SCHEDULE 14a
(RULE 14a-101)
INFORMATION REQUIRED IN A PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box: [ ] Confidential For
Use of the
[X] Preliminary Proxy Statement Commission Only (as
Permitted by Rule
[ ] Definitive Proxy Statement 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11 (c) or Rule 14a-12
COMPUTERIZED THERMAL IMAGING, INC.
(Name of Registrant as Specified in Its Charter)
__________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee: (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rule 14a-6(I)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of the filing.
(1) Amount Previously Paid:
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(2) For, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC.
476 Heritage Park Boulevard, Suite 210
Layton, Utah 84041
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 27, 2000
The Annual Meeting of Stockholders (the "Annual Meeting") of
Computerized Thermal Imaging, Inc. will be held in the Golden Gate "C" Room of
the Marriott Hotel Downtown, 55 Fourth Street, San Francisco, CA 94103 on June
27, 2000 at 2 P.M. PST for the following purposes:
(1) To elect six (6) directors.
(2) To amend the Articles of Incorporation to increase the number of
authorized shares of Common Stock to 200,000,000 shares of Common
Stock.
(3) To act upon the amendment to the 1997 Stock Option and Restricted
Stock Plan.
(4) To ratify the selection of HJ & Associates, LLC (formerly known as
Jones Jensen & Company, LLC) as independent accountants for the
fiscal year ending June 30, 2000.
(5) To act upon such other business as may properly come before the
Annual Meeting.
Only holders of Common Stock of record at the close of business on May
15, 2000 will be entitled to vote at the Annual Meeting or any adjournment
thereof.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to attend the Annual Meeting, please sign, date and return your proxy
to us promptly. Your cooperation in signing and returning the proxy will help
avoid further solicitation expense.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ David B. Johnston
__________________________________
David B. Johnston
Chairman of the Board and CEO
May 12, 2000
Layton, Utah
<PAGE>
COMPUTERIZED THERMAL IMAGING, INC.
476 Heritage Park Boulevard, Suite 210
Layton, Utah 84041
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 27, 2000
This Proxy Statement is being furnished to Stockholders in connection
with the solicitation of proxies by and on behalf of the Board of Directors of
Computerized Thermal Imaging, Inc., a Nevada corporation, for their use at the
Annual Meeting of Stockholders to be held in the Gold Gate "C" Room of the
Marriott Hotel Downtown, 55 Fourth Street, San Francisco, CA 94103 on June 27,
2000 at 2 P.M. PST, and at any adjournments thereof, for the purpose of
considering and voting upon the matters set forth in the accompanying Notice
of Annual Meeting of Stockholders. This Proxy Statement and the accompanying
form of Proxy are first being mailed to Stockholders on or about May 31, 2000.
The cost of solicitation of proxies is being borne by us.
The close of business on May 15, 2000, has been fixed as the record
date for the determination of Stockholders entitled to notice of, and to vote
at, the Annual Meeting and any adjournment thereof. As of record date, there
were 80,153,899 shares of Common Stock, par value $0.001 per share, issued and
outstanding.
The presence, in person or by proxy, of a majority of the total
outstanding shares of Common Stock on the record date is necessary to
constitute a quorum at the Annual Meeting.
Each share is entitled to one vote on all issues requiring a
Stockholder vote at the Annual Meeting. Each nominee for Director named in
Number 1 must receive a majority of the Common Stock votes cast in person or
by proxy in order to be elected. Stockholders may not cumulate their votes
for the election of Directors.
The affirmative vote of a majority of the shares of Common Stock
present or represented by proxy and entitled to vote at the Annual Meeting is
required for the approval of Numbers 2, 3 and 4 set forth in the accompanying
Notice.
All shares represented by properly executed proxies, unless such
proxies previously have been revoked, will be voted at the Annual Meeting in
accordance with the directions on the proxies. If no direction is indicated,
the shares will be voted (i) FOR THE ELECTION OF THE NOMINEES NAMED HEREIN,
(ii) FOR THE AMENDMENT TO THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK TO 200,000,000 SHARES OF COMMON STOCK,
(iii) FOR THE PROPOSAL TO AMEND THE 1997 STOCK OPTION AND RESTRICTED STOCK
PLAN, (iv) FOR THE RATIFICATION OF HJ & ASSOCIATES, LLC (FORMERLY KNOWN AS
JONES JENSEN & COMPANY, LLC) AS INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR
ENDING JUNE 30, 2000.
The Board of Directors is not aware of any other matters to be
presented for action at the Annual Meeting. However, if any other matter is
properly presented at the Annual Meeting, it is the intention of the persons
<PAGE>
named in the enclosed proxy to vote in accordance with their best judgment on
such matters.
The enclosed Proxy, even though executed and returned, may be revoked
at any time prior to the voting of the Proxy (a) by execution and submission
of a revised proxy, (b) by written notice to our Secretary, or (c) by voting
in person at the Annual Meeting.
_____________________________________________________________________________
(1) TO ELECT SIX (6) DIRECTORS FOR THE ENSUING YEAR.
_____________________________________________________________________________
NOMINEES FOR DIRECTORS
The persons named in the enclosed Proxy have been selected by the Board
of Directors to serve as Proxies and will vote the shares represented by valid
proxies at the Annual Meeting of Stockholders and adjournments thereof. They
have indicated that, unless otherwise specified in the Proxy, they intend to
elect as Directors the nominees listed below. All the nominees are presently
members of the Board of Directors. Each duly elected Director will hold
office until his successor shall have been elected and qualified.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed Proxy for the election of the Common Stock Board representatives will
be voted for the election by the voting for the nominees listed below.
Although our Board of Directors does not contemplate that any of the nominees
will be unable to serve, if such a situation arises prior to the Annual
Meeting, the persons named in the enclosed Proxy will vote for the election of
such other person(s) as may be nominated by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF EACH
OF THE NOMINEES LISTED BELOW.
David B. Johnston, age 57, has served as Chairman of the Board of the
Company since August 1987 and Chief Executive Officer since July 1, 1997. He
currently serves as an officer and/or director of Computerized Thermal Imaging
Company ("CTICO"), an 88-percent owned subsidiary of the Company, and of
Thermal Imaging, Inc. (herein sometimes referred to as "TII"), an affiliate of
David Johnston. From 1984 through 1989, Mr. Johnston was President of Funding
Selection, Inc., an Oregon investment banking and mergers and acquisitions
firm. Prior to that, Mr. Johnston was Chairman of Grace Capital, Ltd., a
specialized medical and computer high technology private placement firm in
Oregon. Mr. Johnston received a Bachelor of Science degree in Business
Administration from Brigham Young University and a graduate degree in banking
and corporate finance from the University of Southern California.
Richard V. Secord, age 67, (Major General, United States Air Force,
Retired) was elected as a director of the Company effective February 1996 and
has served as Vice Chairman and Secretary of the Company since July 1, 1997.
From February 1996 to April 1997, General Secord served as President of the
Company. General Secord also previously served as Chief Operating Officer of
the Company from June 1995 to December 1999. He is also Chief Executive
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Officer and a director of CTICO. General Secord served in numerous positions
while performing military service. He was the first military officer to be
appointed Deputy Assistant Secretary of Defense (Near East, Africa and South
Asia). General Secord received a Bachelor of Science degree from the United
States Military Academy. He is also a graduate of the United States Air Force
Command and Staff College, and United States Naval War College. In addition,
he holds a Masters degree in International Affairs from George Washington
University.
David A. Packer, 48, was elected President of the Company in April 1997
and appointed as a director and Chief Operating Officer of the Company in
December 1999. Effective July 1, 1997, he was also elected to be Treasurer of
the Company. In December 1998, Mr. Packer was appointed to serve as President
and Chief Operating Officer of CTICO. Before joining the Company, Mr. Packer
served as a senior manager for TRW's engineering office in Ogden, Utah from
1976 until 1997. Mr. Packer received a Bachelor of Science degree in
Electronics from Brigham Young University in 1975.
Brent M. Pratley, M.D., age 64, was elected as a director of the Company
in June 1994 and served as the Secretary of the Company from June 1994 to
September 1997. Dr. Pratley is currently licensed to practice medicine in
Utah and California and, since 1978, has been in private practice in General
Orthopedics and Sports Medicine at Utah Valley Regional Medical Center located
in Provo, Utah, as well as in Los Angeles, California. Dr. Pratley received
his Doctor of Medicine degree in Orthopedic Surgery in 1968 from the College
of Medicine at the University of California, Irvine, California.
Milton R. Geilmann, age 68, (Retired), was elected as a director of the
Company in January 1998. Mr. Geilmann has been associated with the medical
field for over 32 years. From 1985 to 1993, he worked at E. R. Squibb and
Sons, where he held many positions, including Nuclear Consultant for
Diagnostic Medicine. Mr. Geilmann retired from Squibb in 1993. Mr. Geilmann
received a Masters of Science degree in Pharmacology in 1957 from State
University of New York.
Harry C. Aderholt, age 80, (Brigadier General, United States Air Force,
Retired) was elected as a director of the Company in January 1998. General
Aderholt served in Southeast Asia, particularly Thailand, for many years both
in and out of the U.S. Air Force. Since his retirement from military service
in 1976, General Aderholt has engaged in various private business ventures,
including serving as Vice President of Air Siam in Bangkok, Thailand.
EXECUTIVE OFFICERS
In addition to Messrs. Johnston, Packer and Secord, who are executive
officers, Kevin L. Packard is our Chief Financial Officer.
Kevin L. Packard, age 39, was appointed Chief Financial Officer of the
Company in March 2000. From 1999 through March 2000, Mr. Packard was a
manager with PricewaterhouseCoopers in Salt Lake City and from June 1987
through July 1992 was a manager with Deloitte + Touche in Seattle. From July
1992 through 1998, Mr. Packard served in various capacities with Coeur d'Alene
Mines Corporation including Vice President, Treasurer and CFO. Mr. Packard is
licensed as a certified public accountant in Utah, Idaho and Washington and is
a member of the AICPA. Mr. Packard received a Masters of Professional
Accountancy degree from University of Utah in 1987.
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INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
David B. Johnston, David A. Packer and Richard V. Secord are the only
directors who are also officers.
We have an Executive Committee, an Audit Committee and a Compensation
Committee. The Executive Committee oversees the Company operations and all
strategic planning for the Company. The Audit Committee reviews and reports
to the Board of Directors on the financial results of the Company's operations
and the results of the audit services provided by the Company's independent
accountants. The Compensation Committee reviews compensation paid to
management, including administration of the Company's 1997 Stock Option and
Restricted Stock Plan, and recommends to the Board of Directors appropriate
executive compensation.
Messrs. Johnston, Secord and Packer comprise our Executive Committee. The
members of our Audit and Compensation Committees are Messrs. Pratley, Geilmann
and Aderholt.
In March 2000, the Board adopted a Charter for the Audit Committee. The
Charter establishes the independence of our Audit Committee and sets forth the
scope of the Audit Committee's duties. Only independent Directors may serve on
the Audit Committee.
The Purpose of the Audit Committee is to conduct continuing oversight of
our financial affairs. The Audit Committee conducts an ongoing review of our
financial reports and other financial information prior to their being filed
with the U.S. Securities and Exchange Commission, or otherwise provided to the
public. The Audit Committee also reviews our systems, methods and procedures
of internal controls in the areas of: financial reporting, audits, treasury
operations, corporate finance, managerial, financial and SEC accounting,
compliance with law, and ethical conduct. The Audit Committee is independent
and objective, and reviews and assesses the work of our independent
accountants and internal audit department. The Audit Committee consists of
three or more Members (the "Members") who are independent Directors. The
Board of Directors shall elect the Members annually. Members shall serve
until their successors are duly elected and qualified. Unless an Audit
Committee Chairperson is elected by the full Board, the Members of the
Committee may designate a Chairperson by majority vote of the all Members.
Each member is free from any relationship that could conflict with a Member's
independent judgment. All Members must be able to read and understand
fundamental financial statements, including a balance sheet, income statement,
and cash flow statement. At least one Member must have past employment
experience in finance or accounting, requisite professional certification in
accounting, or other comparable experience or background, including a current
or past position as a chief executive or financial officer or other senior
officer with financial oversight responsibilities. A copy of the Audit
Committee Charter is attached hereto as Attachment "A".
In as much as the Charter for the Audit Committee was only recently
adopted, the Audit Committee has not yet reviewed and discussed the audited
financial statements with management or discussed with the independent
auditors the matters required by SAS 61. The Audit Committee has not yet
received the written disclosures and the letter from the independent
accountants required by Independence Standards Board No. 1, and the Audit
Committee has not yet discussed with the independent accountant the
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independent accountant's independence. Each of these items will be properly
addressed in forthcoming months. The Audit Committee did not make any
recommendation to the Board of Directors that should be included in the
Company's audited financial statements included in our Annual Report on Form
10-KSB for the last fiscal year.
There is no family relationship between or among any of the directors and
executive officers of the Company, except for the relationship between Mr.
Johnston and Mr. Packer, who are cousins by marriage.
Our Board held 3 meetings during fiscal year ended June 30, 1999, and took
action by consent during that period. The Executive, Audit, and Compensation
Committees held no meetings during that period. All Directors were present for
at least 75% of the aggregate number of meetings, consents, or committee
meetings, if serving on a Board committee.
We do not have a nominating committee. The nominees were selected by the
entire Board.
All of our Board members failed to timely file Form 3, Form 4 and Form 5
required by Section 16(a) of the Exchange Act for the most recent fiscal year.
They each subsequently filed Form 5 that also reported Form 3 and Form 4
events.
EXECUTIVE COMPENSATION
Following is a summary of compensation paid to each of the named
executive officers for each of the fiscal years ended June 30, 1997, 1998 and
1999. Mr. Johnston, our Chief Executive Officer has not been paid a cash
salary over the past three years but instead has been paid by the in-kind
issuance of our common stock in the name of Thermal Imaging, Inc., an
affiliate. These issuance are in settlement of both services provided to and
expenses incurred on behalf of us by Mr. Johnston which took place during
1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------- -----------------------
Securities
Underlying
Options
All other Restricted and
Name and Principal Fiscal Compensation Common Warrants
Position Year Salary Bonus (1) Stock (2)
- ------------------- ------- --------- ------ --------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
David B. Johnston, 1999 $ 0 0 $ 0 0 0
Chairman of the 1998 $ 0 0 $ 0 0 1,000,000
Board & Chief 1997 $ 0 0 $ 152,498 0 0
Executive Officer
Richard V. Secord, 1999 $175,000 0 $ 6,000 0 0
Vice Chairman of the 1998 $175,000 0 $ 6,000 0 1,250,000
Board & Secretary 1997 $198,486 0 $ 6,000 0 0
David A. Packer,
President, Chief 1999 $135,000 0 $ 6,000 0 0
Operating Officer 1998 $135,000 0 $ 6,000 0 0
& Treasurer 1997 $ 31,657 0 $ 1,000 0 500,000
- -----------------------------
(1) Certain of the officers of the Company routinely receive other benefits including travel
<PAGE> 5
reimbursement, the amounts of which are customary in the industry and do not exceed the lessor of
$50,000 or 10 percent of the total compensation for the executive. These amounts have been
omitted. Mr. Johnston has foregone annual monetary compensation in favor of the issuance of
restricted shares of Common Stock. Included in "Other Annual Compensation" for Mr. Johnston are
reimbursements of travel expenses for himself and other executives of the Company that were paid
by TII, an affilate. Mr. Johnston also has the use of a Company vehicle. Messrs. Secord and
Packer each receive a monthly automobile allowance of $500.
(2) As of May 8, 2000, none of the options granted to our officers have been exercised. Of
Mr. Johnston's options on 1,000,000 shares, 750,000 shares are vested as of the date hereof and
have been conveyed to TII. Of General Secord's options on 3,250,000 shares (2,000,000 of which
were granted in 1996), 2,937,500 shares are vested as of the date hereof. Of the 500,000 options
granted to Mr. Packer, 500,000 are vested as of the date hereof.
</TABLE>
Employment Contracts
David B. Johnston has an employment agreement effective as of September
18, 1997. The term of the agreement is for three years, automatically
renewable for additional periods of one year thereafter unless terminated upon
the giving of notice at least 14 days prior to the annual renewal date. The
agreement calls for no mandatory annual cash compensation, but does provide
for compensation in the form of non-statutory stock options covering 1,000,000
shares of Common Stock at an exercise price of $0.75 per share. Twenty-five
percent of the options vested upon the execution of the agreement and 25
percent of the remaining options vest on each anniversary date of the
agreement. The options granted to Mr. Johnston must be exercised within five
years from the date of grant. To the extent applicable, the options granted
to Mr. Johnston are subject to the Company's 1997 Stock Option and Restricted
Stock Plan. At the cost to the Company, Mr. Johnston has "piggyback"
registration rights with respect to the shares of Common Stock derived from
the exercise of the options. As of May 8, 2000, none of the options granted
to Mr. Johnston under the agreement have been exercised. The agreement
subjects Mr. Johnston to a two year non-compete restriction, the obligation
not to induce any employee of the Company to leave his employment with the
Company during the term of the agreement or for two years after the
termination thereof, and the duty not to reveal any confidential information
about the business of the Company.
Richard V. Secord entered into an employment agreement dated June 12,
1995, which was superseded by a new agreement dated September 18, 1997. The
term of the new agreement is for three years and calls for compensation of
$175,000 per year. In addition to the cash compensation, the agreement
ratifies an original grant to General Secord of non-statutory stock options
covering 2,000,000 shares of Common Stock at an exercise price of $1.25 per
share, 50 percent of which vested on June 12, 1996 and 50 percent of which
vested on June 12, 1998. The options granted pursuant to the original
agreement must be exercised within ten years from the date of grant. In
addition, General Secord was granted additional non-statutory options covering
1,250,000 shares of Common Stock at an exercise price of $0.70 per share.
Twenty-five percent of these additional options vested on September 18, 1997,
and 25 percent of the remaining options vest on each anniversary date of the
agreement. These options must be exercised within five years from the date of
grant. To the extent applicable, the additional options granted to General
Secord are subject to the Company's 1997 Stock Option and Restricted Stock
Plan. At the cost of the Company, General Secord has "piggyback" registration
rights with respect to shares of Common Stock derived from the exercise of the
options. As of May 8, 2000, none of the options granted to General Secord
under the agreement have been exercised. The agreement subjects General
Secord to a two year non-compete restriction, the obligation not to induce any
employee of the Company to leave his
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employment with the Company during the term of the agreement or for two years
after the termination thereof, and the duty not to reveal any confidential
information about the business of the Company.
David A. Packer has an employment agreement dated April 30, 1997. The
term of the agreement is for three years and calls for compensation of
$135,000 per year, plus non-statutory stock options covering 500,000 shares of
Common Stock at an exercise price of $0.97 per share. One-third of the
options vest on each anniversary date of the agreement. The options granted to
Mr. Packer must be exercised within five years from the date of the agreement.
If the agreement is terminated for "cause" as defined in the agreement, or Mr.
Packer voluntarily terminates the agreement, all of the options granted to Mr.
Packer thereunder, and which have not been exercised, shall be forfeited. At
the cost of the Company, Mr. Packer has "piggyback" registration rights with
respect to the shares of Common Stock derived from the exercise of the
options. The agreement subjects Mr. Packer to a two year non-compete
restriction, the obligation to give the Company the right to take advantage of
any business opportunity, and the duty not to reveal any confidential
information about the business of the Company. In December 1999, the
Company's Board of Directors approved a $40,000 increase, $to $175,000, in Mr.
Packer's base annual salary. As of the date hereof, Mr. Packer's employment
agreement has expired. Mr. Packer and the Company are currently negotiating a
new employment agreement, an important element of which will consist of
long-term incentives to be granted under the Company's 1997 Incentive and
Restricted Stock Plan. Due to the fact that the Company has issued 100
percent of its authorized common shares, no additional options or shares can
be issued under the Plan. Final negotiations between Mr. Packer and the
Company are pending the outcome of the Company's shareholder vote to authorize
additional common shares of the Company.
Executive Severance Agreements
At its regular meeting in April 2000, the Board of Directors approved an
Executive Severance Agreement that provides Severance Benefits for certain of
our executive officers (the "Executive") in the event the employment of the
Executive is terminated subsequent to a "Change in Control" of the Company
under the circumstances described within the Agreement. The Agreement, once
executed, continues from year to year until terminated at the end of any year
by written notice from the Company, unless a Change in Control of the Company
has occurred prior to that date, in which event it shall continue in effect
during the two-year period immediately following such Change in Control.
For purpose of the Agreement, a Change in Control of the Company is
determined to have occurred if (a) any organization, group or person (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) is, or becomes, the beneficial owner (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 35% or more of the combined voting power of the then
outstanding securities of the Company; or (b) during any two-year period, a
majority of the members of the Board serving at the effective date of the
Agreement is replaced by directors who are not nominated and approved by the
Board; or (c) a majority of the members of the Board is represented by,
appointed by, or affiliated with any person whom the Board has determined is
seeking to effect a Change in Control of the Company, or (d) the Company is
combined with or acquired by another company and the Board determines, either
before such event or thereafter, by resolution, that a Change in Control will
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or has occurred.
If a Change in Control has occurred, the Executive is entitled to
Severance Benefits upon the subsequent involuntary termination, whether actual
or constructive, of the employment of the Executive within the two-year period
immediately following such Change in Control, for any reason other than
termination for cause, disability, death, normal retirement or early
retirement. For purposes of the Agreement, "Constructive Involuntary
Termination" means voluntary termination of employment by Executive as a
result of a significant change in the duties, responsibilities, reporting
relationship, job description, compensation, perquisites, office or location
of employment of Executive without the written consent of the Executive.
If, following a Change of Ownership, the Executive's employment by the Company
is terminated other than for cause, disability or death, the Executive shall,
subject to the provisions of the Agreement be entitled to:
1) compensation at his or her full annual base salary at the rate in effect
immediately prior to the termination of the employment of the Executive, and
short-term and long-term bonuses at the target levels pursuant to the
Company's annual incentive plan, if any, for the period of two years following
actual involuntary termination or Constructive Involuntary Termination (the
"Salary Continuance Period");
2) all medical and dental benefits and all long-term disability benefits in
which the Executive was entitled to participate immediately prior to the date
of termination, to the same extent as if the Executive had continued to be an
employee of the Company during the Salary Continuance Period, provided that
such continued participation is feasible under the general terms and
provisions of such plans and programs;
3) an immediate vesting of all outstanding stock options, stock appreciation
rights, restricted stock, performance plan awards and performance shares
granted by the Company to the Executive;
4) continued credit for years of service under the benefit plan of the
Company from the date of termination through the Salary Continuance Period,
and any compensation paid to the Executive above shall be treated as salary
compensation for purposes of such plan;
5) an amount necessary to reimburse the Executive for all legal fees and
expenses incurred by the Executive as a result of the Change in Control of the
Company and such termination of employment, including fees and expenses
incurred in successfully contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by the Agreement.
If the Severance Benefits provided for under the Agreement, either alone
or together with other payments which the Executive would have the right to
receive from the Company, would constitute a "parachute payment" as defined in
Section 280G(a) of the Internal Revenue Code in effect at the time of payment,
such payment shall, in good faith, be reduced to the largest amount as will
result in no portion being subject to the excise tax imposed by Section 4999
of the Code or the disallowance of a deduction by Company pursuant to Section
280G of the Code.
As of the date hereof, no Severance Agreements have been entered into
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with any of our executives.
Director Compensation
By appropriate resolution of the Board of Directors, directors may be
reimbursed or advanced cash for expenses, relating to attendance at meetings
of the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board, or a stated salary as director. No payment precludes
any director from serving the Company in any other capacity and receiving
compensation. Members of special or standing committees may be allowed
similar reimbursement of expenses and compensation for attending committee
meetings.
Stock Option Plan
In June 1995, the Board of Directors adopted the Company's 1995 Stock
Option Plan, which was never ratified by the stockholders and formally
terminated by the Board of Directors on September 18, 1997. On September 18,
1997, the Board of Directors adopted the Company's 1997 Stock Option and
Restricted Stock Plan (the "Plan") subject to the approval of the stockholders
of the Company. The Plan was formally adopted by the stockholders of the
Company on February 6, 1998. The Plan provides for the grant by the Company
to employees of the Company of (i) options to purchase shares of Common Stock,
and (ii) shares of the Company's restricted Common Stock (the "Restricted
Stock"). The options and the Restricted Stock are hereinafter sometimes
collectively referred to as the "Plan Awards". Options granted under the Plan
may include non-statutory options that do not meet the requirements of
Sections 421 through 424 of the Internal Revenue Code of 1986, as amended (the
"Code"), as well as incentive stock options ("ISO") intended to qualify under
Section 422 of the Code. An aggregate of 5,250,000 shares of Common Stock may
currently be issued pursuant to the provisions of the Plan. This Proxy
includes a proposal to our shareholders to increase to 10,000,000 the number
shares that may be issued under the Plan. The Plan shall be administered by
the Board of Directors or by a committee of the Board composed solely of two
or more non-employee directors (the "Administrator"). The Administrator shall
administer the Plan so as to comply at all times with the Exchange Act,
including Rule 16b-3 (or any successor rule), and, subject to the Code, shall
otherwise have absolute and final authority to interpret the Plan. The Plan
shall continue in effect for a term of 10 years unless sooner terminated
pursuant to its provisions.
As mentioned above, the 1995 Stock Option Plan was to be submitted to the
stockholders in order to qualify for statutory treatment under the Code, but
such submission never occurred. Employees of the Company who were awarded
options pursuant, or in reference, to the 1995 Stock Option Plan have ratified
their agreements to reflect that the plan was never submitted to the
stockholders for approval but that such options incorporate, as contractual
terms, the terms and conditions of the 1995 Stock Option Plan.
Pursuant to the Plan, the term of each option shall be 10 years from the
date of grant or such shorter term as may be determined by the Administrator;
provided, in the case of an ISO granted to a 10 percent stockholder, the term
of such ISO shall be five years from the date of grant or such shorter time as
may be determined by the Administrator. Each option granted under the Plan
may only be exercised to the extent that the optionee is vested in such
option. Except as otherwise provided, all options issued under the Plan shall
vest 20 percent each year over a five-year period.
9
<PAGE>
Notwithstanding the foregoing, the Administrator shall have the discretionary
power to establish the vesting periods for any option granted under the Plan,
except that in no case may the Administrator permit more than 25 percent of
any option to vest before the first anniversary of the earlier of the date of
grant or the date on which the optionee began providing services to the
Company. The exercise price shall be such price as is determined by the
Administrator in its sole discretion; provided, however, the exercise price
shall not be less than 100 percent of the Fair Market Value of the shares of
Common Stock subject to such option on the date of grant (or 110 percent in
the case of an option granted to an employee who is a 10 percent stockholder
on the date of grant). A 10 percent stockholder shall mean a person that owns
more than 10 percent of the total combined voting power of all classes of
outstanding stock of the Company or any subsidiary, taking into account the
attribution rules set forth in Section 424 of the Code. Any shares of Common
Stock issued upon exercise of an option shall be subject to such rights of
repurchase and other transfer restrictions as the Administrator may determine
in its sole discretion. To the extent that the aggregate Fair Market Value
(determined on the date of grant) of the shares with respect to which ISOs are
exercisable for the first time by an individual during any calendar year under
the Plan, and under all other plans maintained by the Company, exceeds
$100,000, such options shall be treated as non-statutory options. "Fair
Market Value" shall be the mean between the closing bid and asked prices of
the shares of Common Stock on the date in question (on the principal market in
which the shares are traded), or if the shares were not traded on such date,
the mean between closing bid and asked prices of the shares on the preceding
trading day during which the shares were traded.
The Administrator shall have the authority to grant shares of Common
Stock to employees that are subject to certain terms, conditions, and
restrictions (the "Restricted Stock"). The Restricted Stock may be granted by
the Administrator either separately or in combination with options. The terms,
conditions and restrictions of the Restricted Stock shall be determined from
time to time by the Administrator without limitation, except as otherwise
provided in the Plan; provided, however, that each grant of Restricted Stock
to an employee shall require the employee to remain an employee of the Company
for at least six months from the date of grant. The Restricted Stock shall be
granted to employees for services rendered and at no additional cost to the
employee, provided, however, that the value of the services performed must, in
the opinion of the Administrator, equal or exceed the par value of the
Restricted Stock to be granted to the employee. The terms, conditions, and
restrictions of the Restricted Stock shall be determined by the Administrator
on the date of grant. No certificates will be issued to an employee with
respect to the Restricted Stock until the date the Restricted Stock becomes
vested in accordance with the Plan. The Restricted Stock may not be sold,
assigned, transferred, redeemed, pledged or otherwise encumbered during the
period in which the terms, conditions and restrictions apply (the "Restriction
Period"). More than one grant of Restricted Stock may be outstanding at any
one time, and the Restriction Periods may be of different lengths. Receipt of
the Restricted Stock is conditioned upon satisfactory compliance with the
terms, conditions and restrictions of the Plan and those imposed by the
Administrator. On the date the Restriction Period terminates, the Restricted
Stock shall vest in the employee. If an employee (i) with the consent of the
Administrator, ceases to be an employee of, or otherwise ceases to provide
services to, the Company or (ii) dies or suffers from permanent and total
disability, the vesting or forfeiture (including without limitation the terms,
conditions and restrictions) of any grant under the Plan shall be determined
by the Administrator in its sole
10
<PAGE>
discretion, subject to any limitations or terms of the Plan. If the employee
ceases to be an employee of, or otherwise ceases to provide services to, the
Company for any other reason, all grants of Restricted Stock under the Plan
shall be forfeited (subject to the terms of the Plan).
As of May 8, 2000, no shares of Restricted Stock have been granted under
the Plan.
As of May 8, 2000, the following options were outstanding under the Plan
for executive officers and directors. The following does not include grants
of Common Stock options to employees who are not considered executive
officers, 100,000 shares of which were granted to one non-executive employee
during 1999.
<TABLE>
<CAPTION>
Option Plan Grant Table
- -------------------------------------------------------------------------------------------------
Name of Person to Number of Expiration
Whom Options Shares Date of Exercise
Were Granted Under Option Option Vesting Date Price
- ----------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
David B. Johnston, 250,000 09/18/02 (1) 09/18/97 (2) $.75/share
Chairman of the Board and 250,000 09/18/02 (1) 09/18/98 (2) $.75/share
Chief Executive Officer 250,000 09/18/02 (1) 09/18/99 (2) $.75/share
250,000 09/18/02 (1) 09/18/00 (2) $.75/share
Richard V. Secord, 312,500 09/18/02 (1) 09/18/97 (2) $.70/share
Vice Chairman of the Board 312,500 09/18/02 (1) 09/18/98 (2) $.70/share
and Secretary (3) 312,500 09/18/02 (1) 09/18/99 (2) $.70/share
312,500 09/18/02 (1) 09/18/00 (2) $.70/share
David A. Packer, President, 0 N/A N/A
Chief Operating Officer
and Treasurer (3)
- -----------------------------
(1) The option may terminate prior to this date upon the termination of employee with "cause",
as defined in the employee's Employment Agreement. In addition, an option will automatically
terminate and revert to us if vested as of the date of resignation or termination "without cause",
as defined in the employee's Employment Agreement, but not exercised on or before the expiration of
90 days after the termination date of employment.
(2) Conditioned on the employee's continued employment with us.
(3) These employees hold options granted prior to the adoption of our 1997 Stock Option and
Restricted Stock Plan. The options were originally granted pursuant to the terms of our 1995 Stock
Option Plan that was never ratified by the stockholders and formally terminated by our Board of
Directors on September 18, 1997. Options granted prior to the Plan were: 2,000,000 to General
Secord and 500,000 to Mr. Packer. The terms of the employee stock option agreements were amended to
ratify and incorporate the terms of our 1995 Stock Option Plan into the respective stock option
agreements as contractual provisions.
</TABLE>
There were no options granted in the last fiscal year to any of the
Company's named executive officers or directors. The following table shows, as
to the named executive officers, information concerning aggregate option
exercises and option values as of May 8, 2000.
<TABLE>
<CAPTION>
Aggregated Option Exercises and Values as of May 8, 2000
- -----------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Acquired Value Options at May 8, 2000 Options at May 8, 2000
Name of Officer on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ------------------------- --------------- ------------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
David B. Johnston, 0 0 750,000/250,000 $6,234,375/$2,078,125
Chairman of the Board &
Chief Executive Officer
(2)
<PAGE> 11
Richard V. Secord, 0 0 2,937,500/312,500 $23,464,844/$2,613,281
Vice-Chairman of the Board
and Secretary (3)
David A. Packer, 0 0 500,000/0 $4,046,250/$0
President, Chief
Operating Officer &
Treasurer
- -----------------------------
(1) The value of the unexercised in-the-money options at May 8, 2000 was determined by calculating the
difference between the exercise price per share of Common Stock, as set forth in the respective stock
option agreement, and the closing price per share of Common Stock on May 5, 2000, which was $9.0625.
The resulting amount is deemed to be the value of the options/warrants for purposes of this table.
(2) The option granted to Mr. Johnston for 1,000,000 shares of Common Stock is exercisable at $0.75
per share.
(3) The option granted to General Secord for 2,000,000 shares of Common Stock has an exercise price of
$1.25 per share; the option granted for 1,250,000 shares of Common Stock has an exercise price of
$0.70 per share.
(4) The option granted to David Packer for 500,000 shares has an exercise price of $0.97 per share.
</TABLE>
The Company has no long-term incentive plans or defined benefit plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the beneficial
ownership of all shares of Common Stock at May 8, 2000 for each executive
officer and/or director of the Company and for each person known to the
Company who owns beneficially more than 5% of the outstanding shares of Common
Stock. The percentage ownership is based on 80,153,899 common shares issued
and outstanding at May 8, 2000 and ownership by these persons of options or
warrants exercisable within 60 days of May 8, 2000. Unless otherwise
indicated, each person has sole voting and investment power over the shares.
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Directors and Officers Of Common Stock Owned Percent of Class
- ------------------------------------------ ---------------------- ----------------
<S> <C> <C>
David B. Johnston and Thermal Imaging, Inc.,
6105 Macadam, Portland, Oregon 97201 13,967,761 (1) 16.557%
Richard V. Secord, 515 Pocahontas Dr.,
Ft. Walton Beach, Fl 52347 3,088,500 (2) 3.663%
David A. Packer, 476 Heritage Park Blvd,
Suite 210, Layton, Utah 84041 693,939 (3) 0.823%
Brent M. Pratley, 1055 North 300 West,
Provo, Utah 84604 750 0.000%
Milton R. Geilmann, 206 60 SW,
Shoshone Drive Tualatin, Oregon 97062 15,000 0.018%
Harry C. Aderholt, 23 Miracle Strip
Parkway N.E., Ft. Walton Beach,
Florida 32548 143,500 0.170%
Kevin L. Packard, 476 Heritage Park Blvd,
Suite 210, Layton, Utah 84041 0 0.000%
---------------- --------------
DIRECTORS AND OFFICERS AS A GROUP
OF SEVEN PERSONS 18,257,950 21.231%
================ =============
- ----------------------------------------
(1) Includes 750,000 shares of Common Stock underlying options which are immediately
exercisable and 13,217,761 shares of Common Stock owned by Thermal Imaging, Inc., an affiliate of
Mr. Johnston.
The options granted to Mr. Johnston were conveyed to Thermal Imaging, Inc.
(2) Includes 1,000 shares in the name of Joanne Secord, 150,000 shares in the name of General
Secord and 2,937,500 shares of Common Stock underlying options that are immediately exercisable.
(3) Includes 500,000 shares of Common Stock underlying options that are immediately
exercisable, 93,939 shares in the name of IRA FBO David A. Packer and 100,000 shares in the name
of David A. Packer.
</TABLE>
12
<PAGE>
We know of no arrangement or understanding that may, at a subsequent
date, result in a change of control.
Certain Relationships and Related Transactions
Management believes that all prior related party transactions are on
terms no less favorable to the Company as could be obtained from unaffiliated
third parties. Management's reasonable belief of fair values is based upon
proximate similar transactions with third parties or attempts to obtain the
consideration from third parties. All ongoing and future transactions with
such persons, including any loans or compensation to such persons, will be
approved by a majority of disinterested, independent outside members of the
Board of Directors.
Thermal Imaging, Inc., an Affiliate of David B. Johnston. For the year
ended June 30, 1999, the Company issued 4,514,507 shares of Common Stock to
Thermal Imaging, Inc. ("TII"), an affiliate of David B. Johnston, in
satisfaction of advances from TII of $2,273,436. For the year ended June 30,
1998, the Company sold 5,463,477 shares of its Common Stock to TII for
$1,827,130.
____________________________________________________________________________
(2) TO AMEND THE ARTICLES OF INCORPORATION TO AUTHORIZE 200,000,000 SHARES
OF COMMON STOCK.
____________________________________________________________________________
DESCRIPTION AND EFFECT OF THE AMENDMENT
The Board of Directors of the Company recommends the approval of the
proposed Amendment to authorize a total of 200,000,000 shares of Common Stock.
The proposed Amendment would amend Article IV of our Articles of
Incorporation to authorize 200,000,000 shares of Common Stock. Such an
Amendment requires the affirmative vote of a majority of the shares of Common
Stock present or represented by proxy and entitled to vote at the Annual
Meeting.
PRINCIPAL REASONS FOR THE AMENDMENT
The Board of Directors believes it is desirable to authorize 200,000,000
shares of Common Stock. Currently, the Company has 100,000,000 shares of
Common Stock authorized. The purpose of the proposed amendment is to make
available for issuance additional shares of Common Stock which will be
available in the event the Board of Directors determines that it is necessary
and appropriate to raise additional capital through the sale of Common Stock
in the public or private market, to acquire assets or pay for services in
whole or in part using our Common Stock or otherwise issue shares of Common
Stock for acquisitions or other appropriate corporate purposes.
In the past, the Company relied heavily upon the issuance of its Common
Stock to meet its financial obligations and support the development of its
medical imaging technology. The Company is currently working towards FDA
13
<PAGE>
approval of its Breast Imaging System and recently announced submission of
Module 3 towards obtaining that approval. Upon obtaining FDA approval, it
will become necessary for the Company to make the leap from a development
stage company to become fully operating. The Company anticipates that capital
needed to make that leap will be substantial. Maintaining acceptable levels
of debt to equity will become an important consideration as the Company moves
into it operational phase. Issuing additional shares of the Company's Common
Stock may become necessary to establish a capitalization structure that will
not restrict the Company's future operating cash flow and that will be
acceptable to potential creditors and investors.
The Company presently has 80,153,899 shares of Common Stock outstanding.
On a fully diluted basis, the Company would have 100,000,000 shares of Common
Stock outstanding, which would currently leave the Company with no unissued
shares of Common Stock that it could sell or use for other purposes. The
Board believes that it is in the best interest of the Company to have more
shares of Common Stock available for issuance. The Company has an agreement
with Beach Boulevard, LLC that, if exercised by the Company, would require the
issuance of approximately 400,000 shares of Common Stock. Although the Company
does not have any plan to issue any shares of Common Stock at this time (other
than as may be contemplated by the Beach Boulevard Agreement), we most likely
will issue Common Stock in connection with future capital raising efforts,
asset acquisitions and employment agreements with key executives of the
Company.
AMENDMENT TO ARTICLES OF INCORPORATION
Article IV, Section 1. of the Company's Articles of Incorporation would be
amended in its entirety to read as follows:
ARTICLE IV
"1. Authorized Stock. The total number of shares of stock which the Company
shall have authority to issue is 203,000,000 shares, consisting of 200,000,000
shares of Common Stock, par value $.001 per share (the "Common Stock"), and
3,000,000 shares of preferred stock (the "Preferred Stock")".
DESCRIPTION OF COMMON STOCK
The holders of the Common Stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders of the Company. The holders
of the Common Stock have the sole right to vote, except as otherwise provided
by law or by the Company's Articles of Incorporation, including provisions
governing any shares of the Preferred Stock. In addition, such holders are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available
therefor, subject to the payment of preferential dividends with respect to any
shares of the Preferred Stock that, from time to time, may be outstanding. In
the event of the dissolution, liquidation or winding up of the Company, the
holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of all liabilities of the Company and subject to the
prior distribution rights of the holders of any shares of the Preferred Stock
that may be outstanding at that time. The holders of Common Stock do not have
cumulative voting rights. On February 4, 1998, a majority of the
stockholders, by written consent, voted to amend the Articles of Incorporation
of the Company to deny preemptive rights with respect to each new issuance of
shares of the Common Stock. However, the 1998 Amendment to
14
<PAGE>
the Articles of Incorporation will have no effect with respect to preemptive
rights which may have existed for certain holders of Common Stock prior to the
1998 Amendment.
The Board of Directors unanimously recommends a vote FOR amending the
Company's Articles of Incorporation to authorize 200,000,000 shares of Common
Stock.
____________________________________________________________________________
(3) TO CONSIDER AND ACT UPON THE AMENDMENT TO THE 1997 STOCK OPTION AND
RESTRICTED STOCK PLAN.
____________________________________________________________________________
The 1997 Stock Option and Restricted Stock Plan (the "Plan") was
originally adopted by the Board of Directors in November 1997, and adopted by
our shareholders in February 1998. In May 2000, our Board adopted a
resolution to amend the Plan. The Plan presently provides for a total of
5,250,000 shares of common stock. The proposed amendment to the Plan will
increase the number of shares in the Plan to 10,000,000 shares of our common
stock. The Plan presently contemplates that the Plan be governed under Texas
law. The amendment proposes that the Plan be governed under Utah law, which
is where our executive offices are located. In all other respects, the Plan
will be unchanged.
The Plan only has 400,000 shares available for issuance at this time. The
purpose of the amendment to the Plan is to provide us with additional shares
in the Plan that will assist us in compensating our existing and new
employees.
If approved by the Stockholders, the Plan will allow Incentive and
Non-Incentive Stock Option grants and Restricted Stock grants as determined by
the Administrator of the Plan which is currently our Board of Directors. The
purpose of the Plan is to foster and promote the financial success of the
Company and increase Stockholder value by enabling eligible key employees,
directors and consultants to participate in the long-term growth and financial
success of the Company.
Eligibility. The Plan is open to our employees (including our officers
and Directors and non-employee directors) ("Eligible Persons").
Transferability. The grants are not transferable.
Changes in the Company's Capital Structure. The Plan will not effect the
right of the Company to authorize adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure. In the
event of an adjustment, recapitalization or reorganization the award shall be
adjusted accordingly. In the event of a merger, consolidation, or liquidation,
the Eligible Person will be eligible to receive a like number of shares of
stock in the new entity he would have been entitled to if, immediately prior
to the merger, he had exercised his option. The Board may waive any
limitations imposed under the Plan so that all options are immediately
exercisable.
15
<PAGE>
Restricted Stock. The Plan provides for restricted shares of our common stock
to be granted to Participants that may be subject to performance or other
criteria, vesting requirements, and lockup provisions.
Options. The Plan provides for grants of both Incentive and Nonqualified
Stock Options with ten-year terms.
Option price. Incentive options shall be not less than the greater of (i)
100% of fair market value on the date of grant, or (ii) the aggregate par
value of the shares of stock on the date of grant. The Compensation Committee,
at its option, may provide for a price greater than 100% of fair market value.
The price for Incentive Stock Options for Stockholders owning 10% or more of
the Company's shares ("10% Stockholders") shall be not less than 110% of fair
market value.
Amount exercisable-incentive options. In the event an Eligible Person
exercises Incentive Options during the calendar year whose aggregate fair
market value exceeds $100,000, the exercise of options over $100,000 will be
considered non-qualified stock options.
Duration. No option may be exercisable after the expiration date as set
forth in the option agreement.
Exercise of Options. Options may be exercised by written notice to the
President of the Company with
(i) cash, certified check, bank draft, or postal or express money order
payable to the order of the Company for an amount equal to the option price of
the shares;
(ii) stock at its fair market value on the date of exercise;
(iii) any other legal form of payment and as such form of payment as
authorized by the Administrator.
Vesting of Options. Each Option granted under the Plan may only be
exercised to the extent that the Optionee is vested in such Option. Except as
otherwise provided, all Options issued under the Plan shall vest in accordance
with the following schedule:
Number of Years the Optionee Extent to
has remained in the employ Which the
of the Company or a Subsidiary Option is
following the grant of the Option Vested
- ---------------------------------- ----------
Under one..........................................................0%
At least one but less than two................................... 20%
At least two but less than three..................................40%
At least three but less than four.................................60%
At least four but less than five..................................80%
Five or more.....................................................100%
Notwithstanding the foregoing, the Administrator shall have the
discretionary power to establish the vesting periods for any Option granted,
except that in no case may the Administrator permit more than twenty-five
16
<PAGE>
percent (25%) of any Option to vest before the first anniversary of the
earlier of the Date of Grant or the date on which the Optionee began providing
services to the Company. Services provided by the Employee prior to the date
that the Plan becomes effective shall be taken into account for the purpose of
calculating vesting periods.
Termination of Employment. Any Option which has not vested at the time
the Optionee ceases continuous employment for any reason other than death,
disability or retirement, shall terminate upon the last day that the Optionee
is employed by the Company. Incentive Stock Options must be exercised within
three months of cessation of Continuous Service for reasons other than death,
disability or retirement in order to qualify for Incentive Stock Option tax
treatment. Nonqualified Options must be exercised within six months of
cessation of Continuous Service for reasons other than death, disability or
retirement.
Death. Unless the Option expires sooner, the Option will expire one year
after the death of the Eligible Person.
Disability. Unless the Option expires sooner, the Option will expire one
year after the disability of the Eligible Person.
Amendment or Termination of the Plan. The Administrator may amend,
terminate or suspend the Plan at any time, in its sole and absolute
discretion; provided, however, that to the extent required to qualify the Plan
under Rule 16b-3 promulgated under Section 16 of the Exchange Act, no
amendment that would (a) materially increase the number of shares of stock
that may be issued under the Plan, (b) materially modify the requirements as
to eligibility for participation in the Plan, or (c) otherwise materially
increase the benefits accruing to participants under the Plan, shall be made
without the approval of the Company's Stockholders; provided further, however,
that to the extent required to maintain the status of any incentive option
under the Code, no amendment that would (a) change the aggregate number of
shares of stock which may be issued under incentive options, (b) change the
class of employees eligible to receive incentive options, or (c) decrease the
option price for incentive options below the fair market value of the stock at
the time it is granted, shall be made without the approval of the
Stockholders. Subject to the preceding sentence, the Board shall have the
power to make any changes in the Plan and in the regulations and
administrative provisions under it or in any outstanding incentive option as
in the opinion of counsel for the Company may be necessary or appropriate from
time to time to enable any incentive option granted under this Plan to
continue to qualify as an incentive stock option or such other stock option as
may be defined under the Code so as to receive preferential federal income tax
treatment. No amendment, suspension or termination of the Plan shall act to
impair or extinguish rights in Options already granted at the date of such
amendment, suspension or termination.
New Plan Benefits
The Board has not yet authorized any new plan benefits under the Plan.
THE BOARD OF DIRECTORS HAS APPROVED THE ADOPTION OF THE AMENDMENT TO THE PLAN
AND UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENTS TO THE
17
<PAGE>
PLAN. SUCH ADOPTION REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A
MAJORITY OF SHARES OF COMMON STOCK PRESENT OR REPRESENTED BY PROXY AND
ENTITLED TO VOTE AT THE ANNUAL MEETING.
A copy of the Amended Plan is attached hereto as Attachment "B".
____________________________________________________________________________
(4) TO RATIFY THE SELECTION OF HJ & ASSOCIATES, LLC (FORMERLY KNOWN AS
JONES JENSEN & COMPANY, LLC) AS INDEPENDENT ACCOUNTANTS FOR THE FISCAL
YEAR ENDING JUNE 31, 2000.
____________________________________________________________________________
On May 1, 2000, Jones Jensen & Company, the Company's independent
accountant, was acquired by existing partners and employees of Jones Jensen &
Company LLC. Subsequently, its name was changed to HJ & Associates, LLC.
The Board of Directors has selected HJ & Associates, LLC as our
independent accountants for the current fiscal year. The Board of Directors
wishes to obtain from the Stockholders a ratification of their action in
appointing HJ & Associates, LLC as independent accountants for the fiscal year
ending June 30, 2000. Such ratification requires the affirmative vote of a
majority of the shares of Common Stock present or represented by proxy and
entitled to vote at the Annual Meeting.
In the event the appointment of HJ & Associates, LLC as independent
accountants is not ratified by the Stockholders, the adverse vote will be
considered as a direction to the Board of Directors to select other
independent accountants for the fiscal year ending June 30, 2000.
A representative of HJ & Associates, LLC is expected to be present at the
Annual Meeting and will be given an opportunity to make a statement at the
Annual Meeting. The representative is expected to be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF HJ & ASSOCIATES, LLC (FORMERLY KNOWN AS JONES JENSEN &
COMPANY, LLC) AS INDEPENDENT ACCOUNTANTS FOR THE FISCAL YEAR ENDING JUNE 30,
2000.
Ham, Langston & Brezina, L.L.P., Certified Public Accountants, of
Houston, Texas, audited the Company's consolidated balance sheet as of June
30, 1998 and the related statements of operations, stockholders' deficit, and
cash flows for the years ended June 30, 1998 and 1997, and for the period from
inception, June 10, 1987, to June 30, 1998. These financial statements
accompanied the Company's Form SB-2 Registration Statement, as amended, filed
with the Securities and Exchange Commission, and declared effective January 8,
1999. The report of Ham, Langston & Brezina on such financial statements,
dated October 26, 1998, did not contain any adverse opinion or disclaimer of
opinion, and with the exception of a "going concern" qualification because of
the Company's dependence on outside sources of financing for continuation of
operations, was not qualified or modified as to uncertainty, audit scope
18
<PAGE>
or accounting principles. Ham, Langston & Brezina was dismissed on or about
August 17, 1999.
Jones, Jensen & Company LLC, Certified Public Accountants of Salt Lake
City, Utah, was engaged by the Company on August 17, 1999, pursuant to
recommendation of the Company's Board of Directors, to audit the financial
statements of the Company for its fiscal year ended June 30, 1999.
There were no disagreements between the Company and Ham, Langston &
Brezina, whether resolved or not resolved, on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved, would have caused them to make reference to
the subject matter of the disagreement in connection with their reports.
The Company has provided Ham, Langston & Brezina with a copy of the
disclosure provided in this Proxy Statement. Ham, Langston & Brezina has
provided us with a letter addressed to the Securities and Exchange Commission
pursuant to Regulation S-B.
____________________________________________________________________________
(5) OTHER MATTERS.
____________________________________________________________________________
The Board of Directors is not aware of any other matters to be presented
for action at the Annual Meeting. However, if any other matter is properly
presented at the Annual Meeting, it is the intention of the persons named in
the enclosed proxy to vote in accordance with their best judgment on such
matters.
FUTURE PROPOSALS OF STOCKHOLDERS
The deadline for stockholders to submit proposals to be considered for
inclusion in the Proxy Statement for the year 2001 Annual Meeting of
Stockholders is September 29, 2000.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ David B. Johnston
__________________________________
Chairman of the Board and CEO
Layton, Utah
19
<PAGE>
PROXY
FOR VOTING BY HOLDERS OF COMMON STOCK
COMPUTERIZED THERMAL IMAGING, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 27, 2000.
The undersigned hereby appoints David B. Johnston and Kevin L. Packard
and each of them as the true and lawful attorneys, agents and proxies of the
undersigned, with full power of substitution, to represent and to vote all
shares of Common Stock of Computerized Thermal Imaging, Inc. held of record by
the undersigned on May 15, 2000 at the Annual Meeting of Stockholders to be
held in the Golden Gate "C" Room of the Marriott Hotel Downtown, 55 Fourth
Street, San Francisco, CA 94103 on June 27, 2000 at 2 P.M. PST, and at any
adjournments thereof. Any and all proxies heretofore given are hereby
revoked.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DESIGNATED BY THE
UNDERSIGNED. IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE
NOMINEES LISTED IN NUMBER 1, FOR THE PROPSAL IN NUMBER 2 AND FOR THE
RATIFICATION IN NUMBER 3.
1. ELECTION OF OUR DIRECTORS. (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR
ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH, OR OTHERWISE STRIKE, THAT
NOMINEE'S NAME IN THE LIST BELOW.)
[ ] FOR all nominees listed [ ] WITHHOLD authority to
below except as marked vote for all nominees
to the contrary below
David B. Johnston Richard V. Secord David V. Packer
Brent M. Pratley, M.D Harry C. Aderholt Milton R. Geilmann
2. PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO AUTHORIZE 200,000,000
SHARES OF COMMON STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO ACT UPON THE AMENDMENT TO THE 1997 STOCK OPTION AND RESTRICTED STOCK
PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO RATIFY THE SELECTION OF HJ & ASSCOCIATES, LLC (FORMERLY KNOWN
AS JONES JENSEN & COMPANY, LLC) AS INDEPENDENT ACCOUNTANTS FOR THE FISCAL
YEAR ENDING JUNE 30, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
<PAGE>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as 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.
Number of Shares of
Common Stock
Stock Owned _____________
_____________________________________
Signature
_____________________________________
(Typed or Printed Name)
_____________________________________
Signature if held jointly
_____________________________________
(Typed or Printed Name)
DATED: ____________________________
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED AT THE MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
<PAGE>
Attachment "A" Audit Committee Charter
Computerized Thermal Imaging, Inc.
Charter
of the
Audit Committee
of the
Board of Directors
Purpose. The Audit Committee of the Board of Directors shall conduct
continuing oversight of the financial affairs of Computerized Thermal Imaging,
Inc.
Scope of Review. The Audit Committee shall conduct an ongoing review the
Corporation's:
* Financial reports and other financial information prior to their being
filed with the U.S. Securities and Exchange Commission or otherwise provided
to the public.
* Systems, methods and procedures of internal controls in the areas of:
financial reporting, audits, treasury operations, corporate finance,
managerial, financial and SEC accounting, compliance with law, and ethical
conduct.
General Tasks. The Audit Committee shall:
* Be independent and objective.
* Recommend and encourage improvements in the Corporation's financial
affairs.
* Review and assess the work of the Corporation's independent accountant
and internal audit department.
* Solicit and encourage comments from the Corporation's independent
accountant, financial and senior management, internal audit department and the
Board of Directors.
Audit Committee Members. The Audit Committee shall consist of three or more
Members (the "Members") who are independent Directors. The Board of Directors
shall elect the Members annually. Members shall serve until their successors
are duly elected and qualified. Unless an Audit Committee Chairperson is
elected by the full Board, the Members of the Committee may designate a
Chairperson by majority vote of the all Members.
Each member shall be free from any relationship that could conflict with a
member's independent judgment. All Members must be able to read and
understand fundamental financial statements, including a balance sheet, income
statement, and cash flow statement. At least one member must have past
employment experience in finance or accounting, requisite professional
certification in accounting, or other comparable experience or background,
including a current or past position as a chief executive or financial officer
or other senior officer with financial oversight responsibilities.
Independence. Independent Director is defined as a director who has:
* Not been employed by the Corporation or its affiliates in the current or
past three years.
* Not accepted any compensation from the Corporation or its affiliates in
excess of $60,000 during the previous fiscal year (except for board service,
retirement plan benefits, or non-discretionary compensation).
* No immediate family member who is, or has been in the past three years,
employed by the Corporation or its affiliates as an executive officer.
* Not been a partner, controlling shareholder or an executive officer of
any other for- profit entity to which the Corporation made, or from which it
received, payments (other than those which arise solely from investments in
the Corporation's securities) that exceed five percent of the other entity's
consolidated gross revenues for that year, or $200,000, whichever is more, in
any of the past three years.
* Not been employed as an executive of another entity where the
Corporation's executives serve on the other entity's compensation committee.
Meetings. The Audit Committee shall meet at least four times per year, and
may meet as frequently as deemed necessary. The Audit Committee shall meet
separately in closed meetings at least once each year with management, the
director of internal audit and the independent accountant to discuss any
matter. The Audit Committee shall select one of its Members each quarter to
meet with management, the director of internal audit and the independent
accountant for the purposes set forth below.
Specific Tasks. The Audit Committee shall:
* Assess and, if necessary, update this Charter at least annually.
* Review the Corporation's annual, quarterly and other financial
statements and any other reports, financial information or other material
filed with any governmental body (except for litigation matters in the
ordinary course of business) or announced to the public, including the
independents accountant's certifications, reports, opinions, or reviews.
* Review the regular internal reports to management prepared by the
internal audit department and management's response thereto.
* Review with management and the independent accountant all Form 10-Q 's
prior to the filing or prior to the release of earnings information to the
public. The Chairperson of the Audit Committee may represent the entire Audit
Committee for the review of the Form 10-Q.
* Recommend to the Board of Directors the selection of the independent
accountant for each fiscal year, considering independence and effectiveness,
and approve the fees and other compensation to be paid to the independent
accountant. On an annual basis, the Audit Committee shall review and discuss
with the independent accountant all significant relationships the independent
accountant has with the Corporation to determine the accountant's
independence.
* Review the performance of the independent accountant and approve any
proposed discharge of the independent accountant when circumstances warrant.
* Periodically consult with the independent accountant, out of the
presence of management, about internal controls and the completeness and
accuracy of the Corporation's financial statements.
* Continually review the integrity of the Corporation's internal and
external financial reporting processes. The Audit Committee shall consult
with the independent accountant and the internal auditors for this review.
* Consider the independent accountant's judgments about the quality and
appropriateness of the Corporation's accounting principles in relation to the
Corporation's internal and external financial reporting.
* Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices.
* Establish regular and separate systems of reporting to the Audit
Committee by each of management, the independent accountant and the internal
auditors in connection with the appropriateness and application of accounting
principles made in management's preparation of the financial statements.
* Following completion of the annual audit, review separately with each of
management, the independent accountant and the internal audit department
whether any difficulties were encountered during the course of the audit,
including any restrictions on the scope of work or access to required
information.
* Review any disagreement among management and the independent accountants
or the internal auditing department in connection with the preparation of the
financial statements or the appropriateness and application of accounting
principles made in management's preparation of the financial statements.
* Review with the independent accountant, the internal audit department
and management whether and how changes or improvements in the Corporation's
financial or accounting practices, as approved by the Audit Committee, have
been implemented. The Audit Committee shall conduct this review promptly
after the implementation of the changes or improvements.
* Establish a code of corporate compliance with law and a code of ethical
conduct, and review the Corporation's implementation and enforcement of these
codes.
* Review activities, organizational structure, and qualifications of the
internal audit department.
* Review, with the Corporation's counsel, legal compliance matters
including policies regarding trading in the Corporation's securities.
* Review, with the Corporation's counsel, any legal matter that could have
a material impact on the Corporation's financial statements.
* Perform any other activities consistent with this Charter, the
Corporation's Articles of Incorporation, By-laws and governing law, as the
Audit Committee or the Board of Directors deems necessary or appropriate.
Attachment "B"
COMPUTERIZED THERMAL IMAGING, INC.
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
SECTION 1
PURPOSE
This Plan is established (i) to offer selected Employees of the Company or its
Subsidiaries an equity ownership interest in the financial success of the
Company, (ii) to provide the Company with an opportunity to attract and retain
the best available personnel for positions of substantial responsibility, and
(iii) to encourage equity participation in the Company by eligible
Participants. This Plan provides for the grant by the Company of (i) Options
to purchase Shares, and (ii) shares of Restricted Stock. Options granted
under this Plan may include nonstatutory options as well as incentive stock
options intended to qualify under section 422 of the Code.
SECTION 2
DEFINITIONS
"Administrator" shall mean either the Committee or the Board of Directors
chosen to administer the Plan in accordance with the terms and conditions of
the Plan.
"Affiliate" shall mean any Subsidiary, parent corporation, joint venture or
other business enterprise which controls or is controlled by, or is under
common control with, the Company.
"Board of Directors" shall mean the board of directors of the Company, as duly
elected from time to time.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and as
interpreted by the regulations thereunder.
"Committee" shall mean the Compensation Committee of the Company, or such
other Committee as may be appointed by the Board of Directors from time to
time.
"Company" shall mean Computerized Thermal Imaging, Inc., a Nevada corporation.
"Date of Grant" shall mean the date on which the Administrator resolves to
grant an Option to an Optionee or grant Restricted Stock to a Participant, as
the case may be.
"Employee" shall include every individual performing Services to the Company
or its Subsidiaries if the relationship between such individual and the
Company or its Subsidiaries is the legal relationship of employer and
employee. Neither service as a member of the Board of Directors nor payment
of a director's fee shall in itself constitute "Services" for purposes of this
definition.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and
as interpreted by the rules and regulations promulgated thereunder.
"Exercise Price" shall mean the amount for which one Share may be purchased
upon exercise of an Option, as specified by the Administrator in the
applicable Stock Option Agreement, but in no event less than the par value per
Share.
"Fair Market Value" shall be the mean between the closing bid and asked prices
of the Shares on the date in question (on the principal market in which the
Shares are traded), or if the Shares were not traded on such date, the mean
between closing bid and asked prices of the Shares on the next preceding
trading day during which the Shares were traded.
"ISO" shall mean a stock option which is granted to an individual and which
meets the requirements of section 422(b) of the Code, pursuant to which the
Optionee has no tax consequences resulting from the grant or, subject to
certain holding period requirements, exercise of the option and the employer
is not entitled to a business expense deduction with respect thereto.
"Non-employee Director" shall mean any person who at the time of grant is a
member of the Board of Directors but is not an Employee of the Company or any
Affiliate; does not receive compensation, directly or indirectly, from the
Company or any Affiliate for services rendered as a consultant or in any
capacity other than Director, except for an amount that does not exceed the
dollar amount to which disclosure would be required under 17 C.F.R '
229.404(a); does not possess an interest in any other transaction for which
disclosure would be required under 17 C.F.R. ' 229.404(a); and is not engaged
in a business relationship to which disclosure would be required under 17
C.F.R. 229.404(b).
"Nonstatutory Option" shall mean any Option granted by the Administrator that
does not meet the requirements of sections 421 through 424 of the Code, as
amended.
"Option" shall mean either an ISO or Nonstatutory Option, as the context
requires.
"Optionee" shall mean a Participant who holds an Option.
"Participants" shall mean those individuals described in Section 1 of this
Plan selected by the Administrator who are eligible under Section 4 of this
Plan for grants of either Options or Restricted Stock under this Plan.
"Permanent and Total Disability" shall mean that an individual is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period
of not less than twelve (12) months. An individual shall not be considered to
suffer from Permanent and Total Disability unless such individual furnishes
proof of the existence thereof in such form and manner, and at such times, as
the Administrator may reasonably require. The scope of this definition shall
automatically be reduced or expanded to the extent that section 22(e)(3) of
the Code is amended to reduce or expand the scope of the definition of
Permanent and Total Disability thereunder.
"Plan" shall mean this 1997 Stock Option and Restricted Stock Plan, as amended
from time to time.
"Plan Award" shall mean the grant of either an Option or Restricted Stock, as
the context requires.
"Restricted Stock" shall have that meaning set forth in Section 7(a) of this
Plan.
"Restricted Stock Account" shall have that meaning set forth in Section
7(a)(ii) of this Plan.
"Restricted Stock Criteria" shall have that meaning set forth in Section
7(a)(iv) of this Plan.
"Restriction Period" shall have that meaning set forth in Section 7(a)(iii) of
this Plan.
"Services" shall mean services rendered to the Company or any of its
Subsidiaries as an Employee, as the context requires.
"Share" shall mean one share of Stock, as adjusted in accordance with Section
9 of this Plan (if applicable).
"Stock" shall mean the common stock of the Company, par value $.001 per share.
"Stock Option Agreement" shall mean the agreement executed between the Company
and an Optionee that contains the terms, conditions, and restrictions
pertaining to the granting of an Option. Any inconsistencies between this
Plan and any Stock Option Agreement shall be controlled by this Plan.
"Subsidiary" shall mean any corporation as to which more than fifty (50%)
percent of the outstanding voting stock or shares shall now or hereafter be
owned or controlled directly by a person, any Subsidiary of such person, or
any Subsidiary of such Subsidiary.
"TenPercent Stockholder" shall mean a person that owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock
of the Company or any Subsidiary, taking into account the attribution rules
set forth in section 424 of the Code, as amended. For purposes of this
definition of "Ten Percent Stockholder" the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant
of an Option to an Optionee. "Outstanding stock" shall not include reacquired
shares or shares authorized for issuance under outstanding Options held by the
Optionee or by any other person.
"Vest Date" shall have that meaning set forth in Section 7(a)(v) of this Plan.
SECTION 3
ADMINISTRATION
(a) General Administration. This Plan shall be administered by the
Board of Directors or by a Committee composed solely of two (2) or more
Non-employee Directors. In the case a Committee is chosen to administer the
Plan, the members of the Committee shall be appointed by the Board of
Directors for such terms as the Board of Directors may determine. The Board
of Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board of Directors.
(b) Committee Procedures. The Board of Directors shall designate one
of the members of the Committee as chairman. The Committee may hold meetings
at such times, places, and in such manner as it shall determine. The acts of
a majority of the Committee members present at meetings at which a quorum
exists, or acts reduced to or approved in writing by a majority of all
Committee members, shall be valid acts of the Committee. A majority of the
Committee shall constitute a quorum.
(c) Authority of Administrator. This Plan shall be administered by,
or under the direction of, the Board of Directors or the Committee (either of
which may hereinafter be referred to as the "Administrator"). The
Administrator shall administer this Plan so as to comply at all times with the
Exchange Act, including Rule 16b-3 (or any successor rule), and, subject to
the Code, shall otherwise have absolute and final authority to interpret this
Plan and to make all determinations specified in or permitted by this Plan or
deemed necessary or desirable for its administration or for the conduct of the
Administrator's business including, without limitation, the authority to take
the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to this Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of this Plan;
(iv) To determine when Plan Awards are to be granted under this
Plan;
(v) To select the Optionees and Participants;
(vi) To determine the number of Shares to be made subject to each
Plan Award;
(vii) To prescribe the terms, conditions and restrictions of each
Plan Award, including without limitation the Exercise Price, vesting
conditions, and the determination whether an Option is to be classified as an
ISO or a Nonstatutory Option;
(viii) To amend any outstanding Stock Option Agreement or the
terms, conditions and restrictions of a grant of Restricted Stock, subject to
applicable legal restrictions and the consent of the Optionee or Participant,
as the case may be, who entered into such agreement;
(ix) To establish procedures so that an Optionee may obtain a
loan through a registered brokerdealer under the rules and regulations of the
Federal Reserve Board, for the purpose of exercising an Option;
(x) To establish procedures for an Optionee (1) to have withheld
from the total number of Shares to be acquired upon the exercise of an Option
that number of Shares having a Fair Market Value, which, together with such
cash as shall be paid in respect of fractional shares, shall equal the
Exercise Price, and (2) to exercise a portion of an Option by delivering that
number of Shares already owned by an Optionee having a Fair Market Value which
shall equal the partial Exercise Price and to deliver the Shares thus acquired
by such Optionee in payment of Shares to be received pursuant to the exercise
of additional portions of the Option, the effect of which shall be that an
Optionee can in sequence utilize such newly acquired shares in payment of the
Exercise Price of the entire Option, together with such cash as shall be paid
in respect of fractional shares;
(xi) To establish procedures whereby a number of Shares may be
withheld from the total number of Shares to be issued upon exercise of an
Option, to meet the obligation of withholding for federal and state income and
other taxes, if any, incurred by the Optionee upon such exercise; and
(xii) To take any other actions deemed necessary or advisable for
the administration of this Plan.
All interpretations and determinations of the Administrator made with
respect to the granting of Plan Awards shall be final, conclusive, and binding
on all interested parties. The Administrator may make grants of Plan Awards
on an individual or group basis. No member of the Administrator shall be
liable for any action that is taken or is omitted to be taken if such action
or omission is taken in good faith with respect to this Plan or grant of any
Plan Award.
(d) Holding Period. The Administrator may in its sole discretion
require as a condition to the granting of any Plan Award, that a Participant
agree not to sell or otherwise dispose of a Plan Award, any Shares acquired
pursuant to a Plan Award, or any other "derivative security" (as defined by
Rule 16a1(c) under the Exchange Act) for a period of time determined by the
Administrator including, without limitation, a period of six (6) months
following the (i) the date of the issuance of Shares pursuant to a Plan Award,
or (ii) the date when the Exercise Price of an Option is fixed if such
Exercise Price is not fixed on the Date of Grant.
SECTION 4
ELIGIBILITY
(a) General Rule. Subject to the limitations set forth in subsection
(b) below, Participants shall be eligible to participate in this Plan;
provided, however, that no Non-employee Directors shall be eligible for any
Plan Awards under this Plan.
(b) NonEmployee Ineligible for ISOs. In no event shall an ISO be
granted to any individual who is not an Employee on the Date of Grant.
SECTION 5
SHARES SUBJECT TO PLAN
(a) Basic Limitation. Shares offered under this Plan shall be
comprised of authorized but unissued Shares or Shares that have been
reacquired by the Company. The aggregate number of Shares that are available
for issuance under this Plan shall not exceed ten million (10,000,000) Shares,
however, this aggregate number shall be reduced as necessary to compensate for
any shares of Stock (i) subject to valid and outstanding stock options granted
pursuant or in reference to the Company's 1995 Stock Option Plan ("1995 Plan")
or (ii) issued pursuant to the 1995 Plan, so that the aggregate number of
shares of Stock subject to outstanding options, restricted grants or issued
under both plans shall not exceed ten million (10,000,000) shares of Stock.
The aggregate number of Shares available under the Plan is subject to
adjustment pursuant to Section 9 of this Plan. The Administrator shall not
issue more Shares than are available for issuance under this Plan. The number
of Shares that are subject to unexercised Options at any time under this Plan
shall not exceed the number of Shares that remain available for issuance under
this Plan. The Company, during the term of this Plan, shall at all times
reserve and keep available sufficient Shares to satisfy the requirements of
this Plan.
(b) Additional Shares. In the event any outstanding Option for any
reason expires, is canceled or otherwise terminates, the Shares allocable to
the unexercised portion of such Option shall again be available for issuance
under this Plan. In the event that Shares issued under this Plan revert to
the Company prior to the Vest Date under a grant of Restricted Stock, such
Shares shall again be available for issuance under this Plan.
SECTION 6
TERMS AND CONDITIONS OF OPTIONS
(a) Term of Option. The term of each Option shall be ten (10) years
from the Date of Grant or such shorter term as may be determined by the
Administrator; provided, however, in the case of an ISO granted to a
TenPercent Stockholder, the term of such ISO shall be five (5) years from the
Date of Grant or such shorter time as may be determined by the Administrator.
(b) Vesting of Options. Each Option granted hereunder may only be
exercised to the extent that the Optionee is vested in such Option. Except as
otherwise provided, all Options issued under this Plan shall vest in
accordance with the following schedule:
Number of Years the Optionee Extent to
has remained in the employ Which the
of the Company or a Subsidiary Option is
following the grant of the Option Vested
Under one 0%
At least one but less than two 20%
At least two but less than three 40%
At least three but less than four 60%
At least four but less than five 80%
Five or more 100%
Notwithstanding the foregoing, the Administrator shall have the discretionary
power to establish the vesting periods for any Option granted hereunder,
except that in no case may the Administrator permit more than twenty-five
percent (25%) of any Option to vest before the first anniversary of the
earlier of the Date of Grant or the date on which the Optionee began providing
Services to the Company. Services provided by the Employee prior to the date
that the Plan becomes effective shall be taken into account for the purpose of
calculating vesting periods.
(c) Exercise Price and Method of Payment.
(i) Exercise Price. The Exercise Price shall be such price as is
determined by the Administrator in its sole discretion and set forth in the
Stock Option Agreement; provided, however, the Exercise Price shall not be
less than 100% of the Fair Market Value of the Shares subject to such option
on the Date of Grant (or 110% in the case of an Option granted to a
Participant who is a TenPercent Stockholder on the Date of Grant).
(ii) Payment of Shares. Payment for the Shares upon exercise of
an Option shall be made in cash, by certified check, or if authorized by the
Administrator, by delivery and transfer of other Shares having a Fair Market
Value on the date of delivery equal to the aggregate exercise price of the
Shares as to which said Option is being exercised, or by any combination of
such methods of payment or by any other method of payment as may be permitted
under applicable law and authorized by the Administrator.
(d) Exercise of Option.
(i) Procedure for Exercise; Rights of Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as shall be determined by the Administrator in accordance with the terms of
this Plan, including, without limitation, performance criteria with respect to
the Company and/or the Optionee.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company, in accordance with the terms of the
Stock Option Agreement, by the Optionee entitled to exercise the Option and
full payment for the Shares and any withholding and other applicable taxes
with respect to the exercised Option has been received by the Company. Full
payment may, as authorized by the Administrator, consist of any form of
consideration and method of payment allowable under Section 6(c)(ii) of this
Plan. Upon the receipt of notice of exercise and full payment for the Shares
and taxes, the Shares shall be deemed to have been issued and the Optionee
shall be entitled to receive such Shares and shall be a stockholder with
respect to such Shares, and the Shares shall be considered fully paid and
nonassessable. No adjustment will be made for a dividend or other right for
which the record date is prior to the date on which the stock certificate is
issued, except as provided in Section 9 of this Plan.
Each exercise of an Option shall reduce, by an equal number, the total
number of Shares that may thereafter be purchased under such Option.
(ii) Termination of Status as an Employee. Except as provided in
Subsections 6(d)(iii) and 6(d)(iv) below and unless provided otherwise in the
Stock Option Agreement, an Optionee holding an Option who ceases to be an
Employee of the Company may, but only until the earlier of the date (i) the
Option held by the Optionee expires, or (ii) (y) in the case of an ISO, ninety
(90) days, and (z) in the case of a Nonstatutory Option, six (6) months, after
the date such Optionee ceases to be an Employee (or such shorter period as may
be provided in the Stock Option Agreement), exercise the Option to the extent
that the Optionee was entitled to exercise it on such date, unless the
Administrator terminates or further extends such period in its sole
discretion. To the extent that the Optionee was not entitled to exercise an
Option on such date, or if the Optionee does not exercise it within the time
specified herein, such Option shall terminate. The Administrator shall have
the authority (i) to determine the date an Optionee ceases to be an Employee
and (ii) to shorten or terminate the exercise periods provided above in the
event the Optionee resigns and/or ceases for "cause" to be an Employee.
(iii) Permanent and Total Disability. Notwithstanding the
provisions of Section 6(d)(ii) above, in the event an Optionee is unable to
continue to perform Services for the Company or any of its Subsidiaries as a
result of such Optionee's Permanent and Total Disability, (and, for ISOs, at
the time such Permanent and Total Disability begins, the Optionee was an
Employee and had been an Employee since the Date of Grant), such Optionee may
exercise an Option in whole or in part to the extent that the Optionee was
entitled to exercise it on such date, but only until the earlier of the date
(i) the Option held by the Optionee expires, or (ii) twelve (12) months from
the date of termination of Services due to such Permanent and Total
Disability. To the extent the Optionee is not entitled to exercise an Option
on such date or if the Optionee does not exercise it within the time specified
herein, such Option shall terminate, unless the Administrator further extends
such period in its sole discretion.
(iv) Death of an Optionee. Upon the death of an Optionee, any
Option held by an Optionee shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of Section 6(d)(ii) above,
in the event an Optionee's death occurs during the term of an Option held by
such Optionee and, at the time of death, the Optionee was an Employee (and,
for ISOs, at the time of death, the Optionee was an Employee and had been an
Employee since the Date of Grant), the Option may be exercised in whole or in
part to the extent that the Optionee was entitled to exercise it on such date,
but only until the earlier of the date (i) the Option held by the Optionee
expires, or (ii) twelve (12) months from the date of the Optionee's death, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance. To the extent the Option is not entitled to
be exercised on such date or if the Option is not exercised within the time
specified herein, such Option shall terminate, unless the Administrator
further extends such period in its sole discretion.
(e) NonTransferability of Options. No Option granted under this Plan
may be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, or the rules
thereunder, and no Option granted under this Plan is assignable by operation
of law or subject to execution, attachment or similar process. Any Option
granted under this Plan can only be exercised during the Optionee's lifetime
by such Optionee unless exercised pursuant to Section 6(d)(iv). Any attempted
sale, pledge, assignment, hypothecation or other transfer of the Option
contrary to the provisions hereof and the levy of any execution, attachment or
similar process upon the Option shall be null and void and without force or
effect. No transfer of the Option by will or by the laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished written notice thereof and an authenticated copy of the
will and/or such other evidence as the Administrator may deem necessary to
establish the validity of the transfer and the acceptance by the transferee or
transferees of the terms and conditions of the Option. The terms of any
Option transferred by will or by the laws of descent and distribution shall be
binding upon the executors, administrators, heirs and successors of Optionee.
(f) Time of Granting Options. Any Option granted hereunder shall be
deemed to be granted on the Date of Grant. Written notice of the
Administrator's determination to grant an Option to an Employee, evidenced by
a Stock Option Agreement, dated effective as of the Date of Grant, shall be
given to such Employee within a reasonable time after the Date of Grant.
(g) Modification, Extension and Renewal of Options. Within the
limitations of this Plan, the Administrator may modify, extend or renew
outstanding Options or may accept the cancellation of outstanding Options
under this Plan or the 1995 Plan (to the extent not previously exercised) for
the granting of new Options in substitution therefor. The foregoing
notwithstanding, no modification of an Option shall, without the consent of
the Optionee, alter or impair the Optionee's rights or obligations under such
Option.
(h) Restrictions on Transfer of Shares. Any Shares issued upon
exercise of an Option shall be subject to such rights of repurchase and other
transfer restrictions as the Administrator may determine in its sole
discretion. Such restrictions shall be set forth in the applicable Stock
Option Agreement.
(i) Special Limitation on ISOs. To the extent that the aggregate Fair
Market Value (determined on the Date of Grant) of the Shares with respect to
which ISOs are exercisable for the first time by an individual during any
calendar year under this Plan, and under all other plans maintained by the
Company, exceeds $100,000, such Options shall be treated as Nonstatutory
Options.
(j) Leaves of Absence. Leaves of absence approved by the
Administrator which conform to the policies of the Company shall not be
considered termination of employment if the employeremployee relationship as
defined under the Code or the regulations promulgated thereunder otherwise
exists.
SECTION 7
RESTRICTED STOCK
(a) Authority to Grant Restricted Stock. The Administrator shall
have the authority to grant Shares to Participants that are subject to certain
terms, conditions, and restrictions (the "Restricted Stock"). The Restricted
Stock may be granted by the Administrator either separately or in combination
with Options. The terms, conditions and restrictions of the Restricted Stock
shall be determined from time to time by the Administrator without limitation,
except as otherwise provided in this Plan; provided, however, that each grant
of Restricted Stock to an Employee shall require the Employee to remain an
Employee of the Company or any of its Subsidiaries for at least six (6) months
from the Date of Grant. The granting, vesting, and issuing of the Restricted
Stock shall also be subject to the following provisions:
(i) Nature of Grant. Restricted Stock shall be granted to
Participants for Services rendered and at no additional cost to Participant;
provided, however, that the value of the Services performed must, in the
opinion of the Administrator, equal or exceed the par value of the Restricted
Stock to be granted to the Participant.
(ii) Restricted Stock Account. The Company shall establish a
restricted stock account (the "Restricted Stock Account") for each Participant
to whom Restricted Stock is granted, and such Restricted Stock shall be
credited to such account. No certificates will be issued to the Participant
with respect to the Restricted Stock until the Vest Date as provided herein.
Every credit of Restricted Stock under this Plan to a Restricted Stock Account
shall be considered "contingent" and unfunded until the Vest Date. Such
contingent credits shall be considered bookkeeping entries only,
notwithstanding the "crediting" of "dividends" as provided herein. Such
accounts shall be subject to the general claims of the Company's creditors.
The Participant's rights to the Restricted Stock Account shall be no greater
than that of a general creditor of the Company. Nothing contained herein
shall be construed as creating a trust or fiduciary relationship between the
Participants and the Company, the Board of Directors or the Committee.
(iii) Restrictions. The terms, conditions, and restrictions of
the Restricted Stock shall be determined by the Administrator on the Date of
Grant. The Restricted Stock may not be sold, assigned, transferred, redeemed,
pledged or otherwise encumbered during the period in which the terms,
conditions and restrictions apply (the "Restriction Period"). More than one
grant of Restricted Stock may be outstanding at any one time, and the
Restriction Periods may be of different lengths. Receipt of the Restricted
Stock is conditioned upon satisfactory compliance with the terms, conditions
and restrictions of this Plan and those imposed by the Administrator.
(iv) Restricted Stock Criteria. At the time of each grant of
Restricted Stock, the Administrator in its sole discretion may establish
certain criteria to determine the times at which restrictions placed on
Restricted Stock shall lapse (i.e., the termination of the Restriction
Period), which criteria may include without limitation performance measures
and targets and/or holding period requirements (the "Restricted Stock
Criteria"). The Administrator may establish a corresponding relationship
between the Restricted Stock Criteria and (i) the number of Shares of
Restricted Stock that may be earned, and (ii) the extent to which the terms,
conditions and restrictions on the Restricted Stock shall lapse. Restricted
Stock Criteria may vary among grants of Restricted Stock; provided, however,
that once the Restricted Stock Criteria are established for a grant of
Restricted Stock, the Restricted Stock Criteria shall not be modified with
respect to that grant.
(v) Vesting. On the date the Restriction Period terminates, the
Restricted Stock shall vest in the Participant (the "Vest Date"), who may then
require the Company to issue certificates evidencing the Restricted Stock
credited to the Restricted Stock Account of such Participant.
(vi) Dividends. The Administrator may provide from time to time
that amounts equivalent to dividends shall be payable with respect to the
Restricted Stock held in the Restricted Stock Account of a Participant. Such
amounts shall be credited to the Restricted Stock Account and shall be payable
to the Participant on the Vest Date.
(vii) Termination of Services. If a Participant (x) with the
consent of the Administrator, ceases to be an Employee of, or otherwise ceases
to provide Services to, the Company or any of its Subsidiaries, or (y) dies or
suffers from Permanent and Total Disability, the vesting or forfeiture
(including without limitation the terms, conditions and restrictions) of any
grant under this Section 7 shall be determined by the Administrator in its
sole discretion, subject to any limitations or terms of this Plan. If the
Participant ceases to be an Employee of, or otherwise ceases to provide
Services to, the Company or any of its Subsidiaries for any other reason, all
grants of Restricted Stock under this Plan shall be forfeited (subject to the
terms of this Plan).
(b) Deferral of Payments. The Administrator may establish procedures
by which a Participant may elect to defer the transfer of Restricted Stock to
the Participant. The Administrator shall determine the terms and conditions
of such deferral in its sole discretion.
(c) Payment of Taxes. Notwithstanding the provisions of Section
7(a)(v) above, the Company will not be required to issue any Restricted Stock
unless and until the Participant shall pay to the Company an amount equal to
any withholding and other applicable taxes related to the issuance of the
Restricted Stock. Such payment shall be made in cash, by certified check, or
if authorized by the Administrator, by delivery of other Shares having a Fair
Market Value on the date of delivery equal to such payment or by any
combination of such methods of payment or by any other method of payment as
may be permitted under applicable law and authorized by the Administrator.
SECTION 8
ISSUANCE OF SHARES
As a condition to the transfer of any Shares issued under this Plan, the
Company may require an opinion of counsel, satisfactory to the Company, to the
effect that such transfer will not be in violation of the Securities Act of
1933, as amended (the "Securities Act"), or any other applicable securities
laws, rules or regulations, or that such transfer has been registered under
federal and all applicable state securities laws. The Company may refrain
from delivering or transferring Shares issued under this Plan until the
Administrator has determined that the Participant has tendered to the Company
any and all applicable federal, state or local tax owed by the Participant as
the result of the receipt of a Plan Award, the exercise of an Option or the
disposition of any Shares issued under this Plan, in the event that the
Company reasonably determines that it might have a legal liability to satisfy
such tax. The Company shall not be liable to any person or entity for damages
due to any delay in the delivery or issuance of any stock certificate
evidencing any Shares for any reason whatsoever.
SECTION 9
CAPITALIZATION ADJUSTMENTS; MERGER
(a) Adjustments Upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of Shares
covered by each outstanding Option, the aggregate number of Shares that have
been authorized for issuance under this Plan, and the number of Shares of
Restricted Stock credited to any Restricted Stock Account of a Participant (as
well as the Exercise Price covered by any outstanding Option), shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, payment of a stock dividend with respect
to the Stock or any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company. Such adjustment
shall be made by the Administrator in its sole discretion, which adjustment
shall be final, binding, and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class shall affect, and
no adjustment by reason thereof shall be made with respect to, the number or
price of Shares subject to an Option.
(b) Dissolution, Liquidation, Sale of Assets or Merger. In the event
of the proposed dissolution or liquidation of the Company, or a proposed sale
of all or substantially all of the assets of the Company, or the proposed
merger of the Company with or into another corporation where the Company is
not the surviving entity, any Options and grants of Restricted Stock shall
terminate immediately prior to the consummation of such proposed action,
unless otherwise provided in the Stock Option Agreement or by the
Administrator. The Administrator may, in the exercise of its sole discretion,
in such instances declare that any Option shall terminate as of a date fixed
by the Administrator and give each Optionee the right to exercise the
Optionee's Option as to all or any part of the Shares covered by such Option,
including Shares as to which the Option would not otherwise be exercisable.
Notwithstanding the provisions of Section 6(b) to the contrary, the
Administrator may, in the exercise of its sole discretion, provide in any
Stock Option Agreement or under any grant of Restricted Stock that the
applicable Plan Award shall become immediately vested in the event of a change
in control of the Company or other extraordinary events as defined by the
Administrator.
SECTION 10
NO EMPLOYMENT RIGHTS
No provision of this Plan, under any Stock Option Agreement or under any grant
of Restricted Stock shall be construed to give any Participant any right to
remain an Employee of, or provide Services to, the Company or any of its
Subsidiaries or to affect the right of the Company to terminate any
Participant's service at any time, with or without cause.
SECTION 11
STOCKHOLDER APPROVAL
With respect to any amendment to this Plan adopted by the Administrator that
is required to be approved by the Company's stockholders pursuant to the terms
of Section 12 of this Plan, such approval shall be obtained within twelve (12)
months after the date such amendment is adopted by the Administrator;
provided, that such amendment shall not become effective until such approval
has been obtained.
SECTION 12
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
(a) Term of Plan. This Plan shall become effective upon its adoption
by the Board of Directors subject to the condition subsequent that this Plan
is approved by the stockholders of the Company. The Administrator may grant
Plan Awards under the Plan prior to the time of stockholder approval, but if
for any reason the stockholders of the Company do not approve the Plan within
twelve (12) months after the date the Plan is adopted by the Board of
Directors, all Plan Awards granted under the Plan will be terminated and shall
have no force or effect, and no Plan Award may be exercised in whole or in
part prior to such stockholder approval. This Plan shall continue in effect
for a term of ten (10) years unless sooner terminated under this Section 12.
(b) Amendment and Termination. The Administrator in its sole
discretion may terminate this Plan at any time. The Administrator may amend
this Plan at any time in such respects as the Administrator may deem
advisable; provided, that the following amendments shall require approval of
the holders of a majority of the outstanding Shares entitled to vote:
(i) Any change in the aggregate number of Shares that may be
issued under this Plan, other than in connection with an adjustment under
Section 9 of this Plan;
(ii) Any change in the designation of the Participants eligible
to be granted Plan Awards; or
(iii) Any change in this Plan that would materially increase the
benefits accruing to Participants under this Plan.
(c) Effect of Termination. In the event this Plan is terminated, no
Shares shall be issued under this Plan nor shall any Shares of Restricted
Stock be credited to a Restricted Stock Account, except upon exercise of an
Option granted prior to such termination or issuance of Shares of Restricted
Stock previously credited to a Restricted Stock Account. The termination of
this Plan, or any amendment thereof, shall not affect any Shares previously
issued to a Participant, any Option previously granted under this Plan or any
Restricted Stock previously credited to a Restricted Stock Account.
SECTION 13
GOVERNING LAW
THIS PLAN AND ANY AND ALL STOCK OPTION AGREEMENTS AND AGREEMENTS RELATING TO
THE GRANT OF RESTRICTED STOCK EXECUTED IN CONNECTION WITH THIS PLAN SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF UTAH,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
Adopted by the Board of
Directors of the Company:
/s/ Richard V. Secord
-------------------------
May 8, 2000 Richard V. Secord
Secretary
Adopted by the stockholders
of the Company:
June __, 2000 ------------------------
Richard V. Secord
Secretary
Supplemental Information Not to be Provided to Stockholders
The Plan described herein does not require that the Company register the
options or the shares underlying options.
The Company believes that each of the persons receiving these securities has
the knowledge and experience in financial and business matters which allows
them to evaluate the merits and risk of the receipt of these securities of the
Company. In such capacity they are knowledgeable about the Company's
operations and financial condition. These transactions are effected by the
Company in reliance upon exemptions from registration under the Securities Act
of 1933 as amended (the "Act") as provided in Section 4(2) thereof. Each
certificate issued for unregistered securities contains a legend stating that
the securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities. No
underwriter participated in, nor did the Company pay any commissions or fees
to any underwriter in connection with any of these transactions. None of the
transactions involves a public offering.
