<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(As permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or Sec. 240.14a-12
PROCOM TECHNOLOGY, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee Computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by exchange act rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
PROCOM TECHNOLOGY, INC.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 5, 2001
To The Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of PROCOM
TECHNOLOGY, INC. (the "Company"), a California corporation, will be held on
Monday, February 5, 2001 at 10:00 a.m., local time, at the Company's offices at
58 Discovery, Irvine, California 92618 for the following purposes:
1. To elect directors to serve for the ensuing year or until their
successors are elected.
2. To approve an amendment to the 1995 Incentive Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 1,000,000.
3. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the fiscal year ending July 31, 2001.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on December 15, 2000,
are entitled to notice of and to vote at the Annual Meeting, and at any
adjournments or postponements thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
Frank Alaghband
Secretary
Irvine, California
December 28, 2000
YOUR VOTE IS IMPORTANT
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE AND RETURN IT
IN THE ENCLOSED ENVELOPE.
<PAGE> 3
PROCOM TECHNOLOGY, INC.
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
PROCOM TECHNOLOGY, INC. (the "Company") for use at the Annual Meeting of
Shareholders to be held Monday, February 5, 2001, at 10:00 a.m., local time, or
at any adjournments or postponements thereof (the "Annual Meeting"), for the
purposes set forth herein and in the accompanying Notice of Annual Meeting of
Shareholders (the "Notice"). The Annual Meeting will be held at the principal
executive offices of the Company, 58 Discovery, Irvine, California 92618. The
telephone number of the Company's principal executive offices is (949) 852-1000.
These proxy solicitation materials and the Annual Report to Shareholders
for the fiscal year ended July 31, 2000, including financial statements, were
first mailed on or about December 28, 2000 to all shareholders entitled to vote
at the meeting.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on December 15, 2000
are entitled to notice of and to vote at the meeting. The Company has one series
of Common Stock outstanding, designated Common Stock, $.01 par value. At the
record date, 11,623,510 shares of the Company's Common Stock were issued and
outstanding. No shares of the Company's Preferred Stock were outstanding. Each
shareholder of record is entitled to one vote for each share held on all matters
to come before the Annual Meeting and at any adjournment or postponement
thereof.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
VOTING AND SOLICITATION
In the election of directors, a shareholder shall not be entitled to
cumulate votes (i.e., cast for any one or more candidates a number of votes
greater than the number of such shareholder's shares) unless the candidate's or
candidates' names have been placed in nomination prior to the commencement of
the voting, and a shareholder has given notice prior to commencement of the
voting of such shareholder's intention to cumulate votes. As of the date of this
Proxy Statement, the Company has not received any such notice from any
shareholder. If any shareholder timely gives such a notice, each shareholder
will be entitled to cast in the election of directors such number of votes as is
equal to the number of shares held multiplied by the number of directors to be
elected. Such votes may then be cast for a single candidate or may be
distributed among two or more candidates as may be determined by the
shareholder.
The accompanying proxy card grants the named proxies discretionary
authority to vote cumulatively, if cumulative voting applies. In such event,
unless otherwise instructed, the named proxies intend to vote equally "FOR" each
of the six candidates for director. However, if sufficient numbers of Company
shareholders exercise cumulative voting rights to elect one or more candidates,
the named proxies will determine the number of directors they are entitled to
elect, select such number from among the named candidates, cumulate their votes,
and cast their votes for each candidate among the number they are entitled to
elect. If voting is not conducted by cumulative voting, shareholders holding a
majority of the Common Stock will be able to elect all of the directors, and the
other shareholders will be unable to elect any director or directors. A quorum
comprising the holders of the majority of the outstanding shares of Common Stock
on the record date
<PAGE> 4
must be present or represented for the transaction of business at the Annual
Meeting. Abstentions and broker non-votes will be counted in establishing the
quorum.
Votes cast by proxy or in person at the Annual Meeting will be counted by
the person appointed by the Company to act as an inspector of election for the
meeting. The election inspector will treat shares represented by the proxies
that reflect abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. Abstentions, however, do not
constitute a vote "for" or "against" any matter and thus will be disregarded in
the calculation of a plurality or of votes cast on any matter submitted to the
shareholders for a vote.
The election inspector will treat shares referred to as "broker non-votes."
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum. A broker non-vote occurs when a nominee or broker holding
shares for a beneficial owner does not vote on a particular proposal because the
nominee or broker does not have the discretionary voting power with respect to
that item, and has not received voting instructions from the beneficial owner.
However, for purposes of determining the outcome of any matter as to which the
broker has physically indicated on the proxy that it does not have discretionary
authority to vote, those shares will be treated as not present and not entitled
to vote with respect to that matter (even though those shares are considered
entitled to vote for quorum purposes and may be entitled to vote on other
matters). Any unmarked proxies, including those submitted by brokers or
nominees, will be voted as indicated in the accompanying proxy card.
The cost of soliciting votes will be borne by the Company. The Company has
not retained any firm to solicit votes or proxy votes. The Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally or by
telephone, facsimile or other means.
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<PAGE> 5
SECURITY OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of December 15, 2000 by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each of the
executive officers named in the table under "Executive Compensation and Other
Matters -- Executive Compensation -- Summary Compensation Table" and (iv) all
directors and executive officers as a group. Except as indicated in the
footnotes to the table, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP CLASS
--------------------------------------- ----------- -----------
<S> <C> <C>
Alex Razmjoo(2)(3).......................................... 1,766,316 15.2%
Frank Alaghband(2)(3)....................................... 1,644,754 14.3%
Alex Aydin(2)(3)(4)......................................... 1,407,545 12.2%
Nick Shahrestany(2)(3)...................................... 1,519,752 13.1%
Frederick Judd(4)(5)........................................ 53,692 *
Dom Genovese(2)(6).......................................... 9,000 *
David Blake(2)(6)........................................... 8,000 *
All directors and executive officers as a group (7
persons)(3)(4)(5)(6)...................................... 6,409,059 55.0%
</TABLE>
---------------
* Less than one percent.
(1) The address of each of the directors and officers is 58 Discovery, Irvine,
California 92618.
(2) A director of the Company.
(3) Includes 7,500 shares of Common Stock which may be acquired within 60 days
after December 15, 2000 through the exercise of stock options.
(4) Includes 16,435 shares currently owned by Mr. Aydin subject to an option
granted to Mr. Judd by Mr. Aydin, which option is presently exercisable in
full, and 6,500 and 3,500 shares owned by the children of Mr. Aydin and Mr.
Judd, respectively, which ownership is attributed to Mr. Aydin or Mr. Judd,
and which ownership Mr. Aydin and Mr. Judd have disclaimed.
(5) Includes 21,048 shares of Common Stock which may be acquired within 60 days
after December 15, 2000 through the exercise of stock options.
(6) Includes 9,000 shares of Common Stock (8,000 in the case of Mr. Blake) which
may be acquired within 60 days after December 15, 2000 through the exercise
of stock options.
SHAREHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL MEETING
Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 2001 Annual Meeting (to be held in 2002) must be
received by the Secretary of the Company at the Company's principal executive
offices no later than September 30, 2001 in order that they may be included in
the proxy statement and form of proxy relating to that meeting.
3
<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
A board of six (6) directors is to be elected at the meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the six (6) nominees named below, all of whom are presently directors of the
Company. If voting is conducted by cumulative voting, the proxies named on the
enclosed form of proxy will have discretionary authority (unless such authority
is withheld) to cumulate votes among the nominees in such proportion as they see
fit. In the event that any nominee is unable or declines to serve as a director
at the time of the Annual Meeting, the proxies will be voted for any nominee who
may be designated by the present Board of Directors (the "Board") to fill the
vacancy. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all proxies received by them in such
a manner (in accordance with cumulative voting, if applicable, see "Voting and
Solicitation" above) as will assure the election of as many of the nominees
listed below as possible, and, in such event, the specific nominees to be voted
for will be determined by the proxy holders. The Company is not aware of any
nominee who will be unable or will decline to serve as a director. The term of
office for each person elected as a director will continue until the next Annual
Meeting of Shareholders or until his or her successor has been elected and
qualified.
VOTE REQUIRED
If a quorum is present and voting, the six nominees receiving the highest
number of affirmative votes cast will be elected to the Board of Directors.
Votes withheld from all directors are counted for the purposes of determining
the presence or absence of a quorum for the transaction of business, but have no
other effect under California law. See "Voting and Solicitation" above.
NOMINEES
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
---- --- -------- --------
<S> <C> <C> <C>
Alex Razmjoo............... 38 1987 Chairman of the Board, President and Chief Executive
Officer
Frank Alaghband............ 37 1987 Executive Vice President, Operations, Chief
Operating Officer and Director
Alex Aydin................. 38 1987 Executive Vice President, Finance and
Administration, Chief Financial Officer and Director
Nick Shahrestany........... 37 1987 Executive Vice President, Sales, Marketing and
International Operations, Chief Information Officer
and Director
Dom Genovese(1)............ 58 1997 Director
David Blake(1)............. 60 1997 Director
</TABLE>
---------------
(1) Member of the Audit Committee and Member of the Compensation Committee.
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Board and are appointed annually, subject to the terms of
their employment agreements. There are no family relationships between the
executive officers or directors of the Company.
Mr. Razmjoo is one of the Company founders and has served as its Chairman
of the Board, President and Chief Executive Officer since 1987. From 1984 to
1987, Mr. Razmjoo served as Director of Engineering of CMS Enhancements, Inc. He
received a B.S. degree in Electrical Engineering in 1985 from the University of
California, Irvine.
4
<PAGE> 7
Mr. Alaghband is one of the Company founders and has served as its
Executive Vice President, Operations and as a director since 1987. From 1984 to
1987, Mr. Alaghband served as a Systems Engineer in the Computer Systems
Division of McDonnell-Douglas Corporation. He received a B.S. degree in
Electrical Engineering in 1985 from the University of California, Irvine.
Mr. Aydin is one of the Company founders and has served as the Company's
Executive Vice President, Finance and Administration and as a director since
1987. From December 1984 to August 1987, Mr. Aydin served as a Product
Development Engineer for Toshiba America, Inc. He received dual B.S. degrees in
Electrical Engineering and Biological Sciences in 1984 from the University of
California, Irvine and a M.S. degree in Biomedical Engineering in 1985 from
California State University, Long Beach.
Mr. Shahrestany is one of the Company founders and has served as its
Executive Vice President, Marketing and International Operations and as a
director since 1987. From 1985 to 1987, Mr. Shahrestany served as Regional Sales
Manager of CMS Enhancements, Inc. He received a B.S. degree in Biological
Sciences with a minor in Electrical Engineering in 1984 from the University of
California, Irvine.
Mr. Genovese became a Director of the Company in August 1997. Mr. Genovese
has served as Vice President Sales for Sync Research, Inc., a branch office
networking solution provider, from April 1996 to October 1997. Prior to that, he
served as Regional Sales Manager at Cisco Systems, Inc., a worldwide
manufacturer of computer communication devices, from January 1992 to April 1996.
Mr. Genovese received a B.S. degree in electrical engineering from the
University of Maryland. Mr. Genovese is a member of the Audit and Compensation
Committees of the Board of Directors.
Mr. Blake became a Director of the Company in October 1997. Mr. Blake has
served as the Dean of the Graduate School of Management at the University of
California, Irvine since October 1997. Prior to that date, Mr. Blake served as
the Dean of the Edwin L. Cox School of Business at Southern Methodist University
from 1990 to 1996, serving as the President of the American Assembly of
Collegiate Schools of Business in 1996. Mr. Blake received an A.B. in History
from Dartmouth College, an MBA from the University of Pittsburgh, and a Ph.D. in
political science and international politics from Rutgers University. Mr. Blake
serves on the Audit and Compensation of the Board of Directors.
The Board met five times during the year ended July 31, 2000. Each of the
Directors attended all of the Board meetings. Where appropriate, the Board has
taken action by written consent.
BOARD COMMITTEES
The Board of Directors formed a Compensation Committee and an Audit
Committee in October 1996. There is no Nominating Committee. Mr. Genovese is the
Chairman of the Compensation Committee, and Mr. Blake is the Chairman of the
Audit Committee.
Audit Committee. The Audit Committee represents the Board in discharging
its responsibilities relating to the accounting, reporting, and financial
practices of the Company and its subsidiaries, and has general responsibility
for surveillance of internal controls and accounting and audit activities of the
Company and its subsidiaries. Specifically, the Audit Committee (i) reviews
prior to publication the Company's annual financial statements with management
and the Company's independent accountants, (ii) reviews with the Company's
independent accountants the scope, procedures and timing of the annual audits,
(iii) reviews the Company's accounting and financial reporting principles and
practices; (iv) reviews the adequacy and effectiveness of the Company's internal
accounting controls; (v) reviews the scope of other auditing services to be
performed by the independent accountants, (vi) reviews the independence and
effectiveness of the Company's independent accountants, and their significant
relationships with the Company, (vii) recommends the retention or appointment of
the independent auditor of the Company, which is ultimately accountable to the
Board through the Audit Committee, (viii) reviews the adequacy of the Company's
accounting and financial personnel resources; (ix) reviews the Audit Committee
Charter on an annual basis, (x) reviews, or designates the Chairman of the
Committee, to review with management and the independent accountants the results
of any significant matters identified as a result of the accountants' review
procedures prior to filing any Form 10-Q, and (x) reviews any other matters
relative to the audit of the Company's accounts and the
5
<PAGE> 8
preparation of its financial statements that the Committee deems appropriate.
During the year ended July 31, 2000, the Audit Committee adopted, and the Board
accepted, an Audit Committee Charter which sets forth the duties and
responsibilities of the Audit Committee, a copy of which is attached as Exhibit
A. The Board has determined that all members of the Audit Committee are
"independent" as that term is defined in Rule 4200 of the listing standards of
the National Association of Securities Dealers.
The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for the Company's officers and employees and
administers the Company's 1995 Stock Option Plan (the "1995 Plan") and the
Company's 1999 Employee Stock Purchase Plan.
During the fiscal year ended July 31, 2000, there were two meetings of the
Audit Committee, while the Compensation Committee met in conjunction with
meetings of the Board of Directors.
DIRECTOR COMPENSATION
Directors who are not compensated as employees of or consultants to the
Company receive a $6,000 annual retainer fee, a fee of $2,000 per Board meeting
attended, an annual fee of $500 for service on any committee and reimbursement
of expenses incurred in attending Board meetings. In addition, Board members are
granted options under the 1995 Plan to purchase 9,000 shares upon their initial
election to the Board. Such options are granted at the fair market value of the
stock on the date of grant, and vest over a four year period. In September 1997
and November 1997, Messrs. Genovese and Blake were each granted stock options
under the 1995 Plan to purchase 9,000 shares of the Company's Common Stock with
an exercise price equal to $12.625 and $17.50 per share, respectively, the
market price of the Company's Common Stock on the date such options were
granted. In August 1999, Messrs. Genovese and Blake were granted options to
purchase an additional 9,000 shares at an exercise price of $5.94 per share. In
March 1999, Mr. Blake exercised an option to purchase 1,000 shares.
During the year ended July 31, 1998, the exercise price of the options
granted to the directors in fiscal 1998 was reduced to $8.50 per share, the fair
market value of the stock on the date of the repricing. In September 1998, the
exercise price of those options was further reduced to $4.50 per share. See
"Option Repricing." Messrs. Genovese and Blake did not participate in the
decision to reprice their options.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles of Incorporation that
limit the liability of its directors for monetary damages arising from a breach
of their fiduciary duties as directors to the fullest extent permitted by the
California Corporations Code. The Company's Bylaws provide that the Company must
indemnify its directors and officers to the fullest extent permitted by the
California Corporations Code. The Company also has entered into indemnification
agreements with its executive officers and directors and maintains officer and
director liability insurance with respect to certain liabilities.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The following table shows the compensation earned in fiscal 2000, 1999 and
1998 by the Company's chief executive officer and the next four most highly paid
executive officers at the end of fiscal 2000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- -------------------------
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#) ($)(2)
--------------------------- ---- --------- -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alex Razmjoo...................... 2000 $225,000 -- $16,151 30,000 $ 9,840
Chairman, President and CEO 1999 225,000 -- 16,515 -- 10,057
1998 225,000 100,000 6,325 -- 10,148
Frank Alaghband................... 2000 225,000 -- 5,987 30,000 9,840
EVP -- Operations 1999 225,000 -- 6,065 -- 10,057
1998 225,000 100,000 5,913 -- 10,148
Alex Aydin........................ 2000 225,000 -- 5,025 30,000 11,148
EVP -- Finance & Administration 1999 225,000 -- 17,522 -- 10,057
1998 225,000 100,000 5,835 -- 10,148
Nick Shahrestany.................. 2000 225,000 -- 17,259 30,000 10,530
EVP -- Sales and Marketing 1999 225,000 -- 21,247 -- 10,747
1998 225,000 100,000 6,677 -- 10,838
Frederick Judd.................... 2000 110,000 31,462 2,579 8,374 1,623
VP -- Finance & General Counsel 1999 110,000 32,432 -- 8,720 1,839
1998 105,094 30,676 -- -- 1,965
</TABLE>
---------------
(1) Reimbursement of various personal automobile and other expenses included in
the executive officer's taxable income.
(2) Represents life insurance premiums paid by the Company for Messrs. Razmjoo,
Shahrestany, Alaghband and Aydin, and matching contributions made by the
Company to the executive's 401(k) plan pursuant to the terms of the
Company's 401(k) plan.
STOCK OPTION INFORMATION
Option/SAR Grants in Last Fiscal Year.
The following table sets forth certain information for the year July 31,
2000, with respect to each grant of stock options to the individuals named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS GRANTED APPRECIATION FOR
NUMBER OF TO EMPLOYEES EXERCISE OPTION TERM(3)
UNDERLYING IN PRICE PER EXPIRATION ---------------------
NAME OPTIONS GRANTED FISCAL YEAR(1) SHARE(2) DATE 5% 10%
---- --------------- --------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alex Razmjoo................ 30,000 2.76% $ 8.50 9/22/09 $160,368 $406,404
Frank Alaghband............. 30,000 2.76% $ 8.50 9/22/09 $160,368 $406,404
Nick Shahrestany............ 30,000 2.76% $ 8.50 9/22/09 $160,368 $406,404
Alex Aydin.................. 30,000 2.76% $ 8.50 9/22/09 $160,368 $406,404
Frederick Judd.............. 8,324 .77% $16.25 4/16/10 $ 31,095 $215,578
</TABLE>
---------------
(1) Based on an aggregate of 1,085,071 options granted in fiscal 2000, including
options granted to the individuals named in the Summary Compensation Table
above.
(2) Options are granted at an exercise price equal to the closing market per
share price on the date of grant.
(3) In accordance with the rules of the SEC, shown are the gains or "option
spreads" that would exist for the respective options granted. These gains
are based on the assumed rates of annual compound stock price
7
<PAGE> 10
appreciation of 5% and 10% from the date the option was granted over the
full option term. These assumed annual compound rates of stock price
appreciation are mandated by the rules of the SEC and do not represent the
Company's estimate or projection of future Common Stock prices.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above, the shares acquired and the value realized
on each exercise of stock options during the fiscal year ended July 31, 2000 and
the fiscal year end number and value of exercisable and unexercisable options:
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 2000 AND FISCAL 2000 YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY-OPTIONS AT
SHARES OPTIONS AT 7/31/00(#) 7/31/00($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alex Razmjoo(1)............... -- $ -- -- 30,000 $ -- $1,050,000
Frank Alaghband(1)............ -- $ -- -- 30,000 $ -- $1,050,000
Nick Shahrestany(1)........... -- $ -- -- 30,000 $ -- $1,050,000
Alex Aydin(1)................. -- $ -- -- 30,000 $ -- $1,050,000
Frederick Judd(1)............. -- $ -- 19,280 $37,364 $771,120 $1,359,389
</TABLE>
---------------
(1) The amounts set forth represent the difference between the estimated fair
market value of $43.50 per share as of July 31, 2000 and the exercise price
of the options, multiplied by the applicable number of shares underlying the
options. In November 1993, Mr. Judd was granted an option to purchase 90,000
shares of common stock at $.35 per share by Mr. Aydin. This table does not
include (i) gains of approximately $896,000 realized by Mr. Judd on the
exercise of 22,000 such options during fiscal 2000, or (ii) the value of
shares underlying Mr. Judd's fully vested option to purchase the remaining
16,435 shares at $.35 per share from Mr. Aydin.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board consists of Messrs. Genovese and
Blake. No member of the Compensation Committee or executive officer of the
Company has a relationship that constitutes an interlocking relationship with
executive officers or directors of another entity. The Compensation Committee
reviewed the compensation of the executives, and while a performance bonus had
been paid in past years, each of the executives declined, and the Compensation
Committee concurred in the non-payment of, any bonus for the year ended July 31,
2000. The following report was completed by the Board of Directors.
AUDIT COMMITTEE REPORT
The following is the report of the audit committee with respect to the
Company's audited financial statements for the fiscal year ended July 31, 2000,
which include the consolidated balance sheets of the Company as of July 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
June 31, 2000, and the notes thereto. The information contained in this report
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act of 1933, as
amended, or the 1934 Securities Exchange Act, as amended, except to the extent
that the Company specifically incorporates it by reference in such filing.
REVIEW WITH MANAGEMENT
The audit committee has reviewed and discussed the Company's audited
financial statements with management.
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REVIEW AND DISCUSSIONS WITH INDEPENDENT ACCOUNTANTS
The audit committee has discussed with KPMG LLP, the Company's independent
accountants, the matters required to be discussed by SAS 61 (Codification of
Statements on Accounting Standards) which includes, among other items, matters
related to the conduct of the audit of the Company's financial statements.
The audit committee has also received written disclosures and the letter
from KPMG LLP required by Independence Standards Board Standard No. 1 (which
relates to the accountant's independence from the Company and its related
entities) and has discussed with KPMG LLP their independence from the Company.
CONCLUSION
Based on the review and discussions referred to above, the committee
recommended to the Company's Board that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended July 31, 2000.
SUBMITTED BY THE AUDIT COMMITTEE OF
THE BOARD OF DIRECTORS
David Blake
Dom Genovese
REPORT OF THE COMPENSATION COMMITTEE
COMPENSATION PHILOSOPHY
The overall policy of the Board of Directors, and the Compensation
Committee, is to provide the Company's executive officers and other key
employees with competitive compensation opportunities based upon their
contribution to the financial success of the Company and their personal
performance. Accordingly, the compensation package for each executive officer is
comprised of three primary elements: (i) base salary which reflects individual
performance and is designed primarily to be competitive with salary levels in
effect at companies within and outside the industry with which the Company
competes for executive talent, (ii) annual variable performance awards payable
in cash and tied to the Company's achievement of financial performance targets
and (iii) long-term stock-based incentive awards which strengthen the mutuality
of interests between the executive officers and the Company's shareholders. As
an executive officer's level of responsibility increases, it is the Company's
general intent that a greater portion of the executive officer's total
compensation be dependent upon Company performance and stock price appreciation
than upon base salary.
COMPONENTS OF COMPENSATION
The principal components of executive officer compensation are generally as
follows:
Base Salary. With respect to Messrs. Razmjoo, Shahrestany, Alaghband
and Aydin, their base salary is fixed in accordance with the terms of their
respective employment agreements. See "Employment Agreements." Subsequent
to year end, the Board of Directors directed the Compensation Committee to
review the annual base salary of the four executive officers, and recommend
a change, if appropriate, as the base salary has not been adjusted in more
than three years. With respect to other officers and key employees who do
not have employment agreements with the Company, salary is determined on
the basis of individual performance and competitive market practices as
reflected in informal information available to the Company.
Annual Performance Bonus. Annual bonuses are payable to the Company's
executive officers in accordance with the terms of their respective
employment agreements. Under the terms of such agreement, payment of the
bonuses is within the discretion of the Compensation Committee and the
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<PAGE> 12
Board of Directors, and takes into account the Company's financial
performance and attainment of various goals. While a performance bonus had
been paid in some past years, each of the executives declined, and the
Compensation Committee concurred in the non-payment of, any bonus for the
year ended July 31, 2000. With respect to other officers and key employees
who do not have employment agreements with the Company, their target
bonuses are determined on the basis of individual performance and
competitive market practices as reflected in informal information available
to the Company.
Long-Term Incentive Compensation. Long-term incentives are provided
through stock option grants and other stock-based awards under the
Company's 1995 Stock Option Plan. The Board believes that each of Messrs.
Razmjoo, Shahrestany, Alaghband and Aydin currently have interests closely
aligned with shareholders due to the substantial portion of their
individual net worth comprised of their significant ownership of shares of
the Company. In September 1999, the Compensation Committee determined that
it would be appropriate to grant options to the four executive officers in
order to properly incentivize them and reward them for future performance.
Each of the four were granted options to purchase 30,000 shares under the
Company's 1995 Stock Option Plan. Awards under the 1995 Plan are designed
to further align the interests of each executive officer with those of the
shareholders. It is the Board's intent to provide each officer with a
significant incentive to manage the Company from the perspective of an
owner with an equity stake in the Company's business. As part of a
broad-based grant of stock options made to a large group of key employees,
grants of options to purchase significant shares of stock have been made to
Frederick Judd, the Company's Vice President Finance, and other key
employees.
Stock Option Repricing
On September 1, 1998, the Board of Directors offered all employees the
opportunity to reprice their outstanding stock options for new options that
would be exercisable at the fair market value of the Company's Common Stock as
of the closing of the stock market on that date ($4.50). These new options would
otherwise be identical to the old options except that the new options would be
subject to a new vesting schedule with 90 days added to each existing vesting
date. The stock option repricing was an acknowledgment of the importance to the
Company of its employees and of the incentive to employees represented by stock
options, especially in considering alternative opportunities. The Board
determined that a repricing was necessary due to the competitive environment for
obtaining and retaining qualified employees and the overall benefit to the
shareholders from a highly motivated group of employees.
No options to purchase the Company's stock that had been granted to any of
the Company's executive officers were repriced. Because the then outstanding
options granted to Mr. Judd were priced at $2.50 per share, which was lower than
the price at which the options were repriced, no repricing of Mr. Judd's options
was effected.
COMPENSATION OF THE CHAIRMAN AND PRESIDENT
For fiscal 2000, Mr. Razmjoo was paid a base salary at the rate of
approximately $225,000 per year pursuant to his existing employment agreement.
In fiscal 2000, Mr. Razmjoo declined to accept a bonus based on the results of
the Company's operations in fiscal 2000. Accordingly, the Compensation Committee
did not recommend, and the Company will not pay, a performance bonus to Mr.
Razmjoo or any of the Company's executive officers for fiscal 2000.
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COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
provides that publicly held companies may not deduct compensation paid to
certain of its top executive officers to the extent such compensation exceeds $1
million per officer in any year. However, pursuant to regulations issued by the
United States Treasury Department, certain limited exemptions to Section 162(m)
apply with respect to "qualified performance-based compensation" and to
compensation paid in certain circumstances by companies in the first few years
following their initial public offering of stock. The Company has taken steps to
provide that these exemptions will apply to compensation paid to its executive
officers, and the Company will continue to monitor the applicability of Section
162(m) to its ongoing compensation arrangements. Accordingly, the Company does
not expect that amounts of compensation paid to its executive officers will fail
to be deductible by reason of Section 162(m).
September 1, 2000 THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
Dom Genovese
David Blake
THIS REPORT AND THE PERFORMANCE GRAPH BELOW WILL NOT BE DEEMED TO BE
INCORPORATED BY REFERENCE INTO ANY FILING BY THE COMPANY UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
EXCEPT TO THE EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THE SAME BY
REFERENCE.
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PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative return to the shareholders of the Company's Common Stock with the
cumulative return of the S&P 500 Index (the "S&P 500") and of the Hambrecht &
Quist Technology Index for the various periods commencing on July 31, 1998 to
July 31, 2000.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Dec. 18, July 31, July 31, July 31, July 31,
1996 1997 1998 1999 2000
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Procom 100 118 58 87 483
H&Q Technology 100 129 139 225 374
S&P 500 Index 100 130 153 182 196
-------------------------------------------------------------------------------------
</TABLE>
The graph assumes that $100 was invested on July 31, 2000 in the Company's
Common Stock and in the S&P 500 and the Hambrecht & Quist Technology Index, and
that all dividends were reinvested. No dividends have been declared or paid on
the Company's Common Stock and the Company does not anticipate that any such
dividends will be declared or paid in the foreseeable future. Shareholder
returns over the indicated period should not be considered indicative of future
shareholder returns.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
The Company has employment agreements with Messrs. Razmjoo, Alaghband,
Aydin and Shahrestany. Each employment agreement has a three-year term with an
automatic renewal provision which provides that the agreement will perpetually
maintain a three-year term unless terminated. Pursuant to the agreements, each
officer receives an annual salary of not less than $225,000, which may at the
discretion of the Board be increased in light of performance, inflation or other
factors. Each officer is also entitled to receive an annual bonus based on the
Company's performance, awarded at the discretion of the Board based upon the
attainment of mutually agreed upon performance goals. Performance goals of the
Company for purposes of calculating bonus payments are not specified in the
employment agreements but rather are determined on a yearly basis by mutual
agreement between the Board and the officer. Based on the performance of the
Company in fiscal 2000, each of the officers declined to accept, and the
Compensation Committee declined to award, any bonus for the fiscal year ended
July 31, 2000. In addition, each officer is entitled to receive a monthly
automobile allowance of $750 and reimbursement of business expenses. The Company
is required to maintain a life insurance policy of $1 million for the benefit of
each officer, and each officer is entitled to participate in the other benefit
programs of the Company available to its executive officers. Each officer is
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<PAGE> 15
entitled to an annual tax preparation allowance of $1,000. If the Company
terminates an officer's employment without Cause (as defined in the employment
agreement) or the officer terminates his employment for Good Reason (as defined
in the employment agreement), the Company is obligated to provide certain
benefits to the terminated officer, including paying the officer 35 months base
salary, subject to Internal Revenue Code restrictions, a pro rata bonus for the
year of termination and the continuation for up to two years of all life
insurance and medical benefits.
On November 15, 1993, Mr. Judd joined the Company as Vice President,
Finance and General Counsel. Pursuant to the Company's employment agreement with
Mr. Judd, Mr. Judd's annual base salary is $110,000, and Mr. Judd can qualify
for performance-based bonuses of up to $40,000 per year which may be adjusted in
the future. The Company also reimburses automobile lease costs of Mr. Judd. If
the Company terminates Mr. Judd without cause, the Company would be obligated to
pay Mr. Judd six months base salary.
The 1995 Plan provides for acceleration of the vesting of awards granted
thereunder upon the occurrence of certain events. Under the 1995 Plan, in the
event of a merger or consolidation in which the company is not the surviving
corporation, or the approval by the shareholders of a sale of all or
substantially all of the Company's assets, or a change in control of the
Company, unless the Board decides prior to such an event that no acceleration of
vesting of options shall occur, all outstanding options shall become immediately
exercisable.
EMPLOYEE BENEFIT PLANS
The Company maintains a stock option plan for many of its key employees, an
Employee Stock Purchase Plan and in addition, a "401(k)" savings and investment
plan in which all eligible employees may participate. The 401(k) Plan and the
Employee Stock Purchase Plan are described below. Because shareholders are being
asked to amend the 1995 Stock Option Plan (the "1995 Plan") to provide for an
additional 1,000,000 shares of common stock to be made available for issuance
pursuant to the exercise of stock options, the 1995 Plan is described in more
detail under "Proposal Two-Amendment to 1995 Stock Option Plan."
401(k) PLAN
Effective August 1992, the Company adopted a tax deferred savings plan (the
"401(k) Plan") that covers all full-time employees over the age of 21 with more
than one year of service. An employee may contribute to the 401(k) Plan from 1%
to 15% of his or her pretax compensation not to exceed in any given year the
maximum amount allowable under Internal Revenue Service regulations. At the
discretion of the Board, the Company may elect to match up to 100% of an
employee's contributions to the 401(k) Plan. The Company is not obligated to
make matching contributions, but has done so in the past on a discretionary
basis. The rates of pre-tax contributions may be reduced with respect to highly
compensated employees, as defined in the Code, so that the 401(k) Plan will
comply with Section 401(k) of the Code. Pre-tax contributions are allocated to
each employee's individual account, which is invested in selected investment
alternatives according to the direction of the employee. An employee's pre-tax
contributions are fully vested and nonforfeitable at all times, while employer
contributions to an employee's account vest over a five-year period. An employee
may also borrow from his or her account. All vested benefits are generally
distributed to employees upon termination of employment. During the year ended
July 31, 2000, pursuant to the terms of the 401(k) Plan, the Company made
matching contributions totaling approximately $11,100 to the accounts of the
five executive officers set forth in the "Summary Compensation Table" above.
THE 1999 EMPLOYEE STOCK PURCHASE PLAN
In fiscal 1999, the Company established the 1999 Employee Stock Purchase
Plan (the "Plan"), and reserved 250,000 shares for issuance thereunder.
Shareholders approved the establishment of the Plan, and the reservation of
shares at the Company's January 1999 Annual Meeting of Shareholders. Under the
Plan, employees may elect to have up to 10% of their after-tax wages or salaries
deducted from each check, and then use such amounts to purchase the common stock
of the Company at a discounted price. The price is 85% of the lower of the
closing stock price on July 31 or December 31. Employees may enter the Plan only
on defined entrance dates, but may withdraw from the Plan at any time during the
applicable period, and receive a full refund of any amounts withheld, without
interest. If employees do not withdraw, the total amount they have
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<PAGE> 16
had deducted from their wages or salaries is accumulated once every six months,
and then a certificate representing the applicable number of shares at the
applicable purchase price is forwarded to the employee. During fiscal 2000,
approximately 26,000 shares of stock were issued to approximately 25 employees
under the Plan. Employees are provided with a summary of the rules of the Plan,
and may be provided with a full copy of the Plan.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors, executive officers and persons who own more
than 10% of the Common Stock (collectively "Insiders") to file initial reports
of ownership (Forms 3) and reports of changes in ownership of Common Stock
(Forms 4 and Forms 5) with the Securities and Exchange Commission as well as the
Company and the Nasdaq National Market.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and representations from each Insider known to
the Company that no other reports were required during the fiscal year ended
July 31, 2000, the Company believes that except for one Form 4 to report a grant
of options that was filed late by Messrs. Blake, Genovese and Judd, and one Form
4 to report a gift of stock that was filed late by Messrs. Aydin and
Shahrestany, all insiders filed all required reports on a timely basis.
CERTAIN TRANSACTIONS
During the two years ended July 31, 2000, the Company utilized the services
of Advanced Construction Solutions, Inc. (ACS), an Orange County based real
estate developer and general contractor to (a) locate a suitable facility for
the Company to utilize as its corporate headquarters for approximately 18
months, (b) act as a general contractor to complete a build-out of necessary
tenant improvements for the temporary facility, (c) locate, and then negotiate
the purchase of land for, and commence development and construction of, the
Company's long-term corporate headquarters in Irvine, California.
ACS is owned 50% by a brother of Frank Alaghband, an Executive Vice
President and Director of the Company. During the year ended July 31, 1999, the
Company executed an 18 month lease with an unrelated landlord, calling for
approximately $1,050,000 in lease payments, and the Company purchased an 8 acre
site from an unrelated landowner for approximately $7.3 million. ACS received
approximately $357,000 directly from the Company for the tenant improvement
build-out (of approximately 60,000 square feet), and $40,200 directly from the
Company for services in planning and developing the Irvine facility, and
approximately $142,000 in commissions paid by the temporary facility landlord
and the land owner upon the completion of the transactions described. The
Company has also agreed to utilize ACS in the construction of the Irvine
facility. The Company has expended approximately $6.1 million for construction
costs through July 31, 2000, and expects that total construction costs will
approximate $8.1 million. A majority of the construction costs were paid to ACS.
No value from the above transactions accrued to the personal benefit of Mr.
Alaghband or any of the other executive officers. The Company engaged in a
competitive bidding process prior to entering into the construction contract
with ACS, and the Company believes that the amounts it paid ACS were no more
than would have been paid to an unrelated third party.
PROPOSAL TWO
APPROVAL OF AMENDMENT TO 1995 EMPLOYEE STOCK OPTION PLAN
The Company's Board of Directors and shareholders previously adopted and
approved the 1995 Plan. A total of 540,000 shares were originally reserved for
issuance under the 1995 Plan. In September 1997, the Board of Directors
authorized that the Plan be further amended, subject to shareholder approval,
which was received in January 1998, to increase the number of shares reserved
for issuance thereunder by 450,000 shares, bringing the total number of shares
reserved for issuance under the 1995 Plan to 990,000 shares. In September 1998,
the Board of Directors authorized that the Plan be further amended, subject to
shareholder approval, which was received in January 1999, to increase the number
of shares reserved for issuance thereunder by
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<PAGE> 17
600,000 shares, bringing the total number of shares reserved for issuance under
the 1995 Plan to 1,590,000 shares. In September 1999, the Board further
authorized, subject to shareholder Approval which was received in January 2000,
the reservation of an additional 1,000,000 shares to be reserved for issuance
under the 1995 Plan.
At the Annual Meeting, the shareholders are being requested to consider and
approve the proposed amendment to the 1995 Plan to further increase the number
of shares of Common Stock reserved for issuance thereunder by 1,000,000 shares,
bringing the total number of shares issuable under the Plan to 3,590,000 shares.
The amendment to increase the number of shares issuable under the 1995 Plan will
enable the Company to continue its policy of employee stock ownership as a means
to attract and retain highly qualified personnel, to incentivize employees to
achieve high levels of performance and to recognize key employee
accomplishments. The market for qualified technical, sales and managerial
employees is very competitive, and the Company believes it is crucial to have
the ability to offer options to attract and retain those employees. In addition,
the Company believes it is critical to have available options to offer employees
of companies which the Company may in the future acquire.
Following is a general description of the principal features of the 1995
Plan. The following summary is qualified in its entirety by reference to the
full text of the 1995 Plan, which can be reviewed on the Securities and Exchange
Commission's Web site at http://www.sec.gov. The 1995 Plan provides for the
grant to employees of the Company of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
and for the grant to employees, directors, and consultants of the Company of
nonstatutory stock options. At July 31, 2000, there were approximately 250
persons eligible for grants under the 1995 Plan. At July 31, 2000, options to
purchase an aggregate of 1,965,178 shares were outstanding under the 1995 Plan
(247,748 of which were vested), and an aggregate of 230,624 additional shares
remained available for additional grants. Since July 31, 2000, the Company has
committed to grant options to purchase approximately 100,000 shares, leaving
less than 130,000 options available for future grant.
Shares relating to plan awards which are not exercised or which expire or
are cancelled will again become available for grant purposes under the plan. As
is customary in incentive plans of this nature, the number and kind of
securities available under the 1995 Plan and the then outstanding awards, as
well as exercise prices, are subject to adjustment, in the discretion of the
plan administrator, in the event of recapitalizations, stock splits, and similar
reorganizations.
The 1995 Plan may be administered by the Board or a committee approved by
the Board. Currently, the 1995 Plan is administered by the Compensation
Committee of the Board, which determines the terms of options granted
thereunder, including the exercise price, number of shares subject to the option
and vesting schedule. Options granted under the 1995 Plan are generally not
transferable other than by will or the laws of descent or distribution, and each
option is exercisable during the lifetime of the recipient only by such person.
Options that are outstanding under the 1995 Plan will remain outstanding until
they are exercised or they expire in accordance with these terms. In the event
the shareholders of the Company approve certain mergers or consolidations, or
the sale of substantially all of the business assets of the Company or certain
persons other than beneficial owners of greater than 5% of the then outstanding
voting power become the beneficial owner of more than 50% of the voting power of
the Company, unless prior to such event the Board determines that there shall be
either no acceleration or limited acceleration of awards, each option
outstanding under the 1995 Plan will become immediately exercisable.
The Board generally may terminate, amend or suspend the 1995 Plan at any
time. An amendment will generally only be submitted for stockholder approval if
required by law or deemed advisable by the Board. Unless sooner terminated by
the Board, the 1995 Plan will terminate on September 14, 2004.
The 1995 Plan does not limit the authority of the Board or Compensation
Committee to authorize other compensation under any other plan or authority.
Stockholder approval of the amendment to the 1995 Plan will not, however,
constitute advance approval of any such other compensation.
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AWARDS
Options granted under the 1995 Plan may be options intended to qualify as
incentive stock options (the "Incentive Stock Options") under Section 422 of the
Code, or options not intended to so qualify (the "Non-Qualified Stock Options").
Upon the grant of an option under the 1995 Plan, the person receiving the
grant (the "Option Holder") must enter into a written option agreement with the
Company that contains terms, provisions and conditions that are consistent with
the 1995 Plan and have been determined from time to time by the Committee.
Options granted under the 1995 Plan may not expire later than 10 years after the
date of grant, except that an Incentive Stock Option granted to an individual
owning (after the application of the family and other attribution rules of
Section 424(d) of the Code), at the time the option was granted, more than 10%
of the total combined voting power of all classes of stock of the Company or of
any of its subsidiaries (a "10% Shareholder"), may not expire later than five
years from the date the option is granted and the exercise price of any
Non-Qualified Stock Option may not be less than 85% of the fair market value of
the Common Stock of the Company at the date the Non-Qualified Stock Option is
granted. The exercise price for any Incentive Stock Option may not be less than
100% of the fair market value of Common Stock of the Company at the date the
Incentive Stock Option is granted. The exercise price of an Incentive Stock
Option granted to a 10% Shareholder may not be less than 110% of the fair market
value of the Common Stock of the Company on the date such option is granted.
AWARDS TO NON-EMPLOYEE DIRECTORS
Non-qualified Stock Options to purchase 9,000 shares of Common Stock are
automatically granted to Non-employee Directors upon their election to the
Board. Such options will vest over a four-year period. The Board may elect to
grant additional options to Non-employee Directors after their initial year of
service.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS UNDER THE 1995 PLAN
The federal income tax consequences of awards granted under the 1995 Plan
under current federal law, which is subject to change, are summarized in the
following discussion, which deals with the general tax principles applicable to
the plan. State, local and/or international tax consequences of the plan are
beyond the scope of this summary.
With respect to nonqualified stock options, the Company is generally
entitled to deduct, and the optionee recognizes as taxable income, an amount
equal to the difference between the option exercise price and the fair market
value of the shares at the time of exercise. With respect to Incentive Stock
Options, the Company is generally not entitled to a deduction nor does the
participant generally recognize income at the time of exercise.
If the vesting of an option is accelerated under the 1995 Plan in
connection with a change in control (as this term is used under the Internal
Revenue Code), the Company may not be permitted to deduct the portion of the
compensation attributable to the acceleration ("parachute payments") if it
exceeds certain threshold limits under the Internal Revenue Code (and certain
related excise taxes may be triggered). Furthermore, if the compensation
attributable to awards is not "performance-based" within the meaning of Section
162(m) of the Internal Revenue Code, the Company may not be permitted to deduct
the aggregate non-performance-based compensation in excess of $1 million in
certain circumstances.
SPECIFIC BENEFITS
In fiscal 2000, the Company granted options to purchase its stock to its
five executive officers. Such grants were made conditioned upon the approval by
shareholders of an amendment to the 1995 Stock Option Plan to increase by
1,000,000 the number of shares reserved for issuance under such plan.
Shareholders approved that amendment at the Company's Annual Meeting in January
2000. The Company may, but does not currently intend to, utilize the increase
contemplated by the additional reservation, or the approval by shareholders to
grant additional options to its executive officers and/or directors.
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VOTE REQUIRED; RECOMMENDATION OF THE BOARD
The approval of the amendment to the 1995 Plan requires the affirmative
vote of a majority of the shares represented, in person or by proxy, and
entitled to vote at the Annual Meeting (which shares voting affirmatively also
constitute at least a majority of the required quorum).
Shareholders should note that because outside Directors (subject to
re-election and shareholder approval) may receive stock options under this
proposal, all current outside Directors of the Company may have a personal
interest in the proposal and its approval by shareholders. However, the members
of the Board believe that the Amendment is in the best interests of the Company
and its shareholders.
THE BOARD HAS UNANIMOUSLY APPROVED THE AMENDMENT TO THE 1995 PLAN AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THIS PROPOSAL.
PROPOSAL THREE
INDEPENDENT PUBLIC ACCOUNTANTS
On June 1, 1999, Arthur Andersen LLP ("Former Auditors") resigned as
Independent Auditors for Procom Technology, Inc. (the "Company").
The Former Auditors reported on the Company's financial statements for the
preceding three years in the period ended July 31, 1998. The respective reports
of the Former Auditors on the financial statements for such periods contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
During the preceding three years in the period ended July 31, 1998, and
through the date of this report, there were no disagreements with the Former
Auditors on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement if not
resolved to the satisfaction of the Former Auditors would have caused them to
make reference thereto in their report on the financial statements for such
periods.
The Company provided the Former Auditors with a copy of the foregoing
disclosures and the Former Auditors have addressed a letter to the Securities
and Exchange Commission stating that they agree with such disclosures. That
letter is filed with the Company's Report on Form 8-K filed with the Securities
and Exchange Commission on June 7, 1999.
On July 13, 1999, the Company engaged KPMG LLP as its new independent
accountants to act as the principal accountant to audit the Company's
consolidated financial statements. The Company's Audit Committee of the Board of
Directors participated in and approved the engagement of KPMG LLP.
During the two most recent fiscal years and through July 13, 1999, the
Company has not consulted with KPMG LLP 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 consolidated financial statements,
and in no case was a written report provided to the Company nor was oral
advice provided that was an important factor in reaching a decision by the
Company as to an accounting, auditing or financial reporting issue; or
(ii) any matter that was either the subject of a disagreement, as that
term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that
term is defined in Item 304(a)(1)(iv) of Regulation S-K.
For the 2000 fiscal year, KPMG LLP provided audit services which included
an audit of the Company's annual financial statements, and assistance and
consultation in connection with the Company's filings with the Commission. Audit
services were provided with the approval of the Board of Directors which
considered, among other factors, the independence of the public accountants.
Arrangements for non-audit services, if any, are made by management with the
knowledge of the Board of Directors. Upon the recommendation of the
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Audit Committee, the Board has selected KPMG LLP to provide audit services to
the Company for the fiscal year July 31, 2000. The shareholders are being
requested to ratify such selection at the Annual Meeting. There are no
affiliations between the Company and KPMG LLP, its partners, associates or
employees, other than as pertain to the engagement of KPMG LLP as independent
auditors for the Company in the previous year. A representative of KPMG LLP
will, if any shareholder requests in advance of the Annual Meeting, be present
at the Meeting and he or she will be given the opportunity to make a statement
if they so desire and to respond to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE TO RATIFY THE
APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDED JULY
31, 2001.
ANNUAL REPORT
The Company's 2000 Annual Report, containing audited balance sheets for the
fiscal years ended July 31, 2000 and July 31, 1999 and audited statements of
operations and cash flows for the fiscal years ending July 31, 2000, July 31,
1999, and July 31, 1998, has previously been provided or accompanies this Proxy
Statement. Upon written request, the Company will send you, without charge, a
copy of its Annual Report on Form 10-K (without exhibits) for the fiscal year
ended July 31, 2000, which the Company has filed with the Commission. The
written request should be directed to the Investor Relations Department, at the
address of the Company set forth on the first page of this Proxy Statement.
OTHER BUSINESS OF THE ANNUAL MEETING
Management is not aware of any matters to come before the Annual Meeting or
any postponement or adjournment thereof other than the election of directors,
the proposal to amend the 1995 Plan and ratification of KPMG LLP as the
Company's independent auditors. However, inasmuch as matters of which Management
is not now aware may come before the meeting or any postponement or adjournment
thereof, the proxies confer discretionary authority with respect to acting
thereon, and the persons named in such proxies intend to vote, act and consent
in accordance with their best judgment with respect thereto, provided that, to
the extent the Company becomes aware a reasonable time before the Annual Meeting
of any matter to come before such meeting, the Company will provide an
opportunity to vote by proxy directly on such matter. Upon receipt of such
proxies in time for voting, the shares represented thereby will be voted as
indicated thereon and as described in this Proxy Statement.
By Order of the Board of Directors
/s/ ALEX RAZMJOO
--------------------------------------
Alex Razmjoo
Chairman of the Board and Chief
Executive Officer
Irvine, California
December 28, 2000
18
<PAGE> 21
PROCOM TECHNOLOGY, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
1. Formation. The Board of Directors (the "Board") of Procom Technology,
Inc. (the "Corporation") has established the Audit Committee (the "Committee")
pursuant to California General Corporation Law, (i.e. Section 311) and Article
III, Section One, Sixth Paragraph of the Corporation's Bylaws.
2. Statement of Purpose. The Committee will assist the Board in fulfilling
its oversight responsibilities. The Committee will review the financial
reporting process, the system of internal control, the audit process, and the
Corporation's process for monitoring compliance with laws and regulations. To
effectively perform his or her role, each Committee member will obtain an
understanding of the responsibilities of Committee membership as well as the
Corporation's business, operations, and risks.
The audit committee is not responsible, in the ordinary course, for
planning or conducting audits or determining that the Corporation's financial
statements are accurate and are in accordance with generally accepted accounting
principles. This duty is the responsibility of management and the external
auditors. Nor is it the duty of the audit committee to independently verify
information presented to it, unless special circumstances require such
verification.
3. Composition and Qualifications. The Committee shall be comprised of not
less than three members of the Corporation's Board. However, if there are less
than three independent members of the Corporation's Board, such Committee may be
comprised of each independent member of the Corporation's Board. Subject to the
foregoing, the exact number of members of the Committee shall be fixed and may
be changed from time to time by resolution duly adopted by the Board. One of the
members of the Committee shall be designated by the Board as the chairperson
(the "Chairperson") of the Committee. The Board shall appoint the members of the
Committee to serve until their successors have been duly designated. Members of
the Committee may be removed by the Board for any reason and at any time.
Vacancies on the Committee shall be filled by the Board. The members of the
Committee shall meet the standards of independence and other qualifications as
required by the National Association of Securities Dealers, Inc.
4. Oversight. The Committee shall have responsibilities in the following
areas:
(a) Internal Controls
- Review with management and the external auditors the internal
accounting controls and procedures, including computer systems and
applications, the security of such systems and applications, and the
contingency plan for processing financial information in the event of
a systems breakdown;
- Review and instruct the external auditors to keep the audit committee
informed about the adequacy of the internal controls to expose any
payments, transactions or procedures that might be illegal or
otherwise improper fraud; about illegal acts, deficiencies in internal
control, and certain other matters; and
- Inquire about internal control recommendations made by internal and
external auditors and whether they have been implemented by
management;
(b) Financial Reporting
- Review significant accounting and reporting issues and judgments and
their impact on the financial statements, as presented by management
for the auditors; and
- Review periodically with the internal and external auditors
significant risks and exposures and the plans to monitor, control and
minimize such risks and exposures.
- Review significant findings and recommendations made by the internal
and external auditors and discuss them on a timely basis;
- Instruct the external auditors to communicate certain required matters
to the committee.
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- Review the annual audited financial statements and determine whether
they are complete and consistent with the information known to
committee members, and assess whether the financial statements reflect
appropriate accounting and auditing principles;
- Meet with management and the external auditors to review the annual
financial statements and the results of the audit;
- Request and review an analysis by internal and external auditors about
significant financial reporting issues, including any complex and/or
unusual transactions, significant valuation issues, reserve adequacy
and judgments made in the preparation of the financial statements;
- Consider management's handling of proposed audit adjustments
identified by the external auditors;
- Review with management and require the external auditors to review the
financial information included in the Corporation's interim financial
statements prior to filing SEC reports;
(c) Compliance with Laws and Regulations
- Periodically obtain reports from management, auditors, general
counsel, and tax director regarding regulatory compliance by the
Corporation; transactions with affiliates; and other legal matters
that may have a material impact on financial statements and the
consideration of those matters in preparing the financial statements;
- Review the effectiveness of the system for monitoring compliance with
laws and regulations and the results of management's investigation and
follow-up (including disciplinary action) on any fraudulent acts or
accounting irregularities; and
- Review the findings of any examinations by regulatory agencies.
(d) Compliance with Code of Conduct
- Review Corporation policies and procedures for distribution of and
monitoring compliance with the Corporation's code of conduct; and
- Evaluate whether management is setting the appropriate tone "at the
top" as to ethical conduct and acceptable business practices.
(e) Internal Audit
- Review the activities, organizational structure and qualifications of
the internal audit function;
- Participate in decisions regarding appointment, replacement,
reassignment, or dismissal of the director of internal audit; and
- Review the effectiveness of the internal audit function, including the
scope of the internal auditors' responsibilities, their access,
staffing, follow-up experience and budget.
(f) External Audit
- Articulate the external auditors' ultimate accountability to the board
and the audit committee;
- Review the external auditors' proposed audit scope and approach;
- Review and evaluate the performance of the external auditors and
recommend to the board of directors the appointment or discharge of
the external auditors;
- Review and discuss the independence of the external auditors, the
nonaudit services provided and the auditors' disclosures concerning
and assertion of their independence in accordance with professional
standards and as required by applicable standards;
A-2
<PAGE> 23
- Review with the external auditor any problems or difficulties the
auditor may have encountered, any management letter provided by the
auditor, and the Corporation's response to that letter, including:
- Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information;
- Any changes required in the planned scope of the internal audit; and
- The internal audit department responsibilities, budget and staffing;
- Discuss the matters identified in Accounting Standards No. 61 and
other applicable standards relating to the conduct of the audit.
- Obtain from the external auditor assurance that Section 10A of the
Private Securities Litigation Reform Act of 1995 has not been
implicated; and
- Review annual engagement proposal for retention of the external
auditors and level of fees to be paid to external auditors.
(g) Reporting Responsibilities
- Regularly update the board of directors about committee activities and
make appropriate recommendations; and
- Prepare for inclusion in the proxy statement the disclosures about the
audit committee and its functioning required under applicable SEC
rules.
(h) Other Responsibilities
- Meet with the external auditors, director of internal audit and
management in separate executive sessions to discuss any matters that
the committee or these groups believe should be discussed privately;
- If necessary, institute special investigations and, if appropriate,
hire special counsel or experts to assist;
- Perform other oversight functions as requested by the full board; and
- Annually review and (if appropriate) update the charter, subject to
board approval of changes.
5. Meetings
(a) Frequency
The Committee shall hold regular meetings on such days as it shall
determine at least two times per year. Special meetings of the Committee will be
held at the request of the Chairperson of the Committee or any two other
Committee members. Minutes shall be regularly kept of Committee proceedings.
(b) Agenda
Prior to each regularly scheduled meeting, the Committee members will
receive notice of and an agenda for the meeting. Other topics for discussion may
be introduced at the meeting or by notice to the Chairperson at the request of
any Committee member.
(c) Attendance
The Committee may regularly or from time-to-time ask corporate officers and
other employees of the Corporation to attend the meetings.
(d) Procedures
The Committee may adopt rules for its meetings and activities. In the
absence of any such rules, the committee actions shall be governed by the
Corporation's Bylaws and applicable law, as applicable to Bard
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<PAGE> 24
meetings and activities. In all cases, a quorum of the Committee shall be a
majority of the persons then serving as members of the Committee.
6. Outside Assistance
The Committee shall have the authority to request and receive access to any
internal or external information it requires to fulfill its duties and
responsibilities. The Committee is authorized to engage such outside
professional or other services as in its discretion may be required to fulfill
its responsibilities.
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<PAGE> 25
PROCOM TECHNOLOGY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
2000 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD FEBRUARY 5, 2001
The undersigned shareholder of Procom Technology, Inc., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated December 15, 2000, and hereby
appoints Alex Razmjoo, Alex Aydin, Nick Shahrestany and Frank Alaghband, and
each of them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the 2000 Annual Meeting of Shareholders of Procom Technology,
Inc., to be held on February 5, 2001 at 10:00 a.m., local time, at the Company's
principal executive offices at 58 Discovery, Irvine, California 92618, and at
any adjournment thereof, and to vote all the shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth below:
1. ELECTION OF DIRECTORS:
<TABLE>
<S> <C>
[ ] FOR all nominees listed below (except as indicated) [ ] WITHHOLD AUTHORITY to vote for all nominees listed
below
</TABLE>
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S NAME IN THE FOLLOWING LIST:
<TABLE>
<S> <C> <C>
Alex Razmjoo Frank Alaghband Alex Aydin
Nick Shahrestany Dom Genovese David Blake
</TABLE>
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN TO
INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER BY 1,000,000
SHARES TO AN AGGREGATE OF 3,590,000 SHARES
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF
THE COMPANY FOR FISCAL YEAR 2001
[ ] FOR [ ] AGAINST [ ] ABSTAIN
And in their discretion, upon such other matter or matters that may properly
come before the meeting or any adjournment or postponement thereof.
(Continued on reverse side)
<PAGE> 26
(Continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION AND NO
ABSTENTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE
APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1995 STOCK OPTION PLAN TO INCREASE THE
NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER BY 1,000,000 SHARES TO AN
AGGREGATE OF 3,590,000 SHARES, AND FOR THE RATIFICATION OF THE APPOINTMENT OF
KPMG LLP AS INDEPENDENT AUDITORS AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Dated: ____________, 200__
__________________________
SIGNATURE
__________________________
SIGNATURE
(This Proxy should be
marked, dated and signed
by the shareholder(s)
exactly as his or her name
appears hereon, and
returned promptly in the
enclosed envelope. Persons
signing in a fiduciary
capacity should so
indicate. If shares are
held by joint tenants or
as community property,
both should sign.)
