event if it is determined by the
Board of the Committee that such adjustment is appropriate to
avoid distortion in the operation of the Plan, provided that
no such adjustment shall be made in the case of an Incentive
Stock Option, without the consent of the Recipient, if it
would constitute a modification, extension or renewal of the
Option within the meaning of Section 424(h) of the Code.
9. Liability of the Company.
The Company shall not be liable to any person for any tax consequences
incurred by a Recipient or other person with respect to an Option.
10. Indemnity of Board or Committee.
The Company hereby indemnifies and holds harmless the members of the
Board or the Committee against all liability and expenses (including reasonable
attorney, paralegal, and professional fees and court costs) arising from any
threatened, pending or completed action, suit, proceeding (including
administrative proceedings or investigations) or appeal, incurred by reason of
the fact that such individual is or was a member of the Board (for the purposes
of administration of the Plan) or the Committee, provided that such individual
(i) acted, in good faith and in a manner he or she reasonably believed to be in,
or not opposed to, the best interests of the Company as well as the Employees,
directors, outside consultants and Recipients, or (ii) with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
11. Amendment and Termination of Plan.
The Board may alter, amend, suspend or terminate the Plan, provided
that no such action shall deprive a Recipient, without his consent, of any
Option granted to the Recipient pursuant to the Plan or of any of his/her rights
under such Option. Notwithstanding the foregoing, no provision herein (including
Section 5(b)) related to automatic grants of Options to non-employee directors
may be amended more frequently than once every six months and no amendment to
such provisions, unless approved by the shareholders of the Company, shall
become effective earlier than six months after Board approval. Except as
provided otherwise in this Section 11, the Board shall obtain shareholder
approval of any amendment of the Plan or any Option to the extent the Board
determines that it is desirable to obtain approval of the Company's
shareholders, to retain eligibility for exemption from the limitations of Code
Section 162(m), to have available the ability for Options to qualify under Code
Section 422 as Incentive Stock Options, to comply with the requirements of any
exchange or quotation system on which the Common Stock is listed or quoted, or
for any other purpose the Board deems appropriate.
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12. Trading Policy Restrictions.
Option exercises under the Plan shall be subject at all times to the
Company's insider trading policy related restrictions, terms and conditions as
may be established by the Board, or any committee thereof, from time to time.
13. Expenses of Plan.
The Company shall bear the expenses of administering the Plan.
14. Duration of Plan.
Options may be granted only during the 10 years immediately following
the original effective date of the Plan.
15. Notices.
All notices to the Company shall be in writing and shall be delivered
to the Secretary of the Company. All notices to a Recipient shall be delivered
personally or mailed to the Recipient at his address appearing in the Company's
personnel records. The address of any person may be changed at any time by
written notice given in accordance with this Section 15.
16. Applicable Law.
The validity, interpretation, and enforcement of the Plan are governed
in all respects by the laws of Delaware and the United States of America.
17. Effective Date.
The effective date of the Plan shall be the earlier of (i) the date on
which the Board adopts the Plan or (ii) the date on which the shareholders
approve the Plan.
Date Plan adopted by Board of Directors: March 20, 2002
(subject to shareholder approval)
Date Plan adopted by Shareholders: _________________________, 2002
-----------------------------------------
Karen Dickey
Secretary
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APPENDIX C
FORM OF
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement") is effective as of
___________________, 2002 by and between Analex Corporation, a Delaware
corporation ("Analex" or the "Surviving Company"), and Hadron, Inc., a New York
corporation ("Hadron" or the "Non-Surviving Company"). Each are sometimes
hereinafter referred to as the "Constituent Companies."
W I T N E S S E T H :
WHEREAS, pursuant to Section 252 of the Delaware General Corporation
Law ("DGCL") and Section 904 of the New York Business Corporation Law ("NYBCL")
the Constituent Companies' respective Bylaws, the Board Directors and
Shareholders of Hadron and the Shareholders and Board of Directors of Analex
have each approved the Merger (as hereinafter defined), whereby Hadron will
merge with and into Analex, upon the terms and subject to the conditions set
forth herein, as evidenced by Minutes of a Meeting of the Board of Directors of
Analex dated __________________, 2002, Minutes of a Meeting of the Stockholders
of Analex dated __________________, Minutes of a Meeting of the Board of
Directors of Hadron and Minutes of a Meeting of the Stockholders of Hadron dated
___________________, 2002;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto have agreed as follows:
ARTICLE I
THE MERGER
1.01 The Merger.
----------
(a) Subject to the terms and conditions of this Agreement, at
the Effective Time (as such term is defined in Section 1.01(b) hereof), Hadron
shall be merged with and into Analex (the "Merger") in accordance with Section
252 of the DGCL and Section 904 of the NYBCL, and the separate corporate
existence of Hadron shall cease to exist and Analex shall continue as the
Surviving Company under the laws of the State of Delaware under the name "Analex
Corporation."
(b) The Surviving Company shall file a duly executed
Certificate of Merger with the Delaware Secretary of State ("DE Certificate of
Merger"). The Non-Surviving Company shall file duly executed Certificate of
Merger with the New York Secretary of State ("NY Certificate of Merger"). The
"Effective Time" of the Merger shall be the later of: (i) the date and time of
acceptance for filing with the Delaware Secretary of State the DE Certificate of
Merger, and (ii) the date and time of acceptance for filing with the New York
Secretary of State the NY Certificate of Merger.
(c) At the Effective Time, the Surviving Company shall
thereupon and thereafter possess all of the rights, privileges, powers and
franchises, both of a public and private nature, of each of the Constituent
Companies, and shall be subject to all of the restrictions, disabilities and
duties of each of the Constituent Companies; and all of the rights, privileges,
powers and franchises of each of the Constituent Companies, and all property
(real, personal and mixed), and all debts due to either of the Constituent
Companies on whatever account, for stock subscriptions as well as all other
things in action or belonging to each of the Constituent Companies, shall be
vested in the Surviving Company; and all property, rights, privileges, powers
and franchises and all and every other interest shall thereafter be the property
of the Surviving Company as they were of the several and respective Constituent
Companies; but all rights of creditors and all liens upon any property of either
of the Constituent
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Companies shall be preserved unimpaired, and all debts, liabilities and duties
of each of the Constituent Companies shall thenceforth attach to the Surviving
Company, and may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by the Surviving Company.
1.02 Conversion of Shares of Common Stock. Immediately at the Effective
------------------------------------
Time, each of the issued and outstanding shares of Common Stock of the
Non-Surviving Company shall be converted into the same number of shares of
Common Stock of the Surviving Company pursuant to the Merger.
1.03 Certificate of Incorporation of the Surviving Company. The
-----------------------------------------------------
Certificate of Incorporation of the Surviving Company in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Company and the Non-Surviving Company until otherwise amended or
repealed.
1.04 Bylaws of the Surviving Company. The Bylaws of the Surviving
-------------------------------
Company shall be the Bylaws of the Surviving and Non-Surviving Company until
otherwise amended or repealed.
1.05 Board of Directors of the Non-Surviving Company. The Board of
-----------------------------------------------
Directors of the Non-Surviving Company in office immediately prior to the
Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the Board of Directors of the Surviving Company from and
after the Effective Time in accordance with the Bylaws of the Surviving Company.
1.06 Tax Treatment of the Merger. It is intended by the parties hereto
---------------------------
that the Merger shall constitute a reorganization of the Surviving and the
Non-Surviving Company within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended.
ARTICLE II
SHARES OF STOCK
2.01 Authorized Shares of Hadron and Analex. The authorized capital
--------------------------------------
stock of Hadron consists of Twenty Million (20,000,000) shares of common stock
with a par value of $0.02 per share, and no shares of preferred stock. The
authorized capital stock of Analex consists of Thirty-Five Million (35,000,000)
shares consisting of Thirty Million (30,000,000) shares of common stock with a
par value of $0.02 per share, and Five Million (5,000,000) shares of preferred
stock with a par value of $0.02 per share.
2.02 Conversion of Shares of Stock. At the Effective Time, pursuant to
-----------------------------
the Merger, each stockholder of the Non-Surviving Company shall automatically
become a stockholder of the Surviving Company and each share of common stock in
the Non-Surviving Company shall be converted into the same number of shares of
common stock in the Surviving Company.
ARTICLE III
MISCELLANEOUS
3.01 Fees and Expenses. Whether or not the Merger is consummated, the
-----------------
Surviving Company shall pay the costs and expenses incident to the preparation
of this Agreement, the consummation of the Merger, and the performance of and
compliance with all of the agreements and conditions contained herein.
3.02 Notices. All notices, requests, demands, waivers and other
-------
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed by overnight delivery service or by first class mail postage prepaid,
or sent by telecopier, to the parties at the following addresses (or at such
other address of a party as shall be specified by like notice) as follows:
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(a) if to the Non-Surviving Company at:
Hadron, Inc.
5904 Richmond Highway
Suite 300
Alexandria, VA 22303
Attention: President
(b) if to the Surviving Company at:
Analex Corporation
5904 Richmond Highway
Suite 300
Alexandria, VA 22303
Attention: President
3.03 Binding Effect; Benefit. This Agreement shall inure to the benefit
-----------------------
of and be binding upon the parties hereto and their respective successors and
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other party. Nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto or
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
3.04 Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may be amended, modified and supplemented in any and all respects by
written agreement of the directors and shareholders of the Surviving Company and
the directors and shareholders of the Non-Surviving Company at any time prior to
the Effective Time with respect to any of the terms contained herein.
3.05 Section Headings. The Section headings contained in this
----------------
Agreement are inserted for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
3.06 Applicable Law. This Agreement and the legal relations among the
--------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of Delaware without regard to the conflict of laws principles or rules
thereof.
3.07 Integration. This Agreement sets forth and is intended to be an
-----------
integration of all of the promises, agreements, conditions, understandings,
covenants, warranties and representations among the parties with respect to the
Merger and there are no promises, agreements, conditions, understandings,
covenants, warranties or representations, oral or written, express or implied,
among the parties with respect to the transactions contemplated other than as
set forth herein. Any and all prior agreements among the parties with respect to
the Merger are hereby revoked.
IN WITNESS WHEREOF, the parties hereto have executed this Merger
Agreement effective as of the date first written.
HADRON, INC.
a New York Corporation
By:
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Sterling E. Phillips, Jr.
Chairman and Chief Executive Officer
C-3
ANALEX CORPORATION
a Delaware Corporation
By:
------------------------------------
Sterling E. Phillips, Jr.
Chairman and Chief Executive Officer
C-4
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HADRON, INC.
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 21, 2002
The undersigned appoints Sterling E. Phillips, Jr. and Karen L. Dickey,
or either of them, with full power of substitution, to attend the Annual Meeting
of Shareholders of Hadron, Inc. on May 21, 2002, and any adjournments thereof,
and to vote all shares which the undersigned would be entitled to vote if
personally present upon the following matters set forth in the Notice of Annual
Meeting and Proxy Statement:
1. ELECTION OF DIRECTORS
[_] FOR the EIGHT nominees listed below (except as marked to the contrary below)
[_] WITHHOLD AUTHORITY to vote for the EIGHT nominees listed below
Jon M. Stout, C.W. Gilluly, Gerald R. McNichols,
John D. Sanders, Sterling E. Phillips, Jr., Shawna Stout,
Peter C. Belford, Sr. and Gerald R. Young
INSTRUCTION: To withhold authority for any individual nominee, write that nominee's name in the space
provided below:
- ----------------------------------------------------------------------------------------------------
2. Proposal to approve the Hadron, Inc. 2002 Stock Option Plan.
[_] FOR this proposal
[_] AGAINST this proposal
[_] ABSTAIN
3. Proposal to approve a proposed name change of the Company to Analex Corporation.
[_] FOR this proposal
[_] AGAINST this proposal
[_] ABSTAIN
4. Proposal to approve a proposed change in the state of incorporation of the Company
from New York to Delaware.
[_] FOR this proposal
[_] AGAINST this proposal
[_] ABSTAIN
5. Proposal to increase the number of authorized Common Stock to 30,000,000 and to
add a class of Preferred Stock.
[_] FOR this proposal
[_] AGAINST this proposal
[_] ABSTAIN
6. Proposal to ratify the appointment of Ernst & Young LLP as the Company's independent auditors
for the fiscal year 2002.
[_] FOR this proposal
[_] AGAINST this proposal
[_] ABSTAIN
7. In their discretion, upon such other business as may properly come
before the meeting and any adjournments thereof.
This Proxy when properly executed will be voted as directed. If no
direction is indicated, this Proxy will be voted FOR the election of the eight
named individuals as directors, FOR the 2002 Stock Option Plan, FOR the proposed
name change, FOR the Reincorporation, FOR the increase in the Common Stock and
to add a class of Preferred Stock, and FOR the ratification of Ernst & Young LLP
as the Company's independent auditors for the fiscal year 2002.
PLEASE DATE, SIGN AND RETURN
PROXY PROMPTLY
Receipt of Notice of Annual
Meeting and Proxy Statement
is hereby acknowledged
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Shareholder's Signature
-----------------------------------------
Joint Holder's Signature (If applicable)
Date:
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