<PAGE> 1
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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
IPL SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(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> 2
IPL SYSTEMS, INC.
124 ACTON STREET
MAYNARD, MASSACHUSETTS 01754
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 8, 1998
TO THE STOCKHOLDERS OF IPL SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of IPL
Systems, Inc., a Massachusetts corporation (the "Company"), will be held on
Wednesday, April 8, 1998 at 10:00 a.m. eastern daylight time at 124 Acton
Street, Maynard, Massachusetts for the following purposes:
1. To elect four directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's 1997 Equity Incentive Plan, as amended.
3. To approve an amendment to the Company's Articles of Organization to
change the name of the Company from IPL Systems, Inc. to Andataco,
Inc.
4. To approve an amendment to the Company's Articles of Organization to
increase the authorized number of shares of Class A Common Stock from
30,000,000 to 40,000,000 shares.
5. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending October 31,
1998.
6. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on February 16, 1998
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
Richard A. Hudzik
Clerk
San Diego, California
February 27, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
IPL SYSTEMS, INC.
124 ACTON STREET
MAYNARD, MASSACHUSETTS 01754
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 8, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of IPL
Systems, Inc., a Massachusetts corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Wednesday, April 8, 1998 at 10:00
a.m. eastern daylight time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the purposes set forth herein and in the accompanying
Notice of Annual Meeting of Stockholders. The Annual Meeting will be held at 124
Acton Street, Maynard, Massachusetts. The Company intends to mail this Proxy
Statement and accompanying proxy card on or about February 27, 1998 to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this Proxy Statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Class A Common Stock (the "Common
Stock") beneficially owned by others to forward to such beneficial owners. The
Company may reimburse persons representing beneficial owners of Common Stock for
their costs of forwarding solicitation materials to such beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram or personal solicitation by directors, officers or other regular
employees of the Company. No additional compensation will be paid to directors,
officers or other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on February
16, 1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on February 16, 1998, the Company had outstanding and entitled
to vote [23,819,399] shares of Common Stock.
Except as provided below, each holder of record of Common Stock on such
date will be entitled to one vote for each share held on all matters to be voted
upon at the annual meeting. With respect to the election of directors,
stockholders may exercise cumulative voting rights. Under cumulative voting,
each holder of Common Stock will be entitled to four votes for each share held.
Each stockholder may give one candidate, who has been nominated prior to voting,
all the votes such stockholder is entitled to cast or may distribute such votes
among as many such candidates as such stockholder chooses. (However, no
stockholder will be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and at least one stockholder has
given notice at the meeting, prior to the voting, of his or her intention to
cumulate votes). Unless the proxyholders are otherwise instructed, stockholders,
by means of the accompanying proxy, will grant the proxyholders discretionary
authority to cumulate votes.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's executive office, 10140 Mesa Rim Road,
San Diego, California 92121, a written notice of revocation or a duly executed
proxy bearing a later date, or it may be revoked by attending the meeting and
voting in person. Attendance at the meeting will not, by itself, revoke a proxy.
1.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than October 30, 1998 to be included in the proxy statement and proxy
relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's directors are elected annually to serve until the next Annual
Meeting and until each such director's successor shall have been duly elected
and qualified, or until such director's earlier death, resignation or removal.
There are four nominees for the four Board positions presently authorized in the
Company's By-laws. Each nominee listed below is currently a director of the
Company, two such directors, Harris Ravine and Cornelius P. McMullan, having
been elected by the stockholders at the 1997 Annual Meeting of Stockholders, and
two such directors, W. David Sykes and Melville Straus, having been appointed by
the Board. Ronald J. Gellert resigned as director of the Company upon
consummation of the merger of IPL Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of the Company ("IPL Acquisition Corp."), with and into
Andataco, a California corporation ("Andataco"), on June 3, 1997 (the "Merger"),
at which time IPL Acquisition Corp. ceased to exist and Andataco became a
wholly-owned subsidiary of the Company. At such time, the Board appointed Mr.
Sykes as a member of the Board of Directors. The Board appointed Mr. Straus as a
member of the Board of Directors upon the resignation from the Board of Mr.
Stephen J. Ippolito in September 1997.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the four nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected, and management has no reason to believe that any nominee
will be unable to serve.
The four candidates receiving the highest number of affirmative votes cast
at the meeting will be elected directors of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---- --- --------------
<S> <C> <C>
Harris Ravine 55 Chairman of the Board of Directors and Chief Executive
Officer of the Company; Chairman of the Board of Directors
and Chief Executive Officer of Andataco
W. David Sykes 41 Vice Chairman of the Board of Directors and President of
the Company; Vice Chairman of the Board of Directors and
President of Andataco
Cornelius P. McMullan 58 Director of the Company
Melville Straus 59 Director of the Company
</TABLE>
Harris Ravine has served as director of the Company since November 1995. He
was elected Chairman of the Board and appointed Chief Executive Officer of the
Company upon the consummation of the Merger. Mr. Ravine has served as Chief
Executive Officer and as Chairman of the Board of Directors of Andataco since
June 1997. From 1995 through May 1997, he was
2.
<PAGE> 5
a principal in BI Capital, a private venture capital group investing in
technology and medical start up opportunities. From 1985 to 1994, Mr. Ravine
held senior executive positions with Storage Technology Corporation, most
recently as Executive Vice President, Chief Administrative Officer and Group
Officer for midrange and UNIX applications. Mr. Ravine is a member of the board
of directors of Amplicon Financial, Inc., a publicly-held financial services
company.
W. David Sykes has served as a director of the Company since June 1997. He
founded Andataco in November 1986 and served as its President and Chief
Executive Officer until the Merger, at which time Mr. Sykes was elected Vice
Chairman of the Board of Directors and appointed President of the Company. Mr.
Sykes remains President of Andataco, and also serves as Vice Chairman of the
Board of Directors of Andataco. He has served as a director of Andataco since
November 1986.
Cornelius P. McMullan has served as a director of the Company since January
1996. Since January 1997 he has been Executive Vice President of VMARK Software,
Inc., a software company, and served as Independent Technology Consultant of
VMARK from January 1996 to December 1996. From December 1992 through January
1996, he was President and Chief Executive Officer of Sequoia Systems, Inc., a
computer technology company.
Melville Straus has served as director of the Company since September
1997. Mr. Straus is Managing Principal of Straus Asset Management, LLC which he
formed in January 1998. He remains a limited principal at Weiss, Peck & Greer
which he joined in 1973. His primary responsibilities while at Weiss, Peck &
Greer were as director of the Small Cap Growth Group, member of the Executive
Committee, and President and Trustee of the WPG Tudor Fund and the WPG Growth
Fund and Executive Vice President and Trustee of the WPG Growth and Income Fund.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended October 31, 1997, the Board of Directors held
10 meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee recommends to the Board the independent accountants to
be retained by the Company, meets with the accountants at least annually to
review the results of the annual audit and discuss the financial statements, and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors: Messrs. McMullan and Straus. During the fiscal year 1997, the Audit
Committee held one meeting.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors:
Messrs. McMullan and Straus. During the fiscal year 1997, the Compensation
Committee held two meetings.
During the fiscal year ended October 31, 1997, each Board member attended
100% of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which he was a director or committee
member, as applicable.
3.
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PROPOSAL 2
APPROVAL OF THE 1997 EQUITY INCENTIVE PLAN, AS AMENDED
On September 11, 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan (the "1997 Plan"), subject to stockholder approval, and reserved
an aggregate of 1,195,000 shares of Common Stock for issuance under the Plan to
the Company's employees, directors and consultants.
The Board adopted the 1997 Plan so that the Company could grant stock
options and other stock awards to employees, directors and consultants at levels
determined appropriate by the Board and the Compensation Committee, and to allow
the Company more flexibility in attracting and retaining qualified employees
(including officers), directors and consultants of the Company and promoting the
success of the Company's business.
On December 1, 1997, options (net of canceled or expired options) covering
an aggregate of 816,000 shares of the Company's Common Stock had been granted
under the 1997 Plan, and 379,000 shares remained available for future grant
under the 1997 Plan. On December 18, 1997, the Board of Directors amended the
1997 Plan, subject to stockholder approval, to increase the number of shares
reserved for issuance thereunder to an aggregate of 2,695,000 shares. The Board
adopted this amendment to ensure that the Company can continue to grant stock
options and other awards to employees, directors and consultants at levels
determined appropriate by the Board and the Compensation Committee.
At January 31, 1998, options (net of cancelled or expired options) covering
an aggregate of 806,000 shares, 1,305,000 shares and 99,500 shares of the
Company's Common Stock had been granted under the 1997 Plan, the IPL Systems,
Inc. 1996 Consolidated Equity Plan (the "Consolidated Equity Plan") and the
Company's 1991/1993 Consolidated Equity Plan (the "1993 Plan"), respectively.
1,889,000 shares remained available for future grant under the 1997 Plan,
assuming stockholder approval of this Proposal 2. No shares remained available
for issuance under the Consolidated Equity Plan other than shares that might in
the future be returned to the Consolidated Equity Plan as a result of
cancellations or expirations of options. 650,000 shares remained available for
future grant under the 1993 Plan, in addition to any shares that might in the
future be returned to the 1993 Plan as a result of cancellations or expirations
of options. The Company does not intend to grant any further options under the
1993 Plan.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the 1997 Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the 1997 Plan are described below.
GENERAL
The 1997 Plan provides for the grant of incentive stock options to
employees and the grant or issuance, respectively, of nonstatutory stock
options, restricted stock purchase awards and stock bonuses to consultants,
employees (including officers) and directors. Incentive stock options granted
under the 1997 Plan are intended to qualify as "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Nonstatutory stock options granted under the 1997 Plan are intended not
to qualify as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of the various awards
included in the 1997 Plan.
PURPOSE
The 1997 Plan was adopted to provide a means by which selected employees
and directors of and consultants to the Company and its affiliates could be
given an opportunity to receive stock in the Company, to assist in retaining the
services of employees, directors and consultants holding key positions, to
secure and retain the services of persons capable of filling such positions and
to provide incentives for such persons to exert maximum efforts for the success
of the Company.
4.
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ADMINISTRATION
The 1997 Plan provides that the 1997 Plan will be administered by the Board
of Directors of the Company. The Board has the power to construe and interpret
the 1997 Plan and, subject to the provisions of the 1997 Plan, to determine the
persons to whom and the dates on which awards will be granted, what type of
award will be granted, the number of shares to be subject to each award, the
time or times during the term of each award when all or a portion of such award
may be exercised, the exercise price, the type of consideration and other terms
of the award. The Board of Directors is authorized to delegate administration of
the 1997 Plan to a committee composed of not fewer than two members of the
Board. The 1997 Plan provides that, in the Board's discretion, all directors
serving on such committee may be "non-employee directors" within the meaning of
Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and/or "outside directors" within the meaning of
Section 162(m) of the Code. If administration is delegated to a committee, the
committee has the power to delegate administrative powers to a subcommittee of
two or more outside directors.
The Board has delegated administration of the 1997 Plan to the Compensation
Committee of the Board. As used herein with respect to the 1997 Plan, the
"Board" refers to the Compensation Committee (and, if applicable, such a
subcommittee) as well as to the Board of Directors itself.
ELIGIBILITY
Incentive stock options, nonstatutory stock options and stock appreciation
rights may be granted under the 1997 Plan to employees, directors and
consultants of the Company and its affiliates.
No incentive stock option may be granted under the 1997 Plan to any
employee who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. In addition, the aggregate fair market value, determined at the time of
grant, of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000.
No person shall be eligible to be granted stock options covering more than
600,000 shares of the Company's Common Stock in any calendar year, subject to
the adjustment provisions under the 1997 Plan (see "Adjustment Provisions").
STOCK SUBJECT TO THE 1997 PLAN
If awards granted under the 1997 Plan expire or otherwise terminate without
being exercised, the Common Stock not purchased pursuant to such awards again
becomes available for issuance under the 1997 Plan. If this Proposal No. 2 is
approved, the number of shares authorized for issuance under the 1997 Plan will
be 2,695,000.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the 1997 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1997 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1997 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. The Board also has the authority to include as part of an
option agreement a provision entitling the optionee to a further option in the
event that the optionee exercises his or her option by surrendering other shares
of Common Stock as payment of the exercise price.
5.
<PAGE> 8
The exercise price of options granted under the 1997 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement, or (iii) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1997 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board, and the Board may
specify such other terms and conditions (which may be based on performance or
other criteria) governing the time when options may be exercised. [The terms of
options must provide for vesting of at least 20% of the total number of shares
subject to the option per year in the case of an option granted to a non-officer
employee.] Shares covered by options granted in the future under the 1997 Plan
may be subject to different vesting terms than those terms under the 1997 Plan.
The Board has the power to accelerate the time during which an option may be
exercised. In addition, options granted under the 1997 Plan may permit exercise
prior to vesting, but in such event the optionee may be required to enter into
an early exercise stock purchase agreement that allows the Company to repurchase
shares not yet vested at their exercise price should the optionee leave the
service of the Company before vesting. To the extent provided by the terms of an
option, an optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such option by a cash payment upon
exercise, by authorizing the Company to withhold a portion of the stock
otherwise usable to the optionee, by delivering already-owned stock of the
Company or by a combination of these means.
Term. The maximum term of options under the 1997 Plan is 10 years, except
that in certain cases (see "Eligibility" above) the maximum term is five years.
Options under the 1997 Plan generally terminate three months after the
termination of an employee, director or consultant, unless (a) the termination
of the optionee's relationship to the Company is due to such person's permanent
and total disability (as defined in the Code), in which case the option may, but
need not, provide that it may be exercised at any time within 12 months of such
termination; (b) the optionee dies while employed by, or acting as a director of
or consultant to, the Company or any affiliate of the Company, or within three
months after termination of such employment, in which case the option may, but
need not, provide that it may be exercised (to the extent the option was
exercisable at the time of the optionee's death) within 12 months of the
optionee's death by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution; or (c) the option by its
terms specifically provides otherwise. Individual options by their terms may
provide for exercise within a longer period of time following termination of
service. The option term may also be extended in the event that exercise of the
option within these periods is prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Purchase Price; Payment. The purchase price under each stock purchase
agreement will be determined by the Board; provided; however, the price may not
be less than 85% of the fair market value of the Common Stock on the date of the
award. The purchase price for a person who owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company shall
be 100% of the fair market value of the Common Stock on the date of the award.
The purchase price of stock pursuant to a stock purchase agreement must be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other arrangement with the person to
whom the Common Stock is sold; or (iii) in any other form of legal consideration
that may be acceptable to the Board in its discretion. Notwithstanding the
foregoing, eligible participants may be awarded stock pursuant to a stock bonus
agreement in consideration of past services actually rendered to the Company or
for its benefit.
Repurchase. Shares of Common Stock sold or awarded under the 1997 Plan may,
but need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule determined by the Board. In the event a
person ceases to render service to the Company or an affiliate of the Company,
the Company may repurchase or otherwise reacquire any or all of the shares of
Common Stock held by that person that have not vested as of the date of
termination of such services under the terms of the stock bonus or restricted
stock purchase agreement.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1997 Plan or subject to
any award granted under the 1997 Plan (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
1997 Plan and awards outstanding thereunder will be appropriately adjusted as to
the class and the maximum
6.
<PAGE> 9
number of shares subject to such plan, the maximum number of shares which may be
granted to a person during a calendar year, and the class, number of shares and
price per share of stock subject to such outstanding awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1997 Plan provides that, in the event of a dissolution or liquidation
of the Company, a sale of all or substantially all of the Company's assets,
specified type of merger or other corporate reorganization, then (i) any
surviving or acquiring corporation shall assume awards outstanding under the
1997 Plan or substitute similar awards for those outstanding, or (ii) if the
surviving or acquiring corporation refuses to assume outstanding awards or
substitute similar awards, then such awards shall be terminated if not exercised
at or prior to such event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1997 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1997 Plan will terminate on September 10, 2007.
The Board may also amend the 1997 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval in
order for the 1997 Plan to satisfy Section 422 of the Code, if applicable, or
Rule 16b-3); (b) increase the number of shares reserved for issuance upon
exercise of options; or (c) change any other provision of the 1997 Plan in any
other way if such modification requires stockholder approval in order to comply
with Rule 16b-3 or satisfy the requirements of Section 422 of the Code. The
Board may submit any other amendment to the 1997 Plan for stockholder approval,
including, but not limited to, amendments intended to satisfy the requirements
of Section 162(m) of the Code regarding the exclusion of performance-based
compensation from the limitation on the deductibility of compensation paid to
certain employees.
RESTRICTIONS ON TRANSFER
Under the 1997 Plan, an incentive stock option may not be transferred by
the optionee otherwise than by will or by the laws of descent and distribution
and, during the lifetime of an optionee, may be exercised only by the optionee.
A nonstatutory stock option may not be transferred except by will or by the laws
of descent and distribution, except to the extent otherwise set forth in the
option grant agreement as determined in the discretion of the Board. In any
case, an optionee may designate in writing a third party who may exercise the
option in the event of the optionee's death. Rights under a stock bonus or
restricted stock purchase agreement are transferable only by the laws of descent
and distribution or, if authorized by the terms of the applicable stock bonus or
restricted stock purchase agreement, pursuant to a "domestic relations order."
In addition, any shares subject to repurchase by the Company under an early
exercise stock purchase agreement may be subject to restrictions on transfer
which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1997 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may result in the imposition
of or an increase in alternative minimum tax liability to the optionee.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term, mid-term or short-term depending on how long the stock
was held. Capital gains currently are generally
7.
<PAGE> 10
subject to lower tax rates than ordinary income. Slightly different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1997 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a reporting obligation, the Company will generally be entitled
to a business expense deduction equal to the taxable ordinary income realized by
the optionee. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long-term,
mid-term or short-term depending on how long the stock was held. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the 1997 Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award,
the recipient normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value over the purchase price, if any.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse, unless the recipient elects to be taxed on receipt of the stock.
Generally, with respect to employees, the Company is required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, Section 162(m)
of the Code and the satisfaction of a tax reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the recipient. Upon disposition of the stock, the
recipient will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock, if any, plus
any amount recognized as ordinary income upon acquisition (or vesting) of the
stock. Such gain or loss will be long-term, mid-term or short-term depending on
how long the stock was held. Slightly different rules may apply to persons who
acquire stock subject to forfeiture under Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. Code Section 162(m) denies a
deduction to any publicly held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation exceeds $1 million
for a covered employee. It is possible that compensation attributable to awards
under the 1997 Plan, when combined with all other types of compensation received
by a covered employee from the Company, may cause this limitation to be exceeded
in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the Code,
compensation attributable to stock options will qualify as performance-based
compensation, provided that: (i) the stock award plan contains a per-employee
limitation on the number of shares for which stock options may be granted during
a specified period; (ii) the per-employee limitation is approved by the
stockholders; (iii) the award is granted by a compensation committee comprised
solely of "outside directors;" and (iv) the exercise price of the award is no
less than the fair market value of the stock on the date of grant. Restricted
stock and stock bonuses qualify as performance-based compensation under these
Treasury regulations only if: (i) the award is granted by a compensation
committee comprised solely of "outside directors;" (ii) the award is granted (or
exercisable) only upon the achievement of an objective performance goal
established in writing by the compensation
8.
<PAGE> 11
committee while the outcome is substantially uncertain; (iii) the compensation
committee certifies in writing prior to the granting (or exercisability) of the
award that the performance goal has been satisfied; and (iv) prior to the
granting (or exercisability) of the award, stockholders have approved the
material terms of the award (including the class of employees eligible for such
award, the business criteria on which the performance goal is based, and the
maximum amount (or formula used to calculate the amount) payable upon attainment
of the performance goal).
The following table presents certain information with respect to options
granted under the 1997 Plan, subject to the approval of the 1997 Plan by the
stockholders, to (i) the Named Executive Officers, (ii) all executive officers
and Directors as a group, (iii) all non-executive officer directors as a group,
and (iv) all non-executive officer employees as a group.
NEW PLAN BENEFITS(1)
<TABLE>
<CAPTION>
1997 STOCK OPTION PLAN
--------------------------------------
NUMBER OF SHARES
SUBJECT TO OPTIONS
NAME AND POSITION DOLLAR VALUE(2) GRANTED
- ----------------------------------------------- --------------- ------------------
<S> <C> <C>
Peter W. Bell ................................. $ 95,375 54,500
Anita D. Buchanan ............................. $ 7,438 3,500
All Executive Officers and Directors as a Group $ 102,813 58,000
All Non-Executive Officer Directors as a Group 0 0
All Non-Executive Officer Employees as a Group $1,758,640 796,000
</TABLE>
- ----------
(1) This table summarizes the Board of Directors' allocation of options to
purchase shares of the Company's Common Stock in the fiscal year ended
October 31, 1997 pursuant to the 1997 Plan.
(2) Exercise price multiplied by the number of shares underlying the option(s).
9.
<PAGE> 12
PROPOSAL 3
APPROVAL OF CHANGE OF COMPANY NAME
On February 5, 1998, the Board of Directors adopted a resolution to amend
the Company's Articles of Organization (the "Articles") to change the name of
the Company from "IPL Systems, Inc." to "Andataco, Inc." As a result of the
business combination with Andataco and the change in senior management of the
Company, the Board of Directors believes that the Company and its stockholders
would benefit from the proposed name change.
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock will be required to approve the proposal to amend
the Company's Articles to change the name of the Company. As a result, broker
non-votes and abstentions will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
10.
<PAGE> 13
PROPOSAL 4
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Articles to increase the Company's authorized number
of shares of Common Stock from 30,000,000 shares to 40,000,000 shares (the
"Amendment").
In addition to the 23,819,399 shares of Common Stock outstanding at January
31, 1998, the Board has reserved 3,225,000 shares of Common Stock for issuance
upon exercise of various outstanding stock options (including options issued or
issuable under the Company's stock option plans) and 180,783 shares of Common
Stock reserved for issuance upon exercise of various outstanding warrants.
The additional Common Stock to be authorized by adoption of the Amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the Amendment and issuance of the Common Stock would not
affect the rights of the holders of currently outstanding Common Stock of the
Company, except for effects incidental to increasing the number of shares of the
Company's Common Stock outstanding, such as dilution of the earnings per share
and voting rights of current holders of Common Stock. If the Amendment is
adopted, it will become effective upon filing of the Amendment with the
Secretary of State of the Commonwealth of Massachusetts.
The Board believes that the availability of such additional shares will
provide the Company with increased flexibility to use its capital stock for
business and financial purposes in the future. The additional shares may be
used, without further stockholder approval, for various purposes including,
without limitation, raising capital, providing equity incentives to employees,
officers or directors, establishing strategic relationships with other companies
and expanding the Company's business or service offerings through the
acquisition of other businesses.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), nevertheless, stockholders should be aware that
approval of this proposal could facilitate future efforts by the Company to
deter or prevent changes in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
then current market prices.
Under the Company's Articles, no stockholder is entitled to preemptive
rights in respect of any future issuances of capital stock. In addition, the
Company does not presently contemplate seeking stockholder approval for any
future issuances of capital stock unless required to do so by an obligation
imposed by applicable law, a regulatory authority or a third party.
The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock will be required to approve the Amendment. As a result,
abstentions and broker non-votes will have the same effect as negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
11.
<PAGE> 14
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP ("Price
Waterhouse") as the Company's independent accountants for the fiscal year ending
October 31, 1998 and has further directed that management submit the selection
of independent accountants for ratification by the stockholders at the Annual
Meeting. Price Waterhouse has been the Company's independent accountant since
June 1997. Representatives of Price Waterhouse will have an opportunity to make
a statement at the Annual Meeting if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of Price Waterhouse as the
Company's independent accountants is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Price Waterhouse to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether to retain that firm. Even if the selection is ratified,
the Audit Committee and the Board in their discretion may direct the appointment
of different independent accountants at any time during the year if they
determine that such a change would be in the best interests of the Company and
its stockholders.
Prior to the Merger, Deloitte & Touche LLP ("Deloitte & Touche") had served
as the Company's independent accountants, and Price Waterhouse had served as
Andataco's independent accountants. Price Waterhouse, as independent accountants
for Andataco, were consulted by Andataco's management on the proposed accounting
for the Merger. The new management of the Company following the Merger
determined to engage Price Waterhouse as the Company's independent accountants
after completion of the Merger and so notified Deloitte & Touche. On June 10,
1997, the Company's Board of Directors ratified management's decision to engage
Price Waterhouse as the Company's independent accountants for the fiscal year
ending October 31, 1997.
The reports of Deloitte & Touche for the two fiscal years ended December
31, 1995 and 1996 do not contain an adverse opinion or a disclaimer of opinion,
nor were such reports qualified or modified as to uncertainty, audit scope or
accounting principles, financial statement disclosure or practice, except that
the report for the year ended December 31, 1996 included an explanatory
paragraph relating to an uncertainty regarding the ability of the Company (prior
to the Merger) to continue as a going concern. Moreover, during such two fiscal
years and any subsequent interim period preceding the date of the Company's
change in accountants, there were no disagreements with Deloitte & Touche on any
matter of accounting principles or practices, financial statement disclosure or
audit scope or procedure, which disagreements, if not resolved to the
satisfaction of Deloitte & Touche would have caused Deloitte & Touche to make
reference to the subject matter of the disagreement in connection with their
report. The Company has furnished a copy of the disclosure contained in this
section to Deloitte & Touche requesting such firm to respond as to whether it
agrees with the information set forth herein relating to such firm. Deloitte &
Touche has responded that it agrees with the statements made herein with respect
to such firm.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Price Waterhouse.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5.
12.
<PAGE> 15
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of January 31, 1998 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
----------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ----------------------------------------------------------------- ---------- ----------
<S> <C> <C>
W. David Sykes (2) .............................................. 18,078,381 75.9%
IPL Systems, Inc.
10140 Mesa Rim Road
San Diego, CA 92121
Harris Ravine (3) ............................................... 327,413 *
Richard A. Hudzik ............................................... 92,199 *
Peter W. Bell (4) ............................................... 118,000 *
Anita D. Buchanan (5) ........................................... 12,150 *
Cornelius McMullan (6) .......................................... 29,500 *
Melville Straus ................................................. 0 *
Ronald J. Gellert ............................................... 0 *
Eugene F. Tallone ............................................... 0 *
All executive officers and directors as a group (7 persons) (7) . 18,657,643 78.3%
</TABLE>
- ----------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
23,819,399 shares outstanding on January 31, 1998, adjusted as required by
rules promulgated by the SEC.
(2) Includes 1,034,083 shares held in trust for the Sykes Children's Trust and
17,044,298 shares held in trust for the Sykes Family Trust.
(3) Represents 327,413 shares subject to options exercisable within 60 days of
January 31, 1998.
(4) Represents 118,000 shares subject to options exercisable within 60 days of
January 31, 1998.
(5) Represents 12,150 shares subject to options exercisable within 60 days of
January 31, 1998.
(6) Represents 29,500 shares subject to options exercisable within 60 days of
January 31, 1998.
(7) Includes 487,063 shares subject to options exercisable within 60 days of
January 31, 1998.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Section 16(a) of 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 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) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended October 31, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
13.
<PAGE> 16
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives a meeting fee of $3,000
for each meeting of the Board which he attends in person and a meeting fee of
$1,000 for each meeting of the Audit Committee and the Compensation Committee of
the Board which he attends in person as a member of such committee. No
additional fees are payable for any meeting of any committee of the Board which
is held in connection with a meeting of the Board or for any conference call
meeting of the Board or any committee of the Board. The members of the Board of
Directors are also eligible for reimbursement for their reasonable out-of-pocket
expenses incurred in connection with such director's travel to and attendance at
Board and Committee meetings in accordance with Company policy. In the fiscal
year ended October 31, 1997, the total compensation paid to non-employee
directors was $31,000.
In addition, all of the directors who are not employees of the Company are
eligible to participate in the 1993 Director Stock Option Plan (the "Directors'
Plan"). Option grants under the Directors' Plan are intended by the Company not
to qualify as incentive stock options under the Code and are nondiscretionary.
Each non-employee director is automatically granted under the Directors' Plan,
without further action by the Company, the Board of Directors or the
stockholders of the Company, an initial option to purchase 10,000 shares of
Common Stock of the Company upon election as a director. The exercise price of
options granted under the Plan is 100% of the fair market value of the Common
Stock subject to the option on the date of the option grant. Options granted
under the Directors' Plan become exercisable as to 20% of the option shares on
the date one year after the date of grant and 20% of the option shares become
exercisable at each subsequent annual meeting thereafter, provided that the
optionee has, during the period beginning on the date of grant for such option
and ending on such vesting date, continuously served as a non-employee director.
Furthermore, an additional option to purchase 2,000 shares is automatically
granted to each non-employee director upon annual reelection as a director,
which option will become exercisable at the commencement of business on the
first annual meeting thereafter, with such option becoming exercisable only if
the non-employee director is a member of the Board at the opening of business on
the date of such subsequent annual meeting. The term of options granted under
the Directors' Plan is ten years from the date of grant.
During the last fiscal year, the Company granted an option to purchase
2,000 shares to one non-employee director, Cornelius P. McMullan. As of January
31, 1998, options to purchase an aggregate of 38,800 shares had been granted
under the Directors' Plan, and no such options had been exercised.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal year ended October 31, 1997, 96
and 95, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer, its other four most highly compensated executive officers at
October 31, 1997, and two former executive officers who departed from the
Company during the last fiscal year (collectively, the "Named Executive
Officers"):
14.
<PAGE> 17
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
------------------------------------------- ------------
SHARES ALL
FISCAL OTHER ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ---------------------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Harris Ravine(2) 1997 $125,000 700,000(9)
Chief Executive Officer
W. David Sykes 1997 $104,167(6) $ 193,992(8)
President
Peter W. Bell(3) 1997 $ 50,000 480,000(10)
Vice President of Worldwide Sales
Richard A. Hudzik 1997 $ 56,250(7) $ 3,375 $ 106,000(11)
Vice President - Finance, Chief
Financial Officer, Treasurer and
Clerk
Anita D. Buchanan 1997 $104,972 $ 20,839 3,500
Vice President - Marketing 1996 $105,808 $ 20,175 15,000
1995 $ 90,950 $ 13,851 15,000
Ronald J. Gellert(4) 1997 $185,000 $ 19,657 $ 232,283(12)
Former President and 1996 $186,010 $ 47,283 25,000
Chief Executive Officer 1995 $ 14,231 115,000
Eugene F. Tallone(5) 1997 $119,911 $ 67,539 $ 171,758(13)
Former Vice President - 1996 $119,911 $ 37,989 15,000
Finance and Chief Financial 1995 $118,996 $ 65,704
Officer
</TABLE>
- ----------
(1) As permitted by rules promulgated by the SEC, no amounts are shown with
respect to perquisites where such amounts do not exceed the lesser of 10%
of the sum of the amount in the salary and bonus columns or $50,000.
(2) Mr. Ravine was appointed Chief Executive Officer of the Company effective
June 1997, upon consummation of the Merger. See "Employment Agreement."
(3) Mr. Bell was appointed Vice President of Worldwide Sales of the Company
effective July 1997.
(4) Mr. Gellert resigned from the Company effective May 30, 1997 in
anticipation of the consummation of the Merger.
(5) Mr. Tallone resigned from the Company effective June 30, 1997 following
consummation of the Merger.
(6) Mr. Sykes was appointed President of the Company effective June 1997, upon
consummation of the Merger. Mr. Sykes also received an aggregate salary of
$729,000 in 1997 by Andataco prior to the Merger. See "Employment
Agreements."
(7) Mr. Hudzik was appointed Vice President-Finance, Chief Financial Officer,
Treasurer and Clerk of the Company effective June 1997, upon consummation
of the Merger. Mr. Hudzik also received an aggregate salary of $78,750 in
1997 by Andataco prior to the Merger. See "Employment Agreements."
(8) Mr. Sykes and the Company entered into a noncompetition agreement in
connection with the Merger pursuant to which the Company is obligated to
pay Mr. Sykes $1,000,020, payable in 60 equal monthly installments of
$16,167 per month. Such payments commenced on June 30, 1997. See
"Employment Agreements."
15.
<PAGE> 18
(9) An option to purchase 700,000 shares of Common Stock was granted to Mr.
Ravine pursuant to an employment agreement entered into between Andataco
and Mr. Ravine in May 1997. Such option was amended on November 5, 1997,
pursuant to which the number of shares underlying the option was reduced
from 700,000 to 475,000 by canceling 225,000 shares which were subject to
performance-based vesting. Mr. Ravine was granted an additional option on
November 5, 1997 to purchase 275,000 shares of the Company's Common Stock.
See "Employment Agreements."
(10) An option to purchase 480,000 shares of Common Stock was granted to Mr.
Bell pursuant to an employment offer letter dated July 9, 1997. Such option
was amended on November 5, 1997, pursuant to which the number of shares
underlying the option was reduced from 480,000 to 320,000 by canceling
160,000 shares which were subject to performance-based vesting. Mr. Bell
was granted an additional option on November 5, 1997 to purchase 190,000
shares of the Company's Common Stock. See "Employment Agreements."
(11) Pursuant to an employment offer letter entered into between Andataco and
Mr. Hudzik, Andataco was obligated to issue 51 shares of Andataco Common
Stock to Mr. Hudzik upon consummation of the Merger. Such shares were
converted into 92,199 shares of the Company's Common Stock in connection
with the Merger.
(12) A lump sum of $232,283 was paid to Mr. Gellert in connection with his
resignation as President and Chief Executive Officer of the Company
pursuant to Mr. Gellert's severance agreement with the Company. See
"Employment Agreements."
(13) A lump sum of $171,757.50 was paid to Mr. Tallone in connection with his
resignation as Vice President-Finance and Chief Financial Officer of the
Company pursuant to Mr. Tallone's severance agreement with the Company. See
"Employment Agreements."
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under the 1997 Plan,
the Consolidated Equity Plan and the 1993 Plan. As of January 31, 1998, options
to purchase a total of 806,000 shares, 1,305,000 shares and 99,500 shares were
outstanding under the 1997 Plan, the Consolidated Equity Plan and the 1993 Plan,
respectively, and options to purchase 1,889,000 shares remained available for
grant under the 1997 Plan. No shares remained available for issuance under the
Consolidated Equity Plan other than shares that might in the future be returned
to the Consolidated Equity Plan as a result of cancellations or expiration of
options. 650,000 shares remained available for future grant under the 1993 Plan,
in addition to shares that might in the future be returned to the 1993 Plan as a
result of cancellations or expirations of options.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information regarding each grant of
stock options made during the fiscal year ended October 31, 1997 to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL
% OF TOTAL REALIZABLE VALUE AT
NUMBER OPTIONS ASSUMED ANNUAL RATES
OF SHARES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(5)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------------
NAME GRANTED YEAR(4) ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Harris Ravine ........... 700,000(1) 35.2% 1.125 6/03/07 496,125 1,252,125
Peter W. Bell ........... 480,000(2) 24.1% 1.25 7/13/07 378,000 954,000
Anita Buchanan .......... 3,500(3) * 2.125 10/07/07 4,686 11,826
</TABLE>
- ----------
* Less than one percent
16.
<PAGE> 19
(1) 250,000 shares underlying the option vest in 12 equal installments monthly
during the first year of employment. An additional 225,000 shares will vest
25% over the next four years. The remaining 225,000 shares were subject to
performance-based vesting. See "Employment Agreements."
(2) 80,000 shares underlying the option vested upon commencement of employment.
An additional 240,000 shares will vest 20% over the next five years. The
remaining 160,000 shares were subject to performance-based vesting. See
"Employment Agreements."
(3) The shares underlying the option vest 25% one year from the date of grant,
and 25% for each full year thereafter.
(4) Based on options to purchase 1,989,500 shares of Common Stock granted to
employees in the last fiscal year, including the Named Executive Officers.
(5) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
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 represent certain assumed rates of appreciation only,
in accordance with the rules of the SEC, and do not reflect the Company's
estimate or projection of future stock price performance. Actual gains, if
any, are dependent on the actual future performance of the Company's Common
Stock and no gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.
AGGREGATED FISCAL YEAR-END OPTION VALUES
There were no option exercises by the Named Executive Officers during the
fiscal year ended October 31, 1997. The following table sets forth information
with respect to the number and value of securities underlying unexercised
options held by the Named Executive Officers as of January 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR-END (1) OPTIONS AT FISCAL YEAR END (2)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Harris Ravine 327,413 459,587 $ 114,581 $ 122,919
Peter W. Bell 118,000 392,000 $ 30,000 $ 90,000
Anita D. Buchanan 12,150 24,350 $ 0 $ 0
</TABLE>
- ----------
(1) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with exercise prices below the market price of the
Company's Common Stock.
(2) Amounts reflected are based upon $1.625 closing sales price of the
underlying shares of Common Stock, as reported on the Nasdaq Small Cap
Market on January 30, 1998, minus the exercise price of the options and do
not indicate that the optionee sold such stock.
EMPLOYMENT AGREEMENTS
Prior to the consummation of the Merger, the Company and W. David Sykes
entered into an employment agreement (the "Sykes Employment Agreement").
Pursuant to the Sykes Employment Agreement, Mr. Sykes was hired as President of
the Company. The initial term of the Sykes Employment Agreement ends June 30,
2002, with automatic additional one-year extensions unless Mr. Sykes or the
Company elect not to extend such term. Mr. Sykes' initial annual base salary
under the Sykes Employment Agreement is $250,000 with cash bonuses up to an
amount equal to 50% of Mr. Sykes' then base salary if the Company meets certain
quantified objectives based on an annual bonus plan approved by the Board each
year during the term of his employment. If Mr. Sykes' employment is terminated
by the Company without cause he is entitled to receive his annual base salary of
$250,000 for the number (or part thereof for any partial) year(s) remaining
under the Sykes Employment Agreement plus any unpaid bonus. In the event that
Mr. Sykes' employment is terminated within 12 months after a change in control
of the Company, he is entitled to receive as severance an amount equal to
eighteen months of his annual base salary
17.
<PAGE> 20
plus any unpaid bonus. The Sykes Employment Agreement also provides for
additional benefits including term life insurance and a car allowance.
The Company and Mr. Sykes entered into a noncompetition agreement (the
"Noncompetition Agreement") in connection with the Merger, pursuant to which Mr.
Sykes agreed not to compete with Andataco, solicit customers or employees of
Andataco or its affiliates or disclose any confidential information. As
consideration for entering into the Noncompetition Agreement, Mr. Sykes will
receive 60 monthly payments of $16,667 for a total of $1,000,020. Mr. Sykes'
obligation not to compete terminates at the earliest of (i) June 3, 2002, (ii)
the Company's failure to make payments as described herein, or (iii) the
Company's failure to make payments pursuant to the Sykes Employment Agreement.
Prior to the consummation of the Merger, Andataco and Harris Ravine entered
into an employment agreement (the "Ravine Employment Agreement"). Under the
Ravine Employment Agreement, Mr. Ravine was hired as Chief Executive Officer of
Andataco. The initial term of the Ravine Employment Agreement ends June 30,
2002, with automatic additional one-year extensions unless the Company or Mr.
Ravine elect not to extend the Ravine Employment Agreement. Mr. Ravine's initial
annual base salary under the Ravine Employment Agreement is $300,000, and he
will be eligible to receive cash bonuses up to an amount equal to 50% of Mr.
Ravine's then base salary if Andataco meets certain quantified objectives based
on an annual business plan approved by the Board each year during the term of
his employment. As additional consideration for entering into the Ravine
Employment Agreement, upon consummation of the Merger, the Company granted Mr.
Ravine an option to purchase 700,000 shares of Common Stock at an exercise price
equal to the fair market value of the Company's Common Stock on the date of
grant. Pursuant to the Ravine Employment Agreement, (i) 250,000 shares of the
Company's Common Stock underlying the option vest and become exercisable monthly
and ratably during the first year of the Ravine Employment Agreement; (ii) an
additional 225,000 shares will vest (and the option will become exercisable with
respect to such shares) in four equal installments over the next four years; and
(iii) the remaining 225,000 shares would vest (and the option would become
exercisable with respect to such shares) over the same four years, but only if
the Company met certain objectives. Such stock option was amended on November 5,
1997 to reduce the number of underlying shares by 225,000, which number
represents those shares subject to performance-based vesting identified in (iii)
above. Mr. Ravine was granted an additional option on November 5, 1997, to
purchase 275,000 shares of the Company's Common Stock. Such shares shall vest at
the rate of 68,750 per year at the end of each year during the four year period
commencing on November 5, 1997. If Mr. Ravine's employment is terminated by the
Company without cause he is entitled to receive an amount equal to 18 months of
his annual base salary of $300,000 plus any unpaid bonus pursuant to the Ravine
Employment Agreement. In the event that Mr. Ravine's employment with the Company
is terminated within 12 months of a change of control of the Company, Mr. Ravine
is entitled to receive as severance an amount equal to 18 months of this annual
base salary plus any unpaid bonus. The Ravine Employment Agreement also calls
for additional benefits, including term life insurance and a car allowance.
Pursuant to an employment offer letter from Andataco dated September 20,
1996, Richard A. Hudzik receives an annual base salary of $135,000 per year and
a cash bonus of up to 20% of base salary if certain financial objectives are
met. Mr. Hudzik is entitled to six months severance pay upon termination.
Pursuant to a compensation agreement entered into between Peter W. Bell and
Andataco on July 10, 1997, Mr. Bell receives an annual base salary of $150,000
and a cash bonus of up to $30,000 if certain financial objectives are met.
Pursuant to an employment offer letter from Andataco dated July 9, 1997, Mr.
Bell was granted an option to purchase 480,000 shares of Common Stock at an
exercise price equal to the fair market value on the date of grant. Pursuant to
the offer letter, (i) 80,000 shares of the Company's Common Stock underlying the
option vested fully upon commencement of Mr. Bell's employment; (ii) an
additional 240,000 shares will vest in five equal installments over the next
five years; and (iii) the remaining 160,000 would vest only if the Company met
certain objectives. Such option was amended on November 5, 1997 to reduce the
number of underlying shares by 160,000, which number represents those shares
subject to performance-based vesting identified in (iii) above. Mr. Bell was
granted an additional option on November 5, 1997 to purchase 190,000 shares of
the Company's Common Stock. Such shares shall vest at the rate of 38,000 per
year at the end of each year during the four year period commencing on November
5, 1997.
Pursuant to the Executive Severance Agreement between the Company and
Ronald J. Gellert, former President and Chief Executive Officer of the Company,
dated January 1, 1994 (the "Gellert Agreement"), Mr. Gellert was entitled to
payments under certain circumstances following a change in control of the
Company. Accordingly, as a result of the Merger, the Company was obligated to
make severance payments to Mr. Gellert totaling $232,283 upon Mr. Gellert's
resignation, which was effective May 30, 1997.
Pursuant to the Executive Severance Agreement between the Company and
Eugene F. Tallone, former Vice President Finance, Chief Financial Officer and
Treasurer of the Company, dated January 1, 1994 (the "Tallone Agreement'), Mr.
Tallone
18.
<PAGE> 21
was entitled to payments under certain circumstances following a change in
control of the Company. Accordingly, as a result of the Merger, the Company was
obligated to make severance payments to Mr. Tallone totaling $171,757.50 upon
Mr. Tallone's resignation, which was effective June 30, 1997.
19.
<PAGE> 22
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the "Compensation
Committee") during the year ended October 31, 1997 was initially composed of
Messrs. McMullen and Ippolito. Following the resignation of Mr. Ippolito from
the Board in September 1997, the Compensation Committee became composed of
Mssrs. McMullan and Straus; none of the members of the Compensation Committee is
a current or former officer or employee of the Company. The Compensation
Committee is responsible for setting and administering the Company's policies
governing employee compensation and administering the Company's equity incentive
plans.
COMPENSATION PHILOSOPHY
The compensation policies adopted by the Compensation Committee are
designed to (i) align compensation with business objectives and performance;
(ii) attract, retain and reward executive officers and other key employees who
contribute to the long-term success of the Company; and (iii) motivate the
Company's executive officers and other key employees to enhance long-term
stockholder value. Key elements of this philosophy are:
- The Company's salaries must be competitive with comparable open
systems storage companies with which the Company competes for highly
qualified and experienced executives. To date, the Compensation
Committee has relied on its members' experience in working with other
comparable companies to ensure executive salaries are competitive.
- The Company maintains annual incentive programs sufficient to provide
motivation to achieve specific operating goals and to generate rewards
that bring total compensation to competitive levels.
- The Company provides significant equity-based incentives for
executives and other key employees to ensure that they are motivated
over the long term to respond to the Company's business challenges and
opportunities as stockholders as well as employees.
The Committee's objective is to set executive compensation within a range
which the Compensation Committee believes is comparable to the average range of
compensation set by companies of similar size in the open systems storage
market. The group of comparable companies is not necessarily the same as the
companies included in the market indices included in the performance graph on
page 22 of this Proxy Statement. The primary components of executive
compensation are base salary, short- and long-term cash incentives and long-term
equity incentives. Each year, the Compensation Committee reviews the criteria
upon which all aspects of employee compensation are based.
Base Salary. In fiscal year 1997 base salaries for executive officers other
than the Chief Executive Officer were set at competitive levels based primarily
on the recommendation of the Chief Executive Officer and assisted by the
Compensation Committee's analysis of published compensation surveys reflecting
compensation data for computer technology companies. Annual adjustments were
made to maintain base salaries at levels competitive with comparable companies
and to maintain an equitable relationship between the base salaries of executive
officers and overall merit increases for the Company's other employees. In the
case of any executive officer joining the Company, base salary was also
determined as one component of a total compensation package that had to be
competitive with compensation granted by the executive's prior employer and/or
other opportunities that might be available to the executive.
Annual Incentive Compensation. The amount of the bonus component in the
total compensation plan for executive officers is established at the beginning
of each year (or upon employment, in the case of newly hired executives). The
percentage of potential direct cash compensation that this component represents
varies for each officer, and for executive officers other than the Chief
Executive Officer it is based on the recommendation of the Chief Executive
Officer and the Compensation Committee's assessment of incentives in comparable
positions in other companies. In 1997 each quarter's bonus component was only
payable if the Company reported a pre-tax profit for the quarter, and 50% of
each executive officer's bonus component was based on the Company's broader
corporate performance against its financial plan for revenues
- ----------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, whether made before or after the
date hereof and irrespective of any general incorporation language
contained in such filing.
20.
<PAGE> 23
and/or results of operations. The other half of each executive officer's bonus
was based on performance against business objectives related to the individual
executive officer's responsibilities, including quantified objectives and, in
certain cases, other management objectives that were expected to provide future
competitive advantage for the Company. Examples of such individualized
objectives included development of sales and service channels, introduction and
sales of new products and programs, and management of manufacturing and
financial resources. For all executive officers other than the Chief Executive
Officer, the quantified business objectives were determined on a quarterly basis
by the Chief Executive Officer.
The Company achieved its quarterly corporate performance in the second and
fourth quarters of fiscal year 1997. As a result, Richard Hudzik received a cash
bonus comprising of 2.5% of his base salary. Ronald J. Gellert and Eugene F.
Tallone each received a bonus of $19,657 and $67,539, respectively, comprising
of 10.6% and 56% of their respective base salaries. The bonuses were paid in
connection with their resignation and pursuant to the terms of the Gellert
Agreement and the Tallone Agreement, respectively.
Long-Term Incentive Compensation. Initial stock option awards for executive
officers are individually determined at or prior to employment at levels which
are designed to attract qualified executives and in certain cases to be
competitive with options granted by their prior employers. Employees from within
the Company who are promoted to positions as executive officers typically
receive additional option grants to bring their total option grants up to the
level that would have been granted to a person hired for such executive officer
position from outside the Company. For additional information regarding options
awards, see the compensation tables preceding this report.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
officers in a taxable year. Compensation above $1 million may be deducted if it
is "performance-based compensation" within the meaning of the Code. The
Compensation Committee has determined that stock options granted under the
Company's 1997 Plan, Consolidated Equity Plan and 1993 Plan with an exercise
price at least equal to the fair market value of the Common Stock on the date of
grant will be treated as performance-based compensation under the Treasury
regulations promulgated under Section 162(m) of the Code.
Executive officers receive value from option grants only if the Common
Stock appreciates over the long term. The amount of individual option grants is
determined based in part on competitive practices at comparable companies and on
the Company's philosophy of significantly linking executive compensation with
stockholder interests. In determining the size of individual grants, the
Committee also considers the number of shares subject to options previously
granted to each executive officer, including the number of shares that have
vested and that remain unvested. The Committee believes that option grants by
the Company to its executive officers and employees are comparable to the
average range for comparable companies. In fiscal year 1997, the Committee
granted options to purchase an aggregate of 483,500 shares of the Company's
Common Stock to two executive officers, Peter W. Bell and Anita Buchanan, in
addition to the stock options granted to the Chief Executive Officer as
described below.
CORPORATE PERFORMANCE AND CHIEF EXECUTIVE OFFICER COMPENSATION
The total compensation program for the Chief Executive Officer is largely
based upon the same policies and criteria used for other executive officers.
Each year the Compensation Committee reviews the Chief Executive Officer's
existing compensation arrangement, the individual performance for the calendar
year under review, as well as the Company's performance relative to its peers.
In setting the base salary for Mr. Ravine, the Compensation Committee considered
industry reports as well as compensation data compiled by members of the
Compensation Committee.
Harris Ravine was appointed as Chief Executive Officer effective June 3,
1997. Under his employment agreement, Mr. Ravine's base salary is $300,000. In
addition, Mr. Ravine was granted an option to purchase 700,000 shares of the
Company's Common Stock under the Consolidated Equity Plan at an exercise price
of $1.125, the fair market value of the stock on the date of grant. In
determining the base salary and size of the option grant, the Compensation
Committee considered Mr. Ravine's previous experience and proven leadership in
implementing strategic and financial initiatives designed to augment the
Company's development and commercialization efforts. The Compensation Committee
also considered industry reports as well as industry compensation data. The
Compensation Committee believes the size of the stock option grant was
appropriate in order to align Mr. Ravine's total compensation with the
performance of the Company and, ultimately, the interests of the stockholders.
21.
<PAGE> 24
CONCLUSION
Through the programs described above, a significant portion of the
Company's compensation program and the compensation of the Company's Chief
Executive Officer are contingent on Company performance, and realization of
benefits is closely linked to increases in long-term stockholder value. The
Company remains committed to this philosophy of pay for performance, recognizing
that the competitive market for talented executives and the volatility of the
Company's business may result in highly variable compensation for a particular
time period.
COMPENSATION COMMITTEE
Cornelius P. McMullan
Melville Straus
22.
<PAGE> 25
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows a comparison of cumulative total returns of an
investment of $100 in cash for the Company, the Center for Research in
Securities Prices Index for the NASDAQ Stock Market (United States and Foreign
Companies) (the "CRSP NASDAQ U.S. and Foreign Index"), and the Center for
Research in Securities Prices Index for the NASDAQ Computer and Manufacturer
Stocks (the "CRSP NASDAQ Computer and Manufacturer Index") for the five year
period ended October 31, 1997. The graph assumes that all dividends have been
reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT
(IPL SYSTEMS, INC., CRSP NASDAQ U.S. AND FOREIGN
INDEX, CRSP NASDAQ COMPUTER MANUFACTURER INDEX)
<TABLE>
<CAPTION>
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Index Description 10/31/92 10/31/93 10/31/94 10/31/95 10/31/96 10/31/97
- --------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
IPL Systems, Inc. $100.00 $64.00 $28.00 $23.00 $16.00 $16.50
CRSP Total Return Index for the NASDAQ $100.00 $101.81 $115.27 $195.76 $245.62 $323.93
Computer and Manufacturer Stocks
CRSP Total Index for the NASDAQ Stock $100.00 $129.92 $129.96 $173.46 $203.94 $268.25
Market (U.S. and Foreign)
- --------------------------------------------- ---------- ---------- ---------- ---------- ----------- ---------
</TABLE>
- ----------
(1) This Section is not "soliciting material," is not deemed filed with the
SEC, and is not to be incorporated by reference into any filing of the
Company under the Securities Act or the Exchange Act whether made before or
after the date hereof and irrespective of any general incorporation
language in such filing.
23.
<PAGE> 26
CERTAIN TRANSACTIONS
Harris Ravine, Chairman of the Board of Directors and Chief Executive
Officer of the Company, is a managing director of BI Capital, which earned
$50,000 for providing financial advice and assistance in connection with the
negotiation of the Merger. Mr. Ravine, an outside director until the
consummation of the Merger, played an instrumental role in negotiating the terms
of the Merger and received $50,000 as a "success fee" upon consummation of the
Merger.
Andataco has entered into a ten-year lease with Syko Properties, Inc., a
corporation wholly-owned by W. David Sykes, dated January 1, 1993, for 42,384
square feet of industrial office space located at 10149 Mesa Rim Road, San
Diego, California (the "Lease"). The Lease term commenced on April 1, 1993 and
expires on March 31, 2003. Andataco has four five-year options to renew the
Lease at market rates. The current monthly rental payment under the Lease is
$27,500.
Pursuant to a Subordinated Promissory Note dated February 10, 1997 (the
"Note"), Andataco has promised to pay W. David Sykes the principal sum of
$5,195,548.87 plus interest at 9% per annum. The Note is due and payable in full
on June 30, 2004. Mr. Sykes receives monthly interest payments from the Company
in the amount of $38,967.
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Massachusetts law and the Company's
By-laws.
The Company has entered into certain additional transactions with its
directors and executive officers, as described under the captions "Executive
Compensation--Compensation of Directors" and "Executive Compensation--Employment
Agreements."
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
Richard A. Hudzik
Clerk
February 27, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997 IS AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO: IPL SYSTEMS, INC., 124 ACTON STREET, MAYNARD,
MASSACHUSETTS 01754.
24.
<PAGE> 27
IPL SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 8, 1998
The undersigned hereby appoints HARRIS RAVINE and RICHARD A. HUDZIK, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of IPL Systems, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of IPL
Systems, Inc. to be held at 124 Acton Street, Maynard, Massachusetts, on
Wednesday, April 8, 1998 at 10:00 a.m. (local time), and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEE FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect four directors to serve for the ensuing year and until
their successors are elected.
|_| FOR the nominees listed below |_| WITHHOLD AUTHORITY
(except as marked to the contrary to vote for the nominees
below). listed below.
NOMINEES: Harris Ravine, W. David Sykes, Cornelius P. McMullan and
Melville Straus
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Continued and to be signed on other side)
<PAGE> 28
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3, 4 AND 5.
PROPOSAL 2: To approve the Company's 1997 Equity Incentive Plan, as amended.
|_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL 3: To approve the amendment to the Company's Articles of Organization
to change the name of the Company from IPL Systems, Inc. to
Andataco, Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL 4: To approve an amendment to the Company's Articles of Organization to
increase the authorized number of shares of Class A Common Stock
from 30,000,000 shares to 40,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
PROPOSAL 5: To ratify selection of PRICE WATERHOUSE LLP as independent auditors
of the Company for its fiscal year ending October 31, 1998.
|_| FOR |_| AGAINST |_| ABSTAIN
DATED
----------------------------- -----------------------------------
-----------------------------------
SIGNATURE(S)
Please sign exactly as your name appears
hereon. If the stock is registered in
the names of two or more persons, each
should sign. Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and have
a duly authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
<PAGE> 29
IPL SYSTEMS, INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED SEPTEMBER 11, 1997
AMENDED DECEMBER 18, 1997
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected Employees
and Directors of and Consultants to the Company, and its Affiliates, may be
given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, and (iii) Stock Appreciation Rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of persons
who are now Employees or Directors of or Consultants to the Company or its
Affiliates, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Options granted pursuant to Section 6 hereof, including Incentive Stock
Options and Nonstatutory Stock Options, or Stock Appreciation Rights granted
pursuant to Section 7 hereof. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and
in such form as issued pursuant to Section 6, and a separate certificate or
certificates will be issued for shares purchased on exercise of each type of
Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation, whether
now or hereafter existing, as those terms are defined in Sections 424(e) and (f)
respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "COMPANY" means IPL Systems, Inc., a Massachusetts corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a right
granted pursuant to subsection 8(b)(2) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the Company
or an Affiliate to render consulting services and who is compensated for such
services, provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means that the
service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be
1.
<PAGE> 30
considered interrupted in the case of: (i) any leave of absence approved by the
Board, including sick leave, military leave, or any other personal leave; or
(ii) transfers between the Company, Affiliates or their successors.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four (4) other
highest compensated officers of the Company for whom total compensation is
required to be reported to shareholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including Officers and Directors, employed by
the Company or any Affiliate of the Company. Neither service as a Director nor
payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the fair market value of the
common stock of the Company determined by the Board pursuant to Rule 260.140.50
of Title 10 of the California Code of Regulations.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a right
granted pursuant to subsection 8(b)(3) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current
Employee or Officer of the Company or its parent or subsidiary, does not receive
compensation (directly or indirectly) from the company, or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an
Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the meaning
of Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. Each
Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "OPTIONEE" means a person who holds an outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee
of the Company or an "affiliate corporation" (within the meaning of the Treasury
regulations promulgated under Section 162(m) of the Code), is not a former
employee of the Company or an "affiliated corporation" receiving compensation
for prior services (other than benefits under a tax qualified pension plan), was
not an officer of the Company or an "affiliated corporation" at any time, and is
not currently receiving director or indirect remuneration from the
2.
<PAGE> 31
Company or an "affiliated corporation" for services in any capacity other than
as a Director, or (ii) is otherwise considered an "outside director" for
purposes of 162(m) of the Code.
(w) "PLAN" means this IPL Systems, Inc. 1997 Equity Incentive Plan.
(x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule
16b-3, as in effect when discretion is being exercised with respect to the Plan.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of rights which
may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan, including any Option,
and any Stock Appreciation Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a
holder of a Stock Award evidencing the terms and conditions of an individual
Stock Award grant. Each Stock Award Agreement shall be subject to the terms and
conditions of the Plan.
(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right granted
pursuant to subsection 8(b)(1) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations of,
the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, or a Stock Appreciation Right, or a combination of
the foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted to
receive stock upon exercise of an Independent Stock Appreciation Right; and the
number of shares with respect to which a Stock Award shall be granted to each
such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 14.
(c) The Board may delegate administration of the Plan to a committee composed of
not fewer than two (2) members (the "Committee"), all of the members of which
Committee shall be Non-Employee Directors and/or Outside Directors. If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board (and references in this Plan to the Board shall thereafter be to
the Committee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. Notwithstanding the foregoing, but only to the
extent
3.
<PAGE> 32
permitted by applicable law, the Board may delegate to any executive officer or
executive officers of the Company authority to grant Stock Awards to eligible
persons who are not then subject to Section 16 of the Exchange Act and the term
"Committee" shall apply to any such executive officer or executive officers to
whom such authority has been delegated. Any such delegation, however, shall
include aggregate and individual limits on the size of Stock Awards to be made
by such a committee.
(d) Any requirement that an administrator of the Plan be a Non-Employee Director
shall not apply if the Board or the Committee expressly declares that such
requirement shall not apply. Any Non-Employee Director shall otherwise comply
with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments upon changes
in stock, the stock that may be issued pursuant to Stock Awards shall not exceed
in the aggregate One Million One Hundred Ninety-Five Thousand Five Hundred_
(2,695,000) shares of the Company's common stock. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Stock Award shall
revert to and again become available for issuance under the Plan. Shares subject
to Stock Appreciation Rights exercised in accordance with Section 7 of the Plan
shall not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired shares,
bought on the market or otherwise.
5. ELIGIBILITY.
(a) All Employees, Directors and Consultants of the Company (or any business
entity in which the Company owns directly or indirectly fifty percent (50%) or
more of the total voting power) capable of contributing significantly to the
successful performance of the Company, other than an employee who has
irrevocably elected not to be eligible, are eligible to be Participants in the
Plan.
(b) No person shall be eligible for the grant of an Option if, at the time of
grant, such person owns (or is deemed to own pursuant to Section 424(d) of the
Code) stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any of its Affiliates unless
the exercise price of such Option is at least one hundred ten percent (110%) of
the Fair Market Value of such stock at the date of grant and if the Option is an
Incentive Stock Option the Option is not exercisable after the expiration of
five (5) years from the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments upon changes
in stock, no person shall be eligible to be granted Options and Stock
Appreciation Rights under the Plan covering more than Six Hundred Thousand
(600,000) shares of the Company's common stock.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10) years
from the date it was granted.
(b) PRICE. The Board will establish the exercise price of a Stock Award at the
time the Stock Award is granted. The exercise price will not be less than one
hundred percent (100%) of the Fair Market Value of the
4.
<PAGE> 33
Common Stock on the date of the Stock Award, provided that in the case of a
Nonstatutory Stock Option granted to a new employee of the Company within ninety
(90) days of the date of employment, the exercise price may be less than one
hundred percent (100%) of Fair Market Value on the date of such Award; provided,
however, that in no event will the exercise price be less than eighty-five
percent (85%) of Fair Market Value on the date of grant.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (i) in cash at the time the Option is exercised, or (ii) at the
discretion of the Board, as determined either at the time of the grant of the
Option or at any time thereafter, (A) by delivery to the Company of other common
stock of the Company, (B) according to a deferred payment or other arrangement
(which may include, without limiting the generality of the foregoing, the use of
other common stock of the Company) with the person to whom the Option is granted
or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any
other form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by will or by
the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person's
guardian or legal representative; provided, however, that the Board may, in its
discretion, waive such restriction in any case when such restriction is no
longer required by applicable law.
(e) VESTING. The total number of shares of stock subject to an Option may, but
need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The vesting provisions of individual Options may vary, but in the
case of an Option granted to a non-officer employee will provide for vesting of
at least twenty percent (20%) per year of the total number of shares subject to
the Option. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In
the event an Optionee's Continuous Status as an Employee, Director or Consultant
terminates (other than upon the Optionee's death or disability), the Optionee
may exercise his or her Option (to the extent that the Optionee was entitled to
exercise it as of the date of termination) but only within such period of time
ending on the earlier of (i) the date three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant (or such
longer or shorter period, which in no event shall be less than thirty (30) days,
specified in the Option Agreement), or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the Optionee
does not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the
5.
<PAGE> 34
expiration of the term of the Option set forth in the first paragraph of this
subsection 6(f), or (ii) the expiration of a period of three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant during which the exercise of the Option would not be in violation of
such registration requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an
Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period, which in no
event shall be less than six (6) months, specified in the Option Agreement), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or
within a period specified in the Option Agreement after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
as of the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period, which in
no event shall be less than six (6) months, specified in the Option Agreement),
or (ii) the expiration of the term of such Option as set forth in the Option
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(i) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionee to a further Option (a "Re-Load Option") in the
event the Optionee exercises the Option evidenced by the Option Agreement, in
whole or in part, by surrendering other shares of Common Stock in accordance
with this Plan and the terms and conditions of the Option Agreement. Any such
Re-Load Option (i) shall be for a number of shares equal to the number of shares
surrendered as part or all of the exercise price of such Option; (ii) shall have
an expiration date which is the same as the expiration date of the Option the
exercise of which gave rise to such Re-Load Option; and (iii) shall have an
exercise price which is equal to one hundred percent (100%) of the Fair Market
Value of the Common Stock subject to the Re-Load Option on the date of exercise
of the original Option. Notwithstanding the foregoing, a Re-Load Option which is
granted to a ten percent (10%) shareholder (as described in subsection 5(c)),
shall have an exercise price which is equal to one hundred ten percent (110%) of
the Fair Market Value of the stock subject to the Re-Load Option on the date of
exercise of the original Option and shall have a term which is no longer than
five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board may designate at the time of the grant of the
original Option; provided, however, that the designation of any Re-Load Option
as an Incentive Stock Option shall be subject to the one hundred thousand dollar
($100,000) annual limitation on exercisability of Incentive Stock Options
described in subsection 10(f) of the Plan and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares under subsection 4(a)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. STOCK APPRECIATION RIGHTS.
6.
<PAGE> 35
(a) The Board (or Committee) shall have full power and authority, exercisable in
its discretion, to grant Stock Appreciation Rights under the Plan to Employees
or Directors of or Consultants to, the Company or its Affiliates. To exercise
any outstanding Stock Appreciation Right, the holder must provide written notice
of exercise to the Company in compliance with the provisions of the Stock Award
Agreement evidencing such right. If a Stock Appreciation Right is granted to an
individual who is at the time subject to Section 16(b) of the Exchange Act (a
"Section 16(b) Insider"), the Stock Award Agreement of grant shall incorporate
all the terms and conditions at the time necessary to assure that the subsequent
exercise of such right shall qualify for the safe-harbor exemption from
short-swing profit liability provided by Rule 16b-3 promulgated under the
Exchange Act (or any successor rule or regulation). No limitation shall exist on
the aggregate amount of cash payments the Company may make under the Plan in
connection with the exercise of a Stock Appreciation Rights.
(b) Three types of Stock Appreciation Rights shall be authorized for issuance
under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Stock Appreciation
Rights will be granted appurtenant to an Option, and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains.
Tandem Stock Appreciation Rights will require the holder to elect between the
exercise of the underlying Option for shares of stock and the surrender, in
whole or in part, of such Option for an appreciation distribution. The
appreciation distribution payable on the exercised Tandem Right shall be in cash
(or, if so provided, in an equivalent number of shares of stock based on Fair
Market Value on the date of the Option surrender) in an amount up to the excess
of (A) the Fair Market Value (on the date of the Option surrender) of the number
of shares of stock covered by that portion of the surrendered Option in which
the Optionee is vested over (B) the aggregate exercise price payable for such
vested shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of stock subject to the underlying Option and shall, except as
specifically set forth in this Section 8, be subject to the same terms and
conditions applicable to the particular Option grant to which it pertains. A
Concurrent Right shall be exercised automatically at the same time the
underlying Option is exercised with respect to the particular shares of stock to
which the Concurrent Right pertains. The appreciation distribution payable on an
exercised Concurrent Right shall be in cash (or, if so provided, in an
equivalent number of shares of stock based on Fair Market Value on the date of
the exercise of the Concurrent Right) in an amount equal to such portion as
shall be determined by the Board at the time of the grant of the excess of (A)
the aggregate Fair Market Value (on the date of the exercise of the Concurrent
Right) of the vested shares of stock purchased under the underlying Option which
have Concurrent Rights appurtenant to them over (B) the aggregate exercise price
paid for such shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights will
be granted independently of any Option and shall, except as specifically set
forth in this Section 8, be subject to the same terms and conditions applicable
to Nonstatutory Stock Options as set forth in Section 6. They shall be
denominated in share equivalents. The appreciation distribution payable on the
exercised Independent Right shall be not greater than an amount equal to the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Independent Right) of a number of shares of Company stock equal to the
number of share equivalents in which the holder is vested under such Independent
Right, and with respect to which the holder is exercising the Independent Right
on such date, over (B) the aggregate Fair Market Value (as determined on the
date of the grant of the Independent Right, or if so provided in the Independent
Stock Appreciation Right on the date of hire as an Employee if such date is
within ninety (90) days of the date of grant and such value is not less than
eighty-five percent (85%) of the aggregate Fair Market Value on the date of
grant) of such number of shares of Company stock. The appreciation distribution
payable on the exercised Independent Right shall be in cash or, if so provided,
in an equivalent number of shares of stock based on Fair Market Value on the
date of the exercise of the Independent Right.
7.
<PAGE> 36
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board shall have the authority to effect, at any time and from time to
time, (i) the repricing of any outstanding Options and/or any Stock Appreciation
Rights under the Plan and/or (ii) with the consent of the affected holders of
Options and/or Stock Appreciation Rights, the cancellation of any outstanding
Options and/or any Stock Appreciation Rights under the Plan and the grant in
substitution therefor of new Options and/or Stock Appreciation Rights under the
Plan covering the same or different numbers of shares of stock, but having an
exercise price per share not less than eighty-five percent (85%) of the Fair
Market Value (one hundred percent (100%) of the Fair Market Value in the case of
an Incentive Stock Option or, in the case of a ten percent (10%) shareholder (as
described in subsection 5(c)), not less than one hundred ten percent (110%) of
the Fair Market Value) per share of stock on the new grant date. Notwithstanding
the foregoing, the Board may grant an Option and/or Stock Appreciation Right
with an exercise price lower than that set forth above if such Option and/or
Stock Appreciation Right is granted as part of a transaction to which section
424(a) of the Code applies.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available at
all times the number of shares of stock required to satisfy such Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or agency
having jurisdiction over the Plan such authority as may be required to issue and
sell shares of stock upon exercise of the Stock Award; provided, however, that
this undertaking shall not require the Company to register under the Securities
Act of 1933, as amended (the "Securities Act") either the Plan, any Stock Award
or any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.
10. MISCELLANEOUS.
(a) Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
(b) Neither an Employee, Director or Consultant nor any person to whom a Stock
Award is transferred under subsection 6(d), or 7(a) shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
subject to such Stock Award unless and until such person has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) Throughout the term of any Stock Award, the Company shall deliver to the
holder of such Stock Award, not later than one hundred twenty (120) days after
the close of each of the Company's fiscal years during the term of such Stock
Award, a balance sheet and an income statement. This section shall not apply
when issuance is limited to key employees whose duties in connection with the
Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate (or to continue acting as a Director or Consultant) or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without cause, to remove any Director as provided in the
Company's Bylaws and the provisions of the General Corporation Law of the
Commonwealth of Massachusetts or to terminate the relationship of any Consultant
in accordance with the terms of that Consultant's agreement with the Company or
Affiliate to which such Consultant is providing services.
(e) To the extent that the aggregate Fair Market Value (determined at the time
of grant) of stock with respect to which Incentive Stock Options are exercisable
for the first time by any Optionee during any calendar year under
8.
<PAGE> 37
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(f) The Company may require any person to whom a Stock Award is granted, or any
person to whom a Stock Award is transferred pursuant to subsection 6(d) or 7(b),
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company, if any, that are necessary
to ensure compliance with federal securities laws. These requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (i) the
issuance of the shares upon the exercise or acquisition of stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws.
(g) To the extent provided by the terms of a Stock Award Agreement, the person
to whom a Stock Award is granted may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under a
Stock Award by any of the following means or by a combination of such means: (1)
tendering a cash payment; (2) authorizing the Company to withhold shares from
the shares of the common stock otherwise issuable to the participant as a result
of the exercise or acquisition of stock under the Stock Award; or (3) delivering
to the Company owned and unencumbered shares of the common stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to any
Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a), and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. If considered
appropriate, the Board or the Committee may make a provision for a cash payment
with respect to all or part of an outstanding Stock Award instead of or in
addition to any such adjustment.
(b) In the event of: (1) a merger or consolidation in which the Company is not
the surviving corporation; (2) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (3) a
sale of all or substantially all of the assets of the Company, then: (i) any
surviving or acquiring corporation shall assume any Stock Awards outstanding
under the Plan or shall substitute similar stock awards (including an award to
acquire the same consideration paid to the stockholders in the transaction
described in this subsection 11(b)) for those outstanding under the Plan, or
(ii) in the event any surviving or acquiring corporation refuses to assume such
Stock Awards or to substitute similar Stock Awards for those outstanding under
the Plan, then such Stock Awards shall be terminated if not exercised prior to
such event. In the event of a dissolution or liquidation of the Company, any
Stock Awards outstanding under the Plan shall terminate if not exercised prior
to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan. However,
except as provided in Section 11 relating to adjustments upon changes in stock,
no amendment shall be effective unless approved by the shareholders of the
Company to the extent shareholder approval is necessary for the Plan to satisfy
the requirements of Section 422 of the Code, Rule 16b-3 under the Exchange Act
or any Nasdaq or securities exchange listing requirements.
9.
<PAGE> 38
(b) The Board may, in its sole discretion, submit any other amendment to the
Plan for shareholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide eligible Employees,
Directors or Consultants with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment of the
Plan shall not be impaired by any amendment of the Plan unless: (i) the Company
requests the consent of the person to whom the Stock Award was granted and (ii)
such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of some or
all Stock Awards; provided, however, that if the Board determines that the
effect of an amendment, taken as a whole, would be to impair rights and
obligations under any Stock Award then such amendment shall not be effective as
to a particular Stock Award unless: (i) the Company requests the consent of the
person to whom the Stock Award was granted and (ii) such person consents in
writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate ten (10) years from the date the Plan is
adopted by the Board or approved by the shareholders of the Company, whichever
is earlier. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Stock Award was granted.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the shareholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.
10.
<PAGE> 39
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156b, Section 72)
We, W. David Sykes, President and Richard A. Hudzik, Clerk of IPL systems, Inc.
located at 124 Acton Street, Maynard, Massachusetts certify that these Articles
of Amendment affecting articles numbered: 1 and 3 of the Articles of
Organization were duly adopted at a meeting held on ____________, 1998, by vote
of:
<TABLE>
<CAPTION>
<S> <C>
___________ shares of ______________________________ of _____________ shares outstanding,
(type, class & series, if any)
___________ shares of ______________________________ of ____________ shares outstanding, and
(type, class & series, if any)
___________ shares of ______________________________ of _____________ shares outstanding,
(type, class & series, if any)
</TABLE>
being at least a majority of each type, class or series outstanding and entitled
to vote thereon.
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
<TABLE>
<CAPTION>
- ------------------------------------------- ------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Common: Common: 30,000,000 $0.01
Class A
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
Common: 2,250,000 $0.01
Class B
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
Preferred: Preferred:
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
</TABLE>
<PAGE> 40
Change the total authorized to:
<TABLE>
<CAPTION>
- ------------------------------------------- ------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Common: Common: 40,000,000 $0.01
Class A
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
Common: 2,250,000 $0.01
Class B
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
Preferred: Preferred:
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
- -------------- ---------------------------- ------------- ----------------------------- ----------------------------
</TABLE>
1. The name by which the corporation shall be known is:
Andataco, Inc.
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: N/A
SIGNED UNDER THE PENALTIES OF PERJURY, this ______ day of ______________, 1998
____________________________________________________________________ President.
____________________________________________________________________ Clerk.
2.
<PAGE> 41
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
==================================================
I hereby approve the within Articles of Amendment
and, the filing fee in the amount of $___________
having been paid, said articles are deemed to have
been filed with me this _______________ day of
_____________, 19__.
Effective date:
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
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