<PAGE>
SCHEDULE 14(a) INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential for use of the Commission only (as
permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
SPATIALIGHT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
SPATIALIGHT, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No Fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee paid
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
SPATIALIGHT, INC.
9 Commercial Boulevard, Suite 200
Novato, California 94949
May 28, 1999
Dear Shareholder:
This year's annual meeting of shareholders will be held on Monday, June
21, 1999 at 10:00 a.m., Pacific Daylight time, at the Embassy Suites Hotel,
101 McInnis Parkway, San Rafael, California 94903. You are cordially invited to
attend.
The Notice of Annual Meeting of Shareholders and Proxy Statement, which
describe the formal business to be conducted at the meeting, follow this letter.
After reading the Proxy Statement, please promptly mark, sign, and
return the enclosed proxy in the prepaid envelope to assure that your shares
will be represented. Your shares cannot be voted unless you date, sign and
return the enclosed proxy or attend the annual meeting in person. Regardless of
the number of shares you own, your careful consideration of, and vote on, the
matters before our shareholders are important.
A copy of the Company's 1998 Annual Report also is enclosed.
The Board of Directors and Management look forward to seeing you at the
annual meeting.
Very truly yours,
/s/ Michael H. Burney
Chief Executive Officer, Secretary
and Treasurer
<PAGE>
SPATIALIGHT, INC.
9 Commercial Boulevard, Suite 200
Novato, California 94949
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 21, 1999
- --------------------------------------------------------------------------------
Dear Shareholders:
Notice is hereby given that the 1999 Annual Meeting of Shareholders of
SpatiaLight, Inc. will be held on Monday, June 21, 1999, at 10:00 a.m.,
California time, at the Embassy Suites Hotel, 101 McInnis Parkway, San Rafael,
California 94903, for the following purposes:
1. To elect four (4) directors to serve for the ensuing year and
until their successors are elected and qualified.
2. To amend the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of common stock of the
Company from 20,000,000 to 40,000,000.
3. To consider and act upon a proposal to approve the adoption of
the Company's 1999 Stock Option Plan.
4. To transact such other business as may properly come before the
meeting or any adjustments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Shareholders of record at the close of business on May 3, 1999 are
entitled to notice of, and to vote at the 1999 Annual Meeting of Shareholders
and any adjournments thereof. A Stockholder may only vote at the meeting if the
holder is present or represented by proxy. A copy of the Company's 1998 Annual
Report to Shareholders, which includes certified financial statements, is
enclosed. Management cordially invites you to attend the 1999 Annual Meeting of
Shareholders.
By order of the Board of Directors
Michael H. Burney
SECRETARY
Novato, California
May 28, 1999
IMPORTANT:
SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY.
A POSTAGE-PAID ENVELOPE IS PROVIDED FOR MAILING IN THE UNITED STATES.
<PAGE>
SPATIALIGHT, INC.
9 Commercial Boulevard, Suite 200
Novato, California 94949
- --------------------------------------------------------------------------------
PROXY STATEMENT
- --------------------------------------------------------------------------------
SOLICITATION AND VOTING OF PROXIES
The accompanying proxy is solicited by the Board of Directors of
SpatiaLight, Inc., a New York corporation (the "Company"), for use at the 1999
Annual Meeting of Shareholders to be held on Monday, June 21, 1999, at 10:00
a.m., Pacific Daylight time (the "Annual Meeting"), or any adjournment
thereof, for the purposes set forth in the accompanying Notice of Annual Meeting
of Shareholders. The Annual Meeting will be held at the Embassy Suites Hotel,
101 McInnis Parkway, San Rafael, California 94903. These proxy materials and the
Annual Report herein to Shareholders for the year ended December 31, 1998, were
first mailed on or about May 28, 1999, to Shareholders of record at the close of
business on May 3, 1999 (the "Record Date"). The Company had 11,611,380 shares
of common stock outstanding, par value $.01 per share ("Common Stock"), as of
the close of business on the Record Date. Only Shareholders of record on the
Record Date will be entitled to vote at the Annual Meeting. The holders of a
majority of the issued and outstanding Common Stock entitled to vote, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business at the Annual Meeting.
Each stockholder is entitled to one (1) vote per share on the proposals
presented in this Proxy Statement, as well as on all other matters that may be
properly considered at the Annual Meeting. All valid proxies received prior to
the Annual Meeting will be voted in accordance with the specifications or
directions indicated on the proxy. A stockholder giving the enclosed proxy has
the power to revoke it at any time prior to the time it is voted, by either (i)
attending the Annual Meeting and voting in person; (ii) duly executing and
delivering a proxy bearing a later date; or (iii) sending written notice of
revocation to the Secretary of the Company at 9 Commercial Boulevard, Suite 200,
Novato, California 94949. Votes cast by proxy or in person at the Annual Meeting
will be tabulated by the inspector of elections appointed for the meeting, who
will separately tabulate affirmative and negative votes, abstentions and broker
non-votes. Abstentions and broker non-votes will be counted for purposes of
determining a quorum, but will not be counted for any purpose in determining
whether a matter has been approved.
The Company may retain an outside firm to assist in the solicitation
of proxies from brokers, nominees, institutions and individuals. The cost of
soliciting proxies will be borne by the Company. The Company will request
banks, brokers and other custodians, nominees and fiduciaries, to solicit
their customers who have stock of the Company registered in the names of such
persons, and will reimburse them for their reasonable, out-of-pocket costs.
In addition to soliciting Shareholders by mail, proxies may be solicited by
the Company's officers and directors by personal interview, telephone, or
facsimile without additional compensation.
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<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
A Board of Directors consisting of four Directors is proposed to be
elected by the shareholders at the Annual Meeting, with each director to hold
office until the next Annual Meeting and until his successor is duly elected and
qualified. Pursuant to the Company's By-Laws, the number of directors that may
be authorized has been fixed by the Board of Directors at five to nine
directors.
The Board of Directors recommends the election of the following four
nominees: Michael H. Burney, Robert A. Olins, Lawrence J. Matteson, each of
which are current directors of the Company, and Steven F. Tripp. Information
about these nominees is provided below.
The Board of Directors does not contemplate that any of the nominees
will be unable to serve as a director, but should any such nominees so notify
the Company of the nominee's unavailability prior to the voting of the proxies,
the persons named in the enclosed proxy reserve the right to vote for such
substitute nominee or nominees as they, in their sole discretion, shall
determine.
Unless authority to vote for one or more of the director nominees is
specifically withheld according to the instructions, proxies which are executed
and returned to the Company prior to the Annual Meeting in the enclosed form
will be voted for the election of each of the four nominees named below. The
proxy solicited by the Board of Directors will be so voted unless shareholders
specify a contrary choice therein. The affirmative vote of a plurality of the
votes cast at the meeting shall be required to elect directors.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
Information concerning the names, ages, terms, positions and offices
held with the Company, and business experience of the Company's current
directors and nominees is set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- --------
<S> <C> <C> <C>
Michael H. Burney.................. 46 Director, Chief Executive 1996
Officer, Treasurer, and
Secretary
Robert A. Olins.................... 42 Director 1998
Lawrence J. Matteson............... 59 Director 1991
Steven F. Tripp.................... 30 Nominee
</TABLE>
MICHAEL H. BURNEY Director, Chief Executive Officer, Treasurer and
Secretary, is also the Founder, Chairman and CEO of Chronomotion Imaging, a
private R & D company developing a patented process for producing Volumetric
Visualizations using electronic holography. Mr. Burney was the Vice President
Treasury for Packard Bell Electronics from 1990 to 1995 and he was a member of
the General Management Consulting / Financial Services Group of Ernst & Young
from 1987 to 1990. Mr. Burney has received 3 U.S. patents and 15 international
patents on the electronic holography process, which is the basis of
Chronomotion's intellectual property. Mr. Burney received his BA from Pomona
College and his MBA from University of Southern California.
3
<PAGE>
ROBERT A. OLINS has served as Director since February 20, 1998. Mr.
Olins has served as President of Argyle Capital Management Corporation during
the past fourteen years. Argyle Capital Management Corporation is a private
investment advisory company.
LAWRENCE J. MATTESON served as Chairman of the Board from May 23, 1995
to June 20, 1997. He has been a Director since October 1991 and currently he is
an executive professor of business policy at the William E. Simon Graduate
School of Business Administration, University of Rochester. Mr. Matteson was
Senior Vice President and General Manager, Electronic Imaging for Kodak until
December 1, 1991. Mr. Matteson began his career with Kodak in 1965 as a research
engineer and has worked at Kodak in various positions continuously from that
date until December 1, 1991. He holds degrees in engineering and an MBA from the
University of Rochester Graduate School of Business.
STEVEN F. TRIPP is President and CEO of KnoWare, Inc. KnoWare is a
privately held software development company focused on internet based check
image and check fraud detection software for financial institutions. Mr. Tripp
was Owner and Vice President of Document Solutions from 1990 to 1998. Mr. Tripp
has worked in the software development industry for 10 years with a primary
focus on digital imaging.
OTHER DIRECTORSHIP; TERM OF OFFICE.
None of the Company's directors is a director of any other company with
a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, or of any company registered under the
Investment Company Act of 1940, as amended.
All directors serve for a term of one year and until their successors
are duly elected. All officers serve at the discretion of the Board of
Directors. Two of the current directors of the Company were elected at the June
20, 1997 annual meeting of the Company's shareholders. Mr. Robert Olins was
appointed to the Board of Directors in February 1998. Mr. William E. Hollis and
Mr. L. John Loomis resigned from the Board in July 1998 and August 1998,
respectively. Mr. Lanum is not standing for re-election to the Board of
Directors.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES.
During the year ended December 31, 1998, the Board of Directors held
nine meetings. None of the Company's Directors attended fewer than 75% of the
total number of meetings of the Board and all the committees of the Board of
Directors on which such director served during that period.
The Company maintains an Audit Committee, a Compensation Committee, and
an Executive Committee. The Company does not have a standing Nominating
Committee.
The Audit Committee's function is to review, with the Company's
independent auditors and management, the results of the examination of the
Company's financial statements by the independent auditors and the independent
auditor's opinion. The Audit Committee also approves all professional services
performed by the independent auditors, recommends the retention of the
independent auditors, recommends the retention of the independent auditors to
the Board, subject to ratification by the shareholders, and periodically reviews
the Company's accounting policies and internal accounting and financial
controls. From January 1 through June 30, 1998 the members of the Audit
Committee were Mr. Burney and Mr. Matteson. During the year ended December 31,
1998, the Audit
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Committee held one meeting.
The Compensation Committee's function is to review and recommend
executive compensation, including officer salary levels, incentive compensation
programs, and stock option grants. From January 1 through June 30, 1998 the
members of the Compensation Committee are Mr. Matteson and Mr. Burney. During
the year ended December 31, 1998, the Compensation Committee held two meetings.
The Executive Committee's function is to review operational matters,
including audit and compensation issues of the Company and recommend operational
activity to management. The members of the Executive Committee are Messrs.
Burney, Matteson and Olins. During the year ended December 31, 1998, the
Executive Committee held 20 meetings.
COMPENSATION OF DIRECTORS.
Non-management directors are paid $500 for each board meeting attended.
Directors who are also full-time employees are not paid directors' fees. Mr.
Lawrence Matteson has a consulting contract the Company for $2,000 per month and
does not receive any payment for attending Board meetings. Mr. Robert Olins has
declined payment for attending Board meetings and does not receive any payment
for attending Board meetings.
REQUIRED VOTE
Four (4) persons have been nominated by the Board of Directors for
election as directors at the Annual Meeting to serve until the next Annual
Meeting and until their respective successors are elected or appointed. The four
(4) nominees receiving the highest number of votes at the Annual Meeting will be
elected as directors of the Company.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ALL OF THE
NOMINEES LISTED ABOVE.
5
<PAGE>
PROPOSAL NO. 2
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
GENERAL
The Company's Restated Certificate of Incorporation, as amended (the
"Certificate"), currently authorizes the issuance by the Company of up to
20,000,000 shares of Common Stock $0.01 par value per share. On April 12, 1999,
the Company's Board of Directors authorized an amendment to the Certificate to
increase the number of authorized shares of Common Stock $0.01 par value per
share to 40,000,000. New York law requires approval of the holders of a majority
of the Company's outstanding shares entitled to vote at the annual meeting prior
to the filing and effectiveness of the amended Certificate.
PURPOSE AND EFFECT OF AMENDMENT
The principal purpose of the proposed amendment to the Certificate is
to provide the Company with increased flexibility to pursue various corporate
finance or strategic opportunities for expansion of the Company's business.
These opportunities include:
- Establishing strategic relationships by issuing authorized but unissued
shares of the Company's Common Stock in connection with additional
business arrangements between the Company and its strategic partner(s);
and,
- Funding equity compensation programs designed to attract, retain and
motivate the Company's management and key personnel.
In determining to increase the Company's authorized Common Stock from
20,000,000 to 40,000,000, the Board considered the significant extent to which
the existing authorized pool of Common Stock was already encumbered. As of May
3, 1999, the allocation of the currently authorized pool of Common Stock, as
adjusted to reflect authorized shares to be reserved pursuant to Proposal No. 3
("Approval of Adoption of 1999 Stock Option Plan") was as follows:
<TABLE>
<S> <C>
Reserved for future grant or issuance upon exercise of outstanding
options under the proposed 1999 Stock Option Plan: 2,000,000
Common Stock outstanding: 11,611,380
Reserved for future grant or issuance upon exercise of outstanding
options under the 1993 Stock Option Plan: 1,415,000
Reserved for future grant or issuance upon exercise of outstanding
options under the 1991 Stock Option Plan: 500,000
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Reserved for future grant or issuance upon exercise of outstanding
options under the 1993 Non-Statutory Directors Stock Option Plan: 85,000
Reserved for future grant or issuance upon exercise of outstanding
options under the Non-Statutory Stock Option Agreement for
Consultants: 10,000
TOTAL OUTSTANDING AND ENCUMBERED SHARES: 15,621,380
</TABLE>
If the proposed amendment is adopted, an additional 20,000,000 shares
of Common Stock will be available for issuance by the Board without further
stockholder approval at such times, for such purposes and for such consideration
as the Board may determine to be appropriate, although certain issuances may
require stockholder approval in accordance with the requirements of the the New
York General Corporation Law. The holders of Common Stock have no preemptive
rights to purchase any stock of the Company, and additional shares might be
issued at such times and under such circumstances as to have a dilutive effect
on earnings per share and on the equity ownership of the present common
Shareholders.
The flexibility of the Board of Directors to issue additional shares of
stock could enhance the board's ability to negotiate on behalf of the
Shareholders in a takeover situation. Although not the purpose of the proposed
amendment, the authorized but unissued shares of Common Stock also could be used
by the Board to discourage, delay or complicate a change in control of the
Company. For example, such shares could be privately placed with purchasers who
might align themselves with the board in opposing a hostile takeover bid. The
issuance of additional shares might serve to dilute the stock ownership position
of persons seeking to obtain control and thereby increase the cost of acquiring
a given percentage of the outstanding stock. The Company has previously adopted
certain measures that may have the effect of helping to resist an unsolicited
takeover attempt, including provisions in the [Stock Option Plans with such
provisions, including proposed 1999 Plan] providing for the acceleration of
exercisability of outstanding options in the event of a sale of assets or merger
at the discretion of the Company's Compensation Committee. The Board of
Directors is not aware of any pending or proposed effort to acquire control of
the Company.
REQUIRED VOTE
The approval of the amendment to the Certificate requires the
affirmative vote of a majority of the outstanding shares of Common Stock of the
Company. An abstention or non-vote is not an affirmative vote and, accordingly,
will have the same effect as a vote against the proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO AUTHORIZE AN ADDITIONAL
20,000,000 SHARES OF COMMON STOCK.
7
<PAGE>
PROPOSAL NO. 3
APPROVAL OF ADOPTION OF 1999 STOCK OPTION PLAN
At the annual meeting, the shareholders will be asked to approve the
SpatiaLight 1999 Stock Option Plan (the "1999 Option Plan"). The 1999 Option
Plan was adopted by the Board of Directors on April 12, 1999, to become
effective upon the date of its approval by shareholders (the "Effective
Date"). The 1999 Plan is intended to replace the Company's 1993 Non-Statutory
Employee Stock Option Plan, and the 1993 Non-Statutory Directors Stock Option
Plan and the 1991 Stock Option Plan (the "Prior Plans").
Competition for highly qualified individuals in the Company's industry
is intense. To successfully attract and retain the best possible candidates for
positions of responsibility within the Company, the Board of Directors believes
that the Company must continue to offer a competitive equity incentive program.
The Board expects that the 1999 Option Plan will be an important factor in
attracting and retaining the high caliber employees, directors and consultants
essential to the success of the Company and in motivating these individuals to
strive to enhance the Company's growth and profitability. The proposed 1999
Option Plan is intended to ensure that the Company will continue to have
available a reasonable number of shares to meet these goals. It authorizes the
issuance of up to 2,000,000 shares of the Company's Common Stock (subject to
adjustment for certain changes in the capital structure of the Company).
The 1999 Option Plan is also designed to preserve the Company's ability
to deduct in full for federal income tax purposes the compensation recognized by
its executive officers in connection with options granted under the plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
sets a limit of $1 million on the amount of compensation paid to each of the
Company's chief executive officer and four other most highly compensated
executive officers that the Company may deduct as an expense for federal income
tax purposes. In combination with other types of compensation received by these
employees, it is possible that their option-related compensation could exceed
this limit in a particular year. However, Section 162(m) exempts certain
"performance-based compensation" from this limit. To permit compensation
attributable to options granted under the 1999 Option Plan to qualify as
performance-based compensation, the 1999 Option Plan limits the number of shares
for which options may be granted in any fiscal year to any employee, including
the Company's executive officers, to a maximum of 500,000. This grant limit is
subject to appropriate adjustment in the event of certain changes in the
Company's capital structure.
SUMMARY OF THE 1999 OPTION PLAN
The following summary of the 1999 Option Plan is qualified in its
entirety by the specific language of the 1999 Option Plan, a copy of which is
available to any shareholder upon request.
GENERAL. The purpose of the 1999 Option Plan is to advance the
interests of the Company and its shareholders by providing an incentive to
attract, retain and reward the Company's employees, directors and consultants
and by motivating such persons to contribute to the Company's growth and
profitability. The 1999 Option Plan provides for the grant to employees of
incentive stock options within the meaning of Section 422 of the Code and the
grant to employees, directors and consultants of non-statutory stock options.
SHARES SUBJECT TO PLAN. A maximum of 4,000,000 of the authorized but
unissued or reacquired shares of Common Stock of the Company may be issued
under the 1999 Option Plan (the "Share Reserve"). However, the Share Reserve,
determined at any time, is reduced by the number of shares (a) which remain
subject to options granted under the Prior Plans or (b) were acquired upon
exercise of such option after the date on which the 1999 Option was approved
by the Board. However, in order
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<PAGE>
to comply with the requirements of the exemption under Section 162(m) of the
Code for performance-based compensation, the 1999 Option Plan provides that no
employee may be granted in any fiscal year of the Company options which in the
aggregate are for more than 500,000 shares (the "Grant Limit"). Appropriate
adjustments will be made to the shares subject to the 1999 Option Plan, the
Grant Limit, the automatic grants to Directors who sit on the Audit and
Compensation Committees discussed below and to outstanding options upon any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company. If
any outstanding option expires, terminates or is canceled, or if shares acquired
pursuant to an option are repurchased by the Company at their original exercise
price, the expired or repurchased shares are returned to the 1999 Option Plan
and again become available for grant.
ADMINISTRATION. The 1999 Option Plan will be administered by the Board
of Directors or a duly appointed committee of the Board, which, in the case of
options intended to qualify for the performance-based compensation exemption
under Section 162(m) of the Code, must be comprised solely of two or more
"outside directors" within the meaning of Section 162(m). (For purposes of this
discussion, the "Board" shall refer to either the Board of Directors or such
committee thereof.) Subject to the provisions of the 1999 Option Plan, the Board
determines the persons to whom options are to be granted, the number of shares
to be covered by each option, whether an option is to be an incentive stock
option or a nonstatutory stock option, the timing and terms of exercisability
and vesting of each option, the purchase price and the type of consideration to
be paid to the Company upon the exercise of each option, the time of expiration
of each option, and all other terms and conditions of the options. The Board may
amend, modify, extend, cancel, renew, or grant a new option in substitution for,
any option, waive any restrictions or conditions applicable to any option, and
accelerate, continue, extend or defer the exercisability or vesting of any
option, including with respect to the period following an optionee's termination
of service with the Company. The 1999 Option Plan provides, subject to certain
limitations, for indemnification by the Company of any director, officer or
employee against all reasonable expenses, including attorneys' fees, incurred in
connection with any legal action arising from such person's action or failure to
act in administering the plan The Board will interpret the 1999 Option Plan and
options granted thereunder, and all determinations of the Board will be final
and binding on all persons having an interest in the 1999 Option Plan or any
option.
ELIGIBILITY. Options may be granted under the 1999 Option Plan to
employees , directors and consultants of the Company or of any present or
future parent or subsidiary corporations of the Company. In addition, options
may be granted to prospective service providers in connection with written
employment offers, provided that no shares may be purchased prior to such
person's commencement of service. As of May 3, 1999, the Company had
approximately 15 employees, including 3 executive officers, and 4 directors
and 3 consultants who would be eligible under the 1999 Option Plan. While any
eligible person may be granted a non-statutory stock option, only employees
may be granted incentive stock options.
TERMS AND CONDITIONS OF OPTIONS. Each option granted under the 1999
Option Plan is evidenced by a written agreement between the Company and the
optionee specifying the number of shares subject to the option and the other
terms and conditions of the option, consistent with the requirements of the
plan. The exercise price of each incentive stock option may not be less than
the fair market value of a share of the Common Stock on the date of grant,
while the exercise price of a non-statutory stock option may not be less than
85% of such fair market value. However, any option granted to a person who at
the time of grant owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company (a "Ten Percent Shareholder") must have
an exercise price equal to at least 110% of the fair market value of a share
of
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<PAGE>
Common Stock on the date of grant. As of May 3, 1999 the closing price of the
Company's Common Stock, as reported on the Nasdaq OTC/Bulletin Board, was $5.25
per share.
The 1999 Option Plan provides that the option exercise price may be
paid in cash, by check, or in cash equivalent, by the assignment of the proceeds
of a sale or loan with respect to some or all of the shares being acquired upon
the exercise of the option, to the extent legally permitted, by tender of shares
of Common Stock owned by the optionee having a fair market value not less than
the exercise price or by means of a promissory note if the optionee is an
employee, by such other lawful consideration as approved by the Board, or by any
combination of these. Nevertheless, the Board may restrict the forms of payment
permitted in connection with any option grant. No option may be exercised unless
the optionee has made adequate provision for federal, state, local and foreign
taxes, if any, relating to the exercise of the option.
Options will become vested and exercisable at such times or upon
such events and subject to such terms, conditions, performance criteria or
restrictions as specified by the Board. The maximum term of an option granted
under the 1999 Option Plan is ten years, provided that an incentive stock
option granted to a Ten Percent Shareholder must have a term not exceeding
five years. An option generally will remain exercisable for thirty days
following the optionee's termination of service, provided that if termination
results from the optionee's death or disability, the option generally will
remain exercisable for six months. In any event the option must be exercised
no later than its expiration date. The Board, in its discretion, may provide
for longer post-service exercise periods in particular instances. Options are
nontransferable by the optionee other than by will or by the laws of descent
and distribution, and are exercisable during the optionee's lifetime only by
the optionee.
CHANGE IN CONTROL. The 1999 Option Plan defines a "Change in Control"
of the Company as any of the following events upon which the shareholders of the
Company immediately before the event do not retain immediately after the event,
in substantially the same proportions as their ownership of shares of
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<PAGE>
the Company's voting stock immediately before the event, direct or indirect
beneficial ownership of more than 50% of the total combined voting power of
the stock of the Company or its successor: (i) a sale or exchange by the
shareholders in a single or series of related transactions of more than 50%
of the Company's voting stock; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company. If a Change in Control occurs, the surviving,
continuing, successor or purchasing corporation or parent corporation thereof
may either assume the Company's rights and obligations under the outstanding
options or substitute substantially equivalent options for such corporation's
stock. To the extent that the outstanding options are not assumed, replaced
or exercised prior to the Change in Control, they will terminate.
TERMINATION OR AMENDMENT. The 1999 Option Plan will continue in
effect until the earlier of its termination by the Board or the date on which
all shares available for issuance under the plan have been issued and all
restrictions on such shares under the terms of the plan and the agreements
evidencing options granted under the plan have lapsed, provided that all
options must be granted within ten years of the date on which the Board
adopted the 1999 Option Plan. The Board may terminate or amend the 1999
Option Plan at any time. However, without shareholder approval, the Board may
not amend the 1999 Option Plan to increase the total number of shares of
Common Stock issuable thereunder, change the class of persons eligible to
receive incentive stock options, or effect any other change that would
require shareholder approval under any applicable law, regulation or rule. No
termination or amendment may adversely affect an outstanding option without
the consent of the optionee, unless the amendment is required to preserve an
option's status as an incentive stock option or is necessary to comply with
any applicable law, regulation or rule.
SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary is intended only as a general guide as to the
U.S. federal income tax consequences under current law of participation in the
1999 Option Plan and does not attempt to describe all possible federal or other
tax consequences of such participation or tax consequences based on particular
circumstances.
INCENTIVE STOCK OPTIONS. An optionee recognizes no taxable income
for regular income tax purposes as a result of the grant or exercise of an
incentive stock option qualifying under Section 422 of the Code. Optionees
who do not dispose of their shares for two years following the date the
option was granted nor within one year following the exercise of the option
will normally recognize a capital gain or loss equal to the difference, if
any, between the sale price and the purchase price of the shares. If an
optionee satisfies such holding periods upon a sale of the shares, the
Company will not be entitled to any deduction for federal income tax
purposes. If an optionee disposes of shares within two years after the date
of grant or within one year from the date of exercise (a "disqualifying
disposition"), the difference between the fair market value of the shares on
the exercise date (see discussion under "Non-statutory Stock Options" below)
and the option exercise price (not to exceed the gain realized on the sale if
the disposition is a transaction with respect to which a loss, if sustained,
would be recognized) will be taxed as ordinary income at the time of
disposition. Any gain in excess of that amount will be a capital gain. If a
loss is recognized, there will be no ordinary income, and such loss will be a
capital loss. The tax rate applicable to any capital gain will depend upon a
number of factors, including the date on which
11
<PAGE>
the optionee acquired the shares, the optionee's holding period, and the
optionee's ordinary income marginal tax rate. Any ordinary income recognized by
the optionee upon the disqualifying disposition of the shares generally should
be deductible by the Company for federal income tax purposes, except to the
extent such deduction is limited by applicable provisions of the Code or the
regulations thereunder.
The difference between the option exercise price and the fair market
value of the shares on the exercise date of an incentive stock option (see
discussion under "Nonstatutory Stock Options" below) is treated as an
adjustment in computing the optionee's alternative minimum taxable income and
may be subject to an alternative minimum tax which is paid if such tax
exceeds the regular tax for the year. Special rules may apply with respect to
certain subsequent sales of the shares in a disqualifying disposition,
certain basis adjustments for purposes of computing the alternative minimum
taxable income on a subsequent sale of the shares and certain tax credits
which may arise with respect to optionees subject to the alternative minimum
tax.
NONSTATUTORY STOCK OPTIONS. Options not designated or qualifying as
incentive stock options will be nonstatutory stock options having no special
tax status. An optionee generally recognizes no taxable income as the result
of the grant of such an option. Upon exercise of a nonstatutory stock option,
the optionee normally recognizes ordinary income in the amount of the
difference between the option exercise price and the fair market value of the
shares on the determination date (as defined below). If the optionee is an
employee, such ordinary income generally is subject to withholding of income
and employment taxes. Upon the sale of stock acquired by the exercise of a
nonstatutory stock option, any gain or loss, based on the difference between
the sale price and the fair market value on the exercise date, will be taxed
as capital gain or loss. The tax rate applicable to any capital gain will
depend upon a number of factors, including the date on which the optionee
acquired the shares, the optionee's holding period, and the optionee's
ordinary income marginal tax rate. No tax deduction is available to the
Company with respect to the grant of a nonstatutory stock option or the sale
of the stock acquired pursuant to such grant. The Company generally should be
entitled to a deduction equal to the amount of ordinary income recognized by
the optionee as a result of the exercise of a nonstatutory stock option,
except to the extent such deduction is limited by applicable provisions of
the Code or the regulations thereunder.
NEW PLAN BENEFITS
No options will be granted under the 1999 Option Plan prior to its
approval by the shareholders of the Company. Future grants under the 1999
Option Plan will be made at the discretion of the Board, and, accordingly,
are not yet determinable. In addition, benefits under the 1999 Option Plan
will depend on a number of factors, including the fair market value of the
Company's Common Stock on future dates and the exercise decisions made by the
optionees. Consequently it is not possible to determine the benefits that
might be received by optionees receiving grants under the 1999 Option Plan.
VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
The affirmative vote of a majority of the shares represented and voting
at the Annual Meeting, provided that a quorum is present and that the shares
voting affirmatively constitute at least a majority of a quorum, shall be
required to approve the 1999 Option Plan.
The Board of Directors believes that adoption of the proposed 1999
Option Plan is in the best interests of the Company and the shareholders for the
reasons stated above. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE PROPOSAL TO APPROVE THE 1999 OPTION PLAN.
12
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's capital stock, as of May 3, 1999, (i) by
each person who is known by the Company to own beneficially more than 5% of the
Company's capital stock, (ii) by each of the executive officers mentioned in the
tables under "Executive Compensation" and by each of the Company's directors,
and (iii) by all officers and directors as a group.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Argyle Capital Management Corporation 2,533,158 (2) 17.9
Robert A. Olins
14 East 82nd
New York, New York 10028
----------------------------------------------------------------------------------------------------------
Raymond L. Bauch 1,956,600 (1) 16.9
14 Office Drive Park, Suite 1
Palm Coast, FL 32137
----------------------------------------------------------------------------------------------------------
Sabotini, Ltd 2,060,000 (3) 16.3
C/O Wychwood Trust Ltd.
1 Castle St.
Castletown
Isle of Man, British Isles
----------------------------------------------------------------------------------------------------------
Steven Francis Tripp 2,151,600 (4) 15.6
Noteholder Representative
2021 Brook Highland Ridge
Birmingham, Alabama 35242
----------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jalcanto, Ltd. 1,267,500 (5) 10.7
C/O Wychwood Trust Ltd.
1 Castle St.
Castletown
Isle of Man, British Isles
----------------------------------------------------------------------------------------------------------
Michael H. Burney 24,230 (6) *
9 Commercial Blvd., Suite 200
Novato, CA 94949
----------------------------------------------------------------------------------------------------------
Fred R. Hammett 0 *
9 Commercial Blvd., Suite 200
Novato, CA 94949
----------------------------------------------------------------------------------------------------------
Miles L. Scott 0 *
9 Commercial Blvd., Suite 200
Novato, CA 94949
----------------------------------------------------------------------------------------------------------
Lawrence J. Matteson 17,500 (7) *
9 Commercial Blvd., Suite 200
Novato, CA 94949
----------------------------------------------------------------------------------------------------------
Asa Lanum 12,500 (8) *
9 Commercial Blvd., Suite 200
Novato, CA 94949
----------------------------------------------------------------------------------------------------------
All directors and officers as a group 60,000 *
(6 persons)
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
* Represents less than 1%
----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon a total of 11,611,380 shares outstanding as of May 3, 1999.
(2) Includes 2,520,658 shares beneficially owned by Argyle Capital Management
Corporation subject to issuance upon conversion of convertible notes held
by Argyle Capital Management, of which Mr. Olins is President and over
which Mr. Olins exercises voting control. Also includes 12,500 shares
subject to outstanding stock options held by Mr. Olins that are
exercisable within 60 days of May 3, 1999.
14
<PAGE>
(3) Based solely upon information filed in a Schedule 13D by the named
shareholder. To the Company's knowledge, Shaun F. Cairns and Paul A.
Bell are the sole directors of the named shareholder. As such, Mr.
Cairns and/or Mr. Bell may be deemed to be the beneficial owner(s) of
the shares of the Company's Common Stock held by the named shareholder.
Includes 992,500 shares subject to warrants exercisable within 60 days
of May 3, 1999.
(4) Based solely upon information filed on Schedule 13D by the named
shareholder on March 9, 1999, which amended the Schedule 13D filed on
November 25, 1998. These Schedule 13Ds were filed when certain
investors, who may be deemed to be a "Group" for purposes of Section
13(d)(3) of the Securities Exchange Act of 1934 purchased Convertible
Secured Notes of the Company that are convertible into common stock of
the Company within 60 days of May 3, 1999. To date, none of these
Convertible Secured Notes have been converted into shares of common
stock of the Company.
(5) Based solely upon information filed in a Schedule 13D by the named
shareholder. To the Company's knowledge, Shaun F. Cairns and Paul A.
Bell are the sole directors of the named shareholder. As such, Mr.
Cairns and/or Mr. Bell may be deemed to be the beneficial owner(s) of
the shares of the Company's Common Stock held by the named shareholder.
Includes 200,000 shares subject to warrants exercisable within 60 days
of May 3, 1999.
(6) Includes 17,500 shares subject to options exercisable within 60 days of
May 3, 1999.
(7) Includes 17,500 shares subject to options exercisable within 60 days of
May 3, 1999.
(8) Includes 12,500 shares subject to options exercisable within 60 days of
May 3, 1999.
15
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
during the fiscal years ended December 31, 1998, 1997 and 1996, for those
persons who served as (i) chief executive officer during 1998; (ii) the four
most highly compensated executive officers as of December 31, 1998 other than
the Chief Executive Officer; and (iii) two former executive officers that would
have been among the most highly compensated executive officers had they been
serving in an executive capacity at December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS (#)
--------------------------- ---- ------ ----------------
<S> <C> <C> <C>
Michael H. Burney, CEO, Treasurer/Secretary 1998 $63,654 525,000
William E. Hollis, Former Chairman & CEO 1998 $170,559 280,000
1997 $126,154 420,000
1996 $105,081 60,000
</TABLE>
STOCK OPTION GRANTS
The following table sets forth certain information for the year ended
December 31, 1998 with respect to stock options granted to the individuals named
in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael H. Burney 500,000 31% $0.75 11/06/08
William E. Hollis 0 0% 0 0
</TABLE>
16
<PAGE>
OPTION EXERCISES AND FISCAL 1998 YEAR END VALUES
The following table sets forth information with respect to options to
purchase common stock granted to the Company's named executive officers
including: (i) the number of shares of common stock purchased upon exercise of
options in the fiscal year ending December 31, 1998; (ii) the net value realized
upon such exercise; (iii) the number of unexercised options outstanding at
December 31, 1998; and (iv) the value of such unexercised options at December
31, 1998.
AGGREGATE OPTION EXERCISES DURING IN LAST
FISCAL YEAR AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT DEC. OPTIONS AT DEC.
SHARES 31, 1998 (#) 31, 1998 ($)
ACQUIRED ON VALUE EXERCISABLE / (1) EXERCISABLE /
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Michael H. Burney 0 0 17,500 / 507,500 $91,875 /
2,664,375
William E. Hollis 0 0 280,000 / 0 $1,470,000 / 0
</TABLE>
(1) Based on the difference between the fair market value of the of the
securities underlying the option at May 3, 1999 ($5.25 which was the closing
sale price of the Company's Common Stock as reported on OTC Bulletin Board on
April 30, 1999) and the exercise price of the named person's option. The
Company's Board of Directors has retained discretion to modify the terms
including the price of outstanding options. For additional information
concerning options, see "Proposal No. 3 - Approval of Adoption of 1999 Stock
Option Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From December 1997 through July 1998 Argyle Capital Management
Corporation, a company affiliated with Robert Olins, a Director of the Company,
purchased Convertible Secured Notes of the Company in the outstanding principle
amount of $1,188,000. These Convertible Secured Notes accrue interest at 6% and
are convertible $0.50 per share.
17
<PAGE>
STOCKHOLDER PROPOSALS
Pursuant to Rule 14(a)-4(c)(1) of the Exchange Act, the Company's
proxy for the 2000 Annual Meeting of Shareholders may confer discretionary
authority to vote on any proposal submitted by a shareholder if written
notice of such proposal submitted by a shareholder is not received by the
Company at its offices at 9 Commercial Boulevard, Suite 200, Novato,
California 94949, within a reasonable time before the mailing of the
Company's proxy materials for the 2000 Annual Meeting of Shareholders.
Shareholder proposals may be considered for inclusion in the
Company's proxy statement and form of proxy relating to the 2000 Annual
Meeting of Shareholders, if submitted to the Company a reasonable period of
time before the Company begins to print and mail its proxy materials.
Proposals must be writing and sent via registered, certified, or express mail
to: Corporate Secretary, SpatiaLight, Inc., 9 Commercial Boulevard, Suite
200, Novato, California 94949. Facsimile or other forms of electronic
submissions will not be accepted.
TRANSACTION OF OTHER BUSINESS
The Board of Directors does not know of or intend to present any
matters at the 1999 Annual Meeting other than those described herein and does
not presently know of any matters that will be presented by other parties. If
however, any other matters properly come before the meeting, it is intended
that proxies in the accompanying form will be voted thereon in accordance
with the judgment of the persons voting such proxies.
By order of the Board of Directors
Michael H. Burney
CHIEF EXECUTIVE OFFICER, SECRETARY AND TREASURER
Date: May 28, 1999
Novato, California
18
<PAGE>
SPATIALIGHT, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
---------------------
The undersigned hereby appoints Michael H. Burney proxy and
attorney-in-fact, with full power of substitution, to represent the
undersigned and to vote all of the shares of stock in SpatiaLight, Inc., a
New York corporation (the "Company"), which the undersigned is entitled to
vote at the Annual Meeting of the Shareholders of the Company to be held at
the Embassy Suites Hotel, 101 McInnis Parkway, San Rafael, California 94903
at 10:00 A.M., Pacific Standard Time, and at any adjournment thereof as
hereinafter specified upon the proposals listed below and as more
particularly described in the Proxy Statement of the Company dated May 21,
1999 (the "Proxy Statement"), receipt of which is hereby acknowledged.
1. With respect to the election of the following individuals as members
of the Board of Directors:
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Michael H. Burney Robert A. Olins
Lawrence J. Matteson Steven F. Tripp
[ ] FOR [ ] WITHHOLD AUTHORITY [ ] ABSTAIN
2. With respect to the proposal to amend the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of common stock of the Company from 20,000,000 to 40,000,000.
[ ] FOR [ ] WITHHOLD AUTHORITY [ ] ABSTAIN
3. With respect to the proposal to approve the adoption of the
Company's 1999 Stock Option Plan.
[ ] FOR [ ] WITHHOLD AUTHORITY [ ] ABSTAIN
The shares represented hereby will be voted as specified. If no
specification is made, such shares will be voted FOR the nominees listed and
for proposals 2 and 3.
Dated: ________ , 1999 Signature(s) _____________________________________
(BE SURE TO DATE PROXY) __________________________________________________
__________________________________________________
Print or type stockholder's name
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED
AT THIS MEETING REGARDLESS OF THE NUMBER OF
SHARES YOU HOLD. PLEASE DATE, SIGN, AND RETURN
THE PROXY PROMPTLY IN THE ENCLOSED, STAMPED
ENVELOPE.
I plan to attend the meeting.
Yes _____ No _____
(PLEASE PRINT ADDRESS CHANGE (IF ANY) ON LABEL BELOW)
