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SCHEDULE 14(a) 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
[X] Definitive proxy statement
[ ] Definitive addition materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
C2i SOLUTIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
C2i SOLUTIONS, INC.
- --------------------------------------------------------------------------------
(Name of Persons(s) Filing Proxy Statement)
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: N/A
(2) Aggregate number of securities to which transactions applies: N/A
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
[X] 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: N/A
(2) Form, schedule or registration statement no.: N/A
(3) Filing party: N/A
(4) Date filed: N/A
*Set forth the amount on which the filing fee is calculated and state how it was
determined.
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May 28, 1998
Dear Stockholder:
This year's annual meeting of stockholders will be held on Friday,
June 26, 1998 at 10:00 a.m. local time, at The Wyndham Garden Hotel -- San
Diego, 5975 Lusk Blvd., San Diego, California 92121. You are cordially invited
to attend.
The Notice of Annual Meeting of Stockholders and a Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.
After reading the Proxy Statement, please promptly mark, sign, and return
the enclosed proxy in the prepaid envelope to assure that your shares will be
represented. Your shares cannot be voted unless you date, sign, and return the
enclosed proxy or attend the annual meeting in person. Regardless of the number
of shares you own, your careful consideration of, and vote on, the matters
before our stockholders are important.
A copy of the Company's 1997 Annual Report is also enclosed.
We look forward to seeing you at the annual meeting.
Very truly yours,
/s/ John Anthony Whalen, Jr.
--------------------------------------
John Anthony Whalen, Jr.
Chief Executive Officer
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C2i SOLUTIONS, INC.
6138 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121-3223
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FRIDAY, JUNE 26, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of C2i
Solutions, Inc. (the "Company") will be held on Friday, June 26, 1998, at 10:00
a.m., local time, at The Wyndham Garden Hotel -- San Diego, 5975 Lusk Blvd., San
Diego, California 92121, for the following purposes:
1. To elect two Class I directors to hold office for three-year
terms and until their successors are elected and qualified;
2. To consider a proposal to (a) increase the number of shares of
the Company's Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan (the "Option Plan"), (b)
increase the limit on the number of shares issuable on exercise
of outstanding options under the Option Plan, and (c) establish
an annual grant limit of option grants to any employee.
3. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders of record at the close of business on May 22, 1998 are
entitled to notice of and to vote at the meeting and any adjournments or
postponements thereof. For ten days prior to the meeting, a complete list of the
stockholders entitled to vote at the meeting will be available for examination
by any stockholder for any purpose relating to the meeting during ordinary
business hours of the Company.
By Order Of The Board Of Directors of
C2i Solutions, Inc.
/s/ Diane E. Hessler
-------------------------------
Diane E. Hessler,
Secretary
San Diego, California
May 28, 1998
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD
IN THE ACCOMPANYING POST-PAID ENVELOPE TO ASSURE THAT YOUR SHARES ARE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY CHOOSE TO VOTE IN
PERSON EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY CARD.
<PAGE> 4
C2i SOLUTIONS, INC.
6138 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121-3223
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
-------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING OF PROXIES
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
C2i Solutions, Inc., a Delaware Corporation (the "Company") for use at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held on June 26,
1998, at 10:00 a.m., local time, or at any adjournments or postponements
thereof, for the purposes set forth herein and in an accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at The Wyndham
Garden Hotel -- San Diego, 5975 Lusk Blvd., San Diego, California 92121. The
date of this Proxy Statement is May 28, 1998, the approximate date on which this
Proxy Statement and accompanying form of proxy were first sent or given to
Stockholders.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use either by delivering to the Company
(6138 Nancy Ridge Drive, San Diego, California 92121-3223, Attention: Diane E.
Hessler) a written notice of revocation or a duly executed proxy bearing a later
date, or by attending the Annual Meeting and voting in person. If a proxy is
properly signed and not revoked, the shares it represents will be voted in
accordance with the instructions of the stockholder.
VOTING
Only stockholders of record as of the close of business on May 22, 1998,
will be entitled to vote at the meeting and any adjournment thereof. As of that
date, there were 3,542,171 shares of Common Stock of the Company, par value
$0.001 per share, issued and outstanding. Stockholders may vote in person or by
proxy. Each holder of shares of Common Stock is entitled to one vote for each
share of stock held on the proposals presented in this Proxy Statement. The
Company's by-laws generally provide that a majority of all of the shares of the
stock entitled to vote, whether present in person or represented by proxy, shall
constitute a quorum for the transaction of business at the meeting. Abstentions
and shares held by brokers that are present, but not voted because the brokers
were prohibited from exercising discretionary authority, i.e., "broker
non-votes," will be counted as present for purposes of determining if a quorum
is present.
Except with respect to the election of directors and except in certain
other specific circumstances, the affirmative vote of a majority of shares
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) is required under Delaware law for approval of proposals
presented to stockholders.
SOLICITATION OF PROXIES
The cost of soliciting these proxies will be borne by the Company.
Regular employees and directors of the Company may solicit proxies in person, by
telephone, or by mail. No additional compensation will be given to employees or
directors for such solicitation. The Company will request brokers and nominees
who hold stock in their names to furnish proxy material to beneficial owners of
the shares and will reimburse such brokers and nominees for their reasonable
expenses incurred in forwarding solicitation material to such beneficial owners.
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VOTING OF PROXIES
All valid proxies received prior to the meeting will be voted. All
shares represented by a proxy will be voted, and where a stockholder specifies
by means of the proxy a choice with respect to any matter to be acted upon, the
shares will be voted in accordance with the specification so made. If no choice
is indicated on the proxy, the shares will be voted in favor of the
director-nominees and the proposals set forth herein.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
NOMINEES
The Company has a classified Board of Directors currently consisting of
two Class I directors (Hal H. Beretz and Henry F. Frigon), two Class II
directors (David Tendler and Kim P. Goh), and one Class III director (John
Anthony Whalen, Jr.), who will serve until the Annual Meetings of Stockholders
to be held in 1998, 1999 and 2000, respectively, and until their successors are
duly elected and qualified. Directors in a class are elected for a term of three
years to succeed the directors in such class whose terms expire at such annual
meeting.
Management's nominees for elections at the 1998 Annual Meeting of
Stockholders to fill the Class I positions on the Board of Directors are Hal H.
Beretz and Henry F. Frigon. If elected, the nominees will serve as directors
until the Company's Annual Meeting of Stockholders in 2001, and until their
successors are elected and qualified. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for management's nominees,
regardless of whether any other names are placed in nomination by anyone other
than one of the proxy holders. If the candidacy of either or both of such
nominees should, for any reason, be withdrawn, the proxy holders will vote in
favor of the other nominee, if any, and for such substituted nominees, if any,
as shall be designated by a majority of the Board of Directors, or the number of
directors to be elected at this time may be reduced by the Board of Directors.
The Board of Directors has no reason to believe that any of the persons named
will be unable or unwilling to serve as a nominee or as a director if elected.
The names of the Company's directors, including the Class I nominees to
be elected at this meeting, their ages as of May 22, 1998, and their backgrounds
are set forth below.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
- ---- --- --------------
<S> <C> <C>
NOMINEES FOR TERMS EXPIRING IN 2001 - CLASS I:
Hal H. Beretz 62 1997
Henry F. Frigon 63 1998
DIRECTORS WHOSE TERMS EXPIRE IN 1999 - CLASS II:
Kim P. Goh 55 1997
David Tendler 60 1997
DIRECTOR WHOSE TERM EXPIRES IN 2000 - CLASS III:
John Anthony Whalen, Jr. 55 1997
</TABLE>
- --------------------
Mr. Beretz was elected to the Board in September 1997. Mr. Beretz has
been a partner in the international consulting firm of Tendler Beretz LLC since
January 1985. Prior to forming Tendler Beretz LLC, Mr. Beretz served as
President and Chief Operating Officer of Phibro-Salomon, Inc., currently known
as Salomon Smith Barney, and was also a Director from May 1981 until leaving the
firm in December 1984. Mr. Beretz serves on the Boards of several institutions
and is active in various philanthropic organizations. Mr. Beretz holds a B.B.A.
from City College of New York.
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Mr. Frigon was appointed to the Board in May 1998. Since 1995, Mr.
Frigon has consulted a wide variety of companies on mergers, acquisitions,
divestitures, and major strategic development, restructuring and finance
projects. From 1990 to 1995, Mr. Frigon served as a member of the Board of
Directors, Executive Vice President - Corporate Development, Strategy, Chief
Financial Officer, and Chairman - International Operations for Hallmark Cards,
Inc. From 1981 to 1990 Mr. Frigon served at various times as President and Chief
Executive Officer and as Executive Vice President and Chief Financial Officer of
BATUS Incorporated, a subsidiary of B.A.T. Industries plc. From 1959 to 1981,
Mr. Frigon served in various executive capacities with Masco Corporation,
General Housewares Corporation, and General Foods Corporation. Mr. Frigon is a
director of Buckeye Technologies, Inc., Dimon, Inc., Group Technologies, Inc., H
& R Block, Inc., Sypris Solutions, Inc., and the Circle K Corporation.
Mr. Goh was elected to the Board in September 1997. Mr. Goh is an
independent consultant for Merck/Medco, a managed healthcare company. From 1993
to 1996, he was Executive Vice President of MIS at Merck/Medco. From 1988 to
1993, Mr. Goh was Senior Vice President, Head of GeoService Technology and
Senior Vice President, Head of Retail Operations Division for Chemical Banking
Corporation, New York. From 1970 to 1988 he held several senior executive
positions at Citibank, N.A., New York, including several of Citicorp's
information business subsidiaries. Mr. Goh has a B.A. from Southhampton College
of Long Island University, an M.A. in Economics from the New School for Social
Research, New York, and an AMP from Harvard University Business School.
Mr. Tendler was elected to the Board in September 1997. Mr. Tendler has
been a partner in the international consulting firm of Tendler Beretz LLC since
January 1985. Prior to forming Tendler Beretz LLC, Mr. Tendler served as
Co-Chairman and Chief Executive Officer of Phibro-Salomon, Inc., currently known
as Salomon Smith Barney. Mr. Tendler has almost forty years of experience in the
commodity and investment banking industries, including twenty years in senior
executive positions. Mr. Tendler serves as Chairman of V.I. Technologies, Inc.
and as a director of Bio-Technology General Corporation. Mr. Tendler has also
served on the Boards of various philanthropic organizations. Mr. Tendler holds a
B.B.A. from City College of New York.
Mr. Whalen founded the Company in 1996. Prior to joining the Company he
served from February 1994 through October 1994 as President and Chief Operating
Officer of NETCOM On-line Communication Services, Inc., an Internet service
provider and software developer, and from October 1986 through May 1990 as
Executive Vice President of Optimum Care Corporation, a company operating
behavioral medicine programs in healthcare facilities. From May 1990 to February
1994 and from October 1994 to February 1996, Mr. Whalen was a private investor.
Mr. Whalen holds a B.A. in English literature and American History from St.
Mary's College of California and an M.B.A. from California State University. Mr.
Whalen was licensed as a Certified Public Accountant by the State of California.
BOARD MEETINGS AND COMMITTEES
Following the incorporation of the Company in September 1997, the Board
of Directors held a total of one meeting during the fiscal year ended December
31, 1997. The Board of Directors has an Audit Committee and a Compensation and
Bonus Committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.
The Audit Committee of the Board of Directors, which currently consists
of directors Beretz and Goh held no meetings during fiscal year 1997. The Audit
Committee reviews the results and scope of the audit and other services provided
by the Company's independent auditors, and reviews the management of the
Company's investments.
The Compensation and Bonus Committee of the Board of Directors, which
currently consists of directors Goh and Tendler, held no meetings during fiscal
year 1997. The Compensation Committee makes recommendations concerning salaries,
incentive compensation, and the terms and conditions of stock option grants for
officers and senior employees of the Company and administers the Company's stock
option plan.
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Each director serving on the Board of Directors in fiscal year 1997
attended at least 75% of the aggregate number of meetings of the Board of
Directors and meetings of the committees of the Board of Directors on which he
serves.
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company do not
receive any compensation for attending meetings of the Board of Directors,
although directors are reimbursed for their expenses in attending such meetings.
From time to time, directors have received grants of options to purchase the
Company's Common Stock. The Company does not pay additional amounts for
committee participation or special assignments of the Board of Directors. The
Company has agreed to pay to Messrs. Beretz, Frigon, Goh and Tendler certain
referral fees based on sales by the Company to customers introduced to the
Company by such director. See "Certain Transactions."
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
If a quorum representing a majority of all outstanding shares of Common
Stock of the Company is present, either in person or by proxy, the nominees for
the positions as Class I directors receiving the highest number of votes will be
elected. Abstentions and broker non-votes will have no effect on the vote. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR BOTH OF THE NOMINEES LISTED ABOVE.
PROPOSAL NO. 2: APPROVAL OF AMENDMENT TO 1997 STOCK OPTION PLAN
GENERAL
The Company's 1997 Stock Option Plan (the "Option Plan") was originally
adopted by the Board of Directors and approved by the stockholders with
authorization for the grant of options to purchase 82,500 shares. As of May 22,
1998, no shares were available for future grants under the Option Plan, and
options to purchase 278,500 shares have been granted subject to the approval of
the stockholders. The Board of Directors believes that more shares should be
made available for grants under the Option Plan to satisfy the Company's
anticipated equity incentive objectives. Accordingly, on May 12, 1998 the Board
of Directors approved, subject to stockholder approval, an amendment to the
Option Plan to increase by 2,650,000 shares the maximum number of shares
issuable under the Option Plan.
Section 260.140.45 of the California Code of Regulations limits the
total number of shares of the Company's Common Stock issuable upon exercise of
all of the Company's outstanding options and the number of such shares issuable
under the Option Plan to thirty percent of the then outstanding shares of the
Company's Common Stock (the "30% Plan Limit"), unless a percentage higher than
thirty percent is approved by at least two-thirds of the Company's outstanding
shares entitled to vote. In order to comply with Section 260.145.45, the 30%
Plan Limit was previously incorporated in the Option Plan. To enable the Company
to grant options to purchase up to 2,732,500 shares of Common Stock pursuant to
the Option Plan, on May 12, 1998 the Board of Directors amended the Option Plan,
subject to approval by at least two-thirds of the outstanding shares of the
Company's Common Stock entitled to vote, to limit the number of such shares
issuable upon exercise of currently outstanding options and options later
granted under the Option Plan to no more than ninety percent of the outstanding
shares of the Company's Common Stock (the "90% Plan Limit"), subject to the
overall limitation of 2,732,500 shares.
The Internal Revenue Code of 1986, as amended (the "Code") limits the
amount of compensation paid to a corporation's chief executive officer and four
other most highly compensated officers which may be deductible as an expense for
federal income tax purposes. To enable the Company to continue to deduct in full
all amounts of ordinary income recognized by its executive officers in
connection with options granted under the Option Plan, the Board of Directors
has amended the Option Plan, subject to stockholder approval, to limit to
100,000 the maximum number of shares for which options may be granted to any
employee in any fiscal year (the "Grant Limit"). However, the Company's stock
option grants typically do not approach this limit.
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The stockholders are being asked to approve the amendments to increase
the number of shares of Common Stock reserved for issuance under the Option Plan
by 2,650,000 shares from 82,500 to 2,732,500 and to establish the 90% Plan Limit
and the Grant Limit. The Board of Directors believes that approval of these
amendments is in the best interests of the Company and its stockholders because
the availability of an adequate stock option program is an important factor in
attracting, motivating and retaining qualified officers, employees and
consultants essential to the success of the Company and in aligning their
long-term interests with those of the stockholders. If the stockholders approve
the increase in the number of shares of Common Stock reserved for issuance under
the Option Plan by 2,650,000 shares, but the 90% Plan Limit is not approved by
two-thirds of the outstanding shares of the Company's Common Stock, the 30% Plan
Limit will continue to apply to the Option Plan. If the 30% Plan Limit continues
to apply to the Option Plan, and the stockholders approve the increase, as of
the date of the 1998 Annual Meeting of Stockholders the Company will only be
able to grant additional options to purchase approximately 250,650 shares
pursuant to the Option Plan, and the Company's efforts in attracting, motivating
and retaining such persons would be significantly limited.
SUMMARY OF THE PROVISIONS OF THE OPTION PLAN
The following summary of the Option Plan, as amended, is qualified in
its entirety by the specific language of the Option Plan, a copy of which is
available to any stockholder upon request.
General. The Option Plan provides for the grant of incentive stock
options within the meaning of Section 422 of the Code and nonstatutory stock
options. As of May 22, 1998, the Company had granted options under the Option
Plan to purchase an aggregate of 361,000 shares at a weighted average exercise
price of $10.05 per share, 278,500 of which were granted conditioned upon
stockholder approval. The exercise price of all options granted under the Option
Plan has been at least equal to the fair market value per share of the Common
Stock on the date of grant as determined in good faith by the Board of
Directors. As of May 22, 1998, no options to purchase shares of Common Stock
granted pursuant to the Option Plan had been exercised, and 2,371,500 shares of
Common Stock remained available for future grants under the Option Plan,
provided that the stockholders approve the increase in the number of shares
authorized under the Option Plan and approved by the Board of Directors on May
12, 1998, and two-thirds of the outstanding shares of the Company's Common Stock
approve the 90% Plan Limit.
Shares Subject to Plan. The Board has amended the Option Plan, subject
to stockholder approval, to increase by 2,650,000 the maximum number of
authorized but unissued or reacquired shares of the Company's Common Stock
issuable thereunder to an aggregate of 2,732,500. If the stockholders approve
this increase and two-thirds of the outstanding shares of the Company's Common
Stock approve the 90% Plan Limit, as of the date of the 1998 Annual Meeting of
Stockholders approximately 2,732,500 shares of the Company's Common Stock will
be subject to the Option Plan. If the stockholders approve the increase but less
than two-thirds of the outstanding shares of the Company's Common Stock approve
the 90% Plan Limit, such that the 30% Plan Limit remains in effect, as of the
date of the 1998 Annual Meeting of Stockholders approximately 611,650 shares of
the Company's Common Stock will be subject to the Option Plan. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification, or similar change in the capital structure of the
Company, appropriate adjustments will be made to the shares subject to the
Option Plan, to the Grant Limit, and to outstanding options. To the extent any
outstanding option under the Option Plan expires or terminates prior to exercise
in full or if shares issued upon exercise of an option are repurchased by the
Company, the shares of Common Stock for which such option is not exercised or
the repurchased shares are returned to the Option Plan and become available for
future grant.
Administration. The Option Plan is administered by the Board of
Directors or a duly appointed committee or committees of the Board (hereinafter
referred to as the "Board"). With respect to the participation of individuals
whose transactions in the Company's equity securities are subject to Section 16
of the Securities Exchange Act of 1934 (the "Exchange Act"), the Option Plan
must be administered in compliance with the requirements, if any, of Rule 16b-3
under the Exchange Act. Subject to the provisions of the Option Plan, the Board
determines the persons to whom options are to be granted, the number of shares
to be covered by each option, whether an option is to be an incentive stock
option or a nonstatutory stock option, the terms of exercisability of each
option and the vesting of
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the shares acquired, including the effect thereon of an optionee's termination
of service, the exercise price and type of consideration to be paid to the
Company upon exercise of an option, the duration of each option, and all other
terms and conditions of the options. The Option Plan authorizes the Board to
amend, modify, extend or renew, or grant a new option in substitution for, any
option, to waive any restrictions or conditions applicable to any option or any
shares acquired upon the exercise thereof. Subject to certain limitations, the
Option Plan provides for indemnification by the Company of any director, officer
or employee against all reasonable expenses, including attorneys' fees, incurred
in connection with any legal action arising from such person's action or failure
to act in administering the Option Plan. The Board will interpret the Option
Plan and options granted thereunder, and all determinations of the Board will be
final and binding on all persons having an interest in the Option Plan or any
option.
Eligibility. All employees, directors and consultants of the Company or
of any present or future parent or subsidiary corporations of the Company are
eligible to participate in the Option Plan. In addition, options may be granted
to prospective employees, consultants and directors in connection with written
offers of employment or engagement. However, any such options may not become
exercisable prior to such individual's commencement of service. As of May 22,
1998, the Company had 13 employees, including 3 officers. Any person eligible
under the Option Plan may be granted a nonstatutory option. However, only
employees may be granted incentive stock options. Subject to stockholder
approval, no employee may be granted, in any fiscal year, options under the
Option Plan for more shares than the Grant Limit.
Terms and Conditions of Options. Each option granted under the Option
Plan is evidenced by a written agreement between the Company and the optionee
specifying the number of shares subject to the option and the other terms and
conditions of the option, consistent with the requirements of the Option Plan.
The exercise price per share must equal at least the fair market value of a
share of the Company's Common Stock on the date of grant of an incentive stock
option and at least 85% of the fair market value of a share of the Common Stock
on the date of grant of a nonstatutory stock option. The exercise price of any
option granted to a person who at the time of grant owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation of the Company (a "Ten Percent
Stockholder") must be at least 110% of the fair market value of a share of the
Company's Common Stock on the date of grant.
Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of the Company's Common Stock owned by the
optionee having a fair market value not less than the exercise price, by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares of Common Stock being acquired upon the exercise of the option, by means
of a promissory note, by any other lawful consideration approved by the Board or
by any combination of these. The Board may restrict the forms of payment
permitted in connection with any option grant.
Options granted under the Option Plan will become exercisable and vested
at such times and subject to such conditions as specified by the Board.
Generally, options granted under the Option Plan become exercisable as the
underlying shares vest. Shares subject to options generally vest in installments
subject to the optionee's continued employment or service. The maximum term of
an option granted under the Option Plan is ten years, except that an incentive
stock option granted to a Ten Percent Stockholder may not have a term longer
than five years.
Options are nontransferable by the optionee other than by will or by the
laws of descent and distribution, and are exercisable during the optionee's
lifetime only by the optionee.
Change in Control. The Option Plan provides that a "Change of Control"
will occur in the event of (i) a sale or exchange by the stockholders of more
than 50% of the Company's voting stock, (ii) a merger or consolidation to which
the Company is a party, (iii) the sale, exchange or transfer of all or
substantially all of the assets of the Company, or (iv) a liquidation or
dissolution of the Company, wherein the stockholders of the Company immediately
before any such event do not retain direct or indirect beneficial ownership of
more than 50% of the total combined voting power of the voting stock of the
Company, its successor, or the corporation to which the assets of the Company
were transferred. Upon a Change in Control the Board may arrange with the
surviving,
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continuing, purchasing or successor corporation or parent corporation thereof
(the "Acquiring Corporation") to assume or substitute substantially equivalent
new options for the options outstanding under the Option Plan. In the event that
the Acquiring Corporation elects not to assume or substitute for such options,
any unexercisable or unvested portion of the outstanding option will become
fully vested and exercisable prior to the Change in Control. To the extent that
the options outstanding under the Option Plan are not assumed, replaced, or
exercised prior to such event, they will terminate.
Termination or Amendment. The Option Plan will continue in effect until
the earlier of its termination by the Board or the date on which all shares
available for issuance under the Option Plan have been issued and all
restrictions on such shares under the terms of the Option Plan and the option
agreements have lapsed, provided that all options must be granted by January 13,
2008, which is ten years from the date the Board approved the Option Plan. The
Board may terminate or amend the Option Plan at any time. However, subject to
changes in the law that would permit otherwise, without stockholder approval,
the Board may not adopt an amendment to the Option Plan which would increase the
total number of shares of Common Stock issuable thereunder, change the class of
persons eligible to receive incentive stock options, or otherwise require
approval of the Company's stockholders under any applicable law, regulation or
rule. No amendment may adversely affect an outstanding option without the
consent of the optionee, unless the amendment is required to preserve the
option's status as an incentive stock option or is necessary to comply with any
applicable law.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF THE OPTION PLAN
The following summary is intended only as a general guide as to the
United States federal income tax consequences under current law of participation
in the Option Plan and does not attempt to describe all possible federal or
other tax consequences of such participation or tax consequences based on
particular circumstances.
Incentive Stock Options. An optionee recognizes no taxable income for
regular income tax purposes as the result of the grant or exercise of an
incentive stock option qualifying under Section 422 of the Code. Optionees who
do not dispose of their shares for two years following the date the option was
granted nor within one year following the exercise of the option will normally
recognize a mid-term or long-term capital gain or loss equal to the difference,
if any, between the sale price and the purchase price of the shares. If an
optionee satisfies such holding periods upon a sale of the shares, the Company
will not be entitled to any deduction for federal income tax purposes. If an
optionee disposes of shares within two years after the date of grant or within
one year from the date of exercise (a "disqualifying disposition"), the
difference between the fair market value of the shares on the exercise date and
the option exercise price (not to exceed the gain realized on the sale if the
disposition is a transaction with respect to which a loss, if sustained, would
be recognized) will be taxed as ordinary income at the time of disposition. Any
gain in excess of that amount will be a capital gain. If a loss is recognized,
there will be no ordinary income, and such loss will be a capital loss. A
capital gain or loss will be mid-term if the optionee's holding period is
between 12 and 18 months or long-term if the optionee's holding period is more
than 18 months. Any ordinary income recognized by the optionee upon the
disqualifying disposition of the shares generally should be deductible by the
Company for federal income tax purposes, except to the extent such deduction is
limited by applicable provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market
value of the shares on the exercise date of an incentive stock option is an
adjustment in computing the optionee's alternative minimum taxable income and
may be subject to an alternative minimum tax which is paid if such tax exceeds
the regular tax for the year. Special rules may apply with respect to certain
subsequent sales of the shares in a disqualifying disposition, certain basis
adjustments for purposes of computing the alternative minimum taxable income on
a subsequent sale of the shares and certain tax credits which may arise with
respect to optionees subject to the alternative minimum tax.
Nonstatutory Stock Options. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options. Nonstatutory stock
options have no special tax status. An optionee generally recognizes no taxable
income as the result of the grant of such an option. Upon exercise of a
nonstatutory stock option, the optionee normally recognizes ordinary income in
the amount of the difference between the option exercise price and the fair
market value of the shares on the exercise date. If the optionee is an employee,
such ordinary income
7
<PAGE> 11
generally is subject to withholding of income and employment taxes. Upon the
sale of stock acquired by the exercise of a nonstatutory stock option, any gain
or loss, based on the difference between the sale price and the fair market
value on the exercise date, will be taxed as capital gain or loss. A capital
gain or loss will be mid-term if the optionee's holding period is between 12 and
18 months or long-term if the optionee's holding period is more than 18 months.
No tax deduction is available to the Company with respect to the grant of a
nonstatutory option or the sale of the stock acquired pursuant to such grant.
The Company generally should be entitled to a deduction equal to the amount of
ordinary income recognized by the optionee as a result of the exercise of a
nonstatutory option, except to the extent such deduction is limited by
applicable provisions of the Code or the regulations thereunder.
NEW PLAN BENEFITS AND ADDITIONAL INFORMATION
The future grant of options under the Option Plan will be made at the
discretion of the Board, and, accordingly, are not yet determinable. In
addition, benefits under the Option Plan will depend on a number of factors,
including the fair market value of the Company's Common Stock on future dates
and the exercise decisions made by the optionees. Consequently, it is not
possible to determine the benefits that might be received by optionees receiving
discretionary grants under the Option Plan. During the year ended December 31,
1997, no options were granted under the Option Plan to: (i) all current
executive officers as a group; (ii) any current directors who are not executive
officers; (iii) all current employees, including officers who are not executive
officers, as a group, or (iv) any associates of any current directors who are
not executive officers or of any executive officers.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION.
The affirmative vote of a majority of the votes cast at the Annual
Meeting of Stockholders at which a quorum representing a majority of all
outstanding shares of Common Stock of the Company is present, either in person
or by proxy, is required for approval of this proposal. Votes for and against,
abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum. Abstentions and broker non-votes will have
no effect on the outcome of the vote.
The Board of Directors believes that approval of the increase in the
number of shares issuable under the Option Plan and the establishment of the
Grant Limit is in the best interests of the Company and the stockholders for the
reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL OF THE INCREASE IN THE SHARE RESERVE OF THE 1997 STOCK
OPTION PLAN AND THE ESTABLISHMENT OF THE 90% PLAN LIMIT AND GRANT LIMIT.
8
<PAGE> 12
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of May 22, 1998 as to (i)
each person known by the Company to own beneficially more than five percent of
the outstanding shares of Common Stock, (ii) each director of the Company or
director nominee who beneficially owns shares, (iii) each of the executive
officers of the Company named in the Summary Compensation Table, and (iv) all
executive officers and directors of the Company as a group. Unless otherwise
specified, the address for each officer and director is 6138 Nancy Ridge Drive,
San Diego, CA 92121-3223
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
(1)
------------------------
PERCENT
NAME NUMBER OF TOTAL
------ --------
<S> <C> <C>
John Anthony Whalen, Jr.(2) 1,471,405 41.3%
Clyde Wooten(3) 351,333 9.9%
Frank Vukmanic 333,333 9.4%
Konrad Witt 267,750 7.6%
Hal H. Beretz(4) 20,052 *
David Tendler(5) 20,052 *
Kim P. Goh(6) 15,208 *
Henry F. Frigon(7) 3,646 *
All directors and executive officers
as a group (7 persons) 1,893,363 51.8%
</TABLE>
- ---------------------
* Less than one percent.
(1) Except pursuant to applicable community property laws or as otherwise
noted, all shares are beneficially owned and sole voting and investment
power is held by the persons named.
(2) Mr. Whalen is the President and Chief Executive Officer of the Company.
Includes 22,389 shares subject to options exercisable within 60 days of
May 22, 1998.
(3) Mr. Wooten is the Senior Vice President, Operations and Chief Technology
Officer of the Company. Includes 18,000 shares subject to options
exercisable within 60 days of May 22, 1998.
(4) Mr. Beretz is a director of the Company. Includes 20,052 shares subject
to options exercisable within 60 days of May 22, 1998.
(5) Mr. Tendler is a director of the Company. Includes 20,052 shares subject
to options exercisable within 60 days of May 22, 1998.
(6) Mr. Goh is a director of the Company. Includes 15,208 shares subject to
options exercisable within 60 days of May 22, 1998.
(7) Mr. Frigon is a director of the Company. Includes 3,646 shares subject
to options exercisable within 60 days of May 22, 1998.
9
<PAGE> 13
EXECUTIVE COMPENSATION AND OTHER MATTERS
EMPLOYMENT ARRANGEMENTS
On June 1, 1997, the Company entered into an employment agreement with
Mr. Whalen, its President and Chief Executive Officer. Under the agreement, Mr.
Whalen receives an annual base salary of $150,000 and may receive a bonus
determined in the discretion of the Board of Directors. Mr. Whalen's employment
agreement has a term of five years, expiring in May 2002, limits the Company's
ability to terminate him except for cause, and provides six months severance
pay, unless Mr. Whalen voluntarily resigns his position.
Messrs. Whalen, Vukmanic and Wooten, executive officers of the Company,
waived their right to receive compensation for their employment with the Company
from the respective dates their employment commenced through November 30, 1997.
The Company commenced payment of salaries to Messrs. Whalen, Vukmanic and Wooten
in December 1997. Mr. Vukmanic ceased his service as an executive officer and
employee of the Company in March 1998.
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation paid to the Company's
Chief Executive Officer and certain other executive officers whose total annual
salary and bonus exceeded $100,000 during the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------------------ -------
SECURITIES
UNDERLYING
FISCAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARs(#) COMPENSATION
- ----------------------------- ---- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
John Anthony Whalen, Jr. 1997 $12,500 $0 62,000 $0
President and CEO
</TABLE>
STOCK OPTION GRANTS
The following table sets forth certain information for the year ended
December 31, 1997 with respect to stock options granted to the individual named
in the Summary Compensation Table above.
OPTION/SAR GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS IN FISCAL 1997
-------------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTIONS/
SECURITIES SARs GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR BASE
OPTIONS/ FISCAL PRICE EXPIRATION
NAME SARs GRANTED(#)(1) YEAR ($/SHARE)(2) DATE
- ----------- ------------------ ------------------- ---------------- ----------
<S> <C> <C> <C> <C>
John Anthony Whalen, Jr. 62,000 24% $2.50 6/01/07
</TABLE>
(1) Such stock options vest as to 1/36 of the shares covered by the
respective options each month, becoming fully vested on the third
anniversary of the date of grant.
(2) The exercise price on the date of grant was equal to or greater than
100% of the fair market value on the date of grant.
10
<PAGE> 14
OPTION EXERCISES AND FISCAL 1997 YEAR END VALUE
The following table provides certain information concerning exercises of
options to purchase the Company's Common Stock in the fiscal year ended December
31, 1997, and unexercised options held as of December 31, 1997, by the person
named in the Summary Compensation Table.
AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION> NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARs AT FISCAL IN-THE-MONEY
ACQUIRED YEAR END (#) OPTIONS/SARs AT
ON VALUE ---------------------- FISCAL YEAR-END ($)(1)
EXERCISE REALIZED EXERCISABLE / EXERCISABLE /
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- --- --- ------------- -------------
<S> <C> <C> <C> <C>
John Anthony 0 0 12,056 / 49,944 $42,196 / $174,804
Whalen, Jr.
</TABLE>
(1) Based on the difference between the initial public offering price of
$6.00 per share and the exercise price.
CHANGES TO BENEFIT PLANS
1997 Stock Option Plan. The Board of Directors of the Company has
adopted, subject to stockholder approval, an amendment to the 1997 Stock Option
Plan to increase the maximum number of shares that may be issued thereunder by
2,660,000 shares. See "PROPOSAL TO AMEND 1997 STOCK OPTION PLAN." As of May 22,
1998, options to purchase 278,500 shares have been granted conditioned upon
stockholder approval of the increase in the share reserve of the 1997 Stock
Option Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from January 1, 1996 to September 31, 1997, the
limited liability company that was the predecessor to the Company sold Owner
Units to certain of its officers, directors and holders of 5% of the outstanding
equity of the Company, as described below.
In September 1996, the Company issued 350,000 Owner Units to John A.
Whalen, Jr., Chairman, President and Chief Executive Officer, and a co-founder
of the Company for cash consideration of $.15 per Unit, for total consideration
of $52,500.
In June 1997, the Company issued 666,666 Owner Units to John A. Whalen,
Jr., for cash consideration of $.15 per Owner Unit, for total cash consideration
of $100,000. An additional $599,999 was recorded as compensation expense in the
statement of operations for the 1997 fiscal year, reflecting the additional
deemed fair value of such Units on the date of issuance.
In June 1997, the Company issued 333,333 Owner Units to Frank J.
Vukmanic, former Senior Vice President, Sales and Marketing for $.15 per Owner
Unit, for total consideration of $50,000. Mr. Vukmanic gave the Company a
noninterest bearing, 90 day promissory note as consideration for these Owner
Units. Mr. Vukmanic paid this promissory note in full in August 1997. An
additional $300,000 was recorded as compensation expense in the statement of
operations for the 1997 fiscal year, reflecting the additional deemed fair value
of such Units on the date of issuance.
In June 1997, the Company issued 333,333 Owner Units to Clyde Wooten,
Senior Vice President, Operations and Chief Technology Officer for $.15 per
Owner Unit, for total consideration of $50,000. Mr. Wooten gave the Company a
noninterest bearing 90 day promissory note as consideration for these Owner
Units. Mr.
11
<PAGE> 15
Wooten paid this promissory note in full in September 1997. An additional
$300,000 was recorded as compensation expense in the statement of operations for
the 1997 fiscal year, reflecting the additional deemed fair value of such Units
on the date of issuance.
In July, August and September 1997, the Company agreed to pay to each of
David Tendler, Hal Beretz and Kim Goh, directors of the Company, referral fees
of four and one-half percent for sales by the Company that are consummated
without the Company participating in a "Request for Proposal" process (an "RFP")
with a customer, provided the engagement of the Company by the customer resulted
from an introduction by the director, and two percent of sales by the Company
that are consummated following the participation in an RFP with a customer, if
the entrance of the Company in the RFP resulted from an introduction by the
director. These referral fees are payable by the Company on all revenue
generated from such customers during the period that the director serves as a
director. Such fees are payable within 30 days after receipt of payment from the
customer. The Company entered into a similar agreement with Mr. Frigon in May
1998. No such fees have been paid to any of these directors as of May 28, 1998.
Aggregate fees totaling $1,382 were earned by Messrs. Tendler and Beretz during
the three months ended March 31, 1998, which were unpaid at May 28, 1998.
Also in August 1997, the Company issued to each of Messrs. Tendler and
Beretz options to purchase 87,500 Owner Units of the Company at an exercise
price of $2.50 per share. In August, Mr. Goh was granted options to purchase
10,000 Owner Units of the Company, and in November 1997, he was granted options
to purchase an additional 77,500 shares of Common Stock all at an exercise price
of $2.50 per share. The Company has agreed to grant Mr. Frigon an option to
purchase 87,500 shares on June 26, 1998. Such options vest in equal monthly
amounts over a four year period, for as long as the individual remains a
director.
On September 30, 1997, the Company exchanged each Owner Unit for one
share of its Common Stock, and converted options to acquire Owner Units to
options to acquire Common Stock, in connection with its reorganization from a
California limited liability company to a Delaware corporation.
In October 1997, Mr. Vukmanic, an executive officer of the Company,
loaned the Company the principal amount of $17,304 in connection with a bridge
financing and received Common Stock Purchase Warrants to acquire 17,304 shares
of Common Stock, which he directed the Company to transfer equally to his two
children. In February 1998, the Company paid off this loan plus accrued interest
of $616.
The Company believes that all transactions with affiliates described
above were made on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties. The Company intends to submit all
future transactions, between the Company and affiliates of the Company, to the
Company's Board of Directors for approval by its disinterested members, to
ensure that such future transactions are for a bona fide business purpose and on
terms no less favorable to the Company than could be obtained from independent
parties.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) reports they file.
The Company did not have a class of equity securities registered under
the Securities Exchange Act after its most recent fiscal year end. As such, no
director, executive officer or beneficial owner of securities was required to
file a report required by Section 16(a) of the Exchange Act during the year
ended December 31, 1997.
12
<PAGE> 16
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP has been the independent public accountant for the
Company since 1996. Representatives of Ernst & Young, LLP are expected to be
present at the Annual Meeting. They will have an opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions from the stockholders. The Board of Directors has not yet selected
independent public accountants for calendar 1998.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 1999 Annual Meeting of
Stockholders must be received by the Company no later than January 28, 1999, to
be considered for inclusion in the proxy statement and form of proxy relating to
such meeting.
OTHER MATTERS
The Board of Directors knows of no other matters to be submitted to the
Annual Meeting. If any other matters properly come before the Annual Meeting,
then the persons named in the enclosed form of proxy will vote the shares they
represent in such manner as the Board may recommend.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John Anthony Whalen, Jr.
------------------------------------
JOHN ANTHONY WHALEN, JR.
Chairman of the Board of Directors, President
and Chief Executive Officer
Dated: May 28, 1998
13
<PAGE> 17
C2i SOLUTIONS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints John Anthony Whalen, Jr. and Diane E.
Hessler, or either of them, proxy and attorney-in-fact, with full power of
substitution, to represent the undersigned and to vote all of the shares of
stock in C2i Solutions, Inc., a Delaware corporation (the "Company") which the
undersigned is entitled to vote at the Annual Meeting of the Stockholders of
the Company to be held at The Wyndham Garden Hotel - San Diego, 5975 Lusk
Blvd., San Diego, California 92121, Friday, June 26, 1998 at 10:00 A.M., local
time, and at any adjournment thereof as hereinafter specified upon the
proposals listed on the reverse side and as more particularly described in the
Proxy Statement of the Company dated May 28, 1998 (the "Proxy Statement"),
receipt of which is hereby acknowledged.
(Continued and to be dated and signed on other side)
<PAGE> 18
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
C2i SOLUTIONS, INC.
JUNE 26, 1998
PLEASE DETACH AND MAIL IN THE ENVELOPE PROVIDED
- --------------------------------------------------------------------------------
A [X] Please mark your
votes as in this
example.
<TABLE>
<S> <C> <C> <C>
WITHHOLD
FOR AUTHORITY
1. With respect to [ ] [ ] NOMINEES: Hal H. Beretz
the election of
the following Henry F. Frigon
individuals as
members of the Board of Directors
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE
NOMINEE'S NAME IN THE LIST AT RIGHT.)
</TABLE>
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
2. With respect to the proposal to amend [ ] [ ] [ ]
the 1997 Stock Option Plan (the "Option
Plan") to (a) increase the number of
shares of the Company's Common Stock reserved for issuance
under the Option Plan, (b) increase the limit on the number of
shares issuable on exercise of outstanding options under the Option
Plan, and (c) establish a limit on option grants to any employee.
</TABLE>
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS SPECIFIED. IF
NO SPECIFICATION IS MADE, SUCH SHARES WILL BE VOTED FOR THE
NOMINEES LISTED AND FOR PROPOSAL 2.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT
THIS MEETING REGARDLESS OF THE NUMBER OF SHARES
YOU HOLD. PLEASE DATE, SIGN AND RETURN THE PROXY
PROMPTLY IN THE ENCLOSED, STAMPED ENVELOPE.
I PLAN TO ATTEND THE MEETING.
YES NO
[ ] [ ]
Signature(s) DATED: , 1998
-------------------------------------------- -----------
NOTE: Please be sure to date Proxy. Print or type stockholder's name:
