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<PAGE>
COMPUTONE CORPORATION
1060 Windward Ridge Parkway - Suite 100
Alpharetta, Georgia 30005
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 28, 2000
To the Stockholders of
COMPUTONE CORPORATION:
The Annual Meeting of Stockholders of Computone Corporation (the "Company")
will be held at 11:00 a.m., prevailing time, on Thursday, December 28, 2000, at
the law offices of Duane, Morris & Heckscher, 42nd Floor, One Liberty Place,
1650 Market Street, Philadelphia, PA 19103 for the following purposes:
1. To elect five directors to serve until the 2001 Annual Meeting of
Stockholders and until their successors are elected;
2. To approve the election of Deloitte & Touche LLP as independent public
accountants for the Company for its fiscal year ending March 31, 2001;
3. To consider and vote upon a proposal to adopt an amendment to the
Company's 1998 Equity Incentive Plan for officers and key employees to increase
the number of shares subject to such Plan from 500,000 shares to 1,000,000
shares;
4. To consider and vote upon a proposal to adopt the company's 2000
Equity Incentive Plan for Outside Directors and Consultants; and
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment, postponement or continuation thereof.
All stockholders of record as of the close of business on November 16, 2000
are entitled to vote at the Annual Meeting.
The Company's Annual Report for its fiscal year ended March 31, 2000, which
is not part of the proxy soliciting material, is enclosed. This Annual Report
consists of a composite of the Company's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2000, as amended.
It is important that your shares be represented and voted at the Annual
Meeting. Please complete, sign and return the enclosed form of proxy in the
envelope provided whether or not you expect to attend the Annual Meeting in
person.
By Order of the Board of Directors,
/s/ Perry J. Pickerign
-----------------------
Perry J. Pickerign,
President and Chief Executive Officer
December 11, 2000
Alpharetta, Georgia
<PAGE>
TABLE OF CONTENTS
Page
----
ABOUT THE ANNUAL MEETING.................................................... 1
What is the purpose of the annual meeting?.................................. 1
Who is entitled to vote at the meeting?..................................... 1
What constitutes a quorum?.................................................. 1
What are the voting rights of the stockholders?............................. 2
Who can attend the meeting?................................................. 2
How do I vote?.............................................................. 2
Can I change my vote after I return my proxy card?.......................... 2
What are the Board's recommendations?....................................... 2
What vote is required to approve each item?................................. 3
Who will pay the costs of soliciting proxies on behalf of the
Board of Directors?...................................................... 3
STOCK OWNERSHIP............................................................. 4
Who are the largest owners of the Company's stock?.......................... 4
How much stock do the Company's directors and executive officers own?....... 4
Section 16(a) Beneficial Ownership Reporting Compliance..................... 6
ITEM 1 - ELECTION OF DIRECTORS.............................................. 6
The Board of Directors and Its Committees................................... 8
Compensation of Directors................................................... 8
Executive Compensation...................................................... 9
Report of the Compensation Committee of Computone Corporation............... 9
Employment Agreements....................................................... 10
Certain Transactions........................................................ 12
ITEM 2 - ELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS ...................... 12
ITEM 3 - AMENDMENT OF 1998 PLAN........................................... 13
ITEM 4 - ADOPTION OF THE DIRECTOR PLAN.................................... 18
ANNUAL REPORTS.............................................................. 21
STOCKHOLDER PROPOSALS....................................................... 21
OTHER MATTERS............................................................... 21
( i )
<PAGE>
COMPUTONE CORPORATION
1060 Windward Ridge Parkway - Suite 100
Alpharetta, Georgia 30005
--------------------
PROXY STATEMENT
--------------------
This proxy statement contains information relating to the annual meeting of
stockholders of Computone Corporation to be held on Thursday, December 28, 2000,
beginning at 11:00 a.m., at the law offices of Duane, Morris & Heckscher, 42nd
Floor, One Liberty Place, 1650 Market Street, Philadelphia, PA 19103 and at any
postponement, adjournment or continuation of the meeting. This proxy statement
and the accompanying form of proxy are first being mailed to stockholders on or
about December 11, 2000.
ABOUT THE ANNUAL MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's annual meeting, stockholders will act upon the matters
outlined in the notice of meeting on the cover page of this proxy statement,
including the election of directors, the approval of the election of the
Company's independent public accountants, the approval of an amendment to the
Company's 1998 Equity Incentive Plan (the "1988 Plan") to increase the number of
shares covered thereby and the adoption of the Company's 2000 Equity Incentive
Plan for Outside Directors and Consultants (the "Director Plan"). In addition,
the Company's management will report on the performance of the Company during
its fiscal year ended March 31, 2000 and respond to questions from stockholders.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only stockholders of record at the close of business on the record date,
November 16, 2000, are entitled to receive notice of the annual meeting and to
vote the shares of common stock that they held on that date at the meeting, or
any postponement, adjournment or continuation of the meeting.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 12,137,786 shares of common stock of the Company were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included
in the calculation of the number of shares considered to be present at the
meeting.
1
<PAGE>
WHAT ARE THE VOTING RIGHTS OF THE STOCKHOLDERS?
Each outstanding share of common stock will be entitled to one vote on each
matter to be voted upon at the meeting.
WHO CAN ATTEND THE MEETING?
All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting.
Please note that if you hold your shares in "street name" (that is, through
a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the meeting.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return it
to the Company's transfer agent, it will be voted as you direct. If you are a
registered stockholder and attend the meeting, you may deliver your completed
proxy card in person. "Street name" stockholders who wish to vote at the meeting
will need to obtain a proxy form from the institution that holds their shares.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of the
Company either a notice of revocation or a duly executed proxy bearing a later
date. The powers of the proxy holders will be revoked if you attend the meeting
in person and request that your proxy be revoked, although attendance at the
meeting will not by itself revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board recommends a vote:
o for election of the nominated directors (see pages 6 through 12);
o for election of Deloitte & Touche LLP as the Company's independent
public accountants for our fiscal year ending March 31, 2001 (see
pages 12 and 13);
o for approval of the amendment to the 1998 Plan to increase the number
of shares covered thereby from 500,000 shares to 1,000,000 shares (see
pages 13 through 18); and
o for adoption of the Director Plan (see pages 18 through 21).
2
<PAGE>
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
Election of Directors. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one
or more directors will not be voted with respect to the director or directors
indicated, although it will be counted for purposes of determining whether there
is a quorum.
Other Items. The affirmative vote of the holders of a majority of the
shares represented in person or by proxy and entitled to vote will be required
for approval of the election of independent public accountants, approval of the
amendment to the 1998 Plan and adoption of the Director Plan. A properly
executed proxy marked "ABSTAIN" with respect to any such matter will not be
voted, although it will be counted for purposes of determining whether there is
a quorum. Therefore, an abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.
WHO WILL PAY THE COSTS OF SOLICITING PROXIES ON BEHALF OF THE BOARD OF
DIRECTORS?
The cost of soliciting proxies on behalf of the Board of Directors will be
paid by the Company, including expenses of preparing and mailing this proxy
statement. This solicitation will be made by mail and may also be made in person
or by telephone or telegram by the Company's regular officers and employees,
none of whom will receive special compensation for such services. The Company,
upon request, will also reimburse brokers, nominees, fiduciaries and custodians
and persons holding shares in their names or in the names of nominees for their
reasonable expenses in sending proxies and proxy material to beneficial owners.
3
<PAGE>
STOCK OWNERSHIP
WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
The following table sets forth the amount and percentage of the Company's
outstanding common stock beneficially owned by each person who is known by the
Company to beneficially own more than 5% of its outstanding common stock. All
information is as of November 16, 2000 unless otherwise noted.
Shares Percent of
Name of Individual Beneficially Outstanding
Or Identity of Group Owned Common Stock
---------------------- ------------ ------------
5% Holders:
----------
Richard A. Hansen 2,038,309(1) 15.95%
West Conshohocken, PA
---------------
(1) Excludes: (a) 102,878 shares owned by PMG Capital Corp. ("PMG"), of which
Mr. Hansen is an executive officer, a director and a principal stockholder,
and PMG's wholly owned subsidiary, PMG Investors, Inc. ("PMGI"), of which
Mr. Hansen is an executive officer and a director, (b) a warrant owned by
PMG to purchase 100,000 shares at a price of $2.10 per share exercisable at
any time until March 31, 2004 and (c) a warrant owned by PMG to purchase
24,993 shares at a price of $3.25 per share exercisable at any time until
June 28, 2005. Mr. Hansen disclaims beneficial ownership of the 102,878
shares and the warrants owned by PMG and PMGI. Includes 120,000 shares Mr.
Hansen has the right to purchase at a price of $2.10 per share pursuant to
a warrant exercisable at any time until January 14, 2004 and 4,167 shares
owned by Mr. Hansen's spouse.
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS, NOMINEES FOR DIRECTORS AND EXECUTIVE
OFFICERS OWN?
The following table sets forth as of November 16, 2000 the amount and
percentage of the Company's outstanding common stock beneficially owned by each
director and nominee for director, each executive officer and all executive
officers and directors of the Company as a group.
Shares Percent of
Name of Individual Beneficially Outstanding
Or Identity of Group Owned(1) Common Stock(2)
------------------------ ------------ ---------------
Directors and Nominees for Directors:
------------------------------------
Richard A. Hansen 2,038,309(3) 15.95%
John D. Freitag 607,401(4) 4.75%
Perry J. Pickerign 225,000(5) 1.76%
Erik Monninkhof 33,256 --
David R. Laube (6)
4
<PAGE>
Executive Officers: (7)
------------------
Keith H. Daniel 72,000(8) --
Darrin S. Sherrill 514,150(9) 4.02%
All directors, nominees for
directors and executive officers
as a group (7 persons) 3,490,115 27.30%
---------------
(1) Information furnished by each individual named. This table includes shares
that are owned jointly, in whole or in part, with the person's spouse, or
individually by his spouse.
(2) Less than 1% unless otherwise indicated.
(3) Excludes: (a) 102,878 shares owned by PMG, of which Mr. Hansen is an
executive officer, a director and a principal stockholder, and PMGI, of
which Mr. Hansen is an executive officer and a director, (b) a warrant
owned by PMG to purchase 100,000 shares at a price of $2.10 per share
exercisable at any time until March 31, 2004 and (c) a warrant owned by PMG
to purchase 24,993 shares at a price of $3.25 per share exercisable at any
time until June 28, 2005. Mr. Hansen disclaims beneficial ownership of the
102,878 shares and the warrants owned by PMG and PMGI. Includes 120,000
shares Mr. Hansen has the right to purchase at a price of $2.10 per share
pursuant to a warrant exercisable at any time until January 14, 2004 and
4,167 shares owned by Mr. Hansen's spouse.
(4) Includes 100,000 shares which Mr. Freitag may purchase pursuant to a
currently exercisable stock option at a price of $2.00 per share, 140,000
shares that Mr. Freitag has the right to purchase at a price of $2.10 per
share pursuant to a warrant exercisable at any time until January 14, 2004
and 25,000 shares that Mr. Freitag has the right to purchase at a price of
$1.125 per share pursuant to a warrant exercisable at any time until
January 3, 2002.
(5) Includes 200,000 shares which Mr. Pickerign may purchase at a price of
$1.50 per share pursuant to a currently exercisable stock option. Also
includes 25,000 shares owned by Mr. Pickerign's spouse.
(6) Assuming the election of Mr. Laube and adoption of the Director Plan by
stockholders at the Annual Meeting, it is anticipated that Mr. Laube will
be granted an option to purchase 100,000 shares of Common Stock exercisable
at the market price prevailing on the date of grant.
(7) Excludes executive officers listed under "Directors."
(8) Includes 50,000 shares which Mr. Daniel may purchase at a price of $1.88
per share pursuant to a currently exercisable stock option, 10,000 shares
which Mr. Daniel may purchase at a price of $2.00 per share pursuant to a
currently exercisable stock option and 25,000 shares which Mr. Daniel may
purchase at a price of $1.88 per share pursuant to a stock option which
will become exercisable in February 2001.
5
<PAGE>
(9) These shares are owned jointly with Mr. Sherrill's spouse. Excludes an
option held by Mr. Sherrill to purchase 50,000 shares at a price of $4.625
per share which will become exercisable on June 28, 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the officers and directors of the Company, as well as persons who
own more than 10% of a class of equity securities of the Company, file reports
of their ownership of the Company's securities, as well as monthly statements of
changes in such ownership, with the Company, the SEC and any stock exchange on
which the Company's equity securities are then traded. Based upon written
representations received by the Company from its officers, directors and more
than 10% stockholders, and the Company's review of the monthly statements of
ownership changes filed with the Company by its officers, directors and more
than 10% stockholders during the Company's fiscal year ended March 31, 2000, the
Company believes that all such filings required during such fiscal year ended
were made on a timely basis, except for (i) a Form 5 filing by Mr. Pickerign in
which he reported employee stock options granted to him by the Company in August
1998 and a Form 5 filing in which he reported four Form 4 transactions to
reflect 25,000 shares purchased by his spouse in June 1999 and July 1999 and
(ii) a Form 4 filing by Mr. Freitag to report stock options granted to him by
the Company in September 1996, warrants granted to him by the Company in January
1994 and January 1999 and two purchases from the Company of an aggregate of
149,547 shares in February 1999 and June 2000.
ITEM 1 - ELECTION OF DIRECTORS
The Company's Board of Directors consists of five members, all of whom will
be elected at the annual meeting to serve until the Company's next annual
meeting, and until his successor has been duly elected.
Unless otherwise instructed, the proxies solicited by the Board of
Directors will be voted for the election of the nominees named below, all of
whom are currently directors of the Company, with the exception of Mr. Laube. If
a nominee becomes unavailable for any reason, it is intended that the proxies
will be voted for a substitute nominee designated by the Board of Directors. The
Board of Directors has no reason to believe the nominees named will be unable to
serve if elected. Any vacancy occurring on the Board of Directors for any reason
may be filled by a majority of the directors then in office until the next
annual meeting.
The Board of Directors recommends a vote "FOR" the election of the nominees
named below.
6
<PAGE>
The names of the nominees for director, together with certain information
regarding them, are as follows:
Nominees for Director
Name Age Director Since
------------------ --- --------------
Richard A. Hansen 59 1992
John D. Freitag 71 1992
Perry J. Pickerign 36 1998
Erik Monninkhof 38 1999
David R. Laube 52 --
Mr. Freitag, a private investor, who has been Chairman of the Board since
February 1999, served as the Acting President and Chief Executive Officer of the
Company during May, June and July 1998. He was Chairman of the Board and Chief
Executive Officer of the Company from November 1992 until April 1996. He is
Chairman of the Board of Leopard Industries, Inc., a private investment
management corporation.
Mr. Hansen has been an executive officer, director and principal
stockholder of PMG, an investment banking firm, since November 1986 and is a
director and executive officer of PMGI. He also served as the Company's Chairman
of the Board from April 1996 to February 1999. Mr. Hansen is also a director of
Ultra-Life Batteries, Inc., a manufacturer of lithium batteries, and of a number
of private companies.
Mr. Pickerign became President, Chief Executive Officer and a director of
the Company in August 1998. Mr. Pickerign was self-employed as a high technology
consultant from September 1997 to July 1998, was Director of Marketing for
Comtrol Corporation from June 1993 to September 1997, was a strategic planning
and marketing consultant from March 1991 to June 1993 and previously held
management positions with ITT Financial Services and 3M Company.
Mr. Monninkhof, a private investor and a director since May 13, 1999,
previously served as Managing Director of Dupaco B.V., a distributor of high-end
computer products, from 1985 to 1996. Since 1996, Mr. Monninkhof has been
principally engaged as a director of Monninkhof Holding B.V., a corporation
engaged in private investing.
Mr. Laube is a partner in Media Fibre, a telecommunications and energy
consulting company. For seventeen years prior to July 2000, Mr. Laube was a
senior executive with U S West, a Regional Bell Operating Company (now Qwest
Communications). For his last five years with U S WEST, he served as Vice
President and Chief Information Officer. Previous positions with U S WEST
include Vice President - Controller and Treasurer, and Chief Financial Officer
with Mountain Bell and U S WEST Cellular.
7
<PAGE>
Executive Officers
Keith H. Daniel, age 47, has served as the Company's Chief Financial
Officer since February 1999. Prior thereto, Mr. Daniel served as a financial
consultant to the Company and others. From September 1996 until August 1998, Mr.
Daniel was Chief Financial Officer of Space Master International, Inc. and prior
thereto held financial management positions with Sivaco Wire Group and Keystone
Consolidated Industries, Inc.
Darrin S. Sherrill, age 40, has served as the Company's Chief Operating
Officer since June 28, 2000 when the Company acquired Multi-User Solutions, Ltd.
("Multi-User"). For nine years prior thereto, Mr. Sherrill served as President
and Chief Executive Officer of Multi-User, a company engaged in service and
support for both hardware and software.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors met four times during the Company's fiscal year
ended March 31, 2000. The Board of Directors currently does not have an
Executive Committee, a Nominating Committee or a Compensation Committee. The
Audit Committee of the Company's Board of Directors currently consists of
Richard A. Hansen, John D. Freitag and Erik Monninkhof. The Audit Committee
reviews the Company's selection and retention of independent auditors, audit
reports and management recommendations made by the Company's independent public
accountants.
COMPENSATION OF DIRECTORS
The Company's directors currently serve without compensation. Assuming
adoption of the Director Plan by stockholders at the annual meeting, each
director of the Company will become eligible to receive non-qualified stock
options to purchase shares of the Company's Common Stock in an amount determined
by the Company's Board of Directors from time to time. Assuming the election of
Mr. Laube by stockholders at the annual meeting, the Company anticipates
granting Mr. Laube an option under the Director Plan to purchase 100,000 shares
of the Company's Common Stock exercisable at the prevailing market price on the
date of grant.
8
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid by the Company during
each of the three fiscal years ended March 31, 2000, April 2, 1999 and April 3,
1998 for services rendered in all capacities by the Chief Executive Officer of
the Company and the other most highly compensated executive officers of the
Company whose compensation exceeded $100,000 in the fiscal year ended March 31,
2000.
<TABLE>
<CAPTION>
Long-Term Compensation
Awards
------------------------
Annual Compensation Restricted Securities
Name and Fiscal --------------------- Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Awards($) Options(#) Compensation($)
------------------------ ------ ----------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Perry J. Pickerign 2000 150,000 52,212 -- -- --
President and Chief 1999 100,000(1) -- -- 300,000 --
Executive Officer (1) 1998 -- -- -- -- --
Keith H. Daniel 2000 110,000 5,000 -- -- --
Chief Financial Officer(2) 1999 18,333(2) -- -- 85,000 --
1998 -- -- -- -- --
</TABLE>
-------------------
(1) Mr. Pickerign became the Company's President and Chief Executive Officer on
August 1, 1998.
(2) Mr. Daniel became the Company's Chief Financial Officer on February 1,
1999.
See "Employment Agreements."
During the Company's fiscal year ended March 31, 2000 and from that date to
the date of this Proxy Statement, no options were granted to Mr. Pickerign or to
Mr. Daniel.
The following table sets forth information with respect to options
exercised during the fiscal year ended March 31, 2000 and held on March 31, 2000
by Mr. Pickerign and Mr. Daniel.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying In-the-Money
Acquired Options at Fiscal Year End Options at Fiscal Year End
on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Perry J. Pickerign -- -- 200,000 100,000 $737,500 $368,750
Keith H. Daniel -- -- 60,000 25,000 197,500 82,212
</TABLE>
9
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF COMPUTONE CORPORATION
During the Company's fiscal year ended March 31, 2000, the Company's Board
of Directors as a whole established the compensation of the executive officers
of the Company, and there was not a separate Compensation Committee of the
Company's Board of Directors. The Company's Board of Directors formalized
compensation policies for its executive officers intended to enhance the
Company's earnings and facilitate securing, retaining and motivating management
employees of high caliber and potential. The Company's executive compensation
consists of three components: base salary, cash bonuses based on the Company's
performance and long-term incentive awards in the form of stock options. The
persons eligible to receive awards under these policies are the officers and
other employees of the Company who are in positions in which their decisions,
actions and counsel significantly impact upon the short- and long-term goals and
strategies of the Company.
The Company establishes base salaries for its officers that are within the
range paid by technology companies in the Company's peer group. The Company pays
incentive bonuses on a formula basis to its Chief Executive Officer and Chief
Financial Officer depending upon the Company's achievement of specified
performance goals. The Company also grants stock options to its officers,
including its Chief Executive Officer, based on their level of responsibility
and support for the Company's long-term strategic objectives. By providing its
officers with an opportunity to benefit from a long-term increase in the value
of the Company's Common Stock, the Company believes it will align the interests
of its officers and employees with the interests of the Company's stockholders
and tie a significant portion of the Company's executive compensation to
stockholder returns.
See "Employment Agreements" for further information regarding the
compensation of Mr. Pickerign as the Company's Chief Executive Officer and Mr.
Daniel as its Chief Financial Officer and, commencing in the current fiscal
year, Mr. Sherrill as the Company's Chief Operating Officer.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Pickerign dated
as of August 2, 1998. The employment agreement provides for the employment of
Mr. Pickerign as President and Chief Executive Officer of the Company for a
period of three years and for the automatic renewal of Mr. Pickerign's
employment for successive periods of one year, subject to prior written notice
of termination by Mr. Pickerign or the Company, in each case not later than 180
days prior to the expiration of the then current term. Under the employment
agreement, Mr. Pickerign receives an annual salary of $150,000, and is entitled
to a quarterly bonus in an amount equal to 10% of the Company's earnings before
interest and taxes in the preceding quarter. On the date of the employment
agreement, the Company granted Mr. Pickerign non-qualified stock options to
purchase 300,000 shares of the Company's Common Stock, of which 50,000 shares
vested immediately, 50,000 shares vested on August 2, 1999, 100,000 shares
vested on August 2, 2000 and 100,000 shares will vest on August 2, 2001.
Pursuant to the employment agreement, the Company provides Mr. Pickerign with an
automobile at the Company's sole cost and expense.
10
<PAGE>
The Company entered into an employment agreement with Mr. Daniel dated
February 1, 1999. The employment agreement provides for the employment of Mr.
Daniel as Chief Financial Officer of the Company for a period of two years and
for the automatic renewal of Mr. Daniel's employment for successive periods of
one year, subject to prior written notice of termination by Mr. Daniel or the
Company, in each case not later than 180 days prior to the expiration of the
then current term. Under the employment agreement, Mr. Daniel receives an annual
salary of $110,000, and is entitled to a quarterly bonus of $5,000 for each
quarter ending during the term of the employment agreement if the Company's
earnings before income and taxes for such quarter exceeds $100,000 and an annual
bonus of $10,000 for each fiscal year ending during the term of the employment
agreement if the Company's earnings before income and taxes for such calendar
year exceeds $1,000,000. The employment agreement further provides that if,
during Mr. Daniel's employment, Mr. Daniel's duties and responsibilities are
materially increased as a result of his financial reporting duties with respect
to a new subsidiary of the Company, Mr. Daniel's base salary is to increase to
$126,500 and, effective in June 2000, his salary was increased to that annual
rate. On the date of the employment agreement, the Company granted Mr. Daniel
non-qualified stock options to purchase 75,000 shares of the Company's Common
Stock, of which 25,000 shares vested immediately, 25,000 shares vested on
February 1, 2000 and 25,000 shares will vest on February 1, 2001. If the Company
terminates Mr. Daniel's employment for any reason other than for Cause (as
defined in the employment agreement) or on account of Mr. Daniel's death or
Permanent Disability (as defined in the employment agreement) and such
termination occurs as of a date that is within 180 days preceding or within 180
days after the consummation of a Change in Control (as defined in the employment
agreement), the Company shall pay to Mr. Daniel within 30 days after the event
giving rise to such payment occurs an amount equal to the sum of (x) (1) Mr.
Daniel's base salary accrued through the date of termination of Mr. Daniel's
employment and (2) any bonus required to be paid to Mr. Daniel and (y) a
severance payment equal to one-half of Mr. Daniel's annual base salary as of the
effective date of termination of Mr. Daniel's employment.
The Company entered into an employment agreement with Mr. Sherrill dated as
of June 28, 2000. The employment agreement provides for the employment of Mr.
Sherrill as Chief Operating Officer of the Company and as President of
Multi-User for a period of three years and for the automatic renewal of Mr.
Sherrill's employment for successive periods of one year, subject to prior
written notice of termination by Mr. Sherrill or the Company, in each case not
later than 180 days prior to the expiration of the then current term. Under the
employment agreement, Mr. Sherrill receives an annual salary of $150,000, and is
entitled to a bonus of 6.5% of the Gross Profit of Multi-User (as defined) if
certain performance objectives have been met by the Second Period (as defined).
Mr. Sherrill is also entitled to a bonus of $100,000 for each quarter during the
twelve-month period following the Second Period in which the Gross Profit of the
Company exceeds by 7% or more the Gross Profit of the Company in the immediately
preceding quarter. On the date of the employment agreement, the Company granted
Mr. Sherrill non-qualified stock options to purchase 50,000 shares of the
Company's Common Stock at an exercise price of $4.625 per share, all of which
vest on the third anniversary of the date of the employment agreement. Pursuant
to the employment agreement, the Company provides Mr. Sherrill with an
automobile allowance of $1,200 per month.
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CERTAIN TRANSACTIONS
Duane, Morris & Heckscher LLP, a law firm of which Frederick W. Dreher,
Secretary of the Company since March 1994, is a partner, serves as the Company's
general counsel and charges customary fees to the Company for legal services
rendered. In December 1999, the Company issued 325,000 shares of its Common
Stock to Duane, Morris & Heckscher LLP in settlement of $691,000 in fees due for
legal services rendered to the Company between July 1998 and December 1999. The
shares issued were not registered under the Securities Act of 1933, as amended
(the "1933 Act") and may not be sold absent such registration or an exemption
therefrom.
On June 28, 2000, the Company completed (i) a private placement to a group
of accredited investors and realized gross proceeds of $4,000,000 (the "Private
Placement") from the sale of 1,249,671 shares of the Company's Common Stock at a
price of $3.25 per share and (ii) the Company's issuance of an 11% promissory
note in the principal amount of $2,500,000 due December 28, 2001 to an
accredited investor (the "Secured Debt Transaction") together with a warrant to
purchase 392,577 shares of the Company's Common Stock, exercisable until June
28, 2003 at $3.25 per share.
The purchasers of the Company's Common Stock in the Private Placement
included John D. Freitag, a director of the Company, who purchased 30,500 shares
of Common Stock for $99,125, Richard A. Hansen, a director of the Company, who
purchased 100,000 shares of Common Stock for $325,000 and Erik Monninkhof, a
director of the Company, who purchased 30,769 shares of Common Stock for
$100,000.
PMG, an investment banking firm, of which Mr. Hansen is an executive
officer, director and a principal stockholder, acted as the Company's agent for
the Private Placement and the Secured Debt Transaction. For its services in
connection with the Private Placement, PMG received a commission of $324,915 in
cash, or 8% of the purchase price of the Common Stock sold in the Private
Placement, and also received a warrant to purchase 24,993 shares of Common
Stock, exercisable until June 28, 2003 at a price of $3.25 per share. For its
services in connection with the Secured Debt Transaction, PMG received a cash
commission of $175,000, or 7.0% of the proceeds of the Secured Debt Transaction.
The Company believes the foregoing transactions were made on terms no less
favorable to the Company than could have been otherwise obtained from
unaffiliated third parties under prevailing circumstances.
ITEM 2 - ELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Unless instructed to the contrary, it is intended that votes will be cast
pursuant to the proxies for the election of Deloitte & Touche LLP as the
Company's independent public accountants for the fiscal year ending March 31,
2001. The Company has been advised by Deloitte & Touche LLP that none of its
members has any financial interest in the Company. Election of Deloitte & Touche
LLP will require the affirmative vote of the holders of a majority of the shares
of the Company's Common Stock present in person or represented by proxy at the
annual meeting.
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The Company's independent public accountants for its 1998 and 1999 fiscal
years were BDO Seidman LLP ("BDO Seidman"). On March 30, 2000, with the approval
of the Company's Board of Directors and the Audit Committee of the Company's
Board of Directors, the Company notified BDO Seidman that it would not retain
BDO Seidman as the Company's independent auditors in connection with the
Company's consolidated financial statements for its fiscal year ended March 31,
2000.
BDO Seidman's reports on the consolidated financial statements of the
Company for the two fiscal years ended April 2, 1999 and April 3, 1998 did not
contain any adverse opinion or any disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles, with the
exception of a going concern qualification with respect to the fiscal years
ended April 2, 1999 and April 3, 1998.
During the fiscal years ended April 2, 1999 and April 3, 1998, and the
subsequent interim periods preceding March 30, 2000, there were no disagreements
between the Company and BDO Seidman on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which,
if not resolved to the satisfaction of BDO Seidman, would have caused BDO
Seidman to make a reference to the subject matter thereof in connection with its
reports.
On March 30, 2000, the Company's Board of Directors, with the approval of
its Audit Committee, retained Deloitte & Touche LLP to serve as the Company's
certifying accountant for the Company's fiscal year ended March 31, 2000.
A representative of Deloitte & Touche LLP will not attend the annual
meeting.
The Board of Directors recommends a vote "FOR" the election of Deloitte &
Touche LLP as the Company's independent public accountants for the fiscal year
ending March 31, 2001.
ITEM 3 - AMENDMENT OF THE 1998 PLAN
At the annual meeting, the stockholders will be asked to consider and vote
upon the amendment of the 1998 Plan. The Board of Directors amended the 1998
Plan on November 22, 2000, subject to stockholder approval at the annual
meeting, to increase the total number of shares for which option grants
("Options") may be made from 500,000 shares to 1,000,000 shares in order to make
additional shares available under the 1998 Plan in the future for officers and
key employees. If the amendment to the 1998 Plan is not approved by the
stockholders at the annual meeting, the 1998 Plan will remain in force in its
current form.
The purpose of the 1998 Plan is to further the growth, development and
financial success of the Company by providing additional incentives to those
officers and key employees who are responsible for the management and affairs of
the Company, which will enable them to participate in any increase in value of
the Common Stock of the Company.
The 1998 Plan permits the granting of Options, including Options intended
to qualify as incentive stock options under the Code ("Incentive Stock Options")
and Options not intended to
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so qualify ("Non-Qualified Options") to those officers and key employees of the
Company who are in positions in which their decisions, actions and counsel
significantly impact upon the profitability and success of the Company.
Directors of the Company who are not also officers or employees of the Company
are not eligible to participate in the 1998 Plan. Nothing contained in the 1998
Plan affects the right of the Company to terminate the employment of any
employee.
The total number of shares of Common Stock that may be the subject of
Options granted under the 1998 Plan may not currently exceed 500,000 shares in
the aggregate. A total of only 18,000 shares of Common Stock are currently
available for grants under the 1998 Plan.
The amendment will increase the number of shares currently available for
grants of Options under the 1998 Plan in furtherance of the purposes of such
plan. No determination has been made as to the allocation of grants with respect
to the additional shares to specific employees. The Company believes that the
additional shares will be required to satisfy anticipated annual Option grants
over the next several years.
The number of persons who are eligible to participate in the 1998 Plan is
approximately 85, including executive officers of the Company. Through November
16, 2000, Non-Qualified Options to purchase an aggregate of 435,000 shares were
granted to executive officers of the Company as follows: Mr. Pickerign, 300,000
shares; Mr. Daniel, 85,000 shares and Mr. Sherrill, 50,000 shares. None of such
persons has been granted any Incentive Stock Options.
On December 7, 2000, the closing bid price of the Company's Common Stock as
reported on the Nasdaq Over-The-Counter Bulletin Board was $2.50 per share.
No Options may be granted under the 1998 Plan after December 14, 2008. If
an Option expires or is terminated for any reason without having been fully
exercised, the number of shares subject to such Option which have not been
purchased may again be made subject to an Option under the 1998 Plan.
Appropriate adjustments to outstanding Options and to the number or kind of
shares subject to the 1998 Plan are provided for in the event of a stock split,
reverse stock split, stock dividend, share combination or reclassification and
certain other types of corporate transactions involving the Company, including a
merger or a sale of substantially all of the assets of the Company.
ADMINISTRATION
The 1998 Plan is administered by the Board of Directors of the Company
which is authorized to (i) interpret the provisions of the 1998 Plan and decide
all questions of fact arising in its application; (ii) select the employees to
whom Options are granted and determine the timing, type, amount, size and terms
of each such grant and (iii) to make all other determinations necessary or
advisable for the administration of the 1998 Plan.
PRICE AND EXERCISE OF OPTIONS
The exercise price of the Options granted under the 1998 Plan is determined
by the Board at the time the Option is granted. However, the exercise price of
the Common Stock subject to an Incentive Stock Option may not be less than 100%
of the fair market value of the Common Stock on the date the Incentive Stock
Option is granted, but in no event less than the par value of
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such stock, and the exercise price of the Common Stock subject to a
Non-Qualified Option may not be less than 85% of the fair market value of the
Common Stock on the date the Non-Qualified Option is granted. Moreover, in the
case of Incentive Stock Options granted to an Optionee who owns more than 10% of
the total combined voting power of all classes of stock of the Company, the
exercise price may not be less than 110% of the fair market value of the Common
Stock subject to the Incentive Stock Option on the date the Incentive Stock
Option is granted.
The Board determines on the date of grant when Options become exercisable.
Each Option may not be exercisable after ten years from the date the Option is
granted, provided that an Incentive Stock Option granted to an Optionee who owns
more than 10% of the total combined voting power of all classes of stock of the
Company may not be exercisable after five years from the date the Option is
granted. An Option granted under the 1998 Plan may be exercised only by written
notice from the holder thereof to the Company, which notice must specify the
number of shares to be purchased and must be accompanied by full payment for the
shares with respect to which the Option is being exercised. The exercise price
is payable in cash, Common Stock of the Company at fair market value or a
combination thereof, as the Board may determine from time to time and subject to
such terms and conditions as may be prescribed by the Board for such purpose.
The Board may also, in its discretion and subject to prior notification to the
Company by an Optionee, permit an Optionee to enter into an agreement with the
Company's transfer agent or a brokerage firm of national standing whereby the
Optionee will simultaneously exercise the Option and sell the shares acquired
thereby through the Company's transfer agent or such a brokerage firm and either
the Company's transfer agent or the brokerage firm executing the sale will remit
to the Company from the proceeds of the sale the exercise price of the shares as
to which the Option has been exercised.
MODIFICATION OR TERMINATION OF THE 1998 PLAN
The 1998 Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board, subject
to any required stockholder approval or any stockholder approval that the Board
may deem advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange or automated quotation system
listing requirements. The Board may not, without the consent of the holder of an
Option, alter or impair any Option previously granted under the 1998 Plan,
except as specifically authorized in the 1998 Plan.
FEDERAL INCOME TAX CONSEQUENCES
Based on the advice of counsel, the Company believes that the normal
operation of the 1998 Plan should generally have, under the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations thereunder, all as in
effect on the date of this Proxy Statement, the principal federal income tax
consequences described below. The tax treatment described below does not take
into account any changes in the Code or the regulations thereunder which may
occur after the date of this Proxy Statement. The following discussion is only a
summary; it is not intended to be all inclusive or to constitute tax advice,
and, among other things, does not cover possible state or local tax
consequences.
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An Optionee will not recognize taxable income and the Company will not be
entitled to a deduction upon the grant of an Option.
In the case of Non-Qualified Options, an Optionee will generally recognize
ordinary income upon exercise of a Non-Qualified Option in an amount equal to
the excess of the fair market value of the stock acquired on the date of
exercise over the aggregate price paid pursuant to the Non-Qualified Option for
such stock (the "exercise price"), and the Company will generally be entitled to
a deduction to the extent of the ordinary income recognized by the Optionee in
accordance with the rules of Section 83 of the Code and Section 162(m) of the
Code to the extent applicable. An Optionee exercising a Non-Qualified Option is
subject to federal income tax withholding on the income recognized as a result
of the exercise of the Non-Qualified Option. Such income will include any income
attributable to any shares issuable upon exercise that are surrendered, if
permitted under the applicable stock option agreement, in order to satisfy the
federal income tax withholding requirements.
Except as provided below, the basis of the shares received by the Optionee
upon the exercise of a Non-Qualified Option will be the fair market value of the
shares on the date of exercise. The Optionee's holding period will begin on the
day after the date on which the Optionee recognizes income with respect to the
transfer of such shares, i.e., generally the day after the exercise date. When
the Optionee disposes of such shares, the Optionee will recognize capital gain
or loss equal to the difference between (i) the selling price of the shares and
(ii) the Optionee's basis in such shares under the Code rules which govern stock
dispositions, assuming the shares are held by the Optionee as a capital asset.
Any net capital gain (i.e., the excess of the net long-term capital gains for
the taxable year over net short-term capital losses for such taxable year) will
be taxed at a capital gains rate that depends on how long the shares were held,
and the Optionee's tax bracket. Any net capital loss can only be used to offset
up to $3,000 per year of ordinary income (reduced to $1,500 in the case of a
married individual filing separately) or carried forward to a subsequent year.
The use of shares to pay the exercise price of a Non-Qualified Option, if
permitted under the applicable stock option agreement, will be treated as a
like-kind exchange under Section 1036 of the Code to the extent that the number
of shares received on the exercise does not exceed the number of shares
surrendered. The Optionee will therefore recognize no gain or loss with respect
to the surrendered shares, and will have the same basis and holding period with
respect to the newly acquired shares (up to the number of shares surrendered) as
with respect to the surrendered shares. To the extent the number of shares
received exceeds the number surrendered, the fair market value of such excess
shares on the date of exercise, reduced by any cash paid by the Optionee upon
such exercise, will be includible in the gross income of the Optionee. The
Optionee's basis in such excess shares will equal the fair market value of such
shares on the date of exercise, and the Optionee's holding period with respect
to such excess shares will begin on the day following the date of exercise.
The Optionee will not recognize taxable income and the Company will not be
entitled to a deduction upon the exercise of an Incentive Stock Option, provided
the Optionee was an employee of the Company or of certain related corporations
as described in Section 422(a)(2) of the Code during the entire period from the
date of grant of the Incentive Stock Option until three months before the date
of exercise (increased to 12 months if employment ceased due to total and
permanent disability). The employment requirement is waived in the event of the
Optionee's death. In all of these situations, the Incentive Stock Option itself
may provide a shorter exercise period after employment ceases than the allowable
period under the Code. However, the excess
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of the fair market value of the shares purchased over the exercise price will
constitute an item of tax preference in the taxable year of exercise. This
preference will be included in the Optionee's computation of his or her
"alternative minimum tax." However, if the Optionee makes a disqualifying
disposition of the shares (as described below) in the taxable year in which the
Optionee exercises the Incentive Stock Option, the amount includible in the
Optionee's alternative minimum taxable income generally will not exceed the
amount realized on the disposition minus the exercise price. The basis of the
shares received by the Optionee upon exercise of an Incentive Stock Option is
the exercise price. The Optionee's holding period for such shares begins on the
date of exercise.
If the Optionee does not dispose of the shares issued upon the exercise of
an Incentive Stock Option within one year of such issuance or within two years
from the date of the grant of such Incentive Stock Option, whichever is later,
any gain or loss realized by the Optionee on a later sale or exchange of such
shares generally will be a long-term capital gain or long-term capital loss
equal to the difference between the amount realized upon the disposition and the
exercise price, if such shares are otherwise a capital asset in the hands of the
Optionee. Any net capital gain (i.e., the excess of the net long-term capital
gains for the taxable year over net short-term capital losses for such taxable
year) will be taxed at a capital gains rate that depends on how long the shares
were held, and the Optionee's tax bracket. Any net capital loss can only be used
to offset up to $3,000 per year of ordinary income (reduced to $1,500 in the
case of a married individual filing separately) or carried forward to a
subsequent year. If the Optionee sells the shares during such period (that is,
within two years from the date of grant of the Incentive Stock Option or within
one year after the transfer of the shares to the Optionee), the sale will be
deemed to be a disqualifying disposition. In that event, the Optionee will
recognize ordinary income and the Company will be entitled to a corresponding
deduction for the year in which the disqualifying disposition occurs equal to
the amount, if any, by which the lesser of (i) the amount realized for such sale
or (ii) the fair market value of such shares on the date of exercise of such
option exceeded the amount the Optionee paid for such shares. In the case of
disqualifying dispositions resulting from certain transactions, such as gift or
related party transactions, the determination of the ordinary income the
Optionee realizes will be the fair market value of the shares on the date of
exercise, minus the exercise price. The basis of the shares with respect to
which a disqualifying disposition occurs will be increased by the amount
included in the Optionee's ordinary income. Disqualifying dispositions of shares
may also, depending upon the sales price, result in capital gain or loss under
the Code rules which govern other stock dispositions, assuming that the shares
are held as a capital asset. The tax treatment of such capital gain or loss is
summarized above.
Except as provided below, the use of shares already owned by the Optionee
to pay the exercise price of an Incentive Stock Option will be treated as a
like-kind exchange under Section 1036 of the Code to the extent that the number
of shares received on the exercise does not exceed the number of shares
surrendered. The Optionee will therefore recognize no gain or loss with respect
to the surrendered shares, and will have the same basis and holding period with
respect to the newly acquired shares (up to the number of shares surrendered) as
with respect to the surrendered shares. To the extent that the number of shares
received exceeds the number surrendered, the Optionee's basis in such excess
shares will equal the amount of cash paid by the Optionee upon the exercise of
the Incentive Stock Option, if any, and the Optionee's holding period with
respect to such excess shares will begin on the date such shares are transferred
to the Optionee. However, if payment of the exercise price of an Incentive Stock
Option is made with
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shares acquired upon exercise of an Incentive Stock Option before the shares
used for payment have been held for the two-year or one-year period described
herein, use of such shares as payment will be treated as a disqualifying
disposition of the shares used for payment subject to the rules described
herein.
Under current law, any gain realized by an Optionee, other than long-term
gain, is taxable at a maximum federal income tax rate of 39.6%. Under current
law, long-term capital gain is taxed at a maximum federal income tax rate of
20%.
The comments set forth above are only a summary of certain of the federal
income tax consequences relating to the 1998 Plan as in effect on the date of
this Proxy Statement. No consideration has been given to the effects of state,
local, and other laws (tax or other) upon the 1998 Plan or upon the Optionee or
the Company, which laws will vary depending upon the particular jurisdiction or
jurisdictions involved.
VOTE REQUIRED
Approval of the amendment to the 1998 Plan will require the affirmative
vote of the holders of a majority of the outstanding shares of the Company's
Common Stock present in person or represented by proxy at the annual meeting.
Abstentions are considered shares of stock present in person or represented by
proxy at the annual meeting and entitled to vote and are counted in determining
the number of votes necessary for a majority. An abstention therefore will have
the practical effect of voting against adoption of the amendment to the 1998
Plan because it represents one fewer vote for adoption of the amendment. Broker
non-votes are not considered shares present in person or represented by proxy
and entitled to vote on the 1998 Plan and will have no effect on the vote.
The Board of Directors recommends a vote "FOR" approval and adoption of the
amendment to the 1998 Plan.
ITEM 4 - ADOPTION OF THE DIRECTOR PLAN
On December 1, 2000, the Board of Directors approved the Director Plan,
subject to the adoption thereof by the Company's stockholders at the annual
meeting. The Board of Directors reserved 500,000 shares of Common Stock for
issuance under the Director Plan. The purpose of the Director Plan is to provide
directors who are not employees of the Company or its subsidiaries, and certain
consultants to the Company, with the opportunity to receive grants of
nonqualified stock options. The Board of Directors believes that it is in the
Company's best interest to adopt the Director Plan. The Director Plan is
intended to encourage non-employee directors and consultants to contribute
materially to the growth of the Company, thereby benefiting its stockholders,
and better aligning the interests of the Company's non-employee directors and
consultants with the Company's stockholders.
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SUMMARY OF THE DIRECTOR PLAN
At the annual meeting, a proposal to adopt the Director Plan will be
presented to the Company's stockholders. The Director Plan will be effective
immediately if adopted. The Director Plan will be administered by the
Compensation Committee or, in the absence of such a committee, by the Board of
Directors. The Compensation Committee or the Board will have the sole authority
to determine the individuals who receive grants, the type, size and terms of
grants, the timing of grants and the period when grants will be exercisable or
when restrictions will lapse, amend the terms of previously issued grants, and
make all other determinations with respect to the administration of the Director
Plan.
The number of shares reserved for issuance under the Director Plan is
500,000 shares of Common Stock. All shares subject to grants that expire or are
cancelled, surrendered or terminated for any reason other than exercise will be
available for new grants under the Director Plan. The Compensation Committee or
the Board may adjust the number of shares covered by outstanding grants and the
price per share of outstanding grants if there is any change in the number or
class of shares because of a stock dividend, stock split, merger,
reclassification or other similar change in the Company's stock. Directors of
the Company who are not employees of the Company or any of its affiliates and,
at the discretion of the Compensation Committee or the Board, certain
consultants to the Company, will be eligible to participate in the Director
Plan.
The Board of Directors may amend or terminate the Director Plan at any
time. However, the Board of Directors may not make any amendment without
stockholder approval if such approval is required under any applicable laws or
stock exchange or Nasdaq requirements, nor may any amendment affect the rights
of holders of options theretofore outstanding. The Director Plan will terminate
when all stock options granted under the Director Plan have either been
exercised or terminated; provided that no stock option may be granted more than
ten years after the effective date of the Director Plan. In the event of a
proposed sale of all or substantially all of the assets of the Company or the
merger or the Company with or into another corporation, the Compensation
Committee or the Board may take any action that it deems desirable, including:
(i) requiring that all outstanding options be assumed by or replaced with
comparable options of the surviving company, (ii) providing that all outstanding
options are fully exercisable or (iii) terminating all outstanding options that
are not exercised within a certain period. Upon the liquidation or dissolution
of the Company, all outstanding options will terminate, unless otherwise
provided by the Compensation Committee or the Board.
The Director Plan permits only grants of nonqualified stock options. The
exercise price underlying each option shall not be less than 100% of the fair
market value of the Company's Common Stock on the date of grant. Plan
participants may pay the exercise price of an option in cash or by delivering to
the Company shares of Common Stock owned by the optionee. An optionee may also
pay the exercise price of an option through "net" exercise, pursuant to which
the number of shares received by the optionee will be reduced by a number of
shares that, when valued at fair market value, will be sufficient to pay the
exercise price. With the approval of the Compensation Committee or the Board, an
optionee may pay the purchase price of an option through an agreement with the
Company's transfer agent or a brokerage firm whereby the optionee will exercise
the option and sell the shares acquired thereby through the Company's transfer
agent or the brokerage firm, and the Company's transfer agent or the brokerage
firm
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executing the sale will remit to the Company the exercise price of the shares as
to which the option has been exercised.
Options will become exercisable according to the terms and conditions
determined by the Compensation Committee or the Board and specified in the grant
instrument. The Compensation Committee or the Board may accelerate the
exercisability of any or all outstanding options at any time for any reason. The
Compensation Committee or the Board will determine the term of each option, up
to a maximum ten-year term. Options may be exercised while the grantee is a
director or consultant of the Company or within a specified period of time after
termination of the director's or consultant's service in such capacity. Options
granted under the Director Plan may not be transferred except upon the grantee's
death or as otherwise approved by the Compensation Committee or the Board.
FEDERAL INCOME TAX CONSEQUENCES
The current federal income tax consequences of option grants under the
Director Plan are generally described below. This description of tax
consequences is not a complete description and is based on the Code as presently
in effect, which is subject to change, and does not purport to be a complete
description of the federal income tax aspects of options granted under the
Director Plan.
All options granted under the Director Plan will be nonqualified stock
options. An optionee will not be subject to federal income tax upon the grant of
a nonqualified stock option. Upon the exercise of a nonqualified stock option,
the optionee will recognize ordinary income in an amount equal to the excess, if
any, of the then fair market value of the shares acquired over the exercise
price. The Company will generally be able to take a deduction with respect to
this amount as a compensation expense for federal income tax purposes. The
optionee's tax basis in the shares acquired will equal the exercise price plus
the amount taxable as compensation to the optionee. Upon a sale of the shares
acquired upon exercise, any gain or loss is generally long-term or short-term
capital gain or loss, depending on how long the shares are held. The required
holding period for long-term capital gain is presently one year. The optionee's
holding period for shares acquired upon exercise will begin on the date of
exercise.
The Company has the right to deduct from all grants paid in cash or other
compensation any taxes required to be withheld with respect to grants under the
Director Plan. The Company may require that the participant pay to it the amount
of any required withholding. The Compensation Committee or the Board may permit
the participant to elect to have withheld from any shares issuable to him or her
in connection with the Director Plan a number of shares with a value equal to
the required tax withholding amount.
FUTURE GRANTS
Assuming adoption by stockholders of the Director Plan at the annual
meeting, the Company intends to issue to each non-employee director, other than
Mr. Laube, annually under the Director Plan an option to purchase an as yet
undetermined number of shares of Common Stock at the market price prevailing at
the date of grant and the Board intends to grant Mr. Laube an option to purchase
100,000 shares of Common Stock at the price prevailing on the date of
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grant. The Board of Directors has made no other determination as to the number
of stock options to be granted under the Director Plan.
VOTE REQUIRED
The adoption of the Director Plan will require the affirmative vote of the
holders of a majority of the shares represented in person or by proxy at the
annual meeting. Abstentions are considered shares of stock present in person or
represented by proxy at the annual meeting and entitled to vote and are counted
in determining the number of votes necessary for a majority. An abstention
therefore will have the practical effect of voting against adoption of the
Director Plan because it represents one fewer vote for adoption of the Director
Plan. Broker non-votes are not considered shares present in person or
represented by proxy and entitled to vote on the Director Plan and will have no
effect on the vote.
The Board of Directors recommends a vote "FOR" adoption of the Director
Plan.
An abstention will have the effect of a negative vote. A broker non-vote
will not be counted for purposes of determining whether the 2000 Director Plan
has been adopted.
ANNUAL REPORTS
A copy of the Company's Annual Report to Stockholders for its 2000 fiscal
year is being mailed to the Company's stockholders with this Proxy Statement.
STOCKHOLDER PROPOSALS
Any stockholder who, in accordance with and subject to the provisions of
Rule 14a-8 of the proxy rules of the SEC, wishes to submit a proposal for
inclusion in the Company's proxy statement for its 2001 annual meeting of
stockholders must deliver such proposal in writing to the Company's Secretary at
the Company's principal executive offices at Suite 100, 1060 Windward Ridge
Parkway, Alpharetta, Georgia 30005-3992, not later than July 26, 2001.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration at the annual meeting other than the matters described in the
Notice of Annual Meeting, but if any matters are properly presented, it is the
intention of the persons named in the accompanying proxy to vote on such matters
in accordance with their judgment.
By Order of the Board of Directors,
/s/ Perry J. Pickerign
Perry J. Pickerign, President
and Chief Executive Officer
December 11, 2000
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