Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
INTELLICELL CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| $125 per Exchange Act Rules 0-11(c)(l)(ii), 14a-6(i)(l), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
|_| 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.)
--------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------
|_| Fee paid previously by written preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_____________________________________________
2) Form, Schedule or Registration Statement No.:_______________________
3) Filing Party:_______________________________________________________
4) Date Filed:_________________________________________________________
<PAGE>
INTELLICELL CORP.
9314 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, DECEMBER 30, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Intellicell Corp. (the "Company") will be held at the Company's executive
offices, located at 9314 Eton Avenue, Chatsworth, California 91311, on
Wednesday, December 30, 1998 at 10:00 A.M. for the following purposes, as more
fully described in the attached Proxy Statement:
(1) To elect six directors of the Company to serve until the next
annual meeting of stockholders or until their successors are duly elected
and qualified;
(2) To ratify the Company's private placement of $1,500,000 of
three-year unsecured and subordinated convertible notes (the "Note
Offering") and to approve certain transactions related thereto;
(3) To ratify the adoption of the Company's 1998 Stock Option Plan;
(4) To ratify the appointment by the Board of Directors of
Hollander, Lumer & Co., LLP as the Company's independent auditors for the
fiscal year ending December 31, 1999; and
(5) To transact such other business as may properly be brought
before the Annual Meeting or any and all adjournments thereof.
The Board of Directors has fixed the close of business on Friday, December
4, 1998 as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting. Only stockholders at the close of
business on the record date are entitled to vote at the Annual Meeting.
Accompanying this Notice are a Proxy and Proxy Statement. IF YOU WILL NOT
BE ABLE TO ATTEND THE ANNUAL MEETING TO VOTE IN PERSON, PLEASE COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE. The Proxy may be revoked at any time prior to its exercise at the
Annual Meeting.
By Order of the Board of Directors,
Ben Neman
President
Chatsworth, California
December 8, 1998
<PAGE>
INTELLICELL CORP.
9314 ETON AVENUE
CHATSWORTH, CALIFORNIA 91311
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 30, 1998
PROXY STATEMENT
INTRODUCTION
This Proxy Statement (the "Proxy Statement") is furnished to the
stockholders of Intellicell Corp., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of the Company. The proxies solicited hereby are to be voted at the
Annual Meeting of Stockholders of the Company to be held on December 30, 1998,
and at any and all adjournments thereof (the "Annual Meeting"). This Proxy
Statement and the accompanying form of proxy are first being mailed to
stockholders on or about December 8, 1998.
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, stockholders will be asked: (i) to elect six
directors of the Company to serve until the next annual meeting of stockholders
or until their successors are duly elected and qualified; (ii) to ratify the
Company's private placement (the "Note Offering") of $1,500,000 principal amount
of three-year unsecured and subordinated convertible notes (the "Notes") and to
approve certain transactions related thereto; (iii) to ratify the adoption of
the Company's 1998 Stock Option Plan ("1998 Plan"); (iv) to ratify the
appointment by the Board of Directors of Hollander, Lumer & Co., LLP as the
Company's independent auditors for the fiscal year ending December 31, 1999; and
(v) to transact such other business as may properly be brought before the Annual
Meeting or any and all adjournments thereof. The Board of Directors recommends a
vote in favor of (i.e., "FOR"): (a) the election of the six nominees for
directors of the Company listed below and (b) the proposals set forth in (ii)
through (iv) above.
QUORUM AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. Only stockholders of record at the close of business on December
4, 1998 (the "Record Date") will be entitled to notice of, and to vote at, the
Annual Meeting. As of the Record Date, there were 4,415,902 shares of Common
Stock outstanding and entitled to vote. Holders of Common Stock as of the Record
Date are entitled to one vote for each share held.
All shares of Common Stock represented by properly executed proxies will,
unless the proxies have previously been revoked, be voted in accordance with the
instructions indicated in the proxies. If no instructions are indicated, the
shares will be voted in favor of (i.e., "FOR") (i) the election of the six
nominees for directors of the Company listed under Proposal 1; (ii) the
ratification of the Note Offering of $1,500,000 principal amount of three-year
unsecured and subordinated convertible Notes and approval of certain
transactions related thereto; (iii) the ratification of the adoption of the 1998
Stock Option Plan; and (iv) the ratification of Hollander, Lumer & Co., LLP as
the Company's independent auditors for the fiscal year ending December 31, 1999.
With respect to any other item of business that may come before the Annual
Meeting, notice of which has not been received by the Company within a
reasonable time prior to the mailing of this Proxy Statement, the proxy holders
will vote the proxy in accordance with their best judgment.
1.
<PAGE>
In the election of directors, the six candidates receiving the highest
number of votes will be elected as directors. The other matters submitted for
stockholder approval at the Annual Meeting will be decided by the affirmative
vote of the majority of the shares represented in person or by proxy and
entitled to vote on each such matter. Abstentions with respect to any matter are
treated as shares present or represented and entitled to vote on that matter and
thus have the same effect as negative votes. If a broker which is the record
holder of certain shares indicates on a proxy that it does not have
discretionary authority to vote on a particular matter as to such shares, or if
shares are not voted in other circumstances in which proxy authority is
defective or has been withheld with respect to a particular matter, these
non-voted shares will be counted for quorum purposes but are not deemed to be
present or represented for purposes of determining whether stockholder approval
of that matter has been obtained. Any stockholder executing a proxy has the
power to revoke the proxy at any time prior to its exercise. A proxy may be
revoked prior to exercise by (a) filing with the Company a written revocation of
the proxy; (b) appearing at the Annual Meeting and casting a vote contrary to
that indicated on the proxy; or (c) submitting a duly executed proxy bearing a
later date.
It is contemplated that the solicitation of proxies will be made primarily
by mail. Should it, however, appear desirable to do so in order to ensure
adequate representation of shares at the Annual Meeting, the officers, agents
and employees of the Company may communicate with stockholders, banks, brokerage
houses and others by telephone, telegraph, or in person to request that proxies
be furnished. All expenses incurred in connection with this solicitation will be
borne by the Company. In following up the original solicitation of proxies by
mail, the Company may make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the shares eligible to vote at the Annual Meeting and will
reimburse them for their expenses in so doing. The Company has no present plans
to hire special employees or paid solicitors to assist in obtaining proxies, but
reserves the option of doing so if it should appear that a quorum otherwise
might not be obtained.
2.
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION...................................................................1
PURPOSE OF ANNUAL MEETING......................................................1
QUORUM AND VOTING RIGHTS.......................................................1
PROPOSAL 1 - ELECTION OF DIRECTORS.............................................3
Nominees............................................................... 3
Meetings; Attendance; Committees....................................... 3
Management of the Company.............................................. 4
Recent Developments.................................................... 5
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS.............................. 6
Executive Compensation................................................. 6
Director Compensation.................................................. 7
Employment Agreements.................................................. 7
Stock Option Plans..................................................... 7
Compensation Committee Interlocks and Insider Participation............ 8
Report of the Board of Directors on Executive Compensation............. 9
Performance Graph......................................................11
CERTAIN TRANSACTIONS..........................................................12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................13
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................................13
PROPOSAL 2 - PROPOSAL TO RATIFY THE COMPANY'S PRIVATE PLACEMENT OF $1,500,000
PRINCIPAL AMOUNT OF THREE-YEAR UNSECURED AND SUBORDINATED CONVERTIBLE NOTES
AND TO APPROVE CERTAIN TRANSACTIONS RELATED THERETO...........................14
Background.............................................................15
Advantages to Conversion of the Notes..................................15
The Notes..............................................................16
Related Transactions...................................................17
Voting; Lock-Up Agreement..............................................19
Nasdaq Stockholder Approval Requirements...............................20
PROPOSAL 3 - PROPOSAL TO RATIFY THE COMPANY'S 1998 STOCK OPTION PLAN..........20
Description of the 1998 Plan...........................................20
Certain Federal Income Tax Consequences................................21
Participation in the 1998 Plan.........................................22
PROPOSAL 4 - PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS.......23
i.
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934..........23
SUBMISSION OF STOCKHOLDER PROPOSALS...........................................23
FINANCIAL STATEMENTS..........................................................24
OTHER MATTERS.................................................................24
ii.
<PAGE>
PROPOSAL 1 -
ELECTION OF DIRECTORS
Nominees
At the Annual Meeting, six directors, who will constitute the entire Board
of Directors, are to be elected to serve until the next Annual Meeting of
Stockholders and until their successors shall be elected and shall qualify. All
nominees for the Board of Directors have consented to being named herein and
have agreed to serve if elected. The nominees are as follows:
Ben Neman
Vinay Sharma
Stephen Jarrett
J. Sherman Henderson
John Swinehart
Mark M. Laisure
Management proxies will be voted FOR the election of all of the above
named nominees unless the stockholders indicate that the proxy shall not be
voted for all or any one of the nominees. Nominees receiving the highest number
of affirmative votes cast, up to the number of directors to be elected, will be
elected as directors. Abstentions, broker non-votes, and instructions on the
accompanying proxy card to withhold authority to vote for one or more of the
nominees will result in the respective nominees receiving fewer votes. If for
any reason any nominee should, prior to the Annual Meeting, become unavailable
for election as a director, an event not now anticipated, the proxies will be
voted for such substitute nominee, if any, as may be recommended by management.
In no event, however, shall the proxies be voted for a greater number of persons
than the number of nominees named.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE SIX
PERSONS NOMINATED FOR DIRECTOR HEREIN.
Committees; Meetings; Attendance
The Company has a standing audit committee. The audit committee reviews
the scope of the audit and other accounting related matters. The Company's audit
committee currently consists of Messrs. Sharma and Henderson. The Company has
formed a committee of "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended, comprised of Messrs. Sharma
and Henderson, to make grants of options to executive officers under the
Company's stock option plans. The Company has no other committees of its Board
of Directors.
During the fiscal year ended December 31, 1997, the Board of Directors met
ten times, and the audit committee did not meet. No incumbent member who was a
director during the past fiscal year attended fewer than 100% of the aggregate
of all meetings of the Board of Directors.
3.
<PAGE>
Management of the Company
Set forth below is certain information with respect to the directors,
executive officers and a key employee of the Company and with respect to the
director nominees:
Name Age Position
---- --- --------
Ben Neman 40 Chairman of the Board and President
John Swinehart (1) 41 Chief Executive Officer and Director
Stephen Jarrett 45 Executive Vice President and Director
Vinay Sharma 50 Director
Mark M. Laisure (1) 28 Director
J. Sherman Henderson 53 Director
David Kane 35 Chief Financial Officer
Meir Abramov 29 Vice President
- ----------
(1) In November 1998, the Board of Directors increased the size of the Board
from four to six and appointed John Swinehart and Mark M. Laisure as new
directors. See "--Recent Developments" below.
Ben Neman, a founder of the Company, has been Chairman and President of
the Company since its inception in January 1991 and served as the Company's
Chief Executive Officer from the Company's inception through November 1998. From
September 1983 to January 1991, Mr. Neman was the owner and President of Car
Tronics of California, a company engaged in the retail sale of cellular and
other automotive electronic consumer products.
Stephen Jarrett became Executive Vice President of the Company in January
1998 and a director of the Company in March 1998. From 1994 to January 1998, Mr.
Jarrett served as Western Zone Regional Sales Manager for Sony Wireless.
John Swinehart was appointed as Chief Executive Officer and a director of
the Company in November 1998. Prior to joining the Company, Mr. Swinehart was
President and Chief Financial Officer of Biltmore Homes, a midwestern
homebuilder and developer, from March 1996 to November 1998. From 1986 to March
1996, Mr. Swinehart served as Vice President of Allied Broadcast Equipment, an
international broadcast distribution company. In 1980, Mr. Swinehart received
his certified public accountant certificate.
Vinay Sharma has been a director of the Company since October 1996. Mr.
Sharma has been a partner with the law firm Sharma & Herron since March 1992.
Mr. Sharma received his Masters in Business Administration in June 1974 and
Juris Doctor degree in May 1982 from the University of California at Berkeley.
Mark M. Laisure was appointed as a director of the Company in November
1998. Since 1995, Mr. Laisure has been a Vice President of Shields & Company, an
investment brokerage firm. In addition, Mr. Laisure has acted as a consultant to
Inktomi Corporation, a developer and marketer of network information and
infrastructure application, since June 1996; Milcom, a technology development
company which invests in new technology companies, since September 1997; Stat
Health Care, a provider of emergency room management services, since June 1991;
and Starstruck Records since August 1995. From 1994 to 1995, Mr. Laisure was a
senior investment manager at Payne Webber.
J. Sherman Henderson has been a director of the Company since February
1998. Since 1993, Mr. Henderson has been President, CEO and founder of UniDial
Communications, a long-distance phone service reseller and full service
distributor of telecommunications products and services.
4.
<PAGE>
In addition to the Company's executive officers and directors, Mr. Meir
Abramov is a key employee of the Company. Mr. Abramov joined the Company in 1993
and serves as a Vice President of the Company in charge of purchasing and large
account sales.
Directors serve until the next annual meeting or until their successors
are elected and qualified or appointed. Officers are elected by and serve at the
discretion of the Board of Directors. There are no family relationships among
the officers or directors of the Company.
Recent Developments
In connection with the Note Offering, the Company agreed to appoint two
persons designated by the investors in the Note Offering to the Company's Board
of Directors. In November 1998, the Company increased the size of the Board to
six and appointed John Swinehart and Mark M. Laisure (the persons designated by
the investors in the Note Offering) to the Board of Directors.
The Company also has formed an advisory committee to the Board of
Directors in connection with the Note Offering. This committee has no formal
powers or responsibilities but will assist the Board of Directors in providing
strategic planning for the Company. Members of this committee receive no
compensation for service on such committee. The current members of this
committee are Mark M. Laisure, John Swinehart, Alan Bluestine, Ben Neman,
Stephen Jarrett, Paul Skjodt and David Kane.
The Company has agreed, until December 17, 1999, if so requested by Sands
Brothers & Co., Ltd. ("Sands"), the Representative of the underwriters of the
Company's initial public offering and the Company's financial advisor, to
nominate and use its best efforts to elect a designee of Sands as a director or,
at Sands' option, as a non-voting advisor to the Company's Board of Directors.
Sands exercised its right to designate Alan M. Bluestine, a managing director of
Sands, as a non-voting advisor to the Company's Board of Directors on June 6,
1997.
5.
<PAGE>
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth the compensation for the fiscal years ended
December 31, 1995, 1996 and 1997 paid by the Company to its Chief Executive
Officer and to each other executive officer of the Company who received
compensation in excess of $100,000 for the fiscal year ended December 31, 1997
(the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation(1) Awards
---------------------- ------------
Other Securities
Name and Annual Underlying
Principal Position Fiscal Year Salary($) Bonus Compensation Options (#)
------------------ ----------- --------- ----- ------------ -----------
<S> <C> <C> <C> <C> <C>
Ben Neman 1997 72,000 --
Chairman of the Board, 1996 72,000 -- -- --
Chief Executive Officer, 1995 75,000 -- -- 12,000 (2)
and President -- --
James E. Bunting (3) 1997 70,000 75,000 -- --
Chief Operating Officer and 1996 35,000 -- -- 50,000 (4)
Executive Vice President 1995 -- -- -- --
</TABLE>
- ----------
(1) The compensation described in this table does not include medical
insurance, retirement benefits and other benefits received by the
foregoing executive officers which are available generally to all
employees of the Company and certain perquisites and other personal
benefits received by the foregoing executive officers of the Company, the
value of which did not exceed the lesser of $50,000 or 10% of the
executive officer's cash compensation in the table.
(2) The options have an exercise price of $5.50 per share and vest one-third
each year for three years.
(3) In March 1998, Mr. Bunting's employment as Chief Operating Officer and
Executive Vice President terminated.
(4) The options had an exercise price of $5.00 and were to vest one-third each
year for three years. In March 1998, in connection with Mr. Bunting's
termination of employment, such options were cancelled.
There were no options for the purchase of Common Stock exercised by
Messrs. Neman or Bunting during the year ended December 31, 1997.
The following table sets forth information concerning the value of
unexercised stock options held by the Named Executive Officers as of December
31, 1997:
Aggregated Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options At
Held At Fiscal Year-End(#) Fiscal Year-End ($) (1)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Ben Neman 4,000 8,000 $ 0 $ 0
James E. Bunting (2) 16,667 33,333 0 0
- ----------
6.
<PAGE>
(1) Amounts are shown as the difference between exercise price and fair market
value (based on the closing price of $5.00 per share at fiscal year end).
(2) In March 1998, in connection with Mr. Bunting's termination of employment,
all of these options were cancelled.
Director Compensation
Directors do not currently receive any cash compensation for serving on
the Board of Directors.
Employment Agreements
The Company entered into a three-year employment agreement with Ben Neman,
the Company's then Chairman of the Board, Chief Executive Officer and President,
effective December 1996, which was automatically renewable and provided for an
annual base salary of $72,000 per year and such bonus as determined by the Board
of Directors. The agreement provided that in the event of termination without
cause or as a result of a change in control, Mr. Neman would receive a severance
payment equal to his base compensation through the term of the agreement. In
November 1998, the Company entered into a new employment agreement with Mr.
Neman (the "Neman Agreement") that superseded the prior employment agreement.
Pursuant to the Neman Agreement, Mr. Neman will serve as the Chairman of the
Board and President of the Company, but will no longer serve as its Chief
Executive Officer. Mr. Neman will receive an annual salary of $72,000 and may
receive bonuses as determined by the Board of Directors. The term of the Neman
Agreement will expire in November 2001; provided, however, that the Neman
Agreement may be earlier terminated by the Company under certain circumstances.
Upon a termination without cause as defined in the Neman Agreement or resulting
from a change in control of the Company, the Company will make a severance
payment to Mr. Neman of $500,000.
The Company entered into a three-year employment agreement with James
Bunting, the Company's then Chief Operating Officer and Executive Vice
President, effective July 1996, which provides for an annual base compensation
of $70,000 and such bonus as determined by the Board of Directors. The agreement
provided that if Mr. Bunting was terminated without cause (including as a result
of a change in control), he would be paid an amount equal to four months of his
annual salary as a severance payment. In connection with such employment, the
Company granted to Mr. Bunting options to purchase 50,000 shares of Common Stock
at an exercise price of $5.00 per share. In March 1998, Mr. Bunting's employment
as Chief Operating Officer and Executive Vice President terminated, he resigned
from the Board of Directors and he surrendered his options to the Company for
cancellation.
The Company has entered into a three-year employment agreement with Meir
Abramov, effective as of December 17, 1996, which provides for an annual base
compensation of $132,000. In June 1998, Mr. Abramov and the Company agreed to
restructure Mr. Abramov's compensation from an annual base compensation of
$132,000 to an annual base compensation of $60,000 plus commissions of 8-15% of
gross profit on sales effected by Mr. Abramov (with the percentage being
dependent upon the type of inventory sold).
Stock Option Plans
In October 1996, the Company adopted the 1996 Stock Option Plan, as
amended (the "1996 Plan"), and in February 1998 the Board of Directors adopted
the 1998 Stock Option Plan, as amended (the "1998 Plan"), pursuant to which
460,000 and 540,000 shares of Common Stock, respectively, are currently
authorized for issuance upon the exercise of options designated as either (i)
options intended to constitute incentive stock options ("ISOs") under the
Internal Revenue Code of 1986, as amended (the "Code") or (ii) non-qualified
options. However, until such time as the stockholders of the Company approve the
1998 Plan, only non-qualified stock options can be issued thereunder.
7.
<PAGE>
Under the 1996 Plan and the 1998 Plan (the "Plans"), ISOs may be granted
to employees and officers of the Company. Non-qualified options may be granted
to consultants, directors (whether or not they are employees), employees or
officers of the Company.
The Plans are intended to qualify under Rule 16b-3 under the Securities
Exchange Act of 1934, and are administered by the Board of Directors. The Board
of Directors, within the limitations of the Plans, determines the persons to
whom options will be granted, the number of shares to be covered by each option,
whether the options granted are intended to be ISOs, the duration and rate of
exercise of each option, the option purchase price per share and the manner of
exercise, and the time, manner and form of payment upon exercise of an option.
Unless sooner terminated the 1996 Plan and the 1998 Plan will expire in October
2006 and February 2008, respectively.
ISOs granted under the Plans may not be granted at a price less than the
fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company) may not exceed
$100,000. Non-qualified options granted under the Plans may not be granted at a
price less than the fair market value of the Common Stock on the date of grant.
Options granted under the Plans will expire not more than ten years from the
date of grant (five years in the case of ISOs granted to persons holding 10% or
more of the voting stock of the Company). All options granted under the Plans
are not transferable during an optionee's lifetime but are transferable at death
by will or by the laws of descent and distribution. In general, upon termination
of employment of an optionee, all options granted to such person which are not
exercisable on the date of such termination immediately terminate, and any
options that are exercisable terminate 90 days following termination of
employment.
The Plans contain anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of the
cessation of employment are available for further grants. No shares of Common
Stock of the Company may be issued to any optionee until the full option price
has been paid. The Board may grant individual options under the Plans with more
stringent provisions than those specified in the Plans.
Options to purchase 70,250 shares of Common Stock are outstanding under
the 1996 Plan. Of such options, 12,000 were granted to Ben Neman at $5.50 per
share. The options vest one-third each year over a period of three years. In
October 1996, the Company granted to each of Vinay Sharma and James Bunting
options to purchase 50,000 shares of Common Stock at $5 per share. Messrs.
Sharma and Bunting surrendered such options to the Company for cancellation in
March 1998. A total of 389,750 shares are available for future grant under the
1996 Plan.
Options to purchase 400,000 shares of Common Stock are outstanding under
the 1998 Plan. Of such options, options to purchase 100,000 shares of Common
Stock were granted at $3.81 per share to J. Sherman Henderson, options to
purchase 50,000 shares of Common Stock at $.375 per share were granted to David
Kane, and options to purchase 50,000 shares of Common Stock at $4.375 per share
and 50,000 shares at $.375 per share were granted to Stephen Jarrett. In March
1998, the Company granted to Vinay Sharma options to purchase 100,000 shares of
Common Stock at $3.81 per share, and Mr. Sharma surrendered such options to the
Company for cancellation in June 1998. A total of 140,000 shares are available
for future grant under the 1998 Plan.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1997, the full Board of
Directors decided all matters related to compensation. The members of the Board
of Directors for the year ended December 31, 1997 were Ben Neman, James Bunting,
Vinay Sharma and Elliot Broidy. Mr. Neman served as Chairman of the Board, Chief
Executive Officer and President of the Company during 1997. In November 1998,
Mr. Neman resigned
8.
<PAGE>
from the office of Chief Executive Officer, although he remains the Company's
Chairman of the Board and President. Mr. Bunting served as Chief Operating
Officer and Executive Vice President of the Company during 1997. In March 1998,
Mr. Bunting's employment as Chief Operating Officer and Executive Vice President
terminated and he resigned from the Board of Directors. There are no interlocks
between the Company and other entities involving the Company's executive
officers and directors who served as executive officers or board members of
other entities.
Report of the Board of Directors on Executive Compensation
The full Board of Directors decides all matters related to the
compensation of the executive officers of the Company. For the year ended
December 31, 1997, the Board of Directors was comprised of Ben Neman, Vinay
Sharma, James Bunting and Elliot Broidy. Mr. Neman served as Chairman of the
Board, Chief Executive Officer and President of the Company and Mr. Bunting
served as Chief Operating Officer and Executive Vice President of the Company
during 1997. The current Board of Directors consists of Mr. Neman, John
Swinehart, Vinay Sharma, Stephen Jarrett, J. Sherman Henderson and Mark M.
Laisure. Messrs. Swinehart and Laisure became directors in November 1998, Mr.
Jarrett became a director in March 1998 and Mr. Henderson became a director in
February 1998. Mr. Neman serves as the Chairman of the Board and President of
the Company. Mr. Swinehart serves as the Chief Executive Officer of the Company.
Mr. Jarrett serves as Executive Vice President of the Company.
The Company entered into a three-year employment agreement with Ben Neman,
the Company's then Chairman of the Board, Chief Executive Officer and President,
effective December 1996 (the "1996 Agreement"). Mr. Neman's compensation for
1997 was governed by such agreement, which agreement was superseded by a new
three-year employment agreement in November 1998. See "Compensation of Directors
and Executive Officers -- Employment Agreements." Under the 1996 Agreement, Mr.
Neman received an annual salary of $72,000 per year and such bonus as determined
by the Board of Directors. In determining the salary and bonus for the Chief
Executive Officer, the Board of Directors based its decisions upon the
performance of the Company, as well as a review of the performance of the Chief
Executive Officer. During 1997, the Company performed substantially below its
performance during 1996, and the Board of Directors did not award any bonus to
Mr. Neman for 1997. Mr. Neman did not participate in any decisions by the Board
of Directors concerning the compensation of the Chief Executive Officer.
The Company entered into a three-year employment agreement with James
Bunting, the Company's then Chief Operating Officer and Executive Vice
President, effective July 1996. Mr. Bunting's compensation for 1997 was governed
by such agreement, which provided for an annual salary of $70,000 per year and
such bonus as determined by the Board of Directors. In determining the salary
and bonus for the Chief Operating Officer, the Board of Directors based its
decisions upon the performance of the Company, as well as a review of the
performance of the Chief Operating Officer. During 1997, the Company performed
substantially below its performance during 1996, and the Board of Directors did
not award Mr. Bunting any bonus for 1997. Mr. Bunting did not participate in any
decisions by the Board of Directors concerning the compensation of the Chief
Operating Officer. In March 1998, Mr. Bunting's employment as Chief Operating
Officer and Executive Vice President terminated and he resigned from the Board
of Directors.
The Company entered into a three-year employment agreement with John C.
Snyder II, the Company's then Chief Financial Officer and Vice President,
effective April 1997. Mr. Snyder's compensation for 1997 was governed by such
agreement, which provided for an annual salary of $70,000 per year and an annual
bonus of $50,000. In providing for this salary and bonus for the Chief Financial
Officer, the Board of Directors based its decisions upon the market rate of
compensation for chief financial officers in similarly situated companies and
upon the experience and qualifications of Mr. Snyder. In March 1998, Mr.
Snyder's employment as Chief Financial Officer terminated.
The Company believes that equity ownership by executive officers provides
incentive to build stockholder value and aligns the interests of executive
officers with the interests of stockholders. Upon the
9.
<PAGE>
hiring of executive officers and other key employees, the Board of Directors
will typically recommend stock option grants to those persons under the
Company's stock option plans, subject to applicable vesting periods. Thereafter,
the Board of Directors will consider awarding grants on a periodic basis. The
Board of Directors believes that these additional grants will provide an
incentive for executive officers to remain with the Company. Generally, options
will be granted at the market price of the Common Stock on the date of grant
and, consequently, will have value only if the price of the Common Stock
increases over the exercise price. In determining the size of the periodic
grants, the Board of Directors will consider various factors, including the
amount of any prior option grants, the executive's or employee's performance
during the current fiscal year and his or her expected contributions during the
succeeding fiscal year. During 1997, the Company did not issue stock options to
the Named Executive Officers.
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to publicly held companies for compensation exceeding $1 million paid
to certain of the corporation's executive officers. However, compensation which
qualifies as "performance-based" is excluded from the $1 million limit if, among
other requirements, the compensation is payable upon attainment of
pre-established, objective performance goals under a plan approved by the
stockholders.
The compensation paid to the Company's executive officers for the year
ended December 31, 1997 fiscal year did not exceed the $1 million limit per
officer, nor is it expected that the compensation to be paid to the Company's
executive officers for 1998 will exceed that limit. Because it is very unlikely
that the cash compensation payable to any of the Company's executive officers in
the foreseeable future will approach the $1 million limit, the Board of
Directors has decided at this time not to take any action to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Board of Directors will continue to monitor the compensation
levels potentially payable under the Company's cash compensation programs, but
intends to retain the flexibility necessary to provide total cash compensation
in line with competitive practice, the Company's compensation philosophy and the
Company's best interests.
The foregoing report on executive compensation is provided by the Board of
Directors:
Ben Neman
Vinay Sharma
J. Sherman Henderson
Stephen Jarrett
John Swinehart
Mark M. Laisure
10.
<PAGE>
Performance Graph
The chart below sets forth a line graph comparing the performance of the
Company's Common Stock against Nasdaq Market Index and the Media General
Financial Service's Electronics Wholesale Index ("MG Group Index") for the
period from December 18, 1996 (the date on which the market price of the
Company's shares was first quoted by the Nasdaq SmallCap Market following the
Company's initial public offering) through December 31, 1997. The indices assume
that the value of an investment in the Company's Common Stock and each index was
100 on December 18, 1996 and that dividends were reinvested.
[GRAPHIC OMITTED]
[THE FOLLOWING TABLE WAS DEPICTED AS A GRAPH IN THE PRINTED MATERIAL.]
12/18/96 12/31/96 12/31/97
- --------------------------------------------------------------------------------
Intellicell Corp. 100.00 111.32 75.47
- --------------------------------------------------------------------------------
MG Group Index 100.00 100.00 108.94
- --------------------------------------------------------------------------------
Nasdaq Market Index 100.00 100.00 122.32
- --------------------------------------------------------------------------------
11.
<PAGE>
CERTAIN TRANSACTIONS
Between January 1, 1995, and June 30, 1996, the Company made aggregate
non-interest bearing advances to Mr. Neman of $454,145. In December 1996, the
Company repurchased 36,000 shares of Common Stock from Mr. Neman in
consideration of the cancellation of $180,000 of such indebtedness, and Mr.
Neman repaid the remaining balance of such indebtedness.
Excess S corporation distributions for the year ended December 31, 1996,
made to Mr. Neman in the amount of $454,000 were repaid by the delivery to the
Company for cancellation of 101,562 shares of the Company's Common Stock held by
Mr. Neman. The shares of Common Stock delivered by Mr. Neman were valued at the
initial public offering price of the Common Stock, less underwriting discounts
and commissions.
In 1996, Mr. Neman personally guaranteed up to $500,000 of the Company's
indebtedness to CIT, the Company's former finance company. This guarantee was
released in April 1997.
Cellular Specialists, a company controlled by Mr. Neman's brother, is a
customer of the Company. For the year ended December 31, 1997, the Company sold
$254,000 of cellular products to Cellular Specialists on terms no less favorable
than to an unaffiliated third party. For the ten months ended October 30, 1998,
the Company made sales of $250,000 to Cellular Specialists on terms no less
favorable than to an unaffiliated party. $150,000 of such sales have not been
timely paid and remain as accounts receivable. In December 1996, the Company
granted options to purchase 35,000 shares of Common Stock at an exercise price
of $5.00 per share to Mr. Neman's brother in consideration for advisory services
rendered to the Company.
Digicell International Inc. ("Digicell"), a company controlled by two of
Mr. Neman's cousins, is a customer and a supplier to the Company. For the year
ended December 31, 1997, the Company sold to Digicell $1,455,000 and purchased
from Digicell $299,000 of cellular products on terms no less favorable to the
Company than could be obtained from an unaffiliated third party. For the nine
months ended September 30, 1998, the company purchased from Digicell
approximately $750,000 of cellular products and sold to Digicell approximately
$1,475,000 of cellular products on terms no less favorable to the Company than
could be obtained from an unaffiliated third party.
Vinay Sharma, a director of the Company, is a partner with the law firm
Sharma & Herron, one of the Company's attorneys. The Company paid such firm
approximately $14,000 during the year ended December 31, 1997, for legal
services rendered. In March 1998, options to purchase 50,000 shares of Common
Stock at $5.00 per share, which were granted to Mr. Sharma in October 1996 under
the 1996 Plan, were cancelled. In March 1998, options to purchase an aggregate
of 100,000 shares of Common Stock at $3.81 per share were granted to Mr. Sharma
under the 1998 Plan, although such options were subsequently cancelled in June
1998.
12.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of October 30, 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 director nominees; and (iv) all executive
officers, directors and director nominees of the Company as a group.
Amount and
Nature of
Beneficial Percent of
Name and Address(1) Ownership Ownership
- ------------------------------------------ ---------------- ----------
Ben Neman................................. 1,900,438 (2) 43%
Vinay Sharma.............................. -- --
J. Sherman Henderson...................... 20,000 *
John Swinehart............................ -- (3) --
Mark M. Laisure........................... -- (4) --
Stephen Jarrett........................... -- --
James E. Bunting.......................... -- --
All executive officers and directors
as a group (7 persons)................... 1,920,438 43%
- ----------
* Less than one percent.
(1) Except as otherwise indicated, the address of each stockholder is c/o the
Company at 9314 Eton Avenue, Chatsworth, California 91311.
(2) Includes 217,000 shares of outstanding Common Stock transferable upon
exercise of options granted by Mr. Neman to Meir Abramov, Vice President
of the Company. Also, includes options to purchase 8,000 shares of Common
Stock which are exercisable within 60 days.
(3) Upon stockholder approval of Proposal 2 of this Proxy Statement, the
Company will grant to Mr. Swinehart options to purchase 200,000 shares of
Common Stock. Of such options, options to purchase 166,667 shares of
Common Stock will be immediately exercisable and options to purchase the
remaining 33,333 shares will only vest and be exercisable upon and pro
rata to the extent the Warrants (as defined in Proposal 2) are actually
exercised.
(4) Upon stockholder approval of Proposal 2 of this Proxy Statement, the
Company will grant to Mr. Laisure options to purchase 200,000 shares of
Common Stock. Of such options, options to purchase 166,667 shares of
Common Stock will be immediately exercisable and options to purchase the
remaining 33,333 shares will only vest and be exercisable upon and pro
rata to the extent the Warrants (as defined in Proposal 2) are actually
exercised.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On April 9, 1997, Richard A. Eisner & Company, LLP ("Eisner"), the
accounting firm that audited the Company's financial statements at December 31,
1994 and 1995, and for the years ended December 31, 1993, 1994 and 1995,
resigned as the Company's independent auditor. The report of Eisner for the
fiscal years ended December 31, 1993, 1994 and 1995 did not contain an adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles. During the audit period for
the fiscal years ended December 31, 1993, 1994 and 1995, and during the interim
period prior to Eisner's resignation, there were no disagreements with Eisner on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure. However, in its letter of resignation addressed
to the Company's Board of Directors, Eisner concluded that it was "unable to
rely on the integrity
13.
<PAGE>
of management." In a subsequent letter filed as an Exhibit to the Company's
Current Report on Form 8-K, Eisner stated that its resignation followed an
expanded scope investigation in response to allegations with respect to the 1996
financial statements made to Eisner by the Company's controller, and that during
Eisner's investigation evidence came to its attention that contradicted
statements made to Eisner by management.
Effective April 19, 1997, the Company engaged BDO Seidman, LLP ("BDO
Seidman") as independent auditors to audit the Company's annual financial
statements. During the Company's two fiscal years and the subsequent interim
period prior to the engagement of BDO Seidman, neither the Company nor any
person acting on behalf of the Company consulted BDO Seidman regarding (i) the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's financial statements or (ii) any matters that were either the
subject of a disagreement or a reportable event.
On May 20, 1998, the Audit Committee of the Company and BDO Seidman agreed
that BDO Seidman would not stand for reelection as the Company's independent
accountants. The Company's decision was in furtherance of its cost cutting
strategies. BDO Seidman's report on the Company's financial statements during
the two most recent fiscal years contained no adverse opinion or disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During the last two fiscal years, there were no
disagreements between the Company and BDO Seidman on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of BDO
Seidman would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports.
On May 20, 1998, the Company engaged the services of Hollander, Lumer &
Co., LLP as independent auditors to audit the Company's financial statements.
PROPOSAL 2 -
PROPOSAL TO RATIFY THE COMPANY'S PRIVATE PLACEMENT OF
$1,500,000 PRINCIPAL AMOUNT OF THREE-YEAR UNSECURED
AND SUBORDINATED CONVERTIBLE NOTES AND TO APPROVE CERTAIN
TRANSACTIONS RELATED THERETO
In November 1998, the Company completed a private placement (the "Note
Offering") of $1,500,000 principal amount of three-year unsecured and
subordinated convertible notes (the "Notes") to a small group of accredited
investors (the "Investors"). Each Note bears interest at the rate of 2% per
annum and each $1 of principal of the Notes will be convertible, at the
Company's option (which it intends to exercise immediately) if and when the
Company's stockholders ratify this Proposal 2, into one share of Common Stock
and a redeemable warrant to purchase two-thirds of a share of Common Stock at $1
per share (the "Warrants"). The proceeds of the Note Offering increased the
Company's working capital and will be used for general corporate purposes,
including, but not limited to, increasing the Company's digital-based cellular
telephone inventory.
Ratification of the Note Offering by the Company's stockholders is being
sought to satisfy a Nasdaq listing requirement applicable to this Note Offering.
Should the stockholders fail to ratify this Proposal 2, the Notes will continue
to be outstanding under their existing terms but will not be convertible into
Common Stock or Warrants, and the failure by the stockholders to ratify the Note
Offering will require the Company to seek additional equity to increase its net
worth above the minimum required by Nasdaq or the Company may face delisting
from the Nasdaq SmallCap Market.
14.
<PAGE>
Background
The Note Offering, which was unanimously approved by the Board of
Directors, was consummated by the Company for the following reasons:
(a) Bank financing requirements. The Company had been in default from time
to time under the terms of its line of credit with Bank of America, which had
been steadily reducing the amount of credit it would provide to the Company.
Although the Company secured an extension of the termination date of this line
of credit to November 30, 1998, the Company did not believe any further
extensions of the line of credit would be forthcoming. Termination of the line
of credit without a comparable replacement would have a severe impact upon the
Company's financial condition.
The Company has been experiencing difficulty in securing a commitment from
a financial institution to replace the Bank of America line of credit on
acceptable terms. The Company's belief that completion of the Note Offering or
another equity financing would materially assist it in obtaining a replacement
line of credit was a significant consideration in its decision to consummate the
Note Offering.
(b) Need for additional working capital. The Company, as a wholesale
distributor of cellular telephones and accessories, has relied on sales of
analog-based product. However, starting in 1997 and continuing in 1998, the
domestic cellular phone market migrated from analog to digital technologies.
This transition significantly reduced the Company's revenues in 1998 as compared
to 1997. This erosion in revenues, despite aggressive cost cutting measures, has
resulted in net operating losses for 1997 and the nine months ended September
30, 1998. These operating losses, in turn, have negatively impacted the
Company's working capital.
As with most wholesalers of highly competitive electronics, the Company's
margins are low. Profitability is highly dependent on sales volume. Management
believes that in order for the Company to return to profitability, it must
obtain working capital to expand the scope of its operations with digital
inventory. As described above, the Company's options for bank financing have
been limited. The availability of equity, especially given the recent volatility
of the equity markets, also has been limited. In the opinion of management, the
Note Offering offered the best and possibly only viable source of financing then
available to the Company to provide needed working capital.
(c) Value Added Investor Relationships. Management believes that the
Investors will provide added value to the Company. In connection with the Note
Offering, one of the Investors, John Swinehart, became the Company's Chief
Executive Officer, and the Investors have provided two new members for the
Company's Board of Directors. The Investors have established relationships with
many key members of the cellular telephone industry, investment community and
banking industry. The Company believes that this network of relationships will
provide additional assistance for the Company.
Advantages to Conversion of the Notes
The Company is seeking stockholder approval of the Note Offering so that
the Company will have the option of converting the Notes into Common Stock and
Warrants. This conversion will have the following advantages for the Company:
(a) Improve Current Equity Base. Conversion of the Notes will provide
additional immediate equity for the Company, while eliminating a significant
long-term obligation of the Company to repay the Notes in three years. The
Company believes that a stronger equity base will assist the Company in raising
additional
15.
<PAGE>
equity or debt financing, to the extent it may be needed to support any future
growth of the Company's operations, and will assist the Company in strengthening
its relationships with customers and suppliers. Moreover, the Company requires
additional equity to increase its net worth above the minimum $2,000,000 net
worth required for continued listing on the Nasdaq SmallCap Market. As of
September 30, 1998, the Company's net worth totalled $1,808,000. Upon
stockholder approval of this Proposal 2, the Company's net worth will increase
to $3,233,000. If this Proposal 2 is not approved, the Company will seek
alternative means of obtaining additional equity or face delisting from the
Nasdaq SmallCap Market. Since the effective conversion price of the Notes into
shares of Common Stock is substantially higher than the current book value of
the Common Stock and approximates the recent trading price of the Common Stock,
the Company believes that the conversion of the Notes will not be dilutive to
the existing stockholders of the Company. Moreover, subject to stockholder
approval of this Proposal 2, holders of the Company's existing publicly-held
warrants will have the exercise price of such warrants reduced to $1 per share
and holders of the Common Stock will receive new warrants to purchase shares of
Common Stock at $1 per share.
(b) Provide a Potential Source of Future Capital. The Warrants may provide
an additional low-cost source of capital at a price that the Company considers
to be non-dilutive at this time to the Company's existing stockholders. The
Company's right to redeem the Warrants under certain circumstances if the Common
Stock trades above $2 per share may also reduce the risk that the Warrants may
be exercised by the holders of such Warrants at a time when such exercise would
be highly dilutive to the Company's other stockholders.
The Notes
Each Note is a three-year unsecured and subordinated convertible note that
bears interest at the rate of 2% per annum. Each $1.00 principal amount of a
Note will be convertible, at the Company's option if and when the Company's
stockholders approve this Proposal 2, into one share of Common Stock and one
redeemable Warrant to purchase two-thirds of one share of Common Stock at a
price of $1.00 per share. Interest on the Notes accrues and is due and payable,
with the principal, in November 2001. Upon conversion of the Notes, accrued
interest will be paid to the holders in cash. The Notes are unsecured and
subordinated to all other indebtedness of the Company which may at any time and
from time to time be outstanding. The Notes are prepayable at any time by the
Company. Upon an event of default under the Notes, the Notes will thereafter
bear interest at the rate of 10% per annum.
As with the outstanding shares of Common Stock, the shares of Common Stock
issuable upon conversion of the Notes (the "Shares") will, upon issuance, be
fully paid and non-assessable and will entitle the holder to rights equal to the
rights of the holders of the outstanding shares of Common Stock, including the
right to vote on all matters submitted to a vote of stockholders.
Each Warrant issuable upon conversion of the Notes will be exercisable at
any time from issuance until three years thereafter at a price of $1.00 per
share. At any time after the shares underlying the Warrants (the "Warrant
Shares") have been registered for resale under the Securities Act of 1933, as
amended (the "Securities Act"), the Company will have the right to redeem the
Warrants in whole or in part at a price of $0.01 per Warrant, by written notice
mailed at least 30 days before the specified redemption date; provided, however,
that such notice may only be given following a period of 20 consecutive trading
days during which the closing bid price for the Common Stock has exceeded $2.00
per share on each such day. If the Warrants are called for redemption, they must
be exercised prior to the close of business on the redemption date, or else the
right to exercise such Warrants and to purchase the Warrant Shares will be
forfeited.
16.
<PAGE>
At the closing of the Note Offering in November 1998 (the "Closing"), the
Company and the Investors entered into a Registration Rights Agreement pursuant
to which the Company will file a registration statement with the Securities and
Exchange Commission with respect to, among other securities, the Shares and the
Warrant Shares (collectively, the "Registrable Shares"), within 90 days
following the Closing and will use its reasonable best efforts to have such
registration statement declared effective as soon as possible thereafter and to
keep such registration statement effective for four years following the Closing.
The Notes and the Common Stock and Warrants issuable upon conversion of the
Notes, may not be transferred unless such securities are registered pursuant to
the Securities Act or are exempt from such registration.
The Company will bear all costs with respect to the preparation and filing
of the registration statement. The Company will indemnify the holders of the
Registrable Shares for any liability incurred by the holders of the Registrable
Shares arising out of or based upon an untrue statement of the Company contained
in the respective registration statement or material omission by the Company to
state therein a material fact required to be stated therein or necessary to make
the statement not misleading.
Related Transactions
In connection with the Note Offering, and subject to stockholder approval
of this Proposal 2, the Company will effect each of the following transactions
in addition to the Note Offering.
(a) The Grant of Options to Purchase 600,000 Shares of Common Stock to New
Management and a Representative of Investors. The Company will grant options to
purchase a total of 600,000 shares of Common Stock at $1 per share to new
management personnel and a representative of the Investors in the Note Offering
as a finders fee.
The options for management are needed to provide appropriate incentives to
the new senior members of the Company's management team. John Swinehart, the
Company's new Chief Executive Officer will be granted options to purchase
200,000 shares of Common Stock. The options will expire ten years after issuance
and 5/6ths of such options will be immediately exercisable. The remaining 1/6th
of such options will only vest and be exercisable upon and pro rata to the
extent that the Warrants issuable upon conversion of the Notes are actually
exercised. Upon a termination of employment, other than for cause (which shall
immediately terminate the options), the options held by Mr. Swinehart will
expire 90 days thereafter. In the event Mr. Swinehart dies or becomes disabled
prior to termination, or dies within 90 days of termination of employment, other
than for cause, the options held by Mr. Swinehart will expire one year after the
date of termination, but not to exceed the original expiration date.
The Company will grant to Mark M. Laisure in connection with his becoming
a director of the Company an option to purchase 200,000 shares of Common Stock.
The Company also will grant to Paul Skjodt, as a finders fee for identifying
investors for the Note Offering, an option to purchase 200,000 shares of Common
Stock. The options granted to Messrs. Laisure and Skjodt will expire ten years
after issuance and 5/6ths of such options will be immediately exercisable. The
remaining 1/6th of such options will only vest and be exercisable upon and pro
rata to the extent that the Warrants issuable upon conversion of the Notes are
actually exercised.
Issuance of shares of Common Stock upon exercise of the foregoing options
into Common Stock may have a dilutive effect on the Company's stockholders.
Capital received from any exercise of the options will be used for general
corporate purposes. The options will contain protection against dilution from
stock dividends, stock splits, reclassifications and similar transactions.
(b) The Grant of Options to Two Directors and the Repricing of Options
Held by Two Directors. The Company will grant to Vinay Sharma stock options to
purchase 100,000 shares of Common Stock at $1
17.
<PAGE>
per share and has granted to Stephen Jarrett, subject to stockholder approval of
this Proposal 2, stock options to purchase 50,000 shares of Common Stock at
$.375 per share under the Company's 1998 Plan. The options granted to Mr. Sharma
will expire in five years and vest twelve months after issuance. The options
granted to Mr. Jarrett expire ten years after issuance and vest one-third each
year for three years. In the event this Proposal 2 is not approved by the
stockholders, the options granted to Mr. Jarrett to purchase 50,000 shares of
Common Stock will be cancelled.
The Company also will reprice from $3.81 per share to $1.00 per share
options held by J. Sherman Henderson to purchase 100,000 shares of Common Stock
and from $4.375 per share to $1 per share options held by Stephen Jarrett to
purchase 50,000 shares of Common Stock. The options held by Mr. Henderson expire
in five years and vest twelve months after issuance. The options held by Mr.
Jarrett expire in ten years and vest one-third each year for three years. The
repriced options will be re-valued at the time of repricing and, accordingly,
there may be a charge to earnings taken upon the repricing.
The grants of shares to Messrs. Sharma and Jarrett and repricing of
options held by Messrs. Henderson and Jarrett are intended to provide
appropriate incentives to the foregoing directors and officers, since directors
do not receive cash compensation for serving on the Board of Directors and Mr.
Jarrett's salary as an officer is below what the Company believes is an industry
comparable level. The Company has not previously repriced any options held by
any of its officers or directors. The foregoing transactions constitute one-time
actions and not an on-going obligation or program to compensate directors or Mr.
Jarrett. Capital received from any exercise of the options will be used for
general corporate purposes. Issuance of shares of Common Stock upon exercise of
the foregoing options may have a dilutive effect on the Company's stockholders.
(c) The Repricing of the Exercise Price of Existing Publicly-Held Warrants
and the Issuance to Existing Stockholders of New Warrants to Purchase Common
Stock. In December 1997, the Company issued a dividend in the form of a warrant
(the "Public Warrants") to all of its stockholders (except for Ben Neman, the
Company's Chairman of the Board and President). The Public Warrants entitle the
holders to purchase one-half share of Common Stock at $4 per share for each
Warrant held. The Company will reprice the Public Warrants to an exercise price
of $1 per share, with each Public Warrant being exercisable for one-half share
of Common Stock. In addition, the Company will issue new warrants (the "New
Public Warrants") to all holders of the Company's outstanding shares of Common
Stock (except Ben Neman) to purchase one share of Common Stock at $1 per share
for each two shares of Common Stock held by such stockholders. The New Public
Warrants will be issued as a stock dividend of one New Public Warrant for each
two shares of Common Stock outstanding (other than shares held by Ben Neman).
The Public Warrants are not publicly traded and the New Public Warrants are not
expected to be publicly traded. Neither the Public Warrants nor the New Public
Warrants will be transferable unless pursuant to registration under the
Securities Act or an exemption therefrom.
There are currently 1,261,732 Public Warrants outstanding and there will
be approximately 1,261,732 New Public Warrants issued if the stockholders
approve this Proposal 2. The Public Warrants expire on December 10, 2000 and the
New Public Warrants will expire on the date three years after their issuance.
The Public Warrants are not and neither the Public Warrants nor the New Public
Warrants will be exercisable until the shares of Common Stock underlying such
warrants are registered under the Securities Act. The Public Warrants are, and
the New Public Warrants will be, protected against dilution in the event of
stock splits, stock dividends or reclassifications. Upon a merger or
consolidation of the Company in which the Company is not the surviving
corporation, the Public Warrants entitle, and the New Public Warrants will
entitle, the holder to the kind and number of shares or amount of consideration
receivable by a holder of the number of shares of Common Stock which the holder
of such warrants is entitled to purchase.
18.
<PAGE>
The Public Warrants are redeemable by the Company at any time upon 30 days
written notice at a price of $0.10 per warrant, provided that the closing bid
price of the Common Stock on all 20 of the trading days ending on the third day
prior to giving notice has been equal to or greater than $7 per share. The New
Public Warrants will be redeemable by the Company at any time upon 30 days
written notice at a price of $.01 per warrant, provided that the closing bid
price of the Common Stock for a period of 20 consecutive trading days has
exceeded $2.00 per share on each such day. The Public Warrants may not be
redeemed and the New Public Warrants will not be redeemable prior to the time
the warrants become exercisable.
The repricing of the Public Warrants and the issuance of the New Public
Warrants are designed to afford the Company's existing equity holders an
opportunity to acquire additional shares of Common Stock at the same price as
the Investors in the Note Offering, and to encourage future exercises of
warrants to raise further capital for the Company. Proceeds from the exercise,
if any, of the Public Warrants and New Public Warrants will be used for general
corporate purposes. The only stockholder who will not receive New Public
Warrants is Ben Neman, who currently owns approximately 43% of the outstanding
shares of Common Stock and who fully supports the repricing of the Public
Warrants and the issuance of the New Public Warrants as being in the best
interests of the Company and its stockholders.
(d) The Issuance to the Company's Financial Advisor of a Three-Year
Warrant to Purchase 150,000 Shares of Common Stock and the Cancellation of an
Outstanding Option to Purchase 100,000 Shares of Common Stock. Sands Brothers &
Co., Ltd. ("Sands") has been serving as the Company's financial advisor. The
Company has agreed to pay Sands $50,000 plus expenses for these services. For
financial advisory services provided by Sands in connection with the Note
Offering, the Company also will, subject to stockholder approval of this
Proposal 2, issue to Sands a three-year warrant to purchase 150,000 shares of
Common Stock at $1 per share (the "Sands Warrant") and to cancel an existing
option held by Sands to purchase 100,000 shares of Common Stock at $3.813 per
share. The option, which was issued to Sands in consideration of advisory
services, vests after twelve months and will expire after five years. The shares
of Common Stock issuable upon exercise of the Sands Warrant will be registered
for resale under the Securities Act, together with the Registrable Shares
relating to the Note Offering.
Voting; Lock-Up Agreement
In connection with the Note Offering, Ben Neman, who owns approximately
43% of the outstanding shares of Common Stock, has executed an irrevocable
letter pursuant to which Mr. Neman commits to voting his shares in favor of this
Proposal 2. Mr. Neman also has entered into a lock-up agreement with Sands
pursuant to which Mr. Neman has agreed not to sell or otherwise dispose of any
shares of Common Stock, without the consent of Sands, for a period of twelve
months from the Closing and not to pledge any such shares during the six month
period following the Closing. However, Mr. Neman can sell, subject to the volume
limitations of Rule 144, an unlimited number of shares at a price of $3 per
share or more, and may sell during each three month period during the term of
the lock-up at a price below $3 per share, the lesser of (i) 25,000 shares and
(ii) the difference between (x) 25,000 times the three month period number (1,
2, 3 or 4) of the lock-up period and (y) the aggregate number of all shares sold
by Mr. Neman during the lock-up period. Mr. Neman will be free of the twelve
month restriction noted above, and may sell all of his shares of Common Stock
(which will be included in the registration statement to be filed pursuant to
the Registration Rights Agreement), in the event his employment as Chairman of
the Board and President of the Company terminates other than for cause. See
"Compensation of Directors and Executive Officers -- Employment Agreements." The
foregoing $3 selling price for Mr. Neman's shares does not represent either a
target or projected future trading price by the Company for the Common Stock.
19.
<PAGE>
Nasdaq Stockholder Approval Requirements
The Common Stock is currently traded on the Nasdaq SmallCap Market. The
rules of The Nasdaq Stock Market require that the Company obtain stockholder
approval in connection with any private placement of securities if such
securities are convertible into or exercisable for Common Stock at less than
market value and if the total number of shares of Common Stock issuable upon the
conversion equals or exceeds 20% of the number of shares of Common Stock
outstanding before the issuance. The Notes are convertible into 1,500,000 shares
of Common Stock, or approximately 34% of the shares of Common Stock outstanding
before the Closing. In addition, the Company intends to grant the options and
issue the warrants described in "Related Transactions" above, all of which are
exercisable for or convertible into Common Stock. In order to assure compliance
with the above-referenced Nasdaq rules, the Company agreed with Nasdaq that the
Company would obtain stockholder ratification of the Note Offering and approval
of the transactions related thereto prior to the conversion of the Notes,
granting of the options and issuance of the warrants. The Company is requesting
that the holders of the Common Stock ratify the Note Offering and approve the
transactions related thereto, and authorize the Company to convert the Notes
into Common Stock and Warrants. No further authorization or vote of the holders
of the Common Stock will be sought or required with respect to the subsequent
issuance of Common Stock and Warrants upon the conversion of the Notes, for the
issuance of Common Stock upon exercise of the Warrants or for the granting of
the options and issuance of the warrants described under "Related Transactions"
above. The issuance of shares of Common Stock may be dilutive to the interests
of the holders of the currently outstanding shares of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE
COMPANY'S PRIVATE PLACEMENT OF $1,500,000 PRINCIPAL AMOUNT OF THREE-YEAR
UNSECURED AND SUBORDINATED CONVERTIBLE NOTES AND TO APPROVE CERTAIN TRANSACTIONS
RELATED THERETO
PROPOSAL 3 -
PROPOSAL TO RATIFY THE ADOPTION OF THE COMPANY'S
1998 STOCK OPTION PLAN
In February 1998, the Company's Board of Directors unanimously adopted and
approved the Company's 1998 Stock Option Plan and amended the plan in November
1998 (as amended, the "1998 Plan"). The purpose of the 1998 Plan is to enable
the Company to attract and retain top-quality employees, officers, directors and
consultants and to provide such employees, officers, directors and consultants
with an incentive to enhance stockholder return. The full text of the 1998 Plan
appears as Exhibit 1 to this Proxy Statement and the description of the 1998
Plan herein is qualified by reference to the text of the 1998 Plan.
Description of the 1998 Plan
The key terms of the 1998 Plan are outlined below.
The 1998 Plan provides for the grant of options to officers, directors,
other key employees and consultants of the Company to purchase up to an
aggregate of 540,000 shares of Common Stock. The 1998 Plan is to be administered
by the Board of Directors or a committee of the Board, and is currently
20.
<PAGE>
administered by the Board of Directors, which has complete discretion to select
the optionees and to establish the terms and conditions of each option, subject
to the provisions of the 1998 Plan. The Company has formed a 162(m) committee
consisting of two outside directors which may determine the grants, including
the terms and conditions, of options to executive officers. Options granted
under the 1998 Plan may be "incentive stock options" as defined in Section 422
of the Code, or nonqualified options, and will be designated as such. Options
covering no more than 432,000 shares of Common Stock may be granted to any one
employee in any twelve month period.
The exercise price of incentive stock options may not be less than 100% of
the fair market value of the Company's Common Stock as of the date of grant
(110% of the fair market value if the grant is to an employee who owns more than
10% of the total combined voting power of all classes of capital stock of the
Company). The Code currently limits to $100,000 the aggregate value of Common
Stock that may become exercisable in any one year pursuant to incentive stock
options under the 1998 Plan or any other option plan adopted by the Company.
Nonqualified options may be granted under the 1998 Plan at an exercise price
less than the fair market value of the Common Stock on the date of grant.
Nonqualified options also may be granted without regard to any restriction on
the amount of Common Stock that may be acquired upon exercise of such options in
any one year.
In general, upon termination of employment of an optionee, all options
granted to such person which were not exercisable on the date of such
termination would immediately terminate, and any options that are exercisable
would terminate 90 days (one year in the case of termination by reason of death
or disability) following termination of employment.
Options may not be exercised more than ten years after the grant (five
years after the grant if the grant is an incentive stock option to an employee
who owns more than 10% of the total combined voting power of all classes of
capital stock of the Company). Options granted under the 1998 Plan are not
transferable and may be exercised only by the respective grantees during their
lifetime or by their heirs, executors or administrators in the event of death.
Under the 1998 Plan, shares subject to cancelled or terminated options are
reserved for subsequently granted options. The number of options outstanding and
the exercise price thereof are subject to adjustment in the case of certain
transactions such as mergers, recapitalizations, stock splits or stock
dividends. The 1998 Plan is effective for ten years, unless sooner terminated or
suspended.
Certain Federal Income Tax Consequences
Incentive stock options under the 1998 Plan are afforded favorable federal
income tax treatment under the Code. If an option is treated as an incentive
stock option, the optionee will recognize no income upon grant or exercise of
the option unless the alternative minimum tax rules apply. Upon an optionee's
sale of the shares (assuming that the sale occurs at least two years after grant
of the option and at least one year after exercise of the option), any gain will
be taxed to the optionee as long-term capital gain. If the optionee disposes of
the shares prior to the expiration of the above holding periods, then the
optionee will recognize ordinary income in an amount generally measured as the
difference between the exercise price and the lower of the fair market value of
the shares at the exercise date or the sale price of the shares. Any gain or
loss recognized on such a premature sale of the shares in excess of the amount
treated as ordinary income will be characterized as capital gain or loss.
21.
<PAGE>
All other options granted under the 1998 Plan are nonstatutory stock
options and will not qualify for any special tax benefits to the optionee. An
optionee will not recognize any taxable income at the time he or she is granted
a nonstatutory stock option. However, upon exercise of the nonstatutory stock
option, the optionee will recognize ordinary income for federal income tax
purposes in an amount generally measured as the excess of the then fair market
value of each share over its exercise price. Upon an optionee's resale of such
shares, any difference between the sale price and the fair market value of such
shares on the date of exercise will be treated as capital gain or loss and will
generally qualify for long-term capital gain or loss treatment if the shares
have been held for more than one year. Recently enacted legislation provides for
reduced tax rates for long-term capital gains based on the taxpayer's income and
the length of the taxpayer's holding period.
Subject to the limits on deductibility of employee remuneration under
Section 162(m) of the Code, the Company will generally be entitled to a tax
deduction in the amount that an optionee recognizes as ordinary income with
respect to an option. Options granted to executive officers under the 1998 Plan
are intended to qualify as performance-based compensation for purposes of
Section 162(m) of the Code, and the Company will generally be entitled to a tax
deduction in the amount recognized by such officers upon exercise of the
options. No tax authority or court has ruled on the applicability of Section
162(m) to the 1998 Plan and any final determination of the deductibility of
amounts realized upon exercise of an option granted under the 1998 Plan could
ultimately be made by the Internal Revenue Service or a court having final
jurisdiction with respect to the matter. The Company retains the right to grant
options under the 1998 Plan in accordance with the terms of the 1998 Plan
regardless of any final determination as to the applicability of Section 162(m)
of the Code to these grants.
The Board of Directors may suspend, terminate, modify or amend the 1998
Plan, provided that any amendment that would increase the aggregate number of
shares which may be issued under the 1998 Plan, materially increase the benefits
accruing to participants under the 1998 Plan, or materially modify the
requirements as to eligibility for participation in the 1998 Plan, shall be
subject to the approval of the Company's stockholders, except that any such
increase or modification that may result from anti-dilution adjustments does not
require stockholder approval. No suspension, termination, modification or
amendment of the 1998 Plan may, without the consent of the participant to whom
an option has already been granted, affect the rights of such participant under
such option.
The foregoing does not purport to be a complete summary of the federal
income tax considerations that may be relevant to holders of options or to the
Company. It also does not reflect provisions of the income tax laws of any
municipality, state or foreign country in which an optionee may reside, nor does
it reflect the tax consequences of an optionee's death.
Participation in the 1998 Plan
Four executive officers, six directors and approximately 17 employees will
be eligible to participate in the 1998 Plan. Options to purchase an aggregate of
400,000 shares of Common Stock are outstanding under the 1998 Plan. Of such
options, options to purchase 100,000 shares of Common Stock were granted at
$3.81 per share to J. Sherman Henderson, options to purchase 50,000 shares of
Common Stock were granted at $.375 per share to David Kane, and options to
purchase 50,000 shares of Common Stock at $4.375 and 50,000 shares at $.375 were
granted to Stephen Jarrett. Under the 1998 Plan, outstanding options to purchase
150,000 shares of Common Stock are held by current executive officers of the
Company, outstanding options to purchase 100,000 shares of Common Stock are held
by current directors of the Company who are not also executive officers, and
outstanding options to purchase 50,000 shares of Common Stock are held by
employees of the Company. Additional future grants to eligible persons are not
currently determinable.
22.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE
ADOPTION OF THE COMPANY'S 1998 PLAN.
PROPOSAL 4 -
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Hollander, Lumer & Co., LLP as
independent auditors of the Company's financial statements for the fiscal year
ending December 31, 1999 subject to ratification by the stockholders. A
representative of Hollander, Lumer & Co., LLP will be available at the Annual
Meeting to respond to appropriate questions or make other statements such
representative deems appropriate. A representative of Richard A. Eisner &
Company, LLP will not be available at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE
APPOINTMENT OF HOLLANDER, LUMER & CO. LLP AS INDEPENDENT AUDITORS FOR THE FISCAL
YEAR ENDING DECEMBER 31, 1999.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and certain of its officers, and persons who own more than
10% of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than 10% stockholders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) forms they file. Based solely upon a review of the copies of
the forms furnished to the Company and the representations made by the reporting
persons to the Company, the Company believes that during the fiscal year ended
December 31, 1997, its directors, officers and 10% stockholders complied with
all filing requirements under Section 16(a) of the Exchange Act, with the
exception of the following: John C. Snyder II failed to file a Form 3 upon
joining the Company in April 1997 and failed to file a Form 5 for the grant of
options to purchase 50,000 shares of Common Stock on April 30, 1997.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders are advised that any stockholder proposal, including
nominations to the Board of Directors, intended for consideration at the 1999
Annual Stockholders Meeting must be received by the Company no later than August
10, 1999 to be included in the proxy material for the 1999 Annual Meeting. It is
recommended that stockholders submitting proposals direct them to David Kane of
the Company, and utilize certified mail, return-receipt requested in order to
ensure timely delivery.
23.
<PAGE>
FINANCIAL STATEMENTS
The Company's Annual Report on Form 10-K for the year ended December 31,
1997 distributed with this Proxy Statement is incorporated herein by reference
and the Company's Form 10-Q for the period ended September 30, 1998 is included
with this Proxy Statement as Exhibit 2 hereto.
OTHER MATTERS
The Board of Directors knows of no matter to come before the Annual
Meeting other than as specified herein. If other business should, however, be
properly brought before the Annual Meeting, notice of which has not been
received by the Company within a reasonable time prior to the mailing of this
Proxy Statement, the persons voting the proxies will vote them in accordance
with their best judgment.
THE STOCKHOLDERS ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
Ben Neman
Chairman of the Board
December 8, 1998
24.
<PAGE>
EXHIBIT 1
1998 STOCK OPTION PLAN
OF
INTELLICELL CORP.
1. Purpose
Intellicell Corp. (the "Company") desires to attract and retain the best
available talent and encourage the highest level of performance in order to
continue to serve the best interests of the Company, and its stockholders. By
affording key personnel the opportunity to acquire proprietary interests in the
Company and by providing them incentives to put forth maximum efforts for the
success of the business, the 1998 Stock Option Plan of Intellicell Corp. (the
"1998 Plan") is expected to contribute to the attainment of those objectives.
The word "Subsidiary" or "Subsidiaries" as used herein, shall mean any
corporation, fifty percent or more of the voting stock of which is owned by the
Company.
2. Scope and Duration
Options under the 1998 Plan may be granted in the form of incentive stock
options ("Incentive Options") as provided in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or in the form of nonqualified stock
options ("Non-Qualified Options"). (Unless otherwise indicated, references in
the 1998 Plan to "options" include Incentive Options and Non-Qualified Options.)
The maximum aggregate number of shares as to which options may be granted from
time to time under the 1998 Plan is 540,000 shares of the Common Stock of the
Company ("Common Stock"), which shares may be, in whole or in part, authorized
but unissued shares or shares reacquired by the Company. If an option shall
expire, terminate or be surrendered for cancellation for any reason without
having been exercised in full, the shares represented by the option or portion
thereof not so exercised shall (unless the 1998 Plan shall have been terminated)
become available for subsequent option grants under the 1998 Plan. As provided
in paragraph 13, the 1998 Plan shall become effective on February 20, 1998, and
unless terminated sooner pursuant to paragraph 14, the 1998 Plan shall terminate
on February 19, 2008, and no option shall be granted hereunder after that date.
3. Administration
The 1998 Plan shall be administered by the Board of Directors of the
Company. The Board of Directors shall have plenary authority in its discretion,
subject to and not inconsistent with the express provisions of the 1998 Plan, to
grant options covered by each option, the term of each option, the persons to
whom, and the time or times at which, options shall be granted and the number of
shares to be covered by each option; to designate options as Incentive Options
or Non-Qualified Options; to interpret the 1998
<PAGE>
plan; to prescribe, amend and rescind rules and regulations relating to the 1998
Plan; to determine the terms and provisions of the option agreements (which need
not be identical) entered into in connection with options under the 1998 Plan;
and to make all other determinations deemed necessary or advisable for the
administration of the 1998 Plan. The Board of Directors may delegate to one or
more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Board of Directors or any person to whom it has
delegated duties as aforesaid may employ one or more persons to render advice
with respect to any responsibility the Board of Directors or the Committee or
such person may have under the 1998 Plan.
4. Eligibility; Factors to be Considered in Granting Options
Incentive Options shall be limited to persons who are employees of the
Company or its present and future Subsidiaries and at the date of grant of any
option are in the employ of the Company or its present and future Subsidiaries.
In determining the employees to whom Incentive Options shall be granted and the
number of shares to be covered by each Incentive Option, the Board of Directors
shall take into account the nature of employees' duties, their present and
potential contributions to the success of the Company and such other factors as
it shall deem relevant in connection with accomplishing the purposes of the 1998
Plan. An employee who has been granted an option or options under the 1998 Plan
may be granted an additional option or options, subject, in the case of
Incentive Options, to such limitations as may be imposed by the Code on such
options. Except as provided below, a Non-Qualified Option may be granted to any
person, including, but not limited to, employees, independent agents,
consultants and attorneys, who the Board of Directors believes has contributed,
or will contribute, to the success of the Company. Options covering no more than
432,000 shares of Common Stock may be granted to any one eligible person in any
twelve month period.
5. Option Price
The purchase price of the Common Stock covered by each option shall be
determined by the Board of Directors but in no event shall the purchase price be
less than 100% of the Fair Market Value (as defined in paragraph 15 below) of a
share of the Common Stock on the date on which the option is granted. Such price
shall be subject to adjustment as provided in paragraph 12 below. The Board of
Directors shall determine the date on which an option is granted; in the absence
of such a determination, the date on which the Board of Directors adopts a
resolution granting an option shall be considered the date on which such option
is granted.
6. Term of Options
The term of each option shall be not more than ten years from the date of
grant, as the Board of Directors shall determine, subject to earlier termination
as provided in paragraphs 10 and 11 below.
7. Exercise of Options
2
<PAGE>
(a) Subject to the provisions of the 1998 Plan and unless otherwise
provided in the option agreement, options granted under the 1998 Plan shall
become exercisable as determined by the Board of Directors. In its discretion,
the Board of Directors may, in any case or cases, prescribe that options granted
under the 1998 Plan become exercisable in installments or provide that an option
may be exercisable in full immediately upon the date of its grant. The Board of
Directors may, in its sole discretion, also provide that an option granted
pursuant to the 1998 Plan shall immediately become exercisable in full upon the
happening of any of the following events; (i) the first purchase of shares of
Common Stock pursuant to a tender offer or exchange offer (other than an offer
by the Company) for all, or any part of, the Common Stock, (ii) the approval by
the stockholders of the Company of an agreement for a merger in which the
Company will not survive as an independent, publicly owned corporation, a
consolidation, or a sale, exchange or other disposition of all or substantially
all of the Company's assets, (iii) with respect to an employee, on his 65th
birthday, or (iv) with respect to an employee, on the employee's involuntary
termination from employment, except as provided in Section 10 herein. In the
event of a question or controversy as to whether or not any of the events
hereinabove described has taken place, a determination by the Board of Directors
that such event has or has not occurred shall be conclusive and binding upon the
Company and participants in the 1998 Plan.
(b) Any option at any time granted under the 1998 Plan may contain a
provision to the effect that the optionee (or any persons entitled to act under
Paragraph 11 hereof) may, at any time at which Fair Market Value is in excess of
the exercise price and prior to exercising the option, in whole or in part,
request that the Company purchase all or any portion of the option as shall then
be exercisable at a price equal to the difference between (i) an amount equal to
the option price multiplied by the number of shares subject to that portion of
the option in respect of which such request shall be made and (ii) an amount
equal to such number of shares multiplied by the fair market value of the
Company's Common Stock (within the meaning of Section 422 of the Code and the
treasury regulations promulgated thereunder) on the date of purchase. The
Company shall have no obligation to make any purchase pursuant to such request,
but if it elects to do so, such portion of the option as to which the request is
made shall be surrendered to the Company. The purchase price for the portion of
the option to be so surrendered shall be paid by the Company, at the election of
the Board of Directors either in cash or in shares of Common Stock (valued as of
the date and in the manner provided in clause (ii) above), or in any combination
of cash and Common Stock, which may consist, in whole or in part, of shares of
authorized but unissued Common Stock or shares of Common Stock held in the
Company's treasury. No fractional share of Common Stock shall be issued or
transferred and any fractional share shall be disregarded. Shares covered by
that portion of any option purchased by the Company pursuant hereto and
surrendered to the Company shall not be available for the granting of further
options under the Plan. All determinations to be made by the Company hereunder
shall be made by the Board of Directors.
3
<PAGE>
(c) An option may be exercised, at any time or from time to time (subject,
in the case of Incentive Options, to such restrictions as may be imposed by the
Code), as to any or all full shares as to which the option has become
exercisable until the expiration of the period set forth in Paragraph 6 hereof,
by the delivery to the Company, at its principal place of business, of (i)
written notice of exercise in the form specified by the Board of Directors
specifying the number of shares of Common Stock with respect to which the option
is being exercised and signed by the person exercising the option as provided
herein, (ii) payment of the purchase price; and (iii) in the case of
Non-Qualified Options, payment in cash of all withholding tax obligations
imposed on the Company by reason of the exercise of the option. Upon acceptance
of such notice, receipt of payment in full, and receipt of payment of all
withholding tax obligations, the Company shall cause to be issued a certificate
representing the shares of Common Stock purchased. In the event the person
exercising the option delivers the items specified in (i) and (ii) of this
Subsection (C), but not the item specified in (iii) hereof, if applicable, the
option shall still be considered exercised upon acceptance by the Company for
the full number of shares of Common Stock specified in the notice of exercise
but the actual number of shares issued shall be reduced by the smallest number
of whole shares of Common Stock which, when multiplied by the Fair Market Value
of the Common Stock as of the date the option is exercised, is sufficient to
satisfy the required amount of withholding tax.
(d) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Company; in
addition, subject to compliance with applicable laws and regulations and such
conditions as the Board of Directors may impose, the Board of Directors in its
sole discretion, may on a case-by-case basis elect to accept payment in shares
of Common Stock of the Company which are already owned by the option holder,
valued at the Fair Market Value thereof (as defined in paragraph 15 below) on
the date of exercise; provided, however, that with respect to Incentive Options,
no such discretion may be exercised unless the option agreement permits the
payment of the purchase price in that manner.
(e) Except as provided in paragraphs 10 and 11 below, no option granted to
an employee may be exercised at any time by such employee unless such employee
is then an employee of the Company or a Subsidiary.
8. Incentive Options
(a) With respect to Incentive Options granted, the aggregate Fair Market
Value (determined in accordance with the provisions of paragraph 15 at the time
the Incentive Option is granted) of the Common Stock or any other stock of the
Company or its current or future Subsidiaries with respect to which incentive
stock options, as defined in Section 422 of the Code, are exercisable for the
first time by any employee during any calendar year (under all incentive stock
option plans of the Company and its parent and subsidiary corporation's, as
those terms are defined in Section 424 of the Code) shall not exceed $100,000.
4
<PAGE>
(b) No Incentive Option may be awarded to any employee who immediately
prior to the date of the granting of such Incentive Option owns more than 10% of
the combined voting power of all classes of stock of the Company or any of its
Subsidiaries unless the exercise price under the Incentive Option is at least
110% of the Fair Market Value and the option expires within 5 years from the
date of grant.
(c) In the event of amendments to the Code or applicable regulations
relating to Incentive Options subsequent to the date hereof, the Company may
amend the provisions of the 1998 Plan, and the Company and the employees holding
options may agree to amend outstanding option agreements, to conform to such
amendments.
9. Non-Transferability of Options
Options granted under the 1998 Plan shall not be transferable otherwise
than by will or the laws of descent and distribution, and options may be
exercised during the lifetime of the optionee only by the optionee. No transfer
of an option by the optionee by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Company shall have been
furnished with written notice thereof and a copy of the will and such other
evidence as the Company may deem necessary to establish the validity of the
transfer and the acceptance by the transferor or transferees of the terms and
conditions of such option.
10. Termination of Employment
In the event that the employment of an employee to whom an option has been
granted under the 1998 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1998
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within ninety (90) days after such
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose employment
is terminated for cause or voluntarily without the consent of the Company shall,
to the extent not theretofore exercised, automatically terminate as of the date
of termination of employment. As used herein, "cause" shall mean conduct
amounting to fraud, dishonesty, negligence, or engaging in competition or
solicitations in competition with the Company and breaches of any applicable
employment agreement between the Company and the optionee. Options granted to
employees under the 1998 Plan shall not be affected by any change of duties or
position so long as the holder continues to be a regular employee of the Company
or any of its current or future Subsidiaries. Any option agreement or any rules
and regulations relating to the 1998 Plan may contain such provisions as the
Board of Directors shall approve with reference to the determination of the date
employment terminates and the effect of leaves of absence. Nothing in the 1998
Plan or in any option granted pursuant to the 1998 Plan shall confer upon any
employee any right to continue in the employ of the Company or any of its
Subsidiaries or parent or affiliated companies or interfere in any way with the
right of the
5
<PAGE>
Company or any such Subsidiary or parent of affiliated companies to terminate
such employment at any time.
11. Death or Disability of Employee
If an employee to whom an option has been granted under the 1998 Plan
shall die while employed by the Company or a Subsidiary or within ninety (90)
days after the termination of such employment (other than termination for cause
or voluntary termination without the consent of the Company), such option may be
exercised, to the extent exercisable by the employee on the date of death, by a
legatee or legatees of the employee under the employee's last will, or by the
employee's personal representative or distributees, at any time within one year
after the date of the employee's death, but not later than the date on which the
option terminates. In the event that the employment of an employee to whom an
option has been granted under the 1998 Plan shall be terminated as the result of
a disability, such option may be exercised, to the extent exercisable by the
employee on the date of such termination, at any time within one year after the
date of such termination, but not later than the date on which the option
terminates.
12. Adjustments Upon Changes in Capitalization, Etc.
Notwithstanding any other provision of the 1998 Plan, the Board of
Directors may, at any time, make or provide for such adjustments to the 1996
Plan, to the number and class of shares issuable thereunder or to any
outstanding options as it shall deem appropriate to prevent dilution or
enlargement of rights, including adjustments in the event of changes in the
outstanding Common Stock by reason of stock dividends, split-ups,
recapitalizations, mergers, consolidations, combinations or exchanges of shares
separations, reorganizations, liquidations and the like. In the event of any
offer to holders of Common Stock generally relating to the acquisition of their
shares, the Board of Directors may make such adjustment as it deems equitable in
respect of outstanding options and rights, including in its discretion revision
of outstanding options and rights so that they may be exercisable for the
consideration payable in the acquisition transaction. Any such determination by
the Board of Directors shall be conclusive. Any fractional shares resulting from
such adjustments shall be eliminated.
13. Effective Date
The 1998 Plan shall become effective on February 20, 1998.
14. Termination and Amendment
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1998 Plan, provided that any amendment that would increase the
aggregate number of shares which may be issued under the 1998 Plan, materially
increase the benefits accruing to participants under the 1998 Plan, or
materially modify the requirements as to eligibility for participation in the
1998 Plan, shall be subject to the
6
<PAGE>
approval of the Company's stockholders, except that any such increase or
modification that may result from adjustments authorized by paragraph 12 does
not require such approval. No suspension, termination, modification or amendment
of the 1998 Plan may, without the consent of the employee to whom an option
shall theretofore have been granted, effect the rights of such employee under
such option.
15. Miscellaneous
As said term is used in the 1998 Plan, the "Fair Market Value" of a share
of Common Stock on any day means: (a) if the principal market for the Common
Stock is a national securities exchange or the National Association of
Securities Dealers Automated Quotations System ("NASDAQ"), the closing sales
price of the Common Stock on such day as reported by such exchange or market
system, or on a consolidated tape reflecting transactions on such exchange or
market system, or (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is not quoted on NASDAQ, the
mean between the highest bid and lowest asked prices for the Common Stock on
such day as reported by the National Quotation Bureau, Inc.; provided that if
clauses (a) and (b) of this paragraph are both inapplicable, or if no trades
have been made or no quotes are available for such day, the Fair Market Value of
the Common Stock shall be determined by the Board of Directors shall be
conclusive as to the Fair Market Value of the Common Stock.
The Board of Directors or the Committee may require, as a condition to the
exercise of any options granted under the 1998 Plan, that to the extent required
at the time of exercise, (i) the shares of Common Stock reserved for purposes of
the 1998 Plan shall be duly listed, upon official notice of issuance, upon stock
exchange(s) on which the Common Stock is listed, (ii) a Registration Statement
under the Securities Act of 1933, as amended, with respect to such shares shall
be effective, and/or (iii) the person exercising such option deliver to the
Company such documents, agreements and investment and other representations as
the Board of Directors shall determine to be in the best interests of the
Company.
During the term of the 1998 Plan, the Board of Directors in its
discretion, may offer one or more option holders the opportunity to surrender
any or all unexpired options for cancellation or replacement. If any options are
so surrendered, the Board of Directors may then grant new Non-Qualified or
Incentive Options to such holders for the same or different numbers of shares at
higher or lower exercise prices than the surrendered options. Such new options
may have a different term and shall be subject to the provisions of the 1998
Plan the same as any other option.
Anything herein to the contrary notwithstanding, the Board of Directors
may, in its sole discretion, impose more restrictive conditions on the exercise
of an option granted pursuant to the 1998 Plan; however, any and all such
conditions shall be specified in the option agreement limiting and defining such
option.
7
<PAGE>
16. Compliance with SEC Regulations
It is the Company's intent that the 1998 Plan comply in all respects with
Rule 16b-3 of the Act and any regulations promulgated thereunder. If any
provision of the 1998 Plan is later found not to be in compliance with said
Rule, the provisions shall be deemed null and void. All grants and exercises of
Incentive Options under the 1998 Plan shall be executed in accordance with the
requirements of Section 16 of the Act, as amended, and any regulations
promulgated thereunder.
17. Corporate Transactions
In the event of the proposed dissolution or liquidation of the Company,
the Board of Directors shall notify each optionee at least 30 days prior to such
proposed action. To the extent not previously exercised, all options will
terminate immediately prior to the consummation of such proposed action;
provided, however, that the Board of Directors, in the exercise of its sole
discretion, may permit exercise of any options prior to their termination, even
if such options were not otherwise exercisable. In the event of a merger or
consolidation of the Company with or into another corporation or entity in which
the Company does not survive, or in the event of a sale of all or substantially
all of the assets of the Company in which the stockholders of the Company
receive securities of the acquiring entity or an affiliate thereof, all options
shall be assumed or equivalent options shall be substituted by the successor
corporation (or other entity) or a parent or subsidiary of such successor
corporation (or other entity); provided, however, that if such successor does
not agree to assume the options or to substitute equivalent options therefor,
the Board of Directors, in the exercise of its sole discretion, may permit the
exercise of any of the options prior to consummation of such event, even if such
options were not otherwise exercisable.
8
<PAGE>
INTELLICELL CORP.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 30, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby revokes all prior proxies, appoints Ben Neman and
David Kane, and each or either of them, as proxy holders with power to appoint
his substitute and hereby authorizes the proxy holders to represent and vote, as
designated below, all the shares of Intellicell Corp. (the "Company") held of
record by the undersigned on December 4, 1998 at the Annual Meeting of
Stockholders to be held on December 30, 1998 at 10:00 A.M. or any and all
adjournments thereof.
1. ELECTION OF DIRECTORS:
|_| FOR all nominees listed below (except as marked to the
contrary below).
|_| WITHHOLD AUTHORITY to vote for all nominees listed below.
(INSTRUCTION: To withhold authority to vote for any nominee, draw a line
through such nominee's name.)
Ben Neman
Vinay Sharma
Stephen Jarrett
J. Sherman Henderson
John Swinehart
Mark M. Laisure
2. Proposal to ratify the Company's private placement of $1,500,000
principal amount of three-year unsecured and subordinated
convertible notes and to approve certain transactions related
thereto.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to ratify the adoption of the Company's 1998 Stock Option
Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Proposal to ratify the appointment of Hollander, Lumer & Co., LLP as
independent auditors for the fiscal year ending December 31, 1999.
|_| FOR |_| AGAINST |_| ABSTAIN
<PAGE>
5. In their discretion, the proxy holders are authorized to vote upon
such other business as may properly be brought before the Annual
Meeting or any and all adjournments thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CHOICE IS SPECIFIED, FOR THE
ELECTION OF THE NOMINEES, FOR PROPOSALS 2, 3 AND 4 AND AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY
AND ALL ADJOURNMENTS THEREOF. IN THE EVENT ANY OF THE NOMINEES IS UNAVAILABLE
FOR ELECTION OR UNABLE TO SERVE, THE SHARES REPRESENTED BY THIS PROXY MAY BE
VOTED FOR A SUBSTITUTE NOMINEE SELECTED BY THE BOARD OF DIRECTORS.
Dated: ________________, 1998
--------------------------------------------
Signature
--------------------------------------------
(Signature, if held jointly)
Please sign exactly as your name appears
hereon. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee
or guardian, please give full title as such.
If a corporation, please sign in full
corporate name by the President or other
authorized officer. If a partnership, please
sign in partnership name by an authorized
partner.
PLEASE PROMPTLY MARK, SIGN, DATE, AND RETURN THIS PROXY
USING THE ENCLOSED ENVELOPE.
