<PAGE> 1
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:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
MODACAD, 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.
[ ] 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:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
MODACAD, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 10, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders (the
"Annual Meeting") of ModaCAD, Inc., a California corporation (the "Company"),
will be held on June 10, 1997, at 2:00 p.m., Pacific Standard Time, at 1954
Cotner Avenue, Los Angeles, California 90025, for the following purposes, each
as more fully described in the attached Proxy Statement:
1. To elect six directors. The names of the nominees intended to be
presented for election are: Joyce Freedman, Lee Freedman, Maurizio
Vecchione, Andrea Vecchione, F. Stephen Wyle and Peter Frank.
2. To approve an amendment to the 1995 Stock Option Plan to increase
the number of shares of Common Stock of the Company authorized for issuance
under the 1995 Stock Option Plan by 450,000 shares to 750,000 shares.
3. To ratify the appointment of Singer Lewak Greenbaum & Goldstein LLP
as independent auditors of the Company for the fiscal year ending December
31, 1997.
4. To transact other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
Only record holders of Common Stock at the close of business on April 11,
1997, are entitled to notice of, and to vote at, the Annual Meeting and at any
adjournment(s) thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. Whether or not you expect to attend the Annual Meeting in person, in
order to ensure your representation at the Annual Meeting, please mark, sign,
date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the Annual Meeting may vote in person even if such shareholder has returned a
proxy.
By Order of the Board of Directors
JOYCE FREEDMAN
President
Los Angeles, California
April 29, 1997
<PAGE> 3
MODACAD, INC.
PROXY STATEMENT FOR
1997 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by and on behalf of the Board of Directors
of ModaCAD, Inc., a California corporation ("ModaCAD" or the "Company"), for use
at the Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Tuesday, June 10, 1997, at 2:00 p.m., Pacific Standard Time, or at any
adjournment(s) thereof, for the purposes set forth herein and in the
accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will
be held at the principal offices of the Company, at 1954 Cotner Avenue, Los
Angeles, California 90025.
These proxy solicitation materials were first mailed on or about April 29,
1997 to all shareholders entitled to vote at the Annual Meeting.
Only shareholders of record at the close of business on April 11, 1997 (the
"Record Date") are entitled to notice of, and to vote at, the Annual Meeting. At
the Record Date, 3,918,290 shares of Common Stock were issued and outstanding.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the Annual Meeting and voting in person.
VOTING AND SOLICITATION
On all matters, each share of Common Stock has one vote. The affirmative
vote of a majority of shares present, in person or by proxy, and entitled to
vote at the Annual Meeting is required for the approval of matters submitted to
the shareholders for a vote. Abstentions are counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum.
Abstentions, however, do not constitute a vote "for" or "against" any matter and
thus will be disregarded in the calculation of a plurality or of "votes cast."
Broker non-votes are counted as shares that are present and entitled to vote for
purposes of determining a quorum. If a broker indicates on the proxy that it
does not have discretionary authority to vote on a particular matter as to
certain shares, those shares will be counted for purposes of determining the
presence of a quorum but will not be treated as present and entitled to vote
with respect to that matter (even though such shares are considered present and
entitled to vote for quorum purposes and may be entitled to vote on other
matters).
The Company's Bylaws provide that a shareholder may cumulate such
shareholder's votes for nominated directors if such shareholder gives notice, at
the meeting prior to the voting, of such shareholder's intention to cumulate the
shareholder's votes. If any one shareholder has given such notice, all
shareholders may cumulate their votes for candidates in nomination. No such
notice has been given, thus there will be no cumulative voting for directors at
the Annual Meeting.
The costs of this solicitation will be borne by the Company. Although there
are no formal agreements to do so, the Company may reimburse brokerage houses or
other persons representing beneficial owners of shares for their expenses in
forwarding proxy materials to such beneficial owners. Proxies may be solicited
personally or by telephone or telegram by certain of the Company's directors,
officers and regular employees, without additional compensation.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the next annual meeting of shareholders of the Company
to be held after the Annual Meeting must be received by
<PAGE> 4
the Company no later than December 31, 1997 in order that they may be included
in the proxy statement and form of proxy relating to that annual meeting. It is
recommended that shareholders submitting proposals direct them to the Secretary
of the Company be certified mail, return receipt requested, in order to ensure
timely delivery. No such proposals were received with respect to the Annual
Meeting scheduled for June 10, 1997.
PROPOSAL ONE
ELECTION OF DIRECTORS
A board of six directors will be elected at the Annual Meeting. Unless
otherwise instructed, proxy holders will vote the proxies received by them for
the six nominees named below, all of whom are currently directors of the
Company. It is not expected that any nominee will be unable or will decline to
serve as a director. If, however, any nominee of the Company is unable or
declines to serve as a director at the time of the Annual Meeting, the proxies
will be voted for any nominee who shall be designated by the present Board of
Directors to fill the vacancy. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them for the nominees listed below and not for a greater
number of persons than the number of nominees listed below. The term of office
of each person elected as a director at the Annual Meeting will continue until
the next annual meeting of shareholders and such time as his or her successor is
duly elected and qualified or until his or her earlier resignation, removal or
death.
The names of the nominees, who constitute all of the current directors, and
certain information about them, are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------- --- --------------------------------------------
<S> <C> <C>
Joyce Freedman..................... 62 Chairman of the Board and President
Maurizio Vecchione................. 35 Executive Vice President and Director
Lee Freedman....................... 73 Vice President, Finance, Chief Financial
Officer and Director
Andrea Vecchione................... 40 Secretary and Director
F. Stephen Wyle.................... 53 Director
Peter Frank........................ 71 Director
</TABLE>
Joyce Freedman is a founder of the Company and has served as its President
and as a director since its incorporation in February 1988. Ms. Freedman has
also served in the capacity of Chairman of the Board of the Company since its
incorporation, a position to which she was formally elected in January 1996.
From January 1986 to February 1988, Ms. Freedman was the Chief Executive Officer
of Compu-Arch, a sole proprietorship in which she authored and marketed computer
software for architects, interior designers and engineers. Ms. Freedman holds a
Master of Architecture degree from the Southern California Institute of
Architecture and engaged in private practice as an architect from December 1984
to January 1986. Ms. Freedman is the wife of Lee Freedman.
Maurizio Vecchione is a founder of the Company and has served as its
Executive Vice President and as a director since its incorporation. From March
1982 to February 1988, Mr. Vecchione held various executive, technical and
marketing positions with CAECO Inc. (subsequently acquired by Mentor Graphics),
a large CAD/CAM software developer, Tektronix Corporation, a Fortune 500
computer graphics systems and instrumentation manufacturer, Photomatrix
Engineering, Inc., an imaging and computer graphics software developer, and
Proprietary Software Systems Inc., an imaging software developer and subsidiary
of General Dynamics, a defense contractor. Prior to entering industry, Mr.
Vecchione performed computer science research for a variety of scientific
institutions, including the NASA Space Science Laboratory. Mr. Vecchione is the
husband of Andrea Vecchione.
Lee Freedman has served as the Company's Vice President, Finance and as a
director since its incorporation. From 1983 to 1988, Mr. Freedman was engaged in
private practice as a business consultant. From 1957 to 1983, he was employed by
HRT Industries Inc., then a New York Stock Exchange listed
2
<PAGE> 5
company, which operated a chain of discount department and retail specialty
stores, and held the position of Executive Vice President for most of that time.
Mr. Freedman is the husband of Joyce Freedman.
Andrea Vecchione has served as the Company's Secretary and as a director
since its incorporation. Since 1991, she has served as Executive Vice President
and Treasurer and a director of Synthetic/A/Ltd., a small multimedia software
developer which she and her husband, Maurizio Vecchione, own.
F. Stephen Wyle became a director of the Company in January 1996. Since
December 1994, Mr. Wyle has been Chairman and Chief Executive Officer of Wyle
Laboratories, a diversified engineering and testing company serving aerospace,
nuclear power and commercial markets. From February 1991 through December 1994,
Mr. Wyle was an independent consultant providing strategic marketing and
financing assistance to early-stage, technology-based companies. From October
1988 to February 1991, Mr. Wyle was the President of Trancel Corporation
(formerly Cell Biotech, Inc.) which was engaged in the development of a
long-term treatment for Type I diabetes.
Peter Frank became a director of the Company in November 1996. Since 1965,
Mr. Frank has been president of Los Angeles-based Managing Directors, Ltd.,
which he founded as an independent investment banking firm specializing in the
funding of small cap companies as well as mergers and acquisitions. Mr. Frank
also founded in 1993 and is currently president of Baltic Treasures, Ltd.
(operating as Bamburi), a United States manufacturer and importer of antique
furniture from Latvia and Western Russia which is sold to United States retail
stores.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.
INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held a total of seven meetings and acted by
unanimous written consent once during 1996.
The Compensation Committee, appointed in May 1996, is comprised of Joyce
Freedman and F. Stephen Wyle. William B. McKee was a member of the Compensation
Committee from his appointment in May 1996 until his resignation as a director
of the Company in November 1996. The Compensation Committee was granted the
powers and authority of the Board of Directors in the fixing of compensation of
officers and employees of the Company, including, without limitation, the grant
of stock options and other derivative securities as compensation, and such other
powers as the Board of Directors may from time to time delegate to the
Compensation Committee. The Compensation Committee met once in 1996.
The Company does not have an audit committee or a nominating committee or
any committees performing the functions thereof.
EXECUTIVE OFFICERS
The executive officers of the Company, and certain information about them,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---------------------- --- ------------------------------------------------------
<S> <C> <C>
Joyce Freedman........ 62 Chairman of the Board and President
Maurizio Vecchione.... 35 Executive Vice President and Director
Lee Freedman.......... 73 Vice President, Finance, Chief Financial Officer and
Director
Linda Freedman........ 38 Vice President, Marketing
Steven Gentry......... 37 Director of Research and Development
</TABLE>
Officers are appointed by and serve at the discretion of the Board of
Directors. All officers were appointed for terms ending upon their deaths,
resignations, removal or appointment and qualification of a successor. For
information concerning Joyce Freedman, Maurizio Vecchione and Lee Freedman, see
"Proposal One -- Election of Directors" above.
3
<PAGE> 6
Linda Freedman has served in the capacity of Vice President, Marketing of
the Company since October 1988, a position to which she was formally elected in
January 1996. From February 1984 to September 1988 she served as Advertising
Director for Baker Communications, Inc., which publishes Beverly Hills 213, a
Beverly Hills-based newspaper. Linda Freedman is the daughter of Joyce and Lee
Freedman.
Steven Gentry joined the Company in June 1992 as a Senior Product Manager
and in March 1995 became the Company's Director of Engineering and in April 1997
became the Company's Director of Research and Development. From June 1989 to
June 1992, Mr. Gentry was self-employed, using the trade name Segtec, and
engaged in the development of software for the consumer entertainment market.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has employment agreements with certain executive officers. See
"Executive Compensation -- Employment Contracts" below.
Prior to the Company's initial public offering in March 1996, the Company's
principal sources of capital were cash flow from its operations and cash loans
provided by two of its officers who are the majority shareholders of the
Company, Joyce Freedman and Lee Freedman (the "Freedmans"), on an as-needed
basis in support of the Company's development programs. In March 1996, the
loans, with aggregate principal amount of $3,073,713 and accrued interest of
$1,471,462, were converted into 900,000 shares of the Company's Common Stock
pursuant to an agreement between the Freedmans and the Company in connection
with the Company's initial public offering.
In March 1996, the Freedmans exercised their warrant to purchase 236,955
shares of the Company's Common Stock for $9,125.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors and officers and persons holding more
than ten percent of the Company's Common Stock are required to report their
ownership of the Company's Common Stock and any changes in that ownership to the
Securities and Exchange Commission (the "SEC"). The specific due dates for these
reports have been established by the SEC, and the Company is required to report
in this Proxy Statement any failure to file by the established dates. To the
knowledge of the Company and based solely on a review of the Section 16(a)
reports furnished to the Company during 1996: (i) current directors Joyce
Freedman, Lee Freedman, Maurizio Vecchione, Andrea Vecchione, Peter Frank and F.
Stephen Wyle; current officer Linda Freedman; former director Bruce Pernick; and
former principal shareholders Monarch Knitting Machinery Corp. and Monarch
Knitting Machinery (U.K.) Ltd., were each late in filing their Form 3 and (ii)
former principal shareholders Monarch Knitting Machinery Corp. and Monarch
Knitting Machinery (U.K.) Ltd. were each delinquent in filing one Form 4
relating to their disposition in March 1996 of all of their shares of Common
Stock of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1997 by: (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Company's Common Stock; (ii) each of the Company's
4
<PAGE> 7
directors; (iii) each of the executive officers named in the Summary
Compensation Table on page 9; and (iv) the current directors and officers of the
Company as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNER(1) PERCENT OF CLASS(2)
------------------------------------------------ -------------------- -------------------
<S> <C> <C>
Joyce Freedman.................................. 1,628,747(3) 41.8%
11823 Bellagio Road
Los Angeles, California 90049
Lee Freedman.................................... 1,276,907(4) 32.8%
11823 Bellagio Road
Los Angeles, California 90049
Maurizio and Andrea Vecchione................... 467,619 12%
17971 Rancho Street
Encino, California 91316
Linda Freedman.................................. 10,789(5) *
11687 Bellagio Road, No. 7
Los Angeles, California 90049
Steve Gentry.................................... 123,894(6) 3.1%
7938 Northgate Avenue
Canoga Park, California 91304
F. Stephen Wyle................................. 2,000(7) *
128 Maryland Street
El Segundo, CA 90245
Peter Frank..................................... 0 0%
9903 Santa Monica Blvd., Suite 327
Beverly Hills, California 90210
All current directors and officers as a group (8
persons)...................................... 2,373,001 59.1%
</TABLE>
- ---------------
* Less than one percent.
(1) Except to the extent the shares owned are subject to community property laws
or as otherwise indicated, beneficial ownership represents sole voting and
sole investment power with respect to the Company's common stock.
(2) Based on 3,893,290 total shares outstanding as of March 31, 1997. In
addition, shares that a person is deemed to beneficially own by reason of
having the right to acquire within 60 days are also deemed to be outstanding
for the purpose of computing the percentage of such person's beneficial
ownership.
(3) Includes 491,792 shares held by Ms. Freedman as her separate property and
with respect to which she does not share voting or investment power with her
husband, Lee Freedman, and 1,136,955 shares held by Ms. Freedman and her
husband, Lee Freedman, as to which shares they share voting and investment
power.
(4) Includes 139,952 shares held by Mr. Freedman as his separate property and
with respect to which he does not share voting or investment power with his
wife, Joyce Freedman, and 1,136,955 shares held by Mr. Freedman and his
wife, Joyce Freedman, as to which shares they share voting and investment
power.
(5) Includes 3,000 shares which may be purchased within 60 days after March 31,
1997 pursuant to outstanding stock options.
(6) Includes 120,000 shares which may be purchased within 60 days after March
31, 1997 pursuant to outstanding stock options.
(7) Represents 2,000 shares which may be purchased within 60 days after March
31, 1997 pursuant to outstanding warrants.
5
<PAGE> 8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to the Company's chief
executive officer and other executive officers whose compensation exceeded
$100,000 in 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
NAME AND PRINCIPAL FISCAL -------------------- SECURITIES
POSITION YEAR(1) SALARY($) BONUS($) UNDERLYING OPTIONS(#)
---------------------------------- ------- -------- ------- ---------------------
<S> <C> <C> <C> <C>
Joyce Freedman.................... 1996 $150,000 $36,619 0
Chairman of the Board
President
Maurizio Vecchione................ 1996 $150,000 $36,619 0
Executive Vice President
Director
Lee Freedman...................... 1996 $129,800 $ 0 0
Vice President, Finance
Chief Financial Officer
Director
Linda Freedman.................... 1996 $136,794 $24,710 0
Vice President, Marketing
Steven Gentry..................... 1996 $110,303 $ 0 180,000(2)
Director of Engineering
</TABLE>
- ---------------
(1) The Company has not reported compensation for fiscal years 1994 and 1995
because the Company was not a reporting company pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 prior to March 1996.
(2) Mr. Gentry was granted stock options to purchase 180,000 shares of Common
Stock of the Company in January 1996, which stock options vest and are
exercisable cumulatively in five equal installments of 36,000 shares on
each of January 1, 1997, January 1, 1998, January 1, 1999, January 1, 2000
and January 1, 2001 as long as Mr. Gentry remains an employee of the
Company. The options, however, are subject to accelerated vesting upon Mr.
Gentry's timely accomplishment of certain milestones in the performance of
his employment duties. As of March 31, 1996, options to purchase 120,000
shares of Common Stock had vested. It is currently unknown when the
remaining options will vest, depending on whether the final milestone is
satisfied. See Option/SAR Grant Table below for the option expiration
dates.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning option grants during
fiscal year 1996 to each of the executive officers named in the Summary
Compensation Table who received stock option grants in 1996. The Company has not
granted any stock appreciation rights (SARs).
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES UNDERLYING OPTIONS/SARS GRANTED TO EXERCISE OR
NAME OPTION/SARS GRANTED(#) EMPLOYEES IN FISCAL YEAR(1) BASE PRICE($/SH) EXPIRATION DATE
- ---------------- ---------------------- --------------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Steven Gentry 60,000 29.4% $ 5.00 3/31/01
60,000 29.4% $ 5.00 3/27/02
60,000 29.4% $ 5.00 unknown(2)
</TABLE>
- ---------------
(1) The Company granted options to purchase an aggregate of 204,000 shares to
employees in 1996.
(2) Mr. Gentry was granted stock options to purchase 180,000 shares of Common
Stock of the Company in January 1996, which stock options vest and are
exercisable cumulatively in five equal installments of 36,000 shares on each
of January 1, 1997, January 1, 1998, January 1, 1999, January 1, 2000 and
6
<PAGE> 9
January 1, 2001 as long as Mr. Gentry remains an employee of the Company.
The options, however, are subject to accelerated vesting upon Mr. Gentry's
timely accomplishment of certain milestones in the performance of his
employment duties. As of March 31, 1996, options to purchase 120,000 shares
of Common Stock had vested. It is currently unknown when the remaining
options will vest, depending on whether the final milestone is satisfied.
OPTION EXERCISES AND YEAR END VALUE TABLE
The following table sets forth information concerning option exercises
during the last fiscal year by the executive officers named in the Summary
Compensation Table and the value of options held by such officers as of December
31, 1996. None of the executive officers named in the Summary Compensation Table
exercised options during 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joyce Freedman....................... 0 0 -- --
Maurizio Vecchione................... 0 0 -- --
Lee Freedman......................... 0 0 -- --
Linda Freeman........................ 0 0 -- --
Steven Gentry........................ 60,000 120,000 $37,500(1) $75,000(1)
</TABLE>
- ---------------
(1) Dollar value is based on the market value of the Company's Common Stock of
$5.625 per share at December 31, 1996 minus the exercise price.
COMPENSATION OF DIRECTORS
Only two non-employee members of the Board of Directors, F. Stephen Wyle
and Peter Frank, received compensation from the Company. On May 8, 1996, the
Company granted F. Stephen Wyle a five-year warrant to purchase 2,000 shares of
Common Stock of the Company at the price of $4.25 per share. Mr. Frank received
$5,000 in cash for his service on the board during 1996.
EMPLOYMENT CONTRACTS
The Company has employment agreements with each of its two executive
officers, Joyce Freedman and Maurizio Vecchione, that expire at December 31,
2002. The employment agreements provide for annual salaries of $150,000 and a
monthly automobile allowance of $400 for each such officer. Beginning in fiscal
1996, each such officer is entitled to receive an annual bonus, not to exceed
$150,000 per year, equal to 5% of the Company's annual net income before taxes.
In addition, if the closing sales price of the Company's Common Stock is greater
than $10 per share for a period of 20 consecutive trading days during any fiscal
year, the Company will grant to each of Ms. Freedman and Mr. Vecchione options,
exercisable for five years, to purchase 50 shares of Common Stock for each
$1,000 of net income before taxes that the Company earns with respect to such
calendar year (up to a maximum of options to purchase 60,000 shares of Common
Stock each over the term of his or her respective employment agreement) at an
exercise price equal to the market value per share as of the date of grant.
PROPOSAL TWO
INCREASE IN SHARES AUTHORIZED UNDER 1995 STOCK OPTION PLAN
GENERAL
In November 1995 the Board of Directors of the Company adopted, and in
January 1996 the shareholders of the Company approved, the 1995 Stock Option
Plan (the "1995 Plan") under which 300,000
7
<PAGE> 10
shares of Common Stock are presently authorized for issuance pursuant to the
exercise of either incentive stock options or nonstatutory stock options granted
thereunder.
As of March 31, 1997, no shares had been issued upon the exercise of
options under the 1995 Plan, 229,000 shares were subject to outstanding options
under the 1995 Plan, and 71,000 shares remained available for option grants
under the 1995 Plan. In April 1997, the Board of Directors approved an amendment
to the 1995 Plan to increase the number of shares of Common Stock of the Company
authorized for issuance under the 1995 Plan by 450,000 shares to 750,000 shares.
At the Annual Meeting, the shareholders will be requested to consider and
approve the amendment to the 1995 Plan increasing the number of shares of Common
Stock the Company is authorized to issue under the 1995 Plan by 450,000 shares
to 750,000 shares. The affirmative vote of a majority of the outstanding shares
of the company's Common Stock represented and entitled to vote at the Annual
Meeting will be required to approve such amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
PROPOSAL TWO REGARDING THE AMENDMENT OF THE 1995 PLAN.
SUMMARY OF 1995 PLAN
A summary of the principal provisions of the 1995 Plan is set forth below
and is qualified in its entirety by reference to the 1995 Plan.
PURPOSE
The purposes of the 1995 Plan are to (i) attract and retain the services of
selected key employees of the Company who are in a position to make a material
contribution to the successful operation of the Company's business, (ii)
motivate such persons, by means of performance-related incentives, to achieve
the Company's business goals, and (iii) enable such persons to participate in
the long-term growth and financial success of the Company by providing them with
an opportunity to purchase stock of the Company.
ADMINISTRATION
The 1995 Plan may be administered by the Board of Directors or, upon
appointment by the Board, by a committee appointed by the Board of Directors,
comprised of not less than two non-employee directors ("Committee"). The
interpretation and construction of any provision of the 1995 Plan is within the
sole discretion of the members of the Board of Directors or its Committee, whose
determination is final and binding. Questions concerning the 1995 Plan and its
administration may be addressed to the Company's President at the Company's
principal executive offices.
ELIGIBILITY
The 1995 Plan provides that options may be granted to any employees
(including officers and directors who are also employees) of the Company and any
of its parents or subsidiaries. The Board of Directors or its Committee selects
the optionees and determines the type of option (i.e., incentive or
nonstatutory) and number of shares to be subject to each option. In making such
determination, there is taken into account a number of factors, including the
employee's position and responsibilities and other relevant factors.
Although the number of shares which may be subject to an option is not
expressly limited, the maximum number of shares for which options may be granted
to any optionee in any calendar year is 100,000.
TERMS OF OPTIONS
Options granted under the 1995 Plan may be either "incentive stock options"
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonstatutory stock options. The terms of options are determined by
the Board of Directors or its Committee. Each option is evidenced by a written
8
<PAGE> 11
stock option agreement between the Company and the person to whom such option is
granted and is subject to the following additional terms and conditions:
(a) Exercise of the Option: The optionee must earn the right to
exercise the option by continuing to work for the Company. Options granted
under the 1995 Plan will become exercisable at such times and in such
cumulative installments as the Board of Directors or its Committee
determines, subject to earlier termination of an option upon termination of
the optionee's employment for any reason. An option is exercised by giving
written notice of exercise to the Company, which notice specifies the
number of shares of Common Stock as to which the option is being exercised,
and by tendering payment to the Company of the purchase price. The form of
payment for shares to be issued upon the exercise of an option may, in the
discretion of the Board of Directors or its Committee, consist of cash,
check, a promissory note, an exchange of shares of Common Stock already
owned, a combination thereof, or such other consideration as determined by
the Board of Directors or its Committee and as permitted under any laws to
which the Company is subject, provided, however, that the optionee shall be
required to pay in cash an amount necessary to satisfy the Company's tax
withholding obligations.
(b) Exercise Price: The exercise price of an option is determined by
the Board of Directors or its Committee and shall be the fair market value
of the Common Stock on the grant date with respect to incentive stock
options, and shall not be less than 85% of the fair market value of the
Common Stock on the grant date with respect to nonstatutory stock options.
In the case of both incentive stock options and nonstatutory stock options
granted to a person who immediately before the grant of such option owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or its subsidiaries, the exercise price
shall be 110% of the fair market value of the Common Stock on the grant
date. So long as the Company's Common Stock continues to be listed on the
Nasdaq SmallCap Market, the fair market value of the Common Stock on the
date of an option grant will be equal to the closing price of the Common
Stock on the date of the option grant as reported in The Wall Street
Journal. On April 9, 1997, the closing price of the Company's Common Stock
on The Nasdaq SmallCap Market was $7.63 per share.
(c) Termination of Employment: If the optionee's employment with the
Company is terminated for any reason other than death, total and permanent
disability or termination "for cause" (as defined in the 1995 Plan), the
options granted to him or her may be exercised within 30 days (unless at
the time of grant of such option, the Board of Directors specified a longer
period, not to exceed 90 days) after such termination as to all or part of
the shares as to which the optionee was entitled to exercise the options at
the time of termination. If the optionee's employment with the Company is
terminated for cause, his or her options shall terminate as of the date of
such termination for cause.
(d) Death or Disability: If an optionee should die or become
permanently and totally disabled while employed by the Company, the options
granted to him or her may be exercised at any time within 180 days (unless
at the time of grant of such option, the Board of Directors specified a
longer period, not to exceed one year) after such death or disability, but
only to the extent the optionee was entitled to exercise the options at the
date of his or her termination of employment due to such death or
disability.
(e) Expiration of Options: Options may not have a term greater than
ten years from the grant date for both incentive stock options and
nonstatutory stock options; provided, however, that any incentive stock
option granted to an employee who, at the time such option is granted, owns
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company shall expire no more than five years from
the grant date. No option may be exercised by any person after its
expiration.
(f) Nontransferability of Option: An option is nontransferable by the
optionee, other than by will or the laws of descent or distribution or
transfers between spouses incident to a divorce, and is exercisable only by
the optionee or his or her legal guardian during the lifetime of the
optionee or, in the event of death of the optionee, by the estate of the
optionee or by a person who acquires the rights to exercise the option by
bequest or inheritance.
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<PAGE> 12
(g) Other provisions: The option agreement may contain such other
terms, provisions and conditions not inconsistent with the 1995 Plan as may
be determined by the Board of Directors or its Committee.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event that a change, such as a stock split or stock dividend, is
made in the Company's capitalization which affects the stock for which options
are exercisable under the 1995 Plan, appropriate adjustment will be made by the
Board of Directors in the exercise price of and the number of shares covered by
outstanding options, and in the number of shares available for issuance under
the 1995 Plan. In the event of a dissolution or liquidation of the Company, a
sale of all or substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation as a result of
which the Company is not the surviving and controlling corporation or as a
result of which the outstanding shares are exchanged for or converted into cash
or property or securities not of the Company, the Board shall (i) make provision
for assumption of all outstanding options by the successor corporation, or (ii)
declare that any option shall terminate as of a date fixed by the Board which is
at least 30 days after notice thereof is given to optionees and permit each
optionee to exercise his or her options as to all or any part of the shares
covered by such option including shares as to which the options would not
otherwise be exercisable.
AMENDMENT AND TERMINATION OF THE 1995 PLAN
The Board of Directors or its Committee may amend or terminate the 1995
Plan from time to time in such respects as it may deem advisable, provided that
shareholder approval is required for any amendment which would (i) increase the
number of shares subject to the 1995 Plan other than in connection with an
adjustment upon changes in capitalization; (ii) materially change the
designation of the class of persons eligible to be granted options; (iii) remove
the administration of the Plan from the Board, except to a Committee; (iv)
materially increase the benefits accruing to participants under the 1995 Plan;
or (v) extend the term of the 1995 Plan.
In any event, the 1995 Plan will terminate on the tenth anniversary of its
approval by the shareholders of the Company (i.e., January 24, 2006), provided
that any options then outstanding will remain outstanding until they expire by
their terms.
TAX INFORMATION
The federal tax consequences of options are complex and subject to change.
The following discussion is only a brief summary of the general federal income
tax rules currently in effect which are applicable to stock options. A
taxpayer's particular situation may be such that some variation of the general
rules may apply. This summary does not cover the state, local or foreign tax
consequences of the grant or exercise of options under the 1995 Plan or the
disposition of shares acquired upon exercise of such options or federal estate
tax or state estate, inheritance or death taxes.
INCENTIVE STOCK OPTIONS
If an option granted under the 1995 Plan is treated as an "incentive stock
option" as defined in Section 422 of the Code, then the optionee will not
recognize any income for regular income tax purposes upon either the grant or
the exercise of the option and the Company will not be allowed a deduction for
federal tax purposes. Upon a sale of the shares, the tax treatment to the
optionee and the Company will depend primarily upon whether the optionee has met
certain holding period requirements at the time of sale. In addition, as
discussed below, the exercise of an incentive stock option may subject the
optionee to alternative minimum tax liability in the year of exercise.
If an optionee exercises an incentive stock option and does not dispose of
the shares received within two years of the date of the grant of such option and
within one year after the exercise of the option, whichever period ends later,
any gain realized upon disposition will be treated as long-term capital gain,
and any loss will
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<PAGE> 13
be long-term capital loss. In either such case, the Company will not be entitled
to a federal income tax deduction.
If the optionee disposes of the shares either within two years after the
date of the option is granted or within one year after the exercise of the
option, such disposition will be treated as a disqualifying disposition and an
amount equal to the lesser of (1) the fair market value of the shares on the
date of exercise less the purchase price or (2) the amount realized on the
disposition less the purchase price will be taxed as ordinary income in the
taxable year in which the disposition occurs. Any such ordinary income will
increase the optionee's tax basis for purposes of determining gain or loss on
the sale or exchange of such shares. The excess, if any, of the amount realized
over the fair market value of the shares at the time of the exercise of the
option will be treated as short-term or long-term capital gain, as the case may
be, and any loss realized upon the disposition will be treated as a capital
loss. An optionee will generally be considered to have disposed of shares if he
or she sells, exchanges, makes a gift of or transfers legal title to such shares
(except by pledge, in certain non-taxable exchanges, a transfer in insolvency
proceedings, incident to a divorce, or upon death). If the amount realized is
less than the purchase price, generally the optionee will not recognize income.
The exercise of an incentive stock option may subject an optionee to
alternative minimum tax liability in the year of exercise because the excess of
the fair market value of the shares at the time an incentive stock option is
exercised over the option price is an adjustment in determining an optionee's
alternative minimum taxable income for such year. Consequently, an optionee may
be obligated to pay alternative minimum tax in the year he or she exercises an
incentive stock option. If such a disqualifying disposition occurs in the same
year as an option is exercised, the amount of ordinary income resulting from
such disposition is included in alternative minimum taxable income for the year
of exercise. In the case of a disqualifying disposition which occurs after the
year of exercise, an individual would be required to recognize alternative
minimum taxable income in the year of exercise and ordinary income in the year
of such disqualifying disposition in an amount determined under the rules
described above. An optionee's alternative minimum tax liability is affected by
the availability of a special credit, a basis adjustment and other complex
rules. Optionees are urged to consult their tax advisors concerning the
applicability of the alternative minimum tax to their own circumstances.
In general, there will be no federal tax consequences to the Company upon
the grant, exercise or termination of an incentive stock option. However, in the
event an optionee sells or disposes of stock received upon the exercise of an
incentive stock option prior to satisfying the two-year and one-year holding
periods described above, the Company will be entitled to a deduction for federal
income tax purposes in an amount equal to the ordinary income, if any,
recognized by the optionee upon disposition of the shares.
NONSTATUTORY STOCK OPTIONS
Nonstatutory stock options granted under the 1995 Plan do not qualify as
"incentive stock options" as defined in Section 422 of the Code and,
accordingly, do not qualify for any special tax benefits to the optionee. An
optionee will not recognize any income at the time he or she is granted a
nonstatutory option. However, upon its exercise, the optionee will generally
recognize ordinary income for federal income tax purposes measured by the excess
of the then fair market value of the shares over the option price. The income
realized by the optionee will be subject to income tax withholding by the
Company out of the compensation paid to the optionee. If such earnings are
insufficient to pay the withholding tax, the optionee will be required to make a
direct payment to the Company to cover the withholding tax liability.
Upon a sale of any shares acquired pursuant to the exercise of a
nonstatutory stock option, the difference between the sale price and the
optionee's tax basis in the shares will be treated as a long-term or short-term
capital gain or loss, as the case may be. The optionee's tax basis for
determination of such gain or loss upon any subsequent disposition of shares
acquired upon the exercise of a nonstatutory stock option will ordinarily be the
amount paid for such shares plus any ordinary income recognized as a result of
the exercise of such option.
In general, there will be no federal tax consequences to the Company upon
the grant or termination of a nonstatutory stock option or the sale or
disposition of the shares acquired upon exercise of a nonstatutory stock option.
However, upon the exercise of a nonstatutory stock option, the Company will be
entitled to a deduction
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<PAGE> 14
to the extent and in the year that ordinary income from the exercise of the
option is recognized by the optionee, provided the Company has satisfied its
withholding obligations under the Code.
THE FOREGOING DISCUSSION IS ONLY A SUMMARY OF THE MORE SIGNIFICANT EFFECTS
OF THE FEDERAL INCOME TAX LAWS UPON THE OPTIONS AND SHARES ISSUABLE UNDER THE
1995 PLAN AND DOES NOT PURPORT TO BE COMPLETE. REFERENCE SHOULD BE MADE TO THE
APPLICABLE PROVISIONS OF THE CODE AND THE INCOME TAX REGULATIONS PROMULGATED
THEREUNDER. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY STATE OR FOREIGN COUNTRY IN WHICH A PARTICIPANT MAY
RESIDE. EACH PARTICIPANT IN THE 1995 PLAN SHOULD CONSULT WITH HIS OR HER OWN TAX
ADVISOR CONCERNING THE FEDERAL (AND ANY STATE OR LOCAL) INCOME TAX CONSEQUENCES
OF HIS OR HER PARTICIPATION IN THE 1995 PLAN.
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Singer Lewak Greenbaum & Goldstein
LLP, independent auditors, to audit the Company's consolidated financial
statements for the year ending December 31, 1997, and recommends that
shareholders vote for ratification of such appointment. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection. A representative of Singer Lewak Greenbaum & Goldstein LLP is
expected to be present at the Annual Meeting, will have the opportunity to make
a statement if he or she desire to do so and is expected to be available to
respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT AUDITORS NAMED ABOVE.
OTHER MATTERS
The Company currently knows of no matters to be submitted at the Annual
Meeting other than those described herein. If any other matters properly come
before the Annual Meeting, it is the intention of the persons named on the
enclosed proxy card to vote the shares they represent as the Board of Directors
may recommend.
By Order of the Board of Directors
JOYCE FREEDMAN
President
Los Angeles, California
April 29, 1997
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<PAGE> 15
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MODACAD, INC.
1997 ANNUAL MEETING OF SHAREHOLDERS
The undersigned shareholder of ModaCAD, Inc., a California corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 29, 1997, and hereby appoints
Joyce Freedman and Maurizio Vecchione, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution, on behalf and in the
name of the undersigned, to represent the undersigned at the Annual Meeting of
Shareholders of the Company to be held June 10, 1997, at 2:00 p.m., Pacific
Standard Time, at the principal offices of the Company located at 1954 Cotner
Avenue, Los Angeles, California 90025, and at any adjournment(s) thereof, and to
vote all shares of Common Stock to which the undersigned would be entitled, if
then and there personally present, on the matters set forth on this Proxy.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR PROPOSALS 1, 2 AND 3 AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
DO NOT FOLD, STAPLE OR MUTILATE.
PLEASE MARK VOTES AS IN THIS EXAMPLE USING DARK INK ONLY. [X]
1. ELECTION OF DIRECTORS:
Nominees: Joyce Freedman, Lee Freedman, Maurizio Vecchione, Andrea Vecchione, F.
Stephen Wyle and Peter Frank
FOR ALL NOMINEES [ ] WITHHELD FROM ALL NOMINEES [ ]
[ ] FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
- ------------------------------------------------------
List Nominee(s)
(To be Signed on Reverse Side)
<PAGE> 16
2. AMENDMENT OF 1995 STOCK OPTION PLAN:
To approve the amendment of the 1995 Stock Option Plan to increase the number of
shares of Common Stock of the Company authorized for issuance under the 1995
Stock Option Plan by 450,000 shares to 750,000 shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. APPOINTMENT OF INDEPENDENT AUDITORS:
To ratify the appointment of Singer Lewak Greenbaum & Goldstein LLP as
independent auditors of the Company for the fiscal year ending December 31,
1997, as described in the Proxy Statement.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
OTHER BUSINESS: In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting or any
adjournment(s) thereof.
Any one of such attorneys-in-fact or substitutes as shall be present and shall
act at said meeting or any adjournment(s) thereof shall have and may exercise
all powers of said attorneys-in-fact hereunder.
Dated____________ , 1997
Signature(s)
________________________
________________________
(This Proxy should be
marked, dated and signed
by the shareholder(s)
exactly as his or her
name appears hereon and
returned promptly in the
enclosed envelope.
Persons signing in a
fiduciary capacity should
so indicate. If shares
are held by joint tenants
or as community property,
both should sign.)
<PAGE> 17
APPENDIX A
MODACAD, INC.
1995 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1995 Stock Option
Plan are to attract and retain the best available personnel, to provide
additional incentive to the Employees of the Company and its Subsidiaries, to
promote the success of the Company's business and to enable the Employees to
share in the growth and prosperity of the Company by providing them with an
opportunity to purchase stock in the Company.
Options granted hereunder may be either Incentive Stock
Options or Nonstatutory Stock Options, at the discretion of the Board and as
reflected in the terms of the written stock option agreement.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "AFFILIATE" shall mean any entity that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the Company.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time. References in the Plan to any section of the Code
shall be deemed to include any amendment or successor provisions to such section
and any regulations issued under such section.
(d) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean ModaCAD, Inc., a California
corporation.
(f) "COMMITTEE" shall mean the Committee appointed by the
Board in accordance with Section 4(a) of the Plan, if one is appointed.
(g) "CONTINUOUS EMPLOYMENT" or "CONTINUOUS STATUS AS AN
EMPLOYEE" shall mean the absence of any interruption or termination of
employment or service as an Employee by or to the Company or any Parent or
Subsidiary of the Company which now exists or is hereafter organized or acquired
by or acquires the Company. Continuous Employment shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Board or in the case of transfers between locations of
the Company or between the Company, its Parent, or any of its Subsidiaries or
its successors.
(h) "DISABILITY" shall mean the inability of the Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or has lasted or can be expected to last for a continuous period of not
less than 12 months. In determining the Disability of an Optionee, the Board may
require the Optionee to furnish proof of the existence of Disability and may
select a physician to examine the Optionee. The final determination as to the
Disability of the Optionee shall be made by the Board.
<PAGE> 18
(i) "DISINTERESTED PERSON" shall mean an administrator of the
Plan who, during the one year prior to service as an administrator of the Plan,
has not been granted or awarded and, during such service, is not granted or
awarded stock, stock options or stock appreciation rights pursuant to the Plan
or any other plan of the Company or any of its Affiliates entitling the
participants therein to acquire stock, stock options or stock appreciation
rights of the Company or any Affiliates, except for any plan under which the
award of stock, stock options or stock appreciation rights is not subject to the
discretion of any person or persons. The term "Disinterested Person" shall be
interpreted in a manner consistent with the meaning of such term under Rule
16b-3 promulgated by the Securities and Exchange Commission under the Exchange
Act.
(j) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company, its Parent, any of its Subsidiaries or its
successors. A person shall not be deemed to be employed by the Company merely
because such person is a member of the Board of Directors of the Company or a
consultant to the Company.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(l) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(m) "NONSTATUTORY STOCK OPTION" shall mean an Option which is
not an Incentive Stock Option.
(n) "OPTION" shall mean a stock option granted pursuant to the
Plan evidencing the grant of a right to an Employee pursuant to the Plan to
purchase a specified number of Shares at a specified exercise price.
(o) "OPTION AGREEMENT" shall mean a written agreement
substantially in one of the forms attached hereto as Exhibit A, or such other
form or forms as the Board (subject to the terms and conditions of this Plan)
may from time to time approve, evidencing and reflecting the terms of an Option.
(p) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(q) "OPTIONEE" shall mean an Employee who is granted an
Option.
(r) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing as defined in Sections 424(e) and (g) of the Code.
(s) "PLAN" shall mean this 1995 Stock Option Plan.
(t) "SHARE" or "SHARES" shall mean shares of the Common Stock,
as adjusted in accordance with Section 10 of the Plan.
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<PAGE> 19
(u) "STOCK PURCHASE AGREEMENT" shall mean an agreement
substantially in the form attached hereto as Exhibit B, or such other form or
forms as the Board (subject to the terms and conditions of this Plan) may from
time to time approve, which is to be executed as a condition of purchasing
Optioned Stock upon exercise of an Option.
(v) "SUBSIDIARY" shall mean a subsidiary corporation whether
now or hereafter existing, as defined in Sections 424(f) and (g) of the Code.
(w) "TERMINATION FOR CAUSE" shall mean termination of
employment as a result of (i) any act or acts by the Optionee constituting a
felony under any federal, state or local law; (ii) the Optionee's willful and
continued failure to perform the duties assigned to him or her as an Employee
(iii) any material breach by the Optionee of any agreement with the Company
concerning his or her employment or other understanding concerning the terms and
conditions of employment by the Company; (iv) dishonesty, gross negligence or
malfeasance by the Optionee in the performance of his or her duties as an
Employee or any conduct by the Optionee which involves a material conflict of
interest with any business of the Company or Affiliate; or (v) the Optionee's
taking or knowingly omitting to take any other action or actions in the
performance of Optionee's duties as an Employee without informing appropriate
members of management to whom such Optionee reports, which action or actions, in
the determination of the Board, have caused or substantially contributed to the
material deterioration in the business or financial condition of the Company or
any Affiliate, taken as a whole.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 10 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold pursuant to the exercise of Options under the Plan is
1,155,281 Shares. The Shares may be authorized, but unissued or reacquired
Shares.
If an Option should expire or become unexercisable for any
reason without having been exercised in full or if the Company repurchases
Shares from the Optionee pursuant to the terms of a Stock Purchase Agreement,
the unpurchased or repurchased Shares, respectively, which were subject thereto
shall, unless the Plan shall have been terminated, return to the Plan and become
available for other Options under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board.
Members of the Board who are eligible for Options or have been granted Options
may vote on any matters affecting the administration of the Plan or the grant of
any Options pursuant to the Plan, except that no such member shall act upon the
granting of an Option to himself or herself, but any such member may be counted
in determining the existence of a quorum at any meeting of the Board or
Committee during which action is taken with respect to the granting of Options
to him or her.
The Board may at any time appoint a Committee consisting
of not less than two persons to administer the Plan on behalf of the Board,
subject to such terms and conditions as the Board may prescribe. Members of the
Committee shall serve for such period of time as the Board may determine. From
time to time the Board may increase the size of the Committee and appoint
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<PAGE> 20
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan. In the
event the Company has a class of equity securities registered under Section 12
of the Exchange Act and unless the Board determines otherwise, from the
effective date of such registration until six months after the termination of
such registration, all grants of Options to persons subject to the provisions of
Section 16(b) of the Exchange Act during any and all periods of time when all
members of the Board do not qualify as Disinterested Persons shall be made by,
or only in accordance with the recommendations of, a Committee of two or more
persons having full authority to act in the matter and all of whom are
Disinterested Persons.
(b) POWERS OF THE BOARD. Subject to the provisions of the
Plan, the Board shall have the authority, in its discretion: (i) to grant
Incentive Stock Options and Nonstatutory Stock Options; (ii) to determine, upon
review of relevant information and in accordance with Section 7 of the Plan, the
fair market value per Share; (iii) to determine the terms and conditions of
vesting of Options, the exercise price of the Options and the consideration to
be paid for shares upon the exercise of Options (which exercise price and
consideration shall be determined in accordance with Section 7 of the Plan);
(iv) to determine the Employees to whom, and the time or times at which, Options
shall be granted, and the number of Shares to be subject to each Option; (v) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vi) to
determine the terms and provisions of each Option Agreement and each Stock
Purchase Agreement (each of which need not be identical with the terms of other
Options and Stock Purchase Agreements) and, with the consent of the holder
thereof, to modify or amend each Option and Stock Purchase Agreement; (vii) to
determine whether a stock repurchase agreement or other agreement will be
required to be executed by any Employee as a condition to the exercise of an
Option, and to determine the terms and provisions of any such agreement (which
need not be identical with the terms of any other such agreement) and, with the
consent of the Optionee, to amend any such agreement; (viii) to interpret the
Plan, the Option Agreements, the Stock Purchase Agreements or any agreement
entered into with respect to the grant or exercise of Options; (ix) to authorize
any person to execute on behalf of the Company any instrument required to
effectuate the grant of an Option previously granted by the Board or to take
such other actions as may be necessary or appropriate with respect to the
Company's rights pursuant to Options or agreements relating to the grant or
exercise thereof: and (x) to make such other determinations and establish such
other procedures as it deems necessary or advisable for the administration of
the Plan.
(c) EFFECT OF THE BOARD'S DECISION. All decisions,
determinations and interpretations of the Board shall be final and binding on
all Optionees and any other holders of Options.
5. ELIGIBILITY. Options may be granted only to Employees
(including employees of the Company who are also directors of the Company). An
Employee who has been granted an Option may, if such Employee is otherwise
eligible, be granted additional Options.
6. TERM OF PLAN. Effectiveness of the Plan shall be subject to
approval by the shareholders of the Company within 12 months before or after the
date the Plan is adopted; provided, however, that Options may be granted
pursuant to the Plan prior to such shareholder approval subject to subsequent
approval of the Plan by such shareholders. Shareholder approval shall be
obtained by
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<PAGE> 21
the affirmative votes of the holders of a majority of voting shares of the
Company's capital stock present and entitled to vote at a meeting of
shareholders duly held in accordance with the laws of the State of California or
by such other means authorized under law. The Plan shall continue in effect for
a term of ten years unless sooner terminated in accordance with the terms and
provisions of the Plan.
7. OPTION PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The exercise price per Share for the
Shares to be issued pursuant to the exercise of a Nonstatutory Stock Option
shall be not less than 85% of the "fair market value" per Share, as described
below. The exercise price per Share for the Shares to be issued pursuant to the
exercise of an Incentive Option shall be the fair market value per Share.
However, with respect to both Incentive Stock Options and Nonstatutory Stock
Options, the exercise price shall be 110% of the fair market value per Share on
the date of grant in the case of any Optionee who, at the time the Option is
granted, owns stock (as determined under Section 424(d) of the Code) possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or its Parent or Subsidiaries.
(b) FAIR MARKET VALUE. The fair market value per Share on the
date of grant shall be determined by the Board in its sole discretion, exercised
in good faith; provided, however that where there is a public market for the
Common Stock, the fair market value per Share shall be the average of the
closing bid and asked prices of the Common Stock on the date of grant, as
reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotations
("Nasdaq") System), or, in the event the Common Stock is listed on a stock
exchange or on The Nasdaq Stock Market, the fair market value per Share shall be
the closing price on the exchange or on The Nasdaq Stock Market as of the date
of grant of the Option, as reported in The Wall Street Journal.
(c) PAYMENT OF CONSIDERATION. The consideration to be paid for
the Shares to be Issued upon exercise of an Option, including the method of
payment, shall be determined by the Board in its discretion on the date of grant
and may consist of cash, check, promissory notes or other forms of legally
permitted consideration if authorized by the Board in connection with the grant
of an Option.
8. OPTIONS.
(a) TERMS AND PROVISIONS OF OPTIONS. As provided in Section 4
of this Plan and subject to any limitations specified herein, the Board shall
have the authority to determine the terms and provisions of any Option granted
under the Plan or any agreement required to be executed in connection with the
grant or exercise of an Option. Each Option granted pursuant to this Plan shall
be evidenced by an Option Agreement. Options granted under the Plan are
conditioned upon the Company obtaining any required permit or order from
appropriate governmental agencies, authorizing the Company to issue such Options
and Shares issuable upon exercise thereof.
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<PAGE> 22
(b) NUMBER OF SHARES. Each Option Agreement shall state the
number of Shares to which it pertains and whether such Option is intended to
constitute an Incentive Stock Option or a Nonstatutory Stock Option. The maximum
number of Shares which may be awarded as Options under the Plan during any
calendar year to any Optionee is 385,094 Shares. If an Option held by an
Employee is canceled, the canceled Option shall continue to be counted against
the maximum number of Shares for which Options may be granted to such Employee
and any replacement Option granted to such Employee shall also count against
such limit.
(c) TERM OF OPTION. The term of each Option may be up to ten
years from the date of grant thereof, as determined by the Board upon the grant
of the Option and specified in the Option Agreement, except that the term of an
Incentive Stock Option granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent of the
total combined voting power of all classes of stock of the Company or its Parent
or Subsidiaries, shall not exceed five years from the date of grant thereof.
(d) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option shall vest and become exercisable at such times, in such installments and
under such conditions as may be determined by the Board, specified in the Option
Agreement and as shall be permissible under the terms of the Plan, including
performance criteria with respect to the Company and/or the Optionee as may be
determined by the Board.
An Option may be exercised in accordance with the
provisions of this Plan as to all or any portion of the Shares then exercisable
under an Option, from time to time during the term of the Option. An Option may
not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company at its principal
business office in accordance with the terms of the Option Agreement by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company,
accompanied by an executed Stock Purchase Agreement (including the attachments
thereto) substantially in the form of Exhibit B hereto and as may be modified by
the Board from time to time, and any other agreements required by the terms of
the Plan and/or the Option Agreement. Full payment may consist of such
consideration and method of payment allowable under Section 7 of the Plan. Until
the Option is properly exercised in accordance with the terms of this Section
8(d), no right to vote or to receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock. No adjustment shall
be made for a dividend or other right for which the record date is prior to the
date the Option is exercised, except as Provided in Section 10 of the Plan.
As soon as practicable after any proper exercise of
an Option in accordance with the provisions of the Plan, the Company shall,
without transfer or issue tax to the Optionee, deliver to the Optionee at the
principal executive office of the Company or such other place as shall be
mutually agreed upon between the Company and the Optionee, a certificate or
certificates representing the Shares for which the Option shall have been
exercised. The time of issuance and delivery of the certificate(s) representing
the Shares for which the Option shall have
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<PAGE> 23
been exercised may be postponed by the Company for such period as may be
required by the Company, with reasonable diligence, to comply with any
applicable listing requirements of any national or regional securities exchange
or any law or regulation applicable to the issuance or delivery of such Shares.
No Option may be exercised unless the Plan has been duly approved by the
shareholders of the Company in accordance with applicable law. Notwithstanding
anything to the contrary herein, the terms of a Stock Purchase Agreement
required to be executed and delivered in connection with the exercise of an
Option may require the certificate or certificates representing the Shares
purchased upon the exercise of an Option to be delivered and deposited with the
Company as security for the Optionee's faithful performance of the terms and
conditions of his or her Stock Purchase Agreement.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE. If an Optionee
ceases to serve as an Employee for any reason other than death, Disability or
Termination for Cause, and thereby terminates his or her Continuous Status As An
Employee, to the extent that such Optionee was entitled to exercise the Option
at the date of such termination, such Optionee shall have the right to exercise
the Option at any time within 30 days subsequent to the last day of such
Optionee's Continuous Status As An Employee (unless at the time of grant of such
Option the Board specified a longer period, not to exceed 90 days), provided,
however, that no Option shall be exercisable after the expiration of the term
set forth in the Option Agreement. To the extent that such Optionee was not
entitled to exercise the Option at the date of the terminating event, or if such
Optionee does not exercise such Option (which such Optionee was entitled to
exercise) within the time specified herein, the Option shall terminate. In the
event that an Optionee's Continuous Status As An Employee terminates due to
death or Disability, to the extent that such Optionee was entitled to exercise
the Option at the date of such termination, the Option may be exercised any time
within 180 days subsequent to the death or Disability of the Optionee (unless at
the time of grant of such Option the Board specified a longer period, not to
exceed one year), provided, however, that no Option shall be exercisable after
the expiration of the Option term set forth in the Option Agreement. To the
extent that such Optionee was not entitled to exercise such Option at the date
of his or her termination due to death or Disability or if such Option is not
exercised (to the extent it could be exercised) within the time specified
herein, the Option shall terminate. If an Optionee's Continuous Employment with
the Company terminates due to his or her Termination for Cause, his or her
Option shall terminate as of the date of such Termination for Cause to the
extent not exercised as of such date.
(e) LIMIT ON VALUE OF OPTIONED STOCK. To the extent that the
aggregate fair market value (determined at the time an Incentive Stock Option is
granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year under all
incentive stock option plans of the Company, its Parent or its Subsidiaries, if
any, exceeds $100,000, the Options in excess of such limit shall be treated as
Nonstatutory Stock Options.
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<PAGE> 24
(f) EXPIRATION OF OPTION. Notwithstanding any provision in the
Plan, including but not limited to the provisions set forth in this Section 8,
an Option may not be exercised, under any circumstances, after the expiration of
its term.
9. NONTRANSFERABILITY OF OPTIONS. Options granted under this Plan
may not be sold, pledged, assigned, hypothecated, gifted, transferred or
disposed of in any manner, either voluntarily or involuntarily by operation of
law, other than by will or by the laws of descent or distribution or as a
transfer between spouses incident to a divorce, and any such attempt may result,
at the discretion of the Board, in the termination of such Options. During the
lifetime of the Optionee, his or her Option may be exercised only by such
Optionee or his or her legal guardian.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) Subject to any required action by the shareholders of the
Company, the number of Shares covered by each outstanding Option, and the number
of Shares which have been authorized for issuance under the Plan but as to which
no Options have yet been granted or which have been returned to the Plan upon
cancellation or expiration of an Option or repurchase of Shares from an Optionee
upon termination of employment or service, as well as the exercise price per
Share covered by each such outstanding Option, shall be proportionately adjusted
for any increase or decrease in the number of issued Shares resulting from a
stock split, reverse stock split, combination, recapitalization or
reclassification of the Common stock, or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued shares of Common Stock effected without receipt of consideration by the
Company (other than stock bonuses to Employees or directors); provided, however,
that the conversion of any convertible securities of the Company shall not be
deemed to have been effected without the receipt of consideration. Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of Shares subject to the Plan
or an Option.
(b) In the event of a proposed dissolution or liquidation of
the Company or the sale of all or substantially all of the assets of the Company
(other than in the ordinary course of business), or the merger, consolidation or
reorganization of the Company with or into another corporation as a result of
which the Company is not the surviving corporation or as a result of which the
outstanding Shares are exchanged for or converted into cash or property or
securities not of the Company, the Board shall (i) make provision for the
assumption of all outstanding Options by the successor corporation or a Parent
or a Subsidiary thereof, or (ii) declare that outstanding Options shall
terminate as of a date fixed by the Board which is at least 30 days after the
notice thereof to the Optionee (unless such 30-day period is waived by the
Optionee) and shall give each Optionee the right to exercise his or her Option
as to all or any part of the shares underlying such Option, including shares as
to which such Options would not otherwise be exercisable, provided such exercise
does not violate Section 8(d)(ii) of the Plan.
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<PAGE> 25
(c) No fractional shares of Common Stock shall be issuable on
account of any action described in this Section, and the aggregate number of
shares into which Shares then covered by the Option, when changed as the result
of such action, shall be reduced to the largest number of whole shares resulting
from such action, unless the Board, in its sole discretion, shall determine to
issue scrip certificates in respect to any fractional shares, which scrip
certificates in such event, shall be in a form and have such terms and
conditions as the Board in its discretion shall prescribe.
11. TIME OF GRANTING OPTIONS. The date of grant of an Option
shall, for all purposes, be the date on which the Board makes the determination
granting such Option, provided, however, that if the Board determines that such
grant shall be as of some future date, the date of grant shall be such future
date. Notice of the determination shall be given to each Employee to whom an
Option is so granted within a reasonable time after the date of such grant.
12. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable and shall make any amendments which may be required so that Options
intended to be Incentive Stock Options shall at all times continue to be
Incentive Stock Options for the purpose of the Code, except that, without
approval of the holders of a majority of the shares of the Company's capital
stock represented or present and entitled to vote at a valid meeting of the
Company s shareholders at which action is taken on an amendment or revision, no
such amendment or revision shall:
(i) Increase the number of Shares subject to the Plan,
other than in connection with an adjustment under
Section 10 of the Plan;
(ii) Materially change the designation of the class of
Employees eligible to be granted Options;
(iii) Remove the administration of the Plan from the Board
except to a Committee;
(iv) Materially increase the benefits accruing to
participants under the Plan; or
(v) Extend the term of the Plan.
(b) EFFECT OF AMENDMENT OR TERMINATION. Except as otherwise
provided in Section 10, any amendment or termination of the Plan shall not
affect Options already granted and such Options shall remain in full force and
effect as if this Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Company, which agreement must be
in writing and signed by the Optionee and the Company.
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<PAGE> 26
13. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, applicable state securities laws,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Option, the Board may
require the person exercising such Option to execute an agreement with, and/or
may require the person exercising such Option to make any representation and
warranty to, the Company as may in the judgment of counsel to the Company be
required under applicable law or regulation, including but not limited to a
representation and warranty that the Shares are being purchased only for
investment and without any present intention to sell or to distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
appropriate under any of the aforementioned relevant provisions of law.
14. RESERVATION OF SHARES. The Company, during the term of this
Plan, shall at all times reserve and keep available, such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
The Company, during the term of this Plan, shall use its best
efforts to seek to obtain from appropriate regulatory agencies any requisite
authorization in order to issue and to sell such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain from any such regulatory agency having jurisdiction the requisite
authorization(s) deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder, or the inability of the Company to
confirm to its satisfaction that any issuance and sale of any Shares hereunder
will meet applicable legal requirements, shall relieve the Company of any
liability in respect to the failure to issue or to sell such Shares as to which
such requisite authority shall not have been obtained.
15. STOCK OPTION AND STOCK PURCHASE AGREEMENTS. Options shall be
evidenced by written Option Agreements in such form or forms as the Board shall
approve from time to time. Upon the exercise of an Option, the Optionee shall
sign and deliver to the Company a Stock Purchase Agreement in such form or forms
as the Board shall approve from time to time.
16. EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become
effective upon shareholder approval as provided in Section 17 of the Plan. The
Plan shall continue in effect for a term of ten years unless sooner terminated
under Section 12 of the Plan.
17. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject
to approval by the shareholders of the Company within 12 months before or after
the date the Plan is adopted by the Board. If such shareholder approval is
obtained at a duly held shareholders' meeting, it may be obtained by the
affirmative vote of the holders of a majority of the shares of the Company
represented or present and entitled to vote thereon. All Options granted prior
to shareholder approval
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<PAGE> 27
of the Plan are subject to such approval, and if such approval is not obtained
within 12 months before or after the date the Plan is adopted by the Board all
such Options shall expire and shall be of no further force or effect.
18. TAXES, FEES, EXPENSES AND WITHHOLDING OF TAXES.
(a) The Company shall pay all original issue and transfer
taxes (but not income taxes, if any) with respect to the grant of Options and/or
the issue and transfer of Shares pursuant to the exercise thereof, and all other
fees and expenses necessarily incurred by the Company in connection therewith,
and will from time to time use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Company, shall be
applicable thereto.
(b) The grant of Options hereunder and the issuance of Shares
pursuant to the exercise thereof is conditioned upon the Company's reservation
of the right to withhold, in accordance with any applicable law, from any
compensation or other amounts payable to the Optionee, any taxes required to be
withheld under federal, state or local law as a result of the grant or exercise
of such Option or the sale of the Shares issued upon exercise thereof. To the
extent that compensation or other amounts, if any, payable to the Optionee are
insufficient to pay any taxes required to be so withheld, the Company may, in
its sole discretion, require the Optionee, as a condition of the exercise of an
Option, to pay in cash to the Company an amount sufficient to cover such tax
liability or otherwise to make adequate provision for the Company's satisfaction
of its withholding obligations under federal, state and local law.
19. LIABILITY OF COMPANY. The Company, its Parent or any
Subsidiary which is in existence or hereafter comes into existence shall not be
liable to an Optionee or other person if it is determined for any reason by the
Internal Revenue Service or any court having jurisdiction that any Options
intended to be Incentive Stock Options granted hereunder do not qualify as
incentive stock options within the meaning of Section 422 of the Code.
20. INFORMATION TO OPTIONEE. The Company shall provide without
charge at least annually to each Optionee during the period his or her Option is
outstanding a balance sheet and income statement of the Company. In the event
that the Company provides annual reports or periodic reports to its shareholders
during the period in which an Optionee's Option is outstanding, the Company
shall provide to each Optionee a copy of each such report.
21. INDEMNIFICATION. No member of the Committee or of the Board
shall be liable for any act or action taken, whether of commission or omission,
except in circumstances involving actual bad faith, or for any act or action
taken, whether of commission or omission, by any other member or by any officer,
agent, or Employee. In addition to such other rights of indemnification they may
have as members of the Board, or as members of the Committee, the Committee
shall be indemnified by the Company against reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the defense
of any action, suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken, by
commission or omission, in connection with the Plan or any Option taken
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of
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<PAGE> 28
a judgment in any action, suit or proceeding, except in relation to matters as
to which it shall be adjudged in such action, suit or proceeding that such
Committee or Board member is liable for actual bad faith in the performance of
his or her duties; provided that within 60 days after institution of any such
action, suit or proceeding, a Committee or Board member shall in writing offer
the Company the opportunity, at its own expense, to handle and defend the same.
22. NOTICES. Any notice to be given to the Company pursuant to the
provisions of this Plan shall be given in writing, addressed to the Company in
care of its Secretary at its principal office, and any notice to be given to an
Employee to whom an Option is granted hereunder shall be delivered personally or
addressed to him or her at the address given beneath his or her signature on his
Option Agreement or Stock Purchase Agreement or at such other address as such
Optionee or his or her transferee (upon the transfer of the Optioned Stock) may
hereafter designate in writing to the Company. Any such notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified, and deposited, postage and registry or
certification fee prepaid, in a post office or branch post office regularly
maintained by the United States Postal Service. It shall be the obligation of
each Optionee and each transferee holding Shares purchased upon exercise of an
Option to provide the Secretary of the Company, by letter mailed as provided
hereinabove, with written notice of his or her direct mailing address.
23. NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is purely
voluntary on the part of the Company, and the continuance of the Plan shall not
be deemed to constitute a contract between the Company and any Employee, or to
be consideration for or a condition of the employment or service of any
Employee. Nothing contained in this Plan shall be deemed to give any Employee
the right to be retained in the employ or service of the Company, its Parent,
Subsidiary or a successor corporation, or to interfere with the right of the
Company or any such corporations to discharge or to retire any Employee at any
time with or without cause and with or without notice. No Employee shall have
any right to or interest in Options authorized hereunder prior to the grant
thereof to such Employee, and upon such grant he or she shall have only such
rights and interests as are expressly provided herein, subject, however, to all
applicable provisions of the Company's Articles of Incorporation, as the same
may be amended from time to time.
24. LEGENDS ON CERTIFICATES.
(a) FEDERAL LAW. Unless an appropriate registration statement
is filed pursuant to the federal Securities Act of 1933, as amended, with
respect to the Options and Shares issuable under this Plan, each document or
certificate representing such Options or Shares shall be endorsed thereon with a
legend substantially as follows:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE SALE, TRANSFER OR DISTRIBUTION THEREOF. NO SUCH SALE, TRANSFER OR
DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
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<PAGE> 29
(b) ADDITIONAL LEGENDS. Each document or certificate
representing the Options or Shares issuable under the Plan shall also contain
legends as may be required under applicable blue sky laws or by any Stock
Purchase Agreement or other agreement the execution of which is a condition to
the exercise of an Option under this Plan.
25. AVAILABILITY OF PLAN. A copy of this Plan shall be delivered
to the Secretary of the Company and shall be shown by him or her to any eligible
person making reasonable inquiry concerning it.
26. INVALID PROVISIONS. In the event that any provision of this
Plan is found to be invalid or otherwise unenforceable under any applicable law,
such invalidity or unenforceability shall not be construed as rendering any
other provisions contained herein as invalid or unenforceable, and all such
other provisions shall be given full force and effect to the same extent as
though the invalid or unenforceable provision was not contained herein.
27. SEVERABILITY. In the event that any provision of the Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein as invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid or unenforceable provision was not contained herein.
28. APPLICABLE LAW. To the extent that federal laws do not
otherwise control, this Plan shall be governed by and construed in accordance
with the laws of the State of California without regard to the conflict of laws
principles thereof.
[END OF PLAN]
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CERTIFICATE OF SECRETARY
The undersigned Secretary of ModaCAD, Inc. (the "Company") hereby
certifies that the Board of Directors of the Company by resolution adopted by
unanimous written consent of the Board effective as of November __, 1995, and
the shareholders of the Company by resolution adopted by written consent of the
shareholders effective as of November __, 1995, approved and adopted the
foregoing 1995 Stock Option Plan.
IN WITNESS WHEREOF, the undersigned has executed this document effective as of
the _______ day of November, 1995.
----------------------------
----------------------------
Secretary
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