SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(X) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PACIFIC ANIMATED IMAGING CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
PACIFIC ANIMATED IMAGING CORPORATION
326 FIRST STREET, SUITE 100
ANNAPOLIS, MARYLAND 21403
-----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Pacific Animated Imaging Corporation will be held at the office of the Company,
326 First Street, Suite 100, Annapolis, Maryland, on Thursday, May 22, 1997 at
10:00 A.M. for the following purposes:
1. To approve the adoption of Incentive Stock Option Plan No. 3.
2. To consider and act upon an Amendment to the Certificate of
Incorporation to change the Company's name.
3. To consider and act upon an Amendment to the Certificate of
Incorporation to effect a three-for-two split of the Common Stock
of the Company.
4. To approve the appointment of Coopers & Lybrand L.L.P. as auditors
for the fiscal year 1997.
5. To transact such other business as may properly come before the
meeting.
Only holders of Common Stock of record at the close of business on
March 25, 1997 are entitled to notice of and to vote at said meeting and any
adjournments thereof.
By order of the Board of Directors,
John J. Cadigan
Secretary
Annapolis, Maryland
- --------------------------------------------------------------------------------
If you do not expect to be present at the meeting, please complete, sign and
date the accompanying proxy and return it promptly in the enclosed envelope.
<PAGE>
PACIFIC ANIMATED IMAGING CORPORATION
326 FIRST STREET, SUITE 100
ANNAPOLIS, MARYLAND 21403
---------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
May 22, 1997
---------------------------
GENERAL INFORMATION
The accompanying proxy is being solicited by the management of Pacific
Animated Imaging Corporation, a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders (hereinafter referred to as the "Meeting") to
be held at the office of the Company, 326 First Street, Suite 100, Annapolis,
Maryland, on Thursday, May 22, 1997 at 10:00 A.M.
This Proxy Statement and the accompanying form of proxy are being first
mailed or given to the holders of the Company's Common Stock on or about April
14, 1997.
At the Meeting, Stockholders of the Company will vote upon: (1) the
approval of Incentive Stock Option Plan No. 3; (2) the approval of an Amendment
to the Certificate of Incorporation to change the Company's name; (3) the
approval of an Amendment to the Certificate of Incorporation to effect a
three-for-two split of the Common Stock; (4) the appointment of Coopers &
Lybrand L.L.P. as auditors for the fiscal year 1997; and (5) such other business
as may properly come before the meeting and all adjournments thereof, including
such matters as may be duly proposed by Stockholders. The Board of Directors is
not aware of any Stockholder proposals that may be presented at the meeting.
VOTING RIGHTS AND VOTES REQUIRED
Only holders of record of the Company's shares of common stock, par
value $.0001 per share (the "Common Stock") at the close of business on March
25, 1997 are entitled to receive notice of, and to vote at, the Meeting and any
adjournment thereof. As of the close of business on March 25, 1997, there were
1,633,839 shares of Common Stock issued and outstanding.
A majority of the outstanding shares of Common Stock must be
represented in person or by proxy at the Meeting in order to constitute a quorum
for the transaction of business. The record holder of each share of Common Stock
entitled to vote at the Meeting will have one vote for each matter considered.
Abstentions and Broker non-votes are not counted in determining the number of
shares voted for or against a proposal, but are counted in determining the
presence of a quorum.
The affirmative vote of the holders of a majority of outstanding shares
entitled to vote will be required to approve the adoption of Incentive Stock
Option Plan No. 3; to approve an Amendment to the Certificate of Incorporation
to change the Company's name; to approve an Amendment to the Certificate of
Incorporation to effect a three-for-two split of the Common Stock of the
Company. The affirmative vote of the holders of the majority of shares present
in person or represented by proxy at the meeting will be required to approve the
appointment of Coopers & Lybrand L.L.P. as auditors for 1997, to transact such
other business as may properly come before the meeting, and to adopt any
Stockholder proposal presented at the Meeting.
<PAGE>
VOTING OF PROXIES
Proxies received in proper form by the Board of Directors of the
Company will be voted at the Meeting, and any adjournment thereof, as instructed
therein by the Stockholders executing such proxies, or if no instructions are
given, then such proxies will be voted: FOR the Adoption of Incentive Stock
Option Plan No. 3; FOR the approval of an Amendment to the Certificate of
Incorporation to change the Company's name; FOR the approval of an Amendment to
the Certificate of Incorporation to effect a three-for-two split of the Common
Stock of the Company; FOR the approval of the appointment of Coopers & Lybrand
L.L.P. as auditors; and in the discretion of persons named in the proxy, on all
other matters properly presented at the meeting.
REVOCATION OF PROXIES
A Stockholder who has given a proxy pursuant to this solicitation may
revoke it at any time prior to its exercise at the Meeting. A proxy may be
revoked by filing with the Secretary of the Company, at the address set forth on
the first page of this Proxy Statement, a written revocation or a duly executed
proxy bearing a later date, or by attending the Meeting and voting the shares of
Common Stock covered by the Proxy.
SOLICITATION OF PROXIES
The cost of solicitation of proxies from the Company's Stockholders
will be borne by the Company. Solicitation will be primarily by mail. In
addition to the solicitation of proxies by mail, proxies may be solicited by
personal interview, telephone or telegram by the directors, officers, employees
and agents of the Company. Upon request, the Company will reimburse brokers,
nominees, fiduciaries, and custodians for reasonable expenses incurred by them
in forwarding proxy material to the beneficial owners of the Company's Common
Stock.
ELECTION OF CLASS II DIRECTOR
The Board of Directors of the Company consists of four (4) directors.
The Articles of Incorporation and Bylaws of the Company, as amended in 1995,
provide that the directors shall be divided into three classes: Class I, Class
II, and Class III, each class to consist, as nearly as possible, of one-third of
the whole number of the Board of Directors. The initial term of the director who
is a member of Class II expires at the Meeting. The initial term of the
directors who are Class I and Class III will expire at the 1999 Annual Meeting
of Stockholders and 1998 Annual Meeting of Stockholders, respectively. Each
director is elected to serve a term which shall expire at the third annual
meeting of Stockholders after his election, and until his successor is duly
elected and qualified. A director elected to fill a vacancy is elected to the
same class as the director he succeeds.
On March 14, 1997, Mr. Joseph Amato, the only Class II Director, who
was the intended nominee for election as a director for a three year term
expiring at the 2000 Annual Meeting of Stockholders, tendered his resignation to
be effective May 22, 1997. Because this resignation occurred at the time the
Company was preparing its proxy materials for the 1997 Annual Meeting of
Stockholders, another nominee has not been selected by the Board of Directors to
replace Mr. Amato. Accordingly, because Mr. Amato will no longer be a candidate
at the time of the forthcoming meeting and another nominee has not been selected
by the Board of Directors due to the proxy time constraints, there is no
proposal of the Board of Directors to elect a Class II Director at the Meeting.
The Board of Directors intends to fill the vacancy resulting from Mr. Amato's
resignation as soon as a qualified candidate is found.
2
<PAGE>
Meetings of the Board of Directors and Standing Committees
During 1996, the Board of Directors held six (6) meetings.
The Company has two (2) Standing Committees, the Executive Compensation
and Stock Option Committee and the Audit Committee. The Executive Compensation
and Stock Option Committee has the power and authority to designate, recommend
and/or review compensation of the Company's executive officers and other
employees, including salaries, bonuses, fringe benefits and the grant of stock
options. The Audit Committee has the power and authority to select the
independent certified public accountant, review external and internal auditing
procedures and policies, review compensation paid to auditors and make
recommendations and/or implement changes with respect to the foregoing. There
was one (1) meeting of the Executive Compensation and Stock Option Committee and
two (2) meetings of the Audit Committee during 1996.
The Company has not established a Nominating Committee.
Directors' Compensation
A director who is an employee of the Company receives no additional
compensation for services as director or for attendance at or participation in
meetings. A director who is not an employee of the Company is paid $500.00 for
each Board meeting which the director attends, in person or otherwise, and
$300.00 for each committee meeting which the director attends, in person or
otherwise. An outside director is also reimbursed for out-of-pocket expenditures
incurred in attending or otherwise participating in meetings.
The Company maintains six (6) Nonqualified stock option plans which may
benefit directors. Directors have periodically been granted options pursuant to
these plans and it is anticipated that there may be grants to the directors in
the future.
The Company has no other arrangements regarding compensation for
service as a director.
Transactions Involving Directors and Officers
Joseph Amato, an employee of TRW, Inc., was a director of the Company
from December, 1993 until he tendered his resignation effective May 22, 1997.
During 1996, the Company performed services for TRW for which it recognized
revenue of approximately $134,000.
In the past, the Company did not have a policy regarding transactions
with affiliated parties. Although management believes that the transaction
described herein were on terms that were substantially the same as if negotiated
on an arms length basis with nonaffiliated parties, the Board of Directors has
instituted a policy that all transactions with officers, directors, affiliates,
or key employees will be on terms no less favorable to the Company than could be
reasonably obtained in an arms length transaction with a non-affiliated party
and that any such transaction will require the approval by a majority of the
Company's independent directors not interested in such transaction.
3
<PAGE>
Executive Officers
The name and age of each executive officer of the Company, the office
or offices held by such person and the date on which such person initially held
such office or offices are set forth below.
<TABLE>
<CAPTION>
Name Office Age Initial Date of Office
---- ------ --- ----------------------
<S> <C>
John J. Cadigan Chairman of the 66 February 1991
Board, Chief Executive
Officer, President,
Secretary, Treasurer
Mark Decker(1) Executive Vice President, 40 January 1996
Chief Operating Officer
Suzanne C. Brown Chief Financial and 31 January 1996
Accounting Officer
Robert Thurman(2) Vice President-Corporate 44 October 1992
Administration
William H. Kauffman(3) Vice President-Operations 43 December 1993
</TABLE>
(1) Mr. Decker tendered his resignation effective June 21, 1996. He was
the Executive Vice President and Chief Operating Officer since January 1996. The
Board of Directors has not elected anyone to replace Mr. Decker, and does not
expect to at the present time. Mr. Decker's responsibilities have been assumed
by other individuals in the Company.
(2) Mr. Thurman tendered his resignation effective April 30, 1996. He
was Vice President-Corporate Administration of the Company since joining the
Company in October 1992. The Board of Directors has not elected anyone to
replace Mr. Thurman, and does not expect to at the present time. Mr. Thurman's
responsibilities have been assumed by other individuals in the Company.
(3) Mr. Kauffman tendered his resignation as an officer effective
January 1, 1997. He was the Vice President - Operations since December 1993. The
Board of Directors has not elected anyone to replace Mr. Kaufmann, and does not
expect to at the present time. Mr. Kaufmann has remained an employee of the
Company.
Each officer is elected to serve until the next annual meeting of the
Board of Directors of the Company is held and until his or her successor is duly
elected and has qualified unless such officer has a contract which provides
otherwise.
The business experience of John J. Cadigan and Suzanne C. Brown are
presented below.
John J. Cadigan, has been the Chairman, Chief Executive Officer,
President, Corporate Secretary, Treasurer and a Director of the Company since
February 1991. Mr. Cadigan was the Chairman of the Board of Pacific Animated
Imaging, Inc. from its date of incorporation on May 3, 1989 to the date of
merger with Trans Am Capital Corp., the surviving corporation, on February 11,
1991. He has been the President and Chief Executive Officer of JMC Company, a
subsidiary of the Company, from 1983 to present.
Suzanne C. Brown, CPA has been employed by the Company since February
1994 as the Company's Controller. In January 1996, Ms. Brown was promoted to
Chief Financial Officer. From August 1988 to February 1994, Ms. Brown was
employed by KPMG Peat Marwick, an international accounting firm.
4
<PAGE>
Executive Compensation
The following table shows the compensation paid or accrued by the
Company or its subsidiaries for the fiscal year ended December 31, 1996, 1995,
and 1994 to or for the account of the Chief Executive Officer. No other
executive officer of the Company received an annual salary and bonus in excess
of $100,000 or more. Accordingly, the summary compensation table does not
include compensation of other executive officers.
<TABLE>
<CAPTION>
================================================================ ======================================= ==============
Annual Compensation Long Term Compensation
Awards Payouts
--------------- -------- ------------ ---------- -------------- -------------- ----------- ------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Annual Restricted All other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary ($) Bonus sation Award(s) SARs Payouts sation
($) ($) ($) (#) ($) ($)
--------------- -------- ------------ ---------- -------------- -------------- ----------- ------------ --------------
<S> <C>
John Cadigan, 1996 99,142 0 19,555(1) 0(2) 150,000 0 0
CEO, President
& Chairman of
the Board
-------- ------------ ---------- -------------- -------------- ----------- ------------ --------------
1995 99,283 0 17,699(1) 0(2) 28,571 0 0
-------- ------------ ---------- -------------- -------------- ----------- ------------ --------------
1994 100,705 0 17,739(1) 0(2) 0 0 0
================================================================ ======================================= ==============
</TABLE>
(1) Includes $15,000 paid pursuant to a Split Dollar Plan Agreement.
(2) In June 1994, the Company established a deferred compensation plan
as described under "Stock Option Plans". During 1996, 1995 and
1994, no shares under the Plan had been earned by Mr. Cadigan.
Employment Agreements
Mr. Cadigan has entered into an employment agreement with the Company,
effective September 1, 1995, to serve as Chairman, President and Chief Executive
Officer. The agreement has an initial term of three (3) years and is subject to
termination on August 31, 1998, upon requisite notice given. If no such notice
is given the agreements will renew for successive three (3) year periods. Mr.
Cadigan's base salary is $100,000, however, it is subject to revision
periodically in the discretion of the Executive Compensation and Stock Option
Committee of the Board of Directors. The employment agreement contains a
restrictive covenant not to compete under the term of the agreement and for two
(2) years following termination of service. The agreement further provides for a
car allowance and for a severance payment equal to 299% of the annual base
compensation due under the agreement in the event there is a "change of control"
of the Company, as defined in the agreement, and he is subsequently terminated
without cause.
5
<PAGE>
EXECUTIVE AND OTHER EMPLOYEE BENEFIT PLANS
Incentive Stock Option Plan No. 1
The Company has in effect an Incentive Stock Option Plan adopted by the
Stockholders of Company in 1992 which provides that (a) options for up to 39,222
shares of Common Stock, par value $.0001 per share, may be issued to employees
of the Company; (b) the exercise price shall be not less than the fair market
value of the shares on the date on which the option is granted unless an
employee, immediately before the grant, owns more than 10% of the total combined
voting power of all classes of stock of the Company or any subsidiaries,
whereupon the exercise price shall be at least 110% of the fair market value of
the shares on the date on which the option is granted; (c) the term of the
option may not exceed ten (10) years and may not exceed five (5) years if the
employee owns more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiaries immediately before the grant; (d) the
shares of stock may not be disposed of for a period of two (2) years from the
date of grant of the option and for a period of one (1) year after the transfer
of such shares to employee; (e) at all times from the date of grant of the
option(s) and ending on the date three (3) months before the date of exercise,
employee shall be employed by Company, or a subsidiary of Company, unless
employment is terminated because of disability, in which case such disabled
employee shall be employed from date of grant to a year preceding the date of
exercise, or unless employment is terminated due to death; (f) the options are
subject to a vesting formula of twenty (20%) per year of employment after the
grant with the first twenty (20%) percent vesting on the date of the grant; and
(g) such other terms as may be approved by the Board of Directors of the
Company. The Plan and each option shall be subject to Sections 421 and 422 of
the Internal Revenue Code of 1986, as amended.
There were no options granted to Directors and/or Executive Officers
for Fiscal Year 1996 pursuant to this plan. Suzanne C. Brown, Chief Financial
Officer of Company, was granted 10,000 options on January 30, 1997 at a price of
$15.375 per share. There are 10,369 options available for future grant pursuant
to this plan.
Incentive Stock Option Plan No. 2
The Company has in effect an Incentive Stock Option Plan adopted by the
Stockholders of Company in 1994 which provides that (a) options for up to 28,571
shares of Common Stock, par value $.0001 per share, may be issued to employees
of the Company; (b) the exercise price shall be not less than the fair market
value of the shares on the date on which the option is granted unless an
employee, immediately before the grant, owns more than 10% of the total combined
voting power of all classes of stock of the Company or any subsidiaries,
whereupon the exercise price shall be at least 110% of the fair market value of
the shares on the date on which the option is granted; (c) the term of the
option may not exceed ten (10) years and may not exceed five (5) years if the
employee owns more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiaries immediately before the grant; (d) the
shares of stock may not be disposed of for a period of two (2) years from the
date of grant of the option and for a period of one (1) year after the transfer
of such shares to employee; (e) at all times from the date of grant of the
option(s) and ending on the date three (3) months before the date of exercise,
employee shall be employed by Company, or a subsidiary of Company, unless
employment is terminated because of disability, in which case such disabled
employee shall be employed from date of grant to a year preceding the date of
exercise, or unless employment is terminated due to death; (f) the options are
subject to a vesting formula of twenty (20%) per year of employment after the
grant with the first twenty (20%) percent vesting on the date of the grant; and
(g) such other terms as may be approved by the Board of Directors of the
Company. The Plan and each option shall be subject to Sections 421 and 422 of
the Internal Revenue Code of 1986, as amended.
All options available pursuant to this plan have been granted prior to
1996, therefore the plan is applicable only to those options outstanding.
6
<PAGE>
Nonqualified Stock Option Plan No. 1
The Company has in effect a Nonqualified Stock Option Plan No. 1,
adopted in 1992, which provides that (a) options for up to 8,571 shares of
Common Stock, par value $.0001 per share, may be issued to directors of the
Company; (b) the option price may be greater than or less than the fair market
value of the shares on the date on which the option is granted; (c) the term of
an option may not exceed ten (10) years and shall expire no later than one (1)
year after the date of death; (d) the options are subject to a vesting formula
of twenty (20%) per year of employment after the grant with the first twenty
(20%) percent vesting on the date of the grant; and (e) such other terms as may
be approved by the Board of Directors of the Company.
All options available pursuant to this plan have been granted prior to
1996, therefore the plan is applicable only to those options outstanding.
Nonqualified Stock Option Plan No. 2
The Company has in effect a Nonqualified Stock Option Plan No. 2,
adopted in 1994, which provides that (a) options for up to 71,428 shares of
Common Stock, par value $.0001 per share, may be issued to consultants in
consideration of services performed or to be performed on behalf of the Company;
(b) the option price may be greater than or less than the fair market value of
the shares on the date on which the option is granted; (c) options may be
granted in the discretion of the Chief Executive Officer of the Company, without
prior Board of Director approval, however, the Board of Directors shall ratify
all grants; (d) the term of an option shall be for a period of ten (10) years
from the date of grant, or such other time as is determined by the Chief
Executive Officer; and (e) such other terms determined by the Chief Executive
Officer.
There have been no options granted to Directors and/or Executive
Officers for Fiscal Year 1996 pursuant to this plan. There are 7,144 options
available for future grant pursuant to this plan.
Nonqualified Stock Option Plan No. 3
The Company has in effect a Nonqualified Stock Option Plan No. 3,
adopted in 1995, which provides that (a) options for up to 13,571 shares of
Common Stock, par value $.0001 per share, may be issued to directors of the
Company; (b) the option price may be greater than or less than the fair market
value of the shares on the date on which the option is granted; (c) the term of
an option may not exceed ten (10) years or such other time as may be determined
by the Board of Directors, and shall expire no later than one (1) year after the
date of death; (d) the options are subject to a vesting formula of twenty (20%)
per year of employment after the grant with the first twenty (20%) percent
vesting on the date of the grant; and (e) such other terms as may be approved by
the Board of Directors of the Company.
There have been no options granted to Directors and/or Executive
Officers in Fiscal Year 1996 pursuant to this plan. There are 2,858 options
available for future grant pursuant to this plan.
Nonqualified Stock Option Plan No. 4
The Company has in effect a Nonqualified Stock Option Plan No. 4,
adopted in 1996, which provides that (a) options for up to 32,500 shares of
Common Stock, par value $.0001 per share, may be issued to directors, officers
and employees of the Company; (b) the option price may be greater than or less
than the fair market value of the shares on the date on which the option is
granted; (c) the term of an option may not exceed ten (10) years or such other
time as may be determined by the Board of Directors and shall expire no later
than three (3) months after the date of death; (d) the options are subject to a
vesting formula of twenty (20%) per year of employment after the grant with the
first twenty (20%) percent vesting on the date of the grant; and (e) such other
terms as may be approved by the Board of Directors of the Company.
7
<PAGE>
Options Granted in Fiscal Year 1996
to Directors and/or Executive Officers
<TABLE>
<CAPTION>
Percentage of
Total Options
Granted to
Options Employees in
Name Granted Fiscal Year Price per Share Expiration Date Amount Vested
- ---- ------- ----------- --------------- --------------- -------------
<S> <C>
Mark Decker 28,500 60.00% $ 5.25 1/11/01 0- expired(1)
Robert Thurman 4,000 8.42% $ 8.875 1/11/06 4,000
Frederick Pettit 15,000 31.58% $13.50 1/17/07
</TABLE>
(1) Mr. Decker tendered his resignation effective June 21, 1996. The
options granted to him had not vested and therefore lapsed upon his termination
of service.
There are 13,500 options available for future grant pursuant to this
plan.
Nonqualified Stock Option Plan No. 5
The Company has in effect a Nonqualified Stock Option Plan No. 5,
adopted in 1996, which provides that (a) options for up to 100,000 shares of
Common Stock, par value $.0001 per share, may be issued to directors, officers
and employees of the Company; (b) the option price may be greater than or less
than the fair market value of the shares on the date on which the option is
granted; (c) the term of an option may not exceed ten (10) years or such other
time as may be determined by the Board of Directors and shall expire no later
than three (3) months after the date of death; (d) as directed by the Board or
Committee appointed by the Board, options granted under this plan may be
exercisable pursuant to a vesting formula which will set forth the dates and the
number of options which are available; and (e) such other terms as may be
approved by the Board of Directors of the Company.
There were no options granted to Directors and/or Executive Officers in
Fiscal Year 1996 pursuant to this plan. There are 100,000 options available for
future grant pursuant to this plan.
Nonqualified Stock Option Plan No. 6
The Company has in effect a Nonqualified Stock Option Plan No. 6,
adopted in 1996, which provides that (a) options for up to 150,000 shares of
common stock, par value $.0001 per share, may be issued to directors, officers
and employees of the Company; (b) the option price may be greater than or less
than the fair market value of the shares on the date on which the option is
granted; (c) the term of an option may not exceed ten (10) years or such other
time as may be determined by the Board of Directors and shall expire no later
than three (3) months after the date of death; and (d) as directed by the Board
or Committee appointed by the Board, options granted under this plan may be
exercisable pursuant to a vesting formula which will set forth the dates and the
number of options which are available; and (e) such other terms as may be
approved by the Board of Directors of the Company.
On June 20, 1996, John J. Cadigan, CEO and Chairman of Company, was
granted 150,000 options, representing 100% of the options granted from this plan
during 1996, at a price of $11.75 per share which vested 100% immediately and
expire in June 2006. All options available pursuant to this plan were granted in
1996, therefore the plan is applicable only to those options outstanding.
8
<PAGE>
Nonqualified Stock Option Plan No. 7
The Company has in effect a Nonqualified Stock Option Plan No. 7,
adopted in 1997, which provides that (a) options for up to 100,000 shares of
common stock, par value $.0001 per share, may be issued to consultants of the
Company who have performed or who are about to perform services for the Company;
(b) the option price may be greater than or less than the fair market value of
the shares on the date on which the option is granted; (c) the term of an option
may not exceed six (6) months or such other time as may be determined by the
Board of Directors; and (d) such other terms as may be approved by the Board of
Directors of the Company.
There were no options granted to Directors and/or Executive Officers in
Fiscal Year 1996 pursuant to this plan. There are 100,000 options available for
future grant pursuant to this plan.
401(k)/Profit Sharing Plan
The Company has in effect a 401(k)/Profit Sharing Plan adopted by the
Board of Directors of the Company on April 15, 1994 to be effective January 1,
1994. Under the Plan, the employees of Company may contribute to the Plan by
reducing their gross salary by an amount not to exceed the lesser of fifteen
(15%) percent of salary or the dollar limit provided by the Internal Revenue
Code. The 1997 limit is $9,500.00. The Company, subject to discretion of the
Board of Directors, may also contribute to the Plan if it has profits.
Contributions are not mandatory.
Nonqualified Deferred Compensation Plan
On June 24, 1994, the Board of Directors approved a Nonqualified
Deferred Compensation Plan for Executive Employees of the Company in the form of
a Phantom Stock Plan. This Plan was subsequently amended on May 15, 1995. This
Plan, which is administered by the Executive Compensation and Stock Option
Committee of the Board of Directors, provides for participation of Executive
Employees based upon certain performance standards. Awards under the Plan are
made in units which correspond to shares of stock of the Company. Upon
termination of the Plan, the Employee is given shares of stock of the Company
equal to the value of units owned. Currently, John J. Cadigan is the only
executive employee participating in the Plan. The initial term of the Plan is
for a period commencing June 24, 1994 and ending December 31, 1997. The Board of
Directors originally provided for a total of 85,714 shares to be issued pursuant
to the terms of the Plan. Upon the resignation of Larry Crawford, a participant
under the Plan, 42,857 were forfeited. The Plan as now formulated provides for a
total of 42,857 performance shares available for grant, in increments of 4,285,
12,857, 12,857 and 12,857 for the years 1994, 1995, 1996 and 1997, respectively.
Mr. Cadigan will earn units under the Plan if the price of the stock or earnings
per share reach certain designated levels. No units have been earned to date
under the terms of this plan. Therefore, there remains 12,857 available to be
issued.
9
<PAGE>
Option Exercises and Fiscal Year End Values
The following table provides information as to the unexercised options
to purchase the Company's Common Stock granted in fiscal year 1996 and prior
fiscal years to the named officers and the value of said options held by them as
of the end of the year.
OPTION VALUES AS OF DECEMBER 31, 1996
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Fiscal Year-End Fiscal Year-End *
--------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ----------- ------------- ----------- -------------
(#) (#) ($) ($)
John J. Cadigan 167,142 17,143 460,242 65,358
Suzanne C. Brown 914 1,371 3,485 5,227
* The aggregate values are determined according to the market price of
the Common Stock at fiscal year end ($14.3125) less the exercise price. Where no
value is assigned, the market price was less than the option price for such
individual, therefore, there is no value as to those options. However, the
actual value, if any, that an executive may realize will depend on the price of
the Common Stock on the date of exercise of the option. There is no assurance
that the value stated above will be equal to the value realized by the
executive.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information concerning the beneficial
security ownership as of March 7, 1997 of the Company's Common Stock by the
Directors and Executive Officers, individually and as a group. The table also
sets forth the only persons who, to the Company's knowledge, are the beneficial
owners of more than five (5%) percent of the outstanding voting securities of
the Company. Each person has sole voting and investment power with respect to
the shares reported, except as otherwise noted.
Shares Owned
Beneficially as of
Name of Beneficial Owner March 7, 1997(1) Percent of Class (2)
- ------------------------ --------------------- --------------------
John J. Cadigan (3)(4) ....... 210,224 12.8%
Suzanne C. Brown (5) ......... 2,914 *
A. David Rossin (6) .......... 7,100 *
Joseph Amato (7) ............. 5,713 *
Frederick Pettit (8).......... 17,857 *
All Directors and Officers ... 243,808 14.9%
of the Company
* Represents less than one (1%) percent of the issued and outstanding
shares.
(1) The amount and percentage of securities beneficially owned by an
individual are determined in accordance with the definition of
beneficial ownership as set forth in the regulations to the Securities
Exchange Act of 1934, as amended, and accordingly, may include
securities owned by or for the spouse and/or minor children of the
individual and any other relative who has the same home as the
individual, as well as other securities as to
10
<PAGE>
which the individual has voting or investment power or has the right to
acquire within 60 days after the date of this Proxy Statement.
Beneficial ownership may be disclaimed by an individual as to certain
of the securities. Unless otherwise indicated, all shares listed are
owned both of record and beneficially.
(2) Based upon 1,633,839 shares of Common Stock issued and outstanding as
of March 7, 1997. Securities not outstanding which are subject to such
options, warrants, rights or conversion privileges shall be deemed to
be outstanding for the purpose of computing the percentage of
outstanding securities of the class owned by such person but shall not
be deemed to be outstanding for the purpose of computing the percentage
of the class by any other person.
(3) May be deemed to be a "founder" of the Company for the purpose of the
Securities Act of 1933, as amended.
(4) The shares listed as being beneficially owned by Mr. Cadigan include
42,797 shares owned by him outright, 285 shares owned by his wife,
options to purchase 5,714 shares of the Common Stock granted to him
pursuant to Incentive Stock Option Plan No. 1 and options to purchase
11,428 of the 28,571 shares of Common Stock granted to him pursuant to
Incentive Stock Option Plan No. 2 and options to purchase 150,000
shares of Common Stock granted to him pursuant to Nonqualified Stock
Option Plan No. 6.
(5) The shares listed as being beneficially owned by Ms. Brown represents
options to purchase 2,914 of the 12,285 shares of Common Stock granted
to her pursuant to Incentive Stock Option Plan No. 1.
(6) The shares listed as being beneficially owned by Mr. Rossin include
1,386 shares owned by him outright, options to purchase 2,500 shares of
Common Stock granted to him pursuant to the Nonqualified Stock Option
Plan No. 1 and options to purchase 3,214 shares of Common Stock granted
to him pursuant to Nonqualified Stock Option Plan No. 3.
(7) The shares listed as being beneficially owned by Mr. Amato include
options to purchase 1,071 shares of Common Stock granted to him
pursuant to the Nonqualified Stock Option Plan No.1 and options to
purchase 4,642 shares of Common Stock granted to him pursuant to
Nonqualified Stock Option Plan No. 3.
(8) The shares listed as being beneficially owned by Mr. Pettit include
options to purchase 2,857 shares of the Common Stock granted to him
pursuant to Nonqualified Stock Option Plan No. 3 and options to
purchase 15,000 shares of Common Stock granted to him pursuant to
Nonqualified Stock Option Plan No. 4.
Effective August 13, 1992, the Securities and Exchange Commission
adopted new rules regarding the filing of public reports by directors, officers
and beneficial owners of more than ten (10%) percent of any class of Securities
of a company registered pursuant to Section 12 of the Securities Exchange Act.
The new rules require proxy statement disclosure of those directors, officers
and more than ten (10%) percent beneficial owners that fail to file required
reports or that fail to timely file such reports. All directors and officers are
current in filing required reports as of March 25, 1997.
11
<PAGE>
PROPOSALS OF THE BOARD OF DIRECTORS
The Board of Directors expect to present the following proposals at the
Meeting:
PROPOSAL NO. 1
Adoption of Incentive Stock Option Plan No. 3
The Board of Directors approved Incentive Stock Option Plan No. 3 (
hereinafter referred to as "Stock Option Plan") on January 30, 1997, subject to
ratification by the Stockholders. A copy of the proposed Stock Option Plan is
attached hereto as Exhibit "A". The Stock Option Plan, if ratified, will provide
management with a vehicle in which to grant stock options to employees of the
Company in order to offer employees a stake in the growth and performance of the
Company and to provide an incentive to contribute to the Company's future
success. The Stock Option Plan provides the authority to grant up to a total of
80,000 shares of Common Stock, par value $.0001 per share. The Stock Option Plan
will terminate on the tenth (10th) anniversary of the date of the Plan, or at
such earlier time as the Board of Directors may determine.
Administration and Eligibility
The Stock Option Plan will be administered by the Executive
Compensation and Stock Option Committee of the Board of Directors (the
"Committee") of the Company. The Committee will have authority to determine
which employees will be granted options and in what amounts. All employees,
including officers, are eligible under the Stock Option Plan. No monetary
consideration will be received by the Company in connection with the grant of
any options under the Stock Option Plan.
Stock Options
The options granted shall be subject to the following restrictions: (a)
the exercise price shall be not less than the fair market value of the shares on
the date on which the option is granted unless an employee, immediately before
the grant owns more than 10% of the total combined voting power of all classes
of stock of the Company or any subsidiaries, whereupon the exercise price shall
be at least 110% of the fair market value of the shares on the date on which the
option is granted; (b) the term of the option may not exceed ten (10) years and
may not exceed five (5) years if the employee owns more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiaries
immediately before the grant; (c) the shares of stock may not be disposed of for
a period of two (2) years from the date of the grant of the option and for a
period of one (1) year after the transfer of such share(s) to the employee; (d)
at all times from the date of grant of the option(s) and ending on the date
three (3) months before the date of exercise, an employee shall be employed by
Company, or a subsidiary of Company unless Employment is terminated because of
disability, in which case such disabled employee shall be employed from the date
of grant to a year preceding the date of exercise, or if employment terminates
due to death; (e) the options are subject to a vesting formula of twenty (20%)
per year of employment after the grant with the first twenty (20%) percent
vesting on the date of the grant; and (f) such other terms as may be approved by
the Board of Directors of the Company.
Federal Tax Consequences
Each option shall be subject to Sections 421 and 422 of the Internal
Revenue Code of 1986, as amended. There are no federal tax consequences to the
employee or the Company upon the grant or exercise of a qualified stock option,
as there is no income to the employee, and there is no deduction for the
Company. However, in the event the employee sells the stock (after the two (2)
year holding period from date of grant and the one (1) year holding period from
date of exercise) the stock sold is taxed at capital gains rates. If the
employee sells the stock prior to the expiration of the two (2) year and one (1)
year periods then any gain is treated as ordinary income to the employee and a
deduction shall be allowed to the Company.
12
<PAGE>
Board of Directors' Recommendation and Vote Required for Approval
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING
SHARES OF THE COMPANY STOCK ENTITLED TO VOTE IS REQUIRED FOR THE ADOPTION OF
THIS PROPOSAL. UNLESS OTHERWISE DIRECTED, PROXIES WILL BE VOTED "FOR" APPROVAL
OF THIS PROPOSAL.
The Board of Directors recommends to the Stockholders that they vote
FOR the proposal to approve the adoption of Incentive Stock Option Plan No. 3.
The Board of Directors believes that it is important to have a sufficient
inventory of tax-favored options available to attract and retain qualified
employees.
PROPOSAL NO. 2
Change of Company Name
The Company's Stockholders will also be asked to consider and vote upon
the change of the Company name from Pacific Animated Imaging Corporation to
Strategic Solutions Group, Inc.
On January 30, 1997, the Board of Directors unanimously approved an
amendment to the Articles of Incorporation of Pacific Animated Imaging
Corporation to change the name of the Company to "STRATEGIC SOLUTIONS GROUP,
INC."
The Board of Directors believe that the current name Pacific Animated
Imaging Corporation does not accurately convey to the public the business of the
Company. The name, Strategic Solutions Group, Inc., would appropriately identify
the business of the Company. To accomplish the change of name it will be
necessary to amend Article FIRST of the Articles of Incorporation.
The name "Strategic Solutions Group, Inc." has been reserved in the
State of Delaware, the State of the Company's incorporation. While this name has
been reserved, there is no absolute guarantee of its availability upon
application, a situation which the Board of Directors does not anticipate.
IF THE CHANGE OF NAME IS APPROVED, THE STOCK CERTIFICATES WILL ONLY BE
REQUIRED TO BE ALTERED IN THE CASE OF SALE OR TRANSFER OF CERTIFICATES. THIS
ALTERATION WOULD BE ACCOMPLISHED EITHER BY AMENDING THE CURRENT CERTIFICATE OR
ISSUING NEW CERTIFICATES, WHICHEVER METHOD IS MORE EFFICIENT AND FEASIBLE.
It is anticipated the change in name would become effective immediately
after an affirmative vote by the Stockholders upon proper application with the
relevant state.
The Board of Directors reserves the right to abandon the change in
name, whether before or after Stockholder approval has been obtained, if
circumstances arise, which in the opinion of the Board of Directors, render
proceeding with the change in name inadvisable.
Board of Directors' Recommendation and Vote Required for Approval
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF OUTSTANDING SHARES
OF THE COMPANY'S COMMON STOCK ENTITLED TO VOTE IS REQUIRED FOR THE ADOPTION OF
THE PROPOSAL. UNLESS OTHERWISE DIRECTED, PROXIES WILL BE VOTED "FOR" APPROVAL OF
THIS PROPOSAL.
The Board of Directors recommends that stockholders vote FOR an
amendment to the Certificate of
13
<PAGE>
Incorporation to change the Company's name.
PROPOSAL NO. 3
PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION TO
EFFECT A THREE-FOR-TWO STOCK SPLIT
The Board of Directors recommends that the Stockholders authorize an
amendment to the Company's Certificate of Incorporation to effect a 3-for-2
stock split of the issued and unissued shares of the Company's Common Stock.
The Board of Directors believes that the 3-for-2 stock split in the
Common Stock would result in a market price that should be more attractive to a
broader spectrum of investors and therefore should benefit both the Company and
its Stockholders. Assuming transactions of an equivalent dollar amount, however,
brokerage commissions on purchases and sales of the Common Stock after the split
and transfer taxes, if any, may be somewhat higher than before the split,
depending on the specific number of shares involved. The Company will apply for
listing on NASDAQ Small Cap Market, on which the Company's Common Stock is
listed, of the additional shares that would be outstanding after the 3-for-2
stock split.
EFFECTIVE DATE
If the proposed amendment to the Certificate of Incorporation is
approved by the Stockholders at the Meeting or any adjournments thereof, it is
expected that a Certificate of Amendment to the Company's Certificate of
Incorporation would be filed immediately with the Secretary of State of the
State of Delaware by which the 3-for-2 stock split would become effective as of
5:00 p.m. EST on the date of such filing (the "Effective Date"). Without any
further action on the part of the Company or the Stockholders, Stockholders of
record at the close of business on the Effective Date will be entitled to
receive one additional share for each two shares held. No fractional shares of
Common Stock will be issued for any fractional share interest resulting from the
stock split. In lieu thereof, Stockholders holding a number of shares of Common
Stock not evenly divisible by two will receive cash in lieu of fractional shares
of Common Stock. The price payable by the Company will be determined by
multiplying the fraction of the additional share by the average of the closing
bid prices, as reported by the NASDAQ Small Cap Market, for the Common Stock on
the five trading days immediately prior to the Effective Date. The funds
required to purchase the fractional shares will be paid from the current cash
reserves of the Company. The Company's stockholder list indicates that a portion
of the outstanding Common Stock is registered in the names of clearing agencies
and broker nominees. It is therefore not possible to predict with certainty the
number of fractional shares and the total amount that the Company will be
required to pay for fractional shares. However, it is anticipated that the funds
required will not be material.
EFFECT OF THREE-FOR-TWO STOCK SPLIT ON EXISTING SECURITY HOLDERS
The terms of the shares of New Common Stock will be the same as the
terms of the predecessor shares of Common Stock and the Amendment effectuating
the 3-for-2 stock split will not affect any Stockholder's proportionate equity
interest in the Company or the rights, preferences or privileges of any
Stockholder. Neither the par value of the Common Stock, which is $0.0001 per
share, nor any rights presently accruing to holders of Common Stock will be
affected by this transaction.
The 3-for-2 stock split will only affect the issued and outstanding
shares of Common Stock, and will not alter the number of authorized shares.
Effective with the 3-for-2 stock split, the exercise price, conversion ratio,
shares available for issuance, and other relevant terms and provisions of the
Company's Nonqualified Stock Option Plan No. 1, Nonqualified Stock Option Plan
No. 2, Nonqualified Stock Option Plan No. 3, Nonqualified Incentive Stock Option
Plan No. 4, Nonqualified Incentive Stock Option Plan No. 5, Nonqualified
Incentive Stock Option Plan No. 6, Nonqualified Incentive Stock Option Plan No.
7, Incentive Stock Option Plan No. 1, Incentive Stock Option Plan No. 2, the
proposed
14
<PAGE>
Incentive Stock Option Plan No. 3, if adopted by the Stockholders at the
Meeting, and the Phantom Stock Plan, as well as outstanding options and warrants
to purchase Common Stock (whether or not issued under any of the Company's
option plans), will be appropriately adjusted to reflect the 3-for-2 split.
As of March 7, 1997, there were 1,633,839 shares of Common Stock issued
and outstanding. In addition, 17,142 shares of Common Stock are issuable upon
the exercise of outstanding warrants; 46,620 shares of Common Stock are reserved
for issuance pursuant to the acquisition agreements incident to the Company's
acquisitions of U.S. Technologies, Inc. and Forsight, Inc.; 46,602 shares of
Common Stock are reserved for issuance pursuant to a proposed phantom stock plan
between the Company and employees of U.S. Technologies, Inc.; and 602,508 shares
of Common Stock are reserved for issuance upon the exercise of options under the
Company's stock option plans (including 80,000 options proposed under Proposal
No. 1 for the adoption of Incentive Stock Option Plan No. 3). Thus, there were
2,653,289 authorized shares of Common Stock unissued and not reserved for
issuance.
The Company's Common Stock does not provide preemptive rights to
purchase newly issued shares. Under Delaware law, Stockholders are not entitled
to dissenter's rights to appraisal with respect to the 3-for-2 stock split
Proposal.
The following table sets forth the effect that the 3-for-2 stock split
Proposal would on have the Common Stock (assuming no fractional shares result):
Prior to After 3-for-2
Common Stock Stock Split Stock Split
------------ ----------- -------------
Issued and outstanding 1,633,839 2,450,758
Issuable or Reserved
Upon exercise of
outstanding warrants 17,142 25,713
Pursuant to acquisitions of
U.S. Technologies, Inc. and
Forsight, Inc. 46,620 69,930
Pursuant to phantom
stock plan 46,602 69,903
Pursuant to Stock Option
Plans 602,508 903,762
------- -------
Total Issued, Outstanding,
Issuable and Reserved 2,346,711 3,520,066
Unissued and Not Reserved 2,653,289 1,479,934
--------- ---------
Total Authorized Shares 5,000,000 5,000,000
========= =========
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, the Company will send
a letter of instruction to each Stockholder of record on the Effective Date for
use in submitting stock certificates representing shares of Common Stock ("old
certificates") to the Company's transfer agent, American Transfer & Trust Co.,
40 Wall Street, 46th Floor, New York, New York 10005 (the "Exchange Agent"). The
letter of instruction will contain instructions for the surrender of old
certificates to the Exchange Agent in exchange for certificates representing the
number of shares of New Common Stock. No new certificate will be issued to a
Stockholder until the Stockholder has surrendered all old certificates together
with a properly completed and executed letter of instruction to the Exchange
Agent.
15
<PAGE>
Upon proper completion and execution of the letter of instruction and
return thereof to the Exchange Agent, together with all old certificates, a
Stockholder will receive a new certificate or certificates representing the
number of shares of New Common Stock into which their shares of Common Stock
have been converted as a result of the 3-for-2 split. Until surrendered,
outstanding old certificates held by a Stockholder shall represent only the
right to receive a new stock certificate for the number of shares of Common
Stock to which the Stockholder is entitled as a result of the 3-for-2 split.
Stockholders who own a number of shares not evenly divisible by two,
and otherwise would receive fractional shares, will receive a cash payment in
lieu thereof. Upon surrender of all share certificates and a letter of
instruction, as provided above, such Stockholder will receive a share
certificate for whole shares equal to the proportionate number of shares held by
such Stockholder, and a cash payment for any fractional shares resulting from
the 3-for-2 stock split. Such cash payment shall be based on the average of the
closing bid prices, as reported by the NASDAQ Small Cap Market, for the Common
Stock on the five trading days immediately prior to the Effective Date.
The ownership of a fractional interest will not give the Stockholder
any voting, dividend or other right with respect to such interest, except to
receive payment therefor as described above.
All costs associated with the exchange of stock certificates and
issuance of new certificates and/or cash payment will be borne by the Company.
The Company, upon the Effective Date of the 3-for-2 stock split, will deposit
with the Exchange Agent sufficient sums to satisfy all cash payments for
redemption of fractional shares.
FEDERAL INCOME TAX CONSEQUENCES
In accordance with the Internal Revenue Code and the regulations
thereto, currently in effect, summarized below are the Federal income tax
consequences to Stockholders of the Company which would result from any of the
proposed stock split. This summary is based on the Federal income tax laws as
now in effect and as currently interpreted; it does not take into account
possible changes in such laws or interpretations, including amendments to
applicable statutes, regulations and proposed regulations or changes in judicial
or administrative rulings, some of which may have retroactive effect. The
Company does not intend to address all possible Federal income tax consequences
of the Stock Split and does not intend this section to be tax advice to any
person. In particular, and without limiting the foregoing, this summary does not
consider the Federal income tax consequences to Stockholders of the Company in
light of their individual investment circumstances or to holders subject to
special treatment under the Federal income tax laws (for example, life insurance
companies, financial institutions, tax-exempt organizations, regulated
investment companies and foreign taxpayers). Furthermore, the information
provided herein takes into consideration only the Federal tax laws and does not
address any consequence of the stock split under state, local or foreign tax or
other laws.
EACH STOCKHOLDER IS ENCOURAGED TO CONSULT HIS OR HER TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH
STOCKHOLDER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN
INCOME TAX AND OTHER LAWS.
The receipt of additional shares of Common Stock in the stock split
will not result in taxable income to the Stockholders; one-third of the cost or
other tax basis of the pre-split shares, in the aggregate, will be allocated to
the additional shares; and the holding period for the additional shares received
as a result of the split will include the period for which the corresponding
pre-split shares were held.
A Stockholder who receives a cash payment for fractional shares will be
treated as if the Company has issued fractional shares to such Stockholder, and
then the Stockholder immediately redeems those fractional shares for cash. The
redemption will cause the Stockholder to recognize gain or loss, depending upon
the Stockholder's basis in the shares of stock held prior to the stock split, as
allocated to such fractional shares resulting from the stock split. The gain
16
<PAGE>
or loss recognized will be treated as capital gain or loss, assuming the
Stockholder held the stock as a capital asset.
Board of Directors' Recommendation and Vote Required for Approval
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF OUTSTANDING SHARES
OF THE COMPANY'S COMMON STOCK ENTITLED TO VOTE IS REQUIRED FOR THE ADOPTION OF
THE PROPOSAL. UNLESS OTHERWISE DIRECTED, PROXIES WILL BE VOTED "FOR" APPROVAL OF
THIS PROPOSAL.
The Board of Directors recommends that Stockholders vote FOR an
amendment to the Certificate of Incorporation to effect a three-for-two split of
the Common Stock of the Company.
PROPOSAL NO. 4
Appointment of Auditors for 1997
The Board of Directors, subject to the approval of the Stockholders,
appointed Coopers & Lybrand L.L.P., as independent certified public accountants
to audit the consolidated financial statements of the Company and its
subsidiaries for the year ending December 31, 1997.
A representative of Coopers & Lybrand L.L.P. is expected to be present
at the Annual Meeting and will have the opportunity to make a statement if he or
she so desires. Such representative will be available to respond to appropriate
questions.
Board of Directors' Recommendation and Vote Required for Approval
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE OUTSTANDING
SHARES OF THE COMPANY STOCK, PRESENT AT THE MEETING IN PERSON OR BY PROXY, IS
REQUIRED FOR THE ADOPTION OF THIS PROPOSAL. UNLESS OTHERWISE DIRECTED, PROXIES
WILL BE VOTED "FOR" APPROVAL OF THIS PROPOSAL.
The Board of Directors recommends to the Stockholders that they vote
FOR the proposal to approve the appointment of Coopers & Lybrand L.L.P. as
independent certified public accountants for 1997.
PROPOSALS FOR 1998 ANNUAL MEETING
Stockholder proposals for the 1998 Annual Meeting must be received at
the principal executive offices of the Company, 326 First Street, Suite 100,
Annapolis, Maryland 21403, no later than December 31, 1997, for inclusion in the
1998 Proxy Statement and form of Proxy.
OTHER MATTERS
At the time of preparation of this proxy statement, the Board of
Directors is not aware of any matter, except as aforementioned, that will be
presented at the meeting. However, if any other business should properly come
before the meeting, it is intended that the accompanying proxy may be voted on
such other matters in accordance with the best judgment of the person or persons
voting said proxy.
A copy of the 1996 Annual Report of the Company is being mailed to
Stockholders together with this Notice and Proxy Statement. The Annual Report
contains consolidated financial statements for the Company and its subsidiaries
and the report thereon of Coopers & Lybrand L.L.P., independent certified public
accountants.
17
<PAGE>
The Company will provide, upon request a copy of the Company's Form
10-K for the fiscal year ended December 31, 1996 as filed with the Securities
and Exchange Commission. Any such request should be in writing and addressed to
the Company at 326 First Street, Suite 100, Annapolis, Maryland 21403 attention:
John J. Cadigan, Secretary.
From the Board of Directors,
John J. Cadigan, Secretary
Annapolis, Maryland
18
<PAGE>
EXHIBIT "A"
PACIFIC ANIMATED IMAGING CORPORATION
INCENTIVE STOCK OPTION PLAN NO. 3
Effective
1
<PAGE>
<TABLE>
<S> <C>
1. Definitions........................................................................................... 1
-----------
2. Purpose............................................................................................... 1
-------
3. Administration........................................................................................ 1
--------------
4. Shares Subject to Plan................................................................................ 2
----------------------
5. Eligible Employees.................................................................................... 2
------------------
6. Restrictions on Eligibility........................................................................... 2
---------------------------
7. Allotment of Shares................................................................................... 2
-------------------
8. Grant of Option....................................................................................... 2
---------------
9. Option Price.......................................................................................... 2
------------
10. Option Period......................................................................................... 3
-------------
11. Termination of Option................................................................................. 3
---------------------
12. Rights in Event of Termination of Service, Retirement, Disability or Death............................ 3
--------------------------------------------------------------------------
13. Payment and Notice of Exercise........................................................................ 3
------------------------------
14. Exercise of Option.................................................................................... 4
------------------
15. Changes in Capital Structures......................................................................... 4
-----------------------------
16. Nontransferability.................................................................................... 5
------------------
17. Transfers of Stock Received Upon Exercise............................................................. 5
-----------------------------------------
18. Re-Issuance of Shares................................................................................. 5
---------------------
19. Interpretation........................................................................................ 5
--------------
20. Term of Plan, Amendment, Discontinuance............................................................... 5
---------------------------------------
21. Effect of the Plan, etc............................................................................... 6
------------------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
22. Governing Law......................................................................................... 6
-------------
</TABLE>
PACIFIC ANIMATED IMAGING CORPORATION
INCENTIVE STOCK OPTION PLAN NO. 3
1. Definitions. As used herein, the following terms shall have the
following meanings:
(a) "Board" shall mean the Board of Directors of Pacific Animated
Imaging Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
Reference herein to specific sections of the Code shall include references to
any successor provisions to such sections.
(c) "Committee" shall mean the committee appointed by the Board
pursuant to Section 3. of this Plan to administer this Plan.
(d) "Company" shall mean Pacific Animated Imaging Corporation and its
subsidiaries, if any.
(e) "Effective Date" shall mean the date this Plan is approved by the
stockholders of Pacific Animated Imaging Corporation, as provided in Section 19.
hereof.
(f) "Option Period" shall mean the period during which an option
granted under this Plan shall be exercisable, as set forth in Section 10.
hereof.
(g) "Subsidiary", for purposes of this Plan, shall mean any corporation
(or similar organization) of which the Company owns, directly or indirectly,
more than 50% of the total voting power of all classes of stock entitled to vote
therein.
2. Purpose. The purpose of this Plan is to increase the interest in the
welfare of the Company of those employees of the Company who have made valuable
contributions to the business of the Company, to furnish such employees with an
incentive to continue their services to the Company, and to attract able
personnel to the employ of the Company through the grant to such employees of
options to purchase shares of the Company's Common Stock. The Company intends
that options granted pursuant to the provisions of this Plan will qualify as
"incentive stock options" within the meaning of Section 422 of the Code.
3. Administration. This Plan shall be administered by the Board or a
committee (the "Committee") of not less than two (2) members of the Board.
Members of the Committee shall be appointed, and vacancies shall be filled, by
the Board. No member of the Board or Committee shall
3
<PAGE>
participate in any action by the Board or Committee which allots or grants
options to him/her personally.
4. Shares Subject to Plan. Options may be granted from time to time under
this Plan providing for the purchase of not more than eighty thousand (80,000)
shares of the common stock, par value $.0001 per share, of the Company ("Common
Stock"), as constituted on the Effective Date (subject to adjustment pursuant to
Section 15.), plus such number of such shares as may become available for
reissuance pursuant to Section 17. Shares of authorized and unissued Common
Stock reacquired by the Company and held in its Treasury, as from time to time
determined by the Board, may be issued upon exercise of options granted under
this Plan.
5. Eligible Employees. Except as provided in Section 6. hereof, employees
of the Company who are designated by the Board or the Committee shall be
eligible to be granted options under this Plan. Said designated employee shall
hereinafter be referred to as "Participant".
6. Restrictions on Eligibility. No option shall be granted under
this Plan to any employee who, immediately before the option is granted, owns
stock possessing more than ten (10%) percent of the total combined voting power
of all classes of stock of (i) the Company or (ii) any of the Company's
subsidiaries (within the meaning of Section 422(b)(6) of the Code and the
Treasury Regulations thereunder), unless (a) at the time of such grant the
option price is at least one hundred ten (110%) percent of the fair market value
of the shares represented by such option on that date, and (b) such option is
not exercisable after the expiration of five (5) years from the date of grant.
7. Allotment of Shares. The grant of an option to an eligible employee
under this Plan shall not be deemed either to entitle such employee to, or to
disqualify such employee from, participation in any other grant of options under
this Plan.
8. Grant of Option. Except as otherwise provided in Section 6., options may
be granted under this Plan from time to time prior to the expiration of ten (10)
year period commencing with the Effective Date. The aggregate fair market value
(determined as of the date such options are granted) of the stock with respect
to which incentive stock options are exercisable for the first time by such
Participant in any calendar year under all stock option plans of the Company and
its subsidiaries shall not exceed one hundred thousand ($100,000) dollars, or
such other amount as may be specified from time to time in Section 422(b)(7) of
the Code. Grants under this Plan shall be made only by resolution adopted by
Board or the Committee. The grant of an option under this Plan shall commence to
have legal force and effect at the time of adoption by the Board or the
Committee of the resolutions making the grant, and the employee to whom such
option is granted shall become a Participant in this Plan at such time.
9. Option Price. Except as otherwise provided in Section 6., the price at
which the Common Stock may be purchased upon the exercise of an option granted
under this Plan shall be fixed by the Board or the Committee but shall be not
less than the fair market value of such shares on
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the date on which the option is granted. The fair market value of such shares
shall be determined in accordance with the provisions of the Code and Treasury
Regulations promulgated thereunder.
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10. Option Period. Subject to the provisions of Section 14. below, an
option granted under this Plan may be exercised during the period (the "Option
Period") which begins on the date the option is granted (or such other time as
may be determined by the Committee as set forth in the resolutions evidencing
the grant of the option) and which ends
(a) on the earlier of
(i) the expiration of 10 years (5 years in the case of an employee
described in Section 6.) after the date the option is granted; or
(ii) the termination of the Participant's employment with the
Company (within the meaning of Section 422(a)(2) of the Code) for any reason
except as provided in Section 12. of this Plan; or
(b) such shorter period of time as may be determined by the Board or
the Committee, as set forth in the resolution evidencing the grant of the
option.
11. Termination of Option. All rights to exercise an option granted under
this Plan shall terminate at the end of the Option Period, as described in
Section 10. above.
12. Rights in Event of Termination of Service, Retirement, Disability or
Death. If a Participant terminates service with the Company, retires from the
Company on or after attainment of age 65, has his/her employment by the Company
terminated due to disability (within the meaning of Section 22(e)(3) of the
Code, as determined by the Board or the Committee) or dies without having fully
exercised an option granted under this Plan, the Participant, his/her
representative or custodian (in the event of his/her incompetency), or the
executors, administrators, legatees or distributees of his/her estate (in the
event of his/her death) shall have the right, for a period of three (3) months
after the date of his/her termination of service, retirement or death or for a
period of one (1) year after the date of his/her termination of employment due
to disability, to exercise the unexercised and unexpired portion, if any, of
such option, in whole or in part, to the same extent that the Participant could
have exercised such option before the expiration of such three-month or one-year
period had the Participant continued to be an employee of the Company.
13. Payment and Notice of Exercise. Full payment of the purchase price for
shares purchased upon the exercise, in whole or in part, of an option granted
under this Plan shall be made at the time of such exercise. The purchase price
may be paid for with cash, stock in the Company, or a combination thereof. No
such shares shall be issued or transferred to a Participant until full payment
therefor has been made and the Participant has delivered his/her written Notice
of Exercise of the respective options to the Company at its principal office,
and a Participant who is not already a stockholder at the time of the issue
shall have none of the rights of a stockholder until shares are issued or
transferred to him/her.
14. Exercise of Option. No option under this Plan shall be exercisable at
any time by a
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Participant to whom an "incentive stock option" (as such term is defined in
Section 422 of the Code) has previously been granted prior to December 31, 1986
while such previously granted incentive stock option is "outstanding" (within
the meaning of Section 422 of the Code), in whole or in part. Unless the Board
or Committee otherwise directs, options granted hereunder shall be exercisable
by a Participant pursuant to the Vesting Formula defined below, provided the
Participant is employed by Company on the Allocation Dates as defined below. On
the original date of grant the Participant shall have the right to purchase as
much as twenty (20%) percent of the shares of Common Stock which are the subject
of his/her option. On the first anniversary of the original date of grant and on
the second, third and fourth anniversary of the original date of grant
thereafter, Participant shall have the right to purchase as much as an
additional twenty (20%) percent of the shares of Common Stock which are the
subject of his/her option. As of the fourth anniversary of the original date of
grant, Participant shall have the right to purchase one hundred (100%) percent
of the shares of Common Stock which are the subject of his/her option. The
Allocation Dates are the above mentioned four (4) anniversary dates of the
original date of grant. Options granted under this Plan shall otherwise be
exercisable during the Option Period at such times, in such amounts, in
accordance with such terms and conditions, and subject to such restrictions as
may be determined by the Board or Committee, and as are set forth in the
resolutions and the Notice of Grant evidencing a Participant's exercise of such
options. In no event shall an option be exercised or shares be issued pursuant
to an option if any applicable laws shall not have been conformed with or if
requisite approval or consent of any governmental authority having jurisdiction
over the exercise of the options or the issue and sale of the Common Stock shall
not have been secured, unless in the opinion of counsel for the Company, the
exercise or issuance is exempt from the obligation to obtain such approval or
consent. Each Participant shall agree not to offer, sell, pledge, hypothecate or
otherwise transfer any shares of Common Stock purchased pursuant to the exercise
of an option granted under this Plan unless the shares have been registered
under applicable federal and state securities laws or unless the proposed
transaction is exempt from such registration in the opinion of counsel for the
Company. Each Participant shall, at the time of purchase of shares of Common
Stock upon the exercise of an option, if requested by the Company upon advice of
its counsel that the same is necessary or desirable, deliver to the Company
his/her written representation that he/she is purchasing the shares for his/her
own account for investment and not with a view to public distribution or with
any present intention of reselling any of such shares, and deliver such other
written representations as may be reasonably requested by the Company to assure
compliance with applicable laws. If a Participant so requests, shares purchased
upon the exercise of any option may be issued in or transferred into the name of
the Participant and another person jointly with right of survivorship.
15. Changes in Capital Structures. In the event of the payment of any
dividend payable in, or the making of any distribution of, Common Stock of the
Company to holders of record of Common Stock of the Company, which increases the
outstanding Common Stock of the Company by more than twenty-five (25%) percent
during the period any option granted under this Plan is outstanding or in the
event of any stock split, combination of shares, recapitalization or other
similar change in the authorized capital stock of the Company during such period
or in the event of the merger or consolidation of the Company into or with any
other corporation or the reorganization, dissolution, liquidation or winding up
of the Company during such period, Participants shall be
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entitled, upon the exercise of any unexercised option held by them, to receive
such new, additional or other shares of stock of any class, or other property
(including cash), as they would have been entitled to receive as a matter of law
in connection with such payment, distribution, stock split, combination,
recapitalization, as the case may be, had they held the shares of the Common
Stock being purchased upon exercise of such option on the record date set for
such payment or distribution or on the date of such stock split, combination,
recapitalization, change, merger, consolidation, reorganization, dissolution or
liquidation, and the option price under any such option shall be appropriately
adjusted. In case any such event shall occur during the term of this Plan, the
number of shares that may be optioned and sold under this Plan as provided in
Section 4. shall be appropriately adjusted. The decision of the Board or the
Committee, with respect to all such adjustments shall be conclusive.
16. Nontransferability. Options granted under this Plan shall not be
transferable other than by will or by the laws of descent and distribution, and
shall be exercisable only by the Participant or by Participant's heirs or
personal representatives in accordance with Section 12. of this Plan.
17. Transfers of Stock Received Upon Exercise. Pursuant to ss.423(a) of the
Code, there shall be no income tax consequences incurred upon the grant of an
option or upon the exercise of an option, provided, a Participant who has
received stock pursuant to exercise of an option to purchase Common Stock, does
not dispose of such shares of stock for a period of 2 years from the date of the
grant of the option or for a period of 1 year from the date of transfer of such
stock to Participant, whichever is later.
18. Re-Issuance of Shares. Any shares of Common Stock which, by reason of
the expiration of an option or otherwise, are no longer subject to purchase
pursuant to an option granted under this Plan shall be available for re-issuance
under this Plan.
19. Interpretation. The Board or the Committee shall interpret this Plan
and prescribe, amend or rescind rules and regulations relating to it and make
any and all other determinations necessary or advisable for its administration.
20. Term of Plan, Amendment, Discontinuance. This Plan shall be or has been
submitted for approval by the holders of at least a majority of the shares
called for that purpose within twelve months before or after adoption of the
Plan by the Board. Upon stockholder approval, the Plan shall be deemed effective
and adopted as of such date. This Plan, unless sooner terminated or discontinued
by the Board pursuant to this Section 19., shall expire on the tenth anniversary
of the Effective Date (except to the extent necessary for administration of
options exercisable but unexercised on that date), and no options shall be
granted under this Plan after that date. The Board may terminate or discontinue
this Plan at any time and may suspend this Plan or amend or modify this Plan in
any respect at any time or from time to time, without the approval of the
stockholders, except that the number of shares of Common Stock that may be
optioned and sold under this Plan, as provided in Section 4., above, may not be
changed (except pursuant to Section 15., above) and the
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class of eligible employees to whom options may be granted, as provided in
Sections 5. and 6. above, may not be modified without the approval of the
stockholders of the Company and the Board or the Committee. No action of the
Board, the Committee or stockholders may alter or impair the rights of a
Participant under any option theretofore granted to him/her without his/her
consent to such action.
21. Effect of the Plan, etc. Neither the adoption of this Plan nor any
action of the Board or Committee, shall be deemed to give any employee any right
to be granted an option to purchase Common Stock of the Company or any other
rights hereunder unless and until the Board or Committee shall have adopted a
resolution granting such employee an option, and then only to the extent and on
such terms and conditions as may be set forth in such resolution; the terms and
conditions of options granted under this Plan may differ from one another as the
Board or Committee shall at its discretion determine, as long as all options
granted under the Plan satisfy the requirements in this Plan.
Date Adopted by Board: January 30, 1997
Date Approved by Stockholders:
Effective Date:
22. Governing Law. The validity, construction, interpretation and effect of
this instrument shall exclusively be governed by and determined in accordance
with the laws of the State of Delaware, except to the extent preempted by
federal law, which shall to such extent govern.
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