SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for use of the
Commission Only (as permitted
[_] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
SMARTSERV ONLINE, INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
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<PAGE>
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
SMARTSERV ONLINE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 1998
To the Stockholders of SmartServ Online, Inc.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") of SmartServ Online, Inc., a Delaware corporation (the
"Company"), will be held at 11:00 a.m., local time, on Thursday, April 23, 1998,
at the Hotel Inter-Continental, 111 East 48th Street, New York, New York, for
the following purposes:
1. To elect two (2) Class II directors to the Company's Board of
Directors to serve until the Company's Annual Meeting of Stockholders to be held
in the year 2000 or until their successors are duly elected and qualified;
2. To approve amendments to the Company's 1996 Stock Option Plan (the
"1996 Stock Option Plan") which shall amend the 1996 Stock Option Plan to
increase the number of shares available for grant of options under the 1996
Stock Option Plan from 400,000 shares to 1,500,000 shares, eliminate the 1996
Stock Option Plan's provision for mandatory annual grants of options to
non-employee directors and grant the Company's Compensation Committee
discretionary authority to grant options to both employee and non-employee
directors, as set forth in the Amended and Restated 1996 Stock Option Plan
attached to the Proxy Statement as Exhibit A;
3. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock, par value $.01 per share ("Common Stock"), of the Company from
15,000,000 shares to 40,000,000 shares;
4. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to create a class of Preferred Stock, par value
$.01 per share of the Company consisting of 1,000,000 authorized shares;
5. To approve the issuance of warrants to purchase 3,055,555 shares of
Common Stock of the Company to a consultant of the Company;
6. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending June 30, 1998; and
7. To transact such other business as may properly come before the Annual
Meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on Tuesday, February
24, 1998 as the record date for determining those stockholders entitled to
notice of and to vote at the Annual Meeting and any adjournments or
postponements thereof. A complete list of stockholders entitled to vote at the
Annual Meeting will be available for inspection by any stockholder during the
Annual Meeting. In addition, the list will be open for examination by any
stockholder, for any purpose germane to the Annual Meeting, during ordinary
business hours, for a period
<PAGE>
of at least 10 days prior to the Annual Meeting, at the offices of Parker Chapin
Flattau & Klimpl, LLP, 1211 Avenue of the Americas, 18th Floor, New York, New
York.
All stockholders are cordially invited to attend the Annual Meeting.
However, whether or not you expect to attend the Annual Meeting, please promptly
mark, sign and date the enclosed proxy and return it in the postage-prepaid
envelope provided to ensure your representation and the presence of a quorum at
the Annual Meeting. In the event you decide to attend the Annual Meeting in
person, you may, if you desire, revoke your Proxy and vote your shares in
person.
By Order of the Board of Directors
Sebastian E. Cassetta
Secretary
Stamford, Connecticut
March 18, 1998
<PAGE>
1997 ANNUAL MEETING OF STOCKHOLDERS
OF
SMARTSERV ONLINE, INC.
----------------------
PROXY STATEMENT
----------------------
The Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of SmartServ Online, Inc., a Delaware corporation (the
"Company"), of proxies from the holders of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), for use in voting at the Annual Meeting of
Stockholders (the "Annual Meeting") of the Company to be held on Thursday, April
23, 1998, and at any adjournments or postponements thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting and in this Proxy Statement.
The approximate date on which this Proxy Statement and the
accompanying proxy will first be sent or given to stockholders is March 18,
1998. Stockholders should review the information provided herein in conjunction
with the Company's Annual Report to Stockholders for the year ended June 30,
1997 and the Company's Quarterly Report for the fiscal quarter ended December
31, 1997, both of which accompany this Proxy Statement.
The Company's principal executive offices are located at Metro Center,
One Station Place, Stamford, Connecticut 06902, and its telephone number is
(203) 353-5950. The Company can also be reached on the Internet at
http://www.smartserv.com.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should you so desire. Stockholders have an unconditional right to revoke their
proxy at any time prior to the exercise thereof, either in person at the Annual
Meeting or by filing a written revocation or duly executed proxy bearing a later
date with the Company's Secretary at the Company's headquarters; however, no
such revocation will be effective until written notice of the revocation is
received by the Company at or prior to the Annual Meeting.
The cost of preparing, assembling and mailing this Proxy Statement,
the Notice of Annual Meeting of Stockholders and the enclosed proxy is to be
borne by the Company. The Company may request banks, brokers and other
custodians, nominees and fiduciaries to forward copies of the proxy material to
their principals and to request authority for the execution of proxies. The
Company may reimburse such persons for their expenses in so doing. The Company
has retained D.F. King & Co., Inc., 77 Water Street, New York, New York 10005, a
proxy solicitation firm, to solicit proxies. The fee to be paid to such firm is
not expected to exceed $2,500. Employees of the Company may also solicit proxies
in person, by telephone or otherwise. The Company's employees will receive no
compensation for soliciting proxies other than their regular salaries.
<PAGE>
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's stockholders will consider and
vote upon the following matters:
(1) The election of two (2) Class II directors to the Company's Board
of Directors to serve until the Company's Annual Meeting of
Stockholders to be held in the year 2000 or until their
successors are duly elected and qualified;
(2) The approval of amendments to the Company's 1996 Stock Option
Plan (the "1996 Stock Option Plan") to increase the number of
shares available for grant of options under the 1996 Stock Option
Plan from 400,000 shares to 1,500,000 shares, eliminate the 1996
Stock Option Plan's provision for mandatory annual grants of
options to non-employee directors and grant the Company's
Compensation Committee discretionary authority to grant options
to both employee and non-employee directors, as set forth in the
Amended and Restated 1996 Stock Option Plan (the "Amended and
Restated Plan") attached hereto as Exhibit A;
(3) The approval of an amendment to the Company's Amended and
Restated Certificate of Incorporation (the "Certificate of
Incorporation") to increase the number of authorized shares of
the Common Stock, par value $.01 per share, of the Company from
15,000,000 shares to 40,000,000 shares;
(4) The approval of an amendment to the Company's Certificate of
Incorporation to create a class of Preferred Stock, par value
$.01 per share, of the Company consisting of 1,000,000 authorized
shares;
(5) The approval of the issuance of warrants to purchase 3,055,555
shares of Common Stock of the Company to a consultant of the
Company;
(6) The ratification of the appointment of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending
June 30, 1998; and
(7) Such other business as may properly come before the Annual
Meeting, including any adjournments or postponements thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth above)
will be voted in favor of the election of the nominees for director named below,
for approval of the amendments to the 1996 Stock Option Plan, for approval of
the amendment to the Certificate of Incorporation to increase the number of
authorized shares of Common Stock, for approval of the amendment to the
Certificate of Incorporation to create a class of Preferred Stock, for approval
of the issuance of warrants to a certain consultant of the Company and for
ratification of the appointment of Ernst & Young LLP as the Company's auditors.
In the event a stockholder specifies a different choice by means of the enclosed
proxy, his shares will be voted in accordance with the specification so made.
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<PAGE>
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on Tuesday,
February 24, 1998 as the record date (the "Record Date") for determining
stockholders of the Company entitled to notice of and to vote at the Annual
Meeting. As of the Record Date there were 3,958,339 shares of Common Stock
issued and outstanding. Each share of Common Stock outstanding is entitled to
one vote at the Annual Meeting on each matter submitted to stockholders for
approval at the Annual Meeting.
The attendance, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum. Directors are elected by a plurality of votes
of the shares of Common Stock represented in person or by proxy at the Annual
Meeting. The affirmative vote of the majority of shares of Common Stock
represented in person or by proxy at the Annual Meeting will be required for
approval of any other matter that is being submitted to a vote of the
stockholders. Proxies submitted which contain abstentions and broker non-votes
will be deemed present at the Annual Meeting in determining the presence of a
quorum. Shares abstaining with respect to any matter will be considered as votes
represented, entitled to vote and cast with respect to that matter. Shares
subject to broker non-votes with respect to any matter are not considered shares
entitled to vote with respect to that matter.
SECURITY OWNERSHIP
The following table sets forth, as of March 2, 1998, certain
information with respect to the beneficial ownership of the Common Stock by (i)
each person known by the Company to beneficially own more than 5% of the
outstanding shares, (ii) each director of the Company, (iii) each Named
Executive Officer and (iv) all executive officers and directors of the Company
as a group. Except as otherwise indicated, each person listed below has sole
voting and investment power with respect to the shares of Common Stock set forth
opposite such person's name.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OUTSTANDING SHARES (3)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Steven T. Francesco
23 Lakeview Avenue
New Canaan, Connecticut 06840 ............ 839,445 20.73%
Sebastian E. Cassetta
c/o SmartServ Online, Inc.
Metro Center, One Station Place
Stamford, CT 06902 ....................... 376,250 9.29%
InterBank Communications, Inc.
1733 Connecticut Avenue, N.W
Washington, DC 20009 ..................... 204,250(4) 5.04%
Catherine Cassel Talmadge ................ 7,500(5) *
L. Scott Perry ........................... 10,000(6) *
Claudio Guazzoni ......................... 70,200(7) 1.73%
Mario F. Rossi ........................... 4,500 *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2) OUTSTANDING SHARES (3)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Robert H. Steele.......................... 0 %
All executive officers and directors
as a group (8 persons).................... 1,312,895(8) 32.42%
</TABLE>
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* Less than 1%
(1) Under the rules of the Securities and Exchange Commission (the "SEC"),
addresses are only given for holders of 5% or more of the outstanding
Common Stock of the Company.
(2) Under the rules of the SEC, a person is deemed to be the beneficial owner
of a security if such person has or shares the power to vote or direct the
voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities if that person has the right to acquire beneficial ownership
within 60 days of the date hereof. Except as otherwise indicated the named
entities or individuals have sole voting and investment power with respect
to the shares of Common Stock beneficially owned.
(3) Represents the number of shares of Common Stock beneficially owned as of
March 2, 1998, by each named person or group, expressed as a percentage of
the sum of all of the shares of such class outstanding as of such date and
the number of shares not outstanding but beneficially owned by such named
person or group.
(4) Includes 10,000 shares subject to currently exercisable warrants.
(5) Includes 5,000 shares subject to currently exercisable options.
(6) Includes 5,000 shares subject to currently exercisable options.
(7) Includes 70,200 shares subject to currently exercisable warrants owned by
the Zanett Securities Corporation ("ZSC"). Mr. Guazzoni is a managing
director and principal of ZSC. Mr. Guazzoni disclaims beneficial ownership
of these shares to the extent they exceed his interest in ZSC.
(8) Includes 81,200 shares subject to currently exercisable options and
warrants.
CHANGES IN CONTROL
On February 6, 1998, at a meeting of the Board of Directors of the
Company, the Board of Directors voted to terminate the Company's employment
contract with Steven T. Francesco, the Company's former president and chief
operating officer. Mr. Francesco is still a member of the Company's Board of
Directors.
The Company and each of Messrs. Cassetta and Francesco have entered
into an agreement with Zanett Capital, Inc. ("Zanett") dated as of September 29,
1997 (the "Zanett Agreement"), which provides, among other things, that at the
written request of Zanett, the Company will appoint such number of designees of
Zanett to its Board of Directors so that the designees of Zanett will constitute
a majority of the members of the Board of Directors of the Company. By letter
dated February 9, 1998 from Zanett to the Company, Zanett has agreed not to
exercise such rights under the Zanett Agreement unless and until an event of
default occurs under the terms
-4-
<PAGE>
of the 4,000 Prepaid Common Stock Purchase Warrants (the "Prepaid Warrants")
issued by the Company on or about September 29, 1997 and has further agreed to
waive a certain prior event of default. In addition, Messrs. Cassetta and
Francesco have agreed under the Zanett Agreement to vote their shares of Common
Stock, currently representing approximately 30.02% of the outstanding stock of
the Company, and any shares they may acquire in the future, in favor of the
designees of Zanett at each Annual Meeting of Stockholders of the Company at
which directors are elected. The Company and Messrs. Cassetta and Francesco have
further agreed that all Company expenditures in excess of $2,000 must be
approved in advance by Zanett. Zanett is partly owned and controlled by Claudio
Guazzoni, who was appointed to the Company's Board of Directors on January 11,
1998 as a Class I Director.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), officers, directors and holders of more than 10%
of the outstanding shares of the Company's Common Stock ("Reporting Persons")
are required to file periodic reports of their ownership of, and transactions
involving, the Company's Common Stock with the SEC. Based solely upon a review
of Forms 3, 4 and 5 and amendments thereto furnished to the Company during and
with respect to fiscal year ended June 30, 1997, the Company believes that its
Reporting Persons complied with all Section 16 filing requirements applicable to
them with respect to the Company's fiscal year ended June 30, 1997.
ELECTION OF DIRECTORS; NOMINEES
The Company's Certificate of Incorporation provides that the number of
directors constituting the Company's Board of Directors shall be not less than
three nor more than 15 as fixed from time to time by the Board of Directors. The
Board of Directors has fixed at seven the number of directors that will
constitute the Board for the ensuing year.
Pursuant to the Company's Certificate of Incorporation and Bylaws, the
Board of Directors is divided into three classes. The term of office of Class
III and Class I directors expire at the Company's 1998 and 1999 Annual Meetings
of Stockholders, respectively. Directors elected to succeed those whose terms
expire at the Annual Meeting shall be elected to a term of office expiring at
the Company's 2000 Annual Meeting of Stockholders or until their successors are
duly elected and qualified, or until any such director's earlier resignation or
removal. The current directors of the Company and their respective classes and
terms of office are as follows:
TERM
DIRECTOR CLASS EXPIRES AT
-------- ----- ----------
Sebastian E. Cassetta III 1998 Annual Meeting
Steven T. Francesco III 1998 Annual Meeting
L. Scott Perry I 1999 Annual Meeting
Claudio Guazzoni I 1999 Annual Meeting
Catherine Cassel Talmadge I 1999 Annual Meeting
Mario F. Rossi II 1997 Annual Meeting
Robert H. Steele II 1997 Annual Meeting
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<PAGE>
Two Class II directors are to be elected at the Annual Meeting with a
term expiring at the Company's 2000 Annual Meeting of Stockholders. The
Company's current Class II directors, Messrs. Rossi and Steele, have been
nominated for election as Class II directors at the Annual Meeting.
The Board of Directors has no reason to believe that either of its
nominees will be unable or unwilling to serve if elected to the Board and, to
the knowledge of the Board of Directors, each nominee intends to serve the
entire term for which election is sought. However, should either nominee become
unable or unwilling to accept nomination or election as a director of the
Company, the proxies solicited by the Board of Directors will be voted for such
other persons as the Board may determine.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information with respect to the
executive officers and directors of the Company.
NAME AGE POSITION
Sebastian E. Cassetta...............49 Chief Executive Officer, Chairman of
the Board, Secretary and Class III
Director
Thomas W. Haller, CPA...............43 Vice President, Treasurer and Chief
Financial Officer
Mario F. Rossi......................59 Vice President of Operations and
Class II Director
Robert H. Steele....................59 Class II Director
Catherine Cassel Talmadge...........45 Class I Director
L. Scott Perry .....................52 Class I Director
Claudio Guazzoni....................35 Class I Director
Steven T. Francesco.................41 Class III Director
SEBASTIAN E. CASSETTA has been Chief Executive Officer, Chairman of
the Board, Secretary and a director of the Company since its inception on August
of 1993. Mr. Cassetta was also the Company's Treasurer from its inception until
March 1996. From June 1987 to August 1992, Mr. Cassetta was the President of
Burns and Roe Securacom Inc., an engineering and large-scale systems integration
firm. From August 1992 to January 1994, Mr. Cassetta was a consultant to Smart
Phone Services, Inc. He is also a former Vice President of Brinks, Incorporated.
THOMAS W. HALLER, CPA joined the Company as Vice President, Treasurer
and Chief Financial Officer in March 1996. From December 1992 to February 1996,
Mr. Haller was a Senior Manager at Kaufman Greenhut Forman, LLP, a public
accounting firm in New York City where he was responsible for technical advisory
services and the firm's quality assurance program. From June 1991 to December
1992, Mr. Haller was engaged in the practice of public accounting as a
consultant to certain entrepreneurial companies. From December 1982 to May 1991
he was a Senior Manager with Ernst & Young LLP, an international public
accounting and consulting firm, where he had responsibility for client services
and new business development in the firm's financial services practice.
-6-
<PAGE>
MARIO F. ROSSI has been Vice President of Operations of the Company
since December 1994. Mr. Rossi was appointed a director of the Company on
February 23, 1998. From January 1989 to December 1994, Mr. Rossi was Vice
President of Operations of MVS Inc., a fiber optic systems company.
CATHERINE CASSEL TALMADGE has been a director of the Company since
March 1996. Since June 1997, Ms. Talmadge has been Vice President, Affiliate
Development of the Roadrunner division of Time Warner Cable. From January 1994
to June 1997, Ms. Talmadge had been Vice President, Time Warner Cable
Programming of Time Warner Cable, a division of Time Warner Entertainment
Company, L.P. ("Time Warner"). From September 1984 to January 1994, she held
various positions with Time Warner, including Director, Programming Development;
Operations Director, Financial Analyses; and Manager, Budget Department.
ROBERT H. STEELE was appointed a director of the Company on February
23, 1998. Since February 1998, Mr. Steele has been Vice Chairman of the John
Ryan Company ("John Ryan"), an international bank support and marketing company.
From 1992 to February 1998, Mr. Steele was a Senior Vice President with John
Ryan. Mr. Steele is a member of the board of directors of Moore Medical Corp.,
Scan Optics, Inc., Accent Color Sciences, Inc. and the NLC Insurance Companies,
Inc.
L. SCOTT PERRY has been a director of the Company since November 1996.
Since December 1995, Mr. Perry has been Vice President, Advanced Platform
Services of AT&T Corp. From January 1989 to December 1995, Mr. Perry held
various positions with AT&T including Vice President - Business Multimedia
Services, Vice President (East) - Business Communications Services and Vice
President - Marketing, Strategy and Technical Support for AT&T Data Systems
Group. Since February 1996, Mr. Perry has also been the Chief Executive Officer
of GeoSphere Communications, a networking software company. Mr. Perry serves on
the Board of Directors of Junior Achievement of New York, is a member of the
Cornell University Engineering College Advisory Council and serves on the Board
of INEA, a private financial planning software company based in Toronto, Canada.
CLAUDIO GUAZZONI was appointed a director of the Company on January
11, 1998. Since 1993, Mr. Guazzoni has been President of The Zanett Securities
Corporation and Zanett Capital, Inc. providing financial and strategic
consulting services to growth companies. Prior to joining Zanett, Mr. Guazzoni
was a Money Manager with Delphi Capital Management, Inc. In 1992 and an
associate with Salomon Brothers, Inc. from 1985 to 1991. Since March 1996, Mr.
Guazzoni has been a member of the board of directors of American BioMed, Inc.
STEVEN T. FRANCESCO has been a director of the Company since January
1994 amd was President and Chief Operating Officer of the Company since its
inception to February, 1998. From May 1990 to October 1992, Mr. Francesco was a
Senior Vice President of Darien Development Corporation, a technology consulting
firm. Mr. Francesco was also President of Smart Phone Services, Inc. from
October 1991 to December 1993. Mr. Francesco is also a former Senior Vice
President of Cantor Fitzgerald Securities, Inc.
The Company's officers are elected annually and serve at the
discretion of the Board of Directors for one year subject to any rights provided
by the employment agreements described below under "Executive Compensation --
Employment Agreements".
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<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended June 30, 1997, the Board of Directors held two
meetings and took certain action on four other occasions by written consent.
During such year, each director attended at least 75 percent of the aggregate of
(i) the number of meetings of the Board of Directors held during the period he
or she served on the Board, and (ii) the number of meetings of the Compensation
Committee held during the period he or she served on such committee.
The Compensation Committee is currently composed of Messrs. Guazzoni
and Steele and has the authority over officer compensation and administers the
Company's Amended and Restated Plan. The Compensation Committee met three times
during fiscal 1997, including two times by written consent.
On February 23, 1998, the Board of Directors established an Audit
Committee, composed of Mr. Perry and Ms. Talmadge. Such committee serves as the
Board's liaison with the Company's auditors.
DIRECTORS' COMPENSATION
Each director who is not an officer or employee of the Company is
reimbursed for his or her out-of- pocket expenses incurred in connection with
attendance at meetings or other Company business. No person receives a fee for
serving as a director or for attendance at Committee meetings.
In April 1996 the Board of Directors adopted, and on November 4, 1996
the stockholders approved, the 1996 Stock Option Plan pursuant to which each
person who was not a salaried employee of the Company on November 4, 1996 and
became a director was granted on such date an option to purchase 5,000 shares of
Common Stock. Thereafter, on the date on which an individual who was not a
salaried employee of the Company first become a director, he or she was granted
an option to purchase 5,000 shares of Common Stock. In addition, immediately
following each annual meeting of stockholders at which directors were elected,
each person who was not a salaried employee of the Company and was then a
director was granted an option to purchase an additional 5,000 shares of Common
Stock. The exercise price of each share of Common Stock under any option granted
to a director under the 1996 Stock Option Plan was equal to the fair market
value of a share of Common Stock on the date the option was granted. In February
1998, the Board of Directors approved the Amended and Restated Plan, certain
provisions of which are subject to stockholder approval, which, among other
things, eliminated the provisions of the 1996 Stock Option Plan relating to the
automatic grant of options to non- employee directors. SEE "Proposal to amend
the Company's 1996 Stock Option Plan to increase the number of shares available
for grant of options from 400,000 shares to 1,500,000 shares, eliminate
mandatory grants of options to non-employee directors and to grant the
Compensation Committee discretionary authority to grant options to both employee
and non-employee directors."
EXECUTIVE COMPENSATION
The following table sets forth information concerning annual and
long-term compensation, paid or accrued, for the Chief Executive Officer and for
each other executive officer of the Company whose compensation exceeded $100,000
in fiscal 1997 (the "Named Executive Officers") for services in all capacities
to the Company during the last three fiscal years:
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<PAGE>
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ---------
OTHER
ANNUAL SECURITIES
NAME AND FISCAL COMPEN- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS SATION(2)(3) OPTIONS COMPENSATION
------------------ ---- ------ ----- ------------ --------- ------------
<S> <C> <C> <C> <C>
Sebastian E. Cassetta 1997 $125,000 -- $ 9,750 100,000 --
Chief Executive Officer 1996 $125,000 -- $ 9,750 100,000(4) --
1995 $125,000 -- $ 9,750 -- --
Steven T. Francesco 1997 $125,000 -- $ 9,750 100,000 --
(Former President and 1996 $125,000 $22,000 $ 11,750 100,000(4) $20,000(5)
Chief Operating Officer) 1995 $125,000 -- $ 9,750 -- --
- --------------------
</TABLE>
(1) None of the Named Executive Officers received any Restricted Stock Awards
or LTIP Payouts in 1995, 1996 or 1997.
(2) As to each Named Executive Officer, the aggregate amount of personal
benefits not included in the Summary Compensation Table does not exceed the
lesser of either $50,000 or 10% of the total annual salary and bonus paid
to such Named Executive Officer.
(3) Amounts shown consist of a non-accountable expense allowance.
(4) In fiscal 1997 the Compensation Committee of the Board of Directors
canceled the stock options representing these underlying shares and granted
new options to Messrs. Cassetta and Francesco. On February 6, 1998, the
Board terminated Mr. Francesco's employment agreement with the Company and
his options were canceled.
(5) Represents a payment by the Company to Mr. Francesco of an aggregate amount
equal to the additional income taxes and penalties resulting from the early
withdrawal by him from an IRA of $35,000 which he loaned to the Company.
STOCK OPTIONS
The following table sets forth information with respect to stock
options granted to the Named Executive Officers during fiscal year 1997:
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<PAGE>
OPTION GRANTS IN FISCAL 1997
(INDIVIDUAL GRANTS)(1)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED IN FISCAL 1997 PRICE DATE (2)
---- --------- -------------- ------- ----------
Sebastian E. Cassetta 100,000 23.6% $5.0625 July 15, 2006
Steven T. Francesco 19,753 4.7% $5.56875 July 15, 2001
80,247 18.9% $5.0625 July 15, 2006
- -------------------
(1) No stock appreciation rights ("SARs") were granted to any of the Named
Executive Officers during fiscal 1997. On September 24, 1997, the
Compensation Committee granted new stock options to employees conditional
upon cancellation of all of their existing stock options. As a consequence
of this action and upon cancellation of the options described above, Mr.
Cassetta received an option to purchase 100,000 shares of the Company's
Common Stock exercisable at a price of $2.00 per share expiring on April
15, 2006 and Mr. Francesco received an option to purchase 45,454 shares of
the Company's common Stock exercisable at a price of $2.20 per share
expiring on September 23, 2002 and an option to purchase 54,456 shares of
the Company's Common Stock exercisable at a price of $2.00 per share
expiring on April 15, 2006. The options become exercisable in full on the
first anniversary of the grant date. On February 6, 1998, upon termination
of his employment by the Board, the options held by Mr. Francesco were
canceled.
(2) The options become exercisable in full on the first anniversary of the
grant date.
The following table sets forth information as to the number of
unexercised shares of Common Stock underlying stock options at fiscal year end
and the value of unexercised in-the-money stock options at fiscal year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUE (1)
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED
SECURITIES VALUE OF
SHARES UNDERLYING OPTIONS UNEXERCISED IN-THE-
ACQUIRED AT FISCAL YEAR END MONEY YEAR END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE (2)
---- -------- -------- --------------- -----------------
<S> <C> <C>
Sebastian E. Cassetta......... -- -- 0/100,000 $0/$0
Steven T. Francesco........... -- -- 0/100,000 $0/$0
</TABLE>
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- ---------------
(1) No SARs were granted to, or exercised by any of the Named Executive
Officers during fiscal 1997.
(2) Value is based on the closing price of the Company's Common Stock as
reported by the National Association of Securities Dealers' Automated
Quotation System ("NASDAQ") on June 30, 1997 ($2.00) less the exercise
price of the option.
EMPLOYMENT AGREEMENTS
The Company and Sebastian E. Cassetta are parties to an Employment
Agreement (the "Cassetta Agreement"), effective January 31, 1994, which expires
on January 31, 1999. The Cassetta Agreement provides for (i) an annual base
salary of $125,000, (ii) a performance bonus for each fiscal year between June
30, 1995 and June 30, 1998, payable in cash and Common Stock of the Company, in
the event the Company achieves the levels of earnings before interest, income
taxes, depreciation and amortization ("EBITDA") provided therein and (iii) any
additional amount as determined by the Board or an outside compensation board.
The EBITDA goal is $10,500,000 for 1998. If the goal is achieved, Mr. Cassetta
will receive a cash bonus of one-half of one percent of the goal and
approximately 22,000 shares of Common Stock. Pursuant to the Cassetta Agreement,
Mr. Cassetta is also entitled to participate in any present or future insurance,
pension, retirement, profit sharing or bonus plan or other compensation or
incentive plan adopted by the Company for the general and overall benefit of
full-time principal executives of the Company, such participation to be upon the
same terms and conditions as generally relate to such full-time principal
executives. Pursuant to the Cassetta Agreement, in the event that Mr. Cassetta's
employment is terminated without cause, the Company is obligated to make a
severance payment to Mr. Cassetta in the amount of $250,000 within 30 days
following the date of such termination.
The Company and Steven T. Francesco were parties to an Employment
Agreement (the "Francesco Agreement"), effective January 31, 1994, which expired
on January 31, 1999. The Francesco Agreement provided for (i) an annual base
salary of $125,000, (ii) a performance bonus for each fiscal year between June
30, 1995 and June 30, 1998, payable in cash and Common Stock of the Company, in
the event the Company achieved the levels of EBITDA provided therein and (iii)
any additional amount as determined by the Board or an outside compensation
board. The EBITDA goals and bonuses were the same as those in the Cassetta
Agreement. Pursuant to the Francesco Agreement, Mr. Francesco was entitled to
participate in any present or future insurance, pension, retirement, profit
sharing or bonus plan or other compensation or incentive plan adopted by the
Company for the general and overall benefit of full-time principal executives of
the Company, such participation to be based upon the same terms and conditions
as generally related to such full-time principal executives. Pursuant to the
Francesco Agreement, in the event that Mr. Francesco's employment was terminated
without cause, the Company was obligated to make a severance payment to Mr.
Francesco in the amount of $250,000 within 30 days following the date of such
termination.
On February 6, 1998, at a meeting of the Board of Directors of the
Company, the Board of Directors voted to terminate the Company's employment
contract with Steven T. Francesco, the former President and Chief Operating
Officer of the Company. Prior to such termination, on or about December 15,
1997, Mr. Francesco, then President and Chief Operating Officer of the Company,
filed a complaint against the Company, Sebastian E. Cassetta (its Chairman of
the Board and Chief Executive Officer), Bruno Guazzoni, Claudio Guazzoni (a
current Board member), ZSI and Zanett in the Supreme Court of the State of New
York, County of New York. In the amended complaint, which was served on or about
December 29, 1997, Mr. Francesco alleged, among
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<PAGE>
other things, that the Company breached the terms of its employment agreement
with him. The amended complaint seeks damages against the Company in an
unspecified amount and injunctive relief. The Company has moved the Court to
dismiss certain of the claims against it. That motion is currently pending. No
disclosure in this action has yet been noticed or taken. The Company intends to
vigorously defend this action.
CERTAIN TRANSACTIONS
On September 29, 1997, the Company, Messrs. Cassetta and Francesco and
Mr. Bruno Guazzoni entered into an agreement whereby Messrs. Cassetta and
Francesco agreed to vote the shares of Common Stock of the Company then
beneficially owned by them, representing 376,250 and 839,445 shares,
respectively (collectively, the "Insider Shares"), which Insider Shares
currently represent approximately 30.02% of the total number of issued and
outstanding Common Stock of the Company, in favor of the proposal to amend the
Company's Certificate of Incorporation to increase its authorized shares of
Common Stock to 40,000,000. If the proposed amendment is not approved by the
stockholders, Messrs. Cassetta and Francesco have each agreed to submit all
certificates representing the Insider Shares to the Company's transfer agent for
cancellation and cause the Company to instruct the Company's transfer agent to
cancel said shares and reserve such shares for Mr. Bruno Guazzoni. Further, Mr.
Cassetta has agreed to waive any right which he may have to cause the Company to
continue to reserve 200,000 shares of Common Stock for issuance upon exercise of
his stock options granted to him under the 1996 Stock Option Plan and has
further agreed to certain restrictions on transfer of any of the Insider
Shares.SEE "Proposal to Amend the Company's Certificate of Incorporation to
Increase the Number of Authorized Shares of Common Stock."
In March 1996, upon the consummation of the Company's Initial Public
Offering, the Company and InterBank Communications, Inc. ("InterBank") agreed to
terminate a Consulting Agreement entered into on June 1, 1995 and, in
consideration therefor, the Company issued 10,000 warrants to InterBank and paid
InterBank $50,000. The Company also paid InterBank $36,000 in full settlement of
all amounts past due under the Consulting Agreement. On the date of the
execution and delivery of the Consulting Agreement, InterBank beneficially owned
more than 5% of the Company's Common Stock and Simon A. Hershon, Ph.D.,
President of InterBank, was a director of the Company. Mr. Hershon was a
director of the Company until November 1996.
In March 1996, upon the consummation of the Company's Initial Public
Offering, the Company repaid $707,780 principal amount of certain convertible
subordinated notes (and accrued interest thereon), and the balance of the notes
and accrued interest thereon was converted into 427,735 shares of Common Stock
or more than 5% of the then outstanding shares of Common Stock. Holders of such
notes were present or former investment advisory clients of Laifer Capital
Management, Inc.
In connection with a private placement of securities made by the
Company in 1995, Sebastian E. Cassetta and Steven T. Francesco, each then an
officer, director and beneficial owner of more than 5% of the Common Stock of
the Company, entered into a Non-Recourse Guaranty and Pledge Agreement, dated
October 2, 1995 (the "Pledge Agreement"), with the placement agent for such
securities as agent for the subscribers named therein, pursuant to which Messrs.
Cassetta and Francesco each pledged 250,000 shares of Common Stock, which shares
secured the repayment of the $1,200,000 principal amount of promissory notes
sold by the Company to such subscribers. The notes were repaid in March 1996
upon the consummation of the Company's Initial Public Offering, whereupon the
Pledge Agreement was terminated.
The Company believes that the terms of the transactions described
above between the Company and its officers, directors or other affiliates were
no less favorable to the Company than would have been obtained from
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<PAGE>
a non-affiliated third party for similar transactions at the time of entering
into such transactions. In addition, the Company has adopted a policy whereby
all future transactions and/or loans between the Company and its officers or
directors will be on terms that the Company believes are no less favorable than
could be obtained from unaffiliated third parties (at the time such transactions
and/or loans are entered into) and will be approved by a majority of the
independent disinterested directors of the Company.
PROPOSAL TO AMEND THE COMPANY'S 1996 STOCK OPTION PLAN TO INCREASE THE
NUMBER OF SHARES AVAILABLE FOR GRANT OF OPTIONS FROM 400,000 SHARES TO 1,500,000
SHARES, ELIMINATE MANDATORY GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS AND
GRANT THE COMPENSATION COMMITEE DISCRETIONARY AUTHORITY TO GRANT OPTIONS TO BOTH
EMPLOYEE AND NON-EMPLOYEE DIRECTORS
On April 16, 1996, the Board of Directors adopted the Company's 1996
Stock Option Plan. On September 30, 1996 the Board of Directors approved
amendments to the 1996 Stock Option Plan. On November 4, 1997 the stockholders
approved the 1996 Stock Option Plan. On December 6, 1996, the Board of Directors
amended the 1996 Stock Option Plan. On February 23, 1998 the Board of Directors
approved the Amended and Restated Plan, certain provisions of which are subject
to stockholder approval. The Amended and Restated Plan is designed to provide an
incentive to key employees and non-employee directors of, and consultants to,
the Company and to offer an additional inducement in obtaining the services of
such persons. The proceeds derived from the sale of shares subject to options
will be used for general corporate purposes of the Company.
PROPOSED AMENDMENTS REQUIRING STOCKHOLDER APPROVAL
There are no shares available for issuance under the 1996 Stock Option
Plan. Consequently, the Board has adopted the Amended and Restated Plan (the
"Amended and Restated Plan"), the full text of which is attached hereto as
Exhibit A. The Amended and Restated Plan contains a provision, subject to
stockholder approval, which would increase the maximum number of shares of the
Company's Common Stock issuable upon the exercise of stock options granted under
the 1996 Stock Option Plan from 400,000 to 1,500,000 shares (subject to
adjustment as described under the Amended and Restated Plan).
In addition, under the 1996 Stock Option Plan, each director who was
not a salaried employee of the Company on November 4, 1996, the date the 1996
Stock Option Plan was approved by stockholders, was granted on such date an
option to purchase 5,000 shares of Common Stock. On the date on which an
individual who was not a salaried employee of the Company first became a
director, he or she was granted an option to purchase 5,000 shares of Common
Stock. In addition, immediately following each annual meeting of stockholders at
which directors are elected, each person who was not a salaried employee of the
Company and was then a director was granted an option to purchase an additional
5,000 shares of Common Stock. The Amended and Restated Plan contains a
provision, subject to stockholder approval, which would eliminate these
mandatory director grants and provide the Compensation Committee with the
discretionary authority to grant options to both employee and non- employee
directors.
The following summary of certain material features of the Amended and
Restated Plan does not purport to be complete and is qualified in its entirety
by reference to the text of the Amended and Restated Plan, the full text of
which is attached hereto as Exhibit A.
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<PAGE>
SHARES SUBJECT TO THE OPTION AND ELIGIBILITY
If the proposed amendments are approved by stockholders, the Amended
and Restated Plan would authorize 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 (including officers and directors who are
employees) and non-employee directors of, and consultants to, the Company. 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 Amended and Restated Plan. Twenty-six employees
and consultants of the Company are currently eligible to receive grants of
options under the Amended and Restated Plan.
Set forth in the table below is information as to the number of shares
as to which options have been granted under the Amended and Restated Plan to
date and have not been canceled, and are currently outstanding and held by the
Named Executive Officers, each other person who has received 5% of such options,
all current executive officers as a group, all current directors who are not
executive officers as a group and all current employees, including all current
officers who are not executive officers, as a group.
Number of Shares
Underlying
Name Option Grants(1)
---- ----------------
Sebastian E. Cassetta ............................................ 200,000
Steven T. Francesco (2) .......................................... 0
Mario F. Rossi ................................................... 126,500
William Logar .................................................... 108,500
Thomas Haller .................................................... 90,000
Michael Fishman .................................................. 160,000
Jonathan Paschkes ................................................ 160,000
Patricia Brajnikoff .............................................. 89,750
Gerard LaPorte ................................................... 83,725
Randy Santossio .................................................. 80,000
All current executive officers as a group ........................ 416,500
All current directors who are not executive
officers as a group ............................................ 10,000
All employees and consultants, including all current
officers who are not executive officers, as a group .............. 924,975
- -------------------
(1) Under the 1996 Stock Option Plan, options for the purchase of 203,475 shares
of Common Stock were issued and outstanding. On February 23, 1998, the Board of
Directors approved the grant of options for the purchase of an additional
1,163,000 shares of Common Stock. Of such amount, 966,475 are subject to
stockholder approval.
(2) When Mr. Francesco's employment agreement with the Company was terminated by
the Board of Directors, the 100,000 options previously granted to him under the
1996 Stock Option Plan were canceled.
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<PAGE>
On March 2, 1998, the high ask and low bid prices of the Company's
Common Stock as reported by NASDAQ were $2.875 and $2.625 per share,
respectively. As of March 2, 1998, none of the options granted under the Amended
and Restated Plan were exercisable.
TYPE OF OPTIONS
Options granted under the Amended and Restated 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").
ADMINISTRATION
The Amended and Restated Plan is administered by a committee of the
Board of Directors (the "Compensation Committee") consisting of at least two
members of the Board, each of whom is a "non-employee director" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934. It
is also intended that each member of the Compensation Committee will be an
"outside director" within the meaning of Section 162(m) of the Code. The current
members of the Compensation Committee are Messrs. Guazzoni and Steele
Among other things, the Compensation Committee is empowered to
determine, within the express limits contained in the Amended and Restated Plan:
the employees and consultants to be granted options, the times when options
shall be granted, whether an option 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, conditions or installments relating to the exercisability
of each option, whether and under what conditions to accelerate the date of
exercise of any option or installment, the form of payment of the exercise
price, the amount, if any, required to be withheld with respect to an option
and, with the consent of the optionee, to modify an option. The Compensation
Committee is also authorized to prescribe, amend and rescind rules and
regulations relating to the Amended and Restated Plan and to make all other
determinations necessary or advisable for administering the Amended and Restated
Plan and to construe the Amended and Restated Plan.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the Amended and Restated Plan are subject to,
among other things, the following terms and conditions:
(a) The exercise price of each option will be determined by the
Compensation Committee; provided, however, that the exercise
price of an ISO may not be less than the fair market value of the
Company's Common Stock on the date of grant (110% of such fair
market value if the optionee owns, or is deemed to own, more than
10% of the voting power of the Company).
(b) Options may be granted for terms determined by the Compensation
Committee; provided, however, that the term of an ISO may not
exceed 10 years (5 years if the optionee owns, or is deemed to
own, more than 10% of the voting power of the Company).
(c) The maximum number of shares of the Company's Common Stock for
which options may be granted to an employee in any calendar year
is 125,000. In addition, the aggregate fair market
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<PAGE>
value of shares with respect to which ISOs may be granted to an
employee which are exercisable for the first time during any
calendar year may not exceed $100,000.
(d) The exercise price of each option is payable in full upon
exercise or, if the applicable stock option contract ("Contract")
entered into by the Company with an optionee permits, in
installments. Payment of the exercise price of an option may be
made in cash, certified check or, if the applicable Contract
permits, 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 or his or her legal
representatives.
(f) Except as may otherwise be provided in the applicable Contract,
if the optionee's relationship with the Company as an employee or
consultant is terminated for any reason (other than the death or
disability of the optionee), the option may be exercised, to the
extent exercisable at the time of termination of such
relationship, within three months thereafter, but in no event
after the expiration of the term of the option. However if the
relationship was terminated either for cause or without the
consent of the Company, the option will terminate immediately. In
the case of the death of an optionee while an employee 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), except as otherwise
provided in the Contract, his or her legal representative or
beneficiary may exercise the option, to the extent exercisable on
the date of death, 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 Contract, an optionee whose
relationship with the Company was terminated by reason of his or
her disability may exercise the option, to the extent exercisable
at the time of such termination, within one year thereafter, but
not after the expiration of the term of the option. Options are
not affected by a change in the status of an optionee so long as
he or she continues to be an employee of, or a consultant to, the
Company.
(g) The Company may withhold cash and/or shares of the Company's
Common Stock having an aggregate value equal to the amount which
the Company determines is necessary to meet its obligations to
withhold any federal, state and/or local taxes or other amounts
incurred by reason of the grant or exercise of an option, its
disposition 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.
(h) The exercise price of each share of Common Stock under any option
granted to a non-employee director under the Amended and Restated
Plan shall be equal to the fair market value of a share of Common
Stock on the date the option is granted. Each non-employee
director option is for a term of five years and may be exercised
at any time during such term; provided however, that such option
shall terminate immediately if such director is terminated for
cause or is not nominated by the Board for reelection.
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<PAGE>
ADJUSTMENT IN EVENT OF CAPITAL CHANGES, INCLUDING A CHANGE IN CONTROL
Appropriate adjustments will be made in number and kind of shares
available under the Amended and Restated Plan, in the number and kind of shares
subject to each outstanding option and the exercise prices of such options, as
well as the limitation on the number of shares that may be granted to any
employee in any calendar year, in the event of any change in the Company's
Common Stock by reason of any stock dividend, split-up, spin off, combination,
reclassification, recapitalization, merger in which the Company is not the
surviving corporation, exchange of shares or the like. In the event of any
Change in Control of the Company (as defined in the Amended and Restated Plan),
any outstanding options shall immediately become exercisable in full.
DURATION AND AMENDMENT OF THE AMENDED AND RESTATED PLAN
No option may be granted under the Amended and Restated Plan after
April 15, 2006. The Board of Directors may at any time terminate or amend the
Amended and Restated Plan; provided, however, that, without the approval of the
Company's stockholders, no amendment may be made which would (a) except as a
result of the anti-dilution adjustments described above, increase the maximum
number of shares available for the grant of options or increase the maximum
number of options that may be granted to an employee in any calendar year, (b)
change the eligibility requirements for persons who may receive options or (c)
make any change for which applicable law or regulatory authority 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 following 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 with
previously-acquired shares or the state or local income or other tax
consequences relating to stock options.
An optionee will not recognize taxable income for federal income tax
purposes upon the grant of a NQSO or an ISO.
Upon the exercise of a NQSO, the optionee will recognize ordinary
income in an amount equal to the excess, if any, of the fair market value of the
shares acquired on the date of exercise over the exercise price thereof, and the
Company will generally be entitled to a deduction for such amount at that time.
If the optionee later sells shares acquired pursuant to the exercise of a NQSO,
he or she will recognize long-term or short-term capital gain or loss, depending
on the period for which the shares were held, in an amount equal to the
difference between the selling price of such shares and the exercise price of
such option increased by the amount of ordinary income recognized upon exercise
of such option. Long-term capital gain is generally subject to more favorable
tax treatment than ordinary income or short-term capital gain. Long-term capital
gain is generally subject to a 20% maximum federal income tax rate if the shares
are held for more than 18 months and a 28% maximum tax rate if the shares are
held for more than 12 months but not greater than 18 months.
Upon the exercise of an ISO, the optionee will not recognize 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 him or her, the optionee will recognize
long-term capital gain or loss and the Company will not be entitled to a
deduction. Long-term capital gain is generally subject to a 20% maximum federal
income tax rate if the shares are held for more than 18 months and a 28% maximum
tax rate if the shares are held for more than 12 months but not greater than 18
months. However, if the optionee disposes
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<PAGE>
of such shares prior to the expiration of the required holding periods, all or
portion of the gain will be treated as ordinary income and the Company will
generally be entitled to a deduction in the same amount.
In addition to the federal income tax consequences described above, an
optionee may be subject to the alternative minimum tax, which is payable to the
extent it exceeds the optionee's regular tax. For this purpose, upon the
exercise of an ISO, the excess of the fair market value of the shares over the
exercise price therefor is an adjustment which increases alternative minimum
taxable income. In addition, the optionee's basis in such shares is increased by
such excess for purposes of computing the gain or loss on the disposition of the
shares for alternative minimum tax purposes. If an optionee is required to pay
an alternative minimum tax, the amount of such tax which is attributable to
deferral preferences (including the ISO adjustment) is 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.
BOARD RECOMMENDATION OF THE PROPOSED AMENDMENTS TO THE 1996 STOCK OPTION PLAN
Under the 1996 Stock Option Plan, options for the purchase of 203,475
shares of Common Stock were issued and outstanding as of February 22, 1998. On
February 23, 1998, the Board of Directors approved the grant of options for the
purchase of an additional 1,163,000 shares of Common Stock. Of such amount
966,475 are subject to the stockholder's approval. The Board believes that the
best interests of the Company will be served by increasing the maximum number of
shares available for issuance under the Amended and Restated Plan and thereby
approving the grants previously made thereunder by the Board. The Board believes
that prior stock option awards under the 1996 Stock Option Plan have enabled the
Company to compete for qualified personnel, to retain said personnel as
employees or directors of the Company, and to motivate such personnel and align
their long term interests with those of the stockholders. In order to remain
competitive in attracting and retaining qualified employees and directors and to
continue to provide such employees and directors with proper motivation and
incentives to work toward increasing the value of the Company for stockholders,
the Board believes that the proposed amendment increasing the number of shares
available under the Amended and Restated Plan should be approved.
In addition, the Board of Directors believes that the best interests
of the Company will be served by eliminating the provisions in the 1996 Stock
Option Plan granting non-employee directors non-discretionary grants of 5,000
options. In view of the fact that each non-employee director does not make an
identical contribution to the Company and in further recognition of the fact
that non-employee directors receive no cash compensation for so serving, it
would be appropriate to eliminate the mandatory grant of options for 5,000
shares per annum and replace it with discretionary grants from time to time as
determined by the Compensation Committee in recognition of actual contributions
by each non-employee director.
REQUIRED VOTE
Approval of the amendments to the 1996 Stock Option Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock
present, in person or by proxy, at the Annual Meeting and entitled to vote on
this proposal. The Board of Directors recommends a vote "FOR" approval of the
amendments to the 1996 Stock Option Plan.
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<PAGE>
PROPOSAL TO
AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has unanimously approved and recommends to
stockholders that they consider and approve a proposal to amend the Company's
Certificate of Incorporation to increase the number of authorized shares of the
Company's Common Stock, par value $.01 per share, from 15,000,000 shares to
40,000,000 shares. If the proposed amendment is approved, Article FOUR of the
Company's Certificate of Incorporation would be amended to read as set forth on
Exhibit B attached to this Proxy Statement.
On September 30, 1997, the Company completed a private placement of
4,000 Prepaid Common Stock Purchase Warrants (the "Prepaid Warrants") to certain
accredited investors (the "1997 Private Placement"). Upon completion of the 1997
Private Placement, the Company had issued an aggregate of 3,695,000 shares of
Common Stock and had reserved an aggregate of 10,912,720 shares for issuance
upon exercise of stock options, the Prepaid Warrants and certain other warrants
previously issued by the Company. This left only 392,280 shares available for
issuance to Mr. Bruno Guazzoni (the "Consultant") upon his exercise of warrants
to purchase 3,555,555 shares of Common Stock (the "Consultant Warrants") which
were issued to him by the Company pursuant to his consulting agreement with the
Company, dated September 29, 1997 (the "Consulting Agreement"). Since the number
of authorized and available shares of the Company was insufficient to enable the
exercise in full of the Consultant Warrants, Mr. Cassetta, Mr. Francesco and the
Consultant entered into an agreement, dated September 29, 1997 (the "Amendment
Agreement"), whereby the Company agreed to use its best efforts to obtain
stockholder approval of an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock
available for issuance to at least forty million (40,000,000) shares. Pursuant
to the Amendment Agreement, Messrs. Cassetta and Francesco agreed to vote all of
their Insider Shares (as defined above), which currently represent approximately
30.02% of the total number of issued and outstanding Common Stock of the
Company, in favor of this Proposal. If this proposed amendment is not approved
by the stockholders, Messrs. Cassetta and Francesco have each agreed to submit
their certificates representing their Insider Shares to the transfer agent for
cancellation and to cause the Company to instruct the Company's transfer agent
to reserve such canceled shares for the benefit of the Consultant. The
Consulting Agreement was amended by letter, dated February 9, 1998, from Mr.
Guazzoni to the Company, which letter required stockholder approval of 3,055,555
of the Consultant Warrants as long as the Company maintains its listing on the
NASDAQ SmallCap Market. SEE "Proposal to Approve the Issuance of Consultant ---
Warrants to Purchase 3,055,555 shares of Common Stock of the Company to a
Consultant of the Company."
The Board of Directors believes that the 1997 Private Placement was in
the best interests of the Company's stockholders and was essential in order to
maintain the Company's listing on the NASDAQ Small Cap Market and to enable the
Company to continue its operations. The Board of Directors further believes that
an increase in the amount of authorized shares of Common Stock of the Company is
desirable and in the best interest of the Company in order to adequately
compensate the Consultant for his services in connection with the 1997 Private
Placement and to ensure that his services will be provided to the Company in the
future. As the Company is currently not in compliance with the listing
requirements of the NASDAQ SmallCap Market and requires additional financing in
order to maintain its listing on the NASDAQ SmallCap Market, the Company may
rely on the services of the Consultant in order to obtain such financing.
Moreover, the Company believes it is fair and reasonable to adopt such
an amendment in order to honor its commitments under the Amendment Agreement, to
avoid the harsh penalties of stock forfeiture by its current board members,
Messrs. Cassetta and Francesco, and to provide the incentive of stock ownership
to Mr. Cassetta,
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<PAGE>
the Chief Executive Officer of the Company. Moreover, approval of the amendment
would provide additional shares which would be available for activities
including raising additional capital, future stock distributions, acquisitions
and other general corporate purposes. Except as specifically provided herein,
the Company has no present plans to issue any of such shares.
If the proposed amendment is approved, the additional shares of Common
Stock, when issued, will have the same voting and other rights as the Company's
presently authorized Common Stock. The present holders of Common Stock will not
have preemptive rights to subscribe for additional shares of Common Stock. Such
shares may be issued by the Board of Directors without further stockholder
action except as required by law. The Company's present stockholders may be
diluted by any future issuances of Common Stock. However, because the Company
may need cash for continuing operations and to maintain its listing on the
NASDAQ SmallCap Market and in order to make the Company attractive to any
potential investors, the Board of Directors believes that it is necessary that
the Company have the ability to issue additional shares of Common Stock.
Although an increase in the authorized number of shares of Common
Stock could, under certain circumstances, have an anti-takeover effect (for
example, by permitting issuances which would dilute the stock ownership of a
person seeking to effect a change in the composition of the Board of Directors
or contemplating a tender offer or other transaction for the combination of the
Company with another company), the proposed amendment is not being proposed in
response to any effort, of which the Company is aware, to accumulate the
Company's shares of Common Stock or obtain control of the Company, nor is it
part of a plan by management to recommend a series of similar amendments to the
Board of Directors and stockholders. Other than the amendments to Article FOUR
of the Certificate of Incorporation, the Board does not currently contemplate
recommending the adoption of any other amendments to the Company's Certificate
of Incorporation that could be construed to affect the ability of third parties
to take over or change control of the Company.
If the proposed amendment is adopted, there would be an additional
21,836,725 authorized shares of Common Stock that are not outstanding or
reserved for issuance. As of the Record Date, the Company had 3,958,339 shares
of Common Stock issued and 11,041,661 shares of Common Stock reserved for future
issuance upon the exercise of certain warrants and options.
EFFECTIVE DATE
If approved by the stockholders, the proposed amendment will become
effective upon the filing of a Certificate of Amendment with the Secretary of
State of Delaware amending the Company's Certificate of Incorporation as set
forth on Exhibit B attached to this Proxy Statement, which filing will be made
as soon as reasonably practicable after stockholder approval.
REQUIRED VOTE
Approval of the Proposal requires the affirmative vote of the holders
of a majority of the shares of Common Stock present, in person or by proxy, at
the Annual Meeting and entitled to vote on this Proposal. The Board of Directors
recommends a vote "FOR" approval of the Proposal.
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<PAGE>
PROPOSAL TO
AMEND THE COMPANY'S CERTIFICATE OF
INCORPORATION TO CREATE A CLASS OF PREFERRED STOCK
The Board of Directors has unanimously approved and recommends to
stockholders that they consider and approve a proposal to amend the Company's
Certificate of Incorporation to create a class of 1,000,000 shares of Preferred
Stock, par value $.01 per share. If the proposed amendment is approved, Article
FOUR of the Company's Certificate of Incorporation would be amended to read as
set forth on Exhibit B attached to this Proxy Statement.
The Board of Directors believes that the creation of a new class of
Preferred Stock is desirable so that additional shares would be available for
raising capital, future stock distributions, acquisitions and other general
corporate purposes. The Company has no present plans to issue any of such
shares. If the proposed amendment is approved, the new shares of Preferred
Stock, when issued, will have such designations, powers, preferences and rights
and the qualifications, limitations or restrictions (which may differ with
respect to each series) as the Board of Directors may fix by resolution. Any
holders of Common Stock will be subject to the rights of holders of outstanding
shares of any Preferred Stock, including without limitation any preferential
rights as to liquidation and dividends. In addition, the issuance of shares of
Preferred Stock could adversely affect the rights of existing shares of Common
Stock to share in amounts available for payment of dividends and in the
Company's assets upon liquidation. The Board of Directors does not presently
intend to declare dividends or propose a liquidation of the Company. The holders
of Common Stock will not have preemptive rights to subscribe for any shares of
Preferred Stock. Such shares may be issued by the Board of Directors without
further stockholder action except as required by law. As a result, the Company's
present stockholders may be diluted by any future issuances of Preferred Stock.
However, because the Company may need cash for continuing operations and to
maintain its listing on the NASDAQ SmallCap Market and in order to make the
Company attractive to any potential investors, the Board of Directors believes
that it is necessary that the Company have the ability to issue shares of
Preferred Stock.
Although the creation of the class of Preferred Stock could, under
certain circumstances, have an anti- takeover effect (for example, by permitting
issuances which would dilute the stock ownership of a person seeking to effect a
change in the composition of the Board of Directors or contemplating a tender
offer or other transaction for the combination of the Company with another
company), the proposed amendment is not being proposed in response to any
effort, of which the Company is aware, to accumulate the Company's shares of
Common Stock or obtain control of the Company, nor is it part of a plan by
management to recommend a series of similar amendments to the Board of Directors
and stockholders. Other than the amendments to Article FOUR of the Certificate
of Incorporation, the Board does not currently contemplate recommending the
adoption of any other amendments to the Company's Certificate of Incorporation
that could be construed to affect the ability of third parties to take over or
change control of the Company.
EFFECTIVE DATE
If approved by the stockholders, the proposed amendment will become
effective upon the filing of a Certificate of Amendment with the Secretary of
State of Delaware amending the Company's Certificate of Incorporation as set
forth on Exhibit B attached to this Proxy Statement, which filing will be made
as soon as reasonably practicable after stockholder approval.
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<PAGE>
REQUIRED VOTE
Approval of the Proposal requires the affirmative vote of the holders
of a majority of the shares of Common Stock present, in person or by proxy, at
the Annual Meeting and entitled to vote on this Proposal. The Board of Directors
recommends a vote "FOR" approval of the Proposal.
PROPOSAL TO
APPROVE THE ISSUANCE OF WARRANTS TO
PURCHASE 3,055,555 SHARES OF COMMON STOCK OF
THE COMPANY TO A CONSULTANT OF THE COMPANY
The Board of Directors has unanimously approved and recommends to
stockholders that they consider a proposal to approve the issuance of Consultant
Warrants to purchase 3,055,555 shares of Common Stock to Mr. Bruno Guazzoni, a
consultant of the Company (previously and hereinafter defined as the
"Consultant").
In connection with the consummation of the 1997 Private Placement, Mr.
Bruno Guazzoni provided certain financial and investment banking advisory
services to the Company. As consideration for these services and future services
to be provided by him over a five-year period commencing September 29, 1997, the
Company entered into a Consulting Agreement, dated as of September 29, 1997,
whereby the Company agreed to issue and deliver to Mr. Guazzoni the Consultant
Warrants to acquire 3,555,555 shares of Common Stock of the Company exercisable
at $1.125 per share, subject to certain terms and conditions set forth in the
Consultant Warrants. Pursuant to the terms of the Consultant Warrants, except
under certain circumstances, the Consultant is not entitled to exercise the
Consultant Warrants to the extent that such exercise would cause the Consultant
to beneficially own more than 4.99% of the total outstanding Common Stock of the
Company. The exercise price of the Consultant Warrants was based upon the market
value of the Company's Common Stock during a period of time prior to the
execution of the Consulting Agreement. The Consultant Warrants are entitled to
certain registration and other rights. The issuance of the Consultant Warrants
was approved by the Board of Directors of the Company. However, following
discussions among representatives of the Consultant, the Company and NASDAQ, and
at the request of NASDAQ, the Consultant agreed by letter dated February 9,
1998, that Consultant Warrants to acquire 3,055,555 shares of Common Stock shall
be subject to the approval of the Company's stockholders at the Annual Meeting
as long as the Company maintains its listing on the NASDAQ SmallCap Market. The
Company has issued to Mr. Guazzoni Consultant Warrants to acquire 500,000 shares
of Common Stock which are not subject to stockholder approval. If the
stockholders vote against this Proposal, the Consultant Warrants to purchase an
additional 3,055,555 shares of Common Stock shall not become exercisable as long
as the Company maintains its listing. Since there is not enough authorized
shares available to satisfy the exercise of all of the Consultant Warrants in
full, the issuance by the Company is further subject to the approval of the
Proposal to increase the amount of authorized shares of Common Stock to
40,000,000 shares for the reasons set forth therein. SEE "Proposal to Amend the
Company's Certificate of Incorporation to Increase the Number of Authorized
Shares of Common Stock."
The Board of Directors believes that issuing the 3,055,555 Consultant
Warrants to the Consultant is desirable and in the best interests of the Company
in order to compensate the Consultant for services rendered to the Company in
connection with the 1997 Private Placement, for services to be rendered by the
Consultant in the future and in order to preserve the Company's current
relationship with the Consultant. Since the Company is not currently in
compliance with the NASDAQ SmallCap Market's continued listing requirements, it
believes that the Consultant's services may be necessary to secure alternative
financing sources in order to obtain such compliance with NASDAQ.
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<PAGE>
The Consultant and his affiliate purchased $569,000 and $1,100,000,
respectively of Prepaid Warrants in the 1997 Private Placement, entitling them
to a minimum aggregate of approximately 1,192,142 shares upon exercise of their
Prepaid Warrants, which number is subject to certain adjustments and may
increase depending upon the market price of the Common Stock. Pursuant to the
terms of the Prepaid Warrants, except under certain circumstances, neither the
Consultant nor his affiliate is entitled to exercise the Prepaid Warrants to the
extent that such exercise would cause each of the Consultant or his affiliate to
beneficially own more than 4.99% of the total outstanding Common Stock of the
Company. If the issuance of these additional Consultant Warrants is approved,
the Company's present stockholders may suffer dilution upon their exercise which
could be significant. Moreover, if the Consultant and his affiliate waived the
limitation combined in the Consultant Warrants and the Prepaid Warrants as to
the number of shares they could beneficially own, upon exercise of such Warrants
they could (assuming no other Prepaid Warrants were exercised), own a majority
of the Company's Common Stock.
Since the Consultant was successful in obtaining necessary funds for
the Company in the past which enabled the Company to maintain its listing on the
NASDAQ SmallCap Market, the Company agreed to issue all of the Consultant
Warrants despite the dilution which may result from the issuance of the Common
Stock upon exercise of these Consultant Warrants. Since the Company currently
needs cash for continuing operations and to maintain its NASDAQ SmallCap
listing, it is desirable that the Company have the ability to raise such capital
by all available means, including through the efforts of the Consultant.
REQUIRED VOTE
Approval of the Proposal requires the affirmative vote of the holders
of a majority of the shares of Common Stock present, in person or by proxy, at
the Annual Meeting and entitled to vote on this Proposal. The Board of Directors
recommends a vote "FOR" approval of the Proposal.
PROPOSAL TO
RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has served as the independent auditors
of the Company since June 1994. The Board of Directors has appointed Ernst &
Young LLP to continue as the independent auditors of the Company for the fiscal
year ending June 30, 1998, subject to ratification by the Company's
stockholders. A representative of Ernst & Young LLP is expected to be present at
the Annual Meeting to respond to appropriate questions from stockholders and to
make a statement if such representative desires to do so.
Ratification of the appointment of independent auditors requires the
affirmative vote of the holders of the majority of the shares of Common Stock
present, in person or by proxy, at the Annual Meeting and entitled to vote on
this proposal. The Board of Directors recommends a vote "FOR" ratification of
the appointment of Ernst & Young LLP as the independent auditors of the Company
for the fiscal year ending June 30, 1998.
OTHER BUSINESS
The Board of Directors knows of no other business to be brought before
the Annual Meeting. If, however, any other business should properly come before
the Annual Meeting, the persons named in the accompanying proxy will vote
proxies as in their discretion they may deem appropriate unless they are
directed by a proxy to do otherwise.
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<PAGE>
INFORMATION CONCERNING STOCKHOLDER PROPOSALS
Under the rules of the SEC, stockholder proposals intended for
inclusion in the proxy statement for the Company's 1998 Annual Meeting of
Stockholders must be received by the Company's Secretary no later than a
reasonable period prior to the solicitation of proxies for such meeting.
FORM 10-KSB EXHIBITS
The Company will furnish, upon payment of a reasonable fee to cover
reproduction and mailing expenses, a copy of any exhibit to the Company's Annual
Report on Form 10-KSB and any amendments thereto requested by any person
solicited hereunder.
By Order Of the Board of Directors
Sebastian E. Cassetta
Secretary
Stamford, Connecticut
March 18, 1998
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<PAGE>
EXHIBIT A
AMENDED AND RESTATED
1996 STOCK OPTION PLAN
OF
SMARTSERV ONLINE, INC.
1. PURPOSES OF THE PLAN. This amended and restated stock option plan (as
amended and restated, the "Plan") is designed to provide an incentive to key
employees (including directors and officers who are key employees), to
consultants and to Non-Employee Directors (as defined in Paragraph 19) of
SmartServ Online, Inc., a Delaware corporation (the "Company"), or any of its
Subsidiaries (as defined in Paragraph 19), 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"), but 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,
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, in the discretion of the
Board of Directors of the Company (the "Board of Directors"), 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, any shares of Common Stock subject to an option which for any
reason expires, is canceled or is terminated unexercised or which ceases for any
reason to be exercisable shall again become available for the granting of
options under the Plan. The Company shall at all times during the term of the
Plan reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee of the Board of Directors (the "Compensation Committee") consisting of
not less than two directors. During such time as the Company has a class of
equity securities registered under Section 12 of the Securities Exchange Act of
1934, as amended (the "Act"), each member of the Compensation Committee shall be
(a) a "disinterested person" within the meaning of Rule 16b-3 promulgated under
such act until September 30, 1996 and (b) from and after September 30, 1996 a
"non-employee director" within the meaning of Rule 16b-3 (as the same may be in
effect and interpreted from time to time, "Rule 16b-3"). A majority of the
members of the Compensation 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 members without a meeting, shall be the
acts of the Compensation Committee. With respect to Non-Employee Directors
Options, the Plan shall also be administered by the Compensation Committee. For
the purpose of administering the grant of Non-Employee Director Options, the
Compensation Committee shall have all the duties and powers specifically
provided herein with respect to the grant of Employee Options, and the Plan
shall be construed accordingly.
<PAGE>
Subject to the express provisions of the Plan, the Compensation
Committee shall have the authority, in its sole discretion, with respect to
Employee Options and Consultant Options (as defined in Paragraph 19): to
determine the key employees who shall be granted Employee Options and the
consultants who shall be granted Consultant Options; the times when options
shall be granted; whether an Employee Option shall be an ISO or a NQSO; the
number of shares of Common Stock to be subject to each option; the term of each
option; the date each option shall become exercisable; whether an option shall
be exercisable in whole, in part or in installments and, if in installments, the
number of shares of Common Stock to be subject to each installment, whether the
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 to
waive any such restriction; whether to subject the exercise of all or any
portion of an option to the fulfillment of contingencies as specified in the
contract referred to in Paragraph 11 (the "Contract"), including without
limitation, contingencies relating to entering into a covenant not to compete
with the Company, any of its Subsidiaries or a Parent (as defined in Paragraph
19), 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 the period of continued employment of the optionee with the Company, any
of its Subsidiaries or a Parent, and to determine whether such contingencies
have been met; whether an optionee is Disabled (as defined in Paragraph 19); and
with respect to Employee Options, Consultant Options and Non-Employee Director
Options (as defined in Paragraph 19): the amount, if any, necessary to satisfy
the Company's obligation 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 FURTHER, PROVIDED, 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; from and after September 30, 1996 to
approve any provision which under Rule 16b-3 requires approval by the Board of
Directors, a committee of non-employee directors or the stockholders of the
Company in order to be exempt under Rule 16b-3 (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 Compensation Committee in its sole discretion.
The determinations of the Compensation Committee on the matters referred to in
this Paragraph 3 shall be conclusive and binding on the parties. No member or
former member of the Compensation Committee 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; GRANTS. The Compensation Committee may from time to time,
in its sole discretion, consistent with the purposes of the Plan, grant Employee
Options to key employees (including officers and directors who are key
employees) of, and Consultant Options to consultants to, the Company or any of
its Subsidiaries. Such options granted shall cover such number of shares of
Common Stock as the Compensation Committee may determine, in its sole
discretion; PROVIDED, HOWEVER, that the maximum number of shares subject to
Employee Options that may be granted to any individual during any calendar year
under the Plan (the "162(m) Maximum") shall not exceed 125,000 shares; and
FURTHER, PROVIDED, that the aggregate market value (determined at the time the
option is granted in accordance with Paragraph 5) of the shares of Common Stock
for which any eligible employee may be granted ISOs under the Plan or any other
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<PAGE>
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 (or the portion
thereof) granted in excess of such ISO limitation amount shall be treated as a
NQSO. The Compensation Committee may, from time to time, grant Non-Employee
Director Options to Non-Employee Directors.
5. EXERCISE PRICE. The exercise price of the shares of Common Stock under
each Employee Option and Consultant Option shall be determined by the
Compensation Committee in its sole discretion; 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 FURTHER, PROVIDED,
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 exercise price of the shares of Common Stock under each
Non-Employee Director Option shall be equal to the fair market value of the
Common Stock subject to such option on the date of grant.
The fair market value of a share of Common Stock on any day shall be
(a) if the principal market for the Common Stock is a national securities
exchange, the average of the highest and lowest sales prices per share of Common
Stock on such day as reported by such exchange or on a composite tape reflecting
transactions on such exchange, (b) if the principal market for the Common Stock
is not a national securities exchange and the Common Stock is quoted on The
Nasdaq Stock Market ("Nasdaq"), and (i) 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 on Nasdaq, or (ii) if
such information is not available, the average of the highest bid and lowest
asked prices per share of Common Stock on such day on Nasdaq, or (c) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; PROVIDED, HOWEVER, that if clauses (a), (b) and (c) 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 by any method consistent with applicable regulations
adopted by the Treasury Department relating to stock options.
6. TERM. The term of each Employee Option and Consultant Option granted
pursuant to the Plan shall be such term as is established by the Compensation
Committee, in its sole discretion; PROVIDED, HOWEVER, that the term of each ISO
granted pursuant to the Plan shall be for a period not exceeding 10 years from
the date of grant thereof; and FURTHER, PROVIDED, 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
term of the ISO shall be for a period not exceeding five years from the date of
grant. Employee Options and Consultant Options shall be subject to earlier
termination as hereinafter provided. Subject to earlier termination as
hereinafter provided, each Non-Employee Director Option shall be exercisable for
a term of five years commencing on the date of grant.
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
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<PAGE>
accompanied by payment in full of the aggregate exercise price therefor (or the
amount due on exercise if the Contract with respect to an Employee Option
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) equal to the aggregate exercise price of all
options being exercised, or with any combination of cash, certified check or
shares of Common Stock. The Company shall not be required to issue any shares of
Common Stock pursuant to any such option until all required payments, including
any required withholding, have been made.
The Compensation Committee may, in its sole discretion, 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 Compensation Committee 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 to him for such
shares; PROVIDED, HOWEVER, that until such stock certificate is issued, 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 holder of an Employee Option or
Consultant Option whose relationship with the Company, its Parent and
Subsidiaries as an employee or a consultant has terminated for any reason (other
than as a result of the death or Disability 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, 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 a corporation 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 (or a related corporation) 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.
Except as may otherwise be expressly provided in the applicable
Contract, Employee Options and Consultant 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 of, or a consultant to, the Company, or any
of the Subsidiaries or a Parent (regardless of having changed from one to the
other or having been transferred from one corporation to another).
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<PAGE>
Except as provided below, a Non-Employee Director Option may be
exercised at any time during its five year term. The Non-Employee Director
Option shall not be affected by the optionee ceasing to be a director of the
Company or becoming an employee of, or consultant to, the Company, any of its
Subsidiaries or a Parent; PROVIDED, HOWEVER, that if (a) he is terminated as a
director of the Company for cause, such option shall terminate immediately, or
(b) he ceases to be a director of the Company because he is not nominated by the
Board of Directors for reelection as a director, such option may be exercised at
any time within one year after he ceases to be a director of the Company, but
not thereafter and in no event after the date the option otherwise would have
expired.
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, or as a
consultant to, the Company, any of its Subsidiaries or a Parent, or as a
director of the Company, or interfere in any way with any right of the Company,
any of its Subsidiaries or a Parent or the stockholders of the Company 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 optionee dies (a) while he
is an employee of, or 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
(c) within one year following the termination of such relationship by reason of
his Disability, his Employee Option or Consultant Option may be exercised, to
the extent exercisable on the date of his death, by his Legal Representative (as
defined in Paragraph 19) at any time within one year after death, but not
thereafter and in no event after the date the option would otherwise have
expired.
Except as may otherwise be expressly provided in the applicable
Contract, any optionee whose relationship as an employee of, or consultant to,
the Company, its Parent and Subsidiaries has termi nated by reason of such
optionee's Disability may exercise his Employee Option or Consultant 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.
The term of a Non-Employee Director Option shall not be affected by
the death or Disability of the optionee. If an optionee holding a Non-Employee
Director Option dies during the term of such option, the option may be exercised
at any time during its term by his Legal Representative.
10. COMPLIANCE WITH SECURITIES LAWS. The Compensation Committee may
require, in its sole discretion, as 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 Compensation Committee may require, in its sole discretion, as a
condition to the exercise of any option that the optionee execute and deliver to
the Company his representations and warranties, in form, substance and scope
satisfactory to the Compensation Committee, which the Compensation Committee
determines are necessary or convenient to facilitate the perfection of an
exemption from the registration requirements of the Securities Act, applicable
state securities laws or other legal
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<PAGE>
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
his 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 Compensation Committee shall
determine, in its sole discretion, that the listing or qualification of the
shares of Common Stock subject to such option on any securities exchange, Nasdaq
or under any applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition to, or in connection
with, the granting of an option or the issue of shares of Common Stock
thereunder, 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 Compensation Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Compensation Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding any other
provision of the Plan, in the event of a stock dividend, recapitalization,
merger in which the Company is the surviving corporation, spin-off, split-up,
combination 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 number and kind of shares subject to future
Non-Employee Director Options and the 162(m) Maximum shall be appropriately
adjusted by the Board of Directors, whose determination shall be conclusive and
binding on all parties. Such adjustment may provide for the elimination of
fractional shares which might otherwise be subject to options without payment
therefor.
All outstanding options shall become immediately exercisable in full
upon the occurrence of a "Change in Control". For this purpose, a Change in
Control shall be deemed to have occurred if (a) there has occurred a change in
control as the term "control" is defined in Rule 12b-2 promulgated under the
Act; (b) when any "person" (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Act), except for an employee stock ownership trust (or any of
the trustees thereof), becomes a beneficial owner, directly or indirectly, of
securities of the Company representing 15% or more of the Company's then
outstanding securities having the right to vote on the election of directors,
unless the transaction in which such person becomes such a beneficial owner was
approved by a vote of at least two-thirds of the directors then still in office
who were directors before such transaction was consummated; (c) during any
period of not more than two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors, and any new director whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who were either directors at the beginning of the period or whose
election or nomination for election was previously approved, cease for any
reason to constitute at least 51% of the entire Board of Directors; (d) when a
majority of the directors elected
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<PAGE>
at any annual or special meeting of stockholders (or by written consent in lieu
of a meeting) are not individuals nominated by the Company's incumbent Board of
Directors; (e) if the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the holders of voting securities of the
Company outstanding immediately prior thereto being the holders of at least 80%
of the voting securities of the surviving entity outstanding immediately after
such merger or consolidation; (f) if the stockholders of the Company approve a
plan of complete liquidation of the Company; or (g) if the stockholders of the
Company approve an agreement for the sale or disposition of all or substantially
all of the Company's assets.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted by the
Board of Directors on April 16, 1996 and amended on September 30, 1996, December
6, 1996 and February 23, 1998. No option may be granted under the Plan after
April 15, 2006. 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, 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, 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 or regulatory authority requires stockholder
approval. Notwithstanding the foregoing, prior to September 30, 1996 the
provisions regarding the selection of directors for participation in, and the
amount, the price or the timing of, Non-Employee Director Options shall not be
amended more than once every six months, other than to comport with changes in
the Code, the Employee Retirement Income Security Act or the rules thereunder.
No termination, suspension or amendment of the Plan shall, without the consent
of the holder of an existing and outstanding option affected thereby, adversely
affect his rights under such option. The power of the Compensation Committee to
construe and administer any options 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 OF OPTIONS. 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 above,
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 may withhold (a) cash, (b) subject to
any limitations under Rule 16b-3, shares of Common Stock to be issued with
respect thereto having an aggregate fair market value on the exercise date
(determined in accordance with Paragraph 5), or (c) any combination thereof, in
an amount equal to the amount which the Compensation Committee determines is
necessary to satisfy the Company's obligation to withhold Federal, state and
local income taxes or other amounts incurred by reason of the grant or exercise
of an option, its disposition, or the disposition of the underlying shares of
Common Stock. Alternatively, the Company may require the holder to pay to the
Company such amount, in cash, promptly upon demand.
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<PAGE>
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 discre tion,
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 from the sale of shares of Common
Stock pursuant to the exercise of options 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.
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 stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
19) 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) Constituent Corporation. The term "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.
(b) Consultant Option. The term "Consultant Option" shall mean a
NQSO granted pursuant to the Plan to a person who, at the time of grant, is a
consultant to the Company or a Subsidiary of the Company, and at such time is
not a salaried employee of the Company or any of its Subsid iaries.
(c) Disability. The term "Disability" shall mean a permanent and
total disability within the meaning of Section 22(e)(3) of the Code.
(d) Employee Option. The term "Employee Option" shall mean an
option granted pursuant to the Plan to an individual who, at the time of grant,
is a key employee of the Company or any of its Subsidiaries.
(e) Legal Representative. The term "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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<PAGE>
(f) Non-Employee Director. The term "Non-Employee Director" shall
mean a person who is a director of the Company but who is not a salaried
employee of the Company or any of its Subsidiaries.
(g) Non-Employee Director Option. The term "Non-Employee Director
Option" shall mean a NQSO granted pursuant to the Plan to a person who, at the
time of the grant, is a Non-Employee Director.
(h) Parent. The term "Parent" shall have the same definition as
"parent corporation" in Section 424(e) of the Code.
(i) Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, such options as may be granted
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 or any 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 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.
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<PAGE>
EXHIBIT B
CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SMARTSERV ONLINE, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is SMARTSERV ONLINE, INC.
2. The certificate of incorporation of the Corporation is
hereby amended by striking out Article "FOUR" thereof and by substituting in
lieu of said Article the following new Article "FOUR":
"FOUR: The aggregate number of shares which the Corporation
shall have authority to issue is 45,000,000, divided into two classes:
(i) 40,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"); and (ii) 1,000,000 shares of preferred stock, par
value $.01 per share (the "Preferred Stock").
A. COMMON STOCK
(1) GENERAL. The voting, dividend and liquidation rights of
the holders of the Common Stock are subject to and qualified by the
rights of the holders of the Preferred Stock of any class as may be
designated by the Board of Directors upon any issuance of the
Preferred Stock of any class.
(2) VOTING. Each holder of Common Stock shall have one vote
in respect of each share of Common Stock held by him on all matters
voted upon by the stockholders.
(3) DIVIDENDS. Dividends may be declared and paid on the
Common Stock from funds lawfully available therefor as and when
determined by the Board of Directors and subject to any preferential
dividend rights of any then outstanding Preferred Stock.
(4) LIQUIDATION. Upon the dissolution or liquidation of the
Company, whether voluntary or involuntary, holders of Common Stock
will be entitled to receive all assets of the Company available for
distribution to its stockholders, subject to any preferential rights
of any then outstanding Preferred Stock.
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<PAGE>
B. PREFERRED STOCK
The Preferred Stock may be issued, from time to time, in one
or more series, with such designations, preferences and relative,
participating, optional or other rights, qualifications, limitations
or restrictions thereof as shall be stated and expressed in the
resolution or resolutions providing for the issue of such series
adopted by the Board of Directors from time to time, pursuant to the
authority herein given, a copy of which resolution or resolutions
shall have been set forth in a Certificate made, executed,
acknowledged, filed and recorded in the manner required by the laws of
the State of Delaware in order to make the same effective. Each series
shall consist of such number of shares as shall be stated and
expressed in such resolution or resolutions providing for the issuance
of the stock of such series. All shares of any one series of Preferred
Stock shall be alike in every particular. The authority of the Board
of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(1) the number of shares constituting that series
and the distinctive designation of that series;
(2) whether the holders of shares of that series
shall be entitled to receive dividends and, if so, the rates
of such dividends, conditions under which and times such
dividends may be declared or paid, the preference of any
such dividends to, in relation to, the dividends payable on
any other class or classes of stock or any other series of
the same class and whether dividends shall be cumulative or
noncumulative and, if cumulative, from which date or dates;
(3) whether the holders of shares of that series
shall have voting rights in addition to the voting rights
provided by law and, if so, the terms of such voting rights;
(4) whether shares of that series shall have
conversion or exchange privileges into or for, at the option
of either the holder or the Corporation or upon the
happening of a specified event, shares of any other class or
classes or of any other series of the same or other class or
classes of stock of the Corporation and, if so, the terms
and conditions of such conversion or exchange including
provision for adjustment of the conversion or exchange rate
in such events as the Board of Directors shall determine;
(5) whether shares of that series shall be
redeemable and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which
they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different
conditions and at different redemption dates;
(6) whether shares of that series shall be subject
to the operation of a retirement or sinking fund and, if so
subject, the extent to and the manner in which it shall be
applied to the purchase or redemption of the shares of that
series, and the terms and provisions relative to the
operation thereof;
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<PAGE>
(7) the rights of shares of that series in the
event of voluntary or involuntary liquidation, dissolution
or winding up of the Corporation and any preference of any
such rights to, and the relation to, the rights in respect
thereto of any class or classes of stock or any other series
of the same class; and
(8) whether shares of that series shall be subject
or entitled to any other preferences, and the other
relative, participating, optional or other special rights
and qualifications, limitations or restrictions of shares of
that series and, if so, the terms thereof;
PROVIDED, HOWEVER, that if the stated dividends and amounts
payable on liquidation with respect to shares of any series
of Preferred Stock are not paid in full, then the shares of
all series of Preferred Stock shall share ratably in the
payment of dividends including accumulations, if any, in
accordance with the sums which would be payable on such
shares if all dividends were declared and paid in full, and
in any distribution of assets (other than by way if
dividends) in accordance with the sums which would be
payable on such distribution if all sums payable were
discharged in full."
3. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
Signed on April ___, 1998.
----------------------------------------------
Sebastian E. Cassetta, Chief Executive Officer
Attest:
- ---------------------------------------
Thomas Haller, Vice President
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<PAGE>
SMARTSERV ONLINE, INC.
Metro Center
One Station Place
Stamford, Connecticut 06902
THIS PROXY IS SOLICITED BY THE
COMPANY'S BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, APRIL 23, 1998
The undersigned stockholder of SmartServ Online, Inc., a Delaware
corporation (the "Company"), hereby appoints Sebastian E. Cassetta and Thomas W.
Haller, and each of them, as proxies for the undersigned, each with full power
of substitution, for and in the name of the undersigned to act for the
undersigned and to vote, as designated below, all of the shares of Common Stock
of the Company that the undersigned is entitled to vote at the 1997 Annual
Meeting of Stockholders (the "Annual Meeting") of the Company, to be held on
Thursday, April 23, 1998, at 11:00 a.m., local time, at the Hotel
Inter-Continental, 111 East 48th Street, New York, New York and at any
adjournments or postponements thereof.
The Board of Directors unanimously recommends a vote FOR the election of
all the nominees for election as Class II directors listed below and FOR
proposals (2), (3), (4), (5) and (6).
(1) Election of Mario F. Rossi and Robert H. Steele as Class II directors.
[_] FOR all nominees listed above, [_] WITHHOLD AUTHORITY to vote
except vote withheld from the for all nominees.
following nominees (if any).
(INSTRUCTIONS: to withhold authority to vote for an individual nominee, strike
that nominee's name from the list above.)
(2) Approval of amendments to the Company's 1996 Stock Option Plan (the "1996
Stock Option Plan") to increase the number of shares available for grant of
options under the 1996 Stock Option Plan from 400,000 shares to 1,500,000
shares, eliminate the 1996 Stock Option Plan's provision for mandatory
annual grants of options to non-employee directors and grant the Company's
Compensation Committee discretionary authority to grant options to both
employee and non-employee directors, as set forth in the Amended and
Restated 1996 Stock Option Plan attached to the Proxy Statement as Exhibit
A.
FOR [_] AGAINST [_] ABSTAIN [_]
(3) Approval of an amendment to the Company's Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") to increase the
number of authorized shares of the Common Stock, par value $.01 per share,
of the Company from 15,000,000 shares to 40,000,000 shares.
FOR [_] AGAINST [_] ABSTAIN [_]
(4) Approval of an amendment to the Company's Certificate of Incorporation to
create a class of Preferred Stock, par value $.01 per share, of the Company
consisting of 1,000,000 authorized shares.
FOR [_] AGAINST [_] ABSTAIN [_]
(5) Approval of the issuance of warrants to purchase 3,055,555 shares of Common
Stock of the Company to a consultant of the Company.
FOR [_] AGAINST [_] ABSTAIN [_]
(6) Ratification of the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending June 30, 1998.
FOR [_] AGAINST [_] ABSTAIN [_]
(7) Upon such other matters as may properly come before the Annual Meeting and
any adjournments or postponements thereof. In their discretion, the proxies
are authorized to vote upon such other business as may properly come before
the Annual Meeting and any adjournments or postponements thereof.
(see reverse side)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE ELECTION OF ALL CLASS II DIRECTOR NOMINEES LISTED ABOVE AND
IN FAVOR OF PROPOSALS (2), (3), (4), (5) AND (6).
The undersigned hereby acknowledges receipt of (i) the Notice of Annual
Meeting, (ii) the Proxy Statement, (iii) the Company's 1997 Annual Report and
(iv) the Company's Quarterly Report for the fiscal quarter ended December 31,
1997.
----------------------------
(Date)
----------------------------
(Signature)
----------------------------
(Signature, if held jointly)
IMPORTANT: Please sign exactly
as your name appears hereon and
mail it promptly even though you
now plan to attend the Annual
Meeting. When shares are held by
joint tenants, both should sign.
When signing as attorney,
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporate
name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY IN THE POSTAGE-PREPAID REPLY ENVELOPE PROVIDED.
