SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. __)
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
V-ONE Corporation
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(Name of Registrant as Specified In Its Charter)
V-ONE Corporation
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11:
1) Title of each class of securities to which transaction
applies:
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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 is calculated and state how it was
determined):
-------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the off-
setting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.
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1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement Number:
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3) Filing Party:
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4) Date Filed:
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V-ONE
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Security for a Connected World
March 31, 1998
Dear Shareholder:
On behalf of the Board of Directors, I cordially invite you to attend the
Annual Meeting of Shareholders of V-ONE Corporation ("Company"). The Annual
Meeting will be held at The Hampton Inn Germantown, 20260 Goldenrod Lane,
Germantown, Maryland 20876, on Thursday, May 14, 1998 at 10:00 a.m.
Germantown, Maryland time.
The shareholders will be asked at the Annual Meeting to vote on six
proposals. The first proposal relates to the reelection, with a term ending in
the year 2001, of two directors of the Company. The second proposal relates to
the ratification of the adoption of the Company's 1998 Incentive Stock Plan. The
third and fourth proposals relate to the ratification of the issuance, and the
approval of the issuance in the future, by the Company of certain convertible
securities and the shares of Common Stock issuable in connection therewith. The
fifth proposal relates to the ratification of the Board of Directors'
appointment of the Company's independent public accountants for the year ending
December 31, 1998. The Board of Directors unanimously recommends that the
Company's shareholders vote for all of these proposals.
Your vote is very important, regardless of the number of shares you own.
Please sign and return each proxy card that you receive in the postage-paid
return envelope, which is provided for your convenience. The return of your
proxy card will not prevent you from voting in person but will assure that your
vote is counted if you are unable to attend the Annual Meeting. We look forward
to seeing you on May 14.
Sincerely,
DAVID D. DAWSON
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
20250 Century Boulevard, Suite 300, Germantown, Maryland 20874/(301) 515-5200
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V-ONE CORPORATION
20250 CENTURY BOULEVARD, SUITE 300 GERMANTOWN, MARYLAND 20874 (301)515-5200
____________________________________
NOTICE
ANNUAL MEETING OF SHAREHOLDERS
MARCH 31, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders
("Annual Meeting") of V-ONE Corporation ("Company") will be held on Thursday,
May 14, 1998 at 10:00 a.m., Germantown, Maryland time, at The Hampton Inn
Germantown, 20260 Goldenrod Lane, Germantown, Maryland 20876, for the following
purposes:
1. To elect two directors, whose terms shall expire at the 2001 annual
meeting, or until their successors have been elected and qualified;
2. To ratify the adoption of the 1998 Incentive Stock Plan ("Plan");
3. To ratify, pursuant to Nasdaq Rule 4460(i), the issuance of (a)
shares of the Company's Series A Convertible Preferred Stock
("Series A Stock") to Advantage Fund II Ltd. ("Advantage"), (b)
warrants ("Consultant Warrants") to purchase Common Stock issued to
Wharton Capital Partners, Ltd. ("Wharton") and other persons
pursuant to the Company's engagement letter with Wharton dated
October 22, 1997 ("Engagement Letter"), and (c) the shares of Common
Stock issuable in connection with the Series A Stock, the warrants
issuable on conversion of the Series A Stock and the Consultant
Warrants;
4. To approve, pursuant to Nasdaq Rule 4460(i), the issuance pursuant
to the terms of the Commitment Letter dated December 8, 1997 between
the Company and Advantage of (a) shares of a new series of the
Company's preferred stock ("New Preferred Stock") to Advantage, (b)
warrants ("New Warrants") to purchase Common Stock to be issued to
Wharton and other persons pursuant to the Engagement Letter and (c)
the shares of Common Stock issuable in connection with the New
Preferred Stock, the warrants issuable on conversion of the New
Preferred Stock and the New Warrants;
5. To ratify the appointment of Coopers & Lybrand L.L.P., independent
public accountants, as the auditors of the Company for the year
ending December 31, 1998; and
6. To transact any other business as may properly come before the
Annual Meeting or any adjournment thereof.
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The Board of Directors has fixed the close of business on March 23, 1998
as the record date ("Record Date") for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting and at any adjournment
thereof. A complete list of shareholders of record of the Company on the Record
Date will be available for examination by any shareholder, for any purpose
germane to the Annual Meeting, during ordinary business hours, for the 10-day
period prior to the Annual Meeting, at the executive offices of the Company,
20250 Century Boulevard, Suite 300, Germantown, Maryland 20874.
BY ORDER OF THE BOARD OF DIRECTORS
JOSEPH D. GALLAGHER
SECRETARY
Germantown, Maryland
March 31, 1998
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING, OR IN
PERSON, AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
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V-ONE CORPORATION
____________________________________
20250 Century Boulevard, Suite 300 Germantown, Maryland 20874 (301)515-5200
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
The enclosed proxy is solicited by the Board of Directors ("Board") of
V-ONE Corporation, a Delaware corporation ("Company"), for use at the Annual
Meeting of Shareholders on Thursday, May 14, 1998 ("Annual Meeting"), and at any
adjournment thereof. The approximate date of mailing of this Proxy Statement is
March 31, 1998.
INFORMATION RELATING TO VOTING AT THE ANNUAL MEETING
The securities to be voted at the Annual Meeting consist of shares of
common stock of the Company, $0.001 par value per share ("Common Stock"), with
each share entitling its record owner to one vote on the Proposals and on all
other matters properly brought before the Annual Meeting. The close of business
on March 23, 1998 has been fixed by the Board as the record date ("Record Date")
for determination of shareholders entitled to notice of, and to vote at, the
Annual Meeting. There were ___________ record holders of the Common Stock on the
Record Date and ____________ shares of Common Stock were outstanding and
eligible to be voted at the Annual Meeting as of that date. The Company had no
other class of voting securities outstanding on the Record Date.
The presence, in person or by proxy, of at least a majority of the total
number of outstanding shares of the Common Stock entitled to vote at the Annual
Meeting is necessary to constitute a quorum at the Annual Meeting. In the event
that less than a majority of the outstanding shares are present at the Annual
Meeting, either in person or by proxy, a majority of the shares so represented
may vote to adjourn the Annual Meeting from time to time without further notice.
Directors receiving a plurality of votes will be elected in the order of the
number of votes received. There is no cumulative voting in the election of
directors. With respect to the other Proposals and any other matter properly
brought before the Annual Meeting or any adjournment thereof, the vote required
for approval shall be the affirmative vote of a majority of the total number of
votes that those present at the Annual Meeting, in person or by proxy, are
entitled to cast.
All shares entitled to vote represented by a properly executed and
unrevoked proxy received in time for the Annual Meeting will be voted at the
Annual Meeting in accordance with the instructions given; in the absence of
instructions to the contrary, such shares will be voted FOR the Proposal to
elect the designated nominees for director and FOR the other Proposals. If any
other matters properly come before the Annual Meeting, the persons named as
proxies will vote upon such matters as determined by a majority of the Board.
Under Delaware law, shares represented at the Annual Meeting (either by
properly executed proxy or in person) that reflect abstentions or "broker
non-votes" (I.E., shares held by a broker or nominee that are represented at the
Annual Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions as to any Proposal will have the same effect as votes
against the Proposal. Broker non-votes, however, will be treated as unvoted for
purposes of determining approval of such Proposals (and therefore will reduce
the absolute number - although not the percentage - of votes needed for
approval) and will not be counted as votes for or against the Proposals. Under
applicable rules, brokers will not have discretionary voting authority to vote
on Proposals 2, 3 or 4, and may not vote for Proposals 2, 3 or 4, without
receiving instructions from the beneficial owners of shares.
The cost of soliciting proxies will be borne by the Company. In addition
to use of the mails, proxies may be solicited personally or by telephone or
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telegraph by officers, directors or employees of the Company who will not be
specially compensated for such solicitation activities. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries for
forwarding solicitation materials to the beneficial owners of shares held of
record by such persons, and the Company will reimburse such persons for their
reasonable expenses incurred in that connection.
A shareholder may revoke his or her proxy at any time prior to its
exercise by (i) filing with Joseph D. Gallagher, Secretary, V-ONE Corporation,
20250 Century Boulevard, Suite 300, Germantown, Maryland 20874, written notice
thereof, (ii) submitting a duly executed proxy bearing a later date or (iii)
appearing at the Annual Meeting and giving the Secretary notice of his or her
intention to vote in person. Unless previously revoked or otherwise instructed
thereon, proxies will be voted at the Annual Meeting on the Proposals as
described above.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The number of shares of Common Stock held as of February 28, 1998, by each
holder, if any, of more than 5% of the outstanding Common Stock of the Company,
by each director of the Company, each nominee for reelection as a director, each
executive officer named in the "Summary Compensation Table," and by all
executive officers and directors of the Company is set forth below. All of the
shares shown in the following table are shares of Common Stock and are owned
both of record and beneficially by the person named; the person named possesses
sole voting and investment power, except as otherwise indicated in the footnotes
to the table.
This table does not include shares of Common Stock that may be issued to
Advantage Fund II Ltd. ("Advantage") because no holder of the Company's Series A
Convertible Preferred Stock ("Series A Stock") is entitled to receive shares of
Common Stock on conversion of its Series A Stock or on exercise of the warrants
issuable on exercise of the Series A Stock to the extent that the sum of (1) the
shares of Common Stock owned by such holder and its affiliates and (2) the
shares of Common Stock issuable on conversion of the Series A Stock and on
exercise of such warrants would result in beneficial ownership by such holder
and its affiliates of more than 4.9% of the outstanding shares of Common Stock.
Beneficial ownership for this purpose is determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
excluding shares of Common Stock so owned through ownership of unconverted
shares of Series A Stock and unexercised warrants. See "Ratification, Pursuant
to Nasdaq Rule 4460(i), of the Issuance of the Series A Stock, the Consultant
Warrants and the Shares of Common Stock Issuable in Connection with the Series A
Stock, the Warrants Issuable on Conversion of the Series A Stock and the
Consultant Warrants (Proposal 3) - Conversion Rights."
Name And Address (1) Shares Beneficially Owned (2) Percent Of Class (3)
- ---------------- ------------------------- ----------------
James F. Chen 4,096,262 (4) 31.4%
Jieh-Shan Wang 391,492 (5) 3.0%
Christopher T. Brook 13,750 (6) *
Charles C. Chen** 195,000 (7) 1.5%
Hai Hua Cheng 669,139 5.1%
David D. Dawson** 0 (8) 0
Charles B. Griffis 39,800 (9) *
Barnaby M. Page 109,650 *
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Name And Address (1) Shares Beneficially Owned (2) Percent Of Class (3)
- ---------------- ------------------------- ----------------
Harry S. Gruner 457,331 (10) 3.4%
William E. Odom 9,066 (11) *
Executive Officers and 5,202,701 (12) 38.6%
Directors as a group (8 persons)
Kern Capital Management, LLC 807,000 (13) 6.2%
Robert E. Kern Jr.
David G. Kern
114 West 47th Street, Suite 1926
New York, New York 10036
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* Less than 1%.
** Nominee.
(1) Unless otherwise indicated, the mailing address of each shareholder is c/o
V-ONE Corporation, 20250 Century Boulevard, Suite 300, Germantown, MD
20874.
(2) In accordance with Rule 13d-3 of the Exchange Act, a person is deemed to
be the beneficial owner of a security if he or she has or shares voting
power or investment power with respect to such security or has the right
to acquire such ownership within 60 days.
Each director and executive officer possesses sole voting and investment
power with respect to the shares listed, except as otherwise indicated.
The number of shares beneficially owned by each director or executive
officer is determined under rules promulgated by the Securities and
Exchange Commission ("SEC"), and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares as to which the individual
currently has sole or shared voting power or investment power, and also
any shares which the individual has the right to acquire within 60 days
after February 28, 1998.
(3) Number of shares deemed outstanding includes any shares subject to stock
options and warrants beneficially owned by the person in question that are
currently exercisable or become exercisable within 60 days after February
28, 1998.
(4) Includes: (i) 600,000 shares of Common Stock held in a family limited
partnership, the general partner of which is a corporation controlled by
James F. Chen and his wife Mary S. Chen and (ii) 71,110 shares of Common
Stock registered in the name of Mary S. Chen as Trustee under trusts for
the benefit of Mr. Chen's children with respect to which Mary S. Chen
possesses voting and investment power.
(5) Includes (i) 120,000 shares of Common Stock held in a family limited
partnership, the general partner of which is a corporation controlled by
Jieh-Shan Wang and his wife Shwu-Ru Wang, (ii) options to purchase 7,500
shares of Common Stock granted under the Company's 1996 Incentive Stock
Plan ("1996 Plan") and (iii) 129,474 shares of Common Stock subject to
restrictions on transferability under the terms of the Company's 1996
Non-Statutory Stock Option Plan.
(6) Includes options to purchase 13,750 shares of Common Stock granted under
the Company's 1996 Plan.
3
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(7) Owned jointly with Kathleen H. Chen, his wife.
(8) Does not include options and warrants to purchase 800,000 shares of Common
Stock, in the aggregate, that are not currently exercisable.
(9) Includes 2,400 shares held by his wife and options to purchase 35,000
shares of Common Stock granted under the 1996 Plan.
(10) Includes an option to purchase 6,666 shares of Common Stock granted under
the 1996 Plan and warrants to purchase 383,999 shares of Common Stock held
by JMI Equity Fund II, L.P. ("JMI"). These warrants are subject to further
adjustment as a result of the issuance of the Series A Stock. Also
includes 66,666 shares of Common Stock held by JMI. Mr. Gruner is a
general partner of JMI Partners II, L.P., the general partner of JMI. See
"Certain Transactions."
(11) Includes an option to purchase 6,666 shares of Common Stock granted under
the 1996 Plan.
(12) Includes 129,474 shares of Common Stock shares subject to restrictions on
transferability under the terms of the Company's 1996 Non-Statutory Stock
Option Plan, options to purchase 69,582 shares of Common Stock granted
under the 1996 Plan and warrants to purchase 383,999 shares of Common
Stock held by JMI that are currently exercisable.
(13) Based on a Schedule 13G dated February 13, 1998, Kern Capital Management,
LLC reports that it has sole voting and dispositive power with respect to
such shares and that Robert E. Kern, Jr. and David G. Kern are principals
and controlling members of Kern Capital Management, LLC.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Company's restated bylaws provide for a Board consisting of up to
seven members serving staggered terms. The terms of office of Charles C. Chen
and David D. Dawson on the Board will expire at the Annual Meeting. Charles C.
Chen and David D. Dawson have been nominated by the Board for reelection to the
Board to serve for a three-year term.
There are no arrangements or understandings between the Company and any
person pursuant to which such person has been elected as a director or selected
as a nominee, except that, under Mr. Dawson's employment agreement, the Board
was required to elect Mr. Dawson to fill a vacancy on the Board. Under his
employment agreement, Mr. Dawson also has the right to nominate a person to
serve as a director of the Company (in addition to himself) and the Company is
required to establish a committee of the Board (composed of Mr. Dawson, James F.
Chen and one other director chosen by Mr. Dawson and Mr. Chen) to make
recommendations for replacement of the members of the Board during the period
ending November 21, 1998. No such committee has yet been established.
If any nominee becomes unavailable for any reason, or if any other vacancy
in the class of directors to be elected at the Annual Meeting should occur
before the election, the shares represented by the proxy will be voted for the
person, if any, who is designated by the Board to replace the nominee or to fill
such other vacancy on the Board. The Board has no reason to believe that the
nominees will be unavailable or that any other vacancy on the Board will occur.
The nominees have consented to be named and have indicated their intent to serve
if elected.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE NOMINEES FOR
REELECTION AS DIRECTORS SET FORTH ABOVE.
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INFORMATION CONCERNING THE BOARD OF DIRECTORS
The directors of the Company are currently classified into three classes,
which are elected on a staggered basis. Each director serves for a three-year
term and until his successor is duly elected and qualified. The current members
of the Board are set forth below:
DIRECTOR
OF THE
COMPANY TERM POSITION(S) CURRENTLY
NAME SINCE EXPIRES HELD WITH THE COMPANY
---- ----- ------- ---------------------
Chairman of the
James F. Chen (1)...... 1993 1999 Board and Director
Charles C. Chen 1993 1998 Director
(1)(2)(3)..............
David D. Dawson (3).... 1997 1998 President, Chief
Executive Officer
and Director
Harry S. Gruner (2) ... 1996 2000 Director
William E. Odom (2).... 1996 1999 Director
- ---------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Nominee for election.
Biographical information regarding the directors of the Company is as
follows:
JAMES F. CHEN, 47, founded the Company in February 1993 and has since
served as a director. From inception until November 21, 1997, Mr. Chen served as
the Company's President and Chief Executive Officer. On November 21, 1997, Mr.
Chen was elected Chairman of the Board. From 1980 to 1990, Mr. Chen managed
INTELSAT's world-wide ground network engineering projects. From 1990 to January
1993, he managed the INTELSAT Ground Network Engineering Department and, from
March 1992 to January 1993, he also directed its Management Information Systems
Division. Mr. Chen holds an M.S. in Computer Science from George Washington
University and a B.S. in Electrical Engineering from Georgia Institute of
Technology. He is Charles C. Chen's brother.
CHARLES C. CHEN, D.D.S., 43, has served as a director of the Company since
February 1993 and as the Company's Secretary from December 12, 1995 until
February 2, 1998. Since July 1982, Dr. Chen has practiced periodontics with
Zupnik, Winson & Chen, D.D.S.P.A. Dr. Chen holds a D.D.S. from the Baltimore
College of Dental Surgery, University of Maryland, and a B.S. in Chemistry from
the University of Maryland. He is James F. Chen's brother.
DAVID D. DAWSON, 50, has served as the President and Chief Executive
Officer of the Company since November 21, 1997 and as a director since December
12, 1997. From March 1996 until November 1997, he served as General Manager of
Ascend Communications, Inc., a data communications hardware company. From April
1994 until March 1996, he served as Chief Operating Officer, and from November
1995 until March 1996, he served as Chief Executive Officer of Morning Star
Technologies, a firewall and communications company. From October 1992 until
April 1994, he was Vice President of Development for Net Express Systems, a data
communications hardware company. Mr. Dawson holds an M.S. in Computer Science
from Fairleigh Dickinson University, an M.S. in Operations Research from Air
Force Institute of Technology, and a B.S. in Electrical Engineering from the
United States Military Academy at West Point.
HARRY S. GRUNER, 38, has served as a director of the Company since June
1996. Since November 1992, he has been a general partner of JMI Equity Fund, a
private equity investment partnership. From August 1986 to October
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1992, Mr. Gruner was with Alex. Brown & Sons Incorporated, most recently as a
principal. Mr. Gruner is also a director of the META Group, Inc., a syndicated
information technology research company, and Hyperion Software, Inc., a
financial software company, and numerous other privately held companies. Mr.
Gruner holds an M.B.A. from Harvard Business School and a B.A. in History from
Yale University.
(RETIRED) LT. GEN. WILLIAM E. ODOM, 65, has served as a director of the
Company since June 1996. Since October 1988, General Odom has served as Director
of National Security Studies at the Hudson Institute. He has also served as an
adjunct professor at Yale University since January 1989. Prior to his retirement
from the military in 1988, General Odom held several military posts including,
Director of the National Security Agency, Assistant Chief of Staff for
Intelligence and Military Assistant to the National Security Advisor during the
Carter Administration. He is also a director of Nichols Research Corporation,
American Technologies Group and American Science & Engineering. General Odom
holds an M.A. and Ph.D. from Columbia University and a B.S. from the United
States Military Academy at West Point.
COMPENSATION OF DIRECTORS
The Company reimburses directors for travel expenses incurred in
connection with their attendance at meetings of the Board and its committees.
The two new non-employee directors elected at the June 1996 annual meeting of
shareholders (Messrs. Gruner and Odom) each received an option to purchase 6,666
shares of Common Stock under the 1996 Plan upon such election.
From March 1, 1996 through March 1, 1997, Mr. Odom has been providing
consulting services to the Company for a fee of $2,500 per quarter.
BOARD OF DIRECTORS AND COMMITTEES
Meetings of the Board are held regularly each month and as required.
During 1997, the Board held four meetings. The following are the committees of
the Board:
The Board has established an Audit Committee ("Audit Committee") to
recommend the firm to be appointed as independent accountants to audit the
Company's financial statements and to perform services related to the audit,
review the scope and results of the audit with the independent accountants,
review with management and the independent accountants the Company's year-end
operating results and consider the adequacy of the internal accounting
procedures. The Audit Committee consists of three directors, none of whom are
employees of the Company. The Audit Committee met once in 1997.
The Board has also established a Compensation Committee ("Compensation
Committee") and an Executive Committee ("Executive Committee"). The Compensation
Committee, which consisted of two directors until Hai Hua Cheng resigned on
November 7, 1997, reviewed and recommended the compensation arrangements for all
directors and officers, approved such arrangements for other senior level
employees and administered and took such other action as may have been required
in connection with certain compensation and incentive plans of the Company. The
Compensation Committee has not yet been reconstituted. The Compensation
Committee did not meet in 1997; however, the Committee has followed the practice
of taking action by written consent. The Executive Committee, which consists of
two directors, addresses significant corporate, operating and management matters
between meetings of the full Board. The Executive Committee did not meet during
1997.
The Company currently has no standing nominating committee. A director can
be nominated by a member of the Board or by written notice to the Board not less
than 120 calendar days in advance of the anniversary date of the Company's
previous year's annual meeting of shareholders.
No current member of the Board attended fewer than seventy-five percent
(75%) of the meetings of the Board and committees of the Board on which he
served during 1997.
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INFORMATION CONCERNING EXECUTIVE OFFICERS
The Company's executive officers are elected each year by the Board,
unless the Board determines, upon appointing an officer, that he or she shall
serve for a different term. Any executive officer may be removed at any time,
with or without cause, by the Board. Biographical information with respect to
James F. Chen is provided above. See "Information Concerning the Board of
Directors." Biographical information regarding the other executive officers of
the Company is as follows:
JIEH-SHAN WANG, PH.D., 43, has been with the Company since its inception
and has served as the Company's Senior Vice President and Chief Technical
Officer since January 1997. From April 1996 to December 1996, Dr. Wang served as
the Company's Senior Vice President and Chief Technical Officer, from August
1995 to April 1996, Dr. Wang served as the Company's Vice President of
Engineering and, from April 1994 to August 1995, he served as Chief Engineer.
Dr. Wang was with INTELSAT from June 1991 to April 1994, as Senior Systems
Engineer, where he led a team of engineers in the development of network
applications. Dr. Wang holds a Ph.D. in Physics from the University of Maryland
and a B.S. in Physics from National Taiwan University.
CHARLES B. GRIFFIS, 53, has served as the Company's Senior Vice President
and Chief Financial Officer since September 1996 and began serving as the
Company's Treasurer as of January 1, 1997. Prior to joining the Company, Mr.
Griffis served as Senior Vice President and Chief Financial Officer of Masstor
Systems Corporation, a company that filed a petition for reorganization under
Chapter 11 of the United States Bankruptcy Code on September 8, 1994, from April
1990 to September 1996. From November 1983 to April 1990, Mr. Griffis served as
a General Partner of Griffis, Sandler & Co., a private venture capital firm, and
as President of Charles Griffis & Co., Inc., a business consulting firm. Mr.
Griffis holds an M.B.A. in Finance from Columbia University and a B.A. in
History from Yale University.
CHRISTOPHER T. BROOK, 58, has served as the Company's Vice President of
Product Development since February 1997. From September 1996 to February 1997,
Mr. Brook served as the Company's Director of Product Development. Mr. Brook was
with GE Information Services, Inc. for approximately 27 years prior to joining
the Company, holding a number of technology-related positions including Manager
of Directory Services and Network Architecture, Manager of Network Architecture
and most recently, Manager of Emerging Technology, where Mr. Brook was
responsible for investigating new information technologies. Mr. Brook graduated
from Clifton College (Bristol, England) with an emphasis in the Classics.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation paid to the Company's current
President and Chief Executive Officer and the four other most highly compensated
executive officers of the Company whose salary plus bonus exceeded $100,000
during the year ended December 31, 1997 and one former executive officer whose
annual salary and bonus would have exceeded $100,000 during the year ended
December 31, 1997 had he remained in office until the end of the year ("Named
Executives") and their compensation for services in 1997, 1996 and 1995.
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<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
Long Term
COMPENSATION
Name And Principal Other Annual AWARDS All Other
Position Year Salary ($) Bonus($) Compensation($)(1) Options (#) Compensation
- -------- ---- ---------- -------- ------------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
James F. Chen 1997 $170,000 $ 0 -- -- $3,665(3)
Chairman of the Board(2) 1996 $123,385 $13,000 -- -- $4,350(3)
1995 -- $18,000 -- -- $5,273(4)
David D. Dawson 1997 $ 21,282 $ 0 -- 800,000(5) --
President and Chief 1996 -- -- -- -- --
Executive Officer 1995 -- -- -- -- --
Jieh-Shan Wang 1997 $140,000 $ 0 -- 30,000 $3,778(7)
Senior Vice President & 1996 $101,667 $ 3,000 -- 166,666(6) $4,633(7)
Chief Technical Officer 1995 $ 69,500 $ 2,000 -- -- $3,273(7)
Charles B. Griffis 1997 $142,500 $ 0 -- 45,000 --
Senior Vice President & 1996 $ 36,820 $10,000 -- 75,000 $3,240(8)
Chief Financial Officer 1995 -- -- -- -- --
Christopher T. Brook 1997 $118,333 $ 0 -- 15,000 --
Vice President of 1996 $ 27,273 $ 0 -- 60,000 --
Product Development 1995 -- -- -- -- --
Barnaby M. Page(9) 1997 $ 66,666 $16,026 -- -- --
Former Vice President 1996 $ 63,333 -- -- 112,474 --
of Financial Services 1995 $ 10,000 -- -- -- --
</TABLE>
- ---------------------
(1) For 1997, 1996 and 1995, the aggregate amount of such Other Annual
Compensation for each Named Executive is not reportable under SEC rules
because such amount is the lesser of either $50,000 or 10% of total annual
salary and bonus for each Named Executive.
(2) Mr. Chen served as President and Chief Executive Officer of the Company
until November 21, 1997.
(3) Represents payments made by the Company to finance Mr. Chen's automobile.
(4) Represents payments made by the Company of $2,213 to finance Mr. Chen's
automobile and $3,060 for Mr. Chen's health insurance.
(5) Represents options to purchase 500,000 shares of Common Stock at an
exercise price of $3.125 per share granted under the 1996 Plan and
warrants to purchase 300,000 shares of Common Stock at an exercise price
of $3.125 per share. These options and warrants vest as to 25% of the
shares on the first anniversary of the date of grant and as to an
additional 25% of the shares on the second, third and fourth anniversaries
of the date of grant. The options and warrants become fully vested in the
event of a change in control of the Company.
(6) Represents options granted under the Company's 1996 Non-Statutory Stock
Option Plan (expired on December 31, 1996), which, upon exercise, became
shares of Common Stock subject to restrictions on transferability.
(7) Represents payments made by the Company to finance Mr. Wang's automobile.
(8) Represents payments made by the Company for Mr. Griffis' relocation.
(9) Mr. Page resigned his position with the Company effective August 29, 1997.
8
<PAGE>
STOCK OPTIONS
The following tables set forth further information regarding the grant of
options and warrants to the Named Executives of the Company in 1997. No stock
appreciation rights ("SARs") were granted to any Named Executive during 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------------
% of Total
Number of Options
Securities Granted to Exercise Potential Realizable Value at
Underlying Employees or Base Assumed Annual Rates of
Options in Fiscal Price Expiration Stock Price Appreciation for
Name Granted(#) Year(3) ($/Sh)(1) Date Option Term
---- ---------- ---------- --------- ---------- -----------------------------
5% 10%
---- ---
<S> <C> <C> <C> <C> <C> <C>
James F. Chen -- -- -- -- -- --
Chairman of the Board
David D. Dawson 800,000(2) 33.4% $3.125 11/21/2007 $ 1,572,235 $3,984,356
President and Chief
Executive Officer
Jieh-Shan Wang 30,000(3) 2.0% $5.875 2/13/2007 $ 110,843 $ 280,897
Senior Vice President
and Chief Technical Officer
Charles B. Griffis 25,000(3) 1.7% $5.875 2/13/2007 $ 92,369 $ 234,081
Senior Vice President 20,000(4) 1.3% $4.00 10/15/2007 $ 50,312 $ 127,499
and Chief Financial Officer
Christopher T. Brook 15,000(3) 1.0% $5.875 2/13/2007 $ 55,421 $ 140,449
Vice President of
Product Development
Barnaby M. Page -- -- -- -- -- --
Former Vice President
of Financial Services
</TABLE>
- ------------------------
(1) Represents fair market value on date of grant.
(2) Represents options to purchase 500,000 shares of Common Stock at an
exercise price of $3.125 per share granted under the 1996 Plan and
warrants to purchase 300,000 shares of Common Stock. These options and
warrants vest as to 25% of the shares on the first anniversary of the date
of grant and as to an additional 25% of the shares on the second, third
and fourth anniversaries of the date of grant. The options and warrants
become fully vested in the event of a change in control of the Company.
(3) These options vest as to 25% of the shares on the first anniversary of the
date of grant and as to an additional 25% of the shares on the second,
9
<PAGE>
third and fourth anniversaries of the date of grant. These options were
granted under the 1996 Plan and become fully vested in the event of a
change in control of the Company.
(4) These options vested as to 10,000 shares on January 1, 1998 and vest as to
an additional 2,500 shares on each of October 15, 1998, 1999, 2000 and
2001. These options were granted under the 1996 Plan and become fully
vested in the event of a change in control of the Company.
The following table summarizes the value realized upon exercise of
outstanding stock options and the value of the outstanding options held by the
Named Executives at December 31, 1997.
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31,
ACQUIRED 1997 (#) 1997 ($)(1)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ------------- -------------
James F. Chen -- -- -- --
Chairman of the
Board
David D. Dawson -- -- 0/800,000 $0/$300,000
President and
Chief Executive
Officer
Jieh-Shan Wang -- -- 7,500/30,000 $0/$0
Senior Vice
President
and Chief
Technical Officer
Charles B. Griffis
Senior Vice -- -- 35,000/120,000 $0/$0
President and
Chief Financial
Officer
Christopher T. -- -- 13,750/75,000 $0/$0
Brook
Vice President of
Product
Development
Barnaby M. Page -- -- 109,650/0 $103,482/$0
Former Vice
President
of Financial
Services
- -----------------------------
(1) Based on the closing sales price of $3.50 on December 31, 1997.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
In June 1996, the Board established the Compensation Committee, which made
recommendations concerning the compensation arrangements for all directors and
executive officers. From January 1 through November 7, 1997, the members of the
Compensation Committee were Hai Hua Cheng and William E. Odom. On November 7,
1997, Mr. Cheng resigned his position as a director of the Company. The
Compensation Committee has not yet been reconstituted by the Board.
10
<PAGE>
Consistent with the Company's growth, in April 1997, the Compensation
Committee began to adjust the compensation paid to its executive officers to be
competitive within the high technology industry. As a result, compensation for
executive officers currently consists primarily of base salary, cash bonuses and
grants of stock options pursuant to the Company's plans. Base salaries were
initially determined by evaluating the responsibilities of the position and the
experience and knowledge of the individual. Bonuses and annual salary
adjustments, if any, were determined by evaluating performance taking into
account such factors as achievement of the Company's strategic goals, assumption
of additional responsibilities, attainment of specific individual objectives,
and the compensation paid to other senior executives in the Company's industry.
The Board believes that stock ownership by management is especially beneficial
in aligning the interest of management and shareholders in the Company.
From the inception of the Company until 1996, James F. Chen received a
significant number of shares of the Company in lieu of receiving a salary. In
June 1996, Mr. Chen entered into an employment agreement with the Company that
provided for a base salary of $125,000 per annum. In April 1997, the
Compensation Committee determined to increase Mr. Chen's base salary to $185,000
per annum in order to align his compensation with that paid to other senior
executives in the Company's industry. On November 21, 1997, Mr. Chen was
appointed Chairman of the Board of the Company and ceased to serve as its
President and Chief Executive Officer in connection with the Company's retention
of David D. Dawson. See "-- Employment Agreements" for more information
regarding Mr. Chen's employment agreement.
On November 21, 1997, the Company retained Mr. Dawson as its President and
Chief Executive Officer. On that date, the Company entered into an employment
agreement with Mr. Dawson, the terms of which were approved by the Board.
Pursuant to such employment agreement, Mr. Dawson's base salary was set at
$200,000 per annum and he received options and warrants to purchase 800,000
shares of Common Stock at an exercise price of $3.125 per share. The amount of
Mr. Dawson's initial annual salary and the number of options and warrants were
determined after consulting with the executive search firm retained by the
Company to attract candidates for the position of President and Chief Executive
Officer. See "-- Employment Agreements" for more information regarding Mr.
Dawson's employment agreement.
Also in June 1996, the Company entered into an employment agreement with
Jieh-Shan Wang, who holds the position of Senior Vice President and Chief
Technical Officer. Mr. Wang's agreement provided for a base salary of $100,000
per annum. In April 1997, the Compensation Committee determined to increase Mr.
Wang's base salary to $140,000 per annum in order to align his compensation with
that paid to other senior executives in the Company's industry. See "--
Employment Agreements" for more information regarding Mr. Wang's employment
agreement.
In April 1997, the Company determined to increase the salary of Charles B.
Griffis, its Senior Vice President and Chief Financial Officer, to $150,000 per
annum in order to align his compensation with that paid to other senior
executives in the Company's industry. See "-- Employment Agreements" for more
information regarding Mr. Griffis' employment agreement.
No bonuses were paid to any of the Named Executives for 1997 other than
$16,026 paid to Barnaby M. Page for meeting his sales quota. Mr. Page left the
Company's employ on August 29, 1997.
Grants of Company stock options are intended to align the interest of
executives, key employees and others with the long-term interests of the
Company's shareholders and to encourage executives and key employees to remain
with the Company. The Board initially authorized the Compensation Committee to
grant stock options to key employees and others under the Company's stock option
plans. Currently, the Board is administering the Company's stock option plans.
In the past, Mr. Chen has recommended, and currently Mr. Dawson recommends, to
the Compensation Committee or the Board levels of stock option grants based upon
the same factors as used for bonus and salary adjustments. Mr. Chen does not
currently hold, nor has he ever been granted, options to purchase the Company's
Common Stock.
Section 162(m) of the Internal Revenue Code of 1986, as amended ("Code"),
imposes a limitation on the deductibility of nonperformance-based compensation
11
<PAGE>
in excess of $1 million paid to the Named Executives. Currently, no executive
officer of the Company is paid compensation in excess of $1 million per year and
it is not anticipated that any executive officer will be paid in excess of $1
million in 1997. The Plan and the 1996 Plan provide for awards that can be made
in compliance with Section 162(m).
Charles C. Chen
James F. Chen
David D. Dawson
Harry S. Gruner
William E. Odom
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until November 7, 1997, the Compensation Committee was composed of
directors Hai Hua Cheng and William E. Odom. On November 7, 1997, Mr. Cheng
resigned as a director and the Compensation Committee has not yet been
reconstituted.
One of the Company's executive officers, Jieh-Shan Wang, paid for options
granted under the Company's 1995 Non-Statutory Stock Option Plan with a
promissory note. Mr. Wang borrowed $124,750 from the Company and executed a 6%
interest-bearing promissory note, due April 22, 2006, that was secured by the
shares of Common Stock issued on exercise of the option by Mr. Wang ("Pledged
Shares"). The terms of the note provided for payments of principal and interest
to be made annually, beginning on April 22, 1997. If, at any time, the fair
market value of the Pledged Shares securing the note was less than the amount
due under the note, Mr. Wang remained liable for the balance due. If Mr. Wang
sold the Pledged Shares at any time prior to April 22, 2006, then the proceeds
of the sale would have been applied to the balance of the note before payment
would be made to Mr. Wang. On February 11, 1998, Mr. Wang repaid the note by
tendering 37,192 shares of Common Stock to the Company, valued at $3.25 per
share. The largest amount of indebtedness outstanding on the note during 1997
was $120,080.
The Company has adopted a policy providing that all material transactions
(other than compensation arrangements that must be approved by the Compensation
Committee) between the Company and its officers, directors and other affiliates
(i) must be approved by a majority of the disinterested members of the Board or
a committee thereof (following disclosure to the Board of the material facts of
the relationship and the transaction), and (ii) must be on terms no less
favorable to the Company than can be obtained from unaffiliated third parties.
STOCK PERFORMANCE GRAPH
The following graph compares the change from the date of the Company's
Common Stock began trading on the Nasdaq National Market in the Company's total
return on its Common Stock with (a) the change in the total return on the stocks
included in the CRSP Total Return Index for the Nasdaq Stock Market (U.S.) and
(b) the change in the total return on the stocks included in the Company's peer
group (5 companies) assuming an initial investment of $100 on October 24, 1996,
the date the Common Stock began trading on Nasdaq. All of these total returns
are computed assuming the reinvestment of dividends at the frequency with which
dividends were paid during the period. The Common Stock price performance shown
below should not be viewed as being indicative of future performance. The
companies currently in the peer group are Check Point Software Technologies
Ltd., Security Dynamics Technologies, Inc., Cylink Corp., Raptor Systems, Inc.,
and AXENT Technologies, Inc.
SOURCES: NASDAQ
October 24, 1996 December 31, 1996 December 31, 1997
V-ONE CORP 100.00 145.00 70.00
NASDAQ TOTAL RETURN 100.00 105.60 129.58
INDEX
PEER GROUP (5 COMPANIES) 100.00 83.26 95.59
12
<PAGE>
[STOCK PERFORMANCE GRAPH SHOWING PLOT POINTS NOTED ABOVE.]
EMPLOYMENT AGREEMENTS
On June 12 and July 8, 1996, respectively, the Company entered into
employment agreements with James F. Chen and Jieh-Shan Wang (each an
"Executive") at initial annual base salaries of $125,000 and $100,000,
respectively. Each employment agreement has a two year term and is automatically
renewed for additional two year terms on each successive anniversary date,
commencing June 12 and July 8, 1997, respectively. However, either the Company
or the Executive may serve written notice of termination prior to June 12 or
July 8, 1997, respectively, or prior to June 12 or July 8 of each succeeding
year, as the case may be, in which case the respective employment agreement will
terminate at the end of the two year period that begins with June 12 or July 8
following the date of such written notice. On November 21, 1997, the Company's
employment agreement with James F. Chen was modified to provide that Mr. Chen
serves solely as Chairman of the Board of the Company.
Under each employment agreement, the Board (or a Board committee) is
obligated to review the Executive's base salary promptly following the
completion of the Company's initial public offering ("Offering") and thereafter
at least annually. As a result of such review, the Board or committee may, in
its discretion, increase, but generally may not decrease, the Executive's base
salary. After any adjustment following the Offering, the Board or committee may
not increase the Executive's base salary for any one year by an amount greater
than 50% of his then base salary. It is intended that the Board or committee
will consider in any such review factors relating to the Executive's
performance, duties and responsibilities and endeavor to maintain his
compensation at a level comparable to that of similarly situated executives in
the Company's industry. In April 1997, the annual salaries of Mr. Chen and Mr.
Wang were increased to $185,000 and $140,000, respectively. Each employment
agreement also provides that the Executive may be paid such bonuses, if any, as
may be awarded from time to time by the Board or such committee, in its
discretion. Such bonuses shall be based on results of operations, special
contributions made by the Executive, seniority, competitive conditions in the
Company's industry and such other factors as the Board or such committee
considers relevant.
In the case of Mr. Chen's employment agreement, in the event that (i) Mr.
Chen terminates his employment with the Company (other than because of his
death) within two years following a change in control (as defined in the
employment agreement), (ii) the Company terminates Mr. Chen's employment for any
reason (other than because of death, disability or just cause) within two years
following a change in control, (iii) Mr. Chen terminates his employment with the
Company because of the Company's material breach of the employment agreement,
(iv) Mr. Chen's base salary is reduced unless such reduction is permitted by the
employment agreement or (v) the Company's principal executive offices are
relocated to a location outside Montgomery County, Maryland, or the Company
requires Mr. Chen to be based anywhere other than the Company's principal
executive offices, then the Company must make a lump sum severance payment to
13
<PAGE>
Mr. Chen. The payment is equal to the sum of (a) the aggregate amount of the
future base salary payments Mr. Chen would have received if he continued in the
employ of the Company until 24 months (36 months if an event described in
clauses (i) or (ii) above occurs) following the termination date and (b) Mr.
Chen's projected bonus for the year in which the termination date occurs. The
payment required by clause (a) is calculated at the highest rate of base salary
paid to Mr. Chen at any time under the employment agreement, with such payments
discounted to present value at a discount rate equal to 1% above the per annum
one-year Treasury Bill rate. The bonus amount is computed assuming that Mr. Chen
had remained in the Company's employ until the end of that year and that all
performance goals or other performance measures have been met at the then
current level for the remainder of that year.
Under Mr. Wang's employment agreement, Mr. Wang receives a lump sum
severance payment under the circumstances described in clauses (ii), (iii), (iv)
and (v) in the preceding paragraph. Mr. Wang's severance payment is calculated
in the same manner as Mr. Chen's except that, for purposes of the calculation of
benefits payable under clause (a) of the preceding paragraph, Mr. Wang is
limited to 24 months of base salary in all circumstances, including the
circumstances described in clause (ii).
The Company may terminate the Executive's employment for "just cause" at
any time by giving him written notice, in which case the Company is only
obligated to pay him his base salary as then in effect through the termination
date. If the Executive fails to perform his duties under the employment
agreement on account of a disability, the Company may terminate the agreement on
a date not less than 30 days thereafter unless he resumes full performance of
his duties within such period. Each Executive is entitled to terminate his
employment with the Company on, or at any date after, a date on which he is at
least 65 years old. Each employment agreement also terminates in the event of
the Executive's death. In either such event, the Company must pay the Executive
or his legal representative the Executive's base salary as then in effect that
has accrued to the last day of the month in which the retirement date or the
date of death occurs.
On November 21, 1997, the Company entered into an employment agreement
with David D. Dawson, its President and Chief Executive Officer. The employment
agreement has a two year term and is automatically renewed for an additional one
year term on such second anniversary date and each successive anniversary date
thereafter. However, either the Company or Mr. Dawson may serve written notice
of its or his intention not to renew not less than 30 days prior to the then
current termination date of the agreement, in which case the employment
agreement terminates on such termination date.
Mr. Dawson's salary was initially set at $200,000 per year, subject to
increase by the Board. The employment agreement also provides that Mr. Dawson is
eligible for a cash bonus in the amount of 40% of his base salary if he meets
certain performance objectives; the bonus may be increased if the objectives are
exceeded.
If the Company terminates Mr. Dawson's employment for cause, he is not
entitled to any severance payment. Mr. Dawson is deemed to be terminated for
cause if, in the reasonable determination of the Board, he, among other things,
is convicted of a felony or a crime involving moral turpitude, participates in a
fraud against the Company, or willfully discloses the Company's trade secrets or
other confidential information to any of its competitors. If the Company
terminates Mr. Dawson's employment other than for cause (or fails to renew the
employment agreement other than for cause), Mr. Dawson receives a severance
payment equal to one year's salary (or, if greater, base salary for the period
beginning on the termination date and ending on November 21, 1999. In the event
Mr. Dawson's employment with the Company terminates, he has agreed to resign as
a director.
On November 7, 1997, the Company entered into an amended employment
agreement with Charles B. Griffis, its Senior Vice President and Chief Financial
Officer. The amended employment agreement has no term; however, if Mr. Griffis
is employed by the Company on the date of a change of control (which term is
defined in the amended employment agreement), Mr. Griffis' employment is
extended for 12 months following the change of control.
14
<PAGE>
Mr. Griffis salary was initially set at $150,000 per year. Mr. Griffis is
also eligible to receive a bonus. In the event Mr. Griffis' employment is
terminated as a result of his death or his retirement after age 65, he or his
legal representative receives his salary through the end of the month in which
his death or retirement occurs. If Mr. Griffis fails to perform his duties under
the employment agreement on account of a disability, the Company may terminate
the agreement on a date not less than 30 days thereafter unless he resumes full
performance of his duties within such period. The Company may terminate Mr.
Griffis' employment for "just cause" at any time by giving him written notice,
in which case the Company is only obligated to pay him his base salary as then
in effect through the termination date.
In the event that (i) Mr. Griffis' employment with the Company is
terminated (other than because of his death, disability or "just cause") within
one year following a change of control (as defined in the amended employment
agreement), (ii) Mr. Griffis terminates his employment with the Company because
of the Company's material breach of the employment agreement, (iii) Mr. Griffis'
base salary is reduced unless such reduction is permitted by the amended
employment agreement or (iv) the Company's principal executive offices are
relocated to a location outside Montgomery County, Maryland, or the Company
requires Mr. Griffis to be based anywhere other than the Company's principal
executive offices, then the Company must make a lump sum severance payment to
Mr. Griffis. The payment is equal to the sum of (a) the aggregate amount of the
future base salary payments Mr. Griffis would have received if he continued in
the employ of the Company until 12 months following the termination date and (b)
Mr. Griffis' projected bonus for the year in which the termination date occurs.
The payment required by clause (a) is calculated at the highest rate of base
salary paid to Mr. Griffis at any time under the employment agreement, with such
payments discounted to present value at a discount rate equal to 1% above the
per annum one-year Treasury Bill rate. The bonus amount is computed assuming
that Mr. Griffis had remained in the Company's employ until the end of that year
and that all performance goals or other performance measures have been met at
the then current level for the remainder of that year. In addition, all unvested
stock options provided for under the terms of the original employment letter
vest on the termination date and the exercise period of these options is
extended until the latest date they could have been exercised if Mr. Griffis had
remained employed by the Company until 12 months had elapsed following the
change of control.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than ten percent of the
Company's Common Stock, to file initial reports of ownership and reports of
changes in ownership with the SEC and the Nasdaq, the exchange on which the
Company's Common Stock is listed for trading. Executive officers, directors and
greater than ten-percent shareholders (collectively, the "Reporting Persons")
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on review of the copies of such forms to the Company, and
written representations by the Reporting Persons, the Company believes that, for
the year ended December 31, 1997, all Section 16(a) filing requirements
applicable to the Reporting Persons were met, except that one Form 5, covering
one transaction, was not timely filed by William E. Odom, a director of the
Company, one Form 4, covering one transaction, was not timely filed by Harry S.
Gruner, a director of the Company, and one Form 4, covering one transaction, was
not timely filed by James F. Chen, Chairman of the Board and a director of the
Company.
RATIFICATION OF ADOPTION OF THE 1998 NON-QUALIFIED STOCK OPTION PLAN
(PROPOSAL 2)
The Board adopted the 1998 Non-Qualified Stock Option Plan ("1998 Plan")
on February 2, 1998. The Company is soliciting shareholder approval of the 1998
Plan so that, among other reasons, the 1998 Plan complies with the requirements
of Section 162(m) of the Code and the Company's ability to deduct compensation
paid to executive officers under the 1998 Plan is preserved. The 1998 Plan will
not be effective unless and until it is approved by the Company's shareholders.
15
<PAGE>
PURPOSE
The purpose of the 1998 Plan is to advance the interest of the Company and
its subsidiaries by encouraging and providing for the acquisition of an equity
interest in the Company by non-employee directors, officers, key employees and
consultants through the grant of awards with respect to shares of Common Stock.
The 1998 Plan will enable the Company to retain the services of non-employee
directors, officers, key employees and consultants upon whose judgment,
interest, and special effort the successful conduct of its operations are
largely dependent and to complete effectively with other enterprises for the
services of non-employee directors, officers, key employees and consultants as
may be needed for the continued improvement of its business. The consideration
for issuance of the awards is the continued services of the non-employee
directors, officers, key employees and consultants to the Company and its
subsidiaries. The 1998 Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
AWARDS AVAILABLE UNDER THE 1998 PLAN
Pursuant to the 1998 Plan, 2,500,000 shares of Common Stock were reserved
for future issuance by the Company to non-employee directors, officers, key
employees and consultants through the grant of incentive stock options and
non-qualified stock options to purchase Common Stock of the Company and
restricted share awards. Such shares of Common Stock may be newly issued or
Treasury shares and have an aggregate market value of approximately $6.875
million based on the price per share as of February 27, 1998 of $2.75. As of
March 31, 1998, no awards have been made under the 1998 Plan.
In the event the purchase price of an option is paid or tax or withholding
payments relating to an award are satisfied, in whole or in part through the
delivery of shares of Common Stock, a participant will be deemed to have
received an award with respect to those shares of Common Stock. The Common Stock
covered by any unexercised portions of terminated options, shares of Common
Stock forfeited and shares of Common Stock subject to awards that are otherwise
surrendered by a participant without receiving any payment or other benefit with
respect thereto may again be subject to new awards under the 1998 Plan.
Awards to officers, key employees and consultants under the 1998 Plan may
take the form of both stock options and restricted share awards; however, no
employee may receive awards with respect to more than 500,000 shares of Common
Stock under the 1998 Plan. As of February 28, 1998, approximately 71 officers
and key employees and one consultant were eligible to receive awards under the
1998 Plan. Awards under the 1998 Plan may be granted alone or in combination
with other awards. Non-employee directors may only receive non-discretionary
stock option awards (described in more detail below) under the 1998 Plan. As of
February 28, 1998, none of the Company's non-employee directors were eligible to
receive options under the 1998 Plan.
1998 PLAN ADMINISTRATION
The 1998 Plan may be administered by a committee of the Board
("Committee") or the Board. If the Committee administers the 1998 Plan, the
Committee must be composed of at least two directors of the Company, each of
whom is a "non-employee director" as defined in Rule 16b-3, as promulgated by
the SEC under the Exchange Act, and an "outside director" within the meaning of
Section 162(m) of the Code. If, however, at least two of the Company's directors
are not both "non-employee directors" and "outside directors," the Plan is
administered by the Board. The 1998 Plan is currently administered by the Board.
The Committee or the Board determines, among other things, the officers,
key employees and consultants who are eligible for and granted awards,
determines the amount and type of awards, determines the duration of the options
16
<PAGE>
(which may not exceed ten years), establishes rules and guidelines relating to
the 1998 Plan, establishes, modifies and terminates terms and conditions of
awards and takes such other action as may be necessary for the proper
administration of the 1998 Plan.
If a Committee administers the 1998 Plan, its members are appointed by the
Board. Directors may be removed at any time but only for cause and only by the
affirmative vote of the holders of 67% or more of the outstanding shares of the
Company's capital stock entitled to vote generally in the election of directors
(considered for this purpose as one class) cast at a meeting of the shareholders
called for that purpose.
STOCK OPTIONS
Stock options ("Incentive Stock Options") meeting the requirements of
Section 422 of the Code and stock options that do not meet such requirements
("Non-Qualified Options") are both available for grant under the 1998 Plan. The
term of each option will be determined by the Committee or the Board, but no
option will be exercisable more than ten years after the date of grant. Options
will also be subject to restrictions on exercise, such as exercise in periodic
installments, as determined by the Committee or the Board. The exercise price
for an Incentive Stock Option must be at least 100% of the fair market value of
a share of Common Stock on the date of grant of such option (110% in the case of
Incentive Stock Options granted to a shareholder who owns in excess of 10% of
the Company's voting stock). There is no minimum exercise price for
Non-Qualified Options (other than par value per share). The exercise price is
payable in cash, in shares of Common Stock owned by a participant for at least
six months, with respect to Non-Qualified Options only, a promissory note
payable to the Company, or by cashless exercise with a participant's broker, as
determined by the Committee or the Board.
Stock options granted under the 1998 Plan are not transferable except by
will or the laws of descent and distribution. Unless otherwise provided in the
relevant option agreement, options will only be exercisable within three months
of any termination of employment (and then only to the extent the option was
exercisable on the date of termination of employment) other than termination for
"cause" or termination due to death or disability. Unless otherwise provided in
the relevant option agreement, options will be exercisable in full (unless
previously exercised) by a participant or beneficiary, as the case may be,
within one year of a termination of employment by reason of death or disability.
If a participant's employment is terminated for "cause," his or her options will
no longer be exercisable after the date of such termination of employment unless
the option agreement provides otherwise. In no event, however, may an option be
exercised after the end of its term.
The Committee or the Board may provide that, if a participant surrenders
already owned shares of Common Stock in full or partial payment of an option,
then, concurrent with such surrender, the participant, subject to the
availability of shares of Common Stock under the 1998 Plan, will be granted a
new Non-Qualified Option (a "Reload Option") covering a number of shares of
Common Stock equal to the number so surrendered. A Reload Option may be granted
in connection with the exercise of an option that is itself a Reload Option.
Each Reload Option will have the same expiration date as the original option and
an exercise price equal to the fair market value of the Company's shares of
Common Stock on the date of grant of the Reload Option. A Reload Option is
exercisable immediately or at such time or times as the Committee or Board
determines and will be subject to such other terms and conditions as the
Committee or the Board may prescribe.
RESTRICTED SHARES
The Committee or the Board may award restricted shares to a participant.
Such a grant gives a participant the right to receive shares of Common Stock
subject to a risk of forfeiture based upon certain conditions. The forfeiture
restrictions on the shares of Common Stock may be based upon performance
standards, length of service, or other criteria as the Committee or the Board
may determine. Until all restrictions are satisfied, lapsed, or waived, the
Company will maintain control over the restricted shares but the participant
will be able to vote the shares of Common Stock and generally will be entitled
to dividends on the shares of Common Stock. Upon termination of employment, the
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participant generally forfeits the right to the shares of Common Stock to the
extent the applicable performance standards, length of service requirements or
other measurement criteria have not been met.
NON-EMPLOYEE DIRECTOR OPTIONS
The 1998 Plan provides for the automatic grant of a Non-Qualified Option
to purchase 10,000 shares of Common Stock to each non-employee director on the
earlier of (a) the first date he or she is elected as such by the Company's
shareholders and (b) the date the 1998 Plan is approved by the holders of Common
Stock. However, directors Charles C. Chen, Harry S. Gruner and William E. Odom
each are not eligible to receive an option under the 1998 Plan. In addition, if
a non-employee director receives, after the effective date of the 1998 Plan, an
option ("1996 Plan Option") to purchase shares of Common Stock under the 1996
Plan, the number of shares subject to the option granted under the 1998 Plan
will be reduced by the number of shares covered by the 1996 Plan Option.
The option price of a non-employee director option granted under the 1998
Plan is the fair market value of a share of Common Stock on the date of grant of
such option. All such options have a five year term and are exercisable in full
on the date of grant.
If a non-employee director's service with the Company terminates by reason
of death, his or her option may be exercised for a period of one year from the
date of death or until the expiration of the option, whichever is shorter. If a
non-employee director's service with the Company terminates other than by reason
of death, his or her option may be exercised for a period of three months from
the date of such termination, or until the expiration of the stated term of the
option, whichever is shorter.
CHANGE IN CONTROL
Upon the occurrence of a change in control of the Company, all options
become immediately exercisable, to the extent not previously exercised, and all
restrictions on restricted shares lapse. A change in control includes:
(1) approval of the Company's shareholders of a consolidation or merger of
the Company with any third party, unless the Company is the entity surviving
such merger or consolidation;
(2) approval of the Company's shareholders of a transfer of all or
substantially all of the assets of the Company to a third party or a complete
liquidation or dissolution of the Company;
(3) a third party (other than James F. Chen and his affiliates or
Advantage Fund Limited, Advantage Fund II Ltd. and/or their affiliates),
directly or indirectly, through one or more subsidiaries or transactions or
acting in concert with one or more persons or entities: (a) acquiring any
combination of beneficial ownership of the Company's voting stock and
irrevocable proxies representing more than 20% of the Company's voting stock,
(b) acquiring the ability to control in any manner the election of a majority of
the directors of the Company or (c) acquiring the ability to directly or
indirectly exercise a controlling influence over the management or policies of
the Company;
(4) any election has occurred of persons to the Board that causes a
majority of such Board to consist of persons other than (a) persons who were
members of the Board on February 2, 1998 ("Effective Date") and/or (b) persons
who were nominated for election as members of the Board by the Board (or a
committee of the Board) at a time when the majority of the Board (or of such
committee) consisted of persons who were members of the Board on the Effective
Date; or
(5) a determination made by the SEC or any similar agency having
regulatory control over the Company that a change in control, as defined in the
securities laws or regulations then applicable to the Company, has occurred.
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TERMINATION AND AMENDMENT
The 1998 Plan will remain in effect until February 2, 2008 unless
terminated earlier by the Board. The Board may amend or terminate the 1998 Plan
and the Committee or the Board may amend or alter the terms of awards under the
1998 Plan but no such action shall affect or in any way impair the rights of a
participant under any award previously granted without such participant's
consent. No amendment may be made, without shareholder approval, that would
require shareholder approval under any applicable law or rule unless the Board
determines that compliance with such law or rule is no longer desired.
ANTIDILUTION PROVISIONS
The number of shares of Common Stock authorized to be issued under the
1998 Plan and subject to outstanding awards (and the purchase or exercise price
thereof), the number of non-employee director options and the per employee limit
on awards will be adjusted to prevent dilution or enlargement of rights in the
event of any stock dividend, stock split, combination or exchange of shares,
merger, consolidation or other change in capitalization with a similar
substantive effect upon the 1998 Plan or the awards.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences of awards under the 1998 Plan based upon current federal income tax
laws.
A participant is not generally subject to federal income tax either at the
time of grant or at the time of exercise of an Incentive Stock Option. However,
upon exercise, the difference between the fair market value of the shares of
Common Stock and the exercise price may be includable in the participant's
alternative minimum taxable income. If a participant does not dispose of shares
of Common Stock acquired through the exercise of an Incentive Stock Option
within one year after their receipt and within two years after the date of the
option's grant, any gain or loss upon the disposition will be taxed as long-term
capital gain or loss.
The Company will not receive any tax deduction on the exercise of an
Incentive Stock Option or, if the holding requirements are met, on the sale of
the underlying shares of Common Stock. If a disqualifying disposition occurs
(I.E., one of the holding requirements is not met), the participant will be
treated as receiving compensation subject to ordinary income tax in the year of
the disqualifying disposition, and the Company will be entitled to a deduction
for compensation expense in an amount equal to the amount the participant
includes in income. In such event, the amount includable in the participant's
income (and deductible by the Company) generally will be equal to the difference
between the fair market value of the shares of Common Stock at the time of
exercise and the exercise price or, if less, the gain the participant realized
on the sale of the shares. Any appreciation in value after the time of exercise
will be taxed as long-term or short-term capital gain (depending on how long the
shares are held after exercise) and will not result in any additional deduction
by the Company.
There are no federal income tax consequences to participants at the time
of grant of a Non-Qualified Option. Upon exercise of the option, the participant
must pay tax on ordinary income equal to the difference between the exercise
price and the fair market value of the underlying shares on the date of
exercise. The Company will receive a commensurate tax deduction at the time of
exercise. Any appreciation in value after the time of exercise will be taxed
upon the disposition of the shares as long-term or short-term capital gain
(depending on how long the shares are held after exercise), and will not result
in any additional deduction by the Company. Non-employee director options will
receive the same federal income tax treatment as other Non-Qualified Options.
Except as described below, a grant of restricted shares does not
constitute a taxable event for either a participant or the Company. However, the
participant will be subject to tax, at ordinary income rates, when any
restrictions on ownership of the shares of Common Stock lapse. The amount
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subject to tax will be equal to the fair market value of the shares at the time
the restrictions lapse reduced by the amount (if any) paid for such shares by
the participant. The Company will be entitled to take a commensurate deduction
at that time.
A participant may elect to recognize taxable ordinary income at the time
restricted shares are awarded in an amount equal to the fair market value of the
shares of Common Stock at the time of grant, determined without regard to any
forfeiture restrictions. If such an election is made, the Company will be
entitled to a deduction at that time in the same amount. Future appreciation on
the shares of Common Stock will be taxed when the shares are sold as short-term
or long-term capital gain (depending on how long the shares are held after
exercise) and will not result in any additional deduction by the Company. If,
after making such an election, the shares of Common Stock are forfeited, the
participant will be unable to claim a deduction.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE ADOPTION OF THE
1998 PLAN.
RATIFICATION, PURSUANT TO NASDAQ RULE 4460(I), OF THE ISSUANCE OF THE
SERIES A STOCK, THE CONSULTANT WARRANTS AND THE SHARES OF COMMON STOCK
ISSUABLE IN CONNECTION WITH THE SERIES A STOCK, THE WARRANTS
ISSUABLE ON CONVERSION OF THE SERIES A STOCK AND THE CONSULTANT WARRANTS
(PROPOSAL 3)
On December 8, 1997, the Company issued 4,000 shares of Series A Stock to
Advantage for $4 million in the aggregate. Each share of Series A Stock is
convertible into shares of Common Stock and warrants to purchase Common Stock
("Series A Warrants"). The net proceeds of the offering ($3.8 million) have been
used for general working capital purposes.
As a result of the issuance of the 4,000 shares of Series A Stock, the
Company issued to Wharton Capital Partners, Ltd. ("Wharton") for its services as
the Company's exclusive financial consultant, warrants ("Consultant Warrants")
to purchase 60,000 shares of Common Stock at an exercise price of $4.725 per
share. As of January 5, 1998, Wharton assigned Consultant Warrants to purchase
12,000 shares of Common Stock to Dennis Rush. The number of shares issuable on
exercise of the Consultant Warrants and the exercise price per share is subject
to adjustment in certain circumstances. The Company also paid Wharton a fee of
$200,000. The Consultant Warrants expire on December 8, 2002. The terms of the
Series A Stock and the Consultant Warrants were determined by the Board.
On December 8, 1997, the Company and Advantage entered into a commitment
letter ("Commitment Letter") pursuant to which Advantage agreed to purchase for
$4 million shares of a new series of preferred stock on the same terms and
conditions as the Series A Stock, subject to certain conditions, some of which
are that (1) the Company obtain shareholder approval with respect to the
issuance of the Series A Stock and any new series of preferred stock pursuant to
certain rules of the Nasdaq National Market, (2) the Company's stockholders'
equity, including the Series A Stock, is at least $13.5 million, and (3) the
ratio of the Company's total liabilities to stockholders' equity, including the
Series A Stock, is not less than 1:4. The commitment becomes effective April 21,
1998 and expires on December 8, 1998. The Company may terminate the Commitment
Letter at any time, on ten days' prior notice. Advantage also has the right to
terminate the Commitment Letter in certain circumstances. The Company is
obligated to pay Advantage a non-refundable commitment fee of $3,333 per month.
Under the Subscription Agreement dated as of December 3, 1997 between the
Company and Advantage, (1) the Company agreed not to sell any equity securities
or securities convertible into equity securities entitling the holder to
purchase shares of the Company's Common Stock at a price below the market price
of the Common Stock on the date of such issuance or acquisition ("Discounted
Securities") until April 21, 1998 and (2) the Company granted Advantage a right
of first refusal on sales of Discounted Securities until December 8, 1998. Under
a letter dated October 22, 1997 between the Company and Wharton ("Wharton
Letter"), the Company retained Wharton as its exclusive financial consultant and
granted Wharton an exclusive on certain offshore or discounted financings for a
period that ended on March 22, 1998 and a right of first refusal on any offshore
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or discounted financings until June 8, 1998. Wharton has agreed that its rights
as described in the preceding sentence are subject and secondary to the rights
of Advantage and do not apply to any sale of preferred stock pursuant to the
Commitment Letter.
Under the Wharton Letter, the Company is obligated to issue additional
warrants to Wharton to purchase 15,000 shares of Common Stock for each $1
million of additional financing provided by persons introduced by Wharton
(including the transaction contemplated by the Commitment Letter) at an exercise
price of $4.725 per share and to pay Wharton a consulting fee equal to 5% of the
amount raised.
On December 3, 1997, the Company entered into a registration rights
agreement with Advantage ("Advantage Registration Rights Agreement") and, on
December 8, 1997, the Company entered into a registration rights agreement with
Wharton ("Wharton Registration Rights Agreement" and, collectively with the
Advantage Registration Rights Agreement, the "Registration Rights Agreements").
As of January 5, 1998, Dennis Rush became a beneficiary of the Wharton
Registration Rights Agreement. Under the Registration Rights Agreements, the
Company was obligated to file a registration statement with the SEC by January
7, 1998 registering the shares of Common Stock issuable upon conversion of the
Series A Stock and the shares of Common Stock issuable on exercise of the Series
A Warrants and the Consultant Warrants. This registration statement was timely
filed and has been declared effective by the SEC. Advantage, Wharton and Dennis
Rush have also been granted certain piggy-back registration rights.
The following is a summary of the terms of the Series A Stock:
DIVIDENDS
Each share of Series A Stock is entitled to receive dividends at a rate of
$50.00 per annum, which are cumulative and accrue without interest (other than
with respect to dividends in arrears). Dividends are payable on March 1, June 1,
September 1 and December 1 of each year. Dividends not paid when due bear
interest at 12% per annum. The Company may pay dividends on the Series A Stock
in shares of Common Stock valued at the "Computed Price" of the Common Stock.
The "Computed Price" of a share of Common Stock is the product of the applicable
"Conversion Percentage" (which term is described below) and the "Average Market
Price." The "Average Market Price" is the average of the lowest sale price on
the Nasdaq National Market on each of the five trading days having the lowest
sale price during the 25 consecutive trading days prior to the measurement date,
which in the case of a dividend paid in shares of Common Stock is the dividend
payment date.
No dividends may be paid on any parity dividend stock or junior dividend
stock (such as the Common Stock) until all accrued and unpaid dividends are paid
on the Series A Stock.
CONVERSION RIGHTS
Each share of Series A Stock is convertible at the option of the holder
into shares of Common Stock and Series A Warrants. The number of Series A
Warrants issuable on conversion of a share of Series A Stock is the number of
shares of Common Stock issued on conversion per share of Series A Stock divided
by 5. The exercise price per share of each Series A Warrant is $4.77 per share.
Each Series A Warrant is exercisable for 5 years from the date of conversion.
The number of shares of Common Stock issuable on exercise of the Series A
Warrants and the exercise price per share is subject to adjustment in certain
circumstances.
The number of shares of Common Stock issuable per share of Series A Stock
is determined by dividing the sum of (a) $1,000, (b) accrued and unpaid
dividends, and (c) interest on dividends in arrears ("Conversion Amount") by the
lesser of (1) $4.77 ("Ceiling Price") and (2) the product of the applicable
Conversion Percentage and the Average Market Price on the conversion date. The
"Conversion Percentage" is generally 85%; however, if (1) the registration
statement ceases to be available for use by any holder of Series Stock that is
named therein as a selling stockholder for any reason, or (2) a holder of Series
A Stock becomes unable to convert any shares of Series A Stock in accordance
with the Certificate of Designations of Series A Convertible Preferred Stock
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("Series A Certificate") (other than by reason of the 4.9% limitation described
below)), then (A) the applicable Conversion Percentage is permanently reduced by
2% per month up to a maximum aggregate reduction in the Conversion Percentage of
10% and (B) the Ceiling Price is permanently reduced by $.0954 per month up to a
maximum aggregate reduction in the Ceiling Price of $.477. However, in lieu of
each such reduction, the Company can make cash payments equal to 2% of the
aggregate subscription price per share ($1,000 per share) of Series A Stock
(which amount is limited to 10% of the aggregate subscription price). The
Conversion Amount is adjusted in the event the Company issues certain rights or
warrants or distributes to the holders of securities junior to the Series A
Stock evidences of indebtedness or assets.
No holder of Series A Stock is entitled to receive shares of Common Stock
on conversion of its Series A Stock or on exercise of its Series A Warrants to
the extent that the sum of (1) the shares of Common Stock owned by such holder
and its affiliates and (2) the shares of Common Stock issuable on conversion of
the Series A Stock and on exercise of its Series A Warrants would result in
beneficial ownership by such holder and its affiliates of more than 4.9% of the
outstanding shares of Common Stock. Beneficial ownership for this purpose is
determined in accordance with Section 13(d) of the Exchange Act, excluding
shares of Common Stock so owned through ownership of unconverted shares of
Series A Stock and unexercised Series A Warrants.
If a holder tenders his or her shares of Series A Stock for conversion and
does not receive certificates for all of the shares of Common Stock and Series A
Warrants to which such holder is entitled when required, then, among other
things, the Ceiling Price otherwise applicable to such conversion is reduced by
$.0954 and the Conversion Percentage otherwise applicable to such conversion is
reduced by 2%.
RANKING
The Series A Stock ranks (1) senior to the Common Stock, (2) on a parity
with any additional series of the class of preferred stock, which series the
Board may from time to time authorize, (3) on a parity with the shares of any
additional class of preferred stock (or series of preferred stock of such class)
that the Board or the shareholders may from time to time authorize, which class
(or series thereof) by its terms ranks on a parity with the shares of Series A
Stock and (4) senior to any other class or series of preferred stock (other than
as stated in the immediately preceding clauses (2) and (3)) of the Company.
STATED CAPITAL
Under the Series A Certificate, the amount to be represented in stated
capital at all times for each share of Series A Stock is required to be the
greater of (i) the quotient obtained by dividing (a) the sum of (1) $1,000, (2)
to the extent legally available, the accrued but unpaid dividends on such share
of Series A Stock, and (3) an amount equal to the accrued and unpaid interest on
dividends in arrears through the date of determination by (b) the applicable
Conversion Percentage and (ii) an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock that would, at the time of
such determination, be issuable on conversion of one share of Series A Stock and
any accrued and unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears (determined without regard to the 4.9% limitation)
times (y) the arithmetic average of the closing bid price of the Common Stock
for the five consecutive trading days ending one trading day prior to the date
of such determination. The Company is required to take such action as may be
required to maintain the required amount of stated capital not less frequently
than monthly.
VOTING RIGHTS
The Series A Stock generally has no voting rights except as otherwise
provided by the Delaware General Corporation Law. However, the affirmative vote
or consent of the holders of a majority of the outstanding shares of the Series
A Stock, voting separately as a class, will be required for (1) any amendment,
alteration or repeal, whether by merger or consolidation or otherwise, of the
Company's Certificate of Incorporation if the amendment, alteration or repeal
materially and adversely affects the powers, preferences or special rights of
the Series A Stock, or (2) the creation and issuance of any security of the
Company that is senior to the Series A Stock as to dividend rights or
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liquidation preference; provided, however, that any increase in the authorized
preferred stock of the Company or the creation and issuance of any stock that is
both junior as to dividend rights and liquidation preference is not deemed to
affect materially and adversely such powers, preferences or special rights and
any such increase or creation and issuance may be made without any such vote by
the holders of Series A Stock except as otherwise required by law.
MANDATORY REDEMPTION
The Series A Certificate provides that the Company is not obligated to
issue, upon conversion of the Series A Stock, more than the number of shares of
Common Stock that the Company may issue pursuant to the rules of Nasdaq
("Maximum Share Amount"), less the aggregate number of shares of Common Stock
issued by the Company as dividends on the Series A Stock. Accordingly, the
Company is seeking approval from the holders of Common Stock to issue shares of
Common Stock in connection with the Series A Stock in excess of the amounts
permitted by Nasdaq Rule 4460(i).
If the Company would not be obligated to convert shares of Series A Stock
because of the Maximum Share Amount limitation, the Company is required to give
a notice to that effect to each holder of Series A Stock. In such event, a
holder may require the Company to redeem such portion of its Series A Stock that
cannot be converted as a result of this limitation at the "Share Limitation
Redemption Price" per share. The "Share Limitation Redemption Price" is the
greater of (i) the quotient obtained by dividing (a) the sum of (1) $1,000, (2)
an amount equal to the accrued but unpaid dividends on the share of Series A
Stock to be redeemed, and (3) an amount equal to the accrued and unpaid interest
on dividends in arrears on such share through the applicable redemption date by
(b) the applicable Conversion Percentage and (ii) an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock that would, but
for the redemption pursuant to this provision of the Series A Certificate, be
issuable on conversion of one share of Series A Stock and any accrued and unpaid
dividends thereon and any accrued and unpaid interest on dividends thereon in
arrears (determined without regard to the 4.9% limitation) times (y) the
arithmetic average of the closing bid price of the Common Stock for the five
consecutive trading days ending one trading day prior to the redemption date.
In addition, the Company is obligated to redeem all outstanding shares of
Series A Stock on December 8, 2000 at the "Redemption Price" per share. The
"Redemption Price" is the greater of (i) the quotient obtained by dividing (a)
the sum of (1) $1,000, (2) an amount equal to the accrued but unpaid dividends
on the share of Series A Stock to be redeemed, and (3) an amount equal to the
accrued and unpaid interest on dividends in arrears on such share through the
applicable redemption date by (b) the applicable Conversion Percentage and (ii)
an amount equal to the product obtained by multiplying (x) the number of shares
of Common Stock that would, but for the redemption pursuant to this provision of
the Series A Certificate, be issuable on conversion of one share of Series A
Stock and any accrued and unpaid dividends thereon and any accrued and unpaid
interest on dividends thereon in arrears (determined without regard to the 4.9%
limitation) times (y) the arithmetic average of the closing bid price of the
Common Stock for the five consecutive trading days ending one trading day prior
to the redemption date.
OPTIONAL REDEMPTION BY THE COMPANY
As long as the Company is in compliance in all material respects with its
obligations to the holders of Series A Stock under the Series A Certificate and
the Advantage Registration Rights Agreement, the Company may redeem all or, from
time to time, part of the outstanding shares of Series A Stock at the Redemption
Price per share.
OPTIONAL REDEMPTION BY THE HOLDERS OF SERIES A STOCK
In the event an "Optional Redemption Event" occurs, each holder of Series
A Stock has the right to require the Company to redeem all or a portion its
shares of Series A Stock at the "Optional Redemption Price" per share. "Optional
Redemption Event" means any one of the following: (1) for any period of five
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consecutive trading days there is no closing bid price of the Common Stock on
any national securities exchange or the Nasdaq National Market; (2) the Common
Stock ceases to be listed for trading on the Nasdaq National Market, the New
York Stock Exchange ("NYSE"), the American Stock Exchange ("AMEX") or the Nasdaq
SmallCap Market; (3) the inability for 30 or more days (whether or not
consecutive) of any holder of shares of Series A Stock who is entitled to
optional redemption rights to sell such shares of Common Stock issued or
issuable on conversion of shares of Series A Stock pursuant to the registration
statement for any reason on each of such 30 days; (4) the Company fails or
defaults in the timely performance of any material obligation to a holder of
shares of Series A Stock under the terms of the Series A Certificate or under
the Advantage Registration Rights Agreement or any other agreements or documents
entered into in connection with the issuance of shares of Series A Stock; (5)
any consolidation or merger of the Company with or into another entity (other
than a merger or consolidation of a subsidiary of the Company into the Company
or a wholly owned subsidiary of the Company) where the shareholders of the
Company immediately prior to such transaction do not collectively own at least
51% of the outstanding voting securities of the surviving corporation of such
consolidation or merger immediately following such transaction or the common
stock of such surviving corporation is not listed for trading on the Nasdaq
National Market, the NYSE, the AMEX or the Nasdaq SmallCap Market; or (6) the
taking of any action, including any amendment to the Company's Certificate of
Incorporation, that materially and adversely affects the rights of any holder of
shares of Series A Stock.
The "Optional Redemption Price" is the greater of (i) the quotient
obtained by dividing (a) the sum of (1) $1,000, (2) an amount equal to the
accrued but unpaid dividends on the share of Series A Stock to be redeemed, and
(3) an amount equal to the accrued and unpaid interest on dividends in arrears
on such share through the applicable redemption date by (b) the applicable
Conversion Percentage and (ii) an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock that would, but for the
redemption pursuant to this provision of the Series A Certificate, be issuable
on conversion of one share of Series A Stock and any accrued and unpaid
dividends thereon and any accrued and unpaid interest on dividends thereon in
arrears (determined without regard to the 4.9% limitation) times (y) the
arithmetic average of the closing bid price of the Common Stock for the five
consecutive trading days ending one trading day prior to the redemption date.
LIMITATIONS ON REDEMPTIONS AND TENDER OFFERS
Neither the Company nor any subsidiary of the Company may redeem,
repurchase or otherwise acquire any shares of Common Stock or other securities
of the Company junior to the Series A Stock in dividend rights or liquidation
preference ("Junior Stock") if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions
(excluding any shares surrendered to the Company in accordance with one of its
stock option plans) is more than either (x) 5% of the number of shares of Common
Stock or such Junior Stock, as the case may be, outstanding immediately prior to
such transaction or series of related transactions or (y) 1% of the number of
shares of Common Stock or Junior Stock, as the case may be, outstanding
immediately prior to such transaction or series of related transactions if such
transaction or series of related transactions is with any one person or group of
affiliated persons, unless the Company or such subsidiary offers to purchase for
cash from each holder of shares of Series A Stock at the time of such
redemption, repurchase or acquisition the same percentage of such holder's
shares of Series A Stock as the percentage of the number of outstanding shares
of Common Stock or Junior Stock, as the case may be, to be so redeemed,
repurchased or acquired at a purchase price per share of Series A Stock equal to
the greater of (i) the quotient obtained by dividing (a) the sum of (1) $1,000,
(2) an amount equal to the accrued but unpaid dividends on such share of Series
A Stock, plus (3) an amount equal to the accrued and unpaid interest on
dividends in arrears through the date of purchase by (b) the applicable
Conversion Percentage and (ii) an amount equal to the product obtained by
multiplying (x) the number of shares of Common Stock that would, but for this
purchase, be issuable on conversion of one share of Series A Stock and any
accrued and unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears (determined without regard to the 4.9% limitation)
times (y) the arithmetic average of the closing bid price of the Common Stock
for the five consecutive trading days ending one trading day prior to the date
of purchase.
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Neither the Company nor any subsidiary of the Company may (1) make any
tender offer or exchange offer ("Tender Offer") for outstanding shares of Common
Stock, unless the Company contemporaneously therewith makes an offer, or (2)
enter into an agreement regarding a Tender Offer for outstanding shares of
Common Stock by any person other than the Company or any subsidiary of the
Company, unless such person agrees with the Company to make an offer, in either
such case to each holder of outstanding shares of Series A Stock to purchase for
cash at the time of purchase in such Tender Offer the same percentage of shares
of Series A Stock held by such holder as the percentage of outstanding shares of
Common Stock offered to be purchased in such Tender Offer at a price per share
of Series A Stock equal to the greater of (i) the quotient obtained by dividing
(a) the sum of (1) $1,000, (2) an amount equal to the accrued but unpaid
dividends on such share of Series A Stock, and (3) an amount equal to the
accrued and unpaid interest on dividends in arrears through the date of purchase
by (b) the applicable Conversion Percentage and (ii) an amount equal to the
product obtained by multiplying (x) the number of shares of Common Stock that
would, but for this purchase, be issuable on conversion of one share of Series A
Stock and any accrued and unpaid dividends thereon and any accrued and unpaid
interest on dividends thereon in arrears (determined without regard to the 4.9%
limitation) times (y) the highest price per share of Common Stock offered in
such Tender Offer.
SINKING FUND
The shares of Series A Stock are not subject to the operation of a
purchase, retirement or sinking fund.
LIQUIDATION PREFERENCE
The holders of the Series A Stock are entitled to a liquidation preference
of $1,000 per share plus accrued and unpaid dividends plus interest on accrued
and unpaid dividends in arrears.
NASDAQ RULE
Rule 4460 of Nasdaq, which is applicable to the Company because the
Company's shares of Common Stock are presently included for quotation on the
Nasdaq National Market sets forth the corporate governance standards for such
securities. Section (i) of Rule 4460 provides:
(1) Each NNM [Nasdaq National Market] issuer shall require
shareholder approval of a plan or arrangement under subparagraph (A) below
or, prior to the issuance of designated securities under subparagraph (B),
(C) or (D) below:
. . . (D) in connection with a transaction other than a
public offering involving:
(i) the sale or issuance by the issuer of common stock (or
securities convertible into or exercisable for common stock) at a
price less than the greater of book or market value which together
with sales by officers, directors or substantial shareholders of the
company equals 20% or more of common stock or 20% or more of the
voting power outstanding before the issuance; or
(ii) the sale or issuance by the company of common stock (or
securities convertible into or exercisable for common stock) equal
to 20% or more of the common stock or 20% or more of the voting
power outstanding before the issuance for less than the greater of
book or market value of the stock.
(2) Exceptions may be made upon application to the Association when:
. . (A) the delay in securing stockholder approval would
seriously jeopardize the financial viability of the
enterprise; and
25
<PAGE>
. . (B) reliance by the company on this exception is
expressly approved by the Audit Committee of the Board or a
comparable body.
A company relying on this exception must mail to all shareholders
not later than ten days before issuance of the securities a letter
alerting them to its omission to seek the shareholder approval that would
otherwise be required and indicating that the Audit Committee of the Board
or a comparable body has expressly approved the exception.
Nasdaq Rule 4460(i)(1) provides that the limit set forth in subparagraph
(D) does not apply if a company's shareholders approve the issuance of the
securities subject to the rule. In the event shareholder approval is not
obtained, the Company will be required to redeem the excess shares of Series A
Stock as described above under " - Mandatory Redemption."
SHAREHOLDER APPROVAL
The Board desires to be able to issue shares of Common Stock in connection
with the Series A Stock and on exercise of the Consultant Warrants and the
Series A Warrants (including, without limitation, shares of Common Stock
issuable as dividends on the Series A Stock) without regard to the 20% limits of
Nasdaq Rule 4460(i)(1)(D). The Board believes it would be in the best interests
of the Company if the Company can issue such shares of Common Stock rather than
being required to redeem the Series A Stock as described above. See " -
Mandatory Redemption." The Board believes this provision could result in a
forced redemption at a time when the Company might not have, and could not
raise, the cash necessary to redeem the shares of Series A Stock. The Board
desires to have the ability to retain cash for the use of the Company for other
purposes. In addition, the Board believes it is in the best interests of the
Company to receive this approval so that it can issue additional securities
pursuant to the Commitment Letter. The actual number of shares of Common Stock
issuable upon conversion of and as dividends on the Series A Stock, and on
exercise of the Consultant Warrants and the Series A Warrants, cannot be
determined until the conversion or exercise takes place or the dividends are
paid.
THE BOARD RECOMMENDS A VOTE FOR THE RATIFICATION, PURSUANT TO NASDAQ RULE
4460(I), OF THE ISSUANCE OF THE SERIES A STOCK, THE CONSULTANT WARRANTS AND THE
SHARES OF COMMON STOCK ISSUABLE IN CONNECTION WITH THE SERIES A STOCK, THE
SERIES A WARRANTS AND THE CONSULTANT WARRANTS.
APPROVAL, PURSUANT TO NASDAQ RULE 4460(I), OF THE ISSUANCE PURSUANT TO THE
TERMS OF THE COMMITMENT LETTER OF SHARES OF A NEW SERIES OF PREFERRED STOCK,
NEW WARRANTS TO BE ISSUED TO WHARTON AND OTHERS, AND SHARES OF COMMON STOCK
ISSUABLE IN CONNECTION WITH THE NEW SERIES OF PREFERRED STOCK, THE WARRANTS
ISSUABLE ON CONVERSION OF THE NEW SERIES OF PREFERRED STOCK AND THE NEW
WARRANTS TO BE ISSUED TO WHARTON AND OTHERS
(PROPOSAL 4)
On December 8, 1997, the Company and Advantage entered into the Commitment
Letter pursuant to which Advantage agreed to purchase shares for $4 million of a
new series of preferred stock ("New Preferred Stock") on the same terms and
conditions as the Series A Stock, subject to certain conditions, some of which
are that (1) the Company obtain shareholder approval with respect to the
issuance of the Series A Stock and the New Preferred Stock pursuant to certain
rules of the Nasdaq National Market, (2) the Company's stockholders' equity,
including the Series A Stock, is at least $13.5 million, and (3) the ratio of
the Company's total liabilities to stockholders' equity, including the Series A
Stock, is not less than 1:4. The commitment becomes effective on April 21, 1998
and expires on December 8, 1998. The Company may terminate the Commitment Letter
at any time, on ten days' prior notice. Advantage also has the right to
terminate the Commitment Letter in certain circumstances. The Company is
obligated to pay Advantage a non-refundable commitment fee of $3,333 per month.
The net proceeds of any additional issuance of securities pursuant to the
Commitment Letter will be used for general working capital purposes.
26
<PAGE>
Under the Wharton Letter, the Company is obligated to issue additional
warrants to Wharton to purchase 15,000 shares of Common Stock for each $1
million of additional financing provided by persons introduced by Wharton
(including the transaction contemplated by the Commitment Letter) at an exercise
price of $4.725 per share and to pay Wharton a consulting fee equal to 5% of the
amount raised.
NASDAQ RULE
Rule 4460 of Nasdaq, which is applicable to the Company because the
Company's shares of Common Stock are presently included for quotation on the
Nasdaq National Market, sets forth the corporate governance standards for such
securities. See "Nasdaq Rule" under Proposal 3.
SHAREHOLDER APPROVAL
The Board desires to such be able to issue, pursuant to the terms of the
Commitment Letter, shares of the New Preferred Stock, new warrants to be issued
to Wharton and others ("New Warrants"), and shares of Common Stock issuable in
connection with the New Preferred Stock, the warrants issuable on conversion of
the New Preferred Stock ("New Preferred Warrants") and the New Warrants without
regard to the 20% limits of Nasdaq Rule 4460(i). The Board believes it is in the
best interests of the Company to receive this approval so that it retains the
ability to obtain additional financing for the Company when necessary and upon
such terms as the Board determines to be advisable. The actual number of shares
of Common Stock issuable upon conversion of and as dividends on the New
Preferred Stock, and on exercise of the New Preferred Warrants and the New
Warrants, cannot be determined until the conversion or exercise takes place or
the dividends are paid.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL, PURSUANT TO NASDAQ RULE
4460(I), OF THE ISSUANCE, PURSUANT TO THE TERMS OF THE COMMITMENT LETTER, OF
SHARES OF THE NEW PREFERRED STOCK, THE NEW WARRANTS AND SHARES OF COMMON STOCK
ISSUABLE IN CONNECTION WITH THE NEW PREFERRED STOCK, THE NEW PREFERRED WARRANTS
AND THE NEW WARRANTS.
INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL 5)
The Company's Audit Committee and Board have recommended that the
Company's shareholders appoint Coopers & Lybrand L.L.P. to serve as the
Company's independent public accountants for the year ending December 31, 1998.
Coopers & Lybrand L.L.P. served as the Company's independent public accountants
for the year ended December 31, 1997. Representatives of Coopers & Lybrand
L.L.P. will be present at the Annual Meeting where they will have the
opportunity to make a statement if they desire to do so and where they will be
available to respond to any appropriate questions.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPOINTMENT OF COOPERS &
LYBRAND L.L.P. AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
ANNUAL REPORT
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1997 ACCOMPANIES THIS PROXY STATEMENT. UPON
WRITTEN REQUEST, THE COMPANY WILL PROVIDE TO ANY SHAREHOLDER, FREE OF CHARGE, A
COPY OF ITS ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. REQUESTS FOR COPIES OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K SHOULD BE DIRECTED TO CHARLES B. GRIFFIS, SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER AND TREASURER, V-ONE CORPORATION, 20251
CENTURY BOULEVARD, SUITE 300, GERMANTOWN, MARYLAND 20874.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company no later than December
1, 1998 to be considered for inclusion in the Company's Proxy Statement and form
of proxy relating to such meeting.
27
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no business
other than that described herein that will be presented for consideration at the
Annual Meeting. If, however, any other business shall properly come before the
Annual Meeting, the proxy holders intend to vote the proxies as determined by a
majority of the Board.
By Order of the Board of Directors
JOSEPH D. GALLAGHER
SECRETARY
March 31, 1998
APPENDIX A - SELECTED FINANCIAL DATA
APPENDIX B - FINANCIAL STATEMENTS
APPENDIX C - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
<PAGE>
REVOCABLE PROXY
V-ONE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James F. Chen, David D. Dawson and Charles
B. Griffis, or any of them, each with full power of substitution, as the lawful
proxies of the undersigned and hereby authorizes them to represent and to vote
as designated below all shares of common stock of V-ONE Corporation ("Company")
that the undersigned would be entitled to vote if personally present at the
Annual Meeting of Shareholders of the Company to be held on May 14, 1998, and at
any adjournment thereof.
V-ONE CORPORATION
20250 CENTURY BOULEVARD
SUITE 300
GERMANTOWN, MD 20874
1. Proposal One: Election of two directors for a term ending in 2001.
Nominees: Charles C. Chen and David D. Dawson.
FOR [ ] WITHHOLD AUTHORITY [ ] ABSTAIN [ ]
FOR, except vote withheld from the following nominees(s):
--------------------------------------------------------------------------
2. Proposal Two: Ratification of the adoption of the 1998 Incentive Stock
Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Proposal Three: Ratification, pursuant to Nasdaq Rule 4460(i), of the
issuance of (a) shares of the Company's Series A Convertible Preferred
Stock ("Series A Stock") to Advantage Fund II Ltd. ("Advantage"), (b)
warrants ("Consultant Warrants") to purchase Common Stock issued to Wharton
Capital Partners, Ltd. ("Wharton") and other persons pursuant to the
Company's engagement letter with Wharton dated October 22, 1997
("Engagement Letter"), and (c) the shares of Common Stock issuable in
connection with the Series A Stock, the warrants issuable on conversion of
the Series A Stock and the Consultant Warrants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Proposal Four: Approval, pursuant to Nasdaq Rule 4460(i), of the issuance
pursuant to the terms of the Commitment Letter dated December 8, 1997
between the Company and Advantage of (a) shares of a new series of the
Company's preferred stock ("New Preferred Stock") to Advantage, (b)
warrants ("New Warrants") to purchase Common Stock to be issued to Wharton
and other persons pursuant to the Engagement Letter and (c) the shares of
Common Stock issuable in connection with the New Preferred Stock, the
warrants issuable on conversion of the New Preferred Stock and the New
Warrants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. Proposal Five: Ratification of the election of Coopers & Lybrand L.L.P. as
independent auditors for fiscal year ending December 31, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
6. In their discretion on such other business as may properly come before the
meeting or any adjournment thereof.
<PAGE>
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED FOR THE MATTERS LISTED ABOVE.
Whether or not you plan to attend the meeting, you are urged to execute
and return this proxy, which may be revoked at any time prior to its use.
Change of Address or [ ]
Comments Mark Here
Please sign your name exactly as it
appears hereon. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in
partnership name by authorized person.
Date: , 1998
-----------------------
--------------------------------------
Signature of Shareholder
--------------------------------------
Signature of Additional Shareholder(s)
<PAGE>
V-ONE CORPORATION
1998 INCENTIVE STOCK PLAN
ARTICLE I. PURPOSE, ADOPTION AND TERM OF THE PLAN
1.01 PURPOSE. The purpose of the V-ONE Corporation 1998 Incentive Stock
Plan (hereinafter referred to as the "Plan") is to advance the interests of the
Company (as hereinafter defined) and its Subsidiaries (as hereinafter defined),
if any, by encouraging and providing for the acquisition of an equity interest
in the Company by non-employee directors, officers, key employees and
consultants through the grant of awards with respect to shares of Common Stock
(as hereinafter defined). The Plan will enable the Company to retain the
services of non-employee directors, officers, key employees and consultants upon
whose judgment, interest, and special effort the successful conduct of its
operations is largely dependent and to compete effectively with other
enterprises for the services of non-employee directors, officers, key employees
and consultants as may be needed for the continued improvement of its business.
1.02 ADOPTION AND TERM. The Plan shall become effective on February 2,
1998 ("Effective Date"), subject to the approval of a simple majority of the
holders of Voting Stock (as hereinafter defined) represented, by person or by
proxy, and entitled to vote at an annual or special meeting of the holders of
Voting Stock. The Plan shall terminate on February 2, 2008, or such earlier date
as shall be determined by the Board (as hereinafter defined); provided, however,
that, in the event the Plan is not approved by a simple majority of the holders
of Voting Stock at or before the Company's 1998 annual meeting of holders of
Voting Stock, the Plan shall terminate on such date and any Awards (as
hereinafter defined) made under the Plan prior to such date shall be void and of
no force and effect.
ARTICLE II. DEFINITIONS
For purposes of the Plan, capitalized terms shall have the following
meanings:
2.01 "Award" means (a) any grant to an Employee or a Consultant
Participant of any one or a combination of Non-Qualified Stock Options or
Incentive Stock Options described in Article VI, or Restricted Shares described
in Article VII, or (b) any grant to a Non-Employee Director of a Non-Employee
Director Option described in Article VIII.
2.02 "Award Agreement" means a written agreement between the Company
and a Participant or a written acknowledgment from the Company specifically
setting forth the terms and conditions of an Award granted to a Participant
under the Plan.
2.03 "Beneficiary" means an individual, trust or estate who or that, by
will or the laws of descent and distribution, succeeds to the rights and
obligations of the Participant under the Plan and an Award Agreement upon the
Participant's death.
2.04 "Board" means the Board of Directors of the Company.
2.05 "Cause" means, with respect to an Employee Participant or a
Consultant Participant, termination for, as determined by the Committee in its
sole and absolute discretion, (i) dishonest or fraudulent conduct relating to
the Company or any of its Subsidiaries or their businesses; (ii) conviction of
any felony that involves moral turpitude or otherwise reflects on the Company or
any of its Subsidiaries in a significantly adverse way; or (iii) gross neglect
by the Participant in the performance of his or her duties as an employee or a
<PAGE>
consultant, or any material breach by a Participant under any employment
agreement or consulting agreement with the Company or any of its Subsidiaries.
2.06 "Change in Control" means the occurrence, after the Effective
Date, of any of the following events, directly or indirectly or in one or more
series of transactions:
(i) Approval of the Company's shareholders of a consolidation or
merger of the Company with any Third Party, unless the Company is the
entity surviving such merger or consolidation;
(ii) Approval of the Company's shareholders of a transfer of all
or substantially all of the assets of the Company to a Third Party or a
complete liquidation or dissolution of the Company;
(iii) A Third Party (other than James F. Chen and his affiliates
or Advantage Fund Limited, Advantage Fund II Ltd. and/or their
affiliates), directly or indirectly, through one or more subsidiaries
or transactions or acting in concert with one or more persons or
entities:
(A) acquires beneficial ownership of more than 20% of the
Voting Stock;
(B) acquires irrevocable proxies representing more than 20%
of the Voting Stock;
(C) acquires any combination of beneficial ownership of
Voting Stock and irrevocable proxies representing more than 20%
of the Voting Stock;
(D) acquires the ability to control in any manner the
election of a majority of the directors of the Company; or
(E) acquires the ability to directly or indirectly exercise
a controlling influence over the management or policies of the
Company;
(iv) any election has occurred of persons to the Board that
causes a majority of the Board to consist of persons other than (A)
persons who were members of the Board on the Effective Date and/or (B)
persons who were nominated for election as members of the Board by the
Board (or a committee of the Board) at a time when the majority of the
Board (or of such committee) consisted of persons who were members of
the Board on the Effective Date; PROVIDED, HOWEVER, that any persons
nominated for election by the Board (or a committee of the Board), a
majority of whom are persons described in clauses (A) and/or (B), or
are persons who were themselves nominated by such Board (or a committee
of such Board), shall for this purpose be deemed to have been nominated
by a Board composed of persons described in clause (A); or
(v) A determination is made by the SEC or any similar agency
having regulatory control over the Company that a change in control, as
defined in the securities laws or regulations then applicable to the
Company, has occurred.
Notwithstanding any provision contained herein, a Change in Control shall not
include any of the above described events if they are the result of a Third
Party's inadvertently acquiring beneficial ownership or irrevocable proxies or a
combination of both for more than 20% of the Voting Stock, and the Third Party
2
<PAGE>
as promptly as practicable thereafter divests itself of beneficial ownership or
irrevocable proxies for a sufficient number of shares so that the Third Party no
longer has beneficial ownership or irrevocable proxies or a combination of both
for more than 20% of the Voting Stock.
2.07 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto. References to a section of the Code
shall include that section and any comparable section or sections of any future
legislation that amends, supplements, or supersedes said section.
2.08 "Committee" means a committee of the Board as may be appointed,
from time to time, by the Board. The Board may, from time to time, appoint
members of the Committee in substitution for those members who were previously
appointed and may fill vacancies, however caused, in the Committee. The
Committee shall be composed of at least two directors of the Company, each of
whom is a "non-employee director" as defined in Rule 16b-3, as promulgated by
the SEC under the Exchange Act, and an "outside director" within the meaning of
Section 162(m). The Committee shall have the power and authority to administer
the Plan in accordance with Article III. If, however, at least two of the
Company's directors are not both "non-employee directors" and "outside
directors," the Plan shall be administered by the Board and the term "Committee"
as used herein shall mean the Board.
2.09 "Common Stock" means the Common Stock, par value $.001 per share,
of the Company.
2.10 "Company" means V-ONE Corporation, a corporation organized under
the laws of the State of Delaware, and its successors.
2.11 "Consultant Participant" means a Participant who is a consultant
to the Company or one of its Subsidiaries.
2.12 "Date of Grant" means the date designated by the Plan or the
Committee as the date as of which an Award is granted, which shall not be
earlier than the date on which the Committee approves the granting of such
Award.
2.13 "Disability" means any physical or mental injury or disease of a
permanent nature that renders an Employee or a Consultant Participant incapable
of meeting the requirements of the employment or other work that the Employee or
Consultant Participant performed immediately before that disability commenced.
The determination of whether an Employee or a Consultant Participant is disabled
and when an Employee or a Consultant Participant becomes disabled shall be made
by the Committee in its sole and absolute discretion.
2.14 "Disability Date" means the date which is six months after the
date on which an Employee or a Consultant Participant is first absent from
active employment or work with the Company due to a Disability.
2.15 "Employee Participant" means a Participant who is an employee of
the Company or one of its Subsidiaries.
2.16 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.17 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
3
<PAGE>
2.18 "Fair Market Value" of a share of Common Stock means, as of any
given date, the closing sales price of a share of Common Stock on such date on
the principal national securities exchange on which the Common Stock is then
traded or, if the Common Stock is not then traded on a national securities
exchange, the closing sales price or, if none, the average of the bid and asked
prices of the Common Stock on such date as reported on the National Association
of Securities Dealers Automated Quotation System ("Nasdaq"); PROVIDED, HOWEVER,
that, if there were no sales reported as of such date, Fair Market Value shall
be computed as of the last date preceding such date on which a sale was
reported; PROVIDED, FURTHER, that, if any such exchange or quotation system is
closed on any day on which Fair Market Value is to be determined, Fair Market
Value shall be determined as of the first date immediately preceding such date
on which such exchange or quotation system was open for trading. In the event
the Common Stock is not admitted to trade on a securities exchange or quoted on
Nasdaq, the Fair Market Value of a share of Common Stock as of any given date
shall be as determined by the Committee in its sole and absolute discretion,
which determination may be based on, among other things, the opinion of one or
more independent and reputable appraisers qualified to value companies in the
Company's line of business.
2.19 "Incentive Stock Option" means an Option designated as an
incentive stock option and that meets the requirements of Section 422 of the
Code.
2.20 "Non-Employee Director" means each member of the Board who is not
an employee of the Company or of any of its Subsidiaries.
2.21 "Non-Employee Director Option" means an Option granted in
accordance with Article VIII.
2.22 "Non-Qualified Stock Option" means an Option that is not an
Incentive Stock Option.
2.23 "Option" means any option to purchase Common Stock granted to a
Participant pursuant to Article VI or to a Non-Employee Director pursuant to
Article VIII.
2.24 "Participant" means any employee of or consultant to the Company
or any of its Subsidiaries selected by the Committee to receive an Option under
the Plan in accordance with Article VI and/or Restricted Shares under the Plan
in accordance with Article VII and, solely to the extent provided in Article
VIII, any Non-Employee Director.
2.25 "Plan" means the V-ONE Corporation 1998 Incentive Stock Plan as
set forth herein, and as the same may be amended from time to time.
2.26 "Reload Option" shall have the meaning set forth in Section
6.03(e) of the Plan.
2.27 "Restricted Shares" means shares of Common Stock subject to
restrictions imposed in connection with Awards granted under Article VII.
2.28 "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under Section
16 of the Exchange Act and any successor rule.
2.29 "SEC" means the Securities and Exchange Commission.
2.30 "Section 162(m)" means Section 162(m) of the Code and the
regulations thereunder.
4
<PAGE>
2.31 "Subsidiary" means a company more than 50% of the equity interests
of which are beneficially owned, directly or indirectly, by the Company.
2.32 "Ten Percent Shareholder" means a Participant who, at the time of
grant of an Option, owns (or is deemed to own under Section 424(d) of the Code)
more than 10% of the Voting Stock.
2.33 "Termination of Employment" means, with respect to an Employee
Participant, the voluntary or involuntary termination of a Participant's
employment with the Company or any of its Subsidiaries for any reason,
including, without limitation, death, Disability, retirement or as the result of
the sale or other divestiture of the Participant's employer or any similar
transaction in which the Participant's employer ceases to be the Company or one
of its Subsidiaries. Whether entering military or other government service shall
constitute Termination of Employment, and whether a Termination of Employment is
a result of Disability, shall be determined in each case by the Committee in its
sole and absolute discretion. Termination of Employment means, with respect to a
consultant, termination of his or her services as a consultant to the Company or
one of its Subsidiaries.
2.34 "Third Party" includes a single person or a group of persons or
entities acting in concert not wholly owned directly or indirectly by the
Company.
2.35 "Voting Stock" means the classes of stock of the Company entitled
to vote generally in the election of directors of the Company.
ARTICLE III. ADMINISTRATION
3.01 COMMITTEE. The Plan shall be administered by the Committee, which
shall have exclusive and final authority in each determination, interpretation,
or other action affecting the Plan and its Participants. The Committee shall
have the sole and absolute discretion to interpret the Plan, to establish and
modify administrative rules for the Plan, to select the officers, other key
employees and consultants to whom Awards may be granted, to determine the terms
and provisions of the respective Award Agreements (which need not be identical),
to determine all claims for benefits under the Plan, to impose such conditions
and restrictions on Awards as it determines appropriate, to determine whether
the shares offered with respect to an Award will be treasury shares or will be
authorized but previously unissued shares, and to take such steps in connection
with the Plan and Awards granted hereunder as it may deem necessary or
advisable. No action of the Committee will be effective if it contravenes or
amends the Plan in any respect.
3.02 ACTIONS OF THE COMMITTEE. Except when the "Committee" is the
"Board" in the circumstance described on the last sentence of Section 2.08, all
determinations of the Committee shall be made by a majority vote of its members.
Any decision or determination reduced to writing and signed by all of the
members shall be fully as effective as if it had been made at a meeting duly
called and held. The Committee shall also have express authorization to hold
Committee meetings by conference telephone, or similar communication equipment
by means of which all persons participating in the meeting can hear each other.
ARTICLE IV. SHARES OF COMMON STOCK
4.01 NUMBER OF SHARES OF COMMON STOCK ISSUABLE. Subject to adjustments
as provided in Section 9.05, 2,500,000 shares of Common Stock shall be available
5
<PAGE>
for Awards granted under the Plan. The Common Stock to be offered under the Plan
shall be authorized and unissued Common Stock, or issued Common Stock that shall
have been reacquired by the Company and held in its treasury.
4.02 CALCULATION OF NUMBER OF SHARES OF COMMON STOCK AWARDED TO ANY
PARTICIPANT. In the event the purchase price of an Option is paid, or tax or
withholding payments relating to an Award are satisfied, in whole or in part
through the delivery of shares of Common Stock, a Participant will be deemed to
have received an Award with respect to those shares of Common Stock.
4.03 SHARES OF COMMON STOCK SUBJECT TO TERMINATED AWARDS. The Common
Stock covered by any unexercised portions of terminated Options, shares of
Common Stock forfeited as provided in Section 7.02(a) and shares of Common Stock
subject to Awards that are otherwise surrendered by the Participant without
receiving any payment or other benefit with respect thereto may again be subject
to new Awards under the Plan.
ARTICLE V. PARTICIPATION
5.01 ELIGIBLE PARTICIPANTS. Participants in the Plan shall include such
officers, other key employees of and consultants to the Company or its
Subsidiaries, whether or not directors of the Company, as the Committee, in its
sole and absolute discretion, may designate from time to time. In making such
designation, the Committee may take into account the nature of the services
rendered by the officers, key employees and consultants, their present and
potential contributions to the success of the Company, and such other factors as
the Committee, in its sole and absolute discretion, may deem relevant. The
Committee's designation of a Participant in any year shall not require the
Committee to designate such person to receive Awards in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
Participants and in determining the type and amount of their respective Awards.
A Participant may hold more than one Award granted under the Plan. During the
term of the Plan, no Employee Participant may receive Awards with respect to
more than 500,000 shares of Common Stock.
Non-Employee Directors shall receive Non-Employee Director Options in
accordance with Article VIII, the provisions of which are automatic and
non-discretionary in operation. Non-Employee Directors shall not be eligible to
receive any other Awards under the Plan unless they are no longer Non-Employee
Directors on the Date of Grant of such Awards.
ARTICLE VI. STOCK OPTIONS
6.01 GRANT OF OPTION. Any Option granted under this Article VI shall
have such terms as the Committee may, from time to time, approve, and the terms
and conditions of Options need not be the same with respect to each Participant.
Under this Article VI, the Committee may grant to any Employee or Consultant
Participant one or more Incentive Stock Options, Non-Qualified Stock Options or
both types of Options; PROVIDED, HOWEVER, that Incentive Stock Options may only
be granted to Employee Participants. To the extent any Option does not qualify
as an Incentive Stock Option (whether because of its provisions, the time or
manner of its exercise or otherwise), that Option or the portion thereof that
does not so qualify shall constitute a separate Non-Qualified Stock Option.
6.02 INCENTIVE STOCK OPTIONS. In the case of any grant of an Incentive
Stock Option, whenever possible, each provision hereof and in any Award
Agreement relating to such Option shall be interpreted to entitle the holder
thereof to the tax treatment afforded by Section 422 of the Code, except (a) in
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connection with the exercise of Options following a Participant's Termination of
Employment, (b) in accordance with a specific determination of the Committee
with the consent of the affected Participant and (c) to the extent that the
operation of Section 9.05 would cause an Option to no longer be entitled to such
treatment. If any provision hereof or that Award Agreement is held not to comply
with requirements necessary to entitle that Option to that tax treatment, then
except as otherwise provided in the preceding sentence: (i) that provision shall
be deemed to have contained from the outset such language as is necessary to
entitle the Option to the tax treatment afforded under Section 422 of the Code;
and (ii) all other provisions hereof and of that Award Agreement remain in full
force and effect. Except as otherwise specified in the first sentence of this
Section 6.02, if any Award Agreement covering an Option the Committee designates
to be an Incentive Stock Option hereunder does not explicitly include any term
required to entitle that Incentive Stock Option to the tax treatment afforded by
Section 422 of the Code, all such terms shall be deemed implicit in the
designation of that Option, and that Option shall be deemed to have been granted
subject to all such terms.
6.03 TERMS OF OPTIONS. Options granted under this Article VI shall be
subject to the following terms and conditions and shall be in such form and
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The option price per share of Common Stock
purchasable under an Option shall be determined by the Committee at the
time of grant but, if the Option is an Incentive Stock Option, the
option price per share shall not be less than 100% of the Fair Market
Value of a share of Common Stock on the Date of Grant; PROVIDED,
HOWEVER, that, if an Incentive Stock Option is granted to a Ten Percent
Shareholder, the option price per share shall be at least 110% of the
Fair Market Value of a share of Common Stock on the Date of Grant and
PROVIDED, FURTHER, that, except as otherwise required under the Code
with respect to Incentive Stock Options and as required by Rule 16b-3
with respect to Options granted to persons subject to Section 16 of the
Exchange Act, no amendment of an Option shall be deemed to be the grant
of a new Option for purposes of this Section 6.03(a). Notwithstanding
the foregoing, the option price per share of Common Stock of an Option
shall never be less than par value per share.
(b) OPTION TERM. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than ten years after
its Date of Grant; PROVIDED, HOWEVER, that, if an Incentive Stock
Option is granted to a Ten Percent Shareholder, the Option shall not be
exercisable more than five years after its Date of Grant.
(c) EXERCISABILITY. An Award Agreement with respect to Options
may contain such performance targets, waiting periods, exercise dates,
restrictions on exercise (including, but not limited to, a requirement
that an Option is exercisable in periodic installments), and
restrictions on the transfer of the underlying shares of Common Stock,
if any, as may be determined by the Committee at the time of grant. To
the extent not exercised, installments shall cumulate and be
exercisable, in whole or in part, at any time after becoming
exercisable, subject to the limitations set forth in Sections 6.03(b),
(g) and (h). If an Option is an Incentive Stock Option and if required
by Section 422 of the Code, the aggregate Fair Market Value of the
shares of Common Stock underlying such Option and all other incentive
stock options granted to the Employee Participant (determined at the
time the Option is granted) that become exercisable in any one calendar
year shall not exceed $100,000.
(d) METHOD OF EXERCISE. Subject to whatever installment
exercise and waiting period provisions that apply under Section 6.03(c)
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above, Options may be exercised in whole or in part at any time during
the term of the Option, by giving written notice of exercise to the
Company specifying the number of shares of Common Stock to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price in such form as the Committee may accept (including
payment in accordance with a cashless exercise program approved by the
Committee). If and to the extent the Committee determines in its sole
and absolute discretion at or after grant, payment in full or in part
may also be made in the form of shares of Common Stock already owned by
the Participant (and for which the Participant has good title, free and
clear of any liens or encumbrances) based on the Fair Market Value of
the shares of Common Stock on the date the Option is exercised;
PROVIDED, HOWEVER, that any already owned Common Stock used for payment
must have been held by the Participant for at least six months. No
Common Stock shall be issued on exercise of an Option until payment, as
provided herein, therefor has been made. A Participant shall generally
have the right to dividends or other rights of a stockholder with
respect to Common Stock subject to the Option only when certificates
for shares of Common Stock are issued to the Participant.
(e) RELOAD OPTIONS. The Committee shall have the authority to
specify, at the time of grant or, with respect to Non-Qualified Stock
Options, at or after the time of grant, that an Employee or a
Consultant Participant shall be granted a Non-Qualified Stock Option (a
"Reload Option") in the event such Participant exercises all or a part
of an Option (an "Original Option") by surrendering in accordance with
Section 6.03(d) of the Plan already owned shares of Common Stock in
full or partial payment of the purchase price under the Original
Option, subject to the availability of shares of Common Stock under the
Plan at the time of such exercise; PROVIDED, HOWEVER, that no Reload
Option shall be granted to a Non-Employee Director. Each Reload Option
shall cover a number of shares of Common Stock equal to the number of
shares of Common Stock surrendered in payment of the purchase price
under such Original Option, shall have a purchase price per share of
Common Stock equal to the 100% of the Fair Market Value of a share of
Common Stock on the Date of Grant of such Reload Option, and shall
expire on the stated expiration date of the Original Option. A Reload
Option shall be exercisable at any time and from time to time after the
Date of Grant of such Reload Option (or, as the Committee in its sole
and absolute discretion shall determine, at or after the Date of Grant,
at such time or times as shall be specified in the Reload Option). Any
Reload Option may provide for the grant, when exercised, of subsequent
Reload Options to the extent and upon such terms and conditions,
consistent with this Section 6.03(e), as the Committee in its sole and
absolute discretion shall specify at or after the Date of Grant of such
Reload Option. A Reload Option shall contain such other terms and
conditions, which may include a restriction on the transferability of
the shares of Common Stock received upon exercise of the Original
Option representing at least the after-tax profit received upon
exercise of the Original Option, as the Committee in its sole and
absolute discretion shall deem desirable, and which may be set forth in
rules or guidelines adopted by the Committee or in the Award Agreements
evidencing the Reload Options.
(f) NON-TRANSFERABILITY OF OPTIONS. No Option shall be
transferable by the Participant otherwise than by will or the laws of
descent and distribution.
(g) ACCELERATION OR EXTENSION OF EXERCISE TIME. The Committee,
in its sole and absolute discretion, shall have the right (but shall
not in any case be obligated) to permit purchase of Common Stock
subject to any Option granted to an Employee or a Consultant
Participant prior to the time such Option would otherwise become
exercisable under the terms of the Award Agreement. In addition, the
Committee, in its sole and absolute discretion, shall have the right
(but shall not in any case be obligated) to permit any Option granted
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to an Employee or a Consultant Participant to be exercised after its
expiration date, subject, however to the limitation set forth in
Section 6.03(b).
(h) EXERCISE OF OPTIONS UPON TERMINATION OF EMPLOYMENT. The
following provisions apply to Options granted to Employee and
Consultant Participants:
(i) EXERCISE OF VESTED OPTIONS UPON TERMINATION OF
EMPLOYMENT.
(A) TERMINATION. Unless the Committee, in its sole
and absolute discretion, provides for a shorter or longer
period of time in the Award Agreement or a longer period
of time in accordance with Section 6.03(g), upon an
Employee or a Consultant Participant's Termination of
Employment other than by reason of death or Disability,
an Employee or a Consultant Participant may, within three
months from the date of such Termination of Employment,
exercise all or any part of his or her Options as were
exercisable on the date of Termination of Employment if
such Termination of Employment is not for Cause. If such
Termination of Employment is for Cause, the right of the
Employee or Consultant Participant to exercise such
Options shall terminate on the date of Termination of
Employment. In no event, however, may any Option be
exercised later than the date determined pursuant to
Section 6.03(b).
(B) DISABILITY. Unless the Committee, in its sole and
absolute discretion, provides for a shorter or longer
period of time in the Award Agreement or a longer period
of time in accordance with Section 6.03(g), upon an
Employee or a Consultant Participant's Disability Date,
the Employee or Consultant Participant may, within one
year after the Disability Date, exercise all or a part of
his or her Options, whether or not such Option was
exercisable on the Disability Date, but only to the
extent not previously exercised. In no event, however,
may any Option be exercised later than the date
determined pursuant to Section 6.03(b).
(C) DEATH. Unless the Committee, in its sole and
absolute discretion, provides for a shorter or longer
period of time in the Award Agreement or a longer period
of time in accordance with Section 6.03(g), in the event
of the death of an Employee or a Consultant Participant
while employed by the Company or a Subsidiary, the right
of the Employee or Consultant Participant's Beneficiary
to exercise the Option in full (whether or not all or any
part of the Option was exercisable as of the date of
death of the Employee or Consultant Participant, but only
to the extent not previously exercised) shall expire upon
the expiration of one year from the date of the Employee
or Consultant Participant's death or on the date of
expiration of the Option determined pursuant to Section
6.03(b), whichever is earlier.
(ii) EXPIRATION OF UNVESTED OPTIONS UPON TERMINATION OF
EMPLOYMENT. Subject to Sections 6.03(g) and 6.03(h)(i)(B) and
(C), to the extent all or any part of an Option granted to an
Employee or a Consultant Participant was not exercisable as of
the date of Termination of Employment, such right shall expire
at the date of such Termination of Employment. Notwithstanding
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the foregoing, the Committee, in its sole and absolute
discretion and under such terms as it deems appropriate, may
permit an Employee or a Consultant Participant who will
continue to render significant services to the Company or a
Subsidiary after his or her Termination of Employment to
continue to accrue service with respect to the right to
exercise his or her Options during the period in which the
individual continues to render such services.
ARTICLE VII. RESTRICTED SHARES
7.01 RESTRICTED SHARE AWARDS. Restricted Shares may be issued either
alone or in addition to other Awards granted under the Plan. The Committee may
grant to any Employee or Consultant Participant an Award of shares of Common
Stock in such number, and subject to such terms and conditions relating to
forfeitability and restrictions on delivery and transfer (whether based on
performance standards, periods of service or otherwise) as the Committee shall
establish. The terms of any Restricted Share Award granted under the Plan shall
be set forth in an Award Agreement, which shall contain provisions determined by
the Committee and not inconsistent with the Plan. The provisions of Restricted
Share Awards need not be the same for each Participant receiving such Awards.
(a) ISSUANCE OF RESTRICTED SHARES. As soon as practicable
after the Date of Grant of a Restricted Share Award by the Committee,
the Company shall cause to be transferred on the books of the Company
shares of Common Stock, registered on behalf of the Participant in
nominee form, evidencing the Restricted Shares covered by the Award,
but subject to forfeiture to the Company retroactive to the Date of
Grant if an Award Agreement delivered to the Participant by the Company
with respect to the Restricted Shares covered by the Award is not duly
executed by the Participant and timely returned to the Company. Each
Participant, as a condition to the receipt of a Restricted Share Award,
shall pay to the Company in cash the par value of a share of Common
Stock multiplied by the number of shares of Common Stock covered by
such Restricted Share Award. All shares of Common Stock covered by
Awards under this Article VII shall be subject to the restrictions,
terms and conditions contained in the Plan and the Award Agreement
entered into by and between the Company and the Participant. Until the
lapse or release of all restrictions applicable to an Award of
Restricted Shares, the stock certificates representing such Restricted
Shares shall be held in custody by the Company or its designee. Upon
the lapse or release of all restrictions with respect to an Award as
described in Section 7.01(d), one or more stock certificates,
registered in the name of the Participant, for an appropriate number of
shares of Common Stock as provided in Section 7.01(d), free of any
restrictions set forth in the Plan and the Award Agreement, shall be
delivered to the Participant.
(b) SHAREHOLDER RIGHTS. Beginning on the Date of Grant of the
Restricted Share Award and subject to execution of the Award Agreement
as provided in Section 7.01(a), the Participant shall become a
shareholder of the Company with respect to all shares of Common Stock
subject to the Award Agreement and shall have all of the rights of a
shareholder, including, but not limited to, the right to vote such
shares of Common Stock and, except as otherwise determined by the
Committee and specified in the applicable Award Agreement, the right to
receive dividends (or dividend equivalents); PROVIDED, HOWEVER, that
any shares of Common Stock distributed as a dividend or otherwise with
respect to any Restricted Shares as to which the restrictions have not
yet lapsed shall be subject to the same restrictions as such Restricted
Shares and shall be held in custody by the Company as prescribed in
Section 7.01(a).
(c) RESTRICTION ON TRANSFERABILITY. None of the Restricted
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Shares may be assigned or transferred (other than by will or the laws
of descent and distribution), pledged or sold prior to lapse or release
of the restrictions applicable thereto.
(d) DELIVERY OF SHARES OF COMMON STOCK UPON RELEASE OF
RESTRICTIONS. Upon expiration or earlier termination of the forfeiture
period without a forfeiture and the satisfaction of or release from any
other conditions prescribed by the Committee, the restrictions
applicable to the Restricted Shares shall lapse. As promptly as
administratively feasible thereafter, subject to the requirements of
Section 9.04, the Company shall deliver to the Participant or, in case
of the Participant's death, to the Participant's Beneficiary, one or
more stock certificates for the appropriate number of shares of Common
Stock, free of all such restrictions, except for any restrictions that
may be imposed by law.
7.02 TERMS OF RESTRICTED SHARES.
(a) FORFEITURE OF RESTRICTED SHARES. Subject to Section
7.02(b), all Restricted Shares shall be forfeited and returned to the
Company and all rights of the Participant with respect to such
Restricted Shares shall terminate unless the Participant continues in
the service of the Company or any Subsidiary of the Company as an
employee or consultant, as the case may be, until the expiration of the
forfeiture period for such Restricted Shares and satisfies any and all
other conditions set forth in the Award Agreement. The Committee, in
its sole and absolute discretion, shall determine the forfeiture period
(which may, but need not, lapse in installments) and any other terms
and conditions applicable with respect to any Restricted Share Award.
(b) WAIVER OF FORFEITURE PERIOD. Notwithstanding anything
contained in this Article VII to the contrary, the Committee may, in
its sole and absolute discretion, waive the forfeiture period and any
other conditions set forth in any Award Agreement under appropriate
circumstances (including the death, Disability or retirement of the
Participant or a material change in circumstances arising after the
Date of Grant of an Award) and subject to such terms and conditions
(including forfeiture of a proportionate number of Restricted Shares)
as the Committee shall deem appropriate, provided that the Participant
shall at that time have completed at least one year of employment or
service as a consultant after the Date of Grant.
ARTICLE VIII. NON-EMPLOYEE DIRECTOR OPTIONS
8.01 GRANT OF NON-EMPLOYEE DIRECTOR OPTIONS. On the earlier to occur of
(a) the date a Non-Employee Director is elected as such for the first time by
the holders of Voting Stock and (b) the date this Plan is approved by a simple
majority of the holders of Voting Stock, each Non-Employee Director shall be
granted a Non-Employee Director Option consisting of an Option to purchase
10,000 shares of Common Stock; PROVIDED, HOWEVER, that (i) directors Charles C.
Chen, Harry S. Gruner and William E. Odom shall each not be eligible to receive
an Option under this Section 8.01, and (ii) if a Non-Employee Director receives,
after the Effective Date of this Plan, an option ("1996 Plan Option") to
purchase shares of Common Stock under the Virtual Open Network Environment
Corporation 1996 Incentive Stock Plan ("1996 Plan"), the number of shares
subject to the Option granted under this Section 8.01 shall be reduced by the
number of shares covered by the 1996 Plan Option. The option price for such
Non-Employee Director Options shall be the Fair Market Value of a share of
Common Stock on the Date of Grant. All such Options shall be designated as
Non-Qualified Stock Options and shall have a five year term. Each such Option
shall be exercisable in full on the Date of Grant of such Option.
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If a Non-Employee Director's service with the Company terminates by
reason of death, any Option held by such Non-Employee Director may be exercised
for a period of one year from the date of death or until the expiration of the
Option, whichever is shorter. If a Non-Employee Director's service with the
Company terminates other than by reason of death, any Option held by such
Non-Employee Director may be exercised for a period of three months from the
date of such termination, or until the expiration of the stated term of the
Option, whichever is shorter. All applicable provisions of the Plan (other than
Sections 6.03(g) and (h)) not inconsistent with this Section 8.01 shall apply to
Options granted to Non-Employee Directors.
ARTICLE IX. TERMS APPLICABLE TO ALL AWARDS GRANTED UNDER THE PLAN
9.01 AWARD AGREEMENT. No person shall have any rights under any Award
granted under the Plan unless and until the Company and the Participant to whom
such Award shall have been granted shall have executed and delivered an Award
Agreement authorized by the Committee expressly granting the Award to such
person and containing provisions setting forth the terms of the Award.
9.02 PLAN PROVISIONS CONTROL AWARD TERMS. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the Committee
have the power to grant to a Participant any Award under the Plan that is
contrary to any provisions of the Plan. If any provision of any Award shall
conflict with any of the terms in the Plan as constituted on the Date of Grant
of such Award, the terms in the Plan as constituted on the Date of Grant of such
Award shall control.
9.03 MODIFICATION OF AWARD AFTER GRANT. Except as provided by the
Committee, in its sole and absolute discretion, in the Award Agreement or as
provided in Section 9.05, no Award granted under the Plan to a Participant may
be modified (unless such modification does not materially decrease the value of
the Award) after the Date of Grant except by express written agreement between
the Company and the Participant, provided that any such change (a) shall not be
inconsistent with the terms of the Plan, and (b) shall be approved by the
Committee.
9.04 TAXES. The Company shall be entitled, if the Committee deems it
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any Award. The Company may
defer issuance of Common Stock under an Award unless indemnified to its
satisfaction against any liability for any such tax. The amount of such
withholding or tax payment shall be determined by the Committee or its delegate
and shall be payable by the Participant at such time as the Committee
determines. A Participant shall be permitted to satisfy his or her tax or
withholding obligation by (a) having cash withheld from the Participant's salary
or other compensation payable by the Company or a Subsidiary, (b) the payment of
cash by the Participant to the Company, (c) the payment in shares of Common
Stock already owned by the Participant valued at Fair Market Value, and/or (d)
the withholding from the Award, at the appropriate time, of a number of shares
of Common Stock sufficient, based upon the Fair Market Value of such Common
Stock, to satisfy such tax or withholding requirements. The Committee shall be
authorized, in its sole and absolute discretion, to establish rules and
procedures relating to any such withholding methods it deems necessary or
appropriate (including, without limitation, rules and procedures relating to
elections by Participants who are subject to the provisions of Section 16 of the
Exchange Act to have shares of Common Stock withheld from an Award to meet those
withholding obligations).
9.05 ADJUSTMENTS TO REFLECT CAPITAL CHANGES; CHANGE IN CONTROL.
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(a) RECAPITALIZATION. The number and kind of shares subject to
outstanding Awards, the purchase price or exercise price of such
Awards, the amount of Non-Employee Director Options to be granted on
any date under Article VIII, the limit set forth in the last sentence
of the first paragraph of Section 5.01 of the Plan, and the number and
kind of shares available for Awards subsequently granted under the Plan
shall be appropriately adjusted to reflect any stock dividend, stock
split, combination or exchange of shares, merger, consolidation or
other change in capitalization with a similar substantive effect upon
the Plan or the Awards granted under the Plan. The Committee shall have
the power and sole and absolute discretion to determine the nature and
amount of the adjustment to be made in each case. In no event shall any
adjustments be made under the provisions of this Section 9.05(a) to any
outstanding Restricted Share Award if an adjustment has been or will be
made to the shares of Common Stock awarded to a Participant in such
person's capacity as a stockholder.
(b) SALE OR REORGANIZATION. After any reorganization, merger,
or consolidation in which the Company is or is not the surviving
entity, each Participant shall, at no additional cost, be entitled upon
the exercise of an Option outstanding prior to such event to receive
(subject to any required action by stockholders), in lieu of the number
of shares of Common Stock receivable on exercise pursuant to such
Option, the number and class of shares of stock or other securities to
which such Participant would have been entitled pursuant to the terms
of the reorganization, merger, or consolidation if, at the time of such
reorganization, merger, or consolidation, such Participant had been the
holder of record of a number of shares of Common Stock equal to the
number of shares of Common Stock receivable on exercise of such Option.
Comparable rights shall accrue to each Participant in the event of
successive reorganizations, mergers, or consolidations of the character
described above.
(c) OPTIONS TO PURCHASE STOCK OF ACQUIRED COMPANIES. After any
reorganization, merger, or consolidation in which the Company shall be
a surviving entity, the Committee may grant substituted Options under
the provisions of the Plan, replacing old options granted under a plan
of another party to the reorganization, merger, or consolidation whose
stock subject to the old options may no longer be issued following such
reorganization, merger, or consolidation. The foregoing adjustments and
manner of application of the foregoing provisions shall be determined
by the Committee in its sole and absolute discretion. Any such
adjustments may provide for the elimination of any fractional shares of
Common Stock that might otherwise become subject to any Options.
(d) CHANGE IN CONTROL. Upon a Change in Control, unless
otherwise specifically prohibited by Rule 16b-3:
(1) Any and all Options shall become exercisable in full,
to the extent not previously exercised, as of the date of the
Change in Control; and
(2) The restrictions on vesting on all Restricted Share
Awards shall be deemed to have satisfied as of the date of
the Change in Control.
(e) EXISTENCE OF AWARDS. The existence of outstanding Awards
shall not affect the right of the Company or its stockholders to make
or authorize any and all adjustments, recapitalizations,
reclassifications, reorganizations and other changes in the Company's
capital structure, the Company's business, any merger or consolidation
of the Company, any issue of bonds, debentures or preferred stock of
the Company, the Company's liquidation or dissolution, any sale or
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transfer of all or any part of the Company's assets or business, or any
other corporate act or proceeding, whether of a similar nature or
otherwise.
9.06 SURRENDER OF AWARDS. Any Award granted to a Participant under the
Plan may be surrendered to the Company for cancellation on such terms as the
Committee and holder approve.
9.07 NO RIGHT TO AWARD; NO RIGHT TO EMPLOYMENT. Except as provided in
Article VIII, no director, employee, consultant or other person shall have any
claim or right to be granted an Award. Neither the Plan nor any action taken
hereunder shall be construed as giving any director, employee or consultant any
right to be retained by the Company or any of its Subsidiaries.
9.08 AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Income recognized by a
Participant pursuant to the provisions of the Plan shall not be included in the
determination of benefits under any employee pension benefit plan (as such term
is defined in Section 3(2) of ERISA) or group insurance or other benefit plans
applicable to the Participant that are maintained by the Company or any of its
Subsidiaries, except as may be provided under the terms of such plans or
determined by resolution of the Board.
9.09 GOVERNING LAW. The Plan and all determinations made and actions
taken pursuant to the Plan shall be governed by the laws of the State of
Delaware other than the conflict of laws provisions of such laws, and shall be
construed in accordance therewith.
9.10 NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, the Committee, or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the Plan
or any rule or procedure established by the Committee.
9.11 COMPLIANCE WITH RULE 16B-3 AND SECTION 162(M). It is intended that
the Plan be applied and administered in compliance with Rule 16b-3 and with
Section 162(m). If any provision of the Plan would be in violation of Section
162(m) if applied as written, such provision shall not have effect as written
and shall be given effect so as to comply with Section 162(m) as determined by
the Committee in its sole and absolute discretion. The Board is authorized to
amend the Plan and the Committee is authorized to make any such modifications to
Award Agreements to comply with Rule 16b-3 and Section 162(m), as they may be
amended from time to time, and to make any other such amendments or
modifications deemed necessary or appropriate to better accomplish the purposes
of the Plan in light of any amendments made to Rule 16b-3 or Section 162(m).
Notwithstanding the foregoing, the Board may amend the Plan so that it (or
certain of its provisions) no longer comply with either or both of Rule 16b-3 or
Section 162(m) if the Board specifically determines that such compliance is no
longer desired and the Committee may grant Awards that do not comply with Rule
16b-3 and/or Section 162(m) if the Committee determines, in its sole and
absolute discretion, that it is in the interest of the Company to do so.
9.12 CAPTIONS. The captions (I.E., all Article and Section headings)
used in the Plan are for convenience only, do not constitute a part of the Plan,
and shall not be deemed to limit, characterize, or affect in any way any
provisions of the Plan, and all provisions of the Plan shall be construed as if
no captions have been used in the Plan.
9.13 SEVERABILITY. Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan shall be interpreted in such
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manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited by or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law, and (b) all other provisions of
the Plan and every other Award at any time granted under the Plan shall remain
in full force and effect.
9.14 LEGENDS. All certificates for Common Stock delivered under the
Plan shall be subject to such transfer restrictions, if any, set forth in the
Plan and such other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the SEC, any stock exchange upon
which the Common Stock is then listed, and any applicable federal or state
securities law. The Committee may cause a legend or legends to be put on any
such certificates to make appropriate references to such restrictions.
9.15 INVESTMENT REPRESENTATION. The Committee may, in its sole and
absolute discretion, demand that any Participant awarded an Award deliver to the
Committee at the time of grant or exercise of such Award a written
representation that the shares of Common Stock subject to such Award are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such written representation by the
Participant prior to the delivery of any shares of Common Stock pursuant to the
grant or exercise of his or her Award shall be a condition precedent to the
Participant's right to purchase or otherwise acquire such shares of Common Stock
by such grant or exercise. The Company is not legally obliged hereunder if
fulfillment of its obligations under the Plan would violate federal or state
securities laws.
9.16 AMENDMENT AND TERMINATION.
(a) AMENDMENT. The Board shall have complete power and
authority to amend the Plan at any time it is deemed necessary or
appropriate; provided, however, that the Board shall not, without the
affirmative approval of a simple majority of the holders of Voting
Stock, represented, by person or by proxy, and entitled to vote at an
annual or special meeting of the holders of Voting Stock, make any
amendment that requires stockholder approval under any applicable law
or rule, unless the Board determines that compliance with such law or
rule is no longer desired with respect to the Plan as a whole or the
provision to be amended. No termination or amendment of the Plan may,
without the consent of the Participant to whom any Award shall
theretofore have been granted under the Plan, adversely affect the
right of such individual under such Award; provided, however, that the
Committee may, in its sole and absolute discretion, make provision in
an Award Agreement for such amendments that, in its sole and absolute
discretion, it deems appropriate.
(b) TERMINATION. The Board shall have the right and the power
to terminate the Plan at any time. No Award shall be granted under the
Plan after the termination of the Plan, but the termination of the Plan
shall not have any other effect and any Award outstanding at the time
of the termination of the Plan may be amended and exercised and may
vest after termination of the Plan at any time prior to the expiration
date of such Award to the same extent such Award could have been
amended or would have been exercisable or vest had the Plan not
terminated.
9.17 COSTS AND EXPENSES. All costs and expenses incurred in
administering the Plan shall be borne by the Company.
9.18 UNFUNDED PLAN. The Plan shall be unfunded. The Company shall not
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be required to establish any special or separate fund or make any other
segregation of assets to assure the payment of any Award under the Plan.
9.19 LOANS. The Committee shall be entitled to grant to Participants
granted Non-Qualified Stock Options (other than Non-Employee Director Options)
the right to pay the exercise price of such Options by delivery to the Company
of an amount of cash equal to the par value per share of Common Stock purchased
on exercise and a recourse promissory note. Each such recourse promissory note
shall have the following terms and conditions: (a) such promissory note shall
bear interest at 2% over the prime rate of Citibank on the date the promissory
note is issued, (b) interest shall be due and payable quarterly in arrears, (c)
the principal amount shall be due in full on the second anniversary date, (d)
principal and accrued interest may be prepaid at any time, in whole or in part,
without penalty, (e) in the event of a default in the payment of principal or
interest when due and the continuance of such default for ten (10) days, the
full principal amount of the promissory note plus accrued and unpaid interest
shall become immediately due and payable, and (vi) the promissory note shall be
secured by a pledge to the Corporation of shares of Common Stock having a Fair
Market Value at all times at least equal to 110% of the principal amount of the
promissory note.
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