<PAGE>
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CYBERIAN OUTPOST, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing:
1) Amount previously paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No:
------------------------------------------------------------------------
3) Filing party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
June 28, 1999
Dear Stockholder,
It is my pleasure to invite you to Cyberian Outpost's 1999 Annual Meeting of
Stockholders.
We will hold the meeting at 10:00 a.m. on Tuesday, July 27, 1999 at the Kent
Community House, 93 North Main Street, Kent, Connecticut. In addition to the
formal items of business, I will review the major developments of the past year
and answer your questions.
This booklet includes our Notice of Annual Meeting and Proxy Statement. The
Proxy Statement describes the business that we will conduct at the meeting and
provides information about Cyberian Outpost.
Your vote is important. Whether you plan to attend the meeting or not, please
complete, date, sign and return the enclosed proxy card promptly. If you attend
the meeting and prefer to vote in person, you may do so.
We look forward to seeing you at the meeting.
Sincerely,
Darryl Peck
President and Chief Executive
Officer
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
Date:July 27, 1999
Time:10:00 a.m.
Place:Kent Community House
93 North Main Street
Kent, Connecticut 06757
Dear Stockholders:
At our Annual Meeting, we will ask you to:
. Elect two directors;
. Approve an amendment to increase the number of shares available
under our 1998 Employee, Director and Consultant Stock Plan;
. Ratify the selection of KPMG LLP as independent auditors for our
fiscal year ending February 29, 2000; and
. Transact any other business that may properly be presented at the
Annual Meeting.
If you were a stockholder of record at the close of business on June 14,
1999, you may vote at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Katherine N. Vick
Secretary
June 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING................... 1
Why Did You Send Me this Proxy Statement?............................... 1
How Many Votes Do I Have?............................................... 1
How Do I Vote by Proxy?................................................. 1
May I Revoke My Proxy?.................................................. 1
How Do I Vote in Person?................................................ 2
What Vote is Required to Approve Each Proposal?......................... 2
What is the Effect of Broker Non-Votes?................................. 2
Is Voting Confidential?................................................. 2
What Are the Costs of Soliciting these Proxies?......................... 2
How Do I Obtain an Annual Report on Form 10-K?.......................... 2
INFORMATION ABOUT CYBERIAN OUTPOST COMMON STOCK OWNERSHIP................. 3
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS........................ 5
The Board of Directors.................................................. 5
Committees of the Board of Directors and Meetings....................... 6
Compensation of Directors............................................... 7
Executive Officers...................................................... 7
EXECUTIVE COMPENSATION.................................................... 9
Summary Compensation.................................................... 9
Option Grants........................................................... 9
Option Exercises and Year-End Option Values............................. 10
Employment Contracts and Change of Control Arrangements................. 10
Report of Compensation Committee on Executive Compensation.............. 11
RELATED PARTY TRANSACTIONS................................................ 13
Redeemable Series C Convertible Preferred Stock Offering................ 13
Other Related Party Transactions........................................ 13
PERFORMANCE GRAPH......................................................... 14
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD.......................... 15
Proposal 1: Elect Two Directors......................................... 15
Proposal 2: Approve Amendment to Our 1998 Employee, Director and
Consultant Stock Plan.................................................. 15
Proposal 3: Ratify Selection of Independent Auditors for the Fiscal Year
Ending February 29, 2000............................................... 18
OTHER MATTERS............................................................. 19
Section 16(a) Beneficial Ownership Reporting Compliance................. 19
Information About Stockholder Proposals................................. 19
</TABLE>
<PAGE>
PROXY STATEMENT FOR THE CYBERIAN OUTPOST, INC.
1999 ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why Did You Send Me this Proxy Statement?
We sent you this Proxy Statement and the enclosed proxy card because
Cyberian Outpost's Board of Directors is soliciting your proxy to vote at the
1999 Annual Meeting of Stockholders. This Proxy Statement summarizes the
information you need to know to vote at the Annual Meeting. You do not need to
attend the Annual Meeting to vote your shares. Instead, you may simply
complete, sign and return the enclosed proxy card.
On June 28, 1999 we began sending this Proxy Statement, the attached Notice
of Annual Meeting and the enclosed proxy card to all stockholders entitled to
vote. Only stockholders who owned Cyberian Outpost common stock at the close
of business on June 14, 1999 are entitled to vote at the Annual Meeting. On
this record date, there were 21,546,339 shares of Cyberian Outpost common
stock outstanding. Cyberian Outpost common stock is our only class of voting
stock. We are also sending along with this Proxy Statement, our 1999 Annual
Report, which includes our financial statements.
How Many Votes Do I Have?
Each share of Cyberian Outpost common stock that you own entitles you to one
vote.
How Do I Vote by Proxy?
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in
the envelope provided. Returning the proxy card will not affect your right to
attend the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares as recommended by the Board
of Directors as follows:
. "FOR" the election of the two nominees for director;
. "FOR" the amendment to the 1998 Employee, Director and Consultant
Stock Plan; and
. "FOR" ratification of the selection of independent auditors for our
fiscal year ending February 29, 2000.
If any other matter is presented, your proxy will vote in accordance with
his or her best judgment. At the time this Proxy Statement went to press, we
knew of no matters which needed to be acted on at the Annual Meeting, other
than those discussed in this Proxy Statement.
May I Revoke My Proxy?
If you give us your proxy, you may revoke it at any time before it is
exercised. You may revoke your proxy in any one of the three following ways:
. You may send in another proxy with a later date;
. You may notify Cyberian Outpost's Secretary in writing before the Annual
Meeting that you have revoked your proxy; or
. You may vote in person at the Annual Meeting.
1
<PAGE>
How Do I Vote in Person?
If you plan to attend the Annual Meeting and vote in person, we will give
you a ballot when you arrive. However, if your shares are held in the name of
your broker, bank or other nominee, you must bring an account statement or
letter from the nominee indicating that you are the beneficial owner of the
shares on June 14, 1999, the record date for voting.
What Vote is Required to Approve Each Proposal?
Proposal 1: Elect Two The two nominees for director who receive
Directors the most votes will be elected.
Proposal 2: Approve Amendment The affirmative vote of a majority of the
to Increase the Shares votes cast at the Annual Meeting is
Available under our 1998 required to approve the amendment to the
Employee, Director and 1998 Employee, Director and Consultant
Consultant Stock Plan Stock Plan.
Proposal 3: Ratify Selection The affirmative vote of a majority of the
of Auditors votes cast at the Annual Meeting is
required to ratify the selection of
independent auditors.
What is the Effect of Broker Non-Votes?
If your broker holds your shares in its name, the broker will be entitled to
vote your shares on both Proposal 1 and Proposal 3 even if it does not receive
instructions from you. Your broker is not entitled to vote on Proposal 2
unless it receives instructions from you. If your broker does not vote your
shares on Proposal 2, such "broker non-votes" and abstentions from voting will
not be counted for purposes of tabulating the votes cast.
Is Voting Confidential?
We will keep all the proxies, ballots and voting tabulations private. We
only let our Inspectors of Election (American Stock Transfer and Trust
Company) examine these documents. We will not disclose your vote to management
unless it is necessary to meet legal requirements. We will, however, forward
to management any written comments you make, on the proxy card or elsewhere.
What Are the Costs of Soliciting these Proxies?
We will pay all of the costs of soliciting these proxies. Our directors and
employees may solicit proxies in person or by telephone, fax or email. We will
pay these employees and directors no additional compensation for these
services. We will ask banks, brokers and other institutions, nominees and
fiduciaries to forward these proxy materials to their principals and to obtain
authority to execute proxies. We will then reimburse them for their expenses.
How Do I Obtain an Annual Report on Form 10-K?
If you would like a copy of our Annual Report on Form 10-K for the year
ended February 28, 1999 that we filed with the Securities and Exchange
Commission, we will send you one without charge. Please write to:
Investor Relations
Cyberian Outpost, Inc.
25 North Main Street, P.O. Box 636
Kent, Connecticut 06757
or contact us via email at [email protected].
2
<PAGE>
INFORMATION ABOUT CYBERIAN OUTPOST COMMON STOCK OWNERSHIP
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of June 18, 1999 for (a) the
executive officers named in the Summary Compensation Table on page 9 of this
Proxy Statement, (b) each of our directors, (c) each of our director nominees,
(d) all of our current directors and executive officers as a group and (e)
each stockholder known by us to own beneficially more than 5% of our common
stock. Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting or investment power with respect to the securities.
The address for each director and executive officer listed is: c/o Cyberian
Outpost, Inc., 25 North Main Street, P.O. Box 636, Kent, Connecticut 06757.
Shares of common stock that may be acquired by an individual or group within
60 days of June 18, 1999, pursuant to the exercise of options or warrants are
deemed to be outstanding for the purpose of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in the
table. Except as indicated in footnotes to this table, we believe that the
stockholders named in this table have sole voting and investment power with
respect to all shares of common stock shown to be beneficially owned by them
based on information provided to us by such stockholders. Percentage of
ownership is based on 21,546,339 shares of common stock outstanding on June
18, 1999.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-----------------------------
Name of Beneficial Owner Number Percent
------------------------ --------------- -------------
<S> <C> <C>
Executive Officers, Directors and Director
Nominees
Darryl Peck(1).................................. 4,693,082 21.5%
Katherine N. Vick(2)............................ 311,398 1.4%
Michael R. Starkenburg(3)....................... 135,705 *
Philip J. Rello(4).............................. 77,500 *
Charles H. Jackson, IV(5)....................... 839,703 3.9%
Michael Murray(6)............................... 34,000 *
William C. Mulligan(7).......................... 1,500,000 7.0%
David Yarnell(8)................................ 469,500 2.2%
William H. Lane III(9).......................... 0 *
James E. Preston(9)............................. 15,000 *
All current directors and executive officers as
a group (10 persons)(10)....................... 8,157,429 36.5%
Five Percent Stockholders
Winfield Capital Corp........................... 1,409,855 6.5%
237 Mamaroneck Avenue
White Plains, New York 10605
Primus Funds(7)................................. 1,500,000 7.0%
c/o Primus Venture Partners IV, Inc.
5900 Landerbrook Drive, Suite 200
Cleveland, Ohio 44124
Brand Equity Ventures I, L.P.(11)............... 469,500 2.2%
Three Pickwick Plaza
Greenwich, Connecticut 06830
</TABLE>
- --------
* Less than 1%
(1) Includes 185,100 shares of common stock held by a limited partnership for
the benefit of Mr. Peck's children. Mr. Peck is the general partner of
the limited partnership and has sole voting and investment power with
respect to these shares. Also includes 260,040 shares subject to options
exercisable within 60 days of June 18, 1999 but does not include an
additional 939,960 shares subject to options which are not currently
exercisable.
(2) Includes 139,199 shares of common stock subject to currently exercisable
options and 79,710 shares subject to options exercisable within 60 days
of June 18, 1999 held by Ms. Vick. Does not include an
3
<PAGE>
additional 632,091 shares subject to options which are not currently
exercisable. Also includes 3,660 shares which were gifted to Ms. Vick's
husband as custodian for her son and daughter under the Connecticut
Uniform Transfer to Minors Act. Ms. Vick disclaims beneficial ownership of
these shares.
(3) Consists of 96,000 shares of common stock subject to currently
exercisable options and 39,705 shares subject to options exercisable
within 60 days of June 18, 1999 held by Mr. Starkenburg. Does not include
an additional 314,395 shares subject to options which are not currently
exercisable.
(4) Includes 47,000 shares of common stock subject to currently exercisable
options and 30,000 shares subject to options exercisable within 60 days
of June 18, 1999 held by Mr. Rello. Does not include an additional
198,000 shares subject to options which are not currently exercisable.
(5) Consists of 839,703 shares of common stock owned by a trust for the
benefit of Mr. Jackson and his wife. Mr. Jackson and his wife are co-
trustees of the trust and share voting and investment power with respect
to these shares of common stock. Excludes 105,738 shares of common stock
held by a trust for the benefit of Mr. Jackson's children. Mr. Jackson
disclaims beneficial ownership of the shares of common stock owned by
this trust.
(6) Consists of 34,000 shares of common stock subject to currently
exercisable options held by Mr. Murray. Excludes 15,000 shares of common
stock subject to options which are not currently exercisable.
(7) Consists of 1,440,000 shares of common stock owned by Primus Capital Fund
IV Limited Partnership ("PCF IV") and 60,000 shares of common stock owned
by Primus Executive Fund Limited Partnership ("PEF"). Mr. Mulligan is a
Director of Primus Venture Partners IV, Inc. ("Primus"). Primus is the
sole general partner of Primus Venture Partners IV Limited Partnership
("PVP IV") and PVP IV is the sole general partner of each of PCF IV and
PEF. Mr. Mulligan shares voting and investment power with respect to such
shares with five other Directors of Primus. Mr. Mulligan expressly
disclaims beneficial ownership of such shares, except to the extent of
his pecuniary interest therein.
(8) Consists of 469,500 shares of common stock owned by Brand Equity Ventures
I, L.P. ("Brand"). Mr. Yarnell is a General Partner of Brand. Brand
Equity Partners I, LLC, the general partner of Brand, has sole voting and
investment power with respect to these shares, and Mr. Yarnell expressly
disclaims ownership of such shares.
(9) Nominated for election to our Board of Directors. Excludes 25,000 shares
of common stock subject to an immediately exercisable option which will
be automatically granted if elected to our Board of Directors at the
Annual Meeting.
(10) Includes 16,500 shares of common stock subject to currently exercisable
options and 4,500 shares of common stock subject to options exercisable
within 60 days of June 18, 1999 held by Raymond A. Maccio and 58,331
shares of common stock subject to options exercisable within 60 days of
June 18, 1999 by Bruce C. Schellinkhout. See also footnotes 1 through 8
above.
(11) Brand Equity Partners I, LLC, the general partner of Brand, has sole
voting and investment power with respect to these shares.
4
<PAGE>
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors
Our Certificate of Incorporation and By-Laws provide that our business is to
be managed by or under the direction of our Board of Directors. Our Board of
Directors is divided into three classes for purposes of election. One class is
elected at each annual meeting of stockholders to serve for a three-year term.
Our Board of Directors currently consists of six members, classified into
three classes as follows: (1) William C. Mulligan and David Yarnell constitute
a class with a term which expires at the 1999 Annual Meeting; (2) Katherine N.
Vick and Charles H. Jackson, IV constitute a class with a term ending at the
2000 Annual Meeting; and (3) Darryl Peck and Michael Murray constitute a class
with a term ending at the 2001 Annual Meeting.
Mr. Mulligan and Mr. Yarnell will not stand for reelection. Accordingly, on
June 15, 1999, our Board of Directors voted to nominate William H. Lane III
and James E. Preston for election at the Annual Meeting for a term of three
years to serve until the 2002 Annual Meeting of Stockholders, and until their
respective successors have been elected and qualified.
Assuming the election of Mr. Lane and Mr. Preston, the names of our
directors following the Annual Meeting and certain information about them are
set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Darryl Peck......................... 40 President, Chief Executive Officer and Director
Katherine N. Vick................... 47 Executive Vice President for Business
Development, Chief Financial Officer
and Director
Charles H. Jackson, IV(1)........... 50 Director
Michael Murray(2)................... 36 Director
William H. Lane III(2).............. 60 Director Nominee
James E. Preston(1)................. 66 Director Nominee
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
The following is a brief summary of the background of each of our directors
and director nominees:
Mr. Peck founded Cyberian Outpost in March 1995 and has been our President
and a member of the Board of Directors since that time. He has served as our
Chief Executive Officer since April 1998. In 1989, he formed Inline Software,
a publisher of game and utility software titles primarily for the Macintosh
platform, and served as its President until the company was sold to Focus
Enhancements in May 1994. From 1989 to 1990, Mr. Peck was President of the New
York Mac User's group, which at the time was the third largest Mac user group
in the world.
Ms. Vick has served as our Executive Vice President for Business Development
since June 1999 and as our Chief Financial Officer since June 1997 and has
been a member of the Board of Directors since May 1997. She was named
Executive Vice President in May 1998. From January 1997 until June 1997, she
served as a consultant to Cyberian Outpost. From 1986 to June 1997, Ms. Vick
was President of her own strategic and financial planning consulting firm,
Katherine Vick, Ltd. From 1978 to 1986, she held several positions, including
Principal, with Arthur Young (now Ernst & Young LLP) where she helped develop
and lead the Entrepreneurial Services Consulting Group in New York City.
Mr. Jackson has served as a member of our Board of Directors since August
1996. He is a computer industry entrepreneur and invests in start-up companies
at their earliest stages. In 1993, he co-founded FutureWave Software, a
software development company, which was acquired by MacroMedia, Inc., a
supplier of software tools and services to the media and publishing
industries, in 1996. In 1984, Mr. Jackson founded Silicon Beach Software, a
developer and publisher of Macintosh consumer titles which was sold to Aldus
Corporation in 1990.
5
<PAGE>
Mr. Murray has served as a member of our Board of Directors since May 1997.
Since September 1998 he has served as General Partner with New Millennium
Partners, a venture capital investment firm. From July 1996 until September
1998, he was the Managing Director of the Online Venture Fund for Broderbund
Software, a software development company. From September 1997 until September
1998, he was also the General Manager of the Online Business Unit for
Broderbund. In addition to managing the business unit, Mr. Murray led
Broderbund's Internet strategy and implementation, and managed an external
Internet incubator facility for Internet startups. From 1984 to 1996, Mr.
Murray held various management positions with Pacific Bell.
Mr. Lane has been nominated for election to our Board of Directors. Mr. Lane
serves as President of Canyon Vista, Inc., a management consulting business.
In July 1996, he retired from Intuit. Inc., a personal and small business
finance software publisher, after having served as its Vice President, Chief
Financial Officer, Secretary and Treasurer since January 1994. Mr. Lane served
in a similar capacity at ChipSoft, Inc., a tax preparation software company,
from July 1991 until its acquisition by Intuit in December 1993. Mr. Lane is
currently a director of Aspect Technology, Inc., Expert Software, Inc.,
International Microcomputer Software, Inc., MetaCreations Corporation and a
number of private companies.
Mr. Preston has been nominated for election to our Board of Directors. Mr.
Preston was Chairman of the Board of Avon Products, Inc., a manufacturer and
seller of beauty and beauty related products, from 1989 to May 1999, and
served as Chief Executive Officer of Avon from 1989 to June 1998. He is
currently Chairman of the World Federation of Direct Selling Association. He
is also a director of ARAMARK Corporation, Venator Group, Inc. and Reader's
Digest Association, Inc., all publicly traded companies. In addition, Mr.
Preston is a director of Project Hope, and a member of the Advisory Board of
the Salvation Army of Greater New York, both of which are private entities.
Committees of the Board of Directors and Meetings
Meeting Attendance. During the fiscal year ended February 28, 1999, there
were three meetings of our Board of Directors. The Board also acted by
unanimous written consent on eight occasions pursuant to Delaware law during
this period. No director attended fewer than 75% of the total number of
meetings of the Board and of committees of the Board on which they served
during the fiscal year ended February 28, 1999.
Audit Committee. Our Audit Committee met once during the fiscal year ended
February 28, 1999. This committee currently has two members, Michael Murray
and David Yarnell. If Mr. Lane is elected to our Board of Directors at the
Annual Meeting, he will replace Mr. Yarnell on our Audit Committee. Our Audit
Committee reviews the results and scope of audits and other services provided
by our independent public accountants.
Compensation Committee. Our Compensation Committee met twice during the
fiscal year ended February 28, 1999 and also acted by unanimous written
consent on two occasions during this period. This committee currently has two
members, Charles H. Jackson, IV and William C. Mulligan. In addition, Michael
Murray served on the Compensation Committee until March 1999. If Mr. Preston
is elected to our Board of Directors at the Annual Meeting, he will replace
Mr. Mulligan on our Compensation Committee. Our Compensation Committee makes
recommendations concerning salaries and incentive compensation for our
employees and consultants, establishes and approves salaries and incentive
compensation for our executive officers and administers our incentive stock
plans.
Nominating Committee. We do not have a standing nominating committee.
Compensation Committee Interlocks and Insider Participation. Mr. Jackson and
Mr. Mulligan constitute our Compensation Committee. Neither Mr. Jackson nor
Mr. Mulligan are, or have ever been, employees of Cyberian Outpost. Mr.
Murray, who served on our Compensation Committee until March 1999, served as a
marketing consultant to us from March 1999 through June 1999. None of our
executive officers serve as a member of the board of directors or compensation
committee of any entity that has any executive officer serving as a member of
our Board of Directors or Compensation Committee.
6
<PAGE>
Compensation of Directors
Pursuant to a policy adopted by Cyberian Outpost on June 15, 1999, non-
employee directors receive an annual retainer of $10,000 to serve on our Board
and receive $1,500 for each meeting attended in person and $500 for each
meeting attended by telephone. In addition, under a director stock option
policy also adopted on June 15, 1999, upon election to our Board of Directors,
individuals who are not salaried employees of Cyberian Outpost will receive
automatic grants of non-qualified stock options to purchase 25,000 shares of
our common stock pursuant to our 1998 Employee, Director and Consultant Stock
Option Plan. Each option granted pursuant to this policy:
. has a term of ten years;
. has an exercise price equal to the fair market value of our common stock
on the date of grant; and
. is exercisable immediately.
Under this policy, if Mr. Lane and Mr. Preston are elected to our Board of
Directors at the Annual Meeting, they will each receive an automatic grant of
an immediately exercisable option to purchase 25,000 shares of our common
stock. In addition, under this policy Michael Murray received an immediately
exercisable option to purchase 10,000 shares of our common stock.
Pursuant to a previous director stock option policy, on February 11, 1999,
Michael Murray was granted an option to purchase 15,000 shares of our common
stock at an exercise price of $18.31 per share. This option is exercisable in
three equal annual installments beginning on February 11, 2000. On February
11, 1999, Mr. Murray was also granted an immediately exercisable option to
purchase 10,000 shares of our common stock at an exercise price of $18.31 per
share in consideration for past services rendered as a director to Cyberian
Outpost.
Executive Officers
The following table sets forth certain information regarding our executive
officers who are not also directors. We have employment agreements with our
President and Chief Executive Officer, our Executive Vice President for
Business Development and Chief Financial Officer and our Chief Technology
Officer. All other executive officers are at-will employees.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael R. Starkenburg.. 27 Chief Technology Officer
Philip J. Rello......... 39 Vice President of Sales and Customer Service
Raymond A. Maccio....... 32 Vice President of Purchasing and General Merchandise Manager
Bruce C. Schellinkhout.. 41 Vice President of Operations
</TABLE>
Mr. Starkenburg has served as our Chief Technology Officer since July 1997.
From December 1996 until July 1997, he led the Web development and operations
team of Digital City, Inc., a content based Internet company. From August 1995
to December 1996, Mr. Starkenburg worked for America Online, Inc., an Internet
service provider, where he was responsible for the development and operations
of several large Internet sites. From November 1991 until joining America
Online, he was an Internet and networking consultant to a variety of clients,
including the International Monetary Fund, the National Academy of Sciences,
and the Information Technology Association of America.
Mr. Rello has served as our Vice President of Sales and Customer Service
since September 1998 and served as our Vice President of Sales from July 1997
to September 1998. From August 1990 until July 1997, he worked at Micro
Warehouse, Inc., a catalog retailer and direct marketer of computer hardware,
software and accessories, where he last served as Director of Education Sales.
Mr. Maccio has served as our General Merchandise Manager since May 1999 and
as our Vice President of Purchasing since November 1998. From April 1997 to
November 1998, he was our Director of Purchasing. From September of 1996 until
joining Cyberian Outpost, Mr. Maccio served as Director of Purchasing for
Global
7
<PAGE>
Computer Supplies, a leading catalog retailer of computer supply products.
From February of 1991 to September of 1996, Mr. Maccio worked for Micro
Warehouse, Inc. where he held various positions in the purchasing department,
including Purchasing Manager.
Mr. Schellinkhout joined Cyberian Outpost as our Vice President of
Operations in July 1998. From January 1993 until joining Cyberian Outpost, he
was the Vice President of Distribution for Micro Warehouse, Inc.
8
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the total compensation paid or accrued during
the fiscal years ended February 28, 1999 and 1998 to our Chief Executive
Officer and during the fiscal year ended February 28, 1999 to our three next
most highly compensated executive officers who earned more than $100,000
during the fiscal year ended February 28, 1999. No other executive officer
earned greater than $100,000 in the fiscal years ended February 28, 1999 and
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
--------------------- ------------
Shares
Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options (#) Compensation ($)
- --------------------------- ---- ---------- --------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Darryl Peck.............. 1999 $ 170,577 $ 25,000 1,200,000 $3,740
President and Chief
Executive Officer...... 1998 139,385 11,100 -- --
Katherine N. Vick........ 1999 143,269 20,000 300,000 --
Executive Vice President
for Business Development
and Chief Financial
Officer
Michael R. Starkenburg... 1999 135,961 12,000 150,000 --
Chief Technology Officer
Philip J. Rello.......... 1999 123,885 15,000 140,000 --
Vice President of Sales
and Customer Service
</TABLE>
The "Other Compensation" paid to Mr. Peck in the fiscal year ended February
28, 1999 consists of the dollar value of premiums paid by us with respect to
term life insurance for the benefit of Mr. Peck in the amount of $1,000,000.
Option Grants
The following table sets forth grants of stock options granted during the
fiscal year ended February 28, 1999 to each of the executive officers named in
the Summary Compensation Table. In accordance with the rules of the SEC, also
shown below is the potential realizable value over the term of the option (the
period from the grant date to the expiration date). This is calculated
assuming that the fair market value of common stock on the date of grant
appreciates at the indicated annual rate, 5% and 10% compounded annually, for
the entire term of the option and that the option is exercised and sold on the
last day of its term for the appreciated stock price. These amounts are based
on certain assumed rates of appreciation and do not represent our estimate of
future stock price. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock.
9
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Terms
--------------------------------------------- -------------------------
Number of Percent of
Securities Total Options
Underlying Granted To Exercise
Options Employees in Price Expiration
Granted Fiscal Year ($/Share) Date 5% 10%
---------- ------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Darryl Peck............. 35,700 1.2% $18.00 7/30/03 $ 404,127 $ 1,024,139
1,164,300 40.7 18.00 7/30/08 13,179,987 33,400,694
Katherine N. Vick....... 300,000 10.5 18.00 7/30/08 3,396,029 8,606,208
Michael R. Starkenburg.. 150,000 5.3 18.00 7/30/08 1,698,014 4,303,104
Philip J. Rello......... 120,000 4.2 18.00 7/30/08 1,358,411 3,442,483
20,000 0.7 8.75 10/15/08 110,056 278,905
</TABLE>
Option Exercises and Year-End Option Values
The following table sets forth certain information with respect to exercises
of options to purchase our common stock by each executive officer named in the
Summary Compensation Table during the fiscal year ended February 28, 1999 and
with respect to the aggregate value of options held by each executive officer
named in the Summary Compensation Table as of February 28, 1999. The value of
the unexercised in-the-money options at fiscal year end is based on a value of
$17.063 per share, the closing price of our stock on the Nasdaq National
Market on February 26, 1999 (the last trading day prior to the fiscal year
end), less the per share exercise price.
Aggregate Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-The-Money Options at
Year-End (#) Fiscal Year-End ($)
------------------------- -------------------------
Shares
Acquired
on Value
Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Darryl Peck............. -- -- -- 1,200,000 -- --
Katherine N. Vick....... 80,000 1,469,480 114,199 636,801 1,773,853 5,243,050
Michael R. Starkenburg.. -- -- 96,000 354,000 1,506,048 3,180,252
Philip J. Rello......... -- -- 47,000 228,000 588,051 1,687,164
</TABLE>
Employment Contracts and Change of Control Arrangements
On June 2, 1998, we entered into executive employment agreements with Darryl
Peck, our President and Chief Executive Officer and Michael R. Starkenburg,
our Chief Technology Officer. On June 16, 1999 we entered into an executive
employment agreement with Katherine N. Vick, our Executive Vice President for
Business Development and Chief Financial Officer. The material provisions of
these agreements are as follows:
Term. The agreements with Mr. Peck and Mr. Starkenburg provide for an
initial term of two years and automatically renew for successive two year
terms unless notice of non-renewal is given by either us or the executive
officer. The agreement with Ms. Vick continues until January 31, 2001 and
automatically renews for two year periods on each of February 1, 2001 and
February 1, 2003 unless notice of non-renewal is given by either us or Ms.
Vick.
10
<PAGE>
Compensation. The executive officers receive the following base salaries
under these agreements:
<TABLE>
<CAPTION>
Executive Base Salary
--------- -----------
<S> <C>
Mr. Peck...................................................... $175,000
Mr. Starkenburg............................................... $140,000
Ms. Vick...................................................... $160,000
</TABLE>
In addition, each executive officer is also eligible to participate in any
bonus and employee benefit plans provided by us for senior executives. Mr.
Peck is also provided a $1.0 million term life insurance policy and Ms. Vick
is also provided a $500,000 term life insurance policy and a long-term
disability policy for up to 60% of her salary.
Termination. If we terminate Mr. Peck without cause, constructively
terminate him or do not renew his agreement at the end of any two-year term,
he will receive a lump-sum payment equal to two years' base salary plus any
earned but unpaid bonus for the prior fiscal year. If we terminate Mr.
Starkenburg without cause, he will receive a lump-sum payment equal to one
year's base salary plus any earned but unpaid bonus for the prior fiscal year.
We may not terminate Ms. Vick without cause until after January 31, 2001. In
the event we do not renew Ms. Vick's agreement at the end of the period ending
January 31, 2001, Ms. Vick will continue to receive her base salary until July
31, 2001 and will be paid any earned but unpaid bonus for the prior fiscal
year. Each executive officer is also entitled to the continuation of certain
benefits upon termination under these circumstances.
Termination Following a Change of Control. If, following a change of control
of Cyberian Outpost, Mr. Peck or Mr. Starkenburg are terminated under the
circumstances described in the preceding paragraph or if Ms. Vick's agreement
is not renewed at any time, the terminated executive will receive a lump sum
payment equal to three years' base salary plus any earned but unpaid bonus for
the prior fiscal year. In addition, any options granted pursuant to the
employment agreements will become fully exercisable and the executive will be
entitled to the continuation of certain benefits.
Other Provisions. The agreements for Mr. Peck and Mr. Starkenburg also
contain a one year post-termination non-compete and non-solicitation
provision. The agreement for Ms. Vick also contains a six month post-
termination non-compete and non-solicitation provision.
Report of Compensation Committee on Executive Compensation
This report is submitted by the Compensation Committee, which is responsible
for establishing and administering Cyberian Outpost's executive compensation
policies and its stock option plans. The Committee is composed of Messrs.
Mulligan and Jackson, neither of whom is an employee of Cyberian Outpost. This
report addresses the compensation policies for fiscal year 1999 as they
affected Mr. Peck, in his capacity as President and Chief Executive Officer of
Cyberian Outpost, and the other executive officers of Cyberian Outpost.
General Compensation Policy. Cyberian Outpost's compensation policy for
executive officers is designed to achieve the following objectives: (a) to
enhance profitability of Cyberian Outpost and increase stockholder values; (b)
to reward executives consistent with Cyberian Outpost's annual and long-term
performance goals; (c) to recognize individual initiative, leadership and
achievement; and (d) to provide competitive compensation that will attract and
retain qualified executives.
Executive Officer Compensation Program. The Committee performs annual
reviews of executive compensation to confirm the competitiveness of the
overall executive compensation packages as compared with companies who compete
with Cyberian Outpost for prospective employees.
The compensation program for executive offices consists of three elements:
(1) base salary, which is set on an annual basis; (2) annual incentive
compensation, in the form of cash bonuses, which is based on achievement of
predetermined financial objectives of Cyberian Outpost and individual
objectives; and (3) long-term incentive compensation, in the form of stock
options, granted when the executive officer joins Cyberian Outpost and on
11
<PAGE>
occasion thereafter with the objective of aligning the executive officers'
long-term interests with those of the stockholders and encouraging the
achievement of superior results over an extended period.
To assist the Committee in setting this policy in fiscal 2000, Cyberian
Outpost had an independent party perform an executive compensation and
benefits review of Cyberian Outpost and its peers in the e-commerce field.
This report was submitted to the Committee in January 1999.
Base Salary. Base salaries for executive officers are targeted at
competitive market levels for their respective positions, levels of
responsibility and experience. In addition to external market data, the
Committee also reviews Cyberian Outpost's financial performance and individual
performance when adjusting base salary annually.
Bonus Compensation. Bonus compensation is based on Cyberian Outpost's
achievement of predetermined financial, operational and strategic objectives.
Giving greatest weight to attainment of financial targets, the Committee also
awards bonuses based on various operational and strategic objectives, such as
management efficiency, and the ability to motivate others and build a strong
management team, develop and maintain the skills necessary to work in a high-
growth company, recognize and pursue new business opportunities and initiate
programs to enhance Cyberian Outpost's growth and successes. Bonuses are
awarded on an annual basis.
Long Term Incentive Compensation. Long-term incentive compensation, in the
form of stock options, allows the executive officers to share in any
appreciation in the value of Cyberian Outpost's Common Stock. The Committee
believes that stock option participation aligns executive officers' interests
with those of the stockholders. In addition, the Committee believes that
equity ownership by executive officers helps to balance the short term focus
of annual incentive compensation with a longer term view and may help to
retain key executive officers.
When establishing stock option grant levels, the Committee considers general
corporate performance, the Chief Executive Officer's recommendations, level of
seniority and experience, existing levels of stock ownership, previous grants
of stock options, vesting schedules of outstanding options and the current
stock price.
It is the standard policy of Cyberian Outpost to grant an initial stock
option grant to all executive officers at the time they commence employment
consistent with the number of options granted to executive officers in the e-
commerce industry at similar levels of seniority. In addition, the Committee
may also make performance-based grants throughout the year. In making such
performance-based grants, the Committee considers individual contributions to
Cyberian Outpost's financial, operational and strategic objectives.
Chief Executive Officer Compensation. In fiscal year 1999, the President and
Chief Executive Officer, Darryl Peck, received a base salary of $170,577,
which represents an increase of $31,192 over his 1998 base salary. This is
consistent with the range of salary levels received by his counterparts in e-
commerce companies of comparable size and stage of development. Mr. Peck
received bonus compensation of $25,000, which was determined based on
corporate performance. In addition, in fiscal 1999, Mr. Peck was granted
1,200,000 stock options under the 1998 Employee, Director and Consultant Stock
Plan.
Certain Tax Considerations. Cyberian Outpost does not believe Section 162(m)
of the Internal Revenue Code, as amended, which generally disallows a tax
deduction for compensation in excess of $1 million to any of the executive
officers appearing in the Summary Compensation Table above will have an effect
on it. The Committee has considered the requirements of Section 162(m) of the
Code and its related regulations. It is the Committee's present intention
that, so long as it is consistent with its overall compensation objections,
substantially all executive compensation will be deductible for Federal income
tax purposes.
The Compensation Committee:
Charles H. Jackson, IV
William C. Mulligan
12
<PAGE>
RELATED PARTY TRANSACTIONS
Redeemable Series C Convertible Preferred Stock Offering
In February 1998 and March 1998, we raised aggregate gross proceeds of
approximately $22.0 million by completing a private placement of 2,770,125
shares of Redeemable Series C Convertible Preferred Stock with 58 investors at
a price of $7.96 per share. The following table summarizes the shares of
Series C Preferred Stock purchased by entities associated with our directors
and other 5% stockholders in these private placement transactions.
<TABLE>
<CAPTION>
Series C
Entitles Affiliated with Directors Preferred
---------------------------------- ---------
<S> <C>
Primus Capital Fund IV Limited Partnership (William C. Mulligan).. 500,000
Brand Equity Ventures I, L.P. (David Yarnell)..................... 375,000
<CAPTION>
Other 5% Stockholders
---------------------
<S> <C>
Winfield Capital Corp............................................. 125,000
</TABLE>
Upon consummation of our initial public offering on August 5, 1998, each
outstanding share of Redeemable Series C Convertible Preferred Stock was
converted into three shares of common stock.
Other Related Party Transactions
In January 1998, Winfield Capital Corp., a five-percent beneficial
stockholder of Cyberian Outpost, loaned us $2.0 million at an interest rate of
12.5%. The loan, plus accrued interest, was repaid in full in March 1998. In
connection with this loan, Winfield Capital Corp. was issued a warrant,
exercisable as of February 27, 1998, to purchase 376,884 shares of our common
stock at $2.65 per share. This warrant was exercised in full on various dates
between December 1, 1998 and March 24, 1999.
From time to time, employees of Cyberian Outpost fly on an aircraft owned by
Darryl Peck, our President and Chief Executive Officer, in connection with
company business. Cyberian Outpost pays Mr. Peck an amount equal to the cost
of a comparable commercial airline ticket for these individuals. During the
fiscal year ended February 28, 1999, we paid Mr. Peck $15,032 under this
arrangement.
Michael Murray, a member of our Board of Directors, also served as a
marketing consultant to us from March 1999 through June 1999. In consideration
for these services, on March 24, 1999 Mr. Murray was granted an immediately
exercisable option to purchase 14,000 shares of our common stock at an
exercise price of $19.06 per share and has been paid an aggregate of $19,500.
13
<PAGE>
PERFORMANCE GRAPH
The following graph compares the annual cumulative total stockholder return
(assuming reinvestment of dividends) from investing $100 on July 31, 1998 (the
date of our initial public offering), and plotted at the end of the fiscal
year ended February 28, 1999, in each of (a) Cyberian Outpost's common stock,
(b) the Nasdaq Stock Market, and (c) the Media General Financial Services SIC
Code Index 5734 which consists of other companies in the computer hardware and
software retail industry. It should be noted that we have not paid any
dividends on our common stock, and no dividends are included in the
representation of our performance. The stock price performance on the graph
below is not necessarily indicative of future price performance.
[LINE GRAPH APPEARS HERE]
Relative Dollar Values
<TABLE>
<CAPTION>
7/31/98 9/30/98 12/31/98 2/28/99
------- ------- -------- -------
<S> <C> <C> <C> <C>
Cyberian Outpost, Inc......................... $100.00 $50.91 $134.15 $ 82.23
SIC Code Index................................ $100.00 $80.49 $ 90.74 $ 68.05
NASDAQ Market Index........................... $100.00 $91.06 $118.38 $123.52
</TABLE>
14
<PAGE>
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal 1: Elect Two Directors
On June 15, 1999, the Board of Directors nominated William H. Lane III and
James E. Preston for election at the Annual Meeting. If they are elected, they
will serve on our Board of Directors until the 2002 Annual Meeting of
Stockholders and until their respective successors have been elected and
qualified.
Unless authority to vote for any of the nominees named below is withheld,
the shares represented by the enclosed proxy will be voted FOR the election as
directors of Mr. Lane and Mr. Preston. In the event that either nominee shall
become unable or unwilling to serve, the shares represented by the enclosed
proxy will be voted for the election of such other person as the Board of
Directors may recommend in his place. We have no reason to believe that any
nominee will be unable or unwilling to serve as a director.
The affirmative vote of a plurality of the shares voted affirmatively or
negatively at the Annual Meeting is required to elect each nominee as a
director.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF WILLIAM H. LANE III AND
JAMES E. PRESTON AS DIRECTORS, AND PROXIES SOLICITED BY THE BOARD WILL BE
VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE
PROXY.
Proposal 2: Approve Amendment to Our 1998 Employee, Director and Consultant
Stock Plan
We are asking you to approve an amendment to our 1998 Employee, Director and
Consultant Stock Plan (the "Plan") in order increase the number of shares of
our common stock available under the Plan by 2,000,000 shares from 3,186,000
shares to 5,186,000 shares.
General Information About The Plan. Our 1998 Employee, Director and
Consultant Stock Plan was approved by our Board of Directors and stockholders
in 1998 and a total of 3,186,000 shares of common stock was initially reserved
for issuance under the Plan. By its terms, the Plan may be amended by the
Board of Directors, provided that any amendment which the Board of Directors
determines requires stockholder approval is subject to such stockholder
approval. On June 15, 1999, the Board of Directors voted to approve an
amendment to the Plan to increase the aggregate number of shares of common
stock which may be offered under the Plan by 2,000,000 shares. This amendment
is being submitted for your approval at the Annual Meeting to ensure continued
qualification of the Plan under The Nasdaq Stock Market rules and Section 423
of the Internal Revenue Code. Our Board of Directors believes that the
increase is advisable to give us the flexibility needed to attract, retain and
motivate our employees. As of June 18, 1999, the closing price of our common
stock as reported on the Nasdaq Stock Market was $11.188.
Summary of Material Features of the Plan. The following is a summary of the
key provisions of the Plan.
Purpose: The purpose of the Plan is to encourage ownership of
our common stock by our employees, directors and
certain consultants in order to attract such people,
to induce them to work for our benefit and to provide
additional incentive for them to promote our success.
Administration: By its terms, the Plan is to be administered by our
Board of Directors, except to the extent the it
delegates its authority to a committee of the Board
of Directors. The Board of Directors has designated
its Compensation Committee as the administrator of
the Plan.
15
<PAGE>
Awards:
The Plan authorizes the issuance of stock grants to
our employees, directors and consultants and the
grant of incentive stock options to our employees and
non-qualified options to our employees, directors and
consultants.
Options Exercise For non-qualified options, the exercise price per
Price: share is determined by the Compensation Committee,
subject to the one limitation that it at least equal
the par value per share of our common stock (i.e.
$.01 per share).
For incentive stock options, the exercise price per
share is determined by the Compensation Committee,
subject to the limitation that it at least equal 100%
of the fair market value per share of common stock on
the date of grant of the incentive stock option. If
the optionee owns more than 10% of the total combined
voting power of Cyberian Outpost, the exercise price
per share must at least equal 110% of the fair market
value per share of common stock on the date of grant
of the incentive stock option.
Term of Options: The term of non-qualified options is determined by
the Compensation Committee. For incentive stock
options, the term of the Option, like the exercise
price, is dependent upon the ownership interest of
the optionee in Cyberian Outpost. Generally, the term
of an incentive stock option is ten years. If the
optionee owns more than 10% of the total combined
voting power of Cyberian Outpost, the term of the
incentive stock option will be no more than five
years. An option is subject to early termination upon
the termination of employment or other relationship
of the optionee with us, whether such termination is
at the option of the us, the optionee, or as a result
of the death or disability of the optionee.
Vesting; Exercise of
Options: An option may be exercised by giving written notice
to us together with provision for payment of the full
exercise price for the number of shares as to which
the option is being exercised. The ability of an
optionee to exercise an option, however, is subject
to the vesting of the option. At the time the option
is granted, a vesting period is established, which
generally extends over a period of a few years. As
the option vests, an optionee will be able to
exercise the option with respect to the vested
portion of the shares and ultimately with respect to
all of the vested shares, until such time as the
option expires or terminates.
Term of Stock The date prior to which an offer of a stock grant
Grants: must be accepted by a grantee and the stock grant
purchase price, if any, shall be determined by the
Compensation Committee. A stock grant may be subject
to repurchase by us upon termination of employment of
the grantee with Cyberian Outpost, under certain
circumstances.
Federal Income Tax Consequences. The following is a brief summary of the
applicable federal income tax laws relating to stock options and stock grants
under the Plan:
Incentive Stock Incentive stock options are intended to qualify for
Options: treatment under Section 422 of the Code. An incentive
stock option does not result in taxable income to the
optionee or deduction to Cyberian Outpost at the time
it is granted or exercised, provided that no
disposition is made by the optionee of
16
<PAGE>
the shares acquired pursuant to the option within two
years after the date of grant of the option nor
within one year after the date of issuance of shares
to him (the "ISO holding period"). However, the
difference between the fair market value of the
shares on the date of exercise and the option price
will be an item of tax preference includible in
"alternative minimum taxable income." Upon
disposition of the shares after the expiration of the
ISO holding period, the optionee will generally
recognize long term capital gain or loss based on the
difference between the disposition proceeds and the
option price paid for the shares. If the shares are
disposed of prior to the expiration of the ISO
holding period, the optionee generally will recognize
taxable compensation, and Cyberian Outpost will have
a corresponding deduction, in the year of the
disposition, equal to the excess of the fair market
value of the shares on the date of exercise of the
option over the option price. Any additional gain
realized on the disposition will normally constitute
capital gain. If the amount realized upon such a
disqualifying disposition is less than fair market
value of the shares on the date of exercise, the
amount of compensation income will be limited to the
excess of the amount realized over the optionee's
adjusted basis in the shares.
Non-Qualified Options otherwise qualifying as incentive stock
Options: options, to the extent the aggregate fair market
value of shares with respect to which such options
are first exercisable by an individual in any
calendar year exceeds $100,000, and options
designated as non-qualified options will be treated
as options that are not incentive stock options.
A non-qualified option ordinarily will not result in
income to the optionee or deduction to Cyberian
Outpost at the time of grant. The optionee will
recognize compensation income at the time of exercise
of such non-qualified option in an amount equal to
the excess of the then value of the shares over the
option price per share. Such compensation income of
optionees may be subject to withholding taxes, and a
deduction may then be allowable to Cyberian Outpost
in an amount equal to the optionee's compensation
income.
An optionee's initial basis in shares so acquired
will be the amount paid on exercise of the non-
qualified option plus the amount of any corresponding
compensation income. Any gain or loss as a result of
a subsequent disposition of the shares so acquired
will be capital gain or loss.
Stock Grants: With respect to stock grants under the Plan that
result in the issuance of shares that are either not
restricted as to transferability or not subject to a
substantial risk of forfeiture, the grantee must
generally recognize ordinary income equal to the fair
market value of shares received. Thus, deferral of
the time of issuance will generally result in the
deferral of the time the grantee will be liable for
income taxes with respect to such issuance. Cyberian
Outpost generally will be entitled to a deduction in
an amount equal to the ordinary income recognized by
the grantee.
With respect to stock grants involving the issuance
of shares that are restricted as to transferability
and subject to a substantial risk of forfeiture, the
grantee must generally recognize ordinary income
equal to the fair market value of the shares received
at the first time the shares become transferable or
are not subject to a substantial risk of forfeiture,
whichever occurs earlier. A grantee may elect to be
taxed at the time of receipt of shares rather than
17
<PAGE>
upon lapse of restrictions on transferability or
substantial risk of forfeiture, but if the grantee
subsequently forfeits such shares, the grantee would
not be entitled to any tax deduction, including as a
capital loss, for the value of the shares on which he
previously paid tax. The grantee must file such
election with the Internal Revenue Service within 30
days of the receipt of the shares. Cyberian Outpost
generally will be entitled to a deduction in an
amount equal to the ordinary income recognized by the
grantee.
Option Information. Pursuant to our director stock option policy, Mr. Lane
and Mr. Preston will each receive automatic grants of non-qualified stock
options to purchase 25,000 shares of our common stock if they are elected to
our Board of Directors at the Annual Meeting. These options will have an
exercise price equal to the fair market value of our common stock as of the
grant date and will be exercisable immediately.
The amount, if any, of stock options to be awarded to any of our other
executives or directors is not presently determinable. The following table
sets forth as of June 18, 1999, certain information with respect to all
options granted under the Plan since it was adopted in July 1998 to (1) the
executive officers named in the Summary Compensation Table on page 9, (2) all
of our current executive officers as a group, (3) all of our current directors
who are not executive officers as a group and (4) all employees, including all
current officers who are not executive officers, as a group:
<TABLE>
<CAPTION>
Number of Shares Weighted Average
Covered by Exercise Price
Name Options Granted Per Share
- ---- ---------------- ----------------
<S> <C> <C>
Darryl Peck.................................. 1,200,000 $18.00
Katherine N. Vick............................ 400,000 $15.72
Michael R. Starkenburg....................... 150,000 $18.00
Philip J. Rello.............................. 140,000 $16.68
All current executive officers as a group.... 2,115,000 $17.25
All current directors who are not executive
officers as a group......................... 49,000 $16.73
All employees, including all current officers
who are not executive
officers, as a group........................ 591,291 $15.61
</TABLE>
The affirmative vote of a majority of shares present, in person or
represented by proxy, and entitled to vote on this proposal is required for
approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR OF THE PROPOSED AMENDMENT TO OUR
1998 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN TO INCREASE BY 2,000,000
SHARES THE AGGREGATE NUMBER OF SHARES RESERVED FOR ISSUANCE AND PROXIES WILL
BE VOTED IN FAVOR OF SUCH AMENDMENT UNLESS A SHAREHOLDER HAS OTHERWISE
INDICATED ON THE PROXY CARD.
Proposal 3: Ratify Selection of Independent Auditors for the Fiscal Year
Ending February 29, 2000.
We are asking you to ratify the Board of Director's selection of KPMG LLP,
certified public accountants, as independent auditors for the fiscal year
ending February 29, 2000. KPMG audited our financial statements for the fiscal
year ended February 28, 1999 and has served as the independent auditors of
Cyberian Outpost since 1996.
A representative of KPMG will be available at the Annual Meeting to answer
your questions.
We are submitting this proposal to you because we believe that such action
follows sound corporate practice. If you do not ratify the selection of KPMG
as independent auditors, the Board of Directors will consider
18
<PAGE>
selecting other auditors. However, even if you ratify the selection, the Board
of Directors may still appoint new independent auditors at any time during the
next fiscal year if it believes that such a change will be in the best
interests of Cyberian Outpost and our stockholders.
The affirmative vote of a majority of the shares voted affirmatively or
negatively at the Annual Meeting is required to ratify the appointment of the
independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon review of our records all reports required to be filed pursuant
to Section 16(a) of the Exchange Act were filed on a timely basis except (a)
Initial Statements of Beneficial Ownership on Forms 3 were filed late by Bruce
Schellinkhout and Raymond Maccio, (b) Statements of Changes in Beneficial
Ownership on Forms 4 for a July 1998 event were filed late by Darryl Peck and
Katherine Vick, and (c) a Statement of Changes in Beneficial Ownership on Form
4 for a January 1999 event was filed late by Katherine Vick.
Information About Stockholder Proposals
To be considered for inclusion in our proxy statement relating to the 2000
Annual Meeting of Stockholders, stockholder proposals must be received no
later than February 28, 2000. To be considered for presentation at such
meeting, although not included in our proxy statement, proposals must comply
with our By-laws and must be received no later than May 28, 2000 and no
earlier than April 28, 2000. All stockholder proposals should be marked for
the attention of Secretary, Cyberian Outpost, Inc., 25 North Main Street, P.O.
Box 636, Kent, Connecticut, 06757.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL
OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
By order of the Board of Directors:
Katherine N. Vick
Secretary
June 28, 1999
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APPENDIX A
CYBERIAN OUTPOST, INC.
AMENDED AND RESTATED
1998 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
1. Definitions.
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this Cyberian Outpost 1998 Employee, Director and
Consultant Stock Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated power
to act on its behalf to the Committee, in which case the Administrator
means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of the
Code, is a parent or subsidiary of the Company, direct or indirect.
Board of Directors means the Board of Directors of the Company.
Code means the United States Internal Revenue Code of 1986, as amended.
Committee means the committee of the Board of Directors to which the
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
Common Stock means shares of the Company's common stock, no par value per
share.
Company means Cyberian Outpost Inc., a Delaware corporation.
Disability or Disabled means permanent and total disability as defined in
Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are regularly
reported for the Common Stock, the closing or last price of the Common
Stock on the Composite Tape or other comparable reporting system for
the trading day immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading day
referred to in clause (1), and if bid and asked prices for the Common
Stock are regularly reported, the mean between the bid and the asked
price for the Common Stock at the close of trading in the over-the-
counter market for the trading day on which Common Stock was traded
immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option under
Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by the
Administrator to be eligible to be granted one or more Stock Rights under
the Plan.
Non-Qualified Option means an option which is not intended to qualify as
an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
Option Agreement means an agreement between the Company and a Participant
delivered pursuant to the Plan, in such form as the Administrator shall
approve.
Participant means a Key Employee, director or consultant to whom one or
more Stock Rights are granted under the Plan. As used herein, "Participant"
shall include "Participant's Survivors" where the context requires.
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Plan means this Amended and Restated Cyberian Outpost 1998 Employee,
Director and Consultant Stock Plan.
Shares means shares of the Common Stock as to which Stock Rights have
been or may be granted under the Plan or any shares of capital stock into
which the Shares are changed or for which they are exchanged within the
provisions of Paragraph 3 of the Plan. The Shares issued under the Plan may
be authorized and unissued shares or shares held by the Company in its
treasury, or both.
Stock Grant means a grant by the Company of Shares under the Plan.
Stock Grant Agreement means an agreement between the Company and a
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Stock Right means a right to Shares of the Company granted pursuant to
the Plan--an ISO, a Non-Qualified Option or a Stock Grant.
Survivors means a deceased Participant's legal representatives and/or any
person or persons who acquired the Participant's rights to a Stock Right by
will or by the laws of descent and distribution.
2. Purposes of the Plan.
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an
Affiliate and to provide additional incentive for them to promote the success
of the Company or of an Affiliate. The Plan provides for the granting of ISOs,
Non-Qualified Options and Stock Grants.
3. Shares Subject to the Plan.
The number of Shares which may be issued from time to time pursuant to this
Plan shall be 5,186,000 shares of Common Stock or the equivalent of such
number of Shares after the Administrator, in its sole discretion, has
interpreted the effect of any stock split, stock dividend, combination,
recapitalization or similar transaction in accordance with Paragraph 23 of the
Plan.
If an Option ceases to be "outstanding", in whole or in part, or if the
Company shall reacquire any Shares issued pursuant to a Stock Grant, the
Shares which were subject to such Option and any Shares so reacquired by the
Company shall be available for the granting of other Stock Rights under the
Plan. Any Option shall be treated as "outstanding" until such Option is
exercised in full, or terminates or expires under the provisions of the Plan,
or by agreement of the parties to the pertinent Option Agreement.
4. Administration of the Plan.
The Administrator of the Plan will be the Board of Directors, except to the
extent the Board of Directors delegates its authority to the Committee, in
which case the Committee shall be the Administrator. Subject to the provisions
of the Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Stock Grant
and to make all rules and determinations which it deems necessary or
advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors and
consultants shall be granted Stock Rights;
c. Determine the number of Shares for which a Stock Right or Stock Rights
shall be granted, provided, however, that in no event shall Stock Rights
with respect to more than 3,000,000 shares be granted to any Participant in
any fiscal year; and
d. Specify the terms and conditions upon which a Stock Right or Stock
Rights may be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the
tax status under Section 422 of the Code of those Options which are
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designated as ISOs. Subject to the foregoing, the interpretation and
construction by the Administrator of any provisions of the Plan or of any
Stock Right granted under it shall be final, unless otherwise determined by
the Board of Directors, if the Administrator is the Committee.
5. Eligibility for Participation.
The Administrator will, in its sole discretion, name the Participants in the
Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time a Stock
Right is granted. Notwithstanding the foregoing, the Administrator may
authorize the grant of a Stock Right to a person not then an employee,
director or consultant of the Company or of an Affiliate; provided, however,
that the actual grant of such Stock Right shall be conditioned upon such
person becoming eligible to become a Participant at or prior to the time of
the delivery of the Agreement evidencing such Stock Right. ISOs may be granted
only to Key Employees. Non-Qualified Options and Stock Grants may be granted
to any Key Employee, director or consultant of the Company or an Affiliate.
The granting of any Stock Right to any individual shall neither entitle that
individual to, nor disqualify him or her from, participation in any other
grant of Stock Rights.
6. Terms and Conditions of Options.
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such terms and conditions, consistent with the terms and
conditions specifically required under this Plan, as the Administrator may
deem appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto.
A. Non-Qualified Options: Each Option intended to be a Non-Qualified Option
shall be subject to the terms and conditions which the Administrator
determines to be appropriate and in the best interest of the Company, subject
to the following minimum standards for any such Non-Qualified Option:
a. Option Price: Each Option Agreement shall state the option price (per
share) of the Shares covered by each Option, which option price shall be
determined by the Administrator but shall not be less than the par value
per share of Common Stock.
b. Each Option Agreement shall state the number of Shares to which it
pertains;
c. Each Option Agreement shall state the date or dates on which it first
is exercisable and the date after which it may no longer be exercised, and
may provide that the Option rights accrue or become exercisable in
installments over a period of months or years, or upon the occurrence of
certain conditions or the attainment of stated goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to the
Administrator providing for certain protections for the Company and its
other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to sell or
transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be required to
execute letters of investment intent and must also acknowledge that the
Shares will bear legends noting any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
Employee and be subject to at least the following terms and conditions, with
such additional restrictions or changes as the Administrator determines are
appropriate but not in conflict with Section 422 of the Code and relevant
regulations and rulings of the Internal Revenue Service:
a. Minimum standards: The ISO shall meet the minimum standards required
of Non-Qualified Options, as described in Paragraph 6(A) above, except
clause (a) thereunder.
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b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable attribution rules
in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting power of
all classes of stock of the Company or an Affiliate, the Option price
per share of the Shares covered by each Option shall not be less than
one hundred percent (100%) of the Fair Market Value per share of the
Shares on the date of the grant of the Option.
ii. More than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or an Affiliate, the Option price
per share of the Shares covered by each Option shall not be less than
one hundred ten percent (110%) of the said Fair Market Value on the
date of grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power of
all classes of stock of the Company or an Affiliate, each Option shall
terminate not more than ten (10) years from the date of the grant or at
such earlier time as the Option Agreement may provide.
ii. More than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or an Affiliate, each Option shall
terminate not more than five (5) years from the date of the grant or at
such earlier time as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall restrict
the amount of Options which may be exercisable in any calendar year (under
this or any other ISO plan of the Company or an Affiliate) so that the
aggregate Fair Market Value (determined at the time each ISO is granted) of
the stock with respect to which ISOs are exercisable for the first time by
the Participant in any calendar year does not exceed one hundred thousand
dollars ($100,000), provided that this subparagraph (d) shall have no force
or effect if its inclusion in the Plan is not necessary for Options issued
as ISOs to qualify as ISOs pursuant to Section 422(d) of the Code.
7. Terms and Conditions of Stock Grants.
Each offer of a Stock Grant to a Participant shall state the date prior to
which the Stock Grant must be accepted by the Participant, and the principal
terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Stock Grant Agreement shall be in a form
approved by the Administrator and shall contain terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards:
(a) Each Stock Grant Agreement shall state the purchase price (per
share), if any, of the Shares covered by each Stock Grant, which purchase
price shall be determined by the Administrator but shall not be less than
the minimum consideration required by the Delaware Law on the date of the
grant of the Stock Grant;
(b) Each Stock Grant Agreement shall state the number of Shares to which
the Stock Grant pertains; and
(c) Each Stock Grant Agreement shall include the terms of any right of
the Company to reacquire the Shares subject to the Stock Grant, including
the time and events upon which such rights shall accrue and the purchase
price therefor, if any.
8. Exercise of Options and Issue of Shares.
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or
the Option Agreement. Payment of the purchase price for the Shares as to which
such Option is being exercised shall be made (a) in United States dollars in
cash or by
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check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d)
of the Code, or (e) at the discretion of the Administrator, in accordance with
a cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the Administrator,
by any combination of (a), (b), (c), (d) and (e) above. Notwithstanding the
foregoing, the Administrator shall accept only such payment on exercise of an
ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's
Survivors, as the case may be). In determining what constitutes "reasonably
promptly," it is expressly understood that the issuance and delivery of the
Shares may be delayed by the Company in order to comply with any law or
regulation (including, without limitation, state securities or "blue sky"
laws) which requires the Company to take any action with respect to the Shares
prior to their issuance. The Shares shall, upon delivery, be evidenced by an
appropriate certificate or certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise of
any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any
Key Employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to Paragraph 26) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
Paragraph 6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of
the Participant to whom the Option was granted, or in the event of the death
of the Participant, the Participant's Survivors, if the amendment is adverse
to the Participant, and (iii) any such amendment of any ISO shall be made only
after the Administrator, after consulting the counsel for the Company,
determines whether such amendment would constitute a "modification" of any
Option which is an ISO (as that term is defined in Section 424(h) of the Code)
or would cause any adverse tax consequences for the holder of such ISO.
9. Acceptance of Stock Grant and Issue of Shares.
A Stock Grant (or any part or installment thereof) shall be accepted by
executing the Stock Grant Agreement and delivering it to the Company at its
principal office address, together with provision for payment of the full
purchase price, if any, in accordance with this Paragraph for the Shares as to
which such Stock Grant is being accepted, and upon compliance with any other
conditions set forth in the Stock Grant Agreement. Payment of the purchase
price for the Shares as to which such Stock Grant is being accepted shall be
made (a) in United States dollars in cash or by check, or (b) at the
discretion of the Administrator, through delivery of shares of Common Stock
having a fair market value equal as of the date of acceptance of the Stock
Grant to the purchase price of the Stock Grant determined in good faith by the
Administrator, or (c) at the discretion of the Administrator, by delivery of
the grantee's personal recourse note bearing interest payable not less than
annually at no less than 100% of the applicable Federal rate, as defined in
Section 1274(d) of the Code, or (d) at the discretion of the Administrator, by
any combination of (a), (b) and (c) above.
The Company shall then reasonably promptly deliver the Shares as to which
such Stock Grant was accepted to the Participant (or to the Participant's
Survivors, as the case may be), subject to any escrow provision set forth in
the Stock Grant Agreement. In determining what constitutes "reasonably
promptly," it is expressly understood that the issuance and delivery of the
Shares may be delayed by the Company in order to comply with any law or
regulation (including, without limitation, state securities or "blue sky"
laws) which requires the Company to take any action with respect to the Shares
prior to their issuance.
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The Administrator may, in its discretion, amend any term or condition of an
outstanding Stock Grant or Stock Grant Agreement provided (i) such term or
condition as amended is permitted by the Plan, and (ii) any such amendment
shall be made only with the consent of the Participant to whom the Stock Grant
was made, if the amendment is adverse to the Participant.
10. Rights as a Shareholder.
No Participant to whom a Stock Right has been granted shall have rights as a
shareholder with respect to any Shares covered by such Stock Right, except
after due exercise of the Option or acceptance of the Stock Grant and tender
of the full purchase price, if any, for the Shares being purchased pursuant to
such exercise or acceptance and registration of the Shares in the Company's
share register in the name of the Participant.
11. Assignability and Transferability of Stock Rights.
By its terms, a Stock Right granted to a Participant shall not be
transferable by the Participant other than (i) by will or by the laws of
descent and distribution, or (ii) as otherwise determined by the Administrator
and set forth in the applicable Option Agreement or Stock Grant Agreement. The
designation of a beneficiary of a Stock Right by a Participant shall not be
deemed a transfer prohibited by this Paragraph. Except as provided above, a
Stock Right shall only be exercisable or may only be accepted, during the
Participant's lifetime, by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Stock Right or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon a Stock Right, shall be null and void.
12. Effect on Options of Termination of Service Other Than for "Cause" or
Death or Disability.
Except as otherwise provided in the pertinent Option Agreement in the event
of a termination of service (whether as an employee, director or consultant)
with the Company or an Affiliate before the Participant has exercised an
Option, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination for
"cause", Disability, or death for which events there are special rules in
Paragraphs 13, 14, and 15, respectively), may exercise any Option granted
to him or her to the extent that the Option is exercisable on the date of
such termination of service, but only within such term as the Administrator
has designated in the pertinent Option Agreement.
b. Except as provided in Subparagraph (c) below, or Paragraph 14 or 15,
in no event may an Option Agreement provide, if an Option is intended to be
an ISO, that the time for exercise be later than three (3) months after the
Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of Paragraph
14 or 15, shall apply to a Participant who subsequently becomes Disabled or
dies after the termination of employment, director status or consultancy,
provided, however, in the case of a Participant's Disability or death
within three (3) months after the termination of employment, director
status or consultancy, the Participant or the Participant's Survivors may
exercise the Option within one (1) year after the date of the Participant's
termination of employment, but in no event after the date of expiration of
the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director status or
termination of consultancy, but prior to the exercise of an Option, the
Board of Directors determines that, either prior or subsequent to the
Participant's termination, the Participant engaged in conduct which would
constitute "cause", then such Participant shall forthwith cease to have any
right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of temporary
disability (any disability other than a permanent and
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total Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such absence,
be deemed, by virtue of such absence alone, to have terminated such
Participant's employment, director status or consultancy with the Company
or with an Affiliate, except as the Administrator may otherwise expressly
provide.
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate.
13. Effect on Options of Termination of Service for "Cause".
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated for
"cause" prior to the time that all his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated for "cause" will immediately
be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any Affiliate.
The determination of the Administrator as to the existence of "cause" will
be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause", then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause" for
termination and which is in effect at the time of such termination, shall
supersede the definition in this Plan with respect to such Participant.
14. Effect on Options of Termination of Service for Disability.
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the
Company or of an Affiliate by reason of Disability may exercise any Option
granted to such Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have accrued
had the Participant not become Disabled prior to the end of the accrual
period which next ends following the date of Disability. The proration
shall be based upon the number of days of such accrual period prior to the
date of Disability.
A Disabled Participant may exercise such rights only within a period of not
more than one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become disabled
and had continued to be an employee, director or consultant or, if earlier,
within the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company
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and such Participant, in which case such procedure shall be used for such
determination). If requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
15. Effect on Options of Death While an Employee, Director or Consultant.
Except as otherwise provided in the pertinent Option Agreement, in the event
of the death of a Participant while the Participant is an employee, director
or consultant of the Company or of an Affiliate, such Option may be exercised
by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual period
which next ends following the date of death. The proration shall be based
upon the number of days of such accrual period prior to the Participant's
death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date
of death of such Participant, notwithstanding that the decedent might have
been able to exercise the Option as to some or all of the Shares on a later
date if he or she had not died and had continued to be an employee, director
or consultant or, if earlier, within the originally prescribed term of the
Option.
16. Effect of Termination of Service on Stock Grants.
In the event of a termination of service (whether as an employee, director
or consultant) with the Company or an Affiliate for any reason before the
Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to
whom a Stock Grant has been offered under the Plan who is absent from work
with the Company or with an Affiliate because of temporary disability (any
disability other than a permanent and total Disability as defined in Paragraph
1 hereof), or who is on leave of absence for any purpose, shall not, during
the period of any such absence, be deemed, by virtue of such absence alone, to
have terminated such Participant's employment, director status or consultancy
with the Company or with an Affiliate, except as the Administrator may
otherwise expressly provide.
In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any
change of employment or other service within or among the Company and any
Affiliates shall not be treated as a termination of employment, director
status or consultancy so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate.
17. Effect on Stock Grants of Termination of Service Other Than for "Cause" or
Death or Disability.
Except as otherwise provided in the pertinent Stock Grant Agreement, in the
event of a termination of service (whether as an employee, director or
consultant), other than termination for "cause," Disability, or death for
which events there are special rules in Paragraphs 18, 19, and 20,
respectively, before all Company rights of repurchase shall have lapsed, then
the Company shall have the right to repurchase that number of Shares subject
to a Stock Grant as to which the Company's repurchase rights have not lapsed.
18. Effect on Stock Grants of Termination of Service for "Cause".
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated for
"cause":
a. All Shares subject to any Stock Grant shall be immediately subject to
repurchase by the Company at the purchase price, if any, thereof.
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b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the employer, insubordination, substantial
malfeasance or non-feasance of duty, unauthorized disclosure of
confidential information, and conduct substantially prejudicial to the
business of the Company or any Affiliate. The determination of the
Administrator as to the existence of "cause" will be conclusive on the
Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service, that either prior or subsequent to the Participant's termination
the Participant engaged in conduct which would constitute "cause," then the
Company's right to repurchase all of such Participant's Shares shall apply.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause" for
termination and which is in effect at the time of such termination, shall
supersede the definition in this Plan with respect to such Participant.
19. Effect on Stock Grants of Termination of Service for Disability.
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply if a Participant ceases to be an employee, director or
consultant of the Company or of an Affiliate by reason of Disability: to the
extent the Company's rights of repurchase have not lapsed on the date of
Disability, they shall be exercisable; provided, however, that in the event
such rights of repurchase lapse periodically, such rights shall lapse to the
extent of a pro rata portion of the Shares subject to such Stock Grant as
would have lapsed had the Participant not become Disabled prior to the end of
the vesting period which next ends following the date of Disability. The
proration shall be based upon the number of days of such vesting period prior
to the date of Disability.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such
determination). If requested, the Participant shall be examined by a physician
selected or approved by the Administrator, the cost of which examination shall
be paid for by the Company.
20. Effect on Stock Grants of Death While an Employee, Director or Consultant.
Except as otherwise provided in the pertinent Stock Grant Agreement, the
following rules apply in the event of the death of a Participant while the
Participant is an employee, director or consultant of the Company or of an
Affiliate: to the extent the Company's rights of repurchase have not lapsed on
the date of death, they shall be exercisable; provided, however, that in the
event such rights of repurchase lapse periodically, such rights shall lapse to
the extent of a pro rata portion of the Shares subject to such Stock Grant as
would have lapsed had the Participant not died prior to the end of the vesting
period which next ends following the date of death. The proration shall be
based upon the number of days of such vesting period prior to the
Participant's death.
21. Purchase for Investment.
Unless the offering and sale of the Shares to be issued upon the particular
exercise or acceptance of a Stock Right shall have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended (the
"1933 Act"), the Company shall be under no obligation to issue the Shares
covered by such exercise unless and until the following conditions have been
fulfilled:
a. The person(s) who exercise(s) or accept(s) such Stock Right shall
warrant to the Company, prior to the receipt of such Shares, that such
person(s) are acquiring such Shares for their own respective accounts, for
investment, and not with a view to, or for sale in connection with, the
distribution of any such Shares, in which event the person(s) acquiring
such Shares shall be bound by the provisions of the following legend
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<PAGE>
which shall be endorsed upon the certificate(s) evidencing their Shares
issued pursuant to such exercise or such grant:
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be effective under the
Securities Act of 1933, as amended, or (b) the Company shall have
received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) there shall
have been compliance with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have
received an opinion of its counsel that the Shares may be issued upon such
particular exercise or acceptance in compliance with the 1933 Act without
registration thereunder.
22. Dissolution or Liquidation of the Company.
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised and all
Stock Grants which have not been accepted will terminate and become null and
void; provided, however, that if the rights of a Participant or a
Participant's Survivors have not otherwise terminated and expired, the
Participant or the Participant's Survivors will have the right immediately
prior to such dissolution or liquidation to exercise or accept any Stock Right
to the extent that the Stock Right is exercisable or subject to acceptance as
of the date immediately prior to such dissolution or liquidation.
23. Adjustments.
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Stock Right granted to him or her hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in
the pertinent Option Agreement or Stock Grant Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other non-cash assets are distributed
with respect to such shares of Common Stock, the number of shares of Common
Stock deliverable upon the exercise or acceptance of such Stock Right may be
appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such
events. The number of Shares subject to the limitation in Paragraph 4(c) shall
also be proportionately adjusted upon the occurrence of such events.
B. Consolidations or Mergers. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Administrator or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either
(i) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the Shares then subject to such Options
either the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition or securities of any successor
or acquiring entity; or (ii) upon written notice to the Participants, provide
that all Options must be exercised (either to the extent then exercisable or,
at the discretion of the Administrator, all Options being made fully
exercisable for purposes of this Subparagraph) at the end of which period the
Options shall terminate; or (iii) terminate all Options in exchange for a cash
payment equal to the excess of the Fair Market Value of the Shares subject to
such Options (either to the extent then exercisable or, at the discretion of
the Administrator, all Options being made fully exercisable for purposes of
this Subparagraph) over the exercise price thereof.
With respect to outstanding Stock Grants, the Administrator or the Successor
Board, shall either (i) make appropriate provisions for the continuation of
such Stock Grants by substituting on an equitable basis for the
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<PAGE>
Shares then subject to such Stock Grants either the consideration payable with
respect to the outstanding Shares of Common Stock in connection with the
Acquisition or securities of any successor or acquiring entity; or (ii) upon
written notice to the Participants, provide that all Stock Grants must be
accepted (to the extent then subject to acceptance) within a specified number
of days of the date of such notice, at the end of which period the offer of
the Stock Grants shall terminate; or (iii) terminate all Stock Grants in
exchange for a cash payment equal to the excess of the Fair Market Value of
the Shares subject to such Stock Grants over the purchase price thereof, if
any. In addition, in the event of an Acquisition, the Administrator may waive
any or all Company repurchase rights with respect to outstanding Stock Grants.
C. Recapitalization or Reorganization. In the event of a recapitalization or
reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of
another corporation are issued with respect to the outstanding shares of
Common Stock, a Participant upon exercising or accepting a Stock Right shall
be entitled to receive for the purchase price, if any, paid upon such exercise
or acceptance the securities which would have been received if such Stock
Right had been exercised or accepted prior to such recapitalization or
reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments made
pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause
any adverse tax consequences for the holders of such ISOs. If the
Administrator determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments, unless the holder of an ISO specifically requests in writing that
such adjustment be made and such writing indicates that the holder has full
knowledge of the consequences of such "modification" on his or her income tax
treatment with respect to the ISO.
24. Issuances of Securities.
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 subject to Stock Rights. Except as
expressly provided herein, no adjustments shall be made for dividends paid in
cash or in property (including without limitation, securities) of the Company
prior to any issuance of Shares pursuant to a Stock Right.
25. Fractional Shares.
No fractional shares shall be issued under the Plan and the person
exercising a Stock Right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
26. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise
price of the appropriate installments of such Options. At the time of such
conversion, the Administrator (with the consent of the Participant) may impose
such conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed
to give any Participant the right to have such Participant's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and
unless the Administrator takes appropriate action. The Administrator, with the
consent of the Participant, may also terminate any portion of any ISO that has
not been exercised at the time of such conversion.
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<PAGE>
27. Withholding.
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be
withheld from the Participant's salary, wages or other remuneration in
connection with the exercise or acceptance of a Stock Right or in connection
with a Disqualifying Disposition (as defined in Paragraph 28) or upon the
lapsing of any right of repurchase, the Company may withhold from the
Participant's compensation, if any, or may require that the Participant
advance in cash to the Company, or to any Affiliate of the Company which
employs or employed the Participant, the amount of such withholdings unless a
different withholding arrangement, including the use of shares of Common Stock
or a promissory note, is authorized by the Administrator (and permitted by
law). For purposes hereof, the fair market value of the shares withheld for
purposes of payroll withholding shall be determined in the manner provided in
Paragraph 1 above, as of the most recent practicable date prior to the date of
exercise. If the fair market value of the shares withheld is less than the
amount of payroll withholdings required, the Participant may be required to
advance the difference in cash to the Company or the Affiliate employer. The
Administrator in its discretion may condition the exercise of an Option for
less than the then Fair Market Value on the Participant's payment of such
additional withholding.
28. Notice to Company of Disqualifying Disposition.
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition
of any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
29. Termination of the Plan.
The Plan will terminate on 10 years after adoption, the date which is ten
(10) years from the earlier of the date of its adoption and the date of its
approval by the shareholders of the Company. The Plan may be terminated at an
earlier date by vote of the shareholders of the Company; provided, however,
that any such earlier termination shall not affect any Option Agreements or
Stock Grant Agreements executed prior to the effective date of such
termination.
30. Amendment of the Plan and Agreements.
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Stock Rights granted under
the Plan or Stock Rights to be granted under the Plan for favorable federal
income tax treatment (including deferral of taxation upon exercise) as may be
afforded incentive stock options under Section 422 of the Code, and to the
extent necessary to qualify the shares issuable upon exercise or acceptance of
any outstanding Stock Rights granted, or Stock Rights to be granted, under the
Plan for listing on any national securities exchange or quotation in any
national automated quotation system of securities dealers. Any amendment
approved by the Administrator which the Administrator determines is of a scope
that requires shareholder approval shall be subject to obtaining such
shareholder approval. Any modification or amendment of the Plan shall not,
without the consent of a Participant, adversely affect his or her rights under
a Stock Right previously granted to him or her. With the consent of the
Participant affected, the Administrator may amend outstanding Option
Agreements and Stock Grant Agreements in a manner which may be adverse to the
Participant but which is not inconsistent with the Plan. In the discretion of
the Administrator, outstanding Option Agreements and Stock Grant Agreements
may be amended by the Administrator in a manner which is not adverse to the
Participant.
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<PAGE>
31. Employment or Other Relationship.
Nothing in this Plan or any Option Agreement or Stock Grant Agreement shall
be deemed to prevent the Company or an Affiliate from terminating the
employment, consultancy or director status of a Participant, nor to prevent a
Participant from terminating his or her own employment, consultancy or
director status or to give any Participant a right to be retained in
employment or other service by the Company or any Affiliate for any period of
time.
32. Governing Law.
This Plan shall be construed and enforced in accordance with the law of the
State of Delaware.
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<PAGE>
CYBERIAN OUTPOST, INC.
THIS PROXY IS BEING SOLICITED BY CYBERIAN OUTPOST'S BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated June
28, 1999, in connection with the Annual Meeting to be held at 10:00 a.m. on
Tuesday, July 27, 1999, at the Kent Community House, 93 North Main Street,
Kent, Connecticut and hereby appoints Darryl Peck and Katherine N. Vick,
and each of them (with full power to act alone), the attorneys and proxies
of the undersigned, with power of substitution to each, to vote all shares
of the common stock of Cyberian Outpost, Inc. registered in the name
provided herein which the undersigned is entitled to vote at the 1999
Annual Meeting of Stockholders, and at any adjournments thereof, with all
the powers the undersigned would have if personally present. Without
limiting the general authorization hereby given, said proxies are, and each
of them is, instructed to vote or act as follows on the proposals set forth
in said Proxy.
This Proxy when executed will be voted in the manner directed herein. If
no direction is made this Proxy will be voted FOR the election of Directors
and FOR Proposals 2 and 3.
<PAGE>
[X] Please mark votes as in this example.
The Board of Directors recommends a vote FOR Proposals 1 through 3.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. Election of Directors (See reverse). FOR [_] WITHHELD [_] Nominees: William H. Lane, III James E. Preston
</TABLE>
_____________________________________________________
[_] For all nominees except as noted above.
2. Proposal to increase by 2,000,000 shares the aggregate number of shares
reserved for issuance under Cyberian Outpost's 1998 Employee, Director and
Consultant Stock Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to Ratify the Appointment of KPMG LLP as Cyberian Outpost's
independent public accountants for the fiscal year ending February 29,
2000.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments
thereof. Election of Directors (or if any nominee is not available for
election, such substitute as the Board of Directors may designate)
Please sign exactly as name(s) appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
Signature:____________________________ Date______________________
Signature:____________________________ Date______________________
