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[LOGO]
ALYN CORPORATION
16761 HALE AVENUE
IRVINE, CALIFORNIA 92606
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1999
TO OUR STOCKHOLDERS:
Please take notice that the 1999 Annual Meeting of Stockholders (the "Annual
Meeting") of Alyn Corporation, a Delaware corporation (the "Company"), will be
held at 10:00 a.m., local time, on Thursday, June 10, 1999, at the Company's
corporate offices located at 16761 Hale Avenue, Irvine, CA 92606, for the
following purposes: 1. To elect five directors to hold office until the 2000
Annual Meeting of Stockholders; 2. Approval of 1999 Stock Incentive Plan; 3.
Approval of Issuance of Common Stock Upon Exchange of Exchangeable Securities;
4. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for its fiscal year ending
December 31, 1999; and
5. To transact such other business as may properly come before the meeting or
any postponement or adjournment thereof.
Stockholders of record at the close of business on the record date, April 23,
1999, are entitled to notice of, and to vote at, the Annual Meeting and any
postponement or adjournment thereof.
By Order of the Board of Directors
/S/ RICHARD L. LITTLE
April 30, 1999 Richard L. Little
Secretary
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YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN
THE ENCLOSED FORM OF PROXY IN THE ENVELOPE PROVIDED WHETHER OR NOT YOU PLAN
TO ATTEND THE ANNUAL MEETING. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED
STATES. STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY REVOKE THEIR PROXIES
AND VOTE THEIR SHARES IN PERSON.
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<PAGE>
ALYN CORPORATION
16761 HALE AVENUE
IRVINE, CALIFORNIA 92606
PROXY STATEMENT
FOR THE
1999 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
JUNE 10, 1999
GENERAL INFORMATION
This Proxy Statement is being furnished in connection with the solicitation of
proxies by the Board of Directors of Alyn Corporation, a Delaware corporation
("Alyn" or the "Company"), for use at the 1999 Annual Meeting of Stockholders
scheduled to be held on Thursday, June 10, 1999, at 10:00 a.m., local time, or
any postponement or adjournment thereof (the "Annual Meeting"). The Annual
Meeting will be held at the Company's corporate offices located at 16761 Hale
Avenue, Irvine, CA 92606. A form of proxy for use at the Annual Meeting and a
return envelope for the proxy are also enclosed.
Purpose of the Annual Meeting. It is proposed that at the Annual Meeting: (i)
five members of the Board of Directors be elected for terms expiring at the 2000
Annual Meeting of Stockholders; (ii) the appointment by the Board of Directors
of the independent accountants of the Company for fiscal year 1999 be ratified;
and (iii)________________________________________.
The Company is not aware at this time of any other business to be acted upon at
the Annual Meeting. However, if any other business properly comes before the
Annual Meeting, it is the intention of the persons named in the enclosed form of
proxy to vote on those matters in accordance with their best judgment.
Solicitation and Voting of Proxies; Revocation. Shares cannot be voted at the
Annual Meeting unless the owner thereof is present in person or by proxy. The
Board of Directors urges stockholders to complete, date, sign and return their
proxies promptly whether or not they plan to attend the Annual Meeting. All duly
executed and unrevoked proxies in the accompanying form that are received in
time for the Annual Meeting will be voted at the Annual Meeting in accordance
with the instructions indicated thereon. In the absence of such instructions,
duly executed proxies will be voted "FOR" the election of the director nominees
listed below and "FOR" the approval of the other proposals set forth in the
Notice of Annual Meeting of Stockholders of the Company.
The submission of a signed proxy will not affect a stockholder's right to
attend, or to vote in person at, the Annual Meeting. A stockholder who executes
a proxy may revoke it at any time before it is voted by filing a revocation with
the Secretary of the Company, executing a proxy bearing a later date or by
attending the Annual Meeting and voting in person. In accordance with applicable
rules, boxes and a designated blank space are provided on the form of proxy for
stockholders to mark if they wish either to withhold authority to vote for the
nominees for director or abstain on the other matters presented for a vote of
stockholders.
The solicitation will be by mail, and may also be made personally or by
telephone by directors, officers and employees of the Company, for which they
will receive no compensation other than their regular compensation as directors,
officers or employees, if any. All the expenses of the solicitation will be
borne by the Company. Arrangements will be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy materials to
beneficial owners of the Company's voting securities, and the Company will
reimburse such brokerage houses and others for their reasonable expenses in so
doing. This Proxy Statement and the enclosed proxy card are being mailed to
stockholders beginning approximately May 8, 1999.
<PAGE>
Record Date; Voting Rights. Stockholders of record at the close of business on
April 23, 1999 (the "Record Date"), will be entitled to notice of, and to vote
at, the Annual Meeting. At the close of business on the Record Date, there were
issued and outstanding 11,108,000 shares of Alyn common stock, $0.001 par value
per share (the "Common Stock"). Holders of Common Stock are entitled to one vote
for each share of Common Stock registered in their name. The presence at the
Annual Meeting, in person or by proxy, of stockholders holding a majority of the
shares of Common Stock outstanding on the Record Date will constitute a quorum
to transact business at the Annual Meeting. Matters to be voted upon at the
Annual Meeting require the affirmative vote of a majority in voting power of the
shares of Common Stock that are present in person or by proxy voting as a single
class.
In accordance with applicable Securities and Exchange Commission ("SEC") rules,
designated blank spaces are provided on the form of proxy for stockholders to
mark if they wish either to abstain on one or more of the proposals or to
withhold authority to vote for any nominee for director. Under the rules of the
principal stock exchanges, when brokers have not received instructions from
their customers, brokers holding shares in street name have the authority to
vote the shares on some matters, but not others. Such missing votes are called
"broker non-votes." Abstentions and broker non-votes are counted for purposes of
determining the presence or absence of a quorum. Since the Company's Certificate
of Incorporation requires the affirmative vote of a majority of shares present,
in person or by proxy, an abstention on the Company's proposal to ratify the
selection of its auditors will have the practical effect of a negative vote
since it represents one less vote for approval. With regard to the election of
directors, votes that are withheld will be excluded entirely from the vote and
will have no effect. Under applicable Delaware law, broker non-votes will not be
counted for purposes of determining total votes cast and thus will have no
effect on the outcome of the election of the Board of Directors or the Company's
other proposals.
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
Information concerning the nominees for election to the Company's Board of
Directors is set forth below. Each nominee for election to the Board of
Directors named below has consented to being named as a nominee and has agreed
to serve if elected. If elected, each director would serve for a one-year term,
expiring at the 2000 Annual Meeting of Stockholders. The persons identified as
proxies on the enclosed form of proxy intend to vote each properly executed
proxy "FOR" the election of the listed nominees for the ensuing terms or until
their successors are elected and qualified, unless indicated otherwise in a
properly executed form of proxy. If any of the named nominees is not available
for election at the time of the Annual Meeting, discretionary authority will be
exercised to vote for a substitute or substitutes unless the Board of Directors
chooses to reduce the number of directors. Management is not aware of any
circumstances that would render any nominee for director named below
unavailable.
Messrs. van Roon, Hesburgh, Carden, Edelson and Markbreiter are currently
serving on the Company's Board of Directors. Mr. Hesburgh has been Chairman of
the Board of the Company since April 1999. Mr. van Roon was appointed as a
Director on April 14, 1999.
The following information with respect to each nominee has been furnished to the
Company by such nominee. The ages of the nominees are as of April 30, 1999.
Arne van Roon, 54, has been President, Chief Executive Officer and a Director
since April 15, 1999. Mr. van Roon is Chairman of the Company's Executive
Committee and a member of the Compensation Committee. From 1984 to 1999, he was
founder and President of Van Roon Partners, Ltd., a firm specializing in the
development and implementation of growth strategies for emerging companies with
new technologies. From 1971 to 1984 he was with Philips Electronics, a
Netherlands-based global electronics company, in a variety of senior positions
in finance, marketing and executive management in Holland, Germany, Italy, East
Africa and the Middle East. Mr. van Roon has a degree from Erasmus University in
Rotterdam, The Netherlands.
James Hesburgh, 65, has been a Director of the Company since December 1998 and
Chairman of the Board since April 1999. Mr. Hesburgh is a member of the
Company's Executive, audit and compensation Committees. He is currently
President and CEO of James L. Hesburgh International Inc., an export management
and international consulting firm. He has previously served as chairman, CEO,
and owner of Donegal International Machinery Ltd. in Ballyshannon, Ireland;
chairman of Hiller Aviation Inc.; president of Intercole Automation Inc.; and
vice president of international operations for The Wheelabrator Corporation. Mr.
Hesburgh currently serves on the boards of Battley USA, USCS International Inc.,
Fremont Funding, FirstFed Corporation and First Federal Bank of California,
Sinto America and Roberts Sinto Corporation, Saint John's Health Center
Foundation and Chief Executives Organization.
Robin A. Carden, 42, is the founder of the Company and has been a Director
since the Company's formation in 1990. Mr. Carden is a member of the
Company's Executive Committee. From the Company's formation until April
1998, he was President and Chief Executive Officer. Prior to 1990, Mr. Carden
was employed by Ceradyne Inc., a company engaged in the development and
production of advanced ceramics products, as Senior Sales Engineer, and was
ngaged in developing civilian applications for advanced ceramics products
originally developed for military use. Mr. Carden graduated from Long Beach
State University with a Bachelor of Science degree. A number of United
States patents have been issued to Mr. Carden.
Harry Edelson, 62, has been a Director of the Company since May 1996. Mr.
Edelson is Chairman of the Company's Audit Committee. Since 1984, Mr. Edelson
has been the Managing Partner of Edelson Technology Partners, a series of four
venture capital funds with ten large corporations as the limited partners. The
focus of the funds is to provide the corporate partners with access to high
technology products and services. One of the funds, Edelson Technology Partners
III, is a principal stockholder of the Company. Edelson Technology Partners,
through its related funds, has invested in approximately 80 companies involved
in a wide range of technologies, including telecommunications, computers,
semiconductors, specialty chemicals, environmental and publishing. Prior to
founding Edelson Technology Partners, Mr. Edelson was a transmission engineer at
AT&T, a senior computer engineer for UNISYS and a technology analyst for three
leading investment banking firms, Merrill Lynch, Drexel Burnham Lambert and
First Boston. Mr. Edelson has a Bachelor of Science degree in Physics from
Brooklyn College and a Masters of Business Administration from New York
University.
Michael Markbreiter, 37, has been a Director of the Company since May 1996. Mr.
Markbreiter is a member of the Company's Executive, Audit and Compensation
Committees. Since August 1995, Mr. Markbreiter has been a portfolio manager for
private equity investments for Kingdon Capital Management Corp., a manager of
investment funds. In April 1994, he co-founded Ram Investment Corp., a venture
capital company. From March 1993 to January 1994, he served as a portfolio
manager for Kingdon Capital Management Corp. Prior to February 1993, he worked
as an analyst at Alliance Capital Management Corp. Since December 1997, Mr.
Markbreiter has been a Director of Global Pharmaceutical Corporation, a publicly
traded generic pharmaceutical manufacturing company. Mr. Markbreiter graduated
from Cambridge University with a degree in Engineering.
Unless individual stockholders indicate otherwise, each returned proxy
will be voted "FOR" the election to the Board of Directors
of each of the five nominees named above.
<PAGE>
Board of Directors Committees and Meetings
During 1998, the Board of Directors held five meetings. Messers. Toledano
and Walter Menetrey were each unable to attend one meeting. All other
members of the Board of Directors attended all meetings. The Board of Directors
has three standing committees: the Executive Committee; the Audit Committee
and the Compensation Committee.
The Executive Committee has all the powers of the Company's full Board of
Directors, except that it is not authorized to amend the Company's Certificate
of Incorporation, declare any dividends or issue shares of capital stock of the
Company. The Executive Committee held no separate meetings in 1998. All issues
relevant to the Executive Committee were addressed by the full Board of
Directors. The Executive Committee consists of Messrs. van Roon (Chairman),
Carden, Hesburgh and Markbreiter. Following the Annual Meeting, if all nominees
for director are elected, the Executive Committee is expected to consist of
Messrs. van Roon, Carden, Hesburgh and Markbreiter.
The Audit Committee was established in June 1996. The functions of the Audit
Committee are to recommend annually to the Board of Directors the appointment of
the independent public accountants of the Company, review the scope of the
annual audit and other services the independent auditors are asked to perform,
review the report on the Company's financial statements following the audit,
review the accounting and financial policies of the Company and review
management's procedures and policies with respect to the Company's internal
controls. The Audit Committee consists of Messrs. Edelson (Chairman), Hesburgh
and Markbreiter. The Audit Committee held two separate meetings in 1998.
Following the Annual Meeting, if all nominees for director are elected, the
Audit Committee is expected to consist of Messrs. Edelson, Hesburgh and
Markbreiter.
The Compensation Committee held one separate meeting in 1998. All Its functions
are discussed in the Report on Executive Compensation which starts on page 13.
The Compensation Committee consists of Messrs. Hesburgh (Chairman), van Roon and
Markbreiter. Following the Annual Meeting, if all nominees for director are
elected, the Compensation Committee is expected to consist of Messrs.
Hesburgh, van Roon and Markbreiter.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Hesburgh, van Roon and
Markbreiter. Mr. van Roon is President and Chief Executive Officer of the
Company. Mr. Hesburgh is Chairman of the Board of the Company.
Director Compensation
Members of the Board of Directors of the Company presently receive no annual
remuneration for acting in that capacity. The Company compensates its
non-employee directors at the rate of $1,500 (plus reasonable expenses) for each
attended meeting of the Board of Directors and $500 for each telephonic meeting
in which each participates. Certain members of the Board of Directors of the
Company are also eligible for the grant of options under the 1996 Stock
Incentive Plan that provides for each non-employee Director (currently, Messrs.
Edelson and Markbreiter) to receive an initial grant of options to purchase
5,000 shares of Common Stock and an annual grant of options to purchase 10,000
shares of Common Stock.
<PAGE>
PROPOSAL 2 - APPROVAL OF THE
1999 STOCK INCENTIVE PLAN
The Company's stockholders are being asked to approve the Company's new 1999
Stock Incentive Plan (the "1999 Plan") under which 1,500,000 shares of the
Company's common stock have been reserved for issuance. The Board of Directors
adopted the 1999 Plan on April 15, 1999, subject to stockholder approval at the
1999 Annual Meeting. The 1999 Plan is intended to serve as a comprehensive
equity incentive program for the Company's officers, employees and non-employee
Board members which will encourage such individuals to remain in the Company's
service and more closely align their interests with those of the stockholders.
The following is a summary of the principal features of the 1999 Plan. This
summary does not, however, purport to be a complete description of all the
provisions of the 1999 Plan. Any stockholder of the Company who wishes to obtain
a copy of the actual plan document may do so upon written request to the
Company's Chief Financial Officer at the Company's principal executive offices
in Irvine, California.
Equity Incentive Programs
The 1999 Plan consists of three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Stock Issuance Program and (iii) an
Automatic Option Grant Program. The principal features of each program are
described below. The Compensation Committee of the Board will administer the
Discretionary Option Grant and Stock Issuance Programs with respect to all
officers and directors of the Company subject to the short-swing trading
restrictions of the federal securities laws ("Section 16 Insiders"). With
respect to all other participants, those programs may be administered by either
the Compensation Committee or a special stock option committee (the "Secondary
Committee") comprised of one or more Board members appointed by the Board or by
the entire Board itself. Each entity, whether the Compensation Committee, the
Secondary Committee or the Board, will be referred to in this summary as the
Plan Administrator with respect to its particular administrative functions under
the 1999 Plan, and each Plan Administrator will have complete discretion
(subject to the provisions of the 1999 Plan) to authorize option grants and
direct stock issuances under the 1999 Plan within the scope of its
administrative jurisdiction. However, all grants under the Automatic Option
Grant Program will be made in strict compliance with the provisions of that
program, and no administrative discretion will be exercised by any Plan
Administrator with respect to the grants made under such program.
Share Reserve
1,500,000 shares of Common Stock have been reserved for issuance over the
ten-year term of the 1999 Plan. Should any option terminate prior to exercise in
full, the shares subject to the unexercised portion of that option will be
available for subsequent issuance under the 1999 Plan. In addition, any unvested
shares issued under the 1999 Plan and subsequently repurchased by the Company at
the option exercise or direct issue price paid per share pursuant to the
Company's repurchase rights under the 1999 Plan will be added back to the number
of shares of Common Stock reserved for issuance under the 1999 Plan and will
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances made under the 1999 Plan. However, shares
subject to any option surrendered in accordance with the stock appreciation
right provisions of the 1999 Plan will not be available for subsequent issuance.
In no event may any individual be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances for more than 750,000
shares in total per calendar year under the 1999 Plan. Stockholder approval of
this Proposal will also constitute approval of such limitation for purposes of
Internal Revenue Code Section 162(m).
The Company also maintains the 1996 Stock Incentive Plan under which 1,000,000
shares of Common Stock have been reserved for issuance. The provisions governing
the discretionary and automatic option grants under the 1996 Plan are
substantially similar to the provisions which will be in effect for the
Discretionary Option Grant and Automatic Option Grant Programs of the 1999 Plan.
As of April 30, 1999, options for 873,165 shares were outstanding under the 1996
Plan and 126,835 shares remained available for future issuance. No shares had
been issued under the 1996 Plan. Upon stockholder approval of this Proposal, the
automatic grant program in effect for non-employee Board members under the 1996
Plan will terminate, and no further option grants will be made to the
non-employee Board members under that program. All automatic option grants to
the non-employee Board members on or after the date of the 1999 Annual Meeting
will be made solely and exclusively in accordance with the provisions of the
Automatic Option Grant Program of the 1999 Plan.
Changes in Capitalization
If any change is made to the outstanding shares of Common Stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without the Company's
receipt of consideration, appropriate adjustments will be made to (i) the
maximum number and class of securities issuable under the 1999 Plan, (ii) the
maximum number and class of securities for which any one participant may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances per calendar year under the 1999 Plan, (iii) the number
and class of securities for which option grants will subsequently be made under
the Automatic Option Grant Program to each newly-elected or continuing
non-employee Board member and (iv) the number and class of securities and the
exercise price per share in effect under each outstanding option under the Plan.
All such adjustments will be designed to preclude the enlargement or dilution of
participant rights and benefits under the 1999 Plan.
Eligibility
Employees, non-employee Board members, and independent consultants and advisors
to the Company and its subsidiaries (whether now existing or subsequently
established) will be eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs. Non-employee members of the Board will also be
eligible to participate in the Automatic Option Grant Program.
As of April 30, 1999, three (3) executive officers, three (3) non-employee Board
members and sixty (60) other employees were eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs, and the three (3)
non-employee Board members were also eligible to participate in the Automatic
Option Grant Program.
Valuation
The fair market value per share of Common Stock on any relevant date under the
1999 Plan will be the closing selling price per share on that date on the Nasdaq
National Market. On March 31, 1999, the closing selling price of the Company's
Common Stock was $2.875 per share.
Discretionary Option Grant Program
Grants
The Plan Administrator has complete discretion under the Discretionary Option
Grant Program to determine which eligible individuals are to receive option
grants, the time or times when such grants are to be made, the number of shares
subject to each such grant, the status of the granted option as either an
incentive stock option or a non-statutory option under the federal tax laws, the
vesting schedule (if any) to be in effect for the option grant and the maximum
term for which the option is to remain outstanding.
Price and Exercisability
The exercise price per share for options granted under the Discretionary Option
Grant Program may not be less than one hundred percent (100%) of the fair market
value per share of Common Stock on the grant date. No option will have a term in
excess of ten (10) years, and each option will generally become exercisable in
one or more installments over the optionee's period of service with the Company.
However, one or more options may be granted which are immediately exercisable
for all the option shares, but any shares acquired under those options will be
subject to repurchase by the Company, at the exercise price paid per share, upon
the optionee's cessation of service with the Company prior to vesting in those
shares. The Plan Administrator may at any time cancel the Company's outstanding
repurchase rights with respect to any such unvested shares and thereby
accelerate the vesting of those shares.
The exercise price may be paid in cash or in shares of the Common Stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm will effect an immediate sale of
the shares purchased under the option and pay over to the Company, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
exercise price for the purchased shares plus all applicable withholding taxes.
No optionee will have any stockholder rights with respect to the option shares
until such optionee has exercised the option and paid the exercise price for the
purchased shares. Options are generally not assignable or transferable other
than by will or the laws of inheritance and, during the optionee's lifetime, the
option may be exercised only by such optionee. However, the Plan Administrator
may allow non-statutory options to be transferred or assigned during the
optionee's lifetime to one or more members of the optionee's immediate family or
to a trust established exclusively for one or more such family members, to the
extent such transfer or assignment is in furtherance of the optionee's estate
plan. The optionee may also designate one or more persons as the beneficiary or
beneficiaries of his or her outstanding option, and that option will, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the optionee's death while holding such
option.
Termination of Service
Upon the optionee's cessation of employment or service, the optionee will have a
limited period of time in which to exercise his or her outstanding options for
any shares in which the optionee is vested at that time. However, at any time
while the options remain outstanding, the Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of employment
or service during which his or her outstanding options may be exercised. The
Plan Administrator will also have complete discretion to accelerate the
exercisability or vesting of those options in whole or in part at any time.
<PAGE>
Stock Appreciation Rights
The Plan Administrator is authorized to issue two types of stock appreciation
rights in connection with option grants made under the Discretionary Option
Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the
Company equal in amount to the excess of (a) the fair market value of
the vested shares of Common Stock subject to the surrendered option
over (b) the aggregate exercise price payable for those shares. Such
appreciation distribution may, at the discretion of the Plan
Administrator, be made in cash or in shares of Common Stock.
Limited stock appreciation rights may be provided to one or more
Section 16 Insiders as part of their option grants. Any option with
such a limited stock appreciation right may be surrendered to the
Company upon the successful completion of a hostile tender offer for
more than fifty percent (50%) of the Company's outstanding voting
stock. In return for the surrendered option, the officer will be
entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the excess of (a) the highest price
per share of Common Stock paid in connection with the tender offer over
(b) the exercise price payable for such share.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per share not
less than one hundred percent (100%) of their fair market value, payable in cash
or through a promissory note payable to the Company. Shares may also be issued
as a bonus for past services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a vesting
schedule tied to the performance of service or the attainment of performance
goals. The Plan Administrator will, however, have the discretionary authority at
any time to accelerate the vesting of any and all unvested shares outstanding
under the 1999 Plan.
Automatic Option Grant Program
Terms
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at specified intervals over their period of Board service.
All grants under the Automatic Option Grant Program will be made in strict
compliance with the express provisions of such program. Accordingly, stockholder
approval of this Proposal will also constitute approval of each option granted
on or after the date of the 1999 Annual Meeting pursuant to the provisions of
the Automatic Option Grant Program summarized below and the subsequent exercise
of that option in accordance with such provisions.
1. Each individual who first becomes a non-employee Board member on or
after the date of the 1999 Annual Meeting, whether through election by the
stockholders or appointment by the Board, will automatically be granted, at the
time of such initial election or appointment, a non-statutory option to purchase
five thousand (5,000) shares of Common Stock, provided such individual has not
previously been in the Company's employ.
2. On the date of each Annual Stockholders Meeting, beginning with the
1999 Annual Meeting, each individual who is to continue to serve as a
non-employee Board member, so long as that individual is standing for initial
election or re-election at that particular annual meeting, will automatically be
granted a non-statutory option to purchase ten thousand (10,000) shares of
Common Stock. There will be no limit on the number of such ten thousand
(10,000)-share option grants any one non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have
previously been in the Company's employ will be eligible to receive one or more
of those annual grants. Should a non-employee Board member's appointment to the
Board occur other than at an Annual Stockholders Meeting, then at the time of
the appointment, the individual will be granted a number of shares subject to
the option reduced through a pro-ration based on the number of months that have
elapsed between the date of the Annual Stockholders Meeting immediately prior to
the individual's election or appointment to the Board and the date of that
election or appointment. For example, an individual who is appointed as a
non-employee Board member three (3) months after the date of the 1999 Annual
Meeting, will receive an automatic option grant for three-fourths of the 10,000
share annual grant, or 7,500 shares.
3. Each automatic option grant will have an exercise price per share
equal to 100% of the fair market value per share of Common Stock on the grant
date. The option will have a maximum term of ten (10) years, subject to earlier
termination at the end of the twelve (12) month period measured from the date of
the optionee's cessation of Board service. Each option will be immediately
exercisable for all of the option shares. However, any unvested shares purchased
under the option will be subject to repurchase by the Company, at the exercise
price paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. The shares subject to each initial five thousand
(5,000)-share option grant will be fully-vested upon the grant of that option.
One third of the shares subject to each annual ten thousand (10,000)-share
option, or pro rata option relating to the annual grant, will be immediately
vested at the time of the grant, and the remaining shares will vest in two
successive equal annual installments upon optionee's completion of each twelve
(12)-month period of Board service over the twenty-four (24)-month period
measured from the option grant date.
4. Each automatic option will remain exercisable for a twelve (12)
month period following the optionee's cessation of service as a Board member. In
no event, however, may the option be exercised after the expiration date of the
option term. During the applicable post-service exercise period, the option may
not be exercised for more than the number of option shares in which the Board
member is vested at the time of his or her cessation of Board service. 5. Any
unvested shares subject to an outstanding automatic option grant will
immediately vest upon (i) the optionee's death or permanent disability while a
Board member, (ii) an acquisition of the Company by merger or asset sale, (iii)
the successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or (iv) a change in the majority of the Board effected
through one or more proxy contests for Board membership.
6. Upon the successful completion of a hostile tender offer for more
than 50% of the Company's outstanding voting stock, each outstanding automatic
option grant may be surrendered to the Company for a cash distribution per
surrendered option share in an amount equal to the excess of (a) the highest
price per share of Common Stock paid in connection with such tender offer over
(b) the exercise price payable for such share. Stockholder approval of this
Proposal will also constitute pre-approval of each option granted with such a
surrender right on or after the date of the 1999 Annual Meeting and the
subsequent exercise of that right in accordance with the foregoing terms.
7. The automatic option grant may be transferred or assigned during the
optionee's lifetime to one or more members of the optionee's immediate family or
to a trust established exclusively for one or more such family members, to the
extent such transfer or assignment is in furtherance of the optionee's estate
plan. The optionee may also designate one or more persons as the beneficiary or
beneficiaries of his or her outstanding automatic option grants, and those
options will, in accordance with such designation, automatically be transferred
to such beneficiary or beneficiaries upon the optionee's death while holding
that option.
The remaining terms and conditions of each automatic option grant will generally
conform to the terms summarized above for option grants made under the
Discretionary Option Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.
The new Automatic Option Grant Program is intended to replace the automatic
option grant program currently in effect for the non-employee Board members
under the 1996 Plan. However, if the stockholders do not approve this Proposal,
then the automatic option grant program under the 1996 Plan will remain in full
force and effect, and option grants will be made under that program to all
non-employee Board members who continue to serve on the Board on or after the
date of the 1999 Annual Meeting.
General Provisions
Acceleration
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program will
automatically accelerate in full, unless assumed by the successor corporation or
replaced with a cash incentive program which preserves the spread existing on
the unvested option shares (the excess of the fair market value of those shares
over the option exercise price payable for such shares) and provides for
subsequent payout in accordance with the same vesting schedule in effect for the
option. In addition, all unvested shares outstanding under the Discretionary
Option Grant and Stock Issuance Programs will immediately vest, except to the
extent the Company's repurchase rights with respect to those shares are to be
assigned to the successor corporation. Any options under the Discretionary
Option Grant Program which are assumed or replaced in the acquisition will
subsequently vest and become exercisable for all the option shares in the event
the optionee's service with the Company or the acquiring entity terminates the
optionee within a designated period (not to exceed eighteen months) following
such acquisition. Any unvested shares held by an individual under the Stock
Issuance Program will also vest in full upon such an involuntary termination of
his or her service.
The Plan Administrator will have the authority to grant options under the
Discretionary Option Grant Program which will immediately vest upon an
acquisition of the Company, whether or not those options are assumed by the
successor corporation. The Plan Administrator is also authorized under the
Discretionary Option Grant and Stock Issuance Programs to grant options and to
structure repurchase rights so that the shares subject to those options or
repurchase rights will immediately vest in connection with a change in control
of the Company (whether by successful tender offer for more than fifty percent
(50%) of the outstanding voting stock or a change in the majority of the Board
by reason of one or more contested elections for Board membership), with such
vesting to occur either at the time of such change in control or upon the
subsequent termination of the individual's service within a designated period
(not to exceed eighteen months) following such change in control.
The acceleration of vesting upon a change in the ownership or control of the
Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options or the purchase of
shares under the Discretionary Option Grant or Stock Issuance Programs. The Plan
Administrator will have complete discretion to determine the terms of any such
financial assistance. However, the maximum amount of financing provided any
individual may not exceed the cash consideration payable for the issued shares
plus all applicable taxes. Any such financing may be subject to forgiveness in
whole or in part, at the discretion of the Plan Administrator, over the
participant's period of service.
Special Tax Election
The Plan Administrator may provide one or more holders of options or unvested
shares with the right to have the Company withhold a portion of the shares
otherwise issuable to such individuals in satisfaction of the withholding taxes
to which such individuals may become subject in connection with the exercise of
those options or the vesting of those shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
New Plan Benefits
The following table lists, as of April 30, 1999, the number of shares subject to
options granted under the 1999 Plan to (i) the Company's executive officers
named in the Summary Compensation Table of the Executive Compensation and
Related Information section of this Proxy Statement and (ii) the various other
indicated individuals and groups. None of the listed options will become
exercisable unless the stockholders approve this Proposal. In the event such
stockholder approval is not obtained, the options will terminate.
<TABLE>
1999 STOCK INCENTIVE PLAN
<S> <C> <C> <C>
NUMBER OF
NAME AND POSITION OPTION SHARES(#) EXERCISE PRICE ($)
----------------- ----------------- ------------------
Mr. Arne van Roon,
President and Chief Executive Officer 750,000 $2.63
Mr. James L. Hesburgh,
Chairman of the Board of Directors 100,000 2.63
All current executive officers as a group (3 ) 850,000 2.63
All current non-employee directors as a -- --
group (2)
All employees, including current officers who are not 850,000 2.63
executive officers, as a group (62)
</TABLE>
As of April 30, 1999, options covering 850,000 shares of Common Stock
were outstanding under the 1999 Plan, 650,000 shares remained available for
future option grant or direct issuance, and no shares have been issued pursuant
to the exercise of outstanding options under the 1999 Plan.
In addition, at the 1999 Annual Meeting, each individual who will continue to
serve as a non-employee Board member will receive an option grant under the
Automatic Option Grant Program to purchase 10,000 shares of Common Stock at an
exercise price per share equal to the fair market value per share of Common
Stock on the grant date.
Amendment and Termination
The Board may amend or modify the 1999 Plan in any or all respects whatsoever,
subject to any stockholder approval required under applicable law or regulation.
The Board may terminate the 1999 Plan at any time, and the 1999 Plan will in all
events terminate on April 14, 2009.
Option Grants
The table below shows, as to each of the executive officers named in the Summary
Compensation Table and the various other indicated persons and groups,
information with respect to stock option grants effected during the period from
January 1, 1998 through April 30, 1999 under the 1996 Plan.
<TABLE>
OPTION TRANSACTIONS
<S> <C> <C> <C>
Options
Granted Weighted Average
(Number of Exercise Price of
Name Shares) Granted Options ($)
Executive officers
Mr. Steven S. Price 400,000 $7.63
Mr. Richard L. Little 100,000 3.50
Mr. Jon A. Knartzer 100,000 3.50
All current executive officers as a group (3)............................ 200,000 3.50
Non-employee directors who received automatic or discretionary grants
under the 1996 plan
Mr. Harry Edelson 10,000 8.00
Mr. James L. Hesburgh 10,000 5.38
Mr. Michael Markbreiter 10,000 8.00
Mr. Udi Toledano 10,000 8.00
All current non-employee directors as a group (2)........................ 20,000 8.00
All employees, including current executive officers as a group (62)........ 744,000 6.41
</TABLE>
<PAGE>
Federal Income Tax Consequences
Options granted under the 1999 Plan may be either incentive stock options that
satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the time
of the option grant, and no taxable income is generally recognized at the time
the option is exercised. The optionee will, however, recognize taxable income in
the year in which the purchased shares are sold or otherwise made the subject of
a taxable disposition. For Federal income tax purposes, dispositions are divided
into two categories: qualifying dispositions and disqualifying dispositions. A
qualifying disposition occurs if the sale or other disposition is made after the
optionee has held the shares for more than two (2) years after the option grant
date and more than one (1) year after the exercise date. If either of these two
holding periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the exercise price paid for the shares will be taxable as ordinary income
to the optionee. Any additional gain or loss recognized upon the disposition
will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares, then
the Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the excess of (i) the fair market value
of such shares on the option exercise date over (ii) the exercise price paid for
the shares. If the optionee makes a qualifying disposition, the Company will not
be entitled to any income tax deduction.
Non-Statutory Options. No taxable income is recognized by an optionee upon the
grant of a non-statutory option. The optionee will in general recognize ordinary
income, in the year in which the option is exercised, equal to the excess of the
fair market value of the purchased shares on the exercise date over the exercise
price paid for the shares, and the optionee will be required to satisfy the tax
withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are unvested
and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize ordinary
income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
such distribution for the taxable year in which the ordinary income is
recognized by the optionee.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the 1999 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in connection
with the disqualifying disposition of incentive stock option shares or the
exercise of non-statutory options granted with exercise prices equal to the fair
market value of the shares on the grant date will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual on
the deductibility of the compensation paid to certain executive officers of the
Company. Accordingly, all compensation deemed paid under the 1999 Plan with
respect to such dispositions or exercises will remain deductible by the Company
without limitation under Code Section 162(m).
Accounting Treatment
Option grants or stock issuances with exercise or issue prices equal to the fair
market value of the shares at the time of grant or issuance will not result in
any direct charge to the Company's earnings. However, the fair value of those
options must be disclosed in the notes to the Company's financial statements, in
the form of pro-forma statements to those financial statements, the impact those
options would have upon the Company's reported earnings were the value of those
options at the time of grant treated as compensation expense. Whether or not
granted at a discount, the number of outstanding options may be a factor in
determining the Company's earnings per share on a fully-diluted basis.
Under a recently-proposed amendment to the current accounting principles, option
grants made to non-employee Board members or consultants after December 15, 1998
will result in a direct charge to the Company's reported earnings based upon the
fair value of the option measured on the vesting date of each installment of the
underlying option shares. Such charge will accordingly include the appreciation
in the value of the option shares over the period between the grant date of the
option (or, if later, the effective date of the final amendment) and the vesting
date of each installment of the option shares.
Should one or more optionees be granted stock appreciation rights under the 1999
Plan that have no conditions upon exercisability other than a service or
employment requirement, then such rights would result in a compensation expense
to be charged against the Company's reported earnings. Accordingly, at the end
of each fiscal quarter, the amount (if any) by which the fair market value of
the shares of common stock subject to such outstanding stock appreciation rights
has increased from the prior quarter-end would be accrued as compensation
expense, to the extent such fair market value is in excess of the aggregate
exercise price in effect for those rights.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1999 Annual Meeting
is required for approval of the 1999 Plan. Should such stockholder approval not
be obtained, then any stock options granted under the 1999 Plan will immediately
terminate without becoming exercisable for the shares of Common Stock subject to
those options, and no additional options will be granted under the 1999 Plan.
The 1996 Plan will remain in effect, whether or not the stockholders approve the
1999 Plan, and option grants will continue to be made under the 1996 Plan until
the remaining share reserve has been issued. However, the automatic option grant
program for non-employee Board members under the 1996 Plan will terminate upon
stockholder approval of the 1999 Plan.
The Board of Directors unanimously recommends that the stockholders vote
FOR the approval of the 1999 Stock Option Plan.
<PAGE>
PROPOSAL 3 - APPROVAL OF ISSUANCE OF COMMON STOCK
UPON EXCHANGE OF EXCHANGEABLE SECURITES
The stockholders are being asked to approve the issuance of shares of common
stock issuable upon conversion of 375,000 shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock"), a 6% Senior Exchangeable
Promissory Note due March 10, 2002 (the "Exchangeable Note") and 1,500 shares of
Series B Exchangeable Preferred Stock (the "Series B Preferred Stock") and upon
exercise of warrants to purchase up to 320,000 shares of common stock (the
"Warrants"). The Series A Preferred Stock and contingent warrants to purchase up
to 120,000 shares of common stock were sold on January 8, 1999 (the "Series A
Sale") in a private offering exempt from registration under the Securities Act
of 1933, as amended (the "Act"). The Exchangeable Note and warrants to purchase
up to 135,000 shares of common stock were issued on March 10, 1999 (the "Note
Transaction") in a private offering exempt from registration under the Act. The
Series B Preferred Stock and warrants to purchase up to 65,000 shares of common
stock were issued on March 22, 1999 (the "Series B Sale") in a private offering
exempt from registration under the Act. Gross proceeds to the Company pursuant
to the Series A Sale, the Note Transaction and the Series B Sale (collectively,
the "Transactions") were $6.0 million.
The stockholders' approval of the Transactions would have the effect of removing
certain limitations under the rules of the National Association of Securities
Dealers, Inc. (the "NASD"), which would limit the aggregate number of shares of
common stock issuable upon conversion of shares of Series A Preferred Stock, the
Exchangeable Note and shares of Series B Preferred Stock and upon exercise of
the Warrants to a maximum of 19.9% of the number of shares of common stock
issued and outstanding as of the issuance dates of those securities. The Company
agreed in connection with the Transactions to seek such approval. If the Company
fails to obtain such approval in a timely manner, then the Company may be
required to make significant cash payments to the holders of such securities
under certain circumstances. Assuming no limitations on the conversion of the
Series A Preferred Stock, the Exchangeable Note and the Series B Preferred Stock
and on the exercise of the Warrants, such securities are exchangeable for
approximately 1,938,213 shares of common stock as of April 30, 1999, assuming
the maximum Warrants under the Series A Preferred Stock were issued and
exercised.
Background
Series A Preferred Stock
On January 8, 1999, the Company sold the Series A Convertible Preferred Stock at
a price per share of $4.00. The transaction resulted in gross proceeds to the
Company of $1.5 million.
The rights, preferences and privileges of the outstanding Series A Preferred
Stock are summarized as follows:
Dividend Rights. The Series A Preferred Stock is not entitled to receive
dividends unless the Company declares and pays dividends on its common stock. In
such event, the Series A Preferred Stock is entitled to receive dividends on an
as-converted basis.
Liquidation Preference. Upon a liquidation, dissolution and winding up of the
Company, the Series A Preferred Stock is entitled to receive $4.00 per share
plus any accrued dividends. The Series A Preferred Stock ranks pari passu with
the Series B Preferred Stock and senior to common stock for purposes of
liquidation. A change in control of the Company through a merger or sale of 50%
of the Company's voting securities or a sale of all or substantially all of the
Company's assets is deemed a liquidation for purposes of liquidation
preferences.
<PAGE>
Conversion Price. Each share of Series A Preferred Stock is convertible at any
time after January 8, 2000 at the election of the holder into shares of common
stock. The Series A Preferred Stock may be converted prior to January 8, 2000 in
the event the Company announces a change in control or if there is a material
adverse change in the Company's business or financial condition. The actual
number of shares of common stock issuable upon exchange of the Series A
Preferred Stock will be determined by the following formula:
(the number of shares of Series A Preferred Stock tendered for conversion
multiplied by the sum of $4.00 plus 6% per annum)
divided by
(the applicable conversion price at the time of conversion).
After January 8, 2000, the 6% per annum premium ceases to accrue and is
terminated if the average closing prices on Nasdaq for the Company's common
stock for 25 consecutive trading days is at least $5.80 per share.
In addition, the conversion price of the Series A Preferred Stock is subject to
adjustment. In the event the average of the closing prices of the Company's
common stock on Nasdaq for the 25 trading days preceding a conversion date is
less than the then existing Series A conversion price, the Series A conversion
price will be adjusted downward to the 25-day average. However, in no event will
the Series A conversion price be adjusted below $2.00. The conversion price of
the Series A Preferred Stock is also subject to adjustment upon the occurrence
of certain other events, including stock splits, stock dividends, combinations
or other similar events.
Registration. The Company is required by the Series A Preferred Stock financing
agreements to register and keep registered at least the aggregate number of
shares of common stock into which the Series A Preferred Stock is convertible
and for which the warrants, if any, are exercisable.
Limitation on Shares Issuable. The Series A Preferred Stock is not convertible
until January 8, 2000, unless the Company announces a change in control or if
there is a material adverse change in the Company's business or financial
condition. Unless and until this proposal is approved by the stockholders, the
Company is subject to the NASD Rule 4460(i) that limits the Company from issuing
securities equal to or in excess of 20% of the Company's outstanding securities
on the date immediately prior to the issuance of the Series A Preferred Stock
and A-Warrants. The terms of the Series A Preferred Stock also provide that the
number of shares issuable upon conversion of the Series A Preferred Stock, the
Series B Preferred Stock and the Warrants cannot exceed 19.9% of the Company's
outstanding shares as of January 8, 1999, until stockholder approval is
received.
Mandatory Conversion. All outstanding shares of Series A Preferred Stock
automatically convert to common stock on January 8, 2002.
Cash Payments. If the Company fails to issue stock certificates within 5 trading
days of a conversion date for all or any portion of the Series A Preferred
Stock, the Company must pay liquidated damages of $10,000 per day for the first
5 trading days following the specified date of delivery and $20,000 per day
thereafter.
Protective Provisions. The Series A Preferred Stock ranks pari passu with the
Series B Preferred Stock and senior to the common stock with respect to the
right to receive dividend payments and liquidation preferences. The Series A
Preferred Stock has no voting rights, except as otherwise provided by applicable
law or pursuant to certain contractual protections. So long as 25% of the Series
A Preferred Stock remains outstanding, the Company must obtain the consent of a
majority of the Series A Preferred Stock to: (i) effect any liquidation,
dissolution or winding up or merger which results in a change in control of the
Company; (ii) sell all or substantially all of the Company's assets; (iii)
amend, alter or repeal any provision of the Company's certificate of
incorporation or bylaws to change the rights of the Series A Preferred Stock;
(iv) create any class or series of stock senior to the Series A Preferred Stock;
(v) change the rights, preferences, restrictions or privileges of the Series A
Preferred Stock; or (vi) purchase or redeem or pay any dividends on shares other
than the Series A Preferred Stock.
Right of First Refusal. The holders of Series A Preferred Stock have a right of
first refusal on certain future financings which allows the holders of Series A
Preferred Stock to preserve their percentage ownership in the Company. Among
transactions that are excluded from the right of first refusal are securities
issued in connection with a joint venture or other strategic investment and
securities issued in an underwritten public offering.
Warrants. If the average of the closing prices of the Company's common stock on
Nasdaq for the 25 trading days immediately preceding January 8, 2000 is less
than $5.80 per share, the Company will grant the Series A investors a five-year
warrant to purchase up to 120,000 shares of common stock. If the Company is
required to issue the warrant, the number of shares issuable upon exercise of
the warrant (up to a maximum of 120,000) and the exercise price of the warrant
will be determined on January 8, 2000.
6% Senior Exchangeable Promissory Note
On March 10, 1999, the Company issued the Exchangeable Note and warrants to
purchase 135,000 shares of common stock at an exercise price of $3.0375 per
share (the "Note Warrants"). The gross proceeds to the Company in the
transaction were $3.0 million. Certain provisions and rights of the Exchangeable
Note are summarized as follows:
Interest Rate. Interest on the outstanding principal amount of the Exchangeable
Note is payable at the rate of 6% per annum, payable semiannually. Such interest
may be paid, at the option of the noteholder, either in cash within 5 days of
September 15 and March 15 of each year or by issuing additional promissory
notes. Upon an event of default, the interest on unpaid principal and accrued
and unpaid interest will accrue at 6% plus an additional 14% per annum until the
default is cured by the Company or waived by the noteholder. Events of default
include: (i) a failure to pay principal, interest, or other required payments
which is not cured within 10 calendar days after notice of such failure; (ii) a
failure to perform or comply with material covenants or agreements which is not
cured within 10 calendar days after notice; or (iii) the delisting or
ineligibility of the Company's common stock for trading on Nasdaq for 10 trading
days.
<PAGE>
Exchange Price. The outstanding principal amount of the Exchangeable Note is
$3.0 million and any portion of that amount is exchangeable at the election of
the noteholder into shares of common stock. The actual number of shares of
common stock issuable upon exchange of the Exchangeable Note will be determined
by the following formula:
(the principal amount of the Exchangeable Note
tendered for exchange plus any accrued but
unpaid interest being exchanged plus any
unpaid liquidated damages and penalties)
divided by
(the applicable exchange price at the time of exchange).
The exchange price is subject to adjustment. On or before August 7, 1999, the
exchange price of the Exchangeable Note is equal to $3.645 per share.
Thereafter, the exchange price of the Exchangeable Note is equal to either of
the following at the sole option of the noteholder: (i) $3.645 per share or (ii)
the average of any 3 closing bid prices as reported by Bloomberg L.P. for 22
trading days immediately preceding the applicable exchange date discounted by up
to 15%.
The following table sets forth the number of shares of common stock issuable
upon exchange of the Exchangeable Note assuming the market price of the common
stock is 25%, 50%, 75%, 100%, 125% and 150% of the closing price of the common
stock on April 26, 1999, which was $3.125 per share. It further assumes that the
exchange occurs after December 5, 1999 at the required exchange price of 85% of
the closing price, except where the closing price is at or above $3.645, in
which case the exchange price is $3.645.
Percent of Number of Shares
Market Price Issuable Upon Exchange
25% 4,517,647
50% 2,258,824
75% 1,505,882
100% 1,129,412
125% 823,045
150% 823,045
In addition, the exchange price of the Exchangeable Note is subject to
adjustment upon the occurrence of certain other events, including, but not
limited to: (i) capital reorganizations of the Company; (ii) reclassification,
exchange, or substitution of the common stock; (iii) declaration or payment of
dividends or distributions on the common stock; and (iv) subdivision or
combination of the common stock.
Anti-dilution Protection. Until March 15, 2002, if the Company sells common
stock at a price lower than any applicable exchange price for the 6 months
immediately preceding such issuance or sale, then the Company is required to
issue to the noteholder a number of shares of common stock as determined by (i)
subtracting the issuance or sale price from the lowest exchange price in effect
as described above, such sum multiplied by (ii) the number shares that would
have been received had the entire Exchangeable Note been tendered on the day
immediately preceding such sale or issuance, such product divided by (iii) the
exchange price in effect on the day immediately preceding such sale or issuance.
<PAGE>
Registration. The Company is required to register and keep registered at least
125% of the aggregate number of shares of common stock into which the
Exchangeable Note is exchangeable and for which the Note Warrants are
exercisable.
Limitation on Shares Issuable: Notwithstanding the registration of such number
of shares, unless and until this proposal is approved by the stockholders, the
Company is subject to the NASD Rule 4460(i) that limits the Company from issuing
securities equal to or in excess of 20% of the Company's outstanding securities
on the date immediately prior to the issuance of the Exchangeable Note and the
Note Warrants. The terms of the Exchangeable Note also provide that the number
of shares issuable upon exchange of the Exchange Note cannot exceed 19.9% of the
Company's outstanding securities as of March 22, 1999 until stockholder approval
is received.
Cash Payments. Upon the occurrence of certain events, the Company may be
required to make significant cash payments to the holders of the Exchangeable
Note. One such event is the failure to issue stock certificates within 7
business days of the exchange date of all or any portion of the Exchangeable
Note. The Company must pay liquidated damages of $10,000 per day for every day
that that the certificates are delayed beyond the 7 business days allowed for
delivery of the stock certificates.
Prepayment and Redemption at the Company's Option. On or after March 10, 2000,
the Company may prepay all or any portion of the Exchangeable Note (the
"Prepayment Portion") upon giving at least 20 trading days prior notice to the
noteholder. Such notice is irrevocable and the Company must pay, within 2
business days of the date fixed for prepayment, the greater of either (i) 120%
of the Prepayment Portion or (ii) an amount equal to the number of shares of
common stock into which such Prepayment Portion would be exchangeable multiplied
by the last executed trade price as reported by Bloomberg L.P. as of the close
of normal trading hours on the Nasdaq National Market on the trading day
immediately preceding the date of prepayment (either (i) or (ii) referred to as
the "Prepayment Amount"). However, up and until 5 business days prior to the
date fixed for prepayment, the noteholder may, at its sole option, submit a
notice of exchange in an exchange amount equal to all or any portion of the
Prepayment Amount and receive the number of shares of common stock issuable for
such exchange amount.
Change of Control. Upon a change of control, the Company must offer to buy the
Exchangeable Note at the greater of: (i) 150% of the principal plus accrued and
unpaid interest and penalties or (ii) an amount equal to the number of shares
into which the note would be exchangeable multiplied by the last executed trade
price as reported by Bloomberg L.P. as of the close of normal trading hours on
the Nasdaq National Market on the trading day immediately preceding the date of
prepayment. A change of control includes: (i) a purchase of a majority of the
Company's common stock; (ii) a merger of the Company with another entity in
which the Company's stockholders own less than a majority of the surviving
entity; (iii) the removal or replacement of a majority of the members of the
Board of Directors who were sitting on the Board at the time of the Note
Transaction; and (iv) the sale of all or substantially all of the Company's
assets to another entity.
Right of First Offer. Until March 15, 2001, the noteholder has a right of first
offer on certain issuances by the Company of equity or debt securities. Under
the right of first offer, the Company must deliver written notice to the
noteholder at least 10 trading days prior to the closing of any proposed
offering. The noteholder has an option during the 5 trading day period following
delivery notice to purchase up to the full amount of the securities being
offered in the proposed offering on the same terms. The right of first offer
does not apply to certain issuances by the Company, including: (i) shares issued
to employees upon exercise of options; (ii) shares issuable or issued in an
underwritten public offering; (iii) securities issuable in connection with a
debt financing to refinance existing term loans; (iv) securities issuable in an
equipment financing; and (v) shares issued in a joint venture or other strategic
investment.
Warrants. The Note Warrants issued in connection with the Exchangeable Note have
an exercise price of $3.0375 per share and expire at 5:00 p.m., New York time,
on March 10, 2004. The number of shares that may be purchased and the exercise
price at which shares can be purchased are both subject to adjustment upon
certain events, including the payment of dividends or distributions on and the
subdivision, combination or reclassification of the common stock underlying the
warrants.
The Note Warrants may be redeemed at any time, at the Company's option, for
$0.10 per share of common stock purchasable if the closing price of the common
stock, as reported by Bloomberg L.P. on the applicable market, exceeded $12.00
per share for a period of 20 consecutive trading days and notice of redemption
is given to the warrantholder within 5 trading days after such 20 trading day
period and no less than 30 days before the date fixed for redemption. However,
the Company's right of redemption is subject to the right of the warrantholder
to exercise the warrants prior to the redemption date.
Series B Exchangeable Preferred Stock
On March 22, 1999, the Company sold 1,500 shares of Series B Preferred Stock at
a price per share of $1,000 and issued warrants to purchase 65,000 shares of the
Company's common stock at an exercise price of $3.82 per share (subject to
adjustment) (the "B-Warrants"). The rights, preferences and privileges of the
outstanding Series B Preferred Stock are summarized as follows:
Dividend Rights. Cumulative dividends of $30 per year per share must be
paid on the Series B Preferred Stock (i.e. 3%). Such dividends accrue
daily and are payable quarterly on April 30, July 31, October 31 and
January 31 of each year.
Liquidation Preference. The Series B Preferred Stock has a liquidation
preference of $1,000 per share plus all accrued but unpaid dividends. In case of
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the holders of Series B Preferred Stock must be paid $1,000 per
share of Series B Preferred Stock held prior to the payment of any amounts to
the holders of common stock. At the option of each holder of Series B Preferred
Stock, a transaction or series of related transactions in which more than 50% of
the voting power of the Company is disposed of or the consolidation, merger or
other business combination of the Corporation with or into any other person or
persons when the Company is not the survivor may be deemed a liquidation event
upon which the liquidation preference amounts must be paid to such holder. The
Series B Preferred Stock ranks pari passu with the Series A Preferred Stock with
regard to liquidation preference.
Exchange Price. Each share of Series B Preferred Stock has a stated value of
$1,000 and is convertible at the election of the holder into shares of common
stock. The actual number of shares of common stock issuable upon exchange of the
Series B Preferred Stock will be determined by the following formula:
(the number of shares of Series B Preferred Stock tendered for exchange
multiplied by $1,000)
divided by
(the applicable exchange price at the time of exchange).
The exchange price is subject to adjustment. On or before August 19, 1999, the
exchange price of the Series B Preferred Stock is equal to $3.57 per share.
Thereafter, the exchange price of the Series B Preferred Stock is equal to the
lesser of (a) $3.57 per share or (b) the average of the 2 lowest consecutive
closing bid prices of the common stock as reported by Bloomberg L.P. for the 20
consecutive trading days immediately preceding the applicable conversion date
discounted by 15%.
The following table sets forth the number of shares of common stock issuable
upon exchange of the Series B Preferred Stock assuming the market price of the
common stock is 25%, 50%, 75%, 100%, 125% and 150% of the closing price of the
common stock on April 26, 1999, which was $3.125 per share. It further assumes
the exchange takes place after August 19, 1999 at the required exchange price of
85% of the closing price, except where the closing price is at or above $3.57,
in which case the exchange price is $3.57.
Percent of Number of Shares
Market Price Issuable Upon Exchange
25% 2,258,824
50% 1,129,412
75% 752,941
100% 564,706
125% 420,168
150% 420,168
In addition, the exchange price of the Series B Preferred Stock is subject to
adjustment upon the occurrence of certain other events, including stock splits,
stock dividends, combinations or other similar events. No adjustment will be
made for dividends (other than stock dividends), if any, paid on the common
stock.
If the applicable exchange price is less than $7.00, the Company has the option
to pay cash to any holder of Series B Preferred Stock in an amount equal to the
closing ask price on the principal market in which the common stock is trading
on the exchange date multiplied by the number of shares of common stock which
would have been issuable upon an exchange. This cash payment may be made in lieu
of issuing shares of common stock upon an exchange. However, the Company must
have given notice of such an election prior to or within 2 hours of receipt of a
notice of exchange from any holder of Series B Preferred Stock.
Registration. The Company is required to register and keep registered at least
167% of the aggregate number of shares of common stock into which the Series B
Preferred Stock is exchangeable and for which the B-Warrants are exercisable.
Limitation on Shares Issuable. The terms of the Series B Preferred Stock
financing agreements prohibit the Company from issuing shares of common stock
upon exchange of the shares of Series B Preferred Stock or exercise of the
B-Warrants if such issuance would result in any holder beneficially owning in
excess of 9.9% of the Company's then-outstanding common stock. However, the
determination as to whether any holder's ownership exceeds that limit is to be
made solely by such holder of Series B Preferred Stock, not by the Company. In
addition, unless and until this proposal is approved by the stockholders, the
Company is subject to the NASD Rule 4460(i) that limits the Company from issuing
securities equal to or in excess of 20% of the Company's outstanding securities
on the date immediately prior to the issuance of the Series B Preferred Stock
and B-Warrants. The terms of the Series B Preferred Stock also provide that the
number of shares issuable upon exchange of the Series B Preferred Stock cannot
exceed 19.9% of the Company's outstanding common stock as of March 22, 1999
until stockholder approval is received.
Mandatory Exchange. At any time on or after August 20, 1999, if the average of
the closing bid prices for 5 consecutive trading days is at least $7.00 per
share, the Company can require all holders of the Series B Preferred Stock to
convert their shares into shares of common stock (subject to certain limits) or,
at the option of the Company, buy out all such holders in cash at the
then-effective exchange price. The Company must provide no more than 3 trading
days' written notice of such mandatory exchange or mandatory buy-out. The Series
B Preferred Stock is subject to mandatory conversion on or after March 22, 2002.
Redemption. At any time upon the earlier of (i) an underwritten public offering
of the Company's common stock or (ii) September 22, 1999, the Company may, at
its option, redeem the shares of Series B Preferred Stock at a price of 140% of
the original purchase price of $1,000 per share plus accrued and unpaid
dividends.
If the Company ceases to be listed on a national securities exchange, the Nasdaq
National Market or the OTC Bulletin Board, then the Company must redeem all
shares of Series B Preferred Stock at 115% of the original purchase price of
$1,000 per share plus accrued and unpaid dividends.
Cash Payments. Upon the occurrence of certain other events, the Company may be
required to make significant cash payments to the holders of the Series B
Preferred Stock. Such events include, but are not limited to: (i) the late
issuance or delivery of stock certificates upon an exchange of shares and (ii)
the failure to obtain approval of this proposal.
If stock certificates are not issued within 3 business days of any exchange
date, the Company must pay liquidated damages of $100 per $5,000 of liquidation
amount of Series B Preferred Stock being exchanged for the first business day
the certificates are late. The damages increase by $100 per $5,000 liquidation
amount per day late (i.e., $500 per $5,000 on the fifth late day) and are $1,000
plus $200 per day after 10 days.
If the Company fails to receive stockholder approval of this proposal and the
Company is required to honor any and all requests for exchange of the Series B
Preferred Stock which would result in the issuance of a number of shares of
common stock equal to or in excess of 20% of the shares of common stock which
were issued and outstanding on the dates of issuance of the Series B Preferred
Stock and B-Warrants, the Company must pay in cash an amount equal to the
closing ask price on the principal market in which the common stock is trading
on the date of exchange multiplied by the number of shares of common stock which
would have been issuable upon exchange. In addition, if such cash amounts are
not paid within 3 days of the exchange date, the Company must pay liquidated
damages in the same amounts as set forth above for the late issuance of stock
certificates.
Protective Provisions. The Series B Preferred Stock ranks pari passu with the
Series A Preferred Stock and senior to the common stock with respect to the
right to receive dividend payments and liquidation preferences. The Series B
Preferred Stock has no voting rights, except as otherwise provided by applicable
law or pursuant to certain contractual protections described herein. The Company
is prohibited from, among other things, altering, changing or otherwise
adversely affecting the terms of the Series B Preferred Stock, creating or
issuing any senior securities, increasing the authorized number of shares of
Series B Preferred Stock, and acting so as to generate taxation under Section
305 of the Internal Revenue Code of 1986, as amended. In addition, any
modification of the rights of Series B Preferred Stock requires the vote of 85%
of the shares of Series B Preferred Stock outstanding.
Change of Control. The Company is prohibited from effecting any merger or
consolidation with or into, or transferring all or substantially all of the
assets of the Company to another entity, unless the resulting entity assumes in
writing, or by operation of law, the obligations to deliver shares of stock or
securities to the holders of Series B Preferred Stock or B-Warrants.
Warrants. The B-Warrants issued in connection with the Series B Preferred Stock
have an exercise price of $3.82 per share. The warrants become exercisable on
September 15, 1999 and expire on September 15, 2002. The number of shares that
may be purchased and the exercise price at which shares can be purchased are
both subject to adjustment upon certain events, including the payment of
dividends or distributions on and the subdivision, combination or
reclassification of the common stock underlying the warrants.
<PAGE>
Stockholder Approval
The Company's common stock issuable upon conversion of the Series A Preferred
Stock, the Exchangeable Note and the Series B Preferred Stock and upon exercise
of all the Warrants equal to or in excess of 20% of the Company's issued and
outstanding shares as of the respective closing dates of the Transactions is
subject to stockholder approval pursuant to the Rules of Nasdaq National Market.
Rule 4460(i) of the National Association of Securities Dealers (the "20% Rule")
sets forth designation criteria for continued inclusion of the common stock on
the Nasdaq National Market. The 20% Rule requires companies that are listed on
the Nasdaq National Market to obtain stockholder approval prior to, among other
things, issuing common stock (or securities convertible into or exercisable for
common stock) in a private financing at a price less than the market value of
the common stock, where the amount of common stock to be issued equals or
exceeds 20% of either the common stock outstanding or voting power outstanding
immediately prior to the issuance.
Because the conversion rates of the Series A Preferred Stock, the Exchangeable
Note and the Series B Preferred Stock will vary with the trading price of the
Company's common stock, the number of shares of common stock issuable upon
conversion of all of the Series A Preferred Stock, the Exchangeable Note and the
Series B Preferred Stock and upon exercise of all of the Warrants may equal or
exceed 20% of the Company's issued and outstanding shares as of the respective
closing dates of the Transactions. Therefore, conversion of all of the Series A
Preferred Stock, the Exchangeable Note and the Series B Preferred Stock and the
sale and issuance of the common stock upon exercise of the Warrants may be
conditioned on the approval of this Proposal by the Company's stockholders.
Assuming no limitations on the conversion of the Series A Preferred Stock, the
Exchangeable Note and the Series B Preferred Stock and on the exercise of the
Warrants, such securities are exchangeable for approximately 1,937,086 shares of
common stock as of April 30, 1999, assuming the maximum number of A-Warrants are
issued and exchanged.
Consequences if Stockholder Approval is Not Obtained
If the stockholder approval sought hereby is not obtained, the Company will be
prohibited by Nasdaq Rule 4460(i) from issuing 20% or more of its common stock
in connection with the Transactions. If the approval sought hereby is not
granted by the stockholders, the Company may be obligated to make significant
cash payments to some or all of the holders of the Series A Preferred Stock, the
Exchangeable Note, the Series B Preferred Stock and the Warrants. There can be
no assurance that the Company will have available the cash resources to satisfy
its obligations. If the stockholder approval sought hereby is not obtained,
compliance with such obligations would likely have a material adverse effect on
the company's financial condition and ability to implement its business
strategy. In addition, any delay in payment will cause such required amounts to
accrue liquidated damages and penalties until paid.
In addition, in connection with some of the Transactions, the Company agreed to
use its best efforts to obtain stockholder approval of the conversion and
exercise of those securities. Therefore, if the Proposal is not approved, this
agreement could require the Company to continue to seek stockholder approval of
the conversion and exercise of those securities, which could be expensive for
the Company.
Reasons for the Financing and Use of Proceeds
The Company entered into the Transactions as described above to raise capital
for operating activities, and currently intends to use the proceeds of the
financing for working capital, purchases of capital equipment and to pay the
costs of the Transactions.
<PAGE>
Further Information
The terms of the Series A Preferred Stock, the Exchangeable Note, the Series B
Preferred Stock and the Warrants are complex and are only briefly summarized in
this Proxy Statement. Stockholders wishing further information concerning the
rights, preferences and terms of the Series A Preferred Stock, the Exchangeable
Note, the Series B Preferred Stock and the Warrants are referred to the
Company's Current Report on Form 8-K and exhibits thereto which was filed with
the Securities and Exchange Commission on April 28, 1999, which may be viewed in
the public reading rooms maintained by the Commission at the Securities Exchange
Commission, Public Reference Branch, Stop 1-2, 450 Fifth Street, NW, Washington,
DC, 20549-1004. The Company's filings with the Commission may also be viewed on
the web site maintained by the Commission at http://www.sec.gov.
The description of terms, preferences and rights of the Company and holders of
Series A Preferred Stock, the Exchangeable Note and the Series B Preferred Stock
contained herein is qualified in its entirety by the more detailed information
set forth in the agreements and Certificates of Designations to the Transactions
which are filed as exhibits to the Company's Current Report on Form 8-K which
was filed by the Company on April 28, 1999. Stockholders are urged to review
such information.
Vote Required
The affirmative vote of a majority of the total votes cast on the proposal in
person or by proxy at the Annual Meeting is required to approve this Proposal.
The Board of Directors unanimously recommends that the stockholders vote
"FOR" the issuance of shares of common stock upon the conversion of 375,000
shares of Series A Preferred Stock, the 6% Senior Exchangeable Promissory
Note, 1,500 shares of Series B Preferred Stock and warrants to purchase up
to 320,000 shares of common stock in accordance with the terms of each Of
the foregoing securities.
<PAGE>
PROPOSAL 4 - RATIFICATION OF APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending December 31, 1999, and has
directed that the appointment of the independent accountants be submitted for
ratification by the stockholders at the Annual Meeting. PricewaterhouseCoopers
LLP has audited the Company's financial statements since 1996.
Stockholder ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants is not required by the Company's By-laws or
otherwise. However, the Board of Directors is submitting the appointment of
PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of
what it considers to be good corporate practice. If the stockholders fail to
ratify the appointment, the Board of Directors will reconsider whether or not to
retain that firm. Even if the appointment is ratified, the Board of Directors in
its discretion may direct the appointment of a different independent accounting
firm at any time during the year if the Board of Directors determines that such
a change would be in the best interests of the Company and its stockholders.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
Annual Meeting, and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions from
stockholders.
The board of Directors Recommends a Vote "FOR" Ratification of the
Appointment of PricewaterhouseCoopers LLP as the Independent Accountants for the
Current Fiscal Year.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned, as of April 4, 1998, by (i) each stockholder known to the
Company to be a beneficial owner of more than 5% of the Common Stock, (ii) each
director and nominee for director and (iii) the directors and officers of the
Company as a group. Unless otherwise noted, all shares are owned directly with
sole voting and dispositive powers.
<TABLE>
<S> <C> <C> <C>
Beneficial Ownership
Name(1) No. of Shares % of Total
Kingdon Capital Management Corp.(2) 3,235,455 29.37%
Robin A. Carden 2,544,500 22.31%
Harry Edelson(3) 633,667 5.56%
Steven S. Price(4) 160,000 1.40%
Richard Little(5) 40,000 *
Walter R. Menetrey(6) 33,317 *
Michael Markbreiter(7) 31,667 *
All executive officers and directors of the Company as a 2,841,151 24.91%
group (six persons)(8)
</TABLE>
*Less than 1%.
(1) The address for each of the persons in the table below is c/o Alyn
Corporation, 16761 Hale Avenue, Irvine, California 92606.
(2) Includes shares of Common Stock held by M. Kingdon Offshore NV,
Kingdon Associates, L.P. and Kingdon Partners, L.P. Does
not include the shares of Common Stock underlying immediately
exercisable options that appear in the table above opposite the name of
Michael Markbreiter, a Director of the Company and an employee of
Kingdon Capital Management Corp. Mr. Mark Kingdon is the sole
shareholder, director and executive officer of Kingdon Capital
Management Corp.
(3) Includes options immediately exercisable for 31,667 shares of Common
Stock held by Mr. Edelson. Also includes 602,000 shares of Common Stock
held by Edelson Technology Partners III, with respect to which Mr.
Edelson disclaims beneficial ownership.
(4) Includes options immediately exercisable for 160,000 shares of Common
Stock
(5) Includes options immediately exercisable for 40,000 shares of Common
Stock.
(6) Includes options immediately exercisable for 33,317 shares of Common
Stock.
(7) Includes options immediately exercisable for 31,667 shares of Common
Stock.
(8) Includes options immediately exercisable for 296,651 shares of Common
Stock. Does not include (i) 602,000 shares of Common Stock held by
Edelson Technology Partners III, with respect to which Mr. Edelson, a
Director, disclaims beneficial ownership and (ii) shares of Common
Stock held by Kingdon Partners, L.P., Kingdon Associates, L.P. and M.
Kingdon Offshore NV, with respect to which Mr. Markbreiter, a Director,
disclaims beneficial ownership.
<PAGE>
EXECUTIVE OFFICERS
See "Proposal 1 - Election of Directors" above for information pertaining
to Mr. van Roon, the Company's President and Chief Executive Officer.
In addition to Mr. van Roon, Mr. Richard L. Little serves as the
Company's Vice President, Finance and Administration and Chief Financial
Officer and Mr. Jon A.Knartzer serves as the Company's Vice President,
Operations.
Richard L. Little, 54, has been the Vice President, Finance and Administration
and Chief Financial Officer of the Company since May 1997. Mr. Little was
Executive Vice President of d'Essence Designer Fragrances, a marketer of fine
perfumes and related products from 1995 to 1997 and President of d'essence
International from 1996 to 1997. From 1994 to 1995, he was Chief Operating
Officer and Chief Financial Officer of Graphix Zone, a publicly traded producer
of CD-ROMS. In 1989, Mr. Little co-founded Bainbridge International Holdings, a
merchant bank specializing in acquiring middle market companies. From 1986 to
1989, Mr. Little was Chief Financial Officer, Vice President Finance, Treasurer
and Secretary of Teradata Corporation, a publicly traded manufacturer and
marketer of supercomputers for managing very large data bases. Prior to joining
Teradata, Mr. Little was Chief Financial Officer of Quotron Systems, a publicly
traded provider of on-line financial information services. Mr. Little has a
Bachelor of Science degree in Engineering and a Masters of Business
Administration in Finance from the University of California, Los Angeles. He is
also a CPA.
Jon A. Knartzer, 53, has been the Vice President of Operations of the Company
since November 1998. From 1996 to 1998 Mr. Knartzer was Vice President of
Operations of Coastcast Corporation, a golf club head manufacturer. In 1995, he
was Vice President of Operations of Enertech, a manufacturer/representative of
products for the nuclear power industry. From 1992 to 1995 Mr. Knartzer was the
Director of Operations for Accuride International, a manufacturer of precision
ball bearing drawer slides. Mr. Knartzer has a Bachelor of Science degree in
Industrial Technology from California State University, Long Beach and a Master
of Engineering degree from the University of California, Los Angeles.
Executive officers of the Company serve at the discretion of the Board. There
are no family relationships between or among any of the Company's directors or
executive officers.
Agreements with Key Executives
In April 1999, the Company entered into an agreement with Arne van Roon, the
Company's newly appointed President and Chief Executive Officer. The agreement
provides that Mr. van Roon will be paid annual compensation of $164,320. The
agreement also provides that Mr. van Roon shall be granted options to purchase
750,000 shares of the Company's common stock to vest over a four year period,
subject to the following acceleration provisions: (i) 100,000 to be vested on
December 31, 1999; (ii) 100,000 to vest on December 31, 2000 if the Company's
common stock price is at or above $4.00 per share on that date; and (iii) 50,000
for every whole dollar per share that the Company's common stock price at
December 31, 2000 is above $4 per share up to a maximum of $15 per share. On
February 18, 1999 Mr. van Roon was granted warrants to purchase up to 50,000
shares of the Company's common stock, subject to vesting based upon the
Company's European sales exceeding certain minimum requirements for 1999.
In April 1999, the Company entered into an agreement with James L. Hesburgh, the
Company's newly elected Chairman of the Board. The agreement provides that Mr.
Hesburgh's annual compensation shall be $72,000. The agreement also provides
that Mr. Hesburgh shall be granted options to purchase 100,000 shares of the
Company's common stock which shall be fully vested on December 31, 1999.
In April 1998, the Company entered into a two-year employment agreement with
Steven S. Price, the Company's former President and Chief Executive Officer.
Subject to the termination provisions provided therein, the term of Mr. Price's
employment agreement was to be automatically renewed for a one-year term after
the expiration of the initial two-year term. The employment agreement provided
that Mr. Price's annual base salary was to be $200,000 during the initial year
and not less than $200,000, as determined by the Compensation Committee, during
the second year of the initial two-year term. In addition to his base salary
during the initial two-year term, Mr. Price was entitled to an annual bonus of
up to one hundred percent (100%) of his base salary, subject to a $100,000
minimum guarantee. He was also to receive a Company paid personal term life
insurance policy in an amount of not less than $1 million, reimbursement of
certain relocation costs and a customary benefits package. The employment
agreement provided that Mr. Price be granted options to purchase 400,000 shares
of the Company's common stock, to be vested in the following amounts and at the
times indicated: (I) 80,000 shares on the date of execution of his employment
agreement; (ii) 80,000 shares on the last day of the first year of employment;
and (iii) 40,000 shares upon completion of each succeeding six month period of
employment for a period of three years. Under the termination provisions of Mr.
Price's employment agreement, if he was not terminated for cause, he may not be
terminated during the first year of his employment. If terminated during the
second year of his employment other than for cause, he would be entitled to
continuation of salary and benefits, plus the minimum guaranteed bonus, paid
monthly, up to a period of one (1) year. If terminated in the third year and
thereafter other than for cause, he would be entitled to a six (6) month
continuation of salary and benefits. The employment agreement prohibits Mr.
Price from (i) competing with the Company for a period of two years following
termination of employment with the Company and (ii) disclosing confidential
information or trade secrets in any unauthorized manner.
Effective April 15, 1999, Mr. Price was no longer President and Chief Executive
Officer of the Company. Subject to certain terms of the above described
employment agreement, the Company and Mr. Price have agreed to continuation of
his salary and benefits, plus the minimum guaranteed bonus, paid monthly, for a
period of up to one year.
In May 1996, the Company entered into a three-year employment agreement with
Robin A. Carden, then the Company's President and Chief Executive Officer. On
April 20, 1998, Mr. Carden was replaced by Mr. Price as President and Chief
Executive Officer. Subject to the provisions for termination provided in his May
1996 agreement, the term of Mr. Carden's employment agreement shall
automatically be renewed for a one-year term after the expiration of the initial
three-year term, and for successive one-year terms thereafter for a maximum of
10 years. The employment agreement provides that Mr. Carden's annual base salary
shall be determined by the Board of Directors, but in no event shall such annual
salary be less than $150,000, which amount shall be increased annually in an
amount equal to at least the annual Consumer Price Index. In addition to his
base salary, Mr. Carden is entitled to bonus consideration and a customary
benefits package. The employment agreement prohibits Mr. Carden from (i)
competing with the Company for a period of two years following termination of
employment with the Company and (ii) disclosing confidential information or
trade secrets in any unauthorized manner.
In May 1997, Richard L. Little entered into a one-year employment agreement with
the Company for the position of Vice President, Finance and Administration and
Chief Financial Officer. Subject to the termination provisions provided therein,
Mr. Little's employment agreement was to automatically be renewed for a one-year
term after the expiration of the initial term, and for successive one-year terms
thereafter. Mr. Little's agreement was renewed for its first one-year extension.
His employment agreement provides for an annual base salary to be determined by
the Compensation Committee of the Board of Directors, but in no event shall such
annual salary be less than $135,000. In addition to an annual base salary, Mr.
Little's employment agreement provides for a minimum annual bonus of $20,000 and
a customary benefits package. The employment agreement prohibits Mr. Little from
(i) competing with the Company for a period of two years following termination
of employment with the Company and (ii) disclosing confidential information or
trade secrets in any unauthorized manner. In May 1998, Mr. Little and other
senior management of the Company were given notice of the Company's intent to
allow certain existing employment agreements to expire at there next anniversary
date and that such employees would become "at will" employees as defined by
California labor law. Mr. Little's employment agreement expires on May 19, 1999.
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information for the years indicated concerning
the compensation awarded to, earned by or paid to the Chief Executive Officer of
the Company and the two most highly paid executive officers, other than the
Chief Executive Officer (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Company during such period.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Summary Compensation Table
Annual Compensation Number of
Securities
Name and Principal Position Other Annual Underlying Options All Other
Year Salary Bonus(2) Compensation Compensation(1)
Steven S. Price 1998 $170,830 $41,670 -- -- $5,950
President and Chief 1997 -- -- -- -- --
Executive Officer 1996 -- -- -- -- --
Robin A. Carden 1998 $162,521 -- -- -- $7,200
Founder, Formerly 1997 156,667 -- -- -- $6,900
President and Chief 1996 100,000 $28,500 -- -- 310,985
Executive Officer
Walter R. Menetrey 1998 $148,408 -- -- -- --
Formerly Executive Vice 1997 117,708 $27,500 -- 50,000 --
President and Chief 1996 65,000 -- -- -- --
Operating Officer
Richard L. Little 1998 $135,000 $50,000 -- -- $2,400
Vice President, Finance 1997 84,375 -- -- 60,000 1,500
and Administration 1996 -- -- -- --
and Chief Financial
Officer
Jon A. Knartzer 1998 $50,833 -- -- 35,000 $800
Vice President of 1997 -- -- -- -- --
Operations 1996 -- -- -- -- --
</TABLE>
(1) For 1998, represents car allowances for Mr. Price of $5,950, Mr. Carden
$7,200, Mr. Knartzer $800 and Mr. Little of $2,400. For 1997, represents car
allowances for Mr. Carden of $6,900 and Mr. Little of $1,500. For 1996,
represents Mr. Carden's $4,800 car allowance, $283,100 in deferred compensation
and $22,995 interest on his loan to the Company. (2) In 1998, Mr. Little
received a $50,000 bonus that was paid in 1999. In 1997 Mr. Little received a
$20,000 bonus that was paid in 1998.
<PAGE>
Stock Option Grants and Exercise
The following table sets forth information regarding stock options granted to
each Named Executive Officer during fiscal year 1998 pursuant to the Company's
1996 Stock Option Plan.
<TABLE>
<S> <C> <C> <C> <C> <C>
% of Total
Awards Granted Exercise or Grant Date
Options to Employees in Base Present
Granted(1) Fiscal Year(2) Price(3) Expiration Date Value(4)
Name (#) ($/Sh) ($/Sh)
Steven S. Price 400,000 73.5% 7.62 04/09/08 $4.02
Jon A. Knartzer 35,000 6.4% 5.00 11/02/08 $4.02
- -------------
</TABLE>
(1) Options granted to Mr. Price were granted subject to certain vesting
provisions as described above. Options granted to Mr. Knartzer are exercisable
in a series of four (4) equal and successive annual installments over the
optionee's period of service with the Company, measured from the grant date,
with the first installment exercisable one year from the grant date. Each option
must be exercised within 10 years of the grant date, subject to earlier
termination in the event of the optionee's termination of employment with the
Company. An incentive stock option granted to a person owning more than 10% of
the total combined voting power of all classes of stock of the Company or of any
parent or subsidiary of the Company (a "Ten Percent Stockholder") must be
exercised within five years of the grant date. For incentive stock options
granted to a Ten Percent Stockholder, the exercise price shall not be less than
110% of the Fair Value per share of Common Stock. (2) A total of 544,000 options
were granted for the fiscal year ended December 31, 1998. At December 31, 1998
928,500 options were outstanding. Of these 319,000 options were exercisable. At
December 31, 1998 there were 71,500 shares of common stock reserved under the
plan for future stock option grants. A total of 260,500 options were granted for
the fiscal year ended December 31, 1997. At December 31, 1997 524,500 shares
were outstanding. Of these 138,894 options were exercisable. At December 31,
1997 there were 475,500 shares of common stock reserved under the plan for
future stock option grants. In October 1996, the Company granted options for the
purchase of 383,000 shares of common stock at the initial public offering price,
all of which were outstanding at December 31, 1996. Of the options outstanding
at December 31, 1996, 25,000 options with an exercise price of $13.50 were
exercisable. (3) The exercise price for each option granted under the 1996 Stock
Option Plan shall not be less than 100% of the fair market value (the "Fair
Value") per share of Common Stock on the date such option is granted. The
exercise price may be paid in cash (by check), by transferring shares of Common
Stock owned by the option holder and having a Fair Value on the date of
surrender equal to the aggregate exercise price of the option or, solely with
respect to options other than those granted to non-employee Directors, by cash
payments in installments or pursuant to a full recourse promissory note, in
either case, upon the terms and conditions as the Compensation Committee shall
determine. Upon the exercise of any option, the Company is required to comply
with all applicable withholding tax requirements. (4) Represents grant date
valuation computed under the Black-Scholes option pricing model adapted for use
in valuing stock options. The actual value, if any, that may be realized will
depend on the excess of the stock price over the exercise price on the date the
option is exercised, so there can be no assurance that the value realized will
be at or near the value estimated by the Black-Scholes model. Grant date values
were determined based in part on the following assumptions for 1998: risk-free
rate of return of 5.50%, no dividend yield, expected life of 5 years, and
historical volatility of 56.31%.
<PAGE>
Option Exercises and Holdings as of December 31, 1998
No stock options were exercised in fiscal year 1998 by any of the Named
Executive Officers. The following table sets forth, as of December 31, 1998, the
number of unexercised options held by each Named Executive Officer and the value
thereof based on the closing price of the Common Stock of $4.25 on December 31,
1998.
<TABLE>
<S> <C> <C>
Aggregated Option/Warrant Exercises in Last Fiscal Year
and Fiscal Year-End Option/Warrant Values
Number of Unexercised Value of Unexercised In-the-Money
Options/Warrants at FY-End Options/Warrants at FY-End ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
Steven S. Price 80,000/400,000
Robin A. Carden 0/0 0/0
Walter R. Menetrey 33,300/50,000 0/0
Richard L. Little 20,000/60,000 0/0
Jon A. Knartzer 0/35,000 0/0
</TABLE>
(1) Represents (i) the number of shares of Common Stock underlying options
(including options the exercise price of which was more than the market value of
the underlying securities) multiplied by (ii) the closing price at December 31,
1998 of $4.25 minus the exercise price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Andromeda Enterprises, Inc.
Andromeda Enterprises, Inc., a Delaware corporation ("Andromeda"), received
$40,000 from the Company in 1998 for sales, marketing and consulting services
performed by Andromeda on behalf of the Company. Mr. Udi Toledano, formerly a
Director, principal stockholder and Chairman of the Board of the Company, is the
President of Andromeda.
REPORT ON EXECUTIVE COMPENSATION(1)
Introduction
Three of Alyn's directors, Messrs. Hesburgh (Chairman), van Roon and
Markbreiter, constitute the Compensation Committee, which, among other things,
is responsible for (1) reviewing and approving salaries, benefits and bonuses
for all executive officers of the Company; (2) reviewing and approving stock
option grants to employees of the Company; and (3) reviewing and recommending to
the Board of Directors matters relating to employee compensation and employee
benefit plans. The Board of Directors did not modify or reject any action or
recommendation of the Compensation Committee regarding compensation for the 1998
fiscal year.
This report sets out the Company's executive compensation philosophy and
objectives, describes the components of its executive compensation program and
describes the bases on which 1998 executive compensation determinations were
made with respect to the executive officers of the Company, including those
named in the Summary Compensation Table preceding this report.
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1. Pursuant to Item 402(a)(9) of Regulation S-K promulgated by the SEC,
neither the "Report on Executive Compensation" nor the material under the
caption "Performance Measurement Comparison" shall be deemed to be filed
with the SEC for purposes of the Securities Exchange Act of 1934, as
amended, nor shall such report or such material be deemed to be
incorporated by reference in any past or future filing by the Company
under the Exchange Act or the Securities Act of 1933, as amended.
<PAGE>
Executive Compensation Philosophy and Objectives
In establishing and evaluating the effectiveness of compensation programs for
executive officers, as well as other employees of the Company, the Compensation
Committee is guided by three basic principles:
o The Company must offer competitive salaries to be able to attract
and retain highly-qualified and experienced executives and other
management personnel;
o Executive cash compensation in excess of base salaries should be
tied to Company and individual performance; and
o The financial interests of the Company's executives should be aligned
with the financial interests of the stockholders, primarily through
stock option grants and incentive compensation.
Compensation Program Components
Consistent with the Company's executive compensation objectives, compensation
for its senior executives consists of three elements: an annual base salary,
annual incentive compensation and long-term incentive compensation.
Annual Base Salary. The Compensation Committee annually reviews each executive's
base salary. Salary levels are generally targeted at and correspond to the
median of the range of compensation paid by similarly situated companies. Actual
salaries are based on individual performance contributions within a competitive
salary range for each position that is established through job evaluation and
market comparisons. Base pay levels for the executive officers are competitive
within a range that the Compensation Committee considers to be reasonable and
necessary to attract and retain qualified executives. Increases in base salary
are primarily the result of individual performance, which includes meeting
specific goals established by the Compensation Committee. The criteria used in
evaluating individual performance varies depending on the executive's function,
but generally include leadership inside and outside the Company; advancing the
Company's interests with customers, vendors and in other business relationships;
product quality and development; and advancement in skills and responsibility.
Annual Incentive Compensation. The Compensation Committee annually considers the
performance of the Company and of each executive in determining the amount of
cash compensation to be paid in excess of base salaries. The Compensation
Committee also considers Management recommendations regarding bonus compensation
for all other employees, which are also based upon Company and individual
performance.
Long-Term Incentive Compensation. The 1996 Stock Incentive Plan authorizes the
Compensation Committee to make grants and awards of stock options to the
Company's employees. The stock options are granted with an exercise price equal
to the market price of the Company's Common Stock on the date of grant, have a
duration of ten years, and vest over three or four years. This approach is
designed to motivate management to increase stockholder value over the long-term
since, the full benefit of the compensation package cannot be realized unless
stock price appreciation occurs over a number of years. In determining the
number of options awarded, the Compensation Committee considers competitive
practices, the duties and scope of responsibilities of each officer's position
and the amount and terms of options already held by management.
Chief Executive Officer's Compensation. Mr. Price, who was appointed President
and Chief Executive Officer on April 20, 1998, had a base annual salary of
$200,000, a guaranteed minimum bonus compensation of $100,000 per year and in
April 1998 received options to purchase 400,000 shares of the Company's Common
Stock. On April 15, 1999, Mr. van Roon succeeded Mr. Price as President and
Chief Executive Officer at an annual base compensation of $164,320 and received
options to purchase 750,000 shares of the Company's common stock.
Summary
The Compensation Committee believes that the compensation program for the
executives of the Company is comparable with the compensation programs provided
by comparable companies and serves the best interests of the stockholders of the
Company. The Compensation Committee also believes that annual performance pay is
appropriately linked to individual performance, annual financial performance of
the Company and stockholder value.
The Compensation Committee
Udi Toledano (Chairman)
Steven Price
Michael Markbreiter
<PAGE>
Performance Measurement Comparison
The following graph provides a comparison of the cumulative total shareholder
return for the period from October 22, 1996 (the date on which the Common Stock
was issued in the Company's initial public offering at $13.50 per share) through
December 31, 1998 (assuming reinvestment of any dividends) among the Company,
the NASDAQ Stock Market - U.S. Index and the Russell 2000 Index.
COMPARISON OF 12 MONTH CUMULATIVE TOTAL RETURN
AMONG ALYN CORPORATION, THE NASDAQ STOCK MARKET-U.S. INDEX
AND THE RUSSELL 2000 INDEX FOR PERIOD ENDING DECEMBER 31, 1998*
* Assumes that the value of the investment in Alyn Corporation Common Stock and
each index was $100 on December 31, 1996 and that all dividends were reinvested.
The foregoing graph is based upon
the following data:
Cumulative Total Return
12/31/96 12/31/97 12/31/98
ALYN CORPORATION 100 97 39
NASDAQ STOCK MARKET - U.S. 100 124 170
INDEX
RUSSELL 2000 INDEX 100 121 116
<PAGE>
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders is being provided to each
stockholder of the Company with this Proxy Statement. Additional copies may be
obtained without charge by writing to Alyn Corporation, 16761 Hale Avenue,
Irvine, California 92606, Attention: Secretary.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires certain officers
of the Company and its directors, and persons who own beneficially more than ten
percent of any registered class of the Company's equity securities, to file
reports of ownership and changes in ownership of Common Stock of the Company
with the SEC, the Nasdaq National Market and the Company. Based solely on a
review of the reports and representations provided to the Company by the
above-referenced persons, the Company believes that during 1998, all filing
requirements applicable to its reporting officers, directors and greater than
ten percent beneficial owners were properly and timely satisfied. In making
these statements, the Company has relied on representations of its directors,
officers and greater than ten percent beneficial owners, and copies of reports
they have filed with the SEC.
STOCKHOLDER PROPOSALS
The eligibility of stockholders to submit proposals, the proper subjects of
stockholder proposals and the form of stockholder proposals are regulated by
Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as amended.
In accordance with regulations issued by the SEC, stockholder proposals intended
for presentation at the 1999 Annual Meeting of stockholders must be received by
the Company at its principal executive office, 16761 Hale Avenue, Irvine, CA
92606, no later than February 3, 1999, if such proposals are to be considered
for inclusion in the Company's proxy statement for the 1999 Annual Meeting of
stockholders. Each proposal submitted should include the full and correct name
and address of the stockholder(s) making the proposal, the number of shares
beneficially owned and their date of acquisition. If beneficial ownership is
claimed, proof thereof should also be submitted with the proposal. The
stockholder or his or her representative must appear in person at the annual
meeting and must present the proposal, unless he or she can show good reason for
not doing so.
By Order of the Board of Directors
/S/ RICHARD L. LITTLE
Richard L. Little
Secretary
