SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/[x]
Filed by a Partyparty 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))
/X/[ ] Definitive Proxy Statement
/ /[ ] Definitive Additional Materials
/ /[ ] Soliciting Material Pursuant to Section 240.14a-11(c)ss.240.14a-11(c) or Section
240.14a-12
PERSONAL COMPUTER PRODUCTS, INC.
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IMAGING TECHNOLOGIES CORPORATION
------------------------------------------------
(Name of Registrant as Specified Inin Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ /[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)(1) and 0-11.0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
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/ /[ ] Fee paid previously with preliminary materials.
/ /[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
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[LOGO]
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11031 Via Frontera -- San Diego, CA 92127
Phone: 619-485-8411 -- FAX: 619-487-5809
August 20, 1996[ITEC LETTERHEAD]
February 19, 1999
Dear Stockholder:Stockholder of Imaging Technologies Corporation:
It is a pleasure to send to you the attached notice and proxy materialmaterials with
regard to the annual meetingAnnual Meeting of stockholdersStockholders (the "Meeting") of Personal Computer Products,
Inc.Imaging
Technologies Corporation (the "Company").
The matters to be considered at this meetingthe Meeting include election of directors,
approval of an amendment to the Company's certificate of incorporation, approval
of a stock option plan, 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 accountants, amendment of the Company's
Certificate of Incorporation to increase the common stock authorized and the
adoption and ratification of the 1997 Stock Option Plan.independent auditors.
I hope you will be able to attend the annual meeting.Meeting. Whether or not you plan to attend
the annual meeting,Meeting, however, we request that you sign, date and return the enclosed
proxyProxy card as soon as possible.
We are grateful for the confidence you have shown in us.
Sincerely yours,
/s/ Edward W. Savarese
Edward W. SavareseBrian Bonar
-------------------------------------
Brian Bonar
President and Chief Executive OfficeOfficer
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IMAGING TECHNOLOGIES CORPORATION
11031 Via Frontera
San Diego, California 92127
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 20, 1996
To be held March 29, 1999
---------------
NOTICE IS HEREBY GIVEN that the Stockholders of
Personal Computer Products, Inc.:
The1998 Annual Meeting of Stockholders
(the "Meeting") of Personal Computer Products, Inc.,IMAGING TECHNOLOGIES CORPORATION, a Delaware corporation ("PCPI"(the
"Company"), will be held at 11031 Via Frontera,the Radisson Suites - Rancho Bernardo, 11520 W.
Bernardo Court, San Diego, California, on Friday, September 20, 1996 at 11:00Monday, March 29, 1999, 11 a.m. for the following
purposes:
1. To elect a Board of Directors;
2. To, to
consider and act upon a proposalthe following:
1. The election of five persons named in the accompanying Proxy
Statement to ratifyserve as directors of the selection of Boros & Farrington
APC as PCPI's independent accountants for fiscal year 1997;
3.Company 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 1998 Stock Option Plan (the "1998
Stock Option Plan"), pursuant to which 1,500,000 shares of the
Company's common stock authorized from 50,000,000 shares to 100,000,000 shares;
4. To adopt and ratifywill be reserved for issuance over the
1997term of the 1998 Stock Option Plan;
4. To approve 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;
5. To adopt andapprove 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;
6. To ratify the 1997 Employee Stock Purchase Plan;appointment of Boros & Farrington APC as the
Company's independent auditors for the 1998 fiscal year ending
June 30, 1999; and
to7. To consider and transact such other business as may properly
come before the Meeting or any postponements or adjournmentsadjournment(s) thereof.
The BoardA Proxy Statement, form of Directors has fixedProxy and the Annual Report to Stockholders
of the Company for the fiscal year ended June 30, 1998 are enclosed herewith.
Only holders of record of common stock, $0.005 par value, at the close of
business on August 2, 1996February 15, 1999 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 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
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Proxy, which is solicited by the Board of Directors of the Company, and to mail
it promptly in the enclosed envelope.
By Order of the Board of Directors
Brian Bonar
President and Chief Executive Officer
Dated: February __, 1999
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.
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IMAGING TECHNOLOGIES CORPORATION
11301 Via Frontera
San Diego, California 92127
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Proxy Statement
Annual Meeting of Stockholders
March 29, 1999
----------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors 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 Radisson
Suites - Rancho Bernardo, 11520 W. Bernardo Court, San Diego, California on
Monday, March 29, 1999 at 11 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 1130 Via
Frontera, San Diego, California 92127. The approximate date on which this Proxy
Statement and accompanying Proxy will first be sent or given to stockholders is
March 1, 1999.
VOTING SECURITIES
Voting
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 February 15, 1999, the
record date for determination of stockholders entitled to notice of and to vote
at the Meeting.
All stockholders are cordially invitedMeeting, 16,320,155 shares of the Company's common stock, par value
$0.005 (the "Common Stock"), were issued and outstanding and 2,150.5 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, 1,200 were shares of
Series D Convertible Preferred Stocks (the "Series D Preferred") and 530 were
shares of Series E Convertible Preferred Stock (the "Series E Preferred"). Each
stockholder is entitled to attendone vote for each share of Common Stock held by such
stockholder on February 15, 1999. Each stockholder of the Meeting. In orderSeries D Preferred and
Series E Preferred is entitled to allow us to provide adequate accommodations, please indicateone vote for each whole share of Common Stock
into which each share of Series D Preferred and Series E Preferred held by each
stockholder is convertible on the enclosed
proxy carddate immediately prior to February 15, 1999,
which will be approximately 2,910 votes per share of issued and outstanding
Series D Preferred and approximately 1,951 votes per share of issued and
outstanding Series E Preferred; provided, however, that in no event shall a
stockholder of Series D Preferred be entitled to vote more than 9.999% of the
number of shares entitled to be voted on any particular matter.
Notwithstanding anything to the contrary in the foregoing paragraph, in
voting for directors, each stockholder currently has the right to cumulate his
votes and give one nominee a number of votes equal to the number of directors to
be elected multiplied by the number of shares he holds, or to distribute his
votes on the same principle among the nominees to be elected in such manner as
he may see fit. California corporate law,
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made applicable to the Company by virtue of Section 2115 of the California
Corporations Code, allows a stockholder to cumulate his or her votes with
respect to the election of directors if you planthe director nominee has been placed in
nomination prior to attendvoting and if any stockholder present at the Meeting has
given notice at the Meeting of their intention to cumulate votes. Such notice
allows all votes cast in person.
BY ORDER OF THE BOARD OF DIRECTORS
Ralph R. Barry,
Secretary
San Diego, California
August 20, 1996
YOUR VOTE IS IMPORTANT!
Please immediately date, sign and return your proxythe election to be counted cumulatively. If no such
notice if given, no cumulative voting will be used in the election of directors.
While the notice of intention to cumulate votes may be presented orally at the
Meeting, it is prudent for any stockholder intending to cumulate his or her
votes to present a written notice of such intention to the Chairman of the
Meeting prior to the beginning of voting, but after all candidates have been
placed in nomination. The persons named in the enclosed envelope.
If you attend the meeting, youProxy card may withdraw your proxyor may
not elect to give such notice and vote the shares they represent in person.
THANK YOU FOR ACTING PROMPTLY.
PERSONAL COMPUTER PRODUCTS, INC.
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11031 Via Frontera -- San Diego, California 92127
PROXY STATEMENT
INTRODUCTION
GENERAL INFORMATION FOR STOCKHOLDERS
This proxysuch a
manner. In addition, non-management Proxy holders present at the Meeting may
also provide the requisite notice of intention to cumulate votes. Stockholders
who wish to cumulate their votes must be present at the Meeting or must give
Proxies to non-management Proxy holders along with a written statement that such
non-management Proxy holders have the authority to give notice of their
intention to cumulate votes. Discretionary authority to cumulate votes is furnished in connection with the solicitation of
proxiesbeing
solicited by the Board of Directors of Personal Computer Products, Inc.,the Company (the "Board") and it is
intended that the Proxies received by the management Proxy holders pursuant to
the solicitation will be voted in the manner best designed to cause the election
of the maximum number of the Board's nominees.
The attendance, in person or by proxy, of the holders of a Delaware corporation ("PCPI" ormajority of
the "Company"), for useoutstanding voting shares of Common Stock, including the shares of Common
Stock entitled to be voted by the holders of the Series D Preferred and the
Series E Preferred, entitled to vote at the Annual Meeting is necessary to constitute a
quorum. A vote of Stockholdersthe holders of PCPIa majority of the voting power of the issued
and outstanding Common Stock, including the shares of Common Stock entitled to
be held on September 20, 1996voted by the holders of the Series D Preferred and the Series E Preferred,
present in person or represented by proxy at any
postponements or adjournments thereof,the Meeting and entitled to vote at
the Meeting will be required for the election of directors, approval of the
amendment to the Company's certificate of incorporation, approval of a stock
option plan 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.
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 set forthof 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 accompanying Noticeelection of Annual Meetingdirectors, whereas
broker non-votes will not be counted for purposes of Stockholders. This proxy statement,determining whether a
proposal has been approved.
Proxies
If the accompanyingenclosed form of proxy and PCPI's annual report for fiscal year 1996
are first being sent to stockholders on or about August 20, 1996. If a proxy
in the accompanying formProxy is duly executedproperly signed and returned, the
shares represented thereby will be voted and where a specification is made byat the stockholder as provided therein,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 voted FOR the election of
the 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 and 6
described in accordance with such
specification. A stockholder giving a proxythe accompanying Notice and Proxy Statement. You may nevertheless, revoke itor
change your Proxy at any time before its exercisethe Meeting by filing with the SecretaryChief
Financial Officer of PCPI either an instrument
revoking the proxyCompany at the Company's principal executive offices at
11031 Via Frontera, San Diego, California 92127, a notice of revocation or
a duly executed proxy bearinganother signed Proxy with a later date. A proxy
will be revoked automatically if the stockholder who executed it is present
atYou may also revoke your Proxy by
attending the Meeting and votesvoting in person.
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Solicitation
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 will be borne by PCPI. In
addition to solicitationProxies by mail, certainProxies may be solicited without extra
compensation paid by the Company by directors, officers and regular
employees of PCPI, without receiving any additional compensation, may solicit
proxies personally orthe
Company by telephone, facsimile, telegraph or telegram. PCPI will reimburse brokers
and others holding stock in their names, or inpersonal interview. The Company
also intends to engage a proxy solicitor for the namesMeeting for a fee of
nominees, for
forwarding proxy material to their principals.
VOTING SECURITIES
On August 2, 1996 (the "record date" for determinationapproximately $10,000, plus reimbursement of certain expenses.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders entitled to notice of and to vote at the Meeting), PCPI had outstanding
33,839,955 shares of Common Stock, which is the only class of stock entitled
to vote at the Meeting. Each share entitles the holder thereof to one vote on
all mattersCompany that are intended to be
presented by such stockholders at the meeting.
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table sets forth the numberCompany's 1999 Annual Meeting of
shares of equity securities
of PCPI owned beneficially (as determined in accordance with the rules
adoptedStockholder must be received by the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934) for all persons (including any "group")
known to PCPI toCompany at its executive offices not later
than October 29, 1999 in order that such proposals may be the beneficial owner of more than five percent of any
class of voting securities of PCPI as of August 2, 1996, except as disclosedincluded in the Security OwnershipProxy
Statement and form of Management section below.
TITLE OF CLASS NAME SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- -------------- ---- ------------------------- ----------------
PCPI Common MCM Partners LP 3,658,833 10.8
MCM Partners LP is a private investment group located at 1 Embarcadero
Center, Suite 2830, San Francisco, California 94111.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of equity securities
of PCPI owned beneficially (as determined in accordance with the rules
adopted by the SEC under the Securities Exchange Act of 1934) as of August 2,
1996 by each director and nominee for election as a director of PCPI, by each
executive officer of PCPI who earned more than $100,000 during fiscal year
1996, and by all directors and executive officers as a group. In each case,Proxy relating to such beneficial ownership includes both sole voting and sole investment
power. Dr. Saal, Dr. Savarese, Mr. Roth and MCM Partners LP were, to the
knowledge of PCPI, the only persons owning beneficially (as determined in
accordance with such rules) more than 5% of any class of voting securities of
PCPI as of such date. The business addresses of Dr. Saal, Dr. Savarese and
Mr. Bonar are the same as that of the Company. Mr. Roth's business address is
322 West 57th Street, Apartment 45T, New York, New York 10019.
TITLE OF CLASS NAME SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- -------------- ---- ------------------------- ----------------
PCPI Common Harry J. Saal 10,925,000(a) 26.6
PCPI Common Edward W. Savarese 2,095,890(b) 5.9
PCPI Common Irwin Roth 1,754,400(c) 5.0
PCPI Common Brian Bonar 510,030(d) 1.5
PCPI Common All directors and executive
officers as a group
(5 persons) 15,492,320(e) 34.8
1meeting.
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TITLE OF CLASS NAME SHARES BENEFICIALLY OWNED PERCENT OF CLASS
- -------------- ---- ------------------------- ----------------
LPAC Common Edward W. Savarese 127,500(b) 4.1
LPAC Common Irwin Roth 126,500(c) 4.0
LPAC Common Harry J. Saal 76,500(a) 2.5
LPAC Common All directors and executive
officers as a group
(5 persons) 330,500(e) 9.9
(a) Includes options and/or warrants, now exercisable or exercisable within 60
days, to purchase 7,270,367 shares of PCPI Common Stock and 76,500 shares
of LPAC Common Stock.
(b) Includes options and/or warrants, now exercisable or exercisable within 60
days, to purchase 1,675,000 shares of PCPI Common Stock and 127,500 shares
of LPAC Common Stock. Also includes 30,000 shares of PCPI Common Stock
owned by Dr. Savarese's children; Dr. Savarese disclaims beneficial
ownership of those shares.
(c) Includes options and/or warrants, now exercisable or exercisable within 60
days, to purchase 1,158,335 shares of PCPI Common Stock and 126,500 shares
of LPAC Common Stock.
(d) Includes options and/or warrants, now exercisable or exercisable within 60
days, to purchase 470,000 shares of PCPI Common Stock.
(e) Includes options and/or warrants, now exercisable or exercisable within 60
days, to purchase 10,750,702 shares of PCPI Common Stock and 330,500 shares
of LPAC Common Stock. Also includes 30,000 shares of PCPI Common Stock
owned by Dr. Savarese's children; Dr. Savarese disclaims beneficial
ownership of those shares.
All percentages in this section were calculated on the basis of outstanding
securities plus securities deemed outstanding pursuant to Instruction 3 to
Item 403 of Regulation S-B, under the Securities Exchange Act of 1934.
MATTERS TO BE CONSIDERED AT ANNUALTHE MEETING
ITEM NO.PROPOSAL 1 --
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS; EXECUTIVE OFFICERS
Four (4) directorsTHE BOARD
Nominees For Election as Directors
The persons named below are to be elected at the Meeting, eachnominees for director to serve until the
next annual meeting orof stockholders and until a successor is elected. Alltheir successors have been elected
and qualified. Management has selected five nominees, all of whom are currently
directors of the nominees
are now serving as directors of PCPI and all four have consented to be named
and have indicated their intentCompany. 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 proxyholdersProxy 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 accompanying form of proxyenclosed
Proxy will vote the shares represented by
the proxy for all of the nominees unless withholding ofexercise discretionary authority to vote has
been specified on the proxy with respect to one or more directors. If for substitutes. The Board
is not aware of any reasoncircumstances that would render any nominee named is not a candidate (which is not expected) when the
election occurs, the proxyholders will vote the sharesunavailable for
the other nominees
named and for such other person as may be designated by the Board of
Directors.election.
The following table sets forth certain information regarding the
nominees for election to the Board of Directors of PCPI.
NAME AGE SINCE DIRECTOR TITLEas directors.
Name Age Since Director Title
- ---- --- ----- --------------
Harry J. Saal 5255 1983 Director, Chairman of the
Board
Edward W. Savarese 49 1983Brian Bonar 51 1995 Director, Vice Chairman of the Board, President and Chief
Executive Officer
Brian Bonar 49 1995A. L. Dubrow 65 1997 Director
and Executive Vice President
Sales, Marketing and Engineering
Irwin Roth 65 1983David M. Carver 51 1998 Director
Dr.Warren T. Lazarow 39 1998 Director
Harry J. Saal has beenserved as a Directordirector of PCPIthe Company since 1983 and
became the Company's Chairman of the Board in December 1995. HeFrom September 1993
through November 1995, Dr. Saal was President and Chief Executive Officer of
Smart Valley, Inc., a company which is working tohelped create an electronic community in the
San Francisco Bay Area of California, from September 1, 1993
until November 1995.Area. In addition, from 1986 until 1993, Dr. Saal was the
President and a Directordirector of Network General Corp., which isCorporation, a company engaged in
the design, manufacture and sale of diagnostic systems for local area networks
(and related products). Dr. Saal continues to serve as a Director of Network
General Corp. Dr. Saal also serves as a Directordirector of Borland International and
GlobalNet Systems, Ltd.
2
Dr. Savarese is a founder of PCPI andInprise Corporation.
Brian Bonar has been Chairman and Chief
Executive Officer of PCPI and its predecessor from 1982 until 1995, when he
became the Company's Vice Chairman. In addition, Dr. Savarese has been the
President of PCPI since 1989. Dr. Savarese also servesserved as a Directordirector of GlobalNet Systems, Ltd.the Company since August 1995.
From August 1992 through April 1994, Mr. Bonar has been with PCPI since August 1992served as the Company's Director
of Technology Sales and infrom April 1994 was appointedthrough 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
August 1995 a Director.July 1997, Mr. Bonar was
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appointed as the Company's President and Chief Operating Officer. In April 1998,
he was appointed as the Company's Chief Executive Officer. 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, heMr. Bonar
was Vice President of Sales and Marketing for Rastek Corporation, a laser
printer controller developer located in Huntsville, Alabama. Prior to these
positions, Mr. Roth is an attorney, and has been practicing law in New York CityBonar was employed by IBM, U.K. Ltd. for more than the past fiveapproximately 17 years.
HeA. L. Dubrow has served onas a director of the Company since February
1997, at which time he was appointed as the Company's BoardVice President, Special
Projects, a post in which he served until the middle of Directors since 1982. He1997. In 1996, Mr.
Dubrow was a co-founder of Panafax, Inc., the first
marketer of facsimile machinesinvolved in the United States. He holds Bachelor'sacquisition and law degrees from the Universityrestructuring of Michigan. Mr. Roth also serves as the
Chairman of GlobalNetNewGen Systems, Ltd.
In addition to Dr. SavareseInc.
and Mr. Bonar, Ralph R. Barry, age 38, is an
executive officer of PCPI and servesserved as its Chief Financial Officer,
Secretary and Treasurer. Mr. Barry, a CPA, joined PCPI as ControllerPresident and Chief AccountingExecutive Officer and Assistant Secretary in October 1993 and became
Chief Financial Officer and Secretary in August 1995. Prior thereto,prior to such
acquisition. From 1977 to April 1995, Mr. Barry served with Price Waterhouse LLP since August 1989.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held 12 meetings in fiscal year 1996. In addition
to action taken at meetings, the Board on occasion acts by unanimous written
consent.
The Board of Directors currently has no committees. Each of PCPI's current
directors attended at least 75%Dubrow was part of the fiscal year 1996 meetingssenior
management of the Board.
ITEM NO. 2 -- SELECTION OF INDEPENDENT ACCOUNTANTS
The BoardBW/IP, an operation acquired from Borg Warner, where Mr. Dubrow
served as General Manager from 1977 to 1992 and as Chief Operating Officer until
April 1995.
David M. Carver has selected the firm of Boros & Farrington APCserved as independent
accountants for PCPI for the fiscal year ending June 30, 1997, it being
intended that such selection would be proposed for ratification by the
stockholders. The proxyholders named in the accompanying form of proxy will
vote the shares represented by the proxy for ratification of the selection of
Boros & Farrington APC unless a contrary choice has been specified on the
proxy. If the stockholders do not ratify the selection of Boros & Farrington
APC, the selection of independent accountants will be reconsidered by the
Board of Directors. The Board retains the power to select another firm as
independent accountants for PCPI to replace a firm whose selection was
ratified by the stockholders in the event the Board determines that a change
would be in the best interest of PCPI.
Representatives of Boros & Farrington APC are expected to be present at
the Meeting to respond to appropriate questions and to make a statement if
they desire to do so.
ITEM NO. 3 -- AMENDMENT OF CERTIFICATE OF INCORPORATION
On July 18, 1996, the Board of Directors unanimously adopted a resolution
proposing that Article FOURTH of PCPI's Certificate of Incorporation be
amended to increase the authorized common stockdirector of the Company from 50,000,000June 1998.
From November 1995 through December 1997, Mr. Carver served in several key
management positions, including Executive Vice President and Chief Operating
Officer, of Network General Corporation, the $250-million software firm which in
December 1997 merged with McAfee Associates to 100,000,000 shares.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. Lazarow has served as a director of the Company since June
1998. Since 1994, Mr. Lazarow has been a partner at the law firm of Brobeck,
Phleger & Harrison LLP, an international legal firm specializing 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 Meetings
The Board of Director recommendsheld twelve meetings and acted by unanimous written consent
on three occasions during the fiscal year ended June 30, 1998 (the "1998 Fiscal
Year"). The Board has an Audit Committee and a vote FOR approvalCompensation Committee. Each
director attended or participated in seventy-five percent or more of the
proposed
amendmentaggregate of (i) the total number of meetings of the CertificateBoard and (ii) the total
number of Incorporation to allowmeetings 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
future
financingservices 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.
The Compensation Committee of the Company's growthBoard (the "Compensation
Committee") currently consists of two directors, Dr. Saal and expansion, as necessary.
The proposed amendment cannot become effective unless itMr. Carver, and is
approved by a
majority ofprimarily responsible for reviewing and approving the stockholders entitled to vote thereon. The full text of the
amendment is included as Exhibit A to this proxy statement.
ITEM NO. 4 -- ADOPTION AND RATIFICATION OF 1997 STOCK OPTION PLAN
GENERAL NATURE AND PURPOSE
The 1997 Stock Option Plan of PCPI (the "Plan") was unanimously adopted
by the Board of Directors on August 7, 1996. The Plan providesCompany's general
compensation policies and setting compensation levels for the grantingCompany's
executive officers. The Compensation Committee is also responsible for the
administration and award of incentive stock options or non-statutoryunder the
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Company's stock option plans, as well as, the award of stock options and
warrants issued pursuant to key
3
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 Compensation
Directors who are not employees of the Company or any subsidiaryone of its
subsidiaries receive meeting 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.
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.
The Company has no present plans, arrangements or understandings for
the grantingissuance or use of non-statutorythe 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
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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.
If the proposed amendment is adopted, there will be 98,449.5 authorized
shares of Preferred Stock that will not be outstanding or reserved for issuance.
As of the record date, February 15, 1999, the Company had 2,150.5 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. Abstentions and broker non-votes are not
considered cast.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 3
APPROVAL OF 1998 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve the 1998 Stock
Option Plan (the "1998 Stock Option Plan"), pursuant to which 1,500,000 shares
of Common Stock will be reserved for issuance. The Board has authorized the
implementation of the 1998 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 1998 Stock Option Plan became
effective upon adoption by the Board on October 26, 1998, subject to stockholder
approval 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 and upon
approval of this proposal, the 1997 Stock Option Plan and the 1997 Stock
Purchase Plan will be terminated.
The following is a summary of the principal features of the 1998 Stock
Option Plan. The summary, however, does not purport to be a complete description
of all the provisions of the 1998 Stock Option Plan. A complete form of the 1998
Stock Option Plan has been attached hereto as Exhibit B.
The following is a summary of certain material features of the 1998
Stock Option Plan.
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Shares Subject to the Option Plan and Eligibility
The 1998 Plan authorizes the grant of options to purchase a maximum of
1,500,000 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 1998 Stock
Option Plan.
Type of Options
Options granted under the 1998 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 non-employee directors.
SECURITIES SUBJECT TO THE 1997 PLANemployees.
Administration
The 1998 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 Committee members will be
"outside directors," within the meaning of Section 162(m) of the Code. Those
administering the 1998 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 1998 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 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 1998 Stock Option Plan and make
all other determinations necessary or advisable for administering the 1998 Stock
Option Plan.
Terms and Conditions of Options
Options granted under the 1998 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).
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(b) Options may be granted for terms established by the Administrators;
provided, however, that the term of an ISO may not exceed ten 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 which may be
issued upon exercise of options granted under the Plan is 5,000,000 shares,
$0.005 par value per share (subject to adjustments as a result of further
stock splits, stock dividends, recapitalizations, reclassifications,
combinations, consolidations and mergers). If an option granted under the
Plan becomes unexercisable by expiration, surrender, termination or for
any
other reason, the number of shares which were subject to the option but as to
which the option was not exercised will continue to be available under the
Plan, and new options may be granted to an employee in respect of such shares.
ELIGIBILITY TO RECEIVE OPTIONS UNDER THE 1997 PLAN
Any key employee or non-employee director of the Company or any of its
subsidiariescalendar year is eligible to be granted options under the Plan.
An individual may hold more than one option, provided that250,000. In
addition, the aggregate fair market value (determined as of shares with respect to which ISOs
may be granted to an employee which are exercisable for the first time the option is granted) of
incentive stock options exercisable during
any one 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, 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 employee, exceed $100,000 (plus unused carryovers).
ADMINISTRATION AND DURATION OF THE 1997 PLAN
The Plan is administered by PCPI's Board of Directors and,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,
byhowever, that if the Boardrelationship is terminated either for cause or without the
consent of Directors, a committee (the "Committee") appointed
by the Board of Directors. The Board of Directors (orCompany, the Committee, if
responsibility for any such matters is delegated byoption will terminate immediately. Except as may be
provided in the Board of Directorsoption contract related to the committee) (hereafteroption, an option is not affected
by a change in the "Administrator")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 authorizedterminated by reason of disability may exercise the option, to
determinethe 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 employees are key employees,the Company determines is necessary to select those key employees and
non-employee directorsmeet its
obligations to whom optionswithhold 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 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 Changes
Appropriate adjustments are to be granted,made in the number and kind of shares
available under the 1998 Stock Option Plan, in the number and kind of shares
subject to determinethe 1998 Stock Option Plan and each outstanding option and in the
exercise prices of outstanding options, as well as the limitation on the number
of shares that may be granted to be subjectany employee in any calendar year, in the event
of any change in the Company's Common Stock by
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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. 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 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) 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 option grants and which options aretransaction ceases to be incentive stock options and which are to be non-statutory stock options,
to determine the terms and conditions of options (consistent with the Plan),
to establish such rules relating to the administrationrepresent
at least 50% of the Plan as It may
deem appropriate and to issue such interpretationscombined voting power (in the election of directors
generally) of the Plan andCompany or such surviving entity outstanding immediately after
such transaction or (ii) the registration of the Company's Common Stock under
the Securities Exchange Act of 1934 is terminated, any outstanding options thereunder as itshall
terminate upon the earliest of any such event, unless other provision is made
therefor in the transaction.
Duration and Amendment of the 1998 Plan
No option may deem necessary or advisable.be granted under the 1998 Stock Option Plan after October
25, 2008. The Board of Directors has the power tomay at any time terminate or amend the Plan at any time;1998 Stock Option
Plan; provided, however, that, (except for adjustments resulting from stock splits,
recapitalizations, etc.) the Board may not, without the approval of the Company's
stockholders, amendno amendment may be made which would (a) except as a result of the
Plan to increase the number of shares
available for options under the Plan,anti-dilution adjustments described above, increase the maximum number of optionsshares
for which may be granted to a member or all members of the Board of Directors,
materially increase the benefits accruing to individuals who participate in
the Plan, modify the eligibility requirements for the grant of options under
the Plan, or modify the restriction that no options granted to non-employee
directors may be exercised prior to the first anniversary of the date it is
granted. Further, no amendment of the Plan can, without the consent of the
option holder, adversely affect any rights or obligations under any option
previously granted.
No option may be granted under the 1998 Stock Option Plan after August 7, 2006.
TERMS OF OPTIONSor increase
the maximum number of shares covered by options that may be granted to an
employee in any calendar year, (b) change the eligibility requirements for
persons who may receive options under the 1998 Stock Option Plan or (c) 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 Treatment
The Plan requires thatfollowing is a general summary of the federal income tax
consequences under current tax law of NQSOs and ISOs. It does not purport to
cover all of the special rules, including the exercise of an option pricewith
previously-acquired shares, or the state or local income or other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the 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.
An optionee does not recognize taxable income for options granted thereunder be
at least 100%federal income tax
purposes upon the grant of a NQSO or an ISO.
Upon the exercise of a NQSO, the optionee recognizes ordinary income in
an amount equal to the excess, if any, of the fair market value of the stock subject to the option on
the date the option is granted, provided that the option price must be at
least 110% of the fair market value in the case of incentive stock options
granted to persons then owning, directly or indirectly, more than 10% of the
total combined voting power of all classes of stock of PCPI, any subsidiaries
and any parent corporations. On August 7, 1996, the closing bid and asked
prices of PCPI common stock on the over-the counter market as reported by
NASD electronic bulletin board were $1.75 and $1.81, respectively.
No option may have a term in excess of ten years from its date of grant
and, except in the event of a merger, consolidation or reorganization of the
Company, no option granted to a non-employee director may be exercised in
whole or in part during the first year after it is granted. Incentive stock
options granted to persons then owning, directly or indirectly, more than 10%
of the total combined voting power of all classes of stock of the Company,
any subsidiaries and any parent corporations, may not be exercised after five
years from the date of grant. Subject to the foregoing, options become
exercisable at such times and in such installments (which may be cumulative)
as the Administrator provides in the terms of each individual option. The
Administrator provides in the terms of each individual option when such
option expires and becomes unexercisable.
4
Any options granted under the Plan may, but need not, provide that the
option exercise period is subject to early termination if the option holder
ceases to be a director, officer or employee of the Company. The Plan also
grants to the Administrator the authority to make the Common Stock issuable
upon exercise of an option subject to a repurchase right in favor of the
Company (or its assigns), exercisable upon the option holder's cessation of
director or employee status, at the original option price paid by the option
holder upon his or her exercise of the option. These repurchase rights shall
be exercisable by the Company (or its assigns) upon such terms and conditions
(including provisions for such rights to expire in one or more instruments)
as the Administrator may specify in the agreement setting forth such rights.
The Plan also grants the Administrator the discretion to assist any employee
in financing the exercise of any options by authorizing a loan from the
Company to the option holder, permitting the option holder to pay the option
price in installments, or authorizing the Company to guarantee a third-party
loan to the option holder.
The Plan provides that upon the dissolution or liquidation of the Company
or the merger or consolidation of the Company into another corporation, or
upon certain other reorganizations, the Administrator may (a) accelerate in
whole or in part the exercisability of outstanding options, (b) terminate in
whole or in part outstanding options upon at least ten days' notice to the
option holders, (c) arrange to have the surviving corporation grant
appropriately adjusted replacement options, or (d) cancel in whole or in part
outstanding options upon payment to an option holder of cash equal to the
difference between (i) the fair market value of what the option holder would
have received upon the merger, consolidation, dissolution or liquidation, as
the case may be, had the option holder exercised the option immediately prior
to the effective date of said event; and (ii) the exercise price of the
option.
Subject to the Administrator's right to grant assistance in financing the
exercise of options and/or to limit the following alternatives in the terms
of particular stock option agreements, the Plan calls for option holders to
pay the option price in full at the time of exercise in cash or by check, by
the transfer to the Company of previouslyshares
acquired shares of PCPI common
stock having a fair market value (determined on the date of delivery to the
Company) equal to the option price, or by a combination of cash and
previously acquired shares of PCPI common stock. This provision could permit
"pyramiding" of stock options, by which the delivery of even a small number
of PCPI shares could enable a holder to enjoy the economic benefit of a full
exercise without the need of paying any cash to the Company.
The option holder must make such representations and execute such
documents as the Company may require to effect compliance with applicable
federal and state securities laws. Other than the stock option agreements
executed in connection with each option grant, option holders are not
provided with any periodic reports concerning the status of their individual
options.
In the event any change is made to the Company's Common Stock by reason
of a stock split, stock dividend, recapitalization, reclassification,
combination of shares, consolidation or merger, unless such change results in
the termination of all outstanding options, the Administrator has the
discretion to make appropriate adjustments in the number and class of shares
as to which all options then outstanding under the Plan will be exerisable,
and in the option price per share. In such event, the Administrator may also
adjust the maximum number of shares to which options may be granted to any
one or to all directors. All such adjustments made by the Administrator will
be final and binding upon the option holders, the Company and other
interested persons.
FEDERAL TAX CONSEQUENCES
The following is a general description of the federal income tax
consequences of options granted under the Plan. Incentive stock options
granted under the Plan are intended to satisfy the requirements of Section
422A of the Internal Revenue Code. Non-statutory options granted under the
Plan do not satisfy such requirements. The federal income tax treatment for
the two types of options differs as follows:
(i) INCENTIVE STOCK OPTIONS. Incentive stock options under the Plan are
intended to be eligible for the favorable federal income tax treatment
accorded to "incentive stock options" under the Code.
There generally are no federal income tax consequences to the option
holder or the Company by reason of the grant or exercise of an incentive
stock option. However, the exercise of an incentive stock option may increase
the option holder's alternative minimum tax liability, if any.
If an option holder holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is
granted and at least one year from the date on which the shares are
transferred to the option holder upon exercise of the option, any gain or
loss on a disposition of such stock will be long-term capital gain or loss.
Generally, if the option holder disposes of the stock before the expiration
of either of these holding periods (a "disqualifying disposition"), at the
time of disposition, the option holder will realize taxable ordinary income
equal to the lesser of (a) the excess of the stock's fair market value on the date of exercise over the exercise price or (b)thereof, and the
option holder's actual
gain, if any, onCompany generally is entitled to a deduction for such amount at that time. If
the purchase and sale. The option holder's
5
additional gain, or any loss, uponoptionee later sells shares acquired pursuant to the disqualifying disposition will beexercise of a capital gain or loss, which will beNQSO, the
optionee recognizes long-term or short-term depending on
whether the stock was held for more than one year. Long-term capital gains
currently are generally subject to lower tax rates than ordinary income.
Slightly different rules may apply to option holders who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of
the Exchange Act.
To the extent the option holder recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the
Code and the satisfaction of a tax reporting obligation) to a corresponding
business expense deduction in the tax year in which the disqualifying
disposition occurs.
(ii) NON-STATUTORY OPTIONS. Non-statutory stock options granted under the
Plan generally have the following federal income tax consequences:
There are no tax consequences to the option holder or the Company by
reason of the grant of a non-statutory stock option. Upon exercise of a
non-statutory stock option, the option holder normally will recognize taxable
ordinary income equal to the excess of the stock's fair market value on the
date of exercise over the option exercise price. Generally, with respect to
employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, the provisions of Section
162(m) of the Code and the satisfaction of a tax reporting obligation, the
Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the option holder. Upon disposition
of the stock, the option holder will recognize a capital gain or loss equal to the
difference between the selling priceamount realized on such sale and the sum of the amount paid
for such stock plus any amount recognized as ordinary income upon exercise of
the option. Such gain or loss will be long or short-term depending on whether
the stock was held for more than one year. Slightly different rules may apply
to option holder who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other
types of compensation received by a covered employee from the Company, may
cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with proposed Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the option plan
contains a per-employee limitation on the number of shares for which options
may be granted during a specified period, the option plan, including the
per-employee limitation, is approved by the shareholders, and the exercise
price of the option is no less than the fair market value of the stock on the
date of grant; or (ii) the option is granted (or exercisable) only upon the
achievement (as certified in writing by the compensation committee) of an
objective performance goal established in writing by the compensation
committee while the outcome is substantially uncertain, and the option is
approved by shareholders.
OTHER TAX CONSEQUENCES. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted
under the Plan; tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial
interpretations of the application of the federal income tax laws are subject
to change, Furthermore, no information is given with respect to state or
local taxes that may be applicable. Participants in the Plan who are
residents of or are employed in a country other than the United States may be
subject to taxation in accordance with the tax laws of that particular
country in addition to or in lieu of United States federal income taxes.
OPTIONS NOT TRANSFERABLE
Options granted under the Plan are nontransferable, except by will or by
the applicable laws of descent and distribution.
VOTE REQUIRED
The approval of the holders of at least a majority of the shares of
Common Stock outstanding and entitled to vote is required for approval of the
adoption of the Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote FOR the adoption and ratification
of the Plan.
6
ITEM NO. 5 -- ADOPTION AND RATIFICATION OF 1997 STOCK PURCHASE PLAN
GENERAL NATURE AND PURPOSE
The 1997 Employee Stock Purchase Plan ("Purchase Plan") was unanimously
adopted by the Board of Directors on August 7, 1996. The Purchase Plan
permits employees to purchase the Company's common stock at a discounted
price. The Purchase Plan is designed to encourage and assist a broad spectrum
of employees of the Company to acquire an equity interest in the Company
through the purchase of its common stock. It is also intended to provide
participating employees the tax benefits under Section 421 of the Code. The
Purchase Plan covers an aggregate of 2,500,000 shares of the Company's common
stock. Management currently believes these shares to be sufficient for all
stock purchases under the Purchase Plan for approximately two years.
ELIGIBILITY
All employees, including executive officers and directors who are
employees, customarily employed more than 20 hours per week and more than
five months per year by the Company are eligible to participate in the
Purchase Plan on the first enrollment date following employment. However,
employees who hold, directly or through options, five percent or more of the
stock of the Company are not eligible to participate.
TERMS AND ADMINISTRATION
Participants may elect to participate in the Purchase Plan by
contributing up to a maximum of 15 percent of their compensation, or such
lesser percentage as the Board may establish from time to time. Enrollment
dates are the first trading day of January, April, July and October or such
other dates as may be established by the Board from time to time. The first
enrollment date will be October 1996. On the last trading day of each
December, March, June and September, beginning in September 1996, or such
other dates as may be established by the Board from time to time, the Company
will apply the funds then in each participant's account to the purchase of
shares. The cost of each share purchased is 85 percent of the lower of the
fair market value of common stock on (i) the enrollment date or (ii) the
purchase date. The length of the enrollment period may not exceed a maximum
of 24 months. No participant's right to acquire shares may accrue at a rate
exceeding $25,000 of fair market value of common stock (determined as of the
first trading day in an enrollment period) in any calendar year.
The Board may administer the Purchase Plan or the Board may delegate its
authority to a committee composed of not fewer than two outside directors and
may delegate routine matters to management. The Board may amend or terminate
the Purchase Plan at any time and may provide for an adjustment in the
purchase price and the number and kind of securities available under the
Purchase Plan in the event of a reorganization, recapitalization, stock
split, or other similar event. However, amendments that would increase the
number of shares reserved for purchase, or would otherwise require
shareholder approval in order to comply with Federal securities regulations,
require shareholder approval. Shares available under the Purchase Plan may be
either outstanding shares repurchased by the Company or newly issued shares.
As of August 7, 1996 approximately 53 employees of the Company were
eligible to participate in the Purchase. Since the number of shares purchased
under the Plan by any employee and the purchase price thereof are determined
by the level of voluntary contribution by such employee and the market price
of the shares in effect from time to time, the Company currently cannot
determine the number of shares that may be purchased in the future by any
eligible individual or group of individuals or the purchase price thereof.
FEDERAL TAX CONSEQUENCES
In general, participants will not have taxable income or loss under the
Purchase Plan until they sell or otherwise dispose of shares acquired under
the Purchase Plan (or die holding such shares). If the shares are held, as of
the date of sale or disposition, for longer than both: (i) two years after
the beginning of the enrollment period during which the shares were purchased
and (ii) one year following purchase, a participant will have taxable
ordinary income equal to 15% of the fair market value of
the shares on the first daydate acquired (plus or minus any other adjustments to the
basis of the enrollmentshares), depending on the period (butfor which the shares were held.
Long-term capital gain is generally subject to more favorable tax treatment than
ordinary income or short-term capital gain.
-14-
Upon the exercise of an ISO, the optionee does not in excessrecognize taxable
income. If the optionee disposes of the shares acquired pursuant to the exercise
of an ISO more than two years after the date of grant and more than one year
after the transfer of the shares to the optionee, the optionee recognizes
long-term capital gain or loss and the Company is not be entitled to a
deduction. However, if the optionee disposes of such shares within another
required holding period, all or a portion of the gain onis treated as ordinary
income and the sale). Any additional gain from the sale will be long-term capital gain. The
Company generally is not entitled to andeduct such amount.
In addition to the federal income tax deduction ifconsequences described above, an
optionee may be subject to the holding periods are
satisfied.
Ifalternative minimum tax, which is payable to the
shares are disposedextent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of before the expiration of both of the
foregoing holding periods (a "disqualifying disposition"), a participant will
have taxable ordinary income equal toan ISO, the excess of the fair market value of the shares on the purchase date over the
purchase price. Such ordinary incomeexercise price therefor is subject to information reporting requirements and may become subject to
income and employment tax withholding.an adjustment that increases alternative minimum
taxable income. In addition, the participant will have
taxable capitaloptionee's basis in such shares is increased by
such excess for purposes of computing the gain (or loss) measured byor loss on the difference betweendisposition of the
sale
price and the participant's purchase price plusshares for alternative minimum tax purposes. If an optionee is required to pay
an alternative minimum tax, the amount of ordinary income
recognized,such tax which gain (or loss) will be long-term ifis attributable to
deferral preferences (including the shares
7
have been heldISO adjustment) is allowed as a credit
against the optionee's regular tax liability in subsequent years. To the extent
the credit is not used, it is carried forward.
Valuation
On February 12, 1999, the closing price of the dateCompany's Common Stock
on The Nasdaq SmallCap Market was $1.625 per share.
STOCKHOLDER APPROVAL
The affirmative vote of sale for more than one year. Thea majority of the outstanding voting shares of
the Company ispresent or represented and entitled to an income tax deduction equal to the amount of ordinary income
recognized by a participant in a disqualifying disposition.
SPECIAL FEDERAL INCOME TAX CONSIDERATION DUE TO SHORT SWING PROFIT RULE:
The potential liability of a person subject to Section 16 of the Exchange Act
to repay short-swing profits from the resale of shares acquired under a
Company plan constitutes a "substantial risk of forfeiture" within the
meaning of the above-described rules, which is generally treated as lapsing
at such time as the potential liability under Section 16 lapses. Persons
subject to Section 16 who would be required by Section 16 to repay profits
from the immediate resale of stock acquired under a Company plan should
consider whether to file a Section 83 (b) Electionvote at the time they acquire
stock under a Company plan in order to avoid deferral of the date that they
are deemed to acquire sharesStock Option
Meeting is required for federal income tax purposes.
VOTE REQUIRED
The approval of the holders of at least a majority1998 Stock Option Plan. Should such
stockholder approval not be obtained, then the 1998 Stock Option Plan will
terminate and all options previously granted under the 1998 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 1998 Stock Option Plan. The Company's 1997 Stock Option
Plan will, however, continue to remain in effect, and option grants may be made
pursuant to the provisions of that plan, if implemented, until the available
reserve of Common Stock under such plan is issued.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE 1998
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.
-15-
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, the Company entered into a Securities Purchase
Agreement (the "Series D Agreement") with certain investors contemplating a
potential funding of up to $2.4 million (the "Series D Funding"). The Series D
Funding provides for the private placement by the Company of up to 1,200 units
(the "Units"), each Unit consisting of (i) one share of Series D Convertible
Preferred Stock (the "Series D Stock") and (ii) 2,000 warrants (the "Series D
Warrants" and, collectively, with the Series D Stock, the "Series D Securities")
exercisable for shares of Common Stock. The Series D Stock is 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 permitted to convert any
shares of Series D Stock in excess of the number of such shares upon the
conversion of which, (i) 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) plus (ii) the number of shares of
Common Stock issuable upon conversion of such shares of Series D Preferred Stock
or exercise of Series D Warrants, would be equal to or exceed (iii) 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, under the Series D Funding, to issue an
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 is only obligated under
the Series D Agreement to convert upon proper notification from the investors,
the Series D Stock into Common Stock at the applicable below market conversion
price in the applicable pro rata amounts so that no more than 20 percent of the
Company's Common Stock then outstanding will be issued. Any outstanding shares
of Series D Stock which if converted would cause the Company to issue in excess
of 20 percent of the outstanding Common Stock of the Company will be convertible
at the applicable market price of the Common Stock on the applicable conversion
date.
The Company intends to use the proceeds from the sale of the securities
for working capital and general corporate purposes.
Three Tranches of Funding Pursuant to the Series D Agreement
Pursuant to the Series D Agreement, the Company shall issue and sell to
the investors the Series D Stock and the Series D Warrants in three tranches in
the following amounts: (i) $600,000 of the stated value of the Series D Stock in
the first tranche; (ii) $600,000 of the stated value of the Series D Stock in
the second tranche; and (iii) $1,200,000 of the stated value of the Series D
Stock in the third tranche. The first tranche was funded at the signing of the
Series D Agreement; the second tranche was funded on February 5, 1999; and the
third tranche would fund on a date after the Company, among other things, (i)
provides a written notice to the investors requiring such investors to purchase
up to $1,200,000 of the stated value of the Series D Stock and (ii) has, and has
had for 30 days prior to receiving any funding pursuant to the third tranche, an
appropriate and effective
-16-
registration statement (the "Registration Statement") filed with the Securities
and Exchange Commission (the "SEC"). The Series D Stock is convertible into
shares of the Company's Common Stock at 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 (the "Series D Closing Price") for the three trading days
having the lowest Closing 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; except that all Series D Stock converted prior to February 26,
1999 would be converted at $.50. 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 the Series D Preferred 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.
Upon the completion of each tranche of Series D Funding, each of the
investors will receive the number of Series D Warrants that directly corresponds
with the dollar amount such investor invested in such tranche.
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: (i) the sale or issuance by the issuer
of common stock (or securities convertible into or exercisable for common stock)
at a price less than (A) the greater of book or (B) market value, 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 (ii) the sale or issuance by the
Company 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 the greater of (x) book value or (y) market value of the stock.
Based on the closing bid price per share of Common Stock on the Nasdaq
SmallCap Market on February 11, 1999, and assuming that each of the three
tranches of Series D Funding were to occur, the Common Stock issuable pursuant
to the Series D Agreement would be more than 20 percent of the shares of
outstanding Common Stock as of February 11, 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 Funding). On a fully
diluted basis, the Common Stock issuable pursuant to the full conversion and
exercise of the Series D Securities would be approximately 30.6 percent of the
Common Stock outstanding following such conversion and exercise.
Therefore, 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 Securities 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 this
proposed issuance and are not being asked to approve any other aspect of the
proposed Series D Funding.
-17-
STOCKHOLDER APPROVAL
A vote of the holders of a majority of the voting power of the issued
and outstanding Common Stock, present in person or represented by Proxy at the
Meeting and entitled to vote at the Meeting, is required to approve the issuance
of the Securities pursuant to the Funding.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 5
APPROVAL OF THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK
UPON CONVERSION OF SERIES E CONVERTIBLE PREFERRED STOCK
General
As of February 5, 1999, the Company entered into a Securities Purchase
Agreement (the "Series E Agreement") with certain investors contemplating a
potential funding of up to $3,000,000 and as of February 18, 1999, the Company
contemplates entering into an Exchange Agreement (the "Exchange Agreement") with
certain investors contemplating a potential funding of $1,150,000 million (the
Series E Agreement and the Exchange Agreement being together the "Series E
Funding"). The Series E Funding provides for the private placement by the
Company of up to 1,250 units (the "Units"), each Unit consisting of (i) one
share of Series E Convertible Preferred Stock (the "Series E Stock") and (ii)
5,000 warrants (the "Series E Warrants" and, collectively, with the Series E
Stock, the "Series E Securities") exercisable for shares of Common Stock. The
Series E Stock is convertible into shares of Common Stock as more fully
described below.
The Company will not be able, under the Series E Funding, to issue an
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 is only obligated under
the Series E Agreement to convert upon proper notification from the investors
the Series E Stock into Common Stock at the applicable below market conversion
price in the applicable pro rata amounts so that no more than 20 percent of the
Company's Common Stock then outstanding will be issued. Any outstanding shares
of Series E Stock which if converted would cause the Company to issue in excess
of 20 percent of the outstanding Common Stock of the Company will be convertible
at the applicable market price of the Common Stock on the applicable conversion
date.
The Company intends to use the proceeds from the sale of the Series E
Securities for working capital and general corporate purposes.
-18-
Funding Pursuant to the Series E Agreement and the Exchange Agreement
Pursuant to the Series E Agreement, the Company issued and sold to the
investors the Series E Securities in the following amounts: $1,735,000 in cash
and $1,265,000 in exchange and/or cancellation of indebtedness, and pursuant to
the Exchange Agreement, the Company contemplates issuing and selling to the
investors the Series E Securities in the following amount: $1,150,000 in
exchange and/or cancellation of indebtedness. All of the investors of the Series
E Agreement funded at the time of execution of the Series E Agreement except
that two of the investors agreed to purchase the Series E Securities in three
tranches (the "Series E Tranche Investors"): the first tranche of a combined
$150,000 funded at the execution of the Series E Agreement; the second tranche
of up to a combined $250,000 to be funded at the filing by the Company of the
Registration Statement; and the third tranche of a combined $350,000 to be
funded on a date after the Company, among other things, (i) provides a written
notice to the investors requiring such investors to purchase up to $350,000 of
the stated value of the Series E Stock and (ii) has, and has had for 30 days
prior to receiving any funding pursuant to the third tranche, an effective
Registration Statement filed with the SEC. All of the investors of the Exchange
Agreement would fund within five days of the Company obtaining Shareholder
Approval. The Series E Stock is convertible into shares of the Company's Common
Stock at 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 (the
"Series E Closing Price") for the three trading days having the lowest Closing
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; except
that all Series E Stock converted prior to February 26, 1999 would be converted
at $.50. Each investor in Series E 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 the
Series E Preferred Stock held by such investor is convertible immediately prior
to the record date for the determination of stockholders entitled to vote.
Upon the Series E Funding, each of the investors will receive the
number of Series E Warrants that directly corresponds with the dollar amount
such investor invested in the Series E Funding, except that Tranche Investors
will receive the number of Series E Warrants that directly corresponds with the
dollar amount such investor invested in each completed tranche.
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: (i) the sale or issuance by the issuer
of common stock (or securities convertible into or exercisable for common stock)
at a price less than (A) the greater of book or (B) market value, 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 (ii) the sale or issuance by the
Company 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 the greater of (x) book value or (y) market value of the stock.
Based on the closing bid price per share of Common Stock on the Nasdaq
SmallCap Market on February 11, 1999, and assuming that the terms and conditions
of the Exchange Agreement were to be fully carried out and each of the three
tranches relating to the Tranche Investors' Series E Funding were to occur, the
Common
-19-
Stock issuable pursuant to the Series E Agreement and the Exchange Agreement
would be more than 20 percent of the shares of outstanding Common Stock as of
February 11, 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
pursuant to the Series E Funding). On a fully diluted basis, the Common Stock
issuable pursuant to the full conversion and exercise of the Series E Securities
would be approximately 43 percent of the Common Stock outstanding following such
conversion and exercise.
Therefore, the Board seeks stockholder approval of the adoptionCompany's
issuance of shares of Common Stock pursuant to the conversion or exercise of the
Plan.
RECOMMENDATIONSeries E Securities 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 this proposed issuance
and are not being asked to approve any other aspect of the proposed Series E
Funding.
STOCKHOLDER APPROVAL
A vote of the holders of a majority of the voting power of the issued
and outstanding Common Stock, present in person or represented by Proxy at the
Meeting and entitled to vote at the Meeting, is required to approve the issuance
of the Securities pursuant to the Funding.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 6
RATIFICATION OF INDEPENDENT AUDITORS
The Board has appointed the firm of Boros & Farrington APC, independent
public auditors for the Company during the 1998 Fiscal Year, to serve in the
same capacity for the year ending June 30, 1999, and is asking the stockholders
to ratify this appointment. The affirmative vote of a majority of the shares
represented and voting at the Meeting is required to ratify the selection of
Boros & Farrington APC.
In the event the stockholders fail to ratify the appointment, the Board
will reconsider its selection. Even if the selection is ratified, the Board in
its discretion may direct the appointment of a different independent auditing
firm at any time during the year if the Board believes that such a change would
be in the best interests of the Company and its stockholders.
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.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
BOARDSELECTION OF DIRECTORSBOROS & FARRINGTON APC TO SERVE AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 1999.
-20-
OTHER MATTERS
The BoardCompany knows of Directors recommends a vote FORno other matters that will be presented for
consideration at the adoption and
ratificationMeeting. If any other matters properly come before the
Meeting, it is the intention of the Plan.
EXECUTIVE COMPENSATIONpersons 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 showssets forth certain information known to the Company
with respect to the beneficial ownership of Common Stock as toof February 10,
1999, by (i) all persons who are beneficial owners of five percent (5 percent)
or more of the Common Stock, (ii) each director and nominee for director, (iii)
the 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.
Percentage
Shares Of Shares
Beneficially Beneficially
Beneficial Owner Owned Owned (1)
---------------- ------------ ------------
Harry J. Saal Trust UTA Dated 7/19/72 (2).............. 5,604,333 25.6%
Saal Family Charitable Lead Trust UTA Dated 1,118,767 6.4
2/25/98 (3)............................................
Edward W. Savarese (4)................................. 277,600 2.1
A. L. Dubrow (5)....................................... 245,014 1.8
Brian Bonar (6)........................................ 214,464 1.6
David M. Carver (7).................................... 8,333 *
Warren T. Lazarow (7).................................. 8,333 *
All current directors and 6,080,477 27.4
executive officers who earned
moreas a group
(9 persons) (8)......................................
* Less than $100,000one percent of the outstanding Common Stock
(1) Percentage of ownership is based on 16,320,155 shares of Common Stock
outstanding on February 10, 1999. 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
February 10, 1999 are
-21-
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 February 10, 1999. Includes also 2,470,000 shares issuable
upon the conversion of Series E Preferred 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 February 10, 1999.
(3) 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 Preferred 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 February 10, 1999.
(4) Includes 137,500 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after February
10, 1999.
(5) Includes 20,612 shares issuable upon exercise of warrants that are currently
exercisable or will become exercisable within 60 days after February 10, 1999.
(6) Includes 206,458 shares issuable upon exercise of options and warrants that
are currently exercisable or will become exercisable within 60 days after
February 10, 1999.
(7) Represents 8,333 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after February
10, 1999.
(8) Includes 5,844,809 shares issuable upon exercise of options and warrants
that are currently exercisable or will become exercisable within 60 days after
February 10, 1999.]
EXECUTIVE OFFICERS
The executive officers of the Company as of February 12, 1999, are as
follows:
Name Age Position
Brian Bonar................ 51 President, Chief Executive Officer
and Director
Michael K. Clemens......... 51 Senior Vice President and Chief
Financial Officer
Joseph J. Pfeuffer......... 53 Senior Vice President of Engineering
-22-
Frank Leonardi............. 53 Senior Vice President of Worldwide
Sales and Marketing
Christopher W. McKee....... 50 Vice President of Finance and
Administration
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.
Michael K. Clemens has served as Senior Vice President and Chief
Financial Officer of the Company since August 1998. Prior to joining the
Company, Mr. Clemens served in various capacities, including Chief Financial
Officer, Senior Vice President and Treasurer at SyQuest Technology, Inc. from
July 1996 through August 1998. From April 1994 to July 1996, Mr. Clemens served
as the Vice President--Treasurer of MTI Technology, a computer storage company,
and from May 1993 to April 1994, Mr. Clemens served as a consultant to private
businesses in the high-tech industry. Mr. Clemens served as the Chief Financial
Officer of Bluebird Systems, a privately held software and distribution company,
from April 1992 to April 1993.
Joseph 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 fiscal year ended June 30, 1996,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.
Christopher W. McKee has served as Vice President of Finance and
Operations of the Company since August 1998. 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.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning the
compensation earned by each of the Company's Chief Executive Officers for
services rendered in all capacities to PCPIthe Company and its subsidiaries duringfor the
previous three fiscal years.years ended June 30, 1996, 1997 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. The listed individuals shall be hereinafter referred to as
the "Named Officers."
-23-
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------------------------------- ------------
FISCAL OTHER ANNUAL OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARs(#)Long Term
Compensation
----------------
Annual Compensation Awards
------------------------ ----------------- ----------------
Other Other
Fiscal Annual Options/ Compen-
Name and Principal Position Year Salary Bonus Compensation SARS (#) sation (4)
- --------------------------- ------ ------ ----- ------------ ------------------------------------------- --------- ---------- --------- ----------------- ---------------- -----------
Edward W. Savarese................. 1996 $246,792
*Brian Bonar................... 1998 $ 235,243 $ -- $72,850(1) 1,675,000$ -- 450,000 $ --
Director, Vice Chairman of the 1995 229,290 -- 74,000(3) --
Board, President and Chief 1994 200,000 30,0001997 173,391 -- 175,000-- 150,000 --
Executive Officer
Brian Bonar........................ 1996 155,648 -- 12,009(2)12,009 (1) 750,000 --
*Edward W. Savarese............ 1998 270,000 85,000 210,973 (2) 300,000 --
Director and Chief Executive Vice President, 1995 129,0391997 255,000 -- 38,235 150,000 --
350,000
Sales, Marketing and 1994 135,469Officer 1996 246,792 -- -- 150,000
Engineering(4)
All executive officers as a group 1996 472,820 -- 94,159 2,578,300
(3 persons for 1996 and 1995, and 1995 419,637 -- 74,000 350,000
5 persons for 1994). 1994 625,909 54,000 -- 618,50072,850 (1) 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 $42,500$12,009 of accrued but unpaid vacation due to Mr. Bonar
that was converted into unregistered shares of Common Stock.
(2) 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.
(3) This amount includes $42,500 for accrued vacation benefits and $30,350 of
accrued but unpaid compensation due to Dr. Savarese whichthat was converted into
unregistered shares of the Company's common
stock.
(2)Common Stock.
(4) This amount includes $12,009represents the total insurance premiums paid for term life
insurance for the benefit of accrued but unpaid vacation due to Mr.
Bonar whichDr. Savarese for fiscal 1996. For fiscal 1997, the
policy was converted into unregistered shares of the Company's
common stock.
(3) As of June 30, 1995, $2,811 remained unpaid for Dr. Savarese. The amount
for 1995 includes $74,000 of accrued but unpaid vacation benefits used
by Dr. Savarese to exercise warrants to purchase stock.
(4) Mr. Bonar was hired August 1, 1992 and was appointed Vice President,
Sales and Marketing on April 28, 1994. The table includes all of Mr.
Bonar's fiscal 1994 compensation even though he was not an executive
officer for all of fiscal 1994.
8
OPTION/a whole life policy.
Option/SAR GRANTS IN LAST FISCAL YEARGrants in Last Fiscal Year
The following table provides information on options/SARs granted in fiscal year 1996the
1998 Fiscal Year to the named executive officers.Named Officers.
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARs EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS/SARs EMPLOYEES IN PRICE
NAME GRANTED(#) FISCAL YEARNumber of Percent of Total Potential Realizable
Securities Options/sars Exercise Value at Assumed
Underlying Granted to Or Base Annual Rates of Stock
Options/sars Employees in Price Expiration Price Appreciation for
Name Granted (#) (1) Fiscal Year ($/SHARE) EXPIRATION DATEshare) Date Option Term
- ---- ------------ ---------------- ---------------------------- ----------------- ---------------
Edward W. Savarese 925,000(1) 16.05% $.20 October 14, 2005
Edward W. Savarese 750,000(1) 13.02% $.20 October 14, 2005
Brian Bonar 350,000(2) 6.07% $.20 October 14, 2005
Brian Bonar 150,000(3) 2.60% $.20 December 31, 1999
Brian Bonar 250,000(4) 4.34% $.20 April 25, 2005
All executive officers
as a group 2,578,300 44.74%
(3 persons)
(1) Warrants aggregating 925,000 shares were repriced on October 12, 1995 to
the then current market price and in addition, a new warrant for 750,000
shares were issued. Of the combined warrants issued, 1,3000,000 were
exercisable immediately and 375,000 became exercisable on April 12, 1996.
(2) Warrants and options were repriced on October 12, 1995 to the then
current market with 165,000 exercisable immediately, 125,000 exercisable
on April 12, 1996 and 20,000 each on September 22, 1996, 1997 and 1998.
(3) Warrants and options were repriced on October 12, 1995 to the then
current market with 100,000 exercisable immediately and 50,000
exercisable on October 12, 1996.
(4) Options were granted on October 12, 1995 to purchase shares of PCPI's
common stock with 100,000 exercisable on April 25, 1996 and 75,000
exercisable on April 25, 1997 and 1998.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information on option/SAR exercises in
fiscal year 1996 by the named executive officers and the value of such
officers' unexercised options/SARs at June 30, 1996. Warrants to purchase
PCPI common stock are included as options.
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTONS/SARs
NAME EXERCISE(#) REALIZED($----------- ----------------- -----------------------------
5% ($) OPTIONS/SARs AT FY-END(#) AT FISCAL YEAR END($10% ($)(1)
- ---- ----------- ----------- ----------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
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
Edward W. Savarese -- -- 1,675,000 -- $3,433,750 --Savarese* 200,000 19.17 4.00 January 30, 2008 754,674 1,912,491
-24-
* Dr. Savarese resigned as the Chief Executive Officer of the Company on April
1, 1998, and as a director of the Company as of June 15, 1998.
(1) Warrants become exercisable monthly over 48 months from date of grant.
Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year-end Option/
SAR Values
The following table provides information on option exercises in the
1998 Fiscal Year by the Named Officers and the value of such Named Officers'
unexercised options at June 30, 1998. Warrants to purchase Common Stock are
included as options. No stock appreciation rights were exercised by the Named
Officers during the 1998 Fiscal Year, and no stock appreciation rights were held
by them at the end of the 1998 Fiscal Year.
Shares Value Number of Securities Value of Unexercised
Acquired on ealized (#) Underlying Unexercised In-the-money Options/sars
Name Exercise (#) R Options/sars at FY-end (#) At Fiscal Year End ($) (1)
- -------------------- --------------- ------------- ---------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
Brian Bonar 40,000 82,000 470,000 280,000 963,500 $574,000
All executive officers
as a group (3 persons) 40,000 82,000 2,322,000 280,000 4,746,354 574,000$216,250 131,458 513,542 $143,047 $205,078
Edward W. Savarese* 75,000 119,550 81,250 368,750 -- --
* 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) Includes stock options and warrants to purchase common stock of PCPI. At fiscal yearthe 1998 Fiscal Year end, June 30, 1996 the average of the bid and asked price of the
Company's common stockCommon Stock on that date as quoted by the NASD electronic
bulletin boardElectronic Bulletin Board was
$2.25.
DIRECTOR COMPENSATION
As fees for service on PCPI's Board$3.88.
Employment Contracts, Termination of Directors, the non-employee
directors of PCPI received in fiscal 1996Employment and will receive in fiscal 1997
$1,500 per month plus travel expenses. Employee directors receive no
additional compensation for service on the PCPI Board of Directors. In fiscal
1996, the Company paid $3,000 and $4,500 to Dr. Saal and Mr. Roth,
respectively, for director fees and each had $13,500 of accrued but unpaid
directors fees converted into unregistered shares of PCPI's common stock. At
June 30, 1996, $1,500 of accrued directors fees were unpaid to Dr. Saal. In
addition, the Company calls upon Mr. Roth from time to time to provide
special
9
consulting services on various corporate matters, for cash compensation. On
April 1, 1994, PCPI and Mr. Roth entered into a five-year consulting
agreement for Mr. Roth to continue to provide these services payable in
monthly installments of $9,000.Change-in-control
Arrangements
The Company paid Mr. Roth $27,000 in such
consulting fees during fiscal 1996. In addition, Mr. Roth converted into
unregistered shares of the Company's common stock $81,000 due to Mr. Roth
under his consulting agreement.
EMPLOYMENT AGREEMENTS
PCPI entered into an employment agreement with Dr. Savarese effective as
of July 1, 1990, which was amended in 1994, 1997 and 1998, calling for
employment for five years. On February 25, 1994,
the agreement was amended to extend the term for an additional four years
through June 30, 1999.2002. Minimum salariessalary under the amended agreement,
commencing July 1, 19961998, are $255,000, $270,000 and $285,000.
PCPI$188,750.
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 $120,000 with a 3.5% cost of living increase each year
commencing July 1, 1995. In addition to the annual base salary, Mr. Bonar
will be subject to commission under a plan and quotas to be established at
the start of each fiscal year.$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, the executive, 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 the executive'san 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.
The executive-25-
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.
Clemens as of September 1, 1998, calling for a base monthly salary of $16,500.
Pursuant to the terms of his letter agreement, Mr. Clemens is eligible for
certain bonuses, including a bonus based on equity financing received, certain
quarterly incentive bonuses and a delayed starting bonus. He also received
certain stock option grants pursuant to the terms of the Company's employee
stock option plan and presently receives certain other employee benefits,
including among others, certain medical benefits and eligibility to be part of
the Company 401(k) plan.
The Company entered into an employment letter agreement with Mr.
Leonardi as of September 1, 1998, calling for a base monthly salary of
$33,334.34 with certain additional commission payments based on business
developed. Pursuant to the terms of his letter agreement, Mr. Leonardi also
received certain stock option grants pursuant to the terms of the Company's
warrant guidelines and presently receives certain other employee benefits,
including among others, certain medical benefits and eligibility to be part of
the Company 401(k) plan.
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 certain bonuses,
including certain quarterly incentive bonuses. He also received certain stock
option grants pursuant to the terms of the Company's employee stock option plan
and presently receives certain other employee benefits, including among others,
certain medical benefits and eligibility to be part of the Company 401(k) plan.
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.
-26-
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 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 bonus for the Company's
executive officers is based on a percentage of his base pay but is adjusted to
reflect the actual financial performance of each executive officer and the
achievement of Company goals during the year. Based on these criteria, only Dr.
Savarese received a bonus in the 1998 Fiscal Year.
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.
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
-27-
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.
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. A $85,000 bonus was
paid to him for the 1998 Fiscal Year because the Company attained certain of
these objectives. 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 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.
-28-
Stock 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.
CUMULATIVE TOTAL RETURN
----------------------------------------------------------------
6/94 6/95 6/96 6/97 6/98
IMAGING TECHNOLOGIES CORPORATION 100.00 33.93 403.57 198.66 138.39
NASDAQ STOCK MARKET (U.S.) 100.00 133.50 171.39 208.36 274.93
NASDAQ COMPUTER & DATA PROCESSING 100.00 163.26 216.84 273.73 414.38
(1) The graph covers the period from July 1, 1993 to June 30, 1998.
(2) The graph assumes that $100 was invested in the Company on July 1, 1993, 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 RELATIONSHIPS AND RELATED TRANSACTIONS
In MarchIrwin 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.
During calendar year 1995, Dr. Edward W. Savarese, agreed to loana former director
and the former Chief Executive Officer of the Company, loaned to the Company an
aggregate of $100,000 under a gross aggregate
amount of up to $100,000convertible note with interest at the rate of 7%7
percent per year. AsIn May 1998, the note was converted into 64,516 shares of
June
30, 1996, borrowings under this Note aggregated $100,000.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 its ChairmanDr. Saal for $500,000 five-year
warrants to purchase 10,000,000 unregistered2,000,000 shares of its common stockCommon Stock at the rate of $1.00$5.00
per share. The warrant contained certain anti-dilution provisions should the
Company issue equity instruments at less than 50%50 percent of the exercise price.
In connection withAs a private placement with various
private investorsresult of
approximately $2.5 million,-29-
subsequent financings, the exercise price of this warrant was subsequentlyhas been reduced to $0.60 per share in accordance withas a
result of this provision. In June and December 1996, Dr. Saal exercised warrants
to purchase 3,333,333666,667 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 exercised.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 Preferred. 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 Securities. 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."
COMPLIANCE WITH SECTION 16(A)16(a) OF THE SECURITIES EXCHANGE ACT DuringOF 1934
The members of the Board, the executive officers of the Company and
persons who hold more than 10 percent 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 Common Stock and
their Common Stock holdings, and (ii) the written representations received from
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 believes that all reporting
requirements under Section 16(a) for such fiscal 1996, Dr. Saal filed lateyear were met in a timely
manner by its directors, executive officers and greater than ten percent
beneficial owners except as set forth below.
Mr. Bonar did not timely file a Form 4 with the SEC a single Form 4
report with respect to two transactions; Dr. Savareseone
transaction. In addition, each of Messrs. Stephen MacDonald (former director of
the Company), Carver, Lazarow 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 3 with the SEC.
-30-
ANNUAL REPORT
A copy of the Annual Report of the Company for the 1998 Fiscal Year (the
"Annual Report") has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Meeting. The Annual Report
is not incorporated into this Proxy Statement and is not considered proxy
solicitation material.
FORM 10-K
The Company filed latean Annual Report on Form 10-K with the SEC on or about
October 13, 1998. Stockholders may obtain a singlecopy of this report, without charge,
by writing to Michael K. Clemens, Chief Financial Officer of the Company, at the
Company's principal executive offices located at 11031 Via Frontera, San Diego,
California 92127.
-31-
Exhibit A
Form 4 report with respectof Proposed Amendment to two transactions; Mr. Roth filed lateArticle Fourth to the
Company's Certificate of Incorporation
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 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 SEC a singleprovisions of Section 242 of the
General Corporation Law of the State of Delaware.
Dated: February __, 1999
---------------------------
Brian Bonar, President
Attest:
- ---------------------------------
Michael Clemens, Chief Financial Officer
-32-
Exhibit B
Proposed Form 4 report with respect to two transactions; Mr.
Bonar filed late withof the SEC two Form 4 report with respect to three
transactions; and Mr. Barry filed late with the SEC a single Form 4 report
with respect to two transactions.
10
RECOMMENDATION1998 Stock Option Plan
1998 STOCK OPTION PLAN
Of
IMAGING TECHNOLOGIES CORPORATION
1. PURPOSES OF THE BOARDPLAN. 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 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 1,500,000. 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 DIRECTORSTHE PLAN. The Plan shall be administered by the
Compensation Committee (the "Compensation Committee of the Company's Board of
Directors recommends a vote FOR(the "Committee"), which Committee, to the nominees listed herein
and FOR ratification of the selection of independent certified public
accountants.
OTHER MATTERS
OTHER BUSINESS
So far as the management of PCPI is aware, no business other than that
described in this proxy statement will come before the Meeting. If any other
business properly comes before the Meeting, or any postponements or
adjournments thereof, the proxyholders named in the accompanying proxy will
vote thereon the shares representedextent required by the proxy in accordance with their
best judgment.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1997 Annual Meeting
(i.e., the meeting to be held following the end of fiscal year 1997) must be
received on or before June 30, 1997 by the Company at its office address set
forth on the first page of this proxy statement, and all the other conditions
of Rule
14a-816b-3 promulgated under the Securities Exchange Act of 1934, mustas amended (as the
same may be satisfied,
for such proposalsin 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. 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
includedgranted to a employee is to be in PCPI's proxy statementISO or an NQSO (options to be granted to
consultants and form of proxy
relating to that meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Ralph R. Barry,
Secretary
San Diego, California
August 20, 1996
11
Exhibit A
PROPOSED AMENDMENT OF
CERTIFICATE OF INCORPRATION
PERSONAL COMPUTER PRODUCTS, INC.
Resolved, the Certificate of Incorporation of this Corporation be amended
such that the second sentence of the paragraph numbered Article FOURTH: (1)
so that as amended said sentencedirectors who are not employees shall be and read "The number of shares of
Preferred Stock authorized toNQSOs); the times when
an option shall be issued is 10,000 andgranted; the number of shares of Common Stock authorized is to be 100,000,000.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
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number of shares of Common Stock to be subject to each installment, whether the
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 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 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.
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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 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.
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
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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).
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
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.
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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.
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 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
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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. No ISO may be granted under the Plan
after October 25, 2008. 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 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
-38-
Company, a Subsidiary or Parent may require the holder to pay to it such amount,
in cash, promptly upon demand.
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.
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[LOGO]
PERSONAL COMPUTER PRODUCTS, INC.
- -------------------------------------------------------------------------------
11031 Via Frontera -- San Diego, CA 92127
Phone: 619-485-8411 --Fax: 619-487-5809(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.
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, the Plan and any options granted hereunder
shall terminate.
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PERSONAL COMPUTER PRODUCTS, INC.THE BOARD OF DIRECTORS OF
IMAGING TECHNOLOGIES CORPORATION
Dated: February __, 1999
IMAGING TECHNOLOGIES CORPORATION PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
The undersigned hereby appoints Edward E. Savarese, Brian Bonar Irwin
Roth, Harry J. Saal or any of themand Michael K. Clemens
jointly and severally, as proxies, with full power of substitution proxiesand
resubstitution, to vote all shares of stock which the undersigned is entitled to
vote at the annualAnnual Meeting of Stockholders (the "Annual Meeting") of Personal Computers Products,
Inc.Imaging
Technologies Corporation (the "Company") to be held on September 20, 1996 at 11:00 a.m., local
time, andMonday, March 29, 1999,
or at any postponements or adjournments thereof, hereby revokingas specified below, and to vote
in his or her discretion on such other business as may properly come before the
Annual Meeting and any proxies heretofore
given,adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, 5 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 (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. 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.
3. APPROVAL OF 1998 STOCK OPTION PLAN:
Approval of the 1998 Stock Option/Stock Issuance Plan, pursuant to
which 1,000,000 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 common stockCompany Common Stock which
the Company would be entitled to issue upon conversion of the Company held or owned by the
undersigned as directed on the reverse side, and in their discretion upon
such other matters as may come before the meeting.
(TO BE SIGNED ON REVERSE SIDE)
--------------------
| SEE REVERSE SIDE |
--------------------
Please mark your
A / X / votes as in this
example.
FOR WITHHELD
1. Election ofCompany's Series D
Convertible Preferred Stock.
/ / VOTE FOR / / Nominees: Edward E. Savarese
Directors: Brian Bonar
Irwin Roth
For, except vote withheld fromVOTE AGAINST / / ABSTAIN
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5. APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON CONVERSION OF SERIES
E CONVERTIBLE PREFERRED STOCK:
Approval of the Harry J. Seal
following nominee(s):
___________________________________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
2. Approval6. 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 / / Independent Accountants for 1997.
3. To amend the Company's Certificate ofABSTAIN
(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 and 6 AND WILL BE VOTED BY THE PROXY HOLDERS AT
THEIR DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE ANNUAL
MEETING OR ANY ADJOURNMENT(S) THEREOF TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS JUST SIGN BELOW, NO BOXES NEED BE CHECKED.
DATED: __________, 19__
SIGNATURE OF STOCKHOLDER
PRINTED NAME OF STOCKHOLDER
TITLE (IF APPROPRIATE)
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. 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. / /
/ / / /
Incorporation to increase the common
stock authorized from 50,000,000 shares
to 100,000,000 shares:
4. To adopt and ratify the 1997 Stock Option / / / / / /
Plan:
5. To adopt and ratify the 1997 Employee / / / / / /
Stock Purchase Plan.
PLEASE DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
SELF-ADDRESSED, POSTAGE PAID ENVELOPE.
SIGNATURE(S)________________ _________________________ Date: ________________
SIGNATURE IF HELD JOINTLY
Note: Please sign exactly as your name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
[LOGO] IMAGING TECHNOLOGIES CORPORATION [LETTERHEAD]
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