<PAGE>
Schedule 14A
(Rule 14a-101)
Information required in proxy statement
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 the Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.149-11(c) or
Section 240.14a-12
INTERNATIONAL SPORTS WAGERING INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(j)(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 of which the
filing fee is calculated and state how it is determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum value of transaction
- --------------------------------------------------------------------------------
<PAGE>
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
- --------------------------------------------------------------------------------
2. Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
3. Filing Party:
- --------------------------------------------------------------------------------
4. Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
201 LOWER NOTCH ROAD, SUITE 2B,
LITTLE FALLS, NEW JERSEY 07424
---------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 26, 1999
---------------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN to the stockholders of INTERNATIONAL SPORTS
WAGERING INC., a Delaware corporation (the "Company"), that the Annual Meeting
of Stockholders (the "Meeting") will be held at the Radisson Hotel & Suites
Fairfield, 690 Route 46 East, Fairfield, NJ 07004, at 10:00 a.m., local time, on
February 26, 1999 for the following purposes:
1. To elect a board of five (5) directors to serve until the next
Annual Meeting of Stockholders and until their respective successors are elected
and qualified;
2. To approve the continuation of the 1995 Stock Option Plan and the
1996 Stock Option Plan, each as amended;
3. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ending September 30, 1999;
and
4. To transact such other and further business as may properly come
before the Meeting or any adjournments thereof.
Only stockholders of record of the Company at the close of business on
January 22, 1999 are entitled to notice of and to vote at the Meeting or any
adjournments thereof. The stock transfer books will not be closed.
A copy of the Company's annual report on Form 10-KSB for the fiscal
year ended September 30, 1998 accompanies this notice.
By Order of the Board of Directors,
Barry Mindes
Chairman of the Board of Directors
Little Falls, New Jersey
January 28, 1999
RETURN OF PROXIES
WE HOPE YOU PLAN TO ATTEND THE MEETING IN PERSON, BUT IN ANY EVENT YOU
ARE URGED TO MARK, DATE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED
SELF-ADDRESSED ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR SHARES MAY BE VOTED IN
ACCORDANCE WITH YOUR WISHES. ANY PROXY GIVEN BY A STOCKHOLDER MAY BE REVOKED BY
THE STOCKHOLDER AT ANY TIME PRIOR TO THE VOTING OF THE PROXY.
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
PROXY STATEMENT
GENERAL
The enclosed proxy ("Proxy") is solicited by the Board of Directors
(the "Board") of INTERNATIONAL SPORTS WAGERING INC., a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders to be held at the
Radisson Hotel & Suites Fairfield, 690 Route 46 East, Fairfield, New Jersey
07004, on February 26, 1999 at 10:00 a.m., local time, or at any adjournments
thereof (the "Meeting"). The matters to be considered and acted upon at the
Meeting are described in the foregoing Notice of Annual Meeting of Stockholders
and this Proxy Statement. This Proxy Statement and the related form of Proxy are
being mailed on or about January 28, 1999, to all of the stockholders of record
of the Company on January 22, 1999. Any Proxy given by a stockholder may be
revoked by the stockholder at any time prior to the voting of the Proxy by
delivering a written notice to the Secretary of the Company, by executing and
delivering a later dated Proxy or by attending the Meeting and voting in person.
The management of the Company knows of no business other than that
specified in Items 1, 2 and 3 of the Notice of Annual Meeting of Stockholders
which will be presented for consideration at the Meeting. If any other matter is
properly presented, it is the intention of the persons named in the enclosed
Proxy to vote in accordance with their best judgment.
SOLICITATION OF PROXIES
The persons named as proxies are Barry Mindes, Chairman of the Board of
the Company, and Bernard Albanese, Director, President and Treasurer of the
Company. Shares of the Company's common stock, par value $.001 per share
("Common Stock"), represented at the Meeting by the enclosed Proxy will be voted
in the manner specified by the stockholder. In the absence of specification, the
stock will be voted (i) FOR the election of each of the five persons nominated
by the Board to serve as directors, (ii) FOR continuation of the 1995 Stock
Option Plan and the 1996 Stock Option Plan, each as amended, (iii) FOR the
ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent public accountants for the fiscal year ending September 30, 1999 and
(iv) in the discretion of the proxies, on any other business which may properly
come before the Meeting.
The cost of preparing, assembling and mailing the Notice of Annual
Meeting, the Proxy, this Proxy Statement and the other material enclosed will be
borne by the Company. In addition to solicitation of proxies by use of the
mails, officers and employees of the Company, without extra remuneration, may
solicit proxies personally or by telephone, telegram or other means of
communication. The Company may also request brokerage houses, banking
institutions, and other custodians, nominees and fiduciaries, with respect to
shares held of record in their names or in the names of their nominees, to
forward the proxy material to the beneficial owners of such shares and may
reimburse them for their reasonable expenses in forwarding the proxy material.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business on January 22,
1999 (the "Record Date") will be entitled to notice of and to vote at the
Meeting or any adjournments thereof. On the Record Date, the issued and
outstanding securities of the Company entitled to vote at the Meeting consisted
of 7,819,660 shares of Common Stock. There was no other class of voting
securities outstanding on the Record Date. Each outstanding share of Common
Stock is entitled to one vote which may be cast in person or by proxy duly
authorized in writing. No shares have cumulative voting rights.
<PAGE>
The presence in person or by properly executed proxy of the holders of
a majority of the outstanding shares of Common Stock entitled to vote at the
Meeting shall constitute a quorum for the transaction of business. Directors are
elected by a plurality of the voting power of the issued and outstanding stock
of the Company present in person or represented by duly executed proxy at the
Meeting and entitled to vote on the election of directors. To act on all other
matters before or to come before the Meeting, the affirmative vote of the
majority of the voting power of the issued and outstanding stock of the Company
present in person or represented by duly executed proxy at the Meeting and
entitled to vote on such subject matter will be required.
SECURITY OWNERSHIP
The following table sets forth, as of January 22, 1999, certain
information regarding the beneficial ownership of the Company's outstanding
Common Stock by (i) each person known by the Company to beneficially own more
than five percent of the outstanding Common Stock, (ii) each current director
and executive officer of the Company, (iii) each nominee for election as
director and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNERSHIP (2) CLASS (3)
NAME AND ADDRESS OF BENEFICIAL OWNER (1)
<S> <C> <C>
Barry Mindes (4) 3,023,952 38.7
Mindes Family Limited Partnership 1,511,523 19.3
Bernard Albanese (5) 283,625 3.6
The Marie Albanese Trust, Marie Albanese and Christine Marie 302,304 3.9
Albanese, trustees (6)
Fredric Kupersmith (7) 34,196 *
Janet Mandelker (8) 30,161 *
Harold Rapaport (9) 52,822 *
Sidney Diamond (10) 33,333 *
Andrew Harbison (11) 121,096 1.5
All directors and executive officers as a group (7 persons) (12) 3,579,185 44.0
</TABLE>
- ------------------
* Less than 1%
(1) The address of each beneficial owner identified is c/o International
Sports Wagering Inc., 201 Lower Notch Road, Suite 2B, Little Falls, NJ
07424.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of Common Stock that can be acquired by such person
within 60 days of the date of this Proxy Statement upon the exercise of
options, warrants or convertible securities.
(3) Each beneficial owner's percentage ownership is determined by assuming
that (i) options, warrants or convertible securities that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of the date of this Proxy Statement have been exercised or
converted and are outstanding, and (ii) 7,819,660 shares of Common Stock
are outstanding, before any consideration is given to options, warrants or
convertible securities.
(4) Includes 1,511,523 shares held by Mindes Family Limited Partnership, the
general partner of which is an entity wholly-owned by Mr. Mindes. Mr.
Mindes disclaims beneficial ownership of the shares owned by Mindes Family
Limited Partnership to the extent such shares exceed his proportionate
interest therein. Does not include shares beneficially owned by Mr.
Mindes' daughter, Janet Mandelker, as to which Mr. Mindes disclaims
beneficial ownership.
(5) Includes 132,473 shares underlying options held by Mr. Albanese which are
exercisable within 60 days of the date of this Proxy Statement.
(6) Marie Albanese and Christine Albanese are the wife and daughter,
respectively, of Mr. Albanese. Mr. Albanese disclaims beneficial ownership
of the shares of Common Stock held in such trust.
2
<PAGE>
(7) Includes 15,000 shares underlying options held by Mr. Kupersmith which are
exercisable within 60 days of the date of this Proxy Statement.
(8) Represents 30,161 shares underlying options held by Ms. Mandelker which
are exercisable within 60 days of the date of this Proxy Statement. Does
not include any shares held by Mindes Family Limited Partnership, in which
Ms. Mandelker has a beneficial interest. Ms. Mandelker disclaims
beneficial interest in shares held by Mindes Family Limited Partnership to
the extent such shares exceed her proportionate interest therein.
(9) Includes (i) 24,104 shares underlying options held by Mr. Rapaport which
are exercisable within 60 days of the date of this Proxy Statement, and
(ii) 21,161 shares owned by Rapaport Family Limited Partnership, of which
Mr. Rapaport is the General Partner. Mr. Rapaport disclaims beneficial
ownership of the shares owned by Rapaport Family Limited Partnership to
the extent such shares exceed his proportionate interest therein.
(10) Represents 33,333 shares underlying options held by Mr. Diamond which are
exercisable within 60 days of the date of this Proxy Statement.
(11) Includes 84,820 shares underlying options held by Mr. Harbison which are
exercisable within 60 days of the date of this Proxy Statement.
(12) Includes (i) 1,511,523 shares held by Mindes Family Limited Partnership
(see Note 4 above), (ii) 21,161 shares held by Rapaport Family Limited
Partnership (see Note 9 above), and (iii) an aggregate of 319,891 shares
underlying options held by all directors and executive officers as a group
which are exercisable within 60 days of the date of this Proxy Statement.
Does not include 302,304 shares held by The Marie Albanese Trust, Marie
Albanese and Christine Albanese, trustees (see Note 6 above).
PROPOSAL NO. I - ELECTION OF DIRECTORS
NOMINATIONS AND ELECTION OF DIRECTORS
The Board has nominated Bernard Albanese, Fredric Kupersmith, Barry
Mindes, Janet Mandelker and Harold Rapaport (all of whom are members of the
present Board of the Company and all of whom have been elected for a term ending
at the Meeting) to serve as directors of the Company until the Company's 2000
Annual Meeting of Stockholders and until their respective successors have been
elected and qualified.
Unless otherwise specified, shares represented by proxies will be voted
in favor of the election of all of the nominees, except that, in the event any
nominee should not continue to be available for election, such proxies will be
voted for the election of such persons as the Board may recommend. Management
does not presently contemplate that any of the nominees will become unavailable
for any reason.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES.
INFORMATION COVERING NOMINEES
The following table sets forth the names of the nominees and certain
information with regard to each nominee.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
-------- ---- -------------------------
<S> <C> <C>
Barry Mindes 67 Chairman of the Board and Secretary
Bernard Albanese 51 President, Treasurer (Chief Financial Officer)
and Director
Fredric Kupersmith (1) 65 Director
Janet Mandelker (2) 31 Director
Harold Rapaport (1)(2) 76 Director
</TABLE>
- ------------------
(1) Member of the Audit Committee.
(2) Member of the Stock Option Committee.
Barry Mindes is the founder of the Company and has served as Chairman
of the Board of the Company since inception. Since December 1998, he has also
served as Secretary of the Company. From inception through August 1996, he also
served as Chief Executive Officer, President and Secretary of the Company, and
from inception to July 1995, he also served as Treasurer of the Company. Mr.
Mindes founded Systems Enterprises Inc., a predecessor to the
3
<PAGE>
Company, in December 1992, and from its inception until its merger with the
Company in May 1995, served as its only officer, director and stockholder.
Bernard Albanese has served as President of the Company since September
1996, as Treasurer since July 1995, as Vice President-Systems from July 1995
until August 1996, and as a director since October 1996. From 1993 to 1995, Mr.
Albanese was Vice President--Operations of Advanced Data Systems Inc., a
provider of medical-related computer systems, in which position he was
responsible for all installation, training and telephone support for an
installed base of over 1,000 customers.
Harold Rapaport has served as a director of the Company since July
1995. Mr. Rapaport is an electronics, communications and computer executive with
over 40 years experience in management, technology and marketing. He is
President of Rapaport Associates, management consultants to high technology
businesses. From 1982 until 1995, he was Chairman of Control Transaction
Corporation, a manufacturer of computer-based point of sale systems. Mr.
Rapaport served as Chairman of the Board of RE Harrington Inc. from 1987 to
1996, when it was acquired by Health Plan Services Inc.
Janet Mandelker has served as a director of the Company since July
1995. Since June 1998, she has been an independent consultant. From December
1997 until June 1998, Ms. Mandelker served as a financial analyst with DePuy ACE
Medical Company. From October 1996 through November 1997 she was an independent
consultant. From 1992 until October 1996, Ms. Mandelker served as Assistant
Managing Director of KuwAm Corporation, a private investment firm.
Fredric Kupersmith has served as a director of the Company since
October 1996. Since 1992, Mr. Kupersmith has been President of Polsim
Consultants Inc., a private company that provides consulting services to the
communications, computer and television distribution industries.
All directors hold their office until the next annual meeting of
stockholders of the Company and until their respective successors are elected
and qualified. There are no family relationships between any of the directors or
executive officers of the Company except that Barry Mindes is the father of
Janet Mandelker.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND COMMITTEES
The business and affairs of the Company are managed by the Board, which
met four times and acted by unanimous written consent numerous times during the
fiscal year ended September 30, 1998. During such fiscal year, all current
directors attended all of the meetings of the Board and the Committees on which
they served except for Janet Mandelker who was unable to attend two meetings of
the Board. The Board maintains two standing committees ("Committees"): the Audit
Committee and the Stock Option Committee.
The Audit Committee, consisting of Fredric Kupersmith and Harold
Rapaport, has authority to recommend annually to the Board the engagement of the
Company's independent public accountants and to review the independence of the
accounting firm, the audit and non-audit fees of the independent accountants and
the adequacy of the Company's internal control procedures. The Audit Committee
held no meetings during the fiscal year ended September 30, 1998, but acted by
unanimous written consent shortly after the end of such fiscal year in order to
approve the retention of KPMG Peat Marwick LLP as the Company's independent
public accountants for the fiscal year ending September 30, 1999.
The Stock Option Committee, consisting of Janet Mandelker and Harold
Rapaport, has authority to administer the Company's 1996 Stock Option Plan, and
in this capacity determines the persons to whom options should be granted under
such plan and the number of options to be granted to such persons. The Stock
Option Committee held no meetings during the fiscal year ended September 30,
1998, but acted numerous times by unanimous written consent during such year.
4
<PAGE>
The Company does not have a nominating or a compensation committee.
EXECUTIVE OFFICERS AND KEY PERSONNEL
Set forth below is certain information, as of January 22, 1999,
regarding the executive officers and key personnel of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
------- ----- -------------------------
<S> <C> <C>
Barry Mindes 67 Chairman of the Board and Secretary
Bernard Albanese 51 President, Treasurer (Chief Financial Officer)
and Director
Sidney Diamond 63 General Manager-Nevada Operations
Andrew Harbison 40 Vice President-Software Development
</TABLE>
Information with regard to Mr. Mindes and Mr. Albanese is set forth
under "Information Covering Nominees."
Sidney Diamond has served as General Manager-Nevada Operations of the
Company since February 1997. For five years prior thereto, Mr. Diamond was in
charge of the race and sports book operations at Excalibur Hotel and Casino in
Las Vegas, Nevada.
Andrew Harbison has served as Vice President-Software Development of
the Company since October 1996. From June 1995 to October 1996, Mr. Harbison
served as Manager of Software Development of the Company. From 1993 to 1995, Mr.
Harbison served as Vice President of Programming of Infomed Holdings, Inc., in
which position he was in charge of the programming and data conversion
department consisting of 25 individuals involved in developing computer systems
for medical billing, clinical records and managed care systems.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company for the fiscal years ended September
30, 1998, 1997 and 1996 to Barry Mindes, the Company's Chairman of the Board,
and to each of the most highly compensated executive officers and key personnel,
whose annual base salary and bonus compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
AWARDS PAYOUTS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
Barry Mindes 1998 127,500 - 0 - 19,660 (1) - 0 - - 0 -
Chairman of the Board 1997 115,000 100,000 25,122 (1) - 0 - - 0 -
1996 43,347 - 0 - 16,951 (1) - 0 - - 0 -
Bernard Albanese 1998 150,000 - 0 - - 0 - 80,000 (4) - 0 -
President and Treasurer 1997 137,008 25,000 - 0 - (2) 80,000 - 0 -
1996 70,646 - 0 - - 0 - (2) 166,267 - 0 -
Sidney Diamond 1998 200,000 - 0 - - 0 - (2) 100,000 (4) - 0 -
General Manager-Nevada Operations (3) 1997 132,308 - 0 - - 0 - (2) 100,000 - 0 -
1996 - 0 - - 0 - - 0 - - 0 - - 0 -
Andrew Harbison (5) 1998 104,606 6,694 - 0 - 30,000 (5) - 0 -
Vice President-Software Development 1997 96,528 10,000 - 0 - 30,000 - 0 -
1996 90,192 2,000 - 0 - 18,138 - 0 -
</TABLE>
- ------------------
(1) Represents benefits attributable to the Company's payments or
reimbursements for lease of a car (approximately $11,330 in the fiscal
year ended September 30, 1998 and $10,300 in each of the fiscal years
ended September 30, 1997 and September 30, 1996), other expenses relating
to such car, life insurance premiums ($8,330 in the fiscal year ended
September 30, 1998), medical insurance and related expenses and certain
other perquisites.
(2) Excludes personal benefits which did not exceed the lesser of $50,000 or
10%, on an annual basis, of such person's salary and bonus.
(3) Mr. Diamond became an officer of the Company in February 1997. The salary
shown for Mr. Diamond includes a base salary at the rate of $100,000 per
annum plus a non-refundable draw of $100,000 per annum, against certain
commissions to which he may become entitled.
(4) On March 16, 1998, Mr. Albanese and Mr. Diamond were granted options to
purchase 80,000 and 100,000 shares of Common Stock, respectively, at an
exercise price of $0.72 per share, the fair market value of the Common
Stock on such date, upon the surrender of options to purchase a similar
number of shares previously granted to them at a higher exercise price.
(See Report on Repricing of Stock Options.)
(5) On February 23, 1998, Mr. Harbison was granted an option to purchase
30,000 shares of Common Stock at an exercise price of $0.672 per share,
the fair market value of the Common Stock on such date, upon the surrender
of options to purchase a similar number of shares previously granted to
him at a higher exercise price. (See Report on Repricing of Stock
Options.)
6
<PAGE>
STOCK OPTION TABLES
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth for the fiscal year ended September 30,
1998, the options to purchase Common Stock granted to the executives named
below.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR(1) PRICE ($/SH)(2) DATE
- ------------------------------------ ----------- ----------------- ---------------- -----------
<S> <C> <C> <C> <C>
Barry Mindes - 0 - - 0 - - -
Chairman of the Board
Bernard Albanese 80,000 (3) 21.7 0.72 March 15, 2008
President and Treasurer
Sidney Diamond 100,000 (3) 27.2 0.72 March 15, 2008
General Manager-Nevada Operations
Andrew Harbison 30,000 (4) 8.2 0.67 February 22, 2008
Vice President-Software Development
</TABLE>
- ------------------
(1) During the fiscal year ended September 30, 1998, the Company granted a
total of 368,000 options to employees under the 1996 Stock Option Plan.
This number was used in calculating the percentages set forth above.
Contemporaneously with the grant of such 368,000 options, options to
purchase 284,000 shares previously granted to employees were surrendered
and canceled. (See Report on Pricing of Stock Options.)
(2) The exercise price is equal to the fair market value of the Common Stock
on the date of the grant of such options.
(3) Represents options granted on March 16, 1998, which vest in three equal
annual instalments, commencing on the first anniversary of the date of
grant. (See Note 4 to Summary Compensation Table and Report on Repricing
of Stock Options.)
(4) Represents options granted on February 23, 1998, which vest in three equal
annual installments commencing on the first anniversary of the date of
grant. (See Note 5 to the Summary Compensation Table and Report on
Repricing of Stock Options.)
7
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth, as of September 30, 1998, information
concerning outstanding options to purchase Common Stock held by the executives
named below.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED "IN-THE-
UNDERLYING UNEXERCISED MONEY" OPTIONS AT
OPTIONS AT SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 (1)
SHARES
ACQUIRED VALUE
ON EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Barry Mindes - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Chairman of the Board
Bernard Albanese - 0 - - 0 - 83,134 163,133 $29,887 $57,286
President and Treasurer
Sidney Diamond - 0 - - 0 - - 0 - 100,000 - 0 - $34,250
General Manager-Nevada Operations
Andrew Harbison - 0 - - 0 - 74,820 48,894 $26,898 $18,507
Vice President-Software Development
</TABLE>
- ------------------
(1) Options are "in-the-money" at the fiscal year-end if the fair market value
of the Common Stock on such date exceeds the exercise price of the option.
The last sales price of the securities underlying the options on September
30, 1998, was $1.0625 per share.
(2) Value realized is the closing market price of the Common Stock on the date
of exercise less the option price, multiplied by the number of shares
acquired, or that could be acquired, on exercise.
REPORT ON REPRICING OF STOCK OPTIONS
In February and March 1998, the Board of Directors of the Company
determined that the purposes of the 1996 Stock Option Plan were not being
adequately achieved with respect to those directors, employees and consultants
holding options that were exercisable at prices above the then current market
value, and that it was in the best interests of the Company that the Company
retain and motivate such directors, employees and consultants. The Board
concluded that such retention was particularly important given the Company's
business activities at that time and that a cost-effective approach to retention
and motivation was required. The Board further determined that it would be in
the best interests of the Company and the Company's stockholders to provide such
optionees the opportunity to exchange their above market value options for
options exercisable at the current market value. On February 23, 1998 and March
16, 1998, upon approval of the Board of Directors of the Company, the Company
offered the holders of outstanding options under the 1996 Stock Option Plan with
exercise prices above the then current market value, the opportunity to
surrender such options and be granted new options at an exercise price equal to
the then current market value. Any holder accepting this offer was required to
give up, in most cases, a comparable number of existing options.
Mr. Albanese, Mr. Diamond, Mr. Harbison, Mr. Kupersmith, Ms. Mandelker
and Mr. Rapaport surrendered 80,000, 100,000, 30,000, 15,000, 9,000, and 10,500
options, and were granted options to purchase 80,000, 100,000, 30,000, 19,500,
13,500, and 15,000 shares, respectively. The options surrendered were partially
vested and the remainder of such options were to vest at varying points in time
over a period of four years from the date of the original grant and would have
terminated 10 years from the date of grant. The new options granted to Mr.
Albanese, Mr. Diamond and Mr. Harbison vest at the rate of 331/3% per year
commencing with the first anniversary of the date of the new grant. A portion of
the new options granted to Mr. Kupersmith, Ms. Mandelker and Mr. Rapaport vested
on October 1, 1998 and the balance vest at the rate of 750 options per month
commencing April 1, 1998. All new options granted have an exercise price of
$0.72 per
8
<PAGE>
share (except those granted to Mr. Harbison, whose options have an exercise
price of $0.672 per share), which was the current market value on the date of
the new grant, and have a term of 10 years from the date of the new grant.
EMPLOYMENT AGREEMENTS
The Company entered into a one-year employment agreement with Barry
Mindes dated as of July 1, 1998, pursuant to which (i) Mr. Mindes receives a
base salary of not less than $165,000 per annum; (ii) such salary increases,
bonuses or other incentive compensation as may be approved by the Board; (iii)
such health and life insurance and other fringe benefits as may be provided to
other executives of the Company; and (iv) he is entitled to severance equal to
one year's base salary and continuation of fringe benefits at the end of the
term of the Agreement. In the event that, during the term (a) the Company
requests that he relocate and, as a consequence, he voluntarily terminates his
employment, or (b) the Company terminates his employment other than for cause
(as defined in the agreement) or his employment terminates as a result of his
death or disability, he is entitled to continued payment of his base salary and
benefits for a period of one year. In addition, in the event of a "change of
control" (as defined in the agreement) of the Company during the term followed
by termination of his employment either (i) by the Company, other than as a
result of death or disability or for cause, or (ii) by him for "good reason" (as
defined in the agreement), he is entitled to continued payment of base salary
and benefits until the end of the term but not for less than six months. In
addition, Mr. Mindes is entitled to payment of such severance if, after a change
of control, he elects voluntarily to terminate his employment with the Company.
Mr. Mindes is also entitled, at the Company's expense, to use of a leased
automobile, including all operating, maintenance and insurance expenses. In
addition, in lieu of participating in the health insurance program provided by
the Company, Mr. Mindes may elect to participate in other health insurance, in
which case the Company shall pay or reimburse him for (i) any deductible or
co-payments required to be paid by him, (ii) any medical or hospitalization
costs not reimbursed to him by such other health insurance (and/or Medicare) and
(iii) the premiums for his existing life insurance policies in the amount of
$200,000, provided that the aggregate payment to which he shall be entitled for
all of the foregoing during the term of the agreement shall not exceed $8,400.
The Company entered into a two-year employment agreement with Bernard
Albanese dated as of July 1, 1998, pursuant to which (i) Mr. Albanese receives a
base salary of not less than $150,000 per annum; (ii) such salary increases,
bonuses or other incentive compensation as may be approved by the Board; (iii)
such health and life insurance as may be provided to other executives of the
Company; and (iv) he is entitled to severance equal to six months' base salary
(one year's base salary after reaching age 55) in the event (a) the Company
requests that he relocate and, as a consequence, he voluntarily terminates his
employment, or (b) the Company terminates his employment other than for cause
(as defined in the agreement) or if his employment terminates as a result of his
death or disability during the term or after the term but while he continues to
be employed by the Company, or (c) upon expiration of the term of the agreement
without the agreement being renewed or replaced. In addition, in the event of a
"change of control" (as defined in the agreement) of the Company followed by
termination of his employment either (i) by the Company other than as a result
of death or disability or for cause, or (ii) by him for "good reason" (as
defined in the agreement), he is entitled to (a) if termination occurs during
the term, continued payment of base salary and benefits until the end of the
term but not for less than six months, or (b) if termination occurs after the
term, but while he is still employed by the Company, payment of six months' base
salary and benefits. The agreement also provides that if his employment
terminates for any reason whatsoever, including his death or disability, other
than by the Company for cause or by him voluntarily (other than as permitted by
the agreement), all stock options theretofore granted to him which have not
become exercisable shall vest and become exercisable and remain exercisable in
accordance with the Company's 1995 and 1996 Stock Option Plans and stock option
agreements.
Each of Messrs. Mindes and Albanese have entered into agreements
restricting competitive activities for 12 months following termination of their
employment and prohibiting disclosure of confidential information.
On February 3, 1997 the Company entered into a three-year employment
agreement with Sidney Diamond, pursuant to which Mr. Diamond will serve the
Company in the capacity as General Manager-Nevada Operations. During the term of
the agreement, Mr. Diamond receives an annual base salary of $100,000, and
during the first two years of the term an additional non-refundable draw at the
rate of $100,000 per year against certain commissions to which he may become
entitled. In the third year of the term he is entitled to certain commissions
earned by him as specified in the
9
<PAGE>
agreement. Mr. Diamond is entitled to severance equal to six months' base salary
if the Company terminates his employment without cause during the term. As an
integral part of the employment agreement, the Company loaned to Mr. Diamond
$100,000, which loan bears no interest and is repayable in bi-weekly instalments
such that during the first year of the term $50,000 was repaid and during each
of the second and third year of the term $25,000 would be repaid to the Company.
If Mr. Diamond's employment is terminated by the Company other than as a result
of his death, disability or for cause, prior to the end of the term, the unpaid
balance of the loan will be forgiven. During the fiscal year ended September 30,
1998, the largest amount that was outstanding on this loan was $69,231 and as of
September 30, 1998, $33,687 remained outstanding.
DIRECTOR COMPENSATION
Prior to October 1, 1998, outside directors did not receive any cash
compensation for their services as members of the Board or Committees, although
they were reimbursed for their out-of-pocket expenses incurred in attending
Board and Committee meetings. Effective as of October 1, 1998, the Company pays
each outside director $1,000 for each Board meeting attended, up to a maximum of
$4,000 per fiscal year. The Company also compensates outside directors by means
of grants of options at fair market value on the date of grant. In April 1996
and August 1996, Harold Rapaport and Janet Mandelker were each granted options
to purchase 12,092 shares of Common Stock and 9,069 shares of Common Stock
pursuant to the Company's 1995 Stock Option Plan at an exercise price of $.70
per share. As of September 30, 1998, all of such options were fully vested. On
October 10, 1997, each of Mr. Rapaport and Ms. Mandelker were granted an
additional 9,000 and 10,500 options, respectively, pursuant to the 1996 Stock
Option Plan, exercisable at a price of $5.25 per share, which options were to
vest at the rate of 1,500 options for each Board meeting attended after all the
other options granted to them had vested. On September 27, 1996 Mr. Rapaport
exercised 7,557 options at an exercise price of $.70 per share. Ms. Mandelker
has not yet exercised any of her options. On February 3, 1997 Fredric Kupersmith
was granted options to purchase 4,500 shares of Common Stock pursuant to the
1996 Stock Option Plan at an exercise price of $7.50 per share, of which 1,500
options vested on the date of grant and the balance were to vest at the rate of
1,500 options for each Board meeting attended after that date. On October 10,
1997 Mr. Kupersmith was granted options to purchase 10,500 shares of Common
Stock, at an exercise price of $5.25 per share, which options were to vest at
the rate of 1,500 options for each Board meeting attended after all other
options granted to him had vested. In October 1995, Bernard Albanese, who at the
time was an officer but not a director of the Company, was granted an option to
purchase 90,691 shares of Common Stock pursuant to the 1995 Stock Option Plan
and, in June 1996, he was granted an option to purchase 75,576 shares of Common
Stock pursuant to the 1995 Stock Option Plan, each of which options is
exercisable at $.70 per share and vests in four equal annual instalments
commencing on the first anniversary of the date of grant. Mr. Albanese was also
granted options pursuant to the 1996 Stock Option Plan to purchase 40,000 shares
of Common Stock on each of February 3, 1997 and September 25, 1997 at an
exercise price of $7.50 and $5.56, respectively. On March 16, 1998, all options
previously granted to Ms. Mandelker and Messrs. Albanese, Kupersmith and
Rapaport, at exercise prices higher than $0.72 per share were surrendered and
each of such persons was granted new options at an exercise price of $0.72 per
share, the fair market value on March 16, 1998. (See Note 4 to the Summary
Compensation Table and the Report on Repricing of Stock Options.)
PROPOSAL NO. II - CONTINUATION OF 1995 STOCK OPTION PLAN AND 1996 STOCK OPTION
PLAN, EACH AS AMENDED, FOR THE PURPOSES OF SECTION 162(m) OF THE INTERNAL
REVENUE CODE
The Company's 1995 Stock Option Plan (the "1995 Plan") and the 1996
Stock Option Plan (the "1996 Plan") (the 1995 Plan and the 1996 Plan are
referred to collectively as the "Plans") provide that awards of stock options
may be made to employees, officers or directors of, and consultants to, the
Company and its subsidiaries.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1 million paid to the Company's chief executive officer or
the person fulfilling those responsibilities, and four other most-highly
compensated executive officers. Qualifying performance-based compensation is not
subject to the deduction limit if certain requirements are met. In particular,
income recognized upon
10
<PAGE>
the exercise of a stock option is not subject to the deduction limit if the
option was issued under a plan approved by stockholders that provides a limit on
the number of shares that may be issued under the plan to any individual.
Options granted under the Plans to date comply with Section 162(m)
pursuant to a transition rule that temporarily exempts plans adopted while a
company is privately held. To remain in compliance, the Plans must be approved
by the Company's stockholders by the first meeting of stockholders at which
directors are to be elected that occurs after the close of the third calendar
year following the calendar year of the Company's initial public offering.
Accordingly, the Board of Directors amended the Plans to provide for limitation
on the number of options that could be granted to any individual in any calendar
year and voted to present the Plans, including a per participant limit in
compliance with Section 162(m), to the stockholders for ratification. The Plans,
as amended, provide that the maximum number of shares of Common Stock with
respect to which any option may be granted to any participant shall be 300,000
shares per calendar year. If the stockholders do not approve the continuation of
the Plans, the Company may determine to no longer grant awards under Plans.
The following is a summary of the material provisions of the Plans and
are qualified in their entirety by the specific language of the Plans.
1995 STOCK OPTION PLAN. In May 1995, the Board adopted and the
stockholders approved the 1995 Plan which authorized the grant of options to
purchase up to 649,948 shares of Common Stock. The purpose of the 1995 Plan is
to attract and retain exemplary employees, agents, consultants and directors. As
of January 22, 1999, options to purchase 466,195 shares were outstanding,
options to purchase 77,948 shares had been exercised and options to purchase
105,805 shares remained available for grant. The shares subject to and available
under the 1995 Plan may consist, in whole or in part, of authorized but unissued
stock or treasury stock not reserved for any other purpose. Any shares subject
to an option that terminates, expires or lapses for any reason, and any shares
purchased pursuant to an option and subsequently repurchased by the Company
pursuant to the terms of the option, shall again be available for grant under
the 1995 Plan.
The 1995 Plan provides for the grant of incentive stock options
("ISOs") (within the meaning of Section 422 of the Code) and non-qualified stock
options ("NQSOs") at the discretion of the administrator of the 1995 Plan. The
Board administers the 1995 Plan. Subject to the terms of the 1995 Plan, the
Board determines the terms and conditions of options granted under the 1995
Plan. Options granted under the 1995 Plan are evidenced by written agreements
which contain such terms, conditions, limitations and restrictions as the Board
deems advisable and which are not inconsistent with the 1995 Plan. ISOs may be
granted to individuals who, at the time of grant, are officers or other
employees of the Company. NQSOs may be granted to individuals who, at the time
of grant, are employees, directors, officers, agents or consultants of the
Company whether or not such consultants are employees of the Company. The 1995
Plan provides that the Board must establish an exercise price for ISOs that is
no less than the fair market value per share of the Common Stock at the date of
grant. The exercise price for NQSOs shall be determined by the Board .
Options under the 1995 Plan may provide for the payment of the exercise
price by (i) delivery of cash or a check payable to the order of the Company,
(ii) "cashless exercises" (delivery of shares of stock of the Company having a
fair market value equal to the exercise price), or (iii) any combination of (i)
and (ii).
To the extent that the aggregate fair market value, as of the date of
grant, of the shares into which ISOs become exercisable for the first time by an
optionee during the calendar year exceeds $100,000, the ISO will be treated as
an NQSO. In addition, if an optionee owns more than 10% of the Company's stock
at the time such optionee is granted an ISO, the option price per share cannot
be less than 110% of the fair market value per share and the term of the option
cannot exceed five years. Options granted under the 1995 Plan may not be
exercisable for terms in excess of 10 years from the date of grant. No options
may be granted under the 1995 Plan later than 10 years after the 1995 Plan's
effective date.
Options granted under the 1995 Plan to officers, directors, employees
or consultants of the Company generally may be exercised only while the optionee
is employed or retained by the Company or within one year after termination of
the optionee's employment or consulting relationship by reason of death or
permanent disability, and three months after termination for any other reason
except termination for cause (unless such options expire sooner by their terms).
Options are nontransferable, except by will or the laws of descent and
distribution.
The number and price of shares of Common Stock covered by each option,
the total number of options that may be granted under the Plans and the maximum
number of options that may be granted to any optionee will be proportionately
adjusted to reflect any stock dividend, stock split or other recapitalization of
the Company.
11
<PAGE>
In addition, unless otherwise determined by the Board in its
discretion, upon (i) any merger or consolidation of the Company pursuant to
which the stockholders receive cash or securities of another corporation and
less than a majority of the outstanding stock of the surviving corporation
pursuant to such merger or consolidation shall be owned by the stockholders of
the Company, (ii) a sale to another entity of all or substantially all of the
assets of the Company, or (iii) a "change of control" of the Company (as
defined), the Company shall, or shall cause such surviving corporation or the
purchaser of the Company's assets, to deliver to the optionees the same kind of
consideration that is delivered to the stockholders of the Company as a result
of such merger, consolidation, sale or change of control, or the Board may
cancel all outstanding options in exchange for consideration in cash or
marketable securities, which consideration shall be equal in value to the value
of the securities the optionee would have received had the option been
exercised, less the exercise price therefor. The Board also has the right to
accelerate the exercisability of options upon the occurrence of any such merger,
consolidation, sale or change of control.
The Board may amend the Plans as it deems advisable provided that the
Board may not, without stockholder approval, increase the maximum number of
shares for which options may be granted or change the designation of the class
of persons eligible to receive options under the Plans.
1996 STOCK OPTION PLAN. In October 1996, the Board adopted and the
stockholders approved the 1996 Plan. The 1996 Plan is substantially similar to
the 1995 Plan, except that it is administered by the Stock Option Committee and
that there are 825,000 shares of Common Stock authorized for issuance pursuant
to options which may be granted thereunder, of which, as of January 22, 1999
options to purchase a total of 545,000 were outstanding and 280,000 were
available for grant.
The specific benefits or amounts which have been or which may be
received by directors, officers and employees under the 1995 Plan and 1996 Plan,
to the extent determinable on January 22, 1999, are as follows:
<TABLE>
<CAPTION>
1995 PLAN BENEFITS 1996 PLAN BENEFITS
------------------------------------------- -------------------------------------------
NAME AND POSITION DOLLAR VALUE ($)(1) NUMBER OF SHARES DOLLAR VALUE ($)(1) NUMBER OF SHARES(2)
- ----------------- ------------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Barry Mindes - 0 - - 0 - - 0 - - 0 -
Bernard Albanese 59,773 166,267 27,400 80,000
Sidney Diamond - 0 - - 0 - 34,250 100,000
Andrew Harbison 33,690 93,714 11,715 30,000
Executive Officers Group 93,463 259,981 73,365 210,000
(4 persons)
Fredric Kupersmith - 0 - - 0 - 6,679 19,500
Janet Mandelker 7,607 21,161 4,624 13,500
Harold Rapaport 4,891 13,604 5,138 15,000
Non-Executive Director 12,498 34,765 16,441 48,000
Group (3 persons)
Non-Executive Officer 18,331 50,990 26,554 68,000
Group (9 persons)
</TABLE>
- ------------------
(1) Dollar value of options equals the fair market value of the shares at
September 30, 1998 ($1.0625) less the option exercise price multiplied by
the number of options held by such person or group, whether or not such
options were fully vested and exercisable.
(2) Excludes the following options that are not in-the-money based upon the
final sales price of the Company's Common Stock on September 30, 1998
($1.0625): Mr. Albanese - 45,000; Mr. Harbison - 30,000; and Non-Executive
Officer Group - 213,000.
12
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options granted under the
Plans and with respect to the exercise of options and sale of Common Stock under
the Plans.
INCENTIVE STOCK OPTIONS. In general, an optionee will not recognize
regular taxable income upon the grant or exercise of an ISO. Instead, an
optionee will recognize taxable income with respect to an ISO only upon the sale
of Common Stock acquired through the exercise of the ISO ("ISO Stock"). The
exercise of an ISO may, however, subject the optionee to the alternative minimum
tax.
Generally, the tax consequences of selling ISO Stock will vary with the
length of time that the optionee has owned the ISO Stock at the time it is sold.
If the Optionee sells the ISO Stock after having owned if for the longer of two
years from the date the option was granted (the "Grant Date") and more than one
year from the date the option was exercised (the "Exercise Date"), then the
optionee will recognize long-term capital gain in an amount equal to the excess
of the sale price of the ISO Stock over the exercise price.
If the optionee sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the optionee will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. The capital gain will be a
long-term capital gain if the optionee has held the ISO Stock for more than one
year prior to the date of sale.
If the optionee sells ISO Stock for less than the exercise price, then
the optionee will recognize a capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the optionee has held the ISO Stock for more than one
year prior to the date of sale.
NON-QUALIFIED STOCK OPTIONS. As in the case of an ISO, an optionee will
not recognize taxable income upon the grant of an NQSO. Unlike the case of an
ISO, however, an optionee who exercises an NQSO generally will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the Common Stock acquired through the exercise of the NQSO ("NQSO
Stock") on the Exercise Date over the exercise price.
With respect to any NQSO Stock, an optionee will have a tax basis equal
to the exercise price plus any income recognized upon the exercise of the NQSO.
Upon selling NQSO Stock, an optionee generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NQSO Stock over
the optionee's tax basis in the NQSO Stock. This capital gain or loss will be a
long-term gain or loss if the optionee has held the NQSO Stock for more than one
year prior to the date of the sale.
TAX CONSEQUENCES TO THE COMPANY. The grant of an option under the Plans
will have no tax consequences to the Company. Moreover, in general, neither the
exercise of an ISO nor the sale of any Common Stock acquired under the Plans
will have any tax consequences to the Company. The Company generally will be
entitled to a business-expense deduction, however, with respect to any ordinary
compensation income recognized by an optionee under the Plans, including as a
result of the exercise of an NQSO or a Disqualifying Disposition. Any such
deduction will be subject to the limitation of Section 162(m) of the Code.
THE BOARD OF DIRECTORS BELIEVES THAT THE CONTINUATION OF THE PLANS, AS AMENDED,
IS IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND THEREFORE
RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
13
<PAGE>
PROPOSAL NO. III - RATIFICATION OF SELECTION
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board and the Audit Committee have approved the engagement of KPMG
Peat Marwick LLP as the independent public accountants for the Company for the
fiscal year ending September 30, 1999. KPMG Peat Marwick LLP has served as the
Company's independent public accountants since 1996. The Board considers KPMG
Peat Marwick LLP to be well qualified for the function of serving as the
Company's independent public accountants.
Unless otherwise specified, shares represented by proxies will be voted
for the ratification of KPMG Peat Marwick LLP as the independent public
accountants for the Company. If the stockholders do not so approve, the
selection of independent public accountants will be reconsidered by the Board.
Representatives of KPMG Peat Marwick LLP are expected to be present at
the Meeting, will have the opportunity to make a statement if they desire to do
so and are expected to be available to respond to appropriate questions.
THE BOARD RECOMMENDS A VOTE "FOR" THE RATIFICATION OF KPMG PEAT MARWICK LLP AS
THE INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY.
OTHER BUSINESS
Management of the Company knows of no other business which will be
presented for consideration at the Meeting, but should any other matters be
brought before the Meeting, it is intended that the persons named in the
accompanying Proxy will vote such Proxy in their discretion.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons who own
beneficially more than 10% of the Company's Common Stock to file reports of
ownership and changes in ownership of such stock with the Securities and
Exchange Commission (the "SEC"). Directors, executive officers and greater than
10% stockholders are required by SEC regulations to furnish the Company with
copies of all such forms they file. To the Company's knowledge, based solely on
a review of the copies of such reports furnished to the Company and written
representations that no other reports were required, its directors, executive
officers and greater than 10% stockholders complied with these requirements
during the fiscal year ended September 30, 1998.
ANNUAL REPORT
The Annual Report of the Company on Form 10-KSB for the fiscal year
ended September 30, 1998, including financial statements but excluding exhibits,
is being furnished herewith to stockholders of record of the Company on the
Record Date. The Annual Report does not constitute a part of the proxy
soliciting material.
14
<PAGE>
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any stockholder desiring to present proposals to stockholders at the
2000 Annual Meeting of the Company must transmit such proposal to the Company in
writing and such proposal must be received by the Secretary of the Company at
its offices no later than September 30, 1999. All such proposals should be in
compliance with applicable SEC regulations.
By Order of the Board of Directors
Barry Mindes
Chairman of the Board
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
SEPTEMBER 30, 1998, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES THERETO FILED
WITH THE SEC, IS AVAILABLE WITHOUT CHARGE TO STOCKHOLDERS UPON WRITTEN REQUEST
ADDRESSED TO BERNARD ALBANESE, INTERNATIONAL SPORTS WAGERING INC., 201 LOWER
NOTCH ROAD, SUITE 2B, LITTLE FALLS, NEW JERSEY 07424.
15
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
201 LOWER NOTCH ROAD, SUITE 2B, LITTLE FALLS, NJ 07424
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS - FEBRUARY 26, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints BARRY MINDES and BERNARD ALBANESE, as
Proxies, each with the power
to appoint his substitute, and hereby authorizes them to represent and to vote,
as designated below, all of the shares of Common Stock, $.001 par value, of
INTERNATIONAL SPORTS WAGERING INC. held of record by the undersigned on January
22, 1999 at the Annual Meeting of Stockholders (the "Meeting") of INTERNATIONAL
SPORTS WAGERING INC. , on February 26, 1999 at 10:00 a.m., local time, or at any
adjournments thereof.
(1) Election of Directors
<TABLE>
<S> <C>
/ / FOR all nominees listed below (except as / / WITHHOLD AUTHORITY to vote for all
indicated otherwise below) nominees listed below
</TABLE>
INSTRUCTION: To withhold authority to vote for an individual nominee, write
such nominees's name in the space below.
NOMINEES: Bernard Albanese, Fredric Kupersmith, Janet Mandelker, Barry Mindes,
and Harold Rapaport
WITHHOLD AUTHORITY FOR THE FOLLOWING NOMINEES:
<TABLE>
<S> <C> <C> <C>
(2) To approve the continuation of the 1995 Stock Option Plan and the 1996 FOR AGAINST ABSTAIN
Stock Option Plan. / / / / / /
(3) To ratify the selection of KPMG Peat Marwick LLP as independent public FOR AGAINST ABSTAIN
accountants for the Company for the fiscal year ending September 30, 1999. / / / / / /
(4) In their discretion, the Proxies are authorized to vote upon such other FOR AGAINST ABSTAIN
business as may properly come before the meeting or any adjournments thereof. / / / / / /
</TABLE>
(TO BE SIGNED BELOW)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN ABOVE.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please indicate the capacity in which signing. When a proxy
is given by a corporation, please give your full corporation name and have the
proxy signed by the president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Date: , 1999
----------------------
Stockholder:
----------------------
-----------------------------------
Signature
-----------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
Exhibit 99.1
INTERNATIONAL SPORTS WAGERING INC.
1995 STOCK OPTION PLAN
(AS AMENDED JANUARY 7, 1999)
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1995 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Purpose of the Plan.................................................................... 1
2. Stock Subject to the Plan.............................................................. 1
3. Administration of the Plan............................................................. 1
4. Type of Option......................................................................... 2
5. Eligibility............................................................................ 2
6. Restrictions on Options................................................................ 2
7. Option Agreement....................................................................... 3
8. Option Price........................................................................... 4
9. Manner of Payment; Manner of Exercise.................................................. 4
10. Exercise of Options.................................................................... 5
11. Term of Options; Exercisability........................................................ 5
12. Options Not Transferable............................................................... 6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
13. Recapitalization, Reorganizations and the Like......................................... 6
14. No Special Employment Rights........................................................... 7
15. Withholding............................................................................ 7
16. Restrictions on Exercise of Options and Issuance of Shares............................. 8
17. Purchase for Investment; Rights of Holder on Subsequent Registration................... 8
18. Loans.................................................................................. 9
19. Modification of Outstanding Options.................................................... 9
20. Approval of Board and Stockholders..................................................... 9
21. Termination and Amendment of Plan...................................................... 9
22. Duties of the Company................................................................... 9
23. Limitation of Rights in the Option Shares.............................................. 10
24. Governing Law.......................................................................... 10
25. Notices................................................................................ 10
26. Headings............................................................................... 10
</TABLE>
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1995 STOCK OPTION PLAN
(AS AMENDED JANUARY 7, 1999)
1. PURPOSE OF THE PLAN.
The purpose of the International Sports Wagering Inc. 1995 Stock Option
Plan (the "PLAN") is to advance the interests of International Sports Wagering
Inc., a Delaware corporation (the "COMPANY"), by providing an opportunity for
ownership of the stock of the Company by employees, agents and directors of, and
consultants to, the Company or of any subsidiary corporation (herein called
"SUBSIDIARY" or "SUBSIDIARIES"), as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "CODE") and the Treasury
regulations promulgated thereunder (the "REGULATIONS"). Such employees,
agents and directors of, and consultants to, the Company or any subsidiary
are hereinafter referred to individually as an "ELIGIBLE PERSON" and
collectively as "ELIGIBLE PERSONS". By providing an opportunity for such
stock ownership, the Company seeks to attract and retain qualified personnel,
and otherwise to provide additional incentive for optionees to promote the
success of its business.
2. STOCK SUBJECT TO THE PLAN.
(a) The total number of shares of the authorized but unissued or treasury
shares of the common stock, having no par value per share, of the Company
(the "COMMON STOCK") for which options may be granted under the Plan (the
"OPTIONS") shall be 215,000*, subject to adjustment as provided in Section
13 hereof.
(b) If an Option granted or assumed hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for subsequent Option grants under the
Plan.
(c) Common Stock issuable upon exercise of an Option may be subject to
such restrictions on transfer, repurchase rights or other conditions or
restrictions as shall be determined by the Board of Directors of the Company
(the "BOARD").
(d) The maximum number of Options that may be granted to any Eligible
Person during any calendar year is 250,000.
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board. No member of the Board
shall act upon any matter affecting any Option granted or to be granted to
himself or herself under the Plan; provided, however, that nothing contained
herein shall be deemed to prohibit a member of the Board from acting upon any
matter generally affecting the Plan or any Options granted thereunder. A
majority of the members of the Board shall constitute a quorum, and any action
may be taken by a majority of those present and voting at any meeting. The
decision of the Board as to all questions of interpretation and application of
the Plan shall be final, binding and conclusive on all persons. The Board, in
its sole discretion, may grant Options to purchase
- ----------
* Note: This number has been increased to 649,956 as a result of a split of the
Common Stock at the rate of 3.0230479:1 effective October 23, 1996
1
<PAGE>
shares of the Common Stock only as provided in the Plan, and shares shall be
issued upon exercise of such Options as provided in the Plan. The Board shall
have authority, subject to the express provisions of the Plan, to determine
the Eligible Persons who shall be issued Options, the times when Options
shall be granted and within which they may be exercised, the prices at which
Options shall be exercised, the number of shares of Common Stock to be
subject to each Option and whether an Option shall be treated as an incentive
stock option or a non-qualified stock option. The Board shall also have the
authority, subject to the express provisions of the Plan, to amend the Plan,
to determine the terms and provisions of the respective option agreements,
which may but need not be identical, to construe the respective option
agreements and the Plan, and to make all other determinations in the judgment
of the Board necessary or desirable for the administration of the Plan.
Notwithstanding the foregoing, the maximum aggregate number of Options that
may be granted to any Eligible Person during any one year period shall not
exceed 75,000. The Board may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any option agreement in the
manner and to the extent it shall deem expedient to implement the Plan and
shall be the sole and final judge of such expediency. The Board, in its
discretion, may delegate its power, duties and responsibilities to a
committee, consisting of two or more members of the Board, all of whom are
"disinterested persons" (as hereinafter defined). If a committee is so
appointed, all references to the Board herein shall mean and relate to such
committee. For the purposes of the Plan, a director or member of such
committee shall be deemed to be a "DISINTERESTED PERSON" only if such
person qualified as a "disinterested person" within the meaning of
paragraph (c)(2) of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), as such term is interpreted from
time to time.
4. TYPE OF OPTION.
Options granted pursuant to the Plan shall be authorized by action of the
Board and may be designated as either incentive stock options meeting the
requirements of Section 422 of the Code or non-qualified stock options which are
not intended to meet the requirements of such Section 422 of the Code, the
designation to be in the sole discretion of the Board. Options designated as
incentive stock options that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as non-qualified stock options
automatically without further action by the Board on the date of such failure to
continue to meet the requirements of Section 422 of the Code.
5. ELIGIBILITY.
Options designated as incentive stock options may be granted only to
Eligible Persons who are officers or employees of the Company or of any
subsidiary. Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. Options designated as non-qualified stock options may be granted to
any Eligible Person.
The Board shall take into account such factors as it may deem relevant in
determining the number of shares of Common Stock to be included in an Option to
be granted to any Eligible Person.
6. RESTRICTIONS ON OPTIONS.
Incentive stock options (but not non-qualified stock options) granted
under this Plan shall be subject to the following restrictions:
2
<PAGE>
(a) LIMITATION ON NUMBER OF SHARES. The aggregate fair market value of the
shares of Common Stock with respect to which incentive stock options are
granted (determined as of the date the incentive stock options are
granted), exercisable for the first time by an individual during any
calendar year shall not exceed $100,000. If an incentive stock option is
granted pursuant to which the aggregate fair market value of shares with
respect to which it first becomes exercisable in any calendar year by an
individual exceeds such $100,000 limitation, the portion of such option
which is in excess of the $100,000 limitation shall be treated as a
non-qualified stock option pursuant to Section 422(d)(1) of the Code. In
determining the fair market value under this clause (a), the provisions of
Section 8 hereof shall apply. In the event that an individual is eligible
to participate in any other stock option plan of the Company or any
subsidiary of the Company which is also intended to comply with the
provisions of Section 422 of the Code, such $100,000 limitation shall
apply to the aggregate number of shares for which incentive stock options
may be granted under this Plan and all such other plans.
(b) TEN PERCENT STOCKHOLDER. If any Eligible Person to whom an incentive
stock option is granted pursuant to the provisions of the Plan is on the
date of grant the owner of stock (as determined under Section 424(d) of
the Code) possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any subsidiary of the Company, then
the following special provisions shall be applicable to the incentive
stock options granted to such individual:
(i) The Option price per share subject to such Options shall be not
less than 110% of the fair market value of the shares of Common
Stock with respect to which Options are granted (determined as of
the date such Option was granted). In determining the fair market
value under this clause (i), the provisions of Section 8 hereof
shall apply.
(ii) The Option by its terms shall not be exercisable after the
expiration of five years from the date such Option is granted.
7. OPTION AGREEMENT; DISQUALIFYING DISPOSITIONS.
(a) Each Option shall be evidenced by an option agreement, in a form
approved from time to time by the Board (the "AGREEMENT"), duly executed on
behalf of the Company and by the optionee to whom such Option is granted, which
Agreement shall comply with and be subject to the terms and conditions of the
Plan. The Agreement may contain such other terms, provisions and conditions
which are not inconsistent with the Plan as may be determined by the Board;
provided that Options designated as incentive stock options shall meet all of
the conditions for incentive stock options as defined in Section 422 of the
Code. No Option shall be granted within the meaning of the Plan and no purported
grant of any Option shall be effective until the Agreement shall have been duly
executed on behalf of the Company and the optionee.
(b) If an optionee makes a "disposition" (within the meaning of Section
424(c) of the Code) of shares of Common Stock issued upon exercise of an
incentive stock option within two years from the date of grant or within one
year from the date the shares of Common Stock are transferred to the optionee,
the optionee shall, within ten days of disposition, notify the Board and deliver
to it any withholding and employment taxes due. However, if the optionee is a
person subject to Section 16(b) of the Exchange Act, delivery of any withholding
and employment taxes due may be deferred until ten days after the date any
income on the disposition is recognized under Section 83 of the Code. The
Company may cause a legend to be affixed to certificates representing shares of
Common Stock issued upon exercise of incentive stock options to ensure that the
Board receives notice of disqualifying dispositions.
3
<PAGE>
8. OPTION PRICE.
(a) The Option price or prices of shares of the Common Stock for Options
designated as non-qualified stock options shall be as determined by the Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the Option
price or prices of shares of the Company's Common Stock designated as incentive
stock options shall be at least the fair market value of such Common Stock on
the date the Option is granted as determined by the Board in accordance with the
Regulations promulgated under Section 422 of the Code.
(c) If such shares are then listed on any national securities exchange,
the fair market value shall be the mean between the high and low sales prices,
if any, on the largest such exchange on the date of the grant of the Option
or, if there are no such sales on such date, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on
the nearest date before and the nearest date after the date of grant in
accordance with Section 25.2512-2 of the Regulations. If the shares are not
then listed on any such exchange, the fair market value of such shares shall
be the mean between the closing "Bid" and the closing "Ask" prices, if
any, as reported in the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") for the date of the grant of the Option, or, if
there are no such prices on such date, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on
the nearest date before and the nearest date after the date of grant in
accordance with Section 25.2512-2 of the Regulations. If the shares are not
then either listed on any such exchange or quoted in NASDAQ, the fair market
value shall be the mean between the average of the "Bid" and "Ask"
prices, if any, as reported in the National Association of Securities Dealers
National Daily Quotation Service for the date of the grant of the Option, or,
if there are no such prices on such date, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on
the nearest date before and the nearest date after the date of grant in
accordance with Section 25.2512-2 of the Regulations. If the fair market
value cannot be determined under the preceding three sentences, it shall be
determined in good faith by the Board in accordance with Section 422 of the
Code.
9. MANNER OF PAYMENT; MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such Options, (ii) shares of
Common Stock owned by the optionee having a fair market value (at the date of
exercise) equal in amount to the exercise price of the Options being exercised,
or (iii) any combination of (i) and (ii). The fair market value of any shares of
Common Stock which may be delivered upon exercise of an Option shall be
determined by the Board in accordance with Section 8 hereof.
(b) To the extent that an Option is exercisable, Options may be exercised
in full at one time or in part from time to time, by giving written notice,
signed by the person or persons exercising the Option, to the Company, stating
the number of shares with respect to which the Option is being exercised,
accompanied by payment in full for such shares as provided in Section 9(a)
hereof. No exercise of an Option may be made for fewer than 100 full shares of
Common Stock unless such exercise is made for the entire fractional amount of a
share remaining to be purchased pursuant to such Option. Upon such exercise,
delivery of a certificate for paid-up, non-assessable shares shall be made by
the Company to the person or persons exercising the Option within 20 business
days after receipt of such notice by the Company.
4
<PAGE>
10. EXERCISE OF OPTIONS.
Each Option granted under the Plan shall, subject to Sections 11(b), 13
and 16 hereof, be exercisable at such time or times and during such period as
shall be set forth in the Agreement; provided, however, that except as otherwise
provided pursuant to the provisions of Section 6(b) hereof, no Option granted
under the Plan shall have a term in excess of ten years from the date of grant.
11. TERM OF OPTIONS; EXERCISABILITY.
(a) TERM.
(i) Each Option shall expire on a date determined by the Board which
is not more than ten years from the date of the granting thereof,
except (a) as otherwise provided pursuant to the provisions of
Section 6(b) hereof, and (b) for earlier termination as herein
provided.
(ii) Except as otherwise provided in this Section 11, an Option granted
to any optionee who ceases to be an Eligible Person for any reason
shall terminate on the earlier of (i) three (3) months after the
date such optionee ceased to be an Eligible Person, or (ii) the
date on which the Option expires by its terms.
(iii)If an optionee ceases to be an Eligible Person because the Company
has terminated his or her status with the Company for cause (as
such term is defined in any employment or similar agreement
between such optionee and the Company or, if there is no such
agreement, or such agreement does not contain provisions relating
to termination or removal for cause, as such term is defined by
the law of the State of New York), such Option will, to the extent
not terminated, be deemed to have terminated on the date
immediately preceding the date the optionee ceased to be an
Eligible Person.
(iv) If an optionee ceases to be an Eligible Person because the
optionee has become disabled (within the meaning of Section
22(e)(3) of the Code), such Option shall terminate on the earlier
of (i) one year after the date such optionee ceased to be an
Eligible Person, or (ii) the date on which the Option expires by
its terms.
(v) In the event of the death of any optionee, such Option shall
terminate on the earlier of (i) one year after the date of death,
or (ii) the date on which the Option expires by its terms.
(b) EXERCISABILITY.
(i) Except as otherwise provided in this Section 11(b), an Option
granted to an optionee who thereafter ceases to be an Eligible
Person shall be exercisable only to the extent that the right to
purchase shares under such Option is exercisable on the date such
optionee ceased to be an Eligible Person.
(ii) An Option granted to an optionee who ceases to be an Eligible
Person because he or she has become disabled (as such term is
defined in any employment or similar agreement between such
optionee and the Company or, if there is no such agreement, or
such agreement does not contain provisions relating to termination
or removal for disability, as determined by the Board) shall be
immediately exercisable as to the full number of shares covered by
such Option, whether or not under the provisions of the Plan or
Agreement such Option was otherwise exercisable as of the date of
disability.
5
<PAGE>
(iii)In the event of the death of an optionee, the Option granted to
such optionee may be exercised as to the full number of shares
covered by such Option, whether or not under the provisions of the
Plan or Agreement the optionee was otherwise exercisable at the
date of his or her death, by the executor, administrator or
personal representative of such optionee, or by any person or
persons who acquired the right to exercise such Option by bequest
or inheritance or by reason of the death of such optionee.
(iv) In addition to the acceleration of the exercisability of Options
pursuant to this Section 11(b) and Section 13(b)(ii) hereof, the
Board shall have the right, in the exercise of its discretion and
for any reason, and with the consent of the optionee, to
accelerate the date on which Options shall be exercisable.
12. OPTIONS NOT TRANSFERABLE.
The right of any optionee to exercise any Option granted to him or her
shall not be assignable or transferable by such optionee other than by will or
the laws of descent and distribution, and any such Option shall be exercisable
during the lifetime of such optionee only by him or her. Any Option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the Option is granted, or upon any attempted assignment or
transfer, except as herein provided, including, without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, or levy of execution, attachment, trustee
process or similar process, whether legal or equitable, upon such Option.
13. RECAPITALIZATION, REORGANIZATIONS AND THE LIKE.
(a) In the event that the outstanding shares of the Common Stock are
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any reorganization, recapitalization,
reclassification, stock split, combination of shares, or dividends payable in
capital stock, appropriate and equitable adjustment shall be made by the Board,
in its sole discretion, in the number and kind of shares as to which Options may
be granted under the Plan and as to which outstanding Options or portions
thereof then unexercised shall be exercisable. Such adjustment in outstanding
Options shall be made without change in the total price applicable to the
unexercised portion of such Options and with a corresponding adjustment in the
Option price per share.
(b) (i) In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (I) merger or consolidation pursuant to which the
Company's stockholders shall receive cash or securities of another corporation
and less than 50% of the outstanding capital stock of the surviving corporation
pursuant to such merger or consolidation shall be owned by the stockholders of
the Company, (II) sale or conveyance to another entity of all or substantially
all of the property and assets of the Company or (III) Change in Control of the
Company, the Company shall, or shall cause such surviving corporation or the
purchaser(s) of the Company's assets to, deliver to the optionee the same kind
of consideration that is delivered to the stockholders of the Company as a
result of such merger, consolidation, sale, conveyance or Change in Control, or
the Board may cancel all outstanding Options in exchange for consideration in
cash or marketable securities, which consideration in both cases shall be equal
in value to the value of those shares of stock or other securities the optionee
would have received had the Option been exercised (but only to the extent then
exercisable) and had no disposition of the shares acquired upon such exercise
been made prior to such merger, consolidation, sale, conveyance or Change in
Control, less the Option price therefor or, in
6
<PAGE>
lieu thereof, the Board shall give the optionee at least twenty days prior
written notice of any such transaction in order to enable the optionee to
exercise the exercisable portion, if any, of the Option. Upon receipt of such
consideration or effective on the date specified in such notice, all Options
(whether or not then exercisable) shall immediately terminate and be of no
further force or effect. The value of the stock or other securities the
optionee would have received if the Option had been exercised shall be
determined in good faith by the Board, and in the case of shares of Common
Stock, in accordance with the provisions of Section 8 hereof.
(ii) The Board shall also have the power and right to accelerate the
exercisability of any Options, notwithstanding any limitations in this Plan or
in the Agreement upon such merger, consolidation, sale, conveyance or Change in
Control.
(c) A "CHANGE IN CONTROL" shall be deemed to have occurred if any person,
or any two or more persons acting as a group, and all affiliates of such person
or persons, who prior to such time Beneficially Owned (as defined in Rule 13d-3
under the Exchange Act) less than 40% of the then outstanding Common Stock,
shall acquire such additional shares of Common Stock in one or more
transactions, or series of transactions, such that following such transaction or
transactions, such person or group and affiliates Beneficially Own 50% or more
of the Common Stock outstanding.
(d) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old Option, or substitution of a new option for the old
Option, in conformity with the provisions of such Section 424(a) of the Code and
the Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan. In the event of such
issuance or assumption, the provisions of Section 13(b) hereof shall not be
applicable.
14. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any optionee any right with respect to the continuation of his
or her employment by the Company or any subsidiary or interfere in any way with
the right of the Company or any subsidiary, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the Option holder from the rate
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government service, shall constitute
termination of employment for purposes of any Option shall be determined by the
Board at the time of such occurrence.
15. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any Option
granted under the Plan shall be subject to the Option holder's satisfaction of
any applicable federal, state and local income and employment tax withholding
requirements. The Company and optionee may agree to withhold shares of Common
Stock purchased upon exercise of an Option to satisfy the above-mentioned
withholding requirements.
7
<PAGE>
16. RESTRICTIONS ON EXERCISE OF OPTIONS AND ISSUANCE OF SHARES.
(a) Notwithstanding the provisions of Sections 9 and 11 hereof, an Option
cannot be exercised, and the Company may delay the issuance of shares covered by
the exercise of an Option and the delivery of a certificate for such shares,
until one of the following conditions shall be satisfied:
(i) The shares with respect to which such Option has been exercised
are at the time of the issuance of such shares effectively
registered or qualified under applicable federal and state
securities acts now in force or as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that the
issuance of such shares is exempt from registration and
qualification under applicable federal and state securities acts
now in force or as hereafter amended.
(b) The Company shall be under no obligation to qualify shares or to cause
a registration statement or a post-effective amendment to any registration
statement to be prepared for the purpose of covering the issuance of shares in
respect of which any Option may be exercised or to cause the issuance of such
shares to be exempt from registration and qualification under applicable federal
and state securities acts now in force or as hereinafter amended, except as
otherwise agreed to by the Company in writing in its sole discretion.
17. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION.
Unless and until the shares to be issued upon exercise of an Option
granted under the Plan have been effectively registered under the Securities
Act of 1933, as amended (the "1933 ACT"), as now in force or hereafter
amended, the Company shall be under no obligation to issue any shares covered
by any Option unless the person who exercises such Option, in whole or in
part, shall give a written representation and undertaking to the Company
which is satisfactory in form and scope to counsel for the Company and upon
which, in the opinion of such counsel, the Company may reasonably rely, that
he or she is acquiring the shares issued pursuant to such exercise of the
Option for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares, and that he
or she will make no transfer of the same except in compliance with any rules
and regulations in force at the time of such transfer under the 1933 Act, or
any other applicable law, and that if shares are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued.
In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an Option shall have been exercised, or to qualify any
such shares for exemption from the 1933 Act or other applicable statutes, then
the Company may take such action and may require from each optionee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus, offering circular or
any other document that is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
8
<PAGE>
18. LOANS.
At the discretion of the Board, the Company may loan to the optionee, or
pay to the optionee as a bonus, some or all of the purchase price of the shares
acquired upon exercise of an Option, the terms of such loans or bonus to be at
the discretion of the Board.
19. MODIFICATION OF OUTSTANDING OPTIONS.
Subject to any applicable limitations contained herein, the Board may
authorize the amendment of any outstanding Option with the consent of the
optionee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
Without limiting the foregoing, the Board shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding Options under the Plan and to grant in
substitution therefor new Options under the Plan covering the same or different
numbers of Shares and having, at the discretion of the Board and subject to
Sections 6 and 8 hereof, an exercise price, in the case of Options designated as
non-qualified stock options, as shall be determined by the Board and, in the
case of Options designated as incentive stock options, of not less than one
hundred percent (100%) of the fair market value of the Common Stock on the new
grant date.
20. APPROVAL OF BOARD AND STOCKHOLDERS.
The Plan shall become effective upon adoption by the Board and the
stockholders of the Company; PROVIDED, HOWEVER, that the Plan shall be submitted
for approval by the stockholders of the Company within 12 months after the date
of adoption of the Plan by the Board. If the stockholders of the Company fail to
approve the Plan within 12 months after the date of adoption of the Plan by the
Board, the Plan and all stock options granted thereunder shall be and become
null and void and of no further force or effect.
21. TERMINATION AND AMENDMENT OF PLAN.
Unless sooner terminated as herein provided, the Plan shall terminate ten
years from the earlier of (x) the date on which the Plan was duly adopted by the
Board, and (y) the date on which the Plan was duly approved by the stockholders
of the Company. The Board may at any time terminate the Plan or make such
modification or amendment thereof as it deems advisable; provided, however, (i)
the Board may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 20 hereof, increase the maximum number
of shares for which Options may be granted or change the designation of the
class of persons eligible to receive Options under the Plan, and (ii) any such
modification or amendment of the Plan shall be approved by a majority of the
stockholders of the Company to the extent that such stockholder approval is
necessary to comply with applicable provisions of the Code, rules promulgated
pursuant to Section 16 of the Exchange Act, applicable state law, or applicable
NASD or exchange listing requirements. Termination or any modification or
amendment of the Plan shall not, without the consent of an optionee, affect his
or her rights under an Option theretofore granted to him or her.
22. DUTIES OF THE COMPANY.
The Company shall at all times keep available for issuance or delivery
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan.
9
<PAGE>
23. LIMITATION OF RIGHTS IN THE OPTION SHARES.
An optionee shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the Options until (x) the Option shall have been
exercised with respect thereto (including payment to the Company of the exercise
price) and (y) the earlier to occur of (i) the delivery by the Company to the
optionee of a certificate therefor, or (ii) the date on which the Company is
required to deliver a certificate pursuant to Section 9(b) hereof.
24. GOVERNING LAW.
The Plan and all Options shall be governed by and construed under the laws
of the State of New York, without giving effect to principles of conflicts of
law.
25. NOTICES.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the President at the
Company's principal place of business; and, if to an optionee, to his or her
address as it appears on the records of the Company.
26. HEADINGS.
The headings contained in this Plan are for convenience of reference only
and in no way define, limit or describe the scope or intent of the Plan or in
any way affect this Agreement.
10
<PAGE>
Exhibit 99.2
INTERNATIONAL SPORTS WAGERING INC.
1996 STOCK OPTION PLAN
(AS AMENDED JANUARY 7, 1999)
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1996 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Purpose of the Plan....................................................... 1
2. Stock Subject to the Plan................................................. 1
3. Administration of the Plan................................................ 1
4. Type of Option............................................................ 2
5. Eligibility............................................................... 2
6. Restrictions on Options................................................... 2
7. Option Agreement.......................................................... 3
8. Option Price.............................................................. 4
9. Manner of Payment; Manner of Exercise..................................... 4
10. Exercise of Options....................................................... 5
11. Term of Options; Exercisability........................................... 5
12. Options Not Transferable.................................................. 6
13. Recapitalization, Reorganizations and the Like............................ 6
<PAGE>
14. No Special Employment Rights.............................................. 7
15. Withholding............................................................... 8
16. Restrictions on Exercise of Options and Issuance of Shares................ 8
17. Purchase for Investment; Rights of Holder on Subsequent Registration...... 8
18. Loans..................................................................... 9
19. Modification of Outstanding Options....................................... 9
20. Approval of Board and Stockholders........................................ 9
21. Termination and Amendment of Plan......................................... 9
22. Duties of the Company...................................................... 9
23. Limitation of Rights in the Option Shares................................. 10
24. Governing Law............................................................. 10
25. Notices................................................................... 10
26. Headings.................................................................. 10
</TABLE>
<PAGE>
INTERNATIONAL SPORTS WAGERING INC.
1996 STOCK OPTION PLAN
(AS AMENDED JANUARY 7, 1999)
1. PURPOSE OF THE PLAN.
The purpose of the International Sports Wagering Inc. 1996 Stock Option
Plan (the "Plan") is to advance the interests of International Sports Wagering
Inc., a Delaware corporation (the "Company"), by providing an opportunity for
ownership of the stock of the Company by employees, agents and directors of, and
consultants to, the Company or of any subsidiary corporation (herein called
"subsidiary" or "subsidiaries"), as defined in Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
regulations promulgated thereunder (the "Regulations"). Such employees,
agents and directors of, and consultants to, the Company or any subsidiary
are hereinafter referred to individually as an "Eligible Person" and
collectively as "Eligible Persons". By providing an opportunity for such
stock ownership, the Company seeks to attract and retain qualified personnel,
and otherwise to provide additional incentive for optionees to promote the
success of its business.
2. STOCK SUBJECT TO THE PLAN.
(a) The total number of shares of the authorized but unissued or
treasury shares of the common stock, having no par value per share, of the
Company (the "Common Stock") for which options may be granted under the Plan
(the "Options") shall be 825,000, subject to adjustment as provided in Section
13 hereof.
(b) If an Option granted or assumed hereunder shall expire or terminate
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall again be available for subsequent Option grants under the
Plan.
(c) Common Stock issuable upon exercise of an Option may be subject to
such restrictions on transfer, repurchase rights or other conditions or
restrictions as shall be determined by the Board of Directors of the Company
(the "Board").
(d) The maximum number of Options that may be granted to any Eligible
Person during any calendar year is 250,000.
3. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board. No member of the Board
shall act upon any matter affecting any Option granted or to be granted to
himself or herself under the Plan; provided, however, that nothing contained
herein shall be deemed to prohibit a member of the Board from acting upon any
matter generally affecting the Plan or any Options granted thereunder. A
majority of the members of the Board shall constitute a quorum, and any action
may be taken by a majority of those present and voting at any meeting. The
decision of the Board as to all questions of interpretation and application of
the Plan shall be final, binding and conclusive on all persons. The Board, in
its sole discretion, may grant Options to purchase shares of the Common Stock
only as provided in the Plan, and shares shall be issued upon exercise of such
Options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to determine the Eligible Persons who shall be
<PAGE>
issued Options, the times when Options shall be granted and within which they
may be exercised, the prices at which Options shall be exercised, the number of
shares of Common Stock to be subject to each Option and whether an Option shall
be treated as an incentive stock option or a non-qualified stock option. The
Board shall also have the authority, subject to the express provisions of the
Plan, to amend the Plan, to determine the terms and provisions of the respective
option agreements, which may but need not be identical, to construe the
respective option agreements and the Plan, and to make all other determinations
in the judgment of the Board necessary or desirable for the administration of
the Plan. The Board may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any option agreement in the manner and to
the extent it shall deem expedient to implement the Plan and shall be the sole
and final judge of such expediency. The Board, in its discretion, may delegate
its power, duties and responsibilities to a committee, consisting solely of
two or more "Non-Employee Directors" (as hereinafter defined). If a
committee is so appointed, all references to the Board herein shall mean and
relate to such committee. The existence of such a committee shall not affect
the power or authority of the Board to administer the Plan. For the purposes
of the Plan, the term "Non-Employee Director" shall have the meaning
ascribed to it in paragraph (b)(3) of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such
term is interpreted from time to time.
4. TYPE OF OPTION.
Options granted pursuant to the Plan shall be authorized by action of
the Board and may be designated as either incentive stock options meeting the
requirements of Section 422 of the Code or non-qualified stock options which are
not intended to meet the requirements of such Section 422 of the Code, the
designation to be in the sole discretion of the Board. Options designated as
incentive stock options that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as non-qualified stock options
automatically without further action by the Board on the date of such failure to
continue to meet the requirements of Section 422 of the Code.
5. ELIGIBILITY.
Options designated as incentive stock options may be granted only to
Eligible Persons who are officers or employees of the Company or of any
subsidiary. Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted incentive stock options pursuant
to the Plan. Options designated as non-qualified stock options may be granted to
any Eligible Person.
The Board shall take into account such factors as it may deem relevant
in determining the number of shares of Common Stock to be included in an Option
to be granted to any Eligible Person.
6. RESTRICTIONS ON OPTIONS.
Incentive stock options (but not non-qualified stock options) granted
under this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value of
the shares of Common Stock with respect to which incentive stock options are
granted (determined as of the date the incentive stock options are granted),
exercisable for the first time by an individual during any calendar year shall
not exceed $100,000. If an incentive stock option is granted pursuant to which
the aggregate
<PAGE>
fair market value of shares with respect to which it first becomes exercisable
in any calendar year by an individual exceeds such $100,000 limitation, the
portion of such option which is in excess of the $100,000 limitation shall be
treated as a non-qualified stock option pursuant to Section 422(d)(1) of the
Code. In determining the fair market value under this clause (a), the provisions
of Section 8 hereof shall apply. In the event that an individual is eligible to
participate in any other stock option plan of the Company or any subsidiary of
the Company which is also intended to comply with the provisions of Section 422
of the Code, such $100,000 limitation shall apply to the aggregate number of
shares for which incentive stock options may be granted under this Plan and all
such other plans.
(b) Ten Percent Stockholder. If any Eligible Person to whom an
incentive stock option is granted pursuant to the provisions of the Plan is on
the date of grant the owner of stock (as determined under Section 424(d) of the
Code) possessing more than 10% of the total combined voting power of all classes
of stock of the Company or any subsidiary of the Company, then the following
special provisions shall be applicable to the incentive stock options granted to
such individual:
(i) The Option price per share subject to such Options shall
be not less than 110% of the fair market value of the shares of Common Stock
with respect to which Options are granted (determined as of the date such Option
was granted). In determining the fair market value under this clause (i), the
provisions of Section 8 hereof shall apply.
(ii) The Option by its terms shall not be exercisable after
the expiration of five years from the date such Option is granted.
7. OPTION AGREEMENT; DISQUALIFYING DISPOSITIONS.
(a) Each Option shall be evidenced by an option agreement, in a form
approved from time to time by the Board (the "Agreement"), duly executed on
behalf of the Company and by the optionee to whom such Option is granted, which
Agreement shall comply with and be subject to the terms and conditions of the
Plan. The Agreement may contain such other terms, provisions and conditions
which are not inconsistent with the Plan as may be determined by the Board;
provided that Options designated as incentive stock options shall meet all of
the conditions for incentive stock options as defined in Section 422 of the
Code. No Option shall be granted within the meaning of the Plan and no
purported grant of any Option shall be effective until the Agreement shall
have been duly executed on behalf of the Company and the optionee.
(b) If an optionee makes a "disposition" (within the meaning of
Section 424(c) of the Code) of shares of Common Stock issued upon exercise of
an incentive stock option within two years from the date of grant or within one
year from the date the shares of Common Stock are transferred to the optionee,
the optionee shall, within ten days of disposition, notify the Board and deliver
to it any withholding and employment taxes due. However, if the optionee is a
person subject to Section 16(b) of the Exchange Act, delivery of any withholding
and employment taxes due may be deferred until ten days after the date any
income on the disposition is recognized under Section 83 of the Code. The
Company may cause a legend to be affixed to certificates representing shares of
Common Stock issued upon exercise of incentive stock options to ensure that the
Board receives notice of disqualifying dispositions.
<PAGE>
8. OPTION PRICE.
(a) The Option price or prices of shares of the Common Stock for
Options designated as non-qualified stock options shall be as determined by the
Board.
(b) Subject to the conditions set forth in Section 6(b) hereof, the
Option price or prices of shares of the Company's Common Stock designated as
incentive stock options shall be at least the fair market value of such Common
Stock on the date the Option is granted as determined by the Board in accordance
with the Regulations promulgated under Section 422 of the Code.
(c) If such shares are then listed on any national securities exchange,
the fair market value shall be the mean between the high and low sales prices,
if any, on the largest such exchange on the date of the grant of the Option or,
if there are no such sales on such date, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on
the nearest date before and the nearest date after the date of grant in
accordance with Section 25.2512-2 of the Regulations. If the shares are not
then listed on any such exchange, the fair market value of such shares shall
be the mean between the closing "Bid" and the closing "Ask" prices, if any,
as reported in the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") for the date of the grant of the Option, or, if
there are no such prices on such date, shall be determined by taking a
weighted average of the means between the highest and lowest sales prices on
the nearest date before and the nearest date after the date of grant in
accordance with Section 25.2512-2 of the Regulations. If the shares are not
then either listed on any such exchange or quoted in NASDAQ, the fair market
value shall be the mean between the average of the "Bid" and "Ask" prices,
if any, as reported in the National Association of Securities Dealers National
Daily Quotation Service for the date of the grant of the Option, or, if there
are no such prices on such date, shall be determined by taking a weighted
average of the means between the highest and lowest sales prices on the
nearest date before and the nearest date after the date of grant in accordance
with Section 25.2512-2 of the Regulations. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Board in accordance with Section 422 of the Code.
9. MANNER OF PAYMENT; MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such Options, (ii) shares of
Common Stock owned by the optionee having a fair market value (at the date of
exercise) equal in amount to the exercise price of the Options being exercised,
or (iii) any combination of (i) and (ii). The fair market value of any shares of
Common Stock which may be delivered upon exercise of an Option shall be
determined by the Board in accordance with Section 8 hereof.
(b) To the extent that an Option is exercisable, Options may be
exercised in full at one time or in part from time to time, by giving written
notice, signed by the person or persons exercising the Option, to the Company,
stating the number of shares with respect to which the Option is being
exercised, accompanied by payment in full for such shares as provided in Section
9(a) hereof. No exercise of an Option may be made for fewer than 100 full shares
of Common Stock unless such exercise is made for the entire fractional amount of
a share remaining to be purchased pursuant to such Option. Upon such exercise,
delivery of a certificate for paid-up, non-assessable shares shall be made by
the
<PAGE>
Company to the person or persons exercising the Option within 20 business days
after receipt of such notice by the Company.
10. EXERCISE OF OPTIONS.
Each Option granted under the Plan shall, subject to Sections 11(b), 13
and 16 hereof, be exercisable at such time or times and during such period as
shall be set forth in the Agreement; provided, however, that except as otherwise
provided pursuant to the provisions of Section 6(b) hereof, no Option granted
under the Plan shall have a term in excess of ten years from the date of grant.
11. TERM OF OPTIONS; EXERCISABILITY.
(a) Term.
(i) Each Option shall expire on a date determined by
the Board which is not more than ten years from the date of the granting
thereof, except (a) as otherwise provided pursuant to the provisions of Section
6(b) hereof, and (b) for earlier termination as herein provided.
(ii) Except as otherwise provided in this Section 11,
an Option granted to any optionee who ceases to be an Eligible Person for any
reason shall terminate on the earlier of (i) three (3) months after the date
such optionee ceased to be an Eligible Person, or (ii) the date on which the
Option expires by its terms.
(iii) If an optionee ceases to be an Eligible Person
because the Company has terminated his or her status with the Company for cause
(as such term is defined in any employment or similar agreement between such
optionee and the Company or, if there is no such agreement, or such agreement
does not contain provisions relating to termination or removal for cause, as
such term is defined by the law of the State of New York), such Option will, to
the extent not terminated, be deemed to have terminated on the date immediately
preceding the date the optionee ceased to be an Eligible Person.
(iv) If an optionee ceases to be an Eligible Person
because the optionee has become disabled (within the meaning of Section 22(e)(3)
of the Code), such Option shall terminate on the earlier of (i) one year after
the date such optionee ceased to be an Eligible Person, or (ii) the date on
which the Option expires by its terms. (v) In the event of the death of any
optionee, such Option shall terminate on the earlier of (i) one year after the
date of death, or (ii) the date on which the Option expires by its terms.
(b) Exercisability.
(i) Except as otherwise provided in this Section
11(b), an Option granted to an optionee who thereafter ceases to be an Eligible
Person shall be exercisable only to the extent that the right to purchase shares
under such Option is exercisable on the date such optionee ceased to be an
Eligible Person.
<PAGE>
(ii) An Option granted to an optionee who ceases to
be an Eligible Person because he or she has become disabled (as such term is
defined in any employment or similar agreement between such optionee and the
Company or, if there is no such agreement, or such agreement does not contain
provisions relating to termination or removal for disability, as determined by
the Board) shall be immediately exercisable as to the full number of shares
covered by such Option, whether or not under the provisions of the Plan or
Agreement such Option was otherwise exercisable as of the date of disability.
(iii)In the event of the death of an optionee, the
Option granted to such optionee may be exercised as to the full number of shares
covered by such Option, whether or not under the provisions of the Plan or
Agreement the optionee was otherwise exercisable at the date of his or her
death, by the executor, administrator or personal representative of such
optionee, or by any person or persons who acquired the right to exercise such
Option by bequest or inheritance or by reason of the death of such optionee.
(iv)In addition to the acceleration of the
exercisability of Options pursuant to this Section 11(b) and Section 13(b)(ii)
hereof, the Board shall have the right, in the exercise of its discretion and
for any reason, and with the consent of the optionee, to accelerate the date on
which Options shall be exercisable.
12. TRANSFERABILITY.
The right of any optionee to exercise any Option granted to him or her
shall not be assignable or transferable by such optionee other than by will or
the laws of descent and distribution, and any such Option shall be exercisable
during the lifetime of such optionee only by him or her. Any Option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the Option is granted, or upon any attempted assignment or
transfer, except as herein provided, including, without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, or levy of execution, attachment, trustee
process or similar process, whether legal or equitable, upon such Option. The
Board shall have discretion to grant any Option that is not designated as an
incentive stock option, free of any or all of the restrictions described in this
Section.
13. RECAPITALIZATION, REORGANIZATIONS AND THE LIKE.
(a) In the event that after October 25, 1996 the outstanding shares of
the Common Stock are changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any reorganization,
recapitalization, reclassification, stock split, combination of shares, or
dividends payable in capital stock, appropriate and equitable adjustment shall
be made by the Board, in its sole discretion, in the number and kind of shares
as to which Options may be granted under the Plan and as to which outstanding
Options or portions thereof then unexercised shall be exercisable. Such
adjustment in outstanding Options shall be made without change in the total
price applicable to the unexercised portion of such Options and with a
corresponding adjustment in the Option price per share.
(b) (i) In addition, unless otherwise determined by the Board in its
sole discretion, in the case of any (I) merger or consolidation pursuant to
which the Company's stockholders shall receive cash or securities of another
corporation and less than 50% of the outstanding capital stock of the surviving
<PAGE>
corporation pursuant to such merger or consolidation shall be owned by the
stockholders of the Company, (II) sale or conveyance to another entity of all or
substantially all of the property and assets of the Company or (III) Change in
Control of the Company, the Company shall, or shall cause such surviving
corporation or the purchaser(s) of the Company's assets to, deliver to the
optionee the same kind of consideration that is delivered to the stockholders of
the Company as a result of such merger, consolidation, sale, conveyance or
Change in Control, or the Board may cancel all outstanding Options in exchange
for consideration in cash or marketable securities, which consideration in both
cases shall be equal in value to the value of those shares of stock or other
securities the optionee would have received had the Option been exercised (but
only to the extent then exercisable) and had no disposition of the shares
acquired upon such exercise been made prior to such merger, consolidation, sale,
conveyance or Change in Control, less the Option price therefor or, in lieu
thereof, the Board shall give the optionee at least twenty days prior written
notice of any such transaction in order to enable the optionee to exercise the
exercisable portion, if any, of the Option. Upon receipt of such consideration
or effective on the date specified in such notice, all Options (whether or not
then exercisable) shall immediately terminate and be of no further force or
effect. The value of the stock or other securities the optionee would have
received if the Option had been exercised shall be determined in good faith by
the Board, and in the case of shares of Common Stock, in accordance with the
provisions of Section 8 hereof.
(ii) The Board shall also have the power and right to
accelerate the exercisability of any Options, notwithstanding any limitations in
this Plan or in the Agreement upon such merger, consolidation, sale, conveyance
or Change in Control.
(c) A "Change in Control" shall be deemed to have occurred if any
person, or any two or more persons acting as a group, and all affiliates of such
person or persons, who prior to such time Beneficially Owned (as defined in Rule
13d-3 under the Exchange Act) less than 40% of the then outstanding Common
Stock, shall acquire such additional shares of Common Stock in one or more
transactions, or series of transactions, such that following such transaction or
transactions, such person or group and affiliates Beneficially Own 50% or more
of the Common Stock outstanding.
(d) If by reason of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization, or liquidation, the Board shall
authorize the issuance or assumption of a stock option or stock options in a
transaction to which Section 424(a) of the Code applies, then, notwithstanding
any other provision of the Plan, the Board may grant an option or options upon
such terms and conditions as it may deem appropriate for the purpose of
assumption of the old Option, or substitution of a new option for the old
Option, in conformity with the provisions of such Section 424(a) of the Code and
the Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan. In the event of such
issuance or assumption, the provisions of Section 13(b) hereof shall not be
applicable.
14. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any Option granted under the Plan
shall confer upon any optionee any right with respect to the continuation of his
or her employment by the Company or any subsidiary or interfere in any way with
the right of the Company or any subsidiary, subject to the terms of any separate
employment agreement to the contrary, at any time to terminate such employment
or to increase or decrease the compensation of the Option holder from the rate
in existence at the time of the grant of an Option. Whether an authorized leave
of absence, or absence in military or government
<PAGE>
service, shall constitute termination of employment for purposes of any Option
shall be determined by the Board at the time of such occurrence.
15. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any
Option granted under the Plan shall be subject to the Option holder"s
satisfaction of any applicable federal, state and local income and employment
tax withholding requirements. The Company and optionee may agree to withhold
shares of Common Stock purchased upon exercise of an Option to satisfy the
above-mentioned withholding requirements.
16. RESTRICTIONS ON EXERCISE OF OPTIONS AND ISSUANCE OF SHARES.
(a) Notwithstanding the provisions of Sections 9 and 11 hereof, an
Option cannot be exercised, and the Company may delay the issuance of shares
covered by the exercise of an Option and the delivery of a certificate for such
shares, until one of the following conditions shall be satisfied:
(i) The shares with respect to which such Option has been
exercised are at the time of the issuance of such shares effectively registered
or qualified under applicable federal and state securities acts now in force or
as hereafter amended; or
(ii) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that the
issuance of such shares is exempt from registration and qualification under
applicable federal and state securities acts now in force or as hereafter
amended.
(b) The Company shall be under no obligation to qualify shares or to
cause a registration statement or a post-effective amendment to any registration
statement to be prepared for the purpose of covering the issuance of shares in
respect of which any Option may be exercised or to cause the issuance of such
shares to be exempt from registration and qualification under applicable federal
and state securities acts now in force or as hereinafter amended, except as
otherwise agreed to by the Company in writing in its sole discretion.
17. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT
REGISTRATION.
Unless and until the shares to be issued upon exercise of an Option
granted under the Plan have been effectively registered under the Securities Act
of 1933, as amended (the "1933 Act"), as now in force or hereafter amended,
the Company shall be under no obligation to issue any shares covered by any
Option unless the person who exercises such Option, in whole or in part, shall
give a written representation and undertaking to the Company which is
satisfactory in form and scope to counsel for the Company and upon which, in
the opinion of such counsel, the Company may reasonably rely, that he or she
is acquiring the shares issued pursuant to such exercise of the Option for
his or her own account as an investment and not with a view to, or for sale in
connection with, the distribution of any such shares, and that he or she will
make no transfer of the same except in compliance with any rules and regulations
in force at the time of such transfer under the 1933 Act, or any other
applicable law, and that if shares are issued without such registration, a
legend to this effect may be endorsed upon the securities so issued.
<PAGE>
In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the 1933 Act or other applicable statutes any shares
with respect to which an Option shall have been exercised, or to qualify any
such shares for exemption from the 1933 Act or other applicable statutes, then
the Company may take such action and may require from each optionee such
information in writing for use in any registration statement, supplementary
registration statement, prospectus, preliminary prospectus, offering circular or
any other document that is reasonably necessary for such purpose and may require
reasonable indemnity to the Company and its officers and directors from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
18. LOANS.
At the discretion of the Board, the Company may loan to the optionee,
or pay to the optionee as a bonus, some or all of the purchase price of the
shares acquired upon exercise of an Option, the terms of such loans or bonus to
be at the discretion of the Board.
19. MODIFICATION OF OUTSTANDING OPTIONS.
Subject to any applicable limitations contained herein, the Board may
authorize the amendment of any outstanding Option with the consent of the
optionee when and subject to such conditions as are deemed to be in the best
interests of the Company and in accordance with the purposes of the Plan.
Without limiting the foregoing, the Board shall have the authority to effect, at
any time and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding Options under the Plan and to grant in
substitution therefor new Options under the Plan covering the same or different
numbers of Shares and having, at the discretion of the Board and subject to
Sections 6 and 8 hereof, an exercise price, in the case of Options designated as
non-qualified stock options, as shall be determined by the Board and, in the
case of Options designated as incentive stock options, of not less than one
hundred percent (100%) of the fair market value of the Common Stock on the new
grant date.
20. APPROVAL OF BOARD AND STOCKHOLDERS.
The Plan shall become effective upon adoption by the Board and the
stockholders of the Company; provided, however, that the Plan shall be submitted
for approval by the stockholders of the Company within 12 months after the date
of adoption of the Plan by the Board. If the stockholders of the Company fail to
approve the Plan within 12 months after the date of adoption of the Plan by the
Board, the Plan and all stock options granted thereunder shall be and become
null and void and of no further force or effect.
21. TERMINATION AND AMENDMENT OF PLAN.
Unless sooner terminated as herein provided, the Plan shall terminate
ten years from the earlier of (x) the date on which the Plan was duly adopted by
the Board, and (y) the date on which the Plan was duly approved by the
stockholders of the Company. The Board may at any time terminate the Plan or
make such modification or amendment thereof as it deems advisable; provided,
however, (i) the Board may not, without the approval of the stockholders of the
Company obtained in the manner stated in
<PAGE>
Section 20 hereof, increase the maximum number of shares for which Options may
be granted or change the designation of the class of persons eligible to receive
Options under the Plan, and (ii) any such modification or amendment of the Plan
shall be approved by a majority of the stockholders of the Company to the extent
that such stockholder approval is necessary to comply with applicable provisions
of the Code, rules promulgated pursuant to Section 16 of the Exchange Act (if
any), applicable state law, or applicable NASD or exchange listing requirements.
Termination or any modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an Option theretofore
granted to him or her.
22. DUTIES OF THE COMPANY.
The Company shall at all times keep available for issuance or delivery
such number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan.
23. LIMITATION OF RIGHTS IN THE OPTION SHARES.
An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the Options until (x) the Option shall have
been exercised with respect thereto (including payment to the Company of the
exercise price) and (y) the earlier to occur of (i) the delivery by the Company
to the optionee of a certificate therefor, or (ii) the date on which the Company
is required to deliver a certificate pursuant to Section 9(b) hereof.
24. GOVERNING LAW.
The Plan and all Options shall be governed by and construed under the
laws of the State of New York, without giving effect to principles of conflicts
of law.
25. NOTICES.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to the attention of the President at the
Company's principal place of business; and, if to an optionee, to his or her
address as it appears on the records of the Company.
26. HEADINGS.
The headings contained in this Plan are for convenience of reference
only and in no way define, limit or describe the scope or intent of the Plan or
in any way affect this Agreement.
