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As filed with the Securities and Exchange Commission on April 18, 2000
Registration No. 333-23369
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 4 TO FORM SB-2
REGISTRATION STATEMENT
Under The Securities Act of 1933
Notify Technology Corporation
(Name of small business issuer in its charter)
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California 3661 77-0382248
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
1054 S. De Anza Blvd. Suite 105
San Jose, California 95129
(408) 777-7920
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(Address and telephone number, of principal executive offices)
1054 S. De Anza Blvd. Suite 105
San Jose, California 95129
(408) 777-7920
(Address of principal place of business or intended principal place of business)
Paul F. DePond
President and Chief Executive Officer
1054 S. De Anza Blvd. Suite 105
San Jose, California 95129
(408) 777-7920
(Name, address and telephone number of agent for service)
Copies to:
HENRY P. MASSEY, JR., ESQ.
PETER S. HEINECKE, ESQ.
MICHAEL A. DE ANGELIS, ESQ.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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Pursuant to Rule 416, there are also being registered such additional
shares and warrants as may be become issuable pursuant to anti-dilution
provisions upon the exercise of the Class A Warrants.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
NOTIFY TECHNOLOGY CORPORATION
1,600,000 Shares of Common Stock
We are offering 1,600,000 shares of our common stock to holders electing to
exercise our Class A warrants. We issued these warrants pursuant to the Warrant
Agreement, dated August 28, 1997 between us and D.H. Blair Investment Banking
Corp., the underwriter of our initial public offering, in connection with our
initial public offering. Notify Technology Corporation will receive all the
proceeds from this offering.
Our common stock, Class A warrants and Units are currently listed on the
Nasdaq SmallCap Market under the symbols "NTFY," "NTFYW" and "NTFYU,"
respectively. Each Unit consists of one share of our common stock and one Class
A warrant. Our Class A warrants entitle the holder to purchase one share of
Common Stock at an exercise price of $6.50, subject to adjustment, until August
28, 2002.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Price: $6.50 Per Share
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Underwriting
Discount and
Price to Public Commission Proceeds to Company
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Per Share.............................................. $ 6.50 -- $ 6.50
Total.................................................. $10,400,000 -- $10,400,000
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The date of this Prospectus is April 18, 2000
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TABLE OF CONTENTS
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Special Note Regarding Forward-Looking Certain Relationships and Related
Statements..................................... 2 Transactions........................... 29
Risk Factors.................................... 3 Principal Shareholders.................. 30
Use of Proceeds................................. 10 Description of Securities............... 34
Price Range of Common Stock, Class A Warrants
and Units...................................... 10 Plan of Distribution.................... 35
Dividend Policy................................. 11 Legal Matters........................... 36
Management's Discussion and Analysis of
Financial Condition and Results
of Operations.................................. 12 Experts................................. 36
Business........................................ 17 Additional Information 36
Management...................................... 23 Index to Financial Statements........... F-1
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We are a California corporation. Our principal executive offices are
located at 1054 S. De Anza Blvd., Suite 105, San Jose, California 95129, and
our telephone number is (408) 777-7920. In this prospectus, "Notify
Technology," "we," "us," and "our" refer to Notify Technology Corporation,
unless the context otherwise requires.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or the prospectus supplement is accurate as of
any date other than the date on the front of the document.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operation," "Business," and
elsewhere in this prospectus constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties, and other factors
that may cause our or our industry's results, levels of activity, performance,
or achievements to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by these forward-
looking statements. These factors include, among others, those listed under
"Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of these
terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance, or achievements. We do not assume responsibility for the
accuracy and completeness of the forward-looking statements. We do not intend
to update any of the forward-looking statements after the date of this
prospectus to conform them to actual results.
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Trade names and trademarks of other companies appearing in this prospectus are
the property of their respective holders.
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RISK FACTORS
Investing in our common stock will provide you with an equity ownership
interest in Notify Technology Corporation. As a Notify Technology shareholder,
you may be subject to risks inherent in our business. The performance of your
shares will reflect the performance of our business relative to, among other
things, our competition, general economic and market conditions and industry
conditions. The value of your investment may increase or decline and could
result in a loss. You should carefully consider the following factors as well
as other information contained in this prospectus before deciding to invest in
our common stock.
We Have a Limited Operating History and a History of Losses, Moreover, There is
No Assurance of Future Profitability
We commenced operations in August 1994 and through January 1996 were
engaged primarily in research and development. Accordingly, we have a limited
operating history, and we face all of the risks and uncertainties encountered by
early-stage companies. For the fiscal years ended September 30, 1999, 1998 and
1997, we incurred net losses of $3,123,284, $2,617,561 and $1,382,910,
respectively. As of December 31, 1999, we had an accumulated deficit of
$9,906,884 and working capital of $2,956,063. We anticipate having a negative
cash flow from operating activities in future quarters and years. We incurred a
net loss of $699,849 for the three-month period ended December 31, 1999 and
expect to incur further operating losses in future quarters and years. These
losses will continue until we sell substantially more of our products and our
revenue exceeds our operational expenses. We may never sell significantly more
of our products or achieve or sustain profitability. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business--Sales, Marketing and Distribution."
Our Quarterly Operating Results May Vary
We anticipate that we will experience significant fluctuations in our
operating results in the future. Fluctuations in operating results may cause
the price of our common stock, Units and Class A warrants to be volatile.
Operating results may vary as a result of many factors, including the following:
. our level of research and development;
. our sales and marketing activities;
. announcements by us or our competitors;
. size and timing of orders from customers;
. new product introductions by us or our competitors; and
. price erosion.
Each of the above factors is difficult to control and forecast. Thus, they
could have a material adverse effect on our business, financial condition and
results of operations.
Notwithstanding the difficulty in forecasting future sales, we generally
must undertake research and development and sales and marketing activities and
other commitments months or years in advance. Accordingly, any shortfall in
product revenues in a given quarter may materially adversely affect our
financial condition and results of operations because we are unable to adjust
expenses during the quarter to match the level of product revenues, if any, for
the quarter. Due to these and other factors, we believe that quarter to
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quarter comparisons of our results of operations are not necessarily meaningful
and should not be relied upon as indications of the future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our Products May Not Be Accepted
We sold the first MessageAlert in January 1996, the first Centrex
Receptionist in March 1998 and the first Call Manager product in April 1999. We
also announced the first sales of the new Visual Got Mail products into trial
programs in November 1999. To date, we have received only limited revenue from
the sale of these products. We expect to sell only a limited number of our
MessageAlert product because it is a mature product with limited demand and we
no longer feature it in our sales plan. While we believe that our other
products are commercially viable, developing products for the consumer and
business marketplaces is inherently difficult and uncertain. We do not believe
our sales to date are sufficient to determine whether or not there is meaningful
consumer or business demand for our products.
We intend to devote significant resources to sales and marketing efforts
and to promote consumer and business interest in our products. There can be no
assurance that these efforts will be successful or that significant market
demand for our products will ever develop. See "Business--Products," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
We Depend on Limited Number of Potential Customers and Need to Develop Marketing
Channels
We believe our success, if any, will be largely dependent on our ability to
either sell our products to, or enter into joint marketing arrangements with,
the seven Regional Bell Operating Companies, or RBOCs, and approximately 20
large Local Exchange Carriers, or LECs, in the United States. In particular, we
believe that we can successfully sell our Call Manager and Centrex Receptionist
products only if we sell them to or in conjunction with the RBOCs and LECs. We
also expect to rely significantly on the RBOCs and LECs as a channel for our
initial sales of our Visual Got Mail product. Sales to RBOCs and LECs
constituted 69%, 71% and 86% of our revenue for the fiscal years ended September
30, 1999, 1998 and 1997, respectively. In addition, two customers accounted for
55% and 11% of sales for the fiscal year ended September 30, 1999, and two
customers accounted for 50% and 17% of sales for the fiscal year ended September
30, 1998. To date, we have sold our products to five RBOCs and twelve LECs. It
took us substantially longer than we originally anticipated to qualify our
product and develop the marketing relationships necessary to make these sales.
RBOCs and LECs tend to be hierarchical, which distribute decision-making
authority and resist taking risks. Selling a product to or entering into a
marketing relationship with an RBOC or LEC is generally a lengthy process
requiring multiple meetings with numerous people in the organization. If we fail
to develop significantly enhanced relationships with the RBOCs and LECs, our
business and operating results would be materially adversely affected.
We also intend to develop other distribution channels for our products,
including competitive local exchange carriers, direct sales via an internet
store and potential development of internet service provider channels. Our
management will need to expend time and effort to develop these channels.
Because our marketing efforts have been largely focused on developing
relationships with RBOCs and LECs, our management has had only limited
experience in selling our products through these channels. We may not be able to
implement this marketing and distribution program to expand our distribution
channels and any marketing efforts undertaken by or on behalf of us may not be
successful. See "Business--Sales, Marketing and Distribution."
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Our Products May Suffer from Defects
Our products incorporate a combination of reasonably sophisticated computer
chip design, electric circuit design, software programming and telephony
technology. We have devoted substantial resources to researching and developing
each of these elements. In order to reduce the manufacturing costs, expand the
feature sets and otherwise enhance the operation of our products, we have from
time to time redesigned our products. We expect that in the future we will
engage in similar redesigns of our products. In addition, we are in the process
of developing new, similarly complex products. Though we extensively test our
products before marketing them, any new, redesigned or current product may
contain design flaws that we won't detect through our testing procedures. In
addition, we rely on subcontractors to manufacture our products. Though we have
quality control procedures designed to detect manufacturing errors, there can be
no assurance that we will identify all defective products. We believe that
reliable operation will be an important purchase consideration for both our
consumer and business customers. A failure by us to detect and prevent a design
flaw or a widespread product defect could materially adversely affect the sales
of the affected product and our other products, which could materially adversely
affect our business, financial condition and operating results. See "Business--
Products" and "--Manufacturing."
We Face Significant Competition
We believe the market for our products is highly competitive and that
competition is likely to intensify. In the Caller-ID market, we compete
directly with CIDCO Incorporated, TT Systems, Astra Telecom of Canada and
Thompson Consumer Inc. In the market for auto-attendant products, we compete
with SoloPoint.com, Inc. In the market for visual message waiting indicators, we
compete directly with SoloPoint.com, Inc. and Comsumerware Inc. Finally, our
Visual GotMail technology indirectly competes with several companies, including
Landel Telecom and CIDCO Incorporated. Some of these companies have greater
financial, technical and marketing resources than we do. In addition, there are
several companies with substantially greater technical, financial and marketing
resources than we do that could produce competing products. These companies
include telephone equipment manufacturers such as Northern Telecom, Inc. and
Lucent Technologies, Inc. We expect that to the extent that the market for our
products develops, competition will intensify and new competitors will enter the
market. We may not be able to compete successfully against existing and new
competitors as the market for our products evolves and the level of competition
increases. A failure to compete successfully against existing and new
competitors would materially adversely effect our business and results of
operations.
We Depend on Key Executives
Our potential for success depends significantly on key management
employees, including our Chairman, President and Chief Executive Officer, Mr.
Paul F. DePond, our Chief Operations Officer, Gaylan Larson and our Chief
Financial Officer, Gerald W. Rice. We have obtained three-year key-man term
life insurance on Mr. DePond in the amount of $2,000,000 and have entered into
employment agreements with him along with Mr. Larson and Mr. Rice. The loss of
their services or those of any of our other key employees would materially
adversely effect us. We also believe that our future success will depend in
large part on our ability to attract and retain additional highly skilled
technical, management, sales and marketing personnel. If we were unable to hire
the necessary personnel, the development of new products and enhancements to
current products would likely be delayed or prevented. Competition for these
highly-skilled employees is intense. Therefore, there can be no assurance that
we will be successful in retaining our key personnel and in attracting and
retaining the personnel we require for expansion. See "Business--Employees" and
"Management."
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Our Intellectual Property May Not Be Adequately Protected and We May Infringe
the Rights of Others
We regard various features and design aspects of our products as
proprietary and rely primarily on a combination of patent and trademark laws and
employee and third-party nondisclosure agreements to protect our proprietary
rights. We have been issued a patent covering the design of our MessageAlert
products, and a patent covering the MultiSense technology used in our
MessageAlert product. We have also applied for patents on our Visual Got Mail
technology. We intend to continue to apply for patents, as appropriate, for our
future technologies and products. There are few barriers to entry into the
market for our products, and there can be no assurance that any patents we apply
for will be granted or that the scope of our patents or any patents granted in
the future will be broad enough to protect us against the use of similar
technologies by our competitors. There can be no assurance, therefore, that any
of our competitors, some of whom have far greater resources than we do, will not
independently develop technologies that are substantially equivalent or superior
to our technology. See "--Competition."
We may be involved from time to time in litigation to determine the
enforceability, scope and validity of any of our proprietary rights or of third
parties asserting infringement claims against us. These claims could result in
substantial cost to us and could divert our management and technical personnel
away from their normal responsibilities. See "Business--Proprietary Rights."
We May Not Be Able to Obtain Critical Components from Our Suppliers
Currently, we are able to obtain many key components used in our products
only from single or limited sources. We do not have long term supply contracts
with these or any other component vendors and purchase all of our components on
a purchase order basis. Component shortages may occur and we may not be able to
obtain the components we need in a timely manner and on a commercially
reasonable basis. In particular, the microcontroller that forms the core of our
Call Manager and Visual Got Mail products is manufactured only by Epson
Electronics America, Inc. From time to time, the semiconductor industry has
experienced extreme supply constraints. If we are unable to obtain sufficient
quantities of microcontrollers from Epson Electronics America, Inc., our
business and operating results would be materially adversely effected.
We utilize offshore manufactures to manufacture our products and these
manufacturers may not be able to support our manufacturing requirements. If we
are unable to obtain sufficient quantities of sole-source components or
subassemblies, or to develop alternate sources, we could experience delays or
reductions in product shipments or be forced to redesign our products. Each of
these scenarios could materially adversely effect our business and operating
results. See "Business--Manufacturing."
Our Products May Not Comply with Government Regulations and Industry Standards
Our products must comply with a variety of regulations and standards.
These include regulations and standards set by the Federal Communications
Commission, Underwriters Laboratories, National Registered Testing Laboratories,
and Bell Communications Research. As our business expands into international
markets we will be required to comply with whatever governmental regulations and
industry standards exist in those markets. In addition, the U.S.
telecommunications market is evolving rapidly in part due to recently enacted
laws revamping the telecommunications regulatory structure. Additional
legislative or regulatory changes are possible. If we fail to comply with
existing regulations and standards or to adapt to new regulations and standards,
our business and operating results could be materially adversely effected. See
"Business--Governmental Regulation and Industry Standards."
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We May Not Be Able to Manage Our Planned Growth
We plan to expand our business operations during fiscal year 2000. This
expansion could strain our limited personnel, financial, management and other
resources. In order to manage our planned growth, we will need to maintain our
product development program and expand our sales and marketing capabilities and
personnel. In addition, we will need to adapt our financial planning,
accounting systems and management structure to accommodate this growth if it
occurs. Our failure to properly anticipate or manage our growth, if any, could
adversely affect our business, operating results and financial condition. See
"Business."
Sales of Outstanding Shares May Hurt Our Stock Price
The market price for our common stock could fall substantially if our
shareholders sell large amounts of our common stock. Potential future sales of
our common stock include the following:
. 425,000 Class A warrants and the underlying shares of common stock,
which we have agreed to register for resale pursuant to an agreement
entered into in connection with a 1997 bridge financing;
. 1,788,505 outstanding shares of our common stock and options and
warrants to purchase our common stock are "restricted securities" within
the meaning of Rule 144 under the Securities Act of 1933, as amended.
Pursuant to Rule 144, substantially all of these restricted shares are
eligible for resale subject to the restrictions on transferability
relating to 1,367,484 shares of our common stock or warrants to purchase
shares of our common stock placed in an escrow in connection with our
initial public offering. See "Principal Shareholders -Escrow
Securities."
. The holder of an option to purchase 160,000 Units consisting of one
share of common stock and one Class A warrant has demand and "piggy-
back" registration rights covering our securities. We could incur
substantial expenses if this option holder exercises this option.
. David Brewer holds 1,317,400 shares of common stock and warrants to
purchase 877,044 shares of common stock. We have agreed to register for
resale these shares of common stock, including the shares underlying the
warrants, at the request of Mr. Brewer.
Sales or the possibility of sales of our common stock in the public market
may adversely affect the market price of our securities.
Exercise of Outstanding Options and Warrants May Dilute Current Shareholders
The following options and warrants to purchase our common stock are
outstanding:
. 1,600,000 Class A warrants to purchase 1,600,000 shares of our common
stock for $6.50 per share, issued in connection with our initial public
offering, subject to adjustment in some circumstances;
. 425,000 Class A warrants to purchase 425,000 shares of our common stock
for $6.50 per share, issued in connection with our 1997 bridge
financing;
. an option to purchase 160,000 Units at a price per Unit of $7.00 issued
to the underwriter of our initial public offering;
. additional warrants as of March 1, 2000 to purchase 205,510 shares of
our common stock; and
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. 430,618 options outstanding as of March 1, 2000 under our 1997 Stock
Plan, and subject to vesting requirements. 685,382 shares of our common
stock are reserved for issuance under our 1997 Stock Plan.
. warrants to purchase 877,044 shares of common stock at a price of $3.60
held by David Brewer.
Holders of these options and warrants may exercise them at a time when we
would otherwise be able to obtain additional equity capital on terms more
favorable to us. Moreover, while these options are outstanding, our ability to
obtain financing on favorable terms may be adversely affected. See "Management"
and "Description of Securities."
Our Stock Price May be Volatile
The market price for our common stock may be affected by a number of
factors, including the announcement of new products or product enhancements by
us or our competitors, the loss of services of one or more of our executive
officers or other key employees, quarterly variations in our or our competitors'
results of operations, changes in earnings estimates, developments in our
industry, sales of substantial numbers of shares of our common stock in the
public market, general market conditions and other factors, including factors
unrelated to our operating performance or the operating performance of our
competitors. In addition, stock prices for many companies in the technology
sector have experienced wide fluctuations that have often been unrelated to the
operating performances of these companies. These factors and fluctuations, as
well as general economic, political and market conditions, such as recessions,
may materially adversely affect the market price of our common stock.
We Do Not Expect to Pay Dividends
We have not paid any dividends to our shareholders since our inception and
do not plan to pay dividends in the foreseeable future. We intend to reinvest
earnings, if any, in the development and expansion of our business. See
"Dividend Policy."
Our Officers and Directors Substantially Control Us
Based upon the number of shares of our common stock that are outstanding as
of March 1, 2000, our officers and directors as a group will beneficially own
approximately 56.6%, of our outstanding common stock after giving effect to the
exercise of all currently exercisable outstanding options and warrants held by
such individuals. Consequently, the officers and directors as a group will be
able to exert substantial influence over the election of our directors and the
direction of our policies. See "Principal Shareholders."
We Have Contractual Obligations to the Underwriter of our Initial Public
Offering
Until August 28, 2002, in the event D.H. Blair Investment Banking Corp.,
the underwriter of our initial public offering, originates financing or a
merger, acquisition, or transaction to which we are a party, we will be
obligated to pay it a finder's fee in consideration for originating any of these
transactions. The fee is based on a percentage of the consideration paid in the
transaction, ranging from 7% of the first $1,000,000 to 2-1/2% of any
consideration in excess of $9,000,000. In addition, D.H. Blair Investment
Banking Corp. has exercised its right to designate one person to sit on our
board of directors until August 28, 2002. The designee, Mr. Andrew Plevin, was
an employee of the D.H. Blair Investment Banking Corp., but is now the Acting
President and Chief Executive Officer of Core Software Technology, Inc.
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Our Charter Provisions May Discourage Acquisition Bids
Our board of directors has authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights for these shares, without any further vote
or action by our shareholders. The rights of the holders of our common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisition and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock. We have no current plans to issue shares of Preferred Stock. See
"Description of Securities--Preferred Stock."
Our Net Income Will Be Decreased if the Escrow Securities Are Released
In connection with our initial public offering, many of our shareholders,
including current officers, directors and employees, placed a substantial
portion of our securities then held by them into an escrow. These securities
will be released from escrow if we reach pre-tax earnings targets or share price
targets. Upon the release from this escrow of any securities owned by our
officers, directors, consultants or employees, we will be required to record a
compensation expense for financial reporting purposes. Accordingly, in any
period in which securities are released from this escrow, we will record a
substantial noncash charge to earnings that will increase our loss or reduce or
eliminate earnings, if any, at that time. The amount of this charge will be
equal to the aggregate market price of the securities owned by directors,
officers and employees which are released from the escrow. Although the amount
of compensation expense recognized by the us will not affect our total
shareholders' equity or cash flow, it may have a depressive effect on the market
price of our securities. See "Principal Shareholders--Escrow Securities"
Our Articles of Incorporation Limit the Liability of Officers and Directors and
We Have Entered into Indemnification Agreements with Them
Our Articles of Incorporation eliminate in certain circumstances the
liability of our directors for monetary damages for breach of their fiduciary
duties as directors. We have also entered into indemnification agreements with
each of our directors and officers. Each of these indemnification agreements
provides that we will indemnify the indemnitee against expenses, including
reasonable attorneys' fees, judgments, penalties, fines, and amounts paid in
settlement actually and reasonably incurred by them in connection with any civil
or criminal action or administrative proceeding arising out of their performance
of duties as a director or officer, other than an action instituted by the
director or officer. These indemnification agreements also require that we
indemnify the director or other party thereto in all cases to the fullest extent
permitted by applicable law. Each indemnification agreement permits the
director or officer that is party thereto to bring suit to seek recovery of
amounts due under the indemnification agreement and to recover the expenses of
such a suit if they are successful. See "Management--Indemnification of Officers
and Directors and Related Matters."
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USE OF PROCEEDS
If all of the shares offered hereby are sold, the proceeds to us would be
approximately $10,400,000, less expenses. We expect the net proceeds to be used
for working capital and for general corporate purposes.
Pending application, the net proceeds of the Offering will be invested in
short-term, high grade interest-bearing savings accounts, certificates of
deposit, United States government obligations, money market accounts or short-
term interest bearing obligations.
PRICE RANGE OF COMMON STOCK, CLASS A WARRANTS AND UNITS
Our common stock, Class A warrants and units have been trading publicly on
the Nasdaq SmallCap Market under the symbols "NTFY," "NTFW" and "NTFYU,"
respectively, since August 28, 1997. The table below sets forth the range of
quarterly high and low bid prices for our common stock, Class A warrants and
Units on the Nasdaq SmallCap Market during the calendar quarters indicated.
NTFY Common Stock
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FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 2000 ----- -----
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First Quarter.............................................................................. 8.438 6.000
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 1999 ----- -----
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First Quarter.............................................................................. 2.500 0.781
Second Quarter............................................................................. 9.250 1.188
Third Quarter.............................................................................. 8.938 6.313
Fourth Quarter............................................................................. 8.875 5.656
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 1998 ----- -----
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First Quarter.............................................................................. 3.750 2.125
Second Quarter............................................................................. 2.188 1.625
Third Quarter.............................................................................. 3.875 2.031
Fourth Quarter............................................................................. 2.750 0.844
NTFYW Class A Warrants
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 2000 ----- -----
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First Quarter.............................................................................. 3.063 1.969
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 1999 ----- -----
- ------------------
First Quarter.............................................................................. 0.438 0.156
Second Quarter............................................................................. 3.313 0.156
Third Quarter.............................................................................. 3.281 1.969
Fourth Quarter............................................................................. 3.250 1.656
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 1998 ----- -----
- ------------------
First Quarter.............................................................................. 1.250 0.375
Second Quarter............................................................................. 0.750 0.375
Third Quarter.............................................................................. 0.750 0.375
Fourth Quarter............................................................................. 0.563 0.156
</TABLE>
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<PAGE>
NTFYU Units
<TABLE>
<CAPTION>
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 2000 ------ -----
- ------------------
<S> <C> <C>
First Quarter.............................................................................. 11.375 8.250
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 1999 ------ -----
- ------------------
First Quarter.............................................................................. 2.750 1.000
Second Quarter............................................................................. 12.375 1.438
Third Quarter.............................................................................. 11.875 8.313
Fourth Quarter............................................................................. 11.688 6.500
FISCAL YEAR ENDED HIGH LOW
SEPTEMBER 30, 1998 ------ -----
- ------------------
First Quarter.............................................................................. 5.000 2.500
Second Quarter............................................................................. 2.750 2.125
Third Quarter.............................................................................. 4.375 2.250
Fourth Quarter............................................................................. 3.000 1.000
</TABLE>
As of March 22, 2000, there were 72 holders of record of our common stock
and 9 holders of record of our Class A warrants.
DIVIDEND POLICY
We have never paid any cash dividends on our stock and anticipate that, for
the foreseeable future, we will continue to retain any earnings for use in the
operation of our business. Payment of cash dividends in the future will depend
upon our earnings, financial condition, any contractual restrictions,
restrictions imposed by applicable law, capital requirements and other factors
deemed relevant by our board of directors.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth below and elsewhere in this prospectus. The following
discussion should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this prospectus.
Overview
Notify Technology Corporation was incorporated in the State of California
in August 1994. We are engaged in the development, manufacture, marketing and
sale of computer telephony products for the business, Small Office Home Office,
or SOHO, and residential marketplaces. In recent years, the number of
individuals and businesses relying on their telephone company service provider
to provide them with services such as voice mail and Centrex, a business-
oriented service that eliminates the need for on-premise telephone switching
equipment, has increased dramatically. Our products are designed to enhance the
convenience and utility of these services by providing customers with features
that are either not available or not included in standard service packages. Our
Call Manager products incorporate caller-id, call waiting caller-id, and Voice
Mail MessageAlert features. Our Centrex Receptionist product gives business and
SOHO customers a cost-effective means of ensuring that incoming calls are
properly routed even when a human attendant is not available. Our newly
announced eLight and eView products provide users with e-mail notification
without the necessity of logging into their mailbox. Our MessageAlert product,
which we have sold over the last three years, is a mature product that is
expected to see limited sales in the future. The MessageAlert is a product that
increases the timeliness and ease of message retrieval for voice mail
subscribers by providing a visual indication that a message has been received.
We completed our IPO in September 1997, with net proceeds of approximately
$6.2 million. Prior to the IPO, our working capital requirements were met
through the sale of equity and debt securities and, to a lesser extent, product
revenue and a line of credit. We have sustained significant operating losses in
every fiscal period since inception and expect to incur substantial quarterly
operating losses in the future. Our limited operating history makes the
prediction of future operating results difficult if not impossible. Future
operating results will depend on many factors, including the demand for our
products, the level of product and price competition, our ability to expand our
existing distribution channels and to create new distribution channels, and our
ability to develop and market new products and control costs. There can be no
assurance that our revenue will grow or be sustained in future periods or that
we will ever achieve profitability.
Results of Operations
Revenue: To date, substantially all of our revenue has been derived from
the sale of our MessageAlert, Centrex Receptionist and Call Manager products.
Revenue consists of gross revenue less product returns. Revenue for the fiscal
year ended September 30, 1999 increased to $1,836,142 from $1,638,268 for the
fiscal year ended September 30, 1998. Revenue was up from the previous year due
to the introduction and sales of the Call Manager product and growth in Centrex
Receptionist sales offset by a decline in sales of the Message Alert product. We
do not expect our Message Alert products to be a significant source of revenue
in fiscal 2000. We sell products in the United States primarily to regional bell
operating companies and local exchange carriers. Two products accounted for 41%
and 34% of total revenues in fiscal 1999. Another product accounted for 81% of
total revenue in fiscal 1998. Significant portions of our revenue have been
concentrated in a small number of customers although not necessarily the same
customers each year. For example, two customers accounted for 55% and 11% of
sales for the fiscal year ended September 30, 1999, and two
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<PAGE>
customers accounted for 50% and 17% of sales for the fiscal year ended September
30, 1998. One of these customers had significant sales in both years.
Sales of the Call Manager product, which began shipping in the third
quarter of fiscal 1999, represented 58% of our revenue in the three month period
ended December 31, 1999. Sales of the Centrex Receptionist represented 27% of
our revenue in the three month period ended December 31, 1999 compared to 75% in
the three month period ended December 31, 1998. Sales of the MessageAlert
product represented 3% of our revenue in the three month period ended December
31, 1999 compared to 21% in the three month period ended December 31, 1998.
Revenue for the three month period ended December 31, 1999 increased to
$1,069,678 from $226,344 for the three month period ended December 31, 1998.
Revenue was up from the previous year primarily due to increased sales of the
Call Manager product line and, to a lessor extent, growth in Centrex
Receptionist sales. Sales to telephone companies were 84% and 78% of revenue
for the three-month periods ended December 31, 1999 and 1998, respectively. One
customer accounted for 29% and 72% of sales in the three month periods ended
December 31, 1999 and 1998, respectively. Two other customers accounted for 24%
and 21% of sales in the three month period ended December 31, 1999.
Most of the Call Manager revenue in the three-month period ended December
31, 1999 was derived from telephone company promotional programs utilizing the
Call Manager product as a customer acquisition device. Conversely, most of the
revenue from the Centrex Receptionist came from continuing, non-promotional
telephone company programs resulting in more consistent sales. As the timing
and size of promotional programs using our Call Manager products is uncertain,
we anticipate we will continue to experience substantial variances in quarterly
revenue.
In addition, we believe that domestic telephone companies have in aggregate
decreased their purchases of telephone adjunct devices aimed solely at Voice
Mail customer acquisition. Based on requests for quotations issued by telephone
companies, we believe that purchases of telephone adjunct devices to support
Caller-ID programs continue to occur. A continuation of this trend would have a
material adverse effect on our Voice Mail-only product business, which would
have an adverse effect on our operating results and financial condition.
Cost of Sales: Cost of sales consists primarily of the cost to manufacture
our products. Cost of sales increased to $1,721,029 in the fiscal year ended
September 30, 1999 from $1,582,042 in the fiscal year ended September 30, 1998.
This increase was the result of increased sales of our products for the use in
telephone company promotional programs. Despite significant inventory write-
downs recorded in the third and fourth quarter, our gross margin increased to 6%
in fiscal 1999 from 3% in fiscal 1998. The write-downs were primarily related to
MessageAlert product that has been largely replaced by the Call Manager product
line as well as the write-down of certain Call Manager inventory to the lower of
cost or market due to expedite costs incurred to achieve the initial volume
deployment of the Call Manager product.
Cost of sales increased to $735,445 in the three month period ended
December 31, 1999 from $112,300 for the three month period ended December 31,
1998. This increase was the result of increased sales of the Call Manager
product line.
Research and Development: Research and development expense consists
principally of personnel costs, contract design services, development tooling
and supply expenses. Research and development expense decreased to $1,361,792
for the fiscal year ended September 30, 1999 from $1,376,767 for the fiscal year
ended September 30, 1998. This decrease was primarily the result of moving more
development resources in house versus using contract design services. We expect
to continue to move research and development activity in-house but there can be
no assurance that significant cost savings will be achieved as the result of
such actions.
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<PAGE>
Research and development expense increased to $379,036 for the three month
period ended December 31, 1999 from $327,375 for the three month period ended
December 31, 1998. Research and development cost increases in the three month
period ending December 31, 1999 reflect the growth of our staff that supports
the Got Mail product development.
We expect that research and development expenditures will continue at, or
near, the current level for fiscal 2000 in order that we may complete the
products under development and enhance our current products. See "Business--
Research and Development."
Sales and Marketing: Sales and marketing expense consists primarily of
personnel, consulting and travel costs and sales commissions related to our
sales and marketing efforts. Sales and marketing expenses increased to $837,334
for the fiscal year ended September 30, 1999 from $589,295 for the fiscal year
ended September 30, 1998. This increase was attributable primarily to the
expansion of Customer Service, increased travel expense and increased
commissions resulting from increased sales.
Sales and marketing costs increased to $318,386 for the three month period
ended December 31, 1999 from $186,989 for the three month period ended December
31, 1998. This increase was due to an increase in the size of the customer
service department to support the Centrex Receptionist product line and the
addition of a Vice President of Sales and a Vice President of Marketing. We
have been expanding our ability to manage the rollout of the Got Mail product
line and to provide better support for the growing Call Manager and Centrex
Receptionist product lines. We also made a larger investment in promoting our
products at the Consumer Electronics Show held in Las Vegas in January 2000.
We anticipate that sales and marketing expenses will increase significantly
in future quarters as we hire additional sales and customer support personnel
and attempt to expand our existing and create new distribution channels. See
"Business--Sales, Marketing and Distribution."
General and Administrative: General and administrative expense consists of
general management and finance personnel, occupancy costs and professional fees
and other general corporate expenses. General and administrative expenses
increased to $1,136,779 for the fiscal year ended September 30, 1999 from
$884,442 for the fiscal year ended September 30, 1998. These increases were
primarily the result of additional rent, legal, accounting and corporate expense
and increases in executive salaries. We expect that we will need to hire
additional accounting and financial personnel in order to support anticipated
growth.
General and administrative expenses increased to $363,261 for the three
month period ended December 31, 1999 from $226,287 for the three month period
ended December 31, 1998. The increase is primarily due to the Company's
increased public and investor communication efforts and a rise in recruiting
expenses for senior staff members.
Income Taxes: There was no provision for federal or state income taxes in
fiscal 1998 or 1999 as we incurred net operating losses. As of September 30,
1999, we had federal and state net operating loss carryforwards of approximately
$16,000,000, which will expire in years 2002 through 2019. The net loss
carryforwards and certain research and development tax credit carryforwards will
expire in tax years 2002 through 2019, if not utilized. Utilization of the net
operating losses and credits may be subject to a substantial annual limitation
due to ownership change limitations provided by the Internal Revenue Code of
1986, as amended, and similar state provisions. The annual limitation may result
in the expiration of net operating losses and credits carryforwards before full
utilization. For financial reporting purposes, deferred tax assets primarily
related to the net operating carryforwards recognized under Financial Accounting
Standard No. 109, "Accounting for Income Taxes," has been fully offset by a
valuation allowance.
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<PAGE>
Liquidity and Capital Resources
Our financial statements are prepared and presented on a basis assuming we
continue as a going concern. At September 30, 1999, we had an accumulated
deficit of $9.2 million and incurred a net loss of $3.1 million for fiscal 1999.
Our recently developed products will need to attain favorable market acceptance
to continue our research and development activities and fund operating expenses
at current levels. Management believes that sufficient funds will be available
from cash, cash equivalents, and operating activities to support the current
level of operations through September 30, 2000. There can be no assurance that
our new products will attain favorable market acceptance. If we are unable to
attain certain goals, significant reductions in spending and the delay or
cancellation of planned activities or more substantial restructuring of our
organization may be necessary. In such an event, we intend to implement expense
reduction plans in a timely manner to enable us to meet our cash requirements
through at least September 30, 2000. These actions would have material adverse
effects on our business, results of operations, and prospects.
Over the last two years, we have financed our operations primarily through
sales of equity and debt securities and bank lines of credit. In the fiscal
years ended September 30, 1999 and 1998, the net cash used in operating
activities equaled $2,868,342 and $2,617,101, respectively.
Cash used in operating activities decreased to $612,233 for the three month
period ending December 31, 1999 from $658,243 for the three month period ending
December 31, 1998. Cash used in operating activities for the three month period
ending December 31, 1999 was primarily related to operations as well as an
increase in inventory for the Call Manager product line and an increase in
accounts receivable offset by an increase in accrued liabilities. The cash used
in operating activities for the three month period ended December 31, 1998 was
primarily related to operations.
Cash was provided in the three month period ending December 31, 1999 by
financing activities related primarily to the proceeds of $1,121,760 from the
exercise of warrants to purchase 311,600 shares of common stock. In February
2000, we received an additional $560,880 in proceeds from the exercise of
warrants to purchase 155,800 shares of common stock.
In March 1999, we sold to David Brewer 850,000 shares of common stock and
issued warrants to purchase 1,344,444 shares of common stock for an aggregate
consideration of $3,043,360. The warrants consisted of four warrants to purchase
155,800 shares of common stock at $3.60 per share and one warrant to purchase
721,244 shares of common stock at $3.60 per share. Each of the four warrants
originally expired upon the earlier of September 3, 2000 or 30 days after we
meet certain product sales or revenue milestones. On October 13, 1999, David
Brewer executed two of the warrants for a total of 311,600 shares of common
stock and we received $1.1 million. At the same time, we renegotiated the two
remaining warrants to restate the milestone on one and extend both warrants
until March 1, 2001 or 30 days after we meet certain product sales or revenue
milestones. On December 31, 1999, we achieved an additional milestone and Mr.
Brewer subsequently executed the corresponding warrant in February 2000 for
155,800 shares of common stock and we received $560,880. If we achieve the
final milestone, we anticipate that Mr. Brewer will choose to exercise the
warrant and we will receive as much as $560,880 in additional funding. However,
there can be no assurances that we will meet this last milestone or that Mr.
Brewer will, in fact, exercise the warrant.
In connection with the sale of the common shares and warrants to Mr.
Brewer, we agreed to issue additional warrants to Mr. Brewer if we sell shares
of common stock in a capital raising transaction at a price below $3.60 per
share prior to the earlier of (i) March 3, 2002 or (ii) our calling our
outstanding Class A warrants.
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<PAGE>
Impact of the Year 2000 Issue
The Year 2000 Issue was the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000.
We developed a three-phase program to limit or eliminate Y2K exposures.
Phase I was to identify those systems, applications and third-party
relationships that had exposure to Y2K disruptions in operations. Phase II was
the development and implementation of action plans to achieve Y2K compliance in
all areas prior to the end of 1999. Also included in Phase II was the
development of contingency plans that would have been implemented had Y2K
compliance not been achieved in order to minimize disruptions in operations.
Phase III was the final testing or equivalent certification of testing of each
major area of exposure to ensure compliance. We completed all phases before the
end of 1999.
As of December 31, 1999, we identified costs related to replacement or
remediation and testing of our computer information systems and internal
computer and software upgrades to bring the internal systems into compliance
with the Year 2000. The total cost of our Y2K compliance programs was primarily
confined to the replacement of internal personal computers. The funds for these
costs was part of our cash flow from operations and capital expenditures.
No Y2K problems occurred as a result of passing into calendar year 2000.
We have found no evidence of Y2K problems in our internal systems. No users of
our products have yet notified us of any Y2K problems connected with the use of
our products. No vendors have yet informed us of any problems related to Y2K and
deliveries of material to us have not been interrupted. Based on the currently
available information, we do not believe the Year 2000 issue will have a
material effect on our financial condition or results of operations.
Release of Escrow Securities
In connection with our initial public offering, certain of our
shareholders, including current officers, directors and employees, placed a
substantial portion of our securities then held by them into an escrow. These
securities will be released from escrow if we reach certain pre-tax earnings
targets or share price targets. Upon the release from this escrow of any
securities owned by our officers, directors, consultants or employees, we will
be required to record a compensation expense for financial reporting purposes.
Accordingly, in any period in which securities are released from such escrow, we
will record a substantial noncash charge to earnings that will increase our loss
or reduce or eliminate earnings, if any, at such time. The amount of this
charge will be equal to the aggregate market price of the securities owned by
directors, officers and employees which are released from the escrow. Although
the amount of compensation expense recognized by the us will not affect our
total shareholders' equity or cash flow, it may have a depressive effect on the
market price of our securities. See "Principal Shareholders--Escrow
Securities."
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<PAGE>
BUSINESS
We were incorporated in the State of California in August 1994. We are
engaged in the development, manufacture, marketing and sale of computer
telephony products for the business, SOHO and residential marketplaces. In
recent years, the number of individuals and businesses relying on their
telephone company service provider to provide them with services such as voice
mail and Centrex, a business-oriented service that eliminates the need for on-
premise telephone switching equipment, has increased dramatically. Our products
are designed to enhance the convenience and utility of these services by
providing customers with features that are either not available or not included
in standard service packages. Our Call Manager products incorporate caller-id,
call waiting caller-id, and Voice Mail MessageAlert features. Our Centrex
Receptionist product gives business and SOHO customers a cost-effective means of
ensuring that incoming calls are properly routed even when a human attendant is
not available. Our newly announced eLight and eView products provide users with
e-mail notification without the necessity of logging into their mailbox. Also,
our MessageAlert product increases the timeliness and ease of message retrieval
for voice mail subscribers by providing a visual indication that a message has
been received.
Products
Call Manager
We announced the Call Manager family of caller-id products in January 1999
and began shipping in April 1999. Our caller-id products incorporate the
MessageAlert visual message waiting indication technology and support for
combinations of telephone company services such as voice mail, caller-id, call
waiting caller-id and deluxe call waiting. Caller-id products are categorized as
either "Type I" (calling name and calling number only); "Type II" (Type I
features plus call waiting caller-id) or "Type II.5" (Type II plus deluxe call
waiting). Type II and Type II.5 products support the more sophisticated services
offered by telephone service providers than the "Type I" products more commonly
found on the market. Our Call Manager line of products include all three types
and are designed to support bundling of services offered by the telephone
service provider giving more functionality to the end user and more revenue
opportunity for the telephone service provider.
Centrex Receptionist
Small businesses that use CENTREX services generally must maintain a human
attendant to answer incoming calls, or the calls will go unanswered or they will
be transferred into the business' general voice mail mailbox. The Centrex
Receptionist is a stand-alone unit that provides the CENTREX customer with
automatic call answer and transfer capability 24 hours a day. The Centrex
Receptionist provides thirty minutes of recorded announcement time, special
after hours or holiday announcements, and nine main menu items. Each main menu
item supports nine selections that can be either a transfer to a telephone
number or an announcement. The Centrex Receptionist also provides extension
dialing, name directory services and call statistics. The unit has a battery
back-up that will last up to three days. The Centrex Receptionist is remotely
configured by Notify Technology Customer Service but locally programmable by the
user for voice greetings and voice announcements using a touch tone telephone.
It has password protection for all administrative programming. The current
Centrex Receptionist model supports two to four incoming CENTREX lines.
Visual Got Mail
The eView and eLight are the Company's two newest products. The eView and
eLight are part of a Visual Got Mail service that incorporates the use of
proprietary server technology. The service is designed to eliminate residential,
SOHO and business e-mail subscribers' frustration with the traditional,
inconvenient
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<PAGE>
process of checking for e-mail. The Visual Gotmail technology, designed for
telephone company deployment as a service offering, includes a scalable carrier
class server infrastructure, hosted by Notify Technology or the telephone
company, and a line of telephone adjunct products for use by subscribers. While
the eLight is a dedicated e-mail notification product that notifies users of the
presence of e-mail through the use of a blinking red light, the eView is a
caller-id product that also incorporates the advanced e-mail notification
feature of displaying the header information of unread e-mails in the user's
mailbox(s).
MessageAlert
The MessageAlert is a visual indicator for telephone company provided voice
mail. Telephone companies typically use one of two signaling standards to alert
voice mail subscribers that they have a message waiting: stutter dial tone
signaling and CLASS signaling, which enables detection of a voice mail message
without taking the line off-hook.
The MessageAlert is a mature product that has limited demand. Although
still in our active product line, the MessageAlert is expected to have limited
sales as it is no longer a featured product in our sales plan. We have been
granted a patent on the MultiSense Technology incorporated in the MessageAlert
that enables it to work with both signaling standards. This technology has been
incorporated into the Call Manager product series and will be included in many
of our other products.
Sales, Marketing and Distribution
The sales activities for our products have been focused on direct sales to
large telephone companies. Our products are being either private labeled or
joint marketed by GTE Communication Systems Corporation, Pacific Bell,
Southwestern Bell Telephone Company, BellSouth Corporation, Ameritech
Corporation, Century Telephone Enterprises Inc., Alltel Telephone System and
Commonwealth Telephone Company. Except with respect to Pacific Bell,
Southwestern Bell and Ameritech Corporation, our relationship with these
companies has not been reduced to a formal agreement or contract and none of
these companies is obligated to purchase any product from us. We manufacture
products based on purchase orders and forecasts of purchases received from RBOCs
and LECs. We believe large telephone companies typically do business in this
manner and we do not intend to seek long-term contractual commitments from our
telephone company customers.We sell products in the United States primarily to
regional bell operating companies and local exchange carriers. Two products
accounted for 41% and 34% of total revenues in fiscal 1999. Another product
accounted for 81% of total revenue in fiscal 1998. Significant portions of our
revenue have been concentrated in a small number of customers although not
necessarily the same customers each year. For example, two customers accounted
for 55% and 11% of sales for the fiscal year ended September 30, 1999, and two
customers accounted for 50% and 17% of sales for the fiscal year ended September
30, 1998. One of these customers had significant sales in both years.
We are marketing the Centrex Receptionist to the same group of large
telephone companies we have targeted for the Call Manager, eView and
MessageAlert products. We have entered into contracts with three major telephone
companies to sell our Centrex Receptionist through their ongoing customer
premise equipment channels. We believe that we have established ourselves as a
qualified supplier or joint marketing partner with respect to the Centrex
Receptionist.
We intend to distribute our products through or in conjunction with the
large domestic telephone companies and certain of their authorized resellers. To
date, we have sold our products to five of the seven RBOCs and twelve of the 20
largest LECs. Our strategy is to encourage these telephone companies to bundle
our products with their services as both a consumer acquisition tool and in
order to increase retention of new service subscribers. In addition, we intend
to encourage telephone companies and their authorized resellers that
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<PAGE>
focus on selling Centrex services to also market our Centrex Receptionist as an
enhancement to the basic Centrex service. We believe that the relationships with
telephone companies we have formed as a result of marketing the MessageAlert,
Call Manager and Centrex Receptionist product lines, will aid us in developing
the telephone companies as a distribution channel for the new Visual Got Mail
product line.
The Visual GotMail product line will derive revenue from both sales of
adjunct equipment and supplying ongoing Visual Gotmail services to users.
Service revenue may be direct through our own service centers or indirect
through customer owned and maintained service centers. Our technology is
proprietary and only our adjunct products will interface with the server
centers. We have opened an online store to supply product and Got Mail services
directly to the consumer market. This channel will provide a direct link to the
users of Visual Got Mail service and supply first hand feedback about the
quality of our products and services.
Technical and Marketing Support
We have developed product collateral and marketing programs for the Centrex
Receptionist, Call Manager and MessageAlert products. We have recently expanded
our ongoing marketing programs to include the new Visual GotMail products.
These marketing programs will include augmentation of collateral material,
advertising and trade shows, supplemented with public relations campaigns.
We provide back-up technical support to large telephone companies and
resellers. Our support personnel perform all technical support. In the future,
our support organization will provide both sales and technical support. Sales
support consists of sales and marketing training at our home office training
facility for our own sales force and those of authorized resellers. The Centrex
Receptionist requires remote modem support by our customer service group
whenever the user wants to add lines, make directory changes and perform system
back-up on a billable service arrangement.
Research and Development
We incurred $1,361,792 and $1,376,767 in research and development expenses
in fiscal 1999 and 1998, respectively. We use both internal engineering
resources and contract engineering resources for our research and development.
We believe that our future success, if any, depends significantly on our ability
to continue to enhance our existing products and to develop new products, and
intend to continue to incur continued research and development costs. We expect
that our research and development efforts will be focused in three areas:
further development of the Company's Visual Got Mail products and technology;
cost reduction of the Call Manager product line; and the incorporation of our
technology into complimentary products.
Manufacturing
We use offshore turnkey manufacturing for our production. To the extent
possible, we use standard parts and components for our products although some
components are custom designed and/or are available only from a single source or
limited sources. We have established a relationship with an offshore
manufacturer to design and build low cost Type I caller-id units that we resell
as part of our Call Manager product line. We use a separate manufacturer to
build our Call Manager and Visual Got Mail product lines.
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<PAGE>
Governmental Regulation and Industry Standards
Our products must comply with a variety of regulations and standards
including regulations and standards set by the Federal Communications
Commission, Underwriters Laboratories, National Registered Testing Laboratories,
and Bell Communications Research. As we enter international markets we will be
required to comply with whatever governmental regulations and industry standards
exist in those markets. In addition, the U.S. telecommunications market is
evolving rapidly in part due to recently enacted laws revamping the
telecommunications regulatory structure. Additional legislative or regulatory
changes are possible. Any failure to comply with existing regulations and
standards or to adapt to new regulations and standards could have a material
adverse effect on our business and operating results.
Competition
We currently have several direct competitors in the market for caller-id
units. CIDCO Incorporated, TT Systems, Astra Telecom of Canada and Thompson
Consumer Inc. produce Type I and Type II caller-id products and have been
selling their products for a number of years into the marketplace. Since we have
more recently entered this marketplace, our products rely on increased or unique
functionality to gain market share. We have also had to use aggressive pricing
in some cases to deploy sufficient quantities of product to establish adequate
reliability statistics to qualify for larger programs with our telephone company
customers. We believe that our Call Manager products compete favorably with
respect to other caller-id products currently being offered on the market.
Certain manufacturers of caller-id products have greater financial,
technical and marketing resources than we do. In addition, there are several
companies with substantially greater technical, financial and marketing
resources than we do that could produce competing products.
We have one direct competitor in the market for Centrex auto-attendant
products. SoloPoint.com, Inc. produces both a model A200 and model A400 auto-
attendant product. Solopoint's products lack many of the features found in our
Centrex Receptionist product such as: three levels of menus, 30 minute of voice
recording, a 200 entry name directory and several call statistics reports. To
our knowledge, Solopoint has failed to attract any major RBOC's to distribute
their product. Currently, we have three major RBOC's with signed agreements
selling our Centrex Receptionist product line with other RBOC's evaluating the
product. The Company believes competition in the auto-attendant market is based
on features (including ease of use, availability of a name directory, amount of
recording time and number of menu levels), price and quality. The Company
believes it competes favorably with respect to all of these factors.
We believe that we do not currently have any direct domestic competition
for our Visual GotMail technology. There are several indirect competitors that
include Landel Telecom and CIDCO Incorporated. These companies produce products
that provide e-mail notification as well as limited e-mail access. All of these
products require a relatively expensive device that consists of a multi-line
character display and a keyboard. We believe our Visual Got Mail technology
competes favorably with respect to any of these indirectly competing products.
Our MessageAlert product has several direct competitors in the voice mail
waiting indication marketplace. Comsumerware Inc. produces a product called
Voice Mail Lite and SoloPoint.com Inc. produces a S25 Message Waiting Light.
Both of these products provide stutter dial tone and FSK message waiting
indication. We believe our MessageAlert 300 product competes favorably with
respect to either of these competitive products.
-20-
<PAGE>
We expect that to the extent that the market for any of our products
develops, competition will intensify and new competitors will enter the market.
There can be no assurance that we will be able to compete successfully against
existing and new competitors as the market for our products evolves and the
level of competition increases. A failure to compete successfully against
existing and new competitors would have a materially adverse effect upon our
business and results of operations.
Proprietary Rights
We rely on a combination of patent and trade secret law, nondisclosure
agreements and technical measures to establish and protect our proprietary
rights in our products. We have a design patent issued on the MessageAlert
design. The MessageAlert design is unique in that it provides a visual message
waiting indicator light packaged in the form of a 3M Post- it(R) Note holder.
In addition, we were granted a patent in October 1998 relating to the MultiSense
technology used in the MessageAlert product. Our MultiSense technology
automatically detects and reacts to either stutter or CLASS signaling. We also
have patents pending on our Visual Got Mail technology and other technology
under development. We intend to continue to apply for patents, as appropriate,
for our future technologies and products.
There are few barriers to entry into the market for our products, and there
can be no assurance that any patents applied for by us will be granted or that
the scope of our patent or any patents granted in the future will be broad
enough to protect against the use of similar technologies by our competitors.
There can be no assurance, therefore, that any of our competitors, some of whom
have far greater resources than we do, will not independently develop
technologies that are substantially equivalent or superior to our technology.
Further, we intend to distribute our products in a number of foreign countries.
The laws of those countries may not protect our proprietary rights to the same
extent as the laws of the United States.
We may be involved from time to time in litigation to determine the
enforceability, scope and validity of any of our proprietary rights or of third
parties asserting infringement claims against us. Any such litigation could
result in substantial costs to us and diversion of efforts by our management and
technical personnel.
We have entered into a non-exclusive license agreement with Active Voice
Corporation pursuant to which we have paid an up-front fee on sales of our
products in exchange for certain rights with respect to a patent issued to
Active Voice Corporation covering stutter dial tone detection.
Employees
As of March 1, 2000, we employed thirty-one persons of whom eleven were
engaged in research and development, two in manufacturing, thirteen in sales,
marketing, and customer support, and five in general administration and finance.
Twenty-eight of our employees work full time. We contemplate increasing our
staff at a pace consistent with our business and growth. None of our employees
are currently represented by a labor union. We consider our relations with our
employees to be good.
Our success, if any, will be dependent on our ability to attract and retain
highly skilled technical personnel as well as marketing and sales personnel. If
we are unable to hire the necessary personnel, the development of new products
and enhancements to current products would likely be delayed or prevented.
Competition for highly-skilled technical, managerial, sales, and marketing
personnel is intense. There can be no assurance that we will be successful in
retaining our key personnel and in attracting and retaining the personnel we
require for expansion.
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<PAGE>
Facilities
Our principal executive offices are located at 1054 South DeAnza Boulevard,
Suite 105, San Jose, California 95129. These facilities consist of
approximately 5,000 square feet of office space pursuant to a lease that expires
March 31, 2001. We have a second location at 23 Lisbon Street, Canfield, Ohio
44406 that houses an engineering group and customer support for the Eastern
United States. The Ohio facility consists of approximately 1,500 square feet of
office space leased on a month to month basis. We will either renew our leases
and acquire more space if available or enter into a lease for new premises in
the local areas.
How To Get Information About Notify Technology Corporation
We are subject to the informational requirements of the Exchange Act and
therefore file reports, proxy and information statements and other information
with the SEC. You may read and copy any materials we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The SEC's Internet
website is http://www.sec.gov.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of Notify Technology Corporation, and
their ages as of February 20, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------------- --- --------------------------------------------------------------------------
<S> <C> <C>
Paul F. DePond(1)..................... 46 President, Chief Executive Officer and Chairman of the board of directors
Gaylan I. Larson...................... 59 Vice President of Operations and Director
Gerald W. Rice........................ 52 Chief Financial Officer and Secretary
Dane Russell.......................... 47 Vice President of Sales
Maurice Hamoy ........................ 50 Vice President of Marketing
Michael Ballard(1)(2)................. 44 Director
Andrew Plevin(2)...................... 35 Director
David Brewer.......................... 48 Director
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
Paul F. DePond, founder of Notify Technology Corporation, has served as our
President, Chief Executive Officer and Chairman of our board of directors since
its inception in August 1994. Mr. DePond also sits on the board of directors of
gForce Systems, a company located in San Jose, CA. From September 1992 through
May 1994, Mr. DePond served as Vice President Corporate Marketing of Telebit
Corporation, a supplier of high speed modems and dialup remote access products.
From January 1991 through September 1992, Mr. DePond served as Vice President,
Marketing, of Alantec Corporation, a manufacturer of networking products. Mr.
DePond received a B.S. in Electrical Engineering and Computer Engineering in
1979, and an M.A. in Computer Science in 1980, each from the University of
Michigan at Ann Arbor.
Gaylan I. Larson has served as our Vice President of Operations and as one
of our directors since August 1994. From January 1991 to August 1994, Mr. Larson
was Chief Operating Officer of SportSense, Inc., a manufacturer of golf training
equipment. Prior to SportSense, Mr. Larson served as General Manager of the Data
Systems Division of Hewlett-Packard Company, a company with which he had an 18
year relationship. Mr. Larson received an A.A. from Sacramento Junior College in
1959, a B.S. in Electrical Engineering from University of California, Berkeley
in 1961, and a M.S.E.E. in Engineering from Newark College of Engineering in
1965.
Gerald W. Rice has served as our Chief Financial Officer and Secretary
since August 1994. From November 1993 to June 1996, he owned Comprehensive
Business Services, a financial services company franchise. From April 1992 to
April 1993, Mr. Rice served as Controller at Surface Science Instruments, a
manufacturer of capital equipment for surface chemical analysis. From June 1990
to April 1992 Mr. Rice was Vice President of Finance and Secretary of Applied
Dielectrics, a manufacturer of microwave circuit boards. Mr. Rice received an
A.A. from Ohlone Community College in 1969 and a B.A. in Accounting from
California State College of Stanislaus in 1971.
Dane J. Russell, recently appointed VP of Sales for the Company November 1,
1999. From August 1998 through October 1999, Mr. Russell served as Worldwide
Director of H.323 (VoIP) Sales, at Lucent Technologies, elemedia venture. From
August 1996 through August 1998, Mr. Russell served as National OEM Sales
Manager at Cypress Research, a PC based telephony software venture company. From
June 1984 to June 1996, Mr. Russell held various Sales and Sales Management
positions with 3M's Data Storage Products Division. Mr. Russell received a B.S.
in Business Administration in 1980, and an M.B.A. in 1982, each from California
State University, Hayward.
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<PAGE>
Maurice J. Hamoy has served as Vice President of Marketing of the Company
since November 1999. From February 1998 to October 1999, Mr. Hamoy was Vice
President of Communications at Storactive, Inc., a developer of enterprise
storage management products. From October 1995 to February 1998, Mr. Hamoy was
Vice President of Marketing at Software Publishing Corporation, the developer of
the Harvard Graphics presentation software. Prior to Software Publishing
Corporation, Mr. Hamoy served, over a ten-year period, in several senior
management positions at Inset Systems, Inc., a privately held graphics company
that pioneered the use of graphics on the Internet. Mr. Hamoy studied education
and psychology from 1966 to 1968 at Goddard College, and majored in psychology
at Queens College of the City University of New York from 1968 to 1973.
Michael Ballard has served as one of our directors since January 1996. Mr.
Ballard is the Chief Executive Officer and Chairman of the Board of Savannah
Chanel Vineyards, Inc. From October 1996 to November 1997, Mr. Ballard directed
the dial-up technology division of Cisco Systems, Inc. From May 1995 to October
1996, Mr. Ballard served as Executive Vice President Marketing of Telebit
Corporation. From June 1993 to September 1994, Mr. Ballard served as Chief
Operating Officer of UUNet, Inc., an internet service provider. From January
1986 to May 1993, Mr. Ballard held several positions including Chief Executive
Officer of Telebit Corporation. Mr. Ballard received his B.F.A. in 1978 from
the University of Utah.
Andrew Plevin was elected as one of our directors in February 1998. Since
November 1997, Mr. Plevin has been acting Chief Executive Officer and President
of Core Software Technology, Inc. From August 1993 to November 1997, Mr. Plevin
served as Vice President of D.H. Blair Investment Banking Corp. Mr. Plevin was
nominated to the board of directors pursuant to a requirement contained in the
underwriting agreement between Notify Technology and D.H. Blair Investment
Banking Corp. for our initial public offering. The provision provides that D.H.
Blair Investment Banking Corp. shall have the right to designate one director of
our board of directors for a period of five years from the closing date of our
initial public offering.
David Brewer was elected as one of our directors in February 2000. Since
January 1999, he has served as general manager for Aragon Ventures LLC, a
private equity investment firm. From November 1999 to present, Mr. Brewer has
served as Chief Executive Officer of Explore Holdings LLC, a private equity
investment firm, and from July 1995 to present he has served as a managing
member of Inktomi LLC, an internet research company. From September 1995 to
December 1999, Mr. Brewer served as President, Chief Executive Officer and
director of Explore Technologies, Inc., an educational toy manufacturer. From
February 1996 to May 1996, Mr. Brewer served as President, Chief Executive
Officer, Chief Financial Officer and director of Inktomi Corporation, an
internet software developer. Mr. Brewer was nominated for election to the board
of directors pursuant to a requirement contained in a securities purchase
agreement between us and Mr. Brewer, dated March 4, 1999.
All directors are elected annually and serve until the next annual meeting
of shareholders or until the election and qualification of their successors. All
executive officers serve at the discretion of our board of directors. There are
no family relationships between any of our directors or executive officers.
Our success, if any, will be dependent to a significant extent upon certain
key management employees, including Messrs. DePond and Larson. We have 3-year
key-man term life insurance on Mr. DePond in the amount of $2 million and have
entered into employment agreements with him and with Messrs. Larson, and Rice.
See "Employment Contracts."
-24-
<PAGE>
Director Compensation
Members of our board of directors do not receive compensation for their
services as directors.
Executive Compensation
The following table sets forth information concerning the compensation
awarded to, earned by, or paid for services rendered to us in all capacities
during the fiscal year ended September 30, 1999, by (1) our Chief Executive
Officer and (2) our most highly compensated executive officers whose salary and
bonus for the year exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------- --------------------------- --------
Restricted Securities
Other Annual Stock Underlying v LTIP All Other
Name and Salary Bonus Compensation Award(s) Options Payouts Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul F. DePond.......... 1999 166,531 -- -- -- -- -- 7,116
Chief Executive 1998 132,739 -- -- -- -- -- 7,950
Officer 1997 121,381 -- -- -- -- -- 8,673
Gaylan Larson........... 1999 116,500 -- -- -- -- -- 6,346
Chief Operations 1998 115,585 -- -- -- -- -- 6,138
Officer 1997 112,446 -- -- -- -- -- 7,518
Gerald Rice............. 1999 116,207 -- -- -- -- -- 8,401
Chief Financial 1998 105,759 -- -- -- -- -- 6,562
Officer 1997 95,519 -- -- -- 24,752 -- 6,886
</TABLE>
- ------------
(1) Represents payments of health insurance premiums on behalf of the named
executive officers.
-25-
<PAGE>
The following tables set forth information for the named executive officers
with respect to grants and exercises in fiscal 1999 of options to purchase
common stock. All options were granted under our 1997 Stock Plan.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Granted
Underlying to Employees in Exercise or
Name Options Granted (#) Fiscal Year Base Price ($/Sh) Expiration Date
- ----------------------------------------- ------------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Paul F. DePond -- -- -- --
Gaylan Larson -- -- -- --
Gerald Rice -- -- -- --
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Value Underlying Options at Fiscal In-the-Money Options at
Acquired on Realized Year End (#) Fiscal Year End (1)($)
Name Exercises (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------- -------------- -------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul F. DePond..................... -- -- 110,792 -- 576,230 --
Gaylan Larson...................... -- -- -- -- -- --
Gerald Rice........................ -- -- 25,752 -- 65,766 --
</TABLE>
- ------------
(1) Market value of underlying securities at fiscal year-end of $7.656 minus
exercise price multiplied by the number of shares.
1997 Stock Plan
The 1997 plan provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and for the granting to employees and consultants of nonstatutory
stock options and stock purchase rights. The 1997 plan was approved by the board
of directors and the shareholders in January 1997. Unless terminated sooner, the
1997 plan will terminate automatically in January 2007. Under the 1997 plan, we
may grant options to purchase up to 700,000 shares of our common stock. As of
March 1, 2000, we had granted options to purchase an aggregate of 430,618 shares
of our common stock and 269,382 shares of our common stock remained reserved for
future grants.
The 1997 plan may be administered by the board of directors or a committee
of the board, which committee shall, in the case of options intended to qualify
as performance-based compensation within the meaning of Section 162(m) of the
Internal Revenue Code, consist of two or more outside directors within the
meaning of Section 162(m) of the Internal Revenue Code. The exercise price of
incentive stock options must be at least equal to the fair market value of our
common stock on the date of grant. The exercise price of nonstatutory stock
options and stock purchase rights granted under the 1997 plan is determined by
the committee, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Internal Revenue Code, the exercise price must at least be equal to the
fair market value of the common stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value on the
grant date and the term of the incentive stock option must not exceed five
years. The term of all other options granted under the 1997 plan may not exceed
ten years.
The 1997 plan provides that in the event of our merger with or into another
corporation, a sale of substantially all of our assets or a like transaction
involving us, each option shall be assumed or an equivalent
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<PAGE>
option substituted by the successor corporation. If the outstanding options are
not assumed or substituted as described in the preceding sentence, the committee
shall provide for each optionee to have the right to exercise the option or
stock purchase right as to all of the optioned stock, including shares as to
which it would not otherwise be exercisable. If the administrator makes an
option or stock purchase right exercisable in full in the event of a merger or
sale of assets, the administrator shall notify the optionee that the option or
stock purchase right shall be fully exercisable for a period of fifteen (15)
days from the date of the notice, and the option or stock purchase right will
terminate upon the expiration of such period.
Employment Contracts
In August 1997, we entered into an employment agreement with Paul DePond,
our President and Chief Executive Officer. The agreement provides for a base
salary of $130,000, which increased to $150,000 thirteen months following our
initial public offering, and a $50,000 bonus contingent on our attainment of
certain performance milestones. This employment agreement was amended in
February 2000 to increase Mr. DePond's base salary to $175,000. In addition, if
we are sold while Mr. DePond is employed by us, Mr. DePond will receive a bonus
equal to 2% of the price at which we are sold.
In the event that we terminate Mr. DePond without cause following a change
in control, Mr. DePond is entitled to receive severance compensation equal to a
continuation of his salary for a period of twenty-four (24) months. In the
event that we terminate Mr. DePond without cause apart from a change of control,
Mr. DePond is entitled to receive severance compensation equal to a continuation
of his salary for a period of eighteen (18) months. Mr. DePond is not entitled
to severance compensation in the event of a termination for cause or voluntary
resignation. In the event of a termination due to disability, Mr. DePond is
entitled to receive only those severance or disability benefits as are
established under our then existing severance and benefits plans and policies.
In August 1997, we entered into employment agreements with Mr. Larson, our
Vice President of Operations and Mr. Rice, our Chief Financial Officer. These
employment agreements were amended in February 2000. The agreements provide for
base salaries of $145,000 and $130,000 for Messrs. Larson and Rice,
respectively. Under the agreements, Messrs. Larson and Rice are eligible to
receive annual bonuses based on an earnings target approved by our board of
directors.
In the event that we terminate Messrs. Larson or Rice without cause
following a change in control, the terminated officer is entitled to receive
severance compensation equal to a continuation of his salary for a period of
twelve (12) months. In the event that we terminate Messrs. Larson or Rice
without cause apart from a change of control, the terminated officer is entitled
to receive severance compensation equal to a continuation of his salary for a
period of six (6) months. Messrs. Larson and Rice are not entitled to severance
compensation in the event of a termination for cause or voluntary resignation.
In the event of a termination due to disability, the terminated officer is
entitled to receive only those severance or disability benefits as are
established under our then existing severance and benefits plans and policies.
The foregoing agreements define a "change in control" as (1) the
acquisition of more than 30% of the voting securities of Notify Technology
Corporation by any person or group; (2) a change in a majority of our board of
directors occurring within a two-year period; or (3) the approval by our
shareholders of a transaction which would result in a transfer of more than 50%
of our voting power provided, however, that a public offering of our common
stock does not constitute a change of control. Messrs. DePond, Rice and Larson
have also agreed that the acquisition of shares and warrants by David Brewer
does not constitute a "change in control." The agreements define "cause" as an
act of dishonesty in connection with employment; a conviction of a felony which
will detrimentally affect our reputation or business; willful and gross
misconduct injurious to us; and continued and willful failure to perform duties.
The agreements define "disability" as the inability to
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<PAGE>
perform duties under the agreement due to mental or physical illness determined
to be total and permanent by a physician.
Indemnification of Directors and Officers and Related Matters
We have adopted provisions in our Articles of Incorporation that eliminate
the personal liability of our directors for monetary damages arising from a
breach of their fiduciary duties in certain circumstances to the fullest extent
permitted by law and authorizes us to indemnify our directors and officers to
the fullest extent permitted by law. This limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
Our bylaws provide that we shall indemnify our directors and officers to
the fullest extent permitted by California law. We have entered into
indemnification agreements with our officers and directors containing provisions
which are in some respects broader than the specific indemnification provisions
contained in the California Corporations Code. The indemnification agreements
may require us, among other things, to indemnify these officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers, except for liabilities arising from willful misconduct
of a culpable nature, and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
At present, there is no pending material litigation or proceeding involving
any of our directors or officers where indemnification may be required or
permitted. We are not aware of any threatened material litigation or proceeding
which may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of us pursuant
to the foregoing provisions, or otherwise, we have been advised that it is the
opinion of the Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We had a business relationship with COMAC, a literature and product
fulfillment company previously owned by Michael Smith. Mr. Smith currently
serves as the president of COMAC, a subsidiary of Pierce Leahy Corp. We use
COMAC, along with other fulfillment companies, on a project by project basis to
facilitate the distribution of our products to telephone company customers. We
have no contractual obligation to use COMAC's services. During fiscal years
ended September 30, 1998 and September 30, 1999, we paid to COMAC $61,000 and
$3,911, respectively, in fees.
From August 1993 to November 1997, Mr. Andrew Plevin, a member of our board
of directors, served as Vice President of D.H. Blair Investment Banking Corp.
D.H. Blair Investment Banking Corp. served as placement agent for our 1997
bridge financing and as underwriter for our initial public offering. In
connection with the 1997 bridge financing and our initial public offering, D.H.
Blair Investment Banking Corp. received approximately $1,150,000 in discounts,
commission, and non-accountable expense allowances. In addition, D.H. Blair
Investment Banking Corp. received an option to purchase 160,000 of the units
offered in our initial public offering, at $7.00 per unit, exercisable at any
time, in whole or in part, during the two year period commencing August 28,
2000. Each unit offered in our initial public offering consisted of a share of
common stock and a warrant to purchase one share of common stock at an exercise
price of $6.50 per share
In March 1999, we sold to David A. Brewer in a private placement 850,000
shares of common stock and warrants to purchase 1,334,444 shares of common stock
for aggregate consideration of $3,043,360. The warrants consisted of four
warrants to purchase 155,800 share of common stock at $3.60 per share and one
warrant to purchase 721,244 shares of common stock at $3.60 per share. Mr.
Brewer exercised two of the four warrants on October 11, 1999 and received
311,600 shares of common stock underlying such warrants for an aggregate
exercise price of $1,121,760. At the same time, we renegotiated the two
remaining warrants to restate the milestone on one and extend both warrants
until March 1, 2001 or 30 days after we meet certain product sales or revenue
milestones. On December 31, 1999, we achieved an additional milestone and Mr.
Brewer subsequently executed the corresponding warrant in February 2000 for
155,800 shares of common stock and we received $560,880. The fifth warrant
expires on March 3, 2003 and contains a net exercise provision. In connection
with the sale of the common stock and warrants to Mr. Brewer, we agreed to issue
additional warrants to Mr. Brewer if we sell shares of common stock in a capital
raising transaction at price below $3.60 per share prior to the earlier of (1)
March 3, 2002 or (2) our calling our outstanding Class A warrants. In addition,
we agreed to register for resale the common stock sold in the private placement
and the common stock underlying the warrants at the request of Mr. Brewer which
may be made at any time after June 3, 1999. We also agreed to seek shareholder
approval to increase the size of our board of directors and to elect Mr. Brewer
to our board of directors. Mr. Brewer was elected to our board of directors at
the Annual Shareholders Meeting held on February 23, 2000.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors and principal shareholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors of the board of directors, and will be on terms
no less favorable to us than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of March 1, 2000, (1) by each person (or group of
affiliated persons) who is known by us to own beneficially more than five
percent of our common stock, (2) by each of the Named Executive Officers, (3) by
each of our directors, and (4) by all of our directors and executive officers as
a group. We believe that the persons and entities named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Shares Beneficially Owned(1) Percentage (1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
David A. Brewer(2)(3)(4)............................................ 2,239,745 38.8%
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Paul F. DePond(5)................................................... 519,508 10.4
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
J. Morton Davis(6).................................................. 288,704 5.7
c/o D.H. Blair Investment Banking Corp.
44 Wall Street
New York, NY 10005
Gaylan I. Larson(7)................................................. 200,796 4.1
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Andrew Plevin(8).................................................... 133,100 2.7
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Gerald W. Rice(9)................................................... 96,835 2.0
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
Michael Ballard(10)................................................. 71,905 1.5
c/o Notify Technology Corporation
1054 S. De Anza Blvd., Suite 105
San Jose, California 95129
All directors and executive officers as a group (8 persons)(11)..... 3,261,889 53.9
</TABLE>
- --------------
(1) Applicable percentage of ownership is based on 4,878,364 shares of common
stock outstanding as of March 1, 2000 together with applicable options or
warrants for the shareholder. Beneficial ownership is determined in
accordance with the rules of the Securities Exchange Commission, and
includes voting and investment power with respect to shares. Shares of
common stock subject to options or warrants currently exercisable or
exercisable within 60 days after March 1, 2000 are deemed outstanding for
purposes of computing the percentage ownership of the person holding options
or warrants, but are not deemed outstanding for computing the percentage of
any other stockholder.
(2) Includes 877,044 shares issuable upon exercise of currently exercisable
warrants.
(3) Includes 19,801 shares of common stock owned by Hanabusa Investments, Inc.,
of which Mr. Brewer is a shareholder.
(4) Includes 12,500 shares of common stock and 13,000 shares issuable upon
exercise of currently exercisable warrants owned by JBB Associates, of which
Mr. Brewer is a shareholder.
(5) Includes 110,792 shares issuable upon exercise of currently exercisable
warrants. Also includes 2,777 shares subject to stock options that are
exercisable within 60 days of March 1, 2000.
(6) Information provided is based solely on J. Morton Davis's Schedule 13G dated
February 12, 1999. Mr. Davis claims sole voting power as to 72,000 shares.
Mr. Davis may be deemed to beneficially own 288,704 shares as follows: (1)
36,000 shares and 36,000 shares underlying currently exercisable warrants
owned directly by D.H. Blair Investment Banking Corp., of which Mr. Davis is
the sole shareholder, and (2) 108,352 shares and 108,352 shares underlying
currently exercisable warrants owned by Mr.
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<PAGE>
Davis's wife, Rosalind Davidowitz. Mr. Davis disclaimed beneficial
ownership of all securities held by Mrs. Davidowitz pursuant to Rule 13d-4
under the Securities Exchange Act of 1934, as amended, on the Schedule 13G
dated February 12, 1999.
(7) Includes 2,777 shares subject to stock options that are exercisable within
60 days of March 1, 2000.
(8) Includes 4,250 shares issuable upon exercise of currently exercisable
warrants. Also includes (1) 64,000 shares issuable upon exercise of a
currently exercisable option to purchase 64,000 of our units, each of which
consists of one share of common stock and one of our Class A warrants, and
(2) 64,000 shares issuable upon exercise of the Class A warrants that
underlie the option to purchase Units.
(9) Includes 24,752 shares issuable upon exercise of currently exercisable
warrants. Also includes 2,777 shares subject to stock options that are
exercisable within 60 days of March 1, 2000.
(10) Includes 9,498 shares issuable upon exercise of currently exercisable
warrants.
(11) Includes 1,039,336 shares issuable upon exercise of currently exercisable
warrants and 8,331 shares subject to stock options that are exercisable
within 60 days of March 1, 2000. Also includes (1) 64,000 shares issuable
upon exercise of a currently exercisable option to purchase 64,000 of our
units, each of which consists of one share of common stock and one of our
Class A warrants, and (2) 64,000 shares issuable upon exercise of the Class
A warrants that underlie the option to purchase Units.
Escrow Securities
In connection with our initial public offering, the holders of our common
stock and warrants to purchase common stock placed 1,242,985 shares of our
common stock (the "Escrow Shares") and warrants to purchase 126,759 shares of
common stock (the "Escrow Warrants" and, together with the Escrow Shares, the
"Escrow Securities") into escrow pursuant to an escrow agreement ("Escrow
Agreement") with our transfer agent, American Stock Transfer and Trust, as
escrow agent. The Escrow Securities are not assignable or transferable; however,
the Escrow Shares may be voted. Holders of any Escrow Warrants in escrow may
exercise their warrants prior to their release from escrow; however, the shares
issuable upon any such exercise will continue to be held in escrow as Escrow
Shares pursuant to the Escrow Agreement.
The Escrow Agreement provides that one-half of the Escrow Securities (i.e.
684,872 shares of issued or issuable common stock) will be released from escrow,
on a pro rata basis, if, and only if, one or more of the following conditions
are met:
1. our net income before provision for income taxes and exclusive of any
extraordinary earnings as audited and determined by our independent public
accountants (the "Minimum Pretax Income") amounts to at least $1.8 million for
the fiscal year ending September 30, 1998 or September 30, 1999;
2. the Minimum Pretax Income amounts to at least $3.0 million for the
fiscal year ending September 30, 2000;
3. the Minimum Pretax Income amounts to at least $4.5 million for the
fiscal year ending on September 30, 2001;
4. the Minimum Pretax Income amounts to at least $5.9 million for the
fiscal year ending on September 30, 2002;
5. the Minimum Pretax Income amounts to at least $8.9 million for the
fiscal year ending on September 30, 2003;
6. commencing on August 28, 1997 and ending 18 months thereafter, the bid
price of our common stock averages in excess of $12.00 per share (subject to
adjustment in the event of any reverse stock splits or other similar events) for
30 consecutive business days;
7. commencing 18 months after August 28, 1997 and ending 36 months
thereafter, the bid price averages in excess of $15.00 per share (subject to
adjustment in the event of any reverse stock splits or other similar events) for
30 consecutive business days; or
-31-
<PAGE>
8. we are acquired by or merged into another entity in a transaction in
which our shareholders receive per share consideration at least equal to the
level set forth in (6) above.
The Escrow Agreement further provides that the remaining Escrow Securities
(i.e. 684,872 shares of issued or issuable shares of common stock) will be
released from escrow, on a pro rata basis, if, and only if, one or more of the
following conditions is met:
1. the Minimum Pretax Income amounts to at least $3.0 million for the
fiscal year ending September 30, 1998 or September 30, 1999;
2. the Minimum Pretax Income amounts to at least $4.5 million for the
fiscal year ending on September 30, 2000;
3. the Minimum Pretax Income amounts to at least $5.9 million for the
fiscal year ending on September 30, 2001;
4. the Minimum Pretax Income amounts to at least $8.9 million for the
fiscal year ending on September 30, 2002;
5. the Minimum Pretax Income amounts to at least $10.4 million for the
fiscal year ending on September 30, 2003;
6. commencing on August 28, 1997 and ending 18 months thereafter, the bid
price of our common stock averages in excess of $13.30 per share (subject to
adjustment in the event of any reverse stock splits or other similar events) for
30 consecutive business days;
7. commencing 18 months after August 28, 1997 and ending 36 months
thereafter, the bid price averages in excess of $16.75 per share (subject to
adjustment in the event of any reverse stock splits or other similar events) for
30 consecutive business days; or
8. we are acquired by or merged into another entity in a transaction in
which our shareholders receive per share consideration at least equal to the
level set forth in (6) above.
The Minimum Pretax Income amounts set forth above (i) shall be calculated
exclusive of any extraordinary earnings, including, but not limited to, any
charge to income resulting from release of the Escrow Securities and (ii) shall
be increased proportionately, with certain limitations, in the event additional
shares of common stock or securities convertible into, exchangeable for or
exercisable into common stock are issued after completion of our initial public
offering. The foregoing Minimum Pretax Income amounts have been adjusted to
reflect the effect of the share issuances to David A. Brewer. The bid price
amounts set forth above are subject to adjustment in the event of any stock
splits, reverse stock splits, reverse stock splits or other similar events.
Any money, securities, rights or property distributed in respect of the
Escrow Securities, including any property distributed as dividends or pursuant
to any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of us, shall be held in escrow until release of the Escrow
Securities. If none of the applicable Minimum Pretax Income or bid price levels
set forth above have been met by December 31, 2003, the Escrow Securities, as
well as any dividends or other distributions made with respect thereto, will be
canceled and contributed to our capital. We expect that the release of the
Escrow Securities to its officers, directors, employees and consultants, if it
occurs, will be deemed compensatory and, accordingly, will result in a
substantial charge to reportable earnings, which would equal the fair market
value of such shares on the date of
-32-
<PAGE>
release. Such charge could substantially increase the loss or reduce or
eliminate our net income for financial reporting purposes for the period or
periods during which such shares are, or become probable of being, released from
escrow. Although the amount of compensation expense recognized by us will not
affect our total shareholders' equity, it may have a negative effect on the
market price of our securities.
The Minimum Pretax Income and bid price levels set forth above were
determined by negotiation between us and D. H. Blair & Co. and should not be
construed to imply or predict our future earnings or any increase in the market
price of our securities.
-33-
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
We have authorized 15,000,000 shares of common stock, par value $0.001 per
share. The holders of common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the shareholders. Subject to
preferences that may be applicable to any shares of preferred stock issued in
the future, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of Notify Technology Corporation, holders of the
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no preemptive rights and no right to
convert their common stock into any other securities. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of the offering contemplated hereby, will be fully paid and
nonassessable.
Preferred Stock
We have authorized 5,000,000 shares of preferred stock. Shares of preferred
stock may be issued without shareholder approval. The board of directors is
authorized to issue such shares in one or more series and to fix the rights,
preferences, privileges, qualifications, limitations and restrictions thereof,
including dividend rights and rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without any vote or
action by the shareholders. No shares of preferred stock are currently
outstanding, and we have no present intention to issue any shares of preferred
stock. Any preferred stock to be issued could rank prior to the common stock
with respect to dividend rights and rights on liquidation. Our board of
directors, without shareholder approval, may issue preferred stock with voting
and conversion rights which could adversely affect the voting power of holders
of common stock and discourage, delay or prevent a change in control of Notify
Technology Corporation.
Transfer Agent and Warrant Agent
American Stock Transfer & Trust Company, New York, New York, serves as
transfer agent for the shares of common stock and Units and warrant agent for
the Class A warrants.
-34-
<PAGE>
PLAN OF DISTRIBUTION
The price of the common stock offered hereby is based on the exercise price
of the Class A warrants as provided in the warrant agreement, dated August 28,
1997 between us and D.H. Blair Investment Banking Corp., in connection with our
initial public offering (the "Warrant Agreement"). Certain of our executive
officers will participate in the sale of these shares to holders upon exercise
of the Class A warrants. These participants, who will not receive any
compensation for these activities, will not be deemed to be brokers pursuant to
Rule 3(a)4-1 under the Securities Exchange Act of 1934, as amended, and will
merely ensure compliance with our obligations under the Warrant Agreement in
connection with the issuance of the shares of common stock upon exercise of the
Class A warrants.
American Stock Transfer & Trust Company, our transfer agent, has been
designated as warrant agent (the "Warrant Agent") for the Class A warrants.
Pursuant to the Warrant Agreement, if at the time of the exercise of any Class A
warrant in respect of that warrant (1) the market price of our common stock is
greater than the purchase price of the warrant, (2) the exercise of the warrant
was solicited by a member of the National Association of Securities Dealers,
Inc. ("NASD"), (3) the warrant was not held in a discretionary account, (4)
disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (5) the solicitation of the
exercise of the warrant was not in violation of Regulation M promulgated under
the Exchange Act, the Warrant Agent, simultaneously with the distribution of the
proceeds from the exercise of the Class A warrant to us shall, on behalf of us,
pay from the proceeds, a fee of 5% of the purchase price to D. H. Blair & Co. A
portion of this fee may be reallowed by D. H. Blair & Co. to the dealer who
solicited the exercise. In the event that the above conditions are not met, we
will not pay any finder's fee or commission in connection with the offering
hereby of the shares in connection with the exercise of the Class A warrants.
We will pay all of the expenses incident to this offering which are estimated to
be less than $570,000.
The Class A warrants may be exercised any time before August 28, 2002.
Delivery of shares of common stock upon exercise of a warrant will be made to
the holder immediately following receipt by the Warrant Agent of the original
Warrant Certificate, with the subscription form on the reverse thereof duly
executed, along with payment of the purchase price in cash or by official bank
or certified check payable to Notify Technology Corporation. A Class A warrant
shall be deemed to have been exercised immediately prior to the close of
business on the date of exercise and the person entitled to receive the shares
deliverable upon such exercise shall be treated for all purposes as the holder
of those shares as of the close of business on the date of exercise. Any shares
issued in connection with a timely exercise will be shares of our common stock
which have been registered for resale under the Securities Act.
-35-
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at September 30, 1999 and for the years ended September 30, 1998 and
1999, as set forth in their report. We've included our financial statements in
the prospectus and elsewhere in the registration statement in reliance on Ernst
& Young LLP's report, given on their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act, as amended, with the SEC with respect to the common stock offered pursuant
to this prospectus. This prospectus, which forms a part of the registration
statement, does not contain all of the information included in the registration
statement and amendments thereof and the exhibits thereto, which are available
for inspection without charge, and copies of which may be obtained at prescribed
rates, at the office of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC at 7 World Trade Center, 13th
Floor, New York, New York 10048, and at the Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661-2511. The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission
(http://www.sec.gov).
We will provide, without charge, to each person who received a prospectus,
upon written or oral request of such person to us at the mailing address or
telephone number listed below, a copy of any of the information incorporated by
reference. The mailing address of our principal executive offices is Notify
Technology Corporation, 1054 S. De Anza Blvd., Suite 105, San Jose, California
95129 and our telephone number is (408) 777-7920.
-36-
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Audited Financial Statements
Balance Sheets..................................................................... F-3
Statements of Operations........................................................... F-4
Statement of Shareholders' Equity.................................................. F-5
Statements of Cash Flows........................................................... F-6
Notes to Financial Statements...................................................... F-7
</TABLE>
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
Notify Technology Corporation
We have audited the accompanying balance sheet of Notify Technology Corporation
as of September 30, 1999, and the related statements of operations,
shareholders' equity and cash flows for the years ended September 30, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Notify Technology Corporation
at September 30, 1999, and the results of its operations and its cash flows for
the years ended September 30, 1999 and 1998, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
San Jose, California
October 25, 1999
F-2
<PAGE>
Notify Technology Corporation
Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
--------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,121,753 $ 2,593,343
Accounts receivable, net of allowance for doubtful 677,032 848,329
accounts of $15,609 at September 30, 1999 and
$16,037 at December 31, 1999
Inventories 534,467 736,458
Other current assets 140,579 67,548
----------- -----------
Total current assets 3,473,831 4,245,678
Property and equipment, net 240,024 251,557
Other assets 72,110 51,277
----------- -----------
$ 3,785,965 $ 4,548,512
=========== ===========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable 419,416 474,732
Other accrued liabilities 344,917 651,727
Accrued payroll and related 184,828 163,156
----------- -----------
Total current liabilities 949,161 1,289,615
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, none issued and outstanding --- ---
Common stock, $0.001 par value, 15,000,000 shares authorized,
4,403,177 shares issued and outstanding at September 30,
1999 and 4,714,688 at December 31, 1999 4,403 4,715
Additional paid-in capital 12,163,151 13,284,781
Notes receivable from shareholders (7,026) (7,026)
Deferred compensation (116,688) (116,688)
Accumulated deficit (9,207,036) (9,906,885)
----------- -----------
Total shareholders' equity 2,836,804 3,258,897
----------- -----------
Total liabilities and shareholders' equity $ 3,785,965 $ 4,548,512
=========== ===========
</TABLE>
F-3
<PAGE>
Notify Technology Corporation
Statements of Operations
<TABLE>
<CAPTION>
Three-Month
Year ended Period ended
September 30, December 31,
------------------------------------- --------------------------------
1998 1999 1998 1999
------------------------------------- ---------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Product sales $ 1,638,268 $ 1,836,142 $ 226,344 $1,069,678
Cost of sales 1,582,042 1,721,029 112,300 735,445
----------- ----------- ---------- ----------
Gross profit 56,226 115,113 114,044 334,233
Operating costs and expenses:
Research and development 1,376,767 1,361,792 327,375 379,036
Sales and marketing 589,295 837,334 186,989 318,386
General and administrative 884,442 1,136,779 226,287 363,261
----------- ----------- ---------- ----------
2,850,504 3,335,905 740,651 1,060,683
Total operating costs and expenses ----------- ----------- ---------- ----------
Loss from operations (2,794,278) (3,220,792) (626,607) (726,450)
Other income and expense, net 176,717 97,508 20,776 26,601
----------- ----------- ---------- ----------
$(2,617,561) $(3,123,284) $ (605,831) $ (699,849)
Net loss =========== =========== ========== ==========
Basic and diluted loss per share $(1.14) $(1.11) $(0.26) $(0.20)
=========== =========== ========== ==========
Weighted average shares used in 2,296,449 2,801,410 2,298,584 3,432,946
computing net loss per share =========== =========== ========== ==========
</TABLE>
F-4
<PAGE>
Notify Technology Corporation
Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Notes
Common Stock Additional Receivable Total
---------------------- Paid-In from Deferred Accumulated Shareholders
Shares Amount Capital Shareholders Compensation Deficit Equity
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3,547,214 $3,547 $ 8,942,916 $(15,775) $ $(3,466,191) $ 5,464,497
Balance at September 30, 1997
Repurchases of common stock from (7,544) (7) (550) -- -- -- (557)
shareholder
Repayment of notes receivable from -- -- -- 4,378 -- -- 4,378
shareholders
Proceeds from exercise of options and 1,899 2 3,051 -- -- -- 3,053
warrants
Net loss and comprehensive net loss -- -- -- -- -- (2,617,561) (2,617,561)
---------------------------------------------------------------------------------------------
Balance at September 30, 1998 3,541,569 3,542 8,945,417 (11,397) -- (6,083,752) 2,853,810
Repurchases of common stock from (2,784) (3) (1,117) -- -- -- (1,120)
shareholder
Repayment of notes receivable from -- -- -- 4,371 -- -- 4,371
shareholders
Proceeds from exercise of options and 14,392 14 8,029 -- -- -- 8,043
warrants
Issuance of common stock pursuant to 850,000 850 3,043,360 -- -- -- 3,044,210
private offering, net of issuance costs
Deferred compensation relating to -- -- 167,462 -- (167,462) -- --
grant of stock options
Amortization of deferred compensation -- -- -- -- 50,774 -- 50,774
Net loss and comprehensive net loss -- -- -- -- (3,123,284) (3,123,284)
---------------------------------------------------------------------------------------------
Balance at September 30, 1999 4,403,177 4,403 12,163,151 (7,026) (116,688) (9,207,036) 2,836,804
Repurchases of common stock from (309) -- -- -- -- -- --
shareholder (unaudited)
Proceeds from exercise of options and 200 -- 181 -- -- -- 181
warrants (unaudited)
Proceeds from exercise of options and 311,600 312 1,121,449 -- -- -- 1,121,761
warrants (unaudited)
Net loss and comprehensive net loss -- -- -- -- -- (699,849) (699,849)
(unaudited)
---------------------------------------------------------------------------------------------
Balance at December 31, 1999 4,714,668 $4,715 $13,284,781 $ (7,026) $(116,688) $(9,906,885) $ 3,258,897
(unaudited)
---------------------------------------------------------------------------------------------
</TABLE>
F-5
<PAGE>
Notify Technology Corporation
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended September Three-month Period ended
30, December 31,
----------------------------- ----------------------------
1998 1999 1998 1999
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Cash flows used in operating activities
Net loss $(2,617,561) $(3,123,284) $ (605,831) $ (699,849)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 54,207 151,689 16,619 47,316
Amortization of deferred compensation -- 50,774 -- --
Changes in operating assets and liabilities:
Accounts receivable 348,037 (588,164) 12,426 (171,296)
Inventory 267,255 293,857 (7,918) (201,991)
Other current assets (214,142) (47,822) (63,141) 55,316
Accounts payable (481,174) 185,236 (43,409) 285,139
Other accrued liabilities 26,277 209,372 33,011 73,031
-------------------------------------------------------------
Net cash used in operating activities (2,617,101) (2,868,342) (658,243) (612,334)
Cash flows used in investing activities
Expenditures for property and equipment (65,825) (183,022) (2,036) (38,017)
-------------------------------------------------------------
Cash flows provided by (used in) financing
activities
Proceeds from issuance of common stock -- 3,044,210 -- --
Repayments under line of credit (36,665) -- -- --
Payments on repurchase of unvested stock (354) (1,120) -- --
Payments on notes payable to shareholders (200,000) -- -- --
Payments of notes receivable from shareholders 4,175 4,371 -- --
Proceeds from exercise of options and warrants 3,052 8,043 -- 1,121,942
-------------------------------------------------------------
Net cash provided by (used in) financing activities (229,792) 3,055,504 -- 1,121,942
Net increase (decrease) in cash and cash equivalents (2,912,718) 4,140 (660,279) 471,591
Cash and cash equivalents at beginning of period 5,030,331 2,117,613 2,117,613 2,121,753
-------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,117,613 $ 2,121,753 $1,457,334 $2,593,344
=============================================================
Supplemental disclosure of cash flow information
Cash paid for interest $ 1,949 $ -- $ -- $ --
=============================================================
</TABLE>
F-6
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
1. Summary of Significant Accounting Policies
Organization and Business
On February 25, 1998, the Company changed its name from Notify Corporation
to Notify Technology Corporation. Notify Technology Corporation (the "Company")
develops, manufactures and markets computer telephony products.
The Company's financial statements are prepared and presented on a basis
assuming it continues as a going concern. At September 30, 1999, the Company
had an accumulated deficit of $9,207,036 and incurred a net loss of $3,123,284
for the year ended September 30,1999. The Company's recently developed products
will need to attain favorable market acceptance to continue its research and
development activities and fund operating expenses at current levels.
Management believes that sufficient funds will be available from cash, cash
equivalents, and operating activities to support the current level of operations
through September 30, 2000. There can be no assurance that the Company's new
products will attain favorable market acceptance. If the Company is unable to
attain certain revenue goals, significant reductions in spending and the delay
or cancellation of planned activities or more substantial restructuring of the
Company may be necessary. In such an event, the Company intends to implement
expense reduction plans in a timely manner to enable the Company to meet its
cash requirements through at least September 30, 2000. These actions would have
material adverse effects on the Company's business, results of operations, and
prospects.
Unaudited Interim Financial Statements
The accompanying balance sheet as of December 31, 1999 and the statements
of operations, shareholders' equity and cash flows for the three-month periods
ending December 31, 1998 and 1999 are unaudited. In the opinion of management,
the statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring
adjustments, necessary for the fair statement of interim periods. The data
disclosed in these notes to the financial statement for these periods is also
unaudited. Results for the three-month period ended December 31, 1999 are not
necessarily indicative of results that may be expected for the year ending
September 30, 2000.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company is
exposed to credit risk in the event of default by the financial institutions to
the extent of amounts recorded on the balance sheet.
F-7
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
1. Summary of Significant Accounting Policies - continued
Inventories
Inventories are stated at the lesser of actual cost, on a first-in, first-
out basis, or market and consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
-------------------- ------------------
<S> <C> <C>
Raw materials $287,022 $172,785
Work-in-process 114,863 394,547
Finished goods 132,582 169,126
-------------------- ------------------
$534,467 $736,458
==================== ==================
</TABLE>
Property and Equipment
Property and equipment is stated at cost and depreciated or amortized on a
straight-line basis of the lesser of the estimated useful lives of the asset or
the lease term. The estimated useful lives range from three to five years.
Other Assets
At September 30,1999, other assets primarily consist of a prepaid royalty
for certain technology rights, which is being amortized on a straight-line basis
over a three-year period through December 2000.
Revenue Recognition
Product sales are generally recognized at the time the product is shipped, title
has transferred and no obligations remain. A provision is made for estimated
product returns at the time of sale. Service income is recognized on a
straight-line basis over the period of the service agreement.
F-8
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
1. Summary of Significant Accounting Policies - continued
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company performs on-going credit evaluations and generally requires no
collateral. The Company maintains reserves for credit losses, and such losses
have been within management's expectations. At September 30, 1999, two
customers accounted for 26% and 23% of accounts receivable.
Stock Options
The Company accounts for its stock option plan in accordance with
provisions of the Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25), because the Company believes the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), requires the use of option valuation models that were not developed
for use in valuing employee stock options. Under APB No. 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
Net Loss Per Share
Basic and fully dilutive net loss per share is calculated in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). All earnings per share amounts for all periods have been presented
and, where necessary, restated to conform to the SFAS 128 requirements. The
weighted average number of common shares used in the net loss per share
calculation was reduced by the common stock and potential common shares placed
in escrow in connection with the Company's initial public offering.
Options to purchase 54,000 and 123,760 shares of common stock were
outstanding at September 30, 1998 and 1999, respectively, but were not included
in the computation of diluted net loss per share as the effect would be anti-
dilutive.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components and is effective for fiscal years
beginning after December 15, 1997. The Company adopted SFAS 130 in fiscal 1999.
The adoption of SFAS 130 had no impact on the Company's net loss or
shareholders' equity.
F-9
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
2. Note Receivable
In fiscal 1998, the Company issued an unsecured $50,000 note receivable to
a supplier that was fully repaid in fiscal 1999.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1999
------------------------- ----------------------
<S> <C> <C>
Furniture and office equipment $ 367,500 $ 401,650
Software 57,204 61,071
Leasehold improvements 2,246 2,246
--------- ---------
426,950 464,967
Less accumulated
depreciation and
Amortization (186,926) (213,410)
---------- ----------
$ 240,024 $ 251,557
=========== ==========
</TABLE>
4. Commitments and Contingencies
The Company currently occupies a facility under an operating lease, which
expires in March 2001, and contains renewal options to extend the lease term for
one two-year period. Future minimum payments under this lease for the year ended
September 30, 2000 and 2001 are $149,000 and $75,000, respectively.
Rent expense totaled $112,000 and $146,000 for the years ended September
30, 1998 and 1999, respectively.
At September 30, 1999, the Company had $527,000 of outstanding letters of
credit to its suppliers.
5. Shareholders' Equity
Preferred Stock
The Board of Directors has the authority, without any further vote or
action by the shareholders, to provide for the issuance of 5,000,000 shares of
preferred stock from time to time in one or more series with such designation,
rights, preferences, and limitations as the Board of Directors may determine,
including the consideration received therefore, the number of shares comprising
each series, dividend rates, redemption provisions, liquidation preferences,
redemption and fund provisions, conversion rights, and voting rights, all
without the approval of the holders of common stock.
F-10
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
5. Shareholders' Equity - continued
Common Stock
The following table summarizes shares of common stock reserved for future
issuance by the Company:
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
1997 Stock Plan............................................................. 190,948
Warrant agreements.......................................................... 3,450,388
---------
3,641,336
=========
</TABLE>
In connection with an offering to the public in August 1997 (the Offering),
the Company granted an underwriter an option to purchase up to 160,000 units
(consisting of one share of common stock and one Class A warrant), exercisable
at $7.00 per unit, commencing in August 2000 and expiring in August 2002.
In March 1999, the Company issued 850,000 shares of common stock for
proceeds of $3,043,360, net of issuance costs approximating $16,000. In
connection with this private placement, the Company also issued warrants to
purchase 1,344,444 shares of common stock at an exercise price of $3.60.
The warrants consist of four warrants to purchase 155,800 shares of common
stock, expiring upon the earlier of September 3, 2000 or 30 days after the
Company meets certain product sales or revenue milestones, and one warrant to
purchase 721,244 shares of common stock, expiring in March 2003. The Company
also agreed to issue additional warrants if it sells shares of common stock in a
capital raising transaction at a price below $3.60 per share prior to the
earlier of (i) March 30, 2002 or (ii) the date on which the Company calls the
outstanding Class A warrants.
Warrants
At September 30, 1999, 2,025,000 Class A warrants issued in connection with
the Offering and other financings were outstanding. Each Class A warrant
entitles the holder to purchase one share of common stock at an exercise price
of $6.50, subject to adjustment, at any time through August 2001. Under certain
circumstances, the warrants are subject to redemption by the Company at $0.05
per warrant on 30 days written notice.
F-11
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
5. Shareholders' Equity - continued
In addition, at September 30, 1999, 1,344,444 warrants issued in connection
with the private placement in March 1999 were outstanding, as well as 205,510
warrants to purchase shares of the Company's common stock, issued in connection
with various financings. These warrants are exercisable at any time at prices
ranging from $0.25 to $5.05 per share and expire at dates ranging from April
2000 to April 2002.
At September 30, 1999, warrants to purchase common stock included 123,554
and 24,752 warrants held by three directors and one employee, respectively.
On October 12, 1999, the Company received proceeds of $1,122,000 from the
exercise of 311,600 of the warrants issued in connection with the private
placement at a price of $3.60 per share.
1997 Stock Plan
The Notify Corporation 1997 Stock Plan (the Plan), provides for the
granting of stock options to employees, officers, consultants, and directors of
the Company. Stock options are granted at fair market value on the date of grant
with terms of up to ten years. A total of 200,000 shares of the Company's common
stock were reserved for issuance under the Plan as of September 30, 1999. Under
the terms of these option grants, 25% of the options vest upon the first
anniversary of the date of grant, and an additional 1/48 of the options vest
ratably over the following 36 months.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------
Shares Weighted
Available Number Average
For Grant of Shares Price
-------------- -------------- -------------
<S> <C> <C> <C>
Balance at September 30, 1997..................................... 182,500 17,500 $4.750
Grants............................................................ (79,875) 79,875 $2.145
Cancellations..................................................... 41,500 (41,500) $3.094
Exercises......................................................... -- (1,875) $1.625
-------- -------
Balance at September 30, 1998..................................... 144,125 54,000 $2.742
Grants............................................................ (171,000) 171,000 $4.062
Cancellations..................................................... 94,063 (94,063) $2,743
Exercises......................................................... -- (7,177) $0.906
-------- -------
Balances at September 30, 1999.................................... 67,188 123,760 $4.672
======== =======
</TABLE>
F-12
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
5. Shareholders' Equity - continued
The following table summarizes outstanding and exercisable options at
September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------------------
Weighted Number of Weighted
Number of Average Options Average
Exercise Options Remaining Exercisable Exercise
Prices Outstanding Life in Years Shares Price
- -------- --------------------- -------------------- ---------------- -------------------
<S> <C> <C> <C> <C>
$0.906 51,760 8.66 13,719 $0.906
$3.781 15,000 9.40 -- $3.781
$7.344 28,000 9.64 -- $7.344
$7.750 17,000 9.91 -- $7.750
$7.656 10,000 9.97 -- $7.656
$7.906 2,000 9.67 2,000 $7.906
------- ------
123,760 9.26 15,719 $1.800
======= ======
</TABLE>
The weighted average fair value of options granted was $1.40 in 1998 and
$3.35 in 1999.
On October 13, 1998, the Company repriced 54,000 employee stock options to
$0.906 per share.
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying common stock on
the date of grant, no compensation expense is recognized.
SFAS 123 requires pro forma information regarding net income and earnings
per share as if the Company had accounted for its employee stock options granted
subsequent to September 30, 1995 under the fair value method of SFAS 123. The
fair value of the options was estimated at the date of grant using a Black-
Scholes option pricing model with the following assumptions: a weighted average
expected life of the option of four years; risk-free interest rates of 6.0%;
dividend yields of 0.0%; and volatility factors of the expected market price of
the Company's common stock of 112% and 136% for 1998 and 1999, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-13
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
5. Shareholders' Equity - continued
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the years ended September 30, 1998 and 1999 is as
follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Net loss:
As reported................................................ $(2,618,000) $(3,123,000)
Pro forma.................................................. (2,637,000) (3,173,000)
Basic and diluted net loss per share:
As reported................................................ $ (1.14) $ (1.11)
Pro forma.................................................. (1.15) (1.13)
</TABLE>
The Company recognized compensation expense of $51,000 in fiscal 1999
related to the grant of options to nonemployees.
Escrow Securities
In connection with the Offering, holders of the Company's common and
preferred stock agreed to place 1,242,985 of their shares into escrow, and
holders of certain warrants agreed to place warrants to purchase 126,759 shares
of common stock into escrow. The securities will be released to the holders in
the event specified levels of pretax income of the Company for the years ended
September 30, 1998 to 2003 are achieved, or the market price of the Company's
common stock attains specified targets during a 36-month period commencing from
the effective date of the registration statement relating to the Company's
public offering. Any securities remaining in escrow on September 30, 2003 will
be forfeited, which securities will then be contributed to the Company's
capital. The pretax income levels are subject to proportionate adjustment upon
the issuance of certain securities subsequent to the Company's initial public
offering.
In the event that the foregoing earnings or market price levels are
attained and the escrowed securities released, the Securities and Exchange
Commission has adopted the position that the release of escrowed securities to
officers, directors, employees and consultants of the Company will be
compensatory and, accordingly, will result in compensation expense for financial
reporting purposes. The expense will equal the fair value of the escrowed
securities on the date of release and will result in a material charge to
operations. At September 30, 1999, the Company had not attained any of the
specified earnings or market price levels.
6. Related Party Transactions
The Company has an ongoing business relationship with a literature and
product fulfillment company managed by a director of the Company. The Company
uses this fulfillment company on a project by project basis to facilitate the
distribution of its products. The Company paid to this fulfillment company
$61,600, $4,000 and $0 during fiscal 1998 and 1999 and the three month period
ending December 31, 1999, respectively.
F-14
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
7. Income Taxes
Due to operating losses, there were no provisions for income taxes for 1998
or 1999. The expected statutory tax rate of 34% is offset by the inability to
recognize an income tax benefit from the operating losses.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------------
1998 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 2,023,000 $ 3,000,000
Research credit carryforwards.......................... 75,000 150,000
Other temporary differences............................ 226,000 350,000
----------- -----------
Total deferred tax assets.............................. 2,324,000 3,500,000
Valuation allowance..................................... (2,324,000) (3,500,000)
----------- -----------
Net deferred tax assets............................... $ -- $ --
=========== ===========
</TABLE>
Realization of deferred tax assets is dependent on future earnings, the
timing and amount of which are uncertain. Accordingly, a valuation allowance, in
an amount equal to the net deferred tax asset has been established to reflect
these uncertainties. The change in the valuation allowance was a net increase of
$935,000 and $1,176,000 for fiscal years 1998 and 1999, respectively.
As of September 30, 1999, the Company had net operating loss carryforwards
of approximately $16,000,000 for federal and California tax purposes, which will
expire in years 2002 through 2019. As of September 30, 1999, the Company also
had research and development tax credit carryforwards for federal and California
purposes of approximately $110,000 and $60,000, respectively. The credits will
expire in 2010 through 2019, if not utilized. Utilization of net operating loss
and tax credit carryforwards may be subject to a substantial annual limitation
due to the ownership change limitations provided by the Internal Revenue Code of
1986, as amended, and similar state provisions. The annual limitation may result
in the expiration of net operating loss and tax credit carryforwards before full
utilization.
8. Industry Segment, Customer and Geographic Information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 changes standards for
the way that public business enterprises identify and report operating segments
in annual and interim financial statements. SFAS 131 requires selected
information about an enterprise's operating segments. Currently, the Company has
one operating segment by which management evaluates performance. Accordingly,
there are no additional disclosure requirements involved with the Company's
adoption of SFAS 131.
F-15
<PAGE>
Notify Technology Corporation
Notes to Financial Statements
(Information at December 31, 1999 and for the three-month
periods ended December 31, 1998 and 1999 is unaudited)
8. Industry Segment, Customer and Geographic Information - continued
The Company sells its products within the United States primarily to
regional bell operating companies and local exchange carriers. Two products
accounted for 41% and 34% of total revenues in fiscal 1999. Another product
accounted for 81% of total revenue in fiscal 1998. One customer accounted for
50% and 11% of sales in fiscal 1998 and 1999, respectively. Two other customers
accounted for 17% and 55% of sales in fiscal 1998 and 1999, respectively.
9. Subsequent Events
On February 16, 2000, the Company received proceeds of $560,900 from the
exercise of 155,800 of the warrants issued in connection with the private
placement at a price of $3.60 per share.
On February 23, 2000, the shareholders of the Company voted to add 500,000
shares for issuance under the 1997 Stock Plan.
F-16
<PAGE>
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Directors and Officers.
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's board of directors to grant indemnity to directors and
officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). Our Bylaws provide that we shall indemnify our directors and officers to
the fullest extent permitted by California law, including circumstances in which
indemnification is otherwise discretionary under California law. We have entered
into indemnification agreements with our directors and officers containing
provisions which are in some respects broader than the specific indemnification
provisions contained in the California Corporations Code. The indemnification
agreements may require us, among other things, to indemnify our directors and
officers against certain liabilities that may arise by reason of their status or
service as directors or officers (other than liabilities arising from willful
misconduct of culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' and officers' insurance if available on reasonable terms.
Article IV of the Registrant's Articles of Incorporation (Exhibit 3.1 hereto)
provides for indemnification of its directors and officers to the maximum extent
permitted by the California Corporations Code and Article IV of the Registrant's
Bylaws (Exhibit 3.3 hereto) provides for indemnification of its directors,
officers, employees and other agents to the maximum extent permitted by the
California Corporation Code. Reference is also made to Section 6(b) of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of the Registrant against certain liabilities.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the common stock being registered hereby. All amounts are estimates, except the
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Item Amount
----- ------
<S> <C>
Printing and engraving expenses $ 5,000
Legal fees and expenses 20,000
Auditors' accounting fees and expenses 20,000
Transfer Agent and Registrar fees 5,000
Solicitation Fee(1) 520,000
Miscellaneous expenses 5,000
--------
Total $570,000
</TABLE>
- ----------------------
(1) This fee is payable to the underwriter of our initial public offering if the
exercise of the Class A warrants is solicited and certain other certain
conditions are met. See "Plan of Distribution."
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The following is a summary of the transactions by Registrant during the
last three years involving sales of Registrant's securities that were not
registered under the Securities Act:
(1) In April 1997, we issued to one of our directors a 10% subordinated
promissory note with a principal amount of $200,000 and warrant to purchase
2,970 shares of our common stock at a price per share of $5.00 for an aggregate
purchase price of $200,000. The sale and issuance of these securities was exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) thereof.
(2) In August 1997, we issued to Sutton Partners, L.P., a 10% promissory
note with a principal amount of $175,000. The issuance of the this note was
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof.
(3) In March 1999, we sold to David Brewer 850,000 shares of our common
stock and warrants to purchase 1,334,444 shares of our common stock for
aggregate consideration of $3,060,000. The sale of our common stock and
warrants was exempt registration under the Securities Act pursuant to Section
4(2) thereof.
(4) In October 1999, Mr. David Brewer exercised two warrants and received
a total of 311,600 shares of common stock underlying the warrants for an
aggregate exercise price of $1,121,760.
(5) In February 2000, Mr. David Brewer exercised one warrant and received a
total of 155,800 shares of common stock underlying the warrant for an aggregate
exercise price of $560,880.
The sale and exchange of the above securities were deemed to be exempt from
registration under the Securities Act as indicated. The recipients of securities
in each such transaction represented their intention to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were attached to the share
certificates issued in such transactions. All recipients had adequate access to
information about the Registrant.
Item 27. Exhibits.
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Restated Articles of Incorporation of Registrant, as amended to
date.
3.2 Amended and Restated Bylaws of Registrant.
4.1* Form of Warrant Agreement.
4.2* Form of Underwriter's Unit Purchase Option.
4.3* Form of common stock certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1* Employment Agreement dated as of August 1, 1997 between
Registrant and Paul DePond.
10.2 Amendment No. 1 dated February 23, 2000 to Employment Agreement
dated as of August 1, 1997 between Registrant and Paul DePond.
10.3* Employment Agreement dated as of August 1, 1997 between
Registrant and Gaylan Larson.
10.4 Amendment No. 1 dated February 23, 2000 to Employment Agreement
dated as of August 1, 1997 between Registrant and Gaylan Larson.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.5* Employment Agreement dated as of August 1, 1997 between
Registrant and Gerald Rice.
10.6 Amendment No. 1 dated February 23, 2000 to Employment Agreement
dated as of August 1, 1997 between Registrant and Gerald Rice.
10.7* Form of Indemnification Agreement.
10.8* Escrow Agreement by and between Registrant, the American Stock
Transfer & Trust Company and certain security holders of the
Registrant, as amended.
10.9 Registrant's 1997 Stock Plan, as amended.
10.10* Form of Lock-up Agreement, as amended.
10.11* Lease between Registrant and C.C. Poon.
10.12*+ Nonexclusive Technology License Agreement between Registrant and
Active Voice Corporation dated April 30, 1997.
10.13* Securities Purchase Agreement dated as of March 4, 1999 between
Registrant and David A. Brewer.
10.14(1) Amendment No. 1 dated October 7, 1999 to Securities Purchase
Agreement dated as of March 4, 1999 between Registrant and David
Brewer.
10.15 Stock Option Agreement dated November 11, 1999 between
Registrant and Dane Russell.
23.1. Consent of Independent Auditors
23.2* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included as
part of Exhibit 5.1).
24.1* Power of Attorney.
</TABLE>
- --------
* Previously filed.
(1) Incorporated herein by reference to Exhibit 10.12 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1999, filed on
December 28, 1999.
+ Confidential treatment has been granted with respect to portions of this
exhibit.
(b) All schedules are omitted, since the required information is not
present in amounts sufficient to require submission of schedules or because the
information required is included in Registrant's financial statements and notes
thereto.
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the provisions described in Item 24, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer of controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) It will file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, Registrant will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) It will file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) It will provide to the underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities Act, the
Registrant will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1), or (4), or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declares it effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of the filing on Form SB-2 and authorized this Post-
Effective Amendment No. 4 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
California, on April 14, 2000.
NOTIFY TECHNOLOGY CORPORATION
By: /s/ Gerald W. Rice
-------------------
Gerald W. Rice
Chief Financial Officer
Pursuant to the requirements of the Securities Act, this Registration
statement on Form SB-2 has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------- --------------------------------------------- --------------------
<S> <C> <C>
/s/ Paul F. DePond* President, Chief Executive Officer and April 14, 2000
- ---------------------------------------- Chairman (Principal Executive Officer)
Paul F. DePond
/s/ Gerald W. Rice Chief Financial Officer (Principal Financial April 14, 2000
- ---------------------------------------- and Accounting Officer)
Gerald W. Rice
/s/ Gaylan Larson* Vice President, Operations and Director April 14, 2000
- ----------------------------------------
Gaylan Larson
/s/ Michael Ballard* Director April 14, 2000
- ----------------------------------------
Michael Ballard
/s/ Andrew Plevin* Director April 14, 2000
- ----------------------------------------
Andrew Plevin
Director
- ----------------------------------------
David Brewer
*By: /s/ Gerald W. Rice
------------------------------------
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Restated Articles of Incorporation of Registrant, as amended to
date.
3.2 Amended and Restated Bylaws of Registrant.
4.1* Form of Warrant Agreement.
4.2* Form of Underwriter's Unit Purchase Option.
4.3* Form of common stock certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1* Employment Agreement dated as of August 1, 1997 between
Registrant and Paul DePond.
10.2 Amendment No. 1 dated February 23, 2000 to Employment Agreement
dated as of August 1, 1997 between Registrant and Paul DePond.
10.3* Employment Agreement dated as of August 1, 1997 between
Registrant and Gaylan Larson.
10.4 Amendment No. 1 dated February 23, 2000 to Employment Agreement
dated as of August 1, 1997 between Registrant and Gaylan Larson.
10.5* Employment Agreement dated as of August 1, 1997 between
Registrant and Gerald Rice.
10.6 Amendment No. 1 dated February 23, 2000 to Employment Agreement
dated as of August 1, 1997 between Registrant and Gerald Rice.
10.7* Form of Indemnification Agreement.
10.8* Escrow Agreement by and between Registrant, the American Stock
Transfer & Trust Company and certain security holders of the
Registrant, as amended.
10.9 Registrant's 1997 Stock Plan, as amended.
10.10* Form of Lock-up Agreement, as amended.
10.11* Lease between Registrant and C.C. Poon.
10.12*+ Nonexclusive Technology License Agreement between Registrant and
Active Voice Corporation dated April 30, 1997.
10.13* Securities Purchase Agreement dated as of March 4, 1999 between
Registrant and David A. Brewer.
10.14(1) Amendment No. 1 dated October 7, 1999 to Securities Purchase
Agreement dated as of March 4, 1999 between Registrant and David
Brewer.
10.15 Stock Option Agreement dated November 11, 1999 between
Registrant and Dane Russell.
23.1. Consent of Independent Auditors
23.2* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included as
part of Exhibit 5.1).
24.1* Power of Attorney.
</TABLE>
- --------
* Previously filed.
(1) Incorporated herein by reference to Exhibit 10.12 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1999, filed on
December 28, 1999.
+ Confidential treatment has been granted with respect to portions of this
exhibit.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
NOTIFY TECHNOLOGY CORPORATION
- -------------------------
Amended as of
January 19, 2000
<PAGE>
TABLE OF CONTENTS
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<S> <C>
ARTICLE I CORPORATE OFFICES............................................................................... 1
1.1 PRINCIPAL OFFICE............................................................................ 1
1.2 OTHER OFFICES............................................................................... 1
ARTICLE II MEETINGS OF SHAREHOLDERS....................................................................... 1
2.1 PLACE OF MEETINGS........................................................................... 1
2.2 ANNUAL MEETING.............................................................................. 1
2.3 SPECIAL MEETING............................................................................. 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS............................................................ 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE................................................ 3
2.6 QUORUM...................................................................................... 3
2.7 ADJOURNED MEETING; NOTICE................................................................... 3
2.8 VOTING...................................................................................... 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE;
CONSENT..................................................................................... 4
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING................................................................................... 5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING;
GIVING CONSENTS............................................................................. 5
2.12 PROXIES..................................................................................... 6
2.13 INSPECTORS OF ELECTION...................................................................... 6
2.14 ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS................................................... 7
2.15 ADVANCE NOTICE OF SHAREHOLDER BUSINESS...................................................... 8
ARTICLE III DIRECTORS..................................................................................... 9
3.1 POWERS...................................................................................... 9
3.2 NUMBER OF DIRECTORS......................................................................... 9
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.................................................... 9
3.4 RESIGNATION AND VACANCIES................................................................... 10
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................................................... 10
3.6 REGULAR MEETINGS............................................................................ 10
3.7 SPECIAL MEETINGS; NOTICE.................................................................... 11
3.8 QUORUM...................................................................................... 11
3.9 WAIVER OF NOTICE............................................................................ 11
3.10 ADJOURNMENT................................................................................. 11
3.11 NOTICE OF ADJOURNMENT....................................................................... 12
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A
MEETING..................................................................................... 12
3.13 FEES AND COMPENSATION OF DIRECTORS.......................................................... 12
3.14 APPROVAL OF LOANS TO OFFICERS............................................................... 12
ARTICLE IV COMMITTEES..................................................................................... 13
4.1 COMMITTEES OF DIRECTORS..................................................................... 13
4.2 MEETINGS AND ACTION OF COMMITTEES........................................................... 13
</TABLE>
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TABLE OF CONTENTS
(continued)
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ARTICLE V OFFICERS........................................................................................ 14
5.1 OFFICERS.................................................................................... 14
5.2 ELECTION OF OFFICERS........................................................................ 14
5.3 SUBORDINATE OFFICERS........................................................................ 14
5.4 REMOVAL AND RESIGNATION OF OFFICERS......................................................... 14
5.5 VACANCIES IN OFFICES........................................................................ 14
5.6 CHAIRMAN OF THE BOARD....................................................................... 15
5.7 PRESIDENT................................................................................... 15
5.8 VICE PRESIDENTS............................................................................. 15
5.9 SECRETARY................................................................................... 15
5.10 CHIEF FINANCIAL OFFICER..................................................................... 16
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS............................ 16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................................................... 16
6.2 INDEMNIFICATION OF OTHERS................................................................... 16
6.3 PAYMENT OF EXPENSES IN ADVANCE.............................................................. 17
6.4 INDEMNITY NOT EXCLUSIVE..................................................................... 17
6.5 INSURANCE INDEMNIFICATION................................................................... 17
6.6 CONFLICTS................................................................................... 17
ARTICLE VII RECORDS AND REPORTS........................................................................... 18
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER................................................ 18
7.2 MAINTENANCE AND INSPECTION OF BYLAWS........................................................ 18
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS..................................................................................... 19
7.4 INSPECTION BY DIRECTORS..................................................................... 19
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER....................................................... 19
7.6 FINANCIAL STATEMENTS........................................................................ 19
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.............................................. 20
ARTICLE VIII GENERAL MATTERS.............................................................................. 20
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND
VOTING...................................................................................... 20
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS................................................... 21
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW
EXECUTED.................................................................................... 21
8.4 CERTIFICATES FOR SHARES..................................................................... 21
8.5 LOST CERTIFICATES........................................................................... 21
8.6 CONSTRUCTION; DEFINITIONS................................................................... 22
ARTICLE IX AMENDMENTS..................................................................................... 22
9.1 AMENDMENT BY SHAREHOLDERS................................................................... 22
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
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9.2 AMENDMENT BY DIRECTORS...................................................................... 22
</TABLE>
<PAGE>
AMENDED AND RESTATED
--------------------
BYLAWS
------
OF
--
NOTIFY TECHNOLOGY CORPORATION
-----------------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 PRINCIPAL OFFICE
----------------
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of shareholders shall be held on the third
Thursday of February in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected,
and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
-2-
<PAGE>
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
-3-
<PAGE>
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation
may transact any business which might have been transacted at the original
meeting.
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent
or approval shall state the general
-4-
<PAGE>
nature of the proposal. All such waivers, consents, and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
-5-
<PAGE>
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
2.12 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
or otherwise) by the shareholder or the shareholder's attorney-in-fact. A
validly executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) the person who executed the proxy
revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
----------------------
-6-
<PAGE>
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
2.14 ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS
-----------------------------------------
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of shareholders by or at the direction of
the Board of Directors or by any shareholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this Section. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than twenty (20) days
prior to the meeting; provided, however, that in the event less than thirty (30)
-------- -------
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (a) as to each person, if any,
whom
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<PAGE>
the shareholder proposes to nominate for election or re-election as a director:
(i) the name, age, business address and residence address of such person, (ii)
the principal occupation or employment of such person, (iii) the class and
number of shares of the corporation which are beneficially owned by such person,
(iv) any other information relating to such person that is required by law to be
disclosed in solicitations of proxies for election of directors, and (v) such
person's written consent to being named as a nominee and to serving as a
director if elected; and (b) as to the shareholder giving the notice: (i) the
name and address, as they appear on the corporation's books, of such
shareholder, (ii) the class and number of shares of the corporation which are
beneficially owned by such shareholder, and (iii) a description of all
arrangements or understandings between such shareholder and each nominee and any
other person or persons (naming such person or persons) relating to the
nomination. At the request of the Board of Directors any person nominated by the
Board of Directors for election as a director shall furnish to the Secretary of
the corporation that information required to be set forth in the shareholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth in this Section. The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
By-Laws, and if the chairman should so determine, the chairman shall so declare
at the meeting and the defective nomination shall be disregarded.
2.15 ADVANCE NOTICE OF SHAREHOLDER BUSINESS
--------------------------------------
At the annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (a) as specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a shareholder. Business to be brought
before the meeting by a shareholder shall not be considered properly brought if
the shareholder has not given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a shareholder's notice must be delivered to
the principal executive offices of the corporation not less than forty five (45)
days prior to the date on which the corporation first mailed proxy materials for
the prior year's annual meeting; provided, however, that if the corporation's
-------- -------
annual meeting of shareholders occurs on a date more than thirty (30) days
earlier or later than the corporation's prior year's annual meeting, then the
corporation's Board of Directors shall determine a date a reasonable period
prior to the corporation's annual meeting of shareholders by which date the
shareholders notice must be delivered and publicize such date in a filing
pursuant to the Securities Exchange Act of 1934, as amended, or via press
release. Such publication shall occur at least ten (10) days prior to the date
set by the Board of Directors. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address of the shareholder proposing such business,
(iii) the class and number of shares of the corporation, which are beneficially
owned by the shareholder, (iv) any material interest of the shareholder in such
business, and (v) any other information that is required by law to be provided
by the shareholder in his capacity as proponent of a shareholder proposal.
Notwithstanding anything in these By-Laws to
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<PAGE>
the contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section. The chairman of the
annual meeting shall, if the facts warrant, determine and declare at the meeting
that business was not properly brought before the meeting and in accordance with
the provisions of this Section, and, if the chairman should so determine, the
chairman shall so declare at the meeting that any such business not properly
brought before the meeting shall not be transacted.
This Section 2.15 shall take effect following the 2000 Annual Meeting of
Shareholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these bylaws relating to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than five (5)
nor more than nine (9). The exact number of directors shall be five (5) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
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3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal, if by written consent, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
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3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
-----------
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A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
-----------------------------
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
- -------------------------
* This section is effective only if it has been approved by the shareholders in
accordance with Sections 315(b) and 152 of the Code.
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ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to
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attend all meetings of the committee. The board of directors may adopt rules for
the government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
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5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
---------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
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The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Article VI,
a "director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
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Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending any civil or criminal action
or proceeding for which indemnification is required pursuant to Section 6.1
or for which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
6.6 CONFLICTS
---------
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles
of Incorporation, these bylaws, a resolution of the shareholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
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(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
------------------------------------
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
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7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
-----------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or by an
agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
-------------------------------------
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
--------------------
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30)
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days thereafter, a copy of a balance sheet as of the end of such fiscal year and
an income statement and statement of changes in financial position for such
fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
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If the board of directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
-----------------------
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All
certificates shall be signed in the name of the corporation by the chairman of
the board or the vice chairman of the board or the president or a vice president
and by the chief financial officer or an assistant treasurer or the secretary or
an assistant secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the
-21-
<PAGE>
corporation secured by a bond or other adequate security sufficient to protect
the corporation against any claim that may be made against it, including any
expense or liability, on account of the alleged loss, theft or destruction of
the certificate or the issuance of the replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
----------------------
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
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<PAGE>
EXHIBIT 10.2
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to that certain Employment Agreement
(the "Agreement") dated as of August 1, 1997 between Notify Technology
Corporation (the "Company") and Paul DePond (the "Employee") is made as of
February 23, 2000.
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged, the Company and Employee agree as follows:
1. Section 3(a) of the Agreement shall be amended so that it reads in its
entirety as follows:
"Base Compensation. The Company shall pay the Employee as compensation for
-----------------
services a base salary at an annualized rate of $ 175,000. Such salary shall be
reviewed at least annually and shall be increased from time to time subject to
accomplishment of such performance and contribution goals and objectives as may
be established from time to time by the Board. Such salary shall be paid
periodically in accordance with normal Company payroll. The annual compensation
specified in this Section 3(a), together with any increases in such compensation
that the Board may grant from time to time, is referred to in this Agreement as
"Base Compensation"."
This Amendment has been executed effective as of the first date set forth
above.
NOTIFY TECHNOLOGY CORPORATION EMPLOYEE
/s/ Paul DePond /s/ Paul DePond
- ------------------------------------- ----------------------------
Paul DePond, Chief Executive Officer Paul DePond
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to that certain Employment Agreement
(the "Agreement") dated as of August 1, 1997 between Notify Technology
Corporation (the "Company") and Gaylan Larson (the "Employee") is made as of
February 23, 2000.
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged, the Company and Employee agree as follows:
1. Section 3(a) of the Agreement shall be amended so that it reads in its
entirety as follows:
"Base Compensation. The Company shall pay the Employee as compensation for
-----------------
services a base salary at an annualized rate of $145,000. Such salary shall be
reviewed at least annually and shall be increased from time to time subject to
accomplishment of such performance and contribution goals and objectives as may
be established from time to time by the Board. Such salary shall be paid
periodically in accordance with normal Company payroll. The annual compensation
specified in this Section 3(a), together with any increases in such compensation
that the Board may grant from time to time, is referred to in this Agreement as
"Base Compensation"."
This Amendment has been executed effective as of the first date set forth
above.
NOTIFY TECHNOLOGY CORPORATION EMPLOYEE
/s/ Paul DePond /s/ Gaylan Larson
- ------------------------------------- ---------------------------
Paul DePond, Chief Executive Officer Gaylan Larson
<PAGE>
EXHIBIT 10.6
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to that certain Employment Agreement
(the "Agreement") dated as of August 1, 1997 between Notify Technology
Corporation (the "Company") and Gerald Rice (the "Employee") is made as of
February 23, 2000.
In consideration of good and valuable consideration, the receipt of which
is hereby acknowledged, the Company and Employee agree as follows:
1. Section 3(a) of the Agreement shall be amended so that it reads in its
entirety as follows:
"Base Compensation. The Company shall pay the Employee as compensation for
-----------------
services a base salary at an annualized rate of $130,000. Such salary shall be
reviewed at least annually and shall be increased from time to time subject to
accomplishment of such performance and contribution goals and objectives as may
be established from time to time by the Board. Such salary shall be paid
periodically in accordance with normal Company payroll. The annual compensation
specified in this Section 3(a), together with any increases in such compensation
that the Board may grant from time to time, is referred to in this Agreement as
"Base Compensation"."
This Amendment has been executed effective as of the first date set forth
above.
NOTIFY TECHNOLOGY CORPORATION EMPLOYEE
/s/ Paul DePond /s/ Gerald Rice
- ------------------------------------- ----------------------------
Paul DePond, Chief Executive Officer Gerald Rice
<PAGE>
EXHIBIT 10.9
NOTIFY TECHNOLOGY CORPORATION
1997 STOCK PLAN
(as amended effective February 23, 2000)
1. Purposes of the Plan. The purposes of this Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Notify Technology Corporation, a California
-------
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
-2-
<PAGE>
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this Notify Technology Corporation 1997 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
----------
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
-3-
<PAGE>
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 700,000 Shares. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
-4-
<PAGE>
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right of the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
-5-
<PAGE>
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 50,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 50,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
-6-
<PAGE>
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an
-7-
<PAGE>
Incentive Stock Option, the Administrator shall determine the acceptable form of
consideration at the time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a
-8-
<PAGE>
dividend or other right for which the record date is prior to the date the
Shares are issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
-9-
<PAGE>
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and
-10-
<PAGE>
Stock Purchase Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right, as well as
the price per share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
--------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the
-11-
<PAGE>
merger or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
-12-
<PAGE>
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-13-
<PAGE>
NOTIFY TECHNOLOGY CORPORATION
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number
-----------------------------
Date of Grant
-----------------------------
Vesting Commencement Date
-----------------------------
Exercise Price per Share $
-----------------------------
Total Number of Shares Granted
-----------------------------
Total Exercise Price $
-----------------------------
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:
-----------------------------
Vesting Schedule:
- ----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates].
Termination Period:
------------------
This Option may be exercised for _____ [days/months] after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for such longer
-14-
<PAGE>
period as provided in the Plan. In no event shall this Option be exercised later
than the Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to [Title] of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
-15-
<PAGE>
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares;
or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
----------------
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
(i) Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an
----------------------
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate
-16-
<PAGE>
Exercise Price will be treated as an adjustment to alternative minimum taxable
income for federal tax purposes and may subject the Optionee to alternative
minimum tax in the year of exercise. In the event that the Optionee ceases to be
an Employee but remains a Service Provider, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option on
the date three (3) months and one (1) day following such change of status.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
---
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of [state].
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS
-17-
<PAGE>
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
<TABLE>
<CAPTION>
OPTIONEE: NOTIFY TECHNOLOGY CORPORATION
<S> <C>
- ----------------------------------------------- -----------------------------------------------
Signature By
- ----------------------------------------------- -----------------------------------------------
Print Name Title
- -----------------------------------------------
Residence Address
- -----------------------------------------------
</TABLE>
-18-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
-----------------------------------------------
Spouse of Optionee
-19-
<PAGE>
EXHIBIT A
---------
NOTIFY TECHNOLOGY CORPORATION
1997 STOCK PLAN
EXERCISE NOTICE
Notify Technology Corporation
1054 South De Anza Blvd.
San Jose, California 95129
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, 20___, the
------------------
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Notify Technology Corporation (the "Company")
under and pursuant to the Notify Technology Corporation 1997 Stock Plan (the
"Plan") and the Stock Option Agreement dated _____________, 20___ (the "Option
Agreement"). The purchase price for the Shares shall be $, as required by the
Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
----------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate
---------------------
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares so acquired shall be
issued to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date of issuance, except as provided in [Section 13] of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse
----------------
tax consequences as a result of Purchaser's purchase or disposition of the
Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all
<PAGE>
prior undertakings and agreements of the Company and Purchaser with respect to
the subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser. This
agreement is governed by the internal substantive laws, but not the choice of
law rules, of California.
<TABLE>
<CAPTION>
Submitted by: Accepted by:
PURCHASER: NOTIFY TECHNOLOGY CORPORATION
<S> <C>
- --------------------------------------------------------- -----------------------------------------------------------
Signature By
- --------------------------------------------------------- -----------------------------------------------------------
Print Name Its
Address: Address:
- ------- -------
Notify Technology Corporation
- --------------------------------------------------------- 1054 South De Anza Blvd.
San Jose, California 95129
- ---------------------------------------------------------
---------------------------------------------------------
Date Received
</TABLE>
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, 20___ between Notify
Technology Corporation, a California corporation ("Pledgee"), and
_________________________ ("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's Notify Technology Corporation 1997 Stock Plan, and Pledgor's election
under the terms of the Option to pay for such shares with his promissory note
(the "Note"), Pledgor has purchased _________ shares of Pledgee's Common Stock
(the "Shares") at a price of $________ per share, for a total purchase price of
$__________. The Note and the obligations thereunder are as set forth in
Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the California Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number
______, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum of the
-----------------------
Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
c. Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
-----------------
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
------------------
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial
<PAGE>
number of Shares pledged hereunder as the payment of principal bears to the
initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
----------------------
Pledgeholder shall not be liable to any party for any of his acts, or omissions
to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the
-----------------------------------
enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
---------------------
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" ------------------------------------------
Signature
------------------------------------------
Print Name
Address: ------------------------------------------
------------------------------------------
"PLEDGEE" Notify Technology Corporation
a California corporation
------------------------------------------
Signature
------------------------------------------
Print Name
------------------------------------------
Title
"PLEDGEHOLDER" ------------------------------------------
Secretary of Notify Technology Corporation
<PAGE>
EXHIBIT C
---------
NOTE
$
---------------- San Jose, California
______________, 20___
FOR VALUE RECEIVED, _______________ promises to pay to Notify Technology
Corporation, a California corporation (the "Company"), or order, the principal
sum of _______________________ ($_____________), together with interest on the
unpaid principal hereof from the date hereof at the rate of _______________
percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 20___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------
------------------------------
<PAGE>
NOTIFY TECHNOLOGY CORPORATION
1997 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number
---------------------------
Date of Grant
---------------------------
Price Per Share $
---------------------------
Total Number of Shares Subject
to This Stock Purchase Right
---------------------------
Expiration Date:
---------------------------
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the Notify Technology Corporation 1997 Stock Plan
and the Restricted Stock Purchase Agreement, attached hereto as Exhibit A-1,
both of which are made a part of this document. You further agree to execute
the attached Restricted Stock Purchase Agreement as a condition to purchasing
any shares under this Stock Purchase Right.
GRANTEE: NOTIFY TECHNOLOGY CORPORATION
- --------------------------- ------------------------------
Signature By
- --------------------------- ------------------------------
Print Name Title
<PAGE>
EXHIBIT A-1
-----------
NOTIFY TECHNOLOGY CORPORATION
1997 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
-------------
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
-----------------
(a) In the event the Purchaser ceases to be a Service Provider for any
or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
<PAGE>
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price, the Company shall become the legal and beneficial owner of the
Shares being repurchased and all rights and interests therein or relating
thereto, and the Company shall have the right to retain and transfer to its own
name the number of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares
to be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
----------------------------------------
(a) _______________________ percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of
--------------
Grant and __________________ percent (______%) of the Shares [at the end of each
------------------
month thereafter], provided that the Purchaser does not cease to be a Service
- ----------------
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
-----------------------
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
----------------
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
<PAGE>
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
-------
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
----------------
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that the
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that
<PAGE>
may arise as a result of the transactions contemplated by this Agreement. The
Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as
amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction"
includes the right of the Company to buy back the Shares pursuant to the
Repurchase Option. The Purchaser understands that the Purchaser may elect to be
taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY
AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF
THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
THE PURCHASER'S BEHALF.
10. General Provisions.
------------------
(a) This Agreement shall be governed by the internal substantive laws,
but not the choice of law rules of [state]. This Agreement, subject to the
terms and conditions of the Plan and the Notice of Grant, represents the entire
agreement between the parties with respect to the purchase of the Shares by the
Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall prevail. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given by
either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
(c) Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
The rights of the Company under this Agreement shall be transferable
to any one or more persons or entities, and all covenants and agreements
hereunder shall inure to the benefit of, and be enforceable by the Company's
successors and assigns. The rights and obligations of the Purchaser under this
Agreement may only be assigned with the prior written consent of the Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party's right to assert any other legal remedy available to it.
<PAGE>
(e) The Purchaser agrees upon request to execute any further documents
or instruments necessary or desirable to carry out the purposes or intent of
this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: NOTIFY TECHNOLOGY CORPORATION
- ----------------------------- -----------------------------
Signature By
- ----------------------------- -----------------------------
Print Name Title
<PAGE>
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto _________________________________________ (__________) shares of
the Common Stock of Notify Technology Corporation standing in my name of the
books of said corporation represented by Certificate No. _____ herewith and do
hereby irrevocably constitute and appoint ________ to transfer the said stock on
the books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, 20__.
Dated: _______________, 20___
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
__________________, 20___
Corporate Secretary
Notify Technology Corporation
1054 South De Anza Blvd.
San Jose, California 95129
Dear ___________________:
As Escrow Agent for both Notify Technology Corporation, a [state]
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Notify Technology Corporation
1054 South De Anza Blvd.
San Jose, California 95129
PURCHASER:
------------------------------
------------------------------
------------------------------
ESCROW AGENT: Corporate Secretary
Notify Technology Corporation
1054 South De Anza Blvd.
San Jose, California 95129
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of [state].
Very truly yours,
NOTIFY TECHNOLOGY CORPORATION
-----------------------------
By
-----------------------------
Title
PURCHASER:
-----------------------------
Signature
-----------------------------
Print Name
ESCROW AGENT:
- -----------------------------
Corporate Secretary
<PAGE>
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of Notify Technology Corporation, as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, 20___
-----------------------------
Signature of Spouse
<PAGE>
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows:__________ shares (the "Shares") of the Common Stock of Notify
Technology Corporation (the "Company").
3. The date on which the property was transferred is:______________, 20__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated:___________________, 20___ ---------------------------------
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:___________________, 20___ ---------------------------------
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.15
NOTIFY TECHNOLOGY CORPORATION
STOCK OPTION AGREEMENT
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Dane Russell
8160 Oak Court
Gilroy, CA 95020
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of this Option Agreement, as follows:
Date of Grant November 11, 1999
Vesting Commencement Date November 1, 1999
Exercise Price per Share $7.906
Total Number of Shares Granted 40,000
Total Exercise Price $316,240
Type of Option: Incentive Stock Option
---
X Nonstatutory Stock Option
---
Term/Expiration Date: 10 years / October 31, 2009
Vesting Schedule:
-----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
Termination Period:
------------------
This Option may be exercised for three (3) months after Optionee ceases to
be a Service Provider. Upon the death or Disability of Optionee, this Option
may be exercised for such longer period as provided in this Option Agreement.
In no event shall this Option be exercised later than the Expiration Date as
provided above.
<PAGE>
II. AGREEMENT
---------
1. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Applicable Laws" means U. S. state corporate laws, U.S. federal
---------------
and state securities laws, the Code, any stock exchange or quotation system on
which the Common Stock is listed or quoted and the applicable laws of any
foreign country or jurisdiction where Options are, or will be, granted
hereunder.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" means the common stock of the Company.
------------
(e) "Company" means Notify Technology Corporation, a California
-------
corporation.
(f) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(g) "Director" means a member of the Board.
--------
(h) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(i) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Company deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall
<PAGE>
be the mean between the high bid and low asked prices for the Common Stock on
the last market trading day prior to the day of determination, as reported in
The Wall Street Journal or such other source as the Company deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the Company.
(l) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(m) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(n) "Optionee" means the holder of an outstanding Option granted
--------
hereunder.
(o) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "Service Provider" means an Employee, Director or Consultant.
----------------
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13.
(r) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
2. Grant of Option. The Company hereby grants to the Optionee named in
---------------
Section I of this Agreement (the "Optionee") an option (the "Option") to
purchase the number of Shares, as set forth in Section I, at the exercise price
per share set forth in the Section I (the "Exercise Price").
3. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in Section I and the applicable
provisions of this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
---------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to this Agreement. The Exercise Notice shall be completed by Optionee
and delivered to the Chief Financial Officer of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
(c) Termination of Relationship as a Service Provider. If Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon Optionee's death or Disability,
Optionee may exercise this Option
<PAGE>
for three (3) months following Optionee's termination to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration date of such Option as set forth in Section I). If, after
termination, Optionee does not exercise this Option within the above three-month
period, the Option shall terminate.
(d) Disability of Optionee. If Optionee ceases to be a Service
----------------------
Provider as a result of Optionee's Disability, Optionee may exercise this Option
for twelve (12) months following Optionee's termination to the extent the Option
is vested on the date of termination (but in no event later than the expiration
date of such Option as set forth in Section I). If, after termination, Optionee
does not exercise this Option within the above twelve-month period, the Option
shall terminate.
(e) Death of Optionee. If Optionee dies while a Service Provider, the
-----------------
Option may be exercised for twelve (12) months following Optionee's death (but
in no event later than the expiration date of such Option as set forth in
Section I), by Optionee's estate or by a person who acquires the right to
exercise the Option by bequest or inheritance, but only to the extent that the
Option is vested on the date of death. The Option may be exercised by the
executor or administrator of Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate.
(f) Buyout Provisions. The Company may at any time offer to buy out
-----------------
for a payment in cash or Shares an Option previously granted based on such terms
and conditions as the Company shall establish and communicate to Optionee at the
time that such offer is made.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to Optionee on the date the Option is exercised with respect to such
Exercised Shares.
4. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of Optionee:
a) cash; or
b) check; or
c) surrender of other Shares which (i) in the case
of Shares acquired upon exercise of an option, have been owned by Optionee for
more than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares; or
d) with the Company's consent, delivery of
Optionee's promissory note (the "Note") in the form attached hereto as Exhibit
-------
C, in the amount of the aggregate Exercise Price of the Exercised Shares
- -
together with the execution and delivery by Optionee of the Security Agreement
attached hereto as Exhibit B. The Note shall bear interest at the "applicable
---------
federal rate" prescribed under the Code and its regulations at time of purchase,
and shall be secured by a pledge of the Shares purchased by the Note pursuant to
the Security Agreement.
<PAGE>
5. Non-Transferability of Option. Unless determined otherwise by the
-----------------------------
Company, this Option may not be transferred in any manner otherwise than by will
or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by Optionee. The terms of this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of
Optionee.
6. Term of Option. This Option may be exercised only within the term set
--------------
out in Section I, and may be exercised during such term only in accordance with
the terms of this Option Agreement.
7. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by an
outstanding Option, as well as the price per share of Common Stock covered by
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Company shall notify Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Company in its discretion may provide for Optionee to have the right to
exercise this Option until ten (10) days prior to such transaction as to all of
the Optioned Stock covered thereby, including Shares as to which the Option
would not otherwise be exercisable. In addition, the Company may provide that
any Company repurchase option applicable to any Shares purchased upon exercise
of an Option shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option will
terminate immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, an outstanding Option shall be assumed or an equivalent option
or right substituted by the successor corporation or a Parent or Subsidiary of
the successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an Option
becomes fully vested and exercisable in lieu of assumption or substitution in
the event of a merger or sale of assets, the Company shall notify Optionee in
writing or electronically that the Option shall be fully vested and exercisable
for a period
<PAGE>
of fifteen (15) days from the date of such notice, and the Option shall
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the Company
may, with the consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Option, for each Share of
Optioned Stock subject to the Option, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
8. Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
9. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
10. Tax Consequences. Some of the federal tax consequences relating to
----------------
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
(a) Exercising the Option. Optionee may incur regular federal income
---------------------
tax liability upon exercise of an Option. Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Exercised Shares on the date of
exercise over their aggregate Exercise Price. If Optionee is an Employee or a
former Employee, the Company will be required to withhold from his or her
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation income
at the time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(b) Disposition of Shares. If Optionee holds Shares for at least one
---------------------
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
<PAGE>
11. Entire Agreement; Governing Law. This Option Agreement constitutes the
-------------------------------
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and may not be modified
adversely to Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of California.
12. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN
DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of this Option Agreement. Optionee has reviewed this
Option Agreement in its entirety, has had an opportunity to obtain the advice of
counsel prior to executing this Option Agreement and fully understands all
provisions of the Option Agreement. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Company
upon any questions relating to the Option Agreement. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
OPTIONEE: NOTIFY TECHNOLOGY CORPORATION
/s/ Dane Russell /s/ Gerald Rice
- --------------------------- --------------------------------
Signature By
Dane Russell Chief Financial Officer
- --------------------------- --------------------------------
Print Name Title
- ---------------------------
Residence Address
- ---------------------------
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of this Option Agreement. In consideration of the Company's
granting his or her spouse the right to purchase Shares as set forth in this
Option Agreement, the undersigned hereby agrees to be irrevocably bound by the
terms and conditions of this Option Agreement and further agrees that any
community property interest shall be similarly bound. The undersigned hereby
appoints the undersigned's spouse as attorney-in-fact for the undersigned with
respect to any amendment or exercise of rights under this Option Agreement.
_______________________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
NOTIFY TECHNOLOGY CORPORATION
EXERCISE NOTICE
Notify Technology Corporation
1054 South De Anza Blvd.
San Jose, California 95129
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, 200__, the
------------------
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of Notify Technology Corporation (the "Company")
under and pursuant to the Stock Option Agreement dated, November 11, 1999 (the
"Option Agreement"). The purchase price for each Share shall be $7.906, as
required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
----------------------------
received, read and understood the Option Agreement and agrees to abide by and be
bound by its terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date of issuance, except as provided in Section _____ of the
Option Agreement.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Option Agreement is incorporated
-------------------------------
herein by reference. This Agreement and the Option Agreement constitute the
entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company
and Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company
<PAGE>
and Purchaser. This agreement is governed by the internal substantive laws, but
not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER: NOTIFY TECHNOLOGY CORPORATION
________________________________ __________________________________
Signature By
________________________________ __________________________________
Print Name Its
Address: Address:
- ------- -------
________________________________ Notify Technology Corporation
1054 South De Anza Blvd.
________________________________ San Jose, California 95129
__________________________________
Date Received
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, 200__ between Notify
Technology Corporation, a California corporation ("Pledgee"), and
_________________________ ("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee, and
Pledgor's election under the terms of the Option to pay for such shares with his
promissory note (the "Note"), Pledgor has purchased _________ shares of
Pledgee's Common Stock (the "Shares") at a price of $________ per share, for a
total purchase price of $__________. The Note and the obligations thereunder
are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of the
---------------------------------------------
transfer of the Shares to Pledgor under the Option Agreement, Pledgor, pursuant
to the California Commercial Code, hereby pledges all of such Shares (herein
sometimes referred to as the "Collateral") represented by certificate number
______, duly endorsed in blank or with executed stock powers, and herewith
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations
<PAGE>
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge any
-----------------
stock dividend, reclassification, readjustment or other changes are declared or
made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this pledge,
------------------
subscription Options or other rights or options shall be issued in connection
with the pledged Shares, such rights, Options and options shall be the property
of Pledgor and, if exercised by Pledgor, all new stock or other securities so
acquired by Pledgor as it relates to the pledged Shares then held by
Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
<PAGE>
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" _________________________________
Signature
_________________________________
Print Name
Address: _________________________________
_________________________________
"PLEDGEE" Notify Technology Corporation
a California corporation
_________________________________
Signature
_________________________________
Print Name
_________________________________
Title
"PLEDGEHOLDER" _________________________________
Secretary of
Notify Technology Corporation
<PAGE>
EXHIBIT C
---------
NOTE
$_______________ San Jose, California
__________ ____, 20___
FOR VALUE RECEIVED, _______________ promises to pay to Notify Technology
Corporation, a California corporation (the "Company"), or order, the principal
sum of _______________________ ($_____________), together with interest on the
unpaid principal hereof from the date hereof at the rate of _______________
percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 20___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
_______________________________
_______________________________
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 25, 1999, in post-effective amendment No. 4 to
the Registration Statement (Form SB-2, No 333-23369) and the related Prospectus
of Notify Technology Corporation for the registration of the 1,600,000 shares of
Common Stock underlying the Class A warrants.
/s/ Ernst & Young LLP
San Jose, California
April 11, 2000
