Re: ALYD 10-K - Part 4
PART III
Item 10. Directors and Executive Officers of the Registrant and Compliance with Section 16(a)
Directors and Executive Officers Age Position
Robert F. Gruder 39 Chief Executive Officer, President
and Chairman of the Board
V. Hollis Scott 51 Chief Financial Officer, Secretary
and Director
Frank G. Milligan 57 Chief Operating Officer
Thomas J. Dudchik 38 Senior Vice President and Director
James F. Helm 56 Chief Information Officer
J. Alex McMillan 65 Director
John McCarthy 58 Director
Directors are elected to serve until the next annual meeting of shareholders of the Company or until their successors are elected and qualified. The Board of Directors held three meetings during the calendar year 1997 and also met informally and acted by written consent during the year. Officers serve at the discretion of the Board of Directors subject to any contracts of employment. At the present time there are no contracts.
Robert F. Gruder has served as Chief Executive Officer, President and Chairman of the Board of Directors since 1989, when the Company was first acquired. Prior to his association with the Company and for three years, Mr. Gruder served as president of GEM Technologies, Inc. ("GEM"), a company which was engaged in developing a computer language compiler. GEM filed for bankruptcy
in 1992 pursuant to Chapter 7 of the Bankruptcy Code. Mr. Gruder was the principal stockholder of GEM. Prior to Mr. Gruder's association with GEM, he was employed at three different banks. Mr. Gruder is a graduate of American University and holds a BS degree in finance.
V. Hollis Scott has served as Chief Financial Officer, Secretary and Director since January 1996. Prior to January 1996 and from November 1988, Mr. Scott served as Senior Vice President and Treasurer of the Cato Corporation, a publicly held 600-store ladies' apparel retailer. Before 1988, he held senior financial management positions with a cable television operator and with a department store chain. Prior to that, he was employed with Ernst & Young. Mr. Scott is a graduate of the University of Virginia and is a licensed certified public accountant.
Frank G. Milligan joined the Company as Chief Operating Officer in December 1996. Between 1963 and December 1996, Mr. Milligan was employed by IBM. He served as a senior manager with various management responsibilities in development and systems integration and general business management. Mr. Milligan attended the University of Tennessee, where he received BS and MS degrees in electrical engineering.
Thomas J. Dudchik joined the Company as Senior Vice President in February 1996. He is responsible for all national and international marketing and investor relations. Prior to joining the Company, Mr. Dudchik served as Deputy Chief of Staff for Connecticut Governor Lowell P. Weicker, Jr. from January 1993 through January 1995. As part of his responsibilities, Mr. Dudchik administered the State of Connecticut's $10 billion annual budget for the 26 major state agencies, covering 50,000 state employees. From February 1991 through December 1992, Mr. Dudchik served as Deputy Commissioner of the Connecticut Department of Environmental Protection. From February 1995 through January 1996 he operated an advertising and sales promotion business. Mr. Dudchik received a BA degree from Trinity College.
James F. Helm joined the Company in April 1996. Mr. Helm serves as Chief Information Officer for Information Technology. Prior to joining the Company, Mr. Helm acted as an independent consultant to various companies between 1994 and 1996. Prior to that, he was employed by Formula Consultants, Inc. from June 1992 to May 1994 in various management positions and acted as consultant to that company from February through May of 1992. From 1969 to October 1991, Mr. Helm held various management positions with Unisys Corporation ("Unisys"). His last position with Unisys was Vice President of Customer Services.
J. Alex McMillan was elected a Director of the Company effective March 19, 1997. Mr. McMillan is currently employed with The McMillan Group, merchant bankers and consultants. Between April 1, 1997 through December 31, 1997, Mr. McMillan was retained by the Company to act as an independent consultant to assist the Company in developing government contracts. (See "Certain Relationships and Related Transactions".) From 1985 through 1994 Mr. McMillan served in the US House of Representatives, representing the 9th Congressional District for the State of North Carolina. While a member of Congress, Mr. McMillan served on various committees, including Energy and Commerce, Budget, Bank and Small Business. From 1976 through 1983, Mr. McMillan was President and Chief Executive Officer of Harris Teeter Supermarkets, Inc., a regional chain of supermarkets owned by the Ruddick Corporation. Mr. McMillan currently serves as a Director of Interstate/Johnson Lane, Inc., and Scottish Bank of Charlotte, North Carolina, both publicly held companies. Mr. McMillan holds an MBA from the Darden School, University of Virginia.
John McCarthy was appointed to serve as a Director in August 1997. For approximately 31 years, Mr. McCarthy has been employed in the brokerage business in the data processing area. He has held management positions in various brokerage firms. From 1993 until December 1997, he was employed with Smith Barney & Co. as Senior Vice President and Year 2000 Project Director.
Messrs. McMillan, McCarthy and Scott currently serve on the Company's Audit Committee, which committee is charged with, among other things, the review with the Company's auditors of the general scope of the Company's annual audit; a review of the annual audit and the auditor's report on the adequacy of internal controls and other findings; review of the auditor's management letter; and the implementation of any corrective measures, if so required.
Messrs. McMillan, McCarthy and Gruder currently serve on the Company's Compensation Committee, which committee is charged with the review of officers' compensation, bonuses and the granting of stock options.
The Company's outside directors, upon their appointment to the Board, were given an award of 15,000 warrants each. The warrants are only exercisable one year from the date of the grant at the fair market price of the Company's Common Stock on the date of grant. The options will expire in 2007. The outside directors do not receive any compensation for their attendance at meetings.
Based solely on review of the copies of such forms furnished to the Company or written representations that no forms 5 were required, the Company believes that during the year ended December 31, 1997 all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were complied with.
Item 11. Executive Compensation
The following tables set forth information with respect to compensation paid by the Company for the services to the Company during the three years ended December 31, 1997 by the Company's Chief Executive Officer. No other officer receives compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Securities
Annual Stock Underlying LTIP All Other
Compen- Awarded Options/ Payouts Compen-
Name and Principal Position Year Salary($) Bonus($) sation ($) ($) SARs (#) ($) sation ($)
--------------------------- ---- --------- -------- ---------- ----- -------- ----- ----------
Robert F. Gruder 1997 60,000 -0- -0- -0- 2,000 1 -0- -0-
Chief Executive Officer 1996 60,000 -0- -0- -0- -0- -0- -0-
1995 60,000 -0- -0- -0- -0- -0- -0-
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1 Mr. Gruder was granted 2,000 incentive stock options under the 1994 Plan on April 24, 1997. The options are exercisable at $8.80 per share. 1,000 options vest on April 24, 1998 and 1,000 options vest on October 24, 1998. The options expire on April 24, 2002.
The senior executive officers do not currently receive any other personal benefits. The Company offers health insurance to all of its employees. The Company also has a 401(k) program, but during the year 1997, the Company made no contributions.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-----------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to
SARs Employees in Exercise
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date 5% ($) 10% ($)
---- ----------- ----------- ------------ --------------- ------ -------
Robert F. Gruder 2,000 1 0.2% 8.80 4/24/02 2,820 8,160
-------------------
1 The exercise price for the options granted to Mr. Gruder was established at 110% of fair market value on date of grant. 1,000 of these options will vest on April 24, 1998, and 1,000 will vest on October 24, 1999.
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-ENDED OPTION/SAR VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End ($)
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
---- ------------ ----- ------------- -------------
Not Applicable
Employment Agreements
At the present time none of the Company's senior executive officers have employment agreements with the Company. Once the Company is in a sounder financial condition to pay salaries actually commensurate with each officer's position and the services he renders to the Company, employment agreements will be negotiated.
Stock Option Plans
In 1994, the Company adopted the Omnibus Stock Plan (the "1994 Plan") for the benefit of its employees. The 1994 Plan covered the issuance of 375,000 options to purchase shares of the Company's Common Stock. The 1994 Plan was subsequently amended in December 1996 by the Board of Directors to increase the number of options from 375,000 to 1,000,000. This increase requires ratification by shareholders, which the Company intends to present to shareholders at its forthcoming annual meeting now scheduled for May 22, 1998. On October 20, 1997, the Board of Directors also approved an increase of the number of shares subject to the 1994 Plan to 2,000,000, which the Company also intends to present to shareholders for their approval at the next annual meeting. The award of options in excess of 375,000 under the Plan are therefore subject to shareholder approval. The 1994 Plan provides for the issuance of options and/or stock appreciation rights. The 1994 Plan permits the issuance of either incentive stock options or non-qualified stock options. In case of incentive stock options (as defined under Section 422 of the Internal Revenue Code), the exercise price can be no less than fair market value on the date of grant. In the case of non-qualified stock options, the exercise price may be less than then fair market value. To date no options have been granted at less than fair market value at date of grant. The 1994 Plan is administered by the Compensation Committee. All employees and directors are entitled to participate in the 1994 Plan, except that no members of the Committee may participate. As of December 31, 1997, there were 977,400 options outstanding. The Company has adopted a policy of offering options to all full-time employees, which enables the Company to attract and retain skilled and dedicated personnel. All of the outstanding
options expire at various times between December 2005 and 2007 with exercise prices ranging from 1.19 per share to $27.88 per share.
During the year ended December 31, 1997 the Board of Directors approved the adoption of the 1997 Employee Stock Purchase Plan (the "Purchase Plan"). Shareholders of the Company will be requested to ratify the adoption of the Purchase Plan at the Company's Annual Meeting of Shareholders. The Purchase Plan would permit employees of the Company to purchase shares of the Company's Common Stock through payroll deductions at six-month intervals as specified in the Purchase Plan at a 15% discount from market. The Purchase Plan is to be administered by members of the Board who are ineligible to participate in the Purchase Plan. An employee electing to participate can have up to 10% of his weekly salary withheld for the purchase of stock. A participant who is not subject to Section 16(b) of the Exchange Act may withdraw shares at any time after the shares have been purchased and credited to the participant's account. The Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), and as such, the Purchase Plan requires approval of the stockholders. If participants wish to avoid a tax on the purchase of Common Stock under the Purchase Plan, the participant must meet certain holding period requirements as required by the Code. The aggregate amount of purchases by any employee may not exceed $25,000 per year. A total of 200,000 shares have been reserved by the Company under the Purchase Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial ownership of the Company's Common Stock as of December 31, 1997 by (i) each person who is known by the Company to own beneficially more than 5% of the Company's outstanding Common Stock; (ii) each of the Company's officers and directors and (iii) all officers and directors of the Company as a group:
Name and Address Amount and Nature Percent of Class
Robert F. Gruder 7,030,325 38.8%
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
V. Hollis Scott 186,667 1 1.0%
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
Thomas J. Dudchik 226,166 2 1.3%
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
Frank G. Milligan 30,000 3 *
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
James F. Helm 20,250 4 *
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
J. Alex McMillan (Director) 27,840 5 *
3801 Barnwood Drive
Charlotte, NC 28211
John McCarthy (Director) -0- *
4 Glenwood Circle
East Windsor, NJ 08520-2304
All officers and directors
as a group (9 persons) 7,576,248 42.5%
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1 Includes 100,000 shares issuable upon exercise of options which vest on April 24, 1998.
2 Includes 200,000 shares issuable upon exercise of options. Of these, 50,000 options vest on April 24, 1998.
3 Includes 10,000 shares issuable upon exercise of options and an additional 20,000 shares issuable upon exercise of options, which options vest on April 24, 1998.
4 Includes 10,000 shares issuable upon exercise of options and an additional 10,000 shares issuable upon exercise of options, which options vest on April 24, 1998.
5 Includes 15,000 shares issuable upon exercise of warrants and warrants to purchase 7,840 shares owned by a company which Mr. McMillan controls.
* Represents less than 1% ownership.
Item 13. Certain Relationships and Related Transactions
In connection with the litigation referred to in Item 3, "Legal Proceedings," Mr. Robert Gruder, President and Chief Executive Officer of the Company, entered into agreements with the Company to indemnify the Company against any liability resulting from a final unappealable judgment. The Colby Lawsuit was settled by Mr. Gruder in 1997, and the Company was released from all liability. Pursuant to the agreement with Mr. Gruder, the Company paid all his legal expenses. Mr. Gruder has also entered into an agreement to indemnify the Company from all liability in connection with the Kaplan Lawsuit, which is now scheduled for trial in April 1998. In consideration of the agreement to indemnify the Company, the Company agreed to pay Mr. Gruder's legal fees and expenses in defending the Kaplan Lawsuit.
Between April 1, 1997 and December 31, 1997, The McMillan Group, owned by Mr. Alex McMillan, who is a Director of the Company, was retained by the Company to act as an independent consultant to assist the Company in developing government contracts. (See "Directors and Executive Officers of the Registrant.")
Robert F. Gruder, Chairman and Chief Executive Officer, has made advances to the Company from time to time to assist the Company in its working capital requirements. As of January 1, 1997, $500,000 of principal and $3,550 of interest were owed by the Company to Mr. Gruder. During 1997, Mr. Gruder advanced an additional $1,100,000 to the Company, and during the year the Company repaid Mr. Gruder $800,000, leaving a balance due Mr. Gruder at year end of $800,000 of principal and accrued interest at 10.5% per annum of $27,868. The advances are evidenced by promissory notes payable on demand.
Just before December 31, 1997, V. Hollis Scott, Chief Financial Officer of the Company, advanced the Company $166,700 with interest at 10.5% per annum. The loan is evidenced by a promissory note payable on demand. |
