NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
August 25, 1998
MAGELLAN TECHNOLOGY, INC.
You are cordially invited to attend a special Meeting of Shareholders of
Magellan Technology, Inc. (the "Company"), which will be held on Tuesday, August
25, 1998 at 3:00 p.m., at the Little America Hotel and Towers 500 South Main
Street, Salt Lake City, Utah 84101 (the "Annual" Meeting"), for the following
purposes, which are more fully described in the Information Statement
accompanying this Notice:
(i) To elect five directors of the Company, each to serve until
the next annual meeting of shareholders and until their
respective successors have been duly elected and qualified;
(ii) To consider and vote upon a proposal to amend the Company's
Articles of Incorporation to increase the number of shares of
the Common Stock of the Company, $.0002 par value, which the
Company is authorized to issue from 25,000,000 shares to
50,000,000 shares of Common Stock;
(iii) To consider and vote upon a proposal to amend the Magellan
Technology, Incorporated Stock Incentive Plan to increase by
2,000,000 the number of shares of the Common Stock of the
Company from 2,500,000 shares to 4,500,000 shares available
for issuance pursuant to grants thereunder;
(iv) To consider and vote upon a proposal to ratify the appointment
of Tanner + Company as independent auditor of the Company for
the year ending December 31, 1998; and
(v) To transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on July 6, 1998
as the record date for the determination of shareholders entitled to receive
notice of and to vote at the Annual Meeting and at any adjournment or
postponement thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person.
By Order of the Board of Directors
/s/ Douglas M. Angus
------------------------------------
Douglas M. Angus
Secretary
July 15, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14c INFORMATION STATEMENT PURSUANT
TO SECTION 14c OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
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Magellan Technology, Inc.
-------------------------------------------------
(Name of Registrant as Specified in its Charter)
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Magellan Technology, Inc.
13526 South 110 West
Draper, Utah 84020
INFORMATION STATEMENT
Annual Meeting of Shareholders
August 25, 1998
This Information Statement is being furnished to the shareholders of
Magellan Technology, Inc., a Utah Corporation (the "Company"), pursuant to
Section 14(c) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Regulation 14(c) in connection with the Special Meeting of
Shareholders of the Company to be held Tuesday, August 25, 1998 and at any
adjournment or postponement thereof (the "Special Meeting"). This Information
Statement and the Notice of Special Meeting of Shareholders are first being
mailed to shareholders of the Company on or about July 31, 1998.
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
The Company will bear all costs and expenses relating to preparing,
printing and mailing to shareholders this Information Statement and accompanying
materials. Arrangements will be made with brokerage firms and other custodians,
nominees and fiduciaries representing beneficial owners and the Company will
reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in doing so.
VOTING
Record Date
The Board has fixed the close of business on July 6, 1998 as the record
date for determination of shareholders entitled to notice of and to vote at the
Annual Meeting (the "Record Date"). As of the Record Date, there were issued and
outstanding 17,599,536 shares of Common Stock. The holders of record of the
shares of Common Stock on the Record Date entitled to be voted at the Annual
Meeting are entitled to cast one vote per share on each matter submitted to a
vote at the Annual Meeting. Accordingly, 17,599,536 votes are entitled to be
cast on each matter submitted to a vote at the Annual Meeting.
3
<PAGE>
Required Vote
A majority of the outstanding shares of Common Stock entitled to
vote, represented in person or by properly executed proxy, is required for a
quorum at the Annual Meeting. Abstentions and broker non-votes, which are
indications by a broker that it does not have discretionary authority to vote on
a particular matter, will be counted as "represented" for the purpose of
determining the presence or absence of a quorum. Under Utah corporate law and
the Articles and Bylaws of the Company (the "Bylaws"), once a quorum is
established, shareholder approval with respect to a particular proposal is
generally obtained when the votes cast in favor of the proposal exceed the votes
cast against such proposal.
In the election of directors, the five nominees receiving the highest
number of votes will be elected. For approval of the proposed amendments to the
Articles; the proposed amendment to increase the number of shares, the proposed
amendment to the Option Plan to increase the number of shares available for
issuance pursuant to grants thereunder and the proposed ratification of the
independent auditor, the votes cast in favor of each such proposal must exceed
the votes cast against the proposal. Accordingly, abstentions and broker
non-votes will not have the effect of being considered as votes cast against any
matter considered at the Annual Meeting.
ELECTION OF DIRECTORS
Nominees for Election as Directors
At the Annual Meeting, five directors of the Company (constituting the
entire Board) are to be elected to serve until the next annual meeting of
shareholders and until their successors shall be duly elected and qualified.
Each of the nominees for director identified below is currently a director of
the Company. If any of the nominees should be unavailable to serve, which is not
now anticipated, the proxies solicited hereby will be voted for such other
persons as shall be designated by the present Board. The five nominees receiving
the highest number of votes at the Annual Meeting will be elected.
Name Age Position Director Since
William A. Fresh 69 Chairman of the Board and
Chief Executive Officer
MTI, STI, BC, BII and SSC 1989
Reginald Hughes 53 Director; Executive Vice President BII 1996
Darwin Millet 45 Director 1994
Richard I. Winwood 55 Director 1995
Irving Monclova 66 Director; President, SSC 1998
- ------------------------------------------------------------------------------
(MTI refers to the Company, SkyHook Technologies, Inc. ("STI"),
BioMeridian Corporation ("BC"), BioMeridian
International, Inc. ("BII"), SkyHook Service Company ("SSC")
4
<PAGE>
William A. Fresh has served as Chairman of the Board and Chief
Executive Officer of Magellan since its incorporation in June of 1989. He
currently serves as a director of Cerprobe Corporation, a publicly traded
Arizona Corporation which is engaged in the manufacturer of probe cards utilized
in the final test of ICs in the semi-conductor industry. Mr. Fresh is a past
director of EFI Electronics Corporation, a Utah manufacturer and marketer of
surge suppression equipment for computer, industrial, medical and
telecommunications devices. Mr. Fresh founded EFI in 1981 and subsequently
served as its chairman and president until 1986. Mr. Fresh is currently
chairman, president and owner of Orem Tek Development Corporation, a Utah
consulting and business park development corporation. Mr. Fresh also serves on
the Board of Directors of Sento Technical Innovations Corporation, a
publicly-traded software company.
Reginald Hughes was elected to the Board of Directors in 1996. He is
the Executive Vice President of BioMeridian International, Inc., and a director
of Magellan Technology, Inc.; He co-founded STI in 1995. From 1981 to 1994, he
served in various capacities with Eyring Corporation, a high tech firm in Provo,
Utah, specializing in defense contracting. While with Eyring, Mr. Hughes was
promoted to the positions of Director and Vice President of Finance. Prior to
joining Eyring Corporation, Mr. Hughes had a successful career as a Hospital
Administrator.
Richard I. Winwood joined the Board of Directors of the Company and SIS
early in 1995. Mr. Winwood presently owns and operates several private
businesses, some of which are in the Aviation Industry. In 1983, Mr. Winwood
co-founded Franklin Covey Co., and subsequently served as its Executive Vice
President and Chief Operating Officer until he resigned in 1992. Franklin Covey
is a multinational, time management training and products company traded on the
New York Stock Exchange. Prior to co-founding Franklin Covey, Mr. Winwood had a
successful career in the computer services industry, working with General
Electric Co., Automatic Data Processing, Inc. and Computer Sciences Corporation.
Darwin D. Millet has been a member of the Board since 1994. Currently,
he is President and Chief Operating Officer of SIS, LLC. Prior to coming to SIS,
Mr. Millet served as Executive Vice President of Layton Construction Co., Inc.
("LCC") from 1992 to 1993, and as Chief Financial Officer from 1986 to 1991.
Irving Monclova is President of SkyHook Service Company. He joined
Magellan in late 1996. Mr. Monclova served in the United States Army from 1953
until 1982. He had tours in Europe, Korea, Republic of Vietnam, Panama and
Puerto Rico. He culminated his military career as Commander of readiness
programs of the reserve forces. In 1982, he joined Serv-Air, Inc. (Serv-Air was
later acquired by E-Systems and later by Raytheon) In 1989, he was promoted to
Vice President of Operations and Maintenance and transferred to Headquarters,
Serv-Air, Inc., Greenville, Texas. In January 1993, he was promoted to the
position of Vice President and Chief of Special Operations Programs. Mr.
Monclova retired from Raytheon E-Systems in 1997.
Committees and Meetings
The Board has formed a standing Audit Committee, the members of which
are Darwin D. Millet and William A. Fresh. The Audit Committee held one meeting
during the year ending December 31, 1997. The Audit Committee's functions
include the recommendation of the Company's independent auditor, and the review
of the Company's internal accounting and financial practices and controls and
all services performed by the Company's independent auditor.
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The Board also has formed a standing Compensation Committee comprised
solely of directors, the members of which are Richard I. Winwood and William A.
Fresh. The Compensation Committee held four meetings during the fiscal year
ending December 31, 1997. The Compensation Committee currently serves as the
committee which administers the Magellan Technology, Incorporated Employee Stock
Option Plan.
During the fiscal year ending December 31, 1997, there were seven
meetings held by the Board. No director attended fewer than 75 percent of the
total number of meetings of the Board and of the committees on which he served.
The Company does not maintain a standing nominating committee of the Board.
Director Compensation
The directors of the Company are not presently compensated for
attendance at the Board and committee meetings. All directors are reimbursed for
expenses incurred in connection with attendance at Board and committee meetings.
EXECUTIVE OFFICERS
There are no executive officers of the Company other than William A. Fresh
and Douglas M. Angus. Certain information regarding William A. Fresh is set
forth above under "Election of Directors--Nominees for Election as Directors."
EXECUTIVE COMPENSATION
The following table sets forth, for the three fiscal years ended
December 31, 1997, the compensation paid to the Company's Chief Executive
Officer. No executive officer of the Company received salary and bonus
compensation in excess of $100,000. The Chairman and CEO of the Company has
agreed to serve without salary compensation until the Company achieves
profitable operations. In April 1997 the Board granted a stock option to the
Company's CEO for 250,000 shares of common stock.
Long-term
Annual Compensation Compensation
------------------------------------------ -----------
Name Other
and Annual Securities
Principle Salary Bonus Compensation Underlying
Position Year ($) ($) ($) Options
- ------------------------------------------------------------ -----------
William A. Fresh 1997 -0- -0- -0- 250,000
Chief Executive 1996 -0- -0- -0- -0-
Officer 1995 -0- -0- -0- -0-
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth the options granted to named executive
officers in the last fiscal year.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
% of Options Potential Realizable Value at
Name and Number Granted to Assumed Annual Rates of Stock
Principle of Options Employees in Exercise Expiration Price Appreciation for Option Term
Position Granted Fiscal Year Price Date 5% 10%
- --------------------------------------------------------------------------------------------------------
William A Fresh 250,000 22% $. 37 April 2004 $ 33,851 $ 79,866
CEO
- --------------------------------------------------------------------------------------------------------
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
The following table sets forth the aggregate value of options to
acquire shares of the Common Stock held by the Chief Executive Officer on
December 31, 1997.
Value of Unexercised
Number of Unexercised In-the-Money Options at
Options at FY-End(#) FY-End ($)(1)
---------------------- -----------------------
Name Unexercisable/Exercisable Unexercisable/Exercisable
- ---------------------- ------------------------ -------------------------
William A. Fresh . . . 500/250,500 0/$156,250
- ----------------------
(1) Calculated based on the difference between the exercise price and the price
of a share of the Company's Common Stock on December 31, 1997.
Director Compensation. Directors of the Company are currently paid no
fee for their service on the Board of Directors. Directors are also not
currently paid a fee for, or reimbursed for expenses incurred with respect to,
attendance at board or committee meetings.
Certain Relationships and Related Transactions
Revolving Line of Credit Guaranties. During 1997 the Company entered
into two separate line of credit agreements. Each of these agreements is for a
$750,000 revolving line of credit secured by inventory and receivables. Three of
the Company's major stockholders, Mr. William A. Fresh, Mr. Richard I. Winwood
and Ballard Investments, LTD, have individually, personally guaranteed $500,000
(one third of the total of the two lines which total $1,500,000). Mss Fresh and
Winwood serve as Directors. Mr. Fresh serves as the Company's Chief Executive
Officer. The lines of credit bear interest at prime plus 1.5% . As of December
31, 1997, $740,000 and $745,000 respectively were outstanding under these line
of credit agreements. Mss Fresh and Winwood and Ballard Investment Company LTD.,
each received warrants to purchase 50,000 shares of the Company's common stock
for 37 cents per share in return for their guarantees.
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<PAGE>
Non-Revolving Line of Credit Guaranties. During 1997 the Company
entered into a non-revolving line of credit agreement. The agreement is for a
$1,200,000 non-revolving line of credit secured by inventory and receivables.
Three of the Company's major stockholders Mr. William A. Fresh, Mr. Richard I.
Winwood and Ballard Investments, LTD, have individually and jointly guaranteed
up to $1,200,000. ). Mss Fresh and Winwood serve as Directors. Mr. Fresh serves
as the Company's Chief Executive Officer. The line of credit bears interest at
prime plus 1.0%. As of December 31, 1997, $700,000 was outstanding under this
non-revolving line of credit agreement. Mss Fresh and Winwood and Ballard
Investment Company LTD., each received warrants to purchase 50,000 shares of the
Company's common stock for 37 cents per share in return for their guarantees.
Notes Payable to a Shareholder. During 1997 Mr. William A. Fresh, a
Director/Shareholder who also serves as the Chief Executive Officer loaned
$500,000 to the Company through five separate $100,000 notes through either
himself or entities in which he held a controlling interest. The notes bear
interest at 12% and are payable upon demand. Effective February 27, 1998 these
notes were converted to common stock of the Company at 75 cents a share. In
addition, the interest payable of approximately $35,500 was used by Mr. Fresh to
exercise warrants to purchase common stock, the warrants had exercise prices of
20 cents to 37 cents a share. In addition Mr. Fresh loaned $400,000 to the
Company subsequent to the year ended December 31, 1997. Effective February 27,
1998 the Mr. Fresh converted these notes payable to common stock at 75 cents a
share. The interest payable of approximately $2,500 was used by Mr. Fresh to
exercise warrants to purchase common stock, the warrants had exercise prices of
20 cents to 37 cents a share. For each $100,000 loaned to the Company, Mr. Fresh
received a warrant to purchase 15,000 shares of the Company's common stock at
37 cents a share. The warrants are exercisable immediately and expire in ten
years.
Notes Payable to a Shareholder. During 1997 Mr. Richard I. Winwood,
a Director/Shareholder loaned $250,000 to the Company through two separate notes
of $100,000 and $150,000 respectively. The notes bear interest at 12% and are
payable upon demand. Effective February 27, 1998 these notes were converted to
common stock of the Company at 75 cents a share. In addition, the interest
payable of approximately $8,500 was used by the Mr. Winwood to exercise warrants
to purchase common stock, the warrants had exercise prices of 20 cents to 37
cents a share. For each $100,000 loaned to the Company, Mr. Winwood received a
warrant to purchase 15,000 shares of the Company's common stock at 37 cents a
share. The warrants are exercisable immediately and expire in ten years.
8
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
Principal Holders
The following table lists the number of shares of Common Stock
beneficially owned as of June 1, 1998, by each person known by the Company to be
the beneficial owner of more than five percent (5%) of the Common Stock, by each
director of the Company, by the Chief Executive Officer, and by all officers and
directors of the Company as a group. Unless noted otherwise, each person named
has sole voting and investment power with respect to the shares indicated.
Beneficial Ownership
As of June 1, 1998
-------------------------
Percentage
Number of of Class
Name and Address of Beneficial Owner Shares Outstanding
- ------------------------------------- ------------ -----------
William A. Fresh 5,488,713 (1) 29.0%
2238 E. Gambel Oak Drive
Sandy, Utah 84092
Richard Winwood 3,647,715 (2) 19.3%
7069 S. Highland Drive, Suite 102
Salt Lake City, Utah 84121
Ballard Investment Company LTD. 1,724,987 (3) 9.1%
2611 East 1300 South
Salt Lake City, Utah 84108
Reginald Hughes 504,991 (4) 2.7%
Darwin D. Millet 302,170 (5) 1.6%
Irving Monclova 48,513 (6) .3%
Other Executive Officers 100,834 (7) .5%
Judith Edwards 1,144,169 6.0%
Vaughn Cook 1,375,000 (8) 7.3%
All officers and directors as 10,092,936 53.4%
a group (6 persons)
The percentages set forth above have been computed based on 18,906,286
shares, which is the number of shares of the Common Stock outstanding and
exercisable warrants and options held by officers and directors, excluding
treasury shares held by the Company, outstanding as of June 1, 1998.
- ------------------------
9
<PAGE>
(1) Includes 1,603,417 shares held by WAF Investment Company, a Utah limited
partnership, of which Mr. Fresh is a general partner, 1,133,332 shares held by
Reva Luana Fresh, spouse, 50,000 shares held by the William A. and Reva Luana
Fresh Family Living Trust, 216,667 shares held by William A. & Reva Luana Fresh
Charitable Remainder Trust, 60,000 shares held in trusts in which Reva Luana
Fresh is the custodian, 316,667 shares held by Orem Tek Development, a Utah S
Corporation, of which Mr. Fresh is the principal shareholder, 310,392 shares
issuable upon the exercise of currently exercisable warrants, and 400,500 shares
issuable upon presently exercisable options.
(2) 3,501,531 shares are held by the Richard I. Winwood Revocable Living Trust.
Includes 146,184 shares issuable upon the exercise of currently exercisable
warrants.
(3) Includes 185,837 shares issuable upon presently exercisable warrants.
Craig Ballard, a general partner of Ballard Investment Company LTD, has
the power to vote the shares and to make investment decisions with respect
to the shares on behalf of Ballard Investment Company LTD.
(4) The shares are held by a Utah limited liability partnership of which Mr.
Hughes is a general partner
(5) Includes 93,836 shares issuable upon presently exercisable warrants or
options which become exercisable in 60 days.
(6) Includes 35,000 of presently exercisable options.
(7) Includes 80,834 of presently exercisable options or options which become
exercisable in 60 days.
(8) 1,375,000 shares are held by Digital Health, LLC, a Utah LLC controlled by
Mr. Cook.
AMENDMENT OF ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The Board has unanimously adopted a resolution setting forth a proposed
amendment to the Company's Articles to increase the number of shares of Common
Stock which the Company is authorized to issue from 25,000,000 to 50,000,000
shares. The increase in authorized shares will facilitate future public or
private sale of equity to provide additional capital for the ongoing operations
of the Company. Shares of common stock may also be used in connection with
future acquisitions and for the Company's benefit plans
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Description of Capital Stock
Common Stock. The Articles currently authorize the issuance of
25,000,000 shares of Common Stock, par value $.0002 per share. As of July 6,
1998, there were 17,599,536 shares of Common Stock issued and outstanding, held
by approximately 145 stockholders of record. Except as otherwise required by
law, each share of Common Stock entitles the stockholder to one vote on each
matter which stockholders may vote on at all meetings of stockholders of the
Company. Holders of the Common Stock are not entitled to cumulative voting in
the election of directors. Holders of the Common Stock do not have preemptive,
subscription or conversion rights, and there are no redemption or sinking fund
provisions applicable thereto. Shares of Common Stock are currently entitled to
share equally and ratably in dividends paid from the fund legally available for
the payment thereof, when, as and if declared by the Board. Holders of Common
Stock are also currently entitled to share ratably in the assets of the Company
available for distribution to holders of Common Stock after payment of
liabilities of the Company upon liquidation or dissolution of the Company,
whether voluntary or involuntary. All the outstanding shares of Common Stock are
fully paid and nonassessable. The Company has no present intention to issue any
of the additional 25,000,000 shares of Common Stock that will become authorized
pursuant to approval of the amendment to the Articles proposed herein. The
declaration of dividends is subject to the discretion of the Board. The Company
has no present intention of paying any cash dividends on the Common Stock and
plans currently to retain any earnings to finance the development and expansion
of its operations. The payment of cash dividends also may be restricted by a
number of other factors, including future earnings, capital requirements and the
financial condition of the Company, and restrictions on the payment of dividends
imposed under Utah law.
Utah Control Shares Acquisition Act. No provision of the Articles or
Bylaws would delay, defer or prevent a change in control of the Company.
Nonetheless, the Utah Control Shares Acquisition Act (the "Control Shares Act")
provides that any person or entity which acquires 20% or more of the outstanding
voting shares of a publicly-held Utah corporation is denied voting rights with
respect to the acquired shares, unless a majority of the disinterested
shareholders of the corporation elects to restore such voting rights. A "control
share acquisition" is generally defined as the direct or indirect acquisition of
either ownership or voting power associated with previously issued and
outstanding control shares. The shareholders of a corporation may elect to
exempt the stock of the corporation from the provisions of the Control Shares
Act through adoption of a provision to the effect in the articles of
incorporation or bylaws of the corporation. Neither the Company's Articles nor
its Bylaws exempt the Common Stock from the Control Shares Act.
Approval of the proposed amendment to the Articles requires that votes
cast in favor of the proposed amendment exceed votes cast against it. The Board
recommends a vote FOR amendment of the Articles of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to
50,000,000 shares.
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AMENDMENT OF OPTION PLAN TO INCREASE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
PURSUANT TO GRANTS THEREUNDER
The Board has unanimously adopted a resolution setting forth a proposed
amendment to the Option Plan to increase by 2,000,000 from 2,500,000 to
4,500,000, the number of shares of Common Stock, available for issuance pursuant
to grants under the Option Plan, to provide that the Option Plan will be
administered by the Board or a Committee of non-employee Directors and to
terminate the formula award provision of the Option Plan. The additional shares
will be available for the grant of options to key employees and others whose
contributions are deemed important to the future success of the company.
Description of the Option Plan
General. The Option Plan was adopted by the Board as of March 18, 1994.
The following description of the Option Plan does not purport to be complete and
is qualified in its entirety by reference to the full text of the Option Plan, a
copy of which will be provided to any stockholder upon written request.
Purpose. The purpose of the Option Plan is to promote the long-term
success of the Company and the creation of incremental stockholder value by (a)
encouraging directors and key employees of the Company and its subsidiaries to
focus on critical long-range objectives, (b) encouraging the attraction and
retention of key employees with exceptional qualifications, and (c) linking the
interests of key employees of the Company directly to stockholder interests
through increased stock ownership.
Administration. As a result of changes to Rule 16b-3 promulgated by the
Securities and Exchange Commission, the Board has amended the Option Plan to
provide that it shall be administered by the Board or by a committee of the
Board consisting of two or more non-employee directors appointed by the Board
(The Board and/or the Committee are herein referred to as "The Option Plan
Committee"). The Option Plan Committee is currently composed of the Compensation
Committee of the Board. The Option Plan Committee, in its sole discretion,
determines the number and type of awards granted to a participant under the
Option Plan and the terms and conditions of such awards, including any vesting
conditions. The Option Plan Committee executes agreements setting forth the
terms of such awards (each, a "stock Award Agreement") and makes all other
decisions relating to the operation of the Option Plan. As a result of the
proposed changes, all directors will be eligible to receive options and awards
under the Option Plan even if they are serving on the Option Plan Committee.
Duration. The Option Plan will remain in effect until terminated by the
Board. Notwithstanding the termination of the Option Plan, the Option Plan will
continue in effect after such termination for purposes of the administration of
any Option Plan award granted prior to such termination.
12
<PAGE>
Shares Subject to the Option Plan. The Option Plan provides for the
issuance of Incentive Stock Options (the "Incentive Options"), as that term is
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options which are not governed by the provisions of
Section 422 of the Code ("Nonqualified Options" and, together with Incentive
Options, "Options") for shares of Common Stock, and certain corresponding stock
appreciation rights ("SARs"). The maximum number of Options that may be awarded
under the Option Plan is currently 2,500,000. If any Options are forfeited or if
any Option terminates for any reason before being exercised, then such Options,
become available again for Awards under the Option Plan. Notwithstanding the
above, if any Options are surrendered because corresponding SARs are exercised,
such Options will not become available again for Awards under the Option Plan.
Common Stock issued pursuant to the Option Plan may be authorized but unissued
shares or treasury shares. As of June 8, 1998, the Company had granted options
for the purchase of 2,765,835 shares (including Options for 265,835 shares that
have been issued subject to the approval of this amendment) of Common Stock
under the Option Plan. The following table sets forth as of June 8, 1998, the
Options which have been granted under the plan, exclusive of options granted
subject to the approval of this amendment, none of which were granted to the
named Executive Officer or any Director.
(Excluding Options granted subject to the approval of this Amendment).
OPTIONS
NAME GRANTED
- --------------------------------------------------------- ------------
William A. Fresh, Chairman of the Board, CEO and Director 400,500
Irving Monclova, Director, President SkyHook Services 135,000
Directors who are not Executive Officers as a group 167,668
Executive Officers as a group 197,500
Employees who are not Executive Officers as a group 1,475,165
In the event of a subdivision of the outstanding shares of Common
Stock, a declaration of a dividend payable in Common Stock, a declaration of a
dividend payable in a form other than Common Stock in an amount that has a
material effect on the price of the Common Stock, a combination of consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise)
into a lesser number of shares of Common Stock, a recapitalization or similar
occurrence (the occurrence of each of which may be referred to as a "Capital
Change"), the Option Plan Committee will make appropriate adjustments in the
number of Options, Restricted Shares and Stock Units available for future Awards
under the Option Plan.
Eligibility. Awards may be granted to directors, officers and employees
of the Company and its subsidiaries that the Option Plan Committee, in its sole
discretion, determines to be key employees (the "Key Employees"). Because the
Option Plan Committee has complete discretion to determine the number and
selection of Key Employees eligible to participate in the Option Plan, it is not
possible to estimate accurately the number of persons who are or may become
eligible to participate in the Option Plan.
13
<PAGE>
Options. The Option Plan Committee, in its sole discretion, may grant
both Incentive Options and Nonqualified Options from time to time. The Option
Plan provides that the exercise price of Options, restrictions upon the exercise
of Options and restrictions on the transferability of shares issued upon the
exercise of Options, will be determined by the Option Plan Committee in its sole
discretion. The Option Plan Committee has sole discretion to determine the time
or times when each Option vests and becomes exercisable. The term of an
Incentive Option, however, may not be more than ten years from the date of
grant. During the lifetime of the employee receiving the Option (the
"Optionee"), the Option will be exercisable only by the Optionee and will not be
assignable or transferable. Each Option will become exercisable in such
installments, at such time or times, and is subject to such conditions, as the
Option Plan Committee, in its discretion, may determine at or before the time
the Option is granted. The Option Plan Committee may provide for the accelerated
exercisability of an Option in the event of the death, disability or retirement
of the Optionee. Unless otherwise provided by the Option Plan Committee, all
Options will terminate ninety days after the termination of the employment of an
Optionee, unless the Optionee's employment was terminated for cause, in which
event the Options will immediately terminate upon the termination of such
Optionee's employment.
Formula Award to Non-Employee Directors. The Option Plan specifically
provides for stock awards to Non-Employee Directors of the Company. 4,000
Formula Award Options have been granted under the plan. The Board elected to
discontinue granting Formula Award Options after March 1995. All Directors,
however, are eligible to receive discretionary grants of Options under the
Option Plan.
Payment. The exercise price of Options granted under the Option Plan is
payable at the time of exercise in cash or, in the discretion of the Option Plan
Committee, in shares of Common Stock or other forms approved by the Option Plan
Committee. In the case of an Incentive Option, payment must be made only
pursuant to the express provisions with regard to exercise that the Option Plan
Committee determines to include in the applicable Stock Award Agreement. Any
payment method approved by the Option Plan Committee must be consistent with
applicable law, regulations and rules as well as the terms and conditions of the
Option Plan.
Stock Appreciation Rights. In connection with the grant of any Option,
the Option Plan Committee, in its sole discretion, may also grant a SAR, which
will relate to a specific Option granted to the Optionee. A SAR entitles the
Optionee to surrender to the Company, unexercised, all or any part of that
portion of the Option which is then exercisable and to receive from the Company
an amount equal to the difference between the aggregate exercise price of the
shares of Common Stock subject to the Option and the fair market value, as
determined under the Option Plan, of such shares on the date of such exercise.
Payment by the Company of any amount owing pursuant to the exercise of a SAR may
be made in shares of Common Stock, cash or any combination of cash and shares,
as determined in the sole discretion of the Option Plan Committee. The
determination of the Option Plan Committee to include an SAR in an Incentive
Option may be made only at the time of the grant of the Incentive Option. The
Option Plan Committee may include a SAR with a Nonqualified Option at the time
of the grant, and any time thereafter until six months before the expiration of
the Nonqualified Option.
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A SAR may be exercised only to the extent the Option to which it is
applicable is exercisable and may not be exercised unless both the SAR and the
related Option have been outstanding for more than six months. If, on the date
an Option expires, the exercise price of the Option is less than the fair market
value of the shares of Common Stock on such date, then any SARs included in such
Option is automatically deemed to be exercised as of such date with respect to
any portion of such Option that has not been exercised or surrendered.
Amendments. The Board may, at any time and for any reason, amend or
terminate the Option Plan; provided, that any amendment to the Option Plan will
be subject to the approval of the Company's stockholders to the extent required
by applicable laws, regulations or rules. No amendment, suspension or
termination of the Option Plan will affect an Award granted on or prior to the
effective date of such amendment.
General Provisions. Neither the Option Plan nor the grant of any Award
thereunder gives any individual the right to remain employed by the Company or
any of its subsidiaries. The Option Plan does not inhibit the Company's ability
to terminate or modify the terms of the employment of any employee at anytime,
with or without cause. Participants in the Option Plan have no rights with
respect to dividends, voting or any other privileges accorded to the Company's
stockholders at the issuance of stock certificates for shares of Common Stock.
Recipients of Options have no obligation to exercise such Options. Participants
in the Option Plan have no rights or interest under the Option Plan in any
Option or shares of the Common Stock prior to the grant of an Option or the
issuance of shares upon exercise thereof.
New Plan Benefits
Because the Option Plan committee has complete discretion to determine
the number and selection of Key Employees, as well as the recipients, number,
type, vesting requirements and other terms of any Award under the Option Plan,
it is not possible to determine the benefits or amounts, if any, that will be
received by or allocated to any person under the Option Plan.
Federal Income Tax Consequences
The following tax discussion is a brief summary of federal income tax
law applicable to the Option Plan. The discussion is intended solely for general
information and omits certain information which does not apply generally to all
participants in the Option Plan.
Initial Grant of Options and SARS. A recipient of Options, whether
Nonqualified Options or Incentive Options, or SARs incurs no income tax
liability, and the Company obtains no deduction, from the grant of Options or
SARS.
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Incentive Options. The holder of an Incentive Option is not subject to
federal income tax upon the exercise of the Incentive Option, and the Company is
not entitled to a tax deduction by reason of such exercise, provided that the
holder is still employed by the Company (or terminated employment no longer than
three months before the exercise date). Additional exceptions to this exercise
timing requirement apply upon the death or disability of the Optionee. A sale of
the shares of Common Stock received upon the exercise in an Incentive Option
which occurs both more than one year after the exercise of the Incentive Option
and more than two years after the grant of the Incentive Option will result in
the realization of long-term capital gain or loss to the Optionee in the amount
of the difference between the amount realized on the sale and the exercise price
for such shares. Generally, upon a sale or disposition of the shares prior to
the foregoing holding requirements (referred to as a "disqualifying
disposition"), the Optionee will recognize ordinary compensation income, and the
Company will receive a corresponding deduction, equal to the lesser of (i) the
excess of the fair market value of the shares on the date of transfer to the
Optionee over the exercise price, or (ii) the excess of the amount realized on
the disposition over the exercise price.
The excess of the fair market value of the shares of Common Stock at
the time of the exercise of an Incentive Option over the Option price will
increase the Optionee's alternative minimum taxable income subject to the
alternative minimum tax, unless a subsequent disqualifying disposition occurs in
the same taxable year of the Optionee in which the Common Stock was purchased.
Nonqualifying Options. Upon the exercise of a Nonqualified Option, the
amount by which the fair market value of the shares of Common Stock on the date
of exercise exceeds the exercise price is taxed to the Optionee as ordinary
compensation income. The Company is generally entitled to a deduction in the
same amount, provided it satisfies certain requirements relating to the terms of
the Option and makes all required wage withholdings on the compensation element
attributable to the exercise. In general, the Optionee's tax basis in the shares
acquired by exercising a Nonqualified Option is equal to the fair market value
of such shares on the date of exercise. Upon a subsequent sale of any such
shares in a taxable transaction, the Optionee will realize capital gain or loss
in an amount equal to the difference between the sale price and his or her basis
in the shares.
SARs. Upon the exercise of a SAR a participant under the Option Plan
will recognize ordinary compensation income in the amount of both the cash and
the fair market value of the shares of Common Stock received upon the exercise
of the SAR and generally the Company will be entitled to a corresponding
deduction. In the event the participant receives shares of Common Stock upon the
exercise of the SAR, any shares so acquired will have a tax basis equal to their
fair market value on the date of such exercise or payment, and the holding
period of the shares will commence on the day following that date. Upon a
subsequent sale of such shares, the participant will recognize capital gain or
loss (long-term or short-term, depending on whether the shares were held for
more than twelve months before the sale) in an amount equal to the difference
between the sale price and his or her basis in the shares.
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Withholding Tax Obligations. To the extent required by applicable
federal, state, local or foreign law, the recipient of any payment or
distribution under the Option Plan must make arrangements satisfactory to the
Company for the satisfaction of any withholding tax obligations that arise by
reason of such payment or distribution. The Company is not required to make such
payment of distribution until such obligations are satisfied. The Committee may
permit an Option Plan participant who exercises a Nonqualified Option to satisfy
all or part of his or her withholding tax obligation by having the Company
withhold a portion of the Common Stock that otherwise would be issued to the
participant under such Nonqualified Option.
Approval of Amendments of Option Plan
Approval of the proposed amendments to the Option Plan requires that
votes cast in favor of the proposed amendment exceeds votes cast against it. The
Board recommends a vote FOR amendment of the Option Plan to increase by
2,000,000 the number of shares of Common Stock, available for issuance pursuant
to grants under the Option Plan, and the other amendments described above.
Certain Interests of Directors
In considering the recommendation with respect to the amendment of the
Option Plan, stockholders should be aware that members of the Board have certain
interests which may present them with conflicts of interest in connection with
such proposal. As discussed above, all directors are eligible to participate in
the Option Plan. The Board recognizes that adoption of the proposed amendment to
the Option Plan may benefit individual directors of the Company and their
successors, but it believes that approval of the amendment of the Option plan
will strengthen the Company's ability to continue to attract, motivate and
retain qualified employees, officers and directors. As of June 1, 1998 current
members of the Board owned, in the aggregate, approximately 52.8% of the
outstanding shares of Common Stock. See "Principal Holders of Voting
Securities."
RATIFICATION OF SELECTION OF AUDITOR
AND CHANGES IN AUDITOR
The Audit Committee has recommended, and the Board has selected, the
firm of Tanner + Company of Salt Lake City, Utah, independent certified public
accountants, to audit the financial statements of the Company for the fiscal
year ending December 31, 1998, subject to ratification by the shareholders. The
Board anticipates that one or more representatives of Tanner + Company will be
present at the Annual Meeting, will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate questions. The
Board recommends that shareholders vote FOR ratification of the appointment of
Tanner + Company as the Company's independent auditor.
OTHER MATTERS
As of the date of this Information Statement, the Board knows of no
other matters to be presented for action at the Annual Meeting. However, if any
further business should properly come before the meeting, the persons named as
proxies in the accompanying form will vote on such business in accordance with
their best judgment.
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ADDITIONAL INFORMATION
The Company will provide without charge to any person from whom an
Information statement is solicited by the Board, upon the written request of
such person, a copy of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997, including the financial statements and schedules
thereto (as well as exhibits thereto, if specifically requested), required to be
filed with the Securities and Exchange Commission. Written requests for such
information should be directed to Douglas M. Angus, Secretary of the Company, at
13526 South 110 West, Draper, Utah 84020.
