<PAGE> 1
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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
WavePhore Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its 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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
April 26, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders of WavePhore, Inc. on Tuesday, May 25, 1999 at 2:00 p.m., Mountain
Standard Time, at the Phoenix Airport Marriott, 1101 N. 44th St., Phoenix,
Arizona.
The Notice of Annual Meeting and Proxy Statement accompanying this
letter describe the business to be acted upon at the meeting. The Annual Report
to Shareholders for the year ended December 31, 1998 also is enclosed.
Please promptly vote, date, sign and return your proxy for the meeting
even though you plan to attend. You may vote in person at that time if you so
desire.
Sincerely,
David E. Deeds
Chairman, Chief Executive Officer
and President
<PAGE> 3
WAVEPHORE, INC.
3131 E CAMELBACK ROAD, SUITE 320
PHOENIX, ARIZONA 85016
(602) 952-5500
------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------------------------------------------
The Annual Meeting of Shareholders of WavePhore, Inc. will be held on
Tuesday, May 25, 1999 at 2:00 p.m., Mountain Standard Time, at the Phoenix
Airport Marriott, 1101 N. 44th St., Phoenix, Arizona, to take action on the
following matters:
1. To elect five Directors to serve until the next Annual Meeting
of Shareholders or until their successors have been duly
elected and qualified.
2. To approve an amendment to the Amended and Restated Articles
of Incorporation which will change the Company's name to "WAVO
Corporation."
3. To approve an amendment to the Amended and Restated Articles
of Incorporation which will increase the number of shares of
common stock, without par value ("Common Shares") that the
Company is authorized to issue.
4. To approve an amendment to the Amended and Restated Articles
of Incorporation which will increase the number of shares of
preferred stock ("Preferred Shares") that the Company is
authorized to issue.
5. To approve an amendment to the Amended and Restated Articles
of Incorporation which will delete the designation of the
relative rights, preferences and limitations of all series of
Preferred Shares other than the Company's Series 1994
Cumulative Convertible Preferred Shares (the "Series 1994
Preferred Shares").
6. To approve an amendment to the Company's 1997 Incentive Plan
increasing the number of shares which may be issued in the
aggregate under the Plan, and increasing the total number of
shares and amount of cash which may be awarded in any year to
any one participant.
7. To transact such other business as may properly come before
the meeting or any adjournment thereof. As of the date of this
notice, the Company knows of no other business to be brought
before the meeting.
The Board of Directors has fixed the close of business on April 5, 1999 as the
record date for the determination of Shareholders entitled to notice of, and to
vote at, the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Douglas J. Reich
Secretary
Dated: April 26, 1999
<PAGE> 4
WAVEPHORE, INC.
3131 E. CAMELBACK ROAD, SUITE 320
PHOENIX, ARIZONA 85016
(602) 952-5500
--------------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 25, 1999
---------------------------------------------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of WavePhore, Inc., an Indiana corporation (the
"Company"), of proxies for the Annual Meeting of Shareholders to be held on
Tuesday, May 25, 1999 at 2:00 p.m., Mountain Standard Time, at the Phoenix
Airport Marriott, 1101 N. 44th St., Phoenix, Arizona, and at any adjournment
thereof. These Proxy Materials are being mailed to Shareholders commencing
approximately April 27, 1999.
Sending in a signed proxy will not affect a Shareholder's right to
attend the meeting and vote in person. Any Shareholder giving a proxy has the
right to revoke it at any time before it is exercised by executing and returning
a proxy bearing a later date, by giving written notice of revocation to the
Secretary of the Company, or by attending the meeting and voting in person. All
properly executed proxies not revoked will be voted at the meeting in accordance
with instructions contained therein.
A proxy which is signed and returned by a Shareholder of record without
specification marked in the instruction boxes will be voted, as to proposals
specified in the proxy, in accordance with recommendations of the Board of
Directors as outlined in this Proxy Statement. If any other proposals are
properly brought before the meeting and submitted to a vote, all proxies will be
voted in accordance with the judgment of the persons voting the respective
proxies.
In connection with proxy soliciting material mailed to Shareholders,
employees of the Company may communicate with Shareholders personally or by
telephone, facsimile, telegraph or mail to solicit their proxies. The Company
will pay all expenses related to such solicitations of proxies. The Company will
request that brokers, custodians, nominees and fiduciaries forward proxy
materials to the beneficial holders, and solicit proxies from them, where
appropriate. The
1
<PAGE> 5
Company will reimburse such persons for reasonable out-of-pocket expenses
incurred in connection therewith.
Shareholders of record at the close of business on April 5, 1999 are
eligible to vote at the meeting. As of the close of business on April 5, 1999,
the Company had outstanding 28,605,458 Common Shares. Each such Common Share
will be entitled to one vote. Additional shares held in the Company's treasury
at April 5, 1999, totaling 506,000 Common Shares, will not be voted. Also as of
such date, the Company had outstanding 501,963 Preferred Shares, each of which
will be entitled to one vote on each of the proposed amendments to the Amended
and Restated Articles of Incorporation, but will not be entitled to vote on any
other matter.
A majority of the Common Shares and a majority of the Preferred Shares
entitled to vote, present in person or represented by proxy, shall constitute a
quorum for matters on which they are entitled to vote at the Annual Meeting of
Shareholders. Shares that are present in person or represented by proxy but
abstain from voting are counted for purposes of establishing a quorum, as are
shares where a broker holding stock in street name votes the shares on some
matters but not others.
With respect to the six matters expected to come before the
Shareholders at the Annual Meeting, assuming a quorum is present,
- Directors shall be elected by a plurality of the votes cast by the Common
Shares present at the meeting,
- each of the proposed amendments to the Amended and Restated Articles of
Incorporation shall be approved if a majority of the total votes cast by the
Common Shares and a majority of the total votes cast by Preferred Shares on
the matter both favor the action, and
- the proposed amendment to the 1997 Incentive Plan shall be approved if a
majority of the total votes cast by the Common Shares on the matter favor
the action.
If any other matter is properly brought before the meeting,
which is not expected to occur, it shall be approved if the votes cast favoring
the action exceed the votes cast opposing the action. With respect to the
election of Directors, only shares that are voted in favor of a particular
nominee will be counted toward such nominee's achievement of a plurality. Shares
present at the meeting that are not voted for a particular nominee, or shares
present by proxy where a Shareholder properly withholds authority to vote for
such nominee, or broker non-votes, will not be counted towards such nominee's
achievement of a plurality. With respect to the other matters to be voted upon,
if a Shareholder abstains from voting or directs his proxy to abstain from
voting, the shares are considered present at the meeting for such matter but,
since they are not voted for the matter, they are not counted in respect of such
matter. With respect to broker non-votes on any such matter, the shares are not
considered present at the meeting for such matter and they are, therefore, not
counted in respect of such matter. Such broker non-votes do have the practical
effect of reducing the number of affirmative votes required to achieve a
majority for such matter by reducing the total number of shares from which the
majority is calculated.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of six members.
Pursuant to the Company's Bylaws, the Board of Directors by resolution has fixed
the number of Directors of the Company at five members effective as of the
Annual Meeting of Shareholders. Members of the
2
<PAGE> 6
Company's Board of Directors hold office until the next Annual Meeting of
Shareholders or until their successors are elected and have been qualified, or
their earlier resignation or removal.
The Board of Directors has nominated David E. Deeds, R. Glenn
Williamson, Kenneth D. Swenson, Glenn Scolnik and J. Robert Collins for election
as Directors at the 1999 Annual Meeting of Shareholders. All of such persons
currently are Directors of the Company. C. Roland Haden will retire from the
Board of Directors effective at the Annual Meeting of Shareholders.
THE BOARD OF DIRECTORS, WITH EACH RESPECTIVE DIRECTOR ABSTAINING AS TO
HIS NOMINATION, UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION AS DIRECTORS OF
THE NOMINEES LISTED ABOVE.
Except where otherwise instructed, proxies will be voted for election
of all the nominees for Director. Should any nominee for Director be unwilling
or unable to serve as a Director, which is not anticipated, it is intended that
the persons acting under the proxy will have discretionary authority to vote for
the election of another person in such nominee's stead in accordance with their
judgment.
With respect to Directors who are officers of WavePhore, Inc., the
following information concerning positions with WavePhore, Inc. does not include
positions as officers or directors of subsidiaries of WavePhore, Inc. which are
part of the responsibilities of such persons and for which such persons receive
no separate compensation.
The following information as to principal occupations during the last
five years, and other directorships in companies with a class of securities
registered under Section 12 or subject to Section 15(d) of the Securities
Exchange Act of 1934, as amended, or registered as an investment company under
the Investment Company Act of 1940, as amended, is based upon information
furnished by each person and is correct to the best knowledge of the Company.
3
<PAGE> 7
NOMINEES FOR DIRECTORS
<TABLE>
<CAPTION>
POSITIONS WITH THE COMPANY
AND PRINCIPAL OCCUPATIONS
NAME AGE DIRECTOR SINCE DURING THE LAST FIVE YEARS
---- --- -------------- --------------------------
<S> <C> <C> <C>
David E. Deeds 57 1990 Chairman, Chief Executive Officer and
President of the Company since 2/90.
R. Glenn Williamson 42 1993 Executive Vice President and Chief
Operating Officer of the Company since
4/95, and its Secretary from 3/93 to 7/96,
and Treasurer from 3/93 to 4/95; Consultant
to the Company from 3/92 to 3/93; Chairman
and Chief Executive Officer of Interactive
Media Technologies, Inc. (multimedia
hardware and software), Scottsdale,
Arizona, from 1988 to 1992.
Kenneth D. Swenson 49 1996 Executive Vice President of the Company
since 12/96; Chief Financial Officer and
Treasurer of the Company since 4/95. Mr.
Swenson was a partner with Ernst & Young
LLP, an international accounting firm, from
1983 to 1995.
Glenn Scolnik 47 1995 Chief Executive Officer of Hammond,
Kennedy, Whitney & Company, Inc. (private
capital firm), New York City, Chicago and
Indianapolis, since January, 1999;
President since January, 1998; Managing
Director from 1993 to 1998; practicing
attorney, Sommer & Barnard, P.C.,
Indianapolis, Indiana, 1978-1993; Director,
Control Devices, Inc. (automotive,
appliance and electronic parts
manufacturer).
J. Robert Collins, Ph.D 58 1995 Self employed management consultant since
1998 and member of the Adjunct Faculty of
Texas A&M University
</TABLE>
4
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
since 1998. Previously with E-Systems, Inc.,
a Raytheon Company (defense systems), Dallas,
Texas as Corporate Vice President, Strategic
Planning and Development, from 1993 to 1998;
Vice President, Business Development, 1991-1993;
Product Line Vice President, 1985-1991; Program
Director, Program Manager and System Engineer,
1978-1985.
</TABLE>
COMMITTEES OF THE BOARD AND MEETINGS
The Audit Committee of the Board of Directors recommends the engagement
or discharge of the Company's independent auditors, reviews year-end financial
statements prior to issuance, reviews the audit and non-audit services performed
by the independent auditors, and makes appropriate reports and recommendations
to the Board of Directors. During the last fiscal year, the Audit Committee
consisted of Messrs. Haden and Collins. The Audit Committee held two meetings
during 1998.
The Compensation/Incentive Plan Committee of the Board of Directors
reviews matters relating to compensation of the Executive Officers of the
Company and makes recommendations thereon to the Board of Directors. In
addition, the Compensation/ Incentive Plan Committee determines Incentive Plan
Awards for employees, including executives, of the Company. During the last
fiscal year, the Compensation Committee consisted of Messrs. Scolnik and Haden.
The Compensation/Incentive Plan Committee acted by consent on 19 occasions
during 1998.
The Company's Board of Directors has no nominating committee.
Nominations for Directors of the Company are considered by the entire Board of
Directors.
The Board of Directors held five formal meetings during 1998 and acted
by consent on seven occasions. No Director attended fewer than 75% of the
aggregate of all meetings of the Board of Directors and of the committees of the
Board on which he served.
PROPOSALS 2, 3, 4 AND 5 TO APPROVE AMENDMENTS TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
The Board of Directors has approved four separate proposed amendments
to the Company's existing Amended and Restated Articles of Incorporation by the
adoption of new Amended and Restated Articles of Incorporation (the "Amended and
Restated Articles of Incorporation"). The amendments set forth in the Amended
and Restated Articles of Incorporation will
- change the Company's name to "WAVO Corporation",
- increase the number of shares of Common Shares that the Company is
authorized to issue,
- increase the number of shares of Preferred Shares that the Company is
authorized to issue, and
- delete the designation of the relative rights, preferences and limitations
of all series of Preferred
5
<PAGE> 9
Shares other than the Company's Series 1994 Preferred Shares
PROPOSAL 2 - CHANGE OF CORPORATE NAME
The Company was formed on November 13, 1990 under the name WavePhore,
Inc. The Company is proposing to change its name to "WAVO Corporation" as part
of a comprehensive plan to more clearly articulate the Company's new direction
and the new products the Company is introducing, and to facilitate the adoption
of new names and logos with respect thereto. WAVO has been the Nasdaq symbol for
the Company's Common Shares since the Company's initial public offering in 1994,
and the Company is frequently referred to as "WAVO" by persons familiar with the
symbol. The Company expects that the proposed name change will eliminate some
confusion with respect to the Company's current name and assist in creating a
unified corporate identity.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO CHANGE THE COMPANY'S NAME TO "WAVO
CORPORATION."
PROPOSAL 3 - INCREASE IN AUTHORIZED COMMON SHARES
The Company is currently authorized to issue 50,000,000 Common Shares.
The proposed amendment to the Amended and Restated Articles of Incorporation
will amend Article III of the existing Amended and Restated Articles of
Incorporation to increase the number of authorized Common Shares from
50,000,000 to 100,000,000. The proposed increase in authorized shares is being
made primarily for the following reasons:
* to permit the Company to enter into potential future funding transactions
involving the issuance of additional shares;
* to permit the Company to issue additional shares as consideration in
potential future mergers or acquisitions;
* to issue additional shares pursuant to incentive plans;
* to permit the Company to declare potential future stock splits and/or
stock dividends; and
* to permit the Company to issue additional shares for other general
corporate purposes.
As of April 7, 1999, there were 29,111,458 Common Shares issued and
outstanding, including 506,000 shares held as treasury stock. In addition, there
were 10,531,506 Common Shares authorized but unissued that were reserved for
specific purposes: 960,454 were reserved for the exercise of outstanding
warrants; 8,769,089 were reserved for Incentive Plans, including the exercise of
outstanding employee stock options; 300,000 were reserved for the Directors
Stock Plan, including exercise of outstanding director stock options; and
501,963 were reserved for issuance upon potential future conversion of the
Series 1994 Preferred Shares. Of the 506,000 shares held as treasury stock,
445,000 are reserved for the exercise of an option. As a result, as of April 7,
1999, there were 10,357,036 Common Shares authorized but unreserved. If this
Proposal 3 is approved, there will be 60,357,036 Common Shares authorized but
unreserved. The increase in authorized Common Shares is not necessary to provide
shares for the proposed increase in shares available under the 1997 Incentive
Plan (See Proposal 6 - Amendment To 1997 Incentive Plan).
Under separate provisions in agreements entered into by the Company
when it acquired WavePhore Labs, Inc. (formerly Gsquared, Inc.), and eWatch,
Inc., the Company may have to issue an indeterminate number of Common Shares to
the former shareholders of WavePhore Labs, Inc. and eWatch, Inc. as incentive
payouts. The number of shares the Company may have to issue to the former
shareholders of these two entities will be based on the future financial results
of these acquired businesses. The Company has not reserved any Common Shares for
these potential payouts. The Company believes that the number of existing
authorized but unreserved shares is adequate to meet these potential payouts,
and that the increase in authorized Common Shares is not necessary to provide
shares for these potential payouts.
Other than the Common Shares reserved for the exercise of warrants and
options, the conversion of the Series 1994 Preferred Shares, and potential
incentive payouts to the former shareholders of WavePhore Labs, Inc. and eWatch,
Inc., there are, at present, no plans, understandings, agreements, or
arrangements concerning the issuance of additional Common Shares.
Authorized but unissued Common Shares of the Company may be issued for
such consideration as the Board of Directors determines to be adequate, which
could have a dilutive effect on certain shareholders. The shareholders may or
may not be given the opportunity to vote thereon, depending upon the nature of
any such transactions, applicable law, the rules and policies of The Nasdaq
Stock Market and the judgment of the Board of Directors. Shareholders have no
preemptive rights to subscribe to newly issued shares of the Company's capital
stock. Having a substantial number of authorized and unreserved Common Shares,
as well as Preferred Shares, could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock of
WavePhore (See Proposal 4 - Increase in Authorized Preferred Shares). Management
could use the additional shares to resist a takeover effort. This could delay,
defer, or prevent a change in control.
The Board of Directors believes that the proposed increase in the
number of authorized Common Shares will provide the flexibility needed to meet
corporate objectives and that such proposed increase is in the best interests of
the Company and its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED COMMON
SHARES.
PROPOSAL 4 - INCREASE IN AUTHORIZED PREFERRED SHARES
The Company is currently authorized to issue 10,000,000 Preferred
Shares. The proposed amendment to the Amended and Restated Articles of
Incorporation will amend Article III of the existing Amended and Restated
Articles of Incorporation to increase the number of authorized Preferred Shares
from 10,000,000 to 25,000,000. The proposed increase in authorized shares is
being made primarily for many of the same reasons we are proposing an increase
in the number of authorized Common Shares. They are:
- to permit the Company to enter into potential future funding
transactions involving the issuance of additional shares;
- to permit the Company to issue additional shares as
consideration in potential future mergers or acquisitions; and
- to permit the Company to issue additional shares for other
general corporate purposes.
The Company has in the past issued four separate series of Preferred
Shares. Only one of these series, the Series 1994 Preferred Shares, remains
outstanding (See Proposal 5 - Deletion of Designation of Certain Series of
Preferred Shares). As of April 7, 1999, there were 501,963 Series 1994 Preferred
Shares outstanding. There are no authorized Preferred Shares that are reserved
for specific purposes. As a result, as of April 7, 1999, there were 9,498,037
Preferred Shares authorized but unreserved. If this Proposal 4 is approved there
will be 24,498,037 Preferred Shares authorized but unreserved.
If this increase in authorized Preferred Shares is approved, the Board
of Directors may issue the additional authorized shares without
any further shareholder approval. The Board of Directors, without the approval
of shareholders, may fix the rates, preferences, privileges, and restrictions,
including voting rights, of the Preferred Shares, which typically are senior to
the rights of the Common Shares. Furthermore, holders of Preferred Shares may
have other rights, including economic rights, senior to the Common Shares.
Having a substantial number of authorized and unreserved Preferred Shares, as
well as Common Shares, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of WavePhore
(See Proposal 3 - Increase in Authorized Common Shares). Management could use
the additional shares as a means to resist a takeover effort. This could delay,
defer, or prevent a change in control. Any issuance of the Preferred Shares
could also result in a dilution in the ownership interests of all shareholders.
The Company does not have any plans to issue any Preferred Shares,
including the Preferred Shares that would be available if Proposal 4 is
approved. The Board of Directors believes that the proposed increase in the
number of authorized Preferred Shares will provide the flexibility needed to
meet corporation objectives and that the proposed increase is in the best
interests of the Company and its shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED PREFERRED
SHARES.
PROPOSAL 5 - DELETION OF DESIGNATION OF CERTAIN SERIES OF
PREFERRED SHARES
In accordance with the Company's existing Amended and Restated
Articles of Incorporation and Indiana Code 23-1-25-2, the Board of Directors
has, from time to time, created various series of the Preferred Shares, of which
only the Series 1994 Preferred Shares are currently outstanding. The Board of
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<PAGE> 10
Directors has proposed the deletion of the designation of the relative rights,
preferences and limitations of all series of Preferred Shares other than the
Series 1994 Preferred Shares.
The designation of a new series of Preferred Shares involves amending
the Articles of Incorporation to set forth all of the various rights,
preferences and limitations of the shares. These "designations" can add numerous
pages to the Articles of Incorporation. The Company at one time had outstanding
Preferred Shares in five separate series. They were Series A, Series B, Series
C, 10% Convertible, and Series 1994. There are no longer any Series A, Series
B, Series C or 10% Convertible Preferred Shares outstanding. Therefore, the
terms and provisions that were previously included in the Articles of Incor-
poration for the Series A, Series B, Series C and 10% Convertible Preferred
Shares are no longer necessary. If Proposal 5 is approved, the provisions of
the Amended and Restated Articles of Incorporation relating to the Series A,
Series B, Series C and 10% Convertible Preferred Shares will be deleted. This
change will streamline the existing Amended and Restated Articles of Incor-
poration to reflect more accurately the capitalization of the Company. The
Board of Directors will retain the authority to create new series of Preferred
Shares in the future in accordance with the provisions of the Amended and
Restated Articles of Incorporation and the Indiana Business Corporation Law
(see Proposal 4 -- Increase in Authorized Preferred Shares).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE AMENDMENT TO DELETE THE DESIGNATION OF THE RELATIVE RIGHTS,
PREFERENCES AND LIMITATIONS OF ALL SERIES OF PREFERRED SHARES OTHER THAN THE
SERIES 1994 PREFERRED SHARES.
7
<PAGE> 11
PROPOSAL 6 -- PROPOSED AMENDMENT TO 1997 INCENTIVE PLAN
The Board of Directors is seeking Shareholder approval for an amendment
to the 1997 Incentive Plan (the "Incentive Plan"). The amendment was adopted by
the Board of Directors on March 5, 1999. The amendment to the Incentive Plan
would increase from 4,000,000 to 10,000,000 the maximum number of Common Shares
which may be issued under the Incentive Plan. The Incentive Plan currently
specifies that the maximum number of Common Shares for which Incentive Awards
may be granted to any one Participant shall not exceed 500,000 shares in any one
calendar year, subject to adjustments for certain changes in the capitalization
of the Company. The proposed amendment to the Incentive Plan would increase this
amount to 5,000,000 shares. In addition, the Incentive Plan currently provides
that the total of all cash payments to any one Participant pursuant to the
Incentive Plan in any one calendar year shall not exceed $500,000. The proposed
amendment to the Incentive Plan would increase this amount to $5,000,000.
As of April 12, 1999, the Company had issued, or reserved for issuance,
an aggregate of 3,315,000 Common Shares pursuant to options granted under the
1997 Incentive Plan, or approximately 83% of the 4,000,000 Common Shares
currently authorized for the 1997 Incentive Plan. The Company's Board of
Directors believes the proposed amendment to the Incentive Plan will give the
Company the requisite flexibility to award appropriate incentive compensation to
officers, employees, consultants and advisors in a variety of circumstances and
situations which may arise in the future.
The Incentive Plan is intended to conform to the requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), relating to tax
deductibility, including the requirement that such a plan specify the number of
options which may be granted to any individual over a specified period.
The following summary of the Incentive Plan is subject to the complete
terms of the Incentive Plan.
Shares which may be issued under the Incentive Plan may be authorized
but unissued Common Shares or treasury shares, at the discretion of the
Committee (the "Committee") of not fewer than two Directors appointed by the
Board to administer the Incentive Plan. Each member of the Committee must be a
"non-employee Director" within the meaning of Rule 16b-3(b)(3) promulgated under
Section 16 of the Securities Exchange Act of 1934, as amended.
The Incentive Plan provides for the grant of (i) non-qualified stock
options; (ii) incentive stock options; (iii) limited stock appreciation rights;
(iv) tandem stock appreciation rights; (v) stand-alone stock appreciation
rights; (vi) shares of restricted stock; (vii) shares of phantom stock; and
(viii) stock bonuses (collectively, "Incentive Awards"). In addition, the
Incentive Plan provides for the grant of cash bonuses payable when a Participant
is required to recognize income for federal income tax purposes in connection
with the vesting of shares of restricted stock or the grant of a stock bonus.
Employees, officers and Directors of the Company, and consultants and advisors
of the Company, and its subsidiaries are eligible to participate in the
Incentive Plan.
The Committee determines which persons receive grants of Incentive
Awards, the type of Incentive Awards granted and the number of shares subject to
an Incentive Award. However, any grants of Incentive Awards to non-employee
Directors shall be determined by the Board of Directors, rather than the
Committee. Subject to the terms of the Incentive Plan, the Committee also
determines the prices, expiration dates and
8
<PAGE> 12
other material features of the Incentive Awards granted under the Plan. The
Committee may, in its absolute discretion, (i) accelerate the date on which an
option or stock appreciation right granted under the Incentive Plan becomes
exercisable; (ii) accelerate the date on which a share of restricted stock or
phantom stock vests and waive any conditions imposed by the Committee on the
vesting of a share of restricted stock or phantom stock; and (iii) grant
Incentive Awards to a Participant on the condition that the Participant
surrender to the Company for cancellation such other Incentive Awards
(including, without limitation, Incentive Awards with higher exercise prices) as
the Committee specifies.
The Committee has the authority to interpret and construe any provision
of the Incentive Plan and to adopt such rules and regulations for administering
the Incentive Plan as it deems necessary. All decisions and determinations of
the Committee are final and binding on all parties. The Company will indemnify
each member of the Committee against any cost, expense or liability arising out
of any action, omission or determination relating to the Incentive Plan, unless
such action, omission or determination was taken or made in bad faith and
without reasonable belief that it was in the best interests of the Company.
The Incentive Plan has no fixed termination date, but may be terminated
at any time by the Board of Directors. Incentive Awards outstanding as of the
date of any such termination will not be affected or impaired by the termination
of the Incentive Plan. The Board of Directors may amend, alter, or discontinue
the Incentive Plan, but no amendment, alteration or discontinuation shall be
made which would (i) impair the rights of a Participant without the
Participant's consent, except such an amendment which is necessary to cause any
Incentive Award or transaction under the Incentive Plan to qualify, or to
continue to qualify, for the exemption provided by Rule 16b-3, or (ii)
disqualify any Incentive Award or transaction under the Incentive Plan from the
exemption provided by Rule 16b-3. In addition, no such amendment may be made
without the approval of the Company's Shareholders to the extent such approval
is required by law or agreement. The Committee may suspend a Participant's
rights to exercise any Incentive Award, pending a determination by the Board of
Directors, if the Committee reasonably believes that a Participant has committed
an act of misconduct as described in the Incentive Plan. If the Board of
Directors determines that a Participant has committed such an act of misconduct,
such Participant's rights to exercise an Incentive Award shall be terminated.
A summary of the significant features of the Incentive Awards follows:
NON-QUALIFIED AND INCENTIVE STOCK OPTIONS. The exercise price of each
non-qualified stock option ("NQO") granted under the Incentive Plan shall be
such price as the Committee shall determine on the date on which such NQO is
granted, which price shall not be less than that required by applicable law. The
exercise price of each incentive stock option ("ISO") granted under the
Incentive Plan shall be not less than 100% (110% if the Participant is a 10% or
more Shareholder) of the Fair Market Value (as defined in the Incentive Plan) of
a Common Share of the Company on the date on which such ISO is granted and the
aggregate Fair Market Value of such shares shall not exceed $100,000 during any
calendar year when first exercisable. (Non-qualified stock options and incentive
stock options shall hereinafter be referred to collectively as "Options.") Each
Option shall be exercisable for a period, not to exceed ten years (five years
for an ISO granted to a Participant who is a 10% or more Shareholder),
established by the Committee on the date on which such Option is granted. The
exercise price shall be paid in cash or, subject to the approval of the
Committee, in shares of Common Stock valued at their Fair Market Value on the
date of exercise.
Except in the event of the retirement at age 60 or later, death or
disability of an optionee, or the termination of the employment of an optionee
for cause (as defined in the Incentive Plan), Options are exercisable only while
an optionee is employed by the Company or within one month after such
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<PAGE> 13
employment has terminated to the extent that such Options were exercisable on
the last day of employment. In the event of the retirement at age 60 or later,
death or disability of an optionee, Options are exercisable within one year
after such death or disability to the extent that such Options were exercisable
on the last day of employment. In the event of the termination of the employment
of an optionee for cause, all Options held by such optionee terminate
immediately. Unless the Committee provides otherwise, (i) no right or interest
of a Participant in any Incentive Award may be pledged, encumbered, or
hypothecated to or in favor of any party other than the Company or a Subsidiary,
or shall be subject to any lien, obligation, or liability of such Participant to
any other party other than the Company or a Subsidiary, and (ii) no Incentive
Award shall be assignable or transferable by a Participant other than by will or
the laws of descent and distribution.
Upon the occurrence of a Change in Control of the Company, all Options
become fully and immediately exercisable and shall remain vested in the holder
in a manner such that the holder may continue to exercise an option, limited
stock appreciation right ("LSAR") or tandem stock appreciation right ("Tandem
SAR") as if still employed even if no longer so employed. A "Change in Control"
is defined in the Incentive Plan as: (i) the acquisition at any time by a
"person" or "group" (excluding David E. Deeds, his affiliates, the Company, a
Subsidiary of the Company or an employee benefit plan of the Company or any
Subsidiary) of direct or indirect beneficial ownership of securities
representing 20% or more of the combined voting power in the election of
Directors of the Company or any successor of the Company; (ii) the termination
of service as Directors, for any reason other than death, disability or
retirement from the Board of Directors, during any period of two consecutive
years or less, of individuals who at the beginning of such period constituted a
majority of the Board of Directors, unless the election of or nomination for
election of each new Director during such period was approved by vote of at
least two-thirds of the Directors still in office who were Directors at the
beginning of the period; (iii) approval by the Shareholders of the Company of
any merger or consolidation or statutory share exchange as a result of which the
Common Shares shall be changed, converted or exchanged (other than a merger or
share exchange with a wholly-owned Subsidiary of the Company), or liquidation of
the Company, or any sale or disposition of 50% or more of the assets or earning
power of the Company; or (iv) approval by the Shareholders of the Company of any
merger, or consolidation, or statutory share exchange to which the Company is a
party as a result of which the persons who were Shareholders of the Company
immediately prior to the effective date of the merger, or consolidation, or
statutory share exchange shall have beneficial ownership of less than 50% of the
combined voting power in the election of Directors of the surviving corporation
following the effective date of such merger, or consolidation, or statutory
share exchange; provided, however, that no change in control shall be deemed to
have occurred if, prior to such time as a change in control would otherwise be
deemed to have occurred, the Company's Board of Directors deems otherwise.
LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant, in
connection with any Option granted under the Incentive Plan, a LSAR with respect
to a number of shares not exceeding the number of shares subject to the Option.
A LSAR may be granted at the same time as, or subsequent to the time that, its
related option is granted. The exercise of an LSAR with respect to a number of
shares causes the cancellation of the Option to which it relates with respect to
an equal number of shares. The exercise of an Option with respect to a number of
shares causes the cancellation of the LSAR to which it relates with respect to
an equal number of shares.
LSARs are generally exercisable during the 60 day period following a
Change in Control, but only to the extent that their related Options are
exercisable. The exercise of an LSAR included with an NQO with respect to a
number of shares entitles the Participant to an amount in cash, for each such
share, equal to the excess of (i) the greater of (a) the highest price per
Common Share of the Company paid in
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connection with the Change in Control of the Company in connection with which
the LSAR became exercisable, and (b) the Fair Market Value of a Common Share of
the Company on the date of such Change in Control, over (ii) the exercise price
of the related NQO. The exercise of an LSAR included with an ISO with respect to
a number of shares entitles the Participant to an amount in cash, for each such
share, equal to the excess of (i) the Fair Market Value of a Common Share of the
Company on the date of exercise, over (ii) the exercise price of the related
ISO.
TANDEM STOCK APPRECIATION RIGHTS. The Committee may grant, in
connection with any Option, a Tandem SAR with respect to a number of Common
Shares of the Company not exceeding the number of shares subject to the related
Option. A Tandem SAR may be granted at the same time as, or subsequent to the
time that, its related Option is granted. The exercise of a Tandem SAR with
respect to a number of shares causes the cancellation of its related Option with
respect to an equal number of shares. The exercise of an Option with respect to
a number of shares causes the cancellation of its related Tandem SAR to the
extent that the number of shares subject to the Option after its exercise is
less than the number of shares subject to the Tandem SAR.
A Tandem SAR is exercisable at the same time and to the same extent as
its related Option. The exercise of a Tandem SAR with respect to a number of
shares entitles the Participant to an amount in cash, for each such share, equal
to the excess of (i) the Fair Market Value of a Common Share of the Company on
the date of exercise over (ii) the exercise price of the related Option.
STAND-ALONE STOCK APPRECIATION RIGHTS. The Committee may grant
stand-alone stock appreciation rights ("Stand-Alone SARs") under the Incentive
Plan, the exercise price of which shall be such price as the Committee shall
determine on the date on which such Stand-Alone SAR is granted. A Stand-Alone
SAR shall be exercisable for a term, not to exceed ten years, established by the
Committee on the date on which such Stand-Alone SAR is granted. The exercise of
a Stand-Alone SAR with respect to a number of shares entitles the Participant to
an amount in cash, for each such share, equal to the excess of (i) the Fair
Market Value of a Common Share of the Company on the date of exercise over (ii)
the exercise price of the Stand-Alone SAR, except that the exercise of a
Stand-Alone SAR after a Change in Control of the Company entitles the
Participant to an amount, for each share subject to the exercise, equal to the
per share amount to which the Participant would be entitled if he exercised an
LSAR.
Except in the event of the retirement at age 60 or later, death or
disability of an optionee, or the termination of the employment of an optionee
for cause (as defined in the Incentive Plan), Stand-Alone SARs are
exercisable only while an optionee is employed by the Company or within
one month after such employment has terminated to the extent that such
Stand-Alone SARs were exercisable on the last day of employment. In the
event of the retirement at age 60 or later, death or disability of an
optionee, Stand-Alone SARs are exercisable within one year after such death
or disability to the extent that such Stand-Alone SARs were exercisable on
the last day of employment. In the event of the termination of the employment
of an optionee for cause, all Stand-Alone SARs held by such optionee
terminate immediately.
Upon the occurrence of a Change of Control of the Company, all
Stand-Alone SARs become fully and immediately exercisable.
RESTRICTED STOCK. A grant of shares of restricted stock represents the
promise of the Company to issue Common Shares of the Company on a predetermined
date (the "Issue Date") to a Participant, provided the Participant is
continuously employed by the Company until the Issue Date. Prior to the vesting
of the shares, the shares are not transferable by the Participant and are
forfeitable. Vesting of the shares occurs on a second predetermined date (the
"Vesting Date"). The terms of the grant may require that
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<PAGE> 15
the Participants have been continuously employed by the Company until the
Vesting Date. The Committee may, at the time shares of restricted stock are
granted, impose additional conditions, such as, for example, the achievement of
specified performance goals, to the vesting of the shares. Vesting of some
portion of, or all, shares of restricted stock may occur upon the termination of
the employment of a Participant other than for cause prior to the vesting date.
If vesting does not occur, shares of restricted stock are forfeited.
Upon the occurrence of a Change in Control, all shares of restricted
stock which have not vested, or been canceled or forfeited, vest automatically.
The Committee may grant, in connection with a grant of shares of
restricted stock, a cash "tax" bonus, payable when an employee is required to
recognize income for federal income tax purposes with respect to such shares.
The tax bonus may not be greater than 50% of the Fair Market Value of the shares
of restricted stock at the time the income is required to be realized.
PHANTOM STOCK. Phantom stock, representing the right to the economic
equivalent of a grant of restricted stock, payable in cash, may be granted by
the Committee, subject to such conditions as the Committee determines. Shares of
phantom stock are subject to the same vesting requirements as are shares of
restricted stock. In addition, the value of a share of phantom stock (whether or
not vested) is paid immediately upon the occurrence of a Change in Control of
the Company. The Committee may not grant any cash bonus in connection with the
grant of shares of phantom stock.
STOCK BONUSES. Bonuses payable in Common Shares may be granted by the
Committee and may be payable at such times and subject to such conditions as the
Committee determines.
CASH BONUSES. The Committee may grant, in connection with a restricted
stock grant or stock bonus, a cash "tax" bonus, payable when an employee is
required to recognize income for federal income tax purposes with respect to
such restricted stock grant or stock bonus. The tax bonus may not be greater
than 50% of the Fair Market Value of the restricted stock grant or stock bonus
at the time the income is required to be realized.
ADJUSTMENTS. The grant of an LSAR, Tandem SAR or cash bonus shall not
reduce the number of Common Shares with respect to which Options, Stand-Alone
SARs, shares of Restricted Stock, shares of Phantom Stock or Stock Bonuses may
be granted pursuant to the Plan. In the event that any outstanding Option or
Stand-Alone SAR expires, terminates or is canceled for any reason (other than by
reason of the exercise of a related LSAR or a Tandem SAR), the Common Shares
subject to the unexercised portion of such Option or Stand-Alone SAR shall again
be available for grants under the Plan. In the event that any shares of
Restricted Stock or Phantom Stock, or any Common Shares granted in a Stock Bonus
are forfeited or canceled for any reason, such shares shall again be available
for grants under the Plan.
The Incentive Plan provides for an adjustment in the number of Common
Shares available to be issued under the Incentive Plan, the number of shares
subject to Incentive Awards, and the exercise prices of certain Incentive Awards
upon certain changes in the capitalization of the Company, a stock dividend or
split, a merger or consolidation, a combination or exchange of shares, and
certain other similar events. The Incentive Plan also provides for the
termination of Incentive Awards upon the occurrence of certain corporate events.
TAX WITHHOLDING. The Incentive Plan provides that Participants may
elect to satisfy certain federal income tax withholding requirements by
remitting to the Company cash or, subject to certain conditions, including
Committee approval, Common Shares of the Company or by instructing the Company
to
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withhold shares payable to the Participant. In addition, the Incentive Plan
provides that, at the election of a Participant, an unrelated broker-dealer
acting on behalf of the Participant may exercise Options granted to the
Participant and immediately sell the shares acquired on account of the exercise
to raise funds to pay the exercise price of the Option and the amount of any
withholding tax which may be due on account of the exercise.
FEDERAL INCOME TAX CONSEQUENCES
NQOs. A Participant will not be deemed to receive any income at the
time an NQO is granted, nor will the Company be entitled to a deduction at that
time. However, when any part of an NQO is exercised the Participant will be
deemed to have received compensation taxable as ordinary income in an amount
equal to the difference between the exercise price of the NQO and the Fair
Market Value of the shares received on the exercise of the NQO. In the event
that a Participant cannot sell at a profit the shares acquired on exercise of an
NQO without incurring liability under Section 16(b) of the Securities Exchange
Act of 1934, the recognition of income in respect of such exercise may be
delayed until such shares may be resold without incurring such liability
(generally six months after the date of exercise), and in such case the amount
of such ordinary income will be computed as of the date of recognition based
upon the Fair Market Value of the shares on that date. If, however, a
Participant subject to Section 16(b) of the Securities Exchange Act of 1934
files an appropriate election under Section 83(b) of the Code with the IRS
within thirty days of his exercise of the NQO, such Participant will be deemed
to have received compensation taxable as ordinary income in an amount equal to
the difference between the exercise price and the Fair Market Value, on the date
of exercise, of the shares received upon exercise. The Company will be entitled
to a tax deduction in an amount equal to the amount of compensation taxable as
ordinary income realized by the Participant.
Upon any subsequent sale of the shares acquired upon the exercise of an
NQO, any gain (the excess of the amount received over the Fair Market Value of
the shares on the date ordinary income was recognized) or loss (the excess of
the Fair Market Value of the shares on the date ordinary income was recognized
over the amount received) will be a long-term capital gain or loss if the sale
occurs more than one year after such date or recognition and otherwise will be a
short-term capital gain or loss.
If all or any part of the exercise price of an NQO is paid by the
Participant with Common Shares (including, based upon regulations under the
Code, shares previously acquired on exercise of an ISO), no gain or loss will be
recognized on the shares surrendered in payment. The number of shares received
on such exercise of the NQO equal to the number of shares surrendered will have
the same basis and holding period, for purposes of determining whether
subsequent dispositions result in long-term or short-term capital gain or loss,
as the basis and holding period of the shares surrendered. The balance of the
shares received on such exercise will be treated for federal income tax purposes
as described in the preceding paragraphs as though issued upon the exercise of
the NQO for an exercise price equal to the consideration, if any, paid by the
Participant in cash. The Participant's compensation, which is taxable as
ordinary income upon such exercise, and the Company's deduction will not be
affected by whether the exercise price is paid in cash or in Common Shares.
ISOs. A Participant will not be deemed to receive any income at the
time an ISO is granted or exercised. If a Participant does not dispose of the
shares acquired on exercise of an ISO within two years after the grant of the
ISO and one year after the exercise of the ISO, the gain (if any) on a
subsequent sale (the excess of the amount received over the exercise price) or
loss (if any) on a subsequent sale (the excess of the exercise price over the
amount received) will be a long-term capital gain or loss.
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If the Participant sells the shares acquired on exercise of an ISO
within two years after the date of grant of the ISO or within one year after the
exercise of the ISO, the disposition is a "disqualifying disposition," and the
Participant will recognize income in the year of the disqualifying disposition
equal to the excess of the amount received for the shares over the exercise
price. Of that income, the portion equal to the excess of the Fair Market Value
of the shares at the time the ISO was exercised over the exercise price will be
treated as compensation to the Participant, taxable as ordinary income, and the
balance (if any) will be long-term or short-term capital gain depending on
whether the shares were sold more than one year after the ISO was exercised. If
the Participant sells the shares in a disqualifying disposition at a price that
is below the exercise price, the loss will be a short-term capital loss if the
Participant has held the shares for one year or less and otherwise will be a
long-term capital loss. Special rules apply to Participants who are Officers or
Directors of the Company and who are subject to the provisions of Section 16(b)
of the Securities Exchange Act of 1934.
If a Participant uses shares acquired upon the exercise of an ISO or a
"qualified stock option" (within the meaning of Section 422 of the Code) to
exercise an ISO, and the sale of the shares so surrendered for cash on the date
of surrender would be a disqualifying disposition of such shares, the use of
such shares to exercise an ISO also would constitute a disqualifying
disposition. In such case, regulations under the Code appear to provide that tax
consequences described above with respect to disqualifying dispositions would
apply, except that no capital gain would be recognized with respect to such
disqualifying disposition. In addition, the basis of the surrendered shares
would be allocated to the shares acquired upon exercise of the ISO, and the
holding period of the shares so acquired would be determined in a manner
prescribed in regulations under the Code.
If a Participant uses shares acquired upon the exercise of an ISO or a
qualified stock option to exercise an ISO and such use of such shares does not
constitute a disqualifying disposition of the shares so surrendered or, if the
Participant uses other shares of the Company to exercise an ISO, the Participant
will not recognize any income or gain or loss upon exercise of the ISO. In such
case, the basis of the surrendered shares would be allocated to the shares
acquired upon exercise of the ISO, and the holding period of the shares so
acquired would be determined in a manner prescribed in regulations under the
Code.
Upon a disqualifying disposition of an ISO, the excess of the Fair
Market Value of shares acquired on exercise of an ISO over the aggregate
exercise price of such shares is an item of tax preference for purposes of the
alternative minimum tax, and may in certain circumstances subject a Participant
to an alternative minimum tax on the amount of such excess.
The Company is not entitled to a deduction as the result of the grant
or exercise of an ISO. If the Participant has compensation taxable as ordinary
income as a result of a disqualifying disposition, the Company will be entitled
to a deduction of an equivalent amount in the taxable year of the Company in
which the disqualifying disposition occurs.
LSARs, TANDEM SARs AND STAND-ALONE SARs. A Participant will not be
deemed to receive any income at the time an LSAR, Tandem SAR or Stand-Alone SAR
is granted, nor will the Company be entitled to a deduction at that time.
However, when any part of the LSAR, Tandem SAR or Stand-Alone SAR is exercised,
the Participant will be deemed to have received compensation taxable as ordinary
income in an amount equal to the amount of cash received before deduction of
taxes. The Company will be entitled to a deduction in an amount equal to the
amount of ordinary income realized by the Participant.
RESTRICTED STOCK. A Participant will not be deemed to receive any
income at the time shares of restricted stock are granted or issued, nor will
the Company be entitled to a deduction at that time.
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However, when shares of restricted stock vest, the Participant will be deemed to
have received compensation taxable as ordinary income in an amount equal to the
Fair Market Value of the shares of restricted stock on the date on which they
vest. If, however, a Participant files an appropriate election under Section
83(b) of the Code with the IRS within thirty days of the issuance of the
restricted stock, the Participant will be deemed to have received compensation
taxable as ordinary income in an amount equal to the Fair Market Value of the
shares of restricted stock on the date on which they are issued. The Participant
will not be entitled to a deduction if the restricted stock is subsequently
forfeited. The Company will be entitled to a deduction in an amount equal to the
amount of ordinary income realized by the Participant.
Upon any sale of vested restricted stock, any gain (the excess of the
amount received over the Fair Market Value of the shares on the date ordinary
income was recognized) or loss (the excess of the Fair Market Value of the
shares on the date ordinary income was recognized over the amount received) will
be a long-term capital gain or loss if the sale occurs more than one year after
such date of recognition and otherwise will be a short-term capital gain or
loss.
PHANTOM STOCK. A Participant will not be deemed to receive any income
at the time shares of phantom stock are granted, nor will the Company be
entitled to a deduction at that time. However, when phantom stock vests, the
Participant will be deemed to have received compensation taxable as ordinary
income in the amount of the cash received before deduction of taxes. The Company
will be entitled to a deduction in an amount equal to the amount of ordinary
income realized by the Participant.
STOCK BONUS. Upon the receipt of a stock bonus, a Participant will be
deemed to have received compensation taxable as ordinary income in an amount
equal to the Fair Market Value of the stock at the date received. The Company
will be entitled to a deduction in an amount equal to ordinary income realized
by the Participant.
Upon any sale of shares received as a stock bonus, any gain (the excess
of the amount received over the Fair Market Value of the shares on the date
ordinary income was recognized) or loss (the excess of the Fair Market Value of
the shares on the date ordinary income was recognized over the amount received)
will be a long-term capital gain or loss if the sale occurs more than one year
after such date of recognition and otherwise will be a short-term capital gain
or loss.
CASH BONUS. Upon the receipt of a cash bonus, a Participant will be
deemed to have received compensation taxable as ordinary income in the amount of
the cash received. The Company will be entitled to a deduction in an amount
equal to the amount of ordinary income realized by the Participant.
CONSIDERATION. The Indiana Business Corporation Law provides that
rights, options or warrants may be issued by the Company with or without
consideration. If consideration is received by the Company for the granting of
an Incentive Award under the Incentive Plan, such consideration may include,
among others, the Participant's agreement to employment or continued employment
by the Company, the Participant's surrender for cancellation of a previously
granted Incentive Award, or such other consideration as the Committee may deem
appropriate.
OTHER INFORMATION. The closing market price of the Company's Common
Shares on The Nasdaq Stock Market on April 12, 1999 was $8.8125. As of April 12,
1999, the Company had approximately 182 employees and three non-employee
Directors eligible to participate in the Incentive Plan.
INCENTIVE PLAN BENEFITS. As of April 12, 1999, no awards had been
granted under the Incentive
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Plan which were contingent upon shareholder approval of the proposed amendment
to the Incentive Plan. See "Compensation of Executive Officers and Directors"
for information regarding awards previously granted to such persons under the
Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSED
AMENDMENT TO THE 1997 INCENTIVE PLAN.
EXECUTIVE OFFICERS
The Executive Officers of the Company, their ages, positions with the
Company, and business experience, are as follows:
Name Age Position
---- --- --------
David E. Deeds 57 Chairman of the Board, Chief
Executive Officer and President
R. Glenn Williamson 42 Executive Vice President and Chief
Operating Officer
Kenneth D. Swenson 49 Executive Vice President, Chief
Financial Officer and Treasurer
Bruce B. Cross 57 Executive Vice President
Douglas J. Reich 55 Senior Vice President, General Counsel
and Secretary
Joseph A. Meza 44 Vice President - Human Resources
DAVID E. DEEDS has been Chairman of the Board, Chief Executive Officer
and President of the Company since February 1990. He is also Chairman of the
Board of Directors and Chief Executive Officer of WavePhore Networks, Inc.,
WavePhore Newscast, Inc., WavePhore WaveTop, Inc., WavePhore Labs, Inc., eWatch,
Inc. and WavePhore Canada, Inc. Mr. Deeds was co-founder of Conseco, Inc.
("Conseco"), a New York Stock Exchange-listed financial services holding
company, and was President, co-Chief Executive Officer and a Director of Conseco
from 1979 until retiring in 1988. Mr. Deeds has over 29 years of executive level
experience in management and finance of companies.
R. GLENN WILLIAMSON has been Executive Vice President and Chief
Operating Officer of the Company since April 1995, and a Director of the Company
since March 1993. He is also a director of WavePhore Networks, Inc., WavePhore
Newscast, Inc., WavePhore WaveTop, Inc., WavePhore Labs, Inc., and eWatch, Inc.,
and President of WavePhore Canada, Inc.. He was Secretary of the Company from
March 1993 to July 1996, and its Treasurer from March 1993 to April 1995. He was
a consultant to the Company from March 1992 to March 1993. From 1988 to 1992,
Mr. Williamson was Chairman and Chief Executive Officer of Interactive Media
Technologies, Inc. ("IMT"), a multimedia hardware company. From 1987 to 1988 and
from 1990 to 1991, Mr. Williamson was also President of IMT.
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KENNETH D. SWENSON has been Executive Vice President and Director of
the Company since December 1996 and its Chief Financial Officer and Treasurer
since April 1995. He is also Treasurer of WavePhore Networks, Inc., WavePhore
Newscast, Inc., WavePhore WaveTop, Inc., WavePhore Labs, Inc., eWatch, Inc. and
WavePhore Canada, Inc. Mr. Swenson was a partner with Ernst & Young LLP, an
international professional services firm, from 1983 to 1995, with
responsibilities including coordination of audit, tax and business consulting
services. Mr. Swenson received a B.B.A. degree in accounting from the University
of Notre Dame.
BRUCE B. CROSS has been Executive Vice President of the Company since
June 1998. He was President of WavePhore WaveTop, Inc. from September 1997 to
June 1998. Previously, Mr. Cross was Executive Vice President of the Company
from December 1996 to September 1997, Senior Vice President of the Company from
April 1995 to December 1996, Vice President from July 1993 to April 1995, and
Director of Marketing from January 1993 to July 1993. From 1991 to 1992, Mr.
Cross operated a private sales and marketing consulting firm, which provided
consulting services to the Company, among other clients, and also operated a
retail business as a sole proprietor.
DOUGLAS J. REICH has been Senior Vice President of the Company since
December 1996, and General Counsel and Secretary of the Company since July 1996.
He is also Secretary of WavePhore Networks, Inc., WavePhore Newscast, Inc.,
WavePhore WaveTop, Inc., WavePhore Labs, Inc., eWatch, Inc. and WavePhore
Canada, Inc., Mr. Reich, an attorney, was a shareholder in the law firm of Krys
Boyle Golz Reich Freedman and Scott, P.C. from 1986 to June 1996. Mr. Reich
received a B.S. degree in Economics and a Juris Doctor degree from the
University of Wisconsin - Madison.
JOSEPH A. MEZA has been Vice President-Human Resources of the Company
since August 10, 1998. Prior thereto, Mr. Meza had 19 years of progressively
involved Human Resource management experience with Bank of America. Mr. Meza is
a graduate of the Graduate School of Human Resource Management through the
American Bankers Association, completed at the University of Colorado.
All executive officers serve at the discretion of the Board of
Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who 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
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the last fiscal year, its officers, directors and greater
than ten percent beneficial owners complied with applicable Section 16(a) filing
requirements.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth all compensation awarded to, earned by, or paid
to the Company's Chief Executive Officer and the four most highly compensated
Executive Officers other than the CEO (collectively, the "Named Executive
Officers") for all services rendered in all capacities to the Company and its
subsidiaries during the fiscal years ended December 31, 1998, 1997 and 1996.
17
<PAGE> 21
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Long - Term
Compensation
Annual Compensation Awards
--------------------------------- ---------------
Name and Other Securities All
Principal Annual Underlying Other
Position Year Salary Bonus Compensation Options/SARs(2) Compensation(3)
-------- ---- ------ ----- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David E. Deeds
Chief Executive Officer and President 1998 $290,000 $0 $3,906(4) 1,100,000 $3,833
1997 290,000 0 7,180(4) 0 1,534
1996 0 0 7,832(4) 200,000 0
R. Glenn Williamson
Executive Vice President and 1998 $220,000 $0 $ 0 550,000 $2,635
Chief Operating Officer 1997 220,000 0 0 200,000(5) 1,483
1996 150,000 0 0 100,000 0
Kenneth D. Swenson
Executive Vice President, Chief 1998 $200,000 $0 $ 0 550,000 $3,022
Financial Officer and Treasurer 1997 200,000 0 0 75,000(6) 2,212
1996 125,000 0 0 125,000 0
Bruce B. Cross
Executive Vice President 1998 $175,000 $0 $ 0 550,000 $3,625
1997 175,000 0 0 162,500(7) 2,317
1996 92,000 0 0 100,000 0
Douglas J. Reich
Senior Vice President, General 1998 $150,000 $0 $ 0 125,000 $3,400
Counsel and Secretary 1997 150,000 0 0 122,000(9) 2,087
1996 67,500(8) 0 0 150,000 0
</TABLE>
- ----------
(1) Pursuant to the Rules of the Securities and Exchange Commission,
certain columns otherwise required by the table have been omitted where
no compensation has been awarded to, earned by, or paid to any of the
Named Executive Officers required to be reported in that column in any
fiscal year covered by the table.
(2) Amounts shown represent the number of non-qualified stock options,
without tandem stock appreciation rights, granted each year.
(3) Amounts shown represent the Company's contribution to the Amended
WavePhore, Inc. Profit Sharing Plan and Trust ("401(k) Plan") and the
taxable benefit of excess group term life insurance for the benefit of
such persons.
(4) This amount represents lease fees paid by the Company for a car used by
Mr. Deeds for business purposes.
(5) Includes 100,000 shares underlying a 1995 option grant repriced in
1997.
(6) Includes 25,000 shares underlying a 1995 option grant repriced in 1997.
(7) Includes 37,500 shares underlying a 1995 option grant repriced in 1997.
(8) Mr. Reich became an employee of the Company on July 1, 1996. His annual
compensation for 1996 was $135,000.
18
<PAGE> 22
(9) Includes 12,000 shares underlying a 1995 option grant and 100,000
shares underlying a 1996 option grant which were repriced in 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------
Number of Percentage of
Securities Total Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in Price Expiration Grant Date
Name Granted(1) Fiscal 1998 (per share) Date Present Value(2)
---- ---------- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
David E. Deeds 500,000(3) 9.9% $13.00 Oct. 7, 2003 $3,825,000
600,000(3) 11.9% $4.125 Oct. 11, 2003 $1,458,000
R. Glenn Williamson 200,000(3) 4.0% $13.00 Oct. 7, 2003 $1,530,000
350,000(3) 6.9% $4.125 Oct. 11, 2008 $ 850,500
Kenneth D. Swenson 200,000(3) 4.0% $13.00 Oct. 7, 2003 $1,530,000
350,000(3) 6.9% $4.125 Oct. 11, 2008 $ 850,500
Bruce B.Cross 200,000(3) 4.0% $13.00 Oct. 7, 2003 $1,530,000
350,000(3) 6.9% $4.125 Oct. 11, 2008 $ 850,500
Douglas J. Reich 75,000(3) 1.5% $13.00 April 7, 2004 $ 573,750
50,000(3) 1.0% $4.125 Oct. 11, 2008 $ 121,500
</TABLE>
- ----------
(1) Amounts shown represent the number of non-qualified stock options,
without tandem stock appreciation rights ("SARs"), granted in 1998.
Payment must be made in full upon exercise in cash or, with the consent
of the Compensation/Incentive Plan Committee, in Common Shares of the
Company. With the consent of the Compensation/Incentive Plan Committee,
the option holder may elect to have Common Shares issuable upon
exercise of options withheld by the Company to pay withholding taxes
due.
(2) Grant date present value is based on the Black-Scholes option valuation
model. The estimated values under the model are based on arbitrary
assumptions as to variables such as stock price volatility, projected
future dividend yield and interest rates. The estimated values use the
following significant assumptions: volatility was .88; dividend yield
equals 0%; risk-free interest rates (yield to maturity of 5 year
treasury note at grant date) range from 3.9% to 5.8%. The actual value,
if any, an executive may realize will depend on the excess of the stock
price over the exercise price on the date the option is exercised.
There is no assurance that the value realized by an executive will be
at or near the value estimated using the Black-Scholes model.
(3) These options are presently exercisable.
19
<PAGE> 23
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
Shares Acquired Value Fiscal Year End(1) at Fiscal Year End
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David E. Deeds 0 0 1,300,000 0 $2,575,041 0
R. Glenn Williamson 0 0 850,000 0 $1,644,595 0
Kenneth D. Swenson 100,000 $840,808 725,000 0 $1,515,558 0
Bruce B. Cross 0 0 812,500 0 $1,605,734 0
Douglas J. Reich 100,000 $798,500 72,000 125,000 $ 63,304 $195,315
</TABLE>
- ----------
(1) No SARs were outstanding at December 31, 1998.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director an annual retainer of
$10,000, plus $1,000 per Board meeting and $750 per Board Committee meeting held
on a date separate from a Board meeting. The Company also reimburses directors
for their expenses incurred in attending Board meetings. Pursuant to the 1995
Non-employee Director Stock Plan, non-employee directors of the Company are each
granted an option immediately following each annual meeting of shareholders of
the Company which option may be exercised to purchase 10,000 Common Shares of
the Company, at a purchase price equal to 100% of the market price of such
shares on the date of grant. Such stock options are exercisable for a five year
period commencing six months after the date of grant. In accordance with the
provisions of such Plan, on May 13, 1998 C. Roland Haden, Glenn Scolnik and J.
Robert Collins each were granted an option to purchase 10,000 Common Shares of
the Company exercisable at the price of $13.51 per share during the period
commencing on November 13, 1998 and expiring on November 13, 2003. On October
12, 1998, Messrs. Haden, Scolnik and Collins were each issued Non-Qualified
Stock Options under the 1997 Incentive Plan to purchase 15,000 Common Shares at
the exercise price of $4.125 per share during the period commencing on January
12, 1999 and expiring on October 11, 2008.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Haden and Scolnik are the members of the Compensation/Incentive
Plan Committee of the Board of Directors of the Company. The
Compensation/Incentive Plan Committee reviews matters relating to compensation
of the executive officers of the Company and makes recommendations thereon to
the Board of Directors. In addition, the Compensation/Incentive Plan Committee
determines Incentive Plan awards for employees, including executives, of the
Company.
20
<PAGE> 24
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMMITTEE RESPONSIBILITIES
The Compensation Committee of the Board of Directors (the "Committee")
is comprised of two non-employee Directors. Committee responsibilities, with
respect to the compensation of executive officers, including the Named Executive
Officers, of the Company, include the review and recommendations relative to the
following compensation elements:
- Base salary levels of the executive officers of the Company;
- The Company's performance-based compensation plan;
- The Company's stock-based compensation plan;
- All employment agreements and amendments thereof;
- All aspects of the Company's retirement plan; and
- The process and substance of all other aspects of
compensation.
OVERALL COMPENSATION PHILOSOPHY
The Company's underlying compensation philosophy is to link key
executive compensation to corporate performance and returns to shareholders. To
this end, the Company has developed an overall compensation strategy and
specific compensation plans that tie a significant portion of executive
compensation to the Company's success in meeting specified performance goals and
to appreciation in the Company's Common Share price.
The overall objectives of the Company's executive compensation strategy
are:
- To attract and retain the best possible talent;
- To provide long-term incentives to these executives to achieve
the goals inherent in the Company's business strategy; and
- To link executive and stockholder interests through
equity-based plans.
The basic elements of the Company's executive compensation packages are
base salary and long-term incentive compensation. The Committee's policies with
respect to each of these elements, including the basis for the compensation of
Mr. David E. Deeds, the Company's Chief Executive Officer, and the Named
Executive Officers, are discussed below. In addition, while the elements of
compensation described below are considered separately, the Committee takes into
account the full compensation package afforded by the Company to each
individual, including severance plans, insurance and other benefits. All actions
of the Committee with respect to executive compensation for 1998 were
subsequently unanimously approved by the Board of Directors.
IRC SECTION 162(m)
The Committee has considered Section 162(m) of the Internal Revenue
Code of 1986, as amended (the
21
<PAGE> 25
"Code"), regarding qualifying compensation paid to the Company's executive
officers for deductibility in structuring compensation arrangements. The
Committee intends to make every effort to ensure that compensation awarded to
the Company's executives is fully deductible. The regulations implementing
Section 162(m) have not required any changes in the Company's current executive
compensation program in order to maintain the deductibility of executive
compensation where the Company anticipates a deduction. Pursuant to the
recommendation of the Committee and the Board of Directors, in 1997 the
Shareholders approved the adoption of an Executive Management Incentive Plan
which provides for performance-based compensation of the Company's executives in
accordance with the provisions of Section 162(m) of the Code.
BASE SALARIES
Individual salaries for specified executives are reviewed annually and
adjustments are made based on the Committee's subjective judgment as to
individual responsibilities and performance over time. In reviewing the
individual performance of executives other than the Chief Executive Officer, the
Committee takes into account the views of the Chief Executive Officer.
With respect to the fiscal year ended December 31, 1998, the Committee
reviewed the base salaries of its executive officers and did not recommend any
increase in base salaries to the Named Executive Officers. In the future, the
Company's approach to base compensation will be to continue to bring salaries
into a competitive position where appropriate. The effect of this strategy will
be to control the fixed portion of compensation costs, while placing significant
emphasis on the "at-risk" component, or long-term incentive compensation, as
discussed below.
LONG-TERM INCENTIVE COMPENSATION
The Company maintains, for key executives of the Company, a stock-based
compensation plan, which allows the Committee to award non-qualified stock
options to the individuals it selects. Awards under the Company's stock-based
compensation plan directly link potential participant rewards to increases in
shareholder value.
The Company historically has provided the majority of its stock-based
compensation in the form of stock options. Stock options are granted with an
exercise price equal to the market price of the Company's Common Stock on the
date of the grant and become exercisable from the date of grant or up to a three
year period thereafter. This approach is designed to encourage the creation of
shareholder value and the retention of the executives over the long term, as
this element of the compensation package has value only to the extent that share
price appreciation occurs.
In May, 1997, the Shareholders approved the 1997 Incentive Plan. The
Compensation Committee has the discretion to determine the terms and conditions
of options under the 1997 Incentive Plan. During 1998, the Compensation
Committee made the following new grants to Named Executive Officers:
David E. Deeds - 500,000 options exercisable at $13.00; 600,000 options
exercisable at $4.125
R. Glenn Williamson - 200,000 options exercisable at $13.00; 350,000
options exercisable at $4.125
Kenneth D. Swenson - 200,000 options exercisable at $13.00; 350,000
options exercisable at $4.125
Bruce B. Cross- 200,000 options exercisable at $13.00; 350,000 options
exercisable at $4.125
Douglas J. Reich - 75,000 options exercisable at $13.00; 50,000 options
exercisable at $4.125
The exercise price of such options was equal to the fair market value of the
underlying Common Shares on the date of grant. The Committee considered the
amount of options already held by such executive officers in determining
22
<PAGE> 26
the amount of the 1998 grants.
CEO COMPENSATION
From the date Mr. Deeds became Chief Executive Officer of the Company
in 1990 through the end of 1996, he chose not to receive any compensation from
the Company for his services. With the Company's transition from a research and
development company to an operating company in 1996, the Committee determined
that it was appropriate that Mr. Deeds receive a salary commencing on January 1,
1997, and that he participate in the Incentive Plan, consistent with the
salaries and stock-based compensation of the other senior executives of the
Company. Mr. Deeds received a salary of $290,000 for 1998, and was granted
options to purchase 500,000 Common Shares, exercisable at $13.00 per share, and
options to purchase 600,000 Common Shares, exercisable at $4.125 per share,
which exercise prices were equal to the fair market value of the Common Shares
on such date.
CONCLUSION
Through the programs described above, a significant portion of the
Company's executive compensation is linked directly to individual and corporate
performance and stock price appreciation. The Committee intends to continue the
policy of linking executive compensation to corporate performance and returns to
shareholders, recognizing that the business cycle from time to time may result
in an imbalance for a particular period.
The Members of the
Compensation Committee
Glenn Scolnik
C. Roland Haden, Ph.D
23
<PAGE> 27
[TOTAL RETURN TO STOCKHOLDERS LINE GRAPH]
TOTAL RETURN TO STOCKHOLDERS
(Assumes $100 investment on 10/21/94)
<TABLE>
<CAPTION>
TOTAL RETURN ANALYSIS 10/21/94 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
- --------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
WavePhore, Inc. $100 $ 55 $176 $63 $ 85 $ 73
Peer Group 100 87 170 95 64 156
Nasdaq Composite (US) 100 98 139 170 208 292
S&P High Tech Comp. 100 103 148 207 265 444
</TABLE>
WavePhore, Inc. Peer Group includes Data Broadcasting Corp. and NewsEdge,Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Shares, as of March 19, 1999, of
(i) each person known by the Company to beneficially own 5% or more of the
outstanding Common Shares, (ii) each current director and nominee for director
of the Company, (iii) each Named Executive Officer of the Company and (iv) all
current directors and executive officers as a group. Such information is based
upon information furnished by each such person and is correct to the best
knowledge of the Company. In certain cases, shares required under rules of the
Securities and Exchange Commission to be shown as beneficially owned are shares
as to which the indicated person holds only rights to acquire within 60 days
through the exercise of stock options or otherwise. Unless otherwise stated, the
indicated persons have sole voting and investment power with respect to the
shares listed. Except as otherwise indicated below, the address for each holder
of more than 5% of the Company's outstanding Common Shares is the principal
office of the Company. The indicated percentages are based upon the number of
Common Shares of the Company outstanding as of March 19, 1999, plus, where
applicable, the number of shares that the indicated person or group had a right
to acquire within 60 days of such date.
24
<PAGE> 28
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF SHARES OWNED
- ---- --------- -----
<S> <C> <C>
David E. Deeds 5,364,861(1) 17.6%
R. Glenn Williamson 885,500(2) 3.0%
Kenneth D. Swenson 725,200(3) 2.5%
Bruce B. Cross 828,900(4) 2.8%
Douglas J. Reich 197,000(5) 0.7%
Joseph A. Meza 25,000(6) 0.1%
C. Roland Haden 135,000(7) 0.5%
Glenn Scolnik 100,000(8) 0.3%
J. Robert Collins 75,000(9) 0.3%
All Officers and Directors
as a group (9 persons) 8,336,461(10) 25.4%
</TABLE>
- ----------
(1) Includes 501,963 Common Shares issuable upon conversion of Series 1994
Preferred Shares and options to purchase 1,300,000 Common Shares.
(2) 35,500 of these shares are held in a trust of which he is trustee and a
beneficiary. Includes options to purchase 850,000 Common Shares.
(3) 200 of these shares are held by his spouse. Includes options to
purchase 725,000 Common Shares.
(4) Includes options to purchase 812,500 Common Shares.
(5) Includes options to purchase 197,000 Common Shares.
(6) Includes options to purchase 25,000 Common Shares.
(7) 70,000 of these shares are held in a family trust of which he is
co-trustee and a beneficiary. Includes options to purchase 65,000
Common Shares.
(8) 25,000 of these shares are jointly held with his spouse. Includes
options to purchase 75,000 Common Shares.
(9) Includes options to purchase 75,000 Common Shares.
(10) Includes options to purchase a total of 4,124,500 Common Shares and
501,963 Common Shares issuable upon conversion of Series 1994 Preferred
Shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
David E. Deeds, the Company's Chairman, Chief Executive Officer and
President, owns 501,963 shares of the Company's Series 1994 Preferred Shares.
The Series 1994 Preferred Shares have a stated value of $11.00 per share and are
convertible at any time into Common Shares equal to the aggregate value of the
Series 1994 Preferred Shares divided by the conversion price, as defined, which
was initially set at $11.00 per share and is subject to adjustment in certain
circumstances. The Series 1994 Preferred Shares are non-voting and
25
<PAGE> 29
accrue cumulative dividends at the rate of 10% per annum, payable when, as and
if declared by the Board of Directors of the Company. The Company's Board of
Directors approved the declaration of a 10% per annum cash dividend upon the
Series 1994 Preferred Shares, payable as of April 28, 1998 and October 28, 1998.
Pursuant to such dividend declarations, the Company paid or accrued a total of
$552,156 in dividends on Mr. Deeds' Series 1994 Preferred Shares during the
fiscal year ended December 31, 1998.
In 1998, the Company paid a total of $459,600 to an entity owned by Mr.
Deeds in connection with the Company's rental of certain equipment from such
entity.
During 1995 and 1996, the Company loaned an aggregate of $461,000 to R.
Glenn Williamson, Executive Vice President, Chief Operating Officer and
Director, pursuant to promissory notes bearing interest at 10% per annum. The
total unpaid principal and accrued interest on such notes was repaid in April
1998.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP acted as the Company's independent public accountants
to audit the consolidated financial statements of the Company for the fiscal
year ended December 31, 1998. The Company's Board of Directors has not yet
appointed auditors to serve in such capacity for the current fiscal year ending
December 31, 1999.
A representative of Ernst & Young LLP is expected to be present at the
meeting. Such representative will have the opportunity to make a statement if he
or she so desires, and is expected to be available to respond to appropriate
questions.
OTHER MATTERS
As of the date hereof, the Company knows of no matter, other than those
referred to herein, which will be presented at the Annual Meeting of
Shareholders. If, however, any other appropriate business should properly be
presented at the meeting, the persons named in the enclosed form of Proxy will
vote the proxies in accordance with their best judgment.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Shareholder proposals intended to be presented at the Company's Annual
Meeting of Shareholders in 2000 must be received by the Company's Secretary at
the Corporation's executive offices no later than November 24, 1999.
April 26, 1999
26
<PAGE> 30
P R O X Y
WAVEPHORE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David E. Deeds, R. Glenn Williamson and Kenneth
D. Swenson Proxies, each with full power of substitution, and hereby authorizes
them to represent and to vote, as designated below, all of the Common Shares of
WavePhore, Inc. held of record by the undersigned on April 5, 1999, which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
on May 25, 1999, and at any adjournment thereof.
1. ELECTION OF DIRECTORS.
<TABLE>
<S> <C>
FOR all nominees listed below (except as WITHHOLD AUTHORITY to vote
marked to the contrary below) for all nominees listed below
</TABLE>
DAVID E. DEEDS; R. GLENN WILLIAMSON; KENNETH D. SWENSON; GLENN SCOLNIK;
J. ROBERT COLLINS
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT
THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.
--------------------------------------------------
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION WHICH WILL CHANGE THE COMPANY'S NAME TO
"WAVO CORPORATION."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION WHICH WILL INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK, WITHOUT PAR VALUE, FROM
50,000,000 TO 100,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION WHICH WILL INCREASE THE NUMBER OF
AUTHORIZED SHARES OF PREFERRED STOCK FROM 10,000,000 TO 25,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO APPROVE AN AMENDMENT TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION WHICH WILL DELETE THE DESIGNATION OF THE
RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ALL SERIES OF
PREFERRED SHARES OTHER THAN THE COMPANY'S SERIES 1994 CUMULATIVE
CONVERTIBLE PREFERRED SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S 1997 INCENTIVE
PLAN INCREASING THE NUMBER OF SHARES WHICH MAY BE ISSUED IN THE
AGGREGATE UNDER THE PLAN AND INCREASING THE TOTAL NUMBER OF SHARES
AND AMOUNT OF CASH WHICH MAY BE AWARDED IN ANY YEAR TO ANY ONE
PARTICIPANT.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
THE NOMINEES AND IN FAVOR OF THE PROPOSALS LISTED ABOVE.
PLEASE SIGN HERE EXACTLY AS NAME APPEARS HEREON.
Dated:______________, 1999 __________________________________________________
Signature
Signature (if held jointly)
NOTE: Signatures should be identical with the
name(s) indicated hereon. Joint owners should each
sign personally. Persons signing as attorney,
executor, administrator, trustee or guardian should
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.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
