SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
[GRAPHIC OMITTED]
IMAGING TECHNOLOGIES CORPORATION
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
<PAGE>
[GRAPHIC OMITTED]
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128
Telephone: (858) 613-1300 o Fax: (858) 207-6505
April 11, 2000
Dear Stockholder:
It is a pleasure to send to you the attached notice and proxy materials with
regard to the Annual Meeting of Stockholders (the "Meeting") of Imaging
Technologies Corporation (the "Company") scheduled to be held on May 11, 2000.
The matters to be considered at the Meeting include the following: election of
directors; approval of a stock option plan; approval of an employee stock
purchase plan; approval of an increase in the number of authorized shares of the
Company's common stock (the "Common Stock"); approval of a reverse split of the
Common Stock; and approval of the Company's accountants.
The Company's board of directors unanimously recommends that you vote FOR all of
the above-mentioned proposals.
I hope you will be able to attend the Meeting. However, whether or not you plan
to attend the Meeting, we request that you sign, date and return the enclosed
Proxy card as soon as possible.
If you should have any questions in regard to any of the above-mentioned
proposals, please do not hesitate to call our Stockholder Relations Department
or me at (858) 613-1300.
We are grateful for the confidence you have shown in us.
Sincerely yours,
/s/Brian Bonar
Brian Bonar
Chairman of the Board, President and Chief
Executive Officer
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 2000
---------------
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Stockholders
(the "Meeting") of IMAGING TECHNOLOGIES CORPORATION, a Delaware corporation (the
"Company"), will be held at the Radisson Suite Hotel, 11520 W. Bernardo Ct., San
Diego, California 92127, on Thursday, May 11, 2000, at 10 a.m., local time, to
consider and act upon the following:
1. The election of five persons named in the accompanying Proxy Statement
to serve as directors on the Company's board of directors (the "Board")
and until their successors are duly elected and qualified;
2. To approve the Company's 2000 Stock Option Plan (the "2000 Stock Option
Plan"), pursuant to which up to 3,500,000 shares of the Company's
common stock, par value $.005 per share (the "Common Stock") will be
reserved or may be reserved for issuance over the term of the 2000
Stock Option Plan;
3. To approve the Company's Employee Stock Purchase Plan (the "Stock
Purchase Plan"), pursuant to which up to 1,250,000 shares of Common
Stock will be reserved or may be reserved for issuance over the term of
the Stock Purchase Plan;
4. To approve an amendment to the Company's certificate of incorporation
(the "Certificate of Incorporation") to increase the number of the
Common Stock, authorized to be issued from 100,000,000 shares to
200,000,000 shares;
5. To approve an amendment to the Certificate of Incorporation in order to
effect a stock combination (reverse split) of the Common Stock in an
exchange ratio to be approved by the Board, ranging from one newly
issued share for each two outstanding shares of Common Stock to one
newly issued share for each six outstanding shares of Common Stock;
6. To ratify the appointment of Boros & Farrington APC as the Company's
independent auditors for the fiscal year ending June 30, 2000; and
7. To consider and transact such other business as may properly come
before the Meeting or any adjournment(s) thereof.
A Proxy Statement, form of Proxy and the Annual Report to Stockholders
of the Company for the fiscal year ended June 30, 1999 are enclosed herewith.
Only holders of record of Common Stock at the close of business on March 27,
2000 are entitled to receive notice of and to attend the Meeting and any
adjournment(s) thereof. The stock transfer books of the Company will remain open
between the record date and the date of the Meeting. At least 10 days prior to
the Meeting, a complete list of the stockholders entitled to vote will be
available for inspection by any stockholder, for any purpose germane to the
<PAGE>
Meeting, during ordinary business hours, at the executive offices of the
Company. Should you receive more than one Proxy because your shares are
registered in different names and addresses, each Proxy should be signed and
returned to assure that all your shares will be voted. You may revoke your Proxy
at any time prior to the Meeting. If you attend the Meeting and vote by ballot,
your Proxy will be revoked automatically and only your vote at the Meeting will
be counted. If you do not expect to be present at the Meeting, you are requested
to fill in, date and sign the enclosed Proxy, which is solicited by the Board of
the Company, and to mail it promptly in the enclosed envelope.
In the event there are not sufficient votes for a quorum or to approve
or ratify any of the foregoing proposals at the time of the Meeting, the Meeting
may be adjourned by a vote of the majority of the votes cast by the stockholders
entitled to vote thereon. Whether or not you expect to attend the Meeting, to
assure that a quorum is present at the Meeting or an adjournment thereof, and
there are sufficient votes to vote on all of the foregoing proposals, please
sign, date and return promptly your Proxy (even after May 11, 2000, the original
Meeting date) in the stamp-addressed envelope provided.
By Order of the Board of Directors
/s/Brian Bonar
Brian Bonar
Chairman of the Board, President and Chief
Executive Officer
Dated: April 11, 2000
- --------------------------------------------------------------------------------
IMPORTANT
THE RETURN OF YOUR SIGNED PROXY AS PROMPTLY AS POSSIBLE WILL GREATLY FACILITATE
ARRANGEMENTS FOR THE MEETING. NO POSTAGE IS REQUIRED IF THE PROXY IS RETURNED
IN THE ENVELOPE ENCLOSED FOR YOUR CONVENIENCE AND MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
2
<PAGE>
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive
San Diego, California 92128-3401
----------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 11, 2000
----------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the board of directors (the "Board") of Imaging Technologies
Corporation, a Delaware corporation (the "Company"), to be voted at the Annual
Meeting of Stockholders of the Company (the "Meeting") which will be held at the
Radisson Suite Hotel, 11520 W. Bernardo Ct., San Diego, California 92127 on
Monday, May 11, 2000 at 10 a.m., local time, and any adjournment(s) thereof, for
the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders and in this Proxy Statement.
The principal executive offices of the Company are located at 15175
Innovation Drive, San Diego, California 92128-3401. The approximate date on
which this Proxy Statement and accompanying Proxy will first be sent or given to
stockholders is April 14, 2000.
VOTING SECURITIES
VOTING
The specific proposals to be considered and acted upon at the Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders and
are described in more detail in this Proxy Statement. On March 27, 2000, the
record date for determination of stockholders entitled to notice of and to vote
at the Meeting, 94,517,047 shares of the Company's common stock, par value $.005
(the "Common Stock") and 420.5 shares of 5% Convertible Preferred Stock, par
value $1,000 per share (the "5% Convertible Stock"), were issued and
outstanding. Each stockholder is entitled to one vote for each share of Common
Stock and no vote for each share of 5% Convertible Stock held by such
stockholder on March 27, 2000.
The attendance, in person or by proxy, of the holders of a majority of
the outstanding voting shares of Common Stock entitled to vote at the Meeting is
necessary to constitute a quorum. A vote of a majority of the outstanding shares
of Common Stock entitled to vote at the Meeting will be required for the
approval of each of the amendments to the Company's certificate of incorporation
(the "Certificate of Incorporation"). A vote of the holders of a majority of the
number of outstanding shares of Common Stock, present, in person or represented
by proxy at the Meeting and entitled to vote at the Meeting, will be required
for the election of directors, approval of the stock option plan, and election
of the Company's accountants.
Although the Company is a Delaware corporation, under Section 2115 of
the California Corporations Code, certain provisions of the California
Corporation Code apply to the Company because of the residence of the Company's
stockholders and the extent of its business operations and assets in California.
The provisions pertaining to certain requirements of cumulative voting apply to
the Company.
Stockholders have cumulative voting rights when voting for directors.
Accordingly, any stockholder may multiply the number of votes he or she is
entitled to vote by the number of directors to be elected and allocate votes
among the candidates in any manner. However, no voting stockholder may
cumulative votes unless the name(s) of the director candidate or candidates have
been placed in nomination prior to the voting and the stockholder, prior to the
voting, has given notice at the Meeting of its intention to cumulate its shares.
If any one stockholder has given a notice of its intention to cumulate votes
then all stockholders may cumulate their votes for director candidates in
<PAGE>
nomination. Stockholders may exercise such cumulative voting rights, either in
person or by proxy after providing the proper notice. The five director nominees
receiving the highest number of votes will be elected.
The Board intends to vote proxies equally for the five nominees unless
otherwise instructed on the Proxy Card. If you do not wish your votes to be
voted for particular nominees, please identify the exceptions in the designated
place on the Proxy Card. If at the time of the Meeting one or more of the
nominees have become unavailable to serve, votes represented by Proxies will be
voted for the remaining nominees and for any substitute nominee or nominees
designated by the Board. Directors elected at the Meeting will hold office until
the next Annual Meeting of Stockholders or until their successors have been
elected and qualified.
All votes will be tabulated by the inspector of election appointed for
the Meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions and broker non-votes are counted
as present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted towards the tabulations
of votes cast on proposals presented to the stockholders and will have the same
effect as negative votes except in regard to the election of directors. Broker
non-votes will not be counted towards the tabulations of votes cast on proposals
presented to the stockholders.
PROXIES
If the enclosed form of Proxy is properly signed and returned, the
shares represented thereby will be voted at the Meeting in accordance with the
instructions specified thereon. If the Proxy does not specify how the shares
represented thereby are to be voted, the Proxy will be equally voted FOR the
election of the five directors proposed by the Board unless the authority to
vote for the election of such directors is withheld and, if no contrary
instructions are given, the Proxy will be voted FOR the approval of Proposals 1,
2, 3, 4, 5 and 6 described in the accompanying Notice and Proxy Statement. You
may revoke or change your Proxy at any time before the Meeting by filing with
the Secretary of the Company at the Company's principal executive offices at
15175 Innovation Drive, San Diego, California 92128-3401, a notice of revocation
or another signed Proxy with a later date. You may also revoke your Proxy by
attending the Meeting and voting in person.
SOLICITATION
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the form of
Proxy and any additional solicitation materials furnished to the stockholders.
Copies of solicitation materials will be furnished to brokerage houses,
fiduciaries and custodians holding shares in their names that are beneficially
owned by others so that they may forward this solicitation material to such
beneficial owners. The Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. In addition to
the solicitation of Proxies by mail, Proxies may be solicited without extra
compensation paid by the Company by directors, officers and employees of the
Company by telephone, facsimile, telegraph or personal interview. The Company
also has engaged the proxy solicitation firm of D.F. King Company, Inc. to
solicit votes for the Meeting for a fee of approximately $7,500, plus
reimbursement of certain expenses.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 2000 Annual Meeting of
Stockholders must be received by the Company at its executive offices not later
than a reasonable time before the Company begins to print and mail its proxy
materials in order that such proposals may be included in the Proxy Statement
and form of Proxy relating to such meeting.
2
<PAGE>
MATTERS TO BE CONSIDERED AT THE MEETING
PROPOSAL 1
ELECTION OF THE BOARD
NOMINEES FOR ELECTION AS DIRECTORS
The persons named below are nominees for director to serve until the
next annual meeting of stockholders and until their successors have been elected
and qualified. Management has selected five nominees, all of whom are currently
directors of the Company. Each person nominated for election has agreed to serve
if elected, and management has no reason to believe that any nominee will be
unavailable to serve. Unless otherwise instructed, the Proxy holders will vote
the Proxies received by them for the nominees named below. The proxies received
by the Proxy holders cannot be voted for more than five directors, and, unless
otherwise instructed, the Proxy holders will vote such proxies for the nominees
named below. The five candidates receiving the highest number of affirmative
votes of the shares entitled to vote at the Meeting will be elected directors of
the Company.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Meeting, the persons named in the enclosed
Proxy will exercise discretionary authority to vote for substitutes. The Board
is not aware of any circumstances that would render any nominee unavailable for
election.
The following table sets forth certain information regarding the
nominees for election as directors.
<TABLE>
<CAPTION>
NAME AGE SINCE DIRECTOR TITLE
- ---- --- ----- --------------
<S> <C> <C> <C>
Brian Bonar 52 1995 Chairman of the Board, President
and Chief Executive Officer
Keith Meadows 64 2000 Director
Robert A. Dietrich 54 2000 Director
Eric W. Gaer 51 2000 Director
Stephen J. Fryer 61 2000 Director
</TABLE>
Brian Bonar has served as a director of the Company since August 1995
and became the Company's Chairman of the Board in December 1999. From August
1992 through April 1994, Mr. Bonar served as the Company's Director of
Technology Sales and from April 1994 through September 1994 as the Company's
Vice President, Sales and Marketing. In September 1994, Mr. Bonar became the
Company's Executive Vice President and, in July 1997, was appointed as the
Company's President and Chief Operating Officer. In April 1998 Mr. Bonar assumed
the post of CEO. From 1991 to 1992, Mr. Bonar was Vice President of Worldwide
Sales and Marketing for Bezier Systems, Inc., a San Jose, California-based
manufacturer and marketer of laser printers. From 1990 to 1991, he was Worldwide
Sales Manager for Adaptec, Inc., a San Jose-based laser printer controller
developer. From 1988 to 1990, Mr. Bonar was Vice President of Sales and
Marketing for Rastek Corporation, a laser printer controller developed located
in Huntsville, Alabama. From 1984 to 1988, Mr. Bonar was employed as Executive
Director of Engineering at QMS, Inc., an Alabama-based developer and
manufacturer of high-performance color and monochrome printing solutions. Prior
to these positions, Mr. Bonar was employed by IBM, U.K. Ltd. for approximately
17 years.
Keith George Meadows has served as a director of the Company since
January 2000. Mr. Meadows is Chairman of Continua Ltd., a large printer
installation and maintenance company in Europe. He has served on the board of
directors for various technology companies. Mr. Meadows retired in January 1986
from Data Processing Customer Engineering ("D.P.C.E."), a company that pioneered
large-scale independent computer maintenance throughout Europe, went public on
the London Stock Exchange and was subsequently sold to Granada PLC. From
3
<PAGE>
1983 to 1986, Mr. Meadows was named and acted as Managing Director of D.P.C.E.
In 1979, Mr. Meadows was appointed General Manager of the United Kingdom
Division of D.P.C.E. From 1959 to 1979, Mr. Meadows served in several key
management positions for English Electric Computers/ICL and as a Vice
President-Bureau Operations Europe for First National City Bank of New York. Mr.
Meadows served in the Royal Navy for two years as a Sub-Lieutenant. He is a
graduate of St. Edmund Hall, Oxford University, England.
Robert A. Dietrich has served as a director of the Company since
January 2000. Mr. Dietrich is President and CEO of Cyberair Communications Inc.,
a privately-held telecommunications company with strategic interests in Internet
communications and "bandwidth" expansion technologies, as well as domestic and
international telephone services, in Irvine, California. Recently, Mr. Dietrich
was named President and CEO of Semper Resources Corporation, a public natural
resources holding company in Irvine, California. From 1996 to 2000, Mr. Dietrich
was Managing Director and CFO of Ventana International, Ltd., Irvine,
California, a venture capital and private investment banking firm. From 1990 to
1994, Mr. Dietrich was Vice President and Chief Financial Officer of CEI, Inc.,
in Santa Ana, California, a commercial furnishings firm, prior to joining
Ventana. Mr. Dietrich is a graduate of the University of Notre Dame, with a
bachelor's degree in accounting, and the University of Detroit, with a master's
degree in finance. He served as a lieutenant in the U.S. Navy's Atlantic Command
Operations Control Center.
Eric W. Gaer has served as a director since March 2000. Since 1998, Mr.
Gaer has been the President and CEO of Arroyo Development Corporation, a
privately-held, San Diego-based management consulting company. From 1996 to
1998, he was Chairman, President and CEO of Greenland Corporation, a
publicly-held high technology company in San Diego, California. In 1995, he was
CEO of Ariel Systems, Inc., a privately-held engineering development company in
Vista, California. Over the past 25 years, Mr. Gaer has served in executive
management positions at a variety of high-technology companies, including ITEC,
Daybreak Technologies, Inc., Venture Software, Inc., and Merisel, Inc. In 1970,
he received a Bachelor of Arts degree in mass communications from California
State University, Northridge.
Stephen J. Fryer has served as a director of the Company since March
2000. He is currently Chairman of the Board and CEO of Pen Interconnect, Inc.
("Pen"), a high technology company in Irvine, California. He began his
employment service at Pen in 1997 as Senior Vice President of Sales ad
Marketing. At Pen, he became a director in 1995 and was appointed President and
CEO in 1998. From 1989 to 1996, Mr. Fryer was a principal in Ventana
International, Ltd., a venture capital and private investment banking firm in
Irvine, California. He has over 28 years experience in the computer industry in
the United States, Asia and Europe. Mr. Fryer graduated from te University of
California in 1960 with a bachelor's degree in mechanical engineering.
BOARD AND COMMITTEE MEETINGS
The Board held 10 meetings during the fiscal year ended June 30, 1999.
The Company's audit committee (the "Audit Committee"), composed of
Messrs. David M. Carver and A.L. Dubrow, both of whom resigned from the Board in
December 1999, met once during the fiscal year ended June 30, 1999, to review
the Company's financial statements and to meet with the Company's independent
auditors. The audit Committee currently consists of Robert A. Dietrich and Eric
W. Gaer.
The Company's compensation committee (the "Compensation Committee"),
composed of Messrs. Dubrow and Harry J. Saal, both of whom resigned from the
Board in December 1999, met once during the fiscal year ended June 30, 1999, to
review executive compensation and the status of the Company's employee stock
option plans. The Compensation Committee currently consists of Stephen J. Fryer
and Keith Meadows. None of these individuals was an officer or employee of the
Company at any time during the fiscal year ended June 30, 1999, or at any other
time.
No current executive officer of the Company has ever served as a member
of the board of directors or compensation committee of any other entity that has
or has had one or more executive officers serving as a member of the Board or
Compensation Committee.
4
<PAGE>
DIRECTOR AND COMMITTEE COMPENSATION
Directors who are not employees of the Company or one of its
subsidiaries receive monthly fees of $1,000.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES LISTED ABOVE.
PROPOSAL 2
APPROVAL OF 2000 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve the 2000 Stock
Option Plan (the "2000 Stock Option Plan"), pursuant to which 3,500,000 shares
of Common Stock will be reserved for issuance. The Board has authorized the
implementation of the 2000 Stock Option Plan as a comprehensive equity incentive
program to attract and retain the services of those persons essential to the
Company's growth and financial success. The 2000 Stock Option Plan was adopted
by the Board on January 25, 2000, and would become effective if (i) either
Proposal 4 or 5 is (A) approved by the required vote of stockholders and (B)
implemented by the Board and (ii) this Proposal 2 is approved by a majority of
the shares of Common Stock entitled to vote at the Meeting. In addition, if
Proposal 5 is approved by the stockholders and the Board effects a stock
combination (reverse split), the number of shares of Common Stock reserved for
issuance will be reduced to that number obtained by dividing 3,500,000 by that
exchange ratio determined by the Board. See "Proposal 5 - Approval of an
Amendment of the Company's Certificate of Incorporation to Effect a Reverse
Split of common Stock."
The following summary describes the material features of the 2000 Stock
Option Plan. The summary, however, does not purport to be a complete description
of all the provisions of the 2000 Stock Option Plan. A complete form of the 2000
Stock Option Plan has been attached hereto as Exhibit A.
The following is a summary of the material features of the 2000 Stock
Option Plan.
SHARES SUBJECT TO THE OPTION PLAN AND ELIGIBILITY
The 2000 Stock Option Plan authorizes the grant of options to purchase
a maximum of 3,500,000 shares of the Company's Common Stock (subject to
adjustment as described below) to employees and directors of, and consultants
to, the Company or any of its subsidiaries. Upon expiration, cancellation or
termination of unexercised options, the shares of the Company's Common Stock
subject to such options will again be available for the grant of options under
the 2000 Stock Option Plan.
TYPE OF OPTIONS
Options granted under the 2000 Stock Option Plan may either be
incentive stock options ("ISOs"), within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or nonqualified stock
options, which do not qualify as ISOs ("NQSOs"). ISOs, however, may only be
granted to employees.
ADMINISTRATION
The 2000 Stock Option Plan is to be administered by the Compensation
Committee, which will consist of "non-employee directors" within the meaning of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). It is also expected that Compensation Committee members
will be "outside directors," within the meaning of Section 162(m) of the Code.
Those administering the 2000 Stock Option Plan are referred to as the
"Administrators."
Among other things, the Administrators are empowered to determine,
within the express limits contained in the 2000 Stock Option Plan, the
employees, consultants and directors to be granted options, whether an option
granted to an employee is to be an ISO or a NQSO, the number of shares of Common
Stock to be subject to each option, the exercise price of each option, the term
of each option, the date each option shall become exercisable as well as any
terms and conditions relating to the exercisability of each option, whether to
accelerate the date of
5
<PAGE>
exercise of any option or installment and the form of payment of the exercise
price, to construe each stock option contract between the Company and an
optionee and, with the consent of the optionee, to cancel or modify an option.
The Administrators are also authorized to prescribe, amend and rescind rules and
regulations relating to the 2000 Stock Option Plan and make all other
determinations necessary or advisable for administering the 2000 Stock Option
Plan.
TERMS AND CONDITIONS OF OPTIONS
Options granted under the 2000 Stock Option Plan are subject to, among
other things, the following terms and conditions:
(a) The exercise price of each option is determined by the
Administrators; provided, however, that the exercise price of an ISO may not be
less than the fair market value of the Company's Common Stock on the date of
grant (110% of such fair market value if the optionee owns, or is deemed to own,
more than 10% of the voting power of the Company).
(b) Options may be granted for terms established by the Administrators;
provided, however, that the term of an ISO may not exceed 10 years (five years
if the optionee owns, or is deemed to own, more than 10% of the voting power of
the Company).
(c) The maximum number of shares of the Company's Common Stock for
which options may be granted to an employee in any calendar year is 250,000. In
addition, the aggregate fair market value of shares with respect to which ISOs
may be granted to an employee which are exercisable for the first time during
any calendar year may not exceed $100,000.
(d) The exercise price of each option is payable in full upon exercise
or, if the Administrators permit, in installments. Payment of the exercise price
of an option may be made in cash, or, if the Administrators permit (but only to
the extent permitted), in shares of the Company's Common Stock or any
combination thereof.
(e) Options may not be transferred other than by will or by the laws of
descent and distribution, and may be exercised during the optionee's lifetime
only by the optionee.
(f) Except as may otherwise be provided in the option contract related
to the option, if the optionee's relationship with the Company as an employee,
director or consultant is terminated for any reason other than death or
disability, the option may be exercised, to the extent exercisable at the time
of termination of such relationship at any time, within three months thereafter,
but in no event after the expiration of the term of the option; provided,
however, that if the relationship is terminated either for cause or without the
consent of the Company, the option will terminate immediately. Except as may be
provided in the option contract related to the option, an option is not affected
by a change in the status of an optionee so long as the optionee continues to be
an employee or director of, or a consultant to, the Company. Except as otherwise
provided in the optionee's option contract, in the case of the death of an
optionee while an employee, director or consultant (or, generally, within three
months after termination of such relationship, or within one year after
termination of such relationship by reason of disability), the optionee's legal
representative or beneficiary may exercise the option, to the extent exercisable
on the date of death, at any time within one year after such date, but in no
event after the expiration of the term of the option. Except as otherwise
provided in the optionee's option contract, an optionee whose relationship with
the Company is terminated by reason of disability may exercise the option, to
the extent exercisable at the effective date of such termination, at any time
within one year thereafter, but not after the expiration of the term of the
option.
(g) The Company may withhold cash and/or, with the consent of the
Administrators, shares of the Company's Common Stock having an aggregate value
equal to the amount which the Company determines is necessary to meet its
obligations to withhold any federal, state and/or local taxes or other amounts
incurred by reason of the grant, exercise or vesting of an option or the
disposition of shares acquired upon the exercise of the option. Alternatively,
the Company may require the optionee to pay the Company such amount in cash
promptly upon demand.
6
<PAGE>
ADJUSTMENT IN EVENT OF CAPITAL CHANGES
In the event of any change in the Company's Common Stock by reason of
any stock dividend, stock split, combination, reclassification,
recapitalization, merger in which the Company is the surviving corporation,
spin-off, split-up, exchange of shares or the like, the following adjustments to
the 2000 Stock Option Plan shall be made to:
o the number and kind of shares available under the 2000 Stock
Option Plan;
o the number and kind of shares subject to the 2000 Stock Option
Plan;
o each outstanding option;
o the exercise prices of outstanding options; and
o the limitations on the number of shares that may be granted to
any employee in any calendar year.
Any outstanding options shall terminate upon the earliest occurrence of
any of the following events, unless other provision is made therefor in the
applicable event:
o the liquidation or dissolution of the Company; or
o a transaction (or series of related transactions) that is
approved by a majority of the members of the Board as elected
by stockholders prior to the first of such transactions
(including, without limitation, a merger, consolidation, sale
of stock by the Company or its stockholders, tender offer or
sale of assets)
in which either:
o the voting power (in the election of directors generally) of
the Company's voting securities outstanding immediately prior
to such transaction ceases to represent at least 50% of the
combined voting power (in the election of directors generally)
of the Company or such surviving entity outstanding
immediately after such transaction; or
o the registration of the Company's Common Stock under the
Securities Exchange Act of 1934 is terminated.
DURATION AND AMENDMENT OF THE 2000 STOCK OPTION PLAN
No option may be granted under the 2000 Stock Option Plan after January
24, 2010. The Board may at any time terminate or amend the 2000 Stock Option
Plan; provided, however, that, without the approval of the Company's
stockholders, no amendment may be made which would:
o except as a result of the anti-dilution adjustments described
above, increase the maximum number of shares for which options
may be granted under the 2000 Stock Option Plan or increase
the maximum number of shares covered by options that may be
granted to an employee in any calendar year;
o change the eligibility requirements for persons who may
receive options under the 2000 Stock Option Plan; or
o make any change for which applicable law requires stockholder
approval.
No termination or amendment may adversely affect the rights of an
optionee with respect to an outstanding option without the optionee's consent.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain material federal income
tax consequences of the grant and exercise of the options under the 2000 Stock
Option Plan and the sale of any underlying security. This description is based
on current law which is subject to change, possibly with retroactive effect.
This discussion does not purport to address all tax considerations relating to
the grant and exercise of the options or resulting from the application of
special rules to a particular optionee (including an optionee subject to the
reporting and short-swing profit provisions under Section 16 of the Securities
Exchange Act of 1934, as amended), and state, local, foreign and other tax
consequences inherent in the ownership and exercise of stock options and the
ownership and disposition of the
7
<PAGE>
underlying securities. An optionee should consult with the optionee's own tax
advisors with respect to the tax consequences inherent in the ownership and
exercise of stock options and the ownership and disposition of any underlying
security.
ISOs Exercised With Cash: No taxable income will be recognized by an
optionee upon the grant or exercise of an ISO. The optionee's tax basis in the
shares acquired upon the exercise of an ISO with cash will be equal to the
exercise price paid by the optionee for such shares.
If the shares received upon exercise of an ISO are disposed of more
than one year after the date of transfer of such shares to the optionee and more
than two years from the date of grant of the option, the optionee will recognize
long-term capital gain or loss on such disposition equal to the difference
between the selling price and the optionee's basis in the shares, and the
Company will not be entitled to a deduction. Long-term capital gain is generally
subject to more favorable tax treatment than short-term capital gain or ordinary
income.
If the shares received upon the exercise of an ISO are disposed of
prior to the end of the two-years-from-grant/one-year-after-transfer holding
period (a "disqualifying disposition"), the excess (if any) of the fair market
value of the shares on the date of transfer of such shares to the optionee over
the exercise price (but not in excess of the gain realized on the sale of the
shares) will be taxed as ordinary income in the year of such disposition, and
the Company generally will be entitled to a deduction in the year of disposition
equal to such amount. Any additional gain or any loss recognized by the optionee
on such disposition will be short-term or long-term capital gain or loss, as the
case may be, depending upon the period for which the shares were held.
NQSOs Exercised With Cash: No taxable income will be recognized by an
optionee upon the grant of a NQSO. Upon the exercise of a NQSO, the excess of
the fair market value of the shares received at the time of exercise over the
exercise price therefor will be taxed as ordinary income, and the Company will
generally be entitled to a corresponding deduction. The optionee's tax basis in
the shares acquired upon the exercise of such NQSO will be equal to the exercise
price paid by the optionee for such shares plus the amount of ordinary income so
recognized.
Any gain or loss recognized by the optionee on a subsequent disposition
of shares purchased pursuant to a NQSO will be short-term or long-term capital
gain or loss, depending upon the period during which such shares were held, in
an amount equal to the difference between the selling price and the optionee's
tax basis in the shares.
Exercises of Options Using Previously Acquired Shares: If previously
acquired shares are surrendered in full or partial payment of the exercise price
of an option (whether an ISO or a NQSO), gain or loss generally will not be
recognized by the optionee upon the exercise of such option to the extent the
optionee receives shares which on the date of exercise have a fair market value
equal to the fair market value of the shares surrendered in exchange therefor
("Replacement Shares"). If the option exercised is an ISO or if the shares used
were acquired pursuant to the exercise of an ISO, the Replacement Shares are
treated as having been acquired pursuant to the exercise of an ISO.
However, if an ISO is exercised with shares which were previously
acquired pursuant to the exercise of an ISO but which were not held for the
required two-years-from-grant/one-year-after-transfer holding period, there is a
disqualifying disposition of such previously acquired shares. In such case, the
optionee would recognize ordinary income on such disqualifying disposition equal
to the difference between the fair market value of such shares on the date of
exercise of the prior ISO and the amount paid for such shares (but not in excess
of the gain realized). Special rules apply in determining which shares are
considered to have been disposed of and in allocating the basis among the
shares. No capital gain is recognized.
The optionee will have an aggregate basis in the Replacement Shares
equal to the basis of the shares surrendered, increased by any ordinary income
required to be recognized on the disposition of the previously acquired shares.
The optionee's holding period for the Replacement Shares generally includes the
period during which the surrendered shares were held.
Any shares received by the optionee on such exercise in addition to the
Replacement Shares will be treated in the same manner as a cash exercise of an
option for no consideration.
8
<PAGE>
ALTERNATIVE MINIMUM TAX
In addition to the federal income tax consequences described above, an
optionee who exercises an ISO may be subject to the alternative minimum tax,
which is payable only to the extent it exceeds the optionee's regular tax
liability. For this purpose, upon the exercise of an ISO, the excess of the fair
market value of the shares over the exercise price is an adjustment which
increases the optionee's alternative minimum taxable income. In addition, the
optionee's basis in such shares is increased by such amount for purposes of
computing the gain or loss on disposition of the shares for alternative minimum
tax purposes. If the optionee is required to pay an alternative minimum tax, the
amount of such tax which is attributable to deferral preferences (including the
ISO adjustment) is allowable as a tax credit against the optionee's regular tax
liability (net of other non-refundable credits) in subsequent years. To the
extent the credit is not used, it is carried forward. An optionee holding an ISO
should consult with the optionee's tax advisors concerning the applicability and
effect of the alternative minimum tax.
VALUATION
As of April 10, 2000, the closing price of the Company's Common Stock
on the National Quotation Bureau "Pink Sheets" (the "Pink Sheets") was $.515 per
share.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Meeting is
required for approval of the 2000 Stock Option Plan. Should such stockholder
approval not be obtained, then the 2000 Stock Option Plan will terminate and all
options previously granted under the 2000 Stock Option Plan will terminate
without becoming exercisable for any of the shares of Common Stock subject to
those options and no further option grants or stock issuances will be made under
the 2000 Stock Option Plan. The Company's 1998 Stock Option Plan will not be
affected by the stockholders' vote on the 2000 Stock Option Plan.
The Board believes that it is in the best interests of the Company to
implement a comprehensive equity incentive program for the Company, which will
provide a meaningful opportunity for officers, employees, and non-employee Board
members to acquire a substantial proprietary interest in the Company and thereby
encourage such individuals to remain in the Company's service and more closely
align their interests with those of the stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 3
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
The Board has approved the adoption by the Compensation Committee of
the Stock Purchase Plan, which enables employees to purchase shares of Common
Stock at not less than 85% of the fair market value on the date of purchase.
Employees of the Company who elect to participate in the Stock Purchase Plan
(the "Participating Employees") may do so by authorizing specified payroll
deductions to effect purchases pursuant to the Stock Purchase Plan. The purpose
of the Stock Purchase Plan is to secure for the Company and its stockholders the
benefits of the incentive inherent in the ownership of Common Stock by current
and future employees.
The Stock Purchase Plan was formally adopted by the Board on January
25, 2000, and would become effective if (i) either Proposal 4 or 5 is (A)
approved by the required vote of stockholders and (B) implemented by the Board
and (ii) this Proposal 3 is approved by a majority of the shares of Common Stock
entitled to vote at the Meeting. In addition, if Proposal 5 is approved by the
stockholders and the Board effects a stock combination (reverse split), the
number of shares of Common Stock reserved for issuance will be reduced to that
number obtained by dividing 1,250,000 by that exchange ratio determined by the
Board. See "Proposal 5 - Approval of an Amendment of the Company's Certificate
of Incorporation to Effect a Reverse Split of Common Stock."
9
<PAGE>
The following is a summary of the Stock Purchase Plan, which is
qualified in its entirety by reference to the Stock Purchase Plan, a copy of
which is annexed hereto as Exhibit B. Capitalized terms not otherwise defined in
this summary shall have the meanings given to them in the Stock Purchase Plan
text as annexed hereto as Exhibit B.
SHARES RESERVED FOR THE STOCK PURCHASE PLANE
Shares of Common Stock to be delivered pursuant to the Stock Purchase
Plan shall be made available from currently or subsequently authorized but
unissued Common Stock, treasury shares of Common Stock or a combination thereof,
up to a maximum of 1,250,000 shares of Common Stock, subject to adjustment in
the event of a subdivision or consolidation of the outstanding shares of Common
Stock or stock dividend, on the outstanding shares of Common Stock.
VALUATION
As of April 10, 2000, the closing price of the Company's Common Stock
as reported on the Pink Sheets was $.515.
ELIGIBILITY
All employees of the Company, including directors and officers of the
Company who are also employees of the Company, will be eligible to participate
in the Stock Purchase Plan beginning on the first day of each calendar month
coincident with or next following their date of hire and continuing for so long
as they remain employees of the Company. Approximately 43 employees of the
Company were eligible to participate in the Stock Purchase Plan as of March 1,
2000.
PURCHASE OF COMMON STOCK UNDER THE PLAN
Participating Employees shall direct the deduction of a specified
amount from their paycheck, to be used to effect the purchase of Common Stock
under the Stock Purchase Plan. Such deduction may constitute from 1% to 15% of
the Participating Employee's eligible compensation. A Participating Employee may
increase or decrease the percentage of eligible compensation subject to payroll
deduction or discontinue participation in the Stock Purchase Plan at any time
upon written notice to the Company.
Unless the Company is so notified prior to the beginning of each Stock
Purchase Plan year, the Participating Employee shall be deemed to have
authorized continued participation in the Stock Purchase Plan for each
subsequent Stock Purchase Plan year to the same extent as at the end of the
prior Stock Purchase Plan year.
The purchase price of a share of Common Stock shall be determined from
time to time by the Company but shall not be less than 85 percent of the fair
market value of such share. The Company shall advise employees of the purchase
price in advance of their enrollment in the Stock Purchase Plan and, following
their enrollment, in advance of any change in the purchase price.
All payroll deductions of a Participating Employee shall be credited on
the records and used by the Company to effect the purchases of Common Stock
under the Stock Purchase Plan. The Company shall effect such purchases by making
quarterly offerings of Common Stock, in amounts to be determined by the Company
until the maximum number of shares of Common Stock available under the Stock
Purchase Plan have been issued and purchased pursuant to the Stock Purchase
Plan's terms. On the date of each such offering, each Participating Employee
shall be deemed to have been granted the option to purchase and to have
exercised such option and purchased the number of shares of Common Stock
determined by dividing the amount credited to the Participating Employee's
payroll deduction account by the then-current purchase price for such shares.
All shares of Common Stock purchased by a Participating Employee under the Stock
Purchase Plan shall be held in an account administered by a custodian selected
by the Company. Upon termination of either the Participating Employee's
employment with the Company or participation in the Stock Purchase Plan, all
shares of Common Stock credited to such account, cash in lieu of any fractional
share and all uninvested cash credited pursuant to the Participating Employee's
payroll deductions shall be distributed to the Participating Employee.
10
<PAGE>
The Company will not grant to any Participating Employee any option to
purchase shares of Common Stock if the exercise of such option would permit the
fair market value of all shares of Common Stock purchased by the Participating
Employee under all employee stock purchase plans of the Company to exceed
$25,000 in any calendar year, or if such exercise would cause such Participating
Employee to own 5% or more of the combined voting power or value of all classes
of the Company's stock. The Board may also require, as a condition to the
exercise of any option granted pursuant to the Stock Purchase Plan, the listing
of the shares of the Common Stock reserved for issuance upon such exercise on a
national securities exchange and the registration of such shares under the
Securities Act of 1933, as amended, or a representation from the Participating
Employee satisfactory to the Company that such exercise and purchase are for
investment purposes only and not with a view toward resale or distribution.
Options to purchase shares of Common Stock pursuant to the Stock
Purchase Plan are not transferable, except by will and the laws of descent and
distribution and may be exercised during the lifetime of the person to whom they
were granted only by such person. Shares of Common Stock purchased under the
Stock Purchase Plan shall not be transferable for a period of 12 months from the
date of purchase of such shares and shall not be transferable without the prior
written consent of the Company for an additional 12-month period following the
expiration of the initial 12-month period.
AMENDMENT AND TERMINATION
Subject to the provisions of Section 423 of the Code, the Board has the
power to amend or terminate the Stock Purchase Plan, in its sole discretion, at
any time in any respect except that any amendment or termination may not
retroactively impair or otherwise adversely affect the rights of any person to
benefits that have already accrued under the Stock Purchase Plan. The Stock
Purchase Plan shall terminate at such time as Participating Employees become
entitled to purchase a number of shares of Common Stock greater than the number
of reserved shares of Common Stock available for such purchase.
NEW PLAN BENEFITS TABLE
A table listing the estimated dollar value and number of shares that
will be purchased under the Stock Purchase Plan, or would have been purchased
under the Stock Purchase Plan had the plan been in effect in 1999, by the
Company's officer and directors is indeterminable.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal (and
not state and local) income tax consequences of stock purchases under the Stock
Purchase Plan. It is general in nature and is not intended to cover all tax
consequences that may apply to a particular Stock Purchase Plan participant or
to the Company. The provisions of the Code and the Treasury Regulations are
complicated and their impact in any one case may depend upon the particular
circumstances. Each participant in the Stock Purchase Plan should consult the
participant's own accountant, legal counsel or other financial advisor regarding
the tax consequences of participation in the Stock Purchase Plan. This
discussion is based on the Code as currently in effect.
The Stock Purchase Plan is intended to qualify under Section 423 of the
Code. Under Section 423 of the Code, an employee who purchases Common Stock
through the plan will not recognize any income, and the Company will not be
entitled to a deduction for tax purposes, at the time of the purchase for the
difference between the fair market value of the stock at the time of purchase
and the purchase price (i.e., the discount below fair market value). Generally,
if the employee holds the Common Stock for at least two years after the date of
sale or other disposition of the Common Stock the lesser of: (i) the amount by
which the fair market value of the Common Stock when purchased exceeds the
purchase price (i.e., the discount below fair market value); or (ii) the amount,
if any, by which the Common Stock's fair market value at the time of the sale or
other disposition exceeds the purchase price. The employee's tax basis in the
Common Stock will be increased by the amount recognized as compensation and any
further gain recognized on the sale or other taxable disposition will be
treated, under current tax rules, as long-term capital gain. In general, no
deduction will be allowed to the Company with respect to any such disposition.
However, if the employee disposes of shares of Common Stock acquired under the
Stock Purchase Plan within two years after the date of purchase (a
"Disqualifying Disposition"), the employee will recognize compensation income,
11
<PAGE>
and the Company (or one of its affiliates) will be entitled to a deduction for
tax purposes, in the amount of the excess of the fair market value of the shares
on the date of purchase over the purchase price (i.e., the discount below fair
market value) regardless of the amount received by the employee in connection
with the Disqualifying Disposition. The employee's tax basis in the shares
disposed of will be increased by the amount recognized as compensation and any
further gain or loss realized upon the Disqualifying Disposition will be
short-term or long-term capital gain or loss, depending upon the length of time
between the purchase and the Disqualifying Disposition of the shares.
If, in any year, an affected participant's total compensation from the
Company (including compensation related to purchases of Common Stock under the
Stock's Purchase Plan) exceeds $l,000,000, such compensation in excess of
$1,000,000 may not be deductible by the Company under Section 162(m) of the
Code. Affected participants are generally, if at all, the Company's chief
executive officer and the four most highly compensated employees of the Company
(other than the chief executive officer) at the end of the Company's taxable
year. Excluded from the calculation of total compensation for this purpose is
compensation that is "performance-based" within the meaning of Section 162(m) of
the Code. It is expected that compensation realized upon the purchase of Common
Stock under the Stock Purchase Plan may not be "performance-based" and,
therefore, that such compensation may only be deductible in accordance within
the limits of Section 162(m) of the Code.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of
the Company present or represented and entitled to vote at the Meeting is
required for approval of the Stock Purchase Plan. The Company's 1998 Stock
Option Plan and the 2000 Stock Option Plan will not be affected by the
stockholders' vote on the Stock Purchase Plan.
The Board believes that it is in the best interests of the Company to
implement this equity incentive program for the Company, which will provide,
with the 2000 Stock Option Plan, a meaningful opportunity for officers,
employees, and non-employee Board members to acquire a substantial proprietary
interest in the Company and thereby encourage such individuals to remain in the
Company's service and more closely align their interests with those of the
stockholders.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 4
APPROVAL OF AN AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO INCREASE
THE AUTHORIZED COMMON STOCK
GENERAL
On January 25, 2000, the Board unanimously adopted a resolution
proposing, declaring advisable and recommending a proposal to amend the
Certificate of Incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue from 100,000,000 to 200,000,000 shares.
The Board determined that such amendment is advisable and directed that the
proposed amendment be considered at the Meeting. The additional 100,000,000
shares of Common Stock, if and when issued, will have the same rights and
privileges as the shares of Common Stock presently issued and outstanding. Each
holder of Common Stock is entitled to one vote per share on all matters
submitted to a vote of stockholders. The Common Stock does not have cumulative
voting rights except for those as may be required under California law. The
holders of Common Stock share ratably on a per share basis in any dividends
when, as and if declared by the Board out of funds legally available therefor
and in all assets remaining after the payment of liabilities in the event of the
liquidation, dissolution or winding up of the Company. There are no preemptive
or other subscription rights, conversion rights or redemption or sinking fund
provisions with respect to the Common Stock.
Reference is made to the proposed amendment to Article Fourth of the
Certificate of Incorporation which is attached hereto as Exhibit C to this Proxy
Statement.
12
<PAGE>
The Certificate of Incorporation, as amended to date, authorizes the
Company to issue 100,000,000 shares of Common Stock, $.005 par value per share,
of which 94,473,837 shares were issued and outstanding as of March 15, 2000, and
100,000 shares of the Company's preferred stock, par value $1,000.00 per share
(the "Preferred Stock"), of which 420.5 shares of 5% Convertible Stock were
outstanding on such date. In addition to the 94,473,837 shares of Common Stock
outstanding as of March 15, 2000, 6,752,440 shares of Common Stock are reserved
for possible future issuances as follows:
o options to purchase 682,185 shares at exercise prices between
$.30 and $8.45 per share;
o warrants to purchase 6,058,240 shares at exercise prices
between $1.00 and $7.50 per share; and
o 12,015 shares issuable upon conversion of 420.5 shares of 5%
Convertible Stock currently outstanding. The Company expects
the remaining shares of 5% Convertible Stock outstanding to be
cancelled and replaced by cash or equity, or a combination of
both. The 5% Convertible Stock is convertible into Common
Stock at the discretion of the holders.
The Company is contractually obligated to issue 1,727,452 shares of
Common Stock more than the 100,000,000 shares of Common Stock the Company is
currently authorized to issue. Accordingly, the Company is in violation of
certain of its contractual violations as it would be unable to issue any shares
of Common Stock pursuant to (a) the exercise of options or warrants or (b) the
conversion of 5% Convertible Stock, if any such issuance would cause the Company
to issue more than 100,000,000 shares of Common Stock. Breaches of such
contractual obligations could cause the Company to accrue substantial
liabilities.
PURPOSES AND CERTAIN POSSIBLE EFFECTS OF INCREASING THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK
The Company has historically either publicly offered or privately
placed its capital stock to raise funds to finance its operations, including
research and development and product development activities, and has issued
securities to management, non-management employees and consultants. The Company
expects to continue to make substantial expenditures for research and product
development and in the development and marketing of products. The Company
continues to actively explore and negotiate additional financing that it
requires. The Company may also seek acquisitions of other companies, products
and assets. These activities are likely to require the Company to sell shares of
Common Stock or securities convertible into or exchangeable for Common Stock.
The Company has, at times in the past, sold shares or securities instruments
exercisable or convertible into shares at below the market price of its Common
Stock at the date of issuance and may be required to do so in the future in
order to raise financing.
The Board acknowledges that the increase in the number of authorized
shares of Common Stock at this time will provide the Company with the ability to
issue the shares of Common Stock it is currently obligated to issue pursuant to
the exercise and conversion of outstanding convertible securities and thereby
avoid certain contractual liabilities described above, and also provide it with
the flexibility of having an adequate number of authorized but unissued shares
of Common Stock available for future financing requirements, including for
funding research and product development, acquisitions and other corporate
purposes (including issuances pursuant to the 2000 Stock Option Plan) without
the expense or delay attendant in seeking stockholder approval at any special or
other annual meeting. The proposed amendment would provide additional authorized
shares of Common Stock that could be used from time to time, without further
action or authorization by the stockholders (except as may be required by law or
by any stock exchange or over-the-counter market on which the Company's
securities may then be listed).
Although it is not the purpose of the proposed amendment and the Board
is not aware of any pending or proposed effort to acquire control of the
Company, the authorized but unissued shares of Common Stock also could be used
by the Board to discourage, delay or make more difficult a change in control of
the Company.
This proposed amendment will not affect the rights of existing holders
of Common Stock except to the extent that further issuances of Common Stock will
reduce each existing stockholder's proportionate ownership. In the event that
stockholder approval of this proposed amendment of the Certificate of
Incorporation to increase the authorized Common Stock is not obtained, the
Company will be unable to satisfy its exercise and conversion
13
<PAGE>
obligations under the terms of certain of its outstanding convertible securities
and holders of such convertible securities may commence legal proceedings
against us.
STOCKHOLDER APPROVAL
In accordance with the Delaware General Corporation Law and the
Certificate of Incorporation, the affirmative vote of a majority of the
outstanding shares of Common Stock entitled to vote thereon is required to adopt
this proposed amendment.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 5
APPROVAL OF AN AMENDMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE SPLIT
OF THE COMMON STOCK
GENERAL
The Board has unanimously adopted resolutions proposing, declaring
advisable and recommending that stockholders authorize an amendment to the
Certificate of Incorporation to: (i) effect a stock combination (reverse split)
of the Company's Common Stock in an exchange ratio to be approved by the Board,
ranging from one (1) newly issued share for each two (2) outstanding shares of
Common Stock to one (1) newly issued share for each six (6) outstanding shares
of Common Stock (the "Reverse Split"); and (ii) provide that no fractional
shares or scrip representing fractions of a share shall be issued, but in lieu
thereof, each fraction of a share that any stockholder would otherwise be
entitled to receive shall be rounded up to the nearest whole share. There will
be no change in the number of the Company's authorized shares of Common Stock
and no change in the par value of a share of Common Stock.
If the Reverse Split is approved, the Board will have authority,
without further stockholder approval, to effect the Reverse Split pursuant to
which the Company's outstanding shares (the "Old Shares") of Common Stock would
be exchanged for new shares (the "New Shares") of Common Stock, in an exchange
ratio to be approved by the Board, ranging from one (1) New Share for each two
(2) Old Shares to one (1) New Share for each six (6) Old Shares. The number of
Old Shares for which each New Share is to be exchanged is referred to as the
"Exchange Number". The Exchange Number may, within such range, be a whole number
or a whole number and fraction of a whole number.
In addition, the Board will have the authority to determine the exact
timing of the effective date and time of the Reverse Split, which may be any
time prior to December 31, 2000, without further stockholder approval. Such
timing and Exchange Number will be determined in the judgment of the Board, with
the intention of maximizing the Company's ability to comply with the listing
requirements of The Nasdaq Stock Market, Inc. ("Nasdaq"), to raise financing, to
issue shares of Common Stock pursuant to outstanding contractual obligations,
and for other intended benefits as the Company finds appropriate. See "--
Purposes of the Reverse Split," below. The text of this proposed amendment
(subject to inserting the effective time of the Reverse Split and the Exchange
Number) is set forth in Exhibit D to this Proxy Statement.
The Board also reserves the right, notwithstanding stockholder approval
and without further action by stockholders, to not proceed with the Reverse
Split if, at any time prior to filing this amendment with the Secretary of State
of the State of Delaware, the Board, in its sole discretion, determines that the
Reverse Split is no longer in the best interests of the Company and its
stockholders. The Board may consider a variety of factors in determining whether
or not to implement the Reverse Split and in determining the Exchange Number
including, but not limited to, the approval by the stockholders of Proposal 4
which would increase the number of the authorized Common Stock, overall trends
in the stock market, recent changes and anticipated trends in the per share
market price of the Common Stock, business and transactional developments and
the Company's actual and projected financial performance.
14
<PAGE>
PURPOSES OF THE REVERSE SPLIT
The Common Stock is quoted on the Pink Sheets but had been, prior to
being delisted, on March 1, 2000, quoted on The Nasdaq SmallCap Market. In order
for the Common Stock to be relisted on The Nasdaq SmallCap Market, the Company
and its Common Stock are required to comply with various listing standards
established by Nasdaq. Among other things, as such requirements pertain to the
Company, the Company is required to have a market capitalization of at least
$50,000,000 and its Common Stock must (a) have an aggregate market value of
shares held by persons other than officers and directors of at least $5,000,000,
(b) be held by at least 300 persons who own at least 100 shares and (c) have a
minimum bid price of at least $4.00 per share.
Under Nasdaq listing requirements, to be listed or relisted, the
Company must demonstrate the ability to maintain a minimum bid price of at least
$4.00 per share. Although there are no strict guidelines in regard to how such
an ability to maintain stock price is to be demonstrated, at least a month of
consistent closing prices of more than $4.00 per share may be necessary for
NASDAQ consideration. Furthermore, if relisted, under Nasdaq's listing
maintenance standards, if the closing bid price of the Common Stock falls under
$1.00 per share for 30 consecutive business days and does not thereafter regain
compliance for a minimum of 10 consecutive business days during the 90 calendar
days following notification by Nasdaq of failure to comply with listing
maintenance requirements, Nasdaq may again delist the Common Stock from trading
on The Nasdaq SmallCap Market. The closing bid price on April 10, 2000 was $.515
on the Pink Sheets. Prior to being delisted, the bid price of the Company's
Common Stock closed on The Nasdaq SmallCap Market below $1.00 per share from
July 29, 1999 to November 29, 1999 and did not again have a minimum closing bid
price of at least $1.00 for 10 consecutive days until the period between
February 10, 2000 and March 1, 2000. The principal purpose of the Reverse Split
is to increase the market price of the Common Stock in order that the market
price of the Common Stock is well above the Nasdaq minimum bid requirement for
relisting and if relisted could better maintain the $1.00 maintenance
requirement (which does not adjust for the Reverse Split). The Pink Sheets on
which the Common Stock is now traded is generally considered to be a less
efficient market.
The purpose of the Reverse Split also would be to increase the market
price of the Common Stock in order to make the Common Stock more attractive to
raise financing (and, therefore, both raise cash to support the Company's
operations and increase the Company's net tangible assets to facilitate
compliance with Nasdaq requirements), and as a possible currency for
acquisitions and other transactions. The Common Stock traded on The Nasdaq
SmallCap Market at market prices ranging from approximately $.125 to
approximately $2.59 from November 18, 1999 through March 1, 2000 and on the Pink
Sheets from approximately $.50 to approximately $1.04 from March 9, 2000 through
April 10, 2000. This has reduced the attractiveness of using the Common Stock or
instruments convertible or exercisable into Common Stock in order to raise
financing to support the Company's operations and to increase the Company's net
worth and as consideration for potential acquisitions (which, when coupled with
the Company's need to deploy its available cash for operations, has rendered
acquisitions difficult to negotiate). Furthermore, the Company believes that
relisting the Company's Common Stock on The Nasdaq SmallCap Market may provide
the Company with a broader market for its Common Stock and, therefore,
facilitate the use of the Common Stock in acquisitions and financing
transactions in which the Company may engage.
THERE CAN BE NO ASSURANCE, HOWEVER, THAT, EVEN AFTER CONSUMMATING THE
REVERSE SPLIT, THE COMPANY WILL MEET THE MINIMUM BID PRICE FOR RELISTING AND
OTHERWISE MEET THE REQUIREMENTS OF NASDAQ FOR INCLUSION FOR TRADING ON THE
NASDAQ SMALLCAP MARKET, OR THAT IT WILL BE ABLE TO UTILIZE ITS COMMON STOCK IN
ORDER TO EFFECTUATE FINANCING OR ACQUISITION TRANSACTIONS.
Furthermore, the Company is contractually obligated to issue 1,727,452
shares of Common Stock more than the 100,000,000 shares of Common Stock the
Company is currently authorized to issue. Accordingly, the Company is in
violation of certain of its contractual violations as it would be unable to
issue any shares of Common Stock pursuant to the exercise of options or warrants
or the conversion of 5% Convertible Stock if any such issuance would cause the
Company to issue more than 100,000,000 shares of Common Stock. A Reverse Split
would allow the Company to issue shares pursuant to its contractual obligations
as it would reduce the number of shares of Common Stock outstanding and make
available shares of authorized Common Stock to issue as required.
15
<PAGE>
In addition, the Reverse Split would make available the required number
of authorized shares of Common Stock needed to implement the 2000 Stock Option
Plan.
Giving the Board authority to implement the Reverse Split will help
avoid the necessity of calling a special meeting of stockholders under time
constraints to authorize a reverse split should it become necessary in order to
seek to effectuate a financing or acquisition transaction or to meet Nasdaq's
listing maintenance criteria at a future time.
The Reverse Split will not change the proportionate equity interests of
the Company's stockholders, nor will the respective voting rights and other
rights of stockholders be altered, except for possible immaterial changes due to
rounding up to eliminate fractional shares. The Common Stock issued pursuant to
the Reverse Split will remain fully paid and nonassessable. The Company will
continue to be subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended.
CERTAIN EFFECTS OF THE REVERSE SPLIT
The following table illustrates the principal effects of the Reverse
Split to the 94,473,837 shares of Common Stock outstanding as of March 15, 2000:
<TABLE>
<CAPTION>
Prior to After 1-for-2 After 1-for-4 After 1-for-6
Reverse Reverse Reverse Reverse
Stock Stock Stock Stock
Number of Shares Split Split Split Split
- ---------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Common Stock:
Authorized (1)................. 100,000,000 100,000,000 100,000,000 100,000,000
Outstanding (2)............... 94,473,837 47,236,928 23,618,459 15,745,639
---------- ---------- ---------- ----------
Available for Future
Issuance................. 5,526,163 52,763,072 76,381,541 84,254,360
</TABLE>
-----------------------------
(1) If Proposal 4 is approved by the stockholders, there would be 200,000,000
shares of Common Stock authorized.
(2) Gives effect to the Reverse Split, excluding New Shares to be issued in
lieu of fractional shares, and to conversions of convertible preferred
stock through March 15, 2000 and to exercise of warrants through March 15,
2000. Excludes, on a pre-Reverse Split basis: 12,015 shares of Common Stock
subject to potential issuance upon conversion of the outstanding shares of
5% Convertible Stock; approximately 6,740,425 shares of Common Stock which
were subject to outstanding options and warrants; and 4,750,000 additional
shares of Common Stock which would be available for the grant of future
options if the 2000 Stock Option Plan and Stock Purchase Plan were
instituted. The number of shares of Common Stock issuable upon conversion
of the 5% Convertible Stock may be dependent upon the market price of
Common Stock. Accordingly, the actual number of shares of Common Stock
issued upon conversion of the 5% Convertible Stock may not be determined at
this time. Upon effectiveness of the Reverse Split, each option and warrant
would entitle the holder to acquire a number of shares equal to the number
of shares which the holder was entitled to acquire prior to the Reverse
Split divided by the Exchange Number at the exercise price in effect
immediately prior to the Reverse Split multiplied by the Exchange Number.
16
<PAGE>
Stockholders should recognize that, if the Reverse Split is
effectuated, they will own a fewer number of shares than they presently own (a
number equal to the number of shares owned immediately prior to the filing of
the amendment regarding the Reverse Split divided by the Exchange Number, as
adjusted to include New Shares to be issued in lieu of fractional shares). While
the Company expects that the Reverse Split will result in an increase in the
market price of the Common Stock, there can be no assurance that the Reverse
Split will increase the market price of the Common Stock by a multiple equal to
the Exchange Number or result in a permanent increase in the market price (which
is dependent upon many factors, including the Company's performance and
prospects). Also, should the market price of the Company's Common Stock decline
after the Reverse Split, the percentage decline may be greater than would
pertain in the absence of the Reverse Split. Furthermore, the possibility exists
that liquidity in the market price of the Common Stock could be adversely
affected by the reduced number of shares that would be outstanding after the
Reverse Split. In addition, the Reverse Split will increase the number of
stockholders of the Company who own odd-lots (less than 100 shares).
Stockholders who hold odd-lots typically will experience an increase in the cost
of selling their shares, as well as greater difficulty in effecting such sales.
In addition, an increase in the number of odd-lot holders will reduce the number
of holders of round lots (100 or more shares), which could adversely affect the
Nasdaq listing requirement that the Company have at least 300 round lot holders.
Consequently, there can be no assurance that the Reverse Split will achieve the
desired results that have been outlined above.
Stockholders should also recognize that, as indicated in the foregoing
table, there will be an increase in the number of shares which the Company will
be able to issue from authorized but unissued shares of Common Stock. As a
result of any issuance of shares, the equity and voting rights of holders of
outstanding shares may be diluted.
PROCEDURE FOR EFFECTING REVERSE SPLIT AND EXCHANGE OF STOCK CERTIFICATES
If this amendment is approved by the Company's stockholders, and if the
Board still believes that the Reverse Split is in the best interests of the
Company and its stockholders, the Company will file the amendment with the
Secretary of State of the State of Delaware at such time as the Board has
determined the appropriate Exchange Number and the appropriate effective time
for such split. The Board may delay effecting the Reverse Split until as late as
December 31, 2000 without resoliciting stockholder approval. The Reverse Split
will become effective on the date of filing the amendment at the time specified
in the amendment (the "Effective Time"). Beginning at the Effective Time, each
certificate representing Old Shares will be deemed for all corporate purposes to
evidence ownership of New Shares.
As soon as practicable after the Effective Time, stockholders will be
notified that the Reverse Split has been effected and of the exact Exchange
Number. The Company expects that its transfer agent will act as exchange agent
(the "Exchange Agent") for purposes of implementing the exchange of stock
certificates. Holders of Old Shares will be asked to surrender to the Exchange
Agent certificates representing Old Shares in exchange for certificates
representing New Shares in accordance with the procedures to be set forth in a
letter of transmittal to be sent by the Exchange Agent. No new certificates will
be issued to a stockholder until such stockholder has surrendered such
stockholder's outstanding certificate(s) together with the properly completed
and executed letter of transmittal to the Exchange Agent. Any Old Shares
submitted for transfer, whether pursuant to a sale or other disposition, or
otherwise, will automatically be exchanged for New Shares at the exchange ratio.
STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE AND SHOULD NOT SUBMIT ANY
CERTIFICATE UNTIL REQUESTED TO DO SO BY THE COMPANY OR THE EXCHANGE AGENT.
FRACTIONAL SHARES
No scrip or fractional certificates will be issued in connection with
the Reverse Split. Any fraction of a share that any stockholders of record
otherwise would be entitled to receive shall be rounded up to the nearest whole
share.
NO DISSENTER'S RIGHTS
Under Delaware law, stockholders are not entitled to dissenter's rights
with respect to the proposed amendment.
17
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following is a summary of certain material U.S. federal income tax
consequences of the Reverse Split and does not purport to be complete. It does
not discuss any state, local, foreign or minimum income or other U.S. federal
tax consequences. Also, it does not address the tax consequences to holders that
are subject to special tax rules, such as banks, insurance companies, regulated
investment companies, personal holding companies, foreign entities, nonresident
alien individuals, broker-dealers and tax-exempt entities. The discussion is
based on the provisions of the U.S. federal income tax law as of the date
hereof, which is subject to change retroactively as well as prospectively. This
summary also assumes that the Old Shares were, and the New Shares will be, held
as a "capital asset," as defined in the Code (generally, property held for
investment). The tax treatment of a stockholder may vary depending upon the
particular facts and circumstances of such stockholder. EACH STOCKHOLDER SHOULD
CONSULT WITH SUCH STOCKHOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE CONSEQUENCES
OF THE REVERSE SPLIT.
The Reverse Split is an isolated transaction and is not part of a plan
to periodically increase any stockholder's proportionate interest in the assets
or earnings and profits of the Company. As a result, no gain or loss should be
recognized by a stockholder of the Company upon such stockholder's exchange of
Old Shares for New Shares pursuant to the Reverse Split. The aggregate tax basis
of the New Shares received in the Reverse Split will be the same as the
stockholder's aggregate tax basis in the Old Shares exchanged therefor. The
stockholder's holding period for the New Shares will include the period during
which the stockholder held the Old Shares surrendered in the Reverse Split.
REQUIRED VOTE
In accordance with the Delaware General Corporation Law and the
Certificate of Incorporation, the affirmative vote of a majority of the
outstanding shares of Common Stock entitled to vote thereon is required to adopt
this proposed amendment. As a result, any shares not voted (whether by
abstention, broker non-vote or otherwise) will have the same effect as a vote
against the proposal.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
PROPOSAL 6
RATIFICATION OF INDEPENDENT AUDITORS
The stockholders approved the appointment of the firm of Boros &
Farrington APC, independent public auditors for the Company during the fiscal
year ended June 30, 1999. The Board has selected Boros & Farrington, APC to
serve in the same capacity for the year ended June 30, 2000, and is asking the
stockholders to ratify this appointment. The affirmative vote of a majority of
the shares represented and voting at the Meeting is required to ratify the
selection of Boros & Farrington APC.
In the event the stockholders fail to ratify the appointment, the Board
will reconsider its selection. Even if the selection is ratified, the Board in
its discretion may direct the appointment of a different independent auditing
firm at any time during the year if the Board believes that such a change would
be in the best interests of the Company and its stockholders.
A representative of Boros & Farrington APC is expected to be present at
the Meeting, will have the opportunity to make a statement if he or she desires
to do so, and will be available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Meeting. If any other matters properly come before the
Meeting, it is the intention of the persons named in the enclosed form of
18
<PAGE>
Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of Common Stock as of March 15, 2000,
by (i) all persons who are beneficial owners of five percent (5%) or more of the
Common Stock, (ii) each director and nominee for director, (iii) the applicable
executive officers named in the Summary Compensation Table of the Executive
Compensation and Other Information section of this Proxy Statement and (iv) all
current directors and executive officers as a group. Unless otherwise indicated,
each of the stockholders has sole voting and investment power with respect to
the shares beneficially owned, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF COMMON OF SHARES OF COMMON
STOCK BENEFICIALLY STOCK BENEFICIALLY
BENEFICIAL OWNERSHIP OF COMMON STOCK OWNED OWNED (1)
------------------------------------ ----- ---------
<S> <C> <C>
Brian Bonar (2) 514,255 *
Christopher McKee (3) 48,192 *
Joseph Pfeuffer (4) 54,076 *
Philip Englund (5) 71,490 *
Keith Meadows * *
Robert A. Dietrich * *
Eric W. Gaer * *
Stephen J. Fryer * *
All current directors and executive officers 688,013 *
as a group (8 persons) (6)
</TABLE>
- ---------------------------------------------------------
* Less than one percent of the outstanding Common Stock
(1) Percentage of ownership is based on 94,473,837 shares of Common Stock
outstanding on March 15, 2000. Shares of Common Stock subject to stock
options warrants and convertible securities which are currently
exercisable or convertible or will become exercisable or convertible
within 60 days after March 15, 2000 are deemed outstanding for
computing the percentage of the person or group holding such options,
warrants or convertible securities but are not deemed outstanding for
computing the percentage of any other person or group.
(2) Includes 506,249 shares issuable upon exercise of options and warrants
that are currently exercisable or will become exercisable within 60
days after March 15, 2000.
(3) Includes 48,192 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
March 15, 2000.
(4) Includes 54,076 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
March 15, 2000.
(5) Includes 71,490 shares issuable upon exercise of warrants that are
currently exercisable or will become exercisable within 60 days after
March 15, 2000.
19
<PAGE>
(6) Includes 680,007 shares issuable upon exercise of options and warrants
that are currently exercisable or will become exercisable within 60
days after March 15, 2000.
EXECUTIVE OFFICERS
The executive officers of the Company as of March 15, 2000, are as
follows:
Name Age Position
- ---- --- --------
Brian Bonar 52 Chairman of the Board of Directors,
President, and Chief Executive Officer
Joseph J. Pfeuffer 54 Senior Vice President of Engineering
Philip J. Englund 56 Senior Vice President, General Counsel
and Secretary
Christopher W. McKee 51 Senior Vice President of Finance and
Administration
Brian Bonar has been nominated to serve as a director of the Company.
See "Proposal 1 - Election of the Board" for a discussion of Mr. Bonar's
business experience.
Joseph J. Pfeuffer has served as Senior Vice President of Engineering
of the Company since February 1998. Prior to joining the Company, Mr. Pfeuffer
was a Director of Engineering with Adobe Systems, Inc. during 1996 and 1997
where he was responsible for Postscript-Registration Mark- controller
development. From 1990 to 1996 Mr. Pfeuffer was a Director of Engineering with
Output Technology responsible for electronic and software engineering. Mr.
Pfeuffer holds a B.S. degree from Stevens Institute of Technology and a Masters
of Business Administration from Washington University.
Philip J. Englund has served as Senior Vice President, General Counsel
and Secretary of the Company since February 1999. Prior to joining the Company,
Mr. Englund served as general counsel to a number of companies on a contract
basis from October 1997 through February 1999, as he had done form April 1995
through November 1996. He served as Senior Vice President, General Counsel and
Secretary to The Titan Corporation from November 1996 through October 1997; and
as Vice President and General Counsel to Optical Radiation Corporation from
November 1986 through April 1995.
Christopher W. McKee has served as Senior Vice President of Finance and
Operations of the Company since August 1998. Prior to joining the Company, Mr.
McKee spent 23 years with Flowserve Corporation and its predecessor company,
BW/IP, Inc., in various financial management positions, including most recently
as its Director of Information Technology and Baan Implementation. Mr. McKee
holds a masters in business administration from Pepperdine University.
20
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning the
cash compensation and certain other compensation paid, awarded, or accrued, by
the Company to the Company's Chief Executive Officer and the two most highly
compensated executive officers who were serving at the end of the fiscal year
ended June 30, 1999 and two former executive officers who served during the
fiscal year ended June 30, 1999, each of whose salary and bonus exceeded
$100,000 for the fiscal year ended June 30, 1999 for services rendered in all
capacities to the Company and its subsidiaries for the fiscal years ended June
30, 1997, 1998 and 1999. The listed individuals shall be hereinafter referred to
as the "Named Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
-------- Other Awards Other
Fiscal Annual Options/ Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation($) SARS(#) ($)
- --------------------------- ---- -------- ------- --------------- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Brian Bonar 1999 250,570 -- -- 850,000 --
Chairman of the Board, 1998 235,243 -- -- 450,000 --
President and Chief Executive 1997 179,303 -- -- 150,000 --
Officer
Christopher McKee 1999 129,250 20,000 -- 100,000 --
Vice President of Finance 1998 0 -- -- -- --
and Administration 1997 0 -- -- -- --
Joseph Pfeuffer 1999 132,250 20,000 -- 27,000 --
Vice President of Operations 1998 51,458 -- -- 45,000 --
Worldwide 1997 0 -- -- -- --
*Frank Leonardi 1999 180,000 -- 77,424(1) 100,000 --
Vice President of Worldwide 1998 0 -- -- -- --
Sales and Marketing (former) 1997 0 -- -- -- --
**Michael Clemens 1999 149,007 -- -- 60,000 --
Vice President of Accounting 1998 0 -- -- -- --
(former) 1997 0 -- -- -- --
</TABLE>
- ------------------------------------------
* Frank Leonardi resigned from his position with the Company in May of the
fiscal year ended June 30, 1999.
** Michael Clemens resigned from his position with the Company in March of the
fiscal year ended June 30,1999.
(1) Such sum was earned pursuant to sales commissions.
21
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides information on Options/SARs granted in the
fiscal year ended June 30, 1999 to the Named Officers.
Percent (%) Potential Realizable
of Total Value at Assumed
Number of Options/SARs Annual Rates of Stock
Securities Granted to Exercise Price Appreciation for
Underlying Employees in or Base Option Term
Options/SARs the Fiscal Price Expiration -----------------------
Name Granted (#)(1) Year ($/share) Date 5% ($) 10% ($)
- --------------------- ---------------- --------------- ------------ ---------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Brian Bonar 850,000 30 1.13 2/19/08 1,768,000 3,383,000
Christopher McKee 100,000 4 2.65 8/11/09 56,000 246,000
Joseph Pfeuffer 27,000 1 0.75 6/09/09 66,420 117,720
Frank Leonardi 100,000 4 1.90 8/18/08 131,000 321,000
Michael Clemens 60,000(2) 7 1.90 8/18/08 78,6000 192,600
</TABLE>
- --------------------------------
(1) Warrants/options become exercisable monthly over a 10 year period from
date of grant. Each warrant/option was issued at the then current
market price.
(2) An additional 140,000 warrants/options originally granted to Mr.
Clemens were canceled pursuant to his March 1999 resignation.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table provides information on option exercises in the
fiscal year ended June 30, 1999 by the Named Officers and the value of such
Named Officers' unexercised options at June 30, 1999. Warrants to purchase
Common Stock are included as options. No stock appreciation rights were
exercised by the Named Officers during the fiscal year ended June 30, 1999, and
no stock appreciation rights were held by them at the end of the fiscal year
ended June 30, 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-money Options/SARs
Shares Options/SARs at FY-end (#) At Fiscal Year End ($) (1)
Acquired on Value ---------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------- --------------- ------------ ------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Brian Bonar 0 0 150,000 700,000 126,582 590,716
Christopher McKee 0 0 33,333 81,668 0 0
Joseph Pfeuffer 27,000 20,250 18,752 26,248 0 0
Frank Leonardi 0 0 50,229 149,771 1,290 5,590
Michael Clemens 0 0 60,000 0 4,128 0
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------
(1) At the end of the fiscal year ended June 30, 1999, the average of the
bid and asked price of the Common Stock on that date as quoted by the
NASD Electronic Bulletin Board was $1.9688.
22
<PAGE>
23
<PAGE>
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of cumulative total
stockholder returns for the Company, the Nasdaq Stock Market (U.S.) Index and
the Nasdaq Computer & Data Processing Index.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG IMAGING TECHNOLOGIES CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ COMPUTER & DATA PROCESSING INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------------------
6/94 6/95 6/96 6/97 6/98 6/99
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
IMAGING TECHNOLOGIES CORPORATION 100 80 365 178 124 63
NASDAQ MARKET (U.S.) 100 133 171 208 274 394
NASDAQ COMPUTER & DATA PROCESSING 100 163 217 274 414 631
</TABLE>
(1) The graph covers the period from July 1, 1993 to June 30, 1999.
(2) The graph assumes that $100 was invested in the Company on July 1,
1993, in the Common Stock and in each index, and that all dividends
were reinvested. No cash dividends have been declared on the Common
Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
24
<PAGE>
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings made under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated by
reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
CERTAIN TRANSACTIONS
Irwin Roth, a former director of the Company, receives compensation as
a consultant to the Company on corporate matters under an agreement expiring in
June 2002. These consulting fees amounted to $120,000 in the fiscal year ended
June 30, 1998. Effective July 1, 1998, the annual consulting fee under the
agreement was reduced to $55,583. During the fiscal year ended June 30, 1998, as
consideration for services provided relating to the private placement of the
Series C Preferred Stock, this former director received commissions and expense
reimbursement totaling $200,000 of which $100,000 was paid in cash and $100,000
was used to exercise warrants for 100,000 shares at a price of $1.00 per share.
In May 1998, Dr. Harry Saal, a former director of the Company, loaned
$1,000,000 to the Company under a 10 percent note payable on demand at any time
on or after December 31, 1999 (the "Saal 10% Note"). The note is convertible
into Common Stock at anytime at Dr. Saal's option at the lesser of $2.36 per
share or 85 percent of the volume weighted trade price of Common Stock on the
date of conversion.
In September 1998, Dr. Harry Saal, a former director of the Company,
and certain other investors (either individually or as part of a group), all of
which were owners of more than 5 percent (5%) of the Company's outstanding
Common Stock, provided the Company with funding totaling $4,375,000. In
exchange, the Company issued 500,000 shares of its Common Stock at a price of
$2.50 per share and subordinated promissory notes in the amount of $3,125,000.
Of the notes, Dr. Saal purchased $1,500,000 in the form of non-convertible notes
(the "Saal Non-convertible Notes"). The Company also issued three-year warrants
to the investors as part of this financing. The warrants authorize the purchase
of 490,000 shares of Common Stock at an exercise price of $2.025 per share: Dr.
Saal received 300,000 of these warrants. All of the investors, including Dr.
Saal, are parties to a Registration Rights Agreement that grants certain
registrations rights with respect to the shares of Common Stock purchased in the
financing and issuable upon exercise of the warrants.
In February 1999, pursuant to a Series E Preferred Stock Agreement
among the Company and the investors thereto (the "Series E Agreement"), of which
Dr. Saal was an investor, Dr. Saal exchanged and/or canceled the Saal 10% Note,
all accrued interest and fees associated therewith, certain accrued interest on
the Saal Non-convertible Notes and all accrued director's fees, in the amount of
$1.235 million, for 247 shares of the Company's Series E preferred stock. Also
pursuant to such Series E Agreement became a party to a registration rights
agreement that grants Dr. Saal certain registration rights with respect to the
shares of Common Stock underlying his Series E preferred stock and certain
warrants.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board, the executive officers of the Company and
persons who hold more than 10 percent (10%) of the Company's outstanding Common
Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934 which require them to file reports with respect
to their ownership of the Common Stock and their transactions in such Common
Stock. Based upon (i) the copies of Section 16(a) reports which the Company
received from such persons for their transactions in the fiscal year ended June
30, 1999 relating to the Common Stock and their Common Stock holdings, the
Company, to the best of the Company's knowledge, believes that certain of the
reporting requirements under Section 16(a) for such fiscal year were not met in
a timely manner by its directors, executive officers and greater than 10%
beneficial owners except as set forth below.
25
<PAGE>
Each of Messrs. Bonar, Pfeuffer, Englund, Charles Olsen (a former CFO
of the Company) did not timely file a Form 4 with the SEC with respect to one
transaction. In addition, each of Messrs. Carver (a former director of the
Company), Saal (a former Chairman of the Board of the Company), Frank Leonardi
(a former Vice President of Sales and Marketing of the Company), Bonar,
Pfeuffer, Dubrow (a former director of the Company), McKee and Englund did not
timely file a Form 5 with the SEC.
ANNUAL REPORT ON FORM 10-K
The Company filed an Annual Report on Form 10-K with the SEC on or about
October 13, 1999 and an amendment thereto on October 28, 1999. A copy of the
Form 10-K for the fiscal year ended June 30, 1999, has been mailed concurrently
with this Proxy Statement to all stockholders entitled to notice of and to vote
at the Meeting. The Form 10-K is not incorporated into this Proxy Statement and
is not considered proxy solicitation material.
Stockholders may obtain an additional copy of this report, without
charge, by writing to Philip J. Englund, Senior Vice President and General
Counsel of the Company, at the Company's principal executive offices located at
15175 Innovation Drive, San Diego, California 92128-3401.
26
<PAGE>
EXHIBIT A
---------
PROPOSED FORM OF THE 2000 STOCK OPTION PLAN
2000 STOCK OPTION PLAN
OF
IMAGING TECHNOLOGIES CORPORATION
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to employees (including directors and
officers who are employees) and directors of, and consultants to, IMAGING
TECHNOLOGIES CORPORATION, a Delaware corporation (the "Company"), or any Parent
or Subsidiary (as such terms are defined in Paragraph 19 hereof) of the Company,
and to offer an additional inducement in obtaining the services of such persons.
The Plan provides for the grant of "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and nonqualified stock options which do not qualify as ISOs ("NQSOs").
The Company makes no representation or warranty, express or implied, as to the
qualification of any option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12 hereof, the aggregate number of shares of Common Stock, $.005 par
value per share, of the Company ("Common Stock") for which options may be
granted under the Plan shall not exceed 3,500,000. Such shares of Common Stock
may consist either in whole or in part of authorized but unissued shares of
Common Stock or shares of Common Stock held in the treasury of the Company.
Subject to the provisions of Paragraph 13 hereof, any shares of Common Stock
subject to an option which for any reason expires, is canceled or is terminated
unexercised or which ceases for any reason to be exercisable, shall again become
available for the granting of options under the Plan. The Company shall at all
times during the term of the Plan reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of the
Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by the Compensation Committee of the Company's Board of Directors (the
"Committee"), which Committee, to the extent required by Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (as the same may be in
effect and interpreted from time to time, "Rule 16b-3"), shall consist of not
less than two (2) directors, each of whom shall be a non-employee director
within the meaning of Rule 16b-3 or an outside director within the meaning of
Section 162(m) of the Code. Unless otherwise provided in the By-laws of the
Company or by resolution of the Board of Directors, a majority of the members of
the Committee shall constitute a quorum, and the acts of a majority of the
members present at any meeting at which a quorum is present, and any acts
approved in writing by all of the members of the Committee without a meeting,
shall be the acts of the Committee. Those administering the Plan are referred to
herein as the "Administrators".
Subject to the express provisions of the Plan, the
Administrators shall have the authority, in their sole discretion, to determine:
the employees, consultants and directors who shall be granted options; whether
an option to be granted to a employee is to be in ISO or an NQSO (options to be
granted to consultants and directors who are not employees shall be NQSOs); the
times when an option shall be granted; the number of shares of Common Stock to
be subject to each option; the term of each option; the date each option shall
become exercisable; whether an option shall be exercisable in whole, in part or
in installments and, if in installments, the number of shares of Common Stock to
be subject to each installment, whether the installments shall be cumulative,
the date each installment shall become exercisable and the term of each
installment; whether to accelerate the date of exercise of any option or
installment; whether shares of Common Stock may be issued upon the exercise of
an option as partly paid and, if so, the dates when future installments of the
exercise price shall become due and the amounts of such installments; the
exercise price of each option; the form of payment of the exercise price;
whether to restrict the sale or other disposition of the shares of Common Stock
acquired upon the exercise of an option and, if so, whether and under what
conditions to waive any such restriction; whether and under what conditions to
subject all or a portion of the grant, the vesting or the exercise of an option
or the shares acquired pursuant to the exercise of an option to the fulfillment
of certain restrictions or contingencies as specified in the contract referred
to in Paragraph 11 hereof (the "Contract"), including, without limitation,
restrictions or contingencies relating to entering into a covenant not to
compete with the Company, any of its Subsidiaries or a Parent (as such term is
defined in Paragraph 19 hereof), to financial objectives for the Company, any of
its Subsidiaries or a Parent, a division of any of the foregoing, a product line
or other category, and/or to the period of continued employment of the optionee
with the Company, any of its Subsidiaries or a Parent, and to determine whether
such restrictions or contingencies have been met; whether an optionee is
Disabled (as such term is defined in
A-1
<PAGE>
Paragraph 19 hereof); the amount, if any, necessary to satisfy the obligation of
the Company, a Subsidiary or Parent to withhold taxes or other amounts; the fair
market value of a share of Common Stock; to construe the respective Contracts
and the Plan; with the consent of the optionee, to cancel or modify an option,
provided that the modified provision is permitted to be included in an option
granted under the Plan on the date of the modification, and provided, further,
that in the case of a modification (within the meaning of Section 424(h) of the
Code) of an ISO, such option as modified would be permitted to be granted on the
date of such modification under the terms of the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to approve any provision of
the Plan or any option granted under the Plan, or any amendment to either, which
under Rule 16b-3 or Section 162(m) of the Code requires the approval of the
Board of Directors, a committee of non-employee directors or the stockholders in
order to be exempt (unless otherwise specifically provided herein); and to make
all other determinations necessary or advisable for administering the Plan. Any
controversy or claim arising out of or relating to the Plan, any option granted
under the Plan or any Contract shall be determined unilaterally by the
Administrators in their sole discretion. The determinations of the
Administrators on the matters referred to in this Paragraph 3 shall be
conclusive and binding on the parties thereto. No Administrator or former
Administrator shall be liable for any action, failure to act or determination
made in good faith with respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Administrators may from time to time, in
their sole discretion, consistent with the purposes of the Plan, grant options
to (a) employees (including officers and directors who are employees) of, (b)
directors (who are not employees) of, and (c) consultants to, the Company or any
Parent or Subsidiary of the Company. Such options granted shall cover such
number of shares of Common Stock as the Administrators may determine, in their
sole discretion, as set forth in the applicable Contract; provided, however,
that the maximum number of shares subject to options that may be granted to any
employee during any calendar year under the Plan (the "162(m) Maximum") shall be
250,000 shares; and provided, further, that the aggregate market value
(determined at the time the option is granted in accordance with Paragraph 5
hereof) of the shares of Common Stock for which any eligible employee may be
granted ISOs under the Plan or any other plan of the Company, or of a Parent or
a Subsidiary of the Company, which are exercisable for the first time by such
optionee during any calendar year shall not exceed $100,000. Such ISO limitation
shall be applied by taking ISOs into account in the order in which they were
granted. Any option granted in excess of such ISO limitation amount shall be
treated as a NQSO to the extent of such excess.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each option shall be determined by the Administrators, in their sole
discretion, as set forth in the applicable Contract; provided, however, that the
exercise price of an ISO shall not be less than the fair market value of the
Common Stock subject to such option on the date of grant; and provided, further,
that if, at the time an ISO is granted, the optionee owns (or is deemed to own
under Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, of any of its
Subsidiaries or of a Parent, the exercise price of such ISO shall not be less
than 110% of the fair market value of the Common Stock subject to such ISO on
the date of grant.
The fair market value of a share of Common Stock on any day
shall be (a) if actual sales price information is available with respect to the
Common Stock, the average of the highest and lowest sales prices per share of
Common Stock on such day, or (b) if such information is not available, the
average of the highest bid and lowest asked prices per share of Common Stock on
such day as reported by the market upon which the Common Stock is quoted, The
Wall Street Journal, the National Quotation Bureau Incorporated or an
independent dealer in the Common Stock, as determined by the Company; provided,
however, that if clauses (a) and (b) of this Paragraph are all inapplicable, or
if no trades have been made or no quotes are available for such day, the fair
market value of the Common Stock shall be determined by the Board of Directors
by any method consistent with applicable regulations adopted by the Treasury
Department relating to stock options.
6. TERM. The term of each option granted pursuant to the Plan
shall be such term as is established by the Administrators, in their sole
discretion, as set forth in the applicable Contract; provided, however, that the
term of each ISO granted pursuant to the Plan shall be for a period not
exceeding ten (10) years from the
A-2
<PAGE>
date of grant thereof; and provided, further, that if, at the time an ISO is
granted, the optionee owns (or is deemed to own under Section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, any of its Subsidiaries or a Parent, the term
of the ISO shall be for a period not exceeding five (5) years from the date of
grant. Options shall be subject to earlier termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof),
to the extent then exercisable, shall be exercised by giving written notice to
the Company at its principal office stating which option is being exercised,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the applicable Contract permits
installment payments) (a) in cash or by certified check or (b) if the applicable
Contract permits, with previously acquired shares of Common Stock having an
aggregate fair market value on the date of exercise (determined in accordance
with Paragraph 5 hereof) equal to the aggregate exercise price of all options
being exercised or a combination of cash, certified check or shares of Common
Stock having such value. The Company shall not be required to issue any shares
of Common Stock pursuant to any such option until all required payments,
including payments for any required withholding amounts, have been made.
The Administrators may, in their sole discretion (in the
Contract or otherwise), permit payment of the exercise price of an option by
delivery by the optionee of a properly executed notice, together with a copy of
his irrevocable instructions to a broker acceptable to the Administrators to
deliver promptly to the Company the amount of sale or loan proceeds sufficient
to pay such exercise price. In connection therewith, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of
an option shall not have the rights of a stockholder with respect to such shares
of Common Stock until the date of issuance of a stock certificate for such
shares or, in the case of uncertificated shares, until the date an entry is made
on the books of the Company's transfer agent representing such shares; provided,
however, that until such stock certificate is issued or until such book entry is
made, any optionee using previously acquired shares of Common Stock in payment
of an option exercise price shall continue to have the rights of a stockholder
with respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, any optionee whose relationship
with the Company, its Subsidiaries and Parent as an employee, director or
consultant has terminated for any reason (other than as a result of the death or
Disability (as such term is defined in Paragraph 19 hereof) of the Optionee) may
exercise such option, to the extent exercisable on the date of such termination,
at any time within three months after the date of termination, but not
thereafter and in no event after the date the option would otherwise have
expired; provided, however, that if such relationship is terminated either (a)
for Cause (as such term is defined in Paragraph 19 hereof), or (b) without the
consent of the Company, such option shall terminate immediately.
For the purposes of the Plan, an employment relationship shall
be deemed to exist between an individual and the Company, any of its
Subsidiaries or a Parent if, at the time of the determination, the individual
was an employee of such corporation for purposes of Section 422(a) of the Code.
As a result, an individual on military, sick leave or other bona fide leave of
absence shall continue to be considered an employee for purposes of the Plan
during such leave if the period of the leave does not exceed 90 days or, if
longer, so long as the individual's right to reemployment with the Company, any
of its Subsidiaries or a Parent is guaranteed either by statute or by contract.
If the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
Notwithstanding the foregoing, except as may otherwise be
expressly provided in the applicable Contract, options granted under the Plan
shall not be affected by any change in the status of the optionee so long as the
optionee continues to be an employee or director of, or a consultant to, the
Company, any of its Subsidiaries or a Parent (regardless of having changed from
one position to another or having been transferred from one entity to another).
A-3
<PAGE>
Nothing in the Plan or in any option granted under the Plan
shall confer on any optionee any right to continue in the employ of, as a
director of, or as a consultant to, the Company, any of its Subsidiaries or a
Parent, or interfere in any way with any right of the Company, any of its
Subsidiaries or a Parent to terminate the optionee's relationship at any time
for any reason whatsoever without liability to the Company, any of its
Subsidiaries or a Parent.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may otherwise
be expressly provided in the applicable Contract, if an individual optionee dies
(a) while he is an employee or director of, or a consultant to, the Company, any
of its Subsidiaries or a Parent, (b) within three months after the termination
of such relationship (unless such termination was for Cause or without the
consent of the Company or such Subsidiary or Parent) or (c) within one year
following the termination of such relationship by reason of Disability, the
optionee's option may be exercised, to the extent exercisable on the date of the
optionee's death, by the optionee's Legal Representative (as defined in
Paragraph 19) at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as an employee or director
of, or a consultant to, the Company, any of its Subsidiaries or a Parent has
terminated by reason of Disability (without continuing in another such capacity)
may exercise the optionee's option, to the extent exercisable upon the effective
date of such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to the
exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise or (b) there is an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Administrators may require, in their sole discretion, as a
condition to the receipt of an option or the exercise of any option that the
optionee execute and deliver to the Company such representations and warranties,
in form, substance and scope satisfactory to the Administrators, as the
Administrators determine are necessary or appropriate to facilitate the
perfection of an exemption from the registration requirements of the Securities
Act, applicable state securities laws or other legal requirement, including,
without limitation, that (a) the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the optionee for the optionee's own
account, for investment only and not with a view to the resale or distribution
thereof, and (b) any subsequent resale or distribution of shares of Common Stock
by such optionee will be made only pursuant to (i) a Registration Statement
under the Securities Act which is effective and current with respect to the
shares of Common Stock being sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the optionee shall, prior to any offer of sale or sale of such shares of Common
Stock, provide the Company with a favorable written opinion of counsel
satisfactory to the Company, in form, substance and scope satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution.
In addition, if at any time the Administrators shall
determine, in their sole discretion, that the listing or qualification of the
shares of Common Stock subject to any option on any securities exchange, Nasdaq
or under any applicable law, or the consent or approval of any governmental
agency or self-regulatory body, is necessary or desirable as a condition to, or
in connection with, the granting of an option or the issuing of shares of Common
Stock upon the exercise thereof, such option may not be granted and such option
may not be exercised in whole or in part unless such listing, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Administrators.
11. CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, which Contract shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Administrators. The terms of
each option and Contract need not be identical.
A-4
<PAGE>
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding
any other provision of the Plan, in the event of a stock dividend, stock split,
combination, reclassification, recapitalization, merger in which the Company is
the surviving corporation, spin-off, split-up or exchange of shares or the like
which results in a change in the number or kind of shares of Common Stock which
is outstanding immediately prior to such event, the aggregate number and kind of
shares subject to the Plan, the aggregate number and kind of shares subject to
each outstanding option and the exercise price thereof, and the 162(m) Maximum
shall be appropriately adjusted by the Board of Directors, whose determination
shall be conclusive and binding on all parties thereto. Such adjustment may
provide for the elimination of fractional shares which might otherwise be
subject to options without payment therefor.
In the event of (a) the liquidation or dissolution of the
Company, or (b) a transaction (or series of related transactions) that is
approved by a majority of the members of the Company's Board of Directors who
were elected by stockholders prior to the first of such transactions (including,
without limitation, a merger, consolidation, sale of stock by the Company or its
stockholders, tender offer or sale of assets) and in which either (i) the voting
power (in the election of directors generally) of the Company's voting
securities outstanding immediately prior to such transaction(s) cease to
represent at least 50% of the combined voting power (in the election of
directors generally) of the Company or such surviving entity outstanding
immediately after such transaction(s) or (ii) the registration of the Common
Stock under the Securities Exchange Act of 1934 is terminated, then all
outstanding options shall terminate upon the earliest of any such event, unless
other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on January 25, 2000. No ISO may be granted
under the Plan after January 24, 2010. The Board of Directors, without further
approval of the Company's stockholders, may at any time suspend or terminate the
Plan, in whole or in part, or amend it from time to time in such respects as it
may deem advisable, including, without limitation, in order that ISOs granted
hereunder meet the requirements for "incentive stock options" under the Code, or
to comply with the provisions of Rule 16b-3, Section 162(m) of the Code or any
change in applicable law, regulations, rulings or interpretations of
administrative agencies; provided, however, that no amendment shall be effective
without the requisite prior or subsequent stockholder approval which would (a)
except as contemplated in Paragraph 12 hereof, increase the maximum number of
shares of Common Stock for which options may be granted under the Plan or the
162(m) Maximum, (b) change the eligibility requirements to receive options
hereunder or (c) make any change for which applicable law requires stockholder
approval. No termination, suspension or amendment of the Plan shall, without the
consent of the optionee, adversely affect the optionee's rights under any option
granted under the Plan. The power of the Administrators to construe and
administer any option granted under the Plan prior to the termination or
suspension of the Plan nevertheless shall continue after such termination or
during such suspension.
14. NON-TRANSFERABILITY. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
in the immediately preceding sentence, options may not be assigned, transferred,
pledged, hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process,
and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company, a Subsidiary or Parent may
withhold (a) cash or (b) with the consent of the Administrators (in the Contract
or otherwise), shares of Common Stock to be issued upon exercise of an option
having an aggregate fair market value on the relevant date (determined in
accordance with Paragraph 5 hereof) or a combination of cash and shares, in an
amount equal to the amount which the Administrators determine is necessary to
satisfy the obligation of the Company, a Subsidiary or Parent to withhold
Federal, state and local income taxes or other amounts incurred by reason of the
grant, vesting, exercise or disposition of an option, or the disposition of the
underlying shares of Common Stock. Alternatively, the Company, a Subsidiary or
Parent may require the holder to pay to it such amount, in cash, promptly upon
demand.
A-5
<PAGE>
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock or (c) permit the Company to determine the
occurrence of a "disqualifying disposition," as described in Section 421(b) of
the Code, of the shares of Common Stock issued or transferred upon the exercise
of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds received upon the
exercise of an option under the Plan shall be added to the general funds of the
Company and used for such corporate purposes as the Board of Directors may
determine, in its discretion.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may, without further approval by the Company's
stockholders, substitute new options for prior options of a Constituent
Corporation (as such term is defined in Paragraph 19 thereof) or assume the
prior options of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following terms
shall be defined as set forth below:
(a) "Cause" shall mean (i) in the case of an employee or
consultant, if there is a written employment or consulting agreement between the
optionee and the Company, any of its Subsidiaries or a Parent which defines
termination of such relationship for cause, cause as defined in such agreement,
and (ii) in all other cases, cause within the meaning of applicable state law.
(b) "Constituent Corporation" shall mean any corporation
which engages with the Company, any of its Subsidiaries or a Parent in a
transaction to which Section 424(a) of the Code applies (or would apply if the
option assumed or substituted were an ISO), or any Parent or any Subsidiary of
such corporation.
(c) "Disability" shall mean a permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
(d) "Legal Representative" shall mean the executor,
administrator or other person who at the time is entitled by law to exercise the
rights of a deceased or incapacitated optionee with respect to an option granted
under the Plan.
(e) "Parent" shall have the same definition as "parent
corporation" in Section 424(e) of the Code.
(f) "Subsidiary" shall have the same definition as
"subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, the options and
Contracts hereunder and all related matters shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
conflict of law provisions.
Neither the Plan nor any Contract shall be construed or
interpreted with any presumption against the Company by reason of the Company
causing the Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
A-6
<PAGE>
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan, any option or Contract shall not
affect the validity, legality or enforceability of any other provision, all of
which shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
22. STOCKHOLDER APPROVAL. The Plan shall be subject to
approval by a majority of the votes present in person or by proxy and entitled
to vote thereon at the next duly held meeting of the Company's stockholders at
which a quorum is present. No options granted hereunder may be exercised prior
to such approval; provided, however, that the date of grant of any option shall
be determined as if the Plan had not been subject to such approval.
Notwithstanding the foregoing, if the Plan is not approved by a vote of the
stockholders of the Company on or before [January 24, 2001], the Plan and any
options granted hereunder shall terminate.
A-7
<PAGE>
EXHIBIT B
---------
PROPOSED FORM OF THE STOCK PURCHASE PLAN
EMPLOYEE STOCK PURCHASE PLAN
OF
IMAGING TECHNOLOGIES CORPORATION
SECTION 1
Purpose
-------
The purpose of the Plan is to secure for the Company and its
stockholders the benefits of the incentive inherent in the ownership of Common
Stock by current and future Eligible Employees. The Plan is intended to comply
with the provisions of Code section 423 and shall be administered, interpreted
and construed in accordance with such provisions.
SECTION 2
Definitions
-----------
When used herein, the following terms shall have the following
meanings:
2.1 "Board of Directors" means the Board of Directors of the
Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute thereto.
2.3 "Committee" means the committee appointed by the Board of
Directors to administer the Plan pursuant to Section 12.
2.4 "Common Stock" means common stock, par value $0.005 per
share, of the Company.
2.5 "Common Stock Account" means the account established with,
and maintained by, the Custodian, for the purpose of holding Common Stock
purchased pursuant to this Plan.
2.6 "Company" means Imaging Technologies Corporation, and its
successors and assigns.
2.7 "Custodian" means the agent selected by the Company to
hold Common Stock purchased under the Plan.
2.8 "Eligible Compensation" means the sum of: (i) the total
compensation paid to an Eligible Employee by the Company and its Subsidiaries
that is subject to tax under Code section 3402 (or which would be subject to tax
thereunder if the employee were fully subject to Federal income tax with respect
to such compensation), plus (ii) any "elective deferrals" contributed to the
401(k) Plan by such Eligible Employee, plus (iii) amounts deferred under a
plan intended to qualify under Code section 125.
2.9 "Eligible Employee" means each employee of the Company or
any Subsidiary.
2.10 "Entry Date" means the first day of each calendar month
included in a Plan Year.
B-1
<PAGE>
2.11 "Fair Market Value" means, on any day, (a) if actual
sales price information is available with respect to the Common Stock, the
average of the highest and lowest sales prices per share of Common Stock on such
day, or (b) if such information is not available, the average of the highest bid
and lowest asked prices per share of Common Stock on such day as reported by the
market upon which the Common Stock is quoted, The Wall Street Journal, the
National Quotation Bureau Incorporated or an independent dealer in the Common
Stock, as determined by the Company; provided, however, that if clauses (a) and
(b) of this Paragraph are all inapplicable, or if no trades have been made or no
quotes are available for such day, the fair market value of the Common Stock
shall be determined by the Board of Directors by any method consistent with
applicable regulations adopted by the Treasury Department relating to stock
options.
2.12 "Investment Date" means the last day of each Plan Year
quarter and such other dates as may be determined by the Committee in its sole
discretion.
2.13 "Participant" means an Eligible Employee who has met the
requirements of Section 3 and has elected to participate in the Plan pursuant to
Section 4.1.
2.14 "Payroll Deduction Account" means the bookkeeping entry
established by the Company for each Participant pursuant to Section 4.3.
2.15 "Plan" means the Imaging Technologies Corporation
Employee Stock Purchase Plan as set forth herein and as amended from time to
time.
2.16 "Plan Year" means July 1, 2000 through December 31,
2000 and each calendar year thereafter.
2.17 "Subsidiary" means any corporation designated by the
Board of Directors, in its sole discretion, of which the Company owns or
controls, directly or indirectly, not less than 50% of the total combined voting
power of all classes of stock and which constitutes a "subsidiary" of the
Company, within the meaning of Code section 424(f).
SECTION 3
Eligibility
-----------
3.1 General Rule. Subject to Section 3.3, each Eligible
Employee shall be eligible to participate in the Plan beginning on the Entry
Date coincident with or next following the Eligible Employee's date of hire by
the Company or any of its Subsidiaries.
3.2 Leave of Absence. Unless the Committee otherwise
determines, a Participant on a paid leave of absence shall continue to be a
Participant in the Plan so long as such Participant is on such paid leave of
absence. Unless otherwise determined by the Committee, a Participant on an
unpaid leave of absence shall not be entitled to participate in any offering
commencing after such unpaid leave has begun but shall not be deemed to have
terminated employment for the purposes of the Plan. A Participant who, upon
failing to return to work following a leave of absence, is deemed not to be an
employee, shall not be entitled to participate in any offering commencing after
such termination of employment and such Participant's Payroll Deduction Account
shall be paid out in accordance with Section 6.1.
3.3 Common Stock Account. As a condition to participation in
this Plan, each Eligible Employee shall be required to hold shares purchased
hereunder in a Common Stock Account and such employee's decision to participate
in the Plan shall constitute the appointment of the Custodian as custodial agent
for the purpose of holding such shares. Such Common Stock Account shall be
governed by, and subject to, the terms and conditions of a written agreement
with the Custodian.
B-2
<PAGE>
SECTION 4
Participation and Payroll Deductions
------------------------------------
4.1 Enrollment. Each Eligible Employee may elect to
participate in the Plan for a Plan Year by completing an enrollment form
prescribed by the Committee and returning it to the Company on or before the
date specified by the Committee, which date shall precede the Eligible
Employee's Entry Date.
4.2 Amount of Deduction. The enrollment form shall specify a
payroll deduction amount of from 1% to 15% (in whole numbers) of Eligible
Compensation, which shall be withheld from the Participant's regular paychecks,
including bonus paychecks, for the Plan Year. The Committee, in its sole
discretion, may authorize payment in respect of any option exercised hereunder
by personal check.
4.3 Payroll Deduction Accounts. Each Participant's payroll
deduction shall be credited, as soon as practicable following the relevant pay
date, to a Payroll Deduction Account, pending the purchase of Common Stock in
accordance with the provisions of the Plan. All such amounts shall be assets of
the Company and may be used by the Company for any corporate purpose. No
interest shall accrue or be paid on amounts credited to a Payroll Deduction
Account.
4.4 Subsequent Plan Years. Unless otherwise specified prior to
the beginning of any Plan Year on an enrollment form prescribed by the
Committee, a Participant shall be deemed to have elected to participate in each
subsequent Plan Year for which the Participant is eligible to the same extent
and in the same manner as at the end of the prior Plan Year.
4.5 Changes in Participation.
(a) At any time during a Plan Year, a Participant may cease
participation in the Plan by completing and filing the form prescribed by the
Committee with the Company. Such cessation will become effective as soon as
practicable following receipt of such form by the Company, whereupon no further
payroll deductions will be made and the Company shall pay to such Participant an
amount equal to the balance in the Participant's Payroll Deduction Account as
soon as practicable thereafter. To the extent then eligible, any Participant who
ceased to participate may elect to participate again on any subsequent Entry
Date in any calendar quarter after the quarter in which such Participant ceased
to participate.
(b) At any time during the Plan Year (but not more than once
in any calendar quarter) a Participant may increase or decrease the percentage
of Eligible Compensation subject to payroll deduction within the limits provided
in Section 4.2 by filing the form prescribed by the Committee with the Company.
Such increase or decrease shall become effective with the first pay period
following receipt of such form to which it may be practicably applied.
SECTION 5
Offerings
---------
5.1 Maximum number of shares. The Plan shall be implemented by
making offerings of common stock on each investment date until the maximum
number of shares of common stock available under the plan have been issued
pursuant to the exercise of options.
5.2 Grant and Exercise of Options.
(a) Subject to Section 5.3, on each Investment Date, each
Participant shall be deemed, subject to Section 5.4, to have been granted the
option to purchase, and shall be deemed, without any further action, to have
exercised such option and purchased, the number of shares of Common Stock
determined by dividing the
B-3
<PAGE>
amount credited to the Participant's Payroll Deduction Account on such date by
the purchase price (as determined in paragraph (b) below). All such shares shall
be credited to the Participant's Common Stock Account.
(b) The purchase price for each share of Common Stock shall be
equal to eighty-five percent (85%) of the Fair Market Value of such share on the
Investment Date.
5.3 Oversubscription of shares. If the total number of shares
for which options are exercised on any investment date exceeds the maximum
number of shares available for the applicable offering, the company shall make
an allocation of the shares available for delivery and distribution among the
participants in as nearly a uniform manner as shall be practicable, and the
balance of all participant's payroll deduction account shall be refunded to the
participant or, in the event of the participant's death, to the participant's
estate, as soon as practicable.
5.4 Limitations on Grant and Exercise of Options.
(a) No option granted under this Plan shall permit a
participant to purchase stock under all employee stock purchase plans (as
defined by code section 423(b)) of the Company and its subsidiaries at a rate
which, in the aggregate, exceeds $25,000 of the Fair Market Value (payroll
deductions not in excess of $21,250) of such stock (determined at the time the
option is granted) for each calendar year in which the option is outstanding at
any time.
(b) No employee who would down, immediately after the option
is granted, stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or any Subsidiary
(a "5% owner") shall be granted an option. For purposes of determining whether
an employee is a 5% owner, the rules of Code section 424(d) shall apply in
determining the stock ownership of an individual and stock which the employee
may purchase under outstanding options shall be treated as stock owned by the
employee.
SECTION 6
Distributions of Common Stock Account
-------------------------------------
6.1 Termination of Employment. If a Participant's employment
with the Company and its Subsidiaries terminates for any reason during a Plan
Year, all shares credited to the participant's common stock account shall be
distributed, and any amount credited to the Participant's Payroll Deduction
Account shall be refunded to the Participant or, in the event of the
Participant's death, to the Participant's estate, as soon as practicable.
6.2 During employment. Prior to the Participant's termination
of employment with the company and its Subsidiaries, a Participant may withdraw
some or all of the whole shares credited to the Participant's Common Stock
Account, subject to the provisions of Section 10.3.
SECTION 7
Dividends on shares
-------------------
All cash dividends paid with respect to shares of Common Stock
held in a participant's Common Stock Account shall be invested automatically in
shares of Common Stock purchased at one-hundred percent (100%) of Fair Market
Value on the next Investment Date. All non-cash distributions paid on Common
Stock held in a Participant's Common Stock Account shall be paid to the
Participant as soon as practicable.
B-4
<PAGE>
SECTION 8
Rights as a stockholder
-----------------------
When a Participant purchases Common Stock pursuant to the plan
or when Common Stock is credited to a participant's Common Stock Account, the
participant shall have all of the rights and privileges of a stockholder of the
company with respect to the shares so purchased or credited, whether or not
certificates representing shares shall have been issued.
SECTION 9
Options Not Transferable
------------------------
Options granted under the Plan are not transferable by a
Participant other than by will or the laws of descent and distribution and are
exercisable during the Participant's lifetime only by the Participant.
SECTION 10
Common stock
------------
10.1 Reserved shares. There shall be reserved for issuance and
purchase under the Plan an aggregate of 1,250,000 shares of Common Stock,
subject to adjustment as provided in section 11. Shares subject to the Plan may
be shares now or hereafter authorized but unissued, treasury shares, or both.
10.2 Restrictions on exercise. In its sole discretion, the
Board of Directors may require as conditions to the exercise of any option that
shares of Common Stock reserved for issuance upon the exercise of an option
shall have been duly listed on any recognized national securities exchange, and
that either a registration statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or the participant
shall have represented at the time of purchase, in form and substance
satisfactory to the Company, that it is the participant's intention to purchase
the shares for investment only and not for resale or distribution.
10.3 Restriction on sale. Shares of Common Stock purchased
hereunder shall not be transferable by a participant for a period of 12 months
immediately following the Investment Date on which such shares were purchased.
In addition, upon the expiration of such 12-month period, shares of Common Stock
purchased hereunder shall not be transferable by a Participant for an additional
12-month period, without prior written notice to the Company on a form
prescribed by the Committee.
SECTION 11
Adjustment Upon Changes In Capitalization
-----------------------------------------
In the event of a subdivision or consolidation of the
outstanding shares of Common Stock, or the payment of stock dividend thereon,
the number of shares reserved or authorized to be reserved under this plan shall
be increased or decreased, as the case may be, proportionately, and such other
adjustments shall be made as may be deemed necessary or equitable by the Board
of Directors. In the event of any other change affecting the common stock, such
adjustments shall be made as may be deemed equitable by the Board of Directors,
in its sole discretion, to give proper effect to such event, subject to the
limitations of Code section 424.
SECTION 12
Administration
--------------
12.1 Appointment. The Plan shall be administered by the
Committee. The Committee shall consist of two or more members who shall serve at
the pleasure of the Board of Directors. The Board of
B-5
<PAGE>
Directors may from time to time appoint members of the Committee in substitution
for, or in addition to, members previously appointed and may fill vacancies,
however caused, in the Committee.
12.2 Authority. Subject to the express provisions of the Plan,
the Committee shall have authority to interpret the Plan, to prescribe, amend
and rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable in administering the Plan, all of which
determinations shall be final and binding upon all persons. If and to the extent
required by Securities and Exchange Commission rule 16b-3 or any successor
exemption under which the Committee believes it is appropriate for the plan to
qualify, the Committee may restrict a participant's ability to participate in
the plan or sell any common stock received under the plan for such period as the
committee deems appropriate or may impose such other conditions in connection
with participation or distributions under the Plan as the Committee deems
appropriate.
12.3 Committee Procedures. The Committee may select one of its
members as its chairman and shall hold its meetings at such times and places as
it shall deem advisable and may hold telephonic meetings. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. Any decision or determination reduced to
writing and signed by a majority of the members of the Committee shall be as
fully effective as if it had been made by a majority vote at a meeting duly
called and held. The Committee may request advice or assistance or employ such
other persons as are necessary for the proper administration of the plan.
12.4 Duties of Committee. The committee shall establish and
maintain records of the plan and of each payroll deduction account and common
stock account established for any participant hereunder.
12.5 Plan Expenses. The company shall pay the fees and
expenses of accountants, counsel, agents and other personnel and all other costs
of administration of the plan.
12.6 Indemnification. To the maximum extent permitted by law,
no member of the Committee shall be personally liable by reason of any contract
or other instrument executed by such member or on such member's behalf in such
member's capacity as a member of the Committee or for any mistake of judgment
made in good faith, and the Company shall indemnify and hold harmless, directly
from its own assets (including the proceeds of any insurance policy the premiums
of which are paid from the Company's own assets), each member of the Committee
and each other officer, employee or director of the Company to whom any duty or
power relating to the administration or interpretation of the plan or to the
management or control of the assets of the plan may be delegated or allocated,
against any cost or expense (including fees, disbursements and other charges of
legal counsel) or liability (including any sum paid in settlement of a claim
with the approval of the Company) arising out of any act or omission to act in
connection with the plan unless arising out of such person's own fraud, willful
misconduct or bad faith. The foregoing shall not be deemed to limit the
company's obligation to indemnify any member of the committee under the
Company's certificate of Incorporation or By-laws, or any other agreement
between the Company and such member.
SECTION 13
Amendment and Termination
-------------------------
13.1 Amendment. Subject to the provisions of Code Section 423,
the board of directors may amend the plan in any respect; provided, however,
that the plan may not be amended in any manner that will retroactively impair or
otherwise adversely affect the rights of any person to benefits under the Plan
which have accrued prior to the date of such action.
13.2 Termination. The Plan shall terminate on the Investment
Date that Participants become entitled to purchase a number of shares greater
than the number of reserved shares available for purchase. In addition, the Plan
may be terminated at any time, in the sole discretion of the Board of Directors.
B-6
<PAGE>
SECTION 14
Effective date
--------------
The plan shall become effective on July 1, 2000, subject to
approval by the holders of the majority of shares of Common Stock present and
represented at an annual or special meeting of the stockholders held within 12
months of the date the Plan is adopted.
SECTION 15
Governmental and other regulations
----------------------------------
The plan and the grant and exercise of options to purchase
shares hereunder, and the Company's obligation to sell and deliver shares upon
the exercise of options to purchase shares, shall be subject to all applicable
Federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as, in the opinion of counsel to the
Company, may be required.
SECTION 16
No employment rights
--------------------
The Plan does not create, directly or indirectly, any right
for the benefit of any employee or class of employees to purchase any shares
under the Plan, or create in any employee or class of employees any right with
respect to continuation of employment by the Company or any subsidiary, and it
shall not be deemed to interfere in any way with the Company's or any
Subsidiary's right to terminate, or otherwise modify, an employee's employment
at any time.
SECTION 17
Withholding
-----------
As a condition to receiving shares hereunder, the Company may
require the Participant to make a cash payment to the Company of, or the Company
may withhold from, any shares distributable under the Plan, an amount necessary
to satisfy all Federal, state, city or other taxes as may be required to be
withheld in respect of such payments pursuant to any law or governmental
regulation or ruling.
SECTION 18
Offsets
-------
To the extent permitted by law, the Company shall have the
absolute right to withhold any amounts payable to any Participant under the
terms of the Plan to the extent of any amount owed for any reason by such
participant to the Company or any Subsidiary and to set off and apply the
amounts so withheld to payment of any such amount owed to the company or any
subsidiary, whether or not such amount shall then be immediately due and payable
and in such order or priority as among such amounts owed as the Committee, in
its sole discretion, shall determine.
SECTION 19
Notices, etc.
-------------
All elections, designations, requests, notices, instructions
and other communications from a participant to the committee or the company
required or permitted under the Plan shall be in such form as is prescribed from
time to time by the Committee, shall be mailed by first-class mail or delivered
to such location as
B-7
<PAGE>
shall be specified by the Committee, and shall be deemed to have been given and
delivered only upon actual receipt thereof at such location.
SECTION 20
Captions, Etc.
--------------
The captions of the sections and paragraphs of this Plan have
been inserted solely as a matter of convenience and in no way define or limit
the scope or intent of any provision of the Plan. Reference to sections herein
are to the specified sections of this Plan unless another reference is
specifically stated. Wherever used herein, a singular number shall be deemed to
include the plural unless a different meaning is required by the context.
SECTION 21
Effect of Plan
--------------
The provisions of the Plan shall be binding upon, and inure to
the benefit of, all successors of the Company and each Participant, including,
without limitation, such Participant's estate and the executors, administrators
or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy
or representative of creditors of such Participant.
SECTION 22
Governing law
-------------
The laws of the State of Delaware shall govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
B-8
<PAGE>
EXHIBIT C
PROPOSED FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IMAGING TECHNOLOGIES CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Imaging Technologies Corporation.
2. The Certificate of Incorporation of the Corporation
(hereinafter called the "Certificate of Incorporation") is hereby further
amended by deleting the current first paragraph of the Fourth Article and
replacing it with the following:
"FOURTH: The aggregate number of shares of stock which the
Corporation shall have authority to issue is 200,100,000 shares divided into two
classes; 200,000,000 shares of which shall be designated as Common Stock, $.005
par value per share, and 100,000 shares of which shall be designated as
Preferred Stock, with $1,000.00 par value per share. There shall be no
preemptive rights with respect to any shares of capital stock of the
Corporation."
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware.
Dated: ___________, 2000
By:_________________________
Brian Bonar, President
ATTEST:
By:__________________________
Philip Englund, Secretary
C-1
<PAGE>
EXHIBIT D
PROPOSED FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION
EFFECTING A REVERSE SPLIT
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
IMAGING TECHNOLOGIES CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Imaging Technologies Corporation.
2. The Certificate of Incorporation of the Corporation
(hereinafter called the "Certificate of Incorporation") is hereby further
amended by deleting the current first paragraph of the Fourth Article and
replacing it with the following:
"FOURTH: The aggregate number of shares of stock which the
Corporation shall have authority to issue is _________ shares divided into two
classes; _________ shares of which shall be designated as Common Stock, $.005
par value per share, and _________ shares of which shall be designated as
Preferred Stock, with $1,000.00 par value per share. There shall be no
preemptive rights with respect to any shares of capital stock of the
Corporation.
Effective 12:01 a.m. on __________, 2000 (the "Effective
Time"), each __ shares of Common Stock then issued shall be automatically
combined into one share of Common Stock of the Corporation. No fractional shares
or scrip representing fractions of a share shall be issued, but in lieu thereof,
each fraction of a share that any stockholder would otherwise be entitled to
receive shall be rounded up to the nearest whole share."
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware.
Dated: ___________, 2000
By:_________________________
Brian Bonar, President
ATTEST:
By:__________________________
Philip Englund, Secretary
D-1
<PAGE>
THE BOARD OF DIRECTORS OF
IMAGING TECHNOLOGIES CORPORATION
Dated: May 11, 2000
IMAGING TECHNOLOGIES CORPORATION PROXY SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
The undersigned hereby appoints Brian Bonar and Philip J. Englund
jointly and severally, as proxies, with full power of substitution and
resubstitution, to vote all shares of stock which the undersigned is entitled to
vote at the Annual Meeting of Stockholders (the "Annual Meeting") of Imaging
Technologies Corporation (the "Company") to be held at the Radisson Suite Hotel,
11520 W. Bernardo Ct., San Diego, California 92127, on Monday, May 11, 2000, at
10 a.m., local time, or at any postponements or adjournments thereof, as
specified below, and to vote in his or her discretion on such other business as
may properly come before the Annual Meeting and any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, 5 AND 6.
1. ELECTION OF DIRECTORS:
Nominees: Brian Bonar, Keith Meadows, Robert A. Dietrich, and Eric W. Gaer
|_| VOTE FOR ALL NOMINEES ABOVE |_| VOTE WITHHELD FROM ALL NOMINEE
(Except as withheld in the space
below)
Instruction: To withhold authority to vote for any individual nominee, check the
box "Vote FOR" and write the nominee's name on the line below.
- --------------------------------------------------------------------------------
2. APPROVAL OF THE 2000 STOCK OPTION PLAN:
Approval of the 2000 Stock Option/Stock Issuance Plan, pursuant to
which 3,500,000 shares of Common Stock will be reserved for issuance
over the term of such plan.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
3. APPROVAL OF THE 2000 STOCK PURCHASE PLAN:
To approve the Stock Purchase Plan, pursuant to which 1,250,000 shares
of Common Stock will be reserved or may be reserved for issuance over
the term of such plan.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
4. APPROVAL OF AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION INCREASING THE COMPANY'S AUTHORIZED COMMON STOCK:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
<PAGE>
5. APPROVAL OF REVERSE SPLIT OF THE COMPANY'S COMMON STOCK:
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
6. RATIFICATION OF ACCOUNTANTS:
Ratification and approval of the selection of Boros & Farrington APC as
independent auditors for the fiscal year ending June 30, 2000.
|_| VOTE FOR |_| VOTE AGAINST |_| ABSTAIN
<PAGE>
(PLEASE SIGN AND DATE ON REVERSE SIDE)
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, 4, 5 AND 6, AND WILL BE VOTED BY THE PROXY HOLDERS AT THEIR
DISCRETION AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE ANNUAL MEETING OR
ANY ADJOURNMENT(S) THEREOF TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS JUST SIGN BELOW, NO BOXES NEED BE CHECKED.
DATED: ____________________, 2000
SIGNATURE OF STOCKHOLDER
- --------------------------------------------------------------------------------
PRINTED NAME OF STOCKHOLDER
- --------------------------------------------------------------------------------
TITLE (IF APPROPRIATE)
- --------------------------------------------------------------------------------
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. IF SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH, AND, IF
SIGNING FOR A CORPORATION, GIVE YOUR TITLE. WHEN SHARES ARE IN THE NAMES OF MORE
THAN ONE PERSON, EACH SHOULD SIGN.
CHECK HERE IF YOU PLAN TO ATTEND THE ANNUAL MEETING. |_|
[ITECH LOGO]
IMAGING TECHNOLOGIES CORPORATION
15175 Innovation Drive o San Diego, California 92128
Telephone: (858) 613-1300 o Fax: (858) 207-6505