SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14A-6(e)(2))
[ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Alydaar Software Corp.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
<PAGE>
ALYDAAR SOFTWARE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of
Alydaar Software Corporation (the "Company") will be held at The Park Hotel,
2200 Rexford Road, Charlotte, North Carolina on May 22, 1998 at 2:00 P.M. for
the following purposes as set forth in the accompanying Proxy Statement:
1. To authorize an increase in the number of Directors;
2. To elect five Directors to serve for a term of one year;
3. To approve the adoption of the 1997 Employee Stock Purchase
Plan enabling eligible employees to purchase the Common Stock
of the Company through periodic payroll deductions;
4. To ratify an increase and to approve an additional increase in
the number of shares of Common Stock available under the
Alydaar Software Corporation Omnibus Stock Plan;
5. To approve an amendment to the Company's Articles of
Incorporation increasing the amount of authorized Common Stock
which the Company is authorized to issue to 50,000,000 shares,
par value of $.001 per share;
6. To ratify the selection and appointment by the Company's Board
of Directors of Holtz Rubenstein & Co. LLP, independent
certified public accountants, as auditors for the Company for
the year ending December 31, 1998; and
7. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Holders of record of the Company's Common Stock at the close of
business on April 15, 1998, will be entitled to vote at the meeting.
By Order of the Board of Directors
Robert F. Gruder, Chairman
Dated: April 28, 1998
Whether or not you plan to attend the meeting, please date and sign the
enclosed proxy and return it in the envelope provided. Any person giving a proxy
has the power to revoke it at any time prior to its exercise and, if present at
the meeting, may withdraw it and vote in person. Attendance at the meeting is
limited to stockholders, their proxies and invited guests of the Company.
<PAGE>
ALYDAAR SOFTWARE CORPORATION
2101 Rexford Road, Suite 250 West
Charlotte, North Carolina 28211
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1998
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of proxies to be voted at the Annual Meeting of
Stockholders (the "Meeting") of Alydaar Software Corporation ("the Company" or
"Alydaar") to be held at The Park Hotel, 2200 Rexford Road, Charlotte, North
Carolina, at 2:00 P.M. on May 22, 1998 and at any adjournments thereof. The
purpose of the Meeting and the matters to be acted upon are set forth in the
accompanying Notice of Annual Meeting of Stockholders. The Board of Directors
knows of no other business that will come before the Meeting.
The shares represented by proxies that are received in the enclosed
form and properly filled out will be voted in accordance with the specifications
made thereon. In the absence of specific instructions, proxies will be voted in
accordance with the recommendations made herein with respect to the proposals
described in this Proxy Statement. Proxies may be revoked by stockholders by
written notice received by the Secretary of the Company at the address set forth
above, at any time prior to the exercise thereof or by attendance at the
Meeting. Stockholders of record at the close of business on April 15, 1998 are
entitled to notice of and to vote at the Meeting or any adjournments thereof.
Proxies for use at the Meeting are being mailed to stockholders on or about
April 27, 1998. The Company's only class of voting securities is its Common
Stock, par value $.001 per share, of which 17,808,728 shares were outstanding as
of December 31, 1997. The present officers and Directors of the Company, holding
approximately 42.5% of the outstanding Common Stock, intend to vote "For" all
the proposals set forth herein.
PROPOSAL NO. 1
TO APPROVE AN INCREASE IN THE NUMBER OF DIRECTORS
The By-Laws of the Company provide for a Board of Directors (the
"Board") of not less than three (3) members nor more than nine (9) members. The
Board of Directors is authorized to prescribe the number of Directors' positions
within the minimum and maximum, subject to shareholder approval, for increases
in the Board over thirty percent (30%) during any twelve- (12-) month period.
During 1997, the Board authorized an increase in the number of Directors from
three (3) to five (5) to include two (2) outside Directors in order to comply
with certain Corporate Governance Standards required for NASDAQ National Market
Listing Criteria. In addition, on April 6, 1998, the Board unanimously approved
an increase in the number of Director positions available to be filled
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<PAGE>
from five (5) to nine (9). The reason for the increase is that the Company is
pursuing an acquisition strategy and may be required to offer Directorships to
principals of acquired companies. While the Company is presently engaged in
preliminary discussions with acquisition candidates, there are no understandings
or agreements which would require the Board to fill the vacant Director
positions. Shareholders are now being requested to approve the increase from
three (3) to five (5) Directors, and to approve the increase of the total number
of Director positions from five (5) to nine (9).
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
INCREASE IN THE NUMBER OF DIRECTORS.
PROPOSAL NO. 2
ELECTION OF DIRECTORS
The Board currently consists of five (5) Directors. A vacancy or
vacancies which occur during the year may be filled by the Board of Directors,
and any Directors so approved must stand for reelection at the next annual
meeting of stockholders. Assuming the approval of the increase in the number of
Directors from three (3) to five (5) in Proposal No. 1, the nominees for
Directors, to be voted on by stockholders, are Messrs. Gruder, Scott, Dudchik,
McMillan and McCarthy.
All current Directors have been nominated for re-election by the
Company's present Directors. All nominees have consented to be named and have
indicated their intent to serve, if elected. The Company has no reason to
believe that any of these nominees are unavailable for election. However, if any
of the nominees become unavailable for any reason, the persons named as proxies
may vote for the election of such person or persons for such office as the Board
of Directors of the Company may recommend in the place of such nominee or
nominees. It is intended that proxies, unless marked to the contrary, will be
voted in favor of the election of Messrs. Gruder, Scott, Dudchik, McMillan and
McCarthy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE FOLLOWING FIVE NOMINEES.
Certain information regarding each nominee is set forth in the table
and text below. The number of shares beneficially owned by each nominee is
listed below under "Security Ownership of Certain Beneficial Owners and
Management."
The following table sets forth the name, age and term of office as
Director for each nominee for election as Director and his present position(s)
with the Company:
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<PAGE>
Director
Nominee for Election Age Since Position
Robert F. Gruder 39 1989 Chief Executive Officer, President
and Chairman of the Board
V. Hollis Scott 52 1996 Chief Financial Officer, Secretary
and Director
Thomas J. Dudchik 38 1996 Senior Vice President and Director
J. Alex McMillan 65 1997 Director
John McCarthy 58 1997 Director
Directors are elected to serve until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
The Board of Directors held three meetings during the calendar year ended
December 31, 1997 and also met informally and acted by written consents during
the year. Officers serve at the discretion of the Board of Directors.
Robert F. Gruder has served as Chief Executive Officer, President and
Chairman of the Board of Directors since 1989, when the Company was first
acquired. Prior to his association with the Company and for three years, Mr.
Gruder served as president of GEM Technologies, Inc. ("GEM"), a company which
was engaged in developing a computer language compiler. GEM filed for bankruptcy
in 1992 pursuant to Chapter 7 of the Bankruptcy Code. Mr. Gruder was the
principal stockholder of GEM. Prior to Mr. Gruder's association with GEM, he was
employed at three different banks. Mr. Gruder is a graduate of American
University and holds a BS degree in finance.
V. Hollis Scott has served as Chief Financial Officer, Secretary and
Director since January 1996. Prior to January 1996 and from November 1988, Mr.
Scott served as Senior Vice President and Treasurer of the Cato Corporation, a
publicly held 600-store ladies' apparel retailer. Before 1988, he held senior
financial management positions with a cable television operator and with a
department store chain. Prior to that, he was employed with Ernst & Young. Mr.
Scott is a graduate of the University of Virginia and is a licensed certified
public accountant.
Thomas J. Dudchik joined the Company as Senior Vice President in February
1996. He is responsible for all national and international marketing and
investor relations. Prior to joining the Company, Mr. Dudchik served as Deputy
Chief of Staff for Connecticut Governor Lowell P. Weicker, Jr. from January 1993
through January 1995. As part of his responsibilities, Mr. Dudchik administered
the State of Connecticut's $10 billion annual budget for the 26 major state
agencies, representing 50,000 state employees. From February 1991 through
December 1992, Mr. Dudchik served as Deputy Commissioner of the Connecticut
Department of Environmental Protection. From February 1995 through
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<PAGE>
January 1996 he operated an advertising and sales promotion business. Mr.
Dudchik received a BA degree from Trinity College.
J. Alex McMillan was elected a Director of the Company effective March
19, 1997. Mr. McMillan is currently employed with The McMillan Group, merchant
bankers and consultants. Between April 1, 1997 through December 31, 1997, Mr.
McMillan was retained by the Company to act as an independent consultant to
assist the Company in developing government contracts. From 1985 through 1994
Mr. McMillan served in the US House of Representatives, representing the 9th
Congressional District for the State of North Carolina. While a member of
Congress, Mr. McMillan served on various committees, including Energy and
Commerce, Budget, Bank and Small Business. From 1976 through 1983, Mr. McMillan
was President and Chief Executive Officer of Harris Teeter Supermarkets, Inc., a
regional chain of supermarkets owned by the Ruddick Corporation. Mr. McMillan
currently serves as a Director of Interstate/Johnson Lane, Inc., and Scottish
Bank of Charlotte, North Carolina, both publicly held companies. Mr. McMillan
holds an MBA from the Darden School, University of Virginia.
John McCarthy was appointed to serve as a Director in August 1997. For
approximately 31 years, Mr. McCarthy has been employed in the brokerage business
in the data processing area. He has held management positions in various
brokerage firms. From 1993 until December 1997, he was employed with Smith
Barney & Co. as Senior Vice President and Year 2000 Project Director.
The Company's outside Directors, Messrs. McMillan and McCarthy, upon
their appointment to the Board, were given an award of 15,000 warrants each. The
warrants are exercisable one year from the date of the grant at the fair market
price of the Company's Common Stock on the date of grant. The warrants will
expire in 2007.
Messrs. McMillan, McCarthy and Scott currently serve on the Audit
Committee, which committee was recently established in October, 1997. There were
no meetings of the Committee during 1997. In addition, Messrs. McMillan,
McCarthy and Gruder currently serve on the Compensation Committee, which was
also established in October, 1997. This Committee held no meetings during 1997.
The Company has no other standing Committee. During 1997, no member of the Board
attended fewer than seventy-five percent (75%) of the total number of meetings
convened by the Board of Directors. Directors receive no compensation for
attendance at meetings, but those Directors who are required to travel to
meetings are reimbursed for their expenses.
Executive Compensation
The following table sets forth information with respect to compensation
paid by the Company for the services to the Company during the three years ended
December 31, 1997 to the Company's Chief Executive Officer. No officer received
compensation in excess of $100,000.
4
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Re-
Other stricted Securities
Annual Stock Underlying LTIP All Other
Compen- Awarded Options/ Payouts Compen-
Name and Principal Position Year Salary($) Bonus($) sation ($) ($) SARs (#) ($) sation ($)
- --------------------------- ---- --------- -------- ---------- ----- -------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Robert F. Gruder 1997 60,000 -0- -0- -0- 2,000 1 -0- -0-
Chief Executive Officer
1996 60,000 -0- -0- -0- -0- -0- -0-
1995 60,000 -0- -0- -0- -0- -0- -0-
<FN>
- ------------------------
1 Mr. Gruder was granted 2,000 incentive stock options under the 1994
Omnibus Stock Plan on April 24, 1997. The options are exercisable at $8.80 per
share. 1,000 options vest on April 24, 1998 and 1,000 options vest on October
24, 1998. The options expire on April 24, 2002.
</FN>
</TABLE>
The senior executive officers do not currently receive any other
personal benefits. The Company offers health insurance to all of its employees.
The Company also has a 401(k) program, but during the year 1997, the Company
made no contributions.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to
SARs Employees in Exercise
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date 5% ($) 10% ($)
- ---- ----------- ----------- ------------ --------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert F. Gruder 2,000 1 0.2% 8.80 4/24/02 2,820 8,160
- -------------------
<FN>
1 The exercise price for the options granted to Mr. Gruder was
established at 110% of fair market value on date of grant. 1,000 of these
options will vest on April 24, 1998, and 1,000 will vest on October 24, 1998.
These options were awarded pursuant to the Omnibus Stock Plan.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-ENDED OPTION/SAR VALUES
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End ($)
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ---- ------------ ----- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Not Applicable
</TABLE>
Employment Agreements
At the present time none of the Company's senior executive officers
have employment agreements with the Company. Once the Company is in a more sound
financial condition to pay salaries actually commensurate with each officer's
position and the services he renders to the Company, employment agreements will
be negotiated.
Stock Option Plans
On September 13, 1994, the Company adopted an Omnibus Stock Plan (the
"1994 Plan"). The 1994 Plan authorizes the issuance of options and stock
appreciation rights and reserved 375,000 shares of the Company's Common Stock
for issuance upon the exercise of options or stock appreciation rights. The 1994
Plan was subsequently amended in December 1996 by the Board of Directors to
increase the number of shares reserved under the Plan from 375,000 to 1,000,000
shares. This increase is subject to ratification and approval by shareholders.
On October 20, 1997, the Board of Directors approved another increase in the
number of shares reserved under the 1994 Plan from 1,000,000 to 2,000,000 shares
subject to the approval of shareholders. In addition, and subject to shareholder
approval of an amendment to the Company's Articles of Incorporation to increase
the Company's authorized Common Stock from 20,000,000 shares to 50,000,000
shares, as now presented to shareholders in Proposal No. 5 herein, the Board of
Directors is seeking shareholder approval to increase the number of shares
available under the Plan to 3,000,000 shares.
The Company is currently seeking acquisitions of other companies to
expand its operations after the year 2000. If any such acquisitions are
completed, the Company may need the ability to offer options to additional
employees who may be absorbed by the Company, and may need to have options
available as an inducement to senior management of any acquired company to stay
on after any such acquisition(s). Shareholders are now being requested to ratify
and approve the increases of the number of shares available under the 1994 Plan
as now presented to shareholders in Proposal No. 4 of this Proxy Statement. For
a complete description of the 1994 Plan, refer to Proposal No. 4.
6
<PAGE>
As of December 31, 1997, 1,532,000 options had been granted to
approximately 260 employees under the 1994 Plan. Of the foregoing amount,
455,000 options were awarded to five executive officers, three of which are
currently Directors of the Company and who are nominated as Directors for 1998.
The Company has also adopted a policy of offering options to all full-time
employees, which enables the Company to attract and retain skilled and dedicated
personnel. All of the outstanding options will expire at various times between
December 2005 and 2007 with exercise prices ranging from $1.19 per share to
$27.88 per share. The exercise prices were based on the fair market value of the
Common Stock as of the date of grant.
During the year ended December 31, 1997 the Board of Directors also
approved the adoption of the 1997 Employee Stock Purchase Plan (the "Purchase
Plan"). Shareholders of the Company are being requested to approve the adoption
of the Purchase Plan as contained in Proposal No. 3 herein. The Purchase Plan
would permit employees of the Company to purchase shares of the Company's Common
Stock through payroll deductions at six-month intervals, as specified in the
Purchase Plan, at a 15% discount from the market price. For a description of the
Purchase Plan, see Proposal No. 3.
Company Performance Graph
The following graph compares the cumulative total stockholder return on
the Common Stock of the Company from June 2, 1997 (the date of registration of
the Company's Common Stock under Section 12 of the Exchange Act) to December 31,
1997 (the last day of the Company's most recent fiscal year) with the cumulative
total return on the Nasdaq Stock Market for United States Companies ("Nasdaq
Stock Market Index") and the Nasdaq Computer and Data Processing Stocks ("Nasdaq
Computer Index") over the same period. This graph assumes a $100 investment at
June 2, 1997, in the Company's Common Stock and in each of the indexes and
reinvestment of all dividends, if any.
The graph displayed below is presented in accordance with the
Securities and Exchange Commission requirements. Stockholders are cautioned
against drawing any conclusions from the data contained therein, as past results
are not necessarily indicative of future performance. This graph is not intended
to reflect the Company's forecast of future financial performance. The graph was
prepared by Standard & Poor's Compustat, a division of the McGraw Hill
Companies.
7
<PAGE>
TOTAL SHAREHOLDER RETURNS
(Dividends Reinvested)
[Graph to be supplied in Definitive Proxy Statement mailed to shareholders]
Return Percentage (6/2/97 - 12/31/97)
Period Ending
Company/Index 12/31/97
Alydaar Software Corp. 43.18
NASDAQ 13.00
NASDAQ Computer & Data Process 5.47
Indexed Returns
Base Period Year Ending
Company/Index 6/2/97 12/31/97
Alydaar Software Corp. 100 143.18
NASDAQ 100 113.00
NASDAQ Computer & Data Process 100 105.47
- -----------------------
Prepared by Standard & Poor's Compustat, a division of the McGraw-Hill
Companies.
An IPO price of $11.00 was used to calculate the return for Alydaar Software.
The price was supplied by the registrant company. A price of $15.75 was used for
the Dec. 31, 1997 calculation and was provided by Alydaar.
8
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of December 31, 1997 by:
(i) each person who is known by the Company to own beneficially more than 5% of
the Company's outstanding Common Stock; (ii) each of the Company's officers and
Directors; and (iii) all officers and Directors of the Company as a group:
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<PAGE>
<TABLE>
<CAPTION>
Name and Address Amount and Nature 1 Percent of Class
- ---------------- ----------------- ----------------
<S> <C> <C>
Robert F. Gruder 7,030,325 38.8%
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
V. Hollis Scott 186,667 2 1.0%
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
Thomas J. Dudchik 226,166 3 1.3%
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
Frank G. Milligan 30,000 4 *
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
James F. Helm 20,250 5 *
c/o Alydaar Software Corporation
2101 West Rexford Road
Charlotte, NC 28211
J. Alex McMillan (Director) 23,340 6 *
3801 Barnwood Drive
Charlotte, NC 28211
John McCarthy (Director) -0- *
4 Glenwood Circle
East Windsor, NJ 08520-2304
All officers and Directors
as a group (9 persons) 7,576,248 42.5%
<FN>
- --------
1 The foregoing figures include options granted under the 1994 Plan. The
issuance of these options is subject to ratification and approval by
shareholders of increases in the number of options available under the 1994 Plan
as contained in Proposal No. 4.
2 Includes 100,000 shares issuable upon exercise of options which vest on
April 24, 1998.
3 Includes 200,000 shares issuable upon exercise of options. Of these,
50,000 options vest on April 24, 1998.
4 Includes 10,000 shares issuable upon exercise of options and an
additional 20,000 shares issuable upon exercise of options, which options vest
on April 24, 1998.
5 Includes 10,000 shares issuable upon exercise of options and an
additional 10,000 shares issuable upon exercise of options, which options vest
on April 24, 1998.
6 Includes 15,000 shares issuable upon exercise of warrants and warrants to
purchase 7,840 shares owned by a company which Mr. McMillan controls.
* Represents less than 1% ownership.
</FN>
</TABLE>
10
<PAGE>
Certain Relationships and Related Transactions
During the year ended December 31, 1997, there were two lawsuits
pending against Robert F. Gruder, the Company's Chief Executive Officer and the
Company. The first lawsuit, Robert Colby v. Robert Gruder, et al., Index No. CV
96 02542045, Superior Court (Conn.), Judicial District of New Haven at Meriden,
was settled by Mr Gruder and the Company was released from all liability. In
connection with this lawsuit, Mr Gruder had agreed to indemnify the Company from
all liability and the Company agreed to pay all of Mr. Gruder's legal expenses,
which amounted to approximately $30,000.
The second lawsuit, Andrew Kaplan, et al. v. Robert F. Gruder, et al.,
Index No. CV 96 03343085, Superior Court (Conn.), District of Fairfield at
Bridgeport. The trial commenced on April 14, 1998, but was adjourned for three
months after one day of hearings. This suit involves allegations that the
Plaintiffs were fraudulently induced to invest in GEM Technologies Inc. ("GEM"),
a company founded by Robert F. Gruder and that GEM wrongfully transferred assets
to Alydaar and Alydaar promoted products based on technology misappropriated
from GEM. The Plaintiff's claim an interest in Alydaar. Mr Gruder and the
Company intend to vigorously defend the lawsuit. In connection with this suit,
Mr. Gruder has agreed to indemnify the Company against all loss, and as such,
Company's counsel has opined that the likelihood of any material outcome against
the Company is remote. In consideration of the indemnification agreement, the
Company has agreed to pay all of Mr. Gruder's legal expenses, which, as of
December 31, 1997, amounted to $85,000.
In July 1997, the Company acquired Alydaar International, Ltd.
("Alydaar International") as a wholly owned subsidiary. Prior to the
acquisition, Alydaar International was an independently owned company which
marketed Alydaar's services in Europe and had been granted a license to use the
name "Alydaar." Mr. Robert Gruder, Chairman and Chief Executive Officer of the
Company, along with fifteen other individuals owned stock in Alydaar
International. When Alydaar International was acquired by the Company, the
shareholders of Alydaar International, including Mr. Gruder, received shares of
the Company's Common Stock in exchange for their interests in Alydaar
International. Mr. Gruder received 50,000 shares of the Company's Common Stock
which then had a value of $7.75 per share.
Between April 1, 1997 and December 31, 1997, The McMillan Group, owned
by Mr. Alex McMillan, who is a Director of the Company, was retained by the
Company to act as an independent consultant to assist the Company in developing
government contracts. (See "Directors and Executive Officers of the
Registrant.") The McMillan Group received total compensation of $90,000 plus
reimbursement of expenses for the services rendered to the Company. The amount
paid to The McMillan Group on a monthly basis was consistent with amounts that
the Company had previously paid another consulting firm performing the same
general services for the Company.
11
<PAGE>
Robert F. Gruder, Chairman and Chief Executive Officer, has made
advances to the Company from time to time to assist the Company in its working
capital requirements. As of January 1, 1997, $500,000 of principal and $3,550 of
interest were owed by the Company to Mr. Gruder. During 1997, Mr. Gruder
advanced an additional $1,100,000 to the Company, and during the year the
Company repaid Mr. Gruder $800,000, leaving a balance due Mr. Gruder at year end
of $800,000 of principal and accrued interest at 10.5% per annum of $27,868. The
advances are evidenced by promissory notes payable on demand.
Prior to December 31, 1997, V. Hollis Scott, Chief Financial Officer of
the Company, advanced the Company $166,700 with interest at 10.5% per annum. The
loan is evidenced by a promissory note payable on demand.
PROPOSAL NO. 3
APPROVAL OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN
Effective August 4, 1997, the Board adopted the Alydaar Software
Corporation 1997 Employee Stock Purchase Plan (the "Purchase Plan"), subject to
approval by the Company's stockholders. The Purchase Plan is intended to provide
employees with an opportunity to become a shareholder in Alydaar and to share in
its potential growth and profitability. The Board recommends to stockholders
that the Purchase Plan be approved.
Summary of the Purchase Plan
The Purchase Plan became effective as of August 4, 1997 and terminates
on June 30, 2007, unless extended by the Board of Directors, who administer the
Purchase Plan, or terminated sooner by the sale of all shares reserved under the
Purchase Plan. Under the Purchase Plan, 200,000 shares of the Company's Common
Stock have been reserved for issuance.
The Purchase Plan provides for two six-month periodic Offering Periods
during any year. Eligible employees will be permitted to accumulate payroll
deductions in a Plan account for the purchase of Common Stock. Only those
employees who are employed by the Company on the first and last day of an
Offering Period and are employed for more than twenty hours per week and more
than five (5) months per calendar year are eligible.
Eligible employees may elect to allocate from one percent (1%) to ten
percent (10%) of their salary per pay period towards the purchase of Common
Stock at the end of each Offering Period. The amount contributed to the Purchase
Plan by each employee will be used to purchase the Common Stock at a price equal
to 85% of the lower of the fair market value of the Common Stock on the first
day or last day of the Offering Period. Fair market value shall be the closing
or the last sales price on the market where the Company's
12
<PAGE>
Common Stock then trades. The aggregate fair market value of shares that may be
purchased by any employee during any calendar year may not exceed $25,000.
The Purchase Plan's agent is First Union Bank of North Carolina (the
"Agent"). The Agent is authorized to purchase shares (a) in the market where the
Company's Common Stock is then traded, (b) in negotiated transactions or (c) as
original issue shares from the Company. In all events, the Company is required
to contribute the fifteen percent (15%) discount.
The Purchase Plan is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). As such, an employee who
participates in the Purchase Plan (a "Participant") will not be taxed on the
purchase of Common Stock under the Purchase Plan, provided the Participant does
not dispose of the stock within two years of the first day of the Offering
Period involved (the date of grant) and within one year from the date of
purchase. If the Participant disposes of the stock purchased under the Purchase
Plan prior to meeting the foregoing holding periods, the Participant will
recognize (i) compensation income equal to the difference between the fair
market value of the stock at the time of purchase and the purchase price and
(ii) a capital gain or loss equal to the difference between the sales price of
the stock and fair market value of the stock at the time of purchase. The
Company generally will not be entitled to any deduction in connection with the
purchase or sale of stock pursuant to the Purchase Plan by a Participant.
The Directors administering the Purchase Plan are ineligible to
participate. Officers of the Company may participate. Officers, however, are
subject to Section 16(b) of the Securities Act of 1933 (the "Act") and in order
to avail themselves of the exemption provided by Section 16(b) of the Act, any
shares acquired under the Purchase Plan must be held for a minimum of six months
from the date of purchase to the date of disposition of the shares. Resales of
shares of Common Stock acquired by "affiliates" of the Company as defined in
Rule 405 under the Act will be subject to the volume and reporting requirements
of Rule 144 under the Act, unless the Company registers their shares under the
Act for resale pursuant to a separate prospectus.
The Purchase Plan may be amended by the Board as it may deem advisable.
However, the Board is not authorized, without stockholder approval, to amend the
Purchase Plan to increase the maximum number of shares available for sale under
the Purchase Plan or to modify the Purchase Plan so as to cause it to fail to
comply with Section 423 of the Code.
The foregoing summary of the Purchase Plan is qualified in its entirety
by and reference is made to, the Purchase Plan, a copy of which is attached
hereto as Exhibit A. The Company intends to register the shares reserved under
the Purchase Plan as soon as practicable.
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THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ADOPTION OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL NO. 4
RATIFICATION OF THE INCREASE OF THE NUMBER OF SHARES AVAILABLE
FOR ISSUANCE UNDER THE ALYDAAR SOFTWARE CORPORATION
OMNIBUS STOCK PLAN AND AUTHORIZATION OF AN
INCREASE OF SHARES AVAILABLE UNDER SUCH PLAN
In 1994, the Company adopted the Alydaar Software Corporation Omnibus
Stock Plan (the "1994 Plan") to issue options to purchase the Company's Common
Stock. The 1994 Plan was adopted to enable the Company to attract and retain
skilled and dedicated employees and to offer, as an incentive to employees and
officers who render services for the Company, the opportunity to share in the
future growth of the Company. Under the 1994 Plan, 375,000 shares of the
Company's Common Stock were originally reserved for issuance upon the exercise
of options. In December 1996, the Board of Directors approved an increase of the
number of shares available under the 1994 Plan from 375,000 to 1,000,000 shares.
On October 20, 1997, the Board of Directors approved an increase from 1,000,000
shares to 2,000,000 shares. Shareholders are now being requested to ratify the
increase from 375,000 shares to 1,000,000 shares and to approve the increase
from 1,000,000 shares up to 2,000,000 shares available under the 1994 Plan in
order to regularize awards of approximately 1,157,000 options to employees and
officers. In addition, and subject to shareholder approval of an amendment to
the Company's Articles of Incorporation to increase the authorized Common Stock
from 20,000,000 shares to 50,000,000 shares as presented in Proposal No. 5,
shareholders are now being requested to approve an increase in the number of
shares available under the 1994 Plan to 3,000,000 shares. The Company believes
that it will need the ability to issue additional options to employees that the
Company may absorb in connection with its acquisition strategy to acquire other
companies. Likewise, the Company believes it may need to have options available
as an inducement to senior management of any acquired company to stay on after
any such acquisition(s). If shareholders do not approve the increase in Proposal
No. 5, then shareholder approval of the increase to 3,000,000 shares available
under the 1994 Plan will be of no effect.
Summary of the 1994 Plan
The 1994 Plan, upon shareholder ratification and approval of the
increases in the number of shares available under the 1994 Plan, would authorize
the Company to grant to its officers and employees options to purchase shares of
the Company's Common Stock at a price which may not be less than the fair market
value per share in the case of incentive stock options or below fair market
value in the case of non-qualified options for such stock on the date of the
granting of the option. Payment of the exercise price shall be made in cash, or,
with the consent of the Directors, in whole or in part, in shares of
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Common Stock or other approved form of payment. If an option granted under the
1994 Plan shall expire, terminate or be canceled for any reason without being
exercised in full, the corresponding number of unpurchased shares shall again be
available under the 1994 Plan. Options may be granted in the form of incentive
stock options or options which do not qualify for treatment as incentive stock
options.
The 1994 Plan calls for administration by a Committee of not less than
two persons (the "Committee") appointed by the Board of Directors. Until the
recent creation of the Compensation Committee, the 1994 Plan has been
administered by the Board. The Committee determines the persons who are to be
granted options based upon the contribution of such persons to the management
and growth of the Company. The 1994 Plan contains no preset criteria determining
the identity or amount of options to be granted to any person or group of
persons. The Board has established that no option may be exercised after the
expiration of 10 years from the date of grant.
Incentive stock options are also subject to the following limitations:
(i) the aggregate fair market value (determined at the time an option is
granted) of stock with respect to which incentive stock options are exercisable
for the first time by an optionee during any calendar year (under all such plans
of the Company, its parent or subsidiary) shall not exceed $100,000, and (ii) if
the individual to whom the incentive stock options were granted is considered as
owning stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, then (A) the option price at the time of grant
may not be less than 110% of the fair market value per share for such Common
Stock and (B) the option period must be no more than five years from the date of
grant.
Unless otherwise determined by the Committee or by other provisions of
the 1994 Plan, upon the granting of any option such option may be immediately
exercisable with respect to 100% of the shares, subject to the option. The
Committee may, in its discretion, however, (i) provide for the holding of such
shares of Common Stock in escrow for a period not exceeding five years, or (ii)
impose other restrictions on the vesting of any option or the vesting of any
shares of Common Stock that an employee receives upon exercise of any option;
provided that any and all such restrictions shall lapse if there is a sale of
(A) substantially all of the assets or (B) 50 percent or more of the voting
securities of the Company (excluding for this purpose Company stock sold in a
primary or secondary public offering). Any restrictions the Board or the
Committee imposes on an option pursuant to this paragraph shall be specified in
the stock option agreement governing such option.
An individual whose employment terminates by reason other than death
may generally exercise a vested option within a ninety- (90-) day period, or if
termination is by reason of death, within the twelve month period after such
termination, and then only if and to the extent that such option was exercisable
at the date of termination of employment.
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<PAGE>
The Board of Directors may, at any time, alter, suspend or terminate
the 1994 Plan, except that the Board of Directors may not, without further
approval of the stockholders, (1) increase the maximum number of shares for
which options may be granted under the 1994 Plan or which may be acquired by an
individual employee, (2) decrease the minimum purchase price for shares of
Common Stock to be issued upon exercise of options or (3) change the class of
persons eligible to receive options. Except in limited circumstances, the Board
may not make any change which would have a material adverse affect upon any
option previously granted, unless the consent of the employee is obtained. No
person may be divested of ownership of shares already issued under the 1994
Plan.
The 1994 Plan also authorizes the Committee to award stock appreciation
rights ("SARs") to employees and officers. A SAR is a right to receive, upon
surrender of the right, but without any payment, an amount payable in cash
and/or shares of Common Stock as the Committee shall determine. SARs may be
granted in tandem, with part or all of, in addition to, or independent of stock
options. The amount payable in cash and/or shares of Common Stock shall be equal
in value to a percent of the amount by which the fair market value per share on
the exercise date exceeds the exercise price of the SAR. The applicable percent
shall be established by the Committee. The amount payable in shares of Common
Stock, if any, is determined with reference to the fair market value on the date
of exercise. To date, no SARs have been issued under the 1994 Plan.
The foregoing summary of the 1994 Plan is qualified in its entirety by,
and reference is made to, the 1994 Plan, a copy of which is attached hereto as
Exhibit B.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE INCREASE FROM 375,000 SHARES TO 1,000,000 SHARES AND APPROVE
THE INCREASE TO 2,000,000 SHARES AND THE INCREASE TO 3,000,000 SHARES AVAILABLE
UNDER THE 1994 PLAN.
PROPOSAL NO. 5
AN AMENDMENT TO THE ARTICLES OF INCORPORATION
INCREASING THE AMOUNT OF AUTHORIZED COMMON STOCK
The Company's Articles of Incorporation currently authorizes the
issuance of 20,000,000 shares of Common Stock, par value $.001 per share. At the
Meeting, the stockholders will be asked to approve an amendment to the Company's
Articles of Incorporation to increase the number of authorized shares of the
Company's Common Stock to 50,000,000 shares, par value $.001 per share (the
"Proposed Stock Amendment"). The Company's Board of Directors unanimously
approved the Proposed Stock Amendment, subject to stockholder approval.
As of December 31, 1997, the Company's authorized Common Stock
consisted of 20,000,000 shares, par value $.001 per share. As of that date,
17,808,728 shares were
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outstanding. In addition, at that date, an aggregate of 1,695,000 shares were
reserved for issuance as follows: (1) assuming the shareholders ratify and
approve the increases in the number of shares reserved under the 1994 Plan
(2,000,000 shares); (2) assuming shareholders approve the adoption of the
Employee Stock Purchase Plan (200,000 shares); and (3) exercise of various other
outstanding warrants (40,000 shares). Therefore, the Company will have issued or
reserved for issuance a total of 19,503,728 shares of the 20,000,000 shares of
Common Stock currently authorized for issuance.
After taking into account the currently issued and reserved shares of
Common Stock described above, the Company would only have 496,272 shares of
Common Stock authorized which are not issued or reserved for further issuance.
The Company's Board of Directors believes that the authorization of the
additional shares of Common Stock is essential to the best interests of the
Company and its stockholders.
The Company's present business primarily consists of offering
remediation services to adopt both companies' and governments' software programs
for the year 2000 and thereafter. While the Company anticipates that there will
be some demand for remediation services even after the year 2000, the Company
also believes there will be an accelerating decline in such demand. As such, the
Company has planned a strategy to acquire a company or companies which are
engaged in the business of providing a broader range of computer services and
products to position the Company for future growth after the year 2000.
By increasing the authorized Common Stock of the Company, the Company
will be in a position to make acquisitions, either through an exchange of its
Common Stock for a target company or by raising additional capital, either
through a private placement or public offering, the proceeds of which would be
used to acquire another company. Management believes that the increase in the
number of authorized shares will provide the Company with the flexibility
necessary to achieve its growth strategy and to position the Company for future
growth after the year 2000. Likewise, an increase in authorized shares will
enable the Company, if it so determines, to declare stock splits or stock
dividends. While the Company is presently engaged in preliminary discussions
with several acquisition candidates, there are currently no understandings or
agreements which would require the issuance of any additional Common Stock to be
authorized.
Assuming approval of the proposed amendment, the Board of Directors
will have the authority to issue the increased authorized shares of Common Stock
from time to time for proper corporate purposes without further stockholder
approval except that transactions involving the issuance of 20% or more of the
Company's Common Stock would require stockholder approval to maintain compliance
with the NASDAQ National Market Criteria.
Additionally, the Proposed Stock Amendment could impede or deter the
removal of management or make a change in control or hostile acquisition of the
Company more difficult, even if such removal of management, change in control or
hostile acquisition could potentially benefit the Company's stockholders. In
addition, to the extent additional shares
17
<PAGE>
are issued in connection with stock-based acquisitions, the proportionate
interest of existing stockholders in the Company would be reduced, and from an
economic standpoint, such acquisitions could enhance or dilute the value of the
stockholders' investments.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" AN
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION INCREASING THE AMOUNT OF
AUTHORIZED COMMON STOCK TO 50,000,000 SHARES.
PROPOSAL NO. 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Subject to approval by the stockholders, the Board of Directors has
appointed Holtz Rubenstein & Co. LLP as the independent public accountants to
audit the financial statements of the Company for the year ending December 31,
1998. Holtz Rubenstein & Co. LLP also served as the Company's auditors for the
fiscal years ended August 31, 1996 and 1997. It is expected that a
representative of Holtz Rubenstein & Co. LLP will be present at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" RATIFICATION OF
THE APPOINTMENT OF HOLTZ RUBENSTEIN & CO., LLP AS INDEPENDENT ACCOUNTANTS.
VOTE REQUIRED
Under the laws of the State of North Carolina, assuming a quorum of the
Company's outstanding shares exists, the affirmative vote of the holders of a
majority of the votes cast at the Annual Meeting in favor of an action must
exceed the votes cast against the action to ratify the increase in Directors
(Proposal No. 1); the election of the Directors (Proposal No. 2); approve the
adoption of the 1997 Employee Stock Purchase Plan (Proposal No. 3); ratification
and approval of the increases in the number of shares available under the
Alydaar Software Corporation Omnibus Stock Plan (Proposal No. 4); approval of
the amendment to the Company's Articles of Incorporation to increase the
authorized Common Stock (Proposal No. 5), and the ratification of the Company's
independent auditors (Proposal No. 6).
EXPENSE OF SOLICITATION
The cost of soliciting proxies, which also includes the preparation,
printing and mailing of this Proxy Statement, will be borne by the Company.
Solicitation will be made by the Company primarily through the mail. The Company
may also retain the services of a proxy solicitation firm. The Company has not
made any arrangements to do so as of the
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date of this Proxy Statement, and does not presently have estimates as to the
cost of such services. Directors, officers and regular employees of the Company
may solicit proxies personally, by telephone or telegram. The Company will
request brokers and nominees to obtain voting instructions of beneficial owners
of stock registered in their names and will reimburse them for any expenses
incurred in connection therewith.
PROPOSALS OF STOCKHOLDERS
Stockholders of the Company who intend to present a proposal for action
at the 1998 Annual Meeting of Stockholders of the Company must notify the
Company's management of such intention by notice received at the Company's
principal executive offices not later than October 1, 1998, for such proposal to
be included in the Company's proxy statement and form of proxy relating to such
meeting.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
The Company believes all stock transaction reports required to be filed
with the Securities and Exchange Commission were timely filed by its officers
and Directors.
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report on Form 10-K for the year ended December
31,1997 as filed with the Securities and Exchange Commission is being delivered
with this Proxy Statement to the Company's stockholders.
OTHER MATTERS
The Board of Directors knows of no other matters that are expected to
be presented for consideration at the Meeting which are not described herein.
However, if other matters properly come before the Meeting, it is intended that
the persons named in the accompanying proxy will vote thereon in accordance with
their best judgment.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED RETURN ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
A PROMPT RETURN OF YOUR PROXY CARD WILL BE APPRECIATED, AS IT WILL SAVE THE
EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors
Robert F. Gruder, Chairman
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ALYDAAR SOFTWARE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
May 22, 1998 2:00 p.m.
The undersigned hereby appoints Robert F. Gruder and V. Hollis Scott,
and each of them jointly and severally, proxies with full power of substitution
and revocation, to vote on behalf of the undersigned all shares of Common Stock
of Alydaar Software Corporation which the undersigned is entitled to vote at the
Annual Meeting of Stockholders to be held on May 22, 1998 or any adjournments
thereof.
1. PROPOSAL TO INCREASE THE NUMBER OF DIRECTORS.
FOR () AGAINST () ABSTAIN ()
2. ELECTION OF DIRECTORS.
FOR all the nominees listed below ()
WITHHOLD AUTHORITY to vote for all nominees listed below ()
(INSTRUCTION: To withhold authority to vote for any individual nominee,
mark the box next to the nominee's name below.)
Robert F. Gruder () V. Hollis Scott () Thomas J. Dudchik ()
J. Alex McMillan () Robert McCarthy ()
3. PROPOSAL TO RATIFY THE 1997 EMPLOYEE STOCK PURCHASE PLAN.
FOR () AGAINST () ABSTAIN ()
4. PROPOSAL TO RATIFY AND APPROVE THE INCREASES OF THE NUMBER
OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE UNDER THE
ALYDAAR SOFTWARE OMNIBUS STOCK PLAN.
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FOR () AGAINST () ABSTAIN ()
5. PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO
INCREASE THE AMOUNT OF AUTHORIZED COMMON STOCK.
FOR () AGAINST () ABSTAIN ()
6. PROPOSAL TO RATIFY APPOINTMENT OF HOLTZ RUBENSTEIN & CO., LLP,
AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE
YEAR 1998.
FOR () AGAINST () ABSTAIN ()
In his discretion, the proxy is authorized to vote upon such other
business as may properly come before the meeting or any adjournment(s) thereof.
(Continued and to be signed on reverse side.)
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<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED TO
ELECT MESSRS. GRUDER, SCOTT, DUDCHIK, MCMILLAN AND MCCARTHY AS DIRECTORS, TO
APPROVE THE 1997 EMPLOYEE STOCK PURCHASE PLAN, RATIFY AND APPROVE THE INCREASE
OF THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE ALYDAAR SOFTWARE
CORPORATION OMNIBUS STOCK PLAN, AMEND THE ARTICLES OF INCORPORATION TO INCREASE
THE AMOUNT OF AUTHORIZED COMMON STOCK, AND TO APPROVE THE APPOINTMENT OF HOLTZ
RUBENSTEIN & CO., LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
YEAR ENDING DECEMBER 31, 1998.
Dated:_______________________________
------------------------------------
Signature
------------------------------------
Signature if held jointly
(Please sign exactly as
ownership appears on this
proxy. Where stock is held
by joint tenants, both
should sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
President or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.)
Please mark, date, sign and
return Proxy in the enclosed envelope.
22
<PAGE>
EXHIBIT A
ALYDAAR SOFTWARE CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
PLAN DOCUMENT
1.0 Purpose of Plan
The purpose of the Alydaar Software Corporation 1997 Employee Stock Purchase
Plan (hereinafter "ESPP" or "Plan") is to provide employees of Alydaar Software
Corporation (the "Company") with an opportunity to participate in the
accumulation and potential appreciation of the Common Stock, par value .001 per
share ("Common Stock"), of the Company. The Company intends for the ESPP to
comply with the provisions of Section 423 of the Code, as in effect on July 1,
1997.
2.0 Definitions
2.1 Board: The Board of Directors of the Company. Members of
the Board shall not be eligible to participate in the Plan.
2.2 Code: Internal Revenue Code of 1986, as amended.
2.3 Compensation: W-2 compensation plus salary reductions from the
Company's 401(k) or any plan under Section 125 of the Code, less any income
related to relocation, one time or annual performance bonuses and other stock
plans.
2.4 Designated Enrollment Period: The period 30 days before the
beginning of each Offering Period, except the initial Designated Enrollment
Period shall commence on July 17, 1997 and end on August 4, 1997.
2.5 Eligible Employees: All active employees, who are customarily
employed by the Company for more than 20 hours per week and more than five
months per calendar year and who have reached the age required to enter into
enforceable contracts in the employees state of residence. An employee of the
Company or lineal descendants of the employee is not an "Eligible Employee" if
such employee owns stock aggregating five (5) percent or more of the total
combined voting power or value of all classes of stock of the Company.
3.0 Effective Date
The ESPP shall become effective on August 4, 1997, provided that (a) the Plan
must be approved by the Company's shareholders within twelve months of the date
of its adoption by the Company; (b) the Plan must be approved by the Board; and
(c) there must be a successful filing of a registration statement with the
Securities and Exchange Commission pertaining to the Common Stock to be issued
under the Plan. Rights of Eligible Employees are conditional such events
occurring.
4.0 Administration
4.1 The ESPP shall be administered by the Board. Members of the Board
receive no additional compensation for administering the ESPP.
4.2 Subject to the provisions of the ESPP and relevant law, the Board
shall have complete authority in its sole discretion: (i) to specify the
purchase price, subject to Section 6 hereof, of shares to be purchased under the
ESPP; (ii) to interpret the ESPP; (iii) to prescribe, amend and rescind rules
and regulations relating to the ESPP;
<PAGE>
(iv) to amend the ESPP to conform with relevant law; and (v) to make all other
determinations and to do all other acts deemed necessary or advisable for the
administration of the ESPP. The Board determination on the foregoing matters
shall be conclusive. No member of the Board shall be liable for any action or
determination concerning the ESPP made in good faith.
5.0 Eligibility and Participation in the Plan
5.1 Offering Dates
Each Offering Period is a six-month period, commencing on either July 1
or January 1 (the "Offering Periods" or "Offering Period"), except the initial
Offering Period will commence on August 4, 1997 and will end on December 31,
1997. The Board shall have the power to change the duration and effective dates
of the Offering Periods.
5.2 Participation in the Plan
5.2.1 Enrollment
An Eligible Employee may elect to participate in the ESPP by
completing and submitting a subscription agreement approved by the Company
during the applicable Designated Enrollment Period ("Participant"). Once
enrolled, and providing that the Participant remains eligible for the ESPP as an
Eligible Employee, the Participant's participation and payroll deduction rate
will continue through ensuing Offering Periods unless the Participant cancels or
changes such participation via the designated change form.
An Eligible Employee may only enroll within the Designated Enrollment
Period. An employee who becomes eligible after a Designated Enrollment Period is
closed may enroll only during a subsequent Designated Enrollment Period.
5.2.2 Cancellation
A Participant may cancel his/her participation in the ESPP at
any time by providing such notice of cancellation in writing to the Company. If
a Participant cancels his/her participation on or before June 15 and December
15, as applicable, of each Offering Period by submitting the designated form to
the Company's Human Resources Department, payroll deductions withheld during
that Offering Period will be refunded to the Participant as soon as practicable.
If a Participant cancels his/her participation after June 15 and December 15, as
applicable, of each Offering Period, payroll deferral during the Offering Period
will be used to purchase Common Stock pursuant to Section 6.2, 6.3 and 6.4 of
the Plan and the Participant's account may be closed. No interest will be paid
on any amount refunded.
Upon such cancellation, the Participant's account may be closed
and certificates for all whole shares of Common Stock in the Participant's
account may be issued to the Participant. The Participant will receive cash from
any fractional shares and any uninvested payroll deductions in the account
except as provided above.
Upon the request of a Participant in his/her written notice of
cancellation, all (but not less than all) of the whole shares in the
Participant's account will be sold as soon as practicable at market price. The
net proceeds of the sale (the total sales price of all shares of Common Stock
sold less the costs of sale) will be distributed to the Participant. If the
Participant does not request that shares of stock in his/her account be sold,
certificates for such whole shares will be distributed to the Participant as set
forth in the previous paragraph. Fractional shares shall be paid to the
Participant in cash.
<PAGE>
To reinstate his/her participation, the Eligible Employee must
re-enroll during any subsequent Designated Enrollment Period. However, if the
Eligible Employee is an officer subject to Section 16(b) of the Securities and
Exchange Act of 1934 ("Securities Act"), of the Company, the officer may not
re-enroll during the next enrollment period but must wait at least six months
from the date of cancellation, and thereafter may re-enroll during any
subsequent Designated Enrollment Period. Notice of a Participant's death
constitutes notice of withdrawal from the Plan. Settlement of the Participant's
account will be made pursuant to Section 8.3.
5.2.3 Changes
Changes, other than cancellation as noted in Section 5.2.2 above, may be
made only during the Designated Enrollment Periods. Such changes will be
effective at the beginning of the Offering Period following such Designated
Enrollment Period.
6.0 Number of Shares and Price
6.1 The number of shares of Common Stock available for purchase under
the ESPP shall be two hundred thousand (200,000) shares, all of which will be
available for purchase during the initial Offering Period. Shares available for
purchase during the initial Offering Period but not purchased by Participants
will be carried over to each subsequent Offering Period. The number of shares
covered by the ESPP is subject to adjustment in the event of stock split or
other transaction described in Section 9.1.
6.2 The purchase price at which shares will be sold to Participants
during each Offering Period is 85% of the lower of the fair market value at (1)
the beginning date of such Offering Period or (2) the ending date of such
Offering Period. The fair market value of the Common Stock on a given date is
the closing or last sale price on the Over the Counter Trading Market, the
NASDAQ/National Market System or any other market system on which the stock is
traded for that date ("Market(s)"). If the Offering Period begins or ends on a
day when the Market does not trade, the fair market value shall be determined by
using the closing or last sale price on the Markets for the last trading day
immediately preceding the beginning or ending day of the Offering Period. Shares
shall be purchased as soon as practicable after the end of each Offering Period.
6.3 Participants may elect to allocate from 1% to 10%, in whole
percentages, of his/her compensation, through payroll deduction, to purchase
shares through the Plan. Participants who are paid weekly must allocate a
minimum of $5.00 per pay period. Participants who are paid monthly must allocate
a minimum of $20.00 per pay period. All payroll deductions made for a
Participant are credited to his/her ESPP account and are deposited into an
interest bearing account and may be commingled with other Company funds.
Interest earned on the account balance will be used to defray the expense of
administering the Plan. If interest earned on the account balance exceeds the
expenses incurred by the Plan, the excess interest shall accrue to the benefit
of the Company to be used for general corporate purposes. The Company will pay
expenses in excess of the amount generated by the interest on the account used
to hold payroll deductions.
6.4 The number of shares purchased by each Participant at the end of
each Offering Period will be determined by dividing the purchase price as
defined in Section 6.2 above into the amount of payroll deduction withheld for
that Participant during the Offering Period, subject to ESPP limitations
detailed elsewhere in this Plan.
<PAGE>
6.5 If the number of shares elected to be purchased by Participants
exceeds the aggregate number of shares available during the Offering Period, the
Company will reduce pro rata the number of shares available to each Participant.
Excess payroll deductions will be refunded at the end of the applicable Offering
Period to such Participants.
6.6 After purchases have been made, or after the offering date, the
Company will issue the applicable number of Common Stock shares and, as soon as
practicable after the end of such Offering Period or offering date, credit the
account of each Participant for the applicable number of shares and distribute
to each Participant a statement showing the number of shares (whole and
fractional) credited to the account of the Participant. A Participant will
receive Common Stock certificates for whole shares owned by the Participant only
upon written request to the Company. If the Participant chooses not to
participate in the next Offering Period, the Participant's cancellation will be
handled pursuant to Section 5.2.2 of the Plan.
6.7 Notwithstanding any other provisions of this ESPP, the fair market
value of shares that may be purchased by any Participant during any calendar
year, pursuant to this ESPP or any other plan maintained by the Company that
constitutes an employee stock purchase plan within the meaning of Section 423 of
the Code, determined as of the first day of the Offering Period, shall in no
event exceed $25,000. No Participant shall have the right to purchase shares
under the ESPP to the extent such purchase would cause the Participant to own
stock aggregating 5 percent or more of the total combined voting power or value
of all classes of stock of the Company or of any parent or subsidiary as
described in Section 424(d) of the Code.
6.8 A Participant may purchase shares under the ESPP only if such
Participant is an Eligible Employee on both the first day and the last business
day of such Offering Period. No Participant shall have any of the rights of a
shareholder with respect to shares purchased under the ESPP until the purchase
price for such shares has been paid and either the Participant's account has
been credited with such shares or certificates for such shares have been issued
to the Participant.
6.9 If applicable, with respect to shares purchased under the ESPP by
officers subject to Section 16(b) of the Securities Act, such persons
acknowledge that to avail themselves of the exemption from Section 16(b), such
shares must be held for a minimum period of six months from the date of purchase
to the date of disposition of the shares.
7.0 No Contract of Employment
Participation in the ESPP shall neither constitute a contract of
employment nor convey to any employee any right to continue in the employment of
the Company or to continue to be involved in any business in which the Company
may engage.
8.0 Employment Termination, Death, Disability, Retirement and
Leaves of Absence
8.1 If a Participant terminates employment for any reason, including death,
disability or retirement, or no longer meets the eligibility requirements set
forth herein for any reason other than a leave of absence as detailed in Section
8.2 below, his/her account balance representing partial shares shall be paid in
cash in accordance with the cancellation provisions in Section 5.2.2 above and a
certificate shall be issued for whole shares.
8.2 If a Participant is on an unpaid leave of absence for up to a
maximum of twelve weeks during an Offering Period, provided that she/he is an
Eligible Employee (not terminated) on the beginning and ending dates of such
Offering Period, she/he may remain
<PAGE>
in the ESPP for that period. If the leave exceeds twelve weeks, or if the
employee is not on active status (terminated) at the beginning and ending dates
of the Offering Period, participation will be automatically cancelled and the
account balance paid in accordance with the cancellation provisions in Section
5.2.2 above.
8.3 A Participant may designate, in writing via the enrollment form, a
beneficiary. In the event of a Participant's death, his/her designated
beneficiary shall receive shares and cash for partial shares in full repayment
of the amounts deposited in the Participant's account during Offering Periods
before the current Offering Period and cash for the payroll deductions, if any,
for the current Offering Period. In the case of a married Participant who
resides in a community property state, no party other than the Participant's
spouse may be named as primary beneficiary without the written consent of the
spouse. In the absence of a designated beneficiary, the account balance of a
married Participant will be paid to the Participant's spouse, and the account
balance of an unmarried Participant will be paid to the Participant's estate.
8.4 The Board shall have the discretion to make decisions about
rights of Participants and obligations of the ESPP in situations of death,
disability, retirement, and leave of absence and all decisions of the Board
shall be final and binding on all affected parties.
9.0 Capital Changes
9.1 If the outstanding shares of Common Stock are increased,
decreased or changed into, or exchanged for, a different number or kind of
shares or securities of the Company, with or without receipt of consideration by
the Company, through reorganization, merger, recapitalization, reclassification,
stock split, stock consolidation, stock dividend, or similar event, then an
appropriate and proportionate adjustment shall be made in the number and kind of
shares or other securities which may be purchased under the ESPP.
9.2 Adjustments under Section 9.1 hereof shall be made by the Board,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final and conclusive as to all affected parties. No fractional
shares shall be issued under the Plan on account of any such adjustment but
total ownership balance (whole and fractional shares) will be considered for
such adjustments.
10.0 Recordkeeping
10.1 A recordkeeper or agent will be designated for the ESPP. All
expenses of establishing and administering the ESPP, in excess of interest
earned on the account to hold Participants' payroll deductions, will be paid by
the Company without charge to Participants.
10.2 A statement will be sent to each Participant as soon as
practicable after the end of each Offering Period. The statement will include
payroll deduction totals, fair market values at the beginning and end of the
Offering Period, purchase price, shares purchased (whole and fractional) and
shares allocated.
11.0 Restrictions on Assignment of Plan Rights
Subject to the provisions hereof, a Participant may not sell, pledge,
create a lien or otherwise assign or transfer in any way his/her right to
purchase shares under the Plan, his/her account
<PAGE>
under the Plan, or any interest therein, or any cash or shares credited to such
account. A Participant who desires to sell, pledge or otherwise assign or
transfer shares in his/her account must request that certificates for such
shares be issued in the Participant's name as provided herein.
12.0 Consent of Participants
Each Participant shall be bound by the terms and conditions of the
ESPP as such terms and conditions may be amended from time to time.
13.0 Amendment or Termination of the Plan
The Board shall have the right to modify or terminate the ESPP in its sole
discretion at any time, including the number of share reserved under the ESPP,
as such number may be adjusted pursuant to Sections 6.1 and 9.0 hereof; reduce
the price of shares to be purchased under the ESPP below the price determined in
accordance with Section 6.0 thereof; or cause the Plan to fail to comply with
Section 423 of the Code. The ESPP shall terminate on June 30, 2007 unless it has
been previously terminated by the Board.
14.0 Taxation
Any taxes required by law to be withheld on account of the ESPP shall
be deducted and withheld accordingly. A Participant may become liable for taxes
when she/he disposes of shares acquired through this ESPP. The Company shall not
be responsible for any effect that the ESPP may have on a Participant's or
Beneficiary's taxes.
15.0 Governing Law
The interpretation and performance of this ESPP shall be governed by
the laws of the State of North Carolina.
16.0 Dividends
Dividends will be paid on all shares (whole and fractional) held in
each Participant's account under the Plan on the record dates for such
dividends. Dividend payments will be reinvested in additional shares of Common
Stock on the dividend payable date at 85%, of the fair market value determined
as the closing price or last sale price on the Market. If the dividend payable
date falls on a day when the Market does not trade, the fair market value shall
be determined by using the closing or last sale price on the last trading day
immediately preceding the dividend payable date. Shares will be purchased as
soon as practicable after the dividend payable date.
17.0 Restrictions on Resale
Shares of Common Stock for which certificates have been issued in the
Participant's name as provided herein are freely transferable and will not be
subject to specific transfer restrictions except as defined in Section 6.9 if
applicable.
<PAGE>
EXHIBIT B
ALYDAAR SOFTWARE CORPORATION
OMNIBUS STOCK PLAN
Table of Contents
Section Page
ARTICLE I - Name, Purpose and Definitions 1
1.1 Name 1
1.2 Purpose 1
1.3 Definitions 1
ARTICLE II - Eligibility 5
ARTICLE III - Awards 6
3.1 General 6
3.2 Stock Options 6
3.3 Stock Appreciation Rights 6
3.4 Restricted Stock 7
3.5 Performance Awards 7
3.6 Other Awards 8
ARTICLE IV - Award Agreements 8
4.1 General 8
4.2 Required Terms 8
4.3 Optional Terms 9
ARTICLE V - Shares of Stock Subject to the Plan 10
5.1 General 10
5.2 Additional Shares 10
5.3 Computation Rules 10
5.4 Shares to be Used 11
ARTICLE VI - Administration 11
6.1 General 11
6.2 Duties 11
6.3 Powers 11
<PAGE>
6.4 Intent to Avoid Insider Trading 11
ARTICLE VII- Adjustments Upon Changes in Capitalization 12
ARTICLE VIII- Changes of Control 12
8.1 General 12
8.2 Definition of Change of Control 12
ARTICLE IX - Amendment and Termination 13
9.1 Amendment of Plan 13
9.2 Termination of Plan 14
9.3 Effective Date and Procedure for Amendment or
Termination 14
ARTICLE X - Miscellaneous 14
10.1 Rights of Employees 14
10.2 Compliance with Law 14
10.3 Unfunded Status 14
10.4 Limits On Liability 15
10.5 Section References 15
ARTICLE XI - Effective Date of Plan 15
<PAGE>
ARTICLE I
NAME, PURPOSE, AND DEFINITIONS
Section 1.1 Name. The Plan shall be known as the "Alydaar Software
Corporation Omnibus Stock Plan" (the "Plan").
Section 1.2 Purpose. The purpose of the Plan is to benefit the Company,
Subsidiaries, and their shareholders by encouraging and enabling Key Employees
of the Company or Subsidiaries to acquire a financial interest in the Company.
The Plan is intended to aid the Company and Subsidiaries in attracting and
retaining officers and key employees, to stimulate the efforts of those
individuals, and to strengthen their desire to remain in the office or in the
employ of the Company and Subsidiaries.
Section 1.3 Definitions. Whenever used in the Plan, unless the context
clearly indicates otherwise, the following terms shall have the following
meanings:
(a) "Award" or "Awards" means an award granted pursuant to Article
III.
(b) "Award Agreement" means an agreement described in Article IV
hereof entered into between the Company and a Participant, setting forth the
terms, conditions, and limitations applicable to the Award granted to the
Participant.
(c) "Beneficiary," with respect to a Participant, means (i) one or
more persons as the Participant may designate as primary or contingent
beneficiary in a writing delivered to the Company or Committee or, (ii), if
there is no such valid designation in effect at the Participant's death, the
Participant's spouse or, (iii) if the Participant is not married at the date of
the Participant's death, the Participant's estate. This is definition shall not,
however, supersede or adversely affect, nor shall it be subject to, any
definition or designation of beneficiary which may be included in any Award.
(d) "Board" means the Board of Directors of the Company as it may be
comprised from time to time.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute, and applicable regulations.
(f) "Committee" means the committee appointed by the Board from among
its members and shall be comprised of not less than two (2) persons. Unless and
until otherwise appointed, the Committee shall be the Compensation Committee of
the Board or any successor committee with substantially the same
responsibilities if the members of that committee satisfy the requirements of
the following sentence. A member of the Committee must not be an Employee and
must not have received an Award during the one year period prior to service on
the Committee.
<PAGE>
(g) "Company" means Alydaar Software Corporation, a North Carolina
corporation, and any successor corporation.
(h) "Director" means any individual who is a member of the Company's
Board.
(i) "Disability" shall mean the inability, in the opinion of the
Company's group health insurance carrier (or claims processor, if applicable),
of a Participant, because of injury or sickness, to work at a reasonable
occupation which is available with the Participant's employer (the Company or a
Subsidiary) or at any gainful occupation for which the Participant is or may
become fitted.
(j) "Employee" means any individual who is a salaried employee of the
Company or any Subsidiary, whether or not he is a Director.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended and in effect from time to time, or any successor statute.
(l) "Fair Market Value" means, with respect to shares of the Common
Stock, (i) if the Common Stock is traded on the NASDAQ National Market or listed
on a national securities exchange, the mean between the high and low prices per
share reported by the NASDAQ National Market or a national securities exchange,
as the case may be, on the relevant date, or, in the absence of trading on such
date, on the next preceding day on which trading occurs; or (ii) if the Common
Stock is not traded on the NASDAQ National Market or listed on a national
securities exchange, the mean between the bid and asked prices per share last
reported by the National Association of Securities Dealers, Inc. for the
over-the-counter market on the relevant date, or, in the absence of any bid and
asked prices on that date, on the next preceding day for which there are such
quotations; or (iii) if the Common Stock is not traded on the NASDAQ National
Market or listed on a national securities exchange, and if quotations for the
Common Stock are not reported by the National Association of Securities Dealers,
Inc., the fair market value as determined by the Committee on the basis of
available prices for the Common Stock or in such manner as the Committee shall
agree.
(m) "Insider" means any person who is subject to Section 16 of the Exchange
Act.
(n) "Participant" means an Employee designated by the Committee to be
eligible for an Award pursuant to this Plan.
(o) "Restricted Stock" means shares of Stock which have certain
restrictions attached to the ownership thereof, which may be issued under
Section 3.4.
(p) "Retirement" means termination of employment with the Company or
a Subsidiary for any reason other than death or Disability on or after age 65.
<PAGE>
(q) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission as now in force or as such regulation or successor
regulation shall be hereafter amended.
(r) "Section 16" means Section 16 of the Exchange Act or any
successor regulation and the rules promulgated thereunder as they may be amended
from time to time.
(s) "Stock" means shares of the common stock of the Company.
(t) "Stock Appreciation Right" means a right, the value of which is
determined relative to the appreciation in value of shares of Stock, which may
be issued under Section 3.3.
(u) "Stock Option" means a right to purchase shares of Stock granted
pursuant to Section 3.2 and includes Incentive Stock Options and Non-Qualified
Stock Options a defined in Section 3.2(a).
(v) "Subsidiary" means any corporation (other than the Company), in
an unbroken chain of corporations beginning with the Company in which each of
the corporations other than the last corporation in the unbroken chain owns
stock possessing 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in that chain.
ARTICLE II
ELIGIBILITY
Awards may be granted to any employee who is (or class of Employees who are)
designated as Participants from time to time by the Committee; provided,
however, that no member of the Committee shall be eligible to participate. The
committee shall determine which Employees shall be Participants, the types of
Awards to be made to Participants, and the terms, conditions, and limitations
applicable to the Awards.
<PAGE>
ARTICLE III
AWARDS
Section 3.1 General. Awards may include, but are not limited to, those
described in this Article III, including its sections. The Committee may grant
Awards singly, in tandem, or in combination with other Awards, as the Committee
may in its sole discretion determine. Subject to the other provisions of this
Plan, Awards also may be granted in combination or in tandem with, in
replacement of, or as alternatives to, grants or rights under this Plan and any
other employee plan of the Company.
Section 3.2 Stock Options. A Stock Option is a right to purchase a
specified number of shares of Stock at a specified price during such specified
time as the Committee shall determine, subject to the following:
(a) An option granted may be either of a type that complies with the
requirements of incentive stock options as defined in Section 422 of the Code
("Incentive Stock Option") or of a type that does not comply with such
requirements ("Non-Qualified Options").
(b) The exercise price per share of any Incentive Stock Option shall
be no less than the Fair Market Value per share of the Stock subject to the
option on the date such a Stock Option is granted. The exercise price per share
of any Non-Qualified Option, however, may be less than the Fair Market Value per
share of Stock subject to the option on the date such a Stock Option is granted.
(c) A Stock Option may be exercised, in whole or in part, by giving
written notice of exercise to the Company specifying the number of shares of
Stock to be purchased.
(d) The exercise price of the Stock subject to the Stock Option may
be paid in cash or, at the discretion of the Committee, may also be paid by the
tender of shares of Stock already owned by the Participant, or through a
combination of cash and shares of Stock, or through such other means that the
Committee determines are consistent with the Plan's purpose and applicable law.
No fractional shares of Stock will be issued or accepted.
Section 3.3 Stock Appreciation Rights. A Stock Appreciation Right is a
right to receive, upon surrender of the right, but without payment, an amount
payable in cash and/or shares of Stock under such terms and conditions as the
Committee shall determine, subject to the following:
(a) A Stock Appreciation Right may be granted in tandem with part or
all of, in addition to, or completely independent of a Stock Option or any other
Award under this Plan. A Stock Appreciation Right issued in tandem with a Stock
Option may be granted at the time of grant of the related Stock Option or at any
time thereafter during the term of the Stock Option.
<PAGE>
(b) The amount payable in cash and/or shares of Stock will respect to
each right shall be equal in value to a percent of the amount by which the Fair
Market Value per share of Stock on the exercise date exceeds the exercise price
of the Stock Appreciation Right. The applicable percent shall be established by
the Committee. The amount payable in shares of Stock, if any, is determined with
reference to the Fair Market Value on the date of exercise.
(c) Stock Appreciation Rights issued in tandem the with Stock Options
shall be exercisable only to the extent that the Stock Options to which they
relate are exercisable. Upon the exercise of the Stock Appreciation Right, the
Participant shall surrender to the Company the underlying Stock Option. Stock
Appreciation Rights issued in tandem with Stock Options shall automatically
terminate upon the exercise of such Stock Options.
Section 3.4 Restricted Stock. Restricted Stock is shares of Stock that
are issued to a Participant and are subject to such terms, conditions, and
restrictions as the Committee deems appropriate, which may include, but are not
limited to, restrictions upon the sale, assignment, transfer, or other
disposition of the Restricted Stock and the requirement of forfeiture of the
Restricted Stock upon termination of employment under certain specified
conditions. The committee may provide for the lapse of any such term or
condition or waive any term or condition based on such factors or criteria as
the Committee may determine. The Participant shall have, with respect to awards
of Restricted Stock, all of the rights of a shareholder of the Company,
including the right to vote the Restricted Stock and the right to receive any
cash or stock dividends on such Stock.
Section 3.5 Performance Awards. Performance Awards may be granted under
this Plan from time to time based on such terms and conditions as the Committee
deems appropriate provided that such Awards shall not be inconsistent with the
terms and purposes of this Plan. Performance Awards are Awards which are
contingents upon the performance of all or a portion of the Company and/or
Subsidiaries or which are contingent upon the individual performance of the
Participant. Performance Awards may be in the form of performance units,
performance shares, and such other forms of performance Awards which the
Committee shall determine. The Committee shall determine the performance
measurements and criteria for such performance Awards.
Section 3.6 Other Awards. The Committee may from time to time grant
other Stock and Stock-based Awards under the Plan, including without limitation,
those Awards pursuant to which shares of Stock are or may in the future be
acquired, Awards denominated in Stock units, securities convertible into shares
of Stock, and dividend equivalents. The Committee shall determine the terms and
conditions of such other Stock and Stock-based Awards provided that such Awards
shall not be inconsistent with the terms and purpose of this Plan.
ARTICLE IV
AWARD AGREEMENTS
<PAGE>
Section 4.1 General. Each Award under this Plan shall be evidenced by
an Award Agreement setting forth the number of shares of Stock or other
security, Stock Appreciation Rights, or units subject to the Award and such
other terms and conditions applicable to the Award as are determined by the
Committee.
Section 4.2 Required Terms. In any event, Award Agreements shall include,
at a minimum, explicitly or by reference, the following terms:
(a) Non-assignability. A provision that the Awards under the Plan
shall not be assigned, pledged, or otherwise transferred except by will or by
the laws of descent and distribution and that, during the lifetime of a
Participant, the Award shall be exercised only by such Participant or by the
Participant's guardian or legal representative.
(b) Termination of Employment. A provision describing the treatment
of an Award in the event of the Retirement, Disability, death, or other
termination of a Participant's employment with the Company, including but not
limited to terms relating to the vesting, time for exercise, forfeiture, or
cancellation of an Award in such circumstances.
(c) Rights of Shareholder. A provision that a Participant shall have
no rights as a shareholder with respect to any securities covered by an Award
until the date the Participant becomes the holder of record. Except as provided
in Section 8 hereof, no adjustment shall be made for dividends or other rights,
unless the Award Agreement specifically requires such adjustment, in which case,
grants of dividend equivalents or similar rights shall not be considered to be a
grant of any other shareholder right.
(d) Withholding. A provision requiring the withholding of applicable
taxes required by law from all amounts paid in satisfaction of an Award. In the
case of an Award paid in cash, the withholding obligation shall be satisfied by
withholding the applicable amount and paying the net amount in cash to the
Participant. In the case of Awards paid in shares of Stock or other securities
of the Company, a Participant may satisfy the withholding obligation by paying
the amount of any taxes in cash or, with the approval of the Committee, shares
of Stock or other securities may be deducted from the payment to satisfy the
obligation in full or in part as long as such withholding of shares does not
violate any applicable laws, rules or regulations of federal, state, or local
authorities. The number of shares to be deducted shall be determined by
reference to the Fair Market Value of such shares of Stock on the applicable
date.
(e) Holding Period. In the case of an Award to an Insider:
(i) of an equity security, a provision stating (or the effect
of which is to require) that such security must be held for at least six months
(or such longer period as the Committee in its discretion specifies) from the
date of acquisition; or
(ii) of a derivative security with a fixed exercise price
within the meaning of Section 16, a provision stating (or the effect of which is
to require) that at least six
<PAGE>
months (or such longer period as the Committee in its discretion specifies) must
elapse from the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or conversion)
or its underlying equity security; or
(iii) of a derivative security without a fixed exercise price
within the meaning of Section 16, a provision stating (or the effect of which is
to require) that at least six month (or such longer period as the Committee in
its discretion specifies) must elapse from the date upon which such price is
fixed to the date of disposition of the derivative security (other than by
exercise or conversion) or its underlying equity security.
Section 4.3 Optional Terms. Award Agreements may include the following
terms:
(a) Replacement, Substitution, and Reloading. Any provisions
(i) permitting the surrender of outstanding Awards or
securities held by the Participant in order to exercise or realize rights under
other Awards, under similar or different terms (including the grant of reload
options), or,
(ii) requiring holders of Awards to surrender outstanding
Awards as a condition precedent to the grant of new Awards under the Plan.
(b) Other Terms. Such other terms as are necessary and appropriate to
effect an Award to the Participant including but not limited to the term of the
Award, vesting provisions, deferrals, any requirements for continued employment
with the Company or a Subsidiary, any other restrictions or conditions
(including performance requirements) on the Award and the method by which
restrictions or conditions lapse, the effect on the Award of a Change of Control
as defined in Article VIII, or the price, amount, or value of Awards.
ARTICLE V
SHARES OF STOCK
SUBJECT TO THE PLAN
Section 5.1 General. Subject to the adjustment provisions of Article
VII hereof, the number of shares of Stock for which Awards may be granted under
the Plan shall not exceed three hundred seventy-five thousand (375,000) shares.
Section 5.2 Additional Shares. Any unexercised or undistributed portion
of the terminated, expired, exchanged, or forfeited Award or Awards settled in
cash in lieu of shares of Stock shall be available for further Awards in
addition to those available under Section 5.1 hereof.
<PAGE>
Section 5.3 Computation Rules. For the purpose of computing the total
number of shares of Stock granted under the Plan, the following rules shall
apply to Awards payable in shares of Stock or other securities, where
appropriate:
(a) except as provided in subsection (e) hereof, each Stock Option
shall be deemed to be the equivalent of the maximum number of shares that may be
issued upon exercise of the particular Stock Option;
(b) except as provided in subsection (e) hereof, each Stock-based
Award payable in some other security shall be deemed to be equal to the number
of shares to which it relates;
(c) except as provided in subsection (e) hereof, where the number of
shares available under the Award is variable on the date it is granted, the
number of shares shall be deemed to be the maximum number of shares that could
be received under that particular Award;
(d) where one or more types of Awards (both of which are payable in
shares of Stock or another security) are granted in tandem with each other, such
that the exercise of one type of Award with respect to a number of shares
cancels an equal number of shares of the other, each joint Award shall be deemed
to be the equivalent of the number of shares under the other; and
(e) each share awarded or deemed to be awarded under the preceding
subsections shall be treated as shares of Stock, even if the Award is for a
security other than Stock.
Additional rules for determining the number of shares of Stock granted under the
Plan may be made by the Committee, as it deems necessary or appropriate.
Section 5.4 Shares to be Used. The shares of Stock which may be issued
pursuant to an Award under the Plan may be authorized but unissued Stock or
Stock that may be acquired, subsequently or in anticipation of the transaction,
in the open market to satisfy the requirements of the Plan.
ARTICLE VI
ADMINISTRATION
Section 6.1 General. The Plan and all Awards pursuant thereto shall be
administered by the Committee so as to permit the Plan to comply with Rule
16b-3. A majority of the members of the Committee shall constitute a quorum. The
vote of a majority of a quorum shall constitute action by the Committee.
<PAGE>
Section 6.2 Duties. The Committee shall have the duty to administer the
Plan, and to determine periodically the Participants in the Plan and the nature,
amount, pricing, timing, and other terms of Awards to be made to such
individuals.
Section 6.3 Powers. The Committee shall have all powers necessary to
enable it to carry out its duties under the Plan properly, including without
limitation the power to interpret and administer the Plan. All questions of
interpretation with respect to the Plan, the number of shares of Stock or other
security, Stock Appreciation Rights, or units granted, and the terms of any
Award Agreements shall be determined by the Committee, and its determination
shall be final and conclusive upon all parties in interest. In the event of any
conflict between an Award Agreement and the Plan, the terms of the Plan shall
govern. In addition, the Committee may delegate to the officers or employees of
the Company the authority to execute and deliver such instruments and documents,
to do all such acts and things, and to take all such other steps deemed
necessary, advisable or convenient for the effective administration of the Plan
in accordance with its terms and purpose, except that the Committee may not
delegate any discretionary authority with respect to substantive decisions or
functions regarding the Plan or Awards thereunder as those relate to Insiders
including but not limited to decisions regarding the timing, eligibility,
pricing, amount or other material term of such Awards.
Section 6.4 Intent to Avoid Insider Trading. It is the intent of the
Company that the Plan and Awards hereunder satisfy and be interpreted in a
manner, that, in the case of Participants who are or may be Insiders, satisfies
the applicable requirements of Rule 16b-3, so that such persons will be entitled
to the benefits of Rule 16b-3 or other exemptive rules under Section 16 and will
not be subjected to avoidable liability thereunder. If any provision of the Plan
or of any Award would otherwise frustrate or conflict with the intent expressed
in this Section 6.4, that provision to the extent possible shall be interpreted
and deemed amended so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall be deemed void as
applicable to Insiders.
ARTICLE VII
ADJUSTMENTS UPON CHANGES
IN CAPITALIZATION
In the event of a reorganization, recapitalization, Stock split, Stock dividend,
exchange of Stock, combination of Stock, merger, consolidation or any other
change in corporate structure of the Company affecting the Stock, or in the
event of a sale by the Company of all or a significant part of its assets, or
any distribution to its shareholders other than a normal cash dividend, the
Committee may make appropriate adjustment in the number, kind, price and value
of shares of Stock authorized by this Plan and any adjustments to outstanding
Awards as it determines appropriate so as to prevent dilution or enlargement of
rights.
ARTICLE VIII
<PAGE>
CHANGES OF CONTROL
Section 8.1 General. In the event of a Change of Control of the
Company, in addition to any action required or authorized by the terms of an
Award Agreement, the Committee may, in its discretion, recommend that the Board
of Directors take any of the following actions as a result of, or in
anticipation of, any such event to assure fair and equitable treatment of the
Plan Participants:
(a) accelerate time periods for purposes of vesting in, or realizing
gain from, any outstanding Award made pursuant to the Plan;
(b) offer to purchase any outstanding Award made pursuant to this
Plan from the holder for its equivalent cash value, as determined by the
Committee, as of the date of the Change of Control; or
(c) make adjustments or modifications to outstanding Awards as the
Committee deems appropriate to maintain and protect the rights and interest of
Plan Participants following such Change of Control.
Any such action approved by the Board of Directors shall be conclusive and
binding on the Company, a Subsidiary, and all Plan Participants.
Section 8.2 Definition of Change of Control. For the purposes of this
Section, a "Change of Control" shall mean the earliest date on which either of
the following events shall occur:
(a) An individual, entity, or group (other than Robert F. Gruder or
Kevin B. Kimberlin or any of their affiliates) shall acquire after the date of
this Plan is approved by the Board, otherwise than directly from the Company,
beneficial ownership of 20% or more of the outstanding common stock or voting
power of the Company, provided that no such individual, entity or group shall be
deemed to beneficially own any securities held by:
(i) the Company or any of its subsidiaries; or
(ii) any employee benefit plan of the Company or any of its subsidiaries,
or
(b) The persons who were directors of the Company on the date 30 days
after the effective date of the Plan (Article XI), together with those who
subsequently became directors of the Company and whose election, or nomination
for election by the Company's shareholders, was approved by the vote of at least
a majority of the directors who were directors on the date 30 days after the
effective date of the Plan (Article XI), or directors whose nomination or
election was approved as provided above (the "Continuing Directors"), shall
cease to constitute a majority of the Board or of its successor by merger,
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consolidation or sale of assets.
However, a majority of the Continuing Directors may approve any event described
in Section 8.2(a) and determine that, for purposes of this Plan, a Change of
Control has not occurred.
ARTICLE IX
AMENDMENT AND TERMINATION
Section 9.1 Amendment of Plan. The Company expressly reserves the
right, at any time and from time to time, to amend in whole or in part any of
the terms and provisions of the Plan and any or all award Agreements under the
Plan to the extent permitted by law for whatever reason(s) the Company may deem
appropriate; provided, however, no amendment may be effective, without the
approval of the shareholders of the Company, if approval of such amendment is
required in order that transactions in Company securities under the Plan be
exempt from the operation of Section 16(b) of the Securities Exchange Act of
1934 and if such amendment
(a) increases the number of shares of Stock which may be issued under
the Plan, except as provided for in Article VII;
(b) materially modifies the requirements as to eligibility for
participation;
(c) materially increases the benefits accruing to Participants under
the Plan; or
(d) extends the duration beyond the date approved by the
shareholders.
Section 9.2 Termination of Plan. The Company expressly reserves the
right, at any time, to suspend or terminate the Plan and any or all Award
Agreements under the Plan to the extent permitted by law for whatever reason(s)
the Company may deem appropriate, including, without limitation, suspension or
termination as to any participating Subsidiary, Employee, or class of Employees.
Section 9.3 Effective Date and Procedure for Amendment or Termination.
Any amendment to the Plan or termination of the Plan may be retroactive to the
extent not prohibited by applicable law. Any amendment to the Plan or
termination of the Plan shall be made by the Company by resolution of the Board
and shall not require the approval or consent of any Subsidiary, Participant, or
Beneficiary in order to be effective to the extent permitted by law.
ARTICLE X
MISCELLANEOUS
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Section 10.1 Rights of Employees. Status as an eligible Employees shall
not be construed as a commitment that any Award will be made under the Plan to
such eligible Employee or to eligible Employees generally. Nothing contained in
the Plan (or in any other documents related to this Plan or to any Award) shall
confer upon any Employee or Participant any right to continue in the employ or
other service of the Company or constitute any contract or limit in any way the
right of the Company to change such person's compensation or other benefits or
to terminate the employment of such person with or without cause.
Section 10.2 Compliance with Law. No certificate for Stock
distributable pursuant to this Plan shall be issued and delivered unless the
issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended from time to time
or any successor statute, the Exchange Act and the requirements of the market
systems or exchanges on which the Company's Stock may, at the time, be traded or
listed.
Section 10.3 Unfunded Status. The plan shall be unfunded. Neither the
company nor the Board of Directors shall be required to segregate any assets
that may at any time be represented by Awards made pursuant to the Plan. Neither
the Company, the Committee, nor the board of Directors shall be deemed to be a
trustee of any amounts to be paid under the Plan.
Section 10.4 Limits on Liability. Any liability of the Company to any
Participant with respect to an Award shall be based solely upon contractual
obligations created by the Plan and the Award Agreement. Neither the Company nor
any member of the board of directors or the Committee, nor any other person
participating in any determination of any question under the Plan, or in the
interpretation, administration or application of the Plan, shall have any
liability to any party for any actions taken or not taken, in good faith under
the Plan and that do not constitute willful misconduct. To the extent permitted
by applicable law, the Company shall indemnify and hold harmless each member of
the Board of Directors and the Committee from and against any and all liability,
claims, demands, costs, and expenses (including the costs and expenses of
attorneys incurred in connection with the investigation or defense of claims) in
any manner connected with or arising out of any actions or inactions in
connection with the administration of the Plan except for such actions or
inactions which are not in good faint or which constitute willful misconduct.
Section 10.5 Section References. All references in this Plan to
sections or articles shall refer to sections and articles of this Plan unless
specifically noted otherwise.
ARTICLE XI
EFFECTIVE DATE OF PLAN
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This Plan shall become effective upon adoption of the Plan by the Board,
provided, however, the effectiveness of this Plan is subject to its approval and
ratification by the shareholders of the Company within one year from the date of
adoption hereof the Company. The Committee shall have authority to grant Awards
hereunder until one day before the ten year anniversary of the date of adoption
of the Plan by the Board, subject to the ability of the Company to terminate the
Plan as provided in Article IX.
