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:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
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HYPERMEDIA COMMUNICATIONS, INC.
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
April __, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of HYPERMEDIA COMMUNICATIONS, INC. (the "Company"), to be held on Thursday, May
21, 1998 at 12:00 p.m., local time, at the Company's offices at 901 Mariner's
Island Boulevard, Suite 365, San Mateo, California 94404. At this meeting, you
will be asked to consider and vote upon the following proposals:
1. To elect five directors to serve until the next Annual Meeting
of Shareholders and until their successors are elected.
2. To ratify and approve an amendment to the Articles of
Incorporation to reduce the number of authorized shares for
each series of Preferred Stock to the actual number of shares
for each respective series of Preferred Stock that is
outstanding.
3. To ratify and approve an amendment to the Company's 1991 Stock
Plan to increase the number of shares reserved for issuance
thereunder to 1,400,000.
4. To ratify the appointment of Price Waterhouse LLP to serve as
this corporation's independent accountant(s) for fiscal 1998.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
These items of business and other important information concerning the
Company appear in the accompanying Proxy Statement. Please give this material
your careful attention.
Whether or not you plan to attend the meeting, please complete, sign,
date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. You may revoke your Proxy in
the manner described in the accompanying Proxy Statement at any time before it
has been voted at the meeting. If you attend the meeting, you may vote in person
even if you have previously returned your Proxy.
Sincerely,
Richard Landry
-----------------------------------
President, Chief Executive Officer,
Chairman of the Board and Publisher
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 21, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
HYPERMEDIA COMMUNICATIONS, INC., a California corporation (the "Company"), will
be held on Thursday, May 21, 1998 at 12:00 p.m., local time, at the Company's
offices at 901 Mariner's Island Boulevard, Suite 365, San Mateo, California
94404, for the following purposes:
(1) To elect five directors to serve until the next Annual Meeting
of Shareholders and until their successors are elected.
(2) To ratify and approve an amendment to the Articles of
Incorporation to reduce the number of designated shares for
each series of Series F, Series G, Series H and Series I
Preferred Stock to the actual number of shares for each
respective series of Preferred Stock that is outstanding and
to return such previously designated and unissued shares of
Series F, Series G, Series H and Series I to the pool of
undesignated Preferred Stock.
(3) To ratify and approve an amendment to the Company's 1991 Stock
Plan to increase the number of shares reserved for issuance
thereunder to 1,400,000.
(4) To ratify the appointment of Price Waterhouse LLP to serve as
this corporation's independent accountant(s) for fiscal 1998.
(5) To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 1, 1998 as
the record date for the determination of shareholders entitled to vote at this
meeting. Only shareholders of record at the close of business on April 1, 1998
are entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any shareholder attending the
meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
Richard Landry
-----------------------------------
President, Chief Executive Officer,
Chairman of the Board and Publisher
San Mateo, California
April __, 1998
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING,
YOU ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
PROXY STATEMENT FOR 1998
ANNUAL MEETING OF SHAREHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
HYPERMEDIA COMMUNICATIONS, INC., a California corporation (the "Company"), for
use at the Annual Meeting of Shareholders to be held Thursday, May 21, 1998 at
12:00 p.m., local time, or at any adjournment thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Shareholders.
The Annual Meeting will be held at 901 Mariner's Island Boulevard, Suite 365,
San Mateo, California 94404. The Company's principal executive offices are
located at 901 Mariner's Island Boulevard, Suite 365, San Mateo, California
94404, and the Company's telephone number at that location is (650) 573-5170.
These proxy solicitation materials and the Annual Report on Form 10-K
for the year ended December 31, 1997, including financial statements, were first
mailed on or about [April ___, ] 1998 to all shareholders entitled to vote at
the meeting.
Record Date and Principal Share Ownership
Shareholders of record at the close of business on April 1, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. The Company
has one series of Common Shares outstanding, designated Common Stock, $.001 par
value. At the Record Date, 3,200,141 shares of the Company's authorized Common
Stock were issued and outstanding and held of record by approximately 31
shareholders. The Company has six series of Preferred Shares outstanding,
designated Series E Preferred Stock, $.001 par value, Series F Preferred Stock,
$.001 par value, Series G Preferred Stock, $.001 par value, Series H Preferred
Stock, $.001 par value, Series I Preferred Stock, $.001 par value, and Series J
Preferred Stock, $.001 par value. At the Record Date, 8,064,516 shares of the
Company's Series E Preferred Stock were outstanding and held of record by one
shareholder, 82,250 shares of the Company's Series F Preferred Stock were
outstanding and held of record by one shareholder, 50,344 shares of Series G
Preferred Stock were outstanding and held of record by one shareholder, 117,000
shares of Series H Preferred Stock were outstanding and held of record by one
shareholder, 28,800 shares of Series I Preferred Stock were outstanding and held
of record by one shareholder and 111,750 shares of Series J Preferred Stock were
outstanding and held of record by one shareholder. The shares of Series E
Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H
Preferred Stock, Series I Preferred Stock and Series J Preferred Stock are
convertible under certain circumstances into approximately 1,615,509 shares of
Common Stock, 82,250 shares of Common Stock, 162,012 shares of Common Stock,
403,735 shares of Common Stock, 726,746 shares of Common Stock and 2,235,000
shares of Common Stock, respectively, and are entitled to the number of votes
each would be entitled to cast if converted to Common Stock.
<TABLE>
The following table sets forth certain information regarding the
beneficial ownership of Common Stock of the Company as of April 1, 1998 as to
(i) each person who is known by the Company to own beneficially more than 5% of
the outstanding shares of Common Stock, (ii) each director and each nominee for
director of the Company, (iii) each of the executive officers named in the
Summary Compensation Table in "Executive Compensation and Other Matters" below
and (iv) all directors and executive officers as a group.
<PAGE>
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------
Approximate
Five Percent Shareholders, Directors Percent of
and Certain Executive Officers Number Total
------------------------------ ------ -----
<S> <C> <C>
MK Global Ventures................................................ 4,760,833(2) 56.387%
2471 E. Bayshore Road
Palo Alto, CA 94303
Michael Kaufman................................................... 4,791,609(3) 56.546%
c/o MK Global Ventures
2471 E. Bayshore Road
Palo Alto, CA 94303
Greg Lahann....................................................... 4,733,678(4) 55.862%
c/o MK Global Ventures
2471 E. Bayshore Road
Palo Alto, CA 94303
Dr. Eugene C. Y. Duh.............................................. 181,359 5.667%
c/o Orient Semi-Conductor Electronics, Ltd.
Bldg. 1, Section 4
NAN-TZE
Export Processing Zone
Taiwan, R.O.C.
Edmund Shea....................................................... 222,500 6.872%
655 Brea Canyon Road
P.O. Box 489
Walnut, CA 92788
Richard Landry.................................................... 161,188(5) 4.795%
c/o HyperMedia Communications, Inc.
901 Mariner's Island Blvd.
San Mateo, CA 94404
John Griffin...................................................... 28,750(6) *
Patrick Ferrell................................................... 6,250(7) *
Todd Hagen ....................................................... 3,958(8) *
Directors and executive officers as a group (6 persons)........... 5,025,979(9) 70.861%
<FN>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options, warrants and convertible notes currently
exercisable or convertible, or exercisable or convertible within 60
days of April 1, 1998 are deemed outstanding for computing the
percentage of the person holding such option but are not outstanding
for computing the percentage of any other person. Except as indicated
by footnote, and subject to community property laws where applicable,
the persons named in the table above have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially
owned by them.
-2-
<PAGE>
(2) Includes 57,931 shares of Common Stock owned by MK Global Ventures,
925,450 shares of Common Stock owned by MK Global Ventures II, 150,000
shares of Common Stock owned by MK GVD Fund, 15,985 shares of Common
Stock issuable upon exercise of a warrant to purchase Common Stock held
by MK Global Ventures II and 1,724 shares of Common Stock issuable upon
exercise of a warrant to purchase Common Stock held by MK GVD Fund.
This also includes 82,250 shares of Common Stock issuable upon
conversion of the Series F Preferred Stock, 162,012 shares of Common
Stock issuable upon conversion of the Series G Preferred Stock, 403,735
shares of Common Stock issuable upon conversion of the Series H
Preferred Stock, 726,746 shares of Common Stock issuable upon
conversion of the Series I Preferred Stock and 2,235,000 shares of
Common Stock issuable upon conversion of the Series J Preferred Stock
all held by MK GVD Fund. This does not include 1,615,509 shares of
Common Stock issuable upon conversion of the Series E Preferred Stock
(which is not convertible until January 1, 2000) held by MK Global
Ventures II or any shares issuable as dividends upon the conversion of
the Series E Preferred Stock.
(3) Includes 32,500 shares of Common Stock issuable upon the exercise of
options to purchase Common Stock that are exercisable within 60 days of
April 1, 1997. Also includes 57,931 shares of Common Stock owned by MK
Global Ventures, 925,450 shares of Common Stock owned by MK Global
Ventures II, 150,000 shares of Common Stock owned by MK GVD Fund and
15,985 shares of Common Stock issuable upon exercise of a warrant to
purchase Common Stock held by MK Global Ventures II and 1,724 shares of
Common Stock issuable upon exercise of a warrant to purchase Common
Stock held by MK GVD Fund. This also includes 82,250 shares of Common
Stock issuable upon conversion of the Series F Preferred Stock, 162,012
shares of Common Stock issuable upon conversion of the Series G
Preferred Stock, 403,735 shares of Common Stock issuable upon
conversion of the Series H Preferred Stock, 726,746 shares of Common
Stock issuable upon conversion of the Series I Preferred Stock and
2,235,000 shares of Common Stock issuable upon conversion of the Series
J Preferred Stock all held by MK GVD Fund. This does not include
1,615,509 shares of Common Stock issuable upon conversion of the Series
E Preferred Stock (which is not convertible until January 1, 2000) held
by MK Global Ventures II or any shares issuable as dividends upon the
conversion of the Series E Preferred Stock. Mr. Kaufman, a director of
the Company, is a general partner of MK Global Ventures, MK Global
Ventures II and MK GVD Fund and may be deemed to have voting and
investment power with respect to such shares, although he has
disclaimed beneficial ownership of such shares.
(4) Includes 32,500 shares of Common Stock issuable upon the exercise of
options to purchase Common Stock that are exercisable within 60 days of
April 1, 1997. Also includes 925,450 shares of Common Stock owned by MK
Global Ventures II, 150,000 shares of Common Stock owned by MK GVD Fund
and 15,985 shares of Common Stock issuable upon exercise of a warrant
to purchase Common Stock owned by MK Global Ventures II. This also
includes 82,250 shares of Common Stock issuable upon conversion of the
Series F Preferred Stock, 162,012 shares of Common Stock issuable upon
conversion of the Series G Preferred Stock, 403,735 shares of Common
Stock issuable upon conversion of the Series H Preferred Stock, 726,746
shares of Common Stock issuable upon conversion of the Series I
Preferred Stock and 2,235,000 shares of Common Stock issuable upon
conversion of the Series J Preferred Stock all held by MK GVD Fund.
This does not include 1,615,509 shares of Common Stock issuable upon
conversion of the Series E Preferred Stock (which is not convertible
until January 1, 2000) held by MK Global Ventures II or any shares
issuable as dividends upon the conversion of the Series E Preferred
Stock. Mr. Lahann, a director of the Company, is a general partner of
MK Global Ventures II and MK GVD Fund and may be deemed to have voting
and investment power with respect to such shares, although he has
disclaimed beneficial ownership of such shares.
(5) Represents 161,188 shares of Common Stock issuable upon exercise of
options to purchase Common Stock that are exercisable within 60 days of
April 1, 1998.
(6) Represents 28,750 shares of Common Stock issuable upon exercise of
options to purchase Common Stock that are exercisable within 60 days of
April 1, 1998.
(7) Represents 6,250 shares of Common Stock issuable upon exercise of
options to purchase Common Stock that are exercisable within 60 days of
April 1, 1998.
-3-
<PAGE>
(8) Represents 3,958 Shares of Common Stock Issuable upon exercise of
options to purchase Common Stock that are exercisable within 60 days of
April 1, 1998.
(9) Includes 17,709 shares of Common Stock issuable upon exercise of the
warrants to purchase Common Stock, and 4,743,124 shares of Common Stock
issuable upon conversion of Series F Preferred Stock, Series G
Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and
Series J Preferred Stock listed in Notes 2, 3 and 4 above, and 265,146
shares of Common Stock issuable upon exercise of options to purchase
Common Stock listed in Notes 3, 4, 5, 6, 7 and 8 above, that are
exercisable within 60 days of April 1, 1998.
</FN>
</TABLE>
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
Voting and Solicitation
Each holder of Common Stock is entitled to one vote for each share
held. Each holder of Series E Preferred Stock, Series F Preferred Stock, Series
G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series
J Preferred Stock is entitled to the number of votes such holder could cast if
such shares were converted into Common Stock. As of April 1, 1998, (i) each
share of Series E Preferred Stock was convertible into 0.2 shares of Common
Stock, (ii) each share of Series F Preferred Stock was convertible into 1 share
of Common Stock, (iii) each share of Series G Preferred Stock was convertible
into 3.22 shares of Common Stock, (iv) each share of Series H Preferred Stock
was convertible into 3.45 shares of Common Stock, (v) each share of Series I
Preferred Stock was convertible into 25.23 shares of Common Stock and (vi) each
share of Series J Preferred Stock was convertible into 20 shares of Common
Stock. Every shareholder voting for the election of directors (Proposal One) may
cumulate such shareholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of shares that
such shareholder is entitled to vote, or distribute such shareholder's votes on
the same principle among as many candidates as the shareholder may select,
provided that votes cannot be cast for more than five candidates. However, no
shareholder shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the shareholder, or any other
shareholder, has given notice at the meeting, prior to the voting, of the
intention to cumulate the shareholder's votes. On all other matters,
shareholders may not cumulate votes.
This solicitation of proxies is made by the Company, and all related
costs will be borne by the Company. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation material to such beneficial owners.
Proxies may also be solicited by certain of the Company's directors, officers
and regular employees, without additional compensation, personally or by
telephone, telegram or telefacsimile.
Deadline for Receipt of Shareholder Proposals
Proposals of shareholders of the Company that are intended to be
presented by such shareholders at the Company's Annual Meeting of Shareholders
for fiscal year 1998 must be received by the Company no later than January 28,
1999 in order that they may be considered for inclusion in the proxy statement
and form of proxy relating to that meeting.
-4-
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
The Company's bylaws provide that the Board of Directors shall be
composed of five directors. A board of five directors is to be elected at the
Annual Meeting of Shareholders. Unless otherwise instructed, the proxy holders
will vote the proxies received by them for the Company's five nominees named
below, all of whom are presently directors of the Company. In the event that any
nominee of the Company is unable or declines to serve as a director at the time
of the Annual Meeting of Shareholders, the proxies will be voted for any nominee
who shall be designated by the present Board of Directors to fill the vacancy.
The Company is not aware of any nominee who will be unable or will decline to
serve as a director. In the event that additional persons are nominated for
election as directors, the proxy holders intend to vote all proxies received by
them in such a manner (in accordance with cumulative voting) as will assure the
election of as many of the nominees listed below as possible, and, in such
event, the specific nominees to be voted for will be determined by the proxy
holders. The term of office for each person elected as a director will continue
until the next Annual Meeting of Shareholders or until a successor has been
elected and qualified.
Vote Required
If a quorum is present and voting, the five nominees receiving the
highest number of votes will be elected to the Board of Directors. Votes
withheld from any nominee are counted for purposes of determining the presence
or absence of a quorum. Abstentions and shares held by brokers that are present
but not voted because the brokers were prohibited from exercising discretionary
authority ("broker non-votes") will be counted as present for the purposes of
determining if a quorum is present.
Nominees
<TABLE>
The names of the nominees and certain information about them as of
April 1, 1997 are set forth below:
<CAPTION>
Name of Nominee Age Position with the Company Director Since
--------------- --- ------------------------- --------------
<S> <C> <C> <C>
Richard Landry 41 President, Chief Executive Officer, Chairman of 1992
the Board and Publisher
Patrick Ferrell (1) 41 Director 1997
John Griffin (1)(2) 49 Director 1994
Michael Kaufman (2) 56 Director 1991
Greg Lahann (1) 39 Director 1990
<FN>
- --------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
</FN>
</TABLE>
All directors hold office until the next annual meeting of shareholders
of the Company or until their successors have been elected. Directors do not
receive any cash compensation for their service as directors of the Company, but
are reimbursed for expenses incurred in connection with attending Board or
committee meetings.
-5-
<PAGE>
Pursuant to the terms of the 1993 Director Option Plan, each nonemployee
director of the Company receives one initial nonstatutory stock option for
25,000 shares of Common Stock and will receive an additional nonstatutory stock
option grant for 5,000 shares of Common Stock on June 1 of each year if he or
she has been on the Board for at least six months. These options become
exercisable cumulatively at the rate of 1/4th of the shares subject to the
option for every year after the date of grant, based on the Board member's
continued service. There is no family relationship between any director or
executive officer of the Company.
Richard Landry joined the Company in January 1992 as its President and
Publisher; he also became a director of the Company at that time. In July 1992,
Mr. Landry became Chief Executive Officer of the Company. In February 1997, Mr.
Landry became the Chairman of the Board. From 1988 to 1991, Mr. Landry was
Editor-in-Chief and Associate Publisher of PC World, a publication of PCW
Communications, Inc. From 1986 to 1988, Mr. Landry was Managing Editor and
Editor of PC World.
Patrick Ferrell became a director of the Company in February 1997. Mr.
Ferrell is currently Chief Executive Officer and President of relationships.com.
Mr. Ferrell was also the founder of GamePro magazine, the leading consumer
publication servicing the interactive entertainment market. From 1989 to 1997,
Mr. Ferrell was the President and Chief Executive Officer of Infotainment World,
Inc., a diversified subsidiary of IDG Communications.
John Griffin became a director of the Company in April 1994. Since
September 1990, he has been the President of the Magazine Division of Rodale
Press, Inc., Emmaus, Pennsylvania, a publisher of consumer magazines in the
areas of health, fitness, gardening and crafts, including Prevention, Runner's
World and American Woodworker. Mr. Griffin has also been a director of Rodale
Press since October 1990. From January 1988 until April 1990, Mr. Griffin was
Chairman of the Board of Directors, President and Publisher of PC World.
Michael Kaufman became a director of the Company in July 1991. Since
October 1987, he has been the General Partner of MK Global Ventures, Palo Alto,
California, a venture capital firm specializing in early-stage and start-up
financing of high technology companies. From August 1981 until October 1987, Mr.
Kaufman was a general partner of Oak Investment Partners, a venture capital
firm. Prior to August 1981, Mr. Kaufman was President and Chief Operating
Officer of Centronics Data Corporation, a manufacturer of computer peripherals.
Mr. Kaufman serves on the boards of directors of Asante Technologies, Inc., a
networking products company, Davox Corp., a telecommunications company, Document
Technologies, Inc., a computer software and systems company, Document Imaging
Systems Corporation, a manufacturer of computer mass storage systems, and
Proxim, Inc., a wireless communications company.
Greg Lahann became a director of the Company in August 1990. From
October 1987 until December 1993, he was the Chief Financial Officer of MK
Global Ventures, and since January 1990 he has been a General Partner of MK
Global Ventures II. From 1981 to 1987, Mr. Lahann was employed by Price
Waterhouse LLP in various positions, the last of which was as manager in the
Audit Department. Mr. Lahann is a Certified Public Accountant.
Voting Agreement
MK Global and Richard Landry have entered into a Shareholder Voting
Agreement pursuant to which they have each agreed to vote the shares of stock
held by each of them to elect Richard Landry and a nominee of MK Global to the
Board of Directors of the Company. Pursuant to the Shareholder Voting Agreement,
MK Global will vote for nominee Richard Landry and Richard Landry will vote for
nominees Richard Landry and at least one of Michael Kaufman or Greg Lahann.
-6-
<PAGE>
Board Meetings and Committees
The Board of Directors of the Company held a total of 6 meetings during
fiscal 1997. No director attended fewer than 75% of the meetings of the Board of
Directors and committees thereof, if any, upon which such director served. The
Board of Directors has a Compensation Committee and an Audit Committee. The
Board of Directors has no nominating committee or any committee performing such
functions.
The Compensation Committee, which consisted of directors Michael
Kaufman and John Griffin at the end of fiscal 1997, met once during the fiscal
year. This Committee is responsible for determining salaries, incentives and
other forms of compensation for directors and officers of the Company.
The Audit Committee, which consisted of directors Michael Kaufman and
Greg Lahann at the end of fiscal 1997, met once during the fiscal 1997. The
Audit Committee currently consists of Greg Lahann, Patrick Ferrell and John
Griffin. This Committee is responsible for overseeing actions taken by the
Company's independent auditors and reviews the Company's internal financial
controls.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of the following directors during
fiscal 1997: Kaufman and Griffin. The Compensation Committee makes
recommendations to the Board of Directors concerning salaries and incentive
compensation for directors and officers of the Company. Mr. Landry, President
and Chief Executive Officer of the Company, is not a member of the Compensation
Committee and cannot vote on matters decided by the Committee. He does
participate in all discussions and decisions regarding salaries and incentive
compensation for all employees of and consultants to the Company, except that
Mr. Landry is excluded from discussions and decisions regarding his own salary
and incentive compensation.
MK Global Ventures, MK Global Ventures II and MK GVD Fund
(collectively, "MK Global") own approximately 35.42% of the outstanding Common
Stock and 100% of the outstanding Preferred Stock. Michael Kaufman, a director
of the Company, is the General Partner of MK Global Ventures. Greg Lahann, a
director of the Company, is a General Partner of MK Global Ventures II. MK
Global and Richard Landry have entered into a Shareholder Voting Agreement
pursuant to which they have each agreed to vote the shares of Common Stock held
by each of them to elect Richard Landry and a nominee of MK Global to the Board
of Directors of the Company.
PROPOSAL TWO
AMENDMENT OF ARTICLES OF INCORPORATION
The Company's Articles of Incorporation currently authorize the Company
to issue 10,064,516 shares of Preferred Stock, of which 8,064,516 have been
designated Series E Preferred Stock, all of which are outstanding, 175,000 have
been designated Series F Preferred Stock, 82,250 of which are outstanding,
175,000 have been designated Series G Preferred Stock, 50,344 of which are
outstanding, 400,000 have been designated Series H Preferred Stock, 117,000 of
which are outstanding, 200,000 have been designated Series I Preferred Stock,
28,800 of which are outstanding, and 250,000 have been designated Series J
Preferred Stock, 111,750 of which are outstanding. In the aggregate, 9,264,516
shares of Preferred Stock have been designated as either Series E, Series F,
Series G, Series H, Series I, or Series J Preferred Stock. In the aggregate,
8,454,660 shares of Preferred Stock are issued and outstanding.
-7-
<PAGE>
At the Annual Meeting, the shareholders are being requested to approve
an amendment to the Company's Articles of Incorporation to reduce the number of
designated shares of Preferred Stock for Series F, Series G, Series H and Series
I Preferred Stock to the actual number of shares in each series that is
outstanding. A total of 278,394 shares of Preferred Stock have been issued and
are outstanding for all of the Series F, Series G, Series H and Series I
Preferred Stock. Additionally, the shareholders are being requested to approve
the return of the 671,606 previously designated and unissued shares of Series F,
Series G, Series H and Series I Preferred Stock to the pool of unissued and
undesignated Preferred Stock, which would increase the number of authorized
undesignated shares of Preferred Stock from 800,000 shares to 1,471,606 shares.
The Articles of Incorporation are also being restated to incorporate
the Certificates of Determination of Rights and Preferences of the Series H
Preferred, Series I Preferred, and Series J Preferred. The restatement of the
Articles of Incorporation to incorporate the Certificates of Determination does
not alter the current rights, preferences, privileges and restrictions of the
Preferred Stock and does not require shareholder approval. The essential
features of the Articles of Incorporation, are outlined below. A copy may be
obtained via EDGAR or from the Company.
The Articles of Incorporation provide that the Board of Directors is
authorized to fix the number of shares of any series of Preferred Stock and to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series of
Preferred Stock, to decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. Additionally, the Board of Directors may
authorize the issuance of additional series of Preferred Stock. The Board of
Directors may therefore issue additional Preferred Stock with voting and
conversion rights that could adversely affect the voting power of the holders of
Common Stock.
The holders of Preferred Stock are entitled to the number of votes
equal to the number of shares of Common Stock into which their shares of
Preferred Stock would be convertible at the then effective conversion price. The
holders of Preferred Stock are entitled to vote on all matters to be voted upon
by the shareholders. For a description of the current voting rights of each
series of Preferred Stock, see "Voting and Solicitation."
The Board of Directors believes that the availability of the
undesignated Preferred Stock, the rights preferences and restrictions of which
may be set by the Board of Directors, increases the Board of Directors'
flexibility by providing additional shares for future use by the Company for
acquisitions, financings, stock dividends and other corporate purposes,
including maintaining the Company's listing on the Nasdaq SmallCap Market. The
Series E Preferred Stock was issued at the Company's initial public offering,
upon the conversion of Series D Preferred Stock. The Series F, Series G, Series
H, Series I and Series J Preferred Stock have been issued in a series of private
financings between March 1993 and March 1998, pursuant to which the Company's
major shareholder, MK GVD Fund, agreed to finance the Company in private
placement at a price discounted to the trading price of the Company's Common
Stock in the public market.
The Series E Preferred Stock has a liquidation preference per share
equal to $.124 per share and all accumulated and unpaid dividends. After
December 31, 1999 shares of Series E Preferred Stock are convertible into such
number of shares of Common Stock as is determined by dividing $0.124 by the
Series E Conversion Price in effect at the time of the conversion. The Series E
Conversion Price is currently $0.619 and as a result of the issuance of the
Series J Preferred Stock would be convertible into 1,615,509 shares of Common
Stock, if it were currently convertible. The Series E Preferred Stock also has
price-based antidilution rights. Pursuant to the price-based antidilution rights
(and subject to certain exceptions), if the Company issues shares at a price
below the Series E Conversion Price, the Series E Conversion Price is reduced to
the price at which the Company issues the shares.
-8-
<PAGE>
The Series E Preferred also has cumulative dividend rights which accrue
at a rate of $.0074 per annum (an aggregate of approximately $59,677 per annum).
If the Company has accumulated unpaid dividends on the Series E Preferred at the
time the Series E Preferred converts to Common Stock the dividends convert to
Common Stock at the effective Series E Conversion Price. If the accumulated
dividends were to convert as of April 1, 1998, they would be convertible into
387,722 shares.
Each of the Series F Preferred Stock, Series G Preferred and Series H
Preferred Stock, were issued at prices discounted at 85% of the average closing
bid price of the Company's Common Stock as reported on the Nasdaq SmallCap
Market for the 10 trading days ending 5 business days before the closing of the
sale (the "Formula Price") of the Shares, and each such Series was initially
convertible into one share of Common Stock, The Series I Preferred Stock was
issued at a price discounted at 10 times the Formula Price and was initially
convertible into 10 shares of Common Stock. The Series J Preferred Stock was
issued at a price discounted at 20 times the Formula Price and each share of
Series J Preferred Stock is convertible into 20 shares of Common Stock.
The Series F Preferred, Series G Preferred, Series H Preferred, Series
I Preferred and Series J Preferred Stock are entitled to dividends in the amount
of five percent (5%) of the Initial Sales Price of Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred Stock
per fiscal year only if declared by the Board of Directors. The dividends are
not cumulative and no rights shall accrue to the holders of these series of
Preferred Stock in the event the Corporation does not declare or pay dividends.
The liquidation preference per share is equal to $3.039 per share for the Series
F Preferred, $1.992 per share for the Series G Preferred, $2.136 per share for
the Series H Preferred, $15.62 per share for the Series I Preferred and $12.38
per share for the Series J Preferred Stock, plus all declared but unpaid
dividends. Shares of Series F Preferred, Series G Preferred, Series H Preferred,
Series I Preferred and Series J Preferred Stock are convertible into each number
of shares of Common Stock equal to the initial sales price of each respective
series of Preferred Stock divided by the appropriate conversion price subject to
any adjustment therein. The initial sales price was $3.039 for the Series F
Preferred, $1.992 for the Series G Preferred, $2.136 for the Series H Preferred,
$15.62 for the Series I Preferred and $12.38 for the Series J Preferred. The
conversion prices of each of the Series F Preferred, Series G Preferred, Series
H Preferred, Series I Preferred and Series J Preferred is subject to adjustment
in the event of subdivisions, splits, combinations, consolidations or
reclassification of Common Stock and similar events and, for approximately one
year after the final sale of each Series in the event the Company issues shares
of Common Stock at a price below the applicable conversion price ("price-based
antidilution"). The price-based antidilution feature has expired for the Series
G Preferred Stock and will expire on September 30, 1998 for the Series H
Preferred Stock, December 30, 1998 for the Series I Preferred Stock and one year
after the final sale of the Series J Preferred Stock. The issuance of 105,000
shares of Series J Preferred at $12.38 per share in February 1998 was equivalent
to an issuance at $0.619 per share of Common Stock and caused the conversion
prices of each of the Series G Preferred, Series H Preferred, Series I Preferred
and Series J Preferred to be adjusted to $0.619 per share. Accordingly, each
share of Series F Preferred is convertible into 1 share of Common Stock, each
share of Series G Preferred is convertible info 3.22 shares of Common Stock,
each share of Series H Preferred is convertible into 3.45 shares of Common
Stock, each share of Series I Preferred is convertible into 25.23 shares of
Common Stock and each share of Series J Preferred is convertible into 20 shares
of Common Stock. All shares of Series F Preferred, Series G Preferred, Series H
Preferred, Series I Preferred and Series J Preferred Stock then outstanding
shall automatically convert into shares of Common Stock upon the election of at
least 67% of the authorized, issued and outstanding shares of each respective
Series of Preferred Stock to convert shares of Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred Stock
into Common Stock.
The Company believes it has been in the Company's best interest to
issue each of the Series F, Series G, Series H, Series I and Series J Preferred
Stock to finance the Company's operations when no alternative financing has been
available. Subject to the agreement of MK GVD Fund to purchase the Shares, the
Company intends to issue the remainder of the authorized, unissued Series J
Preferred Stock if necessary to maintain the Company's listing on the Nasdaq
SmallCap Market or to fund the Company's operations. The issuance of the
Preferred Stock, through a private placement or otherwise, may be dilutive to
the Shareholders and could have the effect of
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<PAGE>
delaying, deferring or preventing a change of control of the Company. Except for
mergers or other transactions requiring shareholder approval under California
law or pursuant to Nasdaq's rules, the Board of Directors would have the power
to issue the authorized shares of Preferred Stock without further shareholder
approval or notice.
The Board of Directors believes that it is advisable to return the
unissued Series F, Series G, Series H and Series I Preferred Stock to the pool
of undesignated Preferred Stock to maintain flexibility that could otherwise be
lost by not having a sufficient number of authorized and undesignated Preferred
Stock.
Required Vote
The affirmative vote of a majority of the outstanding shares of Common
Stock and each Series of Preferred Stock is required for approval of this
proposal.
The Board of Directors unanimously recommends a vote "FOR" approval of
this proposition to amend the Company's Articles of Incorporation in the manner
described above. The amended Articles of Incorporation are filed as EDGAR Annex
A.
PROPOSAL THREE
AMENDMENT OF THE 1991 STOCK PLAN
At the Annual Meeting, the shareholders are being asked to approve an
amendment to the Company's 1991 Stock Plan (the "1991 Plan") attached as EDGAR
Annex B to this Proxy Statement, to increase the number of shares of Common
Stock reserved for issuance thereby by 700,000 shares to 1,400,000 shares.
The foregoing amendment was approved by the Board of Directors on
February 17, 1998. The adoption of the Stock Plan was approved by the Board of
Directors and by the shareholders in December 1991. As of April 1, 1998 [8,932]
shares of Common Stock had been issued pursuant to option exercises, options to
purchase an aggregate of [482,544] shares were outstanding and [208,524] shares
(exclusive of the 700,000 shares subject to shareholder approval at the Annual
meeting) were available for future grant. The 1991 Plan authorizes the Board of
Directors to grant incentive and nonstatutory stock options and stock purchase
rights to eligible employees and consultants of the Company. The 1991 Plan is
structured to allow the Board of Directors broad discretion in creating equity
incentives in order to assist the Company in attracting, retaining and
motivating the best available personnel for the successful conduct of the
Company's business.
Vote Required and Board of Directors Recommendation
The affirmative vote of a majority of the Votes Cast will be required
under California law to approve the amendment and restatement of the 1991 Plan.
For this purpose, the "Votes Cast" are defined under California law to be the
shares of the Company's Common Stock represented and "voting" at the Annual
meeting. In addition, the affirmative votes must constitute at least a majority
of the required quorum, which quorum is a majority of the shares outstanding on
the Record Date. Votes that are cast against the proposal will be counted for
purposes of determining (i) the presence or absence of a quorum and (ii) the
total number of Votes Cast with respect to the proposal. While there is no
definitive statutory or case law authority in California as to the proper
treatment of abstentions in the counting of votes with respect to a proposal
such as the amendment of the 1991 Plan, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to the proposal. In the absence of controlling precedent to
the contrary, the Company intends to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote against the
proposal. Broker non-votes will be counted
-10-
<PAGE>
for purposes of determining the presence or absence of a quorum for the
transaction of business, but will not be counted for purposes of determining the
number of Votes Cast with respect to the proposal.
The Board of Directors unanimously recommends a vote "FOR" the
amendment of the 1991 Plan.
Summary of the 1991 Plan
The essential features of the 1991 Plan are outlined below.
Purpose
The purpose of the Plan is to attract and retain the best available
personnel for positions of substantial responsibility with the Company, to
provide additional incentive to the employees (including officers and
employee-directors) and consultants of the Company and to promote the success of
the Company's business. Options and stock purchase rights may be granted under
the Plan. Options granted under the Plan may be either "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonstatutory stock options.
Administration
The Plan may generally be administered by the Board or the Committee
appointed by the Board (as applicable, the "Administrator").
Eligibility; Limitations
Nonstatutory stock options and stock purchase rights may be granted
under the Plan to employees and consultants of the Company and any parent or
subsidiary of the Company. Incentive stock options may be granted only to
employees of the Company and any parent or subsidiary of the Company. The
Administrator, in its discretion, selects the employees and consultants to whom
options and stock purchase rights may be granted, the time or times at which
such options and stock purchase rights shall be granted, and the number of
shares subject to each such grant. Approximately 36 people are eligible to be
granted options or stock purchase rights under the 1991 Plan.
Terms and Conditions of Options.
Each option is evidenced by a stock option agreement between the
Company and the optionee, and is subject to the following additional terms and
conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an incentive
stock option may not be less than 100% of the fair market value of the Common
Stock on the date such option is granted; provided, however, the exercise price
of an incentive stock option granted to a 10% shareholder may not be less than
110% of the fair market value of the Common Stock on the date such option is
granted. The exercise price of a nonstatutory stock option may not be less than
85% of the fair market value of the Common Stock on the date such option is
granted; provided, however, the exercise price of a nonstatutory stock option
granted to a 10% shareholder may not be less than 110% of the fair market value
of the Common Stock on the date such option is granted. The fair market value of
the Common Stock is generally determined in good faith by the Administrator.
(b) Exercise of Option; Form of Consideration. The Administrator
determines when options become exercisable; provided, however, that options
granted to individuals other than officers, directors and consultants
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<PAGE>
must vest at a rate of no less than 20% per year over five years from the date
of grant. The Administrator may, in its discretion, accelerate the vesting of
any outstanding option. Stock options granted under the Plan generally vest and
become exercisable over four years. The means of payment for shares issued upon
exercise of an option is specified in each option agreement. The Plan permits
payment to be made by cash, check, promissory note, other shares of Common Stock
of the Company (with some restrictions), cashless exercises, a reduction in the
amount of any Company liability to the optionee, any other form of consideration
permitted by applicable law, or any combination thereof.
(c) Term of Option. The term of an incentive stock option may be no
more than ten (10) years from the date of grant; provided that in the case of an
incentive stock option granted to a 10% shareholder, the term of the option may
be no more than five (5) years from the date of grant. No option may be
exercised after the expiration of its term.
(d) Termination of Employment. If an optionee's employment or
consulting relationship terminates for any reason (other than death or
disability), then all options held by the optionee under the Plan expire on the
earlier of (i) the date set forth in his or her notice of grant or (ii) the
expiration date of such option. To the extent the option is exercisable at the
time of such termination, the optionee may exercise all or part of his or her
option at any time before termination.
(e) Death or Disability. If an optionee's employment or consulting
relationship terminates as a result of death or disability, then all options
held by such optionee under the Plan expire on the earlier of (i) 12 months from
the date of such termination or (ii) the expiration date of such option. The
optionee (or the optionee's estate or the person who acquires the right to
exercise the option by bequest or inheritance), may exercise all or part of the
option at any time before such expiration to the extent that the option was
exercisable at the time of such termination.
(g) Nontransferability of Options: Options granted under the Plan are
not transferable other than by will or the laws of descent and distribution, and
may be exercised during the optionee's lifetime only by the optionee.
(h) Other Provisions: The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Administrator.
Stock Purchase Rights
In the case of SPRs, unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment with the Company for any reason (including death or disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at a rate determined by the Administrator.
Adjustments Upon Changes in Capitalization
In the event that the stock of the Company changes by reason of any
stock split, reverse stock split, stock dividend, combination, reclassification
or other similar change in the capital structure of the Company effected without
the receipt of consideration, appropriate adjustments shall be made in the
number and class of shares of stock subject to the Plan, the number and class of
shares of stock subject to any option or stock purchase right outstanding under
the Plan, and the exercise price of any such outstanding option or stock
purchase right.
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<PAGE>
In the event of a liquidation or dissolution, any unexercised options
or stock purchase rights will terminate. The Administrator may, in its
discretion provide that each optionee shall have the right to exercise all of
the optionee's options and stock purchase rights, including those not otherwise
exercisable, until the date ten (10) days prior to the consummation of the
liquidation or dissolution.
In the event of a merger of the Company with or into another
corporation or the sale of substantially all of the assets of the Company, each
outstanding option or stock purchase right shall be assumed or an equivalent
option or right substituted by the successor corporation. If the successor
corporation refuses to assume the options and stock purchase rights or to
substitute substantially equivalent options and stock purchase rights, the
optionee shall have the right to exercise the option or stock purchase right as
to all the optioned stock, including shares not otherwise exercisable. In such
event, the Administrator shall notify the optionee that the option or stock
purchase right is fully exercisable for fifteen (15) days from the date of such
notice and that the option or stock purchase right terminates upon expiration of
such period.
Amendment and Termination of the Plan
The Board may amend, alter, suspend or terminate the Plan, or any part
thereof, at any time and for any reason. However, the Company shall obtain
shareholder approval for any amendment to the Plan to the extent necessary to
comply with Section 422 of the Code, or any similar rule or statute. No such
action by the Board or shareholders may alter or impair any option or stock
purchase right previously granted under the Plan without the written consent of
the optionee. Unless terminated earlier, the Plan shall terminate ten years from
the date of its approval by the shareholders or the Board of the Company,
whichever is earlier.
Federal Income Tax Consequences
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise may subject the optionee to the
alternative minimum tax. Upon a disposition of the shares more than two years
after grant of the option and one year after exercise of the option, any gain or
loss is treated as long-term capital gain or loss. If these holding periods are
not satisfied, the optionee recognizes ordinary income at the time of
disposition equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. A different rule for measuring ordinary income upon such a
premature disposition may apply if the optionee is also an officer, director, or
10% shareholder of the Company. The Company is entitled to a deduction in the
same amount as the ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. The Company is
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as taxable income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period.
Stock Purchase Rights. Stock purchase rights will generally be taxed in
the same manner as nonstatutory stock options. However, restricted stock is
generally purchased upon the exercise of a stock purchase right. At the time of
purchase, restricted stock is subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code. As a result, the purchaser will
not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when a stock ceases to be subject to
a substantial risk of
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<PAGE>
forfeiture. The stock will generally cease to be subject to a substantial risk
of forfeiture when it is no longer subject to the Company's right to repurchase
the stock upon the purchaser's termination of employment with the Company. At
such times, the purchaser will recognize ordinary income measured as the
difference between the purchase price and the fair market value of the stock on
the date the stock is no longer subject to a substantial risk of forfeiture.
The purchaser may accelerate to the date of purchase his or her
recognition of ordinary income, if any, and the beginning of any capital gain
holding period by timely filing an election pursuant to Section 83(b) of the
Code. In such event, the ordinary income recognized, if any, is measured as the
difference between the purchase price and the fair market value of the stock on
the date of purchase, and the capital gain holding period commences on such
date. The ordinary income recognized by a purchaser who is an employee will be
subject to tax withholding by the Company. Different rules may apply if the
purchaser is also an officer, director, or 10% shareholder of the Company.
The foregoing is only a summary of the effect of federal income
taxation upon optionees, holders of stock purchase rights, and the Company with
respect to the grant and exercise of options and stock purchase rights under the
Plan. It does not purport to be complete, and does not discuss the tax
consequences of the employee's or consultant's death or the provisions of the
income tax laws of any municipality, state or foreign country in which the
employee or consultant may reside.
Participation in the 1991 Plan
Please see "Executive Compensation and Other Matters -- Executive
Compensation -- Option Grants in Fiscal 1997" for information with respect to
the grant of options to the Named Executive officers during fiscal 1997. During
fiscal 1997, all other employees as a group were granted options to purchase
156,000 shares pursuant to the 1991 Plan.
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 1998, and recommends that shareholders vote for
ratification of such appointment. In the event of a negative vote on
ratification, the Board of Directors will reconsider its selection.
Price Waterhouse LLP has audited the Company's financial statements
annually since 1991. Representatives of Price Waterhouse LLP are expected to be
present at the meeting with the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
Required Vote
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock voting in person or by proxy on this proposal at the
annual meeting is required to approve the appointment of the independent
auditors.
The Board of Directors unanimously recommends a vote "FOR" the
ratification of the appointment of Price Waterhouse LLP as independent public
accountants.
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<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
Executive Compensation
<TABLE>
The following table sets forth the compensation paid by the Company
during the fiscal years ended December 31, 1997, 1996 and 1995 to the Chief
Executive Officer and Chief Financial Officer (the "Named Executive Officers").
No other executive officer of the Company received total annual salary and bonus
in 1997 in excess of $100,000.
Summary Compensation Table
<CAPTION>
Long-Term
Compensation
-------
Awards
-------
Annual Compensation Securities
-------------------------- Underlying Other
Name and Principal Position Year Salary($) Options Compensation($)
- --------------------------- ---- --------- ------- ------------
<S> <C> <C> <C> <C>
Richard Landry........................ 1997 $150,000 0 --
President, Chief Executive Officer, 1996 140,000 50,000 --
Chairman of the Board 1995 120,000 -- --
and Publisher
Todd Hagen............................ 1997 $120,000 0 $ 7,500(3)
Vice President, Finance and 1996 110,000 10,000 --
Administration, Chief Financial 1995 55,000(1) 40,000 $ 75,396(2)
Officer and Secretary
<FN>
- -------------
(1) Based on an annualized salary of $110,000.
(2) Represents consulting fees paid to Mr. Hagen during 1995.
(3) Bonus paid in FY97 for FY96 work.
</FN>
</TABLE>
Option Grants in Fiscal 1997
There were no option grants to Executive Officers during the year ended
December 31, 1997.
Aggregated 1997 Fiscal Year-End Option Values
<TABLE>
The following table provides information on the value of unexercised
options held by the Named Executive Officers at December 31, 1997.
<CAPTION>
Number of Securitiers Value of Unexercised
Underlying Unexercised Options In-the-Money Options at
Shares at December 31, 1997 at December 31, 1997(1)
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard Landry ......... -- -- 180,544 37,500 64,089 --
Todd Hagen .............. -- -- 32,083 17,917 -- --
<FN>
- ----------------------
(1) Market value of underlying securities at year-end, minus the exercise
price. The closing price for the Company's Common Stock on The Nasdaq
SmallCap Market on December 31, 1997 was $1.00 per share.
</FN>
</TABLE>
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<PAGE>
Effective as of February 17, 1998, the Board of Directors approved an
option exchange program pursuant to which all optionees at the Company,
including Mr. Landry and Mr. Hagen, were given the right to exchange all or a
portion of their outstanding options for newly issued repriced options that
would be subject to a four-year vesting schedule. Mr. Landry exchanged options
to purchase 31,856 shares of Common Stock at an exercise price of $5.00 per
share, for options to purchase the same number of shares at an exercise price of
$1.125 per share. 7,964 of such shares will become exercisable on February 17,
1999, the remaining shares will vest quarterly thereafter. Other optionees
exchanged options to purchase an aggregate of ________ shares at a weighted
average exercise price of $_____ for options to purchase ________ shares at an
exercise price of $______.
Limitation of Liability and Indemnification Matters
Pursuant to the California Corporations Code ("California Law"), the
Company has adopted provisions in its Amended and Restated Articles of
Incorporation that eliminate the personal liability of its directors and
officers to the Company and its shareholders for monetary damages for breach of
the directors' fiduciary duties in certain circumstances. The Company's Bylaws
require the Company to indemnify its directors, officers, employees and other
agents to the fullest extent permitted by law.
The Company has entered into indemnification agreements with each of
its current directors and officers that provide for indemnification to the
fullest extent permitted by California Law, including circumstances in which
indemnification and the advancement of expenses are discretionary under
California Law. The Company believes that the limitation of liability provisions
in its Amended and Restated Articles of Incorporation and the indemnification
agreements will enhance the Company's ability to continue to attract and retain
qualified individuals to serve as directors and officers.
There is no pending litigation or proceeding involving a director,
officer or employee of the Company to which the indemnification agreements would
apply.
Compensation of Directors
Directors who are not employees of the Company are automatically
granted an option to purchase (i) 25,000 shares of the Company's Common Stock at
a purchase price equal to the fair market value of such shares on the date of
grant, upon becoming a director and (ii) an additional 5,000 shares of the
Company's Common Stock on June 1 of each year if on such date he has served on
the Board for at least six months. Such directors do not receive any other
compensation for their services as members of the Board of Directors.
Report of the Compensation Committee of the Board of Directors on its
Compensation Policies
The following is the report of the Compensation Committee of the Board
of Directors (the "Compensation Committee") describing compensation policies and
rationales applicable to the Company's executive officers with respect to the
compensation paid to such executive officers for the fiscal year ended December
31, 1997. The information contained in such report shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
General
The Compensation Committee is responsible for setting compensation
levels for the Company's executive officers. All decisions by the Compensation
Committee are reviewed by the entire Board of Directors.
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<PAGE>
In fiscal 1997, the Compensation Committee determined the salaries of
Richard Landry, President and Chief Executive Officer, and Todd Hagen, Vice
President of Finance and Administration and Chief Financial Officer. The
Compensation Committee also reviewed and approved employment compensation
matters for other management personnel. The Company formed the Compensation
Committee in October 1993, which is comprised of two nonemployee directors. The
Compensation Committee met once during fiscal 1997.
Overview and Policies for 1998
The goals of the executive compensation program are to attract,
motivate, reward and retain the key executive talent necessary to achieve the
Company's business objectives and contribute to the long-term success of the
Company. The Compensation Committee currently uses salary and stock options to
meet these goals.
In fiscal 1997, the Compensation Committee reviewed the base salaries
of the Company's two executive officers by evaluating each executive's scope of
responsibility, prior experience and salary history, and also took into account
the salaries for similar positions at comparable companies. In reviewing the
base salaries, the Compensation Committee focused on each executive's prior
performance with the Company and expected contribution to the Company's future
success. The Compensation Committee will continue to perform this role in 1998.
The Company provides long-term incentives to executive officers through
its 1991 Stock Plan. The purpose of the 1991 Stock Plan is to attract and retain
the best employee talent available and to create a direct link between
compensation and the long-term performance of the Company. In general, the 1991
Stock Plan incorporates four-year vesting periods to encourage employees to
remain with the Company. The size of each option grant is based on the
recipient's position and tenure with the Company, the recipient's past
performance, and the size of previous stock option grants, primarily weighted
toward the recipient's position.
The compensation for Richard Landry and Todd Hagen in 1997 was approved
by the Compensation Committee.
Summary
The Compensation Committee believes that the Company's compensation
policies as practiced to date have been successful in attracting and retaining
qualified employees and in linking compensation directly to corporate
performance relative to the Company's goals. The Company's compensation policies
will evolve over time as the Company moves to attain the near-term goals it has
set for itself while maintaining its focus on building long-term shareholder
value.
John Griffin
Michael Kaufman
-17-
<PAGE>
Performance Graph
Set forth below is a line graph comparing the annual percentage change
in the cumulative return to the shareholders of the Company's Common Stock with
the cumulative return of the Nasdaq U.S. Index and the Standard & Poor's
Publishing (Newspapers) Index for the period commencing March 9, 1993 (the date
of the Company's initial public offering) and ending on December 31, 1997. The
information contained in the performance graph shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
COMPARISON OF 58 MONTH CUMULATIVE TOTAL RETURN*
AMONG HYPERMEDIA COMMUNICATIONS, INC., THE NASDAQ STOCK
MARKET (U.S.) INDEX AND THE S & P PUBLISHING (NEWSPAPERS) INDEX
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
3/09/98 12/93 12/94 12/95 12/96 12/97
------- ----- ----- ----- ----- -----
HYPERMEDIA COMMUNICATIONS, INC. 100 160 100 65 28 20
NASDAQ STOCK MARKET (U.S.) 100 116 113 160 197 242
S & P PUBLISHING (NEWSPAPERS) 100 110 101 128 162 265
(1) The graph assumes that $100 was invested on March 9, 1993 in the Company's
Common Stock or on February 28, 1993 in each Index, and that all dividends
were reinvested. No dividends have been declared or paid on the Company's
Common Stock. Shareholder returns over the indicated period should not be
considered indicative of future shareholder returns.
(2) The Company operates on a 52-week fiscal year which ended on December 31,
1997.
Certain Transactions with Management
See the information set forth above under "Executive Compensation and
Other Matters -- Limitation of Liability and Indemnification Matters."
-18-
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's executive officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers, Inc. Executive officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely in its review of the
copies of such forms received by it, or written representations from certain
reporting persons, the Company believes that, during fiscal 1997, all reporting
persons complied with Section 16(a) filing requirements applicable to them.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed form of Proxy to vote the shares they
represent as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April ___, 1998
-19-
<PAGE>
EDGAR Annex A
Amended and Restated Articles of Incorporation
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
HYPERMEDIA COMMUNICATIONS, INC.
The undersigned, Richard Landry and Todd Hagen, hereby certify that:
1. They are the President and Chief Executive Officer, and Vice
President, Finance, respectively, of HyperMedia Communications, Inc., a
California corporation (the "Company").
2. The Articles of Incorporation of the Company are amended and
restated in full to read as set forth in Exhibit A attached hereto.
3. The Amended and Restated Articles of Incorporation of the Company
attached hereto have been duly approved by the Board of Directors of the
Company.
4. The Amended and Restated Articles of Incorporation of the Company
attached hereto have been duly approved by the shareholders of the Company in
accordance with Sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares of Common Stock is 3,200,141. The total
number of outstanding shares of Preferred Stock is 8,592,910, of which 8,064,516
shares have been designated as Series E Preferred Stock, all of which are issued
and outstanding, 82,250 shares have been designated Series F Preferred Stock,
all of which are issued and outstanding, 50,344 shares have been designated
Series G Preferred Stock, all of which are issued and outstanding, 117,000
shares have been designated Series H Preferred Stock, all of which are issued
and outstanding, 28,800 shares have been designated Series I Preferred Stock,
all of which are issued and outstanding and 250,000 shares have been designated
Series J Preferred Stock, 105,000 shares of which are issued and outstanding.
The total number of shares voting in favor of the Amended and Restated Articles
of Incorporation equaled or exceeded the vote required. The percentage vote
required was a simple majority of the outstanding shares of Series E Preferred
Stock voting separately as a single class, a simple majority of the outstanding
shares of Series F Preferred Stock voting separately as a single class, a simple
majority of the outstanding shares of Series G Preferred Stock voting separately
as a single class, a simple majority of the outstanding shares of Series H
Preferred Stock voting separately as a single class, a simple majority of the
outstanding shares of Series I Preferred Stock voting separately as a single
class, a simple majority of the outstanding shares of Series J Preferred Stock
voting separately as a single class, a simple majority of the outstanding shares
of Preferred Stock voting separately as a single class and a simple majority of
the outstanding shares of Common Stock voting separately as a single class and a
simple majority of the outstanding shares of Preferred Stock and Common Stock
voting together as a single class.
<PAGE>
The undersigned further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this certificate are
true and correct to their own knowledge.
Date: ___________________, 1998 _____________________________
Richard Landry, President and
Chief Executive Officer
_____________________________
Todd Hagen, Vice President,
Finance and Chief Financial
Officer
2
<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HYPERMEDIA COMMUNICATIONS, INC.
ARTICLE I
The name of this Corporation is HyperMedia Communications, Inc.
ARTICLE II
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
This Corporation is authorized to issue two classes of shares to be
designated respectively Common Stock and Preferred Stock. The total number of
shares of Common Stock this Corporation shall have authority to issue is
50,000,000, with a par value of $0.001 per share. The total number of shares of
Preferred Stock this Corporation shall have authority to issue is 10,064,516,
with a par value of $0.001 per share.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is authorized to fix the number of shares of any
series of Preferred Stock and to determine or alter the rights, preferences,
privileges, and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series of Preferred Stock, to decrease (but not below
the number of shares of any such series then outstanding) the number of shares
of any such series subsequent to the issue of shares of that series.
Of the Preferred Stock, 8,064,516 shares shall be designated Series E
Preferred Stock ("Series E Preferred"), 82,250 shares shall be designated Series
F Preferred Stock ("Series F Preferred"), 50,344 shares shall be designated
Series G Preferred Stock ("Series G Preferred"), 117,000 shares shall be
designated Series H Preferred Stock ("Series H Preferred"), 28,800 shares shall
be designated Series I Preferred Stock ("Series I Preferred") and 250,000 shares
shall be designated Series J Preferred Stock ("Series J Preferred").
3
<PAGE>
The Corporation shall from time to time in accordance with the laws of
the State of California increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
The relative rights, preferences, privileges and restrictions granted
to or imposed on the respective classes of the shares of capital stock or the
holders thereof are as follows:
A. Series E Preferred.
1. Dividend Rights of Series E Preferred.
(a) The holders of the Series E Preferred shall be entitled to
receive, when and as declared by the Board of Directors, out of funds legally
available therefor, dividends at the rate of $0.0074 per share per annum, on
each outstanding share of Series E Preferred, payable in preference and priority
to any payment of any dividend on Common Stock of the Corporation for such year.
The dividends on the Series E Preferred shall be cumulative so that if all
dividends accumulated at the annual rate specified above, shall not have been
paid or declared and a sum sufficient for the payment thereof set apart, the
deficiency shall first be fully paid before any dividend or other distribution,
other than dividends payable solely in Common Stock, shall be paid or declared
and set apart for the Common Stock. If less than full dividends are paid on or
declared and set apart for payment on the Series E Preferred, then such
dividends shall be subtracted from any accumulated dividends. Any accumulation
of dividends on the Series E Preferred shall not bear interest. The Corporation
shall not be obligated to pay any accumulated but unpaid dividends on the Series
E Preferred before January 1, 2000 except for the conversion of such dividends
into shares of Common Stock pursuant to subsection (b) of this Section A.1
below.
(b) In the event that the Corporation shall have any
accumulated but unpaid dividends outstanding immediately prior to, and in the
event of, a conversion of the Series E Preferred (as provided in Section A.4
hereof), such dividends shall be converted into Common Stock at the then
effective Series E Conversion Price, as may be applicable, determined in
accordance with and pursuant to the terms specified in Section A.4 hereof.
(c) As authorized by Section 402.5(c) of the California
Corporations Code, the provisions of Sections 502 and 503 of the California
Corporations Code shall not apply with respect to repurchases by the Corporation
of shares of Common Stock issued to or held by employees, officers, directors or
consultants of the Corporation or its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase.
2. Liquidation Preference. In the event of any liquidation,
dissolution, or winding up of the Corporation, either voluntary or involuntary,
distributions to the shareholders of the Corporation shall be made in the
following manner:
4
<PAGE>
(a) The holders of the Series E Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Series F Preferred Stock,
Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and
Series J Preferred Stock and Common Stock by reason of their ownership of such
stock, the amount of $0.124 per share for each share of Series E Preferred then
held by them, and in addition, an amount equal to all accumulated but unpaid
dividends (whether or not such dividends were declared) on the Series E
Preferred held by them. If the assets and funds thus distributed among the
holders of the Series E Preferred shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed such that each holder of Series E Preferred shall be entitled to
receive a portion of the assets and funds so distributed equal to the ratio that
the aggregate liquidation preference of the shares of Series E Preferred held by
such holder, exclusive of cumulative dividends, bears to the aggregate
preferential amount of all shares of Series E Preferred outstanding as of the
date of the distribution.
After payments have been made to the holders of the Series E Preferred
of the full amounts to which they shall be entitled as aforesaid and to the
holders of Series F Preferred of the full amounts to which they shall be
entitled as described in Section B below, the holders of the Common Stock,
Series E Preferred and Series F Preferred shall be entitled to share ratably in
the remaining assets, based on the number of shares of Common Stock held,
assuming conversion of the Series E Preferred pursuant to Section A.4 below and
conversion of the Series F Preferred pursuant to Section B.4 below,
respectively.
(b) For purposes of this Section A.2, a merger or
consolidation of the Corporation with or into any other Corporation or
Corporations, or the merger of any other Corporation or Corporations into the
Corporation, or the sale of all or substantially all of the assets of the
Corporation, or any other corporate reorganization, in which consolidation,
merger, sale of assets or reorganization the shareholders of the Corporation
receive distributions in cash or securities of another Corporation or
Corporations as a result of such consolidation, merger, sale of assets or
reorganization, shall be treated as a liquidation, dissolution or winding up of
the Corporation.
3. Voting Rights of Series E Preferred.
(a) Number of Votes. Except as otherwise required by law and
as provided in subsection (b) below, each share of Common Stock issued and
outstanding shall have one vote and each share of Series E Preferred issued and
outstanding shall have the number of votes equal to the number of shares of
Common Stock into which the Series E Preferred is convertible as adjusted from
time to time pursuant to Section A.4 hereof.
(b) Voting by Series E Preferred. The holder of each share of
Series E Preferred shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Corporation and shall vote with holders of the
Common Stock upon any matter submitted to a vote of shareholders, except those
matters required by law to be submitted to a class vote, and except as set forth
in Section 5.
5
<PAGE>
(c) Cumulative Voting. The holders of Common Stock and Series
E Preferred shall be entitled to cumulative voting rights as to the directors to
be elected in accordance with the provisions of Section 708 of the California
Corporations Code.
4. Conversion. The holders of the Series E Preferred have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series E Preferred shall
initially be convertible, at the option of the holder thereof, at any time after
the date of issuance of such share at the principal office of the Corporation or
any transfer agent for the Corporation's Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
$0.124 by the Series E Conversion Price, determined as hereinafter provided, in
effect at the time of the conversion. The price at which shares of Common Stock
shall be deliverable upon conversion shall be, with respect to each share of
Series E Preferred, the price at which one share of Common Stock is initially
sold to the public pursuant to an effective registration statement under the
Securities Act of 1933, as amended, (the "Series E Conversion Price").
(b) Automatic Conversion.
(i) Each share of Series E Preferred then
outstanding shall automatically convert into
shares of Common Stock, at the then effective Series E Conversion Price at any
time upon the vote of at least 75% of the authorized, issued and outstanding
shares of Series E Preferred to convert shares of Series E Preferred into Common
Stock.
Notwithstanding any provision contained herein to the
contrary, each of the shares of Series E Preferred Stock may not, under any
circumstances, be converted into Common Stock before April 15, 1993. Between
April 15, 1993 and December 31, 1999, such shares of Series E Preferred Stock
may be converted into Common Stock at the option of the holder thereof, if,
prior to December 31, 1996, the Company's aggregate net income for any four
consecutive quarters exceeds $2,500,000. In any event, after December 31, 1999,
each of the shares of Series E Preferred Stock may be converted into Common
Stock at the option of the holder thereof.
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall round up to the nearest integer.
Before any holder of Series E Preferred shall be
entitled to convert the same into full shares of Common Stock and to receive
certificates therefor, the holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Preferred Stock, as applicable, and shall give written
notice to the Corporation at such office that the holder elects to convert the
same; provided, however, that in the event of an automatic conversion pursuant
to Section A.4(b), the outstanding shares of Series E Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing
6
<PAGE>
such shares are surrendered to the Corporation or its transfer agent; provided
further, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Series E Preferred
are either delivered to the Corporation or its transfer agent as provided above,
or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. The Corporation shall, as
soon as practicable after such delivery, or such agreement and indemnification
in the case of a lost certificate, issue and deliver at such office to such
holder of Preferred Stock, as applicable, a certificate or certificates for the
number of whole shares of Common Stock to which such holder shall be entitled.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Preferred Stock to be
converted, or in the case of automatic conversion on the date of such
affirmative vote, and the persons or entities entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
(d) Adjustments of Conversion Prices For Diluting Issues.
(i) Special Definitions. For purposes of
this Section A.4(d), the following definitions shall apply:
(1) "Options" shall mean rights,
options or warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities.
(2) "Original Issue Date" shall mean
the date on which the first share of Series E Preferred was first issued.
(3) "Convertible Securities" shall
mean any evidences of indebtedness, shares (other than the shares of Series E
Preferred authorized herein) or other securities convertible into or
exchangeable for Common Stock.
(4) "Additional Shares of Common
Stock" shall mean all shares of equity securities issued (or, pursuant to
Section A.4(d)(iii), deemed to be issued) by the Corporation, other than shares
of equity securities issued or issuable at any time:
(A) upon the exercise of
certain warrants to purchase up to 229,472 shares of Common Stock;
(B) upon conversion of the
shares of Preferred Stock authorized herein into shares of Common Stock;
(C) to officers, directors
and employees of, and consultants to, the Corporation pursuant to employee
benefit plans unanimously approved by the Board of Directors; and
7
<PAGE>
(D) as a dividend or
distribution on the Series E Preferred or pursuant to any event for which
adjustment is made pursuant to subparagraph (d)(vi) hereof.
(5) "Issue Price" with respect to
any issuance of Additional Shares of Common shall mean the price per share
obtained by dividing the total consideration received by the Corporation in
respect of such Additional Shares of Common, computed in accordance with Section
A.4(d)(v) hereof, by the aggregate number of shares of such Additional Shares of
Common issued, computed in accordance with Section A.4(d)(iii) hereof.
(ii) No Adjustment of Conversion Price. No
adjustment in the Series E Conversion Price shall be made hereunder in respect
of the issuance of Additional Shares of Common Stock unless the consideration
per share for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the Series E Conversion Price, in effect on the
date of, and immediately prior to such issue.
(iii) Deemed Issue of Additional Shares of
Common Stock.
(1) Options and Convertible
Securities. In the event the Corporation at any time or from time to time after
the Original Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities, then
the maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that Additional Shares of Common Stock shall not be deemed to have been
issued unless the consideration per share (determined pursuant to Section
A.4(d)(v) hereof) of such Additional Shares of Common Stock would be less than
the Series E Conversion Price in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(A) no further adjustment
in the Series E Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series E Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
8
<PAGE>
(C) no readjustment
pursuant to clause (B) above shall have the effect of increasing the applicable
Series E Conversion Price to an amount which exceeds the lower of (i) the Series
E Conversion Price computed on the original adjustment date, or (ii) the Series
E Conversion Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date; and
(D) in the case of any
Options which expire by their terms not more than 30 days after the date of
issue thereof, no adjustment of the Series E Conversion Price shall be made
until the expiration or exercise of all such Options.
(iv) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common Stock. In the event that after the
Original Issue Date, the Corporation shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section A.4(d)(iii)) for a consideration per share less than the Series E
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, the Series E Conversion Price, as the case may be, shall
be reduced, concurrently with such issue, to a price equal to such consideration
per share of the Additional Shares of Common Stock.
(v) Determination of Consideration. For
purposes of this Section A.4(d), the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall be computed as
follows:
(1) Cash and Property: Such
consideration shall:
(A) insofar as it consists
of cash, be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists
of property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board; and
(C) in the event Additional
Shares of Common Stock are issued together with other shares or securities or
other assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(A) and (B) above, as determined in good faith by the Board.
(2) Options and Convertible
Securities. The consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued pursuant to Section
A.4(d)(iii), relating to Options and Convertible Securities, shall be determined
by dividing
9
<PAGE>
(A) the total amount, if
any, received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the exercise of such Options
or the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(B) the maximum number of
shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(vi) Adjustments for Subdivisions,
Dividends, Combinations or Consolidation of Common Stock. In the event the
outstanding shares of Common Stock shall be subdivided (by stock split, stock
dividend or otherwise), into a greater number of shares of Common Stock, the
Series E Conversion Price then in effect shall concurrently with the
effectiveness of such subdivision, be proportionately decreased. In the event
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Series E Conversion Price then in effect shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
increased.
(vii) Adjustments for Other Distributions.
In the event the Corporation at any time or from time to time makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, any distribution payable in securities of the Corporation other than
shares of Common Stock and other than as otherwise adjusted in Section A.1 or
this Section A.4, then and in each such event provision shall be made so that
the holders of the Series E Preferred shall receive upon conversion thereof, in
addition to the respective number of shares of Common Stock receivable
thereupon, the respective amount of securities of the Corporation which they
would have received had their shares of Series E Preferred, as the case may be,
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section A.4 with respect to the rights of the holders of the
Series E Preferred.
(viii) Adjustments for Reclassification,
Exchange and Substitution. If the Common Stock issuable upon conversion of
Series E Preferred shall be changed into the same or a different number of
shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision,
combination or consolidation of shares provided for above), the Series E
Conversion Price then in effect shall, concurrently with the effectiveness of
such reorganization or reclassification, be proportionately adjusted such that
the Series E Preferred shall be convertible into, in lieu of the respective
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
10
<PAGE>
equivalent to the respective number of shares of Common Stock that would have
been subject to receipt by the holders upon conversion of the immediately before
that change.
(e) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section A.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series E Preferred set forth in this Section A.4 against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series E Conversion Price pursuant to this
Section A.4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series E Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series E Preferred furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Series E Conversion Price at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Series E
Preferred.
(g) Notices of Record Date. In the event that this Corporation
shall propose at any time:
(i) to declare any dividend or distribution
upon its Common Stock, whether in cash, property, stock or other securities,
whether or not a regular cash dividend and whether or not out of earnings or
earned surplus;
(ii) to offer for subscription pro rata to
the holders of any class or series of its stock any additional shares of stock
of any class or series or other rights;
(iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or
(iv) to merge or consolidate with or into
any other Corporation, or sell, lease or convey all or substantially all its
property or business, or to liquidate, dissolve or wind up; then, in connection
with each such event, this Corporation shall send to the holders of the Series E
Preferred:
(1) at least 20 days' prior written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights to
vote in respect of the matters referred to in (i) and (ii) above; and
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<PAGE>
(2) in the case of the matters
referred to in (iii) and (iv) above, at least 20 days' prior written notice of
the date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of the Series E
Preferred at the address for each such holder as shown on the books of this
Corporation.
5. Covenants. In addition to any other rights provided by law, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of such outstanding shares of
Series E Preferred:
(a) authorize or issue any class or series of shares having
rights, preferences or privileges senior to or on a parity with the Series E
Preferred as to dividends, liquidation or redemption rights;
(b) amend the rights, preferences, privileges or restrictions
of the Series E Preferred;
(c) amend the Corporation's Articles of Corporation or Bylaws
to change the number of directors from five (5);
(d) effect (i) any sale of all or substantially all the assets
of the Corporation, or (ii) any merger or other reorganization of the
Corporation with or into another Corporation;
(e) repurchase or redeem any outstanding securities (except
for repurchases of unvested employee stock upon the termination of employees);
or
(f) declare any dividend on the Corporation's outstanding
Common Stock;
6. Status of Converted Stock. In case any shares of Series E Preferred
shall be converted pursuant to Section A.4 hereof, the shares so converted shall
no longer be outstanding on the books of the Corporation, nor authorized or
available for further issuance.
B. Series F Preferred, Series G Preferred, Series H Preferred, Series I
Preferred and Series J Preferred.
1. Designation. The number of shares constituting the (i) Series F
Preferred shall be 82,250 each, (ii) Series G Preferred shall be 50,344 each,
(iii) Series H Preferred shall be 117,000 each, (iv) Series I Preferred shall be
28,800 each and (v) Series J Preferred shall be 250,000 each. For purposes of
this Section B, the "Series F Initial Sales Price", "Series G Initial Sales
Price" , "Series H Initial Sales Price", "Series I Initial Sales Price", and
"Series J Initial Sales Price" shall mean the price per share at
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which shares of Series F Preferred, Series G Preferred, Series H Preferred,
Series I Preferred and Series J Preferred are first sold to investors, and the
"Series F Original Issue Date", "Series G Original Issue Date", "Series H
Original Issue Date", "Series I Original Issue Date", and "Series J Original
Issue Date" shall mean the date of such sale. The Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred shall
have the rights, preferences, privileges and restrictions granted to or imposed
upon them as specified below.
2. Dividends.
(a) No dividend (payable other than in Common Stock of the
Corporation) may be paid on or declared or set apart for the Common Stock in any
one fiscal year unless a dividend at the rate of five percent (5%) of the
Initial Sales Price is paid on, or declared and set apart for, each share of
Series F Preferred, Series G Preferred, Series H Preferred, Series I Preferred
and Series J Preferred Stock. The amount of dividend shall be prorated for a
share of Series F Preferred, Series G Preferred, Series H Preferred, Series I
Preferred and Series J Preferred Stock which is not issued and outstanding for
an entire fiscal year. The dividends on the Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred Stock
shall be paid out of any assets legally available therefor, when, as and if
declared by the Board of Directors. Dividends on the Series F Preferred, Series
G Preferred, Series H Preferred, Series I Preferred and Series J Preferred shall
not be cumulative and no rights shall accrue to the holders of the Series F
Preferred, Series G Preferred, Series H preferred, Series I Preferred, nor the
holders of the Series J Preferred in the event the Corporation shall fail to
declare or pay dividends on the Series F Preferred, Series G Preferred, Series H
Preferred, Series I Preferred or Series J Preferred in the amount of five
percent (5%) of the Initial Sales Price per share per fiscal year or in any
amount in any prior year of the Corporation, whether or not the earnings of the
Corporation in that previous fiscal year were sufficient to pay such dividends
in whole or in part. In the event the Board of Directors of the Corporation
declares dividends in a fiscal year in an amount less than the aggregate of all
the dividend preferences of the Series E Preferred, the Series F Preferred, the
Series G Preferred, the Series H Preferred, the Series I Preferred and the
Series J Preferred Stock, then the entire amount of dividends declared by the
Board of Directors shall be distributed ratably among the holders of the Series
E Preferred Stock, the Series F Preferred Stock, the Series G Preferred Stock,
the Series H Preferred Stock, the Series I Preferred Stock and the Series J
Preferred Stock such that the same percentage of the annual dividend to which
each series of Preferred Stock is entitled is paid on each share of Series E
Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H
Preferred, Series I Preferred and the Series J Preferred Stock.
(b) As authorized by Section 402.5(c) of the California
Corporations Code, the provisions of Sections 502 and 503 of the California
Corporations Code shall not apply with respect to repurchases by the Corporation
of shares of Common Stock issued to or held by employees, officers, directors or
consultants of the Corporation or its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase.
3. Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation, after the payment to
which the holders of the Series E
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Preferred Stock, are entitled as set forth in Article III.A.2 (the "Series E
Distribution") has been made, no distribution shall be made on the shares of
Common Stock without first making a distribution on the shares of Series F
Preferred Stock, Series G Preferred Stock, Series H Preferred Stock Series I
Preferred Stock and Series J Preferred Stock (the "Series F, Series G, Series H,
Series I and Series J Distribution") equal to the amount of the Initial Sales
Price per share for each share of Preferred Stock, plus all declared but unpaid
dividends thereon. If upon occurrence of such event, and after the Series E
Distribution, the assets and property thus distributed among the holders of the
Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock,
Series I Preferred Stock and Series J Preferred Stock shall be insufficient to
permit the payment to such holders of their full respective preferential
amounts, then the entire remaining assets and property of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series F Preferred Stock, Series G Preferred Stock, Series H
Preferred Stock, Series I Preferred Stock and Series J Preferred Stock such that
the same percentage of the preferential amount to which each series of Series F
Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I
Preferred Stock and Series J Preferred Stock is entitled is paid on each share
of Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock,
Series I Preferred Stock and Series J Preferred Stock. A consolidation or merger
of the Corporation with or into any other corporation or corporations, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or a sale of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution, or winding up of the Corporation.
4. Conversion. The holders of Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series F Preferred, Series
G Preferred, Series H Preferred, Series I Preferred and Series J Preferred Stock
shall be convertible, at any time after the date of issuance, at the option of
the holder thereof, of such share at the office of the Corporation or any
transfer agent for the Series F Preferred, Series G Preferred, Series H
Preferred, Series I Preferred and Series J Preferred Stock, into that number of
fully-paid and nonassessable shares of Common Stock that is equal to the Initial
Sales Price for each respective Series of Preferred Stock divided by the
appropriate Conversion Price (as hereinafter defined) for each Series of
Preferred Stock. The Initial Sales Price shall be $3.039 per share for the
Series F Preferred, $1.992 per share for the Series G Preferred, $2.136 per
share for the Series H Preferred, $1.56 for the Series I Preferred and $.619 per
share for the Series J Preferred. The price at which shares of Common Stock
shall be deliverable upon conversion (individually the "Series F Conversion
Price", "Series G Conversion Price", "Series H Conversion Price", "Series I
Conversion Price" and "Series J Conversion Price", and collectively, the
AConversion Prices") shall initially be $3.039 per share of Common Stock for
conversions of Series F Preferred, $1.992 per share of Common Stock for
conversions of Series G Preferred, $2.136 per share of Common Stock for
conversions of Series H Preferred, $10.00 per share of Common Stock for
conversions of Series I Preferred and $20.00 per share of Common Stock for
conversions of Series J Preferred. Such initial Conversion Prices shall be
subject to adjustment as hereinafter provided.
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(b) Automatic Conversion. All shares of Series F Preferred,
Series G Preferred, Series H Preferred, Series I Preferred and Series J
Preferred then outstanding shall automatically convert into shares of Common
Stock upon the election of at least 67% of the authorized, issued and
outstanding shares of each of the respective Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred (voting
separately as a class) to convert shares of the respective Series of Preferred
Stock into Common Stock.
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series F Preferred, Series G Preferred,
Series H Preferred, Series I Preferred or Series J Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then fair
market value of such fractional shares as determined by the Board of Directors
of the Corporation. Before any holder of Series F Preferred, Series G Preferred,
Series H Preferred, Series I Preferred or Series J Preferred Stock shall be
entitled to convert the same into full shares of Common Stock, and to receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for Series F Preferred, Series G Preferred, Series H Preferred, Series I
Preferred or Series J Preferred Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same; provided,
however, that in the event of an automatic conversion pursuant to paragraph
B.4(b) above, the outstanding shares of Series F Preferred, Series G Preferred,
Series H Preferred, Series I Preferred or Series J Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided further, however, that the
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such automatic conversion unless either the
certificates evidencing such shares of Series F Preferred, Series G Preferred,
Series H Preferred, Series I Preferred or Series J Preferred Stock are delivered
to the Corporation or its transfer agent as provided above, or the holder
notifies the Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates.
The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Series F Preferred, Series G Preferred, Series H
Preferred, Series I Preferred or Series J Preferred Stock a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock, plus any declared and unpaid dividends on the converted Series F
Preferred, Series G Preferred, Series H Preferred, Series I Preferred or Series
J Preferred Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series F Preferred, Series G Preferred, Series H Preferred, Series I Preferred
or Series J Preferred Stock to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
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<PAGE>
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definition. For purposes of this
paragraph B.4(d), "Additional Shares of Common" shall mean all shares of Common
Stock issued (or, pursuant to paragraph B.4(d)(iii), deemed to be issued) by the
Corporation after the Original Issue Date, other than shares of Common Stock
issued or issuable:
(1) upon conversion of shares of
Preferred Stock;
(2) to the Corporation's employees,
officers, directors and consultants as may be determined by the Corporation's
Board of Directors from time to time;
(3) as a dividend or distribution on
Preferred Stock or pursuant to any event for which adjustment is made pursuant
to paragraph B.4(e)(i) or (ii) hereof;
(4) pursuant to commercial
borrowing, secured lending or lease financing transactions approved by the Board
of Directors;
(5) in any transaction, other than
the issuance by the Company of Serires J Preferred, in which the issuance (or,
pursuant to paragraph 4(d)(iii), deemed issuance) by the Corporation of such
shares of Common Stock results in net proceeds to the Corporation of less than
$500,000;
(6) upon exercise of any options or
warrants outstanding as of the Original Issue Date to purchase the Company's
Common Stock or Preferred Stock.
(ii) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a particular share of Series F Preferred,
Series G Preferred, Series H Preferred, Series I Preferred or Series J Preferred
Stock shall be made in respect of the issuance of Additional Shares of Common
unless the consideration per share for an Additional Share of Common issued or
deemed to be issued by the Corporation is less than the Conversion Price in
effect on the date of, and immediately prior to such issue, for such share of
Preferred Stock.
(iii) Deemed Issue of Additional Shares of
Common. In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any options, warrants or convertible securities
or shall fix a record date for the determination of holders of any class of
securities entitled to receive any such options, warrants or convertible
securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such options or warrants or, in the case of convertible securities and
options or warrants therefor, the conversion or exchange of such convertible
securities or exercise of such options or warrants, shall be deemed to be
Additional Shares of Common issued as of the time of such issue or, in case such
a record date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common shall not be deemed to have been
issued unless the consideration per share
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<PAGE>
(determined pursuant to paragraph 4(d)(v) hereof) of such Additional Shares of
Common would be less than the Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common are
deemed to be issued:
(1) no further adjustment in the
Conversion Price shall be made upon the subsequent issue of convertible
securities or shares of Common Stock upon the exercise of such options or
warrants or conversion or exchange of such convertible securities;
(2) if such options, warrants or
convertible securities by their terms provide, with the passage of time or
otherwise, for any increase or decrease in the consideration payable to the
Corporation, or increase or decrease in the number of shares of Common Stock
issuable, upon the exercise, conversion or exchange thereof, the Conversion
Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such options or warrants
or the rights of conversion or exchange under such convertible securities;
(3) no readjustment pursuant to
clause (2) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common between the original adjustment date and
such readjustment date;
(4) upon the expiration of any such
options or warrants or any rights of conversion or exchange under such
convertible securities which shall not have been exercised, the Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto) and any subsequent adjustments based thereon shall,
upon such expiration, be recomputed as if:
(A) in the case of
convertible securities or options or warrants for Common Stock, the only
Additional Shares of Common issued were the shares of Common Stock, if any,
actually issued upon the exercise of such options or warrants or the conversion
or exchange of such convertible securities and the consideration received
therefor was the consideration actually received by the Corporation for the
issue of such exercised options or warrants plus the consideration actually
received by the Corporation upon such exercise or for the issue of all such
convertible securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(B) in the case of options
or warrants for convertible securities, only the convertible securities, if any,
actually issued upon the exercise thereof were issued at the time of issue of
such options or warrants, and the consideration received by the Corporation for
the Additional Shares of Common deemed to have been then issued was the
consideration actually received by the Corporation for the issue of such
exercised options or warrants, plus the consideration deemed to have been
received by the Corporation (determined pursuant to paragraph B.4(d)(v)) upon
the issue of the
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<PAGE>
convertible securities with respect to which such options or warrants were
actually exercised; and
(5) if such record date shall have
been fixed and such options, warrants or convertible securities are not issued
on the date fixed therefor, the adjustment previously made in the Conversion
Price which became effective on such record date shall be canceled as of the
close of business on such record date, and thereafter the Conversion Price shall
be adjusted pursuant to this paragraph 4(d)(iii) as of the actual date of their
issuance.
(iv) Adjustment of Conversion Price Upon
Issuance of Additional Shares of Common. In the event the Corporation, on or
before the earlier of (i) the first anniversary of the final sale by the
Corporation of Series F Preferred prior to June 30, 1996, the first anniversary
of the final sale by the Corporation of Series G Preferred prior to December 31,
1996, the first anniversary of the final sale by the Corporation of Series H
Preferred and Series I Preferred prior to June 30, 1998, and the first
anniversary of the final sale by the Company of Series J Preferred prior to
August 22, 1998, respectively and (ii) June 30, 1997 (with respect to the Series
F Preferred), December 31, 1997 (with respect to the Series G Preferred), June
30, 1999 (with respect to the Series H Preferred and Series I Preferred), and
August 22, 1999 (with respect to the Series J Preferred) (the earlier of which
dates is referred to as the "Determination Date"), issues Additional Shares of
Common (including Additional Shares of Common deemed to be issued pursuant to
paragraph B.4(d)(iii)) without consideration or for a consideration per share
less than the Conversion Price for the respective Series of Preferred Stock in
effect on the date of and immediately prior to such issue (a "Dilutive
Issuance"), then and in such event such Conversion Price shall be reduced,
concurrently with such issue, to a price equal to such consideration per share
of the Additional Shares of Common. The Conversion Price of the Series F
Preferred, Series G Preferred, Series H Preferred, Series I Preferred and Series
J Preferred Stock shall not be reduced as a result of any Dilutive Issuance that
occurs after the Determination Date.
(v) Determination of Consideration. For
purposes of this subsection 4(d), the consideration received by the Corporation
for the issue of any Additional Shares of Common shall be computed as follows:
(1) Cash and Property. Such
consideration shall:
(a) insofar as it consists
of cash, be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(b) insofar as it consists
of property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board of Directors; and
(c) in the event Additional
Shares of Common are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the proportion
of such consideration so received, computed as provided in clauses a) and b)
above, as determined in good faith by the Board of Directors.
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(2) Options and Convertible
Securities. The consideration per share received by the Corporation for
Additional Shares of Common deemed to have been issued pursuant to paragraph
4(d)(iii), relating to options, warrants and convertible securities, shall be
determined by dividing
(a) the total amount, if
any, received or receivable by the Corporation as consideration for the issue of
such options, warrants or convertible securities, plus the minimum aggregate
amount of additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Corporation upon the exercise
of such options or warrants or the conversion or exchange of such convertible
securities, or in the case of options or warrants for convertible securities,
the exercise of such options for convertible securities and the conversion or
exchange of such convertible securities by
(b) the maximum number of
shares of Common Stock (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such options or warrants or the
conversion or exchange of such convertible securities.
(e) Adjustments to Conversion Rate.
(i) Adjustments for Subdivisions, Splits,
Combinations, Consolidations, Reorganizations or Reclassifications of Common
Stock. In the event that after the date of the first issuance of the Series F
Preferred, Series G Preferred, Series H Preferred, Series I Preferred and Series
J Preferred Stock the outstanding shares of Common Stock shall be (a) subdivided
or split into a greater number of shares of Common Stock; (b) combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock or (c) changed into a different number of shares of any other
class or classes of stock, whether by capital reorganization, reclassification
or otherwise, the holders of the shares of Preferred Stock shall receive upon
conversion, the stock and/or securities to which the holder would have been
entitled had the holder held, at the time of said split, subdivision,
combination, consolidation, reorganization or reclassification, the same number
of shares of Common Stock as the number of Series J Preferred Stock converted.
(ii) Adjustments for Other Dividends and
Distributions. In the event the Corporation at any time after the date of the
first issuance of the Series F Preferred, Series G Preferred, Series H
Preferred, Series I Preferred and Series J Preferred Stock makes, or fixes a
record date for, the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in the securities of the
Corporation, then the holders of the shares of Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred Stock
shall receive upon conversion, in addition to the number of sharers of Common
Stock receivable thereupon, the stock or securities to which the holder would
have been entitled had the holder held, at the time of said dividend or other
distribution, the same number of shares of Common Stock as the number of Series
F Preferred, Series G Preferred, Series H Preferred, Series I Preferred and
Series J Preferred converted, and had they thereafter during the period from the
date of such event to and including the date of conversion, retained
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such stock or securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section B.4 with respect to the respective rights of the holders of the Series F
Preferred, Series G Preferred, Series H Preferred, Series I Preferred and Series
J Preferred.
5 Voting Rights. Except as otherwise required by law, the holders of
Series F Preferred, Series G Preferred, Series H Preferred, Series I Preferred
and Series J Preferred Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation and to vote together as
a single class with the holders of the Common Stock (except with respect to
those matters required by law to be submitted to a separate class or series
vote) upon the election of directors and upon any other matter submitted to
shareholders for a vote, on the following basis:
(a) Series F Preferred, Series G Preferred, Series H
Preferred, Series I Preferred and Series J Preferred Stock Vote. Each share of
Preferred Stock issued and outstanding shall have the number of votes equal to
the number of shares of Common Stock into which it is convertible, as adjusted
from time to time under Section 4 hereof. Fractional votes shall not, however,
be permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number (with
one-half being rounded upward).
(b) Cumulative Voting. Notwithstanding the above, for the
election of directors each holder of Series F Preferred, Series G Preferred,
Series H Preferred, Series I Preferred and Series J Preferred, shall after
giving the notice required by Section 708 of the California Corporations Code,
as amended from time to time, be entitled to the number of votes as determined
pursuant to paragraph (a) above multiplied by the number of directors to be
elected, with each shareholder being entitled to cumulate such votes for one
candidate or to distribute such votes among the candidates as the shareholder
sees fit.
6. Covenants. In addition to any other rights provided by law, so long
as 33% of the originally issued Series F Preferred, Series G Preferred, Series H
Preferred, Series I Preferred and Series J Preferred shall be outstanding
respectively, this Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of not less than a majority
of the outstanding shares of each of the Series F Preferred, Series G Preferred,
Series H Preferred, Series I Preferred and Series J Preferred stock voting
separately as single classes.
a. amend or repeal any provision of, or add any provision to,
this Corporation's Articles of Incorporation if such action would materially and
adversely alter or change the preferences, rights, privileges or powers of, or
the restrictions provided for the benefit of, the Series F Preferred, Series G
Preferred, Series H Preferred, Series I Preferred and Series J Preferred Stock
authorized hereby;
b. authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to any such preference
or priority of the Series F Preferred, Series G Preferred, Series H Preferred,
Series I Preferred and Series J Preferred Stock; or
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<PAGE>
c. reclassify any shares of Common Stock into shares having
any preference or priority as to dividends or assets superior to any such
preference or priority of the Series F Preferred, Series G Preferred, Series H
Preferred, Series I Preferred and Series J Preferred Stock.
Article IV
Section 1. Limitation of Directors' Liability. The liability of the
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent [permissible under California law.
Section 2. Indemnification of Corporation Agents. This Corporation is
authorized to provide through bylaw provisions, agreements with its agents, vote
of shareholders or disinterested directors or otherwise; indemnification of its
agents (as defined in Section 317 of the California General Corporation Law) in
excess of the indemnification otherwise permitted by such Section 317, subject
to the limits set forth in Section 204 of the California General Corporation Law
for breach of duty to this Corporation or its shareholders.
Section 3. Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article IV by the shareholders of the Corporation
shall not adversely affect any right of indemnification or limitation of
liability of an agent of the Corporation relating to acts or omissions occurring
prior to such repeal or modification.
C. The authorized number of shares of Preferred Stock of the
Corporation is 8,592,910. There are 8,447,910 shares of Preferred Stock
outstanding, 8,064,516 of which are Series E Preferred Stock, 82,250 of which
are Series F Preferred Stock and 50,344 of which are Series G Preferred Stock,
117,000 of which are Series H Preferred Stock, 28,800 of which are Series I
Preferred Stock, and 111,750 of which are Series J Preferred Stock. The total
number of shares voting in favor of this Certificate equaled or exceeded the
vote required. The percentage vote required was (i) a simple majority of the
outstanding shares of Series E Preferred Stock voting separately as a single
class, a simple majority of the outstanding shares of Series F Preferred Stock
voting separately as a single class, a simple majority of the outstanding shares
of Series G Preferred Stock voting separately as a single class, a simple
majority of the outstanding shares of Series H Preferred Stock voting separately
as a single class, a simple majority of the outstanding shares of Series I
Preferred Stock voting separately
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as a single class and a simple majority of the outstanding shares of Series J
Preferred Stock voting separately as a single class and (ii) a simple majority
of the outstanding shares of Common Stock voting separately as a single class
and a simple majority of the outstanding shares of Preferred Stock and Common
Stock voting together as a single class.
I further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this Certificate are true and
correct of my own knowledge.
Executed in San Mateo, California on May ___, 1998.
----------------------------------------------
Todd Hagen
Vice President of Finance and Administration
and Chief Financial Officer
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EDGAR Annex B
1991 Stock Option Plan, as Amended
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
1991 STOCK PLAN
(As Amended Effective May 21, 1998)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder. Stock purchase rights may also be
granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means the a committee of directors appointed
by the Board of Directors in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means HyperMedia Communications, Inc., a
California corporation.
(h) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not; provided that if and in the event the
Company registers any class of any equity security pursuant to the Exchange Act,
the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the Company.
(i) "Continuous Status as an Employee" means the absence of
any interruption or termination of the employment relationship by the Company or
any Subsidiary. Continuous Status as
<PAGE>
an Employee shall not be considered interrupted in the case of: (i) sick leave;
(ii) military leave; (iii) any other leave of absence approved by the Board,
provided that such leave is for a period of not more than ninety (90) days,
unless reemployment upon the expiration of such leave is guaranteed by contract
or statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company, its Subsidiaries or its successor.
(j) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(m) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(n) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the
Plan.
(p) "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.
(q) "Optionee" means an Employee or Consultant who receives an
Option or Stock Purchase Right.
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(r) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1991 Stock Plan.
(t) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
(u) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the means a share of the Common Stock, as adjusted
in accordance with Section 13 of the Plan.
(w) "Stock Purchase Right" shall mean a right, other than
Option, to purchase Common Stock pursuant to the Plan.
(x) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,400,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of
Employees and/or Consultants.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
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(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock;
(ii) to select the Employees and Consultants to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of Shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the rate of vesting of any Option, the per Share
price and any restriction or limitation or waiver of forfeiture restrictions
regarding any Option or other award and/or the Shares of Common Stock relating
thereto, based in each case on such factors as the Administrator shall
determine, in its sole discretion);
(vii) to determine whether and under what
circumstances an Option or Stock Purchase Right may be settled in cash under
subsection 9(e) instead of Common Stock;
(viii) to determine whether, to what extent and under
what circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the election
of the participant (including providing for and determining the amount, if any,
of any deemed earnings on any deferred amount during any deferral period);
(ix) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; and
(x) to determine the terms and restrictions
applicable to Stock Purchase Rights and the Restricted Stock purchased by
exercising such Stock Purchase Rights.
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(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he is otherwise eligible, be granted additional
Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
(e) The following limitations shall apply to grants of Options
and Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year
of the Company, Options and Stock Purchase Rights to purchase more than 200,000
Shares.
(ii) The foregoing limitation shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iii) If an Option or Stock Purchase Right is
cancelled (other than in connection with a transaction described in Section 13,
the cancelled Option or Stock Purchase Right will be counted against the limit
set forth in Section 5(e)(i). For this purpose, if the exercise price of an
Option or Stock Purchase Right is reduced, the transaction will be treated as a
cancellation of the Option or Stock Purchase Right and the grant of a new Option
or Stock Purchase Right.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19
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of the Plan. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the written option agreement; provided, however, that in the case of an
Incentive Stock Option, the term shall be no more than ten (10) years from the
date of grant thereof or such shorter term as may be provided in the written
option agreement. However, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Incentive Stock Option
shall be five (5) years from the date of grant thereof or such shorter term as
may be provided in the written option agreement.
8. Option Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of the grant.
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to an Employee or Consultant
who, at the time of grant of such Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(B) granted to any other Employee or
Consultant, the per Share exercise price shall be no less than 85% of the Fair
Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash,
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<PAGE>
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with such other documentation as
the Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, or (9) such other consideration and method of payment for
the issuance of Shares to the extent permitted under Applicable Laws. In making
its determination as to the type of consideration to accept, the Board shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company (Section 315(b) of the California Corporation law).
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms hereof at
such times and under such conditions as determined by the Administrator and set
forth in the written option agreement. Except in the case of Options granted to
officers, directors and Consultants, Options shall become exercisable at a rate
of no less than 20% per year over five (5) years from the date the Options are
granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may, as authorized by the Administrator, consist of
any consideration and method of payment allowable under Section 8(b) of the
Plan. Until the issuance (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
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<PAGE>
(b) Termination of Employment. In the event of termination of
an Optionee's consulting relationship or Continuous Status as an Employee with
the Company (as the case may be), such Optionee may, but only within three
months (or such other period of time (of at least thirty (30) days) as is
determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option and not
exceeding three months after the date of such termination (but in no event later
than the expiration date of the term of such Option as set forth in the option
agreement), exercise his Option to the extent that Optionee was entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of such termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his disability,
Optionee may, but only within twelve (12) months from the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the option agreement), exercise the Option to the extent
otherwise entitled to exercise it at the date of such termination; provided,
however, that if such disability is not a "disability" as such term is defined
in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically convert to a Nonstatutory Stock
Option on the day three months and one day following such termination. To the
extent that Optionee was not entitled to exercise the Option at the date of
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised, at any time within twelve (12) months
following the date of death (but in no event later than the expiration date of
the term of such Option as set forth in the option agreement), by the Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. The
Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
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<PAGE>
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer. The terms of the offer shall comply in
all respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine. Except with respect to Shares purchased by
officers, directors and Consultants, the repurchase option shall in no case
lapse at a rate of less than 20% per year over five (5) years from the date of
purchase.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 13 of
the Plan.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable
13. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of Shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of Shares of
Common Stock which have been authorized for issuance
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<PAGE>
under the Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option or Stock Purchase Right, as well as the price per Share of Common
Stock covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares of Common Stock effected
without receipt of consideration by the Company. The conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of Shares of
stock of any class, or securities convertible into Shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of Shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option or Stock Purchase Right until
fifteen (15) days prior to such transaction as to all of the Optioned Stock
covered thereby, including Shares as to which the Option or Stock Purchase Right
would not otherwise be exercisable. In addition, the Administrator may provide
that any Company repurchase option applicable to any Shares purchased upon
exercise of an Option or Stock Purchase Right shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of
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consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
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17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws.
20. Information to Optionees. The Company shall provide to each
Optionee and to each individual who acquired Shares pursuant to the Plan, not
less frequently than annually during the period such Optionee or purchaser has
one or more Options or Stock Purchase Rights outstanding, and, in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares, copies of annual financial statements. The Company
shall not be required to provide such statements to key employees whose duties
in connection with the Company assure their access to equivalent information.
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Annex C
1998 Proxy Card
<PAGE>
HYPERMEDIA COMMUNICATIONS, INC.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of HYPERMEDIA COMMUNICATIONS, INC., a
California corporation, hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement, each dated April __, 1998, and
hereby appoints Richard Landry and Todd Hagen, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution and resubstitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the 1998 Annual Meeting of Shareholders of HYPERMEDIA COMMUNICATIONS, INC. to be
held on Thursday, May 21, 1998, at 12:00 p.m., local time, at Company's offices
at 901 Mariner's Island Blvd., Suite 365, San Mateo, California 94404, and at
any and all continuation(s) or adjournment(s) thereof, and to vote all shares of
Common Stock which the undersigned would be entitled to vote, if then and there
personally present, on the matters set forth on the reverse side.
Both of such attorneys or substitutes as shall be present and shall act
at said meeting or any and all continuation(s) or adjournment(s) thereof (or if
only one shall be present and acting, then that one) and shall have and may
exercise all of the powers of said attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE APPROVAL OF THE
AMENDMENT TO THE COMPANY's ARTICLES OF INCORPORATION, FOR THE APPROVAL OF THE
INCREASE IN THE SHARES RESERVED UNDER THE COMPANY's 1991 STOCK PLAN, FOR THE
RATIFICATION OF THE APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT AUDITORS
FOR THE COMPANY FOR FISCAL 1998, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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1. ELECTION OF DIRECTORS:
WITHHOLD Nominees: Richard Landry, Patrick Ferrell, John
FOR AUTHORITY Griffin, Michael Kaufman and Greg Lahann
[ ] [ ] _________________________________________________
For all nominees except as noted above
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY's ARTICLES OF
INCORPORATION TO REDUCE THE NUMBER OF AUTHORIZED SHARES FOR EACH OF
THE SERIES OF PREFERRED STOCK TO THE ACTUAL NUMBER OF SHARES FOR
EACH RESPECTIVE SERIES OF PREFERRED STOCK THAT IS OUTSTANDING.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. PROPOSAL TO APPROVE AN INCREASE FROM 700,000 SHARES TO 1,400,000
SHARES IN THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR
ISSUANCE UNDER THE COMPANY's 1991 STOCK PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. PROPOSAL TO RATIFY THE APPOINTMENT OF PRICE WATERHOUSE LLP AS
INDEPENDENT AUDITORS FOR THE COMPANY FOR FISCAL 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote upon such other
matter or matters which may properly come before the meeting or any and
all continuation(s) or adjournment(s) thereof.
Signature: ______________________________________________ Date: _______________
Signature: ______________________________________________ Date: _______________
This Proxy should be marked, dated and signed by the shareholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If a corporation,
please sign in full corporate name by an authorized officer. If a partnership,
please sign in partnership name by an authorized person. If shares are held by
joint tenants or as community property, both should sign.
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