SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
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
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
sec.240.14a-11(c) or sec.240.14a-12
WAVETECH, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
WAVETECH, INC.
5210 East Williams Circle, Suite 200
Tucson, Arizona 85711
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 26, 1997
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To the Stockholders of Wavetech, Inc.:
The Annual Meeting of the stockholders of Wavetech, Inc., a New Jersey
corporation (the "Company"), will be held at The Courtyard Marriott, 201 S.
Williams Blvd., Tucson, Arizona 85711 (520) 745-6000, on March 26, 1997, at 9:00
a.m. M.S.T. for the following purposes:
1. To elect six directors to serve a one-year term;
2. To amend the Company's Certificate of Incorporation to change its name
from Wavetech, Inc. to Telplex International, Inc.;
3. To change the Company's state of incorporation from New Jersey to
Nevada;
4. To ratify the adoption of the 1997 Stock Incentive Plan for employees
(including officers), consultants and directors; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on February 25, 1997 (the
"Record Date") are entitled to vote at the meeting and at any adjournment or
postponement thereof. Shares can be voted at the meeting only if the holder is
present or represented by proxy. A list of stockholders entitled to vote at the
meeting will be available for inspection at the Company's corporate headquarters
for any purpose germane to the Annual Meeting during ordinary business hours for
ten (10) days prior to the meeting.
A copy of the Company's 1996 Annual Report to Stockholders, which includes
audited financial statements, is enclosed. Management and the Board of Directors
cordially invite you to attend the Annual Meeting.
By Order of the Board of Directors,
/s/ Gerald I. Quinn
-----------------------------------
Gerald I. Quinn
President and Chief Executive Officer
Tucson, Arizona
February 14, 1997
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IMPORTANT: It is important that your shareholdings be represented at this
meeting. Please complete, date, sign and promptly mail the enclosed proxy card
in the accompanying envelope, which requires no postage if mailed in the United
States.
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<PAGE>
WAVETECH, INC.
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 26, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROXY STATEMENT............................................................................... 1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................ 1
Voting and Revocation of Proxies............................................ 3
Solicitation of Proxies..................................................... 3
ELECTION OF DIRECTORS......................................................................... 3
Meetings and Committees of the Board of Directors........................... 6
EXECUTIVE COMPENSATION........................................................................ 7
SUMMARY COMPENSATION TABLE.................................................................... 7
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF AUGUST 31, 1996............................................................ 8
OPTION GRANTS IN LAST FISCAL YEAR............................................................. 8
Compensation of Directors................................................... 8
Employment Contracts........................................................ 9
1997 Stock Incentive Plan................................................... 9
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................ 9
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............................................. 10
PROPOSAL NO. 1 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO
CHANGE NAME OF CORPORATION FROM WAVETECH TO TELPLEX
INTERNATIONAL, INC............................................................................ 10
PROPOSAL NO. 2 - REINCORPORATION FROM NEW JERSEY TO NEVADA................................... 10
General ................................................................... 10
Principal Reasons for the Reincorporation................................... 11
Certain Changes to the Company's Certificate of Incorporation............... 12
Certain Differences Between Nevada and New Jersey Corporation Law........... 13
Summary of Federal Income Tax Consequences of Reincorporation............... 14
Vote Required for Reincorporation and Board of Directors' Recommendation.... 15
PROPOSAL NO. 3 - RATIFICATION OF 1997 STOCK INCENTIVE PLAN.................................... 15
Stock Options............................................................... 15
Nonemployee Director Automatic Options...................................... 16
Restricted and Deferred Stock............................................... 17
Reasons For the 1997 Plan................................................... 18
Federal Income Tax Consequences............................................. 18
New Plan Benefits Table..................................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................. 22
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING............................................. 22
OTHER BUSINESS................................................................................ 22
1996 ANNUAL REPORT ON FORM 10-KSB............................................................. 23
</TABLE>
iii
<PAGE>
WAVETECH, INC.
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PROXY STATEMENT
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INFORMATION CONCERNING SOLICITATION AND VOTING
The accompanying proxy is solicited by the Board of Directors of
Wavetech, Inc., a New Jersey corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on March 26, 1997 (the "Annual Meeting"), or
any adjournment or postponement thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Stockholders. This Proxy
Statement and the accompanying form of proxy were mailed to all stockholders
entitled to vote at the Annual Meeting on or about February 25, 1997. The
corporate offices of the Company are located at 5210 East Williams Circle, Suite
200, Tucson, Arizona 85711 and its telephone number at that address is (502)
750-9093.
Only stockholders of record at the close of business on February 25,
1997 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting or any adjournment or postponement thereof. On the Record Date,
14,964,442 shares of Common Stock, $.001 par value, were issued and outstanding.
Each holder of Common Stock is entitled to one vote, exercisable in person or by
proxy, for each share of the Company's Common Stock held of record on the Record
Date.
The presence of a majority of the holders of the Common Stock in person
or by proxy is required to constitute a quorum for the conduct of business at
the Annual Meeting. Votes withheld from any director are counted for purposes of
determining the presence of a quorum, but have no legal effect under New Jersey
law. Abstentions and broker non-votes will also be included in the determination
of the number of shares represented for a quorum. The proposals for which
stockholder approval is being sought cannot be approved without the affirmative
vote of the holders of a majority of the votes cast, in person or by proxy, at
the Annual Meeting. At the Annual Meeting, the Company will appoint an Inspector
of Election to count all votes and ballots and make a written report thereof.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Common Stock of the Company on February 14, 1997 by (i) each director, (ii) each
director-nominee, (iii) each executive officer, (iv) all directors,
director-nominees and executive officers as a group and (v) all persons known by
the Company to be the beneficial owners of more than 5% of the Company's Common
Stock.
The percentage ownership information set forth in the right hand column
of the following table has been computed in accordance with Securities and
Exchange Commission ("SEC") guidelines.
<PAGE>
Name and Address of Number of Shares Percent of
Beneficial Owner Beneficially Held Ownership(1)
- ---------------- ----------------- ------------
Terence E. Belsham (2) 1,079,023 7.2%
Richard P. Freeman (2) 1,079,023 7.2%
Len B. Casebier (2) 979,023 6.5%
Gerald I. Quinn (2) 803,637(5) 5.4%
Richard Baillie (2) -0- 0%
Terry Cuthbertson (2)
Terrence H. Pocock (2) -0- 0%
Switch Telecommunications Pty 3,544,110(6) 23.7%
Limited
55 Mentmore Ave
Rosebery, New South Wales 2018
Australia
ALL OFFICERS AND DIRECTORS 3,450,844(3)(4)(5)(7) 23.1%
AS A GROUP (7 IN NUMBER)
- ----------
(1) The percentages shown include the shares of Common Stock actually owned as
of January 14, 1997 and the shares of Common Stock with respect to which
the person had the right to acquire beneficial ownership within 60 days of
such date pursuant to options. All shares of Common Stock that the
identified person had the right to acquire within 60 days of February 14,
1997 upon the exercise of options are deemed to be outstanding when
computing the percentage of the securities owned by such person, but are
not deemed to be outstanding when computing the percentage of the
securities owned by any other person.
(2) Each of these holders has an address at c/o the Company, 5210 E. Williams
Circle, Suite 200, Tucson, Arizona 85711.
(3) Includes 100,000 common shares issuable in connection with options to
purchase common stock.
(4) Includes 100,000 common shares issuable in connection with options to
purchase common stock.
(5) Includes 600,000 common shares issuable in connection with options to
purchase common stock.
(6) Includes an immediately exercisable warrant to purchase up to 2,000,000
common shares at $1.50 per share.
(7) Includes 800,000 common shares issuable in connection with options to
purchase common stock.
2
<PAGE>
VOTING AND REVOCATION OF PROXIES
All valid proxies received before the Annual Meeting and not revoked will
be exercised. All shares represented by proxy will be voted, and where a
stockholder specifies by means of his or her proxy a choice with respect to any
matter to be acted upon, the shares will be voted in accordance with the
specifications so made. If no choice is indicated on the proxy, the shares will
be voted in accordance with the recommendations of the Board of Directors as to
such matters. Proxies may be revoked at any time prior to the time they are
voted by: (a) delivering to the Secretary of the Company a written instrument of
revocation bearing a date later than the date of the proxy; or (b) duly
executing and delivering to the Secretary a subsequent proxy relating to the
same shares; or (c) attending the meeting and voting in person.
SOLICITATION OF PROXIES
The cost of soliciting proxies, including the cost of preparing and mailing
the Notice and Proxy Statement, will be paid by the Company. Solicitation will
be primarily by mailing this Proxy Statement to all stockholders entitled to
vote at the meeting. Proxies may be solicited by officers and directors of the
Company personally or by telephone or facsimile, without additional
compensation. The Company may reimburse brokers, banks and others holding shares
in their names for others for the cost of forwarding proxy materials and
obtaining proxies from beneficial owners.
ELECTION OF DIRECTORS
The Board of Directors currently consists of three members. Each Director
is elected each year to serve for a term of one year. Each Director serves until
his successor has been elected and qualified, or until his earlier resignation
or removal.
The Company has nominated its current Directors, Terence E. Belsham,
Richard P. Freeman and Gerald I. Quinn to be re-elected at the Annual Meeting.
In addition, the Company has also nominated Richard Baillie, Terry Cuthbertson
and Terrence H. Pocock for election at the Annual Meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for Messrs.
Belsham, Freeman, Quinn, Baillie, Cuthbertson and Pocock. In the event that any
of such persons is unable or declines to serve as Director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the Board of Directors to fill the vacancy. It is not expected
that any of such persons will be unable or will decline to serve as Director. If
elected, the term of office of each of the nominees will continue until the next
annual meeting of stockholders after election or until such Director's successor
has been duly elected and qualified.
The names of all current Directors, Director-nominees and executive
officers and certain information about them, are set forth on the following
page.
3
<PAGE>
Name Age Positions With Company
- ---- --- ----------------------
Terence E. Belsham 61 Chairman of the Company's Board of Directors
Gerald I. Quinn 53 President, Chief Executive Officer, and a
member of the Company's Board of Directors
Richard P. Freeman 40 Vice President, Investor Relations and Product
Development, and a member of the Company's
Board of Directors
Lydia M. Montoya 44 Chief Financial Officer and Treasurer
Donna S. Moore 42 Vice President, Operations
John G. Vogel 30 President and Chief Executive Officer of Telplex
International Communications, Inc.
Richard Baillie 51 Director-Nominee
Terry Cuthbertson 46 Director-Nominee
Terrence H. Pocock 63 Director-Nominee
TERENCE E. BELSHAM was a co-founder of Interpretel, Inc. ("Interpretel"), a
wholly owned subsidiary of the Company. Since it was founded in 1992 until May
1996, Mr. Belsham was the President and CEO of Interpretel. From March 1995
until May 1996, Mr. Belsham was the Company's President and CEO. Mr. Belsham has
also served as the Company's Chairman of the Board since March 1995. From 1989
until 1992, Mr. Belsham was President of Intran Systems, Inc. From 1983 to 1989,
Mr. Belsham owned Sinclair Associates, a real estate marketing and management
firm. From 1965 to 1983, Mr. Belsham was President and owner of Lackie
Manufacturing Company, Ltd., a jewelry manufacturing company in Canada. Mr.
Belsham graduated from the business school of the University of Western Ontario.
Mr. Belsham has been active in Rotary International, the Canadian Jeweler's
Association and the 24 Karat Club.
GERALD I. QUINN has been the President of Interpretel (Canada) Inc., a
subsidiary of the Company, since 1995. In May 1996, Mr. Quinn became the
President, Chief Executive Officer and a Director of the Company. From 1986 to
1994, Mr. Quinn was Vice President of University Affairs and Development at the
University of Guelph, which is one of Canada's leading teaching and research
universities. While at the University of Guelph, Mr. Quinn's responsibilities
included marketing, image development, constituent relations and media
relations, including systems development, telemarketing and the development of
affinity programs. From 1975 until 1986, Mr. Quinn held many senior
administrative positions with Canada's largest college of applied arts and
technology, including positions relating to the development and
commercialization of technology and multimedia based interactive learning
programs. Since 1984, Mr. Quinn has served as a consultant to Cableshare
Interactive Technology, Inc. ("Cableshare"), a Canadian TSE listed public
company that operates in the interactive television industry. Mr. Quinn has been
a director of Cableshare since 1993 and chairs its board committee on mergers
and acquisitions. Mr. Quinn is active in numerous civic and professional
organizations and has been recognized for his work in marketing, sales,
promotion and public relations by various trade organizations. Mr. Quinn has two
arts degrees with majors in English, Economics and Political Science. Mr.
Quinn's sister is married to Terrence H. Pocock.
4
<PAGE>
RICHARD P. FREEMAN was a co-founder of Interpretel and has served as
Interpretel's Vice President since 1993; and as a Director of the Company since
March 1995. Prior to joining Interpretel, Mr. Freeman was a principal in several
entrepreneurial companies located in Arizona, which were primarily involved in
the tourism and travel industries. Those companies included Desert Divers, a
scuba retail and boat chartercompany, and Vacation, Etc., a tour and travel
company which focused on corporate, leisure and adventure travel, wholesale tour
operations and escorted senior travel. Mr. Freeman has also served as a
consultant to several travel-related organizations, including the Business Radio
Network, a national radio network. Mr. Freeman holds a Bachelor of Arts degree
from the University of Arizona and is active in various civic and community
organizations.
DONNA S. MOORE joined the Company in May 1995 as Director of Client Services. In
May 1996, Ms. Moore was promoted to her current position as Vice President of
Operations. Prior to joining the Company, Ms. Moore founded and operated two
service-based businesses. From 1991 to 1995, Ms. Moore operated The Greeting
Connection, a wholesale greeting card distributorship in southern Arizona. From
1981 to 1990, Ms. Moore operated Simonsen Generator Service, an industrial
generator sales and service company in Tucson, Arizona. Ms. Moore has degrees in
Consumer Services and Journalism/Communications from Iowa State University.
LYDIA M. MONTOYA joined the Company in September 1996 as its Chief Financial
Officer. From May 1994 until September 1996, Ms. Montoya was self-employed as a
certified public accountant. Ms. Montoya was Controller of Ugly Duckling
Corporation, a publicly traded company ("Ugly Duckling") from November 1992 to
May 1994. Ugly Duckling is an operator of nine Buy Here-Pay Here used car
dealerships which also finances and services retail installment contracts
generated from the sale of used cars by its dealerships. From July 1987 to
October 1992, Ms. Montoya was Director of Partnership Accounting for Verde
Investments, Inc., a real estate development company that constructed, operated
and sold over 5,000 apartment units. Ms. Montoya began her career with Coopers &
Lybrand. Ms. Montoya has a B.S. in Accounting from the University of Arizona and
a B.S. in Sociology from Arizona State University.
JOHN G. VOGEL joined the Company in January 1997 as President and Chief
Executive Officer of Telplex International Communications, Inc., an Arizona
corporation ("Telplex"). Substantially all of the assets of Telplex were
acquired by the Company in January 1997 and transferred to the Company's
wholly-owned subsidiary, Telplex International Communications, Inc. which was
formed in contemplation of such acquisition. Telplex was thereafter dissolved.
From its inception in 1994 until April 1996, Mr. Vogel served as Vice President
and from April 1996 until its acquisition by the Company in January 1997, Mr.
Vogel served as President of Telplex, a privately-held international reseller of
international voice and data, which he also founded. From May 1993 until January
1994, Mr. Vogel was self-employed as a telecommunications consultant in the
United States and Mexico. From January 1992 to January 1994, Mr. Vogel was
employed as a Senior Associate by Sprint Communications, a publicly traded
telecommunications provider. Mr. Vogel holds a Bachelor of Arts degree in
Marketing from the University of Arizona.
RICHARD BAILLIE has been nominated to become a Director of the Company upon
election by the stockholders of the Company at the Annual Meeting. Mr. Baillie
is the Director responsible for marketing and sales at Tech Pacific Australia
Pty Ltd. ("Tech Pacific"). Tech Pacific is a private telecommunications company
with operations in Australia and the Pacific Rim. Tech Pacific is also the
parent company of a major shareholder of the Company, Switch Telecommunications
Pty Limited ("Switch"). Prior to joining Tech Pacific in 1990, Mr. Baillie held
5
<PAGE>
several senior positions with Telecom Australia (now Telstra), including that of
General Manager responsible for sales, marketing and network service delivery
for business customers in the Sydney region. During 1987 and 1988, Mr. Baillie
worked with AT&T under a Telstra staff development program. Mr. Baillie holds a
graduate Diploma of Business Administration and a Diploma in Industrial
Relations. Mr. Baillie is a member of the Australian Institute of Company
Directors, holds a Diploma of Company Directors and is a Director of the
Australian Mobile Telecommunications Association.
TERRY CUTHBERTSON has been nominated to become a Director of the Company upon
election by the stockholders of the Company at the Annual Meeting. Mr.
Cuthbertson is the Director of Finance of Tech Pacific Holdings, a wholly-owned
subsidiary of Tech Pacific, whose shares are publicly traded on the Hong Kong
Exchange. Prior to joining Tech Pacific Holdings, Mr. Cuthbertson worked for the
previous 25 years at KPMG Peat Marwick. While at KPMG Peat Marwick, Mr.
Cuthbertson was a partner in both Audit Services and KPMG Corporate Services.
Mr. Cuthbertson holds a Bachelor of Business from the University of Technology,
NSW and is an Associate of the Institute of Chartered Accountants in Australia.
TERRENCE H. POCOCK has been nominated to become a Director of the Company upon
election by the stockholders of the Company at the Annual Meeting. Mr. Pocock is
the Vice Chairman of Cableshare Interactive Technology Inc. ("Cableshare"), a
Canadian public company he founded in 1973 that operates in the interactive
television industry. Currently, Mr. Pocock is involved in technology oversight
for the board of directors at Cableshare. From its inception in 1973 until 1992,
Mr. Pocock was the CEO of Cableshare. While at Cableshare, Mr. Pocock was
involved in product development and was responsible for obtaining several
patents on interactive television technology. Mr. Pocock holds B.A., B Comm. and
MBA degrees from various Canadian universities and is a graduate of the Canadian
Royal Military College. Mr. Pocock is married to the sister of Gerald I. Quinn.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1996, the Board of Directors met 12 times. Each Director
attended all of the meetings held during fiscal 1996. The Company's Board of
Directors has no committees.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to the Company's
President (the Chief Executive Officer of the Company) and to the Company's
other most highly compensated executive officer other than the President
(collectively, the "Named Executive Officers"), for services rendered in all
capacities to the Company during the fiscal years ended August 31, 1996, 1995
and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------
Awards
Annual Compensation ------
------------------- Restricted Securities
Name and Fiscal Stock Underlying
Principal Position Year Salary Bonus Award(s) Option(s)
------------------ ---- ------ ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Terence E. Belsham 1996 $85,000 $0 $979,023 200,000
Chairman of the Board (1)
1995 $60,000 $0 $0 0
1994 $45,000 $0 $0 0
Gerald I. Quinn 1996 $85,000 $0 $203,637 500,000
President and Chief Executive
Officer (1) 1995 $58,000 $0 $0 300,000
1994 $0 $0 $0 0
</TABLE>
- ----------
(1) Terence E. Belsham served as the Company's Chief Executive Officer until
February 1996, at which time Gerald I. Quinn became the Company's Chief
Executive Officer.
7
<PAGE>
The following table sets forth certain information concerning each exercise
of stock options during the year ended August 31, 1996 by each of the Named
Executive Officers and the aggregated fiscal year-end value of the unexercised
options of each such Named Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF AUGUST 31, 1996
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options In-the-Money
at Fiscal Year End (#) Options at Fiscal Year End ($)
Shares Acquired Value Realized ----------------------------- ------------------------------
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
------ --------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terence E. Belsham 0 $0 0 200,000 $0 $0
Gerald I. Quinn 0 $0 300,000 500,000 $0 $0
</TABLE>
The following table sets forth information concerning individual grants of
stock options made to the Named Executive Officers during the last fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Total
Options Granted
Options to Employees in Exercise Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ------------ ----
<S> <C> <C> <C> <C>
Terence E. Belsham 200,000 18% $1.75(1) May 2006
Gerald I. Quinn 300,000 73% $1.3875(1) May 2006
500,000 $1.75(1) May 2006
</TABLE>
- ----------
(1) In January of 1997, the Company's stock price had decreased significantly
from the date these options were granted. In addition, the Company's Board
of Directors approved the Company's 1997 Stock Incentive Plan. The
Company's Board of Directors determined that these options were no longer
providing appropriate incentives to the officers of the Company due to the
significant decrease in market price of the Company's common stock.
Accordingly, in January of 1997, the Company agreed to cancel these options
and issue an equal number of options under the 1997 Stock Incentive Plan to
these officers at an exercise price per share equal to the closing bid
price of the Company's common stock on the date of grant. See "Proposal No.
3 - Ratification of 1997 Stock Incentive Plan New Benefits Table".
COMPENSATION OF DIRECTORS
All Directors are reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attendance at Board meetings. Directors who are
employees of the Company do not receive compensation for service on the Board
8
<PAGE>
other than their compensation as employees. Each Director who is not an employee
of the Company will receive an option to purchase 10,000 shares of the Company's
Common Stock on the fifth day following the date that the Company publicly
announces its annual operating results, provided that such Director attended at
least 75% of the meetings of the Company's Board of Directors in the preceding
fiscal year.
EMPLOYMENT CONTRACTS
In May 1996, the Board of Directors approved a two-year employment
agreement with Gerald I. Quinn for services as President and Chief Executive
Officer. The agreement requires Mr. Quinn to devote his full time to the Company
and provides for a salary of $85,000 annually. Mr. Quinn is also entitled to
receive any fringe benefits extended to the employees of the Company, including
medical, disability and life insurance. Mr. Quinn also has the right to receive
certain sales commissions from the Company under the agreement.
In May 1996, the Board of Directors approved a one-year employment
agreement with Terence E. Belsham for services as Chairman. In September 1996,
the agreement was amended to eliminate Mr. Belsham's responsibilities as Chief
Financial Officer because the Company retained Lydia Montoya to serve as its
Chief Financial Officer. The agreement requires Mr. Belsham to devote his
full-time to the Company and provides for a salary of $85,000 annually. Mr.
Belsham is also entitled to receive any fringe benefits extended to the
employees of the Company, including medical, disability and life insurance.
In June 1996, the Board of Directors approved a one-year employment
agreement with Richard P. Freeman for services as Vice President. The agreement
provides for a base salary of $72,000 per year. The agreement requires Richard
P. Freeman to devote his full time to the Company.
After their initial terms, each of the above-described agreements continue
at will, terminable with/on ninety days written notice by either party to the
other. The agreements terminate upon the occurrence of any of the following
events: (i) if the employee voluntarily terminates; (ii) the death of the
employee; (iii) if the employee is unable to properly discharge his obligations
under his employment agreement due to illness, disability or accident for three
consecutive months or for a period aggregating six months in any continuous
twelve months; (iv) if the employee is convicted of a crime of moral turpitude
by a court of competent jurisdiction; (v) if the employee is convicted of a
felony, except to the extent that the charge arises from an act taken at the
board's direction; or (vi) if the employee is grossly negligent or guilty of
wilful misconduct in connection with the performance of his duties, which
negligence or misconduct, if curable, is not cured within fifteen days of a
notice of cure by the Board or the Chairman of the Board. Each of the
above-described agreements provides that the employee shall not compete with the
Company during the term of the agreement and for a period of one year
thereafter.
In January 1997, the Board of Directors of Telplex International
Communications, Inc., the Company's wholly owned subsidiary ("Telplex") approved
an employement agreement with John G. Vogel for services as President, Chief
Executive Officer and Administrator of Telplex. The agreement has an initial
term commencing January 22, 1997 and ending August 31, 2000. Thereafter, the
employement agreement automatically renews for one year periods, subject to two
weeks notice of termination by either party at any time. The agreement requires
John G. Vogel to devote his full time to Telplex and provides for an annual base
salary of $70,000, plus an incentive stock option to purchase up to 400,000
shares of the Company's Common Stock pursuant to the 1997 Stock Incentive Plan.
Mr. Vogel is eligible to participate in the 1997 Stock Incentive Plan as an
employee of the Company's subsidiary, Telplex; however, if the stockholders fail
to approve such Plan pursuant to Proposal No. 3, the incentive stock options
granted to Mr. Vogel will be deemed to have been granted in the form of
non-statutory options. Mr. Vogel is also entitled to receive any fringe benefits
generally provided to the employees of Telplex. The agreement terminates upon
the occurence of any of the following events: (i) voluntary termination by Mr.
Vogel, (ii) termination "without cause" by Telplex, (iii) death of Mr. Vogel,
(iv) if Mr. Vogel is convicted of any felony, (v) if Mr. Vogel were to commit
any act of fraud, dishonesty or breach of a fiduciary duty against Teleplex or
its affiliates, (vi) if Mr. Vogel materially breached the agreement or (vii)
upon liquidation of Telplex. Upon any termination of the agreement by Telplex
without cause, Mr. Vogel is entitled to receive two weeks severance pay (which
may include the two week notice period) and all outstanding options are deemed
immediately vested and exercisable for a period of sixty days following notice
to terminate. The agreement also provides that Mr. Vogel shall not compete with
Telplex or the Company during the term of the agreement and for a period of two
years thereafter.
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1997 STOCK INCENTIVE PLAN
In January 1997, the Board of Directors of the Company approved the
Company's 1997 Stock Incentive Plan. A description of the 1997 Stock Incentive
Plan is contained under the caption "Proposal No. 3 - Ratification of 1997 Stock
Incentive Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1996, the Company entered into certain agreements with Switch,
pursuant to which Switch was issued 1,544,110 shares of Common Stock of the
Company in exchange for 5% of the outstanding common stock of Switch. In
addition, on January 21, 1997, the Company granted a warrant to Switch to
purchase up to 2,000,000 shares of the Company's Common Stock at a price of
$1.50 per share, in exchange for consideration of $20,000. The Company also
licensed Switch to use certain technology of the Company in Australia and
various other Asian countries.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who beneficially own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, Directors and greater
than 10% stockholders are required by Exchange Act regulations to furnish the
Company with copies of all Section 16(a) forms they file.
In 1996, Messrs. Belsham, Freeman and Quinn failed to timely report the
grant of certain stock options on Form 4's, and Ms. Moore and Ms. Montoya failed
to timely report initial statements of beneficial ownership on Form 3. In
addition, Switch failed to timely report the acquisition of certain stock of the
Company on Form 3.
PROPOSAL NO. 1 - AMENDMENT OF CERTIFICATE OF INCORPORATION TO
CHANGE NAME OF CORPORATION FROM WAVETECH TO TELPLEX
INTERNATIONAL, INC.
At the Annual Meeting, the Company will seek stockholder approval of an
amendment to its Certificate of Incorporation to change its name to Telplex
International, Inc. (the "Name Change Amendment"). The Board of Directors
believes the proposed name will help the Company to establish an identity that
is consistent with its current products and services. In addition, the Company
believes that changing its name to Telplex International, Inc. will eliminate
certain confusion between the Company and an unrelated business entity that
operates under the name Wave Tech Int. Inc. and is traded on the Nasdaq Stock
Market under the symbol WAVT.
The Company's Board of Directors approved the Name Change Amendment in
January 1997 and has directed that the Name Change Amendment be submitted to the
stockholders of the Company for approval at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR
OF RATIFICATION OF THE NAME CHANGE AMENDMENT.
PROPOSAL NO. 2 - REINCORPORATION FROM NEW JERSEY TO NEVADA
General
The Board of Directors has approved a plan of reorganization (the
"Reincorporation") in which the Company's state of incorporation will be changed
from New Jersey to Nevada. In preparation for the submission of this Proposal to
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the stockholders, Wavetech has formed a wholly owned Nevada subsidiary named
Telplex International, Inc. If the stockholders approve the reincorporation,
Wavetech, Inc., will be merged into Telplex International, Inc. Each outstanding
share of stock of Wavetech, Inc., will be converted into one share of stock of
Telplex International, Inc. As a result, the existing stockholders of Wavetech
will become stockholders of Telplex International, Inc., and Wavetech will cease
to exist. The term "the Company" refers to Wavetech, Inc., or Telplex
International, Inc., or both, as the context requires. Telplex International,
Inc. will be governed by Nevada law and new Articles of Incorporation and
Bylaws, which will result in certain changes in the rights of stockholders.
STOCKHOLDERS ARE STRONGLY ADVISED TO REVIEW THE SUMMARY INFORMATION SET FORTH AT
"CERTAIN DIFFERENCES BETWEEN NEVADA AND NEW JERSEY CORPORATION LAW" AND
ELSEWHERE HEREIN RELATING TO CERTAIN DISADVANTAGES TO STOCKHOLDERS THAT MAY
RESULT FROM THE PROPOSED REINCORPORATION.
The Reincorporation will not result in any change in the business,
management, assets, liabilities or net worth of the Company. Wavetech's stock
certificates will be deemed to represent the same number of common shares as
were represented by such Wavetech certificates prior to the Reincorporation. IT
WILL NOT BE NECESSARY FOR STOCKHOLDERS TO EXCHANGE THEIR WAVETECH STOCK
CERTIFICATES FOR TELPLEX INTERNATIONAL, INC. STOCK CERTIFICATES, ALTHOUGH
STOCKHOLDERS MAY EXCHANGE THEIR CERTIFICATES IF THEY WISH. Following the
Reincorporation, previously outstanding Wavetech stock certificates will
constitute "good delivery" in connection with a sale through a broker, or
otherwise of shares of Telplex International, Inc.
As part of the Reincorporation, Telplex International, Inc. will assume all
of the obligations of Wavetech under Wavetech's 1997 Stock Incentive Plan. If
the Reincorporation is approved, options outstanding under the 1997 Stock
Incentive Plan will be exercisable for shares of Telplex International, Inc.,
and employees participating in the 1997 Stock Incentive Plan will purchase
shares of Telplex International, Inc. All of the employee benefit plans and
arrangements are expected to be continued without change.
If approved by the stockholders, it is anticipated that the Reincorporation
will be effected as soon as practicable following the Annual Meeting. The Plan
and Merger provides that the Reincorporation may be abandoned by the Board of
Directors after approval by the stockholders of Wavetech. However, the Board of
Directors presently intends to proceed with the Reincorporation following
shareholder approval.
PRINCIPAL REASONS FOR THE REINCORPORATION
Advantages of Nevada Corporation Law. The State of Nevada maintains a
modern and flexible corporation law similar to Delaware's, which is frequently
revised to meet changing business conditions. As a result, Nevada has become a
preferred domicile for many major American corporations. Also, because of
Nevada's increasing significance as the state of incorporation for many
corporations, the Nevada judiciary has become particularly familiar with matters
of corporation law. Further, because Nevada's law is modeled on Delaware's,
Delaware's well-developed body of court decisions is expected to be influential
in Nevada courts.
No Tax on Share Dividends. New Jersey includes dividends in its definition
of gross income and thus are taxable to stockholders. Under Nevada law, however,
dividends paid by Nevada corporations are not taxed when the corporate stock is
owned by nonresidents or foreign corporations. Also, Nevada does not tax capital
gains.
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CERTAIN CHANGES TO THE COMPANY'S CERTIFICATE OF INCORPORATION
Upon effectiveness of the Reincorporation, the Company will be governed by
new Articles of Incorporation and Bylaws and the Certificate of Incorporation
for the Company in New Jersey will no longer govern the Company's affairs. The
Company's new Articles of Incorporation will contain provisions that differ from
the Company's existing New Jersey Certificate of Incorporation.
The new Articles of Incorporation authorize the Board of Directors of the
Company, without any vote or action of the stockholders, to issue up to
10,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges, qualifications, limitations and restrictions
thereof, including dividend rights, conversion and voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which the Company may designate and issue in the future. For
example, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company. Further, the
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including, without
limitation, potentially substantial dilution to existing stockholders and the
loss of voting control to others. The Company has no present plans to issue any
shares of preferred stock.
In addition to the issuance of preferred stock, the Company's new Articles
of Incorporation and Bylaws contain a number of provisions relating to corporate
governance and the rights of stockholders, which differ from the Company's
existing Certificate of Incorporation. These provisions: (i) permit the removal
of Directors only for cause and only by vote of stockholders owning two-thirds
of the voting power of the Company; (ii) impose conditions on the ability of
stockholders to nominate persons for the position of director; (iii) prohibit
stockholders from calling special meetings; and (vi) require the consent of the
Board of Directors or the "disinterested" members thereof and/or the affirmative
vote of two-thirds of the Company's voting stock, excluding stock owned by
interested stockholders, to effect certain business combinations with interested
stockholders. An interested stockholder for purposes of this provision means a
person who, together with affiliates or associates, beneficially owns or
beneficially owned within the preceding two-year period, 10% or more of the
Company's combined voting power. The provisions included in the Company's
Articles of Incorporation and certain provisions in the Bylaws may not be
amended or repealed without the affirmative vote of two-thirds of the Company's
voting stock, excluding, with respect to the business combination provision,
stock owned by interested stockholders.
The Company believes that these provisions will promote the stability and
continuity of the Board of Directors of the Company and assure that stockholders
will receive adequate notice of and an opportunity to consider actions by
stockholders that could materially affect the Company. However, these provisions
could have the effect of deterring unsolicited takeovers or delaying or
preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then-current market prices. In addition, these provisions may limit
the ability of stockholders to approve transactions that they may deem to be in
their best interest.
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CERTAIN DIFFERENCES BETWEEN NEVADA AND NEW JERSEY CORPORATION LAW
In addition to the matters discussed above, Nevada law differs in many
other respects from New Jersey law. Certain differences that could materially
affect the rights of stockholders are as follows:
Loans to Directors, Officers and Employees. Under Nevada law, a corporation
may make loans to or guarantee the obligations of its officers or other
employees and those of its subsidiaries when such action, in the judgment of the
directors, is fair to the corporation. Such loans and guarantees are also
permitted under New Jersey law, but only if it is in the best interest of the
corporation. The Board of Directors has no present intention of making loans or
guaranteeing obligations of its officers or employees.
Dissolution. Both New Jersey and Nevada law require approval by a majority
of the total voting power and approval by a majority of the Board of Directors,
or approval by all of the stockholders, to authorize dissolution of a
corporation. New Jersey law also allows a corporation to include in its
certificate of incorporation a provision which allows any shareholder or
stockholders to effect a dissolution at will or upon the occurrence of a
specified event. Both New Jersey and Nevada law allow a corporation to include
in its certificate or articles of incorporation a supermajority voting
requirement in connection with dissolutions. Neither Wavetech's Certificate of
Incorporation nor Telplex International, Inc.'s Articles of Incorporation
presently contains any supermajority voting requirement with respect to
dissolution.
Payment of Dividends and Repurchase of Shares of Common Stock. Under Nevada
and New Jersey law, a corporation may pay dividends only so long as such
distribution does not render the corporation insolvent. One key difference
between Nevada and New Jersey law is that in Nevada, a director is fully
protected in relying in good faith upon the books of account of the corporation
or statements prepared by any of its officials as to the value and amount of
assets, liabilities or net profits of the corporation or other facts pertinent
to the existence and amount of money from which distributions may properly be
declared. No similar provision exists in the New Jersey statutes.
Both Nevada and New Jersey law allow corporations to repurchase their
capital stock. Unlike Nevada, New Jersey allows a corporation to reacquire its
shares even though it causes net assets to become less than the liquidation
preferences of outstanding shares, unless the certificate of incorporation
contains a restriction. Also under New Jersey law, a corporation may repurchase
its own shares out of capital surplus and out of share capital in certain
instances. No such provisions are found in Nevada law.
Neither Wavetech nor Telplex International, Inc. currently intends to pay
dividends or repurchase its capital stock. Nevertheless, the differences between
New Jersey law and Nevada law could affect dividend payments or share
repurchases in the future.
Removal of Directors. Under the Nevada Code, any one or all of the
directors of a corporation may be removed without cause by the holders of not
less than two-thirds of the voting power of a corporation's stock. The Nevada
Code also permits articles of incorporation to require the concurrence of a
percentage greater than two-thirds of the voting stock in order to remove a
director. Telplex International, Inc.'s Articles of Incorporation will not
contain such a requirement.
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Indemnification of Officers and Directors and Advancement of Expenses. New
Jersey and Nevada have nearly identical provisions regarding indemnification by
a corporation of its officers, directors, employees, and agents for claims
against such persons as a result of their position. New Jersey and Nevada law
differ slightly in their provisions for advancement of expenses incurred by an
officer or director in defending a civil or criminal action, suit, or
proceeding. New Jersey law provides that expenses incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit, or proceeding may be paid by the corporation in advance of the
final disposition of the action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined that he is not entitled to be indemnified by the
corporation. Thus, a corporation has the discretion to decide whether or not to
advance expenses. Nevada law provides for similar advancement of expenses. In
addition, however, the articles of incorporation, bylaws, or an agreement made
by the corporation may provide that the corporation must pay advancements of
expenses as they are incurred in advance of the final disposition of the action,
suit, or proceeding upon receipt by the Company of an undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined that he or she is not entitled to be indemnified by the corporation.
The Company's current bylaws provide that the Company may advance such expenses
if authorized by the Board of Directors and upon receipt of an undertaking to
repay any such amounts unless it is ultimately determined that such indemnified
party is entitled to be indemnified by the Company. The bylaws of Telplex
International, Inc. would require the Company to advance such expenses upon
receipt of an undertaking to repay the amount of such advances if it is
ultimately determined that such indemnified party is not entitled to be
indemnified by the Company.
Limitation on Personal Liability of Directors. New Jersey corporations are
permitted to adopt charter provisions limiting, or even eliminating, the
liability of a director of a company and its stockholder from monetary damages
for breach of fiduciary duty as a director, provided that such liability does
not arise from certain proscribed conduct, including breach of the duty of
loyalty, acts or omissions not in good faith or that involve a knowing violation
of the law or liability of the corporation based on unlawful dividends or
distributions or improper personal benefit. Nevada law permits the adoption of
provisions in the articles of incorporation limiting personal liability but
differs from New Jersey's provision in one respect. While the New Jersey
provision excepts from limitation of liability a breach of the duty of loyalty,
the Nevada counterpart does not contain this exception.
Under the laws of either state, the charter provision will not have any
effect on the availability of equitable remedies such as an injunction or
recision based upon a breach of the duty of care, or on liabilities that arise
under certain federal statutes such as the securities laws.
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES OF REINCORPORATION
The Company has been advised by Addison, Roberts & Ludwig, P.C., that, for
federal income tax purposes, no gain or loss will be recognized by the holders
of Wavetech shares as a result of the consummation of the Reincorporation and no
gain or loss will be recognized by Wavetech or Telplex International, Inc. In
addition, Addison, Roberts & Ludwig, P.C. has advised that each former holder of
Wavetech shares will have the same basis in the Telplex International, Inc.
stock received by him pursuant to the Reincorporation as he has in the Wavetech
shares held by him at the time of consummation of the Reincorporation, and his
holding period with respect to such Telplex International, Inc. stock will
include the period during which he held the corresponding Wavetech shares,
provided the latter were held by him as capital assets at the time of
consummation of the Reincorporation.
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VOTE REQUIRED FOR REINCORPORATION AND BOARD OF DIRECTORS' RECOMMENDATION
Approval of the Plan of Merger and the Reincorporation provided for therein
will require the affirmative vote of a majority of the outstanding shares of
Wavetech common stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
PLAN OF MERGER AND THE REINCORPORATION FROM NEW JERSEY TO NEVADA.
PROPOSAL NO. 3 - RATIFICATION OF 1997 STOCK INCENTIVE PLAN
The Board of Directors has approved a 1997 Stock Incentive Plan (the "1997
Plan") and recommends that such Plan be approved by the stockholders. Employees
(including officers), Directors and consultants of the Company and its
subsidiaries are eligible to receive grants of options, Restricted Stock or
Deferred Stock under the 1997 Plan, under which an aggregate of 4,600,000 shares
of Common Stock are authorized for issuance. Usually, the only consideration
received by the Company for the grant of an award will be past services and/or
the expectation of future services. No options, Restricted Stock or Deferred
Stock may be granted under the 1997 Plan after January 30, 2007. As of February
14, 1997, options to purchase approximately 2,900,000 of such shares have been
granted; such options have terms of up to ten years, with exercise prices of
$0.66 and $0.81 per share, which is the fair market value of the underlying
shares as of the respective dates of grant. As of February 14, 1997, the Common
Stock underlying the outstanding options had an aggregate market value of
approximately $2,025,000. As of February 14, 1997, grants of 16,903 shares of
Restricted Stock and no grants of Deferred Stock have been made.
STOCK OPTIONS
The 1997 Plan provides for the granting to employees of either "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or non-qualified stock options. However, the
ability to grant incentive stock options under the Plan is contingent upon
stockholder approval of the Plan. Directors, officers, employees and consultants
of the Company and its subsidiaries who, in the opinion of the Board of
Directors, are responsible for the continued growth and development and
financial success of the Company are eligible to be granted options under the
1997 Plan. Generally, the exercise price of incentive stock options granted
under the 1997 Plan must be not less than the fair market value of the
underlying shares on the date of grant, and the term of each option may not
exceed ten years. Options are generally subject to a five-year vesting schedule.
Incentive stock options granted to persons who have voting control over 10% or
more of the Company's capital stock are granted at 110% of the fair market value
of the underlying shares on the date of grant and expire five years after the
date of grant.
The 1997 Plan provides the Board of Directors with the discretion to
determine when options granted thereunder shall become exercisable. Generally,
such options may be exercised after a period of time specified by the Board of
Directors at any time prior to expiration, so long as the optionee remains
employed by the Company. No option granted under the 1997 Plan is transferable
by the optionee other than by will or the laws of descent and distribution, and
each option is exercisable during the lifetime of the optionee only by the
optionee.
The Board, in its sole discretion, may accelerate the benefits of any award
under the 1997 Plan in the event of a Corporate Transaction or Change of
Control, with such acceleration rights being granted in connection with an award
pursuant to an agreement evidencing the same or at any time after an award has
been granted to a Participant. "Corporate Transaction" means (i) a merger
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or consolidation in which the Company is not the surviving entity, except for a
transaction the principal purpose of which is to change the state in which the
Company is incorporated, (ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete liquidation or
dissolution of the Company, or (iii) any reverse merger in which the Company is
the surviving entity but in which securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such merger. "Change of Control" means a change
in ownership or control of the Company either by (i) the direct or indirect
acquisition by any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of beneficial ownership (within the meaning of
Rules 13d-3 of the Exchange Act) of securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's shareholders or other
transaction; or (ii) a change in the composition of the Company's Board of
Directors over a period of 36 consecutive months or less such that a majority of
the Board members (rounded up to the next whole number) ceases, by reason of one
or more contested elections for Board membership, to be comprised of individuals
who either have been Board members continuously since the beginning of such
period or have been elected or nominated for election as Board members during
such period by at least a majority of the Board members continuously serving at
the beginning of such period who were still in office at the time such election
or nomination was approved by the Board.
NONEMPLOYEE DIRECTOR AUTOMATIC OPTIONS
The 1997 Plan contains an Automatic Option Grant Program limited to those
persons who serve as nonemployee members of the Board, including any nonemployee
Chairman of the Board ("Eligible Directors"). Each individual who first becomes
an Eligible Director after the date of approval of the 1997 Plan by the
shareholders, shall automatically be granted a Non-Statutory Option to purchase
10,000 shares of Common Stock. On the date which is five days after the Company
publicly announces its annual operating results, beginning with the fiscal year
1998 annual operating results, each person who is at that time serving as an
Eligible Director will automatically be granted a Non-Statutory Option to
purchase 10,000 shares of Common Stock, provided that such person has attended
at least 75% of all meetings of the Board of Directors held during the most
recently completed fiscal year. The following table sets forth the options to be
granted on March 26, 1997, to each of the Company's Eligible Directors if the
1997 Plan is approved by the shareholders:
Director Number of Options Dollar Value ($)1
-------- ----------------- -----------------
Richard Baillie 10,000 $0
Terry Cuthbertson 10,000 0
Terence H. Pocock 10,000 0
----------
1 All of these options will be granted with an exercise price equal to the
"fair market value" (as defined in the 1997 Plan) of the underlying shares
as of the date of the grant. As a result, the value of such options to the
grantee will be determined by the difference between the respective
exercise price and the fair market value on the date of exercise.
There is no limit on the number of automatic option grants that any one
Eligible Director may receive. All grants to an Eligible Director under the 1997
Plan will have a maximum term of 10 years from the automatic grant date. Each
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automatic grant will vest one year from the date of grant, provided that the
Director continues to serve until the next annual meeting of shareholders
following such grant. If an Eligible Director ceases to serve as a Board member
for any reason other than Death or permanent disability while holding one or
more automatic option grants, then the option grants exercisable at the time
such person ceased to be a Board member shall be exercisable for up to six
months following cessation of Board service. In the event an Eligible Director
dies during such six-month period, then the options otherwise exercisable by the
Eligible Director may be exercised by the Eligible Director's legatees, personal
representative or distributees for up to 12 months following the date of the
Eligible Director's death. The exercise price of all options shall be equal to
the fair market value of the Common Stock on the automatic grant date.
In the event an Eligible Director becomes permanently disabled or dies
while serving as a Board member, then all shares of Common Stock subject to
automatic option grants shall immediately vest in full, and the Eligible
Director, or the legatees, personal representatives or distributees in the case
of the Eligible Director's death, may exercise the options for up to 12 months
following the date of the permanent disability or death of the Eligible
Director.
In the event of any Corporate Transaction or Change of Control, all
outstanding director options shall automatically vest and become fully
exercisable and remain exercisable following the Corporate Transaction or Change
of Control until the expiration or sooner termination of the option term.
Immediately following the Corporate Transaction or Change of Control, all
automatic option grants to Eligible Directors shall terminate.
Director options are generally not transferrable, and are exercisable
during the Eligible Director's lifetime only by the Eligible Director. An
Eligible Director has no rights as a shareholder with respect to any shares
covered by an option until the option has been validly exercised.
RESTRICTED AND DEFERRED STOCK
The 1997 Plan permits the Board to grant or sell shares of Common Stock to
participants with a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code for a period to be determined by the Board as of the date
of the award. Each grant or sale of Restricted Stock will constitute an
immediate transfer of the ownership of Common Stock to the participant in
consideration of the performance of services, permitting such participant to
dividend, voting and other ownership rights, subject to the substantial risk of
forfeiture and restrictions on transfer adopted at the date of the award. The
Common Stock subject to the restrictions may not be sold, assigned, transferred,
pledged or otherwise encumbered, and any dividends or other distributions paid
on the Restricted Stock will be sequestered and reinvested on an immediate or
deferred basis. At the expiration of the restriction period, the Company will
deliver to the participant unlegended stock certificates in exchange for
cancellation of the legended stock certificates.
The Board may also authorize grants or sales of Deferred Shares to
participants. Each grant or sale of Deferred Stock will constitute an agreement
by the Company to issue or transfer Common Stock to a participant in the future
in consideration of the performance of services, subject to the fulfillment
during the Deferral Period for such conditions as the Board may specify. Each
grant or sale may be made without additional consideration from the participant
or in consideration of a payment that is less than the fair market value on the
date of grant. During the Deferral Period, the participant will not have any
rights of ownership in the Deferred Stock and will not have the right to vote
the Deferred Stock. The Board may, at its sole discretion, authorize the payment
of dividend equivalents on the Deferred Stock in cash or additional shares of
Common Stock on a current, deferred or contingent basis.
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No more than 500,000 shares of Common Stock may be issued as Restricted
Stock and Deferred Stock.
REASONS FOR THE 1997 PLAN
The purpose of the 1997 Plan is to attract, retain and motivate officers,
other key employees, nonemployee directors and certain consultants and advisors
of the Company, including its subsidiaries and affiliates. The Company believes
that the 1997 Plan will more closely align the interests of its participants
with the interests of the Company and its stockholders and will provide more
appropriate compensation to participants thereunder than currently available
solely through cash compensation. The Company is in a start-up phase and, as a
result, has been unable to provide cash compensation in amounts comparable to
those which may be available at other companies engaged in similar lines of
business. Previously, the Company has made awards of non-statutory options to
certain key employees and consultants on a case-by-case basis. However, the
Company believes that replacing this practice with the implementation of the
1997 Plan will enable grantees of "incentive stock options" to take advantage of
certain potentially favorable tax treatment provisions under the Code, result in
reduced costs of administration to the Company with respect to grants
outstanding from time to time and an increased ability of the Company to attract
highly qualified personnel in the future. Shareholder approval of the Plan is
also sought so that "incentive stock options" granted under the Plan will
qualify for treatment as such under the Code.
The grant of stock options and awards which have been individually approved
by stockholders and meet certain conditions are exempt from the "short-swing
profits" liability provisions of Section 16(b) of the Securities and Exchange
Act of 1934, as amended (the "Act"). Section 16(b) provides that upon the
purchase and sale (or sale and purchase) of the Company's Common Stock within
any six month period by a principal officer, director or beneficial owner of
more than 10 percent of the Company's Common Stock, any "profit' realized by
such person is recoverable by the Company. Thus, shareholder approval of the
Plan is sought in order to exempt from the liability provisions of Section 16(b)
the grant of those options to principal officers and directors set forth under
"New Plan Benefits Table".
No person who acquires shares of Common Stock under the 1997 Plan, may
during any period of time that such person is an "affiliate" of the Company
within the meaning of the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, as amended ("Securities Act"),
offer to sell such shares of Common Stock unless such offer and sale is made (i)
pursuant to an effective registration statement under the Securities Act or (ii)
pursuant to an appropriate exemption from the registration requirements of the
Securities Act, such as that set forth in Rule 144 promulgated thereunder.
FEDERAL INCOME TAX CONSEQUENCES
The discussion that follows is a summary, based upon current law, of some
of the significant federal income tax considerations relating to awards under
the 1997 Plan. The following discussion does not address state, local or foreign
tax consequences.
The Plan is not a "qualified plan" as defined in Section 401(a) of the
Code, nor is it subject to the Employee Retirement Income Security Act of 1974,
as amended.
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With respect to incentive stock options, neither the grant of the option
nor the exercise of the option by an optionee will result in income to the
optionee. The ultimate sale or other disposition by the optionee of the shares
of Common Stock obtained upon exercise of the incentive stock options will
result in capital gain or loss equal to the difference between the fair market
value on the date of sale and the exercise price. A disposition of shares
acquired pursuant to an option which results in a net capital gain will be taxed
at the ordinary income rate (but not more than 28%). If the stock is disposed of
at a price less than the exercise price, the loss will be capital loss. In 1996,
capital losses are deductible for individuals to the extent of capital gains
plus an amount not exceeding $3,000 ($1,500 for married individuals filing
separately).
The Company will not be allowed a deduction with regard to the incentive
stock options at the time of its grant, its exercise or the ultimate sale of the
Common Stock. However, if an optionee sells or disposes of the Common Stock
prior to two years after the date of the grant of the incentive stock options or
one year after the date of the exercise, the optionee will recognize
compensation income on the sale to the extent the value of the Common Stock on
the date of exercise exceeds the exercise price. The excess of the amount
received on the sale over the value on the date of exercise (if any) will be
capital gain. In the case of such a premature disposition of the Common Stock,
the Company may deduct the amount of income recognized as compensation income. A
person entitled to exercise an incentive stock option after the death of an
optionee may sell the Common Stock obtained on the exercise of the option at any
time without regard to the foregoing holding period requirements.
While the exercise of an incentive stock option will not generate
compensation income at the time of exercise, the excess of the fair market value
of the stock on the date of exercise over the exercise price is treated as a tax
preference item for purposes of the alternative minimum tax. The impact of the
alternative minimum tax rules will depend upon the individual circumstances of
each employee.
In the event the Company permits incentive stock options to be exercised
with Common Stock of the Company acquired by the exercise of an incentive stock
option, the use of such stock to exercise an incentive stock option prior to
completion of the minimum holding periods applicable to such stock will be
treated as a premature disposition resulting in ordinary income to the employee.
With respect to non-statutory stock options, since such options are not
readily marketable, an optionee does not realize any compensation income upon
the grant. Additionally, the Company may not take a tax deduction at the time of
the grant. Upon exercise of a non-statutory stock option, an optionee realizes
and must report as compensation income an amount equal to the difference between
the fair market value of the shares on the date of exercise and the exercise
price. The Company is entitled to take a deduction at the same time and in the
same amount, provided the Company withholds federal income tax in accordance
with the Code and the applicable Treasury regulations.
Subject to the approval of the Board, an optionee may make an irrevocable
election to have the Company withhold from those shares that would otherwise be
received upon the exercise of the option, a number of shares having a fair
market value equal to the minimum amount necessary to satisfy the Company's
federal, state, local and foreign tax withholding obligations and FICA and FUTA
obligations with respect to the exercise of such option by the optionee. The
Company shall be entitled if necessary or desirable to pay or withhold the
amount of any tax attributable to the delivery of Common Stock under the Plan
from other amounts payable to the optionee after giving the person entitled to
receive such Common Stock notice as far in advance as practical, and the Company
may defer making delivery of such Common Stock if any such tax may be pending
unless and until indemnified to its satisfaction.
19
<PAGE>
With regard to Restricted Stock, neither the Company nor the participant
receiving a Restricted Stock award will realize any federal tax consequences at
the time the award is granted. If, however, the participant makes a Section
83(b) election under the Code within 30 days of the date of the grant, then
special rules will apply. A participant who is granted Restricted Stock may make
a Section 83(b) election, within 30 days of the grant, to have the grant taxed
as compensation income at the date of receipt, with the result that any future
appreciation or depreciation in the value of the shares of Common Stock granted
shall be taxed as a capital gain or loss upon a subsequent sale of the Common
Stock. The Company will be entitled to deduct as a compensation expense the same
amount as the participant is required to recognize as ordinary income in the
same year as the participant includes the amount of income for federal tax
purposes, subject to the limitations for section 162(m) of the Code. If a
participant does not make a Section 83(b) election, then the grant will be taxed
as compensation income at the fair market value on the date the restrictions
lapse. If a Section 83(b) election is made and the Common Stock is subsequently
forfeited, a loss is not allowed.
With regard to Deferred Shares, no taxable income is recognized by the
participant at the time of the grant. The participant must recognize as ordinary
income the difference between the fair market value of any shares of Common
Stock actually delivered in accordance with the terms of the Deferred Shares
grant and the purchase price, if any, paid by the participant for such shares.
In the disposition by the participant of any Common Stock received under a
Deferred Shares grant, any additional gain or any loss recognized will be a
capital gain or loss, and will be a long-term gain or loss if the shares are
held for more than one year. The Company will be entitled to a deduction equal
to the amount of ordinary income recognized by the participant, subject to the
limitations of Section 162(m) of the Code.
In addition to the foregoing federal tax consequences, the exercise,
ultimate sale or other disposition of awards by participants will in most cases
be subject to state income taxation.
20
<PAGE>
NEW PLAN BENEFITS TABLE
1997 STOCK INCENTIVE PLAN
The following table summarizes all options granted to (i) the Company's
President, (ii) each Named Executive Officer (iii) all executive officers as a
group (the "Executive Group"), (iv) all non- executive officer directors as a
group (the "Non-Executive Director Group") and (v) all non- executive officer
employees as a group (the "Non-Executive Employee Group"), as of February 14,
1997. No awards of Restricted Stock or Deferred Stock were made to any of such
persons as of February, 1997.
Number of Shares
Name and Position Dollar Value ($)(1) Uderlying Options
----------------- ------------------- ----------------
Terence E. Belsham
Chairman of the Board $0 200,000
Gerald I. Quinn
President and Chief
Executive Officer $0 800,000
Richard Baillie $0 0(3)
Director-Nominee
Terry Cuthbertson $0 0(3)
Director-Nominee
Terrence H. Pocock $0 0(3)
Director - Nominee
Executive Group $0 2,200,000(2)
Non-executive Director $0 0(3)
Group
Non-executive Officer
Employee Group $0 400,000
- ----------
(1) All of these options were granted with an exercise price equal to the "fair
market value" (as defined in the 1997 Plan) of the underlying shares as of
the date of grant. As a result, the value of such options to the grantee
will be determined by the difference between the respective exercise price
and the fair market value on the date of exercise.
(2) Includes options to purchase 200,000 and 800,000 common shares granted to
Messrs. Belsham and Quinn, respectively.
(3) Excludes options to purchase up to 10,000 common shares which the Company
intends to grant to each non-employee director upon their election to the
Board of Directors.
21
<PAGE>
The Company is currently in its start-up phase and, as a result, has been
unable to provide cash compensation to its employees in amounts comparable to
those which may be available at other companies engaged in similar lines of
business. Therefore, the Company has decided to grant options, Restricted Stock
and Deferred Stock to its Directors, officers, employees and consultants whose
services the Company deems important to the day-to-day management and strategic
planning for the Company. The Company believes that such options, Restricted
Stock and Deferred Stock provide appropriate incentives to the grantees by more
closely aligning their respective interests with those of the Company and its
stockholders. The terms of the options, Restricted Stock and Deferred Stock
granted by the Company are set by the Company's Board of Directors, based upon
its determination of the value of the services provided by the grantees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
1997 STOCK INCENTIVE PLAN.
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Addison, Roberts & Ludwig, P.C.,
independent public accountants, to audit the consolidated financial statements
of the Company for fiscal 1997. Addison, Roberts & Ludwig, P.C. representatives
are expected to be present at the Annual Meeting and will have the opportunity
to make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any stockholder proposals intended to be presented at the Company's next
annual meeting of stockholders must be received by the Company no later than
October 24, 1997, to be evaluated by the Board for inclusion in the proxy
statement for that meeting.
OTHER BUSINESS
The Board of Directors is not aware of any other business to be considered
or acted upon at the Annual Meeting. If any other business properly comes before
the Annual Meeting, it is the intention of the persons named in the enclosed
proxy card to vote the shares they represent as the Board of Directors may
recommend.
22
<PAGE>
1996 ANNUAL REPORT ON FORM 10-KSB
The Company files annual reports on Form 10-KSB with the SEC. A copy of the
annual report for the fiscal year ended August 31, 1996 (except for certain
exhibits thereto) may be obtained, free of charge, upon written request by any
stockholder to Wavetech, Inc., 5210 East Williams Circle, Suite 200, Tucson,
Arizona 85711, Attention: Stockholder Relations. Copies of all exhibits to the
annual report are available upon a similar request, subject to payment of a
$0.20 per page charge to reimburse the Company for its expenses in supplying any
exhibit.
By Order of the Board of Directors,
/s/ Gerald I. Quinn
------------------------------------
Gerald I. Quinn
President and Chief Executive Officer
Tucson, Arizona
February 14, 1997
23
<PAGE>
WAVETECH, INC.
1997 STOCK INCENTIVE PLAN
-------------------------
1. Purposes of the Plan. The purposes of this Plan are to attract,
retain and motivate officers, other key employees and nonemployee directors
(including any nonemployee Chairman of the Board) of and consultants to
Wavetech, Inc. and its subsidiaries and to provide such persons with incentives
and rewards for superior performance more directly linked to the profitability
of the Corporation's business and increases in shareholder value.
Options granted hereunder may be either "Incentive Stock Options,"
as defined in Section 422 of the Code, or "Non-Statutory Stock Options," at the
discretion of the Board and as reflected in the terms of the written option
agreement.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Award" shall mean the grant of any Options, Restricted
Shares or Deferred Shares pursuant to this Plan and in accordance with
its terms and conditions.
(b) "Board" shall mean the Board of Directors of the Company or
the Committee, if one has been appointed.
(c) "Change of Control" means a change in ownership or control of
the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any person or
related group of persons (other than by the Company or a person
that directly or indirectly controls, is controlled by, or is
under common control with, the Company) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than 50% of the total combined voting power of
the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's shareholders, or
other transaction; or
(ii) a change in the composition of the Board over a period
of 36 consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by
reason of one or more contested elections for Board membership,
to be comprised of individuals who either (i) have been Board
members continuously since the beginning of such period or (ii)
have been elected or nominated for election as Board members
during such period by at least a majority of the Board members
described in clause (i) who were still in office at the time such
election or nomination was approved by the Board.
<PAGE>
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
(e) "Common Stock" shall mean the common stock of the Company
described in the Company's Articles of Incorporation, as amended.
(f) "Company" shall mean Wavetech, Inc., a New Jersey
corporation, and shall include any parent or subsidiary corporation of
the Company as defined in Sections 424(e) and (f), respectively, of
the Code.
(g) "Committee" shall mean the Committee appointed by the Board
in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(h) "Consultant" shall mean any person, including without
limitation independent contractors and financial advisors, who perform
services on behalf of the Company from time to time.
(i) "Corporate Transaction" means any of the following
shareholderapproved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal
purpose of which is to change the state in which the Company is
incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than 50%
of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from
the persons holding those securities immediately prior to such
merger.
(j) "Deferral Period" means the period of time during which
Deferred Shares are subject to deferral limitations under Section
12 of this Plan.
(k) "Deferred Shares" means an Award pursuant to Section 12
of this Plan of the right to receive Common Shares at the end of
a specified Deferral Period.
(l) "Director" shall mean a member of the Board.
(m) "Employee" shall mean any person, including officers and
Directors, employed by the Company. The payment of a director's
fee by the Company shall not be sufficient to constitute
"employment" by the Company.
2
<PAGE>
(n) "Exchange Act" shall mean the Securities and Exchange
Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
(o) "Fair Market Value" shall mean, with respect to the date
a given Option is granted or exercised, the value of the Common
Stock determined by the Board in such manner as it may deem
equitable for Plan purposes but, in the case of an Incentive
Stock Option, no less than is required by applicable laws or
regulations; provided, however, that where there is a public
market for the Common Stock, the Fair Market Value per Share
shall be the mean of the bid and asked prices of the Common Stock
on the date of grant, as reported in the Wall Street Journal (or,
if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation System) or,
in the event the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange, the Fair Market Value
per Share shall be the closing price on such exchange on the date
of grant of the Option, as reported in the Wall Street Journal.
(p) "Incentive Stock Option" shall mean an Option which is
intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code.
(q) "Management Objectives" means the achievement of
performance objectives established pursuant to this Plan for
participants who have received grants of Restricted Shares.
(r) "Non-Statutory Option" shall mean all Options which are
not Incentive Stock Options.
(s) "Option" shall mean a stock option granted under the
Plan.
(t) "Optioned Stock" shall mean the Common Stock subject to
an Option.
(u) "Optionee" shall mean an Employee, Director or
Consultant of the Company who has been granted one or more
Options.
(v) "Parent" shall mean a "parent corporation," whether now
or hereafter existing, as defined in Section 424(e) of the Code.
(w) "Participant" means a person who is selected by the
Board to receive benefits under this Plan and (i) is at that time
an officer, including without limitation an officer who may also
be a member of the Board, or other key employee of or a
consultant to the Company or any Subsidiary or (ii) has agreed to
commence serving in any such capacity.
(x) "Plan" shall mean this Stock Incentive Plan, as amended.
3
<PAGE>
(y) "Restricted Shares" means Common Stock granted or sold
pursuant to Section 11 of this Plan as to which neither the
substantial risk of forfeiture nor the restrictions on transfer
referred to in Section 11 hereof has expired.
(z) "Share" shall mean a share of the Common Stock, as
adjusted in accordance with Section 13 of the Plan.
(aa) "Subsidiary" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f)
of the Code.
(bb) "Tax Date" shall mean the date an Optionee is required
to pay the Company an amount with respect to tax withholding
obligations in connection with the exercise of an Option.
3. Common Stock Subject to the Plan. Subject to the provisions of
Section 13 of the Plan, the maximum aggregate number of Shares which may be
awarded under the Plan shall be 4,600,000 Shares of Common Stock. The Shares
which may be awarded under the Plan may be authorized, but unissued, or
previously issued Shares acquired or to be acquired by the Company and held in
treasury. Any Common Shares available for grants and Awards at the end of any
calendar year shall be carried over and shall be available for grants and Awards
in the subsequent calendar year. Notwithstanding the above, the aggregate number
of Restricted Shares and Deferred Shares available for grants and Awards under
the Plan shall in no event exceed 500,000 of the total number of Common Shares
available for grants and Awards.
(a) Upon expiration or cancellation of any Award or option
granted under this Plan, any Common Shares that were covered by such Award shall
again be available for issuance or transfer hereunder.
(b) Common Shares covered by any Award granted under this Plan
shall be deemed to have been issued or transferred, and shall cease to be
available for future issuance or transfer in respect of any other Award granted
hereunder, at the earlier of the time when they are actually issued or
transferred or the time when dividends or dividend equivalents are paid thereon;
provided, however, that Restricted Shares shall be deemed to have been issued or
transferred at the earlier of the time when they cease to be subject to a
substantial risk of forfeiture or the time when dividends are paid thereon.
4. Administration of the Plan.
(a) Procedure.
(i) The Board shall administer the Plan; provided, however, that
the Board may appoint a Committee consisting solely of two (2) or more
"Non-Employee Directors" to administer the Plan on behalf of the Board, in
accordance with Rule 16b-3 of the Exchange Act.
4
<PAGE>
(ii) Once appointed, the Committee shall continue to serve until
otherwise directed by the Board. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause), and appoint new members in substitution therefor or
fill vacancies however caused; provided, however, that at no time may any person
serve on the Committee if that person's membership would cause the Committee not
to satisfy the requirements of Rule 16b-3 of the Exchange Act.
Any reference herein to the Board shall, where appropriate,
encompass a Committee appointed to administer the Plan in accordance with this
Section 4.
(b) Powers of the Board. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion: (i) to grant Incentive
Stock Options, in accordance with Section 422 of the Code, and to grant
Non-Statutory Stock Options; (ii) to make Awards of Restricted Shares and
Deferred Shares; (iii) to determine, upon review of relevant information and in
accordance with Section 2(j) of the Plan, the Fair Market Value of the Common
Stock; (iv) to determine the exercise price per Share of Options to be granted,
which exercise price shall be determined in accordance with Section 8(a) of the
Plan; (v) to determine the Directors, Employees and Consultants to whom, and the
time or times at which, Awards shall be granted and the number of Shares to be
represented by each Award; (vi) to interpret the Plan; (vii) to prescribe, amend
and rescind rules and regulations relating to the Plan; (viii) to determine the
terms and provisions of each Award granted (which need not be identical) and,
with the consent of the Optionee or Participant thereof, modify or amend each
Award; (ix) to accelerate or defer (with the consent of the Participant) the
exercise date of any Award, the Deferral Period of any Deferred Shares or the
Management Objectives applicable to any Restricted Shares; (x) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an Award previously granted by the Board; (xi) to accept or reject
the election made by an Optionee pursuant to Section 17 of the Plan; and (xii)
to make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees,
Participants and any other holders of any Options, Restricted Shares or Deferred
Shares granted under the Plan.
5. Eligibility.
(a) Consistent with the Plan's purposes, Options, Restricted
Shares or Deferred Shares may be granted only to Directors, Employees and
Consultants of the Company as determined by the Board. An Optionee or
Participant who has been granted an Option, Restricted Shares or Deferred Shares
may, if he or she is otherwise eligible, be granted an additional Option, or
Award of Restricted Shares or Deferred Shares. Incentive Stock Options may be
granted only to those Employees who meet the requirements applicable under
Section 422 of the Code.
(b) With respect to Incentive Stock Options granted under the
Plan, the aggregate fair market value (determined at the time the Incentive
Stock Option is granted) of the Common Stock with respect to which Incentive
5
<PAGE>
Stock Options are exercisable for the first time by the Employee during any
calendar year (under all plans of the Company and its parent and subsidiary
corporations) shall not exceed One Hundred Thousand Dollars ($100,000).
The Plan shall not confer upon any Optionee or Participant any
right with respect to continuation of employment with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
his or her employment at any time.
6. Board Approval and Effective Date. The Plan shall take effect
on January 31, 1997, the date on which the Board had approved as the effective
date of the Plan and fifteen (15) days after the Company filed applicable
notices of the adoption of the Plan with The Nasdaq Stock Market, Inc. No Awards
of Options, Restricted Shares or Deferred Shares may be granted after January
30, 2007 (ten (10) years from the effective date of the Plan); provided,
however, that the Plan and all outstanding Awards shall remain in effect until
such Awards have expired or until such Awards are canceled.
7. Term of Option. Unless otherwise provided in the Stock Option
Agreement, the term of each Option shall be ten (10) years from the date of
grant thereof. In no case shall the term of any Incentive Stock Option exceed
ten (10) years from the date of grant thereof. Notwithstanding the above, in the
case of an Incentive Stock Option granted to an Employee who, at the time the
Incentive Stock Option is granted, owns ten percent (10%) or more of the Common
Stock as such amount is calculated under Section 422(b)(6) of the Code ("Ten
Percent Shareholder"), the term of the Incentive Stock Option shall be five (5)
years from the date of grant thereof or such shorter time as may be provided in
the Stock Option Agreement.
8. Exercise Price and Payment.
(a) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the Board,
but in the case of an Incentive Stock Option shall be no less than one hundred
percent (100%) of the Fair Market Value per share on the date of grant;
provided, further, that in the case of an Incentive Stock Option granted to an
Employee who, at the time of the grant of such Incentive Stock Option, is a Ten
Percent Shareholder, the per Share exercise price shall be no less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(b) Payment. The price of an exercised Option and any taxes
attributable to the delivery of Common Stock under the Plan, or portion thereof,
shall be paid:
(i) In United States dollars in cash or by check, bank draft
or money order payable to the order of the Company; or
(ii) At the discretion of the Board, through the delivery of
shares of Common Stock, with an aggregate Fair Market Value,
equal to the option price; or
6
<PAGE>
(iii) By a combination of (i) and (ii) above; or
(iv) In the manner provided in subsection (c) below.
The Board shall determine acceptable methods for tendering Common
Stock as payment upon exercise of an Option and may impose such limitations and
prohibitions on the use of Common Stock to exercise an Option as it deems
appropriate. With respect to NonStatutory Options, at the election of the
Optionee pursuant to Section 21, the Company may satisfy its withholding
obligations by retaining such number of shares of Common Stock subject to the
exercised Option which have an aggregate Fair Market Value on the exercise date
equal to the Company's aggregate federal, state, local and foreign tax
withholding and FICA and FUTA obligations with respect to income generated by
the exercise of the Option by Optionee.
(c) Financial Assistance to Optionees. The Board may assist
Optionees in paying the exercise price of Options granted under this Plan in the
following manner:
(i) The extension of a loan to the Optionee by the Company;
or
(ii) A guaranty by the Company of a loan obtained by the
Optionee from a third party.
The terms of any loans, installment payments or guarantees,
including the interest rate and terms of repayment, and collateral requirements,
if any, shall be determined by the Board, in its sole discretion. Subject to
applicable margin requirements, any loans, installment payments or guarantees
authorized by the Board pursuant to the Plan may be granted without security,
but the maximum credit available shall not exceed the exercise price for the
Shares for which the Option is to be exercised, plus any federal and state
income tax liability incurred in connection with the exercise of the Option.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan. Unless otherwise determined by the Board at the time of grant, an Option
may be exercised in whole or in part. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other right
7
<PAGE>
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee. Unless otherwise
provided in a Stock Option Agreement relating to an Option that is not an
Incentive Stock Option, if an Employee's employment by the Company is
terminated, except if such termination is voluntary or occurs due to retirement
with the consent of the Board, death or disability, then the Option, to the
extent not exercised, shall cease on the date on which Employee's employment by
the Company is terminated. If an Employee's termination is voluntary or occurs
due to retirement with the consent of the Board, then the Employee may, but only
within thirty (30) days (or such other period of time not exceeding three (3)
months as is determined by the Board) after the date he or she ceases to be an
Employee of the Company, exercise his or her Option to the extent that he or she
was entitled to exercise it at the date of such termination. To the extent that
he or she was not entitled to exercise the Option at the date of such
termination, or if he or she does not exercise such Option (which he or she was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Disability. Unless otherwise provided in an Option Agreement
relating to an Option that is not an Incentive Stock Option, notwithstanding the
provisions of Section 8(b) above, in the event an Employee is unable to continue
his or her employment with the Company as a result of his or her permanent and
total disability (as defined in Section 22(e)(3) of the Code), he or she may,
but only within three (3) months (or such other period of time not exceeding
twelve (12) months as it is determined by the Board) from the date of
termination, exercise his or her Option to the extent he or she was entitled to
exercise it at the date of such termination. To the extent that he or she was
not entitled to exercise the Option at the date of termination, or if he or she
does not exercise such Option (which he or she was entitled to exercise) within
the time specified herein, the Option shall terminate.
(d) Death of Optionee. Unless otherwise provided in an Option
Agreement relating to an Option, if Optionee dies during the term of the Option
and is at the time of his or her death an Employee of the Company who shall have
been in continuous status as an Employee since the date of grant of the Option,
the Option may be exercised, at any time within one (1) year following the date
of death (or such other period of time as is determined by the Board), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent that Optionee was entitled to
exercise the Option on the date of death. To the extent that Optionee was not
entitled to exercise the Option on the date of death, or if the Optionee's
estate, or person who acquired the right to exercise the Option by bequest or
inheritance, does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.
8
<PAGE>
10. Non-transferability of Options. An Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution, or, to the extent
permitted by Code ss.422, pursuant to a "qualified domestic relations order"
under the Code and ERISA, and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Restricted Shares. The Committee may authorize grants or sales
to Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute an immediate transfer of
the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to dividend, voting and
other ownership rights, subject to substantial risk of forfeiture and
restrictions on transfer referred to hereinafter.
(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by the
Participant that is less than the Fair Market Value per Share on the Date of
Grant.
(c) Each grant or sale shall provide that the Restricted Shares
covered thereby shall be subject to a "substantial risk of forfeiture" within
the meaning of Section 83 of the Code for a period to be determined by the Board
on the Date of Grant.
(d) Each grant or sale shall provide that, during the period for
which substantial risk of forfeiture is to continue, the transferability of the
Restricted Shares shall be prohibited or restricted in the manner and to the
extent prescribed by the Board on the Date of Grant. Such restrictions may
include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Shares to a continuing
substantial risk of forfeiture in the hands of any transferee.
(e) Any grant or sale may require that any or all dividends or
other distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional Common Shares, which may be subject to the same
restrictions as the underlying Award or such other restrictions as the Board may
determine.
(f) Successive grants or sales may be made to the same Participant
regardless of whether any Restricted Shares previously granted or sold to a
Participant remain restricted.
(g) Each grant or sale shall be evidenced by an agreement, which
shall be executed on behalf of the Company by any officer thereof and delivered
to and accepted by the Participant and shall contain such terms and provisions
as the Board may determine consistent with this Plan. Unless otherwise directed
by the Board, all certificates representing Restricted Shares, together with a
stock power that shall be endorsed in blank by the Participant with respect to
the Restricted Shares, shall be held in custody by the Company until all
restrictions thereon lapse.
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12. Deferred Shares. The Committee may authorize grants or sales
of Deferred Shares to Participants upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute the agreement by the
Company to issue or transfer Common Shares to the Participant in the future in
consideration of the performance of services, subject to the fulfillment during
the Deferral Period of such conditions as the Committee may specify.
(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by the
Participant that is less than the Fair Market Value per Share on the Date of
Grant.
(c) Each grant or sale shall provide that the Deferred Shares
covered thereby shall be subject to a Deferral Period, which shall be fixed by
the Committee on the Date of Grant.
(d) During the Deferral Period, the Participant shall not have any
right to transfer any rights under the subject Award, shall not have any rights
of ownership in the Deferred Shares and shall not have any right to vote the
Deferred Shares, but the Committee may on or after the Date of Grant authorize
the payment of dividend equivalents on the Deferred Shares in cash or additional
Common Shares on a current, deferred or contingent basis.
(e) Successive grants or sales may be made to the same Participant
regardless of whether any Deferred Shares previously granted or sold to a
Participant have vested.
(f) Each grant or sale shall be evidenced by an agreement, which
shall be executed on behalf of the Company by any officer thereof and delivered
to and accepted by the Participant and shall contain such terms and provisions
as the Committee may determine consistent with this Plan.
13. Adjustments upon Changes in Capitalization or Merger. Subject
to any required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Award, as well as the price per Share covered by each outstanding Option,
Restricted Shares and Deferred Shares, shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class,
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or securities convertible into shares of stock of any class, shall affect, and
no adjustment by reason thereof, shall be made with respect to the number or
price of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, any outstanding Option will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board.
The Board may, in the exercise of its sole discretion in such instances, declare
that any Option shall terminate as of a date fixed by the Board and give each
Optionee the right to exercise his or her Option as to all or any part of the
Optioned Stock, including Shares as to which the Option would not otherwise be
exercisable. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the Optionee
shall have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. If
the Board makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
the Optionee that the Option shall be fully exercisable for a period of thirty
(30) days from the date of such notice (but not later than the expiration of the
term of the Option under the Option Agreement), and the Option will terminate
upon the expiration of such period.
14. Corporate Transaction or Change of Control. The Board shall
have the right in its sole discretion to include with respect to any Award
granted to a Participant hereunder provisions accelerating the benefits of the
Award in the event of a Corporate Transaction or Change of Control, which
acceleration rights may be granted in connection with an Award pursuant to the
agreement evidencing the same or at any time after an Award has been granted to
a Participant.
15. Nonemployee Directors Automatic Stock Option Grants.
(a) The individuals eligible to receive automatic option grants
pursuant to the provisions of this Section 15 (the "Automatic Option Grant
Program") shall be limited to (i) those individuals who are serving as
nonemployee members of the Board on the Effective Date, and (ii) those
individuals who are first elected or appointed as nonemployee Board members
after the date that this Plan is first approved by the shareholders of the
Company, whether through appointment by the Board or election by the Company's
shareholders. A nonemployee Board member shall not be eligible to receive an
automatic option grant under clause (i) or clause (ii) above if such individual
has previously been in the employ of the Company or any Subsidiary. Any
nonemployee Board member eligible to participate in the Automatic Option Grant
Program pursuant to the foregoing criteria shall be designated an "Eligible
Director" for purposes of this Section 15.
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(b) Except for the Option grants to be made pursuant to the
provisions of this Automatic Option Grant Program, an Eligible Director shall
not be entitled to receive any additional Option grants or stock issuances under
this Plan or any other stock plan of the Company or its subsidiaries during his
or her period of Board service.
(c) Option grants shall be made under this Section 15 on the dates
specified below:
(i) Each individual who first becomes an Eligible Director
after the date that this Plan is first approved by the
shareholders of the Company, whether through election by the
shareholders or appointment by the Board, shall automatically be
granted, at the time of such initial election or appointment, a
Non-Statutory Option to purchase 10,000 Common Shares upon the
terms and conditions of this Section 15.
(ii) On the date of which is five days after the Company
publicly announces its annual operating results, beginning with
the fiscal 1998 annual operating results, each individual who is
at that time serving as an Eligible Director, whether or not such
individual is standing for re-election as a Board member at the
next election of Board members, shall automatically be granted a
Non-Statutory Option to purchase 10,000 Common Shares upon the
terms and conditions of this Section 15, provided such individual
has attended at least 75% of all meetings of the Board of
Directors held during the most recently completed fiscal year.
(d) There shall be no limit on the number of automatic option
grants any Eligible Director may receive over his or her period of Board
service. The number of shares for which the automatic option grants are to be
made to each newly elected or continuing Eligible Director shall be subject to
periodic adjustment pursuant to the applicable provisions of Section 13.
(e) The exercise price per Common Share subject to each automatic
Option grant made under this Section 15 shall be equal to 100% of the Fair
Market Value per Share on the applicable automatic grant date.
(f) Each automatic grant under this Section 15 shall have a
maximum term of 10 years measured from the automatic grant date.
(g) Each automatic grant shall vest one year from the date of
grant, provided that the Director continues to serve until the next annual
meeting of shareholders following such grant.
(h) During the lifetime of the Eligible Director, each automatic
Option grant shall be exercisable only by the Eligible Director and shall not be
assignable or transferable by the Eligible Director other than by a transfer
effected by will or by the laws of descent and distribution following the
Eligible Director's death.
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(i) Should the Eligible Director cease to serve as a Board
member for any reason (other than death or permanent disability)
while holding one or more automatic option grants under this
Section 15, then such individual shall have a six-month period
following the date of such cessation of Board service in which to
exercise each such Option for any or all of the Option Shares in
which the Eligible Director is vested at the time of such
cessation of Board service. Each such Option shall immediately
terminate and cease to remain outstanding, at the time of such
cessation of Board service, with respect to any Option Shares in
which the Eligible Director is not otherwise at that time vested.
(ii) Should the Eligible Director die within six months
after cessation of Board service, then any automatic Option grant
held by the Eligible Director at the time of death may
subsequently be exercised, for any or all of the Option Shares in
which the Eligible Director is vested at the time of his or her
cessation of Board service (less any Option Shares subsequently
purchased by the Eligible Director prior to death), by the
personal representative of the Eligible Director's estate or by
the person or persons to whom the Option is transferred pursuant
to the Eligible Director's will or in accordance with the laws of
descent and distribution. The right to exercise each such Option
shall lapse upon the expiration of the 12-month period measured
from the date of the Eligible Director's death.
(iii) Should the Eligible Director die or become permanently
disabled while serving as a Board member, then the Common Stock
at the time subject to each automatic Option grant held by such
Eligible Director under this Section 15 shall immediately vest in
full, and the Eligible Director (or the representative of the
Eligible Director's estate or the person or persons to whom the
option is transferred upon the Eligible Director's death) shall
have a 12-month period following the date of the Eligible
Director's cessation of Board service in which to exercise such
Option for any or all of those vested Common Stock.
(iv) In no event shall any automatic grant under this
Section 15 remain exercisable after the expiration date of the
10-year option term. Upon the expiration of the applicable
post-service exercise period under subparagraphs (i) through
(iii) above or (if earlier) upon the expiration of the 10-year
Option term, the automatic grant shall terminate and cease to be
outstanding for any Option Shares in which the Eligible Director
was vested at the time of his or her cessation of Board service
but for which such Option was not otherwise exercised.
(j) In the event of any Corporate Transaction or Change of Control
of the Company, the Common Stock at the time subject to each outstanding Option
under this Section 15 but not otherwise vested shall automatically vest in full,
so that each such Option shall, immediately prior to the effective date of such
Corporate Transaction or Change of Control, become fully exercisable for all of
the Common Shares at the time subject to that Option and may be exercised for
all or any portion of those shares as fully vested Common Stock. Each such
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Option shall remain so exercisable for all the Option Shares following the
Corporate Transaction or Change of Control until the expiration or sooner
termination of the Option term. Immediately following the consummation of the
Corporate Transaction or Change of Control, all automatic Option grants under
this Section 15 shall terminate. Nothing in this Section 15(j) shall in any way
affect the right of the Company to adjust, reclassify, reorganize or to
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or a part of its business or assets.
(k) The holder of an automatic Option grant under this Section 15
shall have none of the rights of a shareholder with respect to any shares
subject to such option until such individual shall have exercised the option and
paid the exercise price for the purchased shares.
16. Time of Granting Awards. The date of grant of an Award shall,
for all purposes, be the date on which the Board makes the determination
granting such Award. Notice of the determination shall be given to each Optionee
or Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
17. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable
without any approval or consent of the persons eligible to participate in the
Plan, Participants or the holders of any Options to acquire Shares.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Awards already granted and such Awards
shall remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee or Participant
and the Board, which agreement must be in writing and signed by the Optionee or
Participant and the Company.
18. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or grant of Restricted or Deferred Shares
unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, respectively, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or grant of Restricted
or Deferred Shares, the Company may require the Optionee or Participant to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
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In the case of an Incentive Stock Option, any Optionee who
disposes of Shares of Common Stock acquired on the exercise of an Option by sale
or exchange (a) either within two (2) years after the date of the grant of the
Option under which the Common Stock was acquired or (b) within one (1) year
after the acquisition of such Shares of Common Stock shall notify the Company of
such disposition and of the amount realized upon such disposition.
19. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
20. Plan Agreements. Awards shall be evidenced by written
Agreements in such form as the Board shall approve.
21. Withholding Taxes. Subject to Section 4(b)(x) of the Plan and
prior to the Tax Date, the Optionee may make an irrevocable election to have the
Company withhold from those Shares that would otherwise be received upon the
exercise of any Non-Statutory Stock Option, a number of Shares having a Fair
Market Value equal to the minimum amount necessary to satisfy the Company's
federal, state, local and foreign tax withholding obligations and FICA and FUTA
obligations with respect to the exercise of such Option by the Optionee.
22. Miscellaneous Provisions.
(a) Plan Expense. Any expenses of administering this Plan shall be
borne by the Company.
(b) Use of Exercise Proceeds. The payment received from Optionees
from the exercise of Options shall be used for the general corporate purposes of
the Company.
(c) Construction of Plan. The validity, construction,
interpretation, administration and effect of the Plan and of its rules and
regulations, and rights relating to the Plan, shall be determined in accordance
with the laws of the State of Arizona and where applicable, in accordance with
the Code.
(d) Taxes. The Company shall be entitled if necessary or desirable
to pay or withhold the amount of any tax attributable to the delivery of Common
Stock under the Plan from other amounts payable to the Employee after giving the
person entitled to receive such Common Stock notice as far in advance as
practical, and the Company may defer making delivery of such Common Stock if any
such tax may be pending unless and until indemnified to its satisfaction.
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(e) Indemnification. In addition to such other rights of
indemnification as they may have as members of the Board, the members of the
Board shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit or proceeding to
which they or any of them may be party by reason of any action taken or failure
to act under or in connection with the Plan or any Award, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except a
judgment based upon a finding of bad faith; provided that upon the institution
of any such action, suit or proceeding a Board member shall, in writing, give
the Company notice thereof and an opportunity, at its own expense, to handle and
defend the same before such Board member undertakes to handle and defend it on
her or his or her own behalf.
(f) Gender. For purposes of this Plan, words used in the masculine
gender shall include the feminine and neuter, and the singular shall include the
plural and vice versa, as appropriate.
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