SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or 240.14a-12
fonix (TM) corporation
...........................................................................
(Name of Registrant as Specified in Charter)
...........................................................................
(Name of Person(s) Filing Proxy Statement If Other Than The Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] 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 For of Schedule and the date of
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<PAGE>
fonix (TM) corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 14 , 1998
To the Shareholders:
Notice is hereby given that the Annual Meeting of the Shareholders of
fonix corporation ("the Company") will be held at the Marriott Hotel, 75
South West Temple Street, Salt Lake City, Utah 84101, on Tuesday, July 14,
1998, at 10:00 a.m., M..D.T. for the following purposes, which are
discussed in the following pages and which are made part of this Notice:
1. To elect eight directors, each to serve until the next annual
meeting of shareholders and until his or her successor is
elected and shall qualify;
2. To approve the Company's 1998 Stock Option and Incentive Plan;
3. To ratify the Company's adoption of the 1997 Stock Option and
Incentive Plan;
4. To approve the issuance by the Company of up to 6,666,666
shares of restricted common stock to private investors,
together with such additional amounts of common stock as may be
issuable as a result of certain "reset" and "reset adjustment"
provisions applicable to such shares;
5. To approve the Board of Directors' selection of Arthur Andersen
LLP, as the Company's independent public accountant for the
fiscal year ended December 31, 1998; and
6. To consider and act upon any other matters that properly may
come before the meeting or any adjournment thereof.
The Company's Board of Directors has fixed the close of business on
Monday, June 8, 1998 as the record date for the determination of
shareholders having the right to notice of, and to vote at, the Annual
Meeting of Shareholders and any adjournment thereof. A list of such
shareholders will be available for examination by a shareholder for any
purpose germane to the meeting during ordinary business hours at the
offices of the Company at 1225 Eagle Gate Tower, 60 East South Temple
Street, Salt Lake City, Utah 84111, during the ten business days prior to
the meeting.
You are requested to date, sign and return the enclosed proxy which
is solicited by the Board of Directors of the Company and will be voted as
indicated in the accompanying proxy statement and proxy. Your vote is
important. Please sign and date the enclosed Proxy and return it promptly
in the enclosed return envelope whether or not you expect to attend the
meeting. The giving of your proxy as requested hereby will not affect your
right to vote in person should you decide to attend the Annual Meeting.
The return envelope requires no postage if mailed in the United States. If
mailed elsewhere, foreign postage must be affixed. Your proxy is revocable
at any time before the meeting.
By Order of the Board of Directors,
Jeffrey N. Clayton, Secretary
Salt Lake City, Utah
June 12, 1998
<PAGE>
fonix(TM) corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
(801) 328-0161
-----------------------------
PROXY STATEMENT
-----------------------------
ANNUAL MEETING OF SHAREHOLDERS
The enclosed proxy is solicited by the Board of Directors of fonix
corporation ("fonix " or the "Company") for use in voting at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at the Marriott
Hotel, 75 South West Temple Street, Salt Lake City, Utah 84101, on
Tuesday, July 14, 1998, at 10:00 a.m., M.D.T., and at any postponement or
adjournment thereof, for the purposes set forth in the attached notice.
When proxies are properly dated, executed and returned, the shares they
represent will be voted at the Annual Meeting in accordance with the
instructions of the shareholder completing the proxy. If a signed proxy is
returned but no specific instructions are given, the shares will be voted
(i) FOR the nominees for directors set forth herein, (ii) FOR the
ratification of the Company's adoption of the 1997 Stock Option and
Incentive Plan, (iii) FOR approval of the Company's 1998 Stock Option and
Incentive Plan, (iv) FOR approval of the issuance by the Company of up to
6,666,666 shares of restricted common stock to private investors, together
with such additional amounts of common stock as may be issuable as a result
of "reset" or "reset adjustment" provisions applicable to such shares as
described herein; and (v) FOR approval of Arthur Andersen LLP, as the
Company's independent public accountant for the fiscal year ended December
31, 1998. A shareholder giving a proxy has the power to revoke it at any
time prior to its exercise by voting in person at the Annual Meeting, by
giving written notice to the Company's Secretary prior to the Annual
Meeting or by giving a later dated proxy.
The presence at the meeting, in person or by proxy, of shareholders
holding in the aggregate a majority of the outstanding shares of the
Company's common stock entitled to vote shall constitute a quorum for the
transaction of business. The Company does not have cumulative voting for
directors; a plurality of the votes properly cast for the election of
directors by the shareholders attending the meeting, in person or by proxy,
will elect directors to office. A majority of votes properly cast upon any
question presented for consideration and shareholder action at the meeting,
other than the election of directors, shall decide the question.
Abstentions and broker non-votes will count for purposes of establishing a
quorum, but will not count as votes cast for the election of directors or
any other questions and accordingly will have no effect. Votes cast by
shareholders who attend and vote in person or by proxy at the Annual
Meeting will be counted by inspectors to be appointed by the Company (the
Company anticipates that the inspectors will be employees, attorneys or
agents of the Company).
The close of business on Monday, June 8, 1998, has been fixed as the
record date for determining the shareholders entitled to notice of, and to
vote at, the Annual Meeting. Each share shall be entitled to one vote on
all matters. As of the record date there were _________________________
shares of the Company's common stock outstanding and entitled to vote. For
a description of the principal holders of such stock, see "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" below.
This Proxy Statement and the enclosed Proxy are being furnished to
shareholders on or about Friday, June 12, 1998.
-----------------------------
<PAGE>
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors shall be
determined from time to time by the shareholders or the Board of Directors,
but that there shall be no less than three. Presently the Company's Board
of Directors consists of nine members, all but one of whom are nominees for
reelection at the Annual Meeting. Mr. James B. Hayes, who has served as a
director since June 1994, will not stand for reelection at the Annual
Meeting. Each director elected at the Annual Meeting will hold office
until a successor is elected and qualified, or until the director resigns,
is removed or becomes disqualified. Unless marked otherwise, proxies
received will be voted FOR the election of each of the nominees named
below. If any such person is unable or unwilling to serve as a nominee for
the office of director at the date of the Annual Meeting or any
postponement or adjournment thereof, the proxies may be voted for a
substitute nominee, designated by the proxy holders or by the present Board
of Directors to fill such vacancy, or for the balance of those nominees
named without nomination of a substitute, or the Board may be reduced
accordingly. The Board of Directors has no reason to believe that any of
such nominees will be unwilling or unable to serve if elected as a
director.
The following information is furnished with respect to the nominees.
Stock ownership information is shown under the heading "Security Ownership
of Certain Beneficial Owners and Management" and is based upon information
furnished by the respective individuals.
DIRECTOR NOMINEES
STEPHEN M. STUDDERT, Chairman, Chief Executive Officer. Mr. Studdert, 49,
is a co-founder of the Company and has been Chairman since the merger
of Phonic Technologies, Inc. ("PTI") and the Company in June 1994,
and has been the Company's Chief Executive Officer since May 1996.
He also is the Chairman of the Board of Directors of K.L.S. Enviro
Resources, Inc. ("KLSE"), a company with a class of securities
registered under Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Since 1992, Mr. Studdert has
been Chairman of Studdert Companies Corp. ("SCC"), an international
investment management company that is owned and controlled by three
individuals who each are executive officers and directors of the
Company. He served as a White House advisor to U.S. Presidents Bush,
Reagan and Ford. Mr. Studdert has served as a member of the
President's Export Council and the Foreign Trade Practices
Subcommittee, and he is a director and former chairman of the Federal
Home Loan Bank of Seattle.
THOMAS A. MURDOCK, President, Chief Operating Officer and Director. Mr.
Murdock, 54, is a co-founder and has served as an executive officer
and member of the Company's Board of Directors since June 1994. Mr.
Murdock also has served as President of SCC since 1992 and Assistant
to the Chairman and Director of Synergetics, Inc., a research company
located in Utah that provides research and development services in
connection with the Company's automatic computer voice recognition
and related technologies. For much of his career, Mr. Murdock has
been a commercial banker and a senior corporate executive with
significant international emphasis and experience. Mr. Murdock also
serves as a director of KLSE.
ROGER D. DUDLEY, Executive Vice President, Corporate Finance, and Director.
Mr. Dudley, 45, is a co- founder and has served as an executive
officer and member of the Company's Board of Directors since June
1994. Mr. Dudley is also executive vice president of SCC, a position
he has held since 1993. After several years at IBM in marketing and
sales, he began his career in the investment banking and asset
management industry. He has extensive experience in real estate
asset management and in project development. He also serves as an
executive officer of an entity which manages a foreign investment
fund. He is also a director of KLSE.
JOHN A. OBERTEUFFER, Ph.D., Vice President Technology and Director. Dr.
Oberteuffer, 57, has been a Director of the Company since March 1997
and Vice President Technology since January 1998. He is also the
founder and president of Voice Information Associates, Inc. ("VIA").
VIA is a consulting group providing strategic technical, market
evaluation, product development and corporate information to the
automatic speech recognition industry. In addition, VIA publishes
the monthly newsletter, ASRNews. Dr. Oberteuffer also is executive
director of the American Voice Input/Output Society ("AVIOS"). He
was formerly vice president, personal computer systems, of Voice
Processing Corp. (now merged with Voice Control Systems, Inc.), and
also was founder and CEO of Iris Graphics, which was acquired by
Seitex Corp. Dr. Oberteuffer received his bachelor's and master's
degrees from Williams College, and his Ph.D. in Physics from
Northwestern University, and he was a member of the research staff at
Massachusetts Institute of Technology for five years.
ALAN C. ASHTON, Ph.D., Director. Dr. Ashton, 54, has served on the
Company's Board of Directors since October 23, 1995. He conducted
research and taught computer science for more than 16 years before
launching his own word-processing computer software company,
WordPerfect Corporation, where he also served as an executive officer
and director. WordPerfect employed more than 4,000 employees
worldwide and realized annual revenues of more than $700 million
before being acquired by Novell, Inc. in 1994. Dr. Ashton served as
a director Novell from 1994 until 1996. He presently serves on the
board of directors of Geneva Steel and SkyMall, Inc. Novell, Geneva
Steel and SkyMall each have a class of securities registered under
Section 12 of the Exchange Act. Dr. Ashton also currently serves on
the governing board of Utah Valley State College.
JOSEPH VERNER REED, Director. Ambassador Reed, 61, has served as a
director of the Company since June 1994. He is President of the
Secretariat and was Under Secretary General of the United Nations in
New York. Following a career as a senior advisor to the Chairman of
the Chase Manhattan Bank, Ambassador Reed received several
Presidential appointments in the United States diplomatic service,
including that of United States Ambassador to Morocco, United States
Ambassador to the United Nations, and Chief of Protocol of the United
States. He has extensive corporate experience and holds honorary
doctorates from several universities. Since December 31, 1996,
Ambassador Reed also has served as a director of KLSE, a company with
a class of securities registered under Section 12 of the Exchange
Act.
RICK D. NYDEGGER, Director. Mr. Nydegger, 49, is a patent and trademark
attorney. Mr. Nydegger was a founder and, during the past five
years, has been a shareholder and director of the law firm Workman,
Nydegger & Seeley in Salt Lake City, Utah, a firm specializing in
patent, trademark, copyright, trade secret, unfair competition,
licensing and intellectual property matters. Mr. Nydegger received
his law degree from the J. Reuben Clark Law School (cum laude, 1974)
in Provo, Utah. He has published numerous articles in trade journals
and law reviews on the subject of computer law and intellectual
property. Mr. Nydegger is registered to practice before the U.S.
Patent and Trademark Office and has been admitted to practice before
the U.S. Court of Appeals in the Federal Circuit and the Fifth and
Tenth Circuits, as well as the U.S. Supreme Court. Mr. Nydegger has
been a member of the Company's Board of Directors since December
1996. He also joined the Board of Directors of KLSE in December
1996.
REGINALD K. BRACK, Director. Mr. Brack, 60, was named to the Board of
Directors in September 1997. He is the chairman emeritus of Time
Inc., serving as the CEO of Time Inc. from 1986 until 1994 and as
chairman of the board until 1997. Time Inc., a wholly owned
subsidiary of Time Warner Inc., is the world's largest book and
magazine publishing company and the fastest growing on-line media
entity.
SIGNIFICANT EMPLOYEES AND CONSULTANTS
In addition to the officers and directors identified above, the Company
expects the following individuals (listed in alphabetical order) to make
significant contributions to the Company's business.
E. DAVID BARTON. Mr. Barton was a founder of AcuVoice and continues to
serve as its Chief Executive Officer. Before founding AcuVoice in
1985, Mr. Barton was the founder and Chief Executive Officer of
Bartco International, Inc., a Texas corporation from 1976 to 1985.
Since 1959, Mr. Barton has held a number of executive positions with
companies doing business in the U.S. and abroad. He holds a BA in
Psychology and an MA in Psychology and Language from the Catholic
University of America, an MA in Japanese Language, History and
Culture from the Institute of Oriental Languages in Tokyo, Japan, and
an MS (with credits in Linguistics, Phonology and Semantics) from the
University of New York.
JEFFREY N. CLAYTON. Mr. Clayton, 51, has served as Vice President, Legal
of the Company since January, 1997. He graduated from the
University of Utah College of Law in 1972. From 1981 to 1983, he
served as Administrator, Pension and Welfare Benefit Programs, U.S.
Department of Labor, a member of the Pension Working Group, White
House Council on Economic Affairs, and the Chairman of the ERISA
Advisory Council, U.S. Department of Labor. From 1981 to 1983, He
was Chairman, Interagency Task Force on the Pension Benefit Guarantee
Corporation. From 1983 to the present, he has served on the
Editorial Advisory Board, Bureau of National Affairs Pension &
Benefits Reporter. He presently is a member of the Subcommittee on
Fiduciary Responsibility of the Tax Section Committee on Employee
Benefits and the Committee on Employee Benefits of the Labor Law
Section of the American Bar Association.
CARL HAL HANSEN. Mr. Hansen, 47, is co-inventor of the Company's automatic
speech recognition technologies ("ASRT"), and Chairman and CEO of
Synergetics. Mr. Hansen holds a degree in Electronics from the Utah
Trade Technical Institute of Provo, Utah. For approximately fourteen
years, Mr. Hansen was employed by Signetics, Inc. in various
capacities, including Test Equipment Engineer, Characterization
Engineer, Product Engineer, and as an Electronic Specialist. He was
involved in the design, fabrication and release of layout design for
PC boards and interfaces. In 1991, Mr. Hansen founded Synergetics,
where he continues to have direct leadership with respect to new
product development and engineering. Since March 13, 1997, he has
been a full-time consultant to the Company.
CAROLINE HENTON, Ph.D. Dr. Henton, 43, is Vice President and Strategic
Technology Adviser of the Company since February 1998. Dr. Henton
received a masters degree in General Linguistics and a Doctorate in
Acoustic Phonetics from the University of Oxford. After an academic
career in the UK and California, she joined Apple Computer, Inc. to
produce the high quality synthetic speech available on all Apple
platforms. For the past five years, Dr. Henton has been Director of
Language Development for Voice Processing Corp. (Cambridge, MA) and
Director of Linguistic Development for the DECtalk speech synthesizer
produced by Digital Equipment Corp. She has also acted as a
consultant in speech synthesis, linguistics, localization, speech
interface design and as a voice talent for Sun Microsystems, Inc.,
Claris Corp., Digital Sound Corp., Lexicon naming Inc., Interval
Research Inc., Apple Computer, General Magic, Inc., and Digital
Equipment Corp.
TONY R. MARTINEZ, Ph.D. Dr. Martinez, 38, is senior consulting scientist
for the Company's neural network development. He received his Ph.D.
in computer science at UCLA in 1986. He is an associate professor of
Computer Science at Brigham Young University and currently heads up
the Neural Network and Machine Learning Laboratory in the BYU
Ph.D./MS program. His main research is in neural networks, machine
learning, ASOCS, connectionist systems, massively parallel algorithms
and architectures, and non-von Neuman computing methods. He is
associate editor of the Journal of Artificial Neural Networks.
R. BRIAN MONCUR. Mr. Moncur, 39, co-inventor of the Company's ASRT, was
employed by Synergetics from 1992 to March 13, 1997, when he became a
full-time employee of the Company. He graduated from Brigham Young
University with a Bachelor of Science degree in chemical engineering.
Before his employment with Synergetics, Mr. Moncur was employed by
Signetics, Inc. and Mentorgraphics, where he was a Senior Process
Engineer and Software Development Engineer.
DOUGLAS L. REX. Mr. Rex, 53, has served as the Chief Financial Officer of
the Company since May 1997. For seven years prior to joining the
Company, Mr. Rex was President of Tebbs & Smith P.C., a business
consulting, tax planning, accounting and auditing firm. Mr. Rex is a
member of the Financial Executives Institute, American Institute of
Certified Public Accountants (AICPA) and the Utah Association of
Certified Public Accountants (UACPA). Mr. Rex is also the Chief
Financial Officer of KLSE. Mr. Rex is also a Vice President and the
CFO of SCC.
DALE LYNN SHEPHERD. Mr. Shepherd, 38, Senior Project Engineer and co-
inventor of the Company's ASRT, was employed by Synergetics from 1992
to March 13, 1997, when he became a full-time employee of the
Company. He graduated from Brigham Young University with a Bachelor
of Science Degree in Electrical Engineering. He also received a
Masters of Business Administration from B.Y.U. Before his employment
with Synergetics, Mr. Shepherd was employed with Mentorgraphics where
he acted as a software systems architect in automatic semiconductor
design. Before Mentorgraphics, Mr. Shepherd worked on a contract
basis with Signetics, Inc.
None of the executive officers or directors of the Company are
related to any other officer or director of the Company.
BOARD OF DIRECTORS MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Company's Board of Directors took action at 7 duly noticed
meetings of the Board during 1997. Each director attended (in person or
telephonically) at least 75% of the meetings of the Company's Board of
Directors except Messrs. Hayes and Reed, who attended or otherwise
participated in 5 of the 7 meetings. During 1997, the Company's Board of
Directors had the following committees: 1996 Directors' Stock Option Plan
Committee, comprised of Messrs. Ashton, Reed and Studdert; 1997 Stock and
Incentive Plan Committee, comprised of Messrs Nydegger and Reed, Audit
Committee, comprised of Messrs. Hayes, Reed and Dudley, and Compensation
Committee, comprised of Messrs. Studdert, Reed, Ashton and Nydegger. These
standing committees conducted meetings in conjunction with meetings of the
full Board of Directors.
Prior to April 1996, the Company's directors received no compensation
for their service as such, although the Company historically has reimbursed
its directors for actual expenses incurred in traveling to and
participating in director's meetings, and the Company intends to continue
that policy for the foreseeable future. On April 30, 1996, the Company's
board of directors adopted, and the Company's shareholders subsequently
approved, the Company's 1996 Directors' Stock Option Plan (the "Directors
Plan"). Under the Directors Plan, members of the Board as constituted on
the date of adoption received options to purchase 200,000 shares of the
Company's Common Stock for each year (or any portion thereof consisting of
at least six months) during which such persons had served on the board for
each of fiscal years 1994 and 1995 and were granted 200,000 for each of
fiscal 1996 and 1997 which options vest after completion of at least six
months' service on the Board during those fiscal years. Such options have
terms of 10 years. In addition to the Directors Plan, in 1997, the
Company adopted the 1997 Stock Option and Incentive Plan under which stock
options may be granted to directors, as well as other employees and
consultants. Thus, under the Directors Plan or the 1997 Stock Option
Plan, during the fiscal year ended December 31, 1997, the Company granted
stock options to members of the Board as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS GRANTED TO DIRECTORS DURING FISCAL YEAR 1997
SHARES DATE EXERCISE SHARES VESTED
NAME GRANTED (#) GRANTED PRICE PER SHARE AT FY-END
- -------------------- ----------- -------- --------------- -------------
<S> <C> <C> <C> <C>
Stephen M. Studdert 200,000 10/28/97 $6.00 600,000
Alan C. Ashton 200,000 10/28/97 $6.00 200,000
Joseph Verner Reed 200,000 10/28/97 $6.00 600,000
James B. Hayes 200,000 10/28/97 $6.00 600,000
Rick D. Nydegger 200,000 3/13/97 $7.13 200,000
200,000 10/28/97 $6.00 0
Reginald K. Brack 200,000 10/28/97 $6.00 0
Thomas A. Murdock 200,000 10/28/97 $6.00 600,000
Roger D. Dudley 200,000 10/28/97 $6.00 600,000
</TABLE>
Dr. John A. Oberteuffer received options to purchase 180,000 shares
of the Company's common stock on January 23, 1998, which options have an
exercise price of $3.34 per share and expire on January 23, 2008. Although
Dr. Oberteuffer serves on the Company's Board of Directors, such options
were paid in connection with his compensation as an employee of the
Company, and were granted under the Company's 1997 Stock Option and
Incentive Plan rather than the Director's Plan. He has received no other
compensation for his service as a director.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who beneficially own more
than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Officers, directors and greater than ten-percent
shareholders are required by regulation of the Securities and Exchange
Commission to furnish the Company with copies of all Section 16(a) forms
which they file. Based solely on its review of the copies of such forms
furnished to the Company during the fiscal year ended December 31, 1997,
the Company is aware of the following untimely filings: the grant of the
options to each director in October 1997 was reported on a Form 5 which was
filed after the 45th day following the fiscal year end. However, the
Company believes that all other transactions required to be reported under
Section 16(a) of the Securities Exchange Act were reported on timely filed
reports by the affected individuals.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the
compensation paid to the Company's Chief Executive Officer and the
Company's other executive officers whose annual compensation exceeded
$100,000 during the last fiscal year (other than the Chief Executive
Officer), collectively the "Named Executive Officers":
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS
- ------------------------------------------------------------------------------------
SECURITIES
OTHER UNDERLYING
ANNUAL OPTIONS/
NAME AND PRINCIPAL POSITION YEAR (1) SALARY BONUS SARS(#)
- --------------------------- ------- -------- --------- ----------
<S> <C> <C> <C> <C>
Stephen M. Studdert 1995 -- /(2)/ -- /(2)/ 0
CEO (4/96-Present) 1996 $ 131,539 -- /(2)/ 400,000
1997 $ 305,385 -- /(2)/ 400,000
Thomas A. Murdock 1995 -- /(2)/ -- /(2)/ 0
CEO (6/94 to 4/96) 1996 $ 131,539 -- /(2)/ 400,000
President, COO 1997 $ 305,385 -- /(2)/ 400,000
Roger D. Dudley 1995 -- /(2)/ -- /(2)/ 0
Exec. VP 1996 $ 131,539 -- /(2)/ 400,000
1997 $ 305,385 -- /(2)/ 400,000
</TABLE>
- ----------------------------
/(1)/ All options granted to named executive officers during fiscal
1996 were granted under the Company's 1996 Director's Stock
Option Plan as compensation for their service on the Company's
Board of Directors [See Director Compensation, above]. All
options granted in 1997 were granted pursuant to the Company's
1997 Stock Option and Incentive Plan.
/(2)/ During fiscal 1995 and part of 1996, these executive officers
were not compensated directly by the Company. During those
periods, any compensation received by the Named Executive
Officers for any services rendered by them to the Company was
paid by SCC, an entity owned and controlled by the Named
Executive Officers. [See, "Certain Relationships and Related
Transactions."] Although the Company makes no representation
about the compensation arrangements between SCC and its
employees, including the Named Executive Officers, the total
compensation paid by the Company to SCC during such periods is
as follows:
Management Fee Management Fee
Year (Cash) (Stock)
1995 $111,339 3,699,900 *
1996 $120,000 --
The management services contract between the Company and SCC
obligated the Company to pay SCC a monthly management fee of
$50,000, which amounts were invoiced monthly by SCC but often
accrued due to the Company's cash flow constraints. By July
1995, the Company owed SCC approximately $1,417,000 of accrued
but unpaid management fees. On November 16, 1994, the
Company's Board of Directors approved the issuance of warrants
(the "SCC Warrants") to purchase up to 3,700,000 shares of the
Company's Common Stock to SCC. The authorized purchase price
of the SCC Warrants was $.033 per share, and the authorized
exercise price for each share of Common Stock underlying the
SCC Warrants was $.35. The Board of Directors' resolution
authorizing the issuance of the SCC Warrants specified that the
purchase price for the SCC Warrants and the exercise price for
shares of Common Stock underlying the SCC Warrants could be
satisfied by canceling invoices for services previously
rendered to the Company under the Consulting Agreement or by
cash payment. On July 31, 1995, the Company issued and SCC
purchased the SCC Warrants. The purchase price of the SCC
Warrants was $.033 per share of Common Stock underlying the SCC
Warrants, or an aggregate of $122,100. On August 11, 1995, SCC
exercised the SCC Warrants at an exercise price of $.35 per
share of Common Stock underlying the SCC Warrants. Both the
$122,100 purchase price and the $1,295,000 aggregate exercise
price for the SCC Warrants were satisfied by the cancellation
of amounts invoiced to the Company by SCC pursuant to the SCC
Agreement during the fiscal year ended December 31, 1994 and
the period between January 1, 1995 and August 11, 1995. Such
cancellation was accomplished on a dollar-for-dollar basis.
The total dollar value of the transaction subsequently was
adjusted upward and expensed as compensation paid by the
Company in the amount of $3,699,900. [See, "Certain
Relationships and Related Transactions."]
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1997
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM
-------------------------------------------------------------------------------- ----------------------------
(a) (b) (c) (d) (e) (f) (g)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS EXERCISE
OPTIONS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- -------------------- ------------ ---------------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stephen M. Studdert 200,000 4.2% $6.00 10/28/2007 $60,000 $120,000
Thomas A. Murdock 200,000 4.2% $6.00 10/28/2007 $60,000 $120,000
Roger D. Dudley 200,000 4.2% $6.00 10/28/2007 $60,000 $120,000
</TABLE>
No options were exercised by the Named Executive Officers during the fiscal
year and no options held by them were in the money as of December 31, 1997.
EMPLOYMENT CONTRACTS
The Company presently has executive employment agreements with each
of the Named Executive Officers. The material terms of each executive
employment agreement with each executive officer are identical and are as
follows: The term of each employment contract is from November 1, 1996
through December 31, 2001. Annual base compensation for each executive for
the first three years of such term is $250,000 from November 1, 1996
through December 31, 1996; $325,000 from January 1, 1997 through December
31, 1997; and $425,000 from January 1, 1998 through December 31, 1999. The
annual base compensation for the final two years of the employment
agreement is $550,000 from January 1, 2000 through December 31, 2000; and
$750,000 from January 1, 2001 through December 31, 2001. However, for these
final two contract years, annual base compensation and the performance-
based incentive compensation will be subject to review by the Company's
Board of Directors based upon either or both of the market price of the
Company's Common Stock and profits derived by the Company from annual
revenues from operations. In addition, each executive officer is entitled
to annual performance-based incentive compensation payable on or before
December 31 of each calendar year during the contract term. During the
first three years of the contract term, the performance-based incentive
compensation is determined with relation to the market price of the
Company's Common Stock, adjusted for stock dividends and splits. If the
price of the Company's Common Stock maintains an average price equal to or
greater than the level set forth below over a period of any three
consecutive months during the calendar year, the performance-based
incentive compensation will be paid in the corresponding percentage amount
of annual base salary for each year as follows:
Quarterly Average Stock Price Percentage
Bonus
----------------------------- ----------
$10.00 30%
$12.50 35%
$15.00 40%
$20.00 45%
$25.00+ 50%
Each such executive officer also is entitled to customary insurance
benefits, office and support staff and the use of an automobile. In
addition, if any executive is terminated without cause during the contract
term then all salary then and thereafter due and owing under the executive
employment agreement shall, at the executive's option, be immediately paid
in a lump sum payment to the executive officer and all stock options,
warrants and other similar rights granted by the Company and then vested or
earned shall be immediately granted to the executive officer without
restriction or limitation of any kind. Further, the Board of Directors
authorized the payment of a cash bonus to SCC in an amount sufficient to
pay all personal state and federal income taxes on the 3.7 million shares
purchased by SCC on August 11, 1995 and on the bonus amount. The amounts
allocated for this bonus was $2.5 million, of which $2,102,585 had been
paid out as of December 31, 1997.
Each executive employment agreement contains a non-disclosure,
confidentiality, non-solicitation and non-competition clause. Under the
terms of the non-competition clause, each executive has agreed that for a
period of one year after the termination of his employment with the Company
that the executive not engage in any capacity in a business which competes
with or may compete with the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998, the number of
shares of Common Stock of the Company beneficially owned by all persons
known to be holders of more than 5 percent of the Company's Common Stock
and by the Executive Officers and Directors of the Company individually and
as a group. Unless indicated otherwise, the address of the shareholder is
the Company's offices, 60 East South Temple Street, Suite 1225, Salt Lake
City, Utah 84111.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME AND ADDRESS OF 5% BENEFICIAL OWNERS, BENEFICIALLY PERCENT OF
EXECUTIVE OFFICERS AND DIRECTORS OWNED CLASS/(1)/
- ------------------------------------------ ------------------ ----------
<S> <C> <C>
Thomas A. Murdock 26,947,981/(2)/ 51.2%
President, COO and Director
Alan C. Ashton, Director 12,329,167/(3)(4)/ 23.7%
c/o Beesmark Investments, L.C.
261 East 1200 South
Orem, Utah 84097
Beesmark Investments, L.C. 11,729,167/(4)/ 22.8%
5% Beneficial Owner
261 East 1200 South
Orem, Utah 84097
Roger D. Dudley, Executive Vice President 8,329,596/(5)/ 15.9%
and Director
Stephen M. Studdert, Chairman of the Board 8,329,296/(6)/ 15.9%
Chief Executive Officer
Studdert Companies Corp. 3,700,000/(7)/ 7.2%
5% Beneficial Owner
Joseph Verner Reed, Director 1,020,000/(8)/ 2.0%
73 Sterling Road
Greenwich, Connecticut 06831
James B. Hayes, Director 1,020,000/(8)/ 2.0%
One Education Way
Colorado Springs, Colorado 80906
Rick D. Nydegger, Director 400,000 1.0%
10217 North Oak Creek Lane
Highland, Utah 84003
John A. Oberteuffer, Ph.D. 180,000 *
Voice Information Associates, Inc.
14 Glen Road South
Lexington, Massachusetts 02173
Reginald K. Brack, Director 226,500/(9)/ *
Douglas L. Rex, Chief Financial Officer 205,300/(10)/ *
Officers and Directors as a Group (10 persons) 33,086,587 56.4%
- ----------------
</TABLE>
* Less than 1 percent.
/(1)/ Percentages rounded to nearest 1/10th of one percent. Except
as indicated in the footnotes below, each of the persons listed
exercises sole voting and investment power over the shares of
the Company's Common Stock listed for each such person in the
table.
/(2)/ Includes 25,657,749 shares of Common Stock deposited in a
voting trust (the "Voting Trust") as to which Mr. Murdock is
the sole trustee. Persons who have deposited their shares of
the Company's Common Stock into the Voting Trust have dividend
and liquidation rights in proportion to the number of shares of
the Company's Common Stock they have deposited in the Voting
Trust, but have no voting rights with respect to such shares.
All voting rights associated with the shares deposited into the
Voting Trust are exercisable solely and exclusively by the
Trustee of the Voting Trust. The Voting Trust expires, unless
extended according to its terms, on the earlier of September
30, 1999 or any of the following events: (i) the Trustee
terminates it; (ii) the participating shareholders unanimously
terminate it; or (iii) the Company is dissolved or liquidated.
Although as the sole trustee of the Voting Trust Mr. Murdock
exercises the voting rights of all of the shares deposited into
the Voting Trust, and accordingly has listed all shares in the
Table above, he has no economic or pecuniary interest in any of
the shares deposited into the Voting Trust except 3,465,083
shares as to which he directly owns the economic interest,
3,700,000 shares the economic rights as to which are owned by
SCC, of which Mr. Murdock is a 1/3 equity owner and 11,400
shares the economic rights as to which are owned by a limited
liability company of which Mr. Murdock is a 1/3 equity owner.
Also includes 2,813 shares owned directly by Mr. Murdock,
140,232 shares (including shares issuable upon the exercise of
options) beneficially owned by members of Mr. Murdock's
immediate family and 1,150,000 shares of Common Stock
underlying stock options exercisable presently or within 60
days.
/(3)/ Includes all Common Stock beneficially owned by Beesmark
Investments, L.C. ("Beesmark") but only to the extent that Dr.
Ashton is one of two managers of Beesmark, and, as such, is
deemed to share investment power with respect to shares
beneficially owned by Beesmark. Also includes 600,000 shares
of Common Stock underlying stock options exercisable by Dr.
Ashton presently or within 60 days.
/(4)/ Beesmark's beneficial ownership includes 166,667 shares of
Common Stock presently issuable upon the conversion of shares
of Series A Preferred Stock. All shares are deposited into the
Voting Trust. The managers of Beesmark are Alan C. Ashton and
Karen Ashton. As managers of Beesmark, they each are deemed to
share voting control over shares beneficially owned by
Beesmark. Mrs. Ashton beneficially owns no shares other those
deemed to be owned by her as a control person of Beesmark, and
consequently her beneficial ownership is not separately
reported.
/(5)/ Includes (i) 3,465,083 shares owned by Mr. Dudley and deposited
into the Voting Trust, (ii) 3,700,000 shares owned by SCC as to
which Mr. Dudley shares investment power because of his
management position with and 1/3 ownership of SCC, which shares
are deposited in the Voting Trust; (iii) 2,813 shares owned
directly by Mr. Dudley; (iv) 300 shares owned by Mr. Dudley's
minor children; (v) 11,400 shares owned by SMD, as to which Mr.
Dudley has 1/3 indirect equity ownership and control and that
are deposited into the Voting Trust; and (vi) 1,150,000 shares
underlying stock options exercisable presently or within 60
days.
/(6)/ Includes (i) 3,465,083 shares owned by Mr. Studdert and
deposited into the Voting Trust, (ii) 3,700,000 shares owned by
SCC as to which Mr. Studdert shares investment power because of
his management position with and 1/3 ownership of SCC, which
shares are deposited in the Voting Trust; (iii) 2,813 shares
owned directly by Mr. Studdert; (iv) 11,400 shares owned by
SMD, as to which Mr. Studdert has 1/3 direct equity ownership
and control and which are deposited in the Voting Trust; and
(v) 1,150,000 shares underlying stock options exercisable
presently or within 60 days.
/(7)/ All shares deposited into the Voting Trust.
/(8)/ Includes 1,000,000 shares of Common Stock underlying presently
exercisable stock options.
/(9)/ Includes 26,000 shares owned directly by Mr. Brack and 500
shares owned by Mr. Brack's son and 200,000 shares underlying
options.
/(10)/Includes 2,400 shares owned directly by Mr. Rex, 2,400 shares
owned by his spouse, 500 shares owned by an entity owned and
controlled by him, and 200,000 shares underlying presently
exercisable stock options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Studdert Companies Corp.
SCC is a Utah corporation that provides investment and management
services. The officers, directors and owners of SCC are Stephen M.
Studdert, Thomas A. Murdock and Roger D. Dudley, each of whom is a director
and an executive officer of the Company and each of whom beneficially owns
more than ten percent of the Company's issued and outstanding Common Stock.
Between June 1994, when the Company commenced its present business of
developing its ASRT, and April 30, 1996, the Company did not pay or award
any compensation in any form directly to the Company's executive officers.
Rather, in June 1994 the Company entered into an Independent Consulting
Agreement (the "SCC Agreement") with SCC pursuant to which SCC, through
Messrs. Studdert, Murdock and Dudley, rendered certain management and
financial services to the Company.
In 1993, SCC began to render management services to PTI, the
Company's predecessor in interest, with respect to PTI's business of
developing the ASRT. Those services included providing day-to-day
administrative management services, debt financing directly to PTI,
procuring debt financing from third parties, and commencing a search for a
joint venture partner or merger candidate at monthly charges ranging from
$50,000 to $100,000. In June 1994, PTI merged with and into a subsidiary
of the Company, after which the Company entered into the SCC Agreement with
SCC dated as of June 22, 1994. Under the SCC Agreement, SCC agreed that
for a period of two years it would manage all aspects of the Company's day-
to-day business, have authority to engage on behalf of the Company such
employees, agents and professionals as it deemed appropriate, and be
reimbursed for its reasonable costs and expenses incurred for and on behalf
of the Company. In return for such services, the Company agreed to
compensate SCC in the amount of $50,000 per month, which monthly amount was
exclusive of (i) fees for capital raising activities by SCC on the
Company's behalf and (ii) actual expenses incurred by SCC.
Pursuant to the SCC Agreement, the Company paid to SCC $209,300
during the year ended December 31, 1994. At December 31, 1994, the Company
owed SCC $1,164,200 for accrued management fees and $66,805 for expenses
incurred. Between January and July 1995, SCC continued to invoice the
Company for services rendered under the Consulting Agreement. By July
1995, the Company owed SCC approximately $1,417,000 pursuant to the terms
of the SCC Agreement. On November 16, 1994, the Company's Board of
Directors approved the issuance of warrants to purchase up to 3,700,000
shares of the Company's Common Stock to SCC (the "SCC Warrants"). The
authorized purchase price of the SCC Warrants was $.033 per share, and the
authorized exercise price for each share of Common Stock underlying the SCC
Warrants was $.35. The Board of Directors' resolution authorizing the
issuance of the SCC Warrants specified that the purchase price for the SCC
Warrants and the exercise price for shares of Common Stock underlying the
SCC Warrants could be satisfied by canceling invoices for services
previously rendered to the Company under the Consulting Agreement or by
cash payment. The November 16, 1994 Board meeting was attended by a quorum
of the Board, but only one director who was not also a principal of SCC was
present. Subsequently, on April 11, 1995, pursuant to the unanimous
consent of all disinterested directors in lieu of a special Board meeting,
all of the Company's disinterested directors ratified the adoption of the
resolution authorizing the Company to offer the SCC Warrants. On July 31,
1995, the Company issued and SCC purchased the SCC Warrants. The purchase
price of the SCC Warrants was $.033 per share of Common Stock underlying
the SCC Warrants, or an aggregate of $122,100. On August 11, 1995, SCC
exercised the SCC Warrants at an exercise price of $.35 per share of Common
Stock underlying the SCC Warrants. Both the $122,100 purchase price and
the $1,295,000 aggregate exercise price for the SCC Warrants were satisfied
by the cancellation of amounts invoiced to the Company by SCC pursuant to
the SCC Agreement during the fiscal year ended December 31, 1994 and the
period between January 1, 1995 and August 11, 1995. Such cancellation was
accomplished on a dollar-for-dollar basis.
Between August 1995 and October 1995, SCC continued to invoice the
Company for its $50,000 monthly management fee under the Consulting
Agreement, portions of which amounts continued to accrue. On October 23,
1995, the Company entered into an investment agreement (the "Beesmark
Agreement") with Beesmark. In connection with the Company's execution of
the Beesmark Agreement, SCC and the Company collaterally agreed that any
then accrued but unpaid balance due to SCC for management services rendered
under the SCC Agreement would be placed on "conditional status" and
deferred until the Company successfully completed certain developmental
milestones set forth in the Beesmark Agreement, at which time such amounts
would be due and payable in full. With respect to management services to
be rendered by SCC after the closing of the Beesmark Agreement, SCC agreed
that the Company would pay only $30,000 of the monthly invoiced $50,000,
the balance to be placed on conditional status. Thus, of the total
$600,000 invoiced to the Company by SCC during the year ended December 31,
1995, the Company paid SCC $90,000 in cash; $257,000 of accrued but unpaid
amounts were placed on conditional status under the Investment Agreement;
and $253,000 was canceled in partial payment of the exercise price of the
SCC Warrants. In addition to the amounts invoiced by SCC for management
fees during the 1995 fiscal year, the Company also reimbursed SCC for
actual expenses incurred in the amount of $337,405. Thus, at December 31,
1995, the Company owed SCC $257,000 in management fees, all of which was on
conditional status under the terms of the Beesmark Agreement and was
payable to SCC only in the event that the Company achieved the
developmental milestones set forth in the Beesmark Agreement. At December
31, 1995, the Company also owed SCC $3,825 for expenses incurred.
Additionally, during the year ended December 31, 1995, SCC charged a total
of $70,915 in capital raising fees to the Company. Of that amount, $49,576
was written off by SCC in connection with the Beesmark Agreement, and
$21,339 was paid to SCC.
Between January 1, 1996 and April 30, 1996, SCC invoiced the Company
for services under the SCC Agreement in the amount of $200,000. Of that
amount, $80,000 was placed on conditional status pursuant to the Beesmark
Agreement and $120,000 was paid to SCC. On April 30, 1996, the
disinterested members of the Company's Board of Directors authorized the
Company to enter into an agreement with SCC modifying the SCC Agreement
effective May 1, 1996. Under the SCC Agreement, as modified, SCC no longer
invoices the Company for management services, but continues to invoice the
Company for reimbursement of actual expenses incurred on the Company's
behalf. SCC and the Company agreed that any amounts invoiced under the SCC
Agreement but placed on conditional status pursuant to the Beesmark
Agreement would remain outstanding obligations of the Company payable only
if the Company achieved the milestones specified in the Beesmark Agreement.
The Company further agreed to pay any then accrued but unpaid amounts
invoiced under the SCC Agreement, including amounts owed and carried over
from the year ended December 31, 1995, which amounts totaled $5,862, as
well as outstanding amounts for expenses incurred. In connection with the
modification of the SCC Agreement, the disinterested members of the
Company's Board of Directors approved base salaries for fiscal year 1996
for each of the Company's executive officers, effective as of April 1996,
as follows: Stephen M. Studdert, Chief Executive Officer -- $180,000;
Thomas A. Murdock, President and Chief Operating Officer -- $180,000; and
Roger D. Dudley, Executive Vice President and Chief Financial Officer --
$180,000. Effective November 15, 1996, the disinterested members of the
Company's Board of Directors approved an increase in the base salaries of
the executive officers from $180,000 to $250,000 per annum for the
remainder of fiscal 1996, with base compensation increasing annually over
the five-year term of those persons' employment agreements. [See Item 10.
Executive Compensation]. In September 1996, Beesmark made the last of the
funding payments provided for under the terms of the Beesmark Agreement.
On February 10, 1997, the Company paid to SCC the entire balance due to SCC
for accrued management fees in the amount of $337,000. Thus, during the
year ended December 31, 1996, the Company paid to SCC a total of $120,000
for management fees and SCC was reimbursed for actual expenses incurred on
the Company's behalf in the amount of $740,052. During 1996, the Company
made no payments to SCC for capital raising activities. The Company and
SCC have agreed to extend the SCC Agreement, at least insofar as the
Company has agreed to reimburse SCC for actual expenses incurred on behalf
of the Company, until December 1998.
The Company paid no compensation in any form directly to any of its
executive officers during fiscal 1995 and until April 1, 1996. However, as
the principals of SCC, during such periods, the Company's executive
officers received a portion of the amounts paid by the Company to SCC under
the SCC Agreement. See "Executive Compensation."
Cancellation of Debt By SCC and Thomas A. Murdock
In connection with the Beesmark Agreement, SCC and the Company
entered into a collateral agreement whereby SCC agreed that it would cancel
principal debt of $135,368 and accrued interest of $19,298 owed by the
Company to SCC in connection with a promissory note executed by PTI and
assumed by the Company at the time of the merger of PTI with and into a
subsidiary of the Company. In another collateral agreement, the Company
and Thomas A. Murdock, a director and executive officer of the Company,
agreed that the Company would cancel principal debt of $286,493 and accrued
interest of $65,715 due to Mr. Murdock under a promissory note initially
made by PTI and assumed by the Company at the time of the merger of PTI
with and into a subsidiary of the Company.
Alan C. Ashton and Beesmark Investments, L.C.
On October 23, 1995, the Company, Beesmark and Dr. Ashton entered
into the Beesmark Agreement. Dr. Ashton is presently a director of the
Company, although he did not occupy such position when the Beesmark
Agreement was negotiated and executed. Dr. Ashton also is a co-manager of
and has an indirect pecuniary interest in a portion of Beesmark's assets.
Pursuant to the Beesmark Agreement, Beesmark agreed to provide a total of
$6,050,000 of funding to the Company over a period of approximately 11
months, provided that during that time the Company was able to timely meet,
to Beesmark's satisfaction, specified developmental milestones. In return
for the funding provided to Beesmark, the Company issued 11,562,500 shares
of Common Stock at a price of $.48 per share and a $500,000 Series A
Convertible Subordinated Debenture. The Debenture was subsequently
converted to 166,667 shares of Series A Preferred Stock.
Synergetics
Thomas A. Murdock, a director and the Chief Operating Officer of the
Company, is also one of seven directors of Synergetics. In addition, Mr.
Murdock, Stephen M. Studdert and Roger D. Dudley, each of whom is an
executive officer and director of the Company, own shares of the Common
Stock of Synergetics, although such share ownership in the aggregate
constitutes less than 5% of the total shares of Synergetics common stock
issued and outstanding.
John A. Oberteuffer
Mr. Oberteuffer has been a director of the Company since March 1997
and an executive officer of the Company since January 1998. Mr.
Oberteuffer is also the founder and president of Voice Information
Associates, Inc. ("VIA"), a consulting group providing strategic technical,
market evaluation, product development and corporate information to the
speech recognition industry. During fiscal year 1997, the Company paid
approximately $110,000 in consulting fees to VIA for services provided to
the Company. In April 1998, the Company entered into an agreement with Dr.
Oberteuffer under which Dr. Oberteuffer assigned certain patent and other
rights to certain technology for 500,000 Common Stock purchase warrants.
The exercise price of the warrants is $5.13 per share (the closing price of
the Company's Common Stock on the date of the agreement). 250,000 warrants
are exercisable for a three-year period commencing with the date of the
agreement and the balance of the warrants become exercisable at such time
as a patent is issued relating to the technology.
SMD
From September 4, 1997, through October 15, 1997 and again on
December 31, 1997, the Company borrowed funds from SMD pursuant to a
revolving, unsecured promissory note, bearing interest at the rate of 12%
per annum. The aggregate of all amounts loaned under the note was
$2,000,000 and the highest outstanding balance at any one time was
$1,550,000. All amounts have been repaid, together with $5,542.14 in
interest. The loan and its terms were approved by the independent members
of the board of directors of the Company.
On March 19, 1998, the Company granted an aggregate of 450,000 stock
options to the three executive officers who also own SMD. These options
have a ten-year life and an exercise price of $5.16 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE DIRECTOR
--------------------------
PROPOSAL 2 -- TO APPROVE THE COMPANY'S 1998 STOCK OPTION AND INCENTIVE PLAN
The Company's Board of Directors has approved and recommended that
the Company's shareholders adopt the fonix corporation 1998 Stock Option
and Incentive Plan (the "1998 Plan"). The Company's common stock is quoted
on the Nasdaq SmallCap Market. The rules of the Nasdaq Stock Market, as
recently amended to apply to companies listed on the SmallCap Market,
require that shareholder approval be obtained when a stock option or
purchase plan is to be established or other arrangement made pursuant to
which stock may be acquired by officers or directors. In compliance with
this policy, at the Annual Meeting, the Company's shareholders will be
asked to approve the adoption of the 1998 Plan, and the Board of Directors
is soliciting the enclosed proxy as to that decision. A brief description
of the material provisions of the 1998 Plan follows.
The 1998 Plan provides for the award of incentive stock options to
key employees and the award of non-qualified stock options, stock
appreciation rights, cash and stock bonuses, and other incentive grants to
directors, employees and certain nonemployees who have important
relationships with the Company or its subsidiaries. The 1998 Plan was
adopted by the Board of Directors on June 1, 1998, which date is the
effective date of the 1998 Plan. The principal provisions of the 1998 Plan
are summarized below.
Administration.
The 1998 Plan is administered by a committee of at least two non-
employee directors of the Company (the "1998 Plan Committee"). The 1998
Plan Committee will determine and designate the individuals and classes of
individuals to whom awards under the 1998 Plan should be made and the
amount, terms and conditions of the awards. The 1998 Plan Committee may
adopt and amend rules relating to the administration of the 1998 Plan. The
1998 Plan Committee presently is comprised of Messrs. Nydegger and Reed.
The 1998 Plan is intended to comply with Rule 16b-3 adopted under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations thereto.
Eligibility.
Awards under the 1998 Plan may be made to officers, directors or key
employees of the Company and its subsidiaries, and to nonemployee agents,
consultants, advisors, and other persons whom the 1998 Plan Committee
believes have made or will make an important contribution to the Company or
any subsidiary thereof, subject to Section 422 of the Code, which limits
the grant of "Incentive Stock Options" to executive officers and other
senior managerial and professional employees.
Shares Available.
Subject to adjustment as provided in the 1998 Plan, a maximum of
10,000,000 shares of the Company's common stock will be reserved for
issuance thereunder. If an option or stock appreciation right granted
under the 1998 Plan expires or is terminated or canceled, the unissued
shares subject to such option or stock appreciation right are again
available under the 1998 Plan. In addition, if shares sold or awarded as a
bonus under the 1998 Plan are forfeited to the Company or repurchased by
the Company, the number of shares forfeited or repurchased are again
available under the 1998 Plan. In the absence of an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), all
shares granted under the 1998 Plan will be restricted as to subsequent
resales or transfer, pursuant to Rule 144 under the Act.
Term.
No awards shall be granted under the 1998 Plan after or on that date
that shall be ten years after the date the 1998 Plan was adopted by the
Board of Directors, although the 1998 Plan and all awards made under the
1998 Plan prior to such termination date shall remain in effect until such
awards have been satisfied or terminated in accordance with the 1998 Plan
and the terms of such awards.
Stock Option Grants (NSOs and ISOs).
The 1998 Plan Committee may grant Incentive Stock Options ("ISOs")
and Non-Statutory Stock Options ("NSOs") under the 1998 Plan. With respect
to each option grant, the 1998 Plan Committee will determine the number of
shares subject to the option, the option price, the period of the option,
the time or times at which the option may be exercised (including whether
the option will be subject to any vesting requirements and whether there
will be any conditions precedent to exercise of the option), and the other
terms and conditions of the option. Unless the Committee determines, in
its sole discretion, that there are circumstances which reasonably justify
the establishment of a lower option price, the option or exercise price per
share of NSOs shall be 100% of the fair market value of a share of the
Company's common stock on the date the NSOs are granted. The 1998 Plan
specifies that options granted thereunder may not be exercised at any time
within six months of the grant date of such options. Options granted under
the plan expire six months after the termination of the option holder's
employment for reasons other than permanent disability, retirement or
death.
ISOs are subject to special terms and conditions. The aggregate fair
market value, on the date of the grant, of the common stock for which an
ISO is exercisable for the first time by the optionee during any calendar
year may not exceed $100,000. An ISO may not be granted to an employee who
possesses more than 10% of the total voting power of the Company's stock
unless the option price is at least 110% of the fair market value of the
Common Stock subject to the option on the date it is granted, and the
option is not exercisable for 5 years after the date of grant. No ISO may
be exercisable after 10 years from the date of grant. The option price may
not be less than 100% of the fair market value of the Common Stock covered
by the option at the date of grant.
In connection with the grant of NSOs or ISOs, the 1998 Plan
authorizes the issuance of "Reload Options" which allow employees to
receive options to purchase that number of shares that shall equal (i) the
number of shares of common stock used to exercise underlying NSOs or ISOs,
and (ii) if authorized by the 1998 Plan Committee, the number of shares of
common stock used to satisfy any tax withholding requirement incident to
the exercise of the underlying NSOs or ISOs.
In general, no vested option may be exercised unless at the time of
such exercise the holder of such option is employed by or in the service of
the Company or any subsidiary thereof, within 36 months following
termination of employment by reason of death, 12 months following
termination by reason of permanent disability or retirement (or in the case
of ISOs within 12 months of termination for death or disability), or within
six months following termination for any other reason, except for cause, in
which case all unexercised options shall terminate forthwith. No shares
may be issued pursuant to the exercise of an option until full payment
therefor has been made. Upon the exercise of an option, the number of
shares reserved for issuance under the 1998 Plan will be reduced by the
number of shares issued upon exercise of the option.
Stock Appreciation Rights.
Two types of Stock appreciation rights ("SARs") may be granted under
the 1998 Plan: "Alternate SARs" and "Limited Rights." Alternate SARs are
granted concurrently with or subsequent to stock options, and permit the
option holder to be paid, in common stock, the excess of the fair market
value of each share of common stock underlying the stock option at the date
of exercise of the Alternate SARs and the fair market value of each share
of common stock underlying the option at the grant date. The exercise of
Alternate SARs shall be in lieu of the exercise of the stock option
underlying the SARs, and upon such exercise a corresponding number of stock
options shall be canceled. Alternate SARs are exercisable upon the same
terms and conditions as are applicable to the options underlying them.
Upon the exercise of an Alternate SAR, the number of shares reserved for
issuance under the 1998 Plan will be reduced by the number of shares
issued.
Limited Rights may be issued concurrently with or subsequent to the
award of any stock option or Alternate SAR under the 1998 Plan. Limited
Rights allow the holder thereof to be paid appreciation on the stock option
or the amount of appreciation receivable upon exercise of an Alternate SAR
in cash and in lieu of exercising such options or rights. Limited Rights
are exercisable only to the same extent and subject to the same conditions
and within the same time periods as the stock options or Alternate SARs
underlying such Limited Rights. Limited Rights are exercisable in full for
a period of seven months following a change in control of the Company.
Upon the exercise of Limited Rights, the stock options or Alternate SARs
underlying such Limited Rights shall terminate. Cash payments upon the
exercise of Limited Rights will not reduce the number of shares of common
stock reserved for issuance under the 1998 Plan. No SARs have been granted
under the 1998 Plan.
Stock Bonus Awards.
The 1998 Plan Committee may award shares of common stock as a stock
bonus under the 1998 Plan. The 1998 Plan Committee may determine the
recipients of the awards, the number of shares to be awarded, and the time
of the award. Stock received as a stock bonus is subject to the terms,
conditions, and restrictions determined by the 1998 Plan Committee at the
time the stock is awarded. No stock bonus awards have been granted under
the 1998 Plan.
Cash Bonus Rights.
The 1998 Plan Committee may grant cash bonus rights under the 1998
Plan either outright or in connection with (i) options granted or
previously granted, (ii) SARs granted or previously granted, (iii) stock
bonuses awarded or previously awarded, and (iv) shares issued under the
1998 Plan. Bonus rights granted in connection with options entitle the
optionee to a cash bonus if and when the related option is exercised. The
amount of the bonus is determined by multiplying the excess of the total
fair market value of the shares acquired upon the exercise over the total
option price for the shares by the applicable bonus percentage. Bonus
rights granted in connection with a SAR entitle the holder to a cash bonus
when the SAR is exercised, that is determined by multiplying the amount
received upon exercise of the SAR by the applicable bonus percentage.
Bonus rights granted in connection with stock bonuses entitle the recipient
to a cash bonus, in an amount determined by the 1998 Plan Committee, either
at the time the stock bonus is awarded or upon the lapse of any
restrictions to which the stock is subject. No bonus rights have been
granted under the 1998 Plan.
Non-Assignability of 1998 Plan Awards
No award under the 1998 Plan shall be assignable or transferable by
the recipient thereof, except by will or the laws of descent or pursuant to
a qualified domestic relations order as defined in the Code.
Changes in Capital Structure.
The 1998 Plan provides that if the outstanding common stock of the
Company is increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any recapitalization, stock split or
certain other transactions, appropriate adjustment will be made by the 1998
Plan Committee in the number and kind of shares available for grants under
the 1998 Plan. In addition, the 1998 Plan Committee will make appropriate
adjustments in the number and kind of shares as to which outstanding
options will be exercisable. In the event of a merger, consolidation or
other fundamental corporate transformation, the Board may, in its sole
discretion, permit outstanding options to remain in effect in accordance
with their terms; to be converted into options to purchase stock in the
surviving or acquiring corporation in the transaction; or to be exercised,
to the extent then exercisable, during a period prior to the consummation
of the transaction established by the 1998 Plan Committee or as may
otherwise be provided in the 1998 Plan.
Tax Consequences.
The following description addresses the federal income tax
consequences of the 1998 Plan. Although the Company believes the following
statements are correct based on existing provisions of the Code and
legislative history and administrative and judicial interpretations
thereof, no assurance can be given that changes will not occur which would
modify such statements. Also, such statements are intended only to provide
basic information. Each 1998 Plan participant should consult his or her
own tax advisor concerning the tax consequences of participation in the
1998 Plan because individual financial and federal tax situations may vary,
and state and local tax considerations may be significant.
Certain options authorized to be granted under the 1998 Plan are
intended to qualify as ISOs for federal income tax purposes. Under federal
income tax law currently in effect, the optionee will recognize no income
upon grant or exercise of the ISO. If an employee exercises an ISO and
does not dispose of any of the option shares within two years following the
date of grant and within one year following the date of exercise, then any
gain realized upon subsequent disposition of the shares will be treated as
income from the sale or exchange of a capital asset held for more than one
year. If an employee disposes of shares acquired upon exercise of an ISO
before the expiration of either the one-year holding period or the two-year
waiting period, any amount realized will be taxable as ordinary
compensation income in the year of such disqualifying disposition to the
extent that the lesser of the fair market value of the shares on the
exercise date or the fair market value on the date of disposition exceeds
the exercise price. The Company will not be allowed any deduction for
federal income tax purposes at either the time of the grant or the exercise
of an ISO. Upon any disqualifying disposition by an employee, the Company
will generally be entitled to a deduction to the extent the employee
realized ordinary income.
Certain options authorized to be granted under the 1998 Plan will be
treated as NSOs for federal income tax purposes. Under federal income tax
law presently in effect, no income is realized by the grantee of an NSO
until the option is exercised. When the NSO is exercised, the optionee
will realize ordinary compensation income, and the Company will generally
be entitled to a deduction, in the amount by which the market value of the
shares subject to the option at the time of exercise exceeds the exercise
price. Upon the sale of shares acquired upon exercise of an NSO, the
excess of the amount realized from the sale over the market value of the
shares on the date of exercise will be taxable.
An employee who receives stock in connection with the performance of
services will generally realize income at the time of receipt unless the
shares are not substantially vested for purposes of Section 83 of the Code
and no election under Section 83(b) of the Code is filed within 30 days
after the original transfer. The Company generally will be entitled to a
tax deduction in the amount includable as income by the employee at the
same time or times as the employee recognizes income with respect to the
shares. The Company is required to withhold employment taxes on the amount
of the income the employee recognizes. A participant who receives a cash
bonus right under the 1998 Plan generally will recognize income equal to
the amount of any cash bonus paid at the time of receipt of the bonus, and
the Company generally will be entitled to a deduction equal to the income
recognized by the participant.
Section 162(m) of the Code limits to $1 million per person the amount
the Company may deduct for compensation paid to any of its most highly
compensated officers. Compensation received through the exercise of an
option or SAR will not be subject to the $1 million limit if the option or
SAR and the plan pursuant to which it is granted meet certain requirements.
The currently applicable requirements are that the option or SAR be granted
by a committee of at least two disinterested directors and that the
exercise price of the option or the SAR be not less than fair market value
of the Common Stock on the date of grant. Accordingly, the Company
believes compensation received on exercise of options and SARs granted
under the 1998 Plan in compliance with the above requirements will not be
subject to the $1 million deduction limit.
Amendments to 1998 Plan
The Committee may at any time and from time to time terminate or
modify or amend the 1998 Plan in any respect, including in response to
changes in securities, tax or other laws or rules, regulations or
regulatory interpretations thereof applicable to the 1998 Plan or to comply
with stock exchange rules or requirements.
No awards of any type have been made under the 1998 Plan as of the
date of this Proxy Statement.
THE BOARD RECOMMENDS APPROVAL OF THE 1998 STOCK OPTION AND INCENTIVE PLAN
____________________________________
PROPOSAL 3 -- TO RATIFY THE ADOPTION OF THE 1997 STOCK OPTION AND INCENTIVE
PLAN
The Company's Board of Directors approved and adopted the Company's
1997 Stock Option and Incentive Plan (the "1997 Plan") during the fiscal
year ended December 31, 1997. At the time the 1997 Plan was adopted, the
Company was not required under applicable securities laws or exchange rules
to obtain shareholder approval of the 1997 Plan. Effective January 26,
1998, the Company became subject to Nasdaq Stock Market Rule
4310(c)(25)(H)(i)(a), which requires shareholder approval "when a stock
option or purchase plan is to be established or other arrangement made
pursuant to which stock may be acquired by officers or directors." In
compliance with this policy, at the Annual Meeting, the Company's
shareholders will be asked to ratify the adoption of the 1997 Plan, and the
Board of Directors is soliciting the enclosed proxy as to that decision. A
brief description of the material provisions of the 1997 Plan and a table
summarizing the benefits to be conferred under the 1997 Plan follows.
Administration.
The 1997 Plan is administered by a committee of at least two non-
employee directors of the Company (the "1997 Plan Committee"). The 1997
Plan Committee will determine and designate the individuals and classes of
individuals to whom awards under the 1997 Plan should be made and the
amount, terms and conditions of the awards. The 1997 Plan Committee may
adopt and amend rules relating to the administration of the 1997 Plan. The
1997 Plan Committee presently is comprised of Messrs. Nydegger and Reed.
The 1997 Plan is intended to comply with Rule 16b-3 adopted under the
Exchange Act, and Section 162(m) of the Code, and the regulations thereto.
Eligibility.
Awards under the 1997 Plan may be made to officers, directors or key
employees of the Company and its subsidiaries, and to nonemployee agents,
consultants, advisors, and other persons whom the 1997 Plan Committee
believes have made or will make an important contribution to the Company or
any subsidiary thereof, subject to Section 422 of the Code, which limits
the grant of "Incentive Stock Options" to executive officers and other
senior managerial and professional employees.
Shares Available.
Subject to adjustment as provided in the 1997 Plan, a maximum of
7,500,000 shares of the Company's common stock will be reserved for
issuance thereunder. As of the date hereof, 7,234,000 shares have been
granted under the 1997 Plan. If an option or stock appreciation right
granted under the 1997 Plan expires or is terminated or canceled, the
unissued shares subject to such option or stock appreciation right are
again available under the 1997 Plan. In addition, if shares sold or awarded
as a bonus under the 1997 Plan are forfeited to the Company or repurchased
by the Company, the number of shares forfeited or repurchased are again
available under the 1997 Plan. In the absence of an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), all
shares granted under the 1997 Plan will be restricted as to subsequent
resales or transfer, pursuant to Rule 144 under the Act.
Term.
No awards shall be granted under the 1997 Plan after or on that date
that shall be ten years after the date the 1997 Plan was adopted by the
Board of Directors, although the 1997 Plan and all awards made under the
1997 Plan prior to such termination date shall remain in effect until such
awards have been satisfied or terminated in accordance with the 1997 Plan
and the terms of such awards.
Stock Option Grants (NSOs and ISOs).
The 1997 Plan Committee may grant Incentive Stock Options ("ISOs")
and Non-Statutory Stock Options ("NSOs") under the 1997 Plan. With respect
to each option grant, the 1997 Plan Committee will determine the number of
shares subject to the option, the option price, the period of the option,
the time or times at which the option may be exercised (including whether
the option will be subject to any vesting requirements and whether there
will be any conditions precedent to exercise of the option), and the other
terms and conditions of the option. Unless the Committee determines, in
its sole discretion, that there are circumstances which reasonably justify
the establishment of a lower option price, the option or exercise price per
share of NSOs shall be 100% of the fair market value of a share of the
Company's common stock on the date the NSOs are granted. The 1997 Plan
specifies that options granted thereunder may not be exercised at any time
within six months of the grant date of such options. Options granted under
the plan expire six months after the termination of the option holder's
employment for reasons other than permanent disability, retirement or
death.
ISOs are subject to special terms and conditions. The aggregate fair
market value, on the date of the grant, of the common stock for which an
ISO is exercisable for the first time by the optionee during any calendar
year may not exceed $100,000. An ISO may not be granted to an employee who
possesses more than 10% of the total voting power of the Company's stock
unless the option price is at least 110% of the fair market value of the
Common Stock subject to the option on the date it is granted, and the
option is not exercisable for 5 years after the date of grant. No ISO may
be exercisable after 10 years from the date of grant. The option price may
not be less than 100% of the fair market value of the Common Stock covered
by the option at the date of grant.
In connection with the grant of NSOs or ISOs, the 1997 Plan
authorizes the issuance of "Reload Options" which allow employees to
receive options to purchase that number of shares that shall equal (i) the
number of shares of common stock used to exercise underlying NSOs or ISOs,
and (ii) if authorized by the 1997 Plan Committee, the number of shares of
common stock used to satisfy any tax withholding requirement incident to
the exercise of the underlying NSOs or ISOs.
In general, no vested option may be exercised unless at the time of
such exercise the holder of such option is employed by or in the service of
the Company or any subsidiary thereof, within 36 months following
termination of employment by reason of death, 12 months following
termination by reason of permanent disability or retirement (or in the case
of ISOs within 12 months of termination for death or disability), or within
six months following termination for any other reason, except for cause, in
which case all unexercised options shall terminate forthwith. No shares
may be issued pursuant to the exercise of an option until full payment
therefor has been made. Upon the exercise of an option, the number of
shares reserved for issuance under the 1997 Plan will be reduced by the
number of shares issued upon exercise of the option.
Stock Appreciation Rights.
Two types of Stock appreciation rights ("SARs") may be granted under
the 1997 Plan: "Alternate SARs" and "Limited Rights." Alternate SARs are
granted concurrently with or subsequent to stock options, and permit the
option holder to be paid, in common stock, the excess of the fair market
value of each share of common stock underlying the stock option at the date
of exercise of the Alternate SARs and the fair market value of each share
of common stock underlying the option at the grant date. The exercise of
Alternate SARs shall be in lieu of the exercise of the stock option
underlying the SARs, and upon such exercise a corresponding number of stock
options shall be canceled. Alternate SARs are exercisable upon the same
terms and conditions as are applicable to the options underlying them.
Upon the exercise of an Alternate SAR, the number of shares reserved for
issuance under the 1997 Plan will be reduced by the number of shares
issued.
Limited Rights may be issued concurrently with or subsequent to the
award of any stock option or Alternate SAR under the 1997 Plan. Limited
Rights allow the holder thereof to be paid appreciation on the stock option
or the amount of appreciation receivable upon exercise of an Alternate SAR
in cash and in lieu of exercising such options or rights. Limited Rights
are exercisable only to the same extent and subject to the same conditions
and within the same time periods as the stock options or Alternate SARs
underlying such Limited Rights. Limited Rights are exercisable in full for
a period of seven months following a change in control of the Company.
Upon the exercise of Limited Rights, the stock options or Alternate SARs
underlying such Limited Rights shall terminate. Cash payments upon the
exercise of Limited Rights will not reduce the number of shares of common
stock reserved for issuance under the 1997 Plan. No SARs have been granted
under the 1997 Plan.
Stock Bonus Awards.
The 1997 Plan Committee may award shares of common stock as a stock
bonus under the 1997 Plan. The 1997 Plan Committee may determine the
recipients of the awards, the number of shares to be awarded, and the time
of the award. Stock received as a stock bonus is subject to the terms,
conditions, and restrictions determined by the 1997 Plan Committee at the
time the stock is awarded. No stock bonus awards have been granted under
the 1997 Plan.
Cash Bonus Rights.
The 1997 Plan Committee may grant cash bonus rights under the 1997
Plan either outright or in connection with (i) options granted or
previously granted, (ii) SARs granted or previously granted, (iii) stock
bonuses awarded or previously awarded, and (iv) shares issued under the
1997 Plan. Bonus rights granted in connection with options entitle the
optionee to a cash bonus if and when the related option is exercised. The
amount of the bonus is determined by multiplying the excess of the total
fair market value of the shares acquired upon the exercise over the total
option price for the shares by the applicable bonus percentage. Bonus
rights granted in connection with a SAR entitle the holder to a cash bonus
when the SAR is exercised, that is determined by multiplying the amount
received upon exercise of the SAR by the applicable bonus percentage.
Bonus rights granted in connection with stock bonuses entitle the recipient
to a cash bonus, in an amount determined by the 1997 Plan Committee, either
at the time the stock bonus is awarded or upon the lapse of any
restrictions to which the stock is subject. No bonus rights have been
granted under the 1997 Plan.
Non-Assignability of 1997 Plan Awards
No award under the 1997 Plan shall be assignable or transferable by
the recipient thereof, except by will or the laws of descent or pursuant to
a qualified domestic relations order as defined in the Code.
Changes in Capital Structure.
The 1997 Plan provides that if the outstanding common stock of the
Company is increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation by reason of any recapitalization, stock split or
certain other transactions, appropriate adjustment will be made by the 1997
Plan Committee in the number and kind of shares available for grants under
the 1997 Plan. In addition, the 1997 Plan Committee will make appropriate
adjustments in the number and kind of shares as to which outstanding
options will be exercisable. In the event of a merger, consolidation or
other fundamental corporate transformation, the Board may, in its sole
discretion, permit outstanding options to remain in effect in accordance
with their terms; to be converted into options to purchase stock in the
surviving or acquiring corporation in the transaction; or to be exercised,
to the extent then exercisable, during a period prior to the consummation
of the transaction established by the 1997 Plan Committee or as may
otherwise be provided in the 1997 Plan.
Tax Consequences.
The following description addresses the federal income tax
consequences of the 1997 Plan. Although the Company believes the following
statements are correct based on existing provisions of the Code and
legislative history and administrative and judicial interpretations
thereof, no assurance can be given that changes will not occur which would
modify such statements. Also, such statements are intended only to provide
basic information. Each 1997 Plan participant should consult his or her
own tax advisor concerning the tax consequences of participation in the
1997 Plan because individual financial and federal tax situations may vary,
and state and local tax considerations may be significant.
Certain options authorized to be granted under the 1997 Plan are
intended to qualify as ISOs for federal income tax purposes. Under federal
income tax law currently in effect, the optionee will recognize no income
upon grant or exercise of the ISO. If an employee exercises an ISO and
does not dispose of any of the option shares within two years following the
date of grant and within one year following the date of exercise, then any
gain realized upon subsequent disposition of the shares will be treated as
income from the sale or exchange of a capital asset held for more than one
year. If an employee disposes of shares acquired upon exercise of an ISO
before the expiration of either the one-year holding period or the two-year
waiting period, any amount realized will be taxable as ordinary
compensation income in the year of such disqualifying disposition to the
extent that the lesser of the fair market value of the shares on the
exercise date or the fair market value on the date of disposition exceeds
the exercise price. The Company will not be allowed any deduction for
federal income tax purposes at either the time of the grant or the exercise
of an ISO. Upon any disqualifying disposition by an employee, the Company
will generally be entitled to a deduction to the extent the employee
realized ordinary income.
Certain options authorized to be granted under the 1997 Plan will be
treated as NSOs for federal income tax purposes. Under federal income tax
law presently in effect, no income is realized by the grantee of an NSO
until the option is exercised. When the NSO is exercised, the optionee
will realize ordinary compensation income, and the Company will generally
be entitled to a deduction, in the amount by which the market value of the
shares subject to the option at the time of exercise exceeds the exercise
price. Upon the sale of shares acquired upon exercise of an NSO, the
excess of the amount realized from the sale over the market value of the
shares on the date of exercise will be taxable.
An employee who receives stock in connection with the performance of
services will generally realize income at the time of receipt unless the
shares are not substantially vested for purposes of Section 83 of the Code
and no election under Section 83(b) of the Code is filed within 30 days
after the original transfer. The Company generally will be entitled to a
tax deduction in the amount includable as income by the employee at the
same time or times as the employee recognizes income with respect to the
shares. The Company is required to withhold employment taxes on the amount
of the income the employee recognizes. A participant who receives a cash
bonus right under the 1997 Plan generally will recognize income equal to
the amount of any cash bonus paid at the time of receipt of the bonus, and
the Company generally will be entitled to a deduction equal to the income
recognized by the participant.
Section 162(m) of the Code limits to $1 million per person the amount
the Company may deduct for compensation paid to any of its most highly
compensated officers. Compensation received through the exercise of an
option or SAR will not be subject to the $1 million limit if the option or
SAR and the plan pursuant to which it is granted meet certain requirements.
The currently applicable requirements are that the option or SAR be granted
by a committee of at least two disinterested directors and that the
exercise price of the option or the SAR be not less than fair market value
of the Common Stock on the date of grant. Accordingly, the Company
believes compensation received on exercise of options and SARs granted
under the 1997 Plan in compliance with the above requirements will not be
subject to the $1 million deduction limit.
Amendments to 1997 Plan
The Committee may at any time and from time to time terminate or
modify or amend the 1997 Plan in any respect, including in response to
changes in securities, tax or other laws or rules, regulations or
regulatory interpretations thereof applicable to the 1997 Plan or to comply
with stock exchange rules or requirements.
The following table summarizes certain information about options
issued under the 1997 Plan during 1997 and through March 31, 1998.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
1997 Stock Option
and Incentive Plan
------------------
Name and Position Dollar Value ($) /(1)/ No. of Units
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Stephen M. Studdert $0 350,000 /(2)/
Chairman of the Board Shares
Chief Executive Officer
Thomas A. Murdock $0 350,000 /(2)/
President, Chief Operating Officer Shares
and Director
Roger D. Dudley $0 350,000 /(2)/
Executive Vice President, Shares
Director
Current Executive Officers $0 1,050,000
As A Group Shares
Current Directors Who Are Not $0 1,380,000 /(3)/
Executive Officers As A Group Shares
All Employees Who Are Not $0 4,784,000 /(4)/
Executive Officers As A Group Shares
______________________
</TABLE>
/(1)/ Because the exercise price of such options is 100% of the
closing market price on the grant date, the options have no
dollar value as of the grant date. However, in the event the
options are exercised when the market price of the Company's
common stock exceeds the option exercise price, the difference
between those prices will result in a gain to the exercising
option holder corresponding to the amount of such difference.
/(2)/ Includes options to purchase 200,000 shares at exercise price
of $6.00 granted October 28, 1997, and exercisable June 1,
1998, and 150,000 shares at $5.156 granted March 18, 1998, and
exercisable September 15, 1998.
/(3)/ Includes options to purchase 200,000 shares at exercise price
of $7.130 granted March 13, 1997 and exercisable September 13,
1998, 1,000,000 shares at exercise price of $6.00 granted
October 28, 1997 and exercisable June 1, 1998, and 180,000
shares at exercise price of $3.34 granted January 23, 1998 and
exercisable beginning July 23, 1998.
/(4)/ Exercise prices range from $3.34 to $7.16 per share.
THE BOARD RECOMMENDS RATIFICATION OF THE 1997 STOCK OPTION AND INCENTIVE
PLAN
________________________________________
PROPOSAL 4 -- APPROVAL OF THE ISSUANCE OF UP TO 6,666,666 SHARES OF
RESTRICTED STOCK TO PRIVATE INVESTORS, TOGETHER WITH SUCH ADDITIONAL
AMOUNTS OF COMMON STOCK AS MAY BE ISSUABLE AS A RESULT OF "RESET" AND
"RESET ADJUSTMENT PROVISIONS APPLICABLE TO SUCH SHARES.
In March 1998, the Company completed a private placement (the
"Offering") of up to 6,666,666 shares (the "Shares") of its restricted
common stock to seven separate investment funds. The total purchase price
to be paid by the investors for the Shares is $30,000,000. Of that amount,
$15,000,000 was provided to the Company on March 12, 1998, in return for
which the Company issued a total of 3,333,333 of the Shares, pro rata to
the investors in proportion to the total amount of the purchase price paid
by them. The remainder of the purchase price is to be paid by the
investors on July 27, 1998, provided that, as of that date, certain
conditions are satisfied. Specifically, such conditions include the
following: (i) that the registration statement covering all of the Common
Stock to be issued is effective as of such date, (ii) the representations
and warranties of the Company as set forth in the documents underlying the
Offering shall be correct in all material respects, (iii) the market price
of the Company's common stock shall exceed $4.50 per share, (iv) the dollar
volume of trading in the Company's common stock for the 10-trading-day
period preceding such date shall equal or exceed $1,000,000, (v) that there
shall be at least 18 market makers for the Company's common stock, and (vi)
there shall be no material adverse change in the Company's business or
financial condition.
Additionally, the investors in the Offering will have certain "reset"
rights pursuant to which the investors will receive additional shares of
restricted common stock ("Reset Shares") if the average market price of the
Company's Common Stock for the 60-day periods following the initial closing
date and the second funding date does not equal or exceed $5.40 per share.
The number of Reset Shares that will be issued, if any, will be determined
by dividing (x) the product of (A) the amount by which such 60-day average
price is less than $5.40 and (B) the number of Shares issued to the
investor by (y) the 60-day average price. The investors in the offering
also have certain first rights of refusal and other rights if the Company
conducts other offerings in the near future with other investors and the
terms of such other offerings are more advantageous to such other investors
than the terms of the Offering.
The number of shares of common stock issued pursuant to the reset
rights described immediately above is subject to further adjustment if, at
any time prior to or on the 60th day following the date on which the reset
amount for the shares issued on the second funding date is calculated, the
Company sells common stock or securities convertible into common stock at a
discount of 16.66% or more from the closing bid price of the common stock
as reported on the Nasdaq Stock Market as of the date of such other
transaction (the "Discount Percentage"). The number of additional shares
of common stock issued in respect of such adjustment is referred to herein
as "Reset Adjustment Shares"). The number of Reset Adjustment Shares
issuable shall be obtained by multiplying (i) the number of Reset Shares
issued by (ii) the quotient of (x) the Adjusted Yield divided by (y) .20.
"Adjusted Yield" shall for purposes of this calculation be the quotient of
(A) the Discount Percentage by (B) the difference of 1 minus the Discount
Percentage.
New Nasdaq SmallCap Market Rule 4310(c)(25)(H), which became
effective as of January 26, 1998 requires shareholder approval for the
issuance of shares of common stock in a transaction or series of
transactions involving, among other types of transactions, the sale or
issuance by the issuer of common stock (or securities convertible into or
exercisable for common stock) equal to 20% or more of the common stock or
20% or more of the voting power obtained before the issuance for less than
the greater of book or market value of the stock. The number of Shares
issued in connection with the Offering will not exceed 20% of the voting
power outstanding before the issuance. However, it is possible that the
aggregate number of shares of common stock, including the Shares, the Reset
Shares and Reset Adjustment Shares, if any, could exceed 20% of the voting
power outstanding prior to the Offering. In such event, under applicable
Nasdaq Stock Market Rules, the approval of the Company's shareholders would
be necessary to issue the total number of Reset Shares and Reset Adjustment
Shares the Company is contractually obligated to issue.
In recognition of this possibility, the Company covenanted with the
investors who participated in the Offering that, not later than August 1,
1998, the Company would hold a regular or special meeting of its
shareholders at which the Board of Directors would recommend that the
shareholders approve the issuance of the Shares and any Reset Shares or
Reset Adjustment Shares as contemplated by the agreements executed in
connection with the Offering to the extent that such issuances could result
in the issuance of more than 20% of the Company's voting common stock
outstanding immediately prior to the Offering. Additionally, and as part
of the Offering, Thomas A. Murdock, an executive officer and director of
the Company, and the sole trustee of a voting trust into which is deposited
a total of 25,657,749 shares of the Company's common stock, covenanted that
he would vote all of the shares of common stock deposited into the voting
trust in favor of this Proposal. The Company's Board of Directors
determined that the consummation of the transactions contemplated by the
Offering furthered the best interests of the Company and therefore approved
such transactions. The Company's Board of Directors now recommends that
the Company's shareholders vote to approve the transactions contemplated by
the Offering. Approval by a majority of the votes cast by the holders of
shares entitled to vote thereon will be required to approve the proposal.
THE BOARD RECOMMENDS APPROVAL OF PROPOSAL 4
________________________________________
PROPOSAL 5 -- APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has selected the international
certified public accounting firm of Arthur Andersen LLP ("Arthur Andersen")
as the independent public accountant for the Company for the fiscal year
ending December 31, 1998. Arthur Andersen audited the Company's financial
statements for the fiscal year ended December 31, 1997, and also has
audited the financial statements of AcuVoice, Inc., incident to the
Company's acquisition of AcuVoice in March 1998. Deloitte & Touche LLP
("Deloitte & Touche") was appointed as the Company's independent accountant
for the fiscal year ended December 31, 1997. Pritchett, Siler & Hardy,
P.C., served as the Company's independent public accountant for the fiscal
year ended December 31, 1995.
The Company engaged Pritchett, Siler & Hardy on February 9, 1995 to
provide outside accounting and auditing services for the Company related to
the 1994 audit. At that time, the Pritchett, Siler & Hardy firm was named
Peterson, Siler & Stevenson. It subsequently changed its name to
Pritchett, Siler & Hardy, P.C., and that firm continued as the Company's
independent accountant until March 24, 1997, when the Company engaged
Deloitte & Touche. Deloitte & Touche audited the Company's financial
statements for the fiscal year ended December 31, 1996. On February 24,
1998 the Company appointed Arthur Andersen to replace Deloitte & Touche as
independent accountants of the Company for the fiscal year ended December
31, 1997. Deloitte resigned as the Company's independent auditors on
February 23, 1998.
The report of Deloitte & Touche on the Company's consolidated
financial statements for the year ended December 31, 1996 contained no
adverse opinion or disclaimer of opinion and was not qualified or modified
as to uncertainty, audit scope or accounting principle, except that
Deloitte's report on the consolidated financial statements for the year
ended December 31, 1996 included an explanatory paragraph with respect to
the Company being in the development stage and its having suffered
recurring losses which raise substantial doubt about its ability to
continue as a going concern. In connection with the audit for the year
ended December 31, 1996, and through February 23, 1998, the Company has had
no disagreements with Deloitte & Touche on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedure, which disagreements if not resolved to the satisfaction of
Deloitte would have caused it to make reference thereto in its report on
the consolidated financial statements for such year. During the year ended
December 31, 1996, and through February 23, 1998, there were no reportable
events (as defined in Item 304(a)(1)(v) of Regulation S-K).
There were no disagreements between the Company and Pritchett, Siler
& Hardy. That firm did, however, include in its Independent Auditors'
Report for the 1995 fiscal year an explanatory paragraph with respect to
the Company being in the development stage and its having suffered
recurring losses which raise substantial doubt about its ability to
continue as a going concern.
The Company's decision to engage Arthur Andersen was approved by the
Company's Board of Directors. At the Annual Meeting, shareholders will be
asked to ratify the selection by the Board of Directors of Arthur Andersen
as the Company's independent accountant for the 1998 fiscal year.
THE BOARD RECOMMENDS SHAREHOLDER APPROVAL OF THE SELECTION OF ACCOUNTANT
Representatives of Arthur Andersen are expected to attend the Annual
Meeting and will have an opportunity to make a statement if they desire to
do so, and they will be available to answer appropriate questions from
shareholders.
--------------------------
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not intend to present and has not been informed that any other
person intends to present a matter for action at the Annual Meeting other
than as set forth herein and in the Notice of Annual Meeting. If any other
matter properly comes before the meeting, it is intended that the holders
of proxies will act in accordance with their best judgment.
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. In addition to the solicitation of proxies by
mail, certain of the officers and employees of the Company, without extra
compensation, may solicit proxies personally or by telephone, and, if
deemed necessary, third party solicitation agents may be engaged by the
Company to solicit proxies by means of telephone, facsimile or telegram,
although no such third party has been engaged by the Company as of the date
hereof. The Company will also request brokerage houses, nominees,
custodians and fiduciaries to forward soliciting materials to the
beneficial owners of Common Stock held of record and will reimburse such
persons for forwarding such material. The cost of this solicitation of
proxies will be borne by the Company.
--------------------------
ANNUAL REPORT
Copies of the Company's Annual Report on Form 10-K (including
financial statements and financial statement schedules) filed with the
Securities and Exchange Commission may be obtained without charge by
writing to the Company - Attention: Jeffrey N. Clayton, Vice
President/Legal, 1225 Eagle Gate Tower, 60 East South Temple Street, Salt
Lake City, Utah 84111. A request for a copy of the Company's Annual
Report on Form 10-K must set forth a good-faith representation that the
requesting party was either a holder of record or a beneficial owner of
common stock of the Company on June 8, 1998. Exhibits to the Form 10-K, if
any, will be mailed upon similar request and payment of specified fees to
cover the costs of copying and mailing such materials.
A Copy of the Company's 1997 Annual Report to Shareholders is being
mailed with this Proxy Statement, but is not deemed a part of the proxy
soliciting material.
----------------------
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be considered for inclusion in
the proxy statement for presentation in connection with the 1999 Annual
Meeting of Shareholders must be received by the Company by December 31,
1998. The proposal must be in accordance with the provisions of Rule 14a-8
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934. The Company suggests that any such request be
submitted by certified mail - return receipt requested. The Board of
Directors will review any proposal which is received by December 31, 1998,
and determine whether it is a proper proposal to present to the 1999 Annual
Meeting.
The enclosed Proxy is furnished for you to specify your choices with
respect to the matters referred to in the accompanying notice and described
in this Proxy Statement. If you wish to vote in accordance with the
Board's recommendations, merely sign, date and return the Proxy in the
enclosed envelope which requires no postage if mailed in the United States.
A prompt return of your Proxy will be appreciated.
By Order of the Board of Directors
Jeffrey N. Clayton, Secretary
Salt Lake City, Utah
June 12, 1998
<PAGE>
APPENDICES
1. FORM OF PROXY
2. fonix corporation 1998 STOCK OPTION AND INCENTIVE PLAN
3. fonix corporation 1997 STOCK OPTION AND INCENTIVE PLAN
<PAGE>
APPENDIX 1
<PAGE>
PROXY
fonix corporation
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas A. Murdock and Roger D. Dudley and
each of them as Proxies, with full power of substitution, and hereby
authorizes them to represent and vote, as designated below, all shares of
Common Stock of the Company held of record by the undersigned at the Annual
Meeting of Shareholders to be held at the Marriott Hotel, 75 South West
Temple Street, Salt Lake City, Utah 84101, on Tuesday, July 14, 1998, at
10:00 a.m., M.D.T., or at any adjournment thereof.
1. Election of Directors.
FOR WITHHOLD AS TO ALL FOR ALL EXCEPT
/ / / / / /
(INSTRUCTIONS: IF YOU MARK THE "FOR ALL EXCEPT" CATEGORY ABOVE,
INDICATE THE NOMINEE(S) AT TO WHICH YOU DESIRE TO WITHHOLD AUTHORITY
BY STRIKING A LINE THROUGH SUCH NOMINEE(S) NAME IN THE LIST BELOW:)
Stephen M. Studdert Joseph Verner Reed Thomas A. Murdock
Alan C. Ashton, Ph.D. Reginald K. Brack Roger D. Dudley
John A. Oberteuffer, Ph.D. Rick D. Nydegger
2.To approve the Company's 1998 Stock Option and Incentive Plan.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify the Company's adoption of the 1997 Stock Option and
Incentive Plan.
FOR AGAINST ABSTAIN
/ / / / / /
4. To approve the issuance by the Company of up to 6,666,666 shares of
restricted common stock to private investors, together with such
additional amounts of common stock as may be issuable as a result of
certain "reset" and "reset adjustment" provisions applicable to such
shares.
FOR AGAINST ABSTAIN
/ / / / / /
5. To approve the Board of Directors' selection of Arthur Andersen LLP,
as the Company's independent public accountant for the fiscal year
ended December 31, 1998.
FOR AGAINST ABSTAIN
/ / / / / /
6. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Annual Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 THROUGH 5.
Please sign and Date this Proxy Where Shown Below and Return it Promptly:
Date: , 1998
-----------------------------
Signed:
-----------------------------------------
SIGNATURE(S)
- ---------------------------------------------------
- ---------------------------------------------------
PLEASE SIGN ABOVE EXACTLY AS THE SHARES ARE ISSUED. WHEN SHARES ARE HELD
BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
<PAGE>
APPENDIX 2
<PAGE>
fonix corporation
a Delaware corporation
1998 Stock Option and Incentive Plan
ARTICLE I GENERAL
1.01. Purpose.
The purposes of this 1998 Stock Option and Incentive Plan (the
"Plan") are to: (1) closely associate the interests of the management of
fonix corporation, a Delaware corporation, and its affiliates (collectively
referred to as the "Company") with the shareholders of the Company, by
reinforcing the relationship between participants' rewards and shareholder
gains; (2) provide management with an equity ownership in the Company
commensurate with Company performance, as reflected in increased
shareholder value; (3) maintain competitive compensation levels; and (4)
provide an incentive to management to remain with the Company, whether as
an employee, officer or director, and to put forth maximum efforts for the
success of its business.
1.02. Administration.
(a) Pursuant to the corporate laws of the State of Delaware, the
Board of Directors of the Company, or a Committee appointed by the Board
consisting solely of two or more non-employee directors (whether the full
Board, or a committee, referred to herein as the "Committee"), shall
administer the Plan and shall approve any transaction under the Plan
involving a grant, award or other acquisition from the Company. Once
appointed, the Committee shall continue to serve until otherwise directed
by the Board. From time to time, the Board may increase or change the size
of the Committee, and appoint new members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, or remove all members of the Committee.
(b) The Committee shall have the authority, without limitation, in
its sole discretion, subject to and not inconsistent with the express
provisions of the Plan, and from time to time, to:
(i) administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan;
(ii) designate the directors, employees or classes of
employees or others eligible to participate in the Plan from among
those described in Section 1.03 below;
(iii) grant awards provided in the Plan in such form, amount
and under such terms as the Committee shall determine;
(iv) determine the purchase price of shares of Common Stock
covered by each Option (the "Option Price");
(v) determine the Fair Market Value of Common Stock for
purposes of Options or of determining the appreciation of
Common Stock with respect to Stock Appreciation Rights;
(vi) determine the time or times at which Options and/or
Stock Appreciation Rights shall be granted;
(vii) determine the terms and provisions of the various Option
or Stock Appreciation Rights Agreements (none of which need be
identical or uniform) evidencing Options or Stock Appreciation
Rights granted under the Plan and to impose such limitations,
restrictions and conditions upon any such award as the
Committee shall deem appropriate; and
(viii) interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, and make all other
determinations and take all other action necessary or advisable
for the implementation and administration of the Plan.
The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any delegate may employ one or more persons to render advice
with respect to any responsibility the Committee or such person may have
under the Plan.
(c) All decisions, determinations and interpretations of the
Committee on all matters relating to the Plan shall be in its sole
discretion and shall be final, binding and conclusive on all Optionees and
the Company.
(d) One member of the Committee shall be elected by the Board as
chairman. The Committee shall hold its meetings at such times and places
as it shall deem advisable. All determinations of the Committee shall be
made by a majority of its members either present in person or participating
by conference telephone at a meeting or by written consent. The Committee
may appoint a secretary and make such rules and regulations for the conduct
of its business as it shall deem advisable, and shall keep minutes of its
meetings.
(e) No member of the Board or Committee shall be liable for any
action taken or decision or determination made in good faith with respect
to any Option, Stock Appreciation Right, the Plan, or any award thereunder.
(f) For purposes of this Section 1.02, a "non-employee director"
shall mean a director who: (i) is not currently an officer of the Company
or a parent or subsidiary of the Company, or otherwise currently employed
by the Company or a parent or subsidiary of the Company; (ii) does not
receive compensation, either directly or indirectly, from the Company or a
parent or subsidiary of the Company, for services rendered as a consultant
or in any capacity other than as a director, except for an amount that does
not exceed the dollar amount for which disclosure would be required
pursuant to Item 404(a) of Regulation S-K promulgated by the Securities and
Exchange Commission; (iii) does not possess an interest in any other
transaction for which disclosure would be required pursuant to Item 404(a)
of Regulation S-K; and (iv) is not engaged in a business relationship for
which disclosure would be required pursuant to Item 404(b) of Regulation
S-K.
(g) Unless such holding period is waived by the Company, officers
and directors of the Company who are subject to the short-swing profits
provisions of Section 16 of the Securities Exchange Act of 1934 (the "34
Act") and who acquire shares of Company stock pursuant to this Plan, must
hold such shares for a period of six months following the date of
acquisition, provided that this condition shall be satisfied with respect
to stock options or other derivative securities granted to such officers or
directors if at least six months elapse from the date of grant of the
Option to the date of disposition by Optionee of the Option (other than
upon exercise), or the shares of Common Stock underlying the Option.
1.03. Eligibility for Participation
Participants in the Plan shall be selected by the Committee, and
awards under the Plan, as described in Section 1.04 below, may be granted
by the Committee, to directors, officers and key employees of the Company
and to other key individuals such as consultants and non-employee agents to
the Company whom the Committee believes have made or will make an essential
contribution to the Company; provided, however, that Incentive Stock
Options may only be granted to executive officers and other key employees
of the Company who occupy responsible managerial or professional positions,
who have the capability of making a substantial contribution to the success
of the Company, and who agree, in writing, to remain in the employ of, and
to render services to, the Company for a period of at least one (1) year
from the date of the grant of the award. The Committee has the authority
to select particular employees within the eligible group to receive awards
under the Plan. In making this selection and in determining the persons to
whom awards under the Plan shall be granted and the form and amount of
awards under the Plan, the Committee shall consider any factors deemed
relevant in connection with accomplishing the purposes of the Plan,
including the duties of the respective persons and the value of their
present and potential services and contributions to the success,
profitability and sound growth of the Company. A person to whom an award
has been granted is sometimes referred to herein as an "Optionee." An
Optionee shall be eligible to receive more than one Option and/or Stock
Appreciation Right during the term of the Plan, but only on the terms and
subject to the restrictions hereinafter set forth.
1.04. Types of Awards Under Plan.
Awards under the Plan may be in the form of any one or more of the
following:
(a) "Stock Options" which are nonqualified stock options, the tax
consequences of which are governed by the provisions of Section 83 of the
Internal Revenue Code (the "Code"), as described in Article II;
(b) "Incentive Stock Options" which are statutory stock options,
the tax consequences of which are governed by Section 422 of the Code, as
described in Article III;
(c) "Reload Options" which are also nonqualified stock options,
the tax consequences of which are governed by Section 83 of the Code, as
described in Article IV;
(d) "Alternate Rights" which are Stock Appreciation Rights, the
tax consequences of which are governed by Section 83 of the Code, as
described in Article V; and/or
(e) "Limited Rights" which are also Stock Appreciation Rights, the
tax consequences of which are governed by Section 83 of the Code, as
described in Article VI.
(f) "Stock Bonuses" which are compensation, the tax consequences of
which are governed by Section 83 of the Code, as described in Article VII.
(g) "Cash Bonuses" which are compensation, the tax consequences of
which are governed by Section 61 of the Code, as described in Article VIII.
1.05. Aggregate Limitation on Awards.
(a) Except as may be adjusted pursuant to Section 9.12(i) below,
shares of stock which may be issued as Stock Bonuses or upon exercise of
Options or Alternate Rights under the Plan shall be authorized and unissued
or treasury shares of Common Stock of the Company ("Common Stock"). The
number of shares of Common Stock the Company shall reserve for issuance as
Stock Bonuses or upon exercise of Options or Alternate Rights to be granted
from time to time under the Plan, and the maximum number of shares of
Common Stock which may be issued under the Plan, shall not exceed in the
aggregate 10,000,000 shares of Common Stock. In the absence of an effective
registration statement under the Securities Act of 1933 (the "Act"), all
Stock Bonuses, Options and Stock Appreciation Rights granted and shares of
Common Stock subject to their exercise will be restricted as to subsequent
resale or transfer, pursuant to the provisions of Rule 144 promulgated
under the Act.
(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted
when cash is used as full payment for shares issued upon
exercise of an Option;
(ii) only the shares issued (including the shares, if any,
withheld for tax withholding requirements) as a result of an
exercise of Alternate Rights shall be counted; and
(iii) only the net shares issued (including the shares, if
any, withheld for tax withholding requirements) shall be counted
when shares of Common Stock are used as full or partial payment
for shares issued upon exercise of an Option.
(iv) all shares issued (including the shares, if any,
withheld for tax withholding requirements) as Stock Bonuses shall
be counted.
(c) In addition to shares of Common Stock actually issued pursuant
to Stock Bonuses or the exercise of Options or Alternate Rights, there
shall be deemed to have been issued a number of shares equal to the number
of shares of Common Stock in respect of which Limited Rights shall have
been exercised.
(d) Shares tendered by a participant as payment for shares issued
upon exercise of an Option shall be available for issuance under the Plan.
Any shares of Common Stock subject to an Option or Stock Appreciation Right
granted without a related Option, which for any reason is canceled,
terminated, unexercised or expires in whole or in part shall again be
available for issuance under the Plan, but shares subject to an Option or
Alternate Right which are not issued as a result of the exercise of Limited
Rights shall not again be available for issuance under the Plan.
1.06. Effective Date and Term of Plan.
(a) The Plan shall become effective as of the ____th day of May,
1998, the date the Plan is adopted by a majority of the Board (the
"Effective Date").
(b) No awards shall be granted under the Plan after or on the
____th day of May, 2008, which date is ten (10) years after the Effective
Date (the "Plan Termination Date"), provided, however, that the Plan and all
awards made under the Plan prior to such Plan Termination Date shall remain
in effect until such awards have been satisfied or terminated in accordance
with the Plan and the terms of such awards.
ARTICLE II STOCK OPTIONS
2.01. Award of Stock Options.
The Committee may from time to time, and subject to the provisions of
the Plan, and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more options to
purchase for cash or for Company shares the number of shares of Common
Stock allotted by the Committee ("Stock Options"). The date a Stock Option
is granted shall mean the date selected by the Committee as of which the
Committee allots a specific number of shares to a participant pursuant to
the Plan.
2.02. Stock Option Agreements.
The grant of a Stock Option shall be evidenced by a written Stock
Option Agreement, executed by the Company and the holder of a Stock Option
(the "Optionee"), stating the number of shares of Common Stock subject to
the Stock Option evidenced thereby, and in such form as the Committee may
from time to time determine.
2.03 Stock Option Price.
The Option Price per share of Common Stock deliverable upon the
exercise of a Stock Option shall be 100% of the Fair Market Value of a
share of Common Stock on the date the Stock Option is granted, unless the
Committee shall determine, in its sole discretion, that there are
circumstances which reasonably justify the establishment of a lower Option
Price.
2.04. Term and Exercise.
Unless otherwise provided by the Committee or in the Stock Option
Agreement pertaining to the Stock Options, each Stock Option shall be fully
exercisable beginning after the date of its grant and ending not later than
ten years after the date of grant thereof (the "Option Term"). No Stock
Option shall be exercisable after the expiration of its Option Term.
2.05 Manner of Payment.
Each Stock Option Agreement shall set forth the procedure governing
the exercise of the Stock Option granted thereunder, and shall provide
that, upon such exercise in respect of any shares of Common Stock subject
thereto, the Optionee shall pay to the Company, in full, the Option Price
for such shares with cash or with Common Stock previously owned by
Optionee.
2.06 Death of Optionee.
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's estate,
or by a person who acquires the right to exercise such Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both the remaining effective term of the
Stock Option and three years after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any rights exercisable on the date of death.
2.07 Retirement or Disability.
Upon termination of the Optionee's employment by reason of retirement
or permanent disability (as each is determined by the Committee), the
Optionee may, within three years from the date of termination, exercise any
Stock Options to the extent such options are exercisable during such three
year period.
2.08 Termination for Other Reasons.
Except as provided in Sections 2.06, 2.07, or 9.12(f), or except as
otherwise determined by the Committee, all Stock Options shall terminate
six months after the termination of the Optionee's employment.
2.9 Effect of Exercise.
The exercise of any Stock Option shall cancel that number of related
Alternate Rights and/or Limited Rights, if any, which is equal to the
number of shares of Common Stock purchased pursuant to said Stock Option.
ARTICLE III INCENTIVE STOCK OPTIONS
3.01 Award of Incentive Stock Options.
The Committee may, from time to time and subject to the provisions of
the Plan and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more "incentive
stock options", which are intended to qualify as such under the provisions
of Section 422 of the Code, to purchase for cash or for Company shares the
number of shares of Common Stock allotted by the Committee ("Incentive
Stock Options"). The date an Incentive Stock Option is granted shall mean
the date selected by the Committee as of which the Committee shall allot a
specific number of shares to a participant pursuant to the Plan.
3.02 Incentive Stock Option Agreements.
The grant of an Incentive Stock Option shall be evidenced by a
written Incentive Stock Option Agreement, executed by the Company and the
holder of an Incentive Stock Option (the "Optionee"), stating the number of
shares of Common Stock subject to the Incentive Stock Option evidenced
thereby, and in such form as the Committee may from time to time determine.
3.03 Incentive Stock Option Price.
Except as provided in Section 3.10 below, the Option Price per share
of Common Stock deliverable upon the exercise of an Incentive Stock Option
shall be 100% of the Fair Market Value of a share of Common Stock on the
date the Incentive Stock Option is granted.
3.04 Term and Exercise.
Except as provided elsewhere herein, or unless otherwise provided by
the Committee, or in the Stock Option Agreement pertaining to the Incentive
Stock Option, each Incentive Stock Option shall be fully exercisable
beginning after the date of its grant and ending not later than ten years
after the date of grant thereof (the "Option Term"). No Incentive Stock
Option shall be exercisable after the expiration of its Option Term.
3.05 Maximum Amount of Incentive Stock Option Grant.
The aggregate Fair Market Value (determined on the date the Incentive
Stock Option is granted) of Common Stock subject to an Incentive Stock
Option granted to any Optionee by the Committee in any calendar year shall
not exceed $100,000. Multiple Incentive Stock Options may be granted to an
Optionee in any calendar year, which Multiple Incentive Stock Options may
in the aggregate exceed such $100,000 Fair Market Value limitation, so long
as each such Incentive Stock Option within the Multiple Incentive Stock
Option award does not exceed such $100,000 Fair Market Value limitation and
so long as no two such Incentive Stock Options may be exercised by the
Optionee in the same calendar year.
3.06 Death of Optionee.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the Optionee,
provided that such exercise occurs within both the remaining Option Term of
the Incentive Stock Option and three years after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any Incentive Stock Options exercisable on the date
of death.
3.07 Retirement or Disability.
Upon the termination of the Optionee's employment by reason of
permanent disability or retirement (as each is determined by the
Committee), the Optionee may, within three years from the date of such
termination of employment, exercise any Incentive Stock Options to the
extent such Incentive Stock Options were exercisable at the date of such
termination of employment. Notwithstanding the foregoing, the tax
treatment available pursuant to Section 422 of the Code, upon the exercise
of an Incentive Stock Option will not be available to an Optionee who
exercises any Incentive Stock Options more than (i) 12 months after the
date of termination of employment due to permanent disability or (ii) three
months after the date of termination of employment due to retirement.
3.08 Termination for Other Reasons.
Except as provided in Sections 3.06, 3.07 or 9.12(f), or except as
otherwise determined by the Committee, all Incentive Stock Options shall
terminate six months after the date of termination of the Optionee's
employment.
3.09 Applicability of Stock Options Sections and Other Restrictions.
Sections 2.05, Manner of Payment; and 2.09, Effect of Exercise,
applicable to Stock Options, shall apply equally to Incentive Stock
Options. Said Sections are incorporated by reference in this Article III
as though fully set forth herein. In addition, the Optionee shall be
prohibited from the sale, exchange, transfer, pledge, hypothecation, gift
or other disposition of the shares of Common Stock underlying the Incentive
Stock Options until the later of either two (2) years after the date of
granting the Incentive Stock Option or one (1) year after the transfer to
the Optionee of such underlying Common Stock after the Optionee's exercise
of such Incentive Stock Options.
3.10 Employee/Ten Percent Shareholders.
In the event the Committee determines to grant an Incentive Stock
Option to an employee who is also a Ten Percent Stockholder, as defined in
9.07(i) below, (i) the Option Price shall not be less than 110% of the Fair
Market Value of the shares of Common Stock of the Company on the date of
grant of such Incentive Stock Option, and (ii) the exercise period shall
not exceed 5 years from the date of grant of such Incentive Stock Option.
Fair Market Value shall be as defined in 9.07(c) below.
ARTICLE IV RELOAD OPTIONS
4.01. Authorization of Reload Options.
Concurrently with the award of Stock Options and/or the award of
Incentive Stock Options to any participant in the Plan, the Committee may,
subject to the provisions of the Plan, particularly the provisions of
Section 9.11 below, and such other terms and conditions as the Committee
may prescribe, authorize reload options to purchase for cash or for Company
shares a number of shares of Common Stock allotted by the Committee
("Reload Options"). The number of Reload Options shall equal (i) the
number of shares of Common Stock used to exercise the underlying Stock
Options or Incentive Stock Options and (ii) to the extent authorized by the
Committee, the number of shares of Common Stock used to satisfy any tax
withholding requirement incident to the exercise of the underlying Stock
Options or Incentive Stock Options. The grant of a Reload Option will
become effective upon the exercise of underlying Stock Options, Incentive
Stock Options or other Reload Options through the use of shares of Common
Stock held by the Optionee for at least 12 months. Notwithstanding the
fact that the underlying Option may be an Incentive Stock Option, a Reload
Option is not intended to qualify as an "incentive stock option" under
Section 422 of the Code.
4.02. Reload Option Amendment.
Each Stock Option Agreement and Incentive Stock Option Agreement
shall state whether the Committee has authorized Reload Options with
respect to the underlying Stock Options and/or Incentive Stock Options.
Upon the exercise of an underlying Stock Option, Incentive Stock Option or
other Reload Option, the Reload Option will be evidenced by an amendment to
the underlying Stock Option Agreement or Incentive Stock Option Agreement.
4.03. Reload Option Price.
The Option Price per share of Common Stock deliverable upon the
exercise of a Reload Option shall be the Fair Market Value of a share of
Common Stock on the date the grant of the Reload Option becomes effective,
unless the Committee shall determine, in its sole discretion, that there
are circumstances which reasonably justify the establishment of a lower
Option Price.
4.04. Term and Exercise.
The term of each Reload Option shall be equal to the remaining Option
Term of the underlying Stock Option and/or Incentive Stock Option.
4.05. Termination of Employment.
No additional Reload Options shall be granted to Optionees when Stock
Options, Incentive Stock Options and/or Reload Options are exercised
pursuant to the terms of this Plan following termination of the Optionee's
employment.
4.06. Applicability of Stock Options Sections.
Sections 2.05, Manner of Payment; 2.06 Death of Optionee; 2.07,
Retirement or Disability; 2.08, Termination for Other Reasons; and 2.09,
Effect of Exercise, applicable to Stock Options, shall apply equally to
Reload Options. Said Sections are incorporated by reference in this
Article IV as though fully set forth herein.
ARTICLE V ALTERNATE STOCK APPRECIATION RIGHTS
5.01. Award of Alternate Rights.
Concurrently with or subsequent to the award of any Option to
purchase one or more shares of Common Stock, the Committee may, subject to
the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the Optionee with respect to each share
of Common Stock, a related alternate stock appreciation right, permitting
the Optionee to be paid the appreciation on the Option in Common Stock in
lieu of exercising the Option ("Alternate Right").
5.02. Alternate Rights Agreement.
Alternate Rights shall be evidenced by written agreements in such
form as the Committee may from time to time determine.
5.03. Term and Exercise.
An Optionee who has been granted Alternate Rights may, from time to
time, in lieu of the exercise of an equal number of Options, elect to
exercise one or more Alternate Rights and thereby become entitled to
receive from the Company payment, in the form of Common Stock, of the
number of shares determined pursuant to Sections 5.04 and 5.05. Alternate
Rights shall be exercisable only to the same extent and subject to the same
conditions and within the same Option Terms as the Options related thereto
are exercisable, as provided in this Plan. The Committee may, in its
discretion, prescribe additional conditions to the exercise of any
Alternate Rights.
5.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled upon the
exercise of each Alternate Right shall be equal to 100% of the amount, if
any, by which the Fair Market Value of a share of Common Stock on the
exercise date exceeds the Fair Market Value of a share of Common Stock on
the date the Option related to said Alternate Right was granted or became
effective, as the case may be.
5.05. Form of Payment.
Upon exercise of Alternate Rights, the Company shall pay Optionee the
amount of payment determined pursuant to Section 5.04 in Common Stock. The
number of shares to be paid shall be determined by dividing the amount of
payment determined pursuant to Section 5.04 by the Fair Market Value of a
share of Common Stock on the exercise date of such Alternate Rights. As
soon as practicable after exercise, the Company shall deliver to the
Optionee a certificate or certificates for such shares of Common Stock.
5.06. Effect of Exercise.
The exercise of any Alternate Rights shall cancel an equal number of
Stock Options, Incentive Stock Options, Reload Options and Limited Rights,
if any, related to said Alternate Rights.
5.07. Retirement or Disability.
Upon termination of the Optionee's employment (including employment
as a director of the Company after an Optionee terminates employment as an
officer or key employee of the Company) by reason of permanent disability
or retirement (as each is determined by the Committee), the Optionee may,
within three years from the date of such termination, exercise any
Alternate Rights to the extent such Alternate Rights are exercisable during
such three year period.
5.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Section 5.07 or 9.12(f), or except as otherwise
determined by the Committee, all Alternate Rights shall terminate six
months after the date of termination of the Optionee's employment or three
years after the death of the Optionee.
ARTICLE VI LIMITED RIGHTS
6.01. Award of Limited Rights.
Concurrently with or subsequent to the award of an Option or
Alternate Right, the Committee may, subject to the provisions of the Plan
and such other terms and conditions as the Committee may prescribe, award
to the Optionee with respect to each share of Common Stock underlying such
Option or Alternate Right, a related limited right permitting the Optionee,
during a specified limited time period, to be paid the appreciation on the
Option in cash in lieu of exercising the Option ("Limited Right").
6.02. Limited Rights Agreement.
Limited Rights granted under the Plan shall be evidenced by written
agreements in such form as the Committee may from time to time determine.
6.03. Term and Exercise.
An Optionee who has been granted Limited Rights may, from time to
time, in lieu of the exercise of an equal number of Options and Alternate
Rights related thereto, elect to exercise one or more Limited Rights and
thereby become entitled to receive from the Company payment in cash in the
amount determined pursuant to Sections 6.04 and 6.05. Limited Rights shall
be exercisable only to the same extent and subject to the same conditions
and within the same Option Terms as the Options or Alternate Rights related
thereto are exercisable, as provided in this Plan. The Committee may, in
its discretion, prescribe additional conditions to the exercise of any
Limited Rights.
Notwithstanding any other provision in this Section 6.03 to the
contrary, Limited Rights are exercisable in full for a period of seven
months following the date of a Change in Control of the Company (the
"Exercise Period").
As used in the Plan, a "Change of Control" shall be deemed to have
occurred if (a) individuals who are currently directors of the Company
immediately prior to a Control Transaction shall cease, within one year of
such Control Transaction, to constitute a majority of the Board (or of the
Board of Directors of any successor to the Company, or to all or
substantially all of its assets), or (b) any entity, person or Group other
than the Company or a Subsidiary Corporation of the Company acquires shares
of the Company in a transaction or series of transactions that result in such
entity, person or Group directly or indirectly owning beneficially fifty-
one percent (51%) or more of the outstanding shares of the Company.
As used herein, "Control Transaction" shall be (i) any tender offer
for or acquisition of capital stock of the Company, (ii) any merger,
consolidation, reorganization or sale of all or substantially all of the
assets of the Company which has been approved by the shareholders, (iii)
any contested election of directors of the Company, or (iv) any combination
of the foregoing which results in a change in voting power sufficient to
elect a majority of the Board. As used herein, "Group" shall mean persons
who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the
34 Act.
6.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled upon the
exercise of each Limited Right shall be equal to 100% of the amount, if
any, which is equal to the difference between the Fair Market Value per
share of Common Stock covered by the related Option or Alternative Right on
the date the Option or Alternate Right was granted and the Fair Market
Value per share of such Common Stock on the exercise date.
6.05. Form of Payment.
Payment of the amount to which an Optionee is entitled upon the
exercise of Limited Rights, as determined pursuant to Section 6.04, shall
be paid by the Company solely in cash.
6.06. Effect of Exercise.
If Limited Rights are exercised, the Options and Alternate Rights, if
any, related to such Limited Rights cease to be exercisable to the extent
of the number of shares with respect to which the Limited Rights were
exercised. Upon the exercise or termination of the Options and Alternate
Rights, if any, related to such Limited Rights, the Limited Rights granted
with respect thereto terminate to the extent of the number of shares as to
which the related Options and Alternate Rights were exercised or
terminated.
6.07. Retirement or Disability.
Upon termination of the Optionee's employment (including employment
as a director of this Company after an Optionee terminates employment as an
officer or key employee of this Company) by reason of permanent disability
or retirement (as each is determined by the Committee), the Optionee may,
within three years from the date of termination, exercise any Limited Right
to the extent such Limited Right is exercisable during such three year
period.
6.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Sections 6.07, 6.09 or 9.12(f), or except as
otherwise determined by the Committee, all Limited Rights granted under the
Plan shall terminate three months after the date of termination of the
Optionee's employment or three years after the death of the Optionee.
6.09. Termination Related to a Change in Control.
The requirement that an Optionee be terminated by reason of
retirement or permanent disability or be employed by the Company at the
time of exercise pursuant to Sections 6.07 and 6.08 respectively, is waived
during the Exercise Period as to any Optionee who (i) was employed by the
Company at the time of the Change in Control and (ii) is subsequently
terminated by the Company other than for cause, or who voluntarily
terminates if such termination was the result of a good faith determination
by the Optionee that as a result of the Change in Control he is unable to
effectively discharge his present duties or the duties of the position
which he occupied just prior to the Change in Control. As used in this
Plan, "for cause" shall mean willful misconduct or dishonesty or conviction
of or failure to contest prosecution for a felony, or excessive absenteeism
unrelated to illness.
ARTICLE VII STOCK BONUSES
7.01 Terms, Conditions and Restrictions.
The Committee may from time to time, and subject to the provisions of
the Plan and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more Stock Bonuses
as compensation the number of shares of Common Stock allotted by the
Committee ("Stock Bonuses"). Stock awarded as a Stock Bonus shall be
subject to the terms, conditions and restrictions determined by the
Committee at the time of the award. The Committee may require the
recipient to sign an agreement as a condition of the award. The agreement
may contain such terms, conditions, representations, and warranties as the
Committee may require.
ARTICLE VIII CASH BONUSES
8.01 Grant.
The Committee may from time to time, and subject to the provisions of
the Plan and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more cash bonuses as
compensation ("Cash Bonuses"). The Committee may grant Cash Bonuses under
the Plan outright or in connection with (i) an Option or Stock Appreciation
Right granted or previously granted or (ii) a Stock Bonus awarded, or
previously awarded. Bonuses will be subject to rules, terms, and
conditions as the Committee may prescribe.
8.02 Cash Bonuses in Connection with Options and Stock Appreciation
Rights.
Cash Bonuses granted in connection with Options will entitle an
Optionee to a Cash Bonus when the related Option is exercised (or
surrendered in connection with exercise of a Stock Appreciation Right
related to the Option) in whole or in part. Cash Bonuses granted in
connection with Stock Appreciation Rights will entitle the holder to a Cash
Bonus when the Stock Appreciation Right is exercised. Upon exercise of an
Option, the amount of the Cash Bonus shall be determined by multiplying the
amount by which the total Fair Market Value of the shares to be acquired
upon the exercise exceeds the total Option Price for the shares by the
applicable bonus percentage. Upon exercise of a Stock Appreciation Right,
the cash bonus shall be determined by multiplying the total Fair Market
Value of the shares or cash received pursuant to the exercise of the Stock
Appreciation Right by the applicable bonus percentage. The bonus
percentage applicable to a Cash Bonus shall be determined from time to time
by the Committee but shall in no event exceed thirty percent.
8.03 Cash Bonuses in Connection with Stock Bonuses.
Cash Bonuses granted in connection with Stock Bonuses will entitle
the person awarded such Stock Bonuses to a Cash Bonus either at the time
the Stock Bonus is awarded or at such time as restrictions, if any, to
which the Stock Bonus is subject lapse. If a Stock Bonus awarded is
subject to restrictions and is repurchased by the Company or forfeited by
the holder, the Cash Bonus granted in connection with such Stock Bonus
shall terminate and may not be exercised. Whether any Cash Bonus is to be
awarded and, if so, the amount and timing of such Cash Bonus shall be
determined from time to time by the Committee.
ARTICLE IX MISCELLANEOUS
9.01. General Restriction.
Each award under the Plan shall be subject to the requirement that,
if at any time the Committee shall determine that (i) the listing,
registration or qualification of the shares of Common Stock subject or
related thereto upon any securities exchange or under any state or Federal
law, or (ii) the consent or approval of any government regulatory body, or
(iii) an agreement by the grantee of an award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a
condition of, or in connection with, the granting of such award or the
issue or purchase of shares of Common Stock thereunder, such award may not
be exercised or consummated in whole or in part unless and until such
listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
9.02. Withholding Taxes.
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall, to the extent
permitted or required by law, have the right to require the grantee, as a
condition of issuance of a Stock Bonus or exercise of its Options or Stock
Appreciation Rights, to remit to the Company no later than the date of
issuance or exercise, or make arrangements satisfactory to the Committee
regarding payment of, any amount sufficient to satisfy any Federal, state
and/or local taxes of any kind, including, but not limited to, withholding
tax requirements prior to the delivery of any certificate or certificates
for such shares. If the participant fails to pay the amount required by
the Committee, the Company shall have the right to withhold such amount
from other amounts payable by the Company to the participant, including but
not limited to, salary, fees or benefits, subject to applicable law.
Alternatively, the Company may issue or transfer such shares of Common
Stock net of the number of shares sufficient to satisfy any such taxes,
including, but not limited to, the withholding tax requirements. For
withholding tax purposes, the shares of Common Stock shall be valued on the
date the withholding obligation is incurred.
9.03. Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the
Plan shall confer upon any participant the right to continue in the
employment of the Company or affect any right which the Company may have to
terminate the employment of such participant.
9.04. Non-Uniform Determinations.
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive awards, the form,
amount and timing of such awards, the terms and provisions of such awards
and the agreements evidencing same) need not be uniform and may be made by
it selectively among persons who receive, or are eligible to receive,
awards under the Plan, whether or not such persons are similarly situated.
9.05. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for shares
of Common Stock are issued to him or her.
9.06 Fractional Shares.
Fractional shares shall not be granted under any award under this
Plan, unless the provision of the Plan which authorizes such award also
specifies the terms under which fractional shares or interests may be
granted.
9.07. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated in the following definitions:
(a) "AFFILIATE" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with the Company.
(b) "DISABILITY" shall mean an Optionee's inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not
less than one year.
(c) "FAIR MARKET VALUE" per share in respect of any share of Common
Stock as of any particular date shall mean (i) the closing sales price per
share of Common Stock reflected on a national securities exchange for the
last preceding date on which there was a sale of such Common Stock on such
exchange; or (ii) if the shares of Common Stock are then traded on an over-
the-counter market, the average of the closing bid and asked prices for the
shares of Common Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Common Stock in such
market; or (iii) in case no reported sale takes place, the average of the
closing bid and asked prices on the National Association of Securities
Dealers' Automated Quotations System ("NASDAQ") or any comparable system,
or if the shares of Common Stock are not listed on NASDAQ or comparable
system, the closing sale price or, in case no reported sale takes place,
the average of the closing bid and asked prices, as furnished by any member
of the National Association of Securities Dealers, Inc. selected from time
to time by the Company for that purpose; or (iv) if the shares of Common
Stock are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee in its discretion may
determine in any such other manner as the Committee may deem appropriate.
In no event shall the Fair Market Value of any share of Common Stock be
less than its par value. In the case of Incentive Stock Options, the Fair
Market Value shall not be discounted for restrictions, lack of
marketability and other such limitations on the enjoyment of the Common
Stock. In the case of other type of Options, the Fair Market Value of the
Common Stock shall be so discounted.
(d) "OPTION" means Stock Option, Incentive Stock Option or Reload
Option.
(e) "OPTION PRICE" means the purchase price per share of Common
Stock deliverable upon the exercise of an Option.
(f) "PARENT CORPORATION" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Optionee's
employer corporation if, at the time of granting an Option, each of the
corporations other than the Optionee's employer corporation owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(g) "STOCK APPRECIATION RIGHT" shall mean Alternate Right or
Limited Right.
(h) "SUBSIDIARY CORPORATION" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the
Optionee's employer corporation if, at the time of granting an Option, each
of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(i) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the
time an Incentive Stock Option is granted, is an employee of the Company
who owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of its Parent or
Subsidiary Corporations.
9.08. Leaves of Absence and Performance Targets.
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect of any
leave of absence taken by the recipient of any award. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine
(i) whether or not any such leave of absence shall constitute a termination
of employment within the meaning of the Plan and (ii) the impact, if any,
of such leave of absence on awards under the Plan theretofore made to any
recipient who takes such leave of absence. The Committee shall also be
entitled to make such determination of performance targets, if any, as it
deems appropriate and to impose them upon an Optionee as a condition of
continued employment.
9.09. Newly Eligible Employees.
The Committee shall be entitled to make such rules, regulations,
determinations and awards as it deems appropriate in respect of any
employee who becomes eligible to participate in the Plan or any portion
thereof, after the commencement of an award or incentive period.
9.10. Adjustments.
In the event of any change in the outstanding Common Stock by reason
of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee may appropriately adjust the number of shares of Common Stock
which may be issued under the Plan, the number of shares of Common Stock
subject to Options theretofore granted under the Plan, the Option Price of
Options theretofore granted under the Plan, the performance targets
referred to in Section 9.08 and any and all other matters deemed
appropriate by the Committee.
9.11. Amendment of the Plan.
The Committee may at any time and from time to time terminate or
modify or amend the Plan in any respect, including in response to changes
in securities, tax or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements. The termination or any modification or
amendment of the Plan shall not, without the consent of a participant,
affect his other rights under an award previously granted to him or her.
9.12. General Terms and Conditions of Options.
Each Option shall be evidenced by a written Option Agreement between
the Company and the Optionee, which agreement, unless otherwise stated in
Articles II, III or IV of the Plan, shall comply with and be subject to the
following terms and conditions:
(a) Number of Shares. Each Option Agreement shall state the number
of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically
identify the portion, if any, of the Option which constitutes an Incentive
Stock Option and the portion, if any, which constitutes a Non-qualified
Stock Option in the form of either a Stock Option or a Reload Option.
(c) Option Price. Each Option Agreement shall state the Option
Price which, in the case of Incentive Stock Options (except to the extent
provided in Article III above), shall be not less than 100% of the
undiscounted Fair Market Value of the shares of Common Stock of the Company
on the date of grant of the Option. The Option Price shall be subject to
adjustment as provided in 9.13(i) hereof. The date on which the Committee
adopts a resolution expressly granting an Option shall be considered the
day on which such Option is granted. No Options shall be granted under the
Plan more than 10 years after the date of adoption of the Plan by the
Board, but the validity of Options previously granted may extend and be
validly exercised beyond that date. Except as provided in Section 3.10
above, Options granted under the Plan shall be for a period determined by
the Committee as provided in Section 9.12(e), below.
(d) Medium and Time of Payment. The Option Price shall be paid in
full at the time of exercise in cash or in shares of Common Stock having a
Fair Market Value equal to such Option Price or in a combination of cash
and such shares, and may be effected in whole or in part (i) with monies
received from the Company at the time of exercise as a compensatory cash
payment, or (ii) with monies borrowed from the Company pursuant to
repayment terms and conditions as shall be determined from time to time by
the Committee, in its discretion, separately with respect to each exercise
of Options and each Optionee; provided, however, that each such method and
time for payment and each such borrowing and terms and conditions of
repayment shall be permitted by and be in compliance with applicable law,
and provided, further, if the Option Price is paid with monies borrowed
from the Company, such fact shall be noted conspicuously on the certificate
evidencing such shares in accordance with applicable law.
(e) Term and Exercise of Options. Options shall be exercisable
over the exercise period as and at the times and upon the conditions that
the Committee may determine, as reflected in the Option Agreement;
provided, however, that the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such time and
under such circumstances, as it, in its sole discretion, deems appropriate.
The exercise period shall be determined by the Committee for all Options;
provided, however that such exercise period shall not exceed 10 years from
the date of grant of such Option. The exercise period shall be subject to
earlier termination as provided in Sections 9.12(f) and 9.12(g) hereof. An
Option may be exercised, as to any or all full shares of Common Stock as to
which the Option has become exercisable, by giving written notice of such
exercise to the Committee; provided, however, that an Option may not be
exercised at any one time as to fewer than 100 shares (or such number of
shares as to which the Option is then exercisable if such number of shares
is less than 100).
(f) Termination. Except as provided in Section 9.12(e) and in this
Section 9.12(f) hereof, an Option may not be exercised unless the Optionee
is then in the employ of the Company or a Parent, division or Subsidiary
Corporation (or a corporation issuing or assuming the Option in a
transaction to which Code Section 424(a) applies), and unless the Optionee
has remained continuously so employed since the date of grant of the
Option. If the employment of an Optionee shall terminate (other than by
reason of death, disability or retirement), all Options of such Optionee
that are exercisable at the time of such termination may, unless earlier
terminated in accordance with their terms, be exercised within six months
after such termination; provided, however, that if the employment of an
Optionee shall terminate for cause, all Options theretofore granted to such
Optionee shall, to the extent not theretofore exercised, terminate
forthwith. Nothing in the Plan or in any Option shall limit the Company's
rights under Section 9.03 above. No Option may be exercised after the
expiration of its term.
(g) Death, Disability or Retirement. If an Optionee shall die
while employed by the Company, a Parent or a Subsidiary Corporation
thereof, or die within three months after the termination of such
Optionee's employment other than for cause, or if the Optionee's employment
shall terminate by reason of disability or retirement, all Options
theretofore granted to such Optionee (to the extent otherwise exercisable)
may, unless earlier terminated in accordance with their terms, be exercised
by the Optionee or by the Optionee's estate or by a person who acquired the
right to exercise such Option by bequest or inheritance or otherwise by
reason of the death or disability of the Optionee, at any time within three
years after the date of death, disability or retirement of the Optionee.
If the Optionee's employment shall terminate by reason of removal for
cause, all Options theretofore granted to such Optionee shall terminate
immediately upon removal and may not be exercised.
(h) Non-transferability of Options. For the purpose of preserving
to the Company the right and ability to register the exercise of Options on
Form S-8 under the Act, including exercises of Options by former employees
and the executors, administrators or beneficiaries of the estates of
deceased employees, Options granted under the Plan shall not be
transferable otherwise than (i) by will; (ii) by the laws of descent and
distribution; or (iii) to a revocable inter vivos trust for the primary
benefit of the Optionee and his or her spouse. Options may be exercised,
during the lifetime of the Optionee, only by the Optionee, his or her
guardian, legal representative or the Trustee of an above described trust.
Except as permitted by the preceding sentences, or unless the Committee
determines that the ability to register the underlying shares on Form S-8
need not be preserved, no Option granted under the Plan or any of the
rights and privileges thereby conferred shall be transferred, assigned,
pledged, or hypothecated in any way (whether by operation of law or
otherwise), and no such Option, right, or privilege shall be subject to
execution, attachment, or similar process. Upon any attempt so to
transfer, assign, pledge, hypothecate, or otherwise dispose of the Option,
or of any right or privilege conferred thereby, contrary to the provisions
of this Plan, or upon the levy of any attachment or similar process upon
such Option, right, or privilege, the Option and such rights and privileges
shall immediately become null and void.
(i) Effect of Certain Changes.
(A) If there is any change in the number of shares of
Common Stock through the declaration of stock dividends, or
through recapitalization resulting in stock splits, or
combinations or exchanges of such shares, the number of shares
of Common Stock available for awards under the Plan pursuant to
Section 1.05 above, the number of such shares covered by the
outstanding Options and the price per share of such Options
shall be proportionately adjusted by the Committee to reflect
any increase or decrease in the number of issued shares of
Common Stock; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated.
(B) In the event of the proposed dissolution or
liquidation of the Company, in the event of any corporate
separation or division, including, but not limited to split-up,
split-off or spin-off, or in the event of a merger,
consolidation or other reorganization of the Corporation with
another corporation, the Committee may provide that the holder
of each Option then exercisable shall have the right to
exercise such Option (at its then Option Price) solely for the
kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such
dissolution, liquidation, or corporate separation or division,
or merger, consolidation or other reorganization by a holder of
the number of shares of Common Stock for which such Option
might have been exercised immediately prior to such
dissolution, liquidation, or corporate separation or division,
or merger, consolidation or other reorganization; or the
Committee may provide, in the alternative, that each Option
granted under the Plan shall terminate as of a date to be fixed
by the Committee; provided, however, that not less than 90-
days' written notice of the date so fixed shall be given to
each Optionee, who shall have the right, during the period of
90 days preceding such termination, to exercise the Options as
to all or any part of the shares of Common Stock covered
thereby, including, if so determined by the Committee, shares
as to which such Options would not otherwise be exercisable;
provided, further, that failure to provide such notice shall
not invalidate or affect the action with respect to which such
notice was required.
(C) If while unexercised Options remain outstanding
under the Plan, the stockholders of the Corporation approve a
definitive agreement to merge, consolidate or otherwise
reorganize the Company with or into another corporation or to
sell or otherwise dispose of all or substantially all of its
assets, or adopt a plan of liquidation (each, a "Disposition
Transaction"), then the Committee may: (i) make an appropriate
adjustment to the number and class of shares available for
awards under the Plan pursuant to Section 1.05 above, and to
the amount and kind of shares or other securities or property
(including cash) receivable upon exercise of any outstanding
options after the effective date of such transaction, and the
price thereof, or, in lieu of such adjustment, provide for the
cancellation of all options outstanding at or prior to the
effective date of such transaction; (ii) provide that
exercisability of all Options shall be accelerated, whether or
not otherwise exercisable; or (iii) in its discretion, permit
Optionees to surrender outstanding options for cancellation;
provided, however, that if the stockholders approve such
Disposition Transaction within five years of the date of
adoption of this Plan and before the Company is taken public,
the Committee shall provide for the alternative in (ii) above.
Upon any cancellation of an outstanding Option pursuant to this
9.12(i)(C), the Optionee shall be entitled to receive, in
exchange therefor, a cash payment under any such Option in an
amount per share determined by the Committee in its sole
discretion, but not less than the difference between the per
share exercise price of such Option and the Fair Market Value
of a share of Company Common Stock on such date as the
Committee shall determine.
(D) Paragraphs (B) and (C) of this Section 9.12(i) shall
not apply to a merger, consolidation or other reorganization in
which the Company is the surviving corporation and shares of
Common Stock are not converted into or exchanged for stock,
securities of any other corporation, cash or any other thing of
value. Notwithstanding the preceding sentence, in case of any
consolidation, merger or other reorganization of another
corporation into the Company in which the Company is the
surviving corporation and in which there is a reclassification
or change (including a change to the right to receive cash or
other property) of the shares of Common Stock (other than a
change in par value, or from par value to no par value, or as a
result of a subdivision or combination, but including any
change in such shares into two or more classes or series of
shares), the Committee may provide that the holder of each
Option then exercisable shall have the right to exercise such
Option solely for the kind and amount of shares of stock and
other securities (including those of any new direct or indirect
parent of the Company), property, cash or any combination
thereof receivable upon such reclassification, change,
consolidation or merger by the holder of the number of shares
of Common Stock for which such Option might have been
exercised.
(E) In the event of a change in the Common Stock of the
Company as presently constituted which is limited to a change
of all of its authorized shares with par value into the same
number of shares with a different par value or without par
value, the shares resulting from any such change shall be
deemed to be the Common Stock within the meaning of the Plan.
(F) To the extent that the foregoing adjustments relate
to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect
shall be final, binding and conclusive, provided that each
Incentive Stock Option granted pursuant to Article III of this
Plan shall not be adjusted in a manner that causes such option
to fail to continue to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code.
(G) Except as hereinbefore expressly provided in this
Section 9.12(i), the Optionee shall have no rights by reason of
any subdivision or consolidation of shares of stock or any
class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger,
consolidation or other reorganization or spin-off of assets or
stock of another corporation; and any issue by the Company of
shares of stock of any class shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number of price of shares of Common Stock subject to the
Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of
its capital or business structures or to merge or to
consolidate or to dissolve, liquidate or sell, or transfer all
or part of its business or assets.
(j) Rights as a Shareholder. An Optionee or a transferee of an
Option shall have no right as a shareholder with respect to any shares
covered by the Option until the date of the issuance of a certificate
evidencing such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property)
or distribution of other rights for which the record date is prior to the
date such certificate is issued, except as provided in Section 9.12(i)
hereof.
(k) Other Provisions. The Option Agreement authorized under the
Plan shall contain such other provisions, including, without limitation,
(A) the imposition of restrictions upon the exercise of an Option; (B) in
the case of an Incentive Stock Option, the inclusion of any condition not
inconsistent with such Option qualifying as an Incentive Stock Option; and
(C) conditions relating to compliance with applicable federal and state
securities laws, as the Committee shall deem advisable.
9.13. Effects of Headings
The Section and Subsection headings contained herein are for
convenience only and shall not affect the construction hereof.
ADOPTED BY RESOLUTION OF THE BOARD OF DIRECTORS, EFFECTIVE THE ____th DAY OF
MAY, 1998.
=========================================
Jeffrey N. Clayton, Secretary
<PAGE>
APPENDIX 3
<PAGE>
fonix CORPORATION
a Delaware corporation
1997 Stock Option and Incentive Plan
ARTICLE I GENERAL
1.01. Purpose.
The purposes of this 1997 Stock Option and Incentive Plan (the
"Plan") are to: (1) closely associate the interests of the management of
fonix Corporation, a Delaware corporation, and its Affiliates (collectively
referred to as the "Company") with the shareholders of the Company, by
reinforcing the relationship between participants' rewards and shareholder
gains; (2) provide management with an equity ownership in the Company
commensurate with Company performance, as reflected in increased
shareholder value; (3) maintain competitive compensation levels; and (4)
provide an incentive to management to remain with the Company, whether as
an employee, officer or director, and to put forth maximum efforts for the
success of its business.
1.02. Administration.
(a) Pursuant to the corporate laws of the State of Delaware, the
Board of Directors of the Company, or a Committee appointed by the Board
consisting solely of two or more non-employee directors (whether the full
Board, or a committee, referred to herein as the "Committee"), shall
administer the Plan and shall approve any transaction under the Plan
involving a grant, award or other acquisition from the Company. Once
appointed, the Committee shall continue to serve until otherwise directed
by the Board. From time to time, the Board may increase or change the size
of the Committee, and appoint new members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, or remove all members of the Committee.
(b) The Committee shall have the authority, without limitation, in
its sole discretion, subject to and not inconsistent with the express
provisions of the Plan, and from time to time, to:
(i) administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan;
(ii) designate the directors, employees or classes of
employees eligible to participate in the Plan from among those
described in Section 1.03 below;
(iii) grant awards provided in the Plan in such form, amount
and under such terms as the Committee shall determine;
(iv) determine the purchase price of shares of Common Stock
covered by each Option (the "Option Price");
(v) determine the Fair Market Value of Common Stock for
purposes of Options or of determining the appreciation of
Common Stock with respect to Stock Appreciation Rights;
(vi) determine the time or times at which Options and/or
Stock Appreciation Rights shall be granted;
(vii) determine the terms and provisions of the various Option
or Stock Appreciation Rights Agreements (none of which need be
identical or uniform) evidencing Options or Stock Appreciation
Rights granted under the Plan and to impose such limitations,
restrictions and conditions upon any such award as the
Committee shall deem appropriate; and
(viii) interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, and make all other
determinations and take all other action necessary or advisable
for the implementation and administration of the Plan.
The Committee may delegate to one or more of its members or to one or
more agents such administrative duties as it may deem advisable, and the
Committee or any delegate may employ one or more persons to render advice
with respect to any responsibility the Committee or such person may have
under the Plan.
(c) All decisions, determinations and interpretations of the
Committee on all matters relating to the Plan shall be in its sole
discretion and shall be final, binding and conclusive on all Optionees and
the Company.
(d) One member of the Committee shall be elected by the Board as
chairman. The Committee shall hold its meetings at such times and places
as it shall deem advisable. All determinations of the Committee shall be
made by a majority of its members either present in person or participating
by conference telephone at a meeting or by written consent. The Committee
may appoint a secretary and make such rules and regulations for the conduct
of its business as it shall deem advisable, and shall keep minutes of its
meetings.
(e) No member of the Board or Committee shall be liable for any
action taken or decision or determination made in good faith with respect
to any Option, Stock Appreciation Right, the Plan, or any award thereunder.
(f) For purposes of this Section 1.02, a "non-employee director"
shall mean a director who: (i) is not currently an officer of the Company
or a parent or subsidiary of the Company, or otherwise currently employed
by the Company or a parent or subsidiary of the Company; (ii) does not
receive compensation, either directly or indirectly, from the Company or a
parent or subsidiary of the Company, for services rendered as a consultant
or in any capacity other than as a director, except for an amount that does
not exceed the dollar amount for which disclosure would be required
pursuant to Item 404(a) of Regulation S-K promulgated by the Securities and
Exchange Commission; (iii) does not possess an interest in any other
transaction for which disclosure would be required pursuant to Item 404(a)
of Regulation S-K; and (iv) is not engaged in a business relationship for
which disclosure would be required pursuant to Item 404(b) of Regulation
S-K.
(g) Unless such holding period is waived by the Company, officers
and directors of the Company who are subject to the short-swing profits
provisions of Section 16 of the Securities Exchange Act of 1934 (the "34
Act") and who acquire shares of Company stock pursuant to this Plan, must
hold such shares for a period of six months following the date of
acquisition, provided that this condition shall be satisfied with respect
to stock options or other derivative securities granted to such officers or
directors if at least six months elapse from the date of grant of the
Option to the date of disposition by Optionee of the Option (other than
upon exercise), or the shares of Common Stock underlying the Option.
1.03. Eligibility for Participation
Participants in the Plan shall be selected by the Committee, and
awards under the Plan, as described in Section 1.04 below, may be granted
by the Committee, to directors, officers and key employees of the Company
and to other key individuals such as consultants and non-employee agents to
the Company whom the Committee believes have made or will make an essential
contribution to the Company; provided, however, that Incentive Stock
Options may only be granted to executive officers and other key employees
of the Company who occupy responsible managerial or professional positions,
who have the capability of making a substantial contribution to the success
of the Company, and who agree, in writing, to remain in the employ of, and
to render services to, the Company for a period of at least one (1) year
from the date of the grant of the award. The Committee has the authority
to select particular employees within the eligible group to receive awards
under the Plan. In making this selection and in determining the persons to
whom awards under the Plan shall be granted and the form and amount of
awards under the Plan, the Committee shall consider any factors deemed
relevant in connection with accomplishing the purposes of the Plan,
including the duties of the respective persons and the value of their
present and potential services and contributions to the success,
profitability and sound growth of the Company. A person to whom an award
has been granted is sometimes referred to herein as an "Optionee." An
Optionee shall be eligible to receive more than one Option and/or Stock
Appreciation Right during the term of the Plan, but only on the terms and
subject to the restrictions hereinafter set forth.
1.04. Types of Awards Under Plan.
Awards under the Plan may be in the form of any one or more of the
following:
(a) "Stock Options" which are nonqualified stock options, the tax
consequences of which are governed by the provisions of Section 83 of the
Internal Revenue Code (the "Code"), as described in Article II;
(b) "Incentive Stock Options" which are statutory stock options,
the tax consequences of which are governed by Section 422 of the Code, as
described in Article III;
(c) "Reload Options" which are also nonqualified stock options,
the tax consequences of which are governed by Section 83 of the Code, as
described in Article IV;
(d) "Alternate Rights" which are Stock Appreciation Rights, the
tax consequences of which are governed by Section 83 of the Code, as
described in Article V; and/or
(e) "Limited Rights" which are also Stock Appreciation Rights, the
tax consequences of which are governed by Section 83 of the Code, as
described in Article VI.
(f) "Stock Bonuses" which are compensation, the tax consequences of
which are governed by Section 83 of the Code, as described in Article VII.
(g) "Cash Bonuses" which are compensation, the tax consequences of
which are governed by Section 61 of the Code, as described in Article VIII.
1.05. Aggregate Limitation on Awards.
(a) Except as may be adjusted pursuant to Section 9.12(i) below,
shares of stock which may be issued as Stock Bonuses or upon exercise of
Options or Alternate Rights under the Plan shall be authorized and unissued
or treasury shares of Common Stock of the Company ("Common Stock"). The
number of shares of Common Stock the Company shall reserve for issuance as
Stock Bonuses or upon exercise of Options or Alternate Rights to be granted
from time to time under the Plan, and the maximum number of shares of
Common Stock which may be issued under the Plan, shall not exceed in the
aggregate 7,500,000 shares of Common Stock. In the absence of an effective
registration statement under the Securities Act of 1933 (the "Act"), all
Stock Bonuses, Options and Stock Appreciation Rights granted and shares of
Common Stock subject to their exercise will be restricted as to subsequent
resale or transfer, pursuant to the provisions of Rule 144 promulgated
under the Act.
(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted
when cash is used as full payment for shares issued upon
exercise of an Option;
(ii) only the shares issued (including the shares, if any,
withheld for tax withholding requirements) as a result of an
exercise of Alternate Rights shall be counted; and
(iii) only the net shares issued (including the shares, if
any, withheld for tax withholding requirements) shall be counted
when shares of Common Stock are used as full or partial payment
for shares issued upon exercise of an Option.
(iv) all shares issued (including the shares, if any,
withheld for tax withholding requirements) as Stock Bonuses shall
be counted.
(c) In addition to shares of Common Stock actually issued pursuant
to Stock Bonuses or the exercise of Options or Alternate Rights, there
shall be deemed to have been issued a number of shares equal to the number
of shares of Common Stock in respect of which Limited Rights shall have
been exercised.
(d) Shares tendered by a participant as payment for shares issued
upon exercise of an Option shall be available for issuance under the Plan.
Any shares of Common Stock subject to an Option or Stock Appreciation Right
granted without a related Option, which for any reason is canceled,
terminated, unexercised or expires in whole or in part shall again be
available for issuance under the Plan, but shares subject to an Option or
Alternate Right which are not issued as a result of the exercise of Limited
Rights shall not again be available for issuance under the Plan.
1.06. Effective Date and Term of Plan.
(a) The Plan shall become effective as of the 10th day of March,
1997, the date the Plan is adopted by a majority of the Board (the
"Effective Date").
(b) No awards shall be granted under the Plan after or on the 10th
day of March, 2007, which date is ten (10) years after the Effective Date
(the "Plan Termination Date"). Provided, however, that the Plan and all
awards made under the Plan prior to such Plan Termination Date shall remain
in effect until such awards have been satisfied or terminated in accordance
with the Plan and the terms of such awards.
ARTICLE II STOCK OPTIONS
2.01. Award of Stock Options.
The Committee may from time to time, and subject to the provisions of
the Plan, and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more options to
purchase for cash or for Company shares the number of shares of Common
Stock allotted by the Committee ("Stock Options"). The date a Stock Option
is granted shall mean the date selected by the Committee as of which the
Committee allots a specific number of shares to a participant pursuant to
the Plan.
2.02. Stock Option Agreements.
The grant of a Stock Option shall be evidenced by a written Stock
Option Agreement, executed by the Company and the holder of a Stock Option
(the "Optionee"), stating the number of shares of Common Stock subject to
the Stock Option evidenced thereby, and in such form as the Committee may
from time to time determine.
2.03 Stock Option Price.
The Option Price per share of Common Stock deliverable upon the
exercise of a Stock Option shall be 100% of the Fair Market Value of a
share of Common Stock on the date the Stock Option is granted, unless the
Committee shall determine, in its sole discretion, that there are
circumstances which reasonably justify the establishment of a lower Option
Price.
2.04. Term and Exercise.
Unless otherwise provided by the Committee or in the Stock Option
Agreement pertaining to the Stock Options, each Stock Option shall be fully
exercisable beginning after the date of its grant and ending not later than
ten years after the date of grant thereof (the "Option Term"). No Stock
Option shall be exercisable after the expiration of its Option Term.
2.05 Manner of Payment.
Each Stock Option Agreement shall set forth the procedure governing
the exercise of the Stock Option granted thereunder, and shall provide
that, upon such exercise in respect of any shares of Common Stock subject
thereto, the Optionee shall pay to the Company, in full, the Option Price
for such shares with cash or with Common Stock previously owned by
Optionee.
2.06 Death of Optionee.
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's estate,
or by a person who acquires the right to exercise such Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both the remaining effective term of the
Stock Option and three years after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any rights exercisable on the date of death.
2.07 Retirement or Disability.
Upon termination of the Optionee's employment by reason of retirement
or permanent disability (as each is determined by the Committee), the
Optionee may, within three years from the date of termination, exercise any
Stock Options to the extent such options are exercisable during such three
year period.
2.08 Termination for Other Reasons.
Except as provided in Sections 2.06, 2.07, or 9.12(f), or except as
otherwise determined by the Committee, all Stock Options shall terminate
six months after the termination of the Optionee's employment.
2.9 Effect of Exercise.
The exercise of any Stock Option shall cancel that number of related
Alternate Rights and/or Limited Rights, if any, which is equal to the
number of shares of Common Stock purchased pursuant to said Stock Option.
ARTICLE III INCENTIVE STOCK OPTIONS
3.01 Award of Incentive Stock Options.
The Committee may, from time to time and subject to the provisions of
the Plan and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more "incentive
stock options", which are intended to qualify as such under the provisions
of Section 422 of the Code, to purchase for cash or for Company shares the
number of shares of Common Stock allotted by the Committee ("Incentive
Stock Options"). The date an Incentive Stock Option is granted shall mean
the date selected by the Committee as of which the Committee shall allot a
specific number of shares to a participant pursuant to the Plan.
3.02 Incentive Stock Option Agreements.
The grant of an Incentive Stock Option shall be evidenced by a
written Incentive Stock Option Agreement, executed by the Company and the
holder of an Incentive Stock Option (the "Optionee"), stating the number of
shares of Common Stock subject to the Incentive Stock Option evidenced
thereby, and in such form as the Committee may from time to time determine.
3.03 Incentive Stock Option Price.
Except as provided in Section 3.10 below, the Option Price per share
of Common Stock deliverable upon the exercise of an Incentive Stock Option
shall be 100% of the Fair Market Value of a share of Common Stock on the
date the Incentive Stock Option is granted.
3.04 Term and Exercise.
Except as provided elsewhere herein, or unless otherwise provided by
the Committee, or in the Stock Option Agreement pertaining to the Incentive
Stock Option, each Incentive Stock Option shall be fully exercisable
beginning after the date of its grant and ending not later than ten years
after the date of grant thereof (the "Option Term"). No Incentive Stock
Option shall be exercisable after the expiration of its Option Term.
3.05 Maximum Amount of Incentive Stock Option Grant.
The aggregate Fair Market Value (determined on the date the Incentive
Stock Option is granted) of Common Stock subject to an Incentive Stock
Option granted to any Optionee by the Committee in any calendar year shall
not exceed $100,000. Multiple Incentive Stock Options may be granted to an
Optionee in any calendar year, which Multiple Incentive Stock Options may
in the aggregate exceed such $100,000 Fair Market Value limitation, so long
as each such Incentive Stock Option within the Multiple Incentive Stock
Option award does not exceed such $100,000 Fair Market Value limitation and
so long as no two such Incentive Stock Options may be exercised by the
Optionee in the same calendar year.
3.06 Death of Optionee.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the Optionee,
provided that such exercise occurs within both the remaining Option Term of
the Incentive Stock Option and three years after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any Incentive Stock Options exercisable on the date
of death.
3.07 Retirement or Disability.
Upon the termination of the Optionee's employment by reason of
permanent disability or retirement (as each is determined by the
Committee), the Optionee may, within three years from the date of such
termination of employment, exercise any Incentive Stock Options to the
extent such Incentive Stock Options were exercisable at the date of such
termination of employment. Notwithstanding the foregoing, the tax
treatment available pursuant to Section 422 of the Code, upon the exercise
of an Incentive Stock Option will not be available to an Optionee who
exercises any Incentive Stock Options more than (i) 12 months after the
date of termination of employment due to permanent disability or (ii) three
months after the date of termination of employment due to retirement.
3.08 Termination for Other Reasons.
Except as provided in Sections 3.06, 3.07 or 9.12(f), or except as
otherwise determined by the Committee, all Incentive Stock Options shall
terminate six months after the date of termination of the Optionee's
employment.
3.09 Applicability of Stock Options Sections and Other Restrictions.
Sections 2.05, Manner of Payment; and 2.09, Effect of Exercise,
applicable to Stock Options, shall apply equally to Incentive Stock
Options. Said Sections are incorporated by reference in this Article III
as though fully set forth herein. In addition, the Optionee shall be
prohibited from the sale, exchange, transfer, pledge, hypothecation, gift
or other disposition of the shares of Common Stock underlying the Incentive
Stock Options until the later of either two (2) years after the date of
granting the Incentive Stock Option or one (1) year after the transfer to
the Optionee of such underlying Common Stock after the Optionee's exercise
of such Incentive Stock Options.
3.10 Employee/Ten Percent Shareholders.
In the event the Committee determines to grant an Incentive Stock
Option to an employee who is also a Ten Percent Stockholder, as defined in
9.07(i) below, (i) the Option Price shall not be less than 110% of the Fair
Market Value of the shares of Common Stock of the Company on the date of
grant of such Incentive Stock Option, and (ii) the exercise period shall
not exceed 5 years from the date of grant of such Incentive Stock Option.
Fair Market Value shall be as defined in 9.07(c) below.
ARTICLE IV RELOAD OPTIONS
4.01. Authorization of Reload Options.
Concurrently with the award of Stock Options and/or the award of
Incentive Stock Options to any participant in the Plan, the Committee may,
subject to the provisions of the Plan, particularly the provisions of
Section 9.11 below, and such other terms and conditions as the Committee
may prescribe, authorize reload options to purchase for cash or for Company
shares a number of shares of Common Stock allotted by the Committee
("Reload Options"). The number of Reload Options shall equal (i) the
number of shares of Common Stock used to exercise the underlying Stock
Options or Incentive Stock Options and (ii) to the extent authorized by the
Committee, the number of shares of Common Stock used to satisfy any tax
withholding requirement incident to the exercise of the underlying Stock
Options or Incentive Stock Options. The grant of a Reload Option will
become effective upon the exercise of underlying Stock Options, Incentive
Stock Options or other Reload Options through the use of shares of Common
Stock held by the Optionee for at least 12 months. Notwithstanding the
fact that the underlying Option may be an Incentive Stock Option, a Reload
Option is not intended to qualify as an "incentive stock option" under
Section 422 of the Code.
4.02. Reload Option Amendment.
Each Stock Option Agreement and Incentive Stock Option Agreement
shall state whether the Committee has authorized Reload Options with
respect to the underlying Stock Options and/or Incentive Stock Options.
Upon the exercise of an underlying Stock Option, Incentive Stock Option or
other Reload Option, the Reload Option will be evidenced by an amendment to
the underlying Stock Option Agreement or Incentive Stock Option Agreement.
4.03. Reload Option Price.
The Option Price per share of Common Stock deliverable upon the
exercise of a Reload Option shall be the Fair Market Value of a share of
Common Stock on the date the grant of the Reload Option becomes effective,
unless the Committee shall determine, in its sole discretion, that there
are circumstances which reasonably justify the establishment of a lower
Option Price.
4.04. Term and Exercise.
The term of each Reload Option shall be equal to the remaining Option
Term of the underlying Stock Option and/or Incentive Stock Option.
4.05. Termination of Employment.
No additional Reload Options shall be granted to Optionees when Stock
Options, Incentive Stock Options and/or Reload Options are exercised
pursuant to the terms of this Plan following termination of the Optionee's
employment.
4.06. Applicability of Stock Options Sections.
Sections 2.05, Manner of Payment; 2.06 Death of Optionee; 2.07,
Retirement or Disability; 2.08, Termination for Other Reasons; and 2.09,
Effect of Exercise, applicable to Stock Options, shall apply equally to
Reload Options. Said Sections are incorporated by reference in this
Article IV as though fully set forth herein.
ARTICLE V ALTERNATE STOCK APPRECIATION RIGHTS
5.01. Award of Alternate Rights.
Concurrently with or subsequent to the award of any Option to
purchase one or more shares of Common Stock, the Committee may, subject to
the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the Optionee with respect to each share
of Common Stock, a related alternate stock appreciation right, permitting
the Optionee to be paid the appreciation on the Option in Common Stock in
lieu of exercising the Option ("Alternate Right").
5.02. Alternate Rights Agreement.
Alternate Rights shall be evidenced by written agreements in such
form as the Committee may from time to time determine.
5.03. Term and Exercise.
An Optionee who has been granted Alternate Rights may, from time to
time, in lieu of the exercise of an equal number of Options, elect to
exercise one or more Alternate Rights and thereby become entitled to
receive from the Company payment, in the form of Common Stock, of the
number of shares determined pursuant to Sections 5.04 and 5.05. Alternate
Rights shall be exercisable only to the same extent and subject to the same
conditions and within the same Option Terms as the Options related thereto
are exercisable, as provided in this Plan. The Committee may, in its
discretion, prescribe additional conditions to the exercise of any
Alternate Rights.
5.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled upon the
exercise of each Alternate Right shall be equal to 100% of the amount, if
any, by which the Fair Market Value of a share of Common Stock on the
exercise date exceeds the Fair Market Value of a share of Common Stock on
the date the Option related to said Alternate Right was granted or became
effective, as the case may be.
5.05. Form of Payment.
Upon exercise of Alternate Rights, the Company shall pay Optionee the
amount of payment determined pursuant to Section 5.04 in Common Stock. The
number of shares to be paid shall be determined by dividing the amount of
payment determined pursuant to Section 5.04 by the Fair Market Value of a
share of Common Stock on the exercise date of such Alternate Rights. As
soon as practicable after exercise, the Company shall deliver to the
Optionee a certificate or certificates for such shares of Common Stock.
5.06. Effect of Exercise.
The exercise of any Alternate Rights shall cancel an equal number of
Stock Options, Incentive Stock Options, Reload Options and Limited Rights,
if any, related to said Alternate Rights.
5.07. Retirement or Disability.
Upon termination of the Optionee's employment (including employment
as a director of the Company after an Optionee terminates employment as an
officer or key employee of the Company) by reason of permanent disability
or retirement (as each is determined by the Committee), the Optionee may,
within three years from the date of such termination, exercise any
Alternate Rights to the extent such Alternate Rights are exercisable during
such three year period.
5.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Section 5.07 or 9.12(f), or except as otherwise
determined by the Committee, all Alternate Rights shall terminate six
months after the date of termination of the Optionee's employment or three
years after the death of the Optionee.
ARTICLE VI LIMITED RIGHTS
6.01. Award of Limited Rights.
Concurrently with or subsequent to the award of an Option or
Alternate Right, the Committee may, subject to the provisions of the Plan
and such other terms and conditions as the Committee may prescribe, award
to the Optionee with respect to each share of Common Stock underlying such
Option or Alternate Right, a related limited right permitting the Optionee,
during a specified limited time period, to be paid the appreciation on the
Option in cash in lieu of exercising the Option ("Limited Right").
6.02. Limited Rights Agreement.
Limited Rights granted under the Plan shall be evidenced by written
agreements in such form as the Committee may from time to time determine.
6.03. Term and Exercise.
An Optionee who has been granted Limited Rights may, from time to
time, in lieu of the exercise of an equal number of Options and Alternate
Rights related thereto, elect to exercise one or more Limited Rights and
thereby become entitled to receive from the Company payment in cash in the
amount determined pursuant to Sections 6.04 and 6.05. Limited Rights shall
be exercisable only to the same extent and subject to the same conditions
and within the same Option Terms as the Options or Alternate Rights related
thereto are exercisable, as provided in this Plan. The Committee may, in
its discretion, prescribe additional conditions to the exercise of any
Limited Rights.
Notwithstanding any other provision in this Section 6.03 to the
contrary, Limited Rights are exercisable in full for a period of seven
months following the date of a Change in Control of the Company (the
"Exercise Period").
As used in the Plan, a "Change of Control" shall be deemed to have
occurred if (a) individuals who are currently directors of the Company
immediately prior to a Control Transaction shall cease, within one year of
such Control Transaction, to constitute a majority of the Board (or of the
Board of Directors of any successor to the Company, or to all or
substantially all of its assets), or any entity, person or Group other than
the Company or a Subsidiary Corporation of the Company acquires shares of
the Company in a transaction or series of transactions that result in such
entity, person or Group directly or indirectly owning beneficially fifty-
one percent (51%) or more of the outstanding shares of the Company.
As used herein, "Control Transaction" shall be (i) any tender offer
for or acquisition of capital stock of the Company, (ii) any merger,
consolidation, reorganization or sale of all or substantially all of the
assets of the Company which has been approved by the shareholders, (iii)
any contested election of directors of the Company, or (iv) any combination
of the foregoing which results in a change in voting power sufficient to
elect a majority of the Board. As used herein, "Group" shall mean persons
who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of the
Securities Exchange Act of 1934, as amended.
6.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled upon the
exercise of each Limited Right shall be equal to 100% of the amount, if
any, which is equal to the difference between the Fair Market Value per
share of Common Stock covered by the related Option or Alternative Right on
the date the Option or Alternate Right was granted and the Fair Market
Value per share of such Common Stock on the exercise date.
6.05. Form of Payment.
Payment of the amount to which an Optionee is entitled upon the
exercise of Limited Rights, as determined pursuant to Section 6.04, shall
be paid by the Company solely in cash.
6.06. Effect of Exercise.
If Limited Rights are exercised, the Options and Alternate Rights, if
any, related to such Limited Rights cease to be exercisable to the extent
of the number of shares with respect to which the Limited Rights were
exercised. Upon the exercise or termination of the Options and Alternate
Rights, if any, related to such Limited Rights, the Limited Rights granted
with respect thereto terminate to the extent of the number of shares as to
which the related Options and Alternate Rights were exercised or
terminated.
6.07. Retirement or Disability.
Upon termination of the Optionee's employment (including employment
as a director of this Company after an Optionee terminates employment as an
officer or key employee of this Company) by reason of permanent disability
or retirement (as each is determined by the Committee), the Optionee may,
within three years from the date of termination, exercise any Limited Right
to the extent such Limited Right is exercisable during such three year
period.
6.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Sections 6.07, 6.09 or 9.12(f), or except as
otherwise determined by the Committee, all Limited Rights granted under the
Plan shall terminate three months after the date of termination of the
Optionee's employment or three years after the death of the Optionee.
6.09. Termination Related to a Change in Control.
The requirement that an Optionee be terminated by reason of
retirement or permanent disability or be employed by the Company at the
time of exercise pursuant to Sections 6.07 and 6.08 respectively, is waived
during the Exercise Period as to any Optionee who (i) was employed by the
Company at the time of the Change in Control and (ii) is subsequently
terminated by the Company other than for cause, or who voluntarily
terminates if such termination was the result of a good faith determination
by the Optionee that as a result of the Change in Control he is unable to
effectively discharge his present duties or the duties of the position
which he occupied just prior to the Change in Control. As used in this
Plan, "for cause" shall mean willful misconduct or dishonesty or conviction
of or failure to contest prosecution for a felony, or excessive absenteeism
unrelated to illness.
ARTICLE VII STOCK BONUSES
7.01 Terms, Conditions and Restrictions.
The Committee may from time to time, and subject to the provisions of
the Plan and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more Stock Bonuses
as compensation the number of shares of Common Stock allotted by the
Committee ("Stock Bonuses"). Stock awarded as a Stock Bonus shall be
subject to the terms, conditions and restrictions determined by the
Committee at the time of the award. The Committee may require the
recipient to sign an agreement as a condition of the award. The agreement
may contain such terms, conditions, representations, and warranties as the
Committee may require.
ARTICLE VIII CASH BONUSES
8.01 Grant.
The Committee may from time to time, and subject to the provisions of
the Plan and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more cash bonuses as
compensation ("Cash Bonuses"). The Committee may grant Cash Bonuses under
the Plan outright or in connection with (i) an Option or Stock Appreciation
Right granted or previously granted or (ii) a Stock Bonus awarded, or
previously awarded. Bonuses will be subject to rules, terms, and
conditions as the Committee may prescribe.
8.02 Cash Bonuses in Connection with Options and Stock Appreciation
Rights.
Cash Bonuses granted in connection with Options will entitle an
Optionee to a Cash Bonus when the related Option is exercised (or
surrendered in connection with exercise of a Stock Appreciation Right
related to the Option) in whole or in part. Cash Bonuses granted in
connection with Stock Appreciation Rights will entitle the holder to a Cash
Bonus when the Stock Appreciation Right is exercised. Upon exercise of an
Option, the amount of the Cash Bonus shall be determined by multiplying the
amount by which the total Fair Market Value of the shares to be acquired
upon the exercise exceeds the total Option Price for the shares by the
applicable bonus percentage. Upon exercise of a Stock Appreciation Right,
the cash bonus shall be determined by multiplying the total Fair Market
Value of the shares or cash received pursuant to the exercise of the Stock
Appreciation Right by the applicable bonus percentage. The bonus
percentage applicable to a Cash Bonus shall be determined from time to time
by the Committee but shall in no event exceed thirty percent.
8.03 Cash Bonuses in Connection with Stock Bonuses.
Cash Bonuses granted in connection with Stock Bonuses will entitle
the person awarded such Stock Bonuses to a Cash Bonus either at the time
the Stock Bonus is awarded or at such time as restrictions, if any, to
which the Stock Bonus is subject lapse. If a Stock Bonus awarded is
subject to restrictions and is repurchased by the Company or forfeited by
the holder, the Cash Bonus granted in connection with such Stock Bonus
shall terminate and may not be exercised. Whether any Cash Bonus is to be
awarded and, if so, the amount and timing of such Cash Bonus shall be
determined from time to time by the Committee.
ARTICLE IX MISCELLANEOUS
9.01. General Restriction.
Each award under the Plan shall be subject to the requirement that,
if at any time the Committee shall determine that (i) the listing,
registration or qualification of the shares of Common Stock subject or
related thereto upon any securities exchange or under any state or Federal
law, or (ii) the consent or approval of any government regulatory body, or
(iii) an agreement by the grantee of an award with respect to the
disposition of shares of Common Stock, is necessary or desirable as a
condition of, or in connection with, the granting of such award or the
issue or purchase of shares of Common Stock thereunder, such award may not
be exercised or consummated in whole or in part unless and until such
listing, registration, qualification, consent, approval or agreement shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
9.02. Withholding Taxes.
Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall, to the extent
permitted or required by law, have the right to require the grantee, as a
condition of issuance of a Stock Bonus or exercise of its Options or Stock
Appreciation Rights, to remit to the Company no later than the date of
issuance or exercise, or make arrangements satisfactory to the Committee
regarding payment of, any amount sufficient to satisfy any Federal, state
and/or local taxes of any kind, including, but not limited to, withholding
tax requirements prior to the delivery of any certificate or certificates
for such shares. If the participant fails to pay the amount required by
the Committee, the Company shall have the right to withhold such amount
from other amounts payable by the Company to the participant, including but
not limited to, salary, fees or benefits, subject to applicable law.
Alternatively, the Company may issue or transfer such shares of Common
Stock net of the number of shares sufficient to satisfy any such taxes,
including, but not limited to, the withholding tax requirements. For
withholding tax purposes, the shares of Common Stock shall be valued on the
date the withholding obligation is incurred.
9.03. Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant to the
Plan shall confer upon any participant the right to continue in the
employment of the Company or affect any right which the Company may have to
terminate the employment of such participant.
9.04. Non-Uniform Determinations.
The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive awards, the form,
amount and timing of such awards, the terms and provisions of such awards
and the agreements evidencing same) need not be uniform and may be made by
it selectively among persons who receive, or are eligible to receive,
awards under the Plan, whether or not such persons are similarly situated.
9.05. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights as a
shareholder with respect thereto unless and until certificates for shares
of Common Stock are issued to him or her.
9.06 Fractional Shares.
Fractional shares shall not be granted under any award under this
Plan, unless the provision of the Plan which authorizes such award also
specifies the terms under which fractional shares or interests may be
granted.
9.07. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated in the following definitions:
(a) "AFFILIATE" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with the Company.
(b) "DISABILITY" shall mean an Optionee's inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not
less than one year.
(c) "FAIR MARKET VALUE" per share in respect of any share of Common
Stock as of any particular date shall mean (i) the closing sales price per
share of Common Stock reflected on a national securities exchange for the
last preceding date on which there was a sale of such Common Stock on such
exchange; or (ii) if the shares of Common Stock are then traded on an over-
the-counter market, the average of the closing bid and asked prices for the
shares of Common Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Common Stock in such
market; or (iii) in case no reported sale takes place, the average of the
closing bid and asked prices on the National Association of Securities
Dealers' Automated Quotations System ("NASDAQ") or any comparable system,
or if the shares of Common Stock are not listed on NASDAQ or comparable
system, the closing sale price or, in case no reported sale takes place,
the average of the closing bid and asked prices, as furnished by any member
of the National Association of Securities Dealers, Inc. selected from time
to time by the Company for that purpose; or (iv) if the shares of Common
Stock are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee in its discretion may
determine in any such other manner as the Committee may deem appropriate.
In no event shall the Fair Market Value of any share of Common Stock be
less than its par value. In the case of Incentive Stock Options, the Fair
Market Value shall not be discounted for restrictions, lack of
marketability and other such limitations on the enjoyment of the Common
Stock. In the case of other type of Options, the Fair Market Value of the
Common Stock shall be so discounted.
(d) "OPTION" means Stock Option, Incentive Stock Option or Reload
Option.
(e) "OPTION PRICE" means the purchase price per share of Common
Stock deliverable upon the exercise of an Option.
(f) "PARENT CORPORATION" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Optionee's
employer corporation if, at the time of granting an Option, each of the
corporations other than the Optionee's employer corporation owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(g) "STOCK APPRECIATION RIGHT" shall mean Alternate Right or
Limited Right.
(h) "SUBSIDIARY CORPORATION" shall mean any corporation (other than
the Company) in an unbroken chain of corporations beginning with the
Optionee's employer corporation if, at the time of granting an Option, each
of the corporations other than the last corporation in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(i) "TEN PERCENT STOCKHOLDER" shall mean an Optionee who, at the
time an Incentive Stock Option is granted, is an employee of the Company
who owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of its Parent or
Subsidiary Corporations.
9.08. Leaves of Absence and Performance Targets.
The Committee shall be entitled to make such rules, regulations and
determinations as it deems appropriate under the Plan in respect of any
leave of absence taken by the recipient of any award. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine
(i) whether or not any such leave of absence shall constitute a termination
of employment within the meaning of the Plan and (ii) the impact, if any,
of such leave of absence on awards under the Plan theretofore made to any
recipient who takes such leave of absence. The Committee shall also be
entitled to make such determination of performance targets, if any, as it
deems appropriate and to impose them upon an Optionee as a condition of
continued employment.
9.09. Newly Eligible Employees.
The Committee shall be entitled to make such rules, regulations,
determinations and awards as it deems appropriate in respect of any
employee who becomes eligible to participate in the Plan or any portion
thereof, after the commencement of an award or incentive period.
9.10. Adjustments.
In the event of any change in the outstanding Common Stock by reason
of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee may appropriately adjust the number of shares of Common Stock
which may be issued under the Plan, the number of shares of Common Stock
subject to Options theretofore granted under the Plan, the Option Price of
Options theretofore granted under the Plan, the performance targets
referred to in Section 9.08 and any and all other matters deemed
appropriate by the Committee.
9.11. Amendment of the Plan.
The Committee may at any time and from time to time terminate or
modify or amend the Plan in any respect, including in response to changes
in securities, tax or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements. The termination or any modification or
amendment of the Plan shall not, without the consent of a participant,
affect his other rights under an award previously granted to him or her.
9.12. General Terms and Conditions of Options.
Each Option shall be evidenced by a written Option Agreement between
the Company and the Optionee, which agreement, unless otherwise stated in
Articles II, III or IV of the Plan, shall comply with and be subject to the
following terms and conditions:
(a) Number of Shares. Each Option Agreement shall state the number
of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically
identify the portion, if any, of the Option which constitutes an Incentive
Stock Option and the portion, if any, which constitutes a Non-qualified
Stock Option in the form of either a Stock Option or a Reload Option.
(c) Option Price. Each Option Agreement shall state the Option
Price which, in the case of Incentive Stock Options (except to the extent
provided in Article III above), shall be not less than 100% of the
undiscounted Fair Market Value of the shares of Common Stock of the Company
on the date of grant of the Option. The Option Price shall be subject to
adjustment as provided in 9.13(i) hereof. The date on which the Committee
adopts a resolution expressly granting an Option shall be considered the
day on which such Option is granted. No Options shall be granted under the
Plan more than 10 years after the date of adoption of the Plan by the
Board, but the validity of Options previously granted may extend and be
validly exercised beyond that date. Except as provided in Section 3.10
above, Options granted under the Plan shall be for a period determined by
the Committee as provided in Section 9.12(e), below.
(d) Medium and Time of Payment. The Option Price shall be paid in
full at the time of exercise in cash or in shares of Common Stock having a
Fair Market Value equal to such Option Price or in a combination of cash
and such shares, and may be effected in whole or in part (i) with monies
received from the Company at the time of exercise as a compensatory cash
payment, or (ii) with monies borrowed from the Company pursuant to
repayment terms and conditions as shall be determined from time to time by
the Committee, in its discretion, separately with respect to each exercise
of Options and each Optionee; provided, however, that each such method and
time for payment and each such borrowing and terms and conditions of
repayment shall be permitted by and be in compliance with applicable law,
and provided, further, if the Option Price is paid with monies borrowed
from the Company, such fact shall be noted conspicuously on the certificate
evidencing such shares in accordance with applicable law.
(e) Term and Exercise of Options. Options shall be exercisable
over the exercise period as and at the times and upon the conditions that
the Committee may determine, as reflected in the Option Agreement;
provided, however, that the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such time and
under such circumstances, as it, in its sole discretion, deems appropriate.
The exercise period shall be determined by the Committee for all Options;
provided, however that such exercise period shall not exceed 10 years from
the date of grant of such Option. The exercise period shall be subject to
earlier termination as provided in Sections 9.12(f) and 9.12(g) hereof. An
Option may be exercised, as to any or all full shares of Common Stock as to
which the Option has become exercisable, by giving written notice of such
exercise to the Committee; provided, however, that an Option may not be
exercised at any one time as to fewer than 100 shares (or such number of
shares as to which the Option is then exercisable if such number of shares
is less than 100).
(f) Termination. Except as provided in Section 9.12(e) and in this
Section 9.12(f) hereof, an Option may not be exercised unless the Optionee
is then in the employ of the Company or a Parent, division or Subsidiary
Corporation (or a corporation issuing or assuming the Option in a
transaction to which Code Section 424(a) applies), and unless the Optionee
has remained continuously so employed since the date of grant of the
Option. If the employment of an Optionee shall terminate (other than by
reason of death, disability or retirement), all Options of such Optionee
that are exercisable at the time of such termination may, unless earlier
terminated in accordance with their terms, be exercised within six months
after such termination; provided, however, that if the employment of an
Optionee shall terminate for cause, all Options theretofore granted to such
Optionee shall, to the extent not theretofore exercised, terminate
forthwith. Nothing in the Plan or in any Option shall limit the Company's
rights under Section 9.03 above. No Option may be exercised after the
expiration of its term.
(g) Death, Disability or Retirement. If an Optionee shall die
while employed by the Company, a Parent or a Subsidiary Corporation
thereof, or die within three months after the termination of such
Optionee's employment other than for cause, or if the Optionee's employment
shall terminate by reason of disability or retirement, all Options
theretofore granted to such Optionee (to the extent otherwise exercisable)
may, unless earlier terminated in accordance with their terms, be exercised
by the Optionee or by the Optionee's estate or by a person who acquired the
right to exercise such Option by bequest or inheritance or otherwise by
reason of the death or disability of the Optionee, at any time within three
years after the date of death, disability or retirement of the Optionee.
If the Optionee's employment shall terminate by reason of removal for
cause, all Options theretofore granted to such Optionee shall terminate
immediately upon removal and may not be exercised.
(h) Non-transferability of Options. For the purpose of preserving
to the Company the right and ability to register the exercise of Options on
Form S-8 under the Act, including exercises of Options by former employees
and the executors, administrators or beneficiaries of the estates of
deceased employees, Options granted under the Plan shall not be
transferable otherwise than (i) by will; (ii) by the laws of descent and
distribution; or (iii) to a revocable inter vivos trust for the primary
benefit of the Optionee and his or her spouse. Options may be exercised,
during the lifetime of the Optionee, only by the Optionee, his or her
guardian, legal representative or the Trustee of an above described trust.
Except as permitted by the preceding sentences, or unless the Committee
determines that the ability to register the underlying shares on Form S-8
need not be preserved, no Option granted under the Plan or any of the
rights and privileges thereby conferred shall be transferred, assigned,
pledged, or hypothecated in any way (whether by operation of law or
otherwise), and no such Option, right, or privilege shall be subject to
execution, attachment, or similar process. Upon any attempt so to
transfer, assign, pledge, hypothecate, or otherwise dispose of the Option,
or of any right or privilege conferred thereby, contrary to the provisions
of this Plan, or upon the levy of any attachment or similar process upon
such Option, right, or privilege, the Option and such rights and privileges
shall immediately become null and void.
(i) Effect of Certain Changes.
(A) If there is any change in the number of shares of
Common Stock through the declaration of stock dividends, or
through recapitalization resulting in stock splits, or
combinations or exchanges of such shares, the number of shares
of Common Stock available for awards under the Plan pursuant to
Section 1.05 above, the number of such shares covered by the
outstanding Options and the price per share of such Options
shall be proportionately adjusted by the Committee to reflect
any increase or decrease in the number of issued shares of
Common Stock; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated.
(B) In the event of the proposed dissolution or
liquidation of the Company, in the event of any corporate
separation or division, including, but not limited to split-up,
split-off or spin-off, or in the event of a merger,
consolidation or other reorganization of the Corporation with
another corporation, the Committee may provide that the holder
of each Option then exercisable shall have the right to
exercise such Option (at its then Option Price) solely for the
kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such
dissolution, liquidation, or corporate separation or division,
or merger, consolidation or other reorganization by a holder of
the number of shares of Common Stock for which such Option
might have been exercised immediately prior to such
dissolution, liquidation, or corporate separation or division,
or merger, consolidation or other reorganization; or the
Committee may provide, in the alternative, that each Option
granted under the Plan shall terminate as of a date to be fixed
by the Committee; provided, however, that not less than 90-
days' written notice of the date so fixed shall be given to
each Optionee, who shall have the right, during the period of
90 days preceding such termination, to exercise the Options as
to all or any part of the shares of Common Stock covered
thereby, including, if so determined by the Committee, shares
as to which such Options would not otherwise be exercisable;
provided, further, that failure to provide such notice shall
not invalidate or affect the action with respect to which such
notice was required.
(C) If while unexercised Options remain outstanding
under the Plan, the stockholders of the Corporation approve a
definitive agreement to merge, consolidate or otherwise
reorganize the Company with or into another corporation or to
sell or otherwise dispose of all or substantially all of its
assets, or adopt a plan of liquidation (each, a "Disposition
Transaction"), then the Committee may: (i) make an appropriate
adjustment to the number and class of shares available for
awards under the Plan pursuant to Section 1.05 above, and to
the amount and kind of shares or other securities or property
(including cash) receivable upon exercise of any outstanding
options after the effective date of such transaction, and the
price thereof, or, in lieu of such adjustment, provide for the
cancellation of all options outstanding at or prior to the
effective date of such transaction; (ii) provide that
exercisability of all Options shall be accelerated, whether or
not otherwise exercisable; or (iii) in its discretion, permit
Optionees to surrender outstanding options for cancellation;
provided, however, that if the stockholders approve such
Disposition Transaction within five years of the date of
adoption of this Plan and before the Company is taken public,
the Committee shall provide for the alternative in (ii) above.
Upon any cancellation of an outstanding Option pursuant to this
9.12(i)(C), the Optionee shall be entitled to receive, in
exchange therefor, a cash payment under any such Option in an
amount per share determined by the Committee in its sole
discretion, but not less than the difference between the per
share exercise price of such Option and the Fair Market Value
of a share of Company Common Stock on such date as the
Committee shall determine.
(D) Paragraphs (B) and (C) of this Section 9.12(i) shall
not apply to a merger, consolidation or other reorganization in
which the Company is the surviving corporation and shares of
Common Stock are not converted into or exchanged for stock,
securities of any other corporation, cash or any other thing of
value. Notwithstanding the preceding sentence, in case of any
consolidation, merger or other reorganization of another
corporation into the Company in which the Company is the
surviving corporation and in which there is a reclassification
or change (including a change to the right to receive cash or
other property) of the shares of Common Stock (other than a
change in par value, or from par value to no par value, or as a
result of a subdivision or combination, but including any
change in such shares into two or more classes or series of
shares), the Committee may provide that the holder of each
Option then exercisable shall have the right to exercise such
Option solely for the kind and amount of shares of stock and
other securities (including those of any new direct or indirect
parent of the Company), property, cash or any combination
thereof receivable upon such reclassification, change,
consolidation or merger by the holder of the number of shares
of Common Stock for which such Option might have been
exercised.
(E) In the event of a change in the Common Stock of the
Company as presently constituted which is limited to a change
of all of its authorized shares with par value into the same
number of shares with a different par value or without par
value, the shares resulting from any such change shall be
deemed to be the Common Stock within the meaning of the Plan.
(F) To the extent that the foregoing adjustments relate
to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect
shall be final, binding and conclusive, provided that each
Incentive Stock Option granted pursuant to Article III of this
Plan shall not be adjusted in a manner that causes such option
to fail to continue to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code.
(G) Except as hereinbefore expressly provided in this
Section 9.12(i), the Optionee shall have no rights by reason of
any subdivision or consolidation of shares of stock or any
class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger,
consolidation or other reorganization or spin-off of assets or
stock of another corporation; and any issue by the Company of
shares of stock of any class shall not affect, and no
adjustment by reason thereof shall be made with respect to, the
number of price of shares of Common Stock subject to the
Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of
its capital or business structures or to merge or to
consolidate or to dissolve, liquidate or sell, or transfer all
or part of its business or assets.
(j) Rights as a Shareholder. An Optionee or a transferee of an
Option shall have no right as a shareholder with respect to any shares
covered by the Option until the date of the issuance of a certificate
evidencing such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property)
or distribution of other rights for which the record date is prior to the
date such certificate is issued, except as provided in Section 9.12(i)
hereof.
(k) Other Provisions. The Option Agreement authorized under the
Plan shall contain such other provisions, including, without limitation,
(A) the imposition of restrictions upon the exercise of an Option; (B) in
the case of an Incentive Stock Option, the inclusion of any condition not
inconsistent with such Option qualifying as an Incentive Stock Option; and
(C) conditions relating to compliance with applicable federal and state
securities laws, as the Committee shall deem advisable.0
9.13. Effects of Headings
The Section and Subsection headings contained herein are for
convenience only and shall not affect the construction hereof.
ADOPTED BY RESOLUTION OF THE BOARD OF DIRECTORS, EFFECTIVE THE 10th DAY OF
MARCH, 1997.
=========================================
Jeffrey Clayton, Secretary
