SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF
THE SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
/X / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14C-5(D)(2))
/ / Definitive Information Statement
TECHNEST HOLDINGS, INC.
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(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
/ / No Fee required.
/X / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
Not applicable
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2) Aggregate number of securities to which transaction applies:
Not applicable
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
Not applicable
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4) Proposed maximum aggregate value of transaction:
$229,520
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5) Total fee paid:
$46
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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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* Set forth the amount on which the filing fee is calculated and state how it
was determined.
TECHNEST HOLDINGS, INC.
90 Grove Street, Suite 205
Ridgefield, CT 06778
(203) 431-1611
INFORMATION STATEMENT
INTRODUCTION
This information statement is being mailed or otherwise furnished to
stockholders of TECHNEST HOLDINGS, INC., a Nevada corporation, in connection
with certain stockholder actions taken by written consent of the holders of a
majority of our outstanding shares of common stock of record as of October 31,
2002 to:
(1) elect Michael Sheppard and Mark Allen as directors of our
Corporation for a term continuing until the next annual
meeting of our stockholders until his successor is duly
elected and qualified;
(2) ratify the appointment of Sherb & Co. LLP as our independent
auditors for the fiscal year ended December 31, 2002;
(3) approve the withdrawal of our election to be treated as a
business development company under the Investment Company Act
of 1940, subject to the right of the Board of Directors to
choose not to effectuate such withdrawal;
(4) authorize the Board of Directors, in its discretion, to sell
all or any part of the securities held by us in various
companies or borrow funds, repayment of which is secured by
all or any part of those portfolio securities, or any
combination of such sales or borrowings; and
(5) authorize the Board of Directors, in its discretion, to
effectuate a reverse split of our common stock, $.001 par
value, where a number of such shares, (but not more than 100),
issued and outstanding as of the date of the stock split will
be reclassified as and converted into one (1) share of common
stock immediately following the such reverse stock split.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY
Our board of directors nominated Mr. Mark Allen and Mr. Michael
Sheppard to serve as directors and approved or recommended all of the other
actions referred to above on October 31, 2002 and recommended that the same be
adopted and approved by our stockholders.
Each of the actions referred to above requires the approval of holders
of a majority of the outstanding shares of our Common Stock. Under the Private
Corporations Law of the state of Nevada, we are permitted to obtain such
approval by written consent of the holders of outstanding shares of voting
capital stock having not less than the minimum number of votes that would be
necessary to approve such action at a meeting at which all shares entitled to
vote thereon were present and voted.
In order to eliminate the costs of and time involved in holding a
special annual meeting of our stockholders, we have obtained the written consent
of Greenfield Investment Consultants, Greenfield Capital Partners, Southshore
Capital Fund Ltd and Garth LLC. As of October 30, 2002, they owned in the
aggregate 21,312,405 shares of our common stock, representing approximately
50.34% of our outstanding common stock as of that date. Their holdings represent
more than the minimum number of votes needed to approve each of the actions
referred to above.
The election of Michael Sheppard and Mark Allen as directors, the
ratification of Sherb & Co. LLP as our independent auditors and the
authorizations given to the Board of Directors will become effective twenty (20)
days after the first mailing of this Information Statement to our stockholders.
Such mailing is expected to take place on or about December 3, 2002.
The withdrawal of our election to be a business development company
will be effective upon filing of a Form N-54C with the Securities and Exchange
Commission, which filing is currently expected to be made twenty (20) days after
the first mailing of this Information Statement to our stockholders.
The reverse split, if any, will be effective on the date determined by
the resolution of the Board of Directors. Such effective date will not occur
before twenty (20) days after the first mailing of this Information Statement to
our stockholders.
The sale of any of the portfolio securities pursuant to the
stockholders' resolution will not be consummated before twenty (20) days after
the first mailing of this Information Statement to our stockholders.
Our board of directors has fixed the close of business on October 31,
2002 as the record date for the determination of stockholders who are entitled
to give consent and receive this information statement.
All expenses incurred in connection with the preparation and mailing of
this Information Statement will be borne by the Company. This Information
Statement is prepared and distributed by the Company.
This information statement is being sent to stockholders on or about
December 3, 2002
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY
The date of this information statement is December 3, 2002
ANNUAL REPORT
Our Annual Report for the fiscal year ended December 31, 2001 on Form
10-KSB and the Company's Quarterly Reports for the fiscal quarters ended March
31, 2002 and June 30, 2002, respectively, were previously filed with the SEC and
are available on the SEC's EDGAR (Electronic Data Gathering and Retrieval)
system at www.sec.gov. A copy of the Annual Report is enclosed with this
Information Statement.
We will provide additional copies of the Annual and Quarterly
Reports to stockholders upon written request sent to Investor Relations Dept.,
Technest Holdings, Inc., 90 Grove Street, Suite 205, Ridgefield, CT 06877. We
will provide only a listing of exhibits, if any, to these reports. We will
provide copies of specific exhibits requested by stockholders upon payment of
our copying and mailing expenses for those exhibits.
DIRECTORS, EXECUTIVES OFFICERS AND CONTROL PERSONS
Board of Directors and Executive Officers
As of the date of this Information Statement, the directors and
executive officers for the Company are as follows:
Name Age Position
---------------- --- ------------------
Michael Sheppard 52 President, Director
Jose Auffant 33 Secretary/Treasurer
Mark Allen 47 Director
The current terms of the directors, Michael Sheppard and Mark Allen,
will expire when the election of the directors referred to in this Information
Statement is effective.
The new terms of Michael Sheppard and Mark Allen as directors expire at
the next annual stockholders meeting or when their respective successors are
duly qualified and elected. For additional information regarding the persons
nominated to serve as directors, please see the section "ELECTION OF DIRECTORS"
below.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of October 31, 2002, certain
information with respect to (1) each person or entity who is known by our
management to be the beneficial owner of more than 5% of our outstanding shares
of Common Stock, (2) each of our directors and (3) all applicable directors and
executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and unless otherwise indicated, the persons
named in the table have sole voting and investment power with respect to the
shares beneficially owned by them.
Shares Percent of
Name and Address Beneficially Shares Beneficially
Of Beneficial Owner Owned Owned
- ------------------------ ------------------- ------------------------
Michael Sheppard (1) (6) 444,584* *
90 Grove Street, Suite 205
Ridgefield, CT 06877
Mark Allen (2) 0 *
91 French Avenue
Braintree, MA 02184
Jose Auffant (3) 0 *
c/o Technest Holdings, Inc.
90 Grove Street, Suite 205
Ridgefield, CT 06778
Greenfield Investment
Consultants (4) 12,605,370 29.77%
1300 W. Belmont
Suite 210
Chicago, IL 60657
The Four Life Trust 11,572,943 27.34%
c/o City Trust
3rd Floor, Murdoch House
South Quay, Douglas, Isle of Man
Garth LLC (5) 5,599,744 13.23%
Harbour House, Waterfront Drive
P.O. Box 972
Road Town, Tortola BVI
Southshore Capital Fund Ltd (5) 3,107,291 7.34%
Bahamas Financial Centre
Shirley & Charlotte Streets
P.O. Box CB-13136
Nassau, Bahamas
The Rearden Trust 2,375,685 5.61%
c/o City Trust
3rd. Floor, Murdoch House
South Quay, Douglas, Isle of Man
All directors and
executive officers as a group (6) 444,584* *
* Denotes beneficial ownership of less than 1%.
(1) Mr. Sheppard is a director and president of the Company.
(2) Mr. Allen is a director of the Company.
(3) Mr. Auffant is secretary/treasurer of the Company.
(4) Includes 400,000 shares held by an affiliate, Greenfield Capital Partners.
(5) Garth LLC and Southshore Capital Fund Ltd may be considered to be
affiliates.
(6) Includes 3,768 shares held by Mr. Sheppard and options to purchase 440,816
shares held by Mr. Sheppard. 63,753 of these options expire December 31,
2002, and the balance expire December 31, 2005.
EXECUTIVE COMPENSATION
As of the date of this Information Statement, there are two executive
officers of the Company.
Mr. Sheppard is a paid employee at a base salary of $ 150,000.00. Mr.
Sheppard is party to an employment agreement with the Company.
Jose A. Auffant is the Secretary/Treasurer of the Company. Mr. Auffant has
no employment contract with and receives no compensation from the Company. He is
an employee of Corpfin.com, Inc., an affiliate of The Rearden Trust, one of the
Company's stockholders.
Officers and directors of the Company are reimbursed for any out-of-pocket
expenses incurred by them on behalf of the Company.
The Company has a qualified employee stock option plan (ESOP), in which Mr.
Sheppard, as an employee, participates. Other than this plan, the Company
currently has no pension, profit sharing or similar benefit plans.
CERTAIN TRANSACTIONS
In June 2002, the Company sold a portion of its holdings of restricted
securities in one corporation and all of its holdings of restricted securities
in another corporation, all of which were restricted securities limiting the
Company's ability to sell such shares in the open market, for $50,000 to
Flamboro Court LLC, which may be considered an affiliate of Southshore Capital
Fund Ltd. and of Garth LLC, two of the Company's stockholders. These shares
represented a significant portion of the Company's portfolio holdings at that
time.
The Company anticipated obtaining additional funding subsequent to the
June sale, but was not successful in this endeavor. Accordingly, in August 2002,
with the approval of the Board of Directors, the Company sold all of its
holdings of restricted securities in 3 corporations (including the balance of
its holdings in one of the corporations from the June sale), for an additional
$50,000 to Flamboro Court LLC. As of immediately before the closing of the
August transaction, these holdings represented approximately 68% of the entire
portfolio of the Company's holdings of restricted securities. This sale has been
ratified by stockholders, including Southshore and Garth, holding a majority in
interest of the outstanding shares of the Company.
As of the date of this Information Statement, the Company has not
entered into any contractual arrangements with related parties. There is not any
currently proposed transaction, or series of the same to which the Company is
party, in which the amount involved exceeds $60,000 and in which, to the
knowledge of the Company, any director, executive officer, nominee, 5%
stockholder or any member of the immediate family of the foregoing persons, have
or will have a direct or indirect material interest.
The officers and directors of the Company are engaged in other
businesses, either individually or through partnerships and corporations in
which they may have an interest, hold an office or serve on the boards of
directors. The directors of the Company may have other business interests to
which they may devote a major or significant portion of their time. Certain
conflicts of interest, therefore, may arise between the Company and its
directors. Such conflicts can be resolved through the exercise by the directors
of judgment consistent with their fiduciary duties to the Company. The officers
and directors of the Company intend to resolve such conflicts in the best
interests of the Company. The officers and directors will devote their time to
the affairs of the Company as necessary.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and the persons who beneficially own more than 10% of the common stock
of the Company, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Copies of all filed reports are required to
be furnished to the Company pursuant to Rule 16a-3 promulgated under the
Exchange Act. Based solely on the reports received by the Company and on the
representations of the reporting persons, the Company believes that all these
persons are currently in compliance with all applicable filing requirements.
INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED UPON
As of the date of this Information Statement, no person who has been a
director or an officer of the Company at any time since the beginning of the
fiscal year ended December 31, 2001 or who is a nominee for election as a
director (or who is an associate of any of those persons) has a substantial
interest, direct or indirect, by security holdings or otherwise, in the matters
being acted upon (other than the election of directors).
As of the date of this Information Statement, no director has informed
the Company in writing that he intends to oppose any action to be taken by the
Company referred to in this Information Statement.
The following is a summary of actions to be taken by the Company and is
not meant to be complete and exhaustive. The stockholders are encouraged to read
the attached Information Statement for further information regarding the
actions.
1. ELECTION OF DIRECTORS
Michael Sheppard and Mark Allen were nominated by the Board of
Directors to continue to serve as directors of the Company. The majority
stockholders approved their elections as directors, thereby electing each of
them to serve in that capacity until the next annual meeting of stockholders and
until his successor is duly elected and qualified. Biographical information on
the nominees is set forth below.
Mr. Michael Sheppard
Mr. Sheppard, age 52, joined Technest Holdings, Inc., F/K/A Financial
Intranet, Inc. as a consultant in February 1997 and became President, Chief
Operating Officer and Director in April 1997. Mr. Sheppard has been involved in
setting up the corporate infrastructure of several early/development stage
companies and undertaking their day-to-day operations as chief executive and
chief operating officer. From January 1996 through January 1997, Mr. Sheppard
was the Chief Operating Officer of Freelinq Communications, which was based in
New York City. Freelinq developed a platform, which offered real time
video-on-demand via an ATM/XDSL technology with high-speed Internet
transmission. These videos were advertiser supported free theatrical films
delivered the last mile through twisted pair telephone lines. Prior to this he
set up a laser development and transmission company.
Mr. Mark Allen
Mr. Allen, age 47, is currently the President and founder of True to Form
Lighting, a niche lighting/architectural products manufacturer. Mr. Allen was
appointed to the Board of Technest in April 2002. Mr. Allen's initial career was
in the stock brokerage/investment banking industry where he worked for Shearson
Lehman/American Express, Paine Webber and A.G. Edwards. In the early 1990's he
was Vice President of Corporate Finance and Director of Private Placements of
H.J. Myers & Co., an investment-banking firm, where he managed over 20 public
equity offerings and established the Private Placements Department. In addition
to Technest, Mr. Allen serves on the board of directors of several other
corporations.
2. RATIFICATION OF APPOINTMENT OF SHERB & CO. LLP
AS INDEPENDENT AUDITORS
The Board of Directors recommended the retention of Sherb & Co. LLP as
independent auditors of the Company for the fiscal year ended December 31, 2002.
The majority stockholders have ratified such designation.
3. WITHDRAWAL OF ELECTION TO BE A BUSINESS DEVELOPMENT COMPANY UNDER THE
INVESTMENT COMPANY ACT OF 1940
The Board of Directors recommended that the stockholders approve the
withdrawal of the Company's election to be a business development company under
the Investment Company Act of 1940.
This recommendation was made in light of the current business plan of
the Company. The Company expects to act as a holding company to acquire
controlling or other interests in one or more companies involved in developing
products or services. The principal objective of the Company will be to acquire
one or more operating companies. In connection with such change in the nature of
the Company's business, the Company will cease being a business development
company.
The majority stockholders adopted a resolution authorizing the
withdrawal of the election to be a business development company under the
Investment Company Act of 1940, subject to the determination of the Board of
Directors not to withdraw such election.
The withdrawal election will be effective upon the filing with the SEC
of a Notification of Withdrawal of Election on Form N-54C. Such filing will not
take place before 20 days from the first mailing of this Information Statement
to stockholders.
4. SALE OF ALL OR ANY PART OF THE SECURITIES HELD IN VARIOUS COMPANIES OR
BORROWING FUNDS, REPAYMENT OF WHICH IS SECURED BY ALL OR ANY PART OF SUCH
SECURITIES, OR ANY COMBINATION THEREOF
The Company anticipates it will need available capital to effectuate
its current business plan. To fund future operations and activities of the
Company, the Board of Directors recommended that the stockholders allow the
Company, at any time or from time, to sell all or any part of the securities
portfolio held by us in various companies or to borrow funds, repayment of which
is secured by all or any part of those portfolio securities, or any combination
of such sales of borrowings.
The majority stockholders adopted a resolution authorizing, in the
discretion of the Board of Directors, the sale of all or any of the securities
portfolio or the borrowing of funds by the Company, repayment of which is
secured by all or any part of those portfolio securities, or any combination of
such sales or borrowings.
As noted above, in June 2002 and August 2002 the Company sold all of
its holdings in 4 corporations, all of which were restricted securities limiting
the Company's ability to sell such shares in the open market, for an aggregate
of $100,000 to Flamboro Court LLC, which may be considered an affiliate of
Southshore Capital Fund Ltd. and of Garth LLC, two of the Company's
stockholders. The holdings sold in August 2002 represented, as of immediately
before the closing of that transaction, approximately 68% of the entire
portfolio of the Company's holdings. That sale has been ratified by
stockholders, including Southshore and Garth, holding a majority in interest of
the outstanding shares of the Company.
5. AUTHORIZATION OF REVERSE STOCK SPLIT AND AMENDMENT TO CERTIFICATE OF
INCORPORATION, AS AMENDED, TO EFFECT SUCH REVERSE STOCK SPLIT
On October 31, 2002, our Board of Directors voted unanimously to
authorize and recommend that our stockholders approve a proposal giving the
Board of Directors authority, in its discretion, to effect a reverse stock split
where a specified number of shares of our outstanding common stock (but not more
than 100 shares) would be reclassified as and converted into one (1) share of
common stock immediately following the such reverse stock split.
The majority stockholders adopted a resolution giving the Board of
Directors, in its discretion, the authority to effect such reverse stock split
and to set the effective date of the reverse split.
Pursuant to the reverse stock split, if any, each specified number of
the outstanding shares of our common stock on the date of the reverse stock
split will be automatically converted into one (1) share of our common stock
after the split. The reverse split will not alter the number of shares of our
common stock we are authorized to issue or change the par value of our shares,
but will reduce the number of shares of our common stock issued and outstanding.
The reverse stock split, if any, will become effective upon filing on the date
determined by the Board of Directors.
Purpose and Effect of Reverse Stock Split
The purpose of the reverse stock split is to provide us with the
ability to issue shares in connection with business transactions with merger or
strategic partners or other investors. In the absence of the reverse split or
another increase in the authorized but unissued shares of the Company, we would
not be able to issue shares in connection with such business transactions.
The effect of the reverse stock split, if any, upon the market price
for our common stock cannot be predicted. There can be no assurance that the
market price per post-split share of our common stock after the reverse stock
split will rise in proportion to the reduction in the number of old shares of
our common stock outstanding resulting from the reverse stock split.
The market price of our Common Stock may also be based on our
performance and other factors, some of which may be unrelated to the number of
shares outstanding.
The reverse stock split, if any, will affect all of our stockholders
uniformly and will not affect any stockholder's percentage ownership interests
in us or proportionate voting power, except to the extent that the reverse stock
split results in any of our stockholders owning a fractional share. In lieu of
issuing fractional shares, we will issue any stockholder who otherwise would
have been entitled to receive a fractional share as a result of the reverse
stock split one share of our common stock. The reverse stock split may result in
certain of our stockholders owning "odd lots" (i.e., a number of shares of our
common stock not divisible by 100). Stockholders owning "odd lots" may
experience difficulty selling their shares in the open market.
The reverse stock split, if any, will have the following effects upon
the number of shares of our common stock outstanding and the number of
authorized and unissued shares of our common stock:
o The number of shares owned by each holder of common stock will
be reduced; the exact ration will be based on the ratio
determined by the Board of Directors (for example, if the
reverse stock split is 1 for 10, then the ratio will be ten
(10) to one (1), and a stockholder currently holding 100
shares of common stock immediately before the effective date
of the reverse split will be holding 10 shares after the
reverse split is effective);
o The number of shares of common stock we are authorized to
issue will remain the same;
o The par value of the shares of Common Stock we are authorized
to issue will remain the same; and
o All outstanding options entitling the holders thereof to
purchase shares of Common Stock will enable such holders to
purchase, upon exercise of their options, a percentage (which
will be based on the ratio of the reverse stock split) of the
number of shares of common stock which such holders would have
been able to purchase upon exercise of their options
immediately preceding the reverse stock split at the same
aggregate price required to be paid therefor upon exercise
thereof immediately preceding the reverse stock split (for
example, if the reverse stock split is 1 for 10, then an
option to purchase 100,000 shares at $1.00 each will be deemed
to be an option to purchase 10,000 shares for $10.00 each)
Manner of Effecting the Reverse Stock Split
The reverse stock split, if any, will be effected by resolution of the
Board of Directors. The reverse stock split will become effective on the date
determined by the Board of Directors. As soon as practicable after the effective
date, we will send a letter of transmittal to each holder of record of pre-split
shares outstanding on the effective date. The letter of transmittal will contain
instructions for the surrender of certificates representing the pre-split
shares. Upon proper completion and execution of the letter of transmittal and
return thereof, together with certificates representing the pre-split shares, a
stockholder will be entitled to receive a certificate representing the number of
post-split shares into which those pre-split shares have been reclassified as a
result of the reverse stock split. Stockholders should not submit any
certificates until requested to do so. No new certificate will be issued to a
stockholder until such stockholder has surrendered his outstanding certificates,
together with the properly completed and executed letter of transmittal. Until
so surrendered, each outstanding certificate representing the pre-split shares
will be deemed for all corporate purposes after the effective date to evidence
ownership of the post-split shares in the appropriately reduced number.
No Rights of Appraisal
Under the laws of the State of Nevada, stockholders are not entitled to
appraisal rights with respect to the reverse stock split, and we will not
independently provide stockholders with any such right.
Vote Required
The reverse split requires the approval of the holders of a majority of
the outstanding shares of our Common Stock on the record date. Holders of our
Common Stock are entitled to one vote per share on all matters submitted to a
vote. The holders of a majority of our outstanding shares of Common Stock have
already consented in writing to such reverse split as determined by the Board of
Directors.
Certain Federal Income Tax Consequences of the Reverse Stock Split
The following is a summary of certain material federal income tax
consequences of the reverse stock split, if any, and does not purport to be a
complete discussion of all of the possible federal income tax consequences of
the reverse stock split. It does not discuss any state, local, foreign or
minimum income or other U.S. federal tax consequences. Also, it does not address
the tax consequences to stockholders who are subject to special tax rules, such
as banks, insurance companies, regulated investment companies, personal holding
companies, foreign entities, non resident alien individuals, broker-dealers and
tax-exempt entities. The discussion is based on the provisions of the United
States federal income tax law as of the date hereof, which is subject to change
retroactively as well as prospectively. This summary also assumes that the
pre-split shares were, and the post-split shares will be, held as a "capital
asset," as defined in the Internal Revenue Code of 1986, as amended (generally,
property held for investment). The tax treatment of a stockholder may vary
depending upon the particular facts and circumstances of such stockholder.
EACH STOCKHOLDER SHOULD CONSULT WITH SUCH STOCKHOLDER'S OWN TAX ADVISOR
WITH RESPECT TO THE CONSEQUENCES OF THE REVERSE STOCK SPLIT.
No gain or loss should be recognized by a stockholder of the Company
upon such stockholder's exchange of pre-split shares for post-split shares
pursuant to the reverse stock split. The aggregate tax basis of the post-split
shares received in the reverse stock split will be the same as the stockholder's
aggregate tax basis in the pre-split shares exchanged for them. The
stockholder's holding period for the post-split shares will include the period
during which the stockholder held the pre-split shares surrendered in the
reverse stock split.
By Order of the Board of Directors
By: /s/Michael Sheppard
Michael Sheppard
President
November 26, 2002
New York, New York