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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Javelin Systems, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
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):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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7. Form, Schedule or Registration Statement No.:
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8. Filing Party:
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9. Date Filed:
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JAVELIN SYSTEMS, INC.
17891 CARTWRIGHT ROAD
IRVINE, CALIFORNIA 92614
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 11, 1998
AND
NOTICE OF STOCKHOLDER ACTION BY WRITTEN CONSENT
TO THE STOCKHOLDERS OF JAVELIN SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of JAVELIN
SYSTEMS, INC., a Delaware corporation (the "Company"), will be held on Friday,
December 11, 1998 at 1:00 p.m. local time at 17891 Cartwright Road, Irvine,
California 92614 for the following purposes:
1. To elect two (2) directors to serve until the 2001 Annual Meeting of
Stockholders and until such directors' successors are elected;
2. To increase the number of shares of Common Stock authorized under the
Company's certificate of incorporation from 10,000,000 to 20,000,000;
3. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending June 30, 1999; and
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Notice is also hereby given that in October 1998, holders of a majority
of the Company's Common Stock approved, by written consent, the Company's
1997 Equity Incentive Plan, as amended to increase the number of shares
authorized under the plan from 300,000 to 1,100,000 (the "1997 Plan").
The Board of Directors has fixed the close of business on October 21, 1998,
as the record date for the determination of stockholders entitled to notice of
and to vote at the Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/s/ Horace Hertz
Horace Hertz
Secretary
Irvine, California
October 30, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU
HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A
BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST
OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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JAVELIN SYSTEMS, INC.
17891 CARTWRIGHT ROAD
IRVINE, CALIFORNIA 92614
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 11, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The Proxy Statement and the enclosed proxy card are furnished in
connection with the solicitation of proxies by the Board of Directors (the
"Board") of JAVELIN SYSTEMS, INC., a Delaware corporation (the "Company"),
for use in voting at the Annual Meeting of Stockholders to be held on
December 11, 1998, at 1:00 p.m. local time, or at any adjournment or
postponement thereof (the "Annual Meeting"), for the purposes set forth
herein and in the accompanying Notice of Annual Meeting. The Annual Meeting
will be held at 17891 Cartwright Road, Irvine, California, 92614. This Proxy
Statement is also furnished to notify you of an action taken by holders of a
majority of the Company's Common Stock in October 1998 to increase the number
of shares authorized under the Company's 1997 Plan. The Company intends to
mail this Proxy Statement and accompanying proxy card on or about October 28,
1998 to all stockholders entitled to vote at the Annual Meeting.
VOTING RIGHTS AND OUTSTANDING SHARES
The Board has fixed October 21, 1998 as the record date (the "Record
Date") for the determination of stockholders entitled to vote at the Annual
Meeting. Only holders of record of Common Stock at the close of business on
October 21, 1998 will be entitled to notice of and to vote at the Annual
Meeting. The only outstanding class of capital stock of the Company is its
Common Stock, $.01 par value per share. At the close of business on the
Record Date the Company had outstanding and entitled to vote 4,176,362
shares of Common Stock. The presence in person or by proxy of the holders of
record of 2,088,182 of the issued and outstanding Common Stock of the
Company entitled to vote is required to constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker
non-votes will be considered represented at the Annual Meeting for the
purposes of determining a quorum.
Each holder of Common Stock on the Record Date will be entitled to one
vote for each share held on all matters to be voted upon. With respect to
the election of directors, stockholders may exercise cumulative voting
rights. Under cumulative voting, each holder of Common Stock will be entitled
to two votes for each share held. Each stockholder may give one candidate,
who has been nominated prior to voting, all the votes such stockholder is
entitled to cast or may distribute such votes among as many such candidates
as such stockholder chooses. Unless the proxyholders are otherwise
instructed, stockholders, by means of the accompanying proxy, will grant the
proxyholders discretionary authority to cumulate votes.
All proxies will be voted in accordance with the instructions contained
in the proxy. If no choice is made on your signed proxy card that is
returned to the Company, the shares represented by your executed proxy will
be voted FOR (i) Proposal 1 to elect management's nominees for director to
the class which term expires as of the Annual Meeting, (ii) Proposal 2 to
increase the number of shares of Common Stock authorized under the Company's
certificate of incorporation, (iii) Proposal 3 to increase the number of
shares of Common Stock authorized under the 1997 Plan and (iv) Proposal 4 to
ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent auditor's for the fiscal year ending June 30, 1999. If the
instructions on your proxy card specifies "ABSTAIN" with respect to a
particular proposal, the shares represented by your proxy will be counted as
an abstention for such proposal.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards
a quorum, but are not counted for any purpose in determining whether a matter
has been approved.
1.
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REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 17891
Cartwright Road, Irvine, California 92614, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
STOCKHOLDER PROPOSALS
In order to be included in the Company's proxy statement and proxy card
relating to the 1999 Annual Meeting of Stockholders, proposals of stockholders
that are intended to be presented at the Company's 1999 Annual Meeting of
Stockholders must comply with the applicable Securities and Exchange Commission
rules and regulations. Such proposals of stockholders must also be sent to the
Secretary of the Company at the address set forth on page 1 of this Proxy
Statement and be received by the Company not later than July 1, 1999.
Unless a stockholder who wishes to bring a matter that will not be included
in the proxy statement before the stockholders at the Company's 1999 Annual
Meeting notifies the Company of such matter prior to September 14, 1998,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
card and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or
other regular employees for such services.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and By-laws provide
that the Board shall be divided into three classes, with each class having a
three-year term. Vacancies on the Board may be filled only by persons elected
by a majority of the remaining directors. A director elected by the Board to
fill a vacancy (including a vacancy created by an increase in the number of
directors to serve on the Board) shall serve for the remainder of the full term
of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of five members. There are
two directors in the class whose term of office expires in 1998. The
nominees for election to this class, Jay L. Kear and Andrew F. Puzder, are
currently directors of the Company and were previously elected by the
stockholders. If elected at the Annual Meeting, each of Mr. Kear and Mr.
Puzder will serve until the 2001 Annual Meeting of Stockholders and until his
successor is elected and has qualified, or until his earlier death,
resignation or removal.
The two candidates receiving the highest number of affirmative votes cast
at the meeting will be elected directors of the Company. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of Mr. Kear and Mr. Puzder, subject to the discretionary power to
cumulate votes. In the event that Mr. Kear or Mr. Puzder should be unavailable
for election as a result of an unexpected occurrence, such shares will be voted
(unless the proxy card is marked to the contrary) for the election of such
substitute nominee, if any, as management may propose. Mr. Kear and Mr. Puzder
have agreed to serve if elected, and management has no reason to believe that
Mr. Kear or Mr. Puzder will be unable to serve. It is believed that all
officers and directors of the Company will vote their respective shares in favor
of Mr. Kear and Mr. Puzder.
2.
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Set forth below is biographical information for Mr. Kear, Mr. Puzder and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEE FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2001 ANNUAL MEETING
JAY L. KEAR, age 61, was elected as a director of the Company in August
1996. Since 1988, Mr. Kear has represented Kear Enterprises in working with
and investing in high technology companies. From 1988 through 1993, Mr. Kear
also engaged in similar work for the Noorda Family Trust. Prior to 1988, Mr.
Kear held various sales, marketing, engineering, and general management
positions with private and public companies in the high technology sector.
Mr. Kear received a B.S. degree from the University of Southern California.
ANDREW F. PUZDER, age 48, was elected as a director of the Company in
November 1996. Mr. Puzder is currently Executive Vice President of
Irvine-based Fidelity National Financial, Inc., Executive Vice President and
General Counsel of CKE Restaurants, Inc., Chief Executive Officer and a
director of Green Burrito Foods Corporation, and a director of Rally's
Hamburgers, Inc. He is also a partner on leave at the law firm of Stradling,
Yocca, Carlson & Rauth. Mr. Puzder received his J. D. from the Washington
University School of Law.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF THE NAMED NOMINEES.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
RICHARD P. STACK, age 33, has been President, Chief Executive Officer
and a director of the Company since the Company's inception in September
1995. Prior to that time, from 1991 through September 1995, Mr. Stack was
Managing Director of Hi-Technology Supply, a manufacturer and distributor of
personal computers and components located in South Africa, which he founded
and grew to approximately $6 million in annual sales and 15 employees prior
to its sale to a South Africa-based personal computer and component
manufacturing company. From 1988 through 1991, Mr. Stack was employed by
Pan-American Airlines in technical management positions. Mr. Stack holds a
B.A. degree from the University of California at Berkeley.
ROBERT NICHOLS, age 45, has been Vice President, Sales and Marketing,
and a director of the Company since April 1998, and has been President of CCI
Group, Inc. since its inception in 1992. Prior to that time, from 1991 to
1992, Mr. Nichols served as Director of Sales and Marketing for DP-Tek, Inc.,
an electronic components manufacturer and systems integrator. From 1985
through 1991, Mr. Nichols served in various sales and marketing positions,
most recently as Sales Manager, Quick Service Restaurants, for Unisys
Corporation, a publicly-traded computer and information systems provider.
Mr. Nichols holds an Associates Degree from the State University of New York
and B.S. and M.B.A. degrees from the University of Missouri.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
STEVEN J. GOODMAN, age 58, was elected as a director of the Company in
January 1996. Mr. Goodman is currently a consultant for Tessa Financial
Group, Inc., a regional investment banking firm. From November 1991 through
March 1995, Mr. Goodman was West Coast Managing Director of Creative Business
Strategies, Inc., a financial corporate consulting firm.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1998 the Board held five meetings.
The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent auditors to be
retained; and receives and considers the auditor's comments as to controls,
adequacy of staff and management performance and procedures in connection
with audit and financial controls. The Audit Committee is composed of two
non-employee directors: Messrs. Kear and Puzder. The Audit Committee met one
time immediately following the 1998 fiscal year end to discuss the annual
audit with the Company's independent auditors.
3.
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The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants
under the Company's stock option plan and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board
may delegate. The Compensation Committee is composed of two non-employee
directors: Messrs. Goodman and Kear. The Compensation Committee acted by
written consent four times during the 1998 fiscal year.
The Board did not have a standing Nominating Committee during fiscal
year 1998.
During the fiscal year ended June 30, 1998, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the
committees on which he served, held during the period for which he was a
director or committee member, respectively.
PROPOSAL 2
APPROVAL OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has adopted, subject to stockholder approval, an
Amended and Restated Certificate of Incorporation (the "Amendment") to amend
and replace the Company's Restated Certificate of Incorporation (the
"Restated Certificate"). The Amendment is proposed to increase the Company's
authorized number of shares of Common Stock from 10,000,000 to 20,000,000
shares. The proposed form of Amendment is attached hereto as APPENDIX A.
Please review carefully APPENDIX A in conjunction with this proxy statement.
The Restated Certificate currently authorizes the Company to issue
10,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock.
As of October 21, 1998, the Company had 4,176,362 shares of issued and
outstanding Common Stock, 1,400,000 shares of Common Stock reserved for
issuance upon exercise of various outstanding stock options (including
options issued or issuable under the Company's stock option plans) and
151,332 shares of Common Stock reserved for issuance upon exercise of various
outstanding warrants. The Board of Directors believes that the Company's
authorized shares of Common Stock should be increased and the Board has
approved the Amendment to increase the number of authorized shares of Common
Stock to 20,000,000. The Amendment will make no change in the authorized
number of shares of Preferred Stock.
The additional Common Stock to be authorized by adoption of the
Amendment would have rights identical to the currently outstanding Common
Stock of the Company. Adoption of the Amendment and issuance of the Common
Stock would not affect the rights of the holders of currently outstanding
Common Stock of the Company, except for effects incidental to increasing the
number of shares of the Company's Common Stock outstanding, such as dilution
of the earnings per share and voting rights of current holders of Common
Stock. If the Amendment is adopted, it will become effective upon filing of
the Amendment with the Secretary of State of the State of Delaware.
The Board of Directors desires to have additional shares available to
provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees,
officers or directors, establishing strategic relationships with other
companies and expanding the Company's business or service offerings through
the acquisition of other businesses.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder
approval, the Board could strategically sell shares of Common Stock in a
private transaction to purchasers who would oppose a takeover or favor the
current Board. Although this proposal to increase the authorized Common
Stock has been prompted by business and financial considerations and not by
the threat of any hostile takeover attempt (nor is the Board currently aware
of any such attempts directed at the Company), nevertheless, stockholders
should be aware that approval of the proposal could facilitate future efforts
by the Company to deter or prevent changes in control of the Company,
including transactions in which the stockholders might otherwise receive a
premium for their shares over then current market prices.
Under the Company's Restated Certificate, no stockholder is entitled to
preemptive rights in respect of any future issuances of capital stock. In
addition, the Company does not presently contemplate seeking
4.
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stockholder approval for any future issuances of capital stock unless
required to do so by an obligation imposed by applicable law, a regulatory
authority or a third party.
Stockholders are requested in this Proposal 2 to approve the amendment
and restatement of the Company's Restated Certificate of Incorporation. The
affirmative vote of the holders of a majority of the outstanding shares will
be required to approve the Restated Certificate. As a result, abstentions
and broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board has selected PricewaterhouseCoopers LLP as the Company's
independent auditors for the fiscal year ending June 30, 1999 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting,
will have an opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Stockholder ratification of the selection of PricewaterhouseCoopers LLP
as the Company's independent auditors is not required by the Company's
By-laws or otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers LLP to the stockholders for ratification as a matter
of good corporate practice. If the stockholders fail to ratify the
selection, the Audit Committee and the Board will reconsider whether or not
to retain that firm. Even if the selection is ratified, the Audit Committee
and the Board in their discretion may direct the appointment of different
independent auditors at any time during the year if they determine that such
a change would be in the best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent auditors. The Board unanimously approved the selection
of PricewaterhouseCoopers LLP and believes that all officers and directors
will vote their respective shares in favor of this Proposal 3.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
NOTICE OF STOCKHOLDER ACTION
APPROVAL OF AMENDMENTS TO THE 1997 EQUITY INCENTIVE PLAN
In September 1997, the Board of Directors adopted, and the stockholders
subsequently approved, the 1997 Plan. Under the 1997 Plan, 300,000 shares of
the Company's Common Stock are reserved for issuance pursuant to the exercise
of stock awards granted to employees, directors and consultants.
In March 1998, the Board approved an amendment to the 1997 Plan, subject
to stockholder approval, to increase the number of shares authorized for
issuance under the 1997 Plan to 500,000 shares. In June 1998, the Board
approved an amendment to the 1997 Plan, subject to stockholder approval, to
increase the number of shares authorized for issuance under the 1997 Plan to
1,100,000 shares. The Board adopted these amendments to ensure that the
Company can continue to grant stock options to employees at levels determined
appropriate by the Board and the Compensation Committee. In October 1998, the
holders of a majority of the Common Stock of the Company approved by written
consent the amendments to the 1997 Plan.
Because the amendments to the 1997 Plan have already been approved, this
disclosure is intended to provide stockholders with notice of the actions
that have been taken. Thus, we are not asking you for a proxy in connection
with the amendments to the 1997 Plan, and you are requested not to send the
Company a proxy in connection with the amendments to the 1997 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the 1997 Plan are outlined below:
GENERAL
The 1997 Plan provides for the grant of both incentive and nonstatutory
stock options as well as stock appreciation rights. Incentive stock options
granted under the 1997 Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Nonstatutory stock options granted under the
1997 Plan are intended not to qualify as incentive stock options under the
Code. See "Federal Income Tax Information" for a discussion of the tax
treatment of incentive and nonstatutory stock options.
PURPOSE
The 1997 Plan was adopted to provide a means by which directors,
selected officers and employees of and consultants to the Company and its
affiliates could be given an opportunity to purchase stock in the Company, to
assist in retaining the services of directors and employees holding key
positions, to secure and retain the services of persons capable of filling
such positions and to provide incentives for such persons to exert maximum
efforts for the success of the Company. All of the Company's approximately
165 employees and consultants are eligible to participate in the 1997 Plan.
5.
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ADMINISTRATION
The 1997 Plan is administered by the Board of Directors of the Company.
The Board has the power to construe and interpret the 1997 Plan and, subject
to the provisions of the 1997 Plan, to determine the persons to whom and the
dates on which options will be granted, the number of shares to be subject to
each option, the time or times during the term of each option within which
all or a portion of such option may be exercised, the exercise price, the
type of consideration and other terms of the option. The Board of Directors
is authorized to delegate administration of the 1997 Plan to a committee
composed of not fewer than 2 members of the Board, who may also be "outside
directors" within the meaning of Section 162(m) of the Code. The Board has
delegated administration of the 1997 Plan to the Compensation Committee of
the Board. As used herein with respect to the 1997 Plan, the "Board" refers
to the Compensation Committee as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options may be granted under the 1997 Plan only to
employees (including officers) of the Company and its affiliates. Stock
awards other than incentive stock options and stock appreciation rights
appurtenant thereto may be granted only to employees, directors or
consultants.
No incentive stock option may be granted under the 1997 Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least
110% of the fair market value of the stock subject to the option on the date
of grant, and the term of the option does not exceed 5 years from the date of
grant. For incentive stock option grants, the aggregate fair market value,
determined at the time of grant, of the shares of Common Stock with respect
to which such options are exercisable for the first time by an optionee
during any calendar year (under all such plans of the Company and its
affiliates) may not exceed $100,000.
STOCK SUBJECT TO THE 1997 PLAN
If options granted under the 1997 Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such
options again becomes available for issuance under the 1997 Plan. Stock
options granted under the 1997 Plan may not exceed in the aggregate 1,100,000
shares of the Company's Common Stock.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1997 Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
EXERCISE PRICE; PAYMENT. The exercise price of incentive stock options
under the 1997 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some
cases (see "Eligibility" above), may not be less than 110% of such fair
market value. The exercise price of nonstatutory options under the 1997 Plan
may not be less than 85% of the fair market value of the Common Stock subject
to the option on the date of the option grant. Deductions for compensation
attributable to the exercise of such options with exercise prices below
market value could be limited by Section 162(m). See "Federal Income Tax
Information." At October 21, 1998, the closing price of the Company's Common
Stock as reported on the Nasdaq Small-Cap Market System was $7.813 per
share.
In the event of a decline in the value of the Company's Common Stock,
the Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with
new lower priced options.
The exercise price of options granted under the 1997 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
6.
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(ii) pursuant to a deferred payment arrangement or (iii) in any other form of
legal consideration acceptable to the Board.
OPTION EXERCISE. Options granted under the 1997 Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by options under the 1997 Plan will typically vest over a 4 to
5 year period with 25% to 20% vesting one year from the date of grant and 25%
to 20% of the remaining shares vesting yearly thereafter. Shares covered by
options granted in the future under the 1997 Plan may be subject to different
vesting terms. To the extent provided by the terms of an option, an optionee
may satisfy any federal, state or local tax withholding obligation relating
to the exercise of such option by a cash payment upon exercise, by
authorizing the Company to withhold a portion of the stock otherwise issuable
to the optionee, by delivering already-owned stock of the Company or by a
combination of these means.
TERM. The maximum term of options under the 1997 Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is 5 years.
Options under the 1997 Plan generally terminate 3 months after termination
of the optionee's employment or relationship as a consultant or director of
the Company or any affiliate of the Company, unless (a) such termination is
due to such person's permanent and total disability (as defined in the Code),
in which case the option may, but need not, provide that it may be exercised
at any time within one year of such termination; (b) the optionee dies while
employed by or serving as a consultant or director of the Company or any
affiliate of the Company, or within 30 days after termination of such
relationship, in which case the option may, but need not, provide that it may
be exercised (to the extent the option was exercisable at the time of the
optionee's death) within 18 months of the optionee's death by the person or
persons to whom the rights to such option pass by will or by the laws of
descent and distribution; or (c) the option by its terms specifically
provides otherwise. Individual options by their terms may provide for
exercise within a longer period of time following termination of employment
or the consulting relationship. The option term may also be extended in the
event that exercise of the option within these periods is prohibited for
specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1997 Plan or subject
to any option granted under the 1997 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), the 1997 Plan and
options outstanding thereunder will be appropriately adjusted as to the class
and the maximum number of shares subject to such plan, the maximum number of
shares which may be granted to an employee during a calendar year, and the
class, number of shares and price per share of stock subject to such
outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1997 Plan provides that, in the event of a dissolution or
liquidation of the Company, specified type of merger or other corporate
reorganization, to the extent permitted by law, any surviving corporation
will be required to either assume options outstanding under the 1997 Plan or
substitute similar options for those outstanding under such plan. In the
event that any surviving corporation declines to assume options outstanding
under the 1997 Plan, or to substitute similar options, then such options will
be terminated if not exercised prior to such event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1997 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1997 Plan will terminate in September 2007.
The Board may also amend the 1997 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders
of the Company within 12 months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval
in order for the Plan to satisfy Section 422 of the Code, if applicable, or
Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")); (b) increase the number of shares reserved for
issuance upon exercise of options; or (c) change any other provision of the
1997 Plan in any other way if such modification requires stockholder approval
in order
7.
<PAGE>
to comply with Rule 16b-3 or satisfy the requirements of Section 422 of the
Code. The Board may submit any other amendment to the 1997 Plan for
stockholder approval, including, but not limited to, amendments intended to
satisfy the requirements of Section 162(m) of the Code regarding the
exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1997 Plan, an incentive stock option may not be transferred by
the optionee otherwise than by will or by the laws of descent and
distribution and during the lifetime of the optionee, may be exercised only
by the optionee. A nonstatutory stock option may be transferred by the
optionee to the spouse, children, lineal ancestors and lineal descendants of
the optionee or to an organization to which tax deductible contributions may
be made.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1997 Plan
are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock
option. However, the exercise of an incentive stock option may increase the
optionee's alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for more than two years from the date on which the option is
granted and more than one year from the date on which the shares are
transferred to the optionee upon exercise of the option, any gain or loss on
a disposition of such stock will be long-term capital gain or loss.
Generally, if the optionee disposes of the stock before the expiration of
either of these holding periods (a "disqualifying disposition"), at the time
of disposition, the optionee will realize taxable ordinary income equal to
the lesser of (a) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (b) the optionee's actual gain, if any,
on the purchase and sale. The optionee's additional gain, or any loss, upon
the disqualifying disposition will be a capital gain or loss, which will be
long-term or short-term depending on the length of time such stock was held.
Long-term capital gains currently are subject to lower tax rates than
ordinary income. Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject to Section
16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the
Code and the satisfaction of a tax reporting obligation) to a corresponding
business expense deduction in the tax year in which the disqualifying
disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under
the 1997 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the option exercise price. Generally, with respect to employees, the
Company is required to withhold from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the optionee. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference
between the selling price and the sum of the amount paid for such stock plus
any amount recognized as ordinary income upon exercise of the option. Such
gain or loss will be long-term or short-term depending on the length of time
such stock was held. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Code Section 162(m) denies
a deduction to any publicly held corporation for compensation paid to covered
employees in a taxable year to the extent that compensation
8.
<PAGE>
exceeds $1,000,000 for a covered employee. It is possible that compensation
attributable to stock options, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m),
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the option plan
contains a per-employee limitation on the number of shares for which options
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the option is no less
than the fair market value of the stock on the date of grant; or (ii) the
option is granted (or exercisable) only upon the achievement (as certified in
writing by the compensation committee) of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, and the option is approved by the stockholders.
9.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 15, 1998, by
(i) each person who is known by the Company to own beneficially more than 5%
of the Company's outstanding Common Stock, (ii) each Named Executive Officer,
(iii) each of the Company's directors, and (iv) all current directors and
executive officers as a group. Except as indicated in the footnotes to this
table, the persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
--------------------------------
NAME AND ADDRESS OF BENEFICIAL(1)(2) NUMBER PERCENT
- ------------------------------------ --------------------------------
<C> <C> <C>
Richard P. Stack(3) 867,008 20.7%
Robert D. Nichols(4) 557,500 13.3
C. Norman Campbell(5) 483,550 11.6
Steven S. Goodman(6) 298,200 7.1
Jay L Kear(7) 27,000 *
Andrew F. Puzder(8) 16,000 *
All Executive Officers and Directors as a
group (7 persons)(9) 2,289,091 53.7%
</TABLE>
- -----------------
* Less than one percent
(1) All persons listed above have an address c/o the Company's principal
executive offices at 17891 Cartwright Road, Irvine, CA 92614.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and generally includes
voting or investment power with respect to securities. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Percentage of beneficial ownership is based
on 4,176,362 shares of Common Stock outstanding as of October 15, 1998.
(3) Includes 5,000 shares owned by Mr. Stack's children and 62,000 shares owned
by Mr. Stack's mother. Also includes 10,000 shares subject to options
exercisable within 60 days of October 15, 1998.
(4) Includes 5,850 shares owned by Mr. Nichols' children.
(5) Includes 9,450 shares subject to options exercisable within 60 days of
October 15, 1998 held by Mr. Campbell's spouse.
(6) Includes 203,200 shares owned by The Steven J. Goodman Revocable Living
Trust of which Steven J. Goodman, a director of the Company, is the
sole trustee and the sole beneficiary, and with respect to which Mr.
Goodman has sole voting and investment power. Also includes 10,000 shares
subject to options exercisable within 60 days of October 15, 1998.
(7) Includes 5,000 shares held by the Jay Louis Kear family Trust of which Mr.
Kear is the trustee and 7,000 shares owned by an individual retirement
account of which Mr. Kear is the trustee. Also includes 15,000 shares
subject to options exercisable within 60 days of October 15, 1998.
(8) Includes 15,000 shares subject to options exercisable with 60 days of
October 15, 1998.
(9) Includes 88,783 shares subject to options exercisable within 60 days of
October 15, 1998.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a)
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial
reports of ownership and reports of changes in ownership of Common Stock
10.
<PAGE>
and other equity securities of the Company. Officers, directors and greater
than ten percent stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1998, all officers,
directors and greater than ten percent beneficial owners complied with all
Section 16(a) filing requirements applicable to them; except that one report,
covering one transaction, was filed late by Mr. Goodman.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
----------------------------- ----- ---------------------------------------
<S> <C> <C>
Richard P. Stack (1)(3) 33 President, Chief Executive Officer and
Director
Robert D. Nichols (2)(3) 45 Vice President, Sales and Marketing,
President, CCI Group, Inc. and Director
C. Normal Campbell 44 Vice President, Engineering
Horace M. Hertz 49 Chief Financial Officer and Secretary
Andrew F. Puzder (2)(3) 48 Director
Steven J. Goodman (1)(3) 58 Director
Jay L. Kear (1)(2)(3) 61 Director
</TABLE>
- -----------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) The biographies of the directors of the Company are set forth under
Proposal 1, Election of Directors.
C. NORMAN CAMPBELL, age 44, has been Vice President, Engineering, of the
Company since its inception in September 1995. Mr. Campbell also served as
director of the Company from its inception through May 1998. Prior to that
time, from 1991 through September 1995, Mr. Campbell served in various
engineering management positions, including Director of Research and
Development, Singapore, for Advanced Logic Research, a publicly-traded high-end
file server manufacturing company. From 1984 to 1991, Mr. Campbell also acted
as consultant to the computer industry with such companies as Intel, ITT, Orange
Micro Inc. and IBC (UK).
HORACE M. HERTZ, age 49, has been Chief Financial Officer of the Company
since November 1997. Prior to that time, from 1996 to 1997, Mr. Hertz acted as
financial consultant for various companies. From October 1995 to December 1995,
Mr. Hertz was the Chief Financial Officer of Access Healthnet, Inc., an entity
that declared bankruptcy in December 1995. From 1991 to 1995, Mr. Hertz was a
partner of Corbin & Wertz, a CPA firm specializing in publicly-held companies.
From 1974 to 1991, Mr. Hertz was a partner of Deloitte & Touche LLP. Mr. Hertz
holds a masters degree in mathematics from the University of California at
Irvine.
11.
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The members of the Board do not receive any cash compensation for their
service as a director, but are eligible for reimbursement of their expenses
incurred in connection with attendance at Board meetings in accordance with
Company policy.
Further, each non-employee director of the Company is to be granted
options to purchase 30,000 shares of the Company's Common Stock pursuant to
the terms of the Company's stock option plan then in effect for services
rendered as a director of the Company. During the last fiscal year, the
Company granted options to purchase 30,000 shares to Mr. Goodman, at exercise
price of $9.00 per share, representing the fair market value of the Company's
Common Stock on the date of grant (based on the closing sales price reported
in the Nasdaq Small-Cap Market System on the date of grant). As of October
21, 1998, no non-employee director had exercised any options.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal year ended June 30, 1998,
compensation awarded or paid to, or earned by, the Company's Chief Executive
Officer and its only other most highly compensated executive officer who earned
more than $100,000 in the fiscal year ended June 30, 1998 (collectively, the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------- ------------
SECURITIES
SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS
------------------------------ ------ ---------- ----- ------------
<S> <C> <C> <C> <C>
Richard P. Stack 1998 $ 105,508 -- 50,000
President, Chief 1997 $ 87,958 -- --
Executive Officer and 1996 $ 15,000 -- --
Director
C. Norman Campbell 1998 $ 107,593 -- 30,000
Vice President,
Engineering
</TABLE>
STOCK OPTION GRANTS AND EXERCISES
In August 1996, the Company adopted, and the stockholders subsequently
approved, the Company's 1996 Stock Incentive Award Plan (the "1996 Plan").
Under the 1996 Plan, 300,000 shares of the Company's Common Stock are reserved
for issuance pursuant to the exercise of stock awards granted to employees,
directors and consultants. As of October 15, 1998, options to purchase a
total of 271,100 shares were outstanding under the 1996 Plan and no shares
remained available for grant thereunder. The 1996 Plan will terminate in August
2006, unless sooner terminated by the Company's Board of Directors.
The 1996 Plan provides for the grant of both incentive and nonstatutory
stock options, restricted stock, stock appreciation rights, dividend
equivalents, stock payments and/or performance awards (collectively "Incentive
Awards"). Incentive stock options granted under the 1996 Plan are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1996 Plan are intended not to qualify as incentive
stock options under the Code.
12.
<PAGE>
No incentive stock option may be granted under the 1996 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10% of the total combined voting power of the Company or any affiliate of
the Company, unless the option exercise price is at least 110% of the fair
market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five years from the date of grant. For
incentive stock option grants, the aggregate fair market value, determined at
the time of grant, of the shares of Common Stock with respect to which such
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000.
The Company did not grant any options to its executive officers under
its 1996 Plan during the fiscal year ended June 30, 1998.
As of October 15, 1998, options to purchase a total of 588,500 shares
were outstanding under the 1997 Plan and, subject to stockholder approval,
options to purchase 511,500 shares remained available for grant thereunder.
The 1997 Plan will terminate in September 2007, unless sooner terminated by
the Company's Board of Directors.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 1998 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS MARKET
UNDERLYING GRANTED TO EXERCISE OR PRICE ON
OPTIONS EMPLOYEES IN BASE PRICE DATE EXPIRATION
NAME GRANTED(1) FISCAL YEAR (2) ($/SH) OF GRANT DATE
---------------------------------- ---------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Richard Stack 50,000 8.0% $8.625 $8.625 12/11/07
C. Norman Campbell 30,000 4.8% $8.625 $8.625 12/11/07
</TABLE>
- ---------------
(1) The options referenced above become exercisable over a 5-year period with
20% vesting one year from the date of grant and 20% of the remaining shares
vesting yearly thereafter.
(2) Based on options to purchase 623,000 shares granted to employees in fiscal
1998, including the Named Executive Officers.
13.
<PAGE>
AGGREGATED FISCAL YEAR-END OPTION VALUES
There were no option exercises by the Named Executive Officers during the
fiscal year ended June 30, 1998. The following table sets forth information
with respect to the number and value of securities underlying unexercised
options held by the Named Executive Officers as of June 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END(1) AT FISCAL YEAR-END(2)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard P. Stack -- 50,000 -- $ 150,000
C. Norman Campbell -- 30,000 -- $ 90,000
</TABLE>
(1) Includes both "in-the-money" and "out-of-the-money" options.
"In-the-money" options are options with exercise prices below the market
price of the Company's Common Stock.
(2) Based on the fair market value of the Common Stock as of June 30, 1998.
Amounts reflected are based on the fair market value minus the exercise
price and do not indicate that the optionee sold such stock.
EMPLOYMENT AGREEMENTS
The Company and Richard P. Stack have entered into an Employment
Agreement dated August 19, 1996 (the "Stack Employment Agreement"). The
Stack Employment Agreement expires on August 19, 1999 (subject to annual
renewals thereafter) and provides for payment to Mr. Stack of an annual
salary of $95,000 from January 1, 1997 through December 31, 1997 and $105,000
from and after January 1, 1998. As of April 1, 1998, Mr. Stack's annual
salary was increased to $150,000. In addition to his salary, Mr. Stack is
reimbursed for all reasonable and necessary travel and other business
expenses incurred in connection with the performance of his duties. The
Company is also obligated to pay the premium for a life insurance policy
insuring Mr. Stack's life providing for death benefits of up to $750,000 to
the named beneficiary of the policy. If Mr. Stack's employment with the
Company is terminated for cause (as defined in the Stack Employment
Agreement), Mr. Stack will be entitled to receive his base salary through the
date of termination. If Mr. Stack's employment with the Company is
terminated without cause, he will be entitled to receive payment of his base
salary for the greater of (i) the remaining term of the Stack Employment
Agreement, or (ii) one (1) year from the date of termination.
The Company and C. Norman Campbell have entered into an Employment
Agreement dated August 19, 1996 (the "Campbell Employment Agreement"). The
Campbell Employment Agreement expires on August 19, 1999 (subject to annual
renewals thereafter) and provides for payment to Mr. Campbell of an annual
salary of $95,000 from January 1, 1997 through December 31, 1997 and $105,000
from and after January 1, 1998. As of April 1, 1998, Mr. Campbell's annual
salary was increased to $130,000. In addition to his salary, Mr. Campbell is
reimbursed for all reasonable and necessary travel and other business
expenses incurred in connection with the performance of his duties. The
Company is also obligated to pay the premium for a life insurance policy
insuring Mr. Campbell's life providing for death benefits of up to $750,000
to the named beneficiary of the policy. If Mr. Campbell's employment with
the Company is terminated for cause (as defined in the Campbell Employment
Agreement), Mr. Campbell will be entitled to receive his base salary through
the date of termination. If Mr. Campbell's employment with the Company is
terminated without cause, he will be entitled to receive payment of his base
salary for the greater of (i) the remaining term of the Campbell Employment
Agreement, or (ii) one year from the date of termination.
CCI Group, Inc., a wholly-owned subsidiary of the Company ("CCI"), and
Robert Nichols entered into an Employment Agreement dated January 1, 1998
(the "Nichols Employment Agreement"). The Nichols Employment Agreement
expires on December 31, 2002 and provides for payment to Mr. Nichols of an
annual base salary of $100,000. Mr. Nichols is also entitled to a quarterly
bonus of $6,250 and a year-end bonus of approximately $31,750, subject to
adjustment based on CCI's profitability for the applicable fiscal year. In
14.
<PAGE>
addition to his base salary and bonuses, Mr. Nichols is also reimbursed for
all reasonable and necessary travel and other business expenses incurred in
connection with the performance of his duties. If Mr. Nichols' employment
with CCI is terminated for cause (as defined in the Nichols Employment
Agreement) or in the event of a voluntary termination of employment by Mr.
Nichols following a change in control (as defined in the Nichols Employment
Agreement), Mr. Nichols will be entitled to his base salary through the date
of termination. If Mr. Nichols is terminated without cause (as defined in
the Nichols Employment Agreement), then Mr. Nichols will be entitled to a
lump sum equal to Mr. Nichol's annual base salary.
CERTAIN TRANSACTIONS
On December 22, 1997, the Company issued 557,500 shares of the Company's
Common Stock to Robert Nichols, Executive Vice President, Sales and Marketing,
and a Director of the Company, for his entire interest in CCI in connection with
the purchase by the Company of all the outstanding capital stock of CCI. In
connection with the acquisition of CCI, the Company also assumed a note payable
to Mr. Nichols with a balance of approximately $185,000 (the "Nichols Note").
In February 1998, the Company repaid to Mr. Nichols the principal amount and all
accrued interest outstanding under the Nichols Note.
The Company has entered into employment agreements with Richard P. Stack
and C. Norman Campbell. In addition, CCI entered into an employment agreement
with Robert Nichols. See "Management-Employment Agreements."
OTHER MATTERS
The Board knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy and to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Horace Hertz
Horace Hertz
Secretary
October 30, 1998
THE COMPANY WILL FURNISH TO RECORD AND BENEFICIAL HOLDERS OF ITS COMMON
STOCK UPON REQUEST, FREE OF CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB FOR THE FISCAL YEAR ENDED JUNE 30, 1998 BY CALLING OR WRITING TO THE
COMPANY AT: CORPORATE SECRETARY, JAVELIN SYSTEMS, INC., 17891 CARTWRIGHT ROAD,
IRVINE, CALIFORNIA 92614 (TELEPHONE NUMBER (949) 440-8000).
15.
<PAGE>
Appendix A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF JAVELIN SYSTEM, INC.
JAVELIN SYSTEMS, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify that:
1. The name of the Corporation is Javelin Systems, Inc. The
Corporation was originally incorporated under the name Sunwood Research, Inc.
The Certificate of Incorporation for Sunwood Research, Inc. was filed with
the Secretary of State of the State of Delaware (the "Secretary of State") on
September 19, 1995.
2. Pursuant to an Action by Unanimous Written Consent in lieu of a
meeting of the Board of Directors of the Corporation, the Corporation adopted
resolutions setting forth a proposed Amended and Restated Certificate of
Incorporation of the Corporation, declaring said Amended and Restated
Certificate of Incorporation to be advisable and authorizing the officers of
the Corporation to present the proposed Amended and Restated Certificate of
Incorporation to the stockholders of the Corporation for their consideration.
3. Thereafter, the proposed Amended and Restated Certificate of
Incorporation of the Corporation was approved by the holders of a majority of
the outstanding shares of stock of the Corporation entitled to vote thereon
at a duly convened annual meeting of stockholders called in accordance with
Section 222 of the DGCL.
4. Pursuant to Sections 242 and 245 of the DGCL, this Amended and
Restated Certificate of Incorporation restates and further amends the
provisions of the Amended and Restated Certificate of Incorporation of this
Corporation filed with the Secretary of State on August 23, 1996 and the
Certificate of Amendment of Amended and Restated Certificate of Incorporation
of this Corporation filed with the Secretary of State October 3, 1996.
5. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the DGCL.
6. The text of the Certificate of Incorporation of the Corporation is
hereby restated and further amended to read in its entirety as follows:
FIRST. The name of the Corporation is Javelin Systems, Inc.
SECOND. The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
A-1
<PAGE>
FOURTH.
(A) AUTHORIZED SHARES. The total number of shares which the
Corporation shall have authority to issue is twenty-one million (21,000,000)
shares of capital stock, of which twenty million (20,000,000) shares shall be
designated Common Stock, par value of $.01 per share, and one million
(1,000,000) shares shall be designated Preferred Stock, par value of $.01 per
share.
(B) PREFERRED STOCK. Shares of Preferred Stock may be issued from time
to time in one or more classes or series as the Board of directors, by
resolution or resolutions, may from time to time determine, each of said
classes or series to be distinctively designated (each such resolution and
designation hereinafter being referred to as a "Preferred Stock
Designation"). The voting powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations or
restrictions thereof, if any, of each such class or series may differ from
those of any and all other classes or series of Preferred Stock at any time
outstanding, and the Board of Directors is hereby expressly granted authority
to fix or alter, by resolution or resolutions, the designation, number,
voting powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions thereof,
of each such class or series, including, but without limiting the generality
of the foregoing, the following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such class or series, which number
(except as otherwise provided by the Board of Directors in the resolution
establishing such class or series) may be increased or decreased (but not
below the number of shares of such class or series then outstanding) from
time to time by like actions of the Board of Directors;
(2) The rights in respect of dividends, if any, of such class or series
of Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any other
series of the same or other class or classes of capital stock of the
corporation, and whether such dividends shall be cumulative or noncumulative;
(3) The right, if any, of the holders of such class or series of
Preferred Stock to convert the same into, or exchange the same for, shares of
any class or classes or of any other series of the same or any other class or
classes of capital stock of the Corporation and the terms and conditions of
such conversion or exchange;
(4) Whether or not shares of such class or series of Preferred Stock
shall be subject to redemption, and the redemption price or prices and the
time or times at which, and the terms and conditions on which, shares of such
class or series of Preferred Stock may be redeemed;
(5) The rights, if any, of the holders of such class or series of
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation or in the event of any merger or consolidation
of or sale of assets by the Corporation;
A-2
<PAGE>
(6) The terms of any sinking fund or redemption or purchase account, if
any, to be provided for shares of such class or series of Preferred Stock;
(7) The voting powers, if any, of the holders of any class or series of
Preferred Stock generally or with respect to any particular matter, which may
be less than, equal to or greater than one vote per share, and which may,
without limiting the generality of the foregoing, including the right, voting
as a class or series by itself or together with the holders of any other
class or classes or series of the same or other class or classes of Preferred
Stock or all classes or series of Preferred Stock, to elect one or more
directors of the Corporation (which, without limiting the generality of the
foregoing, may include a specified number or portion of the then-existing
number of authorized directorships of the Corporation, or a specified number
or portion of directorships in addition to the then-existing number of
authorized directorships of the Corporation) generally or under such specific
circumstances and on such conditions, as shall be provided in the resolution
or resolutions of the Board of Directors adopted pursuant hereto; and
(8) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, as the Board of Directors shall determine.
FIFTH. The Board of Directors shall consist of not less than three (3)
nor more than seven (7) directors, the precise number thereof to be fixed
from time to time by vote of a majority of the Board of Directors; PROVIDED,
HOWEVER, that the number of directors shall not be reduced so as to shorten
the term of any director at the time in office.
The Board of Directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may
be possible, of one-third of the total number of directors constituting the
entire Board of Directors. Initially, Class I directors shall be elected for
a one-year term, Class II directors for a two-year term and Class III
directors for a three-year term. At the annual meeting of stockholders
beginning in 1997, and at each annual meeting thereafter, successors to the
class of directors whose term expires at that annual meeting of stockholders
shall be elected for a three-year term. If the number of directors has
changed, any increase or decrease shall be apportioned among the classes so
as to maintain the number of directors in each class as nearly equal as
possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting of
stockholders for the year in which his term expires and until his successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors that results from an increase in the number
of directors shall be filled by a majority of the Board of Directors then in
office, provided that a quorum is present, and any other vacancy occurring in
the Board of Directors shall be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor.
A-3
<PAGE>
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation, if any, shall
have the right, voting separately by class or series, to elect directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of this Certificate of Incorporation or the Preferred
Stock Designation applicable thereto, and such directors so elected shall not
be divided into classes pursuant to this Article FIFTH unless expressly
provided by such terms.
SIXTH. Directors of the Corporation may be removed, with or without
cause, by stockholders by the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class.
SEVENTH. All the powers of the Corporation, insofar as the same may be
lawfully vested by this Certificate of Incorporation in the Board of
Directors, are hereby conferred upon the Board of Directors in furtherance
and not in limitation of the powers conferred by statute. In furtherance and
not in limitation of such powers, the Board of Directors shall have the power
to make, adopt, alter, amend and repeal from time to time bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to adopt, alter, amend and repeal bylaws made by the Board of
Directors.
EIGHTH. A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the DGCL as the same exists or may
hereafter be amended. Any amendment, modification or repeal of the foregoing
sentence by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation in respect of any
act or omission occurring prior to the time of such amendment, modification
or repeal.
NINTH. Elections of directors need not be by written ballot except and
to the extent provided in the bylaws of the Corporation.
TENTH. The Corporation reserves the right to amend, alter or repeal any
provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed herein or by statute, and all rights and powers
conferred herein are subject to this reserved power; PROVIDED, HOWEVER, that
subject to the powers and rights provided for herein or in any Preferred
Stock Designation with respect to Preferred Stock issued by the Corporation,
if any, but notwithstanding anything else contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all
of the then outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to amend, alter, repeal or adopt any provision
inconsistent with, this Article TENTH or Articles FIFTH or SIXTH of this
Certificate of Incorporation.
A-4
<PAGE>
ELEVENTH. The Board of Directors shall have the power to hold its
meetings within or outside the State of Delaware, at such place as from time
to time may be designated by the bylaws of the Corporation or by resolution
of the Board of Directors.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate to be signed by Richard Phillip Stack, its President, and
attested by Horace M. Hertz, its Secretary, this ___ day of December, 1998.
---------------------------------
Richard Phillip Stack
President
ATTEST:
- -------------------------------------
Horace M. Hertz, Secretary
A-5
<PAGE>
JAVELIN SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 11, 1998
The undersigned hereby appoints Richard P. Stack and Horace M. Hertz, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Javelin Systems, Inc. which
the undersigned may be entitled to vote at the Annual Meeting of Stockholders of
Javelin Systems, Inc. to be held at the offices of the Company, 17891 Cartwright
Road, Irvine, California 92614 at 1:00 p.m. local time, and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect two (2) directors to serve until the 2001 Annual Meeting of
Stockholders and until their successors are elected.
/ / FOR the nominees listed below. / / WITHHOLD AUTHORITY
to
vote for the nominee or the nominees indicated
below:
NOMINEES: Jay L. Kear and Andrew Puzder
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To increase the number of shares of Common Stock authorized under
the Company's certificate of incorporation from 10,000,000 to 20,000,000.
/ / FOR / / AGAINST / / ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 3: To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors of the Company for its fiscal year ending June 30, 1999.
/ / FOR / / AGAINST / / ABSTAIN
DATED
- ---------------------------, 1998
------------------------------
------------------------------
SIGNATURE(S)
Please sign exactly as your
name appears hereon. If the
stock is registered in the
names of two or more persons,
each should sign. Executors,
administrators, trustees,
guardians and
attorneys-in-fact should add
their titles. If signer is a
corporation, please give full
corporate name and have a duly
authorized officer sign,
stating title. If signer is a
partnership, please sign in
partnership name by authorized
person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE>
JAVELIN SYSTEMS, INC.
SECOND AMENDED 1997 EQUITY INCENTIVE PLAN
ADOPTED BY THE BOARD OF DIRECTORS SEPTEMBER 2, 1997
APPROVED BY THE STOCKHOLDERS DECEMBER 12, 1997
AMENDED BY THE BOARD OF DIRECTORS MARCH 3, 1998 AND JUNE 25, 1998
AMENDMENT APPROVED BY THE STOCKHOLDERS _________________
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to benefit from increases in value of
the stock of the Company through the granting of (i) Incentive Stock Options,
(ii) Nonstatutory Stock Options and (iii) Stock Appreciation Rights, all as
defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company
or its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to
exert maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either Options granted pursuant to Section 6 hereof,
including Incentive Stock Options and Nonstatutory Stock Options, or Stock
Appreciation Rights granted pursuant to Section 7 hereof. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section
6, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections
424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
<PAGE>
(e) "COMMON STOCK" means the shares of the Company's Common Stock, $.01
par value.
(f) "COMPANY" means Javelin Systems, Inc., a Delaware corporation.
(g) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 7(b)(ii) of the Plan.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who
are not compensated by the Company for their services as Directors.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board, in its
sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant shall be considered interrupted in the case of: (i)
any leave of absence approved by the Board, including sick leave, military
leave, or any other personal leave; or (ii) transfers between the Company,
Affiliates or their successors.
(j) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(k) "DIRECTOR" means a member of the Board.
(l) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the fair market value of
the Common Stock of the Company determined in accordance with Section 6(b) of
the Plan or otherwise as determined by the Board pursuant to Rule 260.140.50
of Title 10 of the California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means
a right granted pursuant to subsection 7(b)(iii) of the Plan.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company, or its
parent or subsidiary for services rendered as a
<PAGE>
consultant or in any capacity other than as a Director (except for an amount
as to which disclosure would not be required under Item 404(a) of Regulation
S-K ("Regulation S-K") promulgated pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a stock option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(v) "OPTIONEE" means a person who holds an outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliate corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is
not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of 162(m) of the Code.
(x) "PLAN" means this Javelin Systems, Inc. 1997 Equity Incentive Plan.
(y) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect
to the Plan.
(z) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 7 of the Plan.
(aa) "STOCK AWARD" means any right granted under the Plan, including any
Option and any Stock Appreciation Right.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(cc) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted pursuant to subsection 7(b)(i) of the Plan.
<PAGE>
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option or a Stock Appreciation Right, or a combination of
the foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted
to receive stock upon exercise of an Independent Stock Appreciation Right;
and the number of shares with respect to which a Stock Award shall be granted
to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the
members of which Committee shall be Non-Employee Directors and/or Outside
Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board (and references in this Plan to the Board
shall thereafter be to the Committee), subject, however, to such resolutions,
not inconsistent with the provisions of the Plan, as may be adopted from time
to time by the Board. The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan. Notwithstanding the
foregoing, but only to the extent permitted by applicable law, the Board may
delegate to any executive officer or executive officers of the Company
authority to grant Stock Awards to eligible persons who are not then subject
to Section 16 of the Exchange Act and the term "Committee" shall apply to any
such executive officer or executive officers to whom such authority has been
delegated. Any such delegation, however, shall include aggregate and
individual limits on the size of Stock Awards to be made by such a committee.
(d) Any requirement that an administrator of the Plan be a Non-Employee
Director shall not apply if the Board or the Committee expressly declares
that such requirement shall not apply. Any Non-Employee Director shall
otherwise comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate
<PAGE>
one million one hundred thousand (1,100,000) shares of the Company's Common
Stock. If any Stock Award shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in full, the
Common Stock not acquired under such Stock Award shall revert to and again
become available for issuance under the Plan. Shares of Common Stock subject
to Stock Appreciation Rights exercised in accordance with Section 7 of the
Plan shall not be available for subsequent issuance under the Plan.
(b) The Common Stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) All Employees, Directors and Consultants of the Company (or any
business entity in which the Company owns directly or indirectly fifty percent
(50%) or more of the total voting power) capable of contributing significantly
to the successful performance of the Company, other than an employee who has
irrevocably elected not to be eligible, are eligible to be Participants in the
Plan.
(b) No person shall be eligible for the grant of an Option if, at the
time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any of its
Affiliates unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the date of
grant and if the Option is an Incentive Stock Option the Option is not
exercisable after the expiration of five (5) years from the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options and
Stock Appreciation Rights under the Plan covering more than seventy-five
thousand (75,000) shares of the Company's Common Stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The Board will establish the exercise price of a Stock
Award at the time the Stock Award is granted. Subject to Section 5(b) the
exercise price will not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock on the date of the Stock Award, provided
that in the case of a Nonstatutory Stock Option, the exercise price may be
less than one hundred percent (100%) of Fair Market Value on the date of such
Award; provided, however, that in no event will the exercise price be less
than eighty-five percent (85%) of Fair Market Value on the date of grant.
For so long as the Company's Common Stock is traded on
<PAGE>
any stock exchange or interdealer quotation system, the Fair Market Value of
the Common Stock shall be the closing price of the Common Stock on the date
of grant.
(c) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is
exercised, or (ii) at the discretion of the Board, as determined either at
the time of the grant of the Option or at any time thereafter, (A) by
delivery to the Company of other Common Stock of the Company, (B) according
to a deferred payment arrangement, except that payment of the Common Stock's
"par value" (as defined in the Delaware General Corporation Law) shall not be
made by deferred payment, or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of
the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form
of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by
will or by the laws of descent and distribution, and shall be exercisable
during the lifetime of the person to whom the Option is granted only by such
Optionee or such Optionee's guardian or legal representative; provided,
however, that the Board may, in its discretion, waive such restriction in any
case when such restriction is no longer required by applicable law; provided,
further that each Nonstatutory Stock Option may be transferred to the spouse,
children, lineal ancestors and lineal descendants of the Optionee (or to a
trust created solely for the benefit of the Optionee or the foregoing
persons) or to an organization exempt from taxation pursuant to Section
501(c)(3) of the Code or to which tax deductible charitable contributions may
be made under Section 170 of the Code (excluding such organizations
classified as private foundations under applicable regulations and rulings).
(e) VESTING. The total number of shares of Common Stock subject to an
Option may, but need not, be allotted in periodic installments (which may,
but need not, be equal). The Option Agreement may provide that from time to
time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to
that period, and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which the Option became
vested but was not fully exercised. The vesting provisions of individual
Options may vary, but in the case of an Option granted to a non-officer
employee, will provide for vesting of at least twenty percent (20%) per year
of the total number of shares subject to the Option. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option
<PAGE>
(to the extent that the Optionee was entitled to exercise it as of the date
of termination) but only within such period of time ending on the earlier of
(i) the date three (3) months after the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant (or such longer or
shorter period, which in no event shall be less than thirty (30) days,
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as
an Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange
Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the Option Agreement, or (ii) the tenth
(10th) day after the last date on which such exercise would result in such
liability under Section 16(b) of the Exchange Act. Finally, an Optionee's
Option Agreement may also provide that if the exercise of the Option
following the termination of the Optionee's Continuous Status as an Employee,
Director or Consultant (other than upon the Optionee's death or disability)
would be prohibited at any time solely because the issuance of shares would
violate the registration requirements under the Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the Option Agreement, or (ii) the expiration of a period of three
(3) months after the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant during which three (3) month period the
exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months,
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option as of the date of death) by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest
or inheritance or by a person designated to exercise the Option upon the
Optionee's death pursuant to subsection 6(d), but only within the period
ending on the earlier of (i) the date eighteen (18) months following the date
of death (or such longer or shorter period, which in no event shall be less
than six (6) months, specified in the Option Agreement), or (ii) the
expiration of the term of such Option as
<PAGE>
set forth in the Option Agreement. If, at the time of death, the Optionee
was not entitled to exercise his or her entire Option, the shares covered by
the unexercisable portion of the Option shall revert to and again become
available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
7. STOCK APPRECIATION RIGHTS.
(a) The Board (or Committee) shall have full power and authority,
exercisable in its discretion, to grant Stock Appreciation Rights under the
Plan to Employees or Directors of or Consultants to, the Company or its
Affiliates. To exercise any outstanding Stock Appreciation Right, the holder
must provide written notice of exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such right. If a Stock
Appreciation Right is granted to an individual who is at the time subject to
Section 16(b) of the Exchange Act (a "Section 16(b) Insider"), the Stock
Award Agreement of grant shall incorporate all the terms and conditions at
the time necessary to assure that the subsequent exercise of such right shall
qualify for the safe-harbor exemption from short-swing profit liability
provided by Rule 16b-3 promulgated under the Exchange Act (or any successor
rule or regulation). No limitation shall exist on the aggregate amount of
cash payments the Company may make under the Plan in connection with the
exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 7, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in
cash (or, if so provided, in an equivalent number of shares of Common Stock
based on Fair Market Value on the date of the Option surrender) in an amount
up to the excess of (A) the Fair Market Value (on the date of the Option
surrender) of the number of shares of Common Stock covered by that portion of
the surrendered Option in which the Optionee is vested over (B) the aggregate
exercise price payable for such vested shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will
be granted appurtenant to an Option and may apply to all or any portion of
the shares of Common Stock subject to the underlying Option and shall, except
as specifically set forth in this Section 7, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of
Common Stock to which the Concurrent Right pertains. The appreciation
distribution payable on an exercised Concurrent Right shall be in cash (or,
if so provided, in an equivalent number of shares of Common Stock based on
Fair Market Value on the date of the exercise of the Concurrent Right) in an
amount equal to such portion as shall be determined by the Board at the time
of the grant of the excess of (A) the aggregate Fair Market Value (on the
date of the exercise of the Concurrent Right) of the
<PAGE>
vested shares of Common Stock purchased under the underlying Option which
have Concurrent Rights appurtenant to them over (B) the aggregate exercise
price paid for such shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights
will be granted independently of any Option and shall, except as specifically
set forth in this Section 7, be subject to the same terms and conditions
applicable to Nonstatutory Stock Options as set forth in Section 6. They
shall be denominated in share equivalents. The appreciation distribution
payable on the exercised Independent Right shall be not greater than an
amount equal to the excess of (A) the aggregate Fair Market Value (on the
date of the exercise of the Independent Right) of a number of shares of
Common Stock equal to the number of share equivalents in which the holder is
vested under such Independent Right, and with respect to which the holder is
exercising the Independent Right on such date, over (B) the aggregate Fair
Market Value (as determined on the date of the grant of the Independent
Right, or if so provided in the Independent Stock Appreciation Right on the
date of hire as an Employee if such date is within ninety (90) days of the
date of grant and such value is not less than eighty-five percent (85%) of
the aggregate Fair Market Value on the date of grant) of such number of
shares of Common Stock. The appreciation distribution payable on the
exercised Independent Right shall be in cash or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the exercise of the Independent Right.
8. CANCELLATION AND RE-GRANT OF OPTIONS. The Board shall have the
authority to effect, at any time and from time to time, (i) the repricing of
any outstanding Options and/or any Stock Appreciation Rights under the Plan
and/or (ii) with the consent of the affected holders of Options and/or Stock
Appreciation Rights, the cancellation of any outstanding Options and/or any
Stock Appreciation Rights under the Plan and the grant in substitution
therefor of new Options and/or Stock Appreciation Rights under the Plan
covering the same or different numbers of shares of stock, but having an
exercise price per share not less than eighty-five percent (85%) of the Fair
Market Value (one hundred percent (100%) of the Fair Market Value in the case
of an Incentive Stock Option or, in the case of a ten percent (10%)
shareholder (as described in subsection 5(b)), not less than one hundred ten
percent (110%) of the Fair Market Value) per share of Common Stock on the new
grant date. Notwithstanding the foregoing, the Board may grant an Option
and/or Stock Appreciation Right with an exercise price lower than that set
forth above if such Option and/or Stock Appreciation Right is granted as part
of a transaction to which section 424(a) of the Code applies.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of Common Stock upon exercise of the Stock Award;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Stock Award or any
stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of Common
<PAGE>
Stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Common Stock upon exercise of such Stock Awards
unless and until such authority is obtained.
10. MISCELLANEOUS.
(a) Proceeds from the sale of Common Stock pursuant to Stock Awards
shall constitute general funds of the Company.
(b) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d) shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Throughout the term of any Stock Award, the Company shall deliver
to the holder of such Stock Award, not later than one hundred twenty (120)
days after the close of each of the Company's fiscal years during the term of
such Stock Award, a balance sheet and an income statement. This section
shall not apply when issuance is limited to key employees whose duties in
connection with the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant)
or shall affect the right of the Company or any Affiliate to terminate the
employment of any Employee with or without cause, to remove any Director as
provided in the Company's Bylaws and the provisions of the General
Corporation Law of the State of Delaware or to terminate the relationship of
any Consultant in accordance with the terms of that Consultant's agreement
with the Company or Affiliate to which such Consultant is providing services.
(e) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(f) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d), as a condition of exercising or acquiring Common Stock under
any Stock Award, (1) to give written assurances satisfactory to the Company,
if any, that are necessary to ensure compliance with federal securities laws.
These requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise or
acquisition of Common Stock under the Stock Award has been registered under a
then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under
the then applicable securities laws.
<PAGE>
(g) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
Common Stock under a Stock Award by any of the following means or by a
combination of such means: (1) tendering a cash payment; (2) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the participant as a result of the exercise or acquisition of
Stock under the Stock Award; or (3) delivering to the Company owned and
unencumbered shares of the Common Stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the Stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company), the Plan will be appropriately adjusted in
the class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a), and the maximum number of securities subject to award to any
person during any calendar year pursuant to Section 5(c) and the outstanding
Stock Awards will be appropriately adjusted in the class(es) and number of
shares and price per share of stock subject to such outstanding Stock Awards.
Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. If considered
appropriate, the Board or the Committee may make a provision for a cash
payment with respect to all or part of an outstanding Stock Award instead of
or in addition to any such adjustment.
(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation; (2) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise; or (3) a sale of all or substantially all of the assets of the
Company, then: (i) any surviving or acquiring corporation shall assume any
Stock Awards outstanding under the Plan or shall substitute similar stock
awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(b)) for those
outstanding under the Plan, or (ii) in the event any surviving or acquiring
corporation refuses to assume such Stock Awards or to substitute similar
Stock Awards for those outstanding under the Plan, then such Stock Awards
shall be terminated if not exercised prior to such event. In the event of a
dissolution or liquidation of the Company, any Stock Awards outstanding under
the Plan shall terminate if not exercised prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
shareholders of the Company to the extent shareholder approval is necessary
for the Plan to satisfy the requirements of Section 422 of the Code, Rule
16b-3 under the Exchange Act or any Nasdaq or securities exchange listing
requirements.
<PAGE>
(b) The Board may, in its sole discretion, submit any other amendment
to the Plan for shareholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to
be provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan
and/or Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan
unless: (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of some or all Stock Awards; provided, however, that if the Board determines
that the effect of an amendment, taken as a whole, would be to impair rights
and obligations under any Stock Award then such amendment shall not be
effective as to a particular Stock Award unless: (i) the Company requests
the consent of the person to whom the Stock Award was granted and (ii) such
person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while
the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the written consent of the person to whom the Stock Award was
granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
