INFONOW CORPORATION
1875 Lawrence Street, Suite 1100
Denver, CO 80202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 24, 1998
To Our Stockholders:
The Annual Meeting of Stockholders of InfoNow Corporation, a Delaware
corporation (the "Company"), will be held at 3:00 p.m. MDT, on April 24, 1998,
at the InfoNow corporate offices, 1875 Lawrence Street, Suite 1100, Denver,
Colorado, for the following purposes, all of which are more completely set
forth in the accompanying Proxy Statement.
1. To elect five (5) directors to serve until the next Annual Meeting of
Stockholders or until their respective successors are elected and
qualified.
2. To amend the Company's 1990 Stock Option Plan to (a) allow the Company to
grant non-statutory stock options to consultants to the Company and (b)
increase the number of shares of Common Stock available for purchase from
1,700,000 to up to 2,200,000 shares.
3. To consider and vote upon a proposal to ratify the sale of assets of its
subsidiary, Cimarron International, Inc.
4. To consider and vote upon a proposal to ratify the appointment of Hein +
Associates LLP as the Company's independent public accountants for the
fiscal year ending December 31, 1998.
5. To transact such other business as may properly come before the meeting, or
any adjournment thereof.
The five (5) director nominees receiving the highest number of votes in
favor of election will be elected. In order for the other proposals listed
above to be approved, each proposal must be approved by the affirmative vote
of holders of a majority of shares, voting as a group.
All Stockholders are cordially invited to attend the meeting, although
only Stockholders of record at the close of business on March 11, 1998 will be
entitled to notice of, and to vote at, the meeting or any and all adjournments
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Kevin D. Andrew
Kevin D. Andrew
Secretary of the Corporation
March 23, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. YOUR
PROMPT RETURN OF THE PROXY WILL HELP TO ASSURE A QUORUM AT THE MEETING AND
AVOID ADDITIONAL COMPANY EXPENSE FOR FURTHER SOLICITATION. YOUR PROXY MAY BE
REVOKED AT ANY TIME BEFORE IT IS VOTED.
INFONOW CORPORATION
1875 Lawrence Street, Suite 1100
Denver, CO 80202
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 24, 1998
SOLICITATION OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of InfoNow Corporation, a Delaware
corporation ("InfoNow" or the "Company"), for use at the Annual Meeting of
Stockholders of the Company to be held on April 24, 1998 at 3:00 p.m. MDT, at
the Company's offices, 1875 Lawrence Street, Suite 1100, Denver, Colorado, and
at any and all adjournments of such meeting.
If the enclosed Proxy Card is properly executed and returned in time to be
voted at the meeting, the shares of Common Stock represented will be voted in
accordance with the instructions contained therein. Executed proxies that
contain no instructions will be voted FOR each of the proposals described
herein. Abstentions (proxies not returned) and broker non-votes will be
treated as Stockholders absent from the Annual Meeting. The proxies will be
tabulated and votes counted by American Securities Transfer & Trust, Inc. It
is anticipated that this Proxy Statement and the accompanying Proxy Card will
be mailed to the Company's Stockholders on or about March 23, 1998.
STOCKHOLDERS WHO EXECUTE PROXIES FOR THE ANNUAL MEETING MAY REVOKE THEIR
PROXIES AT ANY TIME PRIOR TO THEIR EXERCISE BY DELIVERING WRITTEN NOTICE OF
REVOCATION TO THE COMPANY, BY DELIVERING A DULY EXECUTED PROXY CARD BEARING A
LATER DATE, OR BY ATTENDING THE MEETING AND VOTING IN PERSON.
The costs of the meeting, including the costs of preparing and mailing the
Proxy Statement and Proxy, will be borne by the Company. Additionally, the
Company may use the services of its Directors, officers and employees to
solicit proxies, personally or by telephone, but at no additional salary or
compensation. The Company will also request banks, brokers, and others who
hold shares of Common Stock of the Company in nominee names to distribute
proxy soliciting materials to beneficial owners, and will reimburse such banks
and brokers for reasonable out-of-pocket expenses which they may incur in so
doing.
OUTSTANDING CAPITAL STOCK
The record date for Stockholders entitled to vote at the Annual Meeting is
March 11, 1998. At the close of business on that day, there were 5,364,179
shares of no par value Common Stock (the "Common Stock") of the Company
outstanding and entitled to vote at the meeting.
QUORUM AND VOTING
The presence, in person or by proxy, of the holders of a majority of the
outstanding Common Stock is necessary to constitute a quorum for each matter
voted upon at the Annual Meeting. In deciding all questions, a holder of
Common Stock is entitled to one vote, in person or by proxy, for each share
held in his or her name on the record date. Abstentions and broker non-votes,
if any, will not be included in vote totals and, as such, will have no effect
on any proposal.
ACTION TO BE TAKEN AT THE MEETING
The accompanying proxy, unless the Stockholder otherwise specifies in the
proxy, will be voted (i) FOR the election of each of the five nominees named
herein for the office of director, (ii) FOR approval of an amendment to the
InfoNow Corporation 1990 Stock Option Plan to (a) allow the Company to grant
non-statutory stock options to consultants of the Company and (b) increase the
number of shares of common stock reserved for issuance thereunder from
1,700,000 to up to 2,200,000, (iii) FOR the ratification of the sale of assets
of its subsidiary, Cimarron International, Inc., which was sold to Cimarron
Dog and Pony, Inc. ("Cimarron"), (iv) FOR the selection of Hein + Associates
LLP, independent public accountants, as the auditors of the Company for the
fiscal year ending December 31, 1998, and (v) at the discretion of the proxy
holders, on any other matter that may properly come before the meeting or any
adjournment thereof.
Where Stockholders have appropriately specified how their proxies are to
be voted, they will be voted accordingly. If any other matter of business is
brought before the meeting, the proxy holders may vote the proxies at their
discretion. The directors do not know of any such other matter or business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes set forth as of March 11, 1998, the number
of shares of the Company's outstanding Common Stock beneficially owned by (i)
the Company's Chief Executive Officer and by the highest compensated executive
officers who were serving as executive officers at the end of the 1997 fiscal
year whose individual total cash compensation for the 1997 fiscal year
exceeded $100,000 (the "Named Executive Officers"), (ii) each director and
nominee for director of the Company, (iii) all executive officers and
directors of the Company as a group and (iv) each person or group of persons
known by the Company to beneficially own more than five percent (5%) of the
outstanding Common Stock. All information is taken from or based upon
ownership filings made by such persons with the Commission or upon information
provided by such persons to the Company.
Shares
Amount and Beneficially Owned
Nature of Which May be
Name and Address of Beneficial Percent of Class Acquired Within
Beneficial Owner Ownership Beneficially Owned(1) 60 Days(4)
Officers and Directors:
Donald E. Cohen 555,079 10.2% 62,745
1875 Lawrence, Suite 1100
Denver, CO 80202
Michael W. Johnson 822,778 14.5% 313,436
1875 Lawrence, Suite 1100
Denver, CO 80202
Nahum Rand 358,161(3) 6.4% 208,244
1875 Lawrence St., Suite 1100
Denver, CO 80202
W. Brad Browning 203,667 3.7% 135,000
1875 Lawrence St., Suite 1100
Denver, CO 80202
Duane Wentworth 8,333 - 8,333
1875 Lawrence St., Suite 1100
Denver, CO 80202
Michael D. Basch 2,366 - 1,666
1875 Lawrence St., Suite 1100
Denver, CO 80202
All Officers and Directors 2,138,191 34.2% 901,453
as a Group (8 persons)
Principal Stockholders:
Dieter Heidrich 594,944(2) 10.9% 102,695
1113 Spruce Street
Boulder, CO 80302
Robertson Stephens 498,615 9.0% 178,572
Orphan Fund
555 California Street
Suite 2600
San Francisco, CA 94104
Robertson Stephens 384,273 7.0% 142,858
Diversified Growth Fund
555 California Street
Suite 2600
San Francisco, CA 94104
Robertson Stephens 287,229 5.2% 107,143
Global Low-Price Fund
555 California Street
Suite 2600
San Francisco, CA 94104
(1) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes generally voting power and/or investment power
with respect to securities. Shares of Common Stock subject to options or
warrants which are currently exercisable or exercisable within 60 days are
deemed outstanding for computing the percentage of the person holding such
options or warrants but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, the
Company understands that the persons named in the table above have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Includes 142,857 shares of common stock and warrants to purchase 71,429
shares of common stock held by Opus Capital Fund, LLC, which is managed by
Opus Capital, LLP.
(3) Includes 208,244 shares of common stock and warrants to purchase 135,319
shares of common stock held by the Rand Family Trust of which Mr. Rand is
a trustee and beneficiary.
(4) Represents the number of common shares set forth in column 1 that can be
obtained through the exercise of warrants or options that are currently
exercisable or that are exercisable within the next 60 days from March 11,
1998.
PROPOSAL 1 - ELECTION OF DIRECTORS
Nominees
Pursuant to the Bylaws, the authorized number of directors of the Company
has been set at five. The Board of Directors has nominated five persons to be
directors and five directors are to be elected at the meeting. Each nominee
will be elected to hold office until the next annual meeting of Stockholders
or until his successor is elected and qualified. Proxy holders will not be
able to vote the proxies held by them for more than five persons. If a quorum
is present, the five nominees having the highest number of votes cast in favor
of their election will be elected. Should any nominee become unable or
unwilling to accept nomination or election, the proxy holders may vote the
proxies for the election, in his stead, of any other person the Board of
Directors may recommend. Each nominee has expressed his intention to serve
the entire term for which election is sought.
THE BOARD OF DIRECTORS RECOMMEND THAT STOCKHOLDERS VOTE FOR EACH NOMINEE FOR
THE BOARD OF DIRECTORS.
The Board of Directors' nominees for the office of director are as
follows:
Year First
Became a
Name Age Director
Michael W. Johnson 36 1995
Donald E. Cohen (1)(2) 43 1995
Nahum Rand (1) 60 1991
Duane Wentworth (1)(2) 68 1997
Michael Basch (1) (2) 60 1998
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
The principal occupation and business experience of each director is set
forth below:
Michael W. Johnson has been Chief Executive Officer and President and a
director of the Company since October 1995. From 1990 to October 1995, Mr.
Johnson was a consultant with McKinsey & Company, an international management
consulting firm, where he served leading technology companies in the United
States and Europe on issues of growth, strategy, customer service, and mergers
and acquisitions. Mr. Johnson received a Bachelor of Science degree in
Applied and Engineering Physics, a Bachelors of Arts degree in English from
Cornell University, a Diplome in French Literature from Universite de Paris,
and a Masters of Business Administration degree from Stanford University
Graduate School of Business.
Donald E. Cohen has been a director and Vice Chairman of the Company since
May 1995 and served as President and Chief Executive Officer of the Company
from May 1995 until October 1995. Mr. Cohen is President and Chief Executive
Officer of Cimarron, an interactive media company he founded in 1978. Cimarron
was a subsidiary of the Company from May 1995 to December 1997. Under Mr.
Cohen's leadership, Cimarron has won several awards including an EMMY, TELLY,
DAF Alfie, and B/PAA Gold Spike. Mr. Cohen earned a Bachelor of Arts degree
in Mass Communications from the University of Denver.
Nahum Rand has been a director since April 1991 and was elected Chairman
of the Board in October 1994. He served as a consultant to the Company from
April 1991 through December 1992. From November 1990 to the present, he has
served as the chairman and chief executive officer of Regions, Inc., an
investment company which he founded.
Duane Wentworth has been a director since July 1997 and has served as a
management consultant to various businesses since 1992. Mr. Wentworth has over
41 years of business experience, including serving in management positions
with IBM and Control Data. During his tenure at Control Data, from 1976 to
1982, he was responsible for the formation of Professional Services division,
which provided world-wide consulting services for Control Data. Mr. Wentworth
has also served as chairman and owner of Data Decisions, Inc., a supplier of
specialized data processing services.
Michael Basch has been a director since February 1998. Mr. Basch founded
and has served as President of Service Impact since 1989 which was established
to advance the art, science and practice of leadership. Mr. Basch was Senior
Vice President and a founding officer of Federal Express Corporation, for the
first ten years of its existence, from 1972 to 1982. During his tenure at
Federal Express, Mr. Basch established and led a number of key functions,
including Sales, Customer Service, Personnel, Corporate Development, the
Federal Express Southern Division, PartsBank, and Hub Distribution Services.
He also conceived of the Federal Express tracking and tracing system and
designed, built and managed the $100 million Superhub, which remains the
largest system of its kind in the world.
There are presently five directors serving on the Company's Board of
Directors. Directors are elected annually to serve until the next annual
meeting of stockholders or until their successors are duly elected
Committees of the Board of Directors
The Company has an Audit Committee and a Compensation Committee. The
Audit Committee is responsible for (i) reviewing the scope of, and the fees
for, the annual audit, (ii) reviewing with the independent auditors the
corporate accounting practices and policies, (iii) reviewing with the
independent auditors their final report, and (iv) being available to the
independent auditors during the year for consultation purposes. The Audit
Committee met one time in the fiscal year ended December 31, 1997. The
Compensation Committee determines the compensation of the officers of the
Company and performs other similar functions. The Compensation Committee met
one time in the fiscal year ended December 31, 1997. The Board of Directors
may, from time to time, establish certain other committees to facilitate the
management of the Company.
Directors are reimbursed for expenses incurred for attending any Board or
committee meeting. There is no family relationship between any current or
prospective director of the Company and any other current or prospective
executive officer of the Company except for Michael Basch, who is the father-
in-law of Michael Johnson, the Chief Executive Officer and a director of the
Company.
During the fiscal year ended December 31, 1997, there were ten meetings of
the Board of Directors. All directors attended at least 75% of the meetings
of the Board and committees of the Board on which they were members.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and holders of more than 10% of
the Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common
Stock of the Company. Based solely upon a review of Forms 3 and 4 and
amendments thereto furnished to the Company during the fiscal year ended
December 31, 1997 and Forms 5 and amendments thereto furnished to the Company
with respect to the fiscal year ended December 31, 1997, to the best of the
Company's knowledge, the Company's directors, officers and holders of more
than 10% of its Common Stock complied with all Section 16(a) filing
requirements.
Executive Officers
The following persons are the executive officers of the Company:
Name Age Position(s)
Michael W. Johnson 36 Chief Executive Officer
and President
Kevin D. Andrew 39 Vice President
and Chief Financial
Officer, Secretary and
Treasurer
W. Brad Browning 33 Vice President
Donald Kark 34 Vice President,
Engineering and
Technology
Information concerning the business experience of Mr. Johnson is provided
under the section entitled "Election of Directors."
Kevin D. Andrew was elected to his current positions in March 1996. Prior
to joining InfoNow, Mr. Andrew was President of Andrew Consulting, LLC, a
financial management services firm. From 1992 to 1995 he served as Chief
Financial Officer of Air Methods Corporation, a publicly held provider of
emergency air ambulance services, and from 1983 to 1991 served in various
senior financial management positions at CRSS, Inc., a diversified services
company listed on the New York Stock Exchange. During his tenure at CRSS, Mr.
Andrew served as chief accountant, director of general accounting, director of
internal audit and Vice President and controller of Natec Resources, Inc., a
50%-owed affiliate of CRSS, Inc. Prior to 1983, Mr. Andrew was with KPMG Peat
Marwick. Mr. Andrew has held CPA certificates in both Colorado and Texas. He
earned his Bachelor of Science degree in Business from Arizona State
University.
W. Brad Browning has been a Vice President and General Manager of the
Company since January 1996. From 1990 to 1995, Mr. Browning was a consultant
with McKinsey & Company, an international management consulting firm. Mr.
Browning joined McKinsey & Company in June 1990 after obtaining an Masters of
Business Administration degree from Harvard University Graduate School of
Business. While with McKinsey, he led technology and consumer clients on major
marketing and sales initiatives focused on driving growth and significant
profit improvement. He earned his Bachelor of Business Administration degree
in Marketing from the University of Georgia.
Donald Kark was elected to his position as Vice President, Engineering and
Technology in May 1997. Prior to joining InfoNow in December 1996, Mr. Kark
was with Welkin Associates, Ltd., from June 1995 to December 1996, where he
was a consultant and advisor to high technology clients on advanced technology
information systems. From June 1985 to June 1995, Mr. Kark worked with TRW,
Inc., as a chief engineer, project manager, hardware engineer and software
developer. He holds a B.S.C.E.E. from Purdue University and has won numerous
awards for his professional accomplishments, including TRW's most prestigious
engineering award, the TRW Chairman's Award for Innovation.
All executive officers are appointed by the Board of Directors and serve
at the Board's discretion.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the cash compensation
earned for the fiscal years ended December 31, 1997, 1996 and 1995 by the
Company's Chief Executive Officer and by the highest compensated executive
officers who were serving as executive officers at the end of the 1997 fiscal
year whose individual total cash compensation for the 1997 fiscal year
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards
Restricted
Name and Principal Stock Options/
Position Year Salary Bonus Awards SARS All Other
Compensation
Michael W. Johnson (1) 1997 110,000 -0- -0- 582,493 -0-
Chief Executive Officer, 1996 101,778 (4) -0- -0- 105,705 -0-
President and Chairman 1995 22,372 -0- -0- 170,038 (2) -0-
W. Brad Browning (3) 1997 110,000 1,500 -0- 170,000 -0-
Vice President 1996 103,918 -0- -0- 85,000 15,000<F5>
Internet Products Group
(1) Mr. Johnson joined the Company in October 1995.
(2) Includes warrants to purchase 8,500 shares of Common Stock, issued to Mr.
Johnson in connection with his service as a director of the Company. See
"Management - Director Compensation".
(3) Mr. Browning joined the Company in January 1996.
(4) The Company accrued and deferred $72,611 of Mr. Johnson's 1996 salary, of
which $58,000 was satisfied by way of issuance on September 13, 1996 of
51,555 shares of Common Stock at a price of $1.12 per share.
(5) Represents reimbursement of relocation expenses.
The following table presents information concerning individual grants of
options to purchase Common Stock of the Company made during the fiscal year
ended December 31, 1997, to each of the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number of Percent of Total
Securities Options/SARs Exercise
Underlying Granted to or
Options/SARs Employees Base Price
Name Granted (#) in Fiscal Year ($/Sh.) Expiration Date
Michael W. Johnson 8,500 (1) 0.5% 1.84 5/22/07
573,993 (2) 35.7% 1.40 10/23/07
W. Brad Browning 70,000 (3) 4.4% 2.11 1/9/06
5,000 (4) .3% 2.11 1//06
80,000 (5) 5.0% 1.40 10/23/07
15,000 (6) .9% .79 10/23/07
(1) Immediately exercisable as to 1/3 of the shares as of the grant date of
May 22, 1997, with the remainder vesting at 1/36 of the total shares each
month thereafter.
(2) Immediately exercisable as to 2/3 of the shares as of the grant date of
October 23, 1997, with the remaining 1/3 vesting at 1/18 each month
thereafter. These options cancel and replace certain options ranging in
price from $1.38 to $4.43. Agreement provides anti-dilution provisions.
See "Employment Contracts."
(3) Issued as repricing of earlier issued options. Vests over 36 months from
the grant date of 1/9/96, with 7/36 vesting seven months after grant, and
an additional 1/36 vesting each month thereafter.
(4) Issued as repricing of earlier issued options. Immediately exercisable in
full.
(5) Vests over eighteen months from the grant date of October 23, 1997, with
1/18 vesting each month after the grant.
(6) Vests over twelve months from the grant date of October 23, 1997, with
1/12 vesting each month after the grant.
The following table sets forth the fiscal year-end value of unexercised
options to purchase Common Stock of the Company for each Named Executive
Officer. No options or SARs were exercised by the Named Executive Officers
during the fiscal year ended December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
Number of Securties Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($)(1)
Name Exercisable Unexercisable Exercisable Unexercisable
Michael W. Johnson 418,407 174,086 0 0
W. Brad Browning 68,333 111,667 0 0
(1) Based upon the difference between the exercise price and the fair market
value of the Common Stock for those options which at December 31, 1997 had
an exercise price less than the fair market value of the Common Stock on
such date. The fair market value of Company Common Stock at December 31,
1997, measured as the mean of the closing bid and asked prices of the
Common Stock on such date, was $0.29 per share.
Compensation Committee Report on Repricing of Options
The Compensation Committee of the Board of Directors (the "Committee") has
furnished the following report on repricing of employee stock options. The
Committee has responsibility for making recommendations for compensation and
compensation policy. In carrying out this responsibility, an objective of the
Committee is to structure compensation programs that will promote long-term
stable growth and development within the Company. The Committee believes that
corporate development at InfoNow, an innovative technology company, is
dependent on its ability to attract and retain high quality people and
operates to ensure that goal.
The Committee believes that stock options are a critical component of the
compensation offered by the Corporation to promote long-term retention of key
employees, motivate high levels of performance and recognize employee
contributions to the success of the Company. The market price of the
Corporation's common stock decreased substantially from a high of $5.00 in the
fourth quarter of 1995 to a low of $0.21 in the fourth quarter of 1997. In
light of this substantial decline in the market price, the Committee believed
that the outstanding stock options held by the Named Executive Officers with
an exercise price far in excess of the actual market price were no longer an
effective tool to encourage employee retention or to motivate high levels of
performance. As a result, on April 25, 1997, the Committee approved the
repricing of stock options held by the Named Executive Officers.
On April 25, 1997, the Committee recommended and the Board of Directors
approved the repricing of incentive options granted to Michael Johnson, Chief
Executive Officer and President of the Company. The repricing affected options
to purchase 162,288 common shares of the Company. The options were exercisable
at prices ranging from $2.81 to $4.43 per share. All options were repriced to
be exercisable at $2.11 per share, which was the fair market value of the
Company's common stock at the date of the repricing. All other terms and
conditions of the options remained unchanged. On October 23, 1997, Mr. Johnson
exchanged all incentive options, including the repriced options, representing
the right to buy 257,243 share of the Company's common stock, for a single
option to purchase 573,993 shares of common stock at $1.40 per share. Such
option was immediately exercisable as to two-thirds of the shares, with the
remaining one-third vesting at one-eighteenth of the total per month
thereafter.
On April 25, 1997, the Committee recommended and the Board of Directors
approved the repricing of incentive options grated to W. Brad Browning, Vice
President-Internet Products Group of the Company. The repricing affected
options to purchase 75,000 common shares of the Company. The options were
exercisable at $3.625 per share. All options were repriced to be exercisable
at $2.11 per share, which was the fair market value of the Company's common
stock at the date of the repricing. All other terms and conditions of the
options remained unchanged.
In making its determination, the committee reviewed compensation of
executives with comparable backgrounds in similar companies and believes that
the Company's cash compensation is less than that paid to executives in other
companies. This action reflects the Committee's evaluation that the Company's
future lies in long-term development of new products and product lines,
retention of high quality people, and promotion of long-term growth with the
Company.
COMPENSATION COMMITTEE
Donald E. Cohen
Duane Wentworth
Michael Basch
Director Compensation
Directors who are employees of the Company receive no additional
compensation for service on the Board of Directors. Each director who is not
a full-time employee of the Company is reimbursed expenses for attendance at
Board and Committee meetings. Effective July 2, 1997, a retainer fee of $1,000
per month is also paid to each non-employee director. This monthly retainer
has been voluntarily deferred by the current directors. As of December 31,
1997, the Company had accrued $20,000 for this obligation. In addition, each
non-employee director is awarded an option to purchase 20,000 shares of the
Company's common stock on a bi-annual basis. The options are exercisable at
the fair market value of the Company's common stock on the date of issuance
and are exercisable over a 24 month period. Options expire ten (10) years from
date of issuance. The options are forfeited upon resignation from the Board of
Directors.
The Company issued options to non-employee directors to purchase an
aggregate of 60,000 shares of the company's common stock for their services
during 1997 at exercise prices ranging from $0.81 to $1.84.
On May 22, 1997, Directors Nahum Rand, Donald Cohen, Michael Johnson and
Gene Copeland were each awarded non-statutory options to purchase 8,500 shares
of the Company's common stock at an exercise price equal to the fair market
value of the Company's stock which was $1.84 per share for their service as
directors in 1996. One-third of the underlying shares were exercisable at the
date of issuance. The remaining underlying shares vest over 24 months. The
options expire ten (10) years from the date of issuance. The options are
forfeited upon resignation from the Board of Directors.
All options granted to former director, Gene Copeland, were forfeited upon
his resignation from the Board of Directors on December 10, 1997.
In addition to the above, non-employee director Nahum Rand is entitled to
receive a commission of 15% of the contracted total value of sales initiated
and closed by him.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
On January 1, 1998, the Company entered into a eighteen month employment
agreement with Michael W. Johnson, Chief Executive Officer and President of
the Company. The agreement provides for an annual base salary of $110,000 and
cash performance bonuses of up to $130,000 based on defined financial
performance targets. The agreement provides for the acceleration of the
vesting of all options awarded to him in the event that there is a change in
control of the Company. If Mr. Johnson is terminated without cause, he is
entitled to a 90 day advance notice and a severance payment equal to 75% of
his annual base salary then in effect. In addition, the Company will
accelerate vesting of 50% of all unvested options held by him at the date of
his termination.
On October 23, 1997, the Company entered into an agreement with Michael
Johnson which expires on April 23, 1999, and provides compensation to Mr.
Johnson in the event the Company is sold while he is President of the Company
or within 120 days after Mr. Johnson ceases to be President. The compensation
to be paid is based on a varying percentage of the transaction value ranging
from 4% to 12% of the transaction value. No compensation will be paid for
transactions valued less than $7.5 million.
A provision in the option agreement between the Company and Mr. Johnson
provides for dilution protection. The agreement provides that additional
options to purchase common shares shall be issued to Mr. Johnson equal to
10.7% of options exercised that were outstanding as of October 23, 1997. On
October 23, 1997, there were 962,000 shares subject to unexercised options.
On January 14, 1996, the Company entered into a two-year employment
agreement with W. Brad Browning, Vice President and General Manager of the
Company's Internet Products Group. The agreement provides for an annual base
salary of $110,000, including a non-recoverable draw against bonus of $25,000.
Mr. Browning is eligible for an annual performance bonus equal to a percentage
of revenues of the Internet Products Group, with total annual compensation
capped at $200,000. Pursuant to the employment agreement, the Company is
required to grant to Mr. Browning options to purchase an additional 10,000
shares of Common Stock if cumulative gross sales of the Internet Products
Group reach certain specified levels. All options vest over a 12 month period
from date of grant. All options are to be issued at the fair market value of
the date when the options are awarded. All options vest immediately upon a
change of control of the Company. If Mr. Browning is terminated without
cause, he is entitled to a severance payment equal to 50% of his annual base
compensation then in effect.
Certain Relationships and Related Transactions
On March 29, 1996, the Company borrowed $100,000 from Kevin Andrew, Vice
President and Chief Financial Officer of the Company. In consideration
therefor, the Company issued Mr. Andrew a promissory note in the principal
amount of $100,000, due March 29, 1997, bearing interest at the prime rate
plus 2.75%, and secured by all of the accounts receivable of the Company. The
promissory note was convertible at the option of the holder at any time into
shares of Common Stock of the Company at the rate of $3.00 per share. The note
was subsequently extended to June 30, 1997, and was repaid on that date.
On September 13, 1996, the Company issued shares of Common Stock to three
officers of the Company as follows: (i) the Company issued 82,667 shares of
Common Stock at a price of $1.12 and warrants to purchase 41,333 shares at
$1.50 per share to Michael Johnson, President and Chief Executive Officer of
the Company, in consideration for $20,000 in cash and $73,000 in accrued
salary and expense obligations; (ii) the Company issued 17,778 shares of
Common Stock at a price of $1.12 and warrants to purchase 8,889 shares at
$1.50 per share to Kevin Andrew, Vice President and Chief Financial Officer of
the Company in consideration for $20,000 in accrued salary obligations; (iii)
the Company issued 66,667 shares of Common Stock at a price of $1.12 and
warrants to purchase 33,333 shares at $1.50 per share to W. Brad Browning,
Vice President of the Company, in consideration for $75,000 in cash. All such
warrants are exercisable until September 13, 1998.
On December 11, 1997, the Company sold the assets of its Cimarron
International, Inc., subsidiary to Donald Cohen, a director of the Company.
The terms of such transactions are set forth herein under "Item 3-Ratification
of Sale of Cimarron Assets."
PROPOSAL 2 - AMENDMENT OF 1990 STOCK OPTION PLAN
On January 23, 1998, the Board of Directors amended, subject to
stockholder approval, the InfoNow Corporation 1990 Stock Option Plan (the
"Plan"). The number of shares of Common Stock available for issuance under
the Plan was increased to 2,200,000 (or such lesser number as may be
acceptable to the Vancouver Stock Exchange regulatory authority) from
1,700,000 shares of Common Stock, subject to adjustment for dividend, stock
split or other relevant changes in the Company's capitalization, and the class
of persons eligible to receive non-statutory stock options was expanded to
include consultants to the Company. The Plan, as proposed to be amended, is
set forth as Exhibit A to this Proxy Statement.
The Company's Common Stock is listed on the Vancouver Stock Exchange (the
"Exchange"). Modification of the plan will require the approval of the
Exchange. There is no assurance that the Company will obtain such approval. A
condition of granting any such approval is that the increase be approved by a
majority of votes attached to the outstanding Common Stock held by
"disinterested shareholders" who vote on the matter. All shareholders who are
not insiders of the Company ("insiders" are officers, directors and holders of
more than 10% of the outstanding shares of Common Stock), or associates of
such insiders, are "disinterested shareholders". If the requisite
disinterested shareholder vote is not obtained, the amendment to the Plan will
be deemed not approved.
The Plan currently provides that the only persons eligible to receive
stock options under the Plan are key employees and non-employee directors of
the Company. The proposed amendment to the Plan would expand the class of
persons eligible to receive non-statutory options to include consultants to
the Company. Stock-based compensation is a key component of compensation for
many companies, and commonly includes non-statutory options as a portion
thereof. The Board of Directors believes that that ability to offer non-
statutory stock options to certain consultants in lieu of cash compensation
for their services is in the best interests of the Company.
The Board of Directors believes that the Plan has been of material benefit
to the Company by assisting the Company and its subsidiaries in attracting,
retaining and motivating key employees of proven ability. The Board of
Directors also believes that the best interests of the Company and its
Stockholders require that the Company continue to be in a position to offer
options to present and prospective key personnel, non-employee directors, and
expand its ability to offer options to present and prospective consultants.
The purpose of the Plan is to promote the interests of the Company and its
Stockholders by helping the Company and its subsidiaries attract, retain, and
motivate key employees and non-employee directors, including officers and
directors who are employees of any of its subsidiaries and, as proposed to be
amended, consultants to the Company.
The Board of Directors adopted the Plan on February 22, 1990 and it was
approved by the Company's stockholders in October 1990.
As of February 28, 1998, options to purchase an aggregate of 1,565,079
shares of Common Stock are outstanding pursuant to the Plan and 61,587 options
have been exercised since inception of the Plan. As of February 28, 1998, the
market value of all shares of Common Stock subject to outstanding options was
$1,126,856 (based upon the average bid and asked prices as reported by the OTC
Electronic Bulletin Board trading system as of such date).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT OF THE PLAN
INCREASING THE NUMBER OF COMMON SHARES AVAILABLE FOR ISSUANCE THEREUNDER TO
2,200,000 FROM 1,700,000 AND EXPANDING THE CLASS OF PERSONS ELIGIBLE TO
RECEIVE NONSTATUTORY STOCK OPTIONS TO INCLUDE CONSULTANTS OF THE COMPANY.
The amendment to the Plan will be approved if a majority of the shares
present in person or represented by proxy at the meeting are voted in favor of
the amendment. Unless otherwise specified, proxies solicited by the Board of
Directors will be voted FOR the adoption of the amendment to increase the
number of shares reserved to 2,200,000 from 1,700,000 shares for issuance
thereunder and to expand the class of persons eligible to receive non-
statutory stock options to include non-employee directors of the Company. The
following description of the Plan, as amended, is qualified in its entirety by
reference to the Plan included herewith as Exhibit A.
Summary of the Plan
Administration. The Board of Directors is responsible for administering
the Plan. The Board of Directors has full authority, subject to the terms of
the Plan, to make all determinations under the Plan. The Board of Directors
may delegate administration of the Plan to a committee composed of two or more
directors, each of whom is a "non-employee director" as such term is defined
in Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act").
The Company will indemnify each member of the Board of Directors for actions
taken under the Plan.
Incentive and Non-statutory Stock Options. The Board of Directors may
grant incentive stock options under the Plan and options which do not qualify
as incentive stock options ("non-statutory stock options").
Eligibility. Employees of the Company and its subsidiaries, including
directors who are not employees of the Company or any subsidiary of the
Company, are eligible to receive incentive stock options and non-statutory
stock options under the Plan. As of February 28, 1998, the Company had
approximately 22 total employees. If the proposed amendment is adopted,
consultants to the Company or any subsidiary of the Company will be eligible
to receive non-statutory stock options under the Plan. The benefits or amounts
that will be received by or allocated to persons eligible to receive options
under the Plan are not determinable.
Exercise Price. The Plan provides that the exercise price under each
incentive stock option shall be no less than 100% of the fair market value
(110% of the fair market value for employees owning more than 10% of the
Company's Common Stock) of the Common Stock on the day the option is granted.
The exercise price for each non-statutory stock option granted under the Plan
will be the price established by the Board of Directors which normally is
expected to be no less than 100% of the fair market value on the date the
option is granted. The exercise price of an option is to be paid in cash or in
such other consideration as the Board deems acceptable. The Board may also
permit a participant to surrender previously owned shares to the Company, the
fair market value of which would be applied to the option exercise price.
Non-Transferability. All options granted under the Plan may be exercised
during the optionee's lifetime only by the optionee and are non-transferable
except by will or the laws of descent and distribution. Notwithstanding the
above, the Board may, at its discretion, permit the transfer of a non-
statutory option.
Exercise. The duration of each option will be as specified by the Board
but will not exceed ten years from the date of grant (five years for incentive
stock options granted to holders of more than 10% of the Company's Common
Stock). The Board, at its discretion, may establish a vesting schedule for
any option granted under the Plan.
Effect of Termination of Services. If an optionee's employment is
terminated because of the optionee's death or disability, exercisable options
held by the optionee may be exercised no later than twelve months following
the optionee's termination. If termination is because of dismissal for cause
or breach of an employment agreement, the option will terminate on the date
the optionee ceases to be an employee. If termination is for any other
reason, exercisable options may be exercised no later than the last day of the
month following the month in which the optionee ceases to be an employee of
the Company. In each case, the options may be exercised only to the extent
exercisable on the date of termination of employment and in no event is an
option exercisable after the termination date specified in the option grant.
Stock Dividends and Stock Splits. The number, kind and price of the
shares subject to each outstanding option will be proportionately and
appropriately adjusted in the event of any stock dividend, stock split,
recapitalization, reclassification, or other similar change in the Company's
outstanding securities. The number of the shares of Common Stock of the
Company reserved for issuance pursuant to options granted under the Plan will
be adjusted by the Board of Directors for any such changes.
Corporate Transactions. If within the duration of the stock option there
is a corporate merger or consolidation of which the Company is not the
survivor, sale of assets, or change in control (defined below)
("Transaction"), the purchaser of the assets or stock may deliver to the
optionee the same kind and amount of consideration the optionee would have
received as a result of the Transaction had the option been exercised (to the
extent then exercisable) immediately prior to the Transaction, or the Board of
Directors of the Company may cancel such options in exchange for equivalent
consideration. For purposes of the Plan, a "change in control" shall occur if
a person or group who prior to such event owned less than 25% of the then
outstanding Common Stock shall acquire additional shares of Common Stock in
one or more transactions, such that following such transaction(s) such person
or group beneficially own 50% or more of the Common Stock outstanding. In
addition, the vesting schedule of some or all options may, at the sole
discretion of the Board of Directors, be accelerated so that all or any
portion of options outstanding under the Plan as of the day before the
consummation of such Transaction, to the extent not exercised, shall for all
purposes under the Plan become exercisable as of such date.
Term of Plan; Amendment. The Plan will terminate on February 20, 2000,
ten years from the date the Plan was adopted by the Board of Directors, or, if
earlier, upon the purchase of all Common Stock subject to the Plan pursuant to
the exercise of options granted under the Plan. Any options outstanding after
the termination of the Plan will remain in effect in accordance with their
terms. The Board of Directors may terminate or amend the Plan, except that the
Board may not, without shareholder approval, increase the number of shares of
Common Stock as to which options may be granted, materially increase the
benefits accruing to participants or materially modify the eligibility
requirements.
Certain Federal Income Tax Consequences of Options. Certain of the
federal income tax consequences to optionees and the Company of options with
respect to Company stock granted under the Plan should generally be as set
forth in the following summary.
A employee to whom as ISO which qualifies under Section 422 of the Code is
granted will not recognize income at the time of grant or exercise of such
option. However, upon the exercise of an ISO, any excess in the fair market
price of the Common Stock over the option price constitutes a tax preference
item which may have alternative minimum tax consequences for the employee. If
the employee sells such shares more than one year after the date of transfer
of such shares and more than two years after the date of grant of such ISO,
the employee will generally recognize a long-term capital gain or loss equal
to the difference, if any, between the sale prices of such shares and the
option price. The Company will not be entitled to a federal income tax
deduction in connection with the grant or exercise of an ISO. If the employee
does not hold such shares for the required period, when the employee sells
such shares the employee will recognize ordinary compensation income and
possibly capital gain or loss (long-term or short-term, depending on the
holding period of the stock sold) in such amounts as are prescribed by the
Code and the regulations thereunder and the Company will generally be entitled
to a federal income tax deduction in the amount of such ordinary compensation
income recognized by the employee.
A recipient to whom an NSO is granted will not recognize income at the
time of grant of such option. When such recipient exercises such NSO, the
recipient will recognize ordinary compensation income equal to the excess, if
any, of the fair market value, as of the date of the option exercise, of the
shares that the recipient receives upon such exercise over the option price
paid. The tax basis of such shares to such recipient will be equal to the
option price paid plus the amount, if any, includable in the recipient's gross
income, and the recipient's holding period for such shares will commence on
the date on which the recipient recognizes taxable income in respect of such
shares. Gain or loss upon a subsequent sale of any Company Common Stock
received upon the exercise of a NSO generally would be taxed as capital gain
or loss (long-term or short-term, depending upon the holding period of the
stock sold). Certain additional rules apply if the recipient pays the option
price in shares previously owned by the recipient. Subject to the applicable
provisions of the Code and regulations thereunder, the Company will be
entitled to a federal income tax deduction in respect of a NSO in an amount
equal to the ordinary compensation income recognized by the employee. This
deduction will, in general, be allowed for the taxable year of the Company in
which the optionee recognizes such ordinary income.
Participants in the Plan should consult their own tax advisors to
determine the specific tax consequences of the Plan for them.
PROPOSAL 3 - RATIFICATION SALE OF CIMARRON ASSETS
On December 11, 1997, the Company sold all the assets of its wholly-owned
subsidiary, Cimarron International, Inc. ("Cimarron"), to Cimarron Dog and
Pony, Inc. ("Dog and Pony"). Dog and Pony is owned by Donald Cohen, a
director of the Company and the former owner of Cimarron prior to its
acquisition by the Company in 1995. The board of directors of the Company
estimates the total value of the sale transaction (the "Transaction") to the
Company to be $321,000, including $100,000 of contingent consideration. The
Transaction included assets of approximately $63,000 consisting of specialized
computer equipment and software, of which the Company recognized a book gain
of approximately $24,000. Also included in the Transaction were approximately
$58,500 of accounts receivable which were transferred at full value as
recorded on Cimarron's books with no offset for bad debt. Approximately
$66,000 of intangible assets related to the business tradename, customer
lists, in-process contracts and related unbilled revenues were also included
in the Transaction. Dog and Pony also assumed all recorded liabilities of
Cimarron which amounted to approximately $51,000, consisting of approximately
$13,000 of accounts payable and $37,000 of other accrued liabilities. Mr.
Cohen also agreed to terminate his own employment agreement with the Company.
As part of the Transaction, the Company executed an earnout agreement which
provides that Dog and Pony shall pay 25% of all quarterly gross profits in
excess of $116,500 to the Company until the earlier of: (i) March 31, 2001, or
(ii) until payments total $100,000.
In connection with the Transaction, the Company executed a cost sharing
agreement with Dog and Pony which provides that the Company shall provide
certain administrative services for $12,000 per month. This agreement expires
March 31, 1998, and can be extended by mutual agreement of both parties.
After execution of the Transaction, the Company ceased all operations of
its Cimarron subsidiary and liquidated the subsidiary on December 19, 1997.
Because the Transaction did not involve a substantial part of the Company's
assets, it was not submitted to the Stockholders for approval prior to
consummation.
The Company submitted the Transaction to the Vancouver Stock Exchange
("VSE") for approval in accordance with the rules and regulations of the VSE.
The Company obtained VSE approval of the Transaction subject to ratification
by the shareholders of the Company.
The Board of Directors unanimously approved this transaction on December
11, 1997, with the exception of Mr. Cohen, who abstained from voting in this
matter. The Board of Directors believe this sale has two major benefits to the
Company and its shareholders; first, it allows the Company to focus
exclusively on developing its FindNow Referral Management Services business
which the Company believes has a much higher growth potential than the
Cimarron business. Second, the sale provides significant additional cash to
invest in this core business.
The total consideration paid including contingent consideration equals 5.2
times 1997 cash flow of approximately $62,400 and represents 3.5 times 1997
cash flow if contingent consideration is excluded. The Board of Directors
determined that this valuation was consistent with a business in a mature or
declining market such as Cimarron. Revenues from Cimarron have been declining
over the last three years due to a shift away from 35mm slides to electronic
presentations and a trend towards in-house production of many types of
business presentations.
The Board of Directors believes that ratification of the Transaction is in
the best interest of the Company's Stockholders.
In the event that shareholders do not ratify the Transaction, the Board of
Directors believes that it would not be practicable to reverse the
Transaction. As a result, the Company may be subject to disciplinary action
from the VSE, including possible suspension of trading or delisting from the
VSE.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE TO RATIFY THE SALE OF
CIMARRON ASSETS
PROPOSAL 4 - APPOINTMENT OF AUDITORS
The Board of Directors has appointed the firm of Hein + Associates LLP,
independent public accountants, as the auditors of the Company for the fiscal
year ending December 31, 1998, subject to the approval of such appointment by
Stockholders at the Annual Meeting. Hein + Associates LLP has audited the
Company's financial statements since the Company's 1996 fiscal year.
The ratification of the appointment of Hein + Associates LLP will be
determined by the vote of the holders of a majority of the shares present in
person or represented by proxy at the Annual Meeting.
On January 27, 1997, the Company engaged the accounting firm of Hein +
Associates LLP ("Hein") as its principal independent accountants to audit the
Company's financial statements for its fiscal year ending December 31, 1996.
The appointment of new independent accountants was approved by the Audit
Committee and Board of Directors of the Company. The Company dismissed its
former independent accountants, Arthur Andersen, LLP, effective with the
appointment of Hein.
Prior to the appointment of Hein, Management of the Company had not
consulted with Hein except that, at the Company's request, Hein read the
Company's reports filed on Form 10-Q for the quarterly periods ending June 30,
1996 and September 30, 1996.
During the fiscal years ended December 31, 1995 and 1994, and the interim
period subsequent to December 31, 1995, there were no disagreements with the
former accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which would
have caused the former accountants to make reference in their report to such
disagreements if not resolved to their satisfaction.
Arthur Andersen's reports on the financial statements for the past two
years have contained no adverse opinion or disclaimer of opinion and were not
modified as to audit scope or accounting principles except for an explanatory
paragraph regarding the Company's ability to continue as a going concern
contained in the financial statements for the years ended December 31, 1995
and 1994.
If the foregoing appointment of Hein + Associates LLP is not ratified by
Stockholders, the Board of Directors may appoint other independent accountants
whose appointment for any period subsequent to the 1998 Annual Meeting of
Stockholders will be subject to the approval of Stockholders at that meeting.
A representative of Hein + Associates LLP is expected to be present at the
Annual Meeting and will have an opportunity to make a statement should he so
desire and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE TO RATIFY THE
APPOINTMENT OF THE FIRM OF HEIN + ASSOCIATES LLP.
STOCKHOLDER PROPOSALS
Any proposals from Stockholders to be presented for consideration for
inclusion in the proxy material in connection with the 1999 annual meeting of
Stockholders of the Company must be submitted in accordance with the rules of
the Securities and Exchange Commission and received by the Secretary of the
Company at the Company's principal executive offices no later than the close
of business on November 24, 1998.
OTHER MATTERS
All information contained in this Proxy Statement relating to the
occupations, affiliations and securities holdings of directors and officers of
the Company and their relationship and transactions with the Company is based
upon information received from the individual directors and officers. All
information relating to any beneficial owner of more than 5% of the Company's
Common Stock is based upon information contained in reports filed by such
owner with the Securities and Exchange Commission.
The Company's independent public accountants for the fiscal year 1997 are
Hein + Associates LLP. Representatives of such firm are expected to be present
at the annual meeting, will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
The Annual Report to Stockholders of the Company for the fiscal year ended
December 31, 1997, which includes financial statements and accompanies this
Proxy Statement, does not form any part of the material for the solicitation
of proxies.
The Company will furnish without charge a copy of its Annual Report on
Form 10-KSB, including the financial statements, for the fiscal year ended
December 31, 1997, filed with the Securities and Exchange Commission pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 to any
Stockholder (including any beneficial owner) upon written request to Kevin D.
Andrew, Chief Financial Officer, 1875 Lawrence Street, Suite 1100, Denver,
Colorado 80202. A copy of the exhibits to such report will be furnished to
any Stockholder upon written request and payment of a nominal fee.
19
EXHIBIT A
INFONOW CORPORATION
1990 STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF MARCH 28, 1997)
1. Purpose of the Plan.
This stock option plan (the "Plan") is intended to encourage ownership of
the stock of INFONOW CORPORATION, a Delaware corporation (the "Company"), by
employees of the Company and its subsidiaries, to induce qualified personnel
to enter and remain in the employ of the Company or its subsidiaries and
otherwise to provide additional incentive for optionees to promote the success
of its business.
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued or
treasury shares of the common stock, $.001 par value, of the Company ("Common
Stock") for which options may be granted under the Plan shall not exceed
2,200,000 shares, subject to adjustment as provided in Section 12 hereof.
(b) If an option granted or assumed hereunder shall expire or
terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for subsequent
option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the Plan
may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors of the Company
(the "Board").
3. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors (the
"Board") or by a committee composed solely of two or more directors
("Committee") each of whom is a Non-Employee Director. A Non-Employee
Director is a person who satisfies the definition of a "non-employee director"
set forth in Rule 16b-3 under the Exchange Act or any successor rule or
regulation, as it may be amended from time to time. The Committee or the
Board, as the case may be, shall have full authority to administer the Plan,
including authority to interpret and construe any provision of the Plan and
any stock options granted thereunder, and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with
the requirements of the Code or in order that stock options that are intended
to be incentive stock options will be classified as incentive stock options
under the Code, or in order to conform to any regulation or to any change in
any law or regulation applicable thereto. The Board shall have the power to
reprice and accelerate the vesting of stock options. The Board may reserve to
itself any of the authority granted to the Committee as set forth herein, and
it may perform and discharge all of the functions and responsibilities of the
Committee at any time that a duly constituted Committee is not appointed and
serving. All references in this Plan to the "Committee" shall be deemed to
refer to the Board whenever the Board is discharging the powers and
responsibilities of the Committee, and to any special committee appointed by
the Board to administer particular aspects of this Plan. All actions taken
and all interpretations and determinations made by the Committee in good faith
(including determinations of fair market value) shall be final and binding
upon all participants, the Company and all other interested persons. No
member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan,
and all members of the Committee shall, in addition to their rights as
directors, be fully protected by the Company with respect to any such action,
determination or interpretation.
(b) Rule 16b-3 under the Securities Exchange Act of 1934 (the "Act")
provides that the grant of a stock option to a director or officer of a
company will be exempt from the provisions of Section 16(b) of the Act if the
conditions set forth in said Rule are satisfied. Unless otherwise specified by
the Board, grants of options hereunder to individuals who are officers or
directors of the Company shall be made in a manner that satisfies the
conditions of said Rule.
4. Type of Options.
Options granted pursuant to the Plan shall be authorized by action of
the Board (or a committee designated by the Board) and may be designated as
either incentive stock options meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified
options which are not intended to meet the requirements of such Section 422 of
the Code, the designation to be in the sole discretion of the Board. Options
designated as incentive stock options that fail to continue to meet the
requirements of Section 422 of the Code shall be redesignated as non-qualified
options automatically without further action by the Board on the date of such
failure to continue to meet the requirements of Section 422 of the Code.
5. Eligibility.
Options designated as incentive stock options may be granted only to
officers and key employees (including directors who are employees) of the
Company or of any subsidiary corporation (herein called "subsidiary" or
"subsidiaries"), as defined in Section 424(f) of the Code and the Treasury
Regulations promulgated thereunder (the "Regulations"). Options designated as
non-qualified options may be granted to directors, officers and key employees
of, and consultants to, the Company or of any of its subsidiaries.
In determining the eligibility of an individual to be granted an option,
as well as in determining the number of shares to be optioned to any
individual, the Board shall take into account the position and
responsibilities of the individual being considered, the nature and value to
the Company or its subsidiaries of his or her service and accomplishments, his
or her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Board may deem relevant.
No option designated as an incentive stock option shall be granted to
any employee of the Company or any subsidiary if such employee owns,
immediately prior to the grant of an option, stock representing more than 10%
of the voting power or more than 10% of the value of all classes of stock of
the Company or a parent or a subsidiary (a "Ten-Percent Shareholder"), unless
the purchase price for the stock under such option shall be at least 110% of
its fair market value at the time such option is granted and the option, by
its terms, shall not be exercisable more than five (5) years from the date it
is granted. In determining the stock ownership under this paragraph, the
provisions of Section 424(d) of the Code shall be controlling. In determining
the fair market value under this paragraph, the provisions of Section
7 hereof shall apply.
6. Option Agreement.
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined
by the Board, including provisions for longer post-termination exercise
periods, provided that options designated as incentive stock options shall
meet all of the conditions for incentive stock options as defined in Section
422 of the Code. No option shall be granted within the meaning of the Plan and
no purported grant of any option shall be effective until the Agreement shall
have been duly executed on behalf of the Company and the optionee. More than
one option may be granted to an individual.
7. Option Price.
The option price or prices of shares of Common Stock for options
designated as non-qualified stock options shall be the fair market value of
Common Stock as determined by the Board. The option price or prices of shares
of Common Stock for incentive stock options shall be the fair market value of
such Common Stock at the time the option is granted as determined by the Board
in accordance with the Regulations promulgated under Section 422 of the Code.
If such shares are then listed on any national securities exchange, the fair
market value shall be the mean between the high and low sales prices, if any,
on the largest such exchange on the date of the grant of the option or, if
none, shall be determined by taking a weighted average of the means between
the highest and lowest sales on the nearest date before and the nearest date
after the date of grant in accordance with Treasury Regulations Section
25.2512-2. If such shares are not then listed on any such exchange, the fair
market value of such shares shall be the mean between the closing "Bid" and
the closing "Asked" prices, if any, as reported in the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") for the date of the
grant of the option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales on the nearest date
before and the nearest date after the date of grant in accordance with
Treasury Regulations Section 25.2512-2. If such shares are not then either
listed on any such exchange or quoted on NASDAQ, the fair market value shall
be the mean between the average of the "Bid" and the average of the "Asked"
prices, if any, as reported in the National Daily Quotation Service for the
date of the grant of the option, or, if none, shall be determined by taking a
weighted average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant in accordance
with Treasury Regulations Section 25.2512-2. If the fair market value cannot
be determined under the preceding three sentences, it shall be determined in
good faith by the Board.
8. Manner of Payment: Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price in the manner set forth in the Option Agreement or as otherwise
authorized by the Board, which shall be (i) delivery of cash or a check
payable to the order of the Company in an amount equal to the exercise price
of such options, (ii) delivery of shares of Common Stock of the Company owned
by the optionee having a fair market value equal in amount to the exercise
price of the options being exercised, (iii) having the Company withhold whole
shares of Common Stock issuable upon exercise of the stock option, as part or
full payment for the exercise of a stock option, or (iv) any combination of
(i), (ii) and (iii), provided, however, that payment of the exercise price by
delivery of shares of Common Stock owned by such optionee may be made only if
such payment does not result in a charge to earnings for financial accounting
purposes as determined by the Board. The fair market value of any shares of
Common Stock which may be delivered upon exercise of an option shall be
determined by the Board in accordance with Section 7 hereof. Pyramiding of
options is permitted in the sole discretion of the Board.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares
with respect to which the option is being exercised, accompanied by payment in
full for such shares as provided in subparagraph (a) above. Upon such
exercise, delivery of a certificate for paid-up non-assessable shares shall be
made at the principal office of the Company to the person or persons
exercising the option at such time, during ordinary business hours, not more
than thirty days (30) from the date of receipt of the notice by the Company,
as shall be designated in such notice, or at such time, place and manner as
may be agreed upon by the Company and the person or persons exercising the
option.
(c) With respect to any non-qualified option granted under the Plan,
the Company's obligation to deliver shares upon the exercise of such option
shall be subject to the option holder's satisfaction of all applicable
federal, state and local income and employment tax withholding requirements.
The Company and an employee optionee may agree to withhold shares of Common
Stock purchased upon exercise of an option to satisfy any such withholding
requirements.
9. Exercise of Options.
Each option granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, be exercisable at such time or times and during such period
as shall be set forth in the Agreement; provided, however, that no option
granted under the Plan shall have a term in excess of ten (10) years from the
date of grant.
To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall
be carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less
than 1,000 full shares of Common Stock.
10. Terms of Options: Exercisability.
(a) Term.
(1) Options granted under the Plan shall be for a term fixed by the
Board at the time of grant; provided, however, that each incentive stock
option granted to an employee other than a Ten-Percent Shareholder shall
expire not more than ten (10) years from the date of the granting thereof, and
shall be subject to earlier termination as herein provided.
(2) Each incentive stock option granted to a Ten Percent
Shareholder shall expire not more than five (5) years from the date of the
granting thereof, and shall be subject to earlier termination as herein
provided.
(3) Except as provided in this Section 10, an option designated as
an incentive stock option granted to any employee optionee who ceases to be an
employee of the Company or one of its subsidiaries shall terminate on the last
day of the month next following the month in which such optionee ceases to be
an employee of the Company or one of its subsidiaries, or on the date on which
the option expires by its terms, whichever occurs first. However, the Board,
at its discretion, may grant or modify the terms of non-incentive options
which by their terms expire at a later date.
(4) If such termination of employment is because of dismissal for
cause or because the employee is in breach of any employment agreement, such
option will terminate on the date the optionee ceases to be an employee of the
Company or one of its subsidiaries.
(5) If such termination of employment is because the optionee has
become permanently disabled (within the meaning of Section 22 of the Code),
such option shall terminate on the last day of the twelfth month from the date
such optionee ceases to be an employee, or on the date on which the option
expires by its terms, whichever occurs first.
(6) In the event of the death of any optionee, any option granted
to such optionee shall terminate on the last day of the twelfth month from the
date of death, or on the date on which the option expires by its terms,
whichever occurs first.
(b) Exercisability.
(1) Except as provided below, an option granted to an employee
optionee who ceases to be an employee of the Company or one of its
subsidiaries shall be exercisable only to the extent that the right to
purchase shares under such option has accrued and is in effect on the date
such optionee ceases to be an employee of the Company or one of its
subsidiaries.
(2) An option granted to an employee optionee who ceases to be an
employee of the Company or one of its subsidiaries because he or she has
become permanently disabled, as defined above, shall be exercisable for the
full number of shares covered by such option.
(3) In the event of the death of any optionee, the option granted
to such optionee may be exercised for the full number of shares covered
thereby, whether or not under provisions of Section 9 hereof the optionee was
entitled to do so at the date of his or her death, by the estate of such
optionee, or by any person or persons who acquired the right to exercise such
option by bequest or inheritance or by reason of the death of such optionee.
11. Assignability.
The right of any optionee to exercise any option granted to him or
her shall not be assignable or transferable by such optionee otherwise than by
will or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such optionee only by him. Notwithstanding
the preceding sentence, the Committee, in its sole discretion, may permit the
assignment or transfer of a nonstatutory stock option and the exercise thereof
by a person other than the optionee, on such terms and conditions as the
Committee in its sole discretion may determine. Any such terms shall be set
forth in the Option Agreement. Any option granted under the Plan shall be
null and void and without effect upon the bankruptcy of the optionee to whom
the option is granted, or upon any attempted assignment or transfer, except as
herein provided, including without limitation any purported assignment,
whether voluntary or by operation of law, pledge, hypothecation or other
disposition, attachment, trustee process or similar process, whether legal or
equitable, upon such option. The terms of any rights under this Plan in the
hands of a transferee or assignee shall be determined as if held by the
optionee and shall be of no greater extent or term than if the transfer or
assignment had not taken place.
12. Recapitalizations. Reorganizations and the Like.
In the event that the outstanding shares of Common Stock are changed
into or exchanged for a different number or kind of shares or other securities
of the Company or of another corporation by reason of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up,
combination of shares, or dividends payable in capital stock, appropriate
adjustment shall be made in the number and kind of shares as to which options
may be granted under the Plan and as to which outstanding options or portions
thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of
such options and with a corresponding adjustment in the option price per
share.
In addition, unless otherwise determined by the Board in its sole
discretion, in the case of any (i) sale or conveyance to another entity of all
or substantially all of the property and assets of the Company or (ii) Change
in Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the shareholders
of the Company as a result of such sale, conveyance or Change in Control, or
the Board may cancel all outstanding options in exchange for consideration in
cash or in kind which consideration in both cases shall be equal in value to
the value of those shares of stock or other securities the optionee would have
received had the option been exercised (to the extent then exercisable) and no
disposition of the shares acquired upon such exercise been made prior to such
sale, conveyance or Change in Control, less the option price therefor. Upon
receipt of such consideration by the optionee, his or her option shall
immediately terminate and be of no further force and effect. The value of the
stock or other securities the optionee would have received if the option had
been exercised shall be determined in good faith by the Board, and in the case
of shares of Common Stock, in accordance with the provisions of Section 7
hereof. The Board shall also have the power and right to accelerate the
exercisability of any options, notwithstanding any limitations in this Plan or
in the Agreement upon such a sale, conveyance or Change in Control. Upon such
acceleration, any options or portion thereof originally designated as
incentive stock options that no longer qualify as incentive stock options
under Section 422 of the Code as a result of such acceleration shall be
redesignated as non-qualified stock options. A "Change in Control" shall be
deemed to have occurred if any person, or any two or more persons acting as a
group, and all affiliates of such person or persons, who prior to such time
owned less than twenty-five percent (25%) of the then outstanding Common
Stock, shall acquire such additional shares of Common Stock in one or more
transactions, or series of transactions, such that following such transaction
or transactions, such person or group and affiliates beneficially own fifty
percent (50%) or more of Common Stock outstanding.
Upon dissolution or liquidation of the Company, all options granted
under this Plan shall terminate, but each optionee (if at such time in the
employ of or otherwise associated with the Company or any of its subsidiaries)
shall have the right, immediately prior to such dissolution or liquidation, to
exercise his or her option to the extent then exercisable.
If by reason of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization, or liquidation, the Board shall authorize
the issuance or assumption of a stock option or stock options in a transaction
to which Section 424(a) of the Code applies, then, notwithstanding any other
provision of the Plan, the Board may grant an option or options upon such
terms and conditions as it may deem appropriate for the purpose of assumption
of the old option, or substitution of a new option for the old option, in
conformity with the provisions of such Section 425(a) of the Code and the
Regulations thereunder, and any such option shall not reduce the number of
shares otherwise available for issuance under the Plan.
No fraction of a share shall be purchasable or deliverable upon the
exercise of any option, but in the event any adjustment hereunder of the
number of shares covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
13. No Special Employment Rights.
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any subsidiary) or interfere in
any way with the right of the Company (or any subsidiary), subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
option holder from the rate in existence at the time of the grant of an
option. Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Board at the time.
14. Restrictions on Issue of Shares.
(a) Notwithstanding the provisions of Section 8, the Company may delay
the issuance of shares covered by the exercise of any option and the delivery
of a certificate for such shares until one of the following conditions shall
be satisfied:
(1) The shares with respect to which such option has been exercised
are at the time of the issue of such shares effectively registered or
qualified under applicable federal and state securities acts now in force or
as hereafter amended; or
(2) Counsel for the Company shall have given an opinion, which
opinion shall not be unreasonably conditioned or withheld, that such shares
are exempt from registration and qualification under applicable federal and
state securities acts now in force or hereafter amended.
(b) It is intended that all exercises of options shall be effective,
and the Company shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or
a post effective amendment to any registration statement to be prepared for
the purpose of covering the issue of shares in respect of which any option may
be exercised, except as otherwise agreed to by the Company in writing.
15. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless the shares to be issued upon exercise of an option granted
under the Plan have been effectively registered under the Securities Act of
1933, as now in force or hereafter amended (the "1933 Act"), the Company shall
be under no obligation to issue any shares covered by any option unless the
person who exercises such option, in whole or in part, shall give a written
representation and undertaking to the Company which is satisfactory in form
and scope to counsel for the Company and upon which, in the opinion of such
counsel, the Company may reasonably rely, that he or she is acquiring the
shares issued pursuant to such exercise of the option for his or her own
account as an investment and not with a view to, or for sale in connection
with, the distribution of any such shares, and that he or she will make no
transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the 1933 Act, or any other applicable
law, and that if shares are issued without such registration, a legend to this
effect may be endorsed upon the securities so issued. In the event that the
Company shall, nevertheless, deem it necessary or desirable to register under
the 1933 Act or other applicable statutes any shares with respect to which an
option shall have been exercised, or to qualify any such shares for exemption
from the 1933 Act or other applicable statutes, then the Company may take such
action and may require from each optionee such information in writing for use
in any registration statement, supplementary registration statement,
prospectus, preliminary prospectus or offering circular as is reasonably
necessary for such purpose and may require reasonable indemnity to the Company
and its officers and directors from such holder against all losses, claims,
damages and liabilities arising from such use of the information so furnished
and caused by any untrue statement of any material fact therein or caused by
the omission to state a material fact requires to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
16. Loans.
The Company may make loans to optionees to permit them to exercise
options. If loans are made, the requirements of all applicable federal and
state laws and regulations regarding such loans must be met.
17. Modification of Outstanding Options.
The Board may authorize the amendment of any outstanding option with
the consent of the optionee when and subject to such conditions as are deemed
to be in the best interests of the Company and in accordance with the purposes
of the Plan.
18. Approval of Stockholders.
The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of the Company voting in
person or by proxy at a duly held stockholders meeting, or by written consent
of all of the stockholders, within twelve (12) months after the adoption of
the Plan by the Board and shall take effect as of the date of adoption by the
Board upon such approval. The Board may grant options under the Plan prior to
such approval, but any such option shall become effective as of the date of
grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.
19. Termination and Amendment of Plan.
Unless sooner terminated as herein provided, the Plan shall terminate
on February 22, 2000, ten (10) years from the date upon which the Plan was
duly adopted by the Board. The Board may at any time terminate the Plan or
make such modification or amendment thereof as it deems advisable; provided,
however, that except as provided in this Section 19, the Board may not,
without the approval of the stockholders of the Company obtained in the manner
stated in Section 18, increase the maximum number of shares for which options
may be granted or change the designation of the class of persons eligible to
receive options under the Plan. Termination or any modification or amendment
of the Plan shall not, without the consent of an optionee, affect his or her
rights under an option theretofore granted to him or her.
20. Reservation of Stock.
The Company shall at all times during the term of the Plan reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of the Plan and shall pay all fees and expenses
necessarily incurred by the Company in connection therewith.
21. Limitation of Rights in the Option Shares.
An optionee shall not be deemed for any purpose to be a stockholder
of the Company with respect to any of the options except to the extent that
the option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
22. Notices.
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on
the records of the Company.
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