<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14C-5(D)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
SI Diamond Technology, Inc.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
SI DIAMOND TECHNOLOGY, INC.
[LOGO OF SI DIAMOND APPEARS HERE]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 29, 1996
AND PROXY STATEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NOTICE OF ANNUAL MEETING
PROXY STATEMENT
Solicitation of Proxies................................................... 1
Voting Securities and Required Vote....................................... 1
Security Ownership of Certain Beneficial Owners........................... 3
Security Ownership of Management.......................................... 4
Election of Directors..................................................... 5
Director Nominees......................................................... 5
Information Concerning Continuing Directors............................... 6
Committee And Board Meetings.............................................. 7
Director Compensation..................................................... 7
Executive Compensation.................................................... 8
Stock Option Grants in Last Fiscal Year................................... 8
Aggregated Option Exercises in Last Fiscal Year And Fiscal Year-End Option
Values................................................................... 9
Employment Agreements..................................................... 9
Certain Transactions...................................................... 9
Compliance with Section 16(a) of the Securities Exchange Act of 1934...... 9
Ratification of Selection of Auditors..................................... 10
Proposal 1--Approval of Amended and Restated 1992 Stock Option Plan....... 10
Proposal 2--Approval of Amended and Restated 1992 Outside Directors' Stock
Option Plan.............................................................. 14
Other Business............................................................ 17
Shareholder Proposals..................................................... 17
APPENDIX A................................................................ A-1
APPENDIX B................................................................ B-1
</TABLE>
<PAGE>
[LOGO OF SI DIAMOND APPEARS HERE]
SI DIAMOND TECHNOLOGY, INC.
-----------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JULY 29, 1996
-----------------------------------------------------------------------
To the Shareholders of SI Diamond Technology, Inc.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of the Shareholders (the
"Annual Meeting") of SI Diamond Technology, Inc. (the "Company") will be held
on July 29, 1996, at 10:00 a.m. Central Daylight Time at the offices of the
Company, which are located at 12100 Technology Boulevard, Austin, Texas 78727,
for the purpose of considering and acting upon the following matters:
(1) To elect five directors to hold office in accordance with the Amended
and Restated Bylaws of the Company;
(2) To ratify the appointment of Coopers & Lybrand, L.L.P. as the Company's
independent accountants and auditors for the 1996 fiscal year;
(3) To adopt the Company's Amended and Restated 1992 Stock Option Plan;
(4) To adopt the Company's Amended and Restated 1992 Outside Directors'
Stock Option Plan; and
(5) To consider and act upon any matters incidental to the foregoing
purposes and transact such other business as may properly come before
the meeting or any adjournments thereof.
The record date for the meeting has been established to be June 17, 1996.
Only shareholders of record at the close of business on that date will be
entitled to notice of, and to vote at, the Annual Meeting or any adjournment
thereof. You are cordially invited to attend this meeting. Shareholders
wishing to attend the Annual Meeting should bring proper identification and
evidence of their ownership of shares of the Company's voting securities.
EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE STILL REQUESTED TO
SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. IF YOU ATTEND, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU
HAVE SENT IN YOUR PROXY.
By Order of the BOARD OF DIRECTORS,
/s/ Trey Fecteau
Trey Fecteau
Corporate Secretary
June 28, 1996
<PAGE>
SI DIAMOND TECHNOLOGY, INC.
12100 TECHNOLOGY BOULEVARD
AUSTIN, TX 78727
PROXY STATEMENT
-----------------------------------------------------------------------
This proxy statement is furnished to shareholders of SI Diamond Technology,
Inc. (the "Company") in connection with the solicitation by the Board of
Directors of proxies to be used at the 1996 Annual Meeting of Shareholders
(the "Annual Meeting") of the Company to be held on July 29, 1996, at 10:00
a.m. Central Daylight Time, at the offices of the Company, which are located
at 12100 Technology Boulevard, Austin, Texas 78727, and at any and all
adjournments thereof.
ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED THEREIN, AND IF NO CHOICE IS SPECIFIED, THE PROXIES
WILL BE VOTED: 1) FOR THE ELECTION OF THE FIVE (5) DIRECTORS NAMED BELOW, 2)
FOR THE RATIFICATION OF COOPERS & LYBRAND, L.L.P. AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS AND AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996,
3) FOR THE ADOPTION OF THE COMPANY'S AMENDED AND RESTATED 1992 STOCK OPTION
PLAN, 4) FOR THE ADOPTION OF THE COMPANY'S AMENDED AND RESTATED 1992 OUTSIDE
DIRECTORS' STOCK OPTION PLAN AND, IN THE DISCRETION OF THE PERSONS NAMED IN
THE PROXY, ON ANY OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE ANNUAL
MEETING.
SOLICITATION OF PROXIES
This Proxy Statement and the accompanying proxy card are first being mailed
to shareholders beginning on or about July 1, 1996. Copies of soliciting
material will be furnished to brokerage firms, fiduciaries, and other nominees
as required for forwarding to beneficial owners. In addition to the
solicitation of proxies by mail, proxies may also be solicited by telephone,
telegram, facsimile, or personal interview by directors, officers, or regular
employees of the Company. The Company will bear all necessary costs of
soliciting proxies in the accompanying form, including the cost of preparing
and mailing this Proxy Statement and the reimbursement of brokerage firms and
other nominees for their reasonable expenses in forwarding proxy material to
beneficial owners of stock. The Company has engaged Morrow & Co. Inc.,
professional proxy solicitors, to assist in the routine solicitation of
proxies at a fee of approximately $5,000, plus expenses.
Proxies may be revoked at any time prior to the exercise thereof by filing
with the Corporate Secretary at the Company's principal executive offices, a
written revocation on a duly executed proxy bearing a later date. A
shareholder who attends the Annual Meeting may, if he or she wishes, vote by
ballot, thereby canceling any proxy previously given. For a period of at least
ten days prior to the Annual Meeting, a complete list of shareholders entitled
to vote at the meeting will be available for inspection by shareholders of
record during ordinary business hours for proper purposes at the Company's
principal executive offices.
VOTING SECURITIES AND REQUIRED VOTE
At the close of business on June 17, 1996, (the "Record Date"), there were
outstanding and entitled to vote 11,762,971 shares of the Company's Common
Stock, 100 shares of Series A Convertible Preferred Stock (the "Series A
Preferred") and 843 shares of Series E Convertible Preferred Stock (the
"Series E Preferred") (the Series A Preferred and the Series E Preferred are
collectively referred to herein as the "Preferred Stock"). The Common Stock
holders of record on the Record Date will be entitled to one vote per share.
The Series A Preferred is convertible into 100,275 shares of Common Stock at
the option of the holders thereof. The holder of record of the Series A
Preferred on the Record Date will be entitled to one vote per share for every
share of
<PAGE>
Common Stock into which he is entitled to convert. The Series E Preferred is
entitled to vote on all matters submitted to a vote of the shareholders on an
"as if converted basis." Each share of Series E Preferred is convertible into
that number of shares of Common Stock determined by dividing (i) the original
issue price of the Series E Preferred (the "Issue Price") plus an amount equal
to 8% of the Issue Price per annum from the date the escrow agent first had in
its possession the funds representing payment of the Series E Preferred to the
conversion date by (ii) the conversion price, which is the lesser of $6.575 or
85% of the average closing bid price for the Company's Common Stock for the
five trading days immediately preceding the conversion date. Based on a
conversion date of June 17, 1996, the Series E Preferred is convertible into
2,403,881 shares of Common Stock.
Under the current Amended and Restated By-laws of the Company, the presence,
in person or by proxy, of a majority of all outstanding Common Stock and
Preferred Stock at the Record Date will constitute a quorum. If there are not
sufficient shares represented in person or by proxy at the Annual Meeting to
constitute a quorum, the meeting may be postponed or adjourned in order to
permit further solicitations of proxies by the Company. Proxies given pursuant
to this solicitation and not revoked will be voted at any postponement of the
Annual Meeting in the manner set forth above.
Under Texas law, the vote of a plurality of the Common Stock and Preferred
Stock, present at the Annual Meeting in person or by proxy and voting together
as a single class, is necessary to elect directors (Item 1). The ratification
of the selection of the Company's independent accountants and auditors (Item
2) requires the affirmative vote of a majority of the shares of Common Stock
and Preferred Stock entitled to vote and represented at the Annual Meeting in
person or by proxy, voting together as a single class. The adoption of the
Amended and Restated 1992 Stock Option Plan (Item 3) and the Amended and
Restated 1992 Outside Directors' Stock Option Plan (Item 4) each requires the
affirmative vote of a majority of the shares of Common Stock and Preferred
Stock entitled to vote and represented at the Annual Meeting in person or by
proxy, voting together as a single class.
Abstentions and non-votes (shares held by brokers and other nominees or
fiduciaries that are present at the Annual Meeting but not voted on a
particular matter) have the same effect as a vote "against" a matter presented
for shareholder action for the purposes of determining whether sufficient
affirmative votes have been cast. Abstentions and non-votes will be counted
for purposes of determining the presence of a quorum at the Annual Meeting.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of shares of each class of the Company's voting stock as
of June 17, 1996, by each person known to be the beneficial owner of 5% or
more of the outstanding voting stock of each such class of the Company. For
the purposes of this Proxy Statement, beneficial ownership of securities is
defined in accordance with the rules of the Securities and Exchange Commission
(the "SEC") to mean generally the power to vote or dispose of securities,
regardless of any economic interest therein.
<TABLE>
<CAPTION>
SHARES OWNED PERCENT OF
TITLE OF CLASS NAME AND ADDRESS BENEFICIALLY CLASS
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
Howard K. Schmidt 1,163,400(1) 9.89%
12100 Technology Boulevard
Austin, Texas 78727
-------------------------------------------------------
Gazcomplektimpex 1,845,130(2) 14.91%
Common Stock 5 Parkovaya Street, 46
Moscow, Russia 10526
-------------------------------------------------------
BEG Enterprises, Inc. 889,887(3) 7.48%
33493-14 Mile Road, Suite
100
Farmington Hills, MI 48331
- -------------------------------------------------------------------------------
Series A Preferred Evan H. Street 100 100.00%
12100 Technology Boulevard
Austin, Texas 78727
- -------------------------------------------------------------------------------
Leonardo, L.P. 150 17.79%
c/o Trident Trust Co., Ltd.
Elizabeth Square
P.O. Box 84
Grand Cayman, Cayman Islands
BWI
-------------------------------------------------------
Nelson Partners 160 18.98%
c/o Leeds Management
Services, Ltd.
129 Front Street
Hamilton, Bermuda HM 12
-------------------------------------------------------
Olympus Securities Ltd. 150 17.79%
c/o Leeds Management
Services, Ltd.
129 Front Street
Hamilton, Bermuda HM 12
-------------------------------------------------------
Gracechurch & Co. 75 8.90%
c/o IFM Asset Management
Ltd.
Series E Preferred 159 New Bond Street
London WIY ORR
England
-------------------------------------------------------
Raphael L.P. 50 5.93%
c/o Angelo Gordon & Co.
245 Park Avenue, 26th Floor
New York, NY 10167
-------------------------------------------------------
West Merchant Bank Nominees
Limited 50 5.93%
33 Grace Church Street
London, England EC3VOA
-------------------------------------------------------
Cornerstone Capital, Inc. 50 5.93%
c/o Wood Gundy
4120 Young Street, Suite 416
Young Corp. Center
North York, Ontario, Canada
M2P2C8
</TABLE>
- --------
(1) Includes 1,500 shares of Common Stock issued in the name of Dr. Schmidt's
minor daughter.
(2) Included in this amount are warrants to purchase 61,500 shares of the
Company's Series C Preferred Stock, which are convertible into 615,000
shares of the Company's Common Stock.
(3) Included in this amount are warrants to purchase 127,794 shares of the
Company's Common Stock.
3
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is certain information with respect to beneficial ownership
of the Company's Common Stock as of June 17, 1996, by each Director, each
Named Executive Officer (defined herein) and by the directors and executive
officers as a group. Unless otherwise indicated, each person or member of the
group listed has sole voting and investment power with respect to the shares
of Common Stock listed.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENTAGE
NAME OWNERSHIP (1) OF CLASS
---- ------------- ----------
<S> <C> <C>
Howard K. Schmidt 1,163,400(2) 9.89%
Philip C. Shaffer 87,702 *
David R. Sincox 14,213 *
Thomas J. Smith 8,000 *
Igor Leontiev (3) -0- *
Lawrence K. King (4) 115,000 *
C. Robert Kline, Jr. (4) 100,000 *
Marc W. Eller 889,887(5) 7.48%
Lee B. Arberg -0- *
Ronald J. Berman 921,887(5) 7.75%
All Executive Officers and Directors as a
group (16 persons) 2,544,109 21.03%
</TABLE>
- --------
* Less than 1%
(1) Included in the amounts indicated are shares which are subject to options
exercisable within sixty (60) days of June 17, 1996. The number of such
shares are 30,000 for Dr. Shaffer; 8,000 for Mr. Sincox; 8,000 for Mr.
Smith; 60,000 for Mr. King; 100,000 for Dr. Kline; and 334,157 for the
Directors and executive officers as a group.
(2) Includes 1,500 shares of Common Stock issued in the name of Dr. Schmidt's
minor daughter.
(3) Igor Leontiev serves as the President of DiaGasCrown, a subsidiary of
Gazcomplektimpex. Gazcomplektimpex owns 1,230,130 shares of Common Stock
and warrants to purchase 61,500 shares of the Company's Series C Preferred
Stock, which is convertible into another 615,000 shares of the Company's
Common Stock. Dr. Leontiev disclaims any beneficial ownership of these
securities.
(4) Mr. King resigned as an officer and Director of the Company effective
September 30, 1995. Dr. Kline resigned as an officer and Director of the
Company effective April 23, 1996.
(5) Included in this number are 772,093 shares of the Company's Common Stock.
and warrants to purchase another 127,794 shares of the Company's Common
Stock. All of these securities are held by BEG Enterprises, Inc. ("BEG").
Mr. Eller and Mr. Berman each own 50% of the common stock of BEG.
4
<PAGE>
ELECTION OF DIRECTORS
The Company's Amended and Restated Bylaws (the "Bylaws") provide for a Board
of Directors divided into three classes having staggered terms with each class
as nearly equal in size as possible. Pursuant to the Company's Bylaws, the
Board of Directors has set its size at eight members as of the date of the
Annual Meeting. The current term of office of the Directors in Class III
expires at the Annual Meeting. The terms of office of Directors in Class I and
Class II will expire at the annual meetings of shareholders to be held in 1997
and 1998, respectively. At each annual meeting of shareholders, Directors will
be elected to succeed those whose terms then expire, with each newly elected
Director to serve for a three-year term.
DIRECTOR NOMINEES
Mr. Ronald J. Berman, Dr. Howard K. Schmidt and Mr. Thomas J. Smith, all of
whom currently serve on the Board of Directors of the Company, have been
nominated for Class III to each serve a three-year term ending at the annual
meeting of the shareholders of the Company in 1999. Mr. Lee B. Arberg and Mr.
Marc W. Eller have been nominated for Class I to each serve a one-year term
ending at the annual meeting of shareholders of the Company in 1997. It is
intended that the persons named in the accompanying proxy will vote shares
represented by properly executed proxies for the election of the five listed
nominees as Directors unless authority to vote is withheld. If any nominee
should become unavailable to serve on the Board of Directors, the persons
named in the proxy may act with discretionary authority to vote the proxy for
such other person, if any, as may be designated by the Board of Directors.
However, the Board of Directors is not aware of any circumstances likely to
render any of the nominees unavailable for election. The vote of a plurality
of the shares of Common Stock and Preferred Stock present at the Annual
Meeting in person or by proxy and entitled to vote therein, voting together as
a single class, will be necessary to elect the nominees.
The following sets forth certain information with respect to the business
experience of each nominee during the past five years. Unless otherwise
indicated, each person has had the same principal occupation for at least five
years.
CLASS III DIRECTORS--TERM EXPIRING 1999
RONALD J. BERMAN, age 39, has been a Director of the Company since May 1996.
Mr. Berman co-founded BEG Enterprises, Inc. with Marc W. Eller, and has been
its President since 1989. Mr. Berman earned a Juris Doctor degree in 1980 from
the University of Detroit. Prior to 1989, Mr. Berman was an attorney in
private practice.
HOWARD K. SCHMIDT, Ph.D., age 37, currently serves as the Company's Chairman
of the Board, President and Chief Executive Officer. Until June 1994, he was
the Company's Director of Research and he has served as a member of its Board
of Directors since its inception. From March 1989 through January 1991, Dr.
Schmidt served as Vice President of the Company and from January 1991 through
March 1992, Dr. Schmidt served as President. From March 1992 until June 1994,
Dr. Schmidt served as the Chief Operating Officer of the Company. Dr. Schmidt
organized the Company in 1987.
THOMAS J. SMITH, age 55, has been a Director of the Company since October
1994. Since September 1995 Mr. Smith has been the President of General
Electrodynamics Corporation. From December 1994 until September 1995 Mr. Smith
was the President of Omega Management Corporation. From 1990 through 1994, Mr.
Smith served as Group President and CEO of a manufacturing group of Morrison
Knudsen Corporation. From 1988 to 1990, he served as the Senior Vice President
of Fokker Aircraft. Prior to 1988, Mr. Smith served as President and CEO of an
aircraft subsidiary of Fairchild Industries.
CLASS I DIRECTORS--TERM EXPIRING 1997
LEE B. ARBERG, age 29, has been a Director since May 1996. Mr. Arberg
founded Hemisphere Trading Company ("Hemisphere"), a registered investment
advising firm, in June 1992. Mr. Arberg manages the overall operations of
Hemisphere and serves as its Chief Investment Officer. Prior to the formation
of Hemisphere Trading Company, Mr. Arberg was a financial analyst with Cummins
Engine Company, specializing in the strategic acquisitions of private
companies with revenues of $75-$250 million.
5
<PAGE>
MARC W. ELLER, age 40, has been a Director of the Company since November
1995. Mr. Eller co-founded BEG Enterprises, Inc. with Mr. Berman and has been
its Vice-President since 1989. For the past five years Mr. Eller has been
involved in real estate investment and in investment banking activities for
publicly traded companies.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES FOR DIRECTOR.
INFORMATION CONCERNING CONTINUING DIRECTORS
The following sets forth certain information with respect to the members of
the Company's Board of Directors whose current terms will continue after the
Annual Meeting. Information is provided concerning the business experience of
each continuing Director during the past five years.
CLASS I DIRECTOR--TERM EXPIRING 1997
DAVID R. SINCOX, age 56, has been a Director of the Company since October
1994. Since 1987, Mr. Sincox has served as the Vice President of
Administration of Ref-Chem Construction Corporation, an engineering and
construction firm.
CLASS II DIRECTORS--TERM EXPIRING 1998
PHILIP C. SHAFFER, Ph.D., age 59, has been a Director of the Company since
March 1992. Since 1977, Dr. Shaffer has worked as a self employed consultant
in the field of aerospace technology and management, with an emphasis in
business acquisition. Dr. Shaffer also serves as the General Partner of an oil
and gas development partnership with a total capitalization of approximately
$1.2 million. Prior to 1977, Dr. Shaffer worked for 13 years in the National
Aeronautics and Space Administration in a series of positions including Flight
Dynamics Officer, Apollo and Skylab Flight Director, Special Assistant to the
Director of the Johnson Space Center and Manager of Space Shuttle Operations.
IGOR LEONTIEV, Ph.D., age 52, has been a Director since March 1995. Since
1964, Dr. Leontiev has worked with Gazprom, the national gas company of
Russia. He currently serves as the President of DiaGasCrown, a subsidiary of
Gazcomplektimpex and Gazprom. In February 1995, Gazcomplektimpex acquired
stock and warrants currently totaling 14.91% of the Company's Common Stock.
All of the Company's Directors have retained the right to pursue additional
business activities that (1) are not competitive with the business of the
Company, and (2) do not adversely affect their performance as Directors. If,
as and when conflicts of interest arise, the nature of the conflict must be
fully disclosed to the Board of Directors, and the person who is subject to
the conflict must abstain from participating in any decision that may impact
on his conflict of interest. Except for this disclosure and abstention policy,
the Directors will not be in breach of any fiduciary duties owed to the
Company or the shareholders by virtue of their participation in such
additional business activities.
6
<PAGE>
COMMITTEE AND BOARD MEETINGS
The Company's Board of Directors has three standing Committees, the Audit
Committee, the Compensation Committee, and the Executive Committee. The Audit
Committee, which is composed of Messrs. Sincox and Smith, was created to work
with the Company's auditors and serve as the principle interface between the
Board of Directors and such auditors. The Audit Committee is also responsible
for reviewing the Company's internal control procedures, financial statements
of the Company, and, with the Company's independent accountants, the results
of the annual audit. The Audit Committee met once during 1995.
The Compensation Committee, which during 1995 was composed of Drs. Schmidt
and Shaffer, was created to administer the Company's employee stock option
plans, to determine the Company's overall compensation policies, and to make
all decisions with respect to the compensation of the officers and managerial
employees of the Company. The Compensation Committee met four times during
1995.
The Executive Committee, which during 1995 was composed of Drs. Schmidt,
Shaffer, and Kline, was created to make all decisions regarding the day to day
management of the affairs of the Company during the period between regular
meetings of the Board of Directors. The Executive Committee met twice during
1995.
During fiscal 1995, the Board of Directors held thirteen meetings. Each
director attended at least 75% of the aggregate number of meetings of the
Company's Board of Directors and of committees of such board on which he
served, with the exception of Dr. Leontiev, who attended approximately 40% of
the aggregate number of meetings of the Company's Board of Directors. Dr.
Leontiev does not serve on any committees of the Board of Directors.
DIRECTOR COMPENSATION
The Company pays all Directors who are not salaried employees of the Company
a Director's Fee of $150 per meeting attended in person and $50 per meeting
attended by phone for Board of Director and committee meetings, together with
reimbursements for reasonable travel, lodging, and food expenses incurred in
connection with such meetings.
During 1995, Director's fees of $1,700 to Dr. Shaffer, $1,400 to Mr. Sincox,
$1,550 to Mr. Smith, $600 to Dr. Leontiev, and $200 to Mr. Eller were paid by
the Company. All outside Directors of the Company may participate in the
Company's Amended and Restated 1992 Outside Directors' Stock Option Plan (the
"Outside Directors' Plan"). Under the Outside Directors' Plan, the Company
grants stock options to any Director who is not a full time salaried employee
of the Company. The purpose of the Outside Directors' Plan is to encourage
continued service of qualified outside Directors and provide them with
additional incentive to assist the Company in achieving its growth objectives.
The Outside Directors' Plan, as amended by the Board of Directors, is being
submitted to the shareholders at the Annual Meeting for their approval. The
amendments to the Outside Directors' Plan, among other things, change the
Outside Directors' Plan to a formula plan. For more information, see "Proposal
2--Approval of Amended and Restated Outside Directors' Stock Option Plan."
Under the Outside Directors' Plan, grants have been made to Philip C.
Shaffer (50,000 options), Thomas J. Smith (20,000 options), David R. Sincox
(20,000 options) and Marc W. Eller (20,000 options). These grants of options
have been priced at $5.50, $4.125, and $4.675, respectively for Dr. Shaffer
and Messrs. Smith and Sincox, the then fair market value of the shares at the
respective dates of the grants. Mr. Eller's options were granted under the
Outside Directors' Plan prior to its amendment by the Board of Directors and
cannot be awarded until his election to the Board of Directors is voted on by
the Company's shareholders at the Annual Meeting. If elected by the
shareholders at such time, his options will be priced at the fair market value
of the Company's Common Stock on that date. Messrs. Berman and Arberg were
appointed to the Board of Directors after the Board amended the Company's
Outside Directors' Plan, subject to shareholder approval at the Annual
Meeting. If Messrs. Berman and Arberg are elected as Directors by the
shareholders at the Annual Meeting they will receive options to purchase 4,383
shares and 4,000 shares, respectively, of the Company's Common Stock at the
fair market value of the Company's Common Stock of the date of the Annual
Meeting.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total cash compensation paid or to be
paid, as well as certain other compensation paid or accrued, for services
rendered during the fiscal years ended December 31, 1995, 1994 and 1993 by the
Chief Executive Officer and all executive officers whose total annual salary
and bonus exceeded $100,000 for the fiscal year ended December 31, 1995 (the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION(4)
----------------- ---- -------- ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Howard K. Schmidt, 1995 $106,952 $-0- -0- $ -0-
President and CEO 1994 84,000 -0- -0- -0-
1993 82,100 -0- -0- -0-
C. Robert Kline,
Jr.(1)(2) 1995 118,644 -0- 15,000 -0-
Chief Operating Officer 1994 61,820 -0- 50,000 2,500
Lawrence K. King(3) 1995 101,901 -0- -0- -0-
Executive Vice President 1994 74,753 -0- 50,000 2,478
and Chief Financial 1993 65,000 -0- -0- -0-
Officer
</TABLE>
- --------
(1) Dr. Kline commenced employment with the Company on June 12, 1994.
(2) Dr. Kline resigned as an officer of the Company on April 23, 1996.
(3) Mr. King resigned as an officer of the Company effective September 30,
1995.
(4) Amounts under the heading "All Other Compensation" are for matching
contributions made by the Company to the Company's 401(k) plan on behalf
of the Named Executive Officer.
None of the Named Executive Officers received perquisites which exceed in
value the lesser of $50,000 or 10% of such officers' salary and bonus.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The Company has an Amended and Restated 1992 Stock Option Plan which may be
used to grant employees, including officers of the Company, incentive stock
options designed to qualify under Section 422 of the Internal Revenue Code of
1986, as amended, or non-qualified stock options. The following table sets
forth information concerning stock option grants to the Named Executive
Officers in 1995.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NUMBER OF OPTIONS GRANTED
SECURITIES UNDERLYING TO EMPLOYEES IN EXERCISE OR EXPIRATION
NAME OPTIONS GRANTED (#) FISCAL YEAR 1995 BASE PRICE ($/SH) DATE
---- --------------------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
Howard K. Schmidt -0- N/A N/A N/A
C. Robert Kline, Jr.(1) 15,000 3.32% $7.25 5/18/2005
Lawrence K. King -0- N/A N/A N/A
</TABLE>
- --------
(1) These options were granted to Dr. Kline on May 18, 1995. They have a ten
year term and are all currently exercisable.
8
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning options
exercised by the Named Executive Officers during the fiscal year ended
December 31, 1995, and the number and value of the options held at the end of
the fiscal year 1995 based upon the closing price of $6.625 per share of the
Common Stock on December 29, 1995, on the NASDAQ Small Cap Market.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Howard K. Schmidt -0- N/A N/A N/A
C. Robert Kline, Jr. -0- N/A 65,000/0 $ 46,750/$0.0
Lawrence K. King 40,000 $242,600 60,000/0 $116,900/$0.0
</TABLE>
EMPLOYMENT AGREEMENTS
The Company does not have employment agreements with any of its officers.
CERTAIN TRANSACTIONS
In June 1992, Dr. Schmidt agreed to sell 500,000 shares of Common Stock
previously held by him to Mr. Robert Gow, the former President of the Company,
for a total consideration of $5,000. These shares were subject to repurchase
by Dr. Schmidt for a period of five years, at a price of $0.01 per share, if
Mr. Gow voluntarily resigned his position as President of the Company. Under
the terms of the purchase and sale agreement, Dr. Schmidt repurchased 237,500
shares of Common Stock upon the resignation of Mr. Gow in July 1994.
Concurrently, Mr. Gow agreed to sell 25,000 shares of the Common Stock
purchased from Dr. Schmidt to Mr. Lawrence King for a total consideration of
$250. The shares transferred to Mr. King were subject to all of the repurchase
provisions of the agreement between Dr. Schmidt and Mr. Gow. Upon his
resignation, Mr. Gow did not repurchase any shares under this agreement.
In connection with its capital raising activities, the Company has utilized
the services of BEG Enterprises, Inc. ("BEG"). Marc W. Eller and Ronald J.
Berman, Directors of the Company, each own 50% of the common stock of BEG. In
connection with its services to the Company, BEG received $16,000 per month
from November 1995 through April 1996 for a total of $96,000. BEG also
received $78,295 in February 1996 in connection with these services provided
to the Company and warrants to purchase a total of 65,034 shares of the
Company's Common Stock. 15,034 of these warrants were priced at $7.89 per
share, payable to the Company upon exercise, and 50,000 of these warrants were
priced at $6.30 per share, payable to the Company upon exercise. The Company
believes that such consideration is comparable to what would have been made to
other non-affiliated firms for comparable services.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
During the fiscal year ended December 31, 1995, Marc W. Eller, a Director of
the Company, was late in filing his Form 3 pursuant to Section 16(a) of the
Exchange Act. Gazcomplektimpex, the holder of 14.91% of the Company's Common
Stock, was late in filing a Form 5 for 1995 with respect to its conversion of
Series C Preferred into Common Stock.
9
<PAGE>
RATIFICATION OF SELECTION OF AUDITORS
Coopers & Lybrand, L.L.P. acted as the Company's independent public
accountants and auditors for the 1995 fiscal year. The Board has approved and
recommends the continuation of Coopers and Lybrand, L.L.P. as the independent
public accountants and auditors for the current fiscal year ending December
31, 1996.
A representative of Coopers & Lybrand, L.L.P. is expected to be present at
the Meeting, with the opportunity to make a statement, if desired, and will be
available to respond to appropriate questions.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock and
Preferred Stock, present in person or represented by proxy at the Annual
Meeting and voting together as a single class, is required to ratify the
selection of Coopers & Lybrand, L.L.P. as the Company's independent
accountants and auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND, L.L.P. AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS AND AUDITORS.
PROPOSAL 1
APPROVAL OF AMENDED AND RESTATED
1992 STOCK OPTION PLAN
GENERAL
On April 26, 1996, the Board of Directors approved amendments to the
Company's Amended and Restated 1992 Stock Option Plan (the "Employee Plan"),
subject to approval by the shareholders of the Company at the Annual Meeting.
Under the Employee Plan, employees may be granted awards of options to
purchase the Company's Common Stock, affording key personnel an opportunity to
acquire proprietary interests in the Company and providing them incentives to
put forth maximum efforts for the success of the business. The awards may be
in the form of incentive stock options ("Incentive Options"), as provided in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
in the form of nonqualified stock options ("Nonqualified Options"). Currently,
the maximum aggregate number of shares as to which options may be granted
under the Employee Plan is 1,275,000. The granting of Incentive Options is
limited to current employees who have been regular full-time employees of the
Company or its subsidiaries for more than one year. Nonqualified Options may
be granted to any person, including, but not limited to, employees,
independent agents, consultants, and attorneys. Directors who are not full-
time salaried employees of the Company or its subsidiaries, or exclusive,
full-time consultants of the Company or its subsidiaries may not participate
in the Employee Plan.
The Employee Plan is administered by a compensation committee which is
appointed by the Board of Directors to perform such function (the
"Compensation Committee"). The Compensation Committee currently consists of
two members of the Board of Directors, each of whom is a "disinterested
person" as defined by Rule 16b-3 promulgated under the Securities Exchange Act
of 1934. The Committee has sole authority to grant options, to determine the
purchase price of the Common Stock covered by each option, the term of each
option, the persons to whom, and the time or times at which, options shall be
granted and the number of shares to be covered by each option. The
Compensation Committee may designate options as Incentive Options or
Nonqualified Options, interpret the Employee Plan, determine the terms and
provisions of the option agreements entered into in connection with options
under the Employee Plan, and make all other determinations deemed necessary or
advisable for the administration of the Employee Plan.
The purchase price of the Common Stock covered by each Incentive Option, as
determined by the Committee, shall be not less than 100% of the fair market
value of a share of the Common Stock on the date on which the Option is
granted. The purchase price of the Common Stock covered by each Nonqualified
Option, as determined by the Committee, shall generally be fair market value,
although the Committee may grant Nonqualified Options with prices below fair
market value. The term of each option granted under the Employee Plan shall
not be more than ten (10) years from the date of grant, as the Compensation
Committee shall determine, subject to earlier termination as provided in the
Employee Plan.
10
<PAGE>
AMENDMENTS TO EMPLOYEE PLAN
The Employee Plan has been amended to increase the number of shares issuable
under it to 3,000,000 shares from 1,275,000 shares.
An amendment has also been made to the Employee Plan to give authority to
the Compensation Committee to provide for the extension of the exercisability
of an award made under the Employee Plan, or to accelerate the vesting or
exercisability of an award, eliminate or make less restrictive any
restrictions contained in an award, waive any restriction or other provision
of the Employee Plan or an award, or otherwise amend or modify an award.
The Employee Plan currently provides that the purchase price of an exercised
option awarded under the Employee Plan shall be paid in full in cash, or, at
the election of the Company, by the tender of shares of Common Stock of the
Company which are already owned by the option holder. The Plan has been
amended to permit the Committee to also allow the exercise of an option by use
of the proceeds to be received from the sale of Common Stock issuable pursuant
to an option.
The Employee Plan has been further amended to provide that options granted
under the Employee Plan shall automatically become fully exercisable upon a
"Change of Control" of the Company. A "Change of Control" shall have occurred
if and only if any of the following events have occurred: (a) there shall have
occurred an event required to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A (or in response to any similar item on any similar
schedule or form) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not the Company is then subject to
such reporting requirement; (b) any "person" (as such term is used in Section
13(d) and 14(d) of the Exchange Act) shall have become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding voting securities without prior
approval of at least two-thirds of the members of the Board of Directors in
office immediately prior to such person's attaining such percentage interest;
(c) the Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter or (d)
during any period of two consecutive years, individuals who at the beginning
of such period constituted the Board of Directors (including for this purpose
any new Director whose election or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds of the Directors
then still in office who were Directors at the beginning of such period) cease
for any reason to constitute at least a majority of the Board of Directors.
Currently, the Employee Plan states that if an employee ceases to be
employed with the Company, his options terminate within 30 days after such
termination of employment (but not later than the date on which the option
terminates). The Employee Plan has been amended to provide the Compensation
Committee, in such cases, with the power to provide for the extension of the
exercisability of an award made under the Employee Plan, or to accelerate the
vesting of exercisability of an award, eliminate or make less restrictive any
restrictions contained in an award, waive any restriction or other provision
of the Employee Plan or an award, or otherwise amend or modify the award, as
long as the employee is not terminated for "Cause" as defined in Section 10 of
the Employee Plan in Appendix A.
A complete copy of the Employee Plan, as amended, restated and approved by
the Company's Board of Directors, is attached to this Proxy Statement as
Appendix A.
11
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of the federal income tax
consequences of options granted and exercised under the Employee Plan based
upon present tax law which is subject to change. Each optionee should consult
with his or her own tax advisor with respect to the specific tax treatment of
his or her particular transactions under the Employee Plan. Depending on the
terms of the particular option grant, options granted under the Employee Plan
may be either incentive stock options or nonqualified stock options.
INCENTIVE STOCK OPTIONS. Incentive stock options are options intended to
qualify under Section 422 of the Code. Incentive stock options may only be
issued to employees. An optionee will not recognize income on the grant of an
incentive stock option, and generally will not recognize income on the
exercise of an incentive stock option (except as described in the following
paragraph). Under these circumstances, no deduction will be allowable to the
Company in connection with either the grant of such options or the issuance of
shares upon the exercise thereof.
If the exercise of an incentive stock option occurs more than three months
after the optionee ceased to be an employee for reasons other than death or
disability (or more than one year thereafter if the optionee ceased to be an
employee by reason of permanent and total disability), however, the exercise
will not be treated as the exercise of an incentive stock option and the
optionee will be taxed in the same manner as described below with respect to
the exercise of a nonqualified stock option.
Gain or loss from the sale or exchange of shares acquired upon exercise of
an incentive stock option generally will be treated as capital gain or loss.
However, if shares acquired pursuant to the exercise of an incentive stock
option are disposed of within two years after the option was granted or within
one year after the shares were transferred pursuant to the exercise of the
option, the optionee generally will recognize ordinary income at the time of
the disposition equal to the excess over the exercise price of the lesser of
the amount realized or the fair market value of the shares at the time of
exercise (or, in certain circumstances, at the time such shares became either
transferable or not subject to a substantial risk of forfeiture). If, however,
such disposition is not a sale or exchange with respect to which a loss (if
sustained) would be recognized, the ordinary income is the excess of the fair
market value of the shares at the time of exercise (or, in certain
circumstances, at the time they became either transferable or not subject to a
substantial risk of forfeiture) over the exercise price. Gain recognized on
the disposition in excess of the ordinary income resulting therefrom will be
capital gain and any loss recognized on the disposition will be capital loss.
If an optionee recognizes ordinary income as a result of a disposition as
described in this paragraph, the Company will be entitled to a deduction in
the same amount.
If the fair market value of shares subject to incentive stock options that
become exercisable for the first time by any optionee in any calendar year
exceeds $100,000 (determined at the time the options are granted), then the
excess over that limitation will be treated as options which are not incentive
stock options, and the optionee will be taxed upon exercise of those excess
options in the same manner as on the exercise of nonstatutory stock options.
In the case of ordinary income recognized by an optionee in connection with
the exercise of such excess options, the Company will be entitled to a
deduction in the amount of ordinary income recognized by the optionee provided
the Company satisfies certain federal income tax withholding requirements.
The exercise of an incentive stock option may result in alternative minimum
tax liability to the optionee because the excess of the fair market value of
stock received on the exercise of an incentive stock option over the exercise
price is defined as an item of "tax preference" for purposes of determining
alternative minimum taxable income.
NONQUALIFIED STOCK OPTIONS. The taxability of nonqualified stock options is
governed by Section 83 of the Code. An optionee under the Employee Plan should
not be required to recognize income on the grant of a nonqualified stock
option, because such options, which will not be actively traded on an
established market, have no readily ascertainable fair market value. Instead,
the optionee generally will recognize ordinary income upon the exercise of a
nonqualified stock option. The amount of income recognized upon the exercise
of a nonqualified
12
<PAGE>
stock option will be measured by the excess, if any, of the fair market value
of the shares at the time of exercise over the exercise price for such shares,
regardless of whether the exercise price is paid in cash or in Common Stock,
provided that the shares issued are either transferable or not subject to a
substantial risk of forfeiture.
If the sale of shares received on the exercise of a nonqualified stock
option would subject the optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, then, unless the optionee elects to recognize
income at the time of receipt of such shares by timely filing an election
under Section 83(b) of the Code, the optionee will not recognize ordinary
income until six months less one day after the date of exercise. In either
case, the amount of income recognized is measured with respect to the fair
market value of the Common Stock at the time the income is recognized.
In the case of ordinary income recognized by an optionee as described above
in connection with the exercise of a nonqualified stock option the Company
will be entitled to a deduction in the amount of ordinary income so recognized
by the optionee, provided the Company satisfies certain federal income tax
withholding requirements. Deduction will, in general, be allowed for the same
taxable year in which ordinary income is recognized by the optionee.
PLAN BENEFITS
The table below identifies the number of options under the Employee Plan
that have been issued to the Named Executive Officers, all current executive
officers as a group, all current directors who are not executive officers as a
group and all other employees as a group. As of the Record Date, the Closing
price of a share of Common Stock of the Company was $4.25 per share.
<TABLE>
<CAPTION>
NUMBER
NAME AND POSITION OF OPTIONS
----------------- ----------
<S> <C>
Howard K. Schmidt,
President and Chief Operating Officer -0-
C. Robert Kline, Jr.(1)(2)
Chief Operating Officer 100,000
Lawrence K. King(3)
Executive Vice President and Chief Financial Officer 60,000
Executive Officer Group (10 persons) 288,157
Non-Executive Director Group -0-
Non-Executive Officer Employee Group 960,943
</TABLE>
- --------
(1) Dr. Kline commenced employment with the Company on June 12, 1994.
(2) Dr. Kline resigned as an officer of the Company on April 23, 1996.
(3) Mr. King resigned as an officer of the Company on September 30, 1995.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock and
Preferred Stock, present in person or represented by proxy at the Annual
Meeting and voting together as a single class, is required to approve the
Employee Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1 APPROVING THE
EMPLOYEE PLAN.
13
<PAGE>
PROPOSAL 2
APPROVAL OF AMENDED AND RESTATED
1992 OUTSIDE DIRECTORS' STOCK OPTION PLAN
GENERAL
On April 26, 1996, the Board of Directors approved amendments to the
Company's Amended and Restated 1992 Outside Directors' Stock Option Plan (the
"Outside Directors' Plan"), subject to approval by the shareholders of the
Company. The Outside Directors' Plan is being submitted to the shareholders of
the Company at the Annual Meeting for their approval.
Under the Outside Directors' Plan the Company may grant stock options to any
Director who is not a full-time salaried employee of the Company ("Outside
Director"). The purpose of the Outside Directors' Plan is to encourage the
continued service of qualified Outside Directors and to provide them with
additional incentive to assist the Company in achieving its growth objectives.
There are currently five Directors who are eligible to participate in the
Outside Directors' Plan.
The exercise price of all options granted under the Outside Directors' Plan
is the market price of the Common Stock on the date of the grant. Options may
be exercised over a ten year period from the date of grant. Options granted
under the Outside Directors' Plan are not transferable except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order.
AMENDMENTS TO THE OUTSIDE DIRECTORS' PLAN
The Outside Directors' Plan has been amended to provide that grants of stock
options shall be made to Eligible Directors (as defined in the Outside
Directors' Plan) automatically under a formula. The Compensation Committee
will no longer administer the Outside Directors' Plan to the extent of
selecting eligible directors, establishing the number of shares issued under
the grants, or determining the vesting schedule for any grant made under the
Outside Directors' Plan. According to the Outside Directors' Plan formula,
each eligible Director who has served since any previous annual meeting will
be granted a yearly automatic option to purchase 20,000 shares of the
Company's Common Stock, with the exception of Dr. Philip Shaffer, who will
receive a yearly automatic option to purchase 50,000 shares of the Company's
Common Stock.
The Outside Directors' Plan has been further amended to provide that, if a
Director is elected to the Board by the remaining Directors to fill a vacancy
or to fill a newly created directorship or by a vote of shareholders at a
special meeting, that Director will receive the pro rata portion of an option
to purchase 20,000 shares for the period of that Director's service between
his initial appointment to the Board and the next annual meeting of
shareholders.
The Outside Directors' Plan has been further amended to provide that options
granted under the plan shall automatically become fully exercisable upon a
"Change of Control" of the Company. A "Change of Control" shall have occurred
if and only if any of the following events have occurred: (a) there shall have
occurred an event required to be reported in response to Item 6(e) of Schedule
14A of Regulation 14A (or in response to any similar item on any similar
schedule or form) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not the Company is then subject to
such reporting requirement; (b) any "person" (as such term is used in Section
13(d) and 14(d) of the Exchange Act) shall have become the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of the combined voting
power of the Company's then outstanding voting securities without prior
approval of at least two-thirds of the members of the Board of Directors in
office immediately prior to such person's attaining such percentage interest;
(c) the Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter or (d)
during any period of two consecutive years, individuals who at the
14
<PAGE>
beginning of such period constituted the Board of Directors (including for
this purpose any new Director whose election or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds of the
Directors then still in office who were Directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
The Outside Directors' Plan currently requires that payment for shares upon
exercise of an option granted pursuant to such plan be paid in full at the
time of the exercise, in cash or by means of tendering theretofore owned
Common Stock which had been held by the participant for more than six months.
The Outside Directors' Plan has been amended to allow the Board to provide for
procedures to permit the exercise of options by the use of the proceeds to be
received from the sale of Common Stock issuable pursuant to an option. In
addition, the Plan has been amended to provide that an option granted under
the Outside Directors' Plan will be accelerated in the event that the Eligible
Director holding the option ceases to serve as a Director by reason of death,
disability or mandatory retirement.
A complete copy of the Outside Directors' Plan, as amended, restated and
approved by the Company's Board of Directors, is attached to this Proxy
Statement as Appendix B.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of the federal income tax
consequences of options granted and exercised under the Outside Directors'
Plan based upon present tax law which is subject to change. Each optionee
should consult with his or her own tax advisor with respect to the specific
tax treatment of his or her particular transactions under the Plan.
Options issued under the Outside Directors' Plan are not intended to qualify
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Incentive stock options may only be issued to
employees. Options issued under the Outside Directors' Plan are referred to
herein as "nonqualified stock options."
The taxability of nonqualified stock options is governed by Section 83 of
the Code. The recipients of nonqualified stock options should not be taxed
upon the grant of such options, because such options, which will not be
actively traded on an established market, have no readily ascertainable fair
market value. The optionee will, in general, recognize ordinary income in the
year in which the nonqualified option is exercised, equal to the excess of the
fair market value of the purchased shares at the date of exercise over the
exercise price, and the optionee will be required to satisfy the income tax
withholding requirements. If the shares purchased by an optionee are subject
to the insider trading restrictions of Section 16(b) of the Exchange Act, the
taxation of the income may be deferred from the date of exercise to the date
the optionee becomes free to sell the shares without liability under Section
16(b). The Company will be entitled to an income tax deduction equal to the
amount of ordinary income recognized by the optionee in connection with the
exercise of the nonqualified option, provided the Company complies with
applicable income tax withholding requirements. Deduction will, in general, be
allowed for the same taxable year in which ordinary income is recognized by
the optionee.
The excess of the fair market value of the purchased shares of Common Stock
at the date of exercise over the exercise price will, in general, have to be
reported as ordinary income for the year of exercise. These shares will have a
tax basis equal to such fair market value, and their holding period will, in
general, be measured from their date of transfer to the optionee.
15
<PAGE>
PLAN BENEFITS
The table below identifies the number of options under the Outside
Directors' Plan that have been issued to the Named Executive Officers, all
current executive officers as a group, all current directors who are not
executive officers as a group and all other employees as a group. As of the
Record Date, the Closing price of a share of Common Stock of the Company was
$4.25 per share.
<TABLE>
<CAPTION>
NUMBER
NAME AND POSITION OF SHARES
----------------- ---------
<S> <C>
Howard K. Schmidt,
President and Chief Executive Officer -0-
C. Robert Kline, Jr.(1)(2)
Chief Operating Officer -0-
Lawrence K. King(3)
Executive Vice President and Chief Operating Officer -0-
Executive Officer Group (10 persons) -0-
Non-Executive Director Group 118,383(4)(5)
Non-Executive Officer Employee Group -0-
</TABLE>
- --------
(1) Dr. Kline commenced employment with the Company on June 12, 1994.
(2) Dr. Kline resigned as an officer of the Company on April 23, 1996.
(3) Mr. King resigned as an officer of the Company on September 30, 1995.
(4) The Compensation Committee has previously granted 50,000 options to Philip
C. Shaffer, 20,000 options to Thomas J. Smith and 20,000 options to David
R. Sincox. The options in these grants were priced at $5.50, $4.125 and
$4.675, respectively, for Dr. Shaffer and Messrs. Smith and Sincox, the
then fair market value of the shares at the respective dates of the
grants. In addition, the Committee has granted options to purchase 20,000
shares of the Company's Common Stock to Marc W. Eller under the Outside
Directors' Plan. These options to Mr. Eller were granted prior to the
amendments to the Outside Directors' Plan by the Board. Mr. Eller's
options cannot be awarded until his appointment to the Board of Directors
is approved by the Company's shareholders. If elected at the Annual
Meeting, his options will be priced at the fair market value of the shares
on the date of the Annual Meeting.
(5) Messrs. Berman and Arberg were appointed to the Board of Directors after
the Board amended the Company's Outside Directors' Plan, subject to
shareholder approval at the Annual Meeting. If Messrs. Berman and Arberg
are elected as Directors by the shareholders at the Annual Meeting they
will receive options to purchase 4,383 shares and 4,000 shares,
respectively, of the Company's Common Stock at the fair market value of
the Company's Common Stock on the date of the Annual Meeting.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock and
Preferred Stock, present in person or represented by proxy at the Annual
Meeting and voting together as a single class, is required to approve the
Outside Directors' Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2 APPROVING THE
OUTSIDE DIRECTORS' PLAN.
16
<PAGE>
OTHER BUSINESS
The Board of Directors does not intend to present any other matter(s) at the
Annual Meeting and, at this date, has not been informed that any other matters
will be presented at the Annual Meeting by others. If, however, any other
matter does properly come before the Annual Meeting, the persons named in the
accompanying proxy will vote in accordance with their best judgment.
SHAREHOLDER PROPOSALS
In the event that a shareholder desires to have a proposal formally
considered at the 1997 annual meeting of shareholders and included in the
proxy statement for that meeting, the proposal must be received in writing by
SI Diamond Technology, Inc. at its executive offices on or before March 31,
1997.
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON
FORM 10-KSB, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1995, TO ANY SHAREHOLDER OF THE COMPANY UPON
WRITTEN REQUEST. REQUESTS SHOULD BE SENT TO: SI DIAMOND TECHNOLOGY, INC.,
12100 TECHNOLOGY BOULEVARD, AUSTIN, TEXAS 78727, ATTN: INVESTOR RELATIONS
DEPARTMENT.
By Order of the BOARD OF DIRECTORS,
/s/ Howard K. Schmidt
Howard K. Schmidt
President and Chief Executive
Officer
June 28, 1996
17
<PAGE>
APPENDIX A
AMENDED AND RESTATED
1992 STOCK OPTION PLAN OF
SI DIAMOND TECHNOLOGY, INC.
1. Purpose
SI Diamond Technology, Inc. (the "Corporation") desires to attract and
retain the best available talent and encourage the highest level of
performance in order to continue to serve the best interests of the
Corporation and its shareholders. By affording key personnel the opportunity
to acquire proprietary interests in the Corporation and by providing them
incentive to put forth maximum efforts for the success of the business, the
Amended and Restated 1992 Stock Option Plan of SI Diamond Technology, Inc.
(the "1992 Plan") is expected to contribute to the attainment of those
objectives.
2. Scope and Duration
Options under the 1992 Plan may be granted in the form of Awards ("Awards")
of incentive stock options ("Incentive Options") as provided in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or in the form of
nonqualified stock options ("Nonqualified Options"). (Unless otherwise
indicated, references in the 1992 Plan to "options" include Incentive Options
and Nonqualified Options.) The maximum aggregate number of shares as to which
options may be granted from time to time under the 1992 Plan is 3,000,000
shares of the Common Stock of the Corporation ("Common Stock"), which shares
may be, in whole or in part, authorized but unissued shares or shares
reacquired by the Corporation. If an option shall expire, terminate or be
surrendered for cancellation for any reason without having been exercised in
full, the shares represented by the option or portion thereof not so exercised
shall (unless the 1992 Plan shall have been terminated) become available for
subsequent option grant under the 1992 Plan. As provided in paragraph 13, the
1992 Plan shall become effective on March 16, 1992, and unless terminated
sooner pursuant to paragraph 14, the 1992 Plan shall terminate on March 15,
2002, and no option shall be granted hereunder after that date.
3. Administration
The 1992 Plan shall be administered by a committee which is appointed by the
Board of Directors to perform such function (the "Committee"). Effective upon
the Corporation being registered under Section 12 of the Securities Exchange
Act of 1934, the Committee shall consist of two or more members of the Board
of Directors, each of whom shall be a "disinterested person" as defined in
Rule 16b-3 pursuant to the Securities Exchange Act of 1934.
The Committee shall have plenary authority in its discretion, subject to and
not inconsistent with the express provisions of the 1992 Plan, to grant
options, to determine the purchase price of the Common Stock covered by each
option, the term of each option, the persons to whom, and the time or times at
which, options shall be granted and the number of shares to be covered by each
option; to designate options as Incentive Options or Nonqualified Options; to
interpret the 1992 Plan; to prescribe, amend, and rescind regulations relating
to the 1992 Plan; to determine the terms and provisions of the option
agreements (which need not be identical) entered into in connection with
options under the 1992 Plan; and to make all other determinations deemed
necessary or advisable for the administration of the 1992 Plan. The Committee
may also, in its discretion, provide for the extension of the exercisability
of an Award, accelerate the vesting or exercisability of an Award, eliminate
or make less restrictive any restrictions contained in an Award, waive any
restriction or other provision of this 1992 Plan or an Award or otherwise
amend and modify an Award in any manner that is either (i) not adverse to the
participant holding such Award or (ii) consented to by such participant. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent the
Committee deems necessary or desirable to carry it into effect. The Committee
may delegate to one or more of its members, or to one or more agents, such
administrative duties as it may deem advisable, and the
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Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the Committee, or such person, may have under the 1992 Plan.
4. Eligibility; Factors to be Considered in Granting Options
Incentive Options shall be limited to persons who have been regular full-
time employees of the Corporation or its present and future subsidiaries for
more than one year, and, at the grant of any options, are in the employ of the
Corporation or its present and future subsidiaries. In determining the
employees to whom Incentive Options shall be granted and the number of shares
to be covered by each Incentive Option, the Committee shall take into account
the nature of employees' duties, their present and potential contributions to
the success of the Corporation, and such other factors as it shall deem
relevant in connection with accomplishing the purposes of the 1992 Plan. An
employee who had been granted an option or options under the 1992 Plan may be
granted an additional option or options, subject, in the case of Incentive
Options, to such limitations as may be imposed by the Code on such options.
Except as provided below, a Nonqualified Option may be granted to any person,
including, but not limited to, employees, independent agents, consultants and
attorneys, who the Committee believes has contributed, or will contribute, to
the success of the Corporation. Directors of the Corporation who are not
salaried employees of or exclusive, full-time consultants to the Corporation
or its present and future subsidiaries may not receive options under the 1992
Plan.
5. Option Price
The purchase price of the Common Stock covered by each option shall be
determined by the Committee and, in the case of Incentive Options, shall not
be less than 100% of the Fair Market Value (as defined in paragraph 15 below)
of a share of the Common Stock on the date on which the option is granted. In
the case of Nonqualified Options, the purchase price of an option shall
generally be Fair Market Value, although the Committee may grant options with
option prices of less than Fair Market Value. Such price shall be subject to
adjustment as provided in paragraph 12 below. The Committee shall determine
the date on which an option is granted; in the absence of such a
determination, the date on which the Committee adopts a resolution granting an
option shall be considered the date on which such option is granted.
6. Term of Option
The term of each option shall be not more than ten (10) years from the date
of grant, as the Committee shall determine, subject to earlier termination as
provided in paragraphs 10 and 11 below.
7. Exercise of Options
(a) Except as provided below, no option granted under the 1992 Plan shall be
exercisable prior to the expiration of the first year of its term. Thereafter,
subject to the provisions of the 1992 Plan and unless otherwise provided in
the option agreement, an option granted under the 1992 Plan shall become
exercisable in full at the earlier of the holder's death or the fourth
anniversary of the date of grant. Prior thereto, each option shall become
exercisable in cumulative installments as follows: to the extent of 25% of the
number of shares originally covered thereby on the first anniversary of the
date of grant of the option; and to the extent of an additional 25% of the
number of shares originally covered thereby on the second, third and fourth
anniversary, respectively, of the date of grant of the option. In its
discretion, the Committee may, in any case, prescribe different installments
or provide that an option may be exercisable in full immediately upon the date
of its grant. Notwithstanding the installments set forth above, the Committee
may in its sole discretion, provide that an option shall immediately become
exercisable in full upon the happening of any of the following events: (i) the
first purchase of shares of Common Stock pursuant to a tender offer or
exchange offer (other than an offer by the Corporation) for all, or any part
of, the Common Stock; (ii) the approval by the shareholders of the Corporation
of an agreement for a merger in which the Corporation will not survive as an
independent, publicly owned corporation, a consolidation, or a sale, exchange
or other disposition of all or substantially all of the Corporation's assets;
(iii) with respect to an employee, on his 65th birthday; or (iv) with respect
to an employee, on the employee's involuntary termination from employment. In
the event of a question or controversy as to whether any of the events
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hereinafter described has taken place, a determination by the Committee that
such event has or has not occurred shall be conclusive and binding upon the
Corporation and participants in the 1992 Plan.
(b) An option may be exercised, at any time or from time to time (subject,
in the case of Incentive Options, to such restrictions as may be imposed by
the Code), as to any or all full shares as to which the option has become
exercisable until the expiration of the period set forth in Section 6 hereof,
by the delivery to the Corporation, at its principal executive offices, of (i)
written notice of exercise in the form specified by the Committee specifying
the number of shares of Common Stock with respect to which the option is being
exercised and signed by the person exercising the option as provided herein;
(ii) payment of the purchase price; and (iii) in the case of Nonqualified
Options, payment in cash of all withholding tax obligations imposed on the
Corporation by reason of the exercise of the option. Upon acceptance of such
notice, receipt of payment in full, and receipt of payment of all withholding
tax obligations, the Corporation shall cause to be issued a certificate
representing the shares of Common Stock purchased. In the event the person
exercising the option delivers the items specified in (i) and (ii) of this
Subsection 7 (b), but not the item specified in (iii) hereof, if applicable,
the option shall still be considered exercised upon acceptance by the
Corporation for the full number of shares of Common Stock specified in the
notice of exercise but the actual number of shares issued shall be reduced by
the smallest number of whole shares of Common Stock which, when multiplied by
the Fair Market Value of the Common Stock as of the date the option is
exercised, is sufficient to satisfy the required amount of withholding tax.
(c) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Corporation;
in addition, subject to compliance with applicable laws and regulations and
such conditions as the Committee may impose, the Committee, in its sole
discretion, may on a case-by-case basis elect to accept payment in shares of
Common Stock of the Corporation which are already owned by the option holder,
valued at the Fair Market Value thereof (as defined in paragraph 15 below) on
the date of exercise; provided, however, that with respect to Incentive
Options, no such discretion may be exercised unless the option agreement
permits the payment of the purchase price in that manner. The Committee may
also allow an Optionee to exercise an option by use of the proceeds to be
received from the sale of Common Stock issuable pursuant to the option.
(d) An Option shall become fully exercisable upon a Change in Control (as
hereinafter defined) of the Corporation. For purposes of this Plan, a "Change
of Control" shall be conclusively deemed to have occurred if (and only if) any
of the following events shall have occurred: (a) there shall have occurred an
event required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or in response to any similar item on any similar schedule or
form) promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Corporation is then subject to such
reporting requirement; (b) any "person" (as such term is used in Section 13(d)
and 14(d) of the Exchange Act) shall have become the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing 20% or more of the combined voting
power of the Corporation's then outstanding voting securities without prior
approval of at least two-thirds of the members of the Board of Directors in
office immediately prior to such person's attaining such percentage interest;
(c) the Corporation is a party to a merger, consolidation, sale of assets or
other reorganization, or a proxy contest, as a consequence of which members of
the Board of Directors in office immediately prior to such transaction or
event constitute less than a majority of the Board of Directors thereafter or
(d) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (including for
this purpose any new Director whose election or nomination for election by the
Corporation's shareholders was approved by a vote of at least two-thirds of
the Directors then still in office who were Directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
(e) Except as provided in paragraphs 10 and 11 below, no option granted to
an employee may be exercised at any time by such employee unless such employee
is then a regular full-time employee of the Corporation or a subsidiary and
unless the employee has remained in the continuous employ of the Corporation,
any of its subsidiaries or any combination thereof for one year from the date
of its grant.
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8. Incentive Options
(a) With respect to Incentive Options granted, the aggregate Fair Market
Value (determined in accordance with the provisions of paragraph 15 at the
time the Incentive Option is granted) of the Common Stock or any other stock
of the Corporation, its parent or subsidiary corporations with respect to
which incentive stock options, as defined in Section 422 of the Code, are
exercisable for the first time by any employee during the calendar year (under
all incentive stock option plans of the Corporation and its parent and
subsidiary corporations, as those terms are defined in Section 425 of the
Code) shall not exceed $100,000.
(b) No Incentive Option may be awarded to any employee who immediately prior
to the date of the granting of such Incentive Option owns more than 10% of the
combined voting power of all classes of stock of the Corporation or any of its
subsidiaries unless the exercise price under the Incentive Option is at least
110% of the Fair Market Value and the option expires within five (5) years
from the date of the grant.
(c) In the event of amendments to the Code or applicable regulations
relating to the Incentive Options subsequent to the date hereof, the
Corporation may amend the provisions of the 1992 Plan, and the Corporation and
the employees holding options may agree to amend outstanding option
agreements, to conform to such amendments.
9. Non-Transferability of Options
Incentive Options granted under the 1992 Plan shall not be transferable
otherwise than by will or the laws of descent and distribution, and Incentive
Options may be exercised during the lifetime of the employee only by the
employee.
10. Termination of Employment
In the event that the employment of an employee to whom an option has been
granted under the 1992 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1992
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within 30 days after such
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose
employment is terminated for Cause shall, to the extent not theretofore
exercised, automatically terminate as of the date of termination of
employment. As used herein, "Cause" shall mean conduct amounting to fraud,
dishonesty, or negligence, or engaging in competition or solicitations in
contradiction and breach of any applicable employment agreement between the
Corporation and Holder. In the event of such termination not for Cause, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Award, accelerate the vesting of exercisability of an
Award, eliminate or make less restrictive any restrictions contained in an
Award, waive any restriction or other provision of this Plan or an Award or
otherwise amend or modify the Award in any manner that is either (i) not
adverse to the participant or (ii) consented to by such participant. Options
granted to employees under the 1992 Plan shall not be affected by any change
of duties or position so long as the holder continues to be a regular full-
time employee of the Corporation or any of its subsidiaries. Any option
agreement or any rules and regulations relating to the 1992 Plan may contain
such provisions as the Committee shall approve with reference to the
determination of the date employment terminates and the effect of leaves of
absence. Nothing in the 1992 Plan or in any option granted pursuant to the
1992 Plan shall confer upon any employee any right to continue in the employ
of the Corporation or any of its subsidiaries or interfere in any way with the
right of the Corporation or any such subsidiary to terminate such employment
at any time.
11. Death of Employee
If an employee to whom an option has been granted under the 1992 Plan shall
die while employed by the Corporation or a subsidiary, or within 30 days after
the termination of such employment (other than termination for Cause), such
option may be exercised, to the extent exercisable by the employee on the date
of death, by a legatee or legatees of the employee under the employee's last
will, or by the employee's personal representatives
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or distributees, at any time within six (6) months after the date of the
employee's death, but not later than the date on which the option terminates.
12. Adjustment Upon Changes in Capitalization, etc.
Notwithstanding any of the provisions of the 1992 Plan, the Committee may,
at any time, make or provide for such adjustments to the 1992 Plan, to the
number and class of shares issuable thereunder or to any outstanding options
as it shall deem appropriate to prevent dilution or enlargement of rights,
including adjustments in the event of changes in the outstanding Common Stock
by reason of stock dividends, split-ups, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations,
reorganizations, liquidations and the like. In the event of any offer to
holders of Common Stock generally relating to the acquisition of their shares,
the Committee may make such adjustment as it deems equitable in respect to
outstanding options and rights, including, in its discretion, revision of
outstanding options and rights so that they may be exercisable for the
consideration payable in the acquisition transaction. Any such determination
by the Committee shall be conclusive. Any fractional shares resulting from
such adjustments shall be eliminated.
13. Effective Date
The 1992 Plan, as amended, shall become effective upon approval by the
Corporation's shareholders. The date of grant of any option granted prior to
such approval by the shareholders shall be determined for all purposes as if
the option had not been subject to such approval; provided, however, that no
option granted under the 1992 Plan, as amended, may be exercised prior to the
approval of the 1992 Plan, as amended, by the shareholders of the Corporation.
14. Termination and Amendment
The Committee of the Corporation may suspend, terminate, modify or amend the
1992 Plan, provided that any amendment that would increase the aggregate
number of shares which may be issued under the 1992 Plan, materially increase
the benefits accruing to participants under the 1992 Plan, or materially
modify the requirements as to eligibility for participation in the 1992 Plan,
shall be subject to the approval of the Corporation's shareholders, except
that any such increase or modification that may result from adjustments
authorized by paragraph 12 does not require such approval. No suspension,
termination, modification or amendment of the 1992 Plan may, without the
consent of the employee to whom an option shall theretofore have been granted,
affect the rights of such employee under such option.
15. Miscellaneous
As said term is used in the 1992 Plan, the "Fair Market Value" of a share of
Common Stock on any day shall be deemed to mean:
(a) if the shares of Common Stock are listed on a national securities
exchange, the average of the highest and lowest sales price per share of
the Common Stock on the principal such national securities exchange on that
date, or if there shall have been no such sale so reported on that date, on
the last preceding date on which such a sale was so reported;
(b) if the shares of Common Stock are not so listed but are quoted on the
NASDAQ National Market System, the average of the highest and lowest sales
price per share of Common Stock on the NASDAQ National Market System on
that date, or, if there shall have been no such sale so reported on that
date, on the last preceding date on which such a sale was so reported;
(c) if the Common Stock is not so listed or quoted, the average of the
closing bid and asked price on that date, or, if there are no quotations
available for such date, on the last preceding date on which such
quotations shall be available, as reported by NASDAQ; or
(d) in all other events, "Fair Market Value" shall be determined by the
Board of Directors in good faith.
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The Committee may require, as a condition to the exercise of any options
granted under the 1992 Plan, that to the extent required at the time of
exercise, (i) the shares of Common Stock reserved for purposes of the 1992
Plan shall be duly listed, upon official notice of issuance, upon the stock
exchange(s) on which the Common Stock is listed, (ii) a Registration Statement
under the Securities Act of 1933, as amended, with respect to such shares
shall be effective, and/or (iii) the person exercising such option deliver to
the Corporation such documents, agreements and investment and other
representations as the Committee shall determine to be in the best interests
of the Corporation.
IN WITNESS WHEREOF, the undersigned have set their hands and seals this 26th
day of April, 1996.
/s/ Howard K. Schmidt /s/ Wilburn O. McDonald, Jr.
- ------------------------------- -------------------------------------
Howard K. Schmidt Wilburn O. McDonald, Jr.
Chief Executive Officer and Corporate Secretary
President
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APPENDIX B
SI DIAMOND TECHNOLOGY, INC.
AMENDED AND RESTATED
1992 OUTSIDE DIRECTORS' STOCK OPTION PLAN
1. DEFINITIONS. As used herein, the following terms have the meanings
hereinafter set forth unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean SI Diamond Technology, Inc.
(c) "Common Stock" shall mean the common stock, par value $.001 per
share, of the Company or, in the event that the outstanding shares of
Common Stock are hereafter changed into or exchanged for different stock or
securities of the Company or some other corporation, such other stock or
securities.
(d) "Date of Grant" shall mean the date of each annual meeting of the
shareholders of the Company.
(e) "Fair Market Value" of a share of Common Stock on a particular date
shall be deemed to mean:
(i) if the shares of Common Stock are listed on a national securities
exchange, the average of the highest and lowest sales price per share
of the Common Stock on the principal such national securities exchange
on that date, or if there shall have been no such sale so reported on
that date, on the last preceding date on which such a sale was so
reported;
(ii) if the shares of Common Stock are not so listed but are quoted
on the NASDAQ National Market System, the average of the highest and
lowest sales price per share of Common Stock on the NASDAQ National
Market System on that date, or, if there shall have been no such sale
so reported on that date, on the last preceding date on which such a
sale was so reported;
(iii) if the Common Stock is not so listed or quoted, the average of
the closing bid and asked price on that date, or, if there are no
quotations available for such date, on the last preceding date on which
such quotations shall be available, as reported by NASDAQ, or
(iv) in all other events, "Fair Market Value" shall be determined by
the Board in good faith.
(f) "Effective Date of the Plan" shall mean March 16, 1992.
(g) "Eligible Director" shall mean any Director of the Company who is not
a salaried employee of or exclusive, full-time consultant to the Company or
its subsidiaries.
(h) "Option" shall mean an Eligible Director's stock option to purchase
stock granted pursuant to the provisions of Article 4 hereof.
(i) "Optionee" shall mean an Eligible Director to whom an Option has been
granted hereunder.
(j) "Option Price" shall mean the price at which an Optionee may purchase
a share of Common Stock under a Stock Option Agreement.
(k) "Plan" shall mean the SI Diamond Technology, Inc. Amended and
Restated 1992 Outside Directors' Stock Option Plan, as hereby amended, the
terms of which are set forth herein.
(1) "Stock Option Agreement" shall mean an agreement between the Company
and the Optionee under which the Optionee may purchase Common Stock in
accordance with the Plan.
(m) "Subsidiary" of the Company shall mean any corporation of which the
Company directly or indirectly owns shares representing more than 50% of
the voting power of all classes or series of capital stock of such
corporation which have the right to vote generally on matters submitted to
a vote of the stockholders of such corporation.
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2. THE PLAN.
(a) Name. This Plan shall be known as the "SI Diamond Technology, Inc.
Amended and Restated 1992 Outside Directors' Stock Option Plan."
(b) Purpose. This Plan is intended as an incentive to retain and attract
Eligible Directors of training, experience and ability to serve as independent
directors of the Board and to afford Eligible Directors of the Company an
opportunity to acquire or increase their proprietary interests in the Company,
and thereby to encourage their continued service as Directors and to provide
them additional incentives to achieve the growth objectives of the Company.
(c) Termination Date. The Plan shall terminate and no further Options shall
be granted hereunder upon the tenth anniversary of the Effective Date of the
Plan.
3. SHAREHOLDER APPROVAL. All Options granted pursuant to this Plan, as
hereby amended, are subject to, and may not be exercised before, the approval
of this Plan, as hereby amended, by the affirmative vote of the holders of a
majority of the outstanding shares of the Common Stock of the Company that are
present, or represented, and entitled to vote at a meeting of the Company's
shareholders.
4. DESIGNATION OF PARTICIPANTS; AUTOMATIC GRANT OF OPTIONS. On the date of
each annual meeting of shareholders of the Company, each Eligible Director who
has served as such since the next previous annual meeting of shareholders,
with the exception of Dr. Philip Shaffer, shall receive options to purchase
20,000 shares of the Company's Common Stock pursuant to the provisions of the
Plan. On the date of each annual meeting of shareholders Dr. Philip Shaffer
shall receive options to purchase 50,000 shares of Common Stock pursuant to
the Plan, as long as he remains an Eligible Director.
If an Eligible Director begins his or her service on the Board after any
held annual meeting of shareholders of the Company, whether by appointment by
the Board or pursuant to a vote at a special meeting of the shareholders of
the Company, such Eligible Director shall receive options at the next
successive annual meeting of shareholders to purchase the nearest whole number
of shares of Common Stock pursuant to the Plan resulting from the product of
(a) 20,000 multiplied by (b) a fraction (i) the numerator of which is the
number of days which have elapsed between the commencement of such Eligible
Director's service and the date of the next successive annual meeting of
shareholders, and (ii) the denominator of which is 365; provided however, that
any Eligible Director beginning such service after a held annual meeting of
shareholders shall be entitled to a maximum grant of options to purchase
20,000 shares of the Company's Common Stock at such next successive annual
meeting of shareholders.
Notwithstanding the foregoing, in the case of any grant of Options made on a
date subsequent to the Effective Date, such grant shall only be made if the
number of shares subject to future grant under this Plan is sufficient to make
all automatic grants required to be made pursuant to this Plan on such date of
grant.
5. STOCK OPTION AGREEMENT, OPTION GRANT AND NUMBER OF SHARES. Each Option
granted hereunder shall be embodied in a Stock Option Agreement, which shall
be subject to the terms and conditions set forth herein and shall be signed by
the Optionee and by the Chief Executive Officer, the Chief Operating Officer,
or any Vice President of the Company for and on behalf of the Company. Each
Option Agreement shall state the Options' number, duration, time of exercise,
vesting schedule and exercise price. The terms and conditions of the Option
shall be consistent with the Plan.
6. COMMON STOCK RESERVED FOR THE PLAN. Subject to adjustment as provided in
Section 11 hereof, a total of 500,000 Shares of Common Stock shall be reserved
for issuance upon the exercise of Options granted pursuant to this Plan. The
shares subject to the Plan shall consist of unissued shares or previously
issued shares reacquired and held by the Company, or any parent or Subsidiary
of the Company, in its treasury. The Board of Directors and the appropriate
officers of the Company shall from time to time take whatever actions are
necessary to
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execute, acknowledge, file and deliver any documents required to be filed with
or delivered to any governmental authority or any stock exchange or
transaction reporting system on which shares of Common Stock are listed or
quoted in order to make shares of Common Stock available for issuance to an
Optionee; provided, however, that shares of Common Stock with respect to which
an Option has been exercised shall not again be available for any grant of
options hereunder, pursuant to this Plan. Common Stock subject to Options that
are forfeited or terminated or expire unexercised in such a manner that all or
some of the shares subject thereto are not issued to an Optionee shall
immediately become available for the granting of Options.
7. OPTION PRICE. The purchase price of each share of Common Stock that is
subject to an Option granted pursuant to this Plan shall be 100% of the Fair
Market Value of such share of Common Stock on the Date of Grant.
8. OPTION PERIOD. Each Option granted pursuant to this Plan shall terminate
and be of no force and effect with respect to any shares of Common Stock not
purchased by the Optionee upon the expiration of the tenth anniversary of the
Date of Grant.
9. EXERCISE OF OPTIONS.
(a) Options granted pursuant to this Plan shall be exercisable on a
cumulative basis, as follows:
Until the first anniversary of the Date of Grant of each Option under the
Plan, 6.25% of the number of shares in the Option grant shall vest every
three months from such Date of Grant so that 25% of the Option shall be
vested on the first anniversary of such Option grant. Thereafter, an
additional 25% of each Option shall vest on the second, third and fourth
anniversary of the Date of Grant, respectively.
(b) An Option may be exercised solely by the Optionee during his lifetime or
after his death by the person or persons entitled thereto under his will or
the laws of descent and distribution.
(c) In the event that an Optionee ceases to serve as an Eligible Director
for any reason other than death, disability or mandatory retirement, an Option
granted to such Optionee may be exercised only to the extent such Option was
exercisable at the time he ceased to serve in such capacity.
(d) An Option may be exercised at any time or from time to time during the
term of the Option as to any or all full shares which have become exercisable
in accordance with this Section, but not as to less than 25 shares of Common
Stock unless the remaining shares of Common Stock that are so exercisable are
less than 25 shares of Common Stock.
(e) An Option shall be exercised by written notice of exercise of the
Option, with respect to a specified number of shares of Stock, delivered to
the Company at its principal office.
(f) In the event that an Optionee ceases to serve as an Eligible Director by
reason of death, disability or mandatory retirement, at a time when an Option
granted hereunder is still in force and unexpired under the terms of Section 8
hereof, each such unmatured Option shall be accelerated. Such acceleration
shall be effective as of the date of death, disability or retirement, as
appropriate, and each Option so accelerated shall be exercisable in full for
so long as it is still in force and unexpired under the terms of Section 8
hereof.
(g) The purchase price of the shares as to which an Option is exercised
shall be paid in full at the time of the exercise before any shares of Common
Stock are issued. Such purchase price shall be payable in cash or by means of
tendering theretofore owned Common Stock which has been held by the Optionee
for more than six months, valued at Fair Market Value on the date of exercise,
or any combination thereof. The Board may also provide for procedures to
permit the exercise of Options by the use of the proceeds to be received from
the sale of Common Stock issuable pursuant to an Option. No holder of an
Option shall be, or have any of the rights or privileges of, a stockholder of
the Company in respect of any shares to any Option unless and until
certificates evidencing such shares shall have been issued by the Company to
such holder.
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10. NONTRANSFERABILITY OF OPTION. Options may not be transferred or assigned
by an Optionee otherwise than by will or the laws of descent and distribution
or pursuant to a qualified domestic relations order. During the lifetime of an
Optionee, an Option may be exercised only by the Optionee (or by his guardian
or legal representative, should one be appointed). In the event of the death
of an Optionee, any Option held by him may be exercised by his legatee(s) or
other distributee(s) or by his personal representative. Any attempted transfer
of an Option in violation of this Section 10 shall be null, void and of no
effect.
11. ADJUSTMENTS.
(a) The existence of outstanding Options shall not affect in any manner the
right or power of the Company or its shareholders to make or authorize any or
all adjustments, recapitalization, reorganizations or other changes in the
capital stock of the Company or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock (whether or not such issue is prior to, on a parity with or junior to
the Common Stock) or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding of any kind, whether or not of a character similar
to that of the acts or proceedings enumerated above.
(b) In the event of any subdivision or consolidation of outstanding shares
of Common Stock or declaration of a dividend payable in shares of Common Stock
or capital reorganization or reclassification or other transaction involving
an increase or reduction in the number of outstanding shares of Common Stock,
the Board may adjust proportionally (i) the number of shares of Common Stock
reserved under these Options; and (ii) the exercise price of such Options. In
the event of any consolidation or merger of the Company with another
corporation or entity or the adoption by the Company of a plan of exchange
affecting the Common Stock or any distribution to holders of Common Stock of
securities or property (other than normal cash dividends or dividends payable
in Common Stock), the Board shall make such adjustments or other provisions as
it may deem equitable, including adjustments to avoid fractional shares, to
give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to issue or assume stock options by
means of substitution of new options for previously issued options or an
assumption of previously issued options, or to make provision for the
acceleration of the exercisability of, or lapse of restrictions with respect
to, the termination of unexercised options in connection with such
transaction.
(c) An Option granted under the Plan shall be accelerated and become fully
exercisable upon a Change in Control (as hereinafter defined) of the Company.
For purposes of this Plan, a "Change of Control" shall be conclusively deemed
to have occurred if (and only if) any of the following events shall have
occurred: (a) there shall have occurred an event required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to such reporting requirement; (b) any "person" (as
such term is used in Section 13(d) and 14(d) of the Exchange Act) shall have
become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding voting
securities without prior approval of at least two-thirds of the members of the
Board in office immediately prior to such person's attaining such percentage
interest; (c) the Company is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter or (d) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Board (including for this purpose any new Director
whose election or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the Directors then still in
office who were Directors at the beginning of such period) cease for any
reason to constitute at least a majority of the Board.
The foregoing adjustments and the manner of applications thereof shall be
determined solely by the Board. The adjustments required under this Article
shall apply to any successor or successors of the Company and shall be made
regardless of the number or type of successive events requiring adjustments
hereunder.
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12. PURCHASE FOR INVESTMENT. Unless the Options and shares of Common Stock
covered by this Plan have been registered under the Securities Act of 1933, as
amended, each person exercising an Option under this Plan may be required by
the Company to give a representation in writing in form and substance
satisfactory to the Company to the effect that he is acquiring such shares for
his own account for investment and not with a view to, or for sale in
connection with, the distribution of such shares or any part thereof.
13. TAXES. The Company may make such provisions as it may deem appropriate
for the withholding of any taxes that it determines is required in connection
with any Options granted to any Optionee hereunder.
14. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN. The Board may at any
time terminate the Plan, and may at any time and from time to time, and in any
respect, amend or modify the Plan, except that (a) no amendment or alteration
that would impair the rights of any Optionee under any Option that he has been
granted shall be made without his consent or (b) no amendment or alteration
shall be effective prior to approval by the Company's shareholders to the
extent such approval is then required pursuant to Rule 16b-3 (or any successor
provision) under the Exchange Act in order to preserve the applicability of
any exemption provided by such rule to any Option then outstanding or to the
extent shareholders' approval is otherwise required by applicable legal
requirements.
15. STOCK CERTIFICATES. The Company shall not be required to issue or
deliver any certificate for shares of Common Stock purchased upon the exercise
of any Option granted hereunder or any portion thereof unless, in the opinion
of counsel to the Company, there has been compliance with all applicable legal
requirements. An Option granted under the Plan may provide that the Company's
obligation to deliver shares of Stock upon the exercise thereof may be
conditioned upon the receipt by the Company of a representation as to the
investment intention of the holder thereof in such form as the Company shall
determine to be necessary or advisable solely to comply with the provisions of
the Securities Act of 1933, as amended, or any other federal, state or local
securities laws.
16. GOVERNMENT REGULATIONS. This Plan, and the granting and exercise of
Options hereunder, and the obligation of the Company to sell and deliver
shares of Common Stock under such Options, shall be subject to all applicable
laws, rules and regulations, and to such approvals on the part of any
governmental agencies or national securities exchanges or transaction
reporting systems as may be required.
17. GOVERNING LAW. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions
of the Code or the securities laws of the United States, shall be governed by
and construed in accordance with the laws of the State of Texas.
18. EFFECTIVE DATE OF PLAN. This Plan, as hereby amended, shall be effective
as of the date it is approved by the Board of Directors of the Company.
Notwithstanding the foregoing, the adoption of this Plan, as currently
amended, is expressly conditioned upon the approval by the holders of a
majority of shares of Common Stock present, or represented, and entitled to
vote at a meeting of the Company's stockholders held on or before December 31,
1996. If the stockholders of the Company should fail so to approve this Plan
prior to such date, this Plan shall terminate and cease to be of any further
force or effect and all grants of options hereunder shall be null and void.
19. MISCELLANEOUS. The granting of any Option shall not impose upon the
Company or Board any obligation to nominate any Optionee for election as a
director, and the right of the stockholders of the Company to remove any
person as a director of the Company shall not be diminished or affected by
reason of the fact that an Option has been granted to such person.
20. RELATIONSHIP TO OTHER COMPENSATION PLANS. The adoption of the Plan shall
neither affect any other stock option, incentive or other compensation plans
in effect for the Company or any of its Subsidiaries, nor shall the adoption
of the Plan preclude the Company from establishing any other forms of
incentive or other compensation plan for directors of the Company.
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21. MISCELLANEOUS.
(a) Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
(b) Singular, Plural; Gender. Whenever used herein nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
(c) Headings, etc., No Part of Plan. Headings of articles and paragraphs
hereof are inserted for convenience and reference, and do not constitute a
part of the Plan.
IN WITNESS WHEREOF, the undersigned have set their hands and seals this 26th
day of April, 1996.
SI DIAMOND TECHNOLOGY, INC.
/s/ Howard K. Schmidt /s/ Wilburn O. McDonald, Jr.
- ------------------------------- -------------------------------------
Howard K. Schmidt Wilburn O. McDonald Jr.
Chief Executive Officer and Corporate Secretary
President
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PROXY PROXY
SI DIAMOND TECHNOLOGY, INC.
1996 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Howard K. Schmidt, Marc W. Eller and Douglas
P. Baker and each of them as proxies, with full power of substitution, to vote
as designated on the reverse side, all shares of Common Stock, Series A
Convertible Preferred Stock and Series E Preferred Stock of SI Diamond
Technology, Inc. (the "Company"), held by the undersigned, at the Annual
Meeting of Shareholders of the Company to be held on July 29, 1996, at 10:00
a.m. (CDT), at the offices of the Company, which are located at 12100
Technology Boulevard, Austin, Texas 78727, or any adjournments thereof, and
with discretionary authority to vote on all other matters that may properly
come before the meeting.
IF YOU WISH TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF
DIRECTORS, YOU MAY JUST SIGN AND DATE BELOW AND MAIL IN THE POSTAGE PAID
ENVELOPE PROVIDED. SPECIFIC CHOICES MAY BE MADE ON THE REVERSE SIDE. IN THE
ABSENCE OF INSTRUCTIONS TO THE CONTRARY, THE SHARES REPRESENTED WILL BE VOTED
IN ACCORDANCE WITH THE BOARD'S RECOMMENDATIONS.
DATED: __________________________, 1996
SIGNATURE: _____________________________
SIGNATURE: _____________________________
(NOTE: PLEASE SIGN EXACTLY AS NAME(S)
APPEARS HEREON. JOINT OWNERS SHOULD
EACH SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE.)
DO YOU PLAN TO ATEND THE ANNUAL
MEETING? ______________________________
(See Reverse Side)
PROXY (CONTINUED)
This proxy will be voted as directed, or if no direction is indicated, will be
voted FOR Item 1 all nominees listed below for election as directors; FOR Item
2 ratification of Coopers & Lybrand, L.L.P. as independent accountants and
auditors; FOR Item 3 approval of the Amended and Restated 1992 Stock Option
Plan; FOR Item 4 approval of the Amended and Restated 1992 Outside Directors'
Stock Option Plan; and in the discretion of the persons named as proxies with
respect to any other business that may properly come before the meeting. The
Board of Directors recommends a vote FOR Items 1, 2, 3 and 4.
(1) Election of Directors. FOR ALL [_] WITHHOLD AUTHORITY TO VOTE FOR [_]
(EXCEPT AS SPECIFIED BELOW)
TERM ENDING 1997: TERM ENDING 1999:
Ronald J. Berman
Lee B. Arberg Howard K. Schmidt
Marc W. Eller Thomas J. Smith
Instructions: To withhold vote for individual(s) write name(s) below.
- --------------------------------------------------------------------------------
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<S> <C> <C> <C>
(2) Ratify appointment of Coopers & Lybrand, L.L.P. as FOR AGAINST ABSTAIN
independent accountants and auditors for 1996. [_] [_] [_]
(3) To approve Amended and Restated 1992 Stock Option FOR AGAINST ABSTAIN
Plan. [_] [_] [_]
(4) To approve Amended and Restated 1992 Outside Di- FOR AGAINST ABSTAIN
rectors' Stock Option Plan. [_] [_] [_]
</TABLE>
(Sign and date on reverse side)
