SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sect. 240.14a-11(c) or sect. 240.14a-12
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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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<PAGE>
ModaCAD, Inc. Letterhead
June 10, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of the
Shareholders of ModaCAD, Inc. ("ModaCAD"), which will be held on July 16, 1999,
at 2:00 p.m., Pacific Daylight Time, at the principal offices of ModaCAD,
located at 3861 Sepulveda Blvd, Culver City, California 90230. The accompanying
Proxy Statement, which you are urged to read carefully, contains important
information regarding matters that will be considered and voted upon at the 1999
Annual Meeting.
At the 1999 Annual Meeting, shareholders will be asked to consider and vote
upon several proposals, with respect to all of which your vote is important.
Proposals 2 and 3, however, are particularly significant to ModaCAD. Shareholder
approval of proposals 2 and 3 will authorize ModaCAD to issue Common Stock upon
exercises of warrants ModaCAD granted to (i) four institutional investors and
the placement agents as part of the recent sale of Common Stock to those
investors (Proposal 2) and (ii) Intel Corporation as part of the recent sale of
Common Stock to Intel Corporation in consideration of the termination of a
royalty obligation owed to Intel Corporation. Approval of proposals 2 and 3 will
provide material benefits to ModaCAD, whereas the failure to approve proposals 2
and 3 will result in potentially substantial financial hardships to ModaCAD, as
disclosed in the accompanying Proxy Statement. The Board therefore recommends
that shareholders vote FOR each of Proposals 2 and 3.
You are requested to complete, date and sign the enclosed proxy card and
promptly return it in the enclosed envelope, whether or not you plan to attend
the 1999 Annual Meeting. If you attend 1999 Annual Meeting, you may vote in
person even if you have returned a proxy card.
On behalf of the Board of Directors, we look forward to seeing you on
July 16, 1999.
Sincerely yours,
/s/ JOYCE FREEDMAN
-----------------------
Joyce Freedman
Chairman and Co-Chief Executive Officer
/s/ MAURIZIO VECCHIONE
-----------------------
Maurizio Vecchione
President and Co-Chief Executive Officer
<PAGE>
MODACAD, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on July 16, 1999
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 July 16, 1999, at 2:00 p.m., Pacific Daylight Time, at 3861
Sepulveda Boulevard, Culver City, California 90230, 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, F. Stephen Wyle, Peter Frank and Leslie Saleson.
2. To approve and reserve for issuance (i) up to 919,243 shares of
the Company's Common Stock cumulatively issuable to Castle Creek
Technology Partners LLC, Marshall Capital Management, Inc., Winfield
Capital Corp. and Spinner Global Technology Fund, Ltd. (the "Investor
Purchasers"), upon exercise of warrants purchased by the Investor
Purchasers pursuant to the April 7, 1999, Securities Purchase
Agreement the Company entered into with the Investor Purchasers; and
(ii) up to 33,921 shares of the Company's Common Stock issuable to
Paine Webber Incorporated and ING Baring Furman Selz LLC (the
"Placement Agents"), upon exercise of warrants issued to the Placement
Agents in consideration of services rendered to the Company in
connection with the sale of the Company's Common Stock and warrants to
purchase Common Stock to the Investor Purchasers.
3. To approve and reserve for issuance up to 538,674 shares of the
Company's Common Stock issuable to Intel Corporation ("Intel") upon
exercise of warrants purchased by Intel pursuant to the April 7, 1999,
Stock and Warrant Purchase and Investor Rights Agreement the Company
entered into with Intel.
4. 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 850,000 shares to a
cumulative total of 2,500,000 shares.
5. To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to change the name of the Company from
"ModaCAD, Inc." to "Styleclick.com Inc."
6. To ratify the appointment of Ernst & Young, LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999.
7. To transact other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
<PAGE>
Only record holders of Common Stock at the close of business on June 7,
1999, 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 and the presence of a quorum 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
/s/ JOYCE FREEDMAN
-----------------------
Joyce Freedman
Chairman
Los Angeles, California
June 10, 1999
<PAGE>
MODACAD, INC.
PROXY STATEMENT FOR
1999 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 Friday, July 16, 1999, at 2:00 p.m. Pacific Daylight 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 3861 Sepulveda Boulevard,
Culver City, California 90230.
These proxy solicitation materials were first mailed on or about June
10, 1999 to all shareholders entitled to vote at the Annual Meeting. Only
shareholders of record at the close of business on June 7, 1999 (the "Record
Date") are entitled to notice of, and to vote at, the Annual Meeting. At the
Record Date, 7,401,515 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. A majority of the
outstanding shares of Common Stock must be present or represented at the Annual
Meeting in order to have a quorum. Except with respect to the election of
directors (Proposal 1) and the proposal to amend the Company's Articles of
Incorporation to change its name (Proposal 5), the affirmative vote of a
majority of shares present, represented and voting in person or by proxy, at a
duly held meeting where a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) is required under
California law for the approval of matters submitted to the shareholders for a
vote. In the election of directors, the six candidates receiving the highest
number of affirmative votes will be elected. Proposal 5 requires the affirmative
vote of a majority of the shares outstanding. Abstentions are counted as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum, but not as voting for purposes of determining the approval of any
matter submitted to the shareholders for a vote. If a broker indicates on the
proxy that it does not have discretionary authority to vote on a particular
matter as to certain shares (a "broker non-vote"), those shares will not be
considered as voting with respect to that matter. Broker non-votes, however,
will be counted for purposes of determining a quorum.
The Company's Bylaws provide that a shareholder may cumulate such
shareholder's votes for nominated directors if such shareholder gives notice, at
the shareholder 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.
<PAGE>
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. The Company may conduct
further solicitation personally, telephonically or by facsimile through its
directors, officers and employees, none of whom will receive additional
compensation for assisting with the solicitation.
Whether or not you are able to attend the Annual Meeting, you are urged to
vote your proxy, which is solicited by the Company's Board of Directors and
which will be voted as you direct on your proxy when properly completed. In the
event no directions are specified, such proxies will be voted FOR the nominees
of the Board of Directors (Proposal 1), FOR Proposals 2, 3,4,5 and 6, and in the
discretion of the proxy holders, as to other matters that may properly come
before the Annual Meeting.
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 the Company no
later than December 31, 1999, 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 by certified mail, return receipt requested, in order to ensure timely
delivery. No such proposals were received with respect to the Annual Meeting
scheduled for July 16, 1999.
<PAGE>
PROPOSAL 1
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, all of whom are currently directors of the
Company, and certain information about them, are set forth below:
<TABLE>
<CAPTION>
Name Age Positions
- --------------------------------------------------------------------------------
<S> <C> <C>
Joyce Freedman 64 Chairman of the Board and Co-Chief
Executive Officer
Maurizio Vecchione 37 Co-Chief Executive Officer, President
and Director
Lee Freedman 75 Vice President, Finance, Chief
Financial Officer and Director
F. Stephen Wyle(1)(2) 55 Director
Peter Frank(1) 73 Director
Leslie Saleson(1)(2) 46 Director
</TABLE>
- -----------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Joyce Freedman is a founder of the Company and has served as a director
since its incorporation in February 1988. Ms. Freedman has served as Chairman of
the Board of the Company since its incorporation, a position to which she was
formally elected in January 1996. From February 1988 to December 1997, Ms.
Freedman also served as President of the Company and, in January 1998, became
Chief Executive Officer. In May 1999, Maurizio Vecchione was elected by the
Board of Directors to serve with Ms. Freedman as Co-Chief Executive Officer of
the Company. 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 a director
since its incorporation. From February 1988 to December 1997, he served as an
Executive Vice President of the Company, became President and Chief Operating
Officer of the Company in January 1998, and was elected to serve with Joyce
Freedman as Co-Chief Executive Officer of the Company in May 1999. From March
1982 to February 1988, Mr. Vecchione held various executive, technical and
<PAGE>
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 private 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. Andrea Vecchione is currently a director of the
Company but will not stand for re-election at the Annual Meeting.
Lee Freedman has served as the Company's Vice President, Finance, Chief
Financial Officer 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 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.
F. Stephen Wyle became a director of the Company in January 1996. Since
January 1999, Mr. Wyle has been Chairman and Chief Executive Officer of Wyle
Telemedicine, a developmental stage company producing portable diagnostic
telemedicine for primary health care application. From December 1994 to January
1999, Mr. Wyle was Chairman of Wyle Laboratories, a diversified engineering and
testing company serving aerospace, nuclear power and commercial markets. From
February 1991 to 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 in mergers and acquisitions. In 1993,
Mr. Frank founded, and is President of, Baltic Treasures, Ltd. (operating as
Bamburi), a manufacturer and importer of antique furniture from Latvia and
Western Russia which is sold to retail stores in the United States.
Leslie Saleson became a director of the Company in November 1997. Since
November 1998, Ms. Saleson has been President and Chief Operating Officer of
Abbott Resource Group, Inc., a privately held company based in Irvine,
California. From April 1997 to November 1998, Ms. Saleson served as an
independent financial advisor to several corporations. From February 1994 to
April 1997, Ms. Saleson was a managing director of The Westcott Group, a Beverly
Hills-based merchant bank. From 1990 to 1993 Ms. Saleson was an owner, Co-Chief
Executive Officer and Chief Financial Officer of Pogens, Inc., a packaged cookie
manufacturer. In 1981, Ms. Saleson founded Saleson and Company, Inc., an
investment banking firm, where she served as President until 1990.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.
<PAGE>
Information Regarding the Board of Directors and its Committees
The Company's Bylaws currently provide that the number of directors of the
Company shall not be less than four nor more than seven, and that the exact
number of authorized directors shall be set from time to time, within the limits
specified above, by a resolution duly adopted by the Board of Directors or the
shareholders. The number of authorized directors is currently seven. The
Company's Bylaws also provide that, except for a vacancy created by the removal
of a director, all vacancies on the Board of Directors, whether caused by
resignation, death, or otherwise, may be filled by a majority of the remaining
directors, and each director so elected shall hold office until his or her
successor is elected at an annual, regular, or special meeting of the
shareholders. The shareholders may elect a director to fill any vacancy not
filled by the directors.
Andrea Vecchione, currently a director of the Company, will not stand for
re-election at the Annual Meeting. Without Ms. Vecchione, the Board will be
comprised of three employee directors and three independent, non-employee
directors. As of the date of this Proxy Statement, the Company has not selected
a seventh nominee to be added to the six nominees proposed for election herein,
to serve as an independent director. Hence, the proxies solicited hereby cannot
be voted for a greater number of persons than the number of nominees named
herein. The Company, however, intends to fill the vacancy on the Board of
Directors with an independent nominee, as soon as such nominee can be
identified, approved, and agrees to join the Board, by a majority vote of the
remaining directors. In such a case, such newly-elected director shall serve as
a director until the next annual meeting of shareholders after the Annual
Meeting and such time as his or her successor is duly elected and qualified or
until his or her earlier resignation, removal or death.
The Board of Directors held a total of four meetings and acted by unanimous
written consent six times during 1998.
The Compensation Committee of the Board, which comprises F. Stephen Wyle,
Peter Frank and Leslie Saleson, met twice during 1998. The Compensation
Committee has been granted the powers and authority of the Board of Directors in
the evaluation and determination of compensation of officers and employees of
the Company, compensation policies and such other matters related to
compensation as the Board of Directors may from time to time delegate.
The Audit Committee currently comprises F. Stephen Wyle and Leslie Saleson.
The Audit Committee met once and acted by unanimous written consent once during
1998. The Audit Committee recommends the engagement of independent auditors,
reviews the scope and results of their audits, reviews with the independent
auditors and management the Company's accounting and reporting principles,
policies and practices, and generally performs functions related to financial
matters of the Company.
The Company does not have a nominating committee or any committee
performing the function thereof.
<PAGE>
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 64 Chairman of the Board and Co-Chief Executive
Officer
Maurizio Vecchione 37 Co-Chief Executive Officer, President and
Director
Lee Freedman 75 Vice President, Finance, Chief Financial
Officer and Director
Linda Freedman 40 Vice President, Marketing
Steven Gentry 39 Vice President, Engineering
</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 1 - Election of Directors" above.
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,
in March 1995 became the Company's Director of Engineering, in April 1997 became
the Company's Director of Research and Development, in October 1997 became the
Company's Chief Technology Officer and, in February 1998 was appointed to the
position of Vice President, Engineering. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
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
disclose in this report 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 1998, none of the Company's directors,
officers or persons holding more than ten percent of the Company's Common Stock
were delinquent in filing reports pursuant to Section 16(a) of the Exchange Act.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid during each of 1998,
1997 and 1996 to the Company's chief executive officer and other executive
officers whose compensation exceeded $100,000 in 1998:
<TABLE>
<CAPTION>
Long-Term
Other Compensation Awards
Annual --------------------------
Compen- Restricted Securities
Name and Fiscal sation Stock Awards Underlying
Principal Position Year Salary Bonus (1) (2) Options
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joyce Freedman 1998 $200,000 $100,000 $7,200 $ 0 200,000
Chairman of the 1997 $150,000 $20,999 $4,800 $ 0 37,227
Board & Chief 1996 $150,000 $36,619 $4,800 $ 0 0
Executive Officer
Maurizio Vecchione 1998 $200,000 $100,000 $7,200 $ 0 200,000
President & Chief 1997 $150,000 $20,999 $4,800 $ 0 37,227
Operating Officer 1996 $150,000 $36,619 $4,800 $ 0 0
Lee Freedman 1998 $125,000 $ 0 $4,800 $ 0 50,000
Vice President, 1997 $125,000 $ 0 $4,800 $ 0 0
Finance & Chief 1996 $125,000 $ 0 $4,800 $ 0 0
Financial Officer
Linda Freedman 1998 $125,000 $ 0 $4,800 $ 0 85,000(3)
Vice President, 1997 $100,000 $32,261 $4,800 $ 0 55,000
Marketing 1996 $106,029 $24,710 $4,800 $25,965 0
Steven Gentry 1998 $120,000 $ 0 $ 0 $39,687(4) 25,000
Vice President, 1997 $100,000 $ 0 $ 0 $ 0 0
Engineering 1996 $90,833 $ 0 $ 0 $19,470 180,000
</TABLE>
____________________
(1) Other Annual Compensation consists of automobile allowances.
(2) As of December 31, 1998, Linda Freedman held 2,596 restricted shares valued
at $44, 132, and Steven Gentry held 6,490 restricted shares valued at $110,330,
which values are based on the market value of the Company's Common Stock of
$17.00 per share at December 31, 1998. The Company currently pays no dividends
on Common Stock.
(3) Consists of options to purchase 25, 000 shares granted during 1998 and
options to purchase 60,000 shares granted in previous years which were repriced
during 1998.
(4) Consists of 2,597 shares of restricted Common Stock granted to Steven Gentry
during 1998, all of which shares were vested as of December 31, 1998. The
Company currently pays no dividends on Common Stock.
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information concerning option grants during
fiscal year 1998 to each of the executive officers named in the Summary
Compensation Table on page 7 who received stock option grants in 1998. The
Company has not granted any stock appreciation rights (SARs). Unless otherwise
indicated in the footnotes, all options had vested and were exercisable as of
December 31, 1998.
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------
Number of Percent of Total Exercise or
Shares Underlying Options Granted to Base Price Expiration
Name Options Granted Employees in Fiscal ($/Sh) Date
Year (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joyce Freedman 200,000(2) 23.8% $15.88 4/7/08
Maurizio Vecchione 200,000(2) 23.8% $15.88 4/7/08
Lee Freedman 25,000 3.0% $15.88 4/7/08
Lee Freedman 25,000 3.0% $16.13 4/15/08
Linda Freedman 25,000 3.0% $9.50 4/15/08
Linda Freedman 10,000(3)(4) 1.5%(5) $9.50 8/27/07
Linda Freedman 50,000(3) 7.7%(5) $9.50 10/26/07
Steven Gentry 25,000 3.0% $9.50 4/15/08
</TABLE>
__________________
(1) The Company granted options to purchase an aggregate of 840,000 shares to
employees in 1998.
(2) As of December 31, 1998, no options had vested or become exercisable.
(3) Represent options granted during 1998 in connection with option repricings,
which repricings were effected through the cancellation of options granted in
previous fiscal years and the grant of repriced options.
(4) As of December 31, 1998, 4,000 options had vested and were exercisable, and
the balance will vest and become exercisable in three 2,000 share installments
on October 24 of 1999, 2000 and 2001.
(5) The Company repriced options to purchase an aggregate of 649,000 shares in
1998.
<PAGE>
Option Exercises and Year End Value Table
The following table sets forth information concerning option exercises
during the last fiscal year by the executive officers named in the Summary
Compensation Table on page 7 and the value of options held by such officers as
of December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Options In-the-Money Options
at December 31, 1998 at December 31, 1998
(1)
-------------------- --------------------
Shares Value
Acquired Realized
Name on Exercise ($) Exercisable Exercisable
(#) Unexercisable Unexercisable
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joyce Freedman 0 0 37,227 200,000 0 $224,000
Maurizio Vecchione 0 0 37,227 200,000 0 224,000
Lee Freedman 0 0 50,000 0 $50,000 0
Linda Freedman 0 0 82,000 6,000 $625,890 45,000
Steven Gentry 35,000 $406,875 160,000 0 $1,807,500 0
</TABLE>
____________________
(1) Dollar value is based on the market value of the Company's Common Stock of
$17.00 per share at December 31, 1998 minus the per share exercise price.
Compensation of Directors
Three non-employee members of the Board of Directors, Leslie Saleson, Peter
Frank and Andrea Vecchione, received compensation in the form of warrants to
purchase shares of Common Stock from the Company in 1998 for their service on
the Board. In October 1998, the Company granted to each of Peter Frank, Leslie
Saleson and Andrea Vecchione ten-year warrants to purchase 6,000 shares of
Common Stock at an exercise price of $9.50 per share, 2,000 shares of which
vested immediately and the balance of which vest in two 2,000 share installments
on October 9 of 1999 and 2000. In October 1998, the Company repriced five-year
warrants which had been granted to F. Stephen Wyle during 1997 to purchase a
total of 8,000 shares of Common Stock, changing the exercise price on such
warrants from $16.375 per share to $9.50 per share, which price was
approximately equal to the average closing price of the Company's Common Stock
on the Nasdaq National Market for the five trading days ended October 9, 1998.
Also in October 1998, the Company repriced ten-year warrants that had been
granted during 1997 to each of Leslie Saleson and Andrea Vecchione to purchase
2,000 shares of Common Stock at an exercise price of $17.25 per share, changing
such exercise price to $9.50 per share, which price was approximately equal to
the average closing price of the Company's Common Stock on the Nasdaq National
Market for the five trading days ended October 9, 1998.
Employment Contracts
Effective January 1, 1998, the Company entered into employment agreements
with Joyce Freedman, as Chairman of the Board and Chief Executive Officer, and
Maurizio Vecchione, as President and Chief Operating Officer, which have terms
expiring December 31, 2005. The employment agreements each provide for an annual
salary of $200,000, a signing bonus of $100,000 and a monthly automobile
allowance of $600. Each employment agreement further provides for an annual
performance bonus payable for each calendar year during the term of the
<PAGE>
agreement, in an amount to be determined by the Compensation Committee of the
Board. In addition, in connection with the employment agreements, the Company
granted to each of Ms. Freedman and Mr. Vecchione a five-year option to purchase
200,000 shares of Common Stock. Such options vest and become exercisable as
follows: if the closing sale price of the Company's Common Stock is greater than
$10 per share for a period of 20 consecutive trading days in any fiscal year
during the term of the employment agreement, options to purchase 50 shares of
Common Stock for each $1,000 of net income (before deductions for taxes and
executive bonuses) of the Company in such calendar year vest and become
exercisable at an exercise price equal to the market value per share on the
grant date. No options granted under these employment agreements vested or
became exercisable for either Ms. Freedman or Mr. Vecchione during 1998.
Option Repricings
The following table sets forth information concerning repricings during
fiscal 1998 of options held by the executive officers named in the Summary
Compensation Table on page 7, and the value of options held by such officers as
of December 31, 1998:
<TABLE>
<CAPTION>
Number of Market Length of
Shares Price of Exercise Original
Underlying Stock at Price at Option Term
Options Time of time of New Remaining at
Repriced Repricing Repricing Exercise Date of
Name & Position Date (#) ($) ($) Price ($) Repricing
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Linda Freedman
Vice President, 10/9/98 10,000 9.00 14.75 9.50 8 years, 11
Marketing months
Linda Freedman 10/9/98 50,000 9.00 17.50 9.50 9 years
Linda Freedman 10/9/98 25,000 9.00 16.13 9.50 9 years, 6
months
Steven Gentry
Vice President, 10/9/98 25,000 9.00 16.13 9.50 9 years, 6
Engineering months
</TABLE>
____________________
REPORT ON THE REPRICING OF OPTIONS
The Compensation Committee of the Board of Directors of the Company (the
"Committee") has furnished the following report regarding the repricing of
options during fiscal 1998.
In 1995, the Company established the 1995 Stock Option Plan (the "1995
Plan"). The purposes of the 1995 Plan are to attract and retain the best
available personnel, to promote the success and enhance the value of the Company
by providing participants with incentives for outstanding performance, and to
enable participants to share in the growth and prosperity of the Company by
providing them with an opportunity to purchase stock in the Company. The
Committee believes that such equity incentives are a significant factor in the
Company's ability to motivate key employees who are critical to the Company's
long-term success and its ability to achieve its performance objectives, and
that stock options constitute one of the primary components of the Company's
compensation structure. When awarding stock options, the Company takes into
consideration the individual's past performance and contribution to the Company,
as well as future potential. Up to an aggregate number of 1,650,000 shares may
currently be granted under the 1995 Plan.
<PAGE>
In October 1998, the Company considered the repricing of certain existing
stock options that, as a result of various market circumstances, were at option
exercise prices in excess of the then-current market price of the common stock
of the Company. The Committee and the Board believed that, as a result of the
disparity between the exercise price of these options and the recent market
prices for the Company's Common Stock, the options no longer provided meaningful
incentives to the employee holding such options. Consequently, on October 9,
1998 the Board approved the repricing of certain outstanding employee stock
options previously granted under the 1995 Plan to $9.50 per share, which was
approximately equal to the average closing price of the Company's Common Stock
on the Nasdaq National Market for the five trading days ended October 9, 1998.
The transaction was accomplished through the cancellation of the previously
granted options and a grant of the repriced options. Except for the exercise
price, all other terms of the options, including the vesting periods, expiration
dates, and number of shares underlying the options, remained unchanged. The
reduction of exercise price affected options to purchase 649,000 shares of
common stock.
The Compensation Committee believes that by repricing the options
previously granted under the 1995 Plan, the Company has restored the incentive
for such employees to work toward the success of the Company.
Submitted by the members of the Compensation Committee:
Peter Frank
Leslie Saleson
Stephen Wyle
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board of Directors currently
consists of F. Stephen Wyle, Leslie Saleson and Peter Frank. None of these
individuals was an officer or employee of the Company at any time during the
1998 fiscal year or at any other time. No current executive officer of the
Company has ever served as a member of the board of directors or compensation
committee of any other entity that has or has had one or more executive officers
serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Committee Responsibilities
The Compensation Committee of the Board of Directors is comprised of three
non-employee Directors. Compensation Committee responsibilities, in connection
with the compensation of executive officers of the Company, including the
executive officers named in the Summary Compensation Table on page 7 (the "Named
Executive Officers"), include the review and recommendations with respect to the
base salary levels of the executive officers of the Company, performance-based
compensation arrangements, the Company's stock option plan, all employment
agreements and amendments thereof, the Company's retirement plan, and all other
aspects of compensation.
Overall Compensation Philosophy
The underlying objectives of the Company's compensation philosophy and
strategy for executive officers are: (i) to provide a total compensation package
<PAGE>
for officers that is competitive and enables the Company to attract and retain
key executive and employee talent needed to accomplish the Company's business
objectives and (ii) to link directly compensation to improvements in Company
performance and increases in shareholder value as measured principally by the
trading price of the Company's common stock. Accordingly, the Company has
developed an overall compensation strategy and specific compensation plans that
tie a significant portion of executive compensation to the Company's success in
meeting specified performance goals and to appreciation in the Company's common
stock share price.
The basic elements of the Company's executive compensation packages are
base salary, bonus and long-term incentive compensation. The Compensation
Committee considers the full compensation package provided by the Company to
each individual, including severance arrangements, insurance and other benefits.
Base Salaries
Individual salaries for specified executives are reviewed annually and
adjusted based on the Compensation Committee's assessment as to individual
responsibilities and performance over time. When reviewing the individual
performance of executives other than the Co-Chief Executive Officers, the
Compensation Committee considers the views of the Co-Chief Executive Officers.
The Company's approach to base compensation is to adjust salaries where
appropriate and as competitive forces may require, to control the fixed portion
of compensation costs, and to place significant emphasis on long-term incentive
compensation, as further discussed below.
Long Term Incentive Compensation
The Compensation Committee believes that in the highly competitive,
emerging markets in which the Company operates, equity-based compensation
provides the greatest incentive for outstanding executive performance and the
greatest alignment of management and shareholder long-term interests.
Equity-based incentives are provided primarily through stock option grants under
the Company's 1995 Stock Option Plan (the "1995 Plan"). The grants are designed
to align the interests of each executive officer with those of the Company's
shareholders and provide each individual with a meaningful incentive to manage
the Company from the perspective of an owner with an equity stake in the
business.
The shares subject to option grants under the 1995 Plan generally vest in
installments over a period of up to five years, contingent upon the executive
officer's continued employment with the Company, or upon the satisfactory
attainment of certain performance objectives set by the Board. Accordingly, such
an option grant will provide a return to an executive officer only if the
executive officer remains employed by the Company during the applicable vesting
period, or the relevant performance objective is met, and then only if the
market price of the underlying shares appreciates over the option term. Each
grant allows the individual to acquire shares of the Company's common stock at a
fixed price per share (the market price on the grant date) over a specified
period of time (up to 10 years).
The number of shares subject to each option grant will be set at a level
intended to create a meaningful opportunity for stock ownership based on the
officer's current position with the Company, the base salary associated with
that position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's personal
performance in recent periods. The Compensation Committee will also consider the
executive officer's existing holdings of the Company's Common Stock and the
number of vested and unvested options held by that individual in order to
maintain an appropriate level of equity incentive. However, the Compensation
Committee does not intend to observe any specific guidelines as to the relative
option holdings of the Company's executive officers. The Board and the
<PAGE>
Compensation Committee has the discretion to determine the terms and conditions
of options under the 1995 Plan. During 1998, the Company made the following new
grants of stock options to Named Executive Officers:
Joyce Freedman - 200,000 options exercisable at $15.88 per share;
Maurizio Vecchione - 200,000 options exercisable at $15.88 per share;
Lee Freedman - 25,000 options exercisable at $15.88 per share;
25,000 options exercisable at $16.13 per share;
Linda Freedman - 85,000 option exercisable at $9.50 per share; and
Steven Gentry - 25,000 options exercisable at $9.50 per share.
The exercise price of such options was equal to the fair market value of
the underlying Common Shares on the date of grant, as may have subsequently been
adjusted in connection with option repricings, as further discussed under
"Executive Compensation-Option Repricings" above. The Compensation Committee
considered the amount of options already held by such executive officers in
determining the amount of the 1998 grants.
CEO Compensation
Ms. Freedman and Mr. Vecchione each received a salary of $200,000 and a
bonus of $100,000 for 1998. In connection with the employment agreements entered
into by the Company with Ms. Freedman and Mr. Vecchione during 1998, each of Ms.
Freedman and Mr. Vecchione received a signing bonus of $100,000, and the Company
granted to each of Ms. Freedman and Mr. Vecchione a five-year option to purchase
200,000 shares of Common Stock of the Company. Such options have vesting terms
tied directly to the Company's performance. The options vest and become
exercisable as follows: if the closing sale price of the Company's Common Stock
is greater than $10 per share for a period of 20 consecutive trading days in any
fiscal year during the term of each employment agreement, options to purchase 50
shares of Common Stock for each $1,000 of net income (before deductions for
taxes and executive bonuses) of the Company in such calendar year vest and
become exercisable at an exercise price equal to the market value per share on
the grant date. No options granted under these employment agreements vested or
became exercisable for either Ms. Freedman or Mr. Vecchione during 1998. Neither
Ms. Freedman nor Mr. Vecchione were granted additional options during 1998.
Policy on Deductibility of Compensation
Section 162(m) of the Internal Revenue Code of 1986 generally disallows a
tax deduction to publicly held companies for compensation exceeding $1 million
paid to certain of the corporation's executive officers. The limitation applies
only to compensation which is not considered to be performance-based. The
non-performance based compensation to be paid to the Company's executive
officers for the 1998 fiscal year did not exceed the $1 million limit per
officer, nor is it expected that the non-performance based compensation to be
paid to the Company's executive officers for fiscal 1999 will exceed that limit.
Having considered the requirements of Section 162(m), the Compensation Committee
believes that stock option grants to date meet the requirement that such grants
be "performance-based" and are, therefore, exempt from such limitations on
deductibility. As it is unlikely that the cash compensation payable to any of
the Company's executive officers in the foreseeable future will approach the $1
million limit, the Compensation Committee has decided at this time not to take
any other action to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Compensation Committee will
reconsider this decision should the individual compensation of any executive
officer ever approach the $1 million level.
<PAGE>
Conclusion
It is the opinion of the Compensation Committee that the executive
compensation policies and programs in effect for the Company's executive
officers provide an appropriate level of total remuneration which properly
aligns the Company's performance and the interests of the Company's stockholders
with competitive executive compensation in a balanced and reasonable manner, for
both the short and long-term. A significant portion of the Company's executive
compensation is linked directly to individual and corporate performance and
stock price appreciation, thereby providing long-term incentives to executives
to achieve the goals central to the Company's business strategy. The
Compensation Committee intends to continue the policy of linking executive
compensation to corporate performance and returns to shareholders, recognizing
that the business cycle from time to time may result in an imbalance for a
particular period.
Submitted by the members of the Compensation Committee:
Peter Frank
Leslie Saleson
Stephen Wyle
STOCK PRICE PERFORMANCE GRAPH
The graph set forth below compares the cumulative total return on the
Common Stock of the Company with the cumulative total return of the Nasdaq U.S.
Index and the Hambrecht and Quist Technology Index, resulting from an initial
assumed investment of $100 in each and assuming the reinvestment of any
dividends, for the period beginning on the date of the Company's initial public
offering of Common Stock on March 27, 1996 and ending on December 31, 1998.
<TABLE>
<CAPTION>
ModaCAD, Inc. Nasdaq Stock Market (US) Hambrecht & Quist Technology
<S> <C> <C> <C>
Mar.-96 $100.00 $100.00 $100.00
Dec.-96 140.92 117.50 121.72
Dec.-97 486.38 144.15 142.39
Dec.-98 412.12 202.63 221.27
</TABLE>
Note: Stock price performance shown in the Stock Price Performance Graph for the
Common Stock is historical and not necessarily indicative of future price
performance.
<PAGE>
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 May 21, 1999 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 directors;
(iii) each of the executive officers named in the Summary Compensation Table on
page 7; and (iv) the current directors and executive officers of the Company as
a group:
<TABLE>
<CAPTION>
Name and Address of Amount & Nature of
Beneficial Owner (1) Beneficial Ownership(2) Percent of Class(3)
- --------------------------------------------------------------------------------
<S> <C> <C>
Joyce Freedman 1,593,474 (4) 21.3%
Lee Freedman 1,364,134 (5) 18.2%
Intel Corporation 581,534 (6) 7.7%
2200 Mission College Blvd
Santa Clara, CA 95052
Maurizio and Andrea Vecchione 458,846 (7) 6.2%
Castle Creek Technology Partners, LLC 455,218 (8) 6.2%
77 W. Wacker Drive, Suite 4040
Chicago, IL 60601
Steven Gentry 166,490 (9) 2.2%
Linda Freedman 84,596(10) 1.1%
F. Stephen Wyle 6,000(11) *
128 Maryland Street
El Segundo, California 90245
Peter Frank 2,000(12) *
9903 Santa Monica Blvd., Suite 327
Beverly Hills, California 90210
Leslie Saleson 4,000(13) *
9925 Anthony Place
Beverly Hills, California 90210
All current directors and officers
as a group (9 persons) 2,455,358 31.6%
</TABLE>
- ---------------------------
* Less than one percent.
(1) The business address for Joyce Freedman, Lee Freedman, Maurizio and Andrea
Vecchione, Steven Gentry and Linda Freedman is 3861 Sepulveda Blvd., Culver
City, California 90230.
<PAGE>
(2) 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. Shares that a
person is deemed to beneficially own by reason of having the right to acquire
within 60 days are deemed to be outstanding for the purpose of computing the
percentage of such person's beneficial ownership.
(3) Based on 7,401,515 total shares outstanding as of May 21, 1999.
(4 ) Consists of 369,292 shares held by Joyce Freedman as her separate property
and with respect to which she does not share voting or investment power with her
husband, Lee Freedman, 1,136,955 shares held jointly by Joyce Freedman and Lee
Freedman, as to which shares they share voting and investment power, 37,227
shares which may be purchased by Joyce Freedman pursuant to currently
exercisable stock options at an exercise price of $20.06 per share, 25,000
shares which may be purchased by Lee Freedman pursuant to currently exercisable
stock options at an exercise price of $15.88 per share and 25,000 shares which
may be purchased by Lee Freedman pursuant to currently exercisable stock options
at an exercise price of $16.13 per share.
(5) Consists of 139,952 shares held by Lee Freedman as his separate property and
with respect to which he does not share voting or investment power with his
wife, Joyce Freedman, 1,136,955 shares held jointly by Lee Freedman and Joyce
Freedman, as to which shares they share voting and investment power, 25,000
shares which may be purchased by Lee Freedman pursuant to currently exercisable
stock options at an exercise price of $15.88 per share, 25,000 shares which may
be purchased by Mr. Freedman pursuant to currently exercisable stock options at
an exercise price of $16.13 per share, and 37,227 shares which may be purchased
by Joyce Freedman pursuant to currently exercisable stock options at an exercise
price of $20.06 per share.
(6) Consists of 455,218 shares of Common Stock held by Intel Corporation
("Intel") and 126,316 shares which may be purchased by Intel upon the exercise
of a currently exercisable five-year warrant at an exercise price of $19.00 per
share. Amount excludes 538,674 shares of Common Stock which may be purchased by
Intel, subject to shareholder approval at the Company's 1999 Annual Meeting,
upon the exercise of common stock purchase warrants which were purchased by
Intel in April 1999. If such shares had been included in this table, the amount
of Intel's beneficial ownership and percent of class held by Intel as of April
9, 1999 would be 1,120,208 shares and 13.9%, respectively.
(7) Consists of 417,619 shares of Common Stock held jointly by Maurizio and
Andrea Vecchione, 37,227 shares which may be purchased by Maurizio Vecchione
pursuant to currently exercisable stock options at an exercise price of $20.06
per share, and 4,000 shares which may be purchased by Andrea Vecchione upon the
exercise of vested and currently exercisable warrants at an exercise price of
$9.50 per share.
(8) Consists of 455,218 shares of Common Stock held by Castle Creek Technology
Partners LLC ("Castle Creek"). Excludes 538,674 shares issuable upon exercise of
common stock warrants which were issued to Castle Creek in April 1999. Under the
terms of the warrants held by Castle Creek, no holder thereof can exercise any
portion of such warrants if such exercise would increase such holder's
beneficial ownership of common stock to in excess of 9.99%, and none of the
warrants can be exercised in the absence of shareholder approval. Upon such
shareholder approval, Castle Creek's beneficial ownership, in the absence of
other changes, will be approximately 616,000 shares, representing 9.99% of the
shares outstanding prior to the Investors Transaction described under Proposal 2
below. Absent such limitations, the warrants held by Castle Creek would be
exercisable for 538,674 shares of common stock which, when added to the 455,218
shares currently held of record by Castle Creek, would represent 993,892 shares
of common stock and 12.5% of the outstanding shares of common stock upon such
exercise. Pursuant to a management agreement, Castle Creek Partners, LLC may be
deemed to beneficially own the securities held by Castle Creek. Castle Creek
Partners, L.L.C. disclaims such beneficial ownership. John Ziegelman and Daniel
Asher, as managing members of Castle Creek Partners, L.L.C., may be deemed to be
beneficial owners of such securities. Messrs. Asher and Ziegelman disclaim such
beneficial ownership.
(9) Consists of 6,490 shares of Common Stock held by Mr. Gentry, 135,000 shares
which may be purchased by Mr. Gentry pursuant to currently exercisable stock
options at an exercise price of $5.00 per share, and 25,000 shares which may be
purchased by Mr. Gentry pursuant to currently exercisable stock options at an
exercise price of $9.50 per share.
<PAGE>
(10) Consists of 2,596 shares of Common Stock held by Linda Freedman, 79,000
shares which may be purchased by Linda Freedman pursuant to currently
exercisable stock options at an exercise price of $9.50 per share and 3,000
shares which may be purchased by Linda Freedman pursuant to currently
exercisable stock options at an exercise price of $5.87 per share.
(11) Consists of 2,000 shares of Common Stock which may be purchased by Mr. Wyle
upon the exercise of vested and currently exercisable warrants at an exercise
price of $4.25 per share, and 4,000 shares of Common Stock which may be
purchased by Mr. Wyle upon the exercise of vested and currently exercisable
warrants at an exercise price of $9.50 per share.
(12) Consists of 2,000 shares of Common Stock which may be purchased by Mr.
Frank upon the exercise of vested and currently exercisable warrants at an
exercise price of $9.50 per share.
(13) Consists of 4,000 shares of Common Stock which may be purchased by Ms.
Saleson upon the exercise of vested and currently exercisable warrants at an
exercise price of $9.50 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has employment agreements with certain executive officers. See
"Executive Compensation-Employment Contracts" above.
PROPOSAL 2
APPROVAL OF ISSUANCE OF INVESTORS WARRANT SHARES
AND PLACEMENT AGENTS WARRANT SHARES
General
On April 7, 1999, in a private placement under the Securities Act of 1933,
as amended, and pursuant to the terms and conditions of a Securities Purchase
Agreement dated April 7, 1999 (the "Investors Agreement"), the Company sold
776,827 shares of Common Stock (the "Investors Shares") equal to approximately
10.5% of the then-total outstanding shares of Common Stock, to four
institutional investors (the "Investors"), for an aggregate purchase price of
$8,532,473 (the "Investors Transaction"). Paine Webber Incorporated ("PW") and
ING Baring Furman Selz LLC ("ING") acted as placement agents (the "Placement
Agents") in connection with the private placement of the Investors Shares and
were issued warrants (the "Placement Agents Warrants") to purchase up to an
aggregate of 33,921 shares of Common Stock as consideration for services
rendered to the Company. In connection with the private placement, the Investors
were issued warrants to purchase an aggregate of 919,243 shares of Common Stock
(the "Investors Warrants"). Shareholder approval was not required for the sale
of the Investors Shares and Investors Warrants. Shareholder approval, however,
is required for the issuance of the shares issuable upon exercise of the
Investors Warrants (the "Investors Warrant Shares") and issuable upon exercise
of the Placement Agents Warrants (the "Placement Agents Warrant Shares") under
the terms of the Investors Agreement and the engagement agreement with the
Placement Agents, and, depending upon the valuation of the Investors Shares and
the Investors Warrants, shareholder approval may be required under the Nasdaq
rules by reason of the Company's Common Stock being listed on the Nasdaq Stock
Market National Market System. For these reasons, the Company is soliciting
shareholder approval of Proposal 2.
<PAGE>
If shareholder approval is not obtained for Proposal 2, the holders of the
Investors Warrants and of the Placement Agents Warrants will have the option to
require the Company to repurchase all or any portion of the Investors Warrants
and the Placement Agents Warrants at a price that may exceed the then-current
market value of the shares of Common Stock issuable upon exercise of the
Investors Warrants and the Placement Agents Warrants.
THE BOARD OF DIRECTORS BELIEVES THAT THE INVESTORS TRANSACTION IS FAIR TO,
AND IS ADVISABLE AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS
AND RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE ISSUANCE OF 919,243
SHARES OF COMMON STOCK UPON EXERCISE OF THE INVESTORS WARRANTS AND 33,921 SHARES
OF COMMON STOCK UPON EXERCISE OF THE PLACEMENT AGENTS WARRANTS. PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR OF PROPOSAL 2 UNLESS A SHAREHOLDER
HAS INDICATED OTHERWISE ON THE PROXY.
Investors Transaction
THE FOLLOWING IS A SUMMARY OF SELECTED INFORMATION RELATING TO THE
INVESTORS TRANSACTION. COPIES OF THE INVESTORS AGREEMENT, THE REGISTRATION
RIGHTS AGREEMENT ENTERED INTO CONCURRENTLY WITH THE INVESTORS AGREEMENT (THE
"REGISTRATION RIGHTS AGREEMENT"), AND THE FORM OF INVESTORS WARRANTS
(COLLECTIVELY, THE "INVESTORS TRANSACTION DOCUMENTS") WHICH RELATE TO THE
INVESTORS TRANSACTION HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC"), AND THE COMPANY WILL, UPON REQUEST, PROVIDE A COPY OF
SUCH INVESTORS TRANSACTION DOCUMENTS TO ANY SHAREHOLDER AT NO COST.
Investors Warrants and Placement Agents Warrants. The Investors Warrants
consist of (i) warrants exercisable for five years from issuance to purchase an
aggregate of 271,889 shares of Common Stock at an exercise price of $13.72 per
share (the "First Investors Warrants"); (ii) warrants exercisable for 15 months
from issuance to purchase an aggregate of 323,677 shares of Common Stock at an
exercise price of $13.18 per share (the "Second Investors Warrants"), and (iii)
warrants exercisable for 12 months from issuance to purchase an aggregate of
323,677 shares of Common Stock at an exercise price of $13.18 per share (the
"Third Investors Warrants"). The Placement Agents Warrants are exercisable for
five years from issuance to purchase an aggregate of 33,921 shares of Common
Stock at an exercise price of $10.98 per share. The First Investors Warrants and
the Placement Agents Warrants provide for an optional cashless exercise; the
Second Investors Warrants and the Third Investors Warrants do not provide for
cashless exercise. Each of the Investors Warrants and the Placement Agents
Warrants contains anti-dilution provisions which increase the number of
Investors Warrant Shares and Placement Agents Warrant Shares if the Company
issues its securities for below-market consideration. The number of Investors
Warrant Shares and Placement Agents Warrant Shares is also subject to adjustment
upon the occurrence of certain events, such as stock splits, dividends, or
recapitalizations; and upon any sale of shares of Common Stock beneficially
owned by certain executives of the Company during specified periods of time. The
Investors and the Placement Agents may elect to receive cash consideration in
exchange for the Investors Warrants and the Placement Agents Warrants in
connection with certain major transactions (such as a sale of the Company or its
merger into another company).
<PAGE>
Investors Registration Rights. As required under the Registration Rights
Agreement, the Company filed with the Securities and Exchange Commission (the
"SEC") on April 21, 1999, a registration statement on Form S-3 (the "Investors
Registration Statement") covering, among other securities, the Investors Shares
and the Investors Warrant Shares. The Investors Registration Statement became
effective on May 6, 1999, and, subject to specified exceptions, the Company has
agreed to maintain the effectiveness of the Registration Statement until such
time as all of the Investors Shares and the Investors Warrant Shares have been
sold or may be sold without registration. The Investors Agreement contains
customary indemnification provisions with respect to the registration for resale
of the shares issuable upon exercise of the Investors Warrants.
Placement Agents Registration Rights. The Placement Agents have the right
to require the Company to file with the SEC a registration statement on Form S-3
(the "Placement Agents Registration Statement") covering the Placement Agents
Warrant Shares promptly after shareholder approval of Proposal 2, if Proposal 2
is approved. The Company has agreed, subject to specified exceptions, to
maintain the effectiveness of the Placement Agents Registration Statement, after
it has been filed and become effective, until such time as all of the Placement
Agents Warrant Shares have been sold.
Use of Proceeds. Net proceeds from the sale of the Investors Shares and
from any exercise of the Investors Warrants and the Placement Agents Warrants
other than in a cashless exercise are to be used for general corporate matters
and working capital purposes, including the launch and marketing of
Styleclick.com and future Internet shopping sites, enhancement of the Company's
existing software products, expansion of the Company's product lines by
developing new software products principally directed at the consumer
marketplace, and expansion of the Company's distribution network and sales and
marketing forces within the United States and internationally. Pending such
uses, the Company will invest the net proceeds from sale of the Investors Shares
and from any exercise of the Investors Warrants and Placement Agents Warrants in
short-term, investment grade, interest-bearing securities.
Board of Directors Recommendations
The Board of Directors has reviewed and considered the terms and conditions
of the Investors Transaction and believes that the Investors Transaction is fair
to, and is advisable and in the best interests of, the Company and its
shareholders. The Board of Directors has unanimously approved the Investors
Transaction, including issuance of the Investors Warrant Shares and of the
Placement Agents Warrant Shares, and unanimously recommends that the
shareholders vote FOR approval of Proposal 2. The Company's directors and
executive officers (who currently hold Common Stock representing approximately
28% of the Company's outstanding Common Stock) have indicated that they intend
to vote all shares of voting stock over which they exercise voting power as of
the close of business on the Record Date for approval of Proposal 2. The Board
of Directors, in recommending shareholder approval of Proposal 2, considered a
number of factors, including (a) the substantial increase in the working capital
of the Company that resulted from sale of the Investors Shares, and, as an
integral part of the Investors Transaction, that will result from the proceeds
from the exercise of the Second Investors Warrants and Third Investors Warrants,
(b) the increased flexibility in the Company's cash flow position due to the
termination of its obligation to pay royalties to Intel as described in Proposal
3, (c) the terms of the Investors Transaction Documents, and (d) the
alternatives to the Investors Transaction, including alternative public or
private financing.
<PAGE>
Other Considerations
While the Board of Directors is of the opinion that the Investors
Transaction is fair to, and is advisable and in the best interests of the
Company and its shareholders, and has recommended that the shareholders approve
Proposal 2, shareholders should consider the following possible effects, as well
as the other information contained in this Proxy Statement, in determining
whether to approve Proposal 2:
Possible Dilutive Effect of Investors and Placement Agents Warrant Shares.
The exercise prices of the Investors Warrants and the exercise price of the
Placement Agents Warrants are at a premium over the market price of the Common
Stock of the Company at the time of issuance of the Investors Warrants and the
Placement Agents Warrants (April 7, 1999). If, at the time any of such warrants
is exercised, the market price of the Common Stock exceeds the exercise price,
the holders of Common Stock will be diluted by an amount that depends on the
then-current market price of Common Stock. In connection with the issuance of
the Investor Shares, the Investors, in the aggregate, became entitled to
exercise approximately 10.5% of the Company's voting power. The issuance of any
Investors Warrant Shares and Placement Agents Warrant Shares will have further
dilutive effects on the voting power of the shares of Common Stock outstanding
prior to such issuance.
Payment on Occurrence of Certain Major Corporate Transactions. The
Investors and the Placement Agents have the right, upon the occurrence of
certain major corporate transactions involving the Company, to receive cash
consideration in exchange for the Investors Warrants and the Placement Agents
Warrants, as applicable. Such a right may diminish the attractiveness the
Company might have to potential merger or acquisition partners. Accordingly,
approval of Proposal 2 may hinder a sale, merger or consolidation of the
Company, should such a transaction be proposed and approved by the Board of
Directors.
Potential Additional Concentration of Voting Power. One of the Investors,
Castle Creek Technology Partners LLC. ("Castle Creek"), acquired in the Investor
Transaction approximately 6.02% of the Company's outstanding Common Stock (and
could increase its ownership through the exercise of warrants to 9.99% of the
Company's outstanding Common Stock when and if the issuance of the Investors
Warrant Shares is approved by the shareholders). If the Investors Warrants held
by Castle Creek were exercised and not sold, and none of the Investors Shares
received by Castle Creek in the Investors Transaction were sold, such exercise
would cause a substantial increase in Castle Creek's voting power as a result of
its acquisition of Investors Warrant Shares.
Potential Change In Control. The Nasdaq standards require shareholder
approval for a transaction deemed to constitute a "change in control." Although
the Company does not believe that the issuance of the shares of Common Stock
upon exercise of the Investors Warrants and the Placement Agents Warrants
constitutes a "change in control" under Nasdaq's rules, if the transactions were
to be so construed, the approval sought hereby would also be effective to
satisfy the shareholder vote required by the Nasdaq standards. The Company
currently has no basis to believe that the Investors, Intel and the Placement
Agents would vote together as a group or seek to exercise actual control of the
Company, either with or against the Company's management.
<PAGE>
Absence of Appraisal Rights
Under California law, objecting shareholders will have no appraisal,
dissenters' or similar rights (i.e., the right to seek a judicial determination
of the "fair value" of the Common Stock and to compel the Company to purchase
their Common Stock for cash in that amount) with respect to matters presented at
the Annual Meeting or otherwise with respect to the Investors Transaction, nor
will the Company voluntarily accord such rights to shareholders. Therefore,
approval by the requisite number of shares of the matters presented at the
Annual Meeting will bind all shareholders and objecting shareholders will be
able to liquidate their Common Stock only by selling it in the market.
Consequences if the Proposal is Not Approved
If shareholder approval is not obtained for Proposal 2, each of the
Investors and the Placement Agents has the option to require the Company to
repurchase all or any portion of the Investors Warrants and Placement Agents
Warrants at a price that may exceed the then-current market value of the shares
of Common Stock issuable upon exercise of the Investors Warrants and the
Placement Agents Warrants. If the repurchase option is elected, the repurchase
price will be calculated by reference to the greater of (i) 150% of the value of
an option to purchase one share of common stock determined by reference to the
Black-Scholes formula utilizing the applicable Bloomberg online pages and using
variable values as of April 7, 1999, and (ii) the average closing sale price
during the ten trading days immediately preceding the earlier of July 30, 1999,
and the annual meeting of shareholders at which shareholder approval is
considered, minus the exercise price (the "Exchange Price"). The Exchange Price
is payable in cash or, if, in the good faith business judgment of the Company's
Board of Directors, the Company does not have sufficient liquidity to pay some
or all of the Exchange Price, the Company may pay such portion of the Exchange
Price in the form of a one-year promissory note bearing interest at the
then-current prime rate. If the Company were required to repurchase the
Investors Warrants and the Placement Agents Warrants, such repurchase could
materially and adversely affect the Company's financial condition and
operations, and there can be no assurance that the Company would have the funds
to satisfy its repurchase obligations.
<PAGE>
Vote Required
The affirmative vote at the Annual Meeting by the holders of a majority of
votes cast in person or by proxy on Proposal 2 is required to authorize the
issuance of the Investors Warrant Shares upon exercise of the Investors Warrants
and the Placement Agents Shares upon exercise of the Placement Agents Warrants.
For purposes of calculating votes cast, abstentions and broker non-votes are not
included as votes cast.
PROPOSAL 3
APPROVAL OF ISSUANCE OF PRIVATE PLACEMENT WARRANT SHARES
General
On April 7, 1999, the Company entered into a Stock and Warrant Purchase and
Investors Right Agreement (the "Intel Agreement") with Intel Corporation
("Intel"). Pursuant to the Intel Agreement, the Company issued, in a private
placement under the Securities Act of 1933, as amended, to Intel 455,218 shares
of Common Stock (the "Intel Shares") and granted to Intel warrants to purchase
an aggregate of 538,674 shares of Common Stock (the "Intel Warrants") in
consideration of the termination of the Company's obligation to make royalty
payments to Intel under a 1997 software development agreement (the "Intel
Transaction"). Shareholder approval was not required for the sale of the Intel
Shares and the Intel Warrants. Shareholder approval of the issuance of shares of
Common Stock issuable upon exercise of the Intel Warrants is required under the
terms of the Intel Agreement, and depending upon the valuation of the Intel
Shares, may be required under the Nasdaq rules, by reason of the Company's
Common Stock being listed on the Nasdaq Stock Market National Market System. For
these reasons, the Company is soliciting shareholder approval of Proposal 3.
If shareholder approval is not obtained for Proposal 3, the holder(s) of
the Intel Warrants will have the option to require the Company to repurchase all
or any portion of the Intel Warrants at a price that may exceed the then-current
market value of the shares of Common Stock issuable upon exercise of the Intel
Warrants.
THE BOARD OF DIRECTORS BELIEVES THAT THE INTEL TRANSACTION IS FAIR TO, AND
IS ADVISABLE AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS AND
RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE ISSUANCE OF 538,674 SHARES
OF COMMON STOCK UPON EXERCISE OF THE INTEL WARRANTS. PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR OF PROPOSAL 3 UNLESS A SHAREHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
<PAGE>
Intel Transaction
THE FOLLOWING IS A SUMMARY OF SELECTED INFORMATION RELATING TO THE INTEL
TRANSACTION. COPIES OF THE INTEL AGREEMENT AND OF THE INTEL WARRANTS
(COLLECTIVELY, THE "INTEL TRANSACTION DOCUMENTS") WHICH RELATE TO THE INTEL
TRANSACTION HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (the
"SEC"), AND THE COMPANY WILL, UPON REQUEST, PROVIDE A COPY OF SUCH INTEL
TRANSACTION DOCUMENTS TO ANY SHAREHOLDER AT NO COST.
Intel Warrants. The Intel Warrants consist of (i) a warrant exercisable for
five years from issuance to purchase 159,326 shares of Common Stock at an
exercise price of $10.98 per share (the "First Intel Warrant"); (ii) a warrant
exercisable for 15 months from issuance to purchase 189,674 shares of Common
Stock at an exercise price of $13.18 per share (the "Second Intel Warrant"), and
(iii) a warrant exercisable for 12 months to purchase 189,674 shares of Common
Stock at an exercise price of $13.18 per share (the "Third Intel Warrant"). The
First Intel Warrant provides for an optional cashless exercise; the Second Intel
Warrant and the Third Intel Warrant do not provide for cashless exercise. Each
of the Intel Warrants contains anti-dilution provisions which increase the
number of shares issuable upon exercise of the Intel Warrants (the "Intel
Warrant Shares") if the Company issues its securities for below-market
consideration. The number of Intel Warrant Shares is also subject to adjustment
upon the occurrence of certain events, such as stock splits, dividends, or
recapitalizations; or upon any sale of shares of Common Stock beneficially owned
by certain executives of the Company during specified periods. Intel may elect
to receive cash consideration in exchange for the Intel Warrants in connection
with certain major transactions (such as a sale of the Company or its merger
into another Company).
Registration Rights. As required under the Intel Agreement, the Company filed
with the Securities and Exchange Commission (the "SEC") on April 21, 1999, a
registration statement on Form S-3 (the "Registration Statement") covering,
among other securities, the shares issued to Intel at the Closing and the Intel
Warrant Shares. The Registration Statement became effective on May 6, 1999, and,
subject to specified exceptions, the Company has agreed to maintain the
effectiveness of the Registration Statement until such time as all of the Intel
Shares and the Intel Warrant Shares have been sold or may be sold without
registration. The Intel Agreement contains customary indemnification provisions
with respect to the registration for resale of the shares issuable upon exercise
of the Intel Warrants.
Use of Proceeds. Net proceeds from any exercise of the Intel Warrants other
than in a cashless exercise are to be used for general corporate matters and
working capital purposes, including the launch and marketing of Styleclick.com
and future Internet shopping sites, enhancement of the Company's existing
software products, expansion of the Company's product lines by developing new
software products principally directed at the consumer marketplace, and
expansion of the Company's distribution network and sales and marketing forces
within the United States and internationally. Pending such uses, the Company
will invest any net proceeds from exercise of the Intel Warrants in short-term,
investment grade, interest-bearing securities.
<PAGE>
Board of Directors Recommendations
The Board of Directors has reviewed and considered the terms and conditions
of the Intel Transaction and believes that the Intel Transaction is fair to, and
is advisable and in the best interests of, the Company and its shareholders. The
Board of Directors has unanimously approved the Intel Transaction, including
issuance of the Intel Warrant Shares and unanimously recommends that the
shareholders vote FOR approval of Proposal 3. The Company's directors and
executive officers (who currently hold Common Stock representing approximately
28% of the Company's outstanding Common Stock) have indicated that they intend
to vote all shares of voting stock over which they exercise voting power as of
the close of business on the Record Date for approval of Proposal 3. The Board
of Directors, in recommending shareholder approval of Proposal 3, considered a
number of factors, including (a) the substantial increase in the working capital
of the Company that will result from the proceeds from the exercise of the
Second Intel Warrants and Third Intel Warrants, (b) the increased flexibility in
the Company's cash flow position due to the termination of its obligation to pay
royalties to Intel, and (c) the terms of the Intel Transaction Documents.
Other Considerations
While the Board of Directors is of the opinion that the Intel Transaction
is fair to, and is advisable and in the best interests of the Company and its
shareholders, and has recommended that the shareholders approve Proposal 3,
shareholders should consider the following possible effects, as well as the
other information contained in this Proxy Statement, in determining whether to
approve Proposal 3.
Possible Dilutive Effect of Intel Warrants. The exercise price of the Intel
Warrants was at a premium over the market price of the Common Stock of the
Company at the time of issuance of the Intel Warrants (April 7, 1999). If, at
the time any of the Intel Warrants are exercised, the market price of the Common
Stock exceeds the exercise price, the holders of Common Stock will be diluted by
an amount that depends on the then-market price of Common Stock. The issuance of
any Intel Warrant Shares will have certain dilutive effects on the voting power
of the shares of Common Stock outstanding prior to such issuance. In connection
with the issuance of the Intel Shares, Intel became entitled to exercise
approximately 6.2% of the Company's voting power. If all of the Intel Warrants
are exercised, the number of shares of outstanding Common Stock would be
increased by approximately 7.3%.
Payment on Occurrence of Certain Major Corporate Transactions; Potential
Additional Concentration of Voting Power. Intel has the right, upon the
occurrence of certain major corporate transactions involving the Company, to
receive cash consideration in exchange for the Intel Warrants. Such a right may
diminish the attractiveness the Company might have to potential merger
acquisition partners. In addition, Intel may have interests that diverge from or
even conflict with those of the Company and the other shareholders although the
Company currently is not aware of any such divergence. As a result of Intel's
voting rights, particularly upon any issuance of the Intel Warrant Shares, and
if Intel exercises its currently unexercised warrants to purchase 126,316 shares
of Common Stock, previously issued to Intel, it may be more difficult for a
third party to acquire the Company without Intel's acquiescence or easier to do
so with Intel's acquiescence. Accordingly, approval of Proposal 3 may hinder a
sale, merger or consolidation of the Company should such a transaction be
proposed and approved by the Board of Directors.
<PAGE>
Potential Change In Control. The Nasdaq rules require shareholder approval
for transactions deemed to constitute a "change in control." Although the
Company does not believe that the issuance of the shares of Common Stock upon
exercise of the Intel Warrants constitutes a "change in control" under Nasdaq's
rules, if the transactions were to be so construed, the approval sought hereby
would also be effective to satisfy the shareholder vote required by the Nasdaq
standards. Including Intel's currently unexercised warrants to purchase 126,316
shares of Common Stock previously issued to Intel, Intel owns beneficially
approximately 7.9% of the Company's outstanding Common Stock. If Intel exercised
all of its existing warrants and were issued the Intel Warrant Shares, and did
not sell any of the shares of Common Stock so acquired, Intel would own 13.89%
of the Company's outstanding Common Stock. The Company currently has no basis to
believe that Intel will seek to exercise actual control or that it will join the
Investors described in Proposal 2 to vote together as a group.
Absence of Appraisal Rights
Under California law, objecting shareholders will have no appraisal,
dissenters' or similar rights (i.e., the right to seek a judicial determination
of the "fair value" of the Common Stock and to compel the Company to purchase
their Common Stock for cash in that amount) with respect to matters presented at
the Annual Meeting or otherwise with respect to the Intel Transaction, nor will
the Company voluntarily accord such rights to shareholders. Therefore, approval
by the requisite number of shares of the matters presented at the Annual Meeting
will bind all shareholders and objecting shareholders will be able to liquidate
their Common Stock only by selling it in the market.
Consequences if the Proposal is Not Approved
If shareholder approval is not obtained for Proposal 3, Intel has the
option to require the Company to repurchase all or any portion of the Intel
Warrants at a price that may exceed the then-current market value of the shares
of Common Stock issuable upon exercise of the Intel Warrants. If the repurchase
option is elected, the repurchase price will be calculated by reference to the
greater of (i) 150% of the value of an option to purchase one share of common
stock determined by reference to the Black-Scholes formula utilizing the
applicable Bloomberg online pages and using variable values as of April 7, 1999,
and (ii) the average closing sale price during the ten trading days immediately
preceding the earlier of July 30, 1999, and the annual meeting of shareholders
at which shareholder approval is considered, minus the exercise price (the
"Exchange Price"). The Exchange Price is payable in cash or, if, in the good
faith business judgment of the Company's Board of Directors, the Company does
not have sufficient liquidity to pay some or all of the Exchange Price, the
Company may pay such portion of the Exchange Price in the form of a one-year
promissory note bearing interest at the then-current prime rate. If the Company
were required to repurchase the Intel Warrants, such repurchase could materially
and adversely affect the Company's financial condition and operations, and there
can be no assurance that the Company would have the funds to satisfy its
repurchase obligations.
<PAGE>
Vote Required
The affirmative vote at the Annual Meeting by the holders of a majority of
votes cast in person or by proxy on Proposal 3 is required to authorize the
issuance of the Intel Warrant Shares upon exercise of the Intel Warrants. For
purposes of calculating votes cast, abstentions and broker non-votes are not
included as votes cast.
PROPOSAL 4
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 shares of Common Stock were
initially authorized for issuance pursuant to the exercise of either incentive
stock options or nonstatutory stock options granted thereunder. In April 1997,
the Board of Directors approved an amendment to the 1995 Plan to increase the
number of shares of Common Stock authorized for issuance pursuant to stock
options by 450,000 to 750,000 shares, which the Company's shareholders approved
at the 1997 annual meeting held June 10, 1997. In April 1998, the Board of
Directors approved an amendment to the 1995 Plan to increase the number of
shares of Common Stock authorized for issuance pursuant to stock options granted
under the 1995 Plan by 900,000 shares to 1,650,000 shares, which the Company's
shareholders approved at the 1998 annual meeting held June 5, 1998.
In May 1999, the Board of Directors approved an amendment to the 1995 Plan
to increase the number of shares of Common Stock authorized for issuance
pursuant to stock options granted under the 1995 Plan by 850,000 shares to
2,500,000 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
850,000 shares to a cumulative total of 2,500,000 shares. The affirmative vote
of a majority of the shares of the Company's Common Stock present, represented
and voting in person or by proxy at the Annual Meeting will be required to
approve such amendment.
As of June 7, 1999, 1,650,000 shares of Common Stock were authorized
for issuance under the 1995 Plan, 146,500 shares had been issued upon the
exercise of options granted under the 1995 Plan, 1,435,954 shares were issuable
upon the exercise of outstanding options, and 67,546 shares remained available
for additional option grants under the 1995 Plan.
<PAGE>
The Company cannot currently determine the number of shares subject to
options that may be granted in the future to executive officers, directors and
employees under the 1995 Plan. The following table sets forth information with
respect to the stock options granted from January 1, 1998, through December
31,1998, to each of the executive officers named in the Summary Compensation
Table on page 7, all current executive officers as a group, all current
directors who are not executive officers as a group, and all employees and
consultants (including all current officers who are not executive officers) as a
group under the 1995 Stock Plan.
<TABLE>
<CAPTION>
Number of Shares Weighted Average
Underlying Exercise Price
Name Options Granted Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Joyce Freedman 200,000 $15.88
Maurizio Vecchione 200,000 $15.88
Lee Freedman 50,000 $16.01
Linda Freedman 85,000 $9.50
Steven Gentry 25,000 $9.50
All current executive officers
as a group (5 persons) 160,000 $11.53
All current non-employee directors
as a group (4 persons) 0 ---
All employees who are not executive officers
as a group (131 persons) 340,000 $9.50
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
PROPOSAL FOUR 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.
In the high technology and computer software industries, grants of stock
options play an important part in incentivizing and retaining key employees.
Options for most of the Company's employees granted under the 1995 Plan vest in
equal installments over five years, subject to the continuing service of the
employees who have received such options. The increase in the number of
authorized shares under the 1995 Plan sought pursuant to Proposal 2 will afford
the Company the degree of flexibility to grant options necessary to attract,
retain and incentivize key employees.
<PAGE>
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 1995
Plan is currently administered by the Board of Directors. 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, and consultants
to, the Company and any of its parents or subsidiaries. As of April 13, 1999,
136 employees of the Company were eligible for option grants under the 1995
Plan. 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.
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
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
<PAGE>
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 National 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 May 4,
1999, the closing price of the Company's Common Stock on The Nasdaq
National Market was $12.00 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
<PAGE>
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.
(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 income 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
<PAGE>
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 income 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 such disposition will be treated as long-term capital
gain, and any loss will 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 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 in a
disqualifying disposition is less than the purchase price, generally the
optionee will not recognize income in connection with such disqualifying
disposition.
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 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.
<PAGE>
In general, there will be no federal income 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 such a disqualifying 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 generally 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-current 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 income 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 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 5
AMENDMENT TO THE ARTICLES OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO
STYLECLICK.COM INC.
<PAGE>
The Board of Directors has approved, and recommends that the shareholders
approve, an amendment (the "Name Change Amendment") to Article I of the
Company's Amended and Restated Articles of Incorporation to change the name of
the Company from "ModaCAD, Inc." to "Styleclick.com Inc."
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's common stock is required to approve the Name Change Amendment.
Assuming the existence of a quorum, any shares of common stock not voted at the
meeting, whether due to abstentions, broker non-votes or otherwise, will have no
effect regarding the proposal to approve the Name Change Amendment.
Since its incorporation, the Company's name has been ModaCAD, Inc.,
reflecting the Company's initial focus on Computer-Aided-Design ("CAD") products
for the fashion industries, particularly in the business-to-business marketplace
and in the consumer software industry. In the business-to-business marketplace,
the Company's focus was on designing and marketing CAD products for the
industrial design segment of the textile and apparel industries. Accordingly,
the name "ModaCAD, Inc.," which was indicative of the Company's focus on CAD
products for the fashion and consumer software industries, was representative of
the Company's overall business and the markets in which it specialized.
In 1998, the Company began a shift of its business focus to the emerging
consumer Internet electronic commerce markets ("e-commerce"), using its
technologies and data bases developed for the business-to-business market, to
position the Company as a key enabler of electronic commerce for the apparel and
accessories, textile, home furnishings and home design industries (the "Style
industries"). As part of that shift in focus, the Company has sold certain of
its CAD business-to-business product lines and has committed its assets and
personnel to the expansion of business in enabling e-commerce in the Style
industries. The Company's current focus on creating, marketing and servicing
Internet web sites and other Internet applications in both the
business-to-business and business-to-consumer market places, and on developing
and marketing software and media facilitation aids for e-commerce, in the Style
industries is not reflected by the ModaCAD name.
As a result of the Company's launch of its "Styleclick.com" site, the
Company believes that name will quickly come to represent the Company's new
business focus. The Company is positioning Styleclick.com to be the one-stop
consumer web site for visual comparative-shopping in the Style industries and
for current news in relation to the Style industries.
The Company believes that the name "Styleclick.com Inc." is more evocative
of the Company's emerging and long-term future business focus and strategy than
is "ModaCAD, Inc." Additionally, the new name should enable the Company as a
whole to benefit to a greater extent from the planned promotional and
advertising activities with respect to the Styleclick.com web site, thereby
allowing the Company to leverage such promotional activities into increased
visibility and name recognition of the Company both in the e-commerce and
investment marketplaces.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE AN AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO "STYLECLICK.COM INC."
<PAGE>
PROPOSAL 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP, independent
auditors, as the Company's principal accountants to audit the Company's
consolidated financial statements for the year ending December 31, 1999, and
recommends that shareholders vote for ratification of such appointment.
The Company engaged Ernst & Young LLP as its new independent accountants as
of April 19, 1999. During the two most recent fiscal years and through April 19,
1999, neither the Company nor any agent acting on the Company's behalf has
consulted with Ernst and Young LLP on any matter that was either the subject of
a disagreement (as defined in paragraph 304(a)(i)(iv) of Regulation S-K) or a
reportable event (as defined in Regulation S-K Item 304(a)(1)(v)) ("Reportable
Event"). Ernst & Young LLP has been provided with a copy of the disclosures
herein, has been requested to review such disclosures and has been provided with
the opportunity to furnish the Company with a letter addressed to the SEC
containing any new information, clarification or discussion on the respects in
which Ernst & Young LLP does not agree with the statements made herein. Ernst &
Young has indicated that it agrees with the disclosures herein, and did not
prepare such a letter to the SEC.
On April 19, 1999, the Company dismissed Singer Lewak Greenbaum & Goldstein
LLP ("SLGG") as its principal independent accountants. The reports of SLGG on
the financial statements of the Company for the past two fiscal years contained
no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principle. The Company's Audit
Committee participated in and approved the decision to change the Company's
independent accountants. In connection with SLGG's audits for the two most
recent fiscal years and through April 19, 1999, there have been no disagreements
with SLGG on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of SLGG would have caused it to make reference
thereto in its report on the financial statements of the Company for such years.
During the two most recent fiscal years and through April 19, 1999, there have
been no Reportable Events. The Company provided SLGG with a copy of the
disclosures herein, as they originally appeared in Item 4 of the Company's
Current Report on Form 8-K ("Form 8-K") filed with the SEC on April 20, 1999,
and requested that SLGG furnish the Company with a letter addressed to the SEC
stating whether or not SLGG agrees with such disclosures. The letter furnished
by SLGG, which is attached as Exhibit 16 to the Form 8- K, stated that SLGG had
read Item 4 of the Form 8-K, and agreed with the statements contained therein.
Representatives of SLGG are not expected to be present at the Annual
Meeting. A representative of Ernst & Young, LLP, however, is expected to be
present at the Annual Meeting, will have the opportunity to make a statement if
he or she desires to do so and is expected to be available to respond to
appropriate questions.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT AUDITORS NAMED ABOVE.
PROPOSAL 7
OTHER BUSINESS
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.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER
31, 1998 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION WILL BE PROVIDED
TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY,
MODACAD, INC., 3861 SEPULVEDA BOULEVARD, CULVER CITY, CALIFORNIA 90230.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JOYCE FREEDMAN
-----------------------
Joyce Freedman
Chairman
Los Angeles, California
June 10, 1999
<PAGE>
PROXY PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MODACAD, INC.
1999 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 June 10, 1999, and hereby appoints
Joyce Freedman and Maurizio Vecchione, and each of them, proxies and
attorneys-in-fact (the "Proxies"), 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 July 16, 1999, at 2:00
p.m., Pacific Daylight Time, at the principal offices of the Company located at
3861 Sepulveda Boulevard, Culver City, California 90230, 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 herein and on the reverse side.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5 AND 6 AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
DO NOT FOLD, STAPLE OR MUTILATE.
(To be Signed on Reverse Side)
SEE REVERSE SIDE
MODACAD, INC.
PLEASE MARK VOTES AS IN THIS EXAMPLE USING DARK INK ONLY
1. ELECTION OF DIRECTORS:
Nominees: Joyce Freedman, Lee Freedman, Maurizio Vecchione, F. Stephen Wyle,
Peter Frank and Leslie Saleson
FOR WITHHELD
ALL FROM ALL
NOMINEES NOMINEES
---- ----
FOR, except vote withheld from the following nominee(s):
---- --------------------------------------------------------------------
List Nominee(s)
<PAGE>
2. ISSUANCE OF INVESTORS WARRANT SHARES AND PLACEMENT AGENTS WARRANT SHARES:
To approve and reserve for issuance (i) up to 919,243 shares of the
Company's Common Stock cumulatively issuable to Castle Creek Technology
Partners LLC, Marshall Capital Management, Inc., Winfield Capital Corp. and
Spinner Global Technology Fund, Ltd. (the "Investor Purchasers"), upon
exercise of warrants purchased by the Investor Purchasers pursuant to the
April 7, 1999, Securities Purchase Agreement the Company entered into with
the Investor Purchasers; and (ii) up to 33,921 shares of the Company's
Common Stock issuable to Paine Webber Incorporated and ING Baring Furman
Selz LLC (the "Placement Agents"), upon exercise of warrants issued to the
Placement Agents in consideration of services rendered to the Company in
connection with the sale of the Company's Common Stock and warrants to
purchase Common Stock to the Investor Purchasers.
FOR AGAINST ABSTAIN
---- ---- ----
---- ---- ----
3. ISSUANCE OF PRIVATE PLACEMENT WARRANT SHARES:
To approve and reserve for issuance up to 538,674 shares of the Company's
Common Stock issuable to Intel Corporation ("Intel") upon exercise of
warrants purchased by Intel pursuant to the April 7, 1999, Stock and
Warrant Purchase and Investor Rights Agreement the Company entered into
with Intel.
FOR AGAINST ABSTAIN
---- ---- ----
---- ---- ----
4. 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 850,000 shares to a cumulative total of
2,500,000 shares.
FOR AGAINST ABSTAIN
---- ---- ----
---- ---- ----
5. CHANGE THE NAME OF THE COMPANY:
To approve an amendment to the Company's Amended and Restated Articles of
Incorporation to change the name of the Company from "ModaCAD, Inc." to
"Styleclick.com Inc."
FOR AGAINST ABSTAIN
---- ---- ----
---- ---- ----
<PAGE>
6. APPOINTMENT OF INDEPENDENT AUDITORS:
To ratify the appointment of Ernst & Young, LLP as independent auditors of
the Company for the fiscal year ending December 31, 1999, 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 ____________, 1999
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.)
