SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
IMAGING TECHNOLOGIES CORPORATION
--------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 toss.240.14a-11(c) orss.240.14a-12
[ITEC LOGO]
IMAGING TECHNOLOGIES CORPORATION
--------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
[GRAPHIC OMITTED]
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128
Telephone: (858) 613-1300 o Fax: (619)(858) 207-6505
Telephone: (619) 613-1300
April 28, 1999August __, 2001
Dear Stockholder of Imaging Technologies Corporation:Stockholder:
It is a pleasure to send to you the attached notice and proxy materials with
regard to the Annual Meeting of Stockholders (the "Meeting") of Imaging
Technologies Corporation (the "Company"). scheduled to be held on September 12,
2001.
The matters to be considered at the Meeting include the following: election of
directors,
approval of an amendment to the Company's certificate of incorporation,directors; approval of a stock option plan,plan; approval of an employee stock
purchase plan; approval of an increase in the number of authorized shares of the
Company's common stock (the "Common Stock"); approval of a reverse split of the
Common Stock; approval of a change in the par value per share of the Company's
preferred stock; and approval of the issuance of all shares of Company Common
Stock which the Company would be entitled to issue upon conversion of the
Company's Series D Convertible Preferred Stock and the Company's Series E
Convertible Preferred Stock and ratification of the selection of the Company's
independent auditors.accountants.
The Company's board of directors unanimously recommends that you vote FOR all of
the above-mentioned proposals.
I hope you will be able to attend the Meeting. WhetherHowever, whether or not you plan
to attend the Meeting, however, we request that you sign, date and return the enclosed
Proxy card as soon as possible.
If you should have any questions in regard to any of the above-mentioned
proposals, please do not hesitate to call either Bruce Ahern of Customerour Stockholder Relations Department
or me at (619)(858) 613-1300.
We are grateful for the confidence you have shown in us.
Sincerely yours,
/s/ Brian Bonar
Brian Bonar
President and
Chief Executive Officer
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128-340192128
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held May 27, 1999TO BE HELD SEPTEMBER 12, 2001
---------------
NOTICE IS HEREBY GIVEN that the 19982000 Annual Meeting of Stockholders
(the "Meeting") of IMAGING TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company"), will be held at the Company's principal executive offices of the Company at 15175 Innovation
Drive, San Diego, California 92128, on Thursday, May 27, 1999,Wednesday, September 12, 2001, at 10
a.m., local time, to consider and act upon the following:
1. The election of five persons named in the accompanying Proxy Statement
to serve as directors on the Company's board of the Companydirectors (the "Board")
and until their successors are duly elected and qualified;
2. To amend the Company's Certificate of Incorporation to
increase the number of the Company's preferred stock
authorized to be issued from 10,000 shares to 100,000 shares;
3. To approve the Company's 19982001 Stock Option Plan (the "1998"2001 Stock Option
Plan"), pursuant to which 1,500,000up to 5,000,000 shares of the Company's
common stock, par value $.005 per share (the "Common Stock") will be
reserved or may be reserved for issuance over the term of the 19982001
Stock Option Plan;
3. To approve the Company's 2001 Employee Stock Purchase Plan (the "2001
Stock Purchase Plan"), pursuant to which up to 2,500,000 shares of
Common Stock will be reserved or may be reserved for issuance over the
term of the 2001 Stock Purchase Plan;
4. To approve an amendment to the issuanceCompany's certificate of allincorporation
(the "Certificate of Incorporation") to increase the number of the
Common Stock, authorized to be issued from 200,000,000 shares to
500,000,000 shares;
5. To approve an amendment to the Certificate of Incorporation in order to
effect a stock combination (reverse split) of the Common Stock in an
exchange ratio to be approved by the Board, ranging from one newly
issued share for each ten outstanding shares of Company Common Stock whichto one
newly issued share for each twenty outstanding shares of Common Stock;
6. To approve an amendment to the Company would be entitledCertificate of Incorporation to issue upon conversiondecrease
the par value per share of the Company's Series D Convertible Preferred Stock;
5. To approve the issuance of all shares of Company Common Stock which the Company would be entitledfrom $1,000
per share to issue upon conversion
of the Company's Series E Convertible Preferred Stock;
6.$0.01 per share;
7. To ratify the appointment of Boros & Farrington APC as the Company's
independent auditors for the 1998 fiscal year ending June 30, 1999;2001; and
7.8. To consider and transact such other business as may properly come
before the Meeting or any adjournment(s) thereof.
A Proxy Statement, form of Proxy and the Annual Report to Stockholders
of the Company for the fiscal year ended June 30, 19982000 are enclosed herewith.
Only holders of record of common stock, $0.005 par value,Common Stock at the close of business on April 23, 1999August 3,
2001 are entitled to receive notice of and to attend the Meeting and any
adjournment(s) thereof. The stock transfer books of the Company will remain open
between the record
date and the date of the Meeting. At least 10 days prior to the Meeting, a
complete list of the stockholders entitled to vote will be available for
inspection by any stockholder, for any purpose germane to
-1-
the Meeting, during
ordinary business hours, at the executive offices of the Company. Should you
receive more than one Proxy because your shares are registered in different
names and addresses, each Proxy should be signed and returned to assure that all
your shares will be voted. You may revoke your Proxy at any time prior to the
Meeting. If you attend the Meeting and vote by ballot, your Proxy will be
revoked automatically and only your vote at the Meeting will be counted. If you
do not expect to be present at the Meeting, you are requested to fill in, date
and sign the enclosed Proxy, which is solicited by the Board of Directors of the Company, and
to mail it promptly in the enclosed envelope.
In the event there are not sufficient votes for a quorum or to approve
or ratify any of the foregoing proposals at the time of the Meeting, the Meeting
may be adjourned by a vote of the majority of the votes cast by the stockholders
entitled to vote thereon. Whether or not you expect to attend the Meeting, to
assure that a quorum is present at the Meeting or an adjournment thereof, and
there are sufficient votes to vote on all of the foregoing proposals, please
sign, date and return promptly your Proxy (even after May 27, 1999,September 12, 2001, the
original Meeting date) in the stamp-addressed envelope provided.
By Order of the Board of Directors
/s/ Brian Bonar
Brian Bonar
President and
Chief Executive Officer
Dated: April 28, 1999August __, 2001
- --------------------------------------------------------------------------------
IMPORTANT
The return of your signed Proxy as promptly as possible will greatly facilitate
arrangements for the Meeting. No postage is required if the Proxy is returned in
the envelope enclosed for your convenience and mailed in the United States.
-2-THE RETURN OF YOUR SIGNED PROXY AS PROMPTLY AS POSSIBLE WILL GREATLY FACILITATE
ARRANGEMENTS FOR THE MEETING. NO POSTAGE IS REQUIRED IF THE PROXY IS RETURNED
IN THE ENVELOPE ENCLOSED FOR YOUR CONVENIENCE AND MAILED IN THE
UNITED STATES.
- --------------------------------------------------------------------------------
2
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive
San Diego, California 92128-3401
----------------------------------------
Proxy Statement
Annual Meeting of Stockholders
May 27, 1999PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 12, 2001
----------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Boardboard of Directorsdirectors (the "Board") of Imaging Technologies
Corporation, a Delaware corporation (the "Company"), to be voted at the Annual
Meeting of Stockholders of the Company (the "Meeting") which will be held at the
Company's
principal executive offices of the Company at 15175 Innovation Drive, San Diego, California 92128 on
Thursday, May 27, 1999Wednesday, September 12, 2001 at 10 a.m., local time, and any adjournment(s)
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Stockholders and in this Proxy Statement.
The principal executive offices of the Company are located at 15175
Innovation Drive, San Diego, California 92128-3401. The approximate date on
which this Proxy Statement and accompanying Proxy will first be sent or given to
stockholders is April 29, 1999.August __, 2001.
VOTING SECURITIES
VotingVOTING
The specific proposals to be considered and acted upon at the Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders and
are described in more detail in this Proxy Statement. On April 23, 1999,August 3, 2001, the
record date for determination of stockholders entitled to notice of and to vote
at the Meeting, 19,821,915170,901,065 shares of the Company's common stock, par value
$0.005$.005 (the "Common Stock"), were issued and outstanding and 2,176.5 shares of
the Company's preferred stock, par value $1,000, were issued and outstanding of
which 420.5 were shares of 5% Convertible Preferred Stock,
875par value $1,000 per share (the "5% Convertible Stock"), were shares of
Series D Convertible Preferred Stock (the "Series D Stock")issued and
881 were shares
of Series E Convertible Preferred Stock (the "Series E Stock").outstanding. Each stockholder is entitled to one vote for each share of Common
Stock and no vote for each share of 5% Convertible Stock held by such
stockholder on April 23, 1999. Each stockholder of the Series D Stock and Series E Stock is
entitled to one vote for each whole share of Common Stock into which each share
of Series D Stock and Series E Stock held by each stockholder is convertible on
the date immediately prior to April 23, 1999, which will be approximately 2,910
votes per share of issued and outstanding Series D Stock and approximately 1,951
votes per share of issued and outstanding Series E Stock; provided, however,
that in no event shall a stockholder of Series D Stock be entitled to vote more
than 9.999% of the number of shares entitled to be voted on any particular
matter.August 3, 2001.
The attendance, in person or by proxy, of the holders of a majority of
the outstanding voting shares of Common Stock including the number of shares of
Common Stock entitled to be voted by the holders of the Series D Stock and the
Series E Stock, entitled to vote at the Meeting is
necessary to constitute a quorum. A vote of a majority of the outstanding voting shares of Common Stock,
including the number of shares of
-1-
Common Stock entitled to be voted by the holders of the Series D Stock and the
Series E Stock, entitled to vote at the Meeting will be required for the
approval of the amendment to the Company's certificate of incorporation. A vote of the holders of a majority of the
number of outstanding shares of Common
Stock, including the number of shares of Common Stock entitled to be voted by
the holders of the Series D Stock and the Series E Stock, present, in person or represented
by proxy at the Meeting and entitled to vote at the Meeting, will be required
for the approval of each of the amendments to the Company's certificate of
incorporation (the "Certificate of Incorporation"), the election of directors,
approval of athe stock option plan and approvalstock purchase plans, and election of the
issuance of all shares of Common Stock which the Company would
be entitled to issue upon conversion of the Series D Stock and the Series E
Stock.Company's accountants.
Although the Company is a Delaware corporation, under Section 2115 of
the California Corporations Code, certain provisions of the California
Corporation Code apply to the Company because of the residence of the Company's
stockholders and the extent of its business operations and assets in California.
The provisions pertaining to certain requirements of cumulative voting apply to
the Company.
Stockholders have cumulative voting rights when voting for directors.
Accordingly, any stockholder may multiply the number of votes he or she is
entitled to vote by the number of directors to be elected and allocate votes
among the candidates in any manner. However, no voting stockholder may
cumulative votes unless the name(s) of the director candidate or candidates have
been placed in nomination prior to the voting and the stockholder, prior to the
voting, has given notice at the Meeting prior to voting of the stockholder'sits intention to cumulate its shares.
If any one stockholder has given a notice of its intention to cumulate votes
then all stockholders may cumulate their votes for director candidates in
nomination. Stockholders may exercise such cumulative voting rights, either in
person or by proxy after providing the proper notice. The five director nominees
receiving the highest number of votes will be elected.
The Board intends to vote proxies equally for the five nominees unless
otherwise instructed on the Proxy Card. If you do not wish your votes to be
voted for particular nominees, please identify the exceptions in the designated
place on the Proxy Card. If at the time of the Meeting one or more of the
nominees have become unavailable to serve, votes represented by Proxies will be
voted for the remaining nominees and for any substitute nominee or nominees
designated by the Board. Directors elected at the Meeting will hold office until
the next Annual Meeting of Stockholders or until their successors have been
elected and qualified.
All votes will be tabulated by the inspector of election appointed for
the Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted towards the tabulations
of votes cast on proposals presented to the stockholders and will have the same
effect as negative votes except in regard to the election of directors, whereas
brokerdirectors. Broker
non-votes will not be counted for purposestowards the tabulations of determining whether a
proposal has been approved.
Proxiesvotes cast on proposals
presented to the stockholders.
PROXIES
If the enclosed form of Proxy is properly signed and returned, the
shares represented thereby will be voted at the Meeting in accordance with the
instructions specified thereon. If the Proxy does not specify how the shares
represented thereby are to be voted, the Proxy will be equally voted FOR the
election of the five directors proposed by the Board unless the authority to
vote for the election of such directors is withheld and, if no contrary
instructions are given, the Proxy will be voted FOR the approval of Proposals 1,
2, 3, 4, 5, 6 and 67 described in the accompanying Notice and Proxy Statement.
You may revoke or change your Proxy at any -2-
time before the Meeting by filing
with the General CounselSecretary of the Company at the Company's principal executive offices
at 15175 Innovation Drive, San Diego, California 92128-3401, a notice of
revocation or another signed Proxy with a later date. You may also revoke your
Proxy by attending the Meeting and voting in person.
SolicitationSOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the form of
Proxy and any additional solicitation materials furnished to the stockholders.
Copies of solicitation materials will be furnished to brokerage houses,
fiduciaries and custodians holding shares in their names that are beneficially
owned by others so that they may forward this solicitation material to such
beneficial owners. The Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. In addition to
the solicitation of Proxies by mail, Proxies may be solicited without extra
compensation paid by the Company by directors, officers and employees of the
Company by telephone, facsimile, telegraph or personal interview. The Company
also has engaged the proxy solicitation firm of W.F. Doring & Co., Inc.Georgeson Shareholder - New
Jersey to solicit votes for the Meeting for a fee of approximately $5,000,$9,000, plus
reimbursement of certain expenses.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 19992001 Annual Meeting of
Stockholders must be received by the Company at its executive offices not later
than a reasonable time before the Company begins to print and mail its proxy
materials in order that such proposals may be included in the Proxy Statement
and form of Proxy relating to such meeting.
-3-2
MATTERS TO BE CONSIDERED AT THE MEETING
PROPOSAL 1
ELECTION OF THE BOARD
Nominees For Election as DirectorsNOMINEES FOR ELECTION AS DIRECTORS
The persons named below are nominees for director to serve until the
next annual meeting of stockholders and until their successors have been elected
and qualified. Management has selected five nominees, all of whom are currently
directors of the Company. Each person nominated for election has agreed to serve
if elected, and management has no reason to believe that any nominee will be
unavailable to serve. Unless otherwise instructed, the Proxy holders will vote
the Proxies received by them for the nominees named below. The proxies received
by the Proxy holders cannot be voted for more than five directors, and, unless
otherwise instructed, the Proxy holders will vote such proxies for the nominees
named below. The five candidates receiving the highest number of affirmative
votes of the shares entitled to vote at the Meeting will be elected directors of
the Company.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Meeting, the persons named in the enclosed
Proxy will exercise discretionary authority to vote for substitutes. The Board
is not aware of any circumstances that would render any nominee unavailable for
election.
The following table sets forth certain information regarding the
nominees for election as directors.
Name Age Since Director TitleNAME AGE SINCE DIRECTOR TITLE
- ---- --- ----- --------------
Harry J. Saal 55 1983 Director, Chairman of the
Board
Brian Bonar 5154 1995 Director, President and Chief Executive Officer
Richard H. Green 65 2000 Director
Robert A. L. Dubrow 65 1997Dietrich 56 2000 Director
David M. Carver 51 1998Eric W. Gaer 53 2000 Director
Warren T. Lazarow 39 1998Stephen J. Fryer 63 2000 Director
Harry J. SaalBRIAN BONAR has served as a director of the Company since 1983August 1995
and became the Company's Chairman of the Board in December 1995. From September 1993
through November 1995, Dr. Saal was President and Chief Executive Officer of
Smart Valley, Inc., a company which helped create an electronic community in the
San Francisco Bay Area. In addition, from 1986 until 1993, Dr. Saal was the
President and a director of Network General Corporation, a company engaged in
the design, manufacture and sale of diagnostic systems for local area networks
(and related products). Dr. Saal serves as a director of Inprise Corporation.
Brian Bonar has served as a director of the Company since August 1995.1999. From August
1992 through April 1994, Mr. Bonar served as the Company's Director of
Technology Sales and from April 1994
-4-
through September 1994 as the Company's
Vice President, Sales and Marketing. In September 1994, Mr. Bonar became the
Company's Executive Vice President Sales,
Marketing and, Engineering and, in July 1997, Mr. Bonar was appointed as the
Company's President and Chief Operating Officer. In April 1998 he was appointed
asMr. Bonar assumed
the Company's Chief Executive Officer.post of CEO. From 1991 to 1992, Mr. Bonar was Vice President of Worldwide
Sales and Marketing for Bezier Systems, Inc., a San Jose, California-based
manufacturer and marketer of laser printers. From 1990 to 1991, he was Worldwide
Sales Manager for Adaptec, Inc., a San Jose-based laser printer controller
developer. From 1988 to 1990, Mr. Bonar was Vice President of Sales and
Marketing for Rastek Corporation, a laser printer controller developerdeveloped located
in Huntsville, Alabama. From 1984 to 1988, Mr. Bonar was employed as Executive
Director of Engineering at QMS, Inc., an Alabama-based developer and
manufacturer of high-performance color and monochrome printing solutions. Prior
to these positions, Mr. Bonar was employed by IBM, U.K. Ltd. for approximately
17 years.
DR. RICHARD H. GREEN has served as a director since September 2000. He
is currently the President of International Power & Environmental Company
(IPEC), a consulting company located in San Diego, California. From 1993 through
1995, he served as Deputy Secretary of the State of California Environmental
Protection Agency (Cal/EPA). From 1988 through 1993 Dr. Green served as Manager
of Program Engineering and Review Office in the Office of Technology and
Applications at the Jet Propulsion Laboratory (JPL) in Pasadena, California,
where he
3
had held various management positions since 1967. From 1965 through 1967, Dr.
Green served as Senior Engineer for The Boeing Company, Space Division. From
1983 through 1985, Dr. Green held the Corwin D. Denny Chair as Professor of
Energy and Director of the Energy Institute at the University of LaVerne, and
from 1961 through 1964 served as Assistant Professor of Civil Engineering
(Environmental Sciences) at Washington State University. Dr. Green currently is
a member of the Governing Board of Pasadena City College. Dr. Green completed
his bachelor's degree at Whitman College in 1958, his Master of Science at
Washington State University in 1961, and his Ph.D. at Washington State
University, under a United States Public Health Services Career Development
Award, in 1965.
ROBERT A. L. DubrowDIETRICH has served as a director of the Company since
February
1997, at which time heJanuary 2000. Mr. Dietrich is President and CEO of Cyberair Communications Inc.,
a privately-held telecommunications company with strategic interests in Internet
communications and "bandwidth" expansion technologies, as well as domestic and
international telephone services, in Irvine, California. Recently, Mr. Dietrich
was appointed as the Company'snamed President and CEO of Semper Resources Corporation, a public natural
resources holding company in Irvine, California. From 1996 to 2000, Mr. Dietrich
was Managing Director and CFO of Ventana International, Ltd., Irvine,
California, a venture capital and private investment banking firm. From 1990 to
1994, Mr. Dietrich was Vice President, Special
Projects, a post in which he served until the middle of 1997. In 1996, Mr.
Dubrow was involved in the acquisition and restructuring of NewGen Systems, Inc.
and served as its President and Chief ExecutiveFinancial Officer of CEI, Inc.,
in Santa Ana, California, a commercial furnishings firm, prior to such
acquisition. From 1977 to April 1995,joining
Ventana. Mr. Dubrow was partDietrich is a graduate of the senior
managementUniversity of BW/IP, an operation acquired from Borg Warner, where Mr. DubrowNotre Dame, with a
bachelor's degree in accounting, and the University of Detroit, with a master's
degree in finance. He served as General Manager from 1977 to 1992 and as Chief Operating Officer until
April 1995.
David M. Carvera lieutenant in the U.S. Navy's Atlantic Command
Operations Control Center.
ERIC W. GAER has served as a director since March 2000. Since 1998, Mr.
Gaer has been the President and CEO of Arroyo Development Corporation, a
privately-held, San Diego-based management consulting company. From 1996 to
1998, he was Chairman, President and CEO of Greenland Corporation, a
publicly-held high technology company in San Diego, California. In 1995, he was
CEO of Ariel Systems, Inc., a privately-held engineering development company in
Vista, California. Over the Company from June 1998.
From November 1995 through December 1997,past 25 years, Mr. CarverGaer has served in several keyexecutive
management positions at a variety of high-technology companies, including Executive Vice PresidentITEC,
Daybreak Technologies, Inc., Venture Software, Inc., and Chief Operating
Officer,Merisel, Inc. In 1970,
he received a Bachelor of Network General Corporation, the $250-million software firm whichArts degree in December 1997 merged with McAfee Associates to form Network Associates. From
March 1994 to October 1995, Mr. Carver worked as an independent consultant for
Institutional Venture Partners developing investment strategies for Internet
business opportunities. Mr. Carver also spent 20 years with the Hewlett-Packard
Company holding numerous management positions in the areas of sales and
marketing.
Warren T. Lazarowmass communications from California
State University, Northridge.
STEPHEN J. FRYER has served as a director of the Company since JuneMarch
2000. He is currently Chairman of the Board and CEO of Pen Interconnect, Inc.
("Pen"), a high technology company in Irvine, California. He began his
employment service at Pen in 1997 as Senior Vice President of Sales ad
Marketing. At Pen, he became a director in 1995 and was appointed President and
CEO in 1998. Since 1994,From 1989 to 1996, Mr. LazarowFryer was a principal in Ventana
International, Ltd., a venture capital and private investment banking firm in
Irvine, California. He has beenover 28 years experience in the computer industry in
the United States, Asia and Europe. Mr. Fryer graduated from te University of
California in 1960 with a partner at the law firm of Brobeck,
Phleger & Harrison LLP, an international legal firm specializingbachelor's degree in emerging
growth companies. Mr. Lazarow represents a broad range of technology companies.
Mr. Lazarow received his law degree from Brooklyn Law School and his A.B.
degree, cum laude, from the Woodrow Wilson School of Public and International
Affairs at Princeton University.
Board Committees and Meetingsmechanical engineering.
BOARD AND COMMITTEE MEETINGS
The Board held twelve5 meetings and acted by unanimous written consent
on three occasions during the fiscal year ended June 30, 19982000.
The Company's audit committee (the "1998 Fiscal
Year""Audit Committee")., composed of
Messrs. Robert A. Dietrich and Eric W. Gaer, met once during the fiscal year
ended June 30, 2000, to review the Company's financial statements and to meet
with the Company's independent auditors.
The BoardCompany's compensation committee (the "Compensation Committee"),
composed of Mr. Stephen J. Fryer and Dr. Richard H. Green, met once during the
fiscal year ended June 30, 1999, to review executive compensation and the status
of the Company's employee stock option plans.
None of these individuals was an officer or employee of the Company at
any time during the fiscal year ended June 30, 2000, or at any other time.
No current executive officer of the Company has an Audit Committee andever served as a Compensation Committee. Each
director attendedmember
of the board of directors or participated in seventy-five percentcompensation committee of any other entity that has
or has had one or more of the
aggregate of (i) the total number of meetingsexecutive officers serving as a member of the Board and (ii) the total
number of meetings held by all committees of the Board on which such director
served during the 1998 Fiscal Year.
The Audit Committee currently consists of three directors, Mr. Dubrow,
Mr. Carver and Mr. Lazarow, and is primarily responsible for approving the
services performed by the Company's independent auditors and reviewing their
reports regarding the Company's accounting practices and systems of internal
accounting controls. The Audit Committee held two meetings during the 1998
Fiscal Year.
-5-or
Compensation Committee.
4
The Compensation Committee of the Company's Board (the "Compensation
Committee") currently consists of two directors, Dr. Saal and Mr. Carver, and is
primarily responsible for reviewing and approving the Company's general
compensation policies and setting compensation levels for the Company's
executive officers. The Compensation Committee is also responsible for the
administration and award of stock options under the Company's stock option
plans, as well as, the award of stock options and warrants issued pursuant to
individual stock option and warrant agreements. The Compensation Committee held
two meetings and did not act by unanimous written consent during the 1998 Fiscal
Year.
Director CompensationDIRECTOR AND COMMITTEE COMPENSATION
Directors who are not employees of the Company or one of its
subsidiaries receive meetingmonthly fees for each Board meeting or Board committee
meeting attended. The per meeting fee is $4,500 plus travel expenses for Dr.
Saal and is $2,500 plus travel expenses for Messrs. Carver and Lazarow. No fees
were paid in the 1998 Fiscal Year and as of such fiscal year end, $63,000 of
unpaid meeting fees were accrued and unpaid to Dr. Saal and $5,000 of unpaid
meeting fees were accrued and unpaid to each of Messrs. Carver and Lazarow.$2,500.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES LISTED ABOVE.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED
PREFERRED STOCK
On January 7, 1998, the Board adopted a resolution by unanimous written
consent approving a proposal to amend Article Fourth of the Company's
Certificate of Incorporation (the "Certificate") to increase the number of
shares of Preferred Stock which the Company is authorized to issue from 10,000
shares to 100,000 shares. The Board determined that such amendment is advisable
and directed that the proposed amendment be considered at the Meeting.
Purposes and Effects of Increasing the Number of Authorized Shares of Preferred
Stock
The proposed amendment would increase the number of shares of Preferred
Stock which the Company is authorized to issue from 10,000 shares to 100,000
shares. The additional 90,000 shares will be a part of the existing Preferred
Stock and, if and when issued, shall be divided into series. Such series of
Preferred Stock will have the rights, preferences, privileges and restrictions
granted to or imposed by the Certificate or by the Board acting pursuant to the
Certificate.
Reference is made to the proposed amendment to Article Fourth of the
Company's Certificate which is substantially set forth in the form listed under
the heading "Proposed New Article Fourth to the Company's Certificate of
Incorporation" in Exhibit A to this Proxy Statement.
-6-
The Company has no present plans, arrangements or understandings for
the issuance or use of the proposed additional shares of Preferred Stock.
However, the Board believes that the adoption of the proposed amendment is
advantageous to the Company and its stockholders. The proposed amendment would
provide additional authorized shares of Preferred Stock that could be used from
time to time, without further action or authorization by the stockholders
(except as may be required by law or by any stock exchange on which the
Company's securities may then be listed), for corporate purposes which the Board
may deem desirable, including, without limitation, financings and acquisitions.
The authority possessed by the Board to issue Preferred Stock could
also potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy contest or otherwise by making
such attempts more difficult or costly to achieve. However, depending on, among
other things, the voting rights and the conversion rights assigned to the
Preferred Stock, the issuance of Preferred Stock may adversely effect the market
price of the Common Stock and may result in dilution of the voting power of the
holders of Common Stock, including the possibility of the loss of voting control
to the holders of Preferred Stock.
If the proposed amendment is adopted, there will be 97,218.5 authorized
shares of Preferred Stock that will not be outstanding or reserved for issuance.
As of the record date, April 23, 1999, the Company had 2,176.5 shares of
Preferred Stock issued and outstanding.
STOCKHOLDER APPROVAL
In accordance with the Delaware General Corporation Law and the
Company's Certificate of Incorporation, the affirmative vote of a majority of
the outstanding shares of Common Stock entitled to vote thereon is required to
adopt this proposed amendment.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS
PROPOSAL.
PROPOSAL 3
APPROVAL OF 19982001 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve the 19982001 Stock
Option Plan (the "1998"2001 Stock Option Plan"), pursuant to which 1,500,0005,000,000 shares
of Common Stock will be reserved for issuance. The Board has authorized the
implementation of the 19982001 Stock Option Plan as a comprehensive equity incentive
program to attract and retain the services of those persons essential to the
Company's growth and financial success. The 19982001 Stock Option Plan was adopted
by the Board on October 26, 1998June 27, 2001, and would become effective if (i) either Proposal
4 or 5 is (A) approved by the proposalrequired vote of stockholders and (B) implemented
by the Board and (ii) this Proposal 2 is approved by a majority of the shares of
Common Stock entitled to vote at the Meeting. At the Company's 1996 Annual Meeting of Stockholders, the Company's
stockholders approved the implementation of the 1997 Stock Option Plan and 1997
Stock Purchase Plan; however, these plans have not been implemented andIn addition, if this
proposalProposal 5 is
approved by stockholders, the 1997 Stock Option Planstockholders and the 1997Board effects a stock combination (reverse
split), the number of shares of Common Stock Purchase Plan wouldreserved for issuance will be
terminated.
-7-
reduced to that number obtained by dividing 5,000,000 by that exchange ratio
determined by the Board. See "Proposal 5 - Approval of an Amendment of the
Company's Certificate of Incorporation to Effect a Reverse Split of common
Stock."
The following summary describes the material features of the 19982001 Stock
Option Plan. The summary, however, does not purport to be a complete description
of all the provisions of the 19982001 Stock Option Plan. A complete form of the 19982001
Stock Option Plan has been attached hereto as Exhibit B.A.
The following is a summary of the material features of the 19982001 Stock
Option Plan.
Shares Subject to the Option Plan and EligibilitySHARES SUBJECT TO THE OPTION PLAN AND ELIGIBILITY
The 19982001 Stock Option Plan authorizes the grant of options to purchase
a maximum of 1,500,0005,000,000 shares of the Company's Common Stock (subject to
adjustment as described below) to employees and directors of, and consultants
to, the Company or any of its subsidiaries. Upon expiration, cancellation or
termination of unexercised options, the shares of the Company's Common Stock
subject to such options will again be available for the grant of options under
the 19982001 Stock Option Plan.
Type of OptionsTYPE OF OPTIONS
Options granted under the 19982001 Stock Option Plan may either be
incentive stock options ("ISOs"), within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified stock
options, which do not qualify as ISOs ("NQSOs"). ISOs, however, may only be
granted to employees.
AdministrationADMINISTRATION
The 19982001 Stock Option Plan is to be administered by the Compensation
Committee, which will consist of "non-employee directors" within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). It is also expected that Compensation Committee members
will be "outside directors," within the meaning of Section 162(m) of the Code.
Those administering the 19982001 Stock Option Plan are referred to as the
"Administrators."
Among other things, the Administrators are empowered to determine,
within the express limits contained in the 19982001 Stock Option Plan, the
employees, consultants and directors to be granted options, whether an option
granted to an employee is to be an ISO or a NQSO, the number of shares of Common
Stock to be subject to each option, the exercise price of each option, the term
of each option, the date each option shall become exercisable as well as any
terms and conditions relating to the exercisability of each option, whether to
accelerate the date of
5
exercise of any option or installment and the form of payment of the exercise
price, to construe each stock option contract between the Company and an
optionee and, with the consent of the optionee, to cancel or modify an option.
The Administrators are also authorized to prescribe, amend and rescind rules and
regulations relating to the 19982001 Stock Option Plan and make all other
determinations necessary or advisable for administering the 19982001 Stock Option
Plan.
-8-
Terms and Conditions of OptionsTERMS AND CONDITIONS OF OPTIONS
Options granted under the 19982001 Stock Option Plan are subject to, among
other things, the following terms and conditions:
(a) The exercise price of each option is determined by the
Administrators; provided, however, that the exercise price of an ISO may not be
less than the fair market value of the Company's Common Stock on the date of
grant (110% of such fair market value if the optionee owns, or is deemed to own,
more than 10% of the voting power of the Company).
(b) Options may be granted for terms established by the Administrators;
provided, however, that the term of an ISO may not exceed ten10 years (five years
if the optionee owns, or is deemed to own, more than 10% of the voting power of
the Company).
(c) The maximum number of shares of the Company's Common Stock for
which options may be granted to an employee in any calendar year is 250,000. In
addition, the aggregate fair market value of shares with respect to which ISOs
may be granted to an employee which are exercisable for the first time during
any calendar year may not exceed $100,000.
(d) The exercise price of each option is payable in full upon exercise
or, if the Administrators permit, in installments. Payment of the exercise price
of an option may be made in cash, or, if the Administrators permit (but only to
the extent permitted), in shares of the Company's Common Stock or any
combination thereof.
(e) Options may not be transferred other than by will or by the laws of
descent and distribution, and may be exercised during the optionee's lifetime
only by the optionee.
(f) Except as may otherwise be provided in the option contract related
to the option, if the optionee's relationship with the Company as an employee,
director or consultant is terminated for any reason other than death or
disability, the option may be exercised, to the extent exercisable at the time
of termination of such relationship at any time, within three months thereafter,
but in no event after the expiration of the term of the option; provided,
however, that if the relationship is terminated either for cause or without the
consent of the Company, the option will terminate immediately. Except as may be
provided in the option contract related to the option, an option is not affected
by a change in the status of an optionee so long as the optionee continues to be
an employee or director of, or a consultant to, the Company. Except as otherwise
provided in the optionee's option contract, in the case of the death of an
optionee while an employee, director or consultant (or, generally, within three
months after termination of such relationship, or within one year after
termination of such relationship by reason of disability), the optionee's legal
representative or beneficiary may exercise the option, to the extent exercisable
on the date of death, at any time within one year after such date, but in no
event after the expiration of the term of the option. Except as otherwise
provided in the optionee's option contract, an optionee whose relationship with
the Company is terminated by reason of disability may exercise the option, to
the extent exercisable at the effective date of such termination, at any time
within one year thereafter, but not after the expiration of the term of the
option.
(g) The Company may withhold cash and/or, with the consent of the
Administrators, shares of the Company's Common Stock having an aggregate value
equal to the amount which the Company determines is necessary to meet its
obligations to withhold any federal, state and/or local taxes or other amounts
incurred by reason of the grant, exercise or vesting of an option or the
disposition of shares acquired -9-
upon the exercise of the option. Alternatively,
the Company may require the optionee to pay the Company such amount in cash
promptly upon demand.
Adjustment in Event of Capital Changes6
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
In the event of any change in the Company's Common Stock by reason of
any stock dividend, stock split, combination, reclassification,
recapitalization, merger in which the Company is the surviving corporation,
spin-off, split-up, exchange of shares or the like, the following adjustments to
the 19982001 Stock Option Plan shall be made to:
o the number and kind of shares available under the 19982001 Stock Option
Plan;
o the number and kind of shares subject to the 19982001 Stock Option Plan;
o each outstanding option;
o the exercise prices of outstanding options; and
o the limitations on the number of shares that may be granted to any
employee in any calendar year.
Any outstanding options shall terminate upon the earliest occurrence of
any of the following events, unless other provision is made therefor in the
applicable event:
o the liquidation or dissolution of the Company; or
o a transaction (or series of related transactions) that is approved
by a majority of the members of the Board as elected by stockholders
prior to the first of such transactions (including, without
limitation, a merger, consolidation, sale of stock by the Company or
its stockholders, tender offer or sale of assets)
in which either:
o the voting power (in the election of directors generally) of the
Company's voting securities outstanding immediately prior to such
transaction ceases to represent at least 50% of the combined voting
power (in the election of directors generally) of the Company or
such surviving entity outstanding immediately after such
transaction; or
o the registration of the Company's Common Stock under the Securities
Exchange Act of 1934 is terminated.
-10-
Duration and Amendment of the 1998 Stock Option PlanDURATION AND AMENDMENT OF THE 2001 STOCK OPTION PLAN
No option may be granted under the 19982001 Stock Option Plan after October
25, 2008.January
24, 2010. The Board may at any time terminate or amend the 19982001 Stock Option
Plan; provided, however, that, without the approval of the Company's
stockholders, no amendment may be made which would:
o except as a result of the anti-dilution adjustments described above,
increase the maximum number of shares for which options may be
granted under the 19982001 Stock Option Plan or increase the maximum
number of shares covered by options that may be granted to an
employee in any calendar year;
o change the eligibility requirements for persons who may receive
options under the 19982001 Stock Option Plan; or
o make any change for which applicable law requires stockholder
approval.
No termination or amendment may adversely affect the rights of an
optionee with respect to an outstanding option without the optionee's consent.
Federal Income Tax TreatmentFEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of thecertain material federal income
tax consequences of the grant and exercise of the options under the 2001 Stock
Option Plan and the sale of any underlying security. This description is based
on current tax law of NQSOs and ISOs. Itwhich is subject to change, possibly with retroactive effect.
This discussion does not purport to coveraddress all tax considerations relating to
the grant and exercise of the options or resulting from the application of
special rules includingto a particular optionee (including an optionee subject to the
exercisereporting and short-swing profit provisions under Section 16 of an option with
previously-acquired shares, or the Securities
Exchange Act of 1934, as amended), and state, or local, income orforeign and other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the
7
underlying shares. In addition, the rules
summarized herein are based on laws, regulations, cases and rulings currently in
effect, all of which are subject to change possibly on a retroactive basis.securities. An optionee does not recognizeshould consult with the optionee's own tax
advisors with respect to the tax consequences inherent in the ownership and
exercise of stock options and the ownership and disposition of any underlying
security.
ISOS EXERCISED WITH CASH: No taxable income for federal income tax
purposeswill be recognized by an
optionee upon the grant or exercise of a NQSO or an ISO. UponThe optionee's tax basis in the
shares acquired upon the exercise of a NQSO, the optionee recognizes ordinary income in
an amountISO with cash will be equal to the
excess, if any, ofexercise price paid by the fair market value ofoptionee for such shares.
If the shares acquired onreceived upon exercise of an ISO are disposed of more
than one year after the date of exercise over the exercise price thereof, and the
Company generally is entitledtransfer of such shares to a deduction for such amount at that time. If the optionee later sells shares acquired pursuant toand more
than two years from the exercisedate of a NQSO,grant of the option, the optionee recognizeswill recognize
long-term or short-term capital gain or loss on such disposition equal to the difference
between the amount realized on such saleselling price and the fair market value ofoptionee's basis in the shares, onand the
date acquired (plus or minus any other adjustmentsCompany will not be entitled to the
basis of the shares), depending on the period for which the shares were held.a deduction. Long-term capital gain is generally
subject to more favorable tax treatment than ordinary income or short-term capital gain.
Upongain or ordinary
income.
If the shares received upon the exercise of an ISO are disposed of
prior to the optionee does not recognize taxable
income. Ifend of the optionee disposestwo-years-from-grant/one-year-after-transfer holding
period (a "disqualifying disposition"), the excess (if any) of the fair market
value of the shares on the date of transfer of such shares to the optionee over
the exercise price (but not in excess of the gain realized on the sale of the
shares) will be taxed as ordinary income in the year of such disposition, and
the Company generally will be entitled to a deduction in the year of disposition
equal to such amount. Any additional gain or any loss recognized by the optionee
on such disposition will be short-term or long-term capital gain or loss, as the
case may be, depending upon the period for which the shares were held.
NQSOS EXERCISED WITH CASH: No taxable income will be recognized by an
optionee upon the grant of a NQSO. Upon the exercise of a NQSO, the excess of
the fair market value of the shares received at the time of exercise over the
exercise price therefor will be taxed as ordinary income, and the Company will
generally be entitled to a corresponding deduction. The optionee's tax basis in
the shares acquired upon the exercise of such NQSO will be equal to the exercise
price paid by the optionee for such shares plus the amount of ordinary income so
recognized.
Any gain or loss recognized by the optionee on a subsequent disposition
of shares purchased pursuant to a NQSO will be short-term or long-term capital
gain or loss, depending upon the period during which such shares were held, in
an amount equal to the difference between the selling price and the optionee's
tax basis in the shares.
EXERCISES OF OPTIONS USING PREVIOUSLY ACQUIRED SHARES: If previously
acquired shares are surrendered in full or partial payment of the exercise price
of an option (whether an ISO or a NQSO), gain or loss generally will not be
recognized by the optionee upon the exercise of such option to the extent the
optionee receives shares which on the date of exercise have a fair market value
equal to the fair market value of the shares surrendered in exchange therefor
("Replacement Shares"). If the option exercised is an ISO or if the shares used
were acquired pursuant to the exercise of an ISO, more than two years afterthe Replacement Shares are
treated as having been acquired pursuant to the exercise of an ISO.
However, if an ISO is exercised with shares which were previously
acquired pursuant to the exercise of an ISO but which were not held for the
required two-years-from-grant/one-year-after-transfer holding period, there is a
disqualifying disposition of such previously acquired shares. In such case, the
optionee would recognize ordinary income on such disqualifying disposition equal
to the difference between the fair market value of such shares on the date of
grantexercise of the prior ISO and more than one year
after the transferamount paid for such shares (but not in excess
of the gain realized). Special rules apply in determining which shares are
considered to have been disposed of and in allocating the basis among the
shares. No capital gain is recognized.
The optionee will have an aggregate basis in the Replacement Shares
equal to the basis of the shares surrendered, increased by any ordinary income
required to be recognized on the disposition of the previously acquired shares.
The optionee's holding period for the Replacement Shares generally includes the
period during which the surrendered shares were held.
Any shares received by the optionee on such exercise in addition to the
optionee,Replacement Shares will be treated in the optionee recognizes
long-term capital gain or loss and the Company is not entitled tosame manner as a deduction.
However, if the optionee disposescash exercise of such shares within another required holding
period, all or a portion of the gain is treated as ordinary income and the
Company generally is entitled to deduct such amount.
-11-an
option for no consideration.
8
ALTERNATIVE MINIMUM TAX
In addition to the federal income tax consequences described above, an
optionee who exercises an ISO may be subject to the alternative minimum tax,
which is payable only to the extent it exceeds the optionee's regular tax.tax
liability. For this purpose, upon the exercise of an ISO, the excess of the fair
market value of the shares over the exercise price therefor is an adjustment thatwhich
increases the optionee's alternative minimum taxable income. In addition, the
optionee's basis in such shares is increased by such excessamount for purposes of
computing the gain or loss on the disposition of the shares for alternative minimum
tax purposes. If anthe optionee is required to pay an alternative minimum tax, the
amount of such tax which is attributable to deferral preferences (including the
ISO adjustment) is allowedallowable as a tax credit against the optionee's regular tax
liability (net of other non-refundable credits) in subsequent years. To the
extent the credit is not used, it is carried forward. Valuation
On April 23, 1999,An optionee holding an ISO
should consult with the optionee's tax advisors concerning the applicability and
effect of the alternative minimum tax.
VALUATION
As of August 2, 2001, the closing price of the Company's Common Stock
on The Nasdaq SmallCap Marketthe OTC Bulletin Board (the "OTC") was $1.0625$0.058 per share.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Meeting is
required for approval of the 19982001 Stock Option Plan. Should such stockholder
approval not be obtained, then the 19982001 Stock Option Plan will terminate and all
options previously granted under the 19982001 Stock Option Plan will terminate
without becoming exercisable for any of the shares of Common Stock subject to
those options and no further option grants or stock issuances will be made under
the 19982001 Stock Option Plan. The Company's 19971998 Stock Option Plan will however,
continuenot be
affected by the stockholders' vote on the 2001 Stock Option Plan.
The Board believes that it is in the best interests of the Company to
implement a comprehensive equity incentive program for the Company, which will
provide a meaningful opportunity for officers, employees, and non-employee Board
members to acquire a substantial proprietary interest in the Company and thereby
encourage such individuals to remain in effect,the Company's service and option grants may be made pursuant tomore closely
align their interests with those of the provisions of that plan, if implemented, until the available reserve of Common
Stock under such plan is issued.stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THETHIS PROPOSAL.
PROPOSAL 3
APPROVAL OF THE
19982001 EMPLOYEE STOCK OPTION PLAN. THE BOARD BELIEVES THAT IT IS IN THE BEST
INTERESTS OF THE COMPANY TO IMPLEMENT A COMPREHENSIVE EQUITY INCENTIVE
PROGRAM FOR THE COMPANY WHICH WILL PROVIDE A MEANINGFUL OPPORTUNITY FOR
OFFICERS, EMPLOYEES AND NON-EMPLOYEE BOARD MEMBERS TO ACQUIRE A
SUBSTANTIAL PROPRIETARY INTEREST IN THE ENTERPRISE AND THEREBY
ENCOURAGE SUCH INDIVIDUALS TO REMAIN IN THE COMPANY'S SERVICE AND MORE
CLOSELY ALIGN THEIR INTERESTS WITH THOSE OF THE STOCKHOLDERS.
-12-
PROPOSAL 4
APPROVAL OF THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK
UPON CONVERSION OF SERIES D CONVERTIBLE PREFERRED STOCK
General
As of January 13, 1999,PURCHASE PLAN
The Board has approved the Company entered into a Securities Purchase
Agreement (the "Series D Agreement") with certain investors for an aggregate
purchase price of $2.4 million for the private placementadoption by the Company of up to
1,200 units. Each unit consistsCompensation Committee of
the following securities:
o one share of Series D Convertible Preferred2001 Stock (the "Series D
Stock"); and
o 2,000 warrants (the "Series D Warrants") exercisable for shares of
Common Stock.
The Series D Stock is immediately convertible into shares of Common
Stock as more fully described below; provided, however, each of the investors
has agreed that in no event shall it be permittedPurchase Plan, which enables employees to convert any shares of
Series D Stock in excess of the number of such shares upon the conversion of
which,
o the number of shares of Common Stock owned by such investor (other
than shares of Common Stock issuable upon conversion of Series D
Stock or upon exercise of Series D Warrants) added to
o the number of shares of Common Stock issuable upon conversion of
such shares of Series D Stock or exercise of Series D Warrants,
would be equal to or exceed
o 9.999 percent of the number of shares of Common Stock then issued
and outstanding, including the shares that would be issuable upon
conversion of the Series D Stock or exercise of Series D Warrants
held by such investor.
The Company will not be able to issue at a price below the market price
an aggregate amount of shares of Common Stock equal to 20 percent or more of the
outstanding Common Stock of the Company unless this proposal is approved by the
Company's stockholders. See below "Reason for Stockholder Approval." In the
event that approval is not obtained from stockholders, the Company will issue,
upon proper notification from the investors, Common Stock upon conversion of
Series D Stock or exercise of Series D Warrants at a price below the market
price up to the agreed upon pro rata amounts not to exceed 20 percent of the
Company's Common Stock then outstanding , and all additional shares of Common
Stock issued upon conversion of the Series D Stock or exercise of the Series D
Warrants of the Company will be issued at the market price of the Common Stock
on the applicable conversion or exercise date.
The Company intends to use the proceeds from the sale of the securities
for working capital and general corporate purposes.
-13-
Funding Pursuant to the Series D Agreement
Pursuant to the Series D Agreement, the Company agreed to issue and
sell to the Series D investors $2.4 million of Series D Stock and Series D
Warrants. To date, the Company has issued and sold $1.75 million of Series D
Stock and Series D Warrants. The Company shall issue and sell to the investors
the remaining $0.65 million of Series D Stock and Series D Warrants within two
business days after the Securities and Exchange Commission ("SEC") has declared
effective a registration statement (the "Registration Statement") filed with the
SEC.
Description of Series D Stock
The Series D Stock is immediately convertible into shares of the
Company's Common Stock at a floating conversion rate that is significantly below
market price as of April 23, 1999, which is the lesser of (A) $.50 and (B) an
amount equal to 70 percent of the closing bid price per share of Common Stock on
the Nasdaq SmallCap Market for the three trading days having the lowest closing
bid price during the 30 trading days prior to the date on which the applicable
investor gives to the Company notice of conversion of Series D Stock. As a
result of this floating conversion rate, the lower the market price for a share
of Common Stock, the more shares of Common Stock will be issued upon conversion
of the Series D Stock. Accordingly, there is theoretically no limit on the
number of shares of Common Stock which may be issued upon conversion of the
Series D Stock. To the extent the Series D stockholders convert their Series D
Stock, the market price of the Common Stock may decrease due to the additional
shares of Common Stock coming into the market. A decrease in the market price of
the Common Stock could allow the Series D stockholders to convert their Series D
Stock into even more shares of Common Stock, perhaps further decreasing the
market price of the Common Stock. This downward pressure on the market price
caused by the conversion of Series D Stock could encourage short sales by the
Series D stockholders, which could result in the further downward pressure on
the market price of the Common Stock.
Each investor in Series D Stock shall have the right to vote, except as
otherwise required by Delaware law, on all matters on which holders of Common
Stock have the right to vote on with each such investor having the right to cast
one vote for each whole share of Common Stock into which each share of Series D
Stock held by such investor is convertible immediately prior to the record date
for the determination of stockholders entitled to vote; provided, however, that
in no event shall a holder be entitled to vote more than 9.999 percent of the
number of shares entitled to be voted on any matter. The holders of Series D
Stock have no rights to receive dividends.
-14-
The following table describes the amount of shares of Common Stock into
which the Series D Stock is convertible at various percentages of the market
price as of April 23, 1999 and the percentages of the total outstanding Common
Stock represented by such conversion of Series D Stock following such conversion
and exercise of the Series D Warrants:
Percentage of the Outstanding
Common Stock represented by the
Number of Shares of Common Stock issuable
Shares of upon conversion of the Series D
Common Stock Stock following conversion of the
issuable upon Series D Stock and exercise of the
conversion of Series D Warrants (assuming the
Market Price per share of Conversion the Series D Series D Warrants are exercised at
Common Stock Price Stock $.875 per share)
-------------- ------- ------- -----------------
At $1.0625 per share, market price
at April 23, 1999 $.50 per share 4,800,000 19.5%
At $.7969 per share (75% of market
price at April 23, 1999) $.50 per share 4,800,000 19.5%
At $.5313 per share (50% of market
price at April 23, 1999) $.50 per share 4,800,000 19.5%
At $.2656 per share (25% of market $.2656 per share 9,036,145 28.9%
price at April 23, 1999)
Description of Series D Warrants
Upon the completion of the issuance of all of the Series D Stock and
Series D Warrants, each of the investors will have received the number of Series
D Warrants that directly corresponds with the dollar amount such investor
invested in the Series D Stock and Series D Warrants. The Series D Warrants have
an exercise price of $.875 and an exercise period of five years from the date of
issuance. The exercise price of the Series D Warrants will be adjusted and the
number of shares of Common Stock to be issued upon exercise of the Series D
Warrants will be adjusted upon the occurrence of, among other things, the merger
or sale of the Company, recapitalization, reorganization or reclassification of
the Company's capital. In the event the Company issuespurchase shares of
Common Stock at a price whichnot less than 85% of the fair market value on the date of
purchase. Employees of the Company who elect to participate in the 2001 Stock
Purchase Plan (the "Participating Employees") may do so by authorizing specified
payroll deductions to effect purchases pursuant to the 2001 Stock Purchase Plan.
The purpose of the 2001 Stock Purchase Plan is belowto secure for the then market price (excluding sharesCompany and its
stockholders the benefits of the incentive inherent in the ownership of Common
Stock issuable upon conversion of Series Dby current and future employees.
The 2001 Stock and Series E Stock, as defined in
Proposal 5, and exercise of Series E Warrants, as defined in Proposal 5), the
exercise price shall be adjusted downward resulting in the issuance of
additional shares of Common Stock upon exercise of the Series D Warrants.
-15-
The following table describes the amount of shares of Common Stock for
which the Series D Warrants are exercisable at various percentages of the market
price as of April 23, 1999 and the percentages of the total outstanding Common
Stock represented by such exercise of the Series D Warrants following such
exercise and the conversion of the Series D Stock:
Percentage of the Outstanding
Common Stock represented by the
Shares of Common Stock issuable
upon exercise of the Series D
Warrants following conversion of
Number of Shares of the Series D Stock (assuming the
Common Stock issuable upon Series D Stock is converted at $.50
Exercise price of the exercise of the Series D per share) and exercise of the
Series D Warrants Warrants Series D Warrants
------------------- ---------- ------------------
At the exercise price of $.875 per
share 2,400,000 8.9%
At the exercise price of $.65625 per
share 3,200,000 11.5%
At the exercise price of $.4375 per
share 4,800,000 16.3%
At the exercise price of $.21875 per 9,600,000 28.1%
share
Reason for Stockholder Approval
Under the rules of the National Association of Securities Dealers,
issuers whose securities are listed on the Nasdaq Small Cap Market, the exchange
on which the Common Stock is listed, are required to obtain stockholder
approval, prior to the issuance of securities in connection with a transaction
other than a public offering involving:
o the sale or issuancePurchase Plan was formally adopted by the issuer of common stock (or
securities convertible intoBoard on
January 25, 2000, and would become effective if (i) either Proposal 4 or exercisable for common stock)
at a price less than (i) the greater of book or (ii) market
value of the stock, which together with sales by officers,
directors or substantial stockholders of the company equals 20
percent or more of common stock or 20 percent or more of the
voting power outstanding before the issuance; or
o the sale or issuance5 is
(A) approved by the Companyrequired vote of common stock (or
securities convertible into or exercisable to purchase common
stock) equal to 20 percent or more of the common stock or 20
percent or more of the voting power outstanding before the
issuance for less than (i) the greater of book value or (ii)
market value of the stock.
Based on the closing bid price per share of Common Stock on the Nasdaq
SmallCap Market on April 23, 1999,stockholders and assuming that all of the Series D Stock
and Series D Warrants were issued, the Common Stock issuable pursuant to the
Series D Agreement would be more than 20 percent of the shares of outstanding
-16-
Common Stock as of April 23, 1999 (assuming, and after taking into account, the
full conversion of the Series D Stock and the exercise of all of the Series D
Warrants, issued pursuant to the Series D Agreement). On a fully diluted basis,
the Common Stock issuable pursuant to the full conversion and exercise of the
Series D Stock and Series D Warrants at April 23, 1999 would be approximately
26.7 percent of the Common Stock outstanding following such conversion and
exercise. Accordingly, the full conversion and exercise of the Series D Stock
and Series D Warrants into shares of Common Stock would result in substantial
dilution to the interests of the holders of Common Stock.
Therefore,(B) implemented by the
Board seeks stockholder approval of the Company's
issuance of shares of Common Stock pursuant to the conversion or exercise, as
applicable, of the Series D Stock and Series D Warrants which, if issued to the
full extent, could potentially result in the Company issuing 20 percent or more
of the shares of Common Stock outstanding. Stockholders are being asked to
approve only(ii) this proposed issuance and are not being asked to approve any other
aspect of the proposed Series D Agreement.
STOCKHOLDER APPROVAL
A vote of the holders ofProposal 3 is approved by a majority of the shares of Common
Stock entitled to vote at the Meeting. In addition, if Proposal 5 is approved by
the stockholders and the Board effects a stock combination (reverse split), the
number of shares of Common Stock reserved for issuance will be reduced to that
number obtained by dividing 2,500,000 by that exchange ratio determined by the
Board. See "Proposal 5 - Approval of an Amendment of the Company's Certificate
of Incorporation to Effect a Reverse Split of Common Stock."
9
The following is a summary of the 2001 Stock Purchase Plan, which is
qualified in its entirety by reference to the 2001 Stock Purchase Plan, a copy
of which is annexed hereto as Exhibit B. Capitalized terms not otherwise defined
in this summary shall have the meanings given to them in the 2001 Stock Purchase
Plan text as annexed hereto as Exhibit B.
SHARES RESERVED FOR THE 2001 STOCK PURCHASE PLAN
Shares of Common Stock to be delivered pursuant to the 2001 Stock
Purchase Plan shall be made available from currently or subsequently authorized
but unissued Common Stock, treasury shares of Common Stock or a combination
thereof, up to a maximum of 2,500,000 shares of Common Stock, subject to
adjustment in the event of a subdivision or consolidation of the outstanding
shares of Common Stock or stock dividend, on the outstanding shares of Common
Stock.
VALUATION
As of August 2, 2001, the closing price of the Company's Common Stock
as reported on the OTC was $0.058.
ELIGIBILITY
All employees of the Company, including directors and officers of the
Company who are also employees of the Company, will be eligible to participate
in the 2001 Stock Purchase Plan beginning on the first day of each calendar
month coincident with or next following their date of hire and continuing for so
long as they remain employees of the Company. Approximately 43 employees of the
Company were eligible to participate in the 2001 Stock Purchase Plan as of July
27, 2001.
PURCHASE OF COMMON STOCK UNDER THE 2001 STOCK PURCHASE PLAN
Participating Employees shall direct the deduction of a specified
amount from their paycheck, to be used to effect the purchase of Common Stock
under the 2001 Stock Purchase Plan. Such deduction may constitute from 1% to 15%
of the Participating Employee's eligible compensation. A Participating Employee
may increase or decrease the percentage of eligible compensation subject to
payroll deduction or discontinue participation in the 2001 Stock Purchase Plan
at any time upon written notice to the Company.
Unless the Company is so notified prior to the beginning of each 2001
Stock Purchase Plan year, the Participating Employee shall be deemed to have
authorized continued participation in the 2001 Stock Purchase Plan for each
subsequent 2001 Stock Purchase Plan year to the same extent as at the end of the
prior 2001 Stock Purchase Plan year.
The purchase price of a share of Common Stock shall be determined from
time to time by the Company but shall not be less than 85 percent of the fair
market value of such share. The Company shall advise employees of the purchase
price in advance of their enrollment in the 2001 Stock Purchase Plan and,
following their enrollment, in advance of any change in the purchase price.
All payroll deductions of a Participating Employee shall be credited on
the records and used by the Company to effect the purchases of Common Stock
under the 2001 Stock Purchase Plan. The Company shall effect such purchases by
making quarterly offerings of Common Stock, in amounts to be determined by the
Company until the maximum number of shares of Common Stock available under the
2001 Stock Purchase Plan have been issued and purchased pursuant to the 2001
Stock Purchase Plan's terms. On the date of each such offering, each
Participating Employee shall be deemed to have been granted the option to
purchase and to have exercised such option and purchased the number of shares of
Common Stock determined by dividing the amount credited to the Participating
Employee's payroll deduction account by the then-current purchase price for such
shares. All shares of Common Stock purchased by a Participating Employee under
the 2001 Stock Purchase Plan shall be held in an account administered by a
custodian selected by the Company. Upon termination of either the Participating
Employee's employment with the Company or participation in the 2001 Stock
Purchase Plan, all shares of Common Stock credited to such account, cash in lieu
of any fractional share and all uninvested cash credited pursuant to the
10
Participating Employee's payroll deductions shall be distributed to the
Participating Employee.
The Company will not grant to any Participating Employee any option to
purchase shares of Common Stock if the exercise of such option would permit the
fair market value of all shares of Common Stock purchased by the Participating
Employee under all employee stock purchase plans of the Company to exceed
$25,000 in any calendar year, or if such exercise would cause such Participating
Employee to own 5% or more of the combined voting power or value of all classes
of the Company's stock. The Board may also require, as a condition to the
exercise of any option granted pursuant to the 2001 Stock Purchase Plan, the
listing of the shares of the Common Stock reserved for issuance upon such
exercise on a national securities exchange and the registration of such shares
under the Securities Act of 1933, as amended, or a representation from the
Participating Employee satisfactory to the Company that such exercise and
purchase are for investment purposes only and not with a view toward resale or
distribution.
Options to purchase shares of Common Stock pursuant to the 2001 Stock
Purchase Plan are not transferable, except by will and the laws of descent and
distribution and may be exercised during the lifetime of the person to whom they
were granted only by such person. Shares of Common Stock purchased under the
2001 Stock Purchase Plan shall not be transferable for a period of 12 months
from the date of purchase of such shares and shall not be transferable without
the prior written consent of the Company for an additional 12-month period
following the expiration of the initial 12-month period.
AMENDMENT AND TERMINATION
Subject to the provisions of Section 423 of the Code, the Board has the
power to amend or terminate the 2001 Stock Purchase Plan, in its sole
discretion, at any time in any respect except that any amendment or termination
may not retroactively impair or otherwise adversely affect the rights of any
person to benefits that have already accrued under the 2001 Stock Purchase Plan.
The 2001 Stock Purchase Plan shall terminate at such time as Participating
Employees become entitled to purchase a number of shares of Common Stock greater
than the number of reserved shares of Common Stock available for such purchase.
NEW PLAN BENEFITS TABLE
A table listing the estimated dollar value and number of shares that
will be purchased under the 2001 Stock Purchase Plan, or would have been
purchased under the 2001 Stock Purchase Plan had the plan been in effect in
1999, by the Company's officer and directors is indeterminable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal (and
not state and local) income tax consequences of stock purchases under the 2001
Stock Purchase Plan. It is general in nature and is not intended to cover all
tax consequences that may apply to a particular 2001 Stock Purchase Plan
participant or to the Company. The provisions of the Code and the Treasury
Regulations are complicated and their impact in any one case may depend upon the
particular circumstances. Each participant in the 2001 Stock Purchase Plan
should consult the participant's own accountant, legal counsel or other
financial advisor regarding the tax consequences of participation in the 2001
Stock Purchase Plan. This discussion is based on the Code as currently in
effect.
The 2001 Stock Purchase Plan is intended to qualify under Section 423
of the Code. Under Section 423 of the Code, an employee who purchases Common
Stock through the plan will not recognize any income, and the Company will not
be entitled to a deduction for tax purposes, at the time of the purchase for the
difference between the fair market value of the stock at the time of purchase
and the purchase price (i.e., the discount below fair market value). Generally,
if the employee holds the Common Stock for at least two years after the date of
sale or other disposition of the Common Stock the lesser of: (i) the amount by
which the fair market value of the Common Stock when purchased exceeds the
purchase price (i.e., the discount below fair market value); or (ii) the amount,
if any, by which the Common Stock's fair market value at the time of the sale or
other disposition exceeds the purchase price. The employee's tax basis in the
Common Stock will be increased by the amount recognized as compensation and any
further gain recognized on the sale or other taxable disposition will be
treated, under current tax rules, as long-term capital gain. In general, no
deduction will be allowed to the Company with respect to any such disposition.
11
However, if the employee disposes of shares of Common Stock acquired under the
2001 Stock Purchase Plan within two years after the date of purchase (a
"Disqualifying Disposition"), the employee will recognize compensation income,
and the Company (or one of its affiliates) will be entitled to a deduction for
tax purposes, in the amount of the excess of the fair market value of the shares
on the date of purchase over the purchase price (i.e., the discount below fair
market value) regardless of the amount received by the employee in connection
with the Disqualifying Disposition. The employee's tax basis in the shares
disposed of will be increased by the amount recognized as compensation and any
further gain or loss realized upon the Disqualifying Disposition will be
short-term or long-term capital gain or loss, depending upon the length of time
between the purchase and the Disqualifying Disposition of the shares.
If, in any year, an affected participant's total compensation from the
Company (including compensation related to purchases of Common Stock under the
Stock's Purchase Plan) exceeds $l,000,000, such compensation in excess of
$1,000,000 may not be deductible by the Company under Section 162(m) of the
Code. Affected participants are generally, if at all, the Company's chief
executive officer and the four most highly compensated employees of the Company
(other than the chief executive officer) at the end of the Company's taxable
year. Excluded from the calculation of total compensation for this purpose is
compensation that is "performance-based" within the meaning of Section 162(m) of
the Code. It is expected that compensation realized upon the purchase of Common
Stock under the 2001 Stock Purchase Plan may not be "performance-based" and,
therefore, that such compensation may only be deductible in accordance within
the limits of Section 162(m) of the Code.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present in person or represented by Proxy at the Meeting and entitled to vote at the Meeting is
required to approve the issuancefor approval of the shares of Common2001 Stock issuable pursuant toPurchase Plan. The Company's 1998 Stock
Option Plan and the conversion or exercise2001 Stock Option Plan will not be affected by the
stockholders' vote on the Stock Purchase Plan.
The Board believes that it is in the best interests of the Series DCompany to
implement this equity incentive program for the Company, which will provide,
with the 2001 Stock Option Plan, a meaningful opportunity for officers,
employees, and Series D Warrants.non-employee Board members to acquire a substantial proprietary
interest in the Company and thereby encourage such individuals to remain in the
Company's service and more closely align their interests with those of the
stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 54
APPROVAL OF AN AMENDMENT OF THE ISSUANCECOMPANY'S
CERTIFICATE OF ADDITIONAL SHARES OFINCORPORATION TO INCREASE
THE AUTHORIZED COMMON STOCK
UPON CONVERSION OF SERIES E CONVERTIBLE PREFERRED STOCK
General
AsGENERAL
On June 27, 2001, the Board unanimously adopted a resolution proposing,
declaring advisable and recommending a proposal to amend the Certificate of
February 2, 1999, the Company entered into a Securities Purchase
Agreement (the "Series E Agreement") with certain investors for an aggregate
purchase price of upIncorporation to $4.655 million and as of February 19, 1999, the Company
entered into an Exchange Agreement (the "Exchange Agreement") with certain
investors for a conversion of debt into equity of approximately $1.15 million.
The Series E Agreement and Exchange Agreement provide for the private placement
by the Company of up to 1,250 units.
Each unit consists of the following securities:
o one share of Series E Convertible Preferred Stock (the "Series E
Stock"); and
o 5,000 warrants (the "Series E Warrants") exercisable for shares of
Common Stock.
The Series E Stock is immediately convertible into shares of Common
Stock as more fully described below.
-17-
The Company will not be able, pursuant to the Series E Agreement and
Exchange Agreement, to issue at a price below the market price an aggregate
amount of shares of Common Stock equal to 20 percent or more of the outstanding
Common Stock of the Company unless this proposal is approved by the Company's
stockholders. See below "Reason for Stockholder Approval." In the event that
approval is not obtained from stockholders, the Company will issue, upon proper
notification from the investors, Common Stock upon conversion of Series E Stock
and exercise of Series E Warrants at a price below the market price up to the
agreed upon pro rata amounts not to exceed 20 percent of the Company's Common
Stock then outstanding, and all additional shares of Common Stock issued upon
conversion of the Series E Stock or exercise of the Series E Warrants will be
issued at the market price of the Common Stock on the applicable conversion or
exercise date.
The Company intends to use the proceeds from the sale of the Series E
Stock and Series E Warrants for working capital and general corporate purposes.
Funding Pursuant to the Series E Agreement and Exchange Agreement
Series E Agreement
Pursuant to the Series E Agreement, the Company has issued and sold or
converted for debt $4.405 million of Series E Stock and Series E Warrants. The
Company shall issue and sell to the investors an additional $0.25 million of
Series E Stock and Series E Warrants within two business days after the SEC has
declared effective the Registration Statement filed with the SEC.
Exchange Agreement
Pursuant to the Exchange Agreement, if this proposal is passed by the
majority of shares of Common Stock entitled to vote at this Meeting, the Company
would issue Series E Stock and Series E Warrants in exchange for $1.15 million
of debt.
Description of Series E Stock
The Series E Stock is immediately convertible into shares of the
Company's Common Stock at a floating conversion rate that is significantly below
market price as of April 23, 1999, which is the lesser of (A) $.50 and (B) an
amount equal to 70 percent of the closing bid price per share of Common Stock on
the Nasdaq SmallCap Market for the three trading days having the lowest closing
bid price during the 30 trading days prior to the date on which the applicable
investor gives to the Company notice of conversion of Series E Stock. As a
result of this floating conversion rate, the lower the market price for a share
of Common Stock, the more shares of Common Stock will be issued upon conversion
of the Series E Stock. Accordingly, there is theoretically no limit onincrease the number of shares of Common Stock which maythe Company
is authorized to issue from 200,000,000 to 500,000,000 shares. The Board
determined that such amendment is advisable and directed that the proposed
amendment be issued upon conversion ofconsidered at the Series E Stock. To the extent the Series E stockholders convert their Series E
Stock, the market price of the Common Stock may decrease due to theMeeting. The additional 300,000,000 shares of
Common Stock, coming intoif and when issued, will have the market. A decrease insame rights and privileges as
the market price of
the Common Stock could allow the Series E stockholders to convert their Series E
Stock into even more shares of Common Stock perhaps further decreasing the
market pricepresently issued and outstanding. Each holder of
the Common Stock. This downward pressure on the market price
caused by the conversion of Series E Stock could encourage short sales by the
Series E stockholders, which could result in further downward pressure on the
market price of the Common Stock.
-18-
Each investor in Series E Stock shall have the rightis entitled to one vote except as
otherwise required by Delaware law,per share on all matters on whichsubmitted to a
vote of stockholders. The Common Stock does not have cumulative voting rights
except for those as may be required under California law. The holders of Common
Stock haveshare ratably on a per share basis in any dividends when, as and if
declared by the right to vote onBoard out of funds legally available therefor and in all assets
remaining after the payment of liabilities in the event of the liquidation,
dissolution or winding up of the Company. There are no preemptive or other
subscription rights, conversion rights or redemption or sinking fund provisions
with each such investor having the right to cast
one vote for each whole share of Common Stock into which each share of Series E
Stock held by such investor is convertible immediately priorrespect to the recordCommon Stock.
12
Reference is made to the proposed amendment to Article Fourth of the
Certificate of Incorporation which is attached hereto as Exhibit C to this Proxy
Statement.
The Certificate of Incorporation, as amended to date, forauthorizes the
determination of stockholders entitledCompany to vote. The holders of Series E
Stock have no rights to receive dividends.
The following table describes the amount ofissue 200,000,000 shares of Common Stock, into$.005 par value per share,
of which the Series E Stock is convertible at various percentages170,901,065 shares were issued and outstanding as of July 27, 2001, and
100,000 shares of the market
price asCompany's preferred stock, par value $1,000.00 per share
(the "Preferred Stock"), of April 23, 1999 andwhich 420.5 shares of 5% Convertible Stock were
outstanding on such date. In addition to the percentages of the total outstanding Common
Stock represented by such conversion of Series E Stock following such conversion
and the exercise of the Series E Warrants:
Percentage of the Outstanding
Common Stock represented by the
Number of Shares of Common Stock issuable
Shares of upon conversion of the Series E
Common Stock Stock following conversion of
issuable upon Series E Stock and exercise of
the conversion the Series E Warrants (assuming
Market Price per share of Conversion of the Series E Warrants are
Common Stock Price Series E Stock exercised at $.875 per share)
------------------- ---------- ------------------ ------------------
At $1.0625 per share, market price
at April 23, 1999 $.50 per share 12,500,000 32.4%
At $.7969 per share (75% of market
price at April 23, 1999) $.50 per share 12,500,000 32.4%
At $.5313 per share (50% of market
price at April 23, 1999) $.50 per share 12,500,000 32.4%
At $.2656 per share (25% of market $.2656 per share 23,531,626 47.4%
price at April 23, 1999)
Description of Series E Warrants
Upon the completion of the issuance of all of the Series E Stock and
Series E Warrants, each of the investors will have received the number of Series
E Warrants that directly corresponds with the dollar amount such investor
invested in the Series E Stock and Series E Warrants. The Series E Warrants have
an exercise period of $.875 and an exercise term of five years from the date of
issuance. The exercise price of the Series E Warrants will be adjusted and the
number of170,901,065 shares of Common Stock
to be issued upon exerciseoutstanding as of the Series E
Warrants will be adjusted upon the occurrence of, among other things, the merger
or sale of the Company, recapitalization, reorganization or reclassification of
the Company's capital. In the event the Company issuesJuly 27, 2001, 6,923,759 shares of Common Stock are reserved
for possible future issuances as follows:
o options to purchase 682,185 shares at exercise prices between
$.30 and $8.45 per share;
o warrants to purchase 6,229,559 shares at exercise prices
between $1.00 and $7.50 per share; and
o 12,015 shares issuable upon conversion of 420.5 shares of 5%
Convertible Stock currently outstanding. The Company expects
the remaining shares of 5% Convertible Stock outstanding to be
cancelled and replaced by cash or equity, or a price whichcombination of
both. The 5% Convertible Stock is belowconvertible into Common
Stock at the then market price (excludingdiscretion of the holders.
The Company is contractually obligated to issue 2,272,375 shares of
Common Stock issuable upon conversion of Series D Stock and Series E Stock and exercise of
Series D Warrants),more than the exercise price shall be adjusted downward resulting in
the issuance of additional200,000,000 shares of Common Stock upon exercise of the Series E
Warrants.
-19-
The following table describes the amount of shares of Common Stock for
which the Series E Warrants are exercisable at various percentages of the market
price as of April 23, 1999 and the percentages of the total outstanding Common
Stock represented by such exercise of the Series E Warrants following such
exercise and the conversion of the Series E Stock:
Percentage of the Outstanding
Common Stock represented by the
Shares of Common Stock issuable
upon exercise of the Series E
Warrants following conversion of
Number of Shares of the Series E Stock (assuming the
Common Stock issuable upon Series E Stock is converted at $.50
Exercise price of the exercise of the Series E per share) and exercise of the
Series E Warrants Warrants Series E Warrants
------------------- ---------- ------------------
At the exercise price of $.875 per
share 6,250,000 16.2%
At the exercise price of $.65625 per
share 8,333,333 20.4%
At the exercise price of $.4375 per
share 12,500,000 27.9%
At the exercise price of $.21875 per 25,000,000 43.6%
share
Reason for Stockholder Approval
Under the rules of the National Association of Securities Dealers,
issuers whose securities are listed on the Nasdaq Small Cap Market, the exchange
on which the Common Stock is listed, are required to obtain stockholder
approval, prior to the issuance of securities in connection with a transaction
other than a public offering involving:
o the sale or issuance by the issuer of common stock (or
securities convertible into or exercisable for common stock)
at a price less than (i) the greater of book or (ii) market
value of the stock, which together with sales by officers,
directors or substantial stockholders of the company equals 20
percent or more of common stock or 20 percent or more of the
voting power outstanding before the issuance; or
o the sale or issuance by the Company is
currently authorized to issue. Accordingly, the Company is in violation of
common stock (or
securities convertible into or exercisable to purchase common
stock) equal to 20 percent or morecertain of the common stock or 20
percent or more of the voting power outstanding before the
issuance for less than the greater of (i) book value or (ii)
market value of the stock.
Based on the closing bid price per share of Common Stock on the Nasdaq
SmallCap Market on April 23, 1999, and assuming that all of the Series E Stock
and Series E Warrants were issued, the Common Stock issuable pursuant to the
Series E Agreement and the Exchange Agreementits contractual violations as it would be more than 20 percent of
-20-
the shares of outstanding Common Stock as of April 23, 1999 (assuming, and after
taking into account, the full conversion of the Series E Stock and the exercise
of all of the Series E Warrants, issued pursuantunable to the Series E Agreement and
Exchange Agreement). On a fully diluted basis, the Common Stock issuable
pursuant to the full conversion and exercise of the Series E Stock and Series E
Warrants at April 23, 1999 would be approximately 48.6 percent of the Common
Stock outstanding following such conversion and exercise. Accordingly, full
conversion and exercise of the Series E Stock and Series E Warrants into shares
of Common Stock would result in substantial dilution to the interests of the
holders of Common Stock.
Therefore, the Board seeks stockholder approval of the Company's
issuance ofissue any shares
of Common Stock pursuant to (a) the exercise of options or warrants or (b) the
conversion of 5% Convertible Stock, if any such issuance would cause the Company
to issue more than 200,000,000 shares of Common Stock. Breaches of such
contractual obligations could cause the Company to accrue substantial
liabilities.
PURPOSES AND CERTAIN POSSIBLE EFFECTS OF INCREASING THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK
The Company has historically either publicly offered or exercise of the
Series E Stockprivately
placed its capital stock to raise funds to finance its operations, including
research and Series E Warrants which, ifdevelopment and product development activities, and has issued
securities to the full extent, could
potentially resultmanagement, non-management employees and consultants. The Company
expects to continue to make substantial expenditures for research and product
development and in the development and marketing of products. The Company
issuing 20 percentcontinues to actively explore and negotiate additional financing that it
requires. The Company may also seek acquisitions of other companies, products
and assets. These activities are likely to require the Company to sell shares of
Common Stock or moresecurities convertible into or exchangeable for Common Stock.
The Company has, at times in the past, sold shares or securities instruments
exercisable or convertible into shares at below the market price of its Common
Stock at the date of issuance and may be required to do so in the future in
order to raise financing.
The Board acknowledges that the increase in the number of authorized
shares of Common Stock at this time will provide the Company with the ability to
issue the shares of Common Stock outstanding. Stockholders are being askedit is currently obligated to approve only this
proposed issuanceissue pursuant to
the exercise and are not being asked to approve any other aspectconversion of outstanding convertible securities and thereby
avoid certain contractual liabilities described above, and also provide it with
the Series E Agreement and Exchange Agreement.
STOCKHOLDER APPROVAL
A voteflexibility of the holdershaving an adequate number of a majority of theauthorized but unissued shares
of Common Stock issuedavailable for future financing requirements, including for
funding research and outstanding, presentproduct development, acquisitions and other corporate
purposes (including issuances pursuant to the 2001 Stock Option Plan) without
the expense or delay attendant in personseeking stockholder approval at any special or
represented by Proxy at the Meeting
and entitled to vote at the Meeting, is required to approve the issuance ofother annual meeting. The proposed amendment would provide additional authorized
shares of Common Stock issuable upon conversion and exercisethat could be used from time to time, without further
action or authorization by the stockholders (except as may be required by law or
by any stock exchange or over-the-counter market on which the Company's
securities may then be listed).
Although it is not the purpose of the Series E
Stockproposed amendment and Series E Warrants.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS
PROPOSAL.
PROPOSAL 6
RATIFICATION OF INDEPENDENT AUDITORS
Thethe Board
has appointed the firmis not aware of Boros & Farrington APC, independent
public auditors forany pending or proposed effort to acquire control of the
Company, during the 1998 Fiscal Year,authorized but unissued shares of Common Stock also could be used
by the Board to servediscourage, delay or make more difficult a change in control of
the same capacity forCompany.
This proposed amendment will not affect the year ending June 30, 1999,rights of existing holders
of Common Stock except to the extent that further issuances of Common Stock will
reduce each existing stockholder's proportionate ownership. In
13
the event that stockholder approval of this proposed amendment of the
Certificate of Incorporation to increase the authorized Common Stock is not
obtained, the Company will be unable to satisfy its exercise and is askingconversion
obligations under the stockholders
to ratify this appointment. Theterms of certain of its outstanding convertible securities
and holders of such convertible securities may commence legal proceedings
against us.
STOCKHOLDER APPROVAL
In accordance with the Delaware General Corporation Law and the
Certificate of Incorporation, the affirmative vote of a majority of the shares
represented and voting at the Meeting is required to ratifyadopt this proposed
amendment.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 5
APPROVAL OF AN AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE SPLIT
OF THE COMMON STOCK
GENERAL
The Board has unanimously adopted resolutions proposing, declaring
advisable and recommending that stockholders authorize an amendment to the
selectionCertificate of Boros & Farrington APC.
InIncorporation to: (i) effect a stock combination (reverse split)
of the eventCompany's Common Stock in an exchange ratio to be approved by the stockholders failBoard,
ranging from one (1) newly issued share for each ten (10) outstanding shares of
Common Stock to ratifyone (1) newly issued share for each twenty (20) outstanding
shares of Common Stock (the "Reverse Split"); and (ii) provide that no
fractional shares or scrip representing fractions of a share shall be issued,
but in lieu thereof, each fraction of a share that any stockholder would
otherwise be entitled to receive shall be rounded up to the appointment,nearest whole share.
There will be no change in the number of the Company's authorized shares of
Common Stock and no change in the par value of a share of Common Stock.
If the Reverse Split is approved, the Board will reconsider its selection. Evenhave authority,
without further stockholder approval, to effect the Reverse Split pursuant to
which the Company's outstanding shares (the "Old Shares") of Common Stock would
be exchanged for new shares (the "New Shares") of Common Stock, in an exchange
ratio to be approved by the Board, ranging from one (1) New Share for each ten
(10) Old Shares to one (1) New Share for each twenty (20) Old Shares. The number
of Old Shares for which each New Share is to be exchanged is referred to as the
"Exchange Number". The Exchange Number may, within such range, be a whole number
or a whole number and fraction of a whole number.
In addition, the Board will have the authority to determine the exact
timing of the effective date and time of the Reverse Split, which may be any
time prior to the filing of the Form 10-K for fiscal 2002, without further
stockholder approval. Such timing and Exchange Number will be determined in the
judgment of the Board, with the intention of maximizing the Company's ability to
comply with the listing requirements of The Nasdaq Stock Market, Inc.
("Nasdaq"), to raise financing, to issue shares of Common Stock pursuant to
outstanding contractual obligations, and for other intended benefits as the
Company finds appropriate. See "-- Purposes of the Reverse Split," below. The
text of this proposed amendment (subject to inserting the effective time of the
Reverse Split and the Exchange Number) is set forth in Exhibit D to this Proxy
Statement.
The Board also reserves the right, notwithstanding stockholder approval
and without further action by stockholders, to not proceed with the Reverse
Split if, at any time prior to filing this amendment with the selection is ratified,Secretary of State
of the State of Delaware, the Board, in its sole discretion, may directdetermines that the
appointment of a different independent auditing
firm at any time during the year if the Board believes that such a change would
beReverse Split is no longer in the best interests of the Company and its
stockholders. The Board may consider a variety of factors in determining whether
or not to implement the Reverse Split and in determining the Exchange Number
including, but not limited to, the approval by the stockholders of Proposal 4
which would increase the number of the authorized Common Stock, overall trends
in the stock market, recent changes and anticipated trends in the per share
market price of the Common Stock, business and transactional developments and
the Company's actual and projected financial performance.
14
PURPOSES OF THE REVERSE SPLIT
The Common Stock is quoted on the OTC but had been, prior to being
delisted on March 1, 2000, quoted on The Nasdaq SmallCap Market. In order for
the Common Stock to be relisted on The Nasdaq SmallCap Market, the Company and
its Common Stock are required to comply with various listing standards
established by Nasdaq. Among other things, as such requirements pertain to the
Company, the Company is required to have a market capitalization of at least
$50,000,000 and its Common Stock must (a) have an aggregate market value of
shares held by persons other than officers and directors of at least $5,000,000,
(b) be held by at least 300 persons who own at least 100 shares and (c) have a
minimum bid price of at least $4.00 per share.
Under Nasdaq listing requirements, to be listed or relisted, the
Company must demonstrate the ability to maintain a minimum bid price of at least
$4.00 per share. Although there are no strict guidelines in regard to how such
an ability to maintain stock price is to be demonstrated, at least a month of
consistent closing prices of more than $4.00 per share may be necessary for
NASDAQ consideration. Furthermore, if relisted, under Nasdaq's listing
maintenance standards, if the closing bid price of the Common Stock falls under
$1.00 per share for 30 consecutive business days and does not thereafter regain
compliance for a minimum of 10 consecutive business days during the 90 calendar
days following notification by Nasdaq of failure to comply with listing
maintenance requirements, Nasdaq may again delist the Common Stock from trading
on The Nasdaq SmallCap Market. The closing bid price on August 2, 2001 was
$0.058 on the OTC. Prior to being delisted, the bid price of the Company's
Common Stock closed on The Nasdaq SmallCap Market below $1.00 per share from
July 29, 1999 to November 29, 1999 and did not again have a minimum closing bid
price of at least $1.00 for 10 consecutive days until the period between
February 10, 2000 and March 1, 2000. The principal purpose of the Reverse Split
is to increase the market price of the Common Stock in order that the market
price of the Common Stock is well above the Nasdaq minimum bid requirement for
relisting and if relisted could better maintain the $1.00 maintenance
requirement (which does not adjust for the Reverse Split). The OTC on which the
Common Stock is now traded is generally considered to be a less efficient
market.
The purpose of the Reverse Split also would be to increase the market
price of the Common Stock in order to make the Common Stock more attractive to
raise financing (and, therefore, both raise cash to support the Company's
operations and increase the Company's net tangible assets to facilitate
compliance with Nasdaq requirements), and as a possible currency for
acquisitions and other transactions. The Common Stock traded on the OTC from
approximately $0.05 to approximately $0.97 from April 1, 2000 through July 27,
2001. This has reduced the attractiveness of using the Common Stock or
instruments convertible or exercisable into Common Stock in order to raise
financing to support the Company's operations and to increase the Company's net
worth and as consideration for potential acquisitions (which, when coupled with
the Company's need to deploy its available cash for operations, has rendered
acquisitions difficult to negotiate). Furthermore, the Company believes that
relisting the Company's Common Stock on The Nasdaq SmallCap Market may provide
the Company with a broader market for its Common Stock and, therefore,
facilitate the use of the Common Stock in acquisitions and financing
transactions in which the Company may engage.
THERE CAN BE NO ASSURANCE, HOWEVER, THAT, EVEN AFTER CONSUMMATING THE
REVERSE SPLIT, THE COMPANY WILL MEET THE MINIMUM BID PRICE FOR RELISTING AND
OTHERWISE MEET THE REQUIREMENTS OF NASDAQ FOR INCLUSION FOR TRADING ON THE
NASDAQ SMALLCAP MARKET, OR THAT IT WILL BE ABLE TO UTILIZE ITS COMMON STOCK IN
ORDER TO EFFECTUATE FINANCING OR ACQUISITION TRANSACTIONS.
Furthermore, the Company is contractually obligated to issue 2,272,375
shares of Common Stock more than the 200,000,000 shares of Common Stock the
Company is currently authorized to issue. Accordingly, the Company is in
violation of certain of its contractual violations as it would be unable to
issue any shares of Common Stock pursuant to the exercise of options or warrants
or the conversion of 5% Convertible Stock if any such issuance would cause the
Company to issue more than 200,000,000 shares of Common Stock. A Reverse Split
would allow the Company to issue shares pursuant to its contractual obligations
as it would reduce the number of shares of Common Stock outstanding and make
available shares of authorized Common Stock to issue as required.
15
In addition, the Reverse Split would make available the required number
of authorized shares of Common Stock needed to implement the 2001 Stock Option
Plan.
Giving the Board authority to implement the Reverse Split will help
avoid the necessity of calling a special meeting of stockholders under time
constraints to authorize a reverse split should it become necessary in order to
seek to effectuate a financing or acquisition transaction or to meet Nasdaq's
listing maintenance criteria at a future time.
The Reverse Split will not change the proportionate equity interests of
the Company's stockholders, nor will the respective voting rights and other
rights of stockholders be altered, except for possible immaterial changes due to
rounding up to eliminate fractional shares. The Common Stock issued pursuant to
the Reverse Split will remain fully paid and nonassessable. The Company will
continue to be subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended.
CERTAIN EFFECTS OF THE REVERSE SPLIT
The following table illustrates the principal effects of the Reverse
Split to the 170,901,065 shares of Common Stock outstanding as of July 27, 2001:
Prior to After 1-for-10 After 1-for-15 After 1-for-20
Reverse Stock Reverse Stock Reverse Stock Reverse Stock
Number of Shares Split Split Split Split
- ---------------- ------- ------- ------- -------
Common Stock:
Authorized (1)............................... 200,000,000 200,000,000 200,000,000 200,000,000
Outstanding (2)............................. 170,901,065 17,090,106 12,817,579 8,545,053
----------- ---------- ---------- ---------
Available for Future
Issuance............................... 29,098,935 172,909,894 177,182,421 181,454,947
- -----------------------------
(1) If Proposal 4 is approved by the stockholders, there would be 500,000,000
shares of Common Stock authorized.
(2) Gives effect to the Reverse Split, excluding New Shares to be issued in lieu
of fractional shares. Excludes, on a pre-Reverse Split basis: 12,015 shares
of Common Stock subject to potential issuance upon conversion of the
outstanding shares of 5% Convertible Stock; approximately 6,911,744 shares
of Common Stock which were subject to outstanding options and warrants; and
7,500,000 additional shares of Common Stock which would be available for the
grant of future options if the 2001 Stock Option Plan and 2001 Stock
Purchase Plan were instituted. The number of shares of Common Stock issuable
upon conversion of the 5% Convertible Stock may be dependent upon the market
price of Common Stock. Accordingly, the actual number of shares of Common
Stock issued upon conversion of the 5% Convertible Stock may not be
determined at this time. Upon effectiveness of the Reverse Split, each
option and warrant would entitle the holder to acquire a number of shares
equal to the number of shares which the holder was entitled to acquire prior
to the Reverse Split divided by the Exchange Number at the exercise price in
effect immediately prior to the Reverse Split multiplied by the Exchange
Number.
16
Stockholders should recognize that, if the Reverse Split is
effectuated, they will own a fewer number of shares than they presently own (a
number equal to the number of shares owned immediately prior to the filing of
the amendment regarding the Reverse Split divided by the Exchange Number, as
adjusted to include New Shares to be issued in lieu of fractional shares). While
the Company expects that the Reverse Split will result in an increase in the
market price of the Common Stock, there can be no assurance that the Reverse
Split will increase the market price of the Common Stock by a multiple equal to
the Exchange Number or result in a permanent increase in the market price (which
is dependent upon many factors, including the Company's performance and
prospects). Also, should the market price of the Company's Common Stock decline
after the Reverse Split, the percentage decline may be greater than would
pertain in the absence of the Reverse Split. Furthermore, the possibility exists
that liquidity in the market price of the Common Stock could be adversely
affected by the reduced number of shares that would be outstanding after the
Reverse Split. In addition, the Reverse Split will increase the number of
stockholders of the Company who own odd-lots (less than 100 shares).
Stockholders who hold odd-lots typically will experience an increase in the cost
of selling their shares, as well as greater difficulty in effecting such sales.
In addition, an increase in the number of odd-lot holders will reduce the number
of holders of round lots (100 or more shares), which could adversely affect the
Nasdaq listing requirement that the Company have at least 300 round lot holders.
Consequently, there can be no assurance that the Reverse Split will achieve the
desired results that have been outlined above.
Stockholders should also recognize that, as indicated in the foregoing
table, there will be an increase in the number of shares which the Company will
be able to issue from authorized but unissued shares of Common Stock. As a
result of any issuance of shares, the equity and voting rights of holders of
outstanding shares may be diluted.
PROCEDURE FOR EFFECTING REVERSE SPLIT AND EXCHANGE OF STOCK CERTIFICATES
If this amendment is approved by the Company's stockholders, and if the
Board still believes that the Reverse Split is in the best interests of the
Company and its stockholders, the Company will file the amendment with the
Secretary of State of the State of Delaware at such time as the Board has
determined the appropriate Exchange Number and the appropriate effective time
for such split. The Board may delay effecting the Reverse Split which may be any
time prior to the filing of the Form 10-K for fiscal 2002, without further
stockholder approval. The Reverse Split will become effective on the date of
filing the amendment at the time specified in the amendment (the "Effective
Time"). Beginning at the Effective Time, each certificate representing Old
Shares will be deemed for all corporate purposes to evidence ownership of New
Shares.
As soon as practicable after the Effective Time, stockholders will be
notified that the Reverse Split has been effected and of the exact Exchange
Number. The Company expects that its transfer agent will act as exchange agent
(the "Exchange Agent") for purposes of implementing the exchange of stock
certificates. Holders of Old Shares will be asked to surrender to the Exchange
Agent certificates representing Old Shares in exchange for certificates
representing New Shares in accordance with the procedures to be set forth in a
letter of transmittal to be sent by the Exchange Agent. No new certificates will
be issued to a stockholder until such stockholder has surrendered such
stockholder's outstanding certificate(s) together with the properly completed
and executed letter of transmittal to the Exchange Agent. Any Old Shares
submitted for transfer, whether pursuant to a sale or other disposition, or
otherwise, will automatically be exchanged for New Shares at the exchange ratio.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY
CERTIFICATE UNTIL REQUESTED TO DO SO BY THE COMPANY OR THE EXCHANGE AGENT.
FRACTIONAL SHARES
No scrip or fractional certificates will be issued in connection with
the Reverse Split. Any fraction of a share that any stockholders of record
otherwise would be entitled to receive shall be rounded up to the nearest whole
share.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights
with respect to the proposed amendment.
17
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following is a summary of certain material U.S. federal income tax
consequences of the Reverse Split and does not purport to be complete. 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 holders that
are subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. The discussion is
based on the provisions of the U.S. 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 Old Shares were, and the New Shares will be, held
as a "capital asset," as defined in the Code (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 SPLIT.
The Reverse Split is an isolated transaction and is not part of a plan
to periodically increase any stockholder's proportionate interest in the assets
or earnings and profits of the Company. As a result, no gain or loss should be
recognized by a stockholder of the Company upon such stockholder's exchange of
Old Shares for New Shares pursuant to the Reverse Split. The aggregate tax basis
of the New Shares received in the Reverse Split will be the same as the
stockholder's aggregate tax basis in the Old Shares exchanged therefor. The
stockholder's holding period for the New Shares will include the period during
which the stockholder held the Old Shares surrendered in the Reverse Split.
REQUIRED VOTE
In accordance with the Delaware General Corporation Law and the
Certificate of Incorporation, the affirmative vote of a majority of the shares
represented and voting at the Meeting is required to adopt this proposed
amendment. As a result, any shares not voted (whether by abstention, broker
non-vote or otherwise) will have the same effect as a vote against the proposal.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 6
APPROVAL OF AN AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO CHANGE THE
PAR VALUE OF THE PREFERRED STOCK
GENERAL
On June 27, 2001, the Board unanimously adopted a resolution proposing,
declaring advisable and recommending a proposal to amend the Certificate of
Incorporation to change the par value per share of the Company's Preferred Stock
from $1,000 per share to $0.01 per share. The Board determined that such
amendment is advisable and directed that the proposed amendment be considered at
the Meeting. The decrease in par value shall reduce state franchise taxes and
fees which are based on the par value of authorized capital.
Reference is made to the proposed amendment to Article Fourth of the
Certificate of Incorporation which is attached hereto as Exhibit C to this Proxy
Statement.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights
with respect to the proposed amendment.
REQUIRED VOTE
In accordance with the Delaware General Corporation Law and the
Certificate of Incorporation, the affirmative vote of a majority of the shares
represented and voting at the Meeting is required to adopt this proposed
18
amendment. As a result, any shares not voted (whether by abstention, broker
non-vote or otherwise) will have the same effect as a vote against the proposal.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 7
RATIFICATION OF INDEPENDENT AUDITORS
The accounting firm of Boros & Farrington APC served as the Company's
independent public auditors during the fiscal year ended June 30, 2000. A
representative of Boros & Farrington APC is expected to be present at the
Meeting, will have the opportunity to make a statement if he or she desires to
do so, and will be available to respond to appropriate questions.
-21-
Approval by the stockholders of the appointment of independent auditors
is not required but the Board deems it desirable to submit this matter to the
stockholders. If a majority of the common stock present and entitled to vote at
the meeting should not approve the selection of Boros & Farrington APC, the
Board shall reconsider the proposal.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF BOROS & FARRINGTON APC TO
SERVE AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING JUNE 30, 1999.THIS PROPOSAL.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Meeting. If any other matters properly come before the
Meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the shares they represent as the Board may recommend. Discretionary
authority with respect to such other matters is granted by the execution of the
enclosed Proxy.
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of Common Stock as of April 20, 1999,July 27, 2001, by
(i) all persons who are beneficial owners of five percent (5%) or more of the
Common Stock, (ii) each director and nominee for director, (iii) the applicable
executive officers named in the Summary Compensation Table of the Executive
Compensation and Other Information section of this Proxy Statement and (iv) all
current directors and executive officers as a group. Unless otherwise indicated,
each of the stockholders has sole voting and investment power with respect to
the shares beneficially owned, subject to community property laws, where
applicable.
In
regard to Balmore Funds S.A. and Austost Anstalt Schaan, these investors have
contractually agreed pursuant to the Series D Agreement not to hold at any given
time more than 9.999 percent of the outstanding shares of Common Stock.
Percentage
Shares of Common Of Shares Of Common
Stock Beneficially Stock Beneficially
Beneficial Ownership of Common Stock Owned OwnedPERCENTAGE
SHARES OF COMMON OF SHARES OF COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY
BENEFICIAL OWNERSHIP OF COMMON STOCK OWNED OWNED (1)
------------------------------------ ------- --------------- -----
Harry J. Saal Trust UTA Dated 7/19/72 (2)............... 5,604,333 22.1%
Software Technology, Inc.(3)............................ 3,790,000 17.6
American Industries, Inc.(4)............................ 3,172,099 15.4
Balmore Funds S.A. (5).................................. 3,000,000 13.2
Austost Anstalt Schaan (6).............................. 3,000,000 13.2
Filter International Corp. (7).......................... 2,274,521 7.9
The Cuttyhunk Fund Limited (8).......................... 1,500,000 7.0
Saal Family Charitable Lead Trust UTA Dated
2/25/98 (9)........................................... 1,118,767 5.5
Edward W. Savarese (10)................................. 300,000 1.5
A. L. Dubrow (11)....................................... 224,940 1.1
Brian Bonar (12)........................................ 108,125(2) 625,000 *
Christopher McKee (13).................................. 60,833 *
-22-
Percentage
Shares of Common Of Shares Of Common
tock Beneficially Stock Beneficially
Owned Owned (1)
------- ----------
Frank Leonardi (14)..................................... 55,729 *
Joseph Pfeuffer (15).................................... 55,000 *
David M. Carver (16).................................... 30,000(3) 415,000 *
Philip Englund (17)..................................... 17,000(4) 372,000 *
Warren T. Lazarow (16).................................. 10,000Richard H. Green * *
Robert A. Dietrich * *
19
Eric W. Gaer * *
Stephen J. Fryer * *
All current directors and executive officers 1,400,000 *
as a group (9(7 persons) (18)....................................... 6,465,960 24.9(5)
- ---------------------------------------------------------
* Represents lessLess than one percent of the outstanding Common Stock.Stock
(1) Percentage of ownership is based on 19,820,915170,901,065 shares of Common Stock
outstanding on April 20, 1999.July 27, 2001. Shares of Common Stock subject to stock
options warrants and convertible securities which are currently
exercisable or convertible or will become exercisable or convertible
within 60 days after April 20, 1999July 27, 2001 are deemed outstanding for computing
the percentage of the person or group holding such options, warrants or
convertible securities but are not deemed outstanding for computing the
percentage of any other person or group.
(2) Harry J. Saal is a trustee of the Harry J. Saal Trust UTA Dated
7/19/72, 1955 Bryant Street, Palo Alto, CA 94301. Includes 3,031,073
shares issuable upon exercise of warrants that are currently
exercisable or will become exercisable within 60 days after April 20,
1999. Includes also 2,470,000 shares issuable upon the conversion of
Series E Stock into shares of Common Stock assuming that the conversion
rate used is $.50 (see "Proposal 5 Approval of the Issuance of
Additional Shares of Common Stock Upon Conversion of Series E
Convertible Preferred Stock"). Includes also 100,000 shares issuable
upon exercise of stock options that are currently exercisable or will
become exercisable within 60 days after April 20, 1999.
(3) The address of the beneficial owner is Software Technology, Inc., #501
Dongwoo Building, Kangnam Gu, Seoul, South Korea 135-80, Attn: Woo
Young Kim. Includes 1,000,000 shares issuable upon the conversion of
100 outstanding shares of Series E Stock (see "Proposal 5 Approval of
the Issuance of Additional Shares of Common Stock Upon Conversion of
Series E Convertible Stock"). Includes also 70,000 shares issuable upon
exercise of warrants, including 500,000 shares issuable upon exercise
of Series E Warrants, that are currently exercisable or will become
exercisable within 60 days after April 20, 1999.
If Proposals 4 and 5 of this proxy statement are approved by a majority
of the shares of Common Stock entitled to vote at the Meeting, Software
Technology, Inc. could, if it converted all or a significant portion of
its Series E Stock and/or exercised all or a significant portion of its
Series E Warrants exercise significant control over the Company.
(4) The address of the beneficial owner is American Industries, Inc., 1750
N.W. Front Avenue, Suite 106, Portland, Oregon 97209, Attn.: Howard
Hedinger, President. Includes 340,000 shares of common stock issuable
upon exercise of warrants. Includes also 432,099 shares of common stock
-23-
issuable upon conversion of a convertible subordinated promissory note.
The information contained in this footnote is based solely upon
information contained in a Schedule 13D/A dated April 5, 1999 filed
with the SEC and the Company by American Industries, Inc.
(5) The address of the beneficial owner is Trident Chambers, P.O. Box 146,
Roadstown Tortola, British Virgin Islands, Attn.: Francois Morax.
Includes 2,000,000 shares issuable upon the conversion of (i) 375
outstanding shares of Series D Stock and (ii) 125 shares of Series D
Stock to be issued within two business days of the declaration of
effectiveness of the Registration Statement by the SEC, into shares of
Common Stock (see "Proposal 4 Approval of the Issuance of Additional
Shares of Common Stock Upon Conversion of Series D Convertible Stock").
Includes also 1,000,000 shares issuable upon exercise of Series D
Warrants that are currently exercisable or will become exercisable
within 60 days after April 20, 1999.
If Proposals 4 and 5 of this proxy statement are approved by a majority
of the shares of Common Stock entitled to vote at the Meeting, Balmore
Funds S.A. could, if it converted all or a significant portion of its
Series D Stock and/or exercised all or a significant portion of its
Series D Warrants, exercise significant control over the Company.
However, pursuant to the Series D Agreement, Balmore Funds S.A. has
agreed that it can in no event, without providing prior notice to the
Company of at least 75 days, convert Series D Stock into shares of
Common Stock if such conversion would cause its holding of shares of
Common Stock to be greater than 9.999 percent of the outstanding shares
of Common Stock. Furthermore, pursuant to the Series D Agreement,
Balmore S.A. has agreed that it may not vote more than 9.999 percent of
the shares of Common Stock entitled to vote at a stockholders' meeting
on any given matter.
(6) The address of the beneficial owner is 744 Fuerstentum, Landstrasse
163, Lichtenstein, Attn.: Thomas Hackl. Includes 2,000,000 shares
issuable upon the conversion of (i) 375 outstanding shares of Series D
Stock and (ii) 125 shares of Series D Stock to be issued within two
business days of the declaration of effectiveness of the Registration
Statement by the SEC, into shares of Common Stock (see "Proposal 4
Approval of the Issuance of Additional Shares of Common Stock Upon
Conversion of Series D Convertible Stock"). Includes also 1,000,000
shares issuable upon exercise of Series D Warrants that are currently
exercisable or will become exercisable within 60 days after April 20,
1999.
If Proposals 4 and 5 of this proxy statement are approved by a majority
of the shares of Common Stock entitled to vote at the Meeting, Austost
Anstalt Schaan could, if it converted all or a significant portion of
its Series D stock and/or exercised all or a significant portion of its
Series D Warrants, exercise significant control over the Company.
However, pursuant to the Series D Agreement, Austost Anstalt Schaan has
agreed that it can in no event, without providing prior notice to the
Company of at least 75 days, convert Series D Stock into shares of
Common Stock if such conversion would cause its holding of shares of
Common Stock to be greater than 9.999 percent of the outstanding shares
of Common Stock. Furthermore, pursuant to the Series D Agreement,
Austost Anstalt Schaan has agreed that it may not vote more than 9.999
percent of the shares of Common Stock entitled to vote at a
stockholders' meeting on any given matter.
(7) The address of the beneficial owner is Filter International Corp., c/o
DOB 43272, Harnof, Jerusalem, Israel, Attn.: A.C. Davis. Includes
1,000,000 shares issuable upon the conversion of 100 outstanding shares
of Series E Stock (see "Proposal 5 Approval of the Issuance of
Additional Shares of Common Stock Upon Conversion of Series E
Convertible Stock"). Includes also 700,000 shares issuable upon
exercise of warrants, including 500,000 shares issuable upon exercise
of Series E
-24-
Warrants, that are currently exercisable or will become exercisable
within 60 days after April 20, 1999.
If Proposals 4 and 5 of this proxy statement are approved by a majority
of the shares of Common Stock entitled to vote at the Meeting, Filter
International Corp. could, if it converted all or a significant portion
of its Series E Stock and/or exercised all or a significant portion of
its Series E Warrants, exercise significant control over the Company.
The information in this footnote has been furnished to the Company by
Filter International Corp. pursuant to a selling stockholder
questionnaire. The number of shares beneficially owned by Filter
International Corp. disclosed in the beneficial ownership table is as
of March 16, 1999.
(8) The address of the beneficial owner is 73 Front Street, Hamilton, HM12,
Bermuda, Attn.: Geoffrey M. Lewis. Includes 1,000,000 shares issuable
upon the conversion of 100 outstanding shares of Series E Stock (see
"Proposal 5 Approval of the Issuance of Additional Shares of Common
Stock Upon Conversion of Series E Convertible Stock"). Includes also
500,000 shares issuable upon exercise of Series E Warrants that are
currently exercisable or will become exercisable within 60 days after
April 20, 1999.
If Proposals 4 and 5 of this proxy statement are approved by a majority
of the shares of Common Stock entitled to vote at the Meeting, The
Cuttyhunk Fund Limited could, if it converted all or a significant
portion of its Series E stock and/or exercised all or a significant
portion of its Series E Warrants, exercise significant control over the
Company. The information in this footnote has been furnished to the
Company by The Cuttyhunk Fund Limited pursuant to a selling stockholder
questionnaire. The number of shares beneficially owned by The Cuttyhunk
Fund Limited disclosed in the beneficial ownership table is as of March
16, 1999.
(9) Leonard J. Shustek is the trustee of the Saal Family Charitable Lead
Trust UTA Dated 2/25/98, 1955 Bryant Street, Palo Alto, CA 94301.
(Harry J. Saal has no beneficial ownership interest in any of the
shares of this trust). Includes 330,000 shares issuable upon the
conversion of Series E Stock into shares of Common Stock assuming that
the conversion rate used is $.50 (see "Proposal 5 Approval of the
Issuance of Additional Shares of Common Stock Upon Conversion of Series
E Convertible Preferred Stock"). Includes also 165,000 shares issuable
upon exercise of stock options that are currently exercisable or will
become exercisable within 60 days after April 20, 1999.
(10) Includes 300,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
April 20, 1999.
(11) Includes 26,240 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
April 20, 1999.
(12) Includes 108,125625,000 shares issuable upon exercise of options and warrants
that are currently exercisable or will become exercisable within 60
days after April 20, 1999.
(13)July 27, 2001.
(3) Includes 20,833415,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
April 20, 1999.
(14)July 27, 2001.
(4) Includes 55,729360,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
April 20, 1999.
-25-
(15)July 27, 2001.
(5) Includes 15,0001,400,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
April 20, 1999.
(16) Includes 10,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
April 20, 1999.
(17) Includes 5,000 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
April 20, 1999.
(18) Includes 6,465,960 shares issuable upon exercise of options and
warrants and conversion of Series E Stock that are currently
exercisable or will become exercisable within 60 days after April 20,
1999.
Shares of Percentage of Shares
Series D Stock of Series D Stock
Beneficial Ownership of Series D Stock Beneficially Owned Beneficially Owned (1)
-------------------------------------- ------------------ ----------------------
Balmore Funds S.A. (2).............................. 375 42.86%
Austost Anstalt Schaan (3).......................... 375 42.86
Nesher, Inc. (4).................................... 75 8.56
Guarantee & Finance Corp. (5)....................... 50 5.71
(1) Percentage of ownership is based on 875 shares of Series D Stock
outstanding on April 20, 1999. Within two business days of the
declaration of effectiveness of the Registration Statement by the SEC,
the Company will issue an additional 325 shares of Series D Stock.
(2) The address of the beneficial owner is Trident Chambers, P.O. Box 146,
Roadstown Tortola, British Virgin Islands, Attn.: Francois Morax.
Balmore Funds S.A. will be issued an additional 125 shares of Series D
Stock within two business days of the declaration of effectiveness of
the Registration Statement by the SEC.
(3) The address of the beneficial owner is 744 Fuerstentum, Landstrasse
163, Lichtenstein, Attn.: Thomas Hackl. Austost Anstalt Schaan will be
issued an additional 125 shares of Series D Stock within two business
days of the declaration of effectiveness of the Registration Statement
by the SEC.
(4) The address of the beneficial owner is Ragnall House, 18 Peel Road,
Douglas, Isle of Man, 1M14L2 United Kingdom, Attn.: John Clarke.
Nesher, Inc. will be issued an additional 25 shares of Series D Stock
within two business days of the declaration of effectiveness of the
Registration Statement by the SEC.
(5) The address of the beneficial owner is Vallarino P.H., Calle 52, Elvimo
Mendez, Panama City, Panama, Attn.: Ricardo Durling. Guarantee &
Finance Corp. will be issued an additional 50 shares of Series D Stock
within two business days of the declaration of effectiveness of the
Registration Statement by the SEC.
-26-
Percentage of Shares of
Shares of Series E Stock Series E Stock
Beneficial Ownership of Series E Stock Beneficially Owned(1) Beneficially Owned(1)
-------------------------------------- ------------------------ ----------------------
Harry J. Saal Trust
UTA Dated 7/19/92................................. 247 28.0%
The Cuttyhunk Fund Limited.......................... 100 11.4
Filter International Corp. ......................... 100 11.4
Software Technology, Inc............................ 100 11.4
Gilston Corporation, Ltd. (2)....................... 50 5.7
Manchester Asset Management (3)..................... 50 5.7
Saal Family Charitable Lead Trust UTA
Dated 2/25/98..................................... 33 3.8
(1) Percentage of ownership is based on 881 shares of Series E Stock
outstanding on April 20, 1999. Within two business days of the
declaration of effectiveness of the Registration Statement by the SEC,
the Company would issue an additional 50 shares of Series E Stock.
(2) The address of the beneficial owner is Charlotte House, Charlotte
Street, P.O. Box N-9204, Nassau, Bahamas, attention Ms. Dawn Davies.
Gilston Corporation, Ltd. will be issued an additional 25 shares of
Series E Stock within two business days of the declaration of
effectiveness of the Registration Statement by the SEC.
(3) The address of the beneficial owner is Charlotte House, Charlotte
Street, P.O. Box N-9204, Nassau, Bahamas, attention Anthony L.M. Inder
Rieden. Manchester Asset Management will be issued an additional 25
shares of Series E Stock within two business days of the declaration of
effectiveness of the Registration Statement by the SEC.
-27-
July 27, 2001.
EXECUTIVE OFFICERS
The executive officers of the Company as of March 24, 1999,July 27, 2001, are as
follows:
Name Age Position
- ---- --- --------
Brian Bonar.................... 51 President,
Name Age Position
- ---- --- --------
Brian Bonar 52 Chairman of the Board of Directors and
Chief Executive Officer
Philip J. Englund 57 Senior Vice President, General Counsel
and Secretary
Christopher W. McKee 52 President and Chief Operating Officer
and Director
Joseph J. Pfeuffer............. 53 Senior Vice President of Engineering
Frank Leonardi................. 53 Senior Vice President of Worldwide
Sales and Marketing
Philip J. Englund.............. 55 Senior Vice President, General
Counsel and Secretary
Christopher W. McKee........... 50 Vice President of Finance and
Administration
Brian Bonar
BRIAN BONAR has been nominated to serve as a director of the Company.
See "Proposal 1 - Election of the Board" for a discussion of Mr. Bonar's
business experience.
JosephPHILIP J. Pfeuffer has served as Senior Vice President of Engineering
of the Company since February 1998. Prior to joining the Company, Mr. Pfeuffer
was a Director of Engineering with Adobe Systems, Inc. during 1996 and 1997
where he was responsible for Postscript-Registration Mark- controller
development. From 1990 to 1996 Mr. Pfeuffer was a Director of Engineering with
Output Technology responsible for electronic and software engineering. Mr.
Pfeuffer holds a B.S. degree from Stevens Institute of Technology and a Masters
of Business Administration from Washington University.
Frank Leonardi has served as Senior Vice President of Worldwide Sales
and Marketing of the Company since September 1998. Prior to joining the Company,
Mr. Leonardi served as an independent consultant for over five years providing
sales management consulting for various domestic and international markets for
numerous companies. Mr. Leonardi holds a B.S. degree from Iona College.
Philip J. EnglundENGLUND has served as Senior Vice President, General Counsel
and Secretary of the Company since February 1999. Prior to joining the Company,
Mr. Englund served as general counsel to a number of companies on a contract
basis from October 1997 through February 1999, as he had done formfrom April 1995
through November 1996. He served as Senior Vice President, General Counsel and
Secretary to The Titan Corporation from November 1996 through October 1997; and
as Vice President and General Counsel to Optical Radiation Corporation from
November 1986 through April 1995.
Christopher20
CHRISTOPHER W. McKeeMCKEE has served as President and Chief Operating
Officer of the Company since September, 2000, and served as Senior Vice
President of Finance and Operations of the Company sincefrom August 1998.1998 to that
date. Prior to joining the Company, Mr. McKee spent 23 years with Flowserve
Corporation and its predecessor company, BW/IP, Inc., in various financial
management positions, including most recently as its Director of Information
Technology and Baan Implementation. Mr. McKee holds a masters in business
administration from Pepperdine University.
-28-21
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
cash compensation earnedand certain other compensation paid, awarded, or accrued, by
each ofthe Company to the Company's Chief Executive OfficersOfficer and the two most highly
compensated executive officers who were serving at the end of the fiscal year
ended June 30, 2000 and two former executive officers who served during the
fiscal year ended June 30, 2000, each of whose salary and bonus exceeded
$100,000 for the fiscal year ended June 30, 2000 for services rendered in all
capacities to the Company and its subsidiaries for the fiscal years ended June
30, 1996, 19971998, 1999 and 1998. None of the Company's other
executive officers were paid a salary and bonus for the 1998 Fiscal Year in
excess of $100,000.2000. The listed individuals shall be hereinafter referred to
as the "Named Officers."
SUMMARY COMPENSATION TABLE
Long Term
Compensation
-------------
Annual Compensation Compensation
------ ------------ Awards
-------------------------- ----------------- -------------
Other Other Compen-------
Fiscal Annual Options/ sationOther
Name and Principal Position Year Salary BonusSalary($) Bonus($) Compensation($) SARS(#) Compensation SARS (#) (5)($)
- ---------------------------------------------------------- ---- --------- ---------- ----------- ----------------- ------------- ------------------ --------------- ------- ----------------
*Brian Bonar................... 1998 $ 235,243 $ -- $ -- 450,000 $ --
Director, President and Chief 1997 173,391Brian Bonar 2000 178,333 -- -- 150,000-- --
Chairman of the Boardand Chief 1999 250,570 -- -- 850,000 --
Executive Officer 1996 155,6481998 235,243 -- 12,009 (2) 750,000 -- *Edward W. Savarese............ 1998 270,000 85,000(1) 210,973 (3) 300,000450,000 --
Director and Chief Executive 1997 255,000Christopher McKee 2000 104,125 -- 38,235 150,000-- 76,000 --
President andChief Operating 1999 129,250 20,000 -- 100,000 --
Officer 1996 246,7921998 0 -- 72,850 (4) 1,675,000 4,710
* Dr. Savarese resigned as the Chief Executive Officer of the Company on
April 1, 1998, and as director of the Company as of June 15, 1998. Mr.
Bonar was appointed as Chief Executive Officer of the Company on April
1, 1998.
(1) This amount includes $40,000 of deferred bonuses from the fiscal year
of 1997 (the "1997 Fiscal Year").
(2) This amount includes $12,009 of accrued but unpaid vacation due to Mr.
Bonar that was converted into unregistered shares of Common Stock.
(3) This amount includes $75,000, which represents the compensation deemed
paid to Dr. Savarese upon exercise of certain warrants to purchase
75,000 shares of Common Stock, and $56,362 for accrued vacation
benefits that were paid to Dr. Savarese.
(4) This amount includes $42,500 for accrued vacation benefits and $30,350
of accrued but unpaid compensation due to Dr. Savarese that was
converted into unregistered shares of Common Stock.
(5) This amount represents the total insurance premiums paid for term life
insurance for the benefit of Dr. Savarese for fiscal 1996. For fiscal
1997, the policy was converted to a whole life policy.
-29-
Option/SAR Grants in Last Fiscal Year
The following table provides information on options/SARs granted in the
1998 Fiscal Year-- -- --
Philip J. Englund 2000 102,500 20,250 -- 96,000 --
Senior Vice President, General 1999 55,741 -- -- 80,000 --
Counsel and Secretary 1998 0 -- -- -- --
- ------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on Options/SARs granted in the
fiscal year ended June 30, 2000 to the Named Officers.
Potential Realizable
Number of ercentPercent (%) of Total Potential Realizable
Securities Options/SARs Exercise Value at Assumed
Underlying Granted to Or BaseSecurities Total Annual Rates of Stock
Underlying Options/SARs Exercise Price Appreciation for
Options/SARs Granted to or Base Option Term
ranted (#)(1) Employees in Price Expiration Price Appreciation for----------------------------
Name Granted (#)(1) the Fiscal Year ($/share) Date Option Term
- -------------------- ---------------- --------------- ----------- ----------------- ----------------------------
5% ($) 10% ($)
- --------------------- ---------------- --------------- ------------ -------------
---------------- ------------ ---------------
Brian Bonar 200,000 12.78% $4.00 January 30, 2008 $503,116 $1,274,994
Brian Bonar 200,000 15.98 3.00 April 1, 2008 471,671 1,195,307
Edward0 0 -- -- -- --
Christopher W. Savarese* 200,000 19.17 4.00 January 30, 2008 754,674 1,912,491McKee 76,000 44 0.91 7/26/09 0 0
Philip J. Englund 96,000 66 0.91 7/26/09 0 0
* Dr. Savarese resigned as the Chief Executive Officer of the Company on
April 1, 1998, and as a director of the Company as of June 15, 1998.22
(1) WarrantsWarrants/options become exercisable monthly over 48 monthsa 10 year period from
date of grant. Aggregated Options/Each warrant/option was issued at the then current
market price.
(2) Calculated based on the closing price of the Company's common stock on
July 27, 2001, which was $0.065.
AGGREGATED OPTIONS/SAR Exercises in Last Fiscal Year and Fiscal Year-end
Option/EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR ValuesVALUES The following table provides information on
option exercises in the 1998 Fiscal Yearfiscal year ended June 30, 2000 by
the Named Officers and the value of such Named Officers' unexercised options at
June 30, 1998.2000. Warrants to purchase Common Stock are included as options. No
stock appreciation rights were exercised by the Named Officers during the 1998 Fiscal Year,fiscal
year ended June 30, 2000, and no stock appreciation rights were held by them at
the end of the 1998 Fiscal Year.fiscal year ended June 30, 2000.
Shares Value
Number of Securities Value of Unexercised
Acquired on Realized (#) Underlying Unexercised In-the-money Options/SARs
Name Exercise (#)
Options/SARs at FY-end (#) At Fiscal Year End ($) (1)
- -------------------- --------------- ------------- ---------------------------------- --------------------------------Shares -------------------------- --------------------------
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------- --------------- ----------- ------------- -------------- ---------------- ------------- ---------------------------------
Brian Bonar 40,000 $216,250 131,458 513,542 $143,047 $205,078
Edward0 0 33,333 416,667 0 0
Christopher W. Savarese* 75,000 119,550 81,250 368,750 -- --McKee 0 0 63,250 112,750 0 0
Philip J. Englund 0 0 50,667 125,333 0 0
- --------------------------------------------
* Dr. Savarese resigned as the Chief Executive Officer of the Company on
April 1, 1998, and as a director of the Company as of June 15, 1998.
(1) At the 1998 Fiscal Year end, the average of the bid and asked price of
the Common Stock on that date as quoted by the NASD Electronic Bulletin
Board was $3.88.
-30-23
Employment Contracts, Termination of Employment and Change-in-control
Arrangements
The Company entered into an employment agreement with Dr. Savarese as
of July 1, 1990, which was amended in 1994, 1997 and 1998, calling for
employment through June 30, 2002. The salary under the amended agreement,
commencing July 1, 1998, is $198,750 per year.
The Company also entered into an employment agreement with Mr. Bonar
(with Dr. Savarese, the "Executives"), effective September 1, 1994, and amended
April 1, 1998, calling for employment through June 30, 1999, at an annual base
salary of $250,000 plus incentive bonus.
These employment agreements provide that, in the event of termination
without cause, whether or not occurring in the aftermath of a change in
corporate control, the Company shall pay, within 72 hours after his termination,
his entire salary for the remainder of the entire term, and shall also continue
his fringe benefits for the remainder of the entire term.
In the event of an Executive's death or permanent disability, his
salary shall continue during the entire term, and his stock options shall be
exercisable until two years after his death or permanent disability.
An Executive shall be entitled to severance pay equal to one-half of
his fiscal 1999 annual salary if his employment terminates upon the scheduled
expiration of the employment agreement, or if he is terminated without cause
within six months before the scheduled expiration of the employment agreement.
The Company entered into an employment letter agreement with Mr.
Leonardi as of September 1, 1998, which calls for a base monthly salary of
$16,500 and entitles Mr. Leonardi to bonuses based on services provided to the
Company in addition to the services provided to the Company pursuant to his
position as Senior Vice President of Worldwide Sales and Marketing. In addition,
Mr. Leonardi may earn commissions based on sales targets achieved by the
Company. Pursuant to the terms of his letter agreement, Mr. Leonardi also
receives other employee benefits, including certain medical benefits and
eligibility to be part of the Company 401(k) plan. Mr. Leonardi's employment
with the Company is "at-will" and may be terminated at any time.
The Company entered into an employment agreement with Mr. Englund as of
February 22, 1999, which calls for a base monthly salary of $11,667.67 for a
term of three years. Pursuant to his employment agreement, Mr. Englund is
eligible for the following bonuses:
o $5,000 quarterly bonuses based upon achievement of objectives to be
mutually agreed-upon by Mr. Englund and the Company's chief
executive officer; and
o at the sole discretion of the Company, Mr. Englund may receive from
time to time additional compensation or benefits.
In addition, Mr. Englund also receives other employee benefits, including
certain medical benefits and eligibility to be part of the Company 401(k) plan.
Mr. Englund's employment agreement provides that, in the event of
termination without cause, termination for good reason or pursuant to change in
corporate control, the Company shall pay, within 72 hours after his termination,
an amount equal to six months of his salary together with any other compensation
or benefits owed to him by the Company. In the event of his death or permanent
disability, his salary shall
-31-
continue during the entire term, and his stock options shall be exercisable
until two years after his death or permanent disability. Mr. Englund shall be
entitled to severance pay equal to one-half of his annual salary if his
employment terminates upon the scheduled expiration of the employment agreement
or if he is terminated without cause within six months before the scheduled
expiration of the employment agreement.
The Company entered into an employment letter agreement with Mr. McKee
as of August 3, 1998, calling for a base monthly salary of $11,750. Pursuant to
the terms of his letter agreement, Mr. McKee is eligible for the following
bonuses:
o quarterly bonus based on the Company achieving quarterly sales and
profit objectives; and
o at the sole discretion of the Board, Mr. McKee may receive from time
to time a percentage of the Company's net income.
He also received 100,000 stock option grants pursuant to the terms of
the Company's employee stock option plan and presently receives other employee
benefits, including certain medical benefits and eligibility to be part of the
Company 401(k) plan. Mr. McKee's employment with the Company is "at-will" and
may be terminated at any time.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee currently consists of Dr. Saal and Mr.
Carver. None of these individuals was an officer or employee of the Company at
any time during the 1998 Fiscal Year or at any other time.
No current executive officer of the Company has ever served as a member
of the Board or Compensation Committee of any other entity that has or has had
one or more executive officers serving as a member of the Board or Compensation
Committee.
Compensation Committee Report on Executive Compensation
It is the duty of the Compensation Committee to review and determine
the salaries and bonuses of executive officers of the Company, including the
Chief Executive Officer, and to establish the general compensation policies for
such individuals. The Compensation Committee also has the sole and exclusive
authority to make discretionary option grants to the Company's executive
officers under the Company's stock option plan.
The Compensation Committee believes that the compensation programs for
the Company's executive officers should reflect the Company's performance and
the value created for the Company's stockholders. In addition, the compensation
programs should support the short-term and long-term strategic goals and values
of the Company and should reward individual contribution to the Company's
success. The Company is engaged in a very competitive industry, and the
Company's success depends upon its ability to attract and retain qualified
executives through the competitive compensation packages it offers to such
individuals.
General Compensation Policy. The Compensation Committee's policy is to
provide the Company's executive officers with compensation opportunities which
are based upon their personal performance, the
-32-
financial performance of the Company and their contribution to that performance
and which are competitive enough to attract and retain highly skilled
individuals. Each executive officer's compensation package is comprised of three
elements: (i) base salary that is competitive with the market and reflects
individual performance, (ii) annual variable performance awards payable in cash
and tied to the Company's achievement of annual performance goals and (iii)
long-term stock-based incentive awards designed to strengthen the mutuality of
interests between the executive officers and the Company's stockholders. As an
officer's level of responsibility increases, a greater proportion of his or her
total compensation will be dependent upon the Company's financial performance
and stock price appreciation rather than base salary.
Factors. The principal factors that were taken into account in
establishing each executive officer's compensation package for the 1998 Fiscal
Year are described below. However, the Compensation Committee may in its
discretion apply entirely different factors, such as different measures of
financial performance, for future fiscal years.
Base Salary. In setting base salaries, the Compensation Committee
attempted to keep the base salaries of the Company's officers at a level around
the median range of the salaries of officers in comparable companies. The
Compensation Committee also considered each individual's personal performance
and internal alignment considerations. The relative weight given to each factor
varies with each individual in the sole discretion of the Compensation
Committee. Each executive officer's base salary is adjusted each year on the
basis of (i) the Compensation Committee's evaluation of the officer's personal
performance for the year and (ii) the competitive marketplace for persons in
comparable positions. The Company's performance and profitability may also be a
factor in determining the base salaries of executive officers.
Annual Incentives. The annual incentive bonuses for the Company's
executive officers are granted pursuant to the terms and conditions of an
executive officer's employment agreement and based on a percentage of an
executive officer's base pay which is adjusted to reflect the actual financial
performance of each executive officer and the achievement of Company goals
during the year. If an executive officer's employment agreement does not call
for annual incentive bonuses then an executive officer will not receive the
bonuses. Based on these criteria, only Dr. Savarese received bonuses in the 1998
Fiscal Year. Dr. Savarese's employment agreement provided that a bonus of
$15,000 be paid to him for each fiscal quarter the Company achieved pre-tax
profits. In 1998, the Company had pre-tax profits in the first three quarters of
the year and, accordingly, Dr. Savarese earned bonuses totaling $45,000 in the
Fiscal Year 1998. Subsequent target bonuses pursuant to Dr. Savarese's
employment agreement were not met and therefore no further bonuses were paid to
him for the Fiscal Year 1998. In addition, Dr. Savarese received $40,000 in
annual incentive bonuses which was earned in the Fiscal Year 1997 but not paid
until the Fiscal Year 1998.
Long-term Incentives. Generally, stock option grants or other forms of
stock-based incentive awards are made annually by the Compensation Committee to
each of the Company's executive officers. Each grant is designed to align the
interests of the executive officer with those of the stockholders and provide
each individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant allows
the officer to acquire shares of Common Stock at a fixed price per share (the
market price on the grant date) over a specified period of time (up to ten
years). Each option becomes exercisable in a series of installments over a
four-year period, contingent upon the officer's continued employment with the
Company. Accordingly, the option will provide a return to the executive officer
only if he or she remains employed by the Company during the vesting period, and
then only if the market price of the shares appreciates over the option term.
-33-
The size of the option grant to each executive officer, including the
Chief Executive Officer, is set by the Compensation Committee at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, the individual's personal
performance in recent periods and his or her potential for future responsibility
and promotion over the option term. The Compensation Committee also takes into
account the number of unvested options held by the executive officer in order to
maintain an appropriate level of equity incentive for that individual. The
relevant weight given to each of these factors varies from individual to
individual. The Compensation Committee has established certain guidelines with
respect to the option grants made to the executive officers, but has the
flexibility to make adjustments to those guidelines at its discretion.
CEO Compensation. In setting the total compensation payable to the two
individuals that served as the Company's Chief Executive Officer during the 1998
Fiscal Year, the Compensation Committee sought to make their compensation
competitive with the compensation paid to the chief executive officers of
companies of similar size, in comparable industries, while at the same time
assuring that a significant percentage of compensation was tied to Company
performance and stock price appreciation.
For the 1998 Fiscal Year, the Compensation Committee believes that Dr.
Savarese's and Mr. Bonar's base salaries ($270,000 and $235,243, respectively)
were approximately at the median of the base salary levels of other chief
executive officers at comparable companies. Dr. Savarese's base salary was paid
pursuant to the terms of his employment agreement originally signed in 1990. Mr.
Bonar's base salary was increased on becoming the Company's Chief Executive
Officer in consideration of the additional responsibilities of such position.
The remaining components of Dr. Savarese's and Mr. Bonar's 1998 Fiscal
Year compensation, however, were primarily dependent upon corporate performance.
Dr. Savarese was eligible for a cash bonus for the 1998 Fiscal Year conditioned
on the Company's attainment of business plan objectives. Dr. Savarese earned an
$85,000 bonus for the 1998 Fiscal Year because the Company attained certain of
these objectives and also had achieved certain business plan objectives in the
1997 Fiscal Year, with such 1997 Fiscal Year bonuses having been deferred for
payment in the 1998 Fiscal Year. Mr. Bonar was not eligible for a cash bonus for
the 1998 Fiscal Year in his role as Chief Executive Officer because he served in
that position for only approximately three months during the 1998 Fiscal Year.
The Compensation Committee granted stock-based incentive awards to Dr. Savarese
and Mr. Bonar in the 1998 Fiscal Year in order to provide them with an equity
incentive to continue contributing to the financial success of the Company. Dr.
Savarese's incentive awards totaled 300,000 shares and Mr. Bonar's incentive
awards totaled 450,000 shares during the 1998 Fiscal Year. These incentive
awards will have value for Dr. Savarese and Mr. Bonar only if the market price
of the underlying shares appreciates over the market price in effect on the date
the grant was made.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Code disallows a tax deduction to publicly held companies for compensation
paid to certain of their executive officers, to the extent that compensation
exceeds $1 million per covered officer in any fiscal year. The limitation
applies only to compensation which is not considered to be performance-based.
Non-performance based compensation paid to the Company's executive officers for
the 1998 Fiscal Year did not exceed the $1 million limit per officer, and the
Compensation Committee does not anticipate that the non-performance based
compensation to be paid to the Company's executive officers for the 1998 Fiscal
Year will exceed that limit. Because it is unlikely that the cash compensation
payable to any of the Company's executive officers in the foreseeable future
will approach the $1 million limit, the Compensation Committee has decided at
this time not to take any action to limit or restructure the elements of cash
compensation payable to the Company's
-34-
executive officers. The Compensation Committee will reconsider this decision
should the individual cash compensation of any executive officer ever approach
the $1 million level.
It is the opinion of the Compensation Committee that the executive
compensation policies and plans provide the necessary total remuneration program
to properly align the Company's performance and the interests of the Company's
stockholders through the use of competitive and equitable executive compensation
in a balanced and reasonable manner, for both the short-and long-term.
Submitted by the Compensation Committee.
Stock Performance GraphSTOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total
stockholder returns for the Company, the Nasdaq Stock Market (U.S.) Index and
the Nasdaq Computer & Data Processing Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG IMAGING TECHNOLOGIES CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
STOCK PERFORMANCE GRAPH GRAPH APPEARS HERE
24
CUMULATIVE TOTAL RETURN
-------------------------------------------------------------------
6/94---------------------------------------------------------------
6/95 6/96 6/97 6/98 6/99 6/00
---- ---- ---- ---- ---- ----
IMAGING TECHNOLOGIES CORPORATION 100.00 33.93 403.57 198.66 138.39456.24 222.50 155.00 78.75 20.80
NASDAQ MARKET (U.S.) 100.00 133.50 171.39 208.36 274.93128.38 156.12 205.48 295.56 436.97
NASDAQ COMPUTER & DATA PROCESSING 100.00 163.26 216.84 273.73 414.38132.86 167.71 253.47 387.66 547.56
(1) The graph covers the period from July 1, 19931994 to June 30, 1998.2000.
(2) The graph assumes that $100 was invested in the Company on July 1,
1993,1994, in the Common Stock and in each index, and that all dividends
were reinvested. No cash dividends have been declared on the Common
Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings made under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated by
reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
CERTAIN TRANSACTIONS
Irwin Roth, a former director of the Company, receives compensation as
a consultant to the Company on corporate matters under an agreement expiring in
June 2002. These consulting fees amounted to $120,000 in the 1998 Fiscal Year.
Effective July 1, 1998, the annual consulting fee under the agreement was
reduced to $55,583. During the 1998 Fiscal Year, as consideration for services
provided relating to the private placement of the Series C Preferred Stock, this
former director received commissions and expense reimbursement totaling $200,000
of which $100,000 was paid in cash and $100,000 was used to exercise warrants
for 100,000 shares at a price of $1.00 per share.
-35-
During calendar year 1995, Dr. Edward W. Savarese, a former director
and the former Chief Executive Officer of the Company, loaned to the Company an
aggregate of $100,000 under a convertible note with interest at the rate of 7
percent per year. In May 1998, the note was converted into 64,516 shares of
Common Stock. Dr. Savarese was also a director of Color Solutions, Inc., which
was acquired by the Company in November 1997 through the issuance of Common
Stock. In connection with the acquisition, Dr.
Savarese received 40,000 shares of Common Stock.
In January 1996, the Company sold to Dr. Saal for $500,000 five-year
warrants to purchase 2,000,000 shares of its Common Stock at the rate of $5.00
per share. The warrant contained certain anti-dilution provisions should the
Company issue equity instruments at less than 50 percent of the exercise price.
As a result of subsequent financings, the exercise price of this warrant has
been reduced as a result of this provision. In June and December 1996, Dr. Saal
exercised warrants to purchase 666,667 and 18,000 shares, respectively.
In May 1998, Dr. Harry Saal, a director of the Company, loaned
$1,000,000 to the Company under a 10 percent note payable on demand at any time
on or after December 31, 1998 (the "Saal 10% Note"). The note is convertible
into Common Stock at anytime at Dr. Saal's option at the lesser of $2.36 per
share or 85 percent of the volume weighted trade price of Common Stock on the
date of conversion.
In September 1998, Dr. Saal and certain other investors (either
individually or as part of a group), all of which were owners of more than 5
percent of the Company's outstanding Common Stock, provided the Company with
funding totaling $4,375,000. In exchange, the Company issued 500,000 shares of
its Common Stock at a price of $2.50 per share and subordinated promissory notes
in the amount of $3,125,000. Of the notes, Dr. Saal purchased $1,500,000 in the
form of non-convertible notes (the "Saal Non-convertible Notes"). The Company
also issued three-year warrants to the investors as part of this financing. The
warrants authorize the purchase of 490,000 shares of Common Stock at an exercise
price of $2.025 per share: Dr. Saal received 300,000 of these warrants. All of
the investors, including Dr. Saal, are parties to a Registration Rights
Agreement that grants certain registrations rights with respect to the shares of
Common Stock purchased in the financing and issuable upon exercise of the
warrants.
In February 1999, pursuant to the Series E Agreement, of which Dr. Saal
was an investor, Dr. Saal exchanged and/or canceled the Saal 10% Note, all
accrued interest and fees associated therewith, certain accrued interest on the
Saal Non-convertible Notes and all accrued director's fees, in the amount of
$1.235 million, for 247 shares of the Company's Series E Stock. Also pursuant to
such Series E Agreement became a party to a Registration Rights Agreement that
grants Dr. Saal certain registration rights with respect to the shares of Common
Stock underlying the Series E Stock and Series E Warrants. See "Proposal 5
Approval of the Issuance of the Company's Securities Pursuant to a Securities
Purchase Agreement Relating to Series E Convertible Preferred Stock."None.
COMPLIANCE WITH SECTION 16(a)16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board, the executive officers of the Company and
persons who hold more than 10 percent (10%) of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 which require them to file reports with respect
to their ownership of the Common Stock and their transactions in such Common
Stock. Based upon (i) the copies of Section 16(a) reports which the Company
received from such persons for their 1998 Fiscal Year transactions in the fiscal year ended June
30, 2000 relating to the Common Stock and their Common Stock holdings, and (ii) the written representations received from
-36-
one or more of such persons that no annual Form 5 reports were required to be
filed by them for the 1998 Fiscal Year, the
Company, to the best of the Company's knowledge, believes that allcertain of the
reporting requirements under Section 16(a) for such fiscal year were not met in
a timely manner by its directors, executive officers and greater than ten percent10%
beneficial owners except as set forth below.
Mr. Bonar did not timely file aowners.
ANNUAL REPORT ON FORM 10-K
The Company filed an Annual Report on Form 410-K with the SEC with respect to one
transaction. In addition, each of Messrs. Stephen MacDonald (former director of
the Company), Carver, Lazarowon or about
October 13, 2000 and Gerry Berg (former Secretary of the Company)
did not timely file a Form 3 with the SEC. In addition, each of Messrs.
MacDonald, Carver, Lazarow and Berg did not timely file a Form 5 with the SEC.
ANNUAL REPORTan amendment thereto on October 28, 2000. A copy of the
Annual Report of the CompanyForm 10-K for the 1998 Fiscal Year (the
"Annual Report")fiscal year ended June 30, 2000, has been mailed concurrently
with this Proxy Statement to all stockholders entitled to notice of and to vote
at the Meeting. The Annual ReportForm 10-K is not incorporated into this Proxy Statement and
is not considered proxy solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC on or about
October 13, 1998.25
Stockholders may obtain aan additional copy of this report, without
charge, by writing to Philip J. Englund, Senior Vice President and General
Counsel of the Company, at the Company's principal executive offices located at
15175 Innovation Drive, San Diego, California 92128-3401.
By Order of the Board of Directors
/s/ Brian Bonar
Brian Bonar
President and Chief Executive Officer
April 28, 1999
-37-26
ExhibitEXHIBIT A
Form of Proposed Amendment to Article Fourth to the
Company's Certificate of Incorporation
CERTIFICATE---------
PROPOSED FORM OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IMAGING TECHNOLOGIES CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Imaging Technologies Corporation.
2. The Certificate of Incorporation of the Corporation (hereinafter
called the "Certificate of Incorporation") is hereby amended by deleting the
number 10,000 in the second sentence of Section (1) of Article Fourth and
inserting the number 100,000 in its place.
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.
Dated: April __, 1999
---------------------------
Brian Bonar, President
Attest:
- -----------------------------------------
Philip J. Englund, Senior Vice President
A-1
Exhibit B
Proposed Form of the 1998 Stock Option Plan
1998THE 2001 STOCK OPTION PLAN
Of2001 STOCK OPTION PLAN
OF
IMAGING TECHNOLOGIES CORPORATION
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to employees (including directors and officers
who are employees) and directors of, and consultants to, IMAGING TECHNOLOGIES
CORPORATION, a Delaware corporation (the "Company"), or any Parent or Subsidiary
(as such terms are defined in Paragraph 19 hereof) of the Company, and to offer
an additional inducement in obtaining the services of such persons. The Plan
provides for the grant of "incentive stock options" ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and nonqualified stock options which do not qualify as ISOs ("NQSOs"). The
Company makes no representation or warranty, express or implied, as to the
qualification of any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Paragraph 12
hereof, the aggregate number of shares of Common Stock, $.01$.005 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 1,500,000.5,000,000. Such shares of Common Stock may consist
either in whole or in part of authorized but unissued shares of Common Stock or
shares of Common Stock held in the treasury of the Company. Subject to the
provisions of Paragraph 13 hereof, any shares of Common Stock subject to an
option which for any reason expires, is canceled or is terminated unexercised or
which ceases for any reason to be exercisable, shall again become available for
the granting of options under the Plan. The Company shall at all times during
the term of the Plan reserve and keep available such number of shares of Common
Stock as will be sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee (the "Compensation Committee of the Company's Board of Directors (the "Committee"),
which Committee, to the extent required by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (as the same may be in effect and
interpreted from time to time, "Rule 16b-3"), shall consist of not less than two
(2) directors, each of whom shall be a non-employee director within the meaning
of Rule 16b-3.16b-3 or an outside director within the meaning of Section 162(m) of the
Code. Unless otherwise provided in the By-laws of the Company or by resolution
of the Board of Directors, a majority of the members of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, and any acts approved in writing by all of
the members of the Committee without a meeting, shall be the acts of the
Committee. Those administering the Plan are referred to herein as the
"Administrators".
Subject to the express provisions of the Plan, the Administrators shall
have the authority, in their sole discretion, to determine: the employees,
consultants and directors who shall be granted options; whether an option to be
granted to a employee is to be in ISO or an NQSO (options to be granted to
consultants and directors who are not employees shall be NQSOs); the times when
an option shall be granted; the number of shares of Common Stock to be subject
to each option; the term of each option; the date each option shall become
exercisable; whether an option shall be exercisable in whole, in part or in
installments and, if in installments, the number of shares of Common Stock to be
subject to each installment, whether the B-1
installments shall be cumulative, the
date each installment shall become exercisable and the term of each installment;
whether to accelerate the date of exercise of any option or installment; whether
shares of Common Stock may be issued upon the exercise of an option as partly
paid and, if so, the dates when future installments of the exercise price shall
become due and the amounts of such installments; the exercise price of each
option; the form of payment of the exercise price; whether to restrict the sale
or other disposition of the shares of Common Stock acquired upon the exercise of
an option and, if so, whether and under what conditions to waive any such
restriction; whether and under what conditions to subject all or a portion of
the grant, the vesting or the exercise of an option or the shares acquired
pursuant to the exercise of an option to the fulfillment of certain restrictions
or contingencies as specified in the contract referred to in Paragraph 11 hereof
(the "Contract"), including, without limitation, restrictions or contingencies
relating to entering into a covenant not to compete with the Company, any of its
Subsidiaries or a Parent (as such term is defined in
A-1
Paragraph 19 hereof), to financial objectives for the Company, any of its
Subsidiaries or a Parent, a division of any of the foregoing, a product line or
other category, and/or to the period of continued employment of the optionee
with the Company, any of its Subsidiaries or a Parent, and to determine whether
such restrictions or contingencies have been met; whether an optionee is
Disabled (as such term is defined in Paragraph 19 hereof); the amount, if any,
necessary to satisfy the obligation of the Company, a Subsidiary or Parent to
withhold taxes or other amounts; the fair market value of a share of Common
Stock; to construe the respective Contracts and the Plan; with the consent of
the optionee, to cancel or modify an option, provided that the modified
provision is permitted to be included in an option granted under the Plan on the
date of the modification, and provided, further, that in the case of a
modification (within the meaning of Section 424(h) of the Code) of an ISO, such
option as modified would be permitted to be granted on the date of such
modification under the terms of the Plan; to prescribe, amend and rescind rules
and regulations relating to the Plan; to approve any provision of the Plan or
any option granted under the Plan, or any amendment to either, which under Rule
16b-3 or Section 162(m) of the Code requires the approval of the Board of
Directors, a committee of non-employee directors or the stockholders in order to
be exempt (unless otherwise specifically provided herein); and to make all other
determinations necessary or advisable for administering the Plan. Any
controversy or claim arising out of or relating to the Plan, any option granted
under the Plan or any Contract shall be determined unilaterally by the
Administrators in their sole discretion. The determinations of the
Administrators on the matters referred to in this Paragraph 3 shall be
conclusive and binding on the parties thereto. No Administrator or former
Administrator shall be liable for any action, failure to act or determination
made in good faith with respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Administrators may from time to time, in their sole
discretion, consistent with the purposes of the Plan, grant options to (a)
employees (including officers and directors who are employees) of, (b) directors
(who are not employees) of, and (c) consultants to, the Company or any Parent or
Subsidiary of the Company. Such options granted shall cover such number of
shares of Common Stock as the Administrators may determine, in their sole
discretion, as set forth in the applicable Contract; provided, however, that the
maximum number of shares subject to options that may be granted to any employee
during any calendar year under the Plan (the "162(m) Maximum") shall be 250,000
shares; and provided, further, that the aggregate market value (determined at
the time the option is granted in accordance with Paragraph 5 hereof) of the
shares of Common Stock for which any eligible employee may be granted ISOs under
the Plan or any other plan of the Company, or of a Parent or a Subsidiary of the
Company, which are exercisable for the first time by such optionee during any
calendar year shall not exceed $100,000. Such ISO limitation shall be applied by
taking ISOs into account in the order in which they were granted. Any option
granted in excess of such ISO limitation amount shall be treated as a NQSO to
the extent of such excess.
B-2
5. EXERCISE PRICE. The exercise price of the shares of Common Stock
under each option shall be determined by the Administrators, in their sole
discretion, as set forth in the applicable Contract; provided, however, that the
exercise price of an ISO shall not be less than the fair market value of the
Common Stock subject to such option on the date of grant; and provided, further,
that if, at the time an ISO is granted, the optionee owns (or is deemed to own
under Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, of any of its
Subsidiaries or of a Parent, the exercise price of such ISO shall not be less
than 110% of the fair market value of the Common Stock subject to such ISO on
the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if actual sales price information is available with respect to the Common
Stock, the average of the highest and lowest sales prices per share of Common
Stock on such day, or (b) if such information is not available, the average of
the highest bid and lowest asked prices per share of Common Stock on such day as
reported by the market upon which the Common Stock is quoted, The Wall Street
Journal, the National Quotation Bureau Incorporated or an independent dealer in
the Common Stock, as determined by the Company; provided, however, that if
clauses (a) and (b) of this Paragraph are all inapplicable, or if no trades have
been made or no quotes are available for such day, the fair market value of the
Common Stock shall be determined by the Board of Directors by any method
consistent with applicable regulations adopted by the Treasury Department
relating to stock options.
6. TERM. The term of each option granted pursuant to the Plan shall be
such term as is established by the Administrators, in their sole discretion, as
set forth in the applicable Contract; provided, however, that the term of each
ISO granted pursuant to the Plan shall be for a period not exceeding ten (10)
years from the
A-2
date of grant thereof; and provided, further, that if, at the time an ISO is
granted, the optionee owns (or is deemed to own under Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, any of its Subsidiaries or a Parent, the term
of the ISO shall be for a period not exceeding five (5) years from the date of
grant. Options shall be subject to earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to the
extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the applicable Contract permits
installment payments) (a) in cash or by certified check or (b) if the applicable
Contract permits, with previously acquired shares of Common Stock having an
aggregate fair market value on the date of exercise (determined in accordance
with Paragraph 5 hereof) equal to the aggregate exercise price of all options
being exercised or a combination of cash, certified check or shares of Common
Stock having such value. The Company shall not be required to issue any shares
of Common Stock pursuant to any such option until all required payments,
including payments for any required withholding amounts, have been made.
The Administrators may, in their sole discretion (in the Contract or
otherwise), permit payment of the exercise price of an option by delivery by the
optionee of a properly executed notice, together with a copy of his irrevocable
instructions to a broker acceptable to the Administrators to deliver promptly to
the Company the amount of sale or loan proceeds sufficient to pay such exercise
price. In connection therewith, the Company may enter into agreements for
coordinated procedures with one or more brokerage firms.
B-3
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate for such shares
or, in the case of uncertificated shares, until the date an entry is made on the
books of the Company's transfer agent representing such shares; provided,
however, that until such stock certificate is issued or until such book entry is
made, any optionee using previously acquired shares of Common Stock in payment
of an option exercise price shall continue to have the rights of a stockholder
with respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be expressly
provided in the applicable Contract, any optionee whose relationship with the
Company, its Subsidiaries and Parent as an employee, director or consultant has
terminated for any reason (other than as a result of the death or Disability (as
such term is defined in Paragraph 19 hereof) of the Optionee) may exercise such
option, to the extent exercisable on the date of such termination, at any time
within three months after the date of termination, but not thereafter and in no
event after the date the option would otherwise have expired; provided, however,
that if such relationship is terminated either (a) for Cause (as such term is
defined in Paragraph 19 hereof), or (b) without the consent of the Company, such
option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and the Company, any of its Subsidiaries
or a Parent if, at the time of the determination, the individual was an employee
of such corporation for purposes of Section 422(a) of the Code. As a result, an
individual on military, sick leave or other bona fide leave of absence shall
continue to be considered an employee for purposes of the Plan during such leave
if the period of the leave does not exceed 90 days or, if longer, so long as the
individual's right to reemployment with the Company, any of its Subsidiaries or
a Parent is guaranteed either by statute or by contract. If the period of leave
exceeds 90 days and the individual's right to reemployment is not guaranteed by
statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.
Notwithstanding the foregoing, except as may otherwise be expressly
provided in the applicable Contract, options granted under the Plan shall not be
affected by any change in the status of the optionee so long as the optionee
continues to be an employee or director of, or a consultant to, the Company, any
of its Subsidiaries or a Parent (regardless of having changed from one position
to another or having been transferred from one entity to another).
A-3
Nothing in the Plan or in any option granted under the Plan shall
confer on any optionee any right to continue in the employ of, as a director of,
or as a consultant to, the Company, any of its Subsidiaries or a Parent, or
interfere in any way with any right of the Company, any of its Subsidiaries or a
Parent to terminate the optionee's relationship at any time for any reason
whatsoever without liability to the Company, any of its Subsidiaries or a
Parent.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise be
expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee or director of, or a consultant to, the Company, any
of its Subsidiaries or a Parent, (b) within three months after the termination
of such relationship (unless such termination was for Cause or without the
consent of the Company or such Subsidiary or Parent) or (c) within one year
following the termination of such relationship by reason of Disability, the
optionee's option may be exercised, to the extent exercisable on the date of the
B-4
optionee's death, by the optionee's Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee or director of, or a
consultant to, the Company, any of its Subsidiaries or a Parent has terminated
by reason of Disability (without continuing in another such capacity) may
exercise the optionee's option, to the extent exercisable upon the effective
date of such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the exercise
of any option that either (a) a Registration Statement under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock to be issued upon such exercise shall be effective and current at the time
of exercise or (b) there is an exemption from registration under the Securities
Act for the issuance of the shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act or to keep any Registration Statement
effective or current.
The Administrators may require, in their sole discretion, as a
condition to the receipt of an option or the exercise of any option that the
optionee execute and deliver to the Company such representations and warranties,
in form, substance and scope satisfactory to the Administrators, as the
Administrators determine are necessary or appropriate to facilitate the
perfection of an exemption from the registration requirements of the Securities
Act, applicable state securities laws or other legal requirement, including,
without limitation, that (a) the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the optionee for the optionee's own
account, for investment only and not with a view to the resale or distribution
thereof, and (b) any subsequent resale or distribution of shares of Common Stock
by such optionee will be made only pursuant to (i) a Registration Statement
under the Securities Act which is effective and current with respect to the
shares of Common Stock being sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the optionee shall, prior to any offer of sale or sale of such shares of Common
Stock, provide the Company with a favorable written opinion of counsel
satisfactory to the Company, in form, substance and scope satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution.
In addition, if at any time the Administrators shall determine, in
their sole discretion, that the listing or qualification of the shares of Common
Stock subject to any option on any securities exchange, Nasdaq or under any
applicable law, or the consent or approval of any governmental agency or
self-regulatory body, is necessary or desirable as a condition to, or in
connection with, the granting of an option or the issuing of shares of Common
Stock upon the exercise thereof, such option may not be granted and such option
may not be exercised in whole or in part unless such listing, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Administrators.
11. CONTRACTS. Each option shall be evidenced by an appropriate
Contract which shall be duly executed by the Company and the optionee, which
Contract shall contain such terms, provisions and conditions not inconsistent
herewith as may be determined by the Administrators. The terms of each option
and Contract need not be identical.
A-4
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other
provision of the Plan, in the event of a stock dividend, stock split,
combination, reclassification, recapitalization, merger in which the Company is
the surviving corporation, spin-off, split-up or exchange of
B-5
shares or the like
which results in a change in the number or kind of shares of Common Stock which
is outstanding immediately prior to such event, the aggregate number and kind of
shares subject to the Plan, the aggregate number and kind of shares subject to
each outstanding option and the exercise price thereof, and the 162(m) Maximum
shall be appropriately adjusted by the Board of Directors, whose determination
shall be conclusive and binding on all parties thereto. Such adjustment may
provide for the elimination of fractional shares which might otherwise be
subject to options without payment therefor.
In the event of (a) the liquidation or dissolution of the Company, or
(b) a transaction (or series of related transactions) that is approved by a
majority of the members of the Company's Board of Directors who were elected by
stockholders prior to the first of such transactions (including, without
limitation, a merger, consolidation, sale of stock by the Company or its
stockholders, tender offer or sale of assets) and in which either (i) the voting
power (in the election of directors generally) of the Company's voting
securities outstanding immediately prior to such transaction(s) cease to
represent at least 50% of the combined voting power (in the election of
directors generally) of the Company or such surviving entity outstanding
immediately after such transaction(s) or (ii) the registration of the Common
Stock under the Securities Exchange Act of 1934 is terminated, then all
outstanding options shall terminate upon the earliest of any such event, unless
other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on October 26, 1998.June 27, 2001. No ISO may be granted under the Plan after
October 25, 2008.June 26, 2011. The Board of Directors, without further approval of the Company's
stockholders, may at any time suspend or terminate the Plan, in whole or in
part, or amend it from time to time in such respects as it may deem advisable,
including, without limitation, in order that ISOs granted hereunder meet the
requirements for "incentive stock options" under the Code, or to comply with the
provisions of Rule 16b-3, Section 162(m) of the Code or any change in applicable
law, regulations, rulings or interpretations of administrative agencies;
provided, however, that no amendment shall be effective without the requisite
prior or subsequent stockholder approval which would (a) except as contemplated
in Paragraph 12 hereof, increase the maximum number of shares of Common Stock
for which options may be granted under the Plan or the 162(m) Maximum, (b)
change the eligibility requirements to receive options hereunder or (c) make any
change for which applicable law requires stockholder approval. No termination,
suspension or amendment of the Plan shall, without the consent of the optionee,
adversely affect the optionee's rights under any option granted under the Plan.
The power of the Administrators to construe and administer any option granted
under the Plan prior to the termination or suspension of the Plan nevertheless
shall continue after such termination or during such suspension.
14. NON-TRANSFERABILITY. No option granted under the Plan shall be
transferable otherwise than by will or the laws of descent and distribution, and
options may be exercised, during the lifetime of the optionee, only by the
optionee or his Legal Representatives. Except to the extent provided in the
immediately preceding sentence, options may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process,
and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may withhold
(a) cash or (b) with the consent of the Administrators (in the Contract or
otherwise), shares of Common Stock to be issued upon exercise of an option
having an aggregate fair market value on the relevant date (determined in
accordance with Paragraph 5 hereof) or a combination of cash and shares, in an
amount equal to the amount which the Administrators determine is necessary to
satisfy the obligation of the Company, a B-6
Subsidiary or Parent to withhold
Federal, state and local income taxes or other amounts incurred by reason of the
grant, vesting, exercise or disposition of an option, or the disposition of the
underlying shares of Common Stock. Alternatively, the Company, a Subsidiary or
Parent may require the holder to pay to it such amount, in cash, promptly upon
demand.
A-5
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such legend
or legends upon the certificates for shares of Common Stock issued upon exercise
of an option under the Plan and may issue such "stop transfer" instructions to
its transfer agent in respect of such shares as it determines, in its
discretion, to be necessary or appropriate to (a) prevent a violation of, or to
perfect an exemption from, the registration requirements of the Securities Act
and any applicable state securities laws, (b) implement the provisions of the
Plan or any agreement between the Company and the optionee with respect to such
shares of Common Stock or (c) permit the Company to determine the occurrence of
a "disqualifying disposition," as described in Section 421(b) of the Code, of
the shares of Common Stock issued or transferred upon the exercise of an ISO
granted under the Plan.
The Company shall pay all issuance taxes with respect to the issuance
of shares of Common Stock upon the exercise of an option granted under the Plan,
as well as all fees and expenses incurred by the Company in connection with such
issuance.
17. USE OF PROCEEDS. The cash proceeds received upon the exercise of an
option under the Plan shall be added to the general funds of the Company and
used for such corporate purposes as the Board of Directors may determine, in its
discretion.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN CONSTITUENT
CORPORATIONS. Anything in this Plan to the contrary notwithstanding, the Board
of Directors may, without further approval by the Company's stockholders,
substitute new options for prior options of a Constituent Corporation (as such
term is defined in Paragraph 19 thereof) or assume the prior options of such
Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms shall be
defined as set forth below:
(a) "Cause" shall mean (i) in the case of an employee or
consultant, if there is a written employment or consulting agreement between the
optionee and the Company, any of its Subsidiaries or a Parent which defines
termination of such relationship for cause, cause as defined in such agreement,
and (ii) in all other cases, cause within the meaning of applicable state law.
(b) "Constituent Corporation" shall mean any corporation which
engages with the Company, any of its Subsidiaries or a Parent in a transaction
to which Section 424(a) of the Code applies (or would apply if the option
assumed or substituted were an ISO), or any Parent or any Subsidiary of such
corporation.
(c) "Disability" shall mean a permanent and total disability within
the meaning of Section 22(e)(3) of the Code.
(d) "Legal Representative" shall mean the executor, administrator
or other person who at the time is entitled by law to exercise the rights of a
deceased or incapacitated optionee with respect to an option granted under the
Plan.
B-7
(e) "Parent" shall have the same definition as "parent corporation"
in Section 424(e) of the Code.
(f) "Subsidiary" shall have the same definition as "subsidiary
corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, the options and Contracts
hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflict
of law provisions.
Neither the Plan nor any Contract shall be construed or interpreted
with any presumption against the Company by reason of the Company causing the
Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
A-6
21. PARTIAL INVALIDITY. The invalidity, illegality or unenforceability
of any provision in the Plan, any option or Contract shall not affect the
validity, legality or enforceability of any other provision, all of which shall
be valid, legal and enforceable to the fullest extent permitted by applicable
law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by a
majority of the votes present in person or by proxy and entitled to vote thereon
at the next duly held meeting of the Company's stockholders at which a quorum is
present. No options granted hereunder may be exercised prior to such approval;
provided, however, that the date of grant of any option shall be determined as
if the Plan had not been subject to such approval. Notwithstanding the
foregoing, if the Plan is not approved by a vote of the stockholders of the
Company on or before October 7, 1999,January 24, 2002, the Plan and any options granted
hereunder shall terminate.
B-8A-7
EXHIBIT B
---------
PROPOSED FORM OF THE BOARD OF DIRECTORS2001 STOCK PURCHASE PLAN
2001 EMPLOYEE STOCK PURCHASE PLAN
OF
IMAGING TECHNOLOGIES CORPORATION
Dated: May 27, 1999SECTION 1
Purpose
-------
The purpose of the Plan is to secure for the Company and its
stockholders the benefits of the incentive inherent in the ownership of Common
Stock by current and future Eligible Employees. The Plan is intended to comply
with the provisions of Code section 423 and shall be administered, interpreted
and construed in accordance with such provisions.
SECTION 2
Definitions
-----------
When used herein, the following terms shall have the following
meanings:
2.1 "Board of Directors" means the Board of Directors of the
Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute thereto.
2.3 "Committee" means the committee appointed by the Board of
Directors to administer the Plan pursuant to Section 12.
2.4 "Common Stock" means common stock, par value $0.005 per
share, of the Company.
2.5 "Common Stock Account" means the account established with,
and maintained by, the Custodian, for the purpose of holding Common Stock
purchased pursuant to this Plan.
2.6 "Company" means Imaging Technologies Corporation, and its
successors and assigns.
2.7 "Custodian" means the agent selected by the Company to
hold Common Stock purchased under the Plan.
2.8 "Eligible Compensation" means the sum of: (i) the total
compensation paid to an Eligible Employee by the Company and its Subsidiaries
that is subject to tax under Code section 3402 (or which would be subject to tax
thereunder if the employee were fully subject to Federal income tax with respect
to such compensation), plus (ii) any "elective deferrals" contributed to the
401(k) Plan by such Eligible Employee, plus (iii) amounts deferred under a plan
intended to qualify under Code section 125.
2.9 "Eligible Employee" means each employee of the Company or
any Subsidiary.
2.10 "Entry Date" means the first day of each calendar month
included in a Plan Year.
B-1
2.11 "Fair Market Value" means, on any day, (a) if actual
sales price information is available with respect to the Common Stock, the
average of the highest and lowest sales prices per share of Common Stock on such
day, or (b) if such information is not available, the average of the highest bid
and lowest asked prices per share of Common Stock on such day as reported by the
market upon which the Common Stock is quoted, The Wall Street Journal, the
National Quotation Bureau Incorporated or an independent dealer in the Common
Stock, as determined by the Company; provided, however, that if clauses (a) and
(b) of this Paragraph are all inapplicable, or if no trades have been made or no
quotes are available for such day, the fair market value of the Common Stock
shall be determined by the Board of Directors by any method consistent with
applicable regulations adopted by the Treasury Department relating to stock
options.
2.12 "Investment Date" means the last day of each Plan Year
quarter and such other dates as may be determined by the Committee in its sole
discretion.
2.13 "Participant" means an Eligible Employee who has met the
requirements of Section 3 and has elected to participate in the Plan pursuant to
Section 4.1.
2.14 "Payroll Deduction Account" means the bookkeeping entry
established by the Company for each Participant pursuant to Section 4.3.
2.15 "Plan" means the Imaging Technologies Corporation 2001
Employee Stock Purchase Plan as set forth herein and as amended from time to
time.
2.16 "Plan Year" means July 1, 2001 through December 31, 2001
and each calendar year thereafter.
2.17 "Subsidiary" means any corporation designated by the
Board of Directors, in its sole discretion, of which the Company owns or
controls, directly or indirectly, not less than 50% of the total combined voting
power of all classes of stock and which constitutes a "subsidiary" of the
Company, within the meaning of Code section 424(f).
SECTION 3
Eligibility
-----------
3.1 General Rule. Subject to Section 3.3, each Eligible
Employee shall be eligible to participate in the Plan beginning on the Entry
Date coincident with or next following the Eligible Employee's date of hire by
the Company or any of its Subsidiaries.
3.2 Leave of Absence. Unless the Committee otherwise
determines, a Participant on a paid leave of absence shall continue to be a
Participant in the Plan so long as such Participant is on such paid leave of
absence. Unless otherwise determined by the Committee, a Participant on an
unpaid leave of absence shall not be entitled to participate in any offering
commencing after such unpaid leave has begun but shall not be deemed to have
terminated employment for the purposes of the Plan. A Participant who, upon
failing to return to work following a leave of absence, is deemed not to be an
employee, shall not be entitled to participate in any offering commencing after
such termination of employment and such Participant's Payroll Deduction Account
shall be paid out in accordance with Section 6.1.
3.3 Common Stock Account. As a condition to participation in
this Plan, each Eligible Employee shall be required to hold shares purchased
hereunder in a Common Stock Account and such employee's decision to participate
in the Plan shall constitute the appointment of the Custodian as custodial agent
for the purpose of holding such shares. Such Common Stock Account shall be
governed by, and subject to, the terms and conditions of a written agreement
with the Custodian.
B-2
SECTION 4
Participation and Payroll Deductions
------------------------------------
4.1 Enrollment. Each Eligible Employee may elect to
participate in the Plan for a Plan Year by completing an enrollment
form prescribed by the Committee and returning it to the Company on or
before the date specified by the Committee, which date shall precede
the Eligible Employee's Entry Date.
4.2 Amount of Deduction. The enrollment form shall specify a
payroll deduction amount of from 1% to 15% (in whole numbers) of
Eligible Compensation, which shall be withheld from the Participant's
regular paychecks, including bonus paychecks, for the Plan Year. The
Committee, in its sole discretion, may authorize payment in respect of
any option exercised hereunder by personal check.
4.3 Payroll Deduction Accounts. Each Participant's payroll
deduction shall be credited, as soon as practicable following the
relevant pay date, to a Payroll Deduction Account, pending the purchase
of Common Stock in accordance with the provisions of the Plan. All such
amounts shall be assets of the Company and may be used by the Company
for any corporate purpose. No interest shall accrue or be paid on
amounts credited to a Payroll Deduction Account.
4.4 Subsequent Plan Years. Unless otherwise specified prior to
the beginning of any Plan Year on an enrollment form prescribed by the
Committee, a Participant shall be deemed to have elected to participate
in each subsequent Plan Year for which the Participant is eligible to
the same extent and in the same manner as at the end of the prior Plan
Year.
4.5 Changes in Participation.
(a) At any time during a Plan Year, a Participant may cease
participation in the Plan by completing and filing the form prescribed by the
Committee with the Company. Such cessation will become effective as soon as
practicable following receipt of such form by the Company, whereupon no further
payroll deductions will be made and the Company shall pay to such Participant an
amount equal to the balance in the Participant's Payroll Deduction Account as
soon as practicable thereafter. To the extent then eligible, any Participant who
ceased to participate may elect to participate again on any subsequent Entry
Date in any calendar quarter after the quarter in which such Participant ceased
to participate.
(b) At any time during the Plan Year (but not more than once
in any calendar quarter) a Participant may increase or decrease the percentage
of Eligible Compensation subject to payroll deduction within the limits provided
in Section 4.2 by filing the form prescribed by the Committee with the Company.
Such increase or decrease shall become effective with the first pay period
following receipt of such form to which it may be practicably applied.
SECTION 5
Offerings
---------
5.1 Maximum Number of Shares. The Plan shall be implemented by
making offerings of common stock on each investment date until the
maximum number of shares of common stock available under the plan have
been issued pursuant to the exercise of options.
5.2 Grant and Exercise of Options.
(a) Subject to Section 5.3, on each Investment Date, each
Participant shall be deemed, subject to Section 5.4, to have been granted the
option to purchase, and shall be deemed, without any further action, to have
exercised such option and purchased, the number of shares of Common Stock
determined by dividing the
B-3
amount credited to the Participant's Payroll Deduction Account on such date by
the purchase price (as determined in paragraph (b) below). All such shares shall
be credited to the Participant's Common Stock Account.
(b) The purchase price for each share of Common Stock shall be
equal to eighty-five percent (85%) of the Fair Market Value of such share on the
Investment Date.
5.3 Oversubscription of Shares. If the total number of shares
for which options are exercised on any investment date exceeds the
maximum number of shares available for the applicable offering, the
company shall make an allocation of the shares available for delivery
and distribution among the participants in as nearly a uniform manner
as shall be practicable, and the balance of all participant's payroll
deduction account shall be refunded to the participant or, in the event
of the participant's death, to the participant's estate, as soon as
practicable.
5.4 Limitations on Grant and Exercise of Options.
(a) No option granted under this Plan shall permit a
participant to purchase stock under all employee stock purchase plans (as
defined by code section 423(b)) of the Company and its subsidiaries at a rate
which, in the aggregate, exceeds $25,000 of the Fair Market Value (payroll
deductions not in excess of $21,250) of such stock (determined at the time the
option is granted) for each calendar year in which the option is outstanding at
any time.
(b) No employee who would down, immediately after the option
is granted, stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any Subsidiary
(a "5% owner") shall be granted an option. For purposes of determining whether
an employee is a 5% owner, the rules of Code section 424(d) shall apply in
determining the stock ownership of an individual and stock which the employee
may purchase under outstanding options shall be treated as stock owned by the
employee.
SECTION 6
Distributions of Common Stock Account
-------------------------------------
6.1 Termination of Employment. If a Participant's employment
with the Company and its Subsidiaries terminates for any reason during
a Plan Year, all shares credited to the participant's common stock
account shall be distributed, and any amount credited to the
Participant's Payroll Deduction Account shall be refunded to the
Participant or, in the event of the Participant's death, to the
Participant's estate, as soon as practicable.
6.2 During Employment. Prior to the Participant's termination
of employment with the company and its Subsidiaries, a Participant may
withdraw some or all of the whole shares credited to the Participant's
Common Stock Account, subject to the provisions of Section 10.3.
SECTION 7
Dividends on Shares
-------------------
All cash dividends paid with respect to shares of Common Stock
held in a participant's Common Stock Account shall be invested automatically in
shares of Common Stock purchased at one-hundred percent (100%) of Fair Market
Value on the next Investment Date. All non-cash distributions paid on Common
Stock held in a Participant's Common Stock Account shall be paid to the
Participant as soon as practicable.
B-4
SECTION 8
Rights as a Stockholder
-----------------------
When a Participant purchases Common Stock pursuant to the plan
or when Common Stock is credited to a participant's Common Stock Account, the
participant shall have all of the rights and privileges of a stockholder of the
company with respect to the shares so purchased or credited, whether or not
certificates representing shares shall have been issued.
SECTION 9
Options Not Transferable
------------------------
Options granted under the Plan are not transferable by a
Participant other than by will or the laws of descent and distribution and are
exercisable during the Participant's lifetime only by the Participant.
SECTION 10
Common Stock
------------
10.1 Reserved Shares. There shall be reserved for issuance and
purchase under the Plan an aggregate of 2,500,000 shares of Common
Stock, subject to adjustment as provided in section 11. Shares subject
to the Plan may be shares now or hereafter authorized but unissued,
treasury shares, or both.
10.2 Restrictions on Exercise. In its sole discretion, the
Board of Directors may require as conditions to the exercise of any
option that shares of Common Stock reserved for issuance upon the
exercise of an option shall have been duly listed on any recognized
national securities exchange, and that either a registration statement
under the Securities Act of 1933, as amended, with respect to said
shares shall be effective, or the participant shall have represented at
the time of purchase, in form and substance satisfactory to the
Company, that it is the participant's intention to purchase the shares
for investment only and not for resale or distribution.
10.3 Restriction on Sale. Shares of Common Stock purchased
hereunder shall not be transferable by a participant for a period of 12
months immediately following the Investment Date on which such shares
were purchased. In addition, upon the expiration of such 12-month
period, shares of Common Stock purchased hereunder shall not be
transferable by a Participant for an additional 12-month period,
without prior written notice to the Company on a form prescribed by the
Committee.
SECTION 11
Adjustment Upon Changes in Capitalization
-----------------------------------------
In the event of a subdivision or consolidation of the
outstanding shares of Common Stock, or the payment of stock dividend thereon,
the number of shares reserved or authorized to be reserved under this plan shall
be increased or decreased, as the case may be, proportionately, and such other
adjustments shall be made as may be deemed necessary or equitable by the Board
of Directors. In the event of any other change affecting the common stock, such
adjustments shall be made as may be deemed equitable by the Board of Directors,
in its sole discretion, to give proper effect to such event, subject to the
limitations of Code section 424.
SECTION 12
Administration
--------------
12.1 Appointment. The Plan shall be administered by the
Committee. The Committee shall consist of two or more members who shall
serve at the pleasure of the Board of Directors. The Board of
B-5
Directors may from time to time appoint members of the Committee in
substitution for, or in addition to, members previously appointed and
may fill vacancies, however caused, in the Committee.
12.2 Authority. Subject to the express provisions of the Plan,
the Committee shall have authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, and to make all
other determinations necessary or advisable in administering the Plan,
all of which determinations shall be final and binding upon all
persons. If and to the extent required by Securities and Exchange
Commission rule 16b-3 or any successor exemption under which the
Committee believes it is appropriate for the plan to qualify, the
Committee may restrict a participant's ability to participate in the
plan or sell any common stock received under the plan for such period
as the committee deems appropriate or may impose such other conditions
in connection with participation or distributions under the Plan as the
Committee deems appropriate.
12.3 Committee Procedures. The Committee may select one of its
members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable and may hold telephonic meetings. A
majority of its members shall constitute a quorum. All determinations
of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by a majority
of the members of the Committee shall be as fully effective as if it
had been made by a majority vote at a meeting duly called and held. The
Committee may request advice or assistance or employ such other persons
as are necessary for the proper administration of the plan.
12.4 Duties of Committee. The committee shall establish and
maintain records of the plan and of each payroll deduction account and
common stock account established for any participant hereunder.
12.5 Plan Expenses. The company shall pay the fees and
expenses of accountants, counsel, agents and other personnel and all
other costs of administration of the plan.
12.6 Indemnification. To the maximum extent permitted by law,
no member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on such
member's behalf in such member's capacity as a member of the Committee
or for any mistake of judgment made in good faith, and the Company
shall indemnify and hold harmless, directly from its own assets
(including the proceeds of any insurance policy the premiums of which
are paid from the Company's own assets), each member of the Committee
and each other officer, employee or director of the Company to whom any
duty or power relating to the administration or interpretation of the
plan or to the management or control of the assets of the plan may be
delegated or allocated, against any cost or expense (including fees,
disbursements and other charges of legal counsel) or liability
(including any sum paid in settlement of a claim with the approval of
the Company) arising out of any act or omission to act in connection
with the plan unless arising out of such person's own fraud, willful
misconduct or bad faith. The foregoing shall not be deemed to limit the
company's obligation to indemnify any member of the committee under the
Company's certificate of Incorporation or By-laws, or any other
agreement between the Company and such member.
SECTION 13
Amendment and Termination
-------------------------
13.1 Amendment. Subject to the provisions of Code Section 423,
the board of directors may amend the plan in any respect; provided,
however, that the plan may not be amended in any manner that will
retroactively impair or otherwise adversely affect the rights of any
person to benefits under the Plan which have accrued prior to the date
of such action.
13.2 Termination. The Plan shall terminate on the Investment
Date that Participants become entitled to purchase a number of shares
greater than the number of reserved shares available for purchase. In
addition, the Plan may be terminated at any time, in the sole
discretion of the Board of Directors.
B-6
SECTION 14
Effective Date
--------------
The plan shall become effective on July 1, 2001, subject to
approval by the holders of the majority of shares of Common Stock present and
represented at an annual or special meeting of the stockholders held within 12
months of the date the Plan is adopted.
SECTION 15
Governmental and Other Regulations
----------------------------------
The plan and the grant and exercise of options to purchase
shares hereunder, and the Company's obligation to sell and deliver shares upon
the exercise of options to purchase shares, shall be subject to all applicable
Federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as, in the opinion of counsel to the
Company, may be required.
SECTION 16
No Employment Rights
--------------------
The Plan does not create, directly or indirectly, any right
for the benefit of any employee or class of employees to purchase any shares
under the Plan, or create in any employee or class of employees any right with
respect to continuation of employment by the Company or any subsidiary, and it
shall not be deemed to interfere in any way with the Company's or any
Subsidiary's right to terminate, or otherwise modify, an employee's employment
at any time.
SECTION 17
Withholding
-----------
As a condition to receiving shares hereunder, the Company may
require the Participant to make a cash payment to the Company of, or the Company
may withhold from, any shares distributable under the Plan, an amount necessary
to satisfy all Federal, state, city or other taxes as may be required to be
withheld in respect of such payments pursuant to any law or governmental
regulation or ruling.
SECTION 18
Offsets
-------
To the extent permitted by law, the Company shall have the
absolute right to withhold any amounts payable to any Participant under the
terms of the Plan to the extent of any amount owed for any reason by such
participant to the Company or any Subsidiary and to set off and apply the
amounts so withheld to payment of any such amount owed to the company or any
subsidiary, whether or not such amount shall then be immediately due and payable
and in such order or priority as among such amounts owed as the Committee, in
its sole discretion, shall determine.
SECTION 19
Notices, etc.
-------------
All elections, designations, requests, notices, instructions
and other communications from a participant to the committee or the company
required or permitted under the Plan shall be in such form as is prescribed from
time to time by the Committee, shall be mailed by first-class mail or delivered
to such location as
B-7
shall be specified by the Committee, and shall be deemed to have been given and
delivered only upon actual receipt thereof at such location.
SECTION 20
Captions, etc.
--------------
The captions of the sections and paragraphs of this Plan have
been inserted solely as a matter of convenience and in no way define or limit
the scope or intent of any provision of the Plan. Reference to sections herein
are to the specified sections of this Plan unless another reference is
specifically stated. Wherever used herein, a singular number shall be deemed to
include the plural unless a different meaning is required by the context.
SECTION 21
Effect of Plan
--------------
The provisions of the Plan shall be binding upon, and inure to
the benefit of, all successors of the Company and each Participant, including,
without limitation, such Participant's estate and the executors, administrators
or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Participant.
SECTION 22
Governing Law
-------------
The laws of the State of Delaware shall govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
B-8
EXHIBIT C
---------
PROPOSED FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND
CHANGING THE PAR VALUE PER SHARE OF PREFERRED STOCK
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IMAGING TECHNOLOGIES CORPORATION
PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORSIt is hereby certified that:
1. The undersignedname of the corporation (hereinafter called the
"Corporation") is Imaging Technologies Corporation.
2. The Certificate of Incorporation of the Corporation
(hereinafter called the "Certificate of Incorporation") is hereby appoints Brian Bonarfurther
amended by deleting the current first paragraph of the Fourth Article and
Philip J. Englund
jointly and severally, as proxies,replacing it with full powerthe following:
"FOURTH: The aggregate number of substitution and
resubstitution, to vote all shares of stock which the
undersignedCorporation shall have authority to issue is 500,100,000 shares divided into two
classes; 500,000,000 shares of which shall be designated as Common Stock, $.005
par value per share, and 100,000 shares of which shall be designated as
Preferred Stock, with $0.01 par value per share. There shall be no preemptive
rights with respect to any shares of capital stock of the Corporation."
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware.
Dated: ___________, 2001
By: /s/ Brian Bonar
-------------------------
Brian Bonar, President
ATTEST:
By:/s/ Philip Englund
--------------------------
Philip Englund, Secretary
C-1
EXHIBIT D
---------
PROPOSED FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION
EFFECTING A REVERSE SPLIT
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IMAGING TECHNOLOGIES CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Imaging Technologies Corporation.
2. The Certificate of Incorporation of the Corporation
(hereinafter called the "Certificate of Incorporation") is hereby further
amended by deleting the current first paragraph of the Fourth Article and
replacing it with the following:
"FOURTH: The aggregate number of shares of stock which the
Corporation shall have authority to issue is _________ shares divided into two
classes; _________ shares of which shall be designated as Common Stock, $.005
par value per share, and _________ shares of which shall be designated as
Preferred Stock, with $0.01 par value per share. There shall be no preemptive
rights with respect to any shares of capital stock of the Corporation.
Effective 12:01 a.m. on __________, 2001 (the "Effective
Time"), each __ shares of Common Stock then issued shall be automatically
combined into one share of Common Stock of the Corporation. No fractional shares
or scrip representing fractions of a share shall be issued, but in lieu thereof,
each fraction of a share that any stockholder would otherwise be entitled to
vote atreceive shall be rounded up to the Annual Meetingnearest whole share."
3. The amendment of Stockholders (the "Annual Meeting")the Certificate of Imaging
TechnologiesIncorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation (the "Company") to be held atLaw of the Company's principal
executive offices at 15175 Innovation Drive, San Diego, California, on Thursday,
May 27, 1999,State of Delaware.
Dated: ___________, 2001
By:/s/ Brian Bonar
-------------------------
Brian Bonar, President
ATTEST:
By: /s/ Philip Englund
--------------------------
Philip Englund, Secretary
D-1
THE BOARD OF DIRECTORS OF
IMAGING TECHNOLOGIES CORPORATION
Dated: June 27, 2001
IMAGING TECHNOLOGIES CORPORATION PROXY SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints Brian Bonar and Philip J. Englund
jointly and severally, as proxies, with full power of substitution and
resubstitution, to vote all shares of stock which the undersigned is entitled to
vote at the Annual Meeting of Stockholders (the "Annual Meeting") of Imaging
Technologies Corporation (the "Company") to be held at the offices of the
Company at 15175 Innovation Drive., San Diego, California 92128, on Wednesday,
September 12, 2001, at 10 a.m., local time, or at any postponements or
adjournments thereof, as specified below, and to vote in his or her discretion
on such other business as may properly come before the Annual Meeting and any
adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, 5, 6 AND 7.
1. ELECTION OF DIRECTORS:
Nominees: Brian Bonar, Richard H. Green, Robert A. Dietrich, Eric W. Gaer, and Stephen J. Fryer
|_| VOTE FOR ALL NOMINEES ABOVE |_| VOTE WITHHELD FROM ALL NOMINEE
(Except as withheld in the space below)
Instruction: To withhold authority to vote for any individual nominee, check the
box "Vote FOR" and write the nominee's name on the line below.
2. APPROVAL OF THE 2001 STOCK OPTION PLAN:
Approval of the 2001 Stock Option/Stock Issuance Plan, pursuant to
which 5,000,000 shares of Common Stock will be reserved for issuance
over the term of such plan.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
3. APPROVAL OF THE 2001 STOCK PURCHASE PLAN:
To approve the 2001 Stock Purchase Plan, pursuant to which 2,500,000
shares of Common Stock will be reserved or may be reserved for issuance
over the term of such plan.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
4. APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION INCREASING THE COMPANY'S AUTHORIZED COMMON STOCK:
To approve an amendment to the Company's certificate of incorporation
to increase the number of Common Stock authorized to be issued from
200,000,000 shares to 500,000,000 shares.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
5. APPROVAL OF REVERSE SPLIT OF THE COMPANY'S COMMON STOCK:
To approve an amendment to the Company's certificate of incorporation
in order to effect a stock combination (reverse split) of the Common
Stock in an exchange ratio to be approved by the Board, ranging from
one newly issued share for each ten outstanding shares of Common Stock
to one newly issued share for each twenty outstanding shares of Common
Stock.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
6. APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION CHANGING THE PAR VALUE OF THE COMPANY'S PREFERRED STOCK:
To approve an amendment to the Company's certificate of incorporation
to change the par value per share of the Company's Preferred Stock from
$1,000 per share to $0.01 per share.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
7. RATIFICATION OF ACCOUNTANTS:
Ratification and approval of the selection of Boros & Farrington APC as
independent auditors for the fiscal year ending June 30, 2001.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
(PLEASE SIGN AND DATE ON REVERSE SIDE)
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, 4, 5, 6 AND 6
1. ELECTION OF DIRECTORS:
Nominees: Harry J. Saal, Brian Bonar, A. L. Dubrow, David. M. Carver
and Warren T. Lazarow
/ / VOTE FOR ALL NOMINEES ABOVE / / VOTE WITHHELD FROM ALL
NOMINEES
Instruction: To withhold authority to vote for any individual nominee,
check the box "Vote FOR" and write the nominee's name on the line below.
2. AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION
Amendment of the Company's Certificate of Incorporation to increase the
number of the Company's preferred stock authorized to be issued from 10,000
shares to 100,000 shares.
/ / VOTE FOR / / VOTE AGAINST / / ABSTAIN
3. APPROVAL OF 1998 STOCK OPTION PLAN:
Approval of the 1998 Stock Option/Stock Issuance Plan, pursuant to
which 1,500,000 shares of Common Stock will be reserved for issuance over the
term of such plan.
/ / VOTE FOR / / VOTE AGAINST / / ABSTAIN
4. APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON CONVERSION OF
SERIES D CONVERTIBLE PREFERRED STOCK
Approval of the issuance of all shares of Company Common Stock which
the Company would be entitled to issue upon conversion of the Company's Series D
Convertible Preferred Stock.
/ / VOTE FOR / / VOTE AGAINST / / ABSTAIN
5. APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON CONVERSION OF
SERIES E CONVERTIBLE PREFERRED STOCK:
Approval of the issuance of all shares of Company Common Stock which
the Company would be entitled to issue upon conversion of the Company's Series E
Convertible Preferred Stock.
/ / VOTE FOR / / VOTE AGAINST / / ABSTAIN
6. RATIFICATION OF ACCOUNTANTS:
Ratification and approval of the selection of Boros & Farrington APC as
independent auditors for the fiscal year ending June 30, 1999.
/ / VOTE FOR / / VOTE AGAINST / / ABSTAIN
(PLEASE SIGN7, AND DATE ON REVERSE SIDE)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED INBY THE MANNER
DIRECTED. INPROXY HOLDERS AT
THEIR DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE ABSENCE OFANNUAL
MEETING OR ANY DIRECTION, THE SHARES WILL BE VOTED FOR EACH
NOMINEE NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4, 5 AND 6 ANDADJOURNMENT(S) THEREOF TO VOTE IN ACCORDANCE WITH THE PROXIES' DISCRETION ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE ANNUAL MEETING.BOARD OF
DIRECTORS' RECOMMENDATIONS JUST SIGN BELOW, NO BOXES NEED BE CHECKED.
DATED: __________, 19______________________, 2001
SIGNATURE OF STOCKHOLDER
- --------------------------------------------------------------------------------
PRINTED NAME OF STOCKHOLDER
- --------------------------------------------------------------------------------
TITLE (IF APPROPRIATE)
- --------------------------------------------------------------------------------
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. FOR JOINTLY OWNED SHARES,
EACH OWNER SHOULD SIGN. IF SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH, AND, IF
SIGNING FOR A CORPORATION, GIVE YOUR TITLE. WHEN SHARES ARE IN THE NAMES OF MORE
THAN ONE PERSON, EACH SHOULD SIGN.
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. |_|
[ITECH LOGO]
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128
Telephone: (858) 613-1300 o Fax: (858) 207-6505