<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] 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 Rule 14a-11(c) or Rule 14a-12
Telechips Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Not Applicable.
- --------------------------------------------------------------------------------
(Name of Person 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:
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(4) Proposed maximum aggregate value of transaction:
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(5) Total Fee paid:
-------------------------------------------------------
[ ] Fee paid previously with preliminary material: _________________
[ ] 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.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1997
The Annual Meeting of the Shareholders of TELECHIPS CORPORATION (the
"Company") will be held at 6880 South McCarran Boulevard, Reno, Nevada, on May
21, 1997, at 2:00 P.M., Pacific Daylight Time, for the following purposes:
1. To elect four directors to the Company.
2. To ratify the selection of Coopers & Lybrand, LLP, as the Company's
certified public accountants.
3. To consider and act upon such other matters as may properly come before
the meeting.
The Board of Directors has fixed the close of business on April 1,
1997, as the record date for determination of the shareholders entitled to
notice of and to vote in person or by proxy at the Annual Meeting.
Whether or not you presently plan to attend the meeting in person, the
Board of Directors urges you to date, sign and promptly return the enclosed
proxy. Your giving of such proxy does not preclude your right to vote in person
if you attend the meeting. A postage-prepaid envelope is enclosed for your
convenience in returning the signed proxy.
Your early attention to the proxy will be appreciated.
By Order of the Board of Directors
Nelson B. Caldwell
President & Chief Executive Officer
Reno, Nevada
Dated: April 16, 1997
A COPY OF THE COMPANY'S MOST CURRENT ANNUAL REPORT ON FORM 10-KSB AND A PROXY
STATEMENT ACCOMPANY THIS NOTICE.
<PAGE> 3
TELECHIPS CORPORATION
6880 South McCarran Boulevard, Reno, Nevada 89509
-----------------------
PROXY STATEMENT
------------------------
A Notice of the Annual Meeting of Stockholders of TELECHIPS CORPORATION
(the "Company") is set forth on the preceding page, and enclosed herewith is a
form of proxy solicited by the Board of Directors of the Company. This proxy
statement is being first sent to stockholders on or about April 17, 1997.
SOLICITATION OF PROXIES
This proxy solicitation is being made by the Board of Directors of the
Company. The expense of the solicitation will be paid by the Company. To the
extent necessary to assure sufficient representation at the Annual Meeting,
proxies may be solicited by any appropriate means by directors, officers,
regular employees of the Company and the stock transfer agent for the Company's
Common Stock (the "Common Stock"), who will not receive any additional
compensation therefor. The Company will request that banks, brokers and other
fiduciaries solicit their customers who own beneficially the Common Stock listed
of record in names of nominees and, although there is no formal arrangement to
do so, the Company will reimburse such persons the reasonable expenses of such
solicitation.
VOTE REQUIRED AND VOTING PROCEDURES
Only stockholders of record as of the close of business on April 1,
1997 (the "Record Date"), are entitled to notice of and to vote at the Annual
Meeting and/or any adjournment thereof. The outstanding stock of the Company on
the Record Date entitled to vote consisted of 1,094,262 shares of Common Stock.
Each holder of Common Stock will be entitled to one vote, in person or
by proxy, for each share standing in its name on the books of the Company as of
the Record Date on each of the matters duly presented for vote at the Annual
Meeting.
In connection with the solicitation by the Board of Directors of
proxies for use at the Annual Meeting, the Board of Directors has designated
Kevin A. Coyle as proxy.
The Board of Directors is not aware of any matters that will come
before the Annual Meeting other than as described above. However, if such
matters are presented, the named proxy will, in the absence of instructions to
the contrary, vote such proxies in accordance with the judgment of such named
proxy with respect to any such other matter properly coming before the Annual
Meeting.
<PAGE> 4
A majority of the outstanding shares of Common Stock must be
represented in person or by proxy at the Annual Meeting in order to constitute a
quorum for the transaction of business. The four nominees for director receiving
the highest number of votes will be elected as directors. Therefore, an
abstention or broker-non-vote (as described below) will have no impact on the
election of directors. The affirmative vote of a majority of the shares of
Common Stock represented and voting (in person or by proxy) at the Annual
Meeting (provided such affirmative votes constitute a majority of the required
quorum, which quorum is a majority of the shares outstanding on the Record Date)
is required by the Company for ratification of the selection of Coopers &
Lybrand L.L.P. as the Company's certified public accountants. (Applicable law
does not require stockholder approval of the selection of accountants.)
Votes that are cast against a proposal will be counted for purposes of
determining (i) the presence or absence of a quorum; and (ii) the total number
of votes cast with respect to such proposal.
While there is no definitive statutory or case law authority in Nevada
as to the proper treatment of abstentions in the counting of votes with respect
to a proposal such as the ratification of the selection of accountants, the
Company believes that abstentions should be counted for purposes of determining
both (i) the presence or absence of a quorum for the transaction of business;
and (ii) the total number of votes cast with respect to such proposal. In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in such manner. Accordingly, abstentions as to the ratification of
selection of accountants will have the same effect as a vote against such
proposal.
A proxy submitted by a stockholder may indicate that all or a portion
of the shares of Common Stock represented by such proxy are not being voted by
such stockholder with respect to a particular matter. This could occur, for
example, when a broker is not permitted to vote stock held in street name on
certain matters in the absence of instructions from the beneficial owner of the
stock. The shares subject to any such proxy which are not being voted with
respect to a particular matter will be considered shares not present and
entitled to vote on such matter, although such shares may be considered present
and entitled to vote for other purposes and will count for purposes of
determining the presence of a quorum.
All shares represented by valid proxies received by the Company prior
to the Annual Meeting will be voted as specified in the proxy; if no
specification is made and if discretionary authority is conferred by the
stockholder, the shares will be voted FOR the election of nominees for director
and the proposals described below.
REVOCABILITY OF PROXIES
A stockholder giving a proxy has the power to revoke it any time prior
to its exercise by delivering to the Secretary of the Company a written
revocation or a duly executed proxy bearing a later date, or by attending the
meeting and voting the shares in person.
<PAGE> 5
INSPECTOR OF ELECTIONS
The Board of Directors has appointed Mickey J. Friend of Coopers &
Lybrand L.L.P., the Company's certified public accountants, as the Inspector of
Elections for the Annual Meeting. The Inspector of Elections will determine the
number of shares of Common Stock represented in person or by proxy at the Annual
Meeting, whether a quorum exists, the authenticity, and validity and effect of
proxies, and will receive and count the votes.
ELECTION OF DIRECTORS
The Company currently has four directors. Four nominees are to be voted
upon at the Annual Meeting for directors to serve until the 1998 annual meeting
and until their successors have been duly elected and qualified.
The four nominees are listed in the following section together with
summary biographical information as to each. Each nominee has consented to be
named in this proxy statement and has consented to serve as a director, if so
elected. The Company has no reason to believe that any of the nominees will not
be available to serve. If, however, any nominee should for any reason become
unable or unwilling to serve, the shares represented by proxies received by the
Company will (unless otherwise directed) be voted for the election of such other
person as the Board of Directors may nominate, in place of the unavailable
nominee.
The nominees receiving the highest number of affirmative votes, up to
the number of directors to be elected by such shares, shall be elected at the
Annual Meeting. Votes against directors and votes withheld shall have no effect.
Elections for directors shall not be made by ballot, unless a stockholder shall
demand election by ballot at the Annual Meeting and before the voting begins.
In connection with initial public offering of the Company's securities,
the Company has agreed, for a period of five years following October 16, 1995,
if so requested by Whale Securities Co., L.P. (the "Underwriter"), to nominate
and use its best efforts to elect a designee of the Underwriter as a director of
the Company or, at the Underwriter's option, as a non-voting advisor to the
Company's Board of Directors and to compensate such designee in the same manner
as it compensates other non-management directors of the Company. The Underwriter
has not yet exercised its rights to designate such a person.
<PAGE> 6
THE BOARD UNANIMOUSLY RECOMMENDS YOU VOTE FOR THE FOLLOWING
NOMINEES
DIRECTOR NOMINEES
NELSON B. CALDWELL, CPA, 40, has been President, Chief Executive
Officer, Chief Financial Officer and a director since February, 1997. Mr.
Caldwell has been the Secretary since May, 1995. Mr. Caldwell was Vice President
- -- Finance of the Company from May, 1995, to February, 1997. From June, 1989, to
April, 1995, Mr. Caldwell held various positions with the accounting firm of
Coopers & Lybrand, L.L.P., most recently as manager in the business assurance
practice. Coopers & Lybrand, L.L.P., is the Company's independent auditor and
has issued a report on the Company's financial statements included in this
report.
RANDALL PINATO, 52, has been Executive Vice President -- Sales and
Marketing of the Company, and a Director since July, 1993. From July, 1992, to
July, 1993, Mr. Pinato was National Sales Director for NSC. From August, 1990,
until June, 1992, Mr. Pinato was Director of Sales at AT&T's UNIX Systems
Laboratories; and from June, 1987, until July, 1990, Mr. Pinato was a Vice
President of Sales of Voysys Corporation.
FRANK S. VIGILANTE, 67, was a director with Network Equipment
Technologies from April, 1992, to August, 1996. He has been a director of the
Visiting Nurses Association of Central New Jersey since October, 1991. Mr.
Vigilante has also been a director of the Arthritis Foundation of New Jersey
since February, 1986, and is currently its Chairman. He was a consultant with
Pyramid Technologies Corporation from April, 1987 to February, 1995. Mr.
Vigilante held various positions with AT&T and, in 1985, he became a Senior Vice
President. Mr. Vigilante retired from AT&T in 1987 after 30 years of service.
RICHARD ADREY, 52, has been a director of the Company since February,
1997. Mr. Adrey has been president of Coastline Financial, a financial advisory
and merchant banking entity based in Boca Raton, Florida since 1992. Prior to
that, Mr. Adrey worked as an investment banker and financial advisor for 25
years in specialized public and private financings and corporate turnaround
situations. Mr. Adrey is also a director of Vacation Break USA and Exothermal
Technology Corporation.
EXECUTIVE OFFICERS NOT NOMINATED TO THE BOARD
CALVIN DECOURSEY, 53, was Vice President -- Engineering of the Company
from its inception in January, 1991, until May, 1995, and was a Director of the
Company from its inception until October, 1994. Since June, 1995, he has been
Vice President -- Technology of the Company. From October, 1986, until July,
1990, Mr. DeCoursey was Hardware Manager at Voysys Corporation.
<PAGE> 7
HANS JUNKER, 65, was Vice President -- Operations from the Company's
inception to December, 1996. Mr. Junker has been Vice President -- Engineering
of the Company since December 1996 and was a Director of the Company from
inception until October, 1994. From October, 1986, until July, 1990, Mr. Junker
was Director of Hardware Engineering at Voysys Corporation. From April, 1986, to
the present, Mr. Junker has served as Chairman of the Board of Directors,
Secretary and Treasurer of Commercial Sign Supplies, Inc., a vendor of sign
painting supplies. Mr. Junker devotes his full time to the Company and devotes a
minimal amount of time to Commercial Sign Supplies, Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information as of April 1, 1997 (the
"Reference Date") with respect to the beneficial ownership of (i) each person
who beneficially owns more than 5% of the outstanding shares of Common Stock;
(ii) each director; (iii) certain named executive officers; and (iv) all
officers and directors as a group. Except as otherwise indicated below, the
address for each such person is: c/o Telechips Corporation, 6880 S. McCarran
Boulevard, Reno, Nevada 89509.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership(1) Beneficially Owned
- ---------------- ----------------------- ------------------
<S> <C> <C>
Hans Junker.................................. 11,954(2) 1.1%
Randall Pinato............................... 11,754(3) 1.1%
Richard Adrey................................ 3,334(4) *
Frank S. Vigilante .......................... 2,000(5) *
Nelson B. Caldwell........................... 2,628(6) *
All Officers and Directors as a
Group (six persons).......................... 43,421(7) 3.9%
</TABLE>
- ---------------
* Less than 1%.
(1) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days from the date of this
report upon the exercise of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is determined
by assuming that convertible securities, options or warrants that are
held by such person (but not those held by any other person)
exercisable within such period have been exercised. Percentage figures
based on 1,094,262 shares of Common Stock outstanding on the Reference
Date, and including 16,087 shares of Common Stock held in escrow
pursuant to the Series B Escrow Agreement by and among the Company,
American Stock Transfer Company of New York as escrow agent, and
certain stockholders of the Company, dated as of October 31, 1994, as
amended on October 20, 1995 (the "Escrow Agreement").
<PAGE> 8
(2) Consists of (i) 2,574 shares of Common Stock; (ii) 2,574 shares of
Common Stock held in escrow pursuant to the Escrow Agreement; (iii)
6,606 shares of Common Stock held in escrow pursuant to the Founder's
Options; and (iv) 200 shares held by the Hans Jorgen Junker Trust, of
which Mr. Junker is the trustee.
(3) Consists of (i) 2,574 shares of Common Stock; (ii) 2,574 shares of
Common Stock held in escrow pursuant to the Escrow Agreement; and (iii)
6,606 shares of Common Stock held in escrow under the terms of the
Founder's Options.
(4) Consists of 3,333 shares underlying currently exercisable options held
of record by Coastline Financial Group, Inc. of which Mr. Adrey is a
controlling person.
(5) Consists of an option to purchase Common Stock held in escrow pursuant
to the terms of the Director's Option Agreements entered into between
the Company and nonemployee directors of the Company.
(6) Consists of (i) 22 shares of Common Stock owned of record by the Zamora
Family Trust, of which Mr. Caldwell is the trustee; and (ii) 2,606
shares of Common Stock reserved for issuance upon exercise of stock
options.
(7) Consists of (i) 7,944 shares of Common Stock; (ii) 7,722 shares of
Common Stock held in escrow pursuant to the terms of the Escrow
Agreement; (iii) 21,816 shares of Common Stock held in escrow pursuant
to the terms of the Directors and Founders Options; and (iv) 5,939
shares reserved for issuance upon exercise of currently exercisable
options.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee consists of Messrs. Adrey and Vigilante.
This Committee reviews and recommends to the Board of Directors the compensation
and benefits of all officers of the Company and reviews general policy matters
relating to compensation and benefits of employees of the Company. The
Compensation Committee also administers the Company's stock option plans. The
Compensation Committee met three times during the last fiscal year.
The Audit Committee consists of Messrs. Adrey and Vigilante. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls. The Audit Committee
met twice during the last fiscal year.
The Nomination Committee consists of Messrs. Adrey and Vigilante. The
Nomination Committee identifies and nominates qualified persons to be elected to
the Board of Directors. The Nomination Committee will not consider nominees
recommended by security holders. The Nomination Committee met four times during
the last fiscal year.
The Finance Committee consists of Messrs. Adrey and Vigilante. The
Finance Committee is authorized to pursue, develop and evaluate possible
financing sources for the Company and to present any viable sources to the Board
of Directors. The Finance Committee did not meet during the last fiscal year.
<PAGE> 9
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission, by a specified date, reports regarding their ownership of Common
Stock. Bruce Chatterley and Frank Vigilante each filed a late Form 3 with
respect to their selection to the Board of Directors in 1996.
BOARD MEETINGS
The Company's Board of Directors met 12 times during the last fiscal
year and executed two unanimous written consents. Each director attended a
minimum of 75% of the aggregate of (i) the Board meetings; and (ii) the meetings
of Committees of the Board on which such director served.
DIRECTOR COMPENSATION
Each nonemployee director is reimbursed for all out-of-pocket expenses
incurred by him in attending Board meetings and performing other duties on
behalf of the Company.
On October 11, 1996, Bruce Chatterley, Richard Wolf and Frank
Vigilante, each received 2,000 and Howard Phillips received 1,000 nonqualified
options under the Company's Directors Plan for Initial Grant Options (the
"Director's Option"). See "1996 Director's Stock Option Plan." With the
exception of Frank Vigilante, each recipient exercised such options pursuant to
a Note Exercise.
On August 19, 1996, Richard E. Salwen resigned as a member of the Board
of Directors and forfeited 722 shares of common stock. On January 7, 1997,
Howard Phillips and Richard Wolf resigned as members of the Board of Directors
and forfeited 1,500 shares and 1,833 shares, respectively. On January 30, 1997,
C. A. Burns resigned as Chief Executive Officer, President and Chairman and
forfeited 9,873 shares of common stock. On January 31, 1997, Bruce Chatterley
resigned as a member of the Board of Directors and forfeited 2,000 shares of
common stock.
<PAGE> 10
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for
services performed on the Company's behalf during each of the last three
completed fiscal years with respect to the Company's Chief Executive Officer and
each of the Company's other executive officers whose annual compensation during
the last fiscal year exceeded $100,000 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Fiscal Year Other Annual All Other
Ended Compen- Options Compen-
Name and Principal Position December 31 Salary($) Bonus($) sation($) (In Shares) sation($)
- --------------------------- ----------- --------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nelson B. Caldwell, Chief 1996 80,000 -- -- -- --
Executive Officer, President, 1995 53,333 -- -- 2,606 --
Chief Financial Officer and 1994 -- -- -- -- --
Secretary
Hans Junker, Vice President - 1996 95,000 -- -- -- --
Operations 1995 91,039 -- -- 6,606 --
1994 112,500 -- -- -- --
Randall Pinato, Executive 1996 123,191 -- -- --
Vice President-Sales and 1995 94,956 -- -- 6,606 54,520
Marketing 1994 52,500 -- -- -- --
C.A. Burns, Chairman of the 1996 151,457 -- -- -- --
Board, Chief Executive 1995 220,000 -- -- 17,339 --
Officer and President 1994 366,300 -- -- -- --
</TABLE>
EMPLOYMENT AGREEMENTS
Effective October 31, 1994, as amended October 16, 1995, the Company
entered into employment agreements with Hans Junker, Vice President -
Operations; Calvin DeCoursey, Vice President - Technology; and Randall Pinato,
Executive Vice President - Sales and Marketing (collectively, "the Executives"),
each for an initial term of one year ending October 31, 1995 (subject to the
termination provisions described below) ("Employment Agreements"). Pursuant to
the employment agreements of each of Messrs. Junker, Pinato and DeCoursey, each
is entitled to (i) an annual salary of $95,000, $110,000 and $95,000
respectively per year respectively; (ii) bonus compensation based upon the
growth and success of the Company's business as may be determined by the
Compensation Committee of the Board of Directors; and (iii) other benefits
equivalent to those provided to the Company's other officers. The Employment
Agreements have been extended by mutual agreement of the parties for an
additional two-year term ending October 31, 1997. The Employment Agreements may
be amended only with the consent of the parties.
<PAGE> 11
The Employment Agreements are terminable by the Company for cause at any
time or in the event that the Executive becomes disabled and, as a result, is
unable to perform his duties in a normal manner for six consecutive months or an
aggregate of eight months, whether or not consecutive, during any 12 consecutive
months. If any of the Employment Agreements are terminated as a result of an
Executive's death or disability, the terminated Executive will be entitled to
receive an amount equal to 12 months' salary at his base rate, less disability
benefits received, if any. In addition, each Executive has agreed not to solicit
or interfere with or attempt to disrupt the relationship between the Company and
its employees, licensors, licensees, customers or suppliers with respect to the
Company's business with the Company for a period of one year after the
termination of the Executive's employment.
Each Executive has executed an inventions and secrecy agreement pursuant
to which each Executive has agreed not to disclose any confidential information
acquired by him in the course of, or as an incident to, his employment and has
assigned to the Company all inventions made or conceived by the Executive during
his employment and for one year thereafter related to the business of the
Company.
STOCK OPTION PLANS
1994 Stock Option Plan.
The Company's 1994 Stock Option Plan (the "1994 Option Plan") was adopted
by the Company's Board of Directors on September 13, 1994, and was approved by
the Company's stockholders on August 17, 1995. The 1994 Option Plan provides for
the issuance to employees of the Company of both incentive stock options under
section 422 of the Internal Revenue Code and nonqualified stock options.
Nonemployee directors and consultants of the Company are eligible to receive
nonqualified stock options only. The Company has reserved 3,218 shares of
authorized but unissued shares of Common Stock for issuance under the 1994
Option Plan.
Options may be granted under the 1994 Option Plan at the sole discretion
of the Company's Board of Directors or a committee appointed by the Board to
administer the 1994 Option Plan. The exercise price of options granted under the
1994 Option Plan is determined by the Board, provided that with respect to
incentive stock options the exercise price must be at least the fair market
value of the Common Stock on the date such options are granted (110% of fair
market value if granted to 10% stockholders). Options granted under the 1994
Option Plan are exercisable over such terms as the Board of Directors
determines, up to a maximum of ten years from the date of grant, in the case of
incentive stock options.
As of the date of this report, there were outstanding options granted
under the 1994 Option Plan to purchase up to an aggregate of 2,447 shares of
Common Stock, at option exercise prices ranging from $46.65 to $76.875 per
share. None of such options were issued to the Company's executive officers or
directors except Mr. Caldwell, the Vice President-Finance and Secretary, who
received options to purchase up to 939 shares of Common Stock at prices ranging
from $46.65 to $52.65 per share. All such options are exercisable on or before
January 4, 2006, and are intended to qualify as incentive stock options. The
right to exercise each such option becomes
<PAGE> 12
vested with respect to 25% of the underlying shares on the first anniversary of
the date of grant, or, in some cases the anniversary of the optionee's
employment date, and with respect to the remaining 75% of shares ratably on the
first day of each month thereafter for a period of 36 months.
1995 Stock Option Plan.
The Company's 1995 Stock Option Plan (the "1995 Option Plan") was adopted
by the Company's Board of Directors on August 31, 1995, and was approved by the
Company's stockholders on August 31, 1995. The 1995 Option Plan provides for the
issuance to employees of the Company of both incentive stock options under
Section 422 of the Internal Revenue Code and nonqualified stock options.
Nonemployee directors and consultants of the Company are eligible to receive
nonqualified stock options only. The Company has reserved 23,000 shares of
authorized but unissued shares of Common Stock for issuance under the 1995
Option Plan.
Options may be granted under the 1995 Option Plan at the sole discretion
of the Company's Board of Directors or a committee appointed by the Board to
administer the 1995 Option Plan. The exercise price of options granted under the
1995 Option Plan are determined by the Board, provided that with respect to
incentive stock options the exercise price must be at least the fair market
value of the Common Stock on the date such options are granted (110% of fair
market value if granted to 10% stockholders and, with respect to nonqualified
stock options, the Company has agreed with the Underwriter that the exercise
price will be at least fair market value on the date of grant). Options granted
under the 1995 Option Plan are exercisable over such terms as the Board of
Directors determines, up to a maximum of ten years from the date of grant, in
the case of incentive stock options.
As of the date of this report, there were outstanding options granted
under the 1995 Option Plan to purchase up to an aggregate of 9,377 shares of
Common Stock, at option exercise prices ranging from $32.82 to $103.125 per
share. None of such options were issued to the Company's executive officers or
directors except Mr. Caldwell, the Chief Executive Officer, who received options
on October 23, 1995, to purchase up to 1,667 shares of Common Stock at $71.25
per share. All such options are exercisable on or before October 12, 2006, and
are intended to qualify as incentive stock options. The right to exercise each
such option becomes vested with respect to 25% of the underlying shares on the
first anniversary of the date of grant, or, in some cases, the anniversary of
the optionee's employment date, and with respect to the remaining 75% of shares
ratably on the first day of each month thereafter for a period of 36 months.
1996 Director's Stock Option Plan
On October 11, 1996, the Board of Directors approved the Company's 1996
Director's Stock Option Plan (the "Director's Plan"). The Director's Plan
authorizes the automatic granting of nonqualified stock options to purchase an
aggregate of up to 20,333 shares of Common Stock to nonemployee directors of the
Company or its subsidiaries. No option may be granted after October 10, 2006.
The exercise price of the options will be the closing sales price of a share on
the date of grant. The Director's Plan is administered by the Board of
Directors, which has
<PAGE> 13
authority to administer the Director's Plan in accordance with the provisions of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended.
All grants of options under the Director's Plan will be automatic and
nondiscretionary.
Under the Director's Plan, each nonemployee director not previously
granted a similar option will automatically be granted an option to purchase
2,000 shares on the date on which such person first becomes a director. Each
nonemployee director will automatically be granted an option to purchase 333
shares on each annual anniversary of such nonemployee director's election or
appointment to the Board of Directors. All option grants are subject to
stockholder approval of the Director's Plan. Options granted on the date the
recipient becomes a director are referred to herein as "Initial Grant Options."
Options issued annually thereafter are referred to herein as "Annual Grant
Options."
Payment of the exercise price for shares purchased upon exercise of an
Initial Grant Option may be made (i) by the delivery of a promissory note (a
"Note Exercise"), provided that the optionee may only utilize a Note Exercise on
the date of grant ("Grant Date"); (ii) by delivery to the Company of cash or a
check to the order of the Company in an amount equal to the purchase price of
such shares; (iii) by delivery to the Company of shares of Common Stock of the
Company then owned by the optionee having a fair market value equal in amount to
the purchase price of such shares; (iv) by any other means which the Board of
Directors determines is consistent with the purpose of the 1996 Director's Stock
Option Plan and with applicable laws and regulations; or (v) by any combination
of such methods of payment. In the event that the optionee elects to exercise
the Initial Grant Option by means of a Note Exercise, the option vests and
becomes exercisable in its entirety on the Grant Date. If the optionee elects to
pay the exercise price in a form other than a Note Exercise, an Initial Grant
Option will vest and become exercisable ratably over a 36-month period from the
Grant Date. Shares issued under a Note Exercise will be held in escrow until the
notes have been satisfied. In addition, such shares are subject to a repurchase
option exercisable by the Company if the optionee voluntarily terminates his or
her relationship with the Company (the "Repurchase Option"). The Repurchase
Option decreases ratably over a 36-month period from the date of exercise.
Shares will be released from escrow only upon lapse of the forfeiture condition
and payment of the note.
Annual Grant Options are immediately exercisable on the date of grant
under terms similar to those of the Initial Grant Option.
Options granted under the Director's Plan will generally terminate on the
fifth anniversary of the date of grant. If an optionee ceases to serve as a
director for any reason, including death or disability, he or she may, but
within ninety (90) days, exercise the options.
On October 11, 1996, Bruce Chatterley, Richard Wolf and Frank Vigilante
each received 2,000 and Howard Phillips received 1,000 nonqualified options
under the Director's Plan for Initial Grant Options. With the exception of Frank
Vigilante, each recipient exercised such options pursuant to a Note Exercise.
On August 19, 1996, Richard E. Salwen resigned as a member of the Board
of Directors and
<PAGE> 14
forfeited 722 shares of common stock. On January 7, 1997, Howard Phillips and
Richard Wolf resigned as members of the Board of Directors and forfeited 1,500
shares and 1,833 shares, respectively. On January 30, 1997, C. A. Burns resigned
as Chief Executive Officer, President and Chairman and forfeited 9,873 shares of
common stock. On January 31, 1997, Bruce Chatterley resigned as a member of the
Board of Directors and forfeited 2,000 shares of common stock.
FOUNDER'S AND DIRECTOR'S OPTIONS
The Company issued to certain executive officers of the Company options
to purchase up to an aggregate of 37,154 shares of Common Stock (the "Founder's
Options"). An additional 2,000 options were issued to the Company's nonemployee
directors (the "Director's Options" and, together with the Founder's Options,
the "Non-Plan Options"). The Founder's Options and the Director's Options were
issued outside of the 1994 Option Plan and 1995 Option Plan. Each of the
recipients of the Non-Plan Options exercised such options on October 16, 1995,
at an exercise price of $76.50 per share for an aggregate purchase price of
$2,995,230 (the "Founder's Shares"). Such founders and directors paid for the
Founder's Shares with non-recourse promissory notes, bearing interest at 8.75%
per annum, secured by the Founder's Shares. The Founder's Shares are being held
in escrow until the notes have been satisfied. The Founder's Shares are subject
to a repurchase option exercisable by the Company if a founder or director
voluntarily terminates his relationship with the Company (the "Repurchase
Option"). The Repurchase Option decreases ratably over a 36-month period. The
exercise price of the Non-Plan Options were paid by the optionees by delivery to
the Company of a 10-year nonrecourse promissory note (the "Non-Plan Option
Note") secured by the shares issued. The option shares were placed into escrow
and became subject to forfeiture in the event the optionee voluntarily leaves
his employment with the Company. The forfeiture condition lapses ratably over
the 36 months following exercise. Shares will be released from escrow only upon
lapse of the forfeiture condition and payment of the Non-Plan Option Note.
Founder's Options were issued and exercised by the following persons in the
amount indicated: C. A. Burns(1), 17,339 shares; Randall Pinato, 6,606 shares;
Hans Junker, 6,606 shares; and Calvin DeCoursey, 6,606 shares. Director's
Options were issued and exercised by the following persons in the amount
indicated: Howard W. Phillips, 1,000 shares and Richard E. Salwen: 1,000 shares.
As of the date hereof, due to Messrs. Burns', Salwen's and Phillips'
resignations, 11,179 shares have been forfeited and 27,974 Non-Plan Options are
still outstanding.
ESCROW SHARES
As a condition to the initial closing of a private placement in 1995,
certain holders of shares of Common Stock placed 16,087 shares in escrow (the
"Escrow Shares"). The holders of the Escrow Shares may continue to vote such
shares; however, the Escrow Shares are not assignable or transferable and are
not deemed outstanding for purposes of the Company's financial statements.
<PAGE> 15
The Escrow Shares are subject to release on the Company meeting the
following conditions:
(i) The Company's net income in any one of the fiscal years
ending December 31, 1997 or December 31, 1998, after provision for income taxes
and exclusive of any extraordinary earnings or charges to income resulting from
the release of the Escrow Shares (as derived from the Company's financial
statements audited by the Company's independent certified public accountants)
amounts to at least $3,500,000 for the fiscal year ending December 31, 1997 or
$4,500,000 for the fiscal year ending December 31, 1998;
(ii) If the Company is sold in a private sale at a price
which, after giving effect to the release of such shares, results in the payment
on the Common Stock of at least $270 per share in 1997, or $360 per share in
1998 (the "Minimum Price"), then so much of the Common Stock held in escrow as
is required to provide for the sale of all shares of Common Stock at a price at
least equal to the Minimum Price per share shall be released prior to the sale
and sold; or
(iii) For any period of thirty (30) consecutive trading days,
the average bid price of the Common Stock on Nasdaq equals or exceeds (a) $225
during the Company's fiscal year ending December 31, 1997, or (b) $300 during
the Company's fiscal year ending December 31, 1998.
The Company expects that the release of the Escrow Shares will be
deemed compensatory and, accordingly, will result in substantial charges to
earnings equal to the fair market value of the Escrow Shares as of the date on
which they are released. Such charges could substantially increase the loss or
reduce or eliminate the Company's net income, if any, for financial reporting
purposes for the periods in which the Escrow Shares are released or are probable
of being released. If none of the foregoing earnings, sale or stock goals are
attained by December 31, 1998, the Escrow Shares as well as any dividends or
other distributions made with respect thereto, will be contributed to the
capital of the Company.
STOCK OPTION GRANTS
The Company did not grant any options, stock appreciation rights or
similar rights to the Named Executive Officers during fiscal year 1996.
<PAGE> 16
OPTION EXERCISE AND YEAR-END HOLDINGS
The following table provides information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options held as of December 31, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-
Unexercised Options/SARs at Money Options/SARs at
FY-End (#) FY-End (#)
Shares -------------------------------- ----------------------------
Acquired on Value
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
C.A. Burns -0- -0- -0- -0- -0- -0-
Nelson B. Caldwell -0- -0- 1,026 1,580 -0- -0-
Hans Junker -0- -0- -0- -0- -0- -0-
Randall Pinato -0- -0- -0- -0- -0- -0-
</TABLE>
- ------------------
(1) Market price at time of exercise less exercise price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 3, 1996, the Company entered into a Consulting Agreement
(the "Consulting Agreement") with Coastline Financial Group, Inc. ("Coastline").
Richard Adrey is President of Coastline and a Director of the Company (though
not at the time of executing the Consulting Agreement). Under the Consulting
Agreement, Coastline has agreed to provide certain financial consulting,
business consulting, investor relations and financial public relations services
to the Company for a period of one year (unless earlier terminated). The Company
has agreed to pay Coastline a cash fee of $7,500 per month and issue to
Coastline an option to purchase up to 3,333 shares of Common Stock at any time
from December 31, 1996 through March 31, 1999 at an exercise price of $33.75 per
share. In addition, unless the Consulting Agreement is earlier terminated, the
Company has agreed to issue to Coastline, on each of January 2, 1997, April 2,
1997, and June 30, 1997, options to purchase up to 3,334 shares of Common Stock
at an exercise price of $33.75 per share on or before March 31, 1999. In the
event Coastline is solely responsible for arranging certain financing
transactions, Coastline may receive additional compensation. The Consulting
Agreement may be terminated by either Coastline or the Company at the end of six
months with 30 days' notice to the other party. If no such notice is received by
the end of the fifth month, the Consulting Agreement will continue through the
term.
On October 11, 1996, the Company granted to Bruce Chatterley, Howard
Phillips, Richard Wolf and Frank Vigilante, each a nonemployee director of the
Company, options to purchase an aggregate of 7,000 shares of Common Stock at
$32.786 per share (the "New Director's Options").
<PAGE> 17
With the exception of the option issued to Mr. Vigilante, the New Director's
Options were exercised by the optionees effective October 11, 1996, by delivery
to the Company of the optionees 10-year, nonrecourse promissory notes secured by
the shares issued. Due to the resignations of Messrs. Chatterley, Phillips and
Wolf, an aggregate of 4,750 shares were forfeited.
On May 4, 1995, the Company granted to C. A. Burns, Hans Junker, Calvin
DeCoursey and Randall Pinato, each an executive officer of the Company, options
to purchase an aggregate of 37,154 shares of Common Stock at $76.50 per share
(the "Founder's Options"). The Founder's Options were exercised by the optionees
effective as of October 16, 1995, by delivery to the Company of the optionee's
10-year, nonrecourse promissory note secured by the shares issued. Options to
purchase an aggregate of 2,000 shares on such terms were granted to and
exercised by Howard W. Phillips, a former nonemployee director of the Company,
and Richard E. Salwen, a former nonemployee director of the Company, on July 17,
1995 (the "Director's Options"). The Director's Options were exercised by the
optionees as of October 16, 1995, by delivery to the Company of the optionee's
10-year nonrecourse promissory note secured by the shares issued.
On April 11, 1995, the Company conducted the final closing of the sale
to private investors of an aggregate of 30 units (the "1994 Units"), each 1994
Unit consisting of (i) 1,073 shares of Common Stock; and (ii) 3,334 shares of
Preferred Stock (the "Private Placement"). The purchase price per 1994 Unit was
$100,000. The Company received gross proceeds of $3,000,000 with respect to the
sale of the 1994 Units, yielding net proceeds after the payment of fees and
expenses of approximately $2,500,000. The Private Placement resulted in the
Company's issuance of 32,174 shares of Common Stock and 1,500,000 shares of
Preferred Stock (convertible into 32,174 shares of Common Stock).
The Company paid to D. H. Blair in connection with the Private
Placement and a 1994 note financing an aggregate of $330,000 and issued to D. H.
Blair and its designees warrants to purchase up to an aggregate of 20,270 shares
of Common Stock. Howard Phillips, a director of the Company, was Director of
Corporate Finance of D. H. Blair until August 1995.
D. H. Blair acted as placement agent for both the 1994 Note financing
and the Private Placement.
With respect to each transaction between the Company and an affiliate
of the Company, the Company believes that such transactions were on terms at
least as favorable to the Company as they would have been had they been
consummated with unrelated third parties. The Board of Directors has adopted a
policy that, in the future, prior to entering into any transaction with a
related party, a similar determination must be made with respect to such
transaction by a majority of the Company's disinterested directors or
shareholders.
<PAGE> 18
RATIFICATION OF APPOINTMENT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has reappointed Coopers & Lybrand L.L.P. as the
Company's independent certified public accountants. Coopers & Lybrand L.L.P.
have been the Company's certified public accountants since January, 1994.
Although not required by Nevada law, the Company intends to make it a
practice of seeking stockholder ratification of the appointment of the Company's
auditors at each annual meeting. The Board recommends such ratification, and
will consider the proposal ratified upon the affirmative vote of a majority of
the outstanding shares of the Company's Common Stock present and voting
(assuming the presence of a quorum) at the Annual Meeting. In the event the
specified vote is not obtained, the matter will be returned to the Board of
Directors for consideration of alternatives. Representatives of Coopers &
Lybrand L.L.P. are expected to be in attendance at the Annual Meeting, will have
an opportunity to make a statement, if they so desire, and are expected to be
available to answer appropriate stockholder questions.
OTHER MATTERS
The Company does not know of any matter other than those discussed in
the foregoing materials contemplated for action at the Annual Meeting. Should
any other matter be properly brought before the Annual Meeting, the holders of
the proxies herein solicited will vote thereon in their discretion.
FINANCIAL STATEMENTS
Stockholders should refer to the Financial Statements set forth in the
Annual Report on Form 10-KSB, concurrently being provided, which financial
statements are incorporated herein by this reference.
<PAGE> 19
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
In accordance with Rule 14a-8 of the proxy rules of the Securities and
Exchange Commission, stockholders are advised that any proposal which a
stockholder wishes to have presented at the 1998 Annual Meeting and included in
the Company's proxy statement and form of proxy for such meeting must be
received by the Company at its principal office, 6880 South McCarran Boulevard,
Reno, Nevada 89509, Attention Mr. Nelson B. Caldwell, no later than December 1,
1997.
April 16, 1997
By Order of the Board of Directors
Nelson B. Caldwell
President and Chief Executive Officer
<PAGE> 20
APPENDIX A
FORM OF PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
OF
TELECHIPS CORPORATION
THE UNDERSIGNED UNDERSTANDS THAT THIS PROXY IS BEING SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS OF TELECHIPS CORPORATION, A NEVADA CORPORATION
(THE "CORPORATION"). The undersigned hereby appoints Kevin A. Coyle, Esq., with
full power of substitution, proxy for the undersigned to vote all shares of
Common Stock of the Corporation which the undersigned is entitled to vote at the
Annual Meeting of Stockholders of the Corporation to be held on May 21, 1997, at
the principal office of the Corporation located at 6880 South McCarran
Boulevard, Reno, Nevada, at 2:00 P.M. Pacific time, or any adjournment thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder.
1. ELECTION OF DIRECTORS:
( ) FOR all nominees listed BELOW (except as marked to
the contrary below).
Richard Adrey
Nelson B. Caldwell
Randall Pinato
Frank S. Vigilante
(INSTRUCTION: To withhold authority to vote for any
nominee(s), write the name of the nominee(s) in the
space provided below.)
----------------------------------------------------
( ) WITHHOLD AUTHORITY to vote for all nominees listed
above.
2. RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND,
L.L.P. AS THE COMPANY'S CERTIFIED PUBLIC ACCOUNTANTS
( ) FOR ratification of the selection of Coopers &
Lybrand, L.L.P. as the Company's certified public
accountants.
<PAGE> 21
( ) AGAINST ratification of the selection of Coopers &
Lybrand, LLP as the Company's certified public
accountants.
( ) ABSTAIN
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2 ABOVE.
When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, or on behalf of an
entity, please provide the name of the stockholder of record and the full title
of the person signing on behalf of the stockholder of record.
Dated: __________________, 1997
_______________________________________
Signature of Stockholder
_______________________________________
Print Name of Stockholder
_______________________________________
Signature of Stockholder
_______________________________________
Print Name of Stockholder
STOCKHOLDERS SHOULD SIGN THIS PROXY PROMPTLY AND RETURN IT
IN THE ENCLOSED ENVELOPE.
